Eight Mile Farms Limited v Bradley
[2020] NZHC 1719
•16 July 2020
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2020-419-51
[2020] NZHC 1719
BETWEEN EIGHT MILE FARMS LIMITED
Plaintiff
AND
SHARON MARGARET BRADLEY
First Defendant
ROSS MICHAEL ALLEMAN
Second Defendant
Hearing: 2 June 2020 Appearances:
M Ferrier for the Plaintiff
DM O’Neill for the First Defendant
No appearance for the Second DefendantJudgment:
16 July 2020
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 16 July 2020 at 11.30am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Minter Ellison Rudd Watts, Wellington Jourdan Griffin, Auckland
Eight Mile Farms Ltd v Bradley [2020] NZHC 1719 [16 July 2020]
[1] In this proceeding, the plaintiff claims damages of $2,002,332.51, and certain other orders to which I refer below. The plaintiff has applied for summary judgment against both defendants.
[2] On 14 April 2020, the first defendant filed an appearance reserving rights, under which she said that she did not oppose the plaintiff’s claim but wished to be heard on the issues of costs and interest.
[3] The matter came before me in the list on 2 June 2020, and Mr Ferrier told me that summary judgment was not then sought against the second defendant, with whom the plaintiff has been having discussions.1
[4] I noted that the statement of claim and the summary judgment application seek extensive relief beyond the $2,002,332.51 claimed by the plaintiff. In particular, the plaintiff seeks the following further relief by way of summary judgment:
…
(b)a declaration that [the first defendant] holds on constructive trust for the plaintiff or is liable to account for all assets now or previously in her possession or acquired directly or indirectly with the plaintiff’s money;
(c)all necessary accounts and inquiries to enable the plaintiff to trace and recover the assets referred to in (b) above;
(d)orders for the delivery up or transfer to the plaintiff of the assets referred to in (b) above;
(e)interest calculated in accordance with the Interest on Money Claims Act 2016;
(f)such other relief as the Court considers appropriate; and
(g)costs.
[5] Mr Ferrier had filed a memorandum on 27 May 2020 setting out the plaintiff’s legal submissions on the relief sought, but at the hearing Mr O’Neill drew to my attention that certain freezing orders over the first defendant’s assets have been made in another proceeding. He raised an issue as to how the freezing orders might affect certain aspects of the relief sought by the plaintiff on the summary judgment application (for example, the order for delivery up or transfer to the plaintiff of any
1 The plaintiff’s claims against the second defendant have since been discontinued.
assets declared by the Court to be held by the first defendant on a constructive trust for the plaintiff).
[6] I invited Mr Ferrier to file a further memorandum addressing the issue of the freezing orders, and that memorandum has now been provided.
[7] I now give judgment on the plaintiff’s application for summary judgment against the first defendant. As requested at the hearing on 2 June 2020, I will reserve leave for the parties to make submissions on costs and interest.
Background
[8] Until fairly recently, the plaintiff obtained professional accounting services from the second defendant, Mr Alleman. Mr Alleman operated on his own account until early 2012, and he then became a consultant at the firm Lionel Smith & Associates Limited (Lionel Smith).
[9] Ms Bradley is a former employee of Mr Alleman from the time when he was operating on his own account. She went with him to Lionel Smith, and she continued to work for him there as an employee of that firm.
[10] One of the services Mr Alleman provided to the plaintiff was payment of invoices issued to the plaintiff by third party suppliers. To perform that service, the plaintiff allowed Mr Alleman access mechanisms to the plaintiff’s internet banking account with Rabobank.
[11] From at least February 2007 until March 2018, Ms Bradley used these access mechanisms to steal from the plaintiff. She did that by transferring funds from the plaintiff’s bank account to accounts that were in her name or for which she was a signatory, at Kiwibank and Westpac, under the guise of paying supplier invoices. She concealed the fraud by setting up fictitious payees, using genuine supplier details but her own bank accounts. That meant that the fraudulent payments appeared in the plaintiff’s transaction records as if they were payments to suppliers.
[12] Ms Bradley resigned her employment from Lionel Smith in March 2018. The fraud was discovered in mid-2019, after payment of a genuine invoice was made by mistake to one of her bank accounts, and the supplier in question followed up about the payment.
[13] The total amount that Ms Bradley stole from the plaintiff between February 2007 and March 2018 (as far as the plaintiff has been able to ascertain) is the
$2,002,332.51 now claimed by the plaintiff.
Summary judgment applications – legal principles
[14]Rule 12.2(1) of the High Court Rules 2016 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
…
[15] The principles applicable on a plaintiff’s summary judgment application were summarised by the Court of Appeal in Krukziener v Hanover Finance as follows:2
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA).
The plaintiff’s causes of action and submissions on liability
[16] The plaintiff pleads three causes of action against Ms Bradley – money had and received, deceit, and breach of a fiduciary duty of loyalty. These claims are not opposed, and the plaintiff says that Ms Bradley can have no defence to any of them.
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
[17] On the money had and received cause of action, the plaintiff relies on the fact that Ms Bradley obtained the money fraudulently and has been unjustly enriched. In such circumstances, the plaintiff submits that a claim to recover the money paid is granted as a matter of right.3 In this case, it says there is no doubt that Ms Bradley has been unjustly enriched at the plaintiff’s expense, and should return the money.
[18] The second cause of action (deceit) requires a false representation as to a past or existing fact, made by a defendant with knowledge of the falsity or without belief in its truth. The defendant must have intended that the claimant should act on the representation, and the claimant must have acted in reliance on the representation. In addition, the plaintiff must have suffered damage as a result of the relying on the representation.4
[19] The plaintiff says that in this case, when Ms Bradley initiated the payments to herself, she falsely represented that they were genuine payments to third party suppliers, required by the plaintiff to be made. She knew that that was untrue. Ms Bradley intended that the plaintiff should act in reliance on the false representations by accepting that the payments were genuine payments to third party suppliers that were required to be paid. The false representations were relied on by the plaintiff, who continued to allow the fraudulent payments to be made while it was unaware what was happening to its money. Loss resulted in the $2,002,332.51 claimed.
[20] On the third cause of action (breach of a fiduciary duty of loyalty), the plaintiff relies on Ms Bradley’s role in the accountancy practices, and her access to the plaintiff’s bank account. The plaintiff says that Ms Bradley assumed a fiduciary duty of loyalty to it, as it reposed trust and confidence in her or her employer, and it was in a position of vulnerability. It was dependent on her to pay its suppliers honestly, and it relied on her.5 The plaintiff also relies on the “reasonable expectations” test adopted by La Forest J in the Supreme Court of Canada decision in LAC Minerals Ltd v International Corona Resources Ltd.6
3 Martin v Pont [1993] 3 NZLR 25 (CA).
4 Amaltal Corp Ltd v Maruaha Corp [2007] 1 NZLR 608 at [46] and [55].
5 Butler (ed) Equity & Trusts in New Zealand (online ed, Westlaw NZ) at [26.17.5(4)].
6 LAC Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574, (1989) 61 DLR (4th)
14.
[21] Although the plaintiff did not know that Ms Bradley had access to its account to make payments at the time, it says that Ms Bradley’s role and access must mean that she owed it a duty of loyalty attracting fiduciary obligations, including a duty not to profit from her position.7 The duty in this case was breached when Ms Bradley fraudulently transferred the plaintiff’s money to her own accounts.
Evidence in support
[22] Affidavits in support of the application for summary judgment were provided by Mr Matthew Buckley, a director of the plaintiff, and Mr Paul Brough, a finance manager at Rabobank New Zealand Limited. Mr Buckley verified the allegations contained in the statement of claim, and made the statement of his belief that the defendants have no defence to the allegations which is required on every summary judgment application by a plaintiff.8
[23] Mr Buckley confirmed that the plaintiff contracted out certain business services to Mr Alleman, including bill payments and paying employee salaries. For that purpose, Mr Alleman was given access to the plaintiff’s Rabobank internet banking account.
[24] Mr Buckley explained the system the plaintiff used for paying invoices, and the discovery of the fraud in mid-2019. He said that at all times the plaintiff believed that Mr Alleman was the person accessing the account and making payments on the plaintiff’s behalf.
[25] Mr Brough provided brief details of the system under which Mr Alleman was able to make payments on the plaintiff’s behalf from its Rabobank account, and the events surrounding the discovery of the fraud in mid-2019. He confirmed that the total amount identified by Rabobank as having been paid from the plaintiff’s account to accounts associated with Ms Bradley before her resignation, was $2,002,332.51.
7 A fiduciary duty was held to arise in similar circumstances where the defendant had access to the plaintiff’s funds in Worldwide Holidays Ltd v Wang [2019] NZHC 2218 at [22]. See also Herbert Equities Ltd v Mamfredos HC Auckland CIV-2006-404-003697, 18 September 2009, at [23] and [24].
8 High Court Rules 2016, r 12.4(5).
Discussions and conclusions
(a) The claim for the $2,002.332.51
[26] The claim for $2,002,332.51 has been verified as required by r 12.4 of the High Court Rules 2016, and it is not opposed by Ms Bradley. I am satisfied that she has no defence to this part of the claim, and I accordingly enter summary judgment for the plaintiff against Ms Bradley for that sum, on the plaintiff’s first and third causes of action against her.
[27] As far as the money had and received cause of action is concerned (the first cause of action), the claim is clearly made as a matter of right in the required sense, and Ms Bradley has been unjustly enriched at the plaintiff’s expense in the amount of the claim.
[28] On the third cause of action (breach of a fiduciary duty of loyalty), the case is similar to Worldwide Holidays Ltd v Wang, where the first defendant travel agent misappropriated funds belonging to the plaintiff in the course of her engagement as a consultant for the plaintiff. Ms Wang had sent 47 emails to travel clients, providing her personal bank account number and requesting the clients to make payment for travel services into her personal account. Gault J had no doubt that Ms Wang was an agent of Worldwide and owed it a duty of loyalty attracting fiduciary obligations, including a duty not to profit from her position of trust (beyond her contractual remuneration) throughout the relevant period.9
[29] On the deceit cause of action, there is no question on the evidence that Ms Bradley made false representations intending them to be relied upon by the plaintiff. Specifically, she caused payments from the plaintiff’s bank account to be made to bank accounts controlled by herself, while representing to the plaintiff’s bank (and to the plaintiff when it read its bank statements) that the payments were being made (or in the case of the plaintiff had been made) to legitimate, named suppliers of stock and other items to the plaintiff. A false representation may be implied from a defendant’s
9 Worldwide Holidays Ltd v Wang, above n 6, at [22].
conduct,10 and there is no question in this case that Ms Bradley’s conduct had the effect of (and was intended to) deceive the plaintiff into believing that payments shown on its bank statements had been paid to legitimate suppliers.
[30] It might be said that, by the time the plaintiff looked at its bank statements, the stolen money had already gone, so there could not have been any reliance on Ms Bradley’s deceitful conduct. Mr Buckley said in his evidence that the plaintiff had no idea that Ms Bradley even had access to the plaintiff’s Rabobank account. Mr Buckley said the plaintiff was shocked to learn, after the fraud was discovered, that Mr Alleman had given the access mechanisms for the plaintiff’s account to Ms Bradley. But in Watson v Dolmark Industries Ltd Gault J held that the concept of a deceitful representation extends to a defendant’s acts or words which amount to concealment of matters the plaintiff might have taken earlier steps to remedy.11
[31] I think that is what has occurred here. By falsely entering the name of a legitimate supplier as the recipient of the first amount she stole from the plaintiff’s account, Ms Bradley concealed her scheme from the plaintiff and prevented it from taking earlier steps to remedy the situation (which it surely would have done if the entry on the plaintiff’s bank statement showed that the first payment went to Ms Bradley). There may be a question over whether Ms Bradley’s deceitful representation in respect of the first payment she made to herself was relied upon by the plaintiff (since that money had already been transferred by the time the plaintiff became aware of the payment), which is a necessary element of the tort of deceit, but apart from that first payment I am satisfied that the plaintiff has made out its cause of action based in deceit.
[32] The amount of the first payment was $28,290.69, and if that sum is deducted from the $2,002,332.51 claimed, the balance for which the plaintiff is entitled to judgment on its deceit cause of action is $1,974,041.90.
10 Amaltal Corporation v Maruha Corporation [2007] INZLR 608 (CA) at [47].
11 Watson v Dolmark Industries Ltd [1992] 3 NZLR 311 (CA) at 319.
[33] Accordingly, judgment is entered for the plaintiff on all three causes of action in the sum of $1,974,041.90, and for an additional $28,290.69 on the first and third causes of action (total judgment $2,002,332.51 as claimed).
(b) The claim for a declaration that Ms Bradley holds on constructive trust for the plaintiff or is liable to account for all assets now or previously in her possession or acquired directly or indirectly with the plaintiff’s money
[34] Mr Ferrier submitted that either the requested order for a constructive trust or an account of assets would allow the plaintiff to identify and recover assets purchased with the plaintiff’s money. He referred in support to Herbert Equities Ltd v Mamfredos12 and Westpac v Hui,13 where the court granted (respectively) a constructive trust over a property, and a variety of “declarations and orders, injunctions and interest”.
[35] A constructive trust compels “the disgorging of money or property by the constructive trustee”,14 where it would be unconscionable for the trustee to deny the interests of another.15 In the circumstances of this case, I think it likely that a constructive trust exists, and that Ms Bradley probably holds some assets on behalf of the plaintiff under that trust. The money was owned by the plaintiff, and Ms Bradley could only have received it subject to a trust in favour of the plaintiff.
[36] But the difficulty in making a declaration over “assets now or previously in [Ms Bradley’s] possession acquired directly or indirectly with the plaintiff’s money”, is that the Court does not know where the misappropriated funds now are. They may or may not be represented in other assets; they may have been dissipated. Assets, acquired with the stolen money, may have been sold to innocent third parties for value. There may be no remaining assets that could be subject of a constructive trust. And even if such assets do exist, it would not be appropriate to make a declaration of constructive trust in terms so broad that it would encompass every possible asset the
12 Herbert Equities Ltd v Mamfredos Ltd, above n 6.
13 Westpac New Zealand Ltd v Hui (aka Gao) & Ors HC Auckland CIV-2009-404-002808, 14 July 2009.
14 Commonwealth Reserves I v Chodar [2001] 2 NZLR 374 at [37].
15 Paragon Finance v DB Thakerar & Co [1999] 1 All ER 400 at 409.
misappropriated funds may potentially have been spent on. As a result, this Court is in a different position from that considered by Courtney J in Herbert Equities Ltd v Mamfredos. There, the requested orders were made because there could “be no doubt on the evidence that the plaintiff’s money was used … to acquire the property”.16
[37] Having regard to those considerations, it is premature to declare that all assets now or previously in Ms Bradley’s possession that were acquired directly or indirectly with the plaintiff’s money are held on trust. I accordingly decline to make any declaration as to the existence of a constructive trust.
[38] In the alternative, the plaintiff asks for an order declaring that Ms Bradley is liable to account for all assets now or previously in her possession or acquired directly or indirectly with the plaintiff’s money. There is some overlap here with the third kind of relief sought, being “all necessary accounts and inquiries to enable the plaintiff to trace and recover the assets referred to in [the constructive trust claim]”. I will address this part of the application under (c) below.
(c) The claim for “all necessary accounts and inquiries to enable the plaintiff to trace and recover the assets referred to in [the constructive trust claim]”
[39] In his memorandum, Mr Ferrier proposed that discovery orders be made against Ms Bradley in anticipation of the order for accounts being given, to enable the plaintiff to make an informed decision about the next steps it should take. He referred in support to the judgment of Whata J in Hammar Maskin AB v Steelbro New Zealand.17
[40] Part 16 of the High Court Rules deals with accounts and inquiries. Rule 16.3 provides as follows:
16.3 Directions
(1) At the time of ordering an account or an inquiry, or at another time, the court may—
(a) give directions or further directions about the account or inquiry:
(b) order additional accounts or inquiries:
16 Herbert Equities Ltd v Mamfredos Ltd, above n 6, at [31].
17 Hammar Maskin AB v Steelbro New Zealand Ltd [2012] NZHC 1336.
(c) direct that the relevant books of account are prima facie evidence of the truth of the matters contained in them.
(2) An order or direction under subclause (1) overrides rules 16.6 to 16.21.
[41] Mr Ferrier expressed some concern that the costs of an inquiry might turn out to be disproportionate, having regard to the limited assets that might be available for recovery. With that in mind, he proposed the following specific directions for the time being:
(a)within 10 working days, [Ms Bradley] is to discover transaction records for all bank statements that she is or was signatory of, covering the period from 21 February 2007 to present, including all such bank accounts in her own name, the name of the JM & SM Family Trust, and of any business of which she is or was a shareholder;
(b)if [Ms Bradley] fails to comply with the order in (a) above to the plaintiff’s satisfaction, the banks at which those accounts are or were held are permitted to discover the transaction records to the plaintiff directly; and
(c)leave is reserved to the plaintiff to apply for further directions in the event that there are matters arising – whether in terms of execution or in terms of accounts or inquiries or in any other matter generally.
[42] I accept that in the circumstances of this case, the plaintiff is entitled to an order under r 16.2 for an inquiry into how Ms Bradley has applied the $2,002,332.51 misappropriated by her from the plaintiff (as identified by Mr Brough in exhibits “PWB4” and “PWB5” to his affidavit sworn on 21 February 2020). Leave is reserved to the plaintiff to file a memorandum within 30 working days proposing specific steps to be taken in the conduct of the inquiry. In the meantime, I make the following orders under r 16.3(1)(a):
(a)within 20 working days, Ms Bradley is to provide to the plaintiff copies of statements for each of the following bank accounts operated by her (or in respect of which she may be entitled to access to the bank statements), covering the period from 21 February 2007 to the date of this judgment:
[Bank account details redacted]
(b)within the same period, Ms Bradley is to file and serve an affidavit stating which (if any) of those bank accounts are not within her control (so that she is unable to produce copies of statements), and the identity of the person or persons who does/do have control of the accounts.
(d) Orders for delivery up or transfer of assets
[43] Again, I think it is premature at this stage to make any order on this part of the application. This part of the application appears to be dependent on the inquiry turning up specific assets in which the sums misappropriated from the plaintiff are now represented. I will not make any order now, but leave is reserved to the plaintiff to apply by memorandum for any order for delivery up or transfer to the plaintiff of assets, following the provision of the bank statements and service of the affidavit by Ms Bradley, or the completion of the inquiry thereafter.
Interest and costs
[44] The plaintiff may file a memorandum addressing interest and costs, within 20 working days. Any memorandum for Ms Bradley in reply is to be filed and served within 15 working days after service of the plaintiff’s memorandum.
Freezing orders made in proceeding CIV-2019-404-1501
[45] Proceeding CIV-2019-404-1501 (“the Lionel Smith proceeding”) is a proceeding commenced by Smith Mitchell Ltd (now Lionel Smith) against Ms Bradley.
[46] On 26 July 2019, Gordon J made an order in the Lionel Smith proceeding freezing any New Zealand bank accounts held in Ms Bradley’s name, and also freezing any New Zealand bank accounts held in the names of certain other named parties. In addition, Her Honour made an order freezing Ms Bradley’s interest in a property at 59 Hanning Road, RD6, Pirongia.
[47]The freezing order was subsequently varied in September and November 2019.
[48] On 14 February 2020 the freezing orders were further varied by Woolford J, and on 7 May 2020, Katz J made orders transferring the Lionel Smith proceeding to the Hamilton Registry, and joining the plaintiff as a second plaintiff in the Lionel Smith proceeding.
[49] I am advised that the Lionel Smith proceeding was commenced without any statement of claim, for the limited purpose of obtaining the freezing orders – no substantive relief has yet been sought in it by either Lionel Smith or the plaintiff. I understand that one of the purposes of the transfer and joinder orders made by Katz J on 7 May 2020 was that the parties’ respective claims against Ms Bradley would be case-managed together, with the plaintiff’s claims to be advanced in this proceeding. In the event, the issues between the plaintiff and Lionel Smith have been resolved, and a discontinuance of that part of the claim has been filed.
[50] In view of the limited nature of the relief I have granted in this judgment, I see no danger that the orders made might be inconsistent with any freezing and/or other orders made to date in the Lionel Smith proceeding.
Result
[51] Judgment is entered for the plaintiff against Ms Bradley on all three causes of action in the sum of $1,974,041.90, and for an additional $28,290.69 on the plaintiff’s first and third causes of action (total judgment $2,002,332.51).
[52] The plaintiff is entitled to an inquiry under r 16.2 of the High Court Rules 2016. I make the following preliminary directions under r 16.3;
(a)within 20 working days, Ms Bradley is to provide to the plaintiff copies of statements for each of the following bank accounts operated by her (or in respect of which she may be entitled to access to the bank statements), covering the period from 21 February 2007 to the date of this judgment:
[Bank account details redacted]
(b)within the same period, Ms Bradley is to file and serve an affidavit stating (i) which (if any) of those bank accounts are not within her control (so that she is unable to produce copies of statements), and (ii) the identity of the person or persons who does/do have control of the accounts.
[53] Leave is reserved to the plaintiff to file a memorandum within 30 working days proposing further specific steps to be taken in the conduct of the inquiry.
[54] Leave is also reserved to the plaintiff to apply by memorandum for any further order for delivery up or transfer to the plaintiff of specific assets, following the provision of copies of the bank statements by Ms Bradley, or the completion of the inquiry thereafter.
[55] Subject to the foregoing orders, the application for summary judgment against Ms Bradley is dismissed.
[56] The plaintiff may file a memorandum addressing interest and costs, within 20 working days. Any memorandum for Ms Bradley in reply is to be filed and served within 15 working days after service of the plaintiff’s memorandum.
Associate Judge Smith