Solicitors:
FCB Workplace Law (Plaintiff)
Thomas Bray, Solicitor (2nd Defendant)
File Number(s): 2014/88546
[2]
Judgment
HIS HONOUR: This is an application by the second defendant, Mr Thomas Jakimovski, for compensation pursuant to an undertaking as to damages given by the plaintiff Aryzta Australia Pty Ltd.
Proceedings were commenced by the plaintiff on 24 March 2014 against the first defendant, Mrs Suzana Jakimovski, and against Mr Thomas Jakimovski. The plaintiff claimed, and Mrs Jakimovski admitted, that she had misappropriated funds of the plaintiff. These were paid into a number of bank accounts including an account in the name of both Mr and Mrs Jakimovski. The account was styled "The Partners G-Valley Plants".
On 24 March 2014 the plaintiff obtained an order ex parte restraining both Mr and Mrs Jakimovski from dealing with assets so as to reduce their unencumbered value below $450,000. That order was discharged on 28 March 2014. On 28 March 2014 the court granted an interlocutory injunction until further order restraining both defendants from "alienating, encumbering, further encumbering or otherwise adversely dealing with ..." two properties, one in Green Valley and the other at Golspi, so as to reduce their total unencumbered value below $550,000. The injunction was given upon the plaintiff's giving the usual undertaking as to damages.
By its amended statement of claim the plaintiff contended that Mr Jakimovski was liable as a knowing recipient of moneys misappropriated by his wife in breach of the fiduciary duty she owed to the plaintiff. That claim was determined by Young AJ on 31 March 2015. His Honour found that it had not been established that Mr Jakimovski was aware of his wife's misappropriation of the plaintiff's funds and was not a knowing recipient of them (Aryzta Australia Pty Ltd v Jakimovski [2015] NSWSC 300). Verdict and judgment was given for Mr Jakimovski. His Honour made an order that Mr Jakimovski have liberty, if he filed a notice of motion within 28 days, to seek damages for the loss suffered by reason of the freezing order (presumably either freezing order). Such a notice of motion was filed on 27 April 2015.
Mr Jakimovski was a partner with his wife in a plant hire business carried on under the name G-Valley Plants. He claimed that as a result of the freezing order he suffered a loss of income of $84,040. This, he said, was income which was not earned but which would have been earned, or would probably have been earned, had the business been able to take out new plant hire contracts, one with an organisation called Mega Top Cargo and another with Nestlé Australia for a building known as Globe Centre. He also said that income was lost by the loss of an existing Nestlé contract and its non-renewal. Mrs Jakimovski gave evidence in support of that claim.
Both Mr and Mrs Jakimovski said that from the time the freezing orders were made they faced financial difficulties. Mrs Jakimovski deposed that:
"4. When the business received an invitation to quote for supplying plants for hire my husband would work out what plants and how many and what sort of pots were required and I would work out the quote for the potential client. My husband had to buy the plants and pots for each new contract and I would draw the money for those pots and plants from the bank account. Whenever my husband wanted money to replace any plants I would take it out of the bank account for him.
5. We were having difficulty in maintaining the plants as we were allowed to draw $1,000 per week from the bank account and once our mortgage instalment had been paid and our living expenses had been paid there was little money left to run the business. Annexed hereto and marked 'B' is a copy of our mortgage repayment schedule. Annexed hereto and marked 'C' is a list of our expenditure for living expenses per month while we were subject to the freezing order. Other funds were not easily available due to the freezing order on the properties and were unable to use them as collateral to borrow funds from lenders."
Mr Jakimovski gave evidence to similar effect. He said that his largest customer was Nestlé Australia, which decided to outsource its operations to CB Richard Ellis. He said:
"I could not keep up the standard of plants as without access to my bank accounts for an amount in excess of $1,000 per week I was told by my wife words to the effect of 'even when I am working we only have enough to pay the mortgage, buy food and pay the children's education expenses and there is nothing left over'."
He said, "I could not even afford to pay for the necessary replacement plants".
The insufficiency of the defendants' income to meet expenses was not attributable to the freezing order. I infer that it was due to Mrs Jakimovski's loss of employment and her having to take a lower-paid position and, although perhaps only to a minor extent, the loss of continuing payments misappropriated from the plaintiff. (It is fair to say, however, as Mrs Jakimovski said, that at least the great bulk of these moneys misappropriated appears to have been spent by her gambling. This case is a sad testimony to the effects of a gambling addiction.)
Insofar as the defendants were unable to take up business opportunities because of their stringent financial position resulting in a loss of future income, that was not something that was caused by the making of the freezing orders.
The second observation to make about the claim is that as formulated it was a claim for loss of income, rather than loss of profit. I do not accept that it would be open to Mr Jakimovski to claim a mere loss of income as representing his loss without making allowance for the expenses which would have been incurred in deriving such income.
There was no satisfactory evidence as to the profitability of the G-Valley Plants business prior to the making of the freezing order. Mrs Jakimovski produced what she called a profit and loss estimate which asserted receipts in the year ended 30 June 2013 of $91,009.49 and a total of business expenses of $8,848. In the following financial year ended 30 June 2014 she stated that the sales income for the business was $24,350.47 and the expenses were $5,040.77, yielding a net profit of only $19,509.70. Her statement contained a note that the expenses were estimates only as tax returns had not been processed.
No evidence was adduced on this application to show what the expenses actually were. There was thus no satisfactory evidence of the existing profitability of the business.
Nor did the evidence establish that the apparent downturn in profitability between the 2012-13 financial year and the 2013-2014 financial year was attributable to the freezing orders that were in place for the last three months. Rather, the existing major contract with Nestlé Australia continued into the 2014-2015 financial year. The last payment seems to have been made in October, and there was no evidence of other contracts having to be terminated by reason of the making of the freezing orders.
Contrary to the apparent belief of both Mr and Mrs Jakimovski, the orders did not prohibit the making of withdrawals from any bank accounts of more than $1,000 per week.
The expenses estimated by Mrs Jakimovski are at a low level that would suggest that if there were sufficient income available to the defendants to service a further debt, an unsecured loan could have been raised to meet the existing level of expenses, even if not to cover expenses that would be required to fit out new premises with plants if a new contract were obtained. The defendants did not obtain any such loan. Mrs Jakimovski gave evidence in cross-examination (which she had not given in her affidavit) that she approached the defendants' existing bank, the Commonwealth Bank, for a loan, but was refused. As I understood her evidence she said that the bank refused the loan sought, about which she gave no specific detail, based on the level of income being earned and expenses being incurred by the defendants. No doubt it would also have been a relevant consideration for the bank that advances could not be made on security of the two properties. The equity available in the two properties was substantially below the sum of $550,000 referred to in the freezing orders. Nonetheless, it does appear that the bank, understandably, was of the view that the defendants had insufficient income to meet the expenses of borrowing. That appears from the defendants' affidavits to which I have referred.
No challenge was made, nor could it have been made, to the freezing order made against Mrs Jakimovski which affected her beneficial interest in the two parcels of land. Mr and Mrs Jakimovski were joint owners of the lands. There was no evidence that a lender would have been prepared to lend money to the partnership, or to Mr Jakimovski alone, having regard to the apparent insufficiency of income to meet expenses and interest expenses that would be incurred, if the only security that could be offered was Mr Jakimovski's 50 per cent interest in the two parcels of land, where Mrs Jakimovski had admitted to fraud, and a claim that Mr Jakimovski had knowingly received misappropriated funds remained undetermined.
That is to say, in assessing what loss was occasioned by the making of the freezing order that affected Mr Jakimovski, the counterfactual position to be considered is not one where no freezing order was made at all, but rather one where the only freezing order made was against Mrs Jakimovski's interest in the two properties.
I am not prepared to infer that any lender would have been prepared to make a loan available on the security that Mr Jakimovski could have offered in such a case. There was no evidence that anyone would have done so. Mr Lo Schiavo of counsel for Mr Jakimovski submitted that there were lenders of last resort to whom recourse could have been had. Although this court is only too familiar with the operations of lenders of last resort, I am not prepared, in the absence of evidence, to assume that such a loan could have been available. But if it could have been available then the costs of such a loan would have to be brought into account in assessing a claim for compensation, and there was no evidence as to what such costs would be. As I doubt that Mr and Mrs Jakimovski could have serviced the interest on such a loan, there must be a real question as to whether any loan would have been made available.
That is sufficient to dispose of the claim for compensation pursuant to the undertaking as to damages. That claim depended upon the assumption that, but for the freezing order, moneys could have been raised on security of the land. But I should deal with the evidence as to the availability of sources of additional income that the defendants claimed.
There was no admissible evidence that the defendants may have obtained or were likely to have obtained a new contract for the provision of plants to a company called Mega Top Cargo. Mrs Jakimovski's affidavit contained some rolled up conclusions as to the effect of what she said were numerous phone calls from various companies including Mega Top Cargo. But I rejected that evidence as opinion evidence and no other evidence was adduced in relation to the likely or possible availability of such a contract.
Evidence was given in relation to a contract with Nestlé that was managed for Nestlé by CB Richard Ellis. G-Valley Plants had an existing contract which was terminable by Nestlé on thirty days' notice. Mrs Jakimovski said in substance that because of the difficulties the defendants faced in raising finance they could not maintain the required plant standards. Plants needed replacement from time to time, and other things no doubt had to be done to maintain standards. She gave evidence of a complaint from a receptionist at Nestlé about the standard of plants and failure to replace dead plants. She suggested that the reason the defendants lost the contract with Nestlé some time after August 2014 was because of their inability to properly perform their existing contract.
However, that was not the reason that the contract was lost. Nestlé occupied three buildings in Rhodes. G-Valley Plants provided plants to one of those buildings. Nestlé, through CB Richard Ellis, invited a tender for the supply of plants to another building called Globe Centre. Mrs Jakimovski submitted a quote for the Globe Centre in June 2014. She deposed that she gave the quote fully knowing that the defendants would not be able to supply and fitout pursuant to the quote because the fitout would have cost around $14,000 initially and could have increased over time. She hoped something could be worked out with CBRE. She said the fitout in any event would not show a profit until after a year, but in order not to lose Nestlé as a customer she was willing to provide a quote.
The defendants were unsuccessful in their quote. The contract for the Globe Centre was given to a competitor called Gaddy's Plant Hire. It was also provided with the contract to supply plants to the headquarters building to which the defendants had, up to then, supplied plants. Mr Elliot, then of CB Richard Ellis, said that the price offered by G-Valley Plants was around 50 per cent more expensive than the prices quoted by other competing vendors. He wished to centralise the contracts. The existing contract for the headquarters building was terminated so that there would be one supplier supplying the whole of the Nestlé premises at the Rhodes site.
Thus the freezing order did not result in the loss of the potential Globe Centre contract. Nor was it the reason the existing Nestlé contract was not renewed. Nor was it the reason that the existing Nestlé contract was terminated.
It was faintly submitted in final submissions that, but for the freezing order, the defendants might have been able to offer a lower and more attractive price so as to have kept the Nestlé business and gained new business. There was no evidence to support that submission and the evidence of the defendants' past financial position, in terms of income and expenses, suggest that it is most unlikely that a lower quote could have been provided.
Finally, it may be noted that the losses claimed were losses for the partnership. Mrs Jakimovski was one of the partners. She did not have leave to make a claim pursuant to the undertaking as to damages. It would be clearly most unjust and inequitable if, through her husband, she could recover compensation under the undertaking as to damages when she was responsible for the plaintiff's having been defrauded of over half a million dollars, and where the plaintiff has an unsatisfied judgment against her.
It might be thought that there are some procedural complications in Mr Jakimovski's claiming under the undertaking for damages for a loss of partnership income, although apparently he ultimately sought 50 per cent of the partnership income. But no submissions were made in relation to the difficulty of his pursuing alone a claim for the recovery of the partnership income and it is unnecessary to consider that matter further.
For these reasons, I order that the second defendant's notice of motion filed on 27 April 2015 be dismissed. I order that the second defendant pay the plaintiff's costs of the notice of motion.
[3]
Amendments
10 February 2016 - Coversheet amendment to Plaintiff's solicitor: "FCB Workplace Law" substituted for "FCB Group"
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Decision last updated: 10 February 2016