Corporate Documentation Management Pty Ltd v Kathy Bagshaw

Judgment (5 paragraphs)

[1]

Judgment

The Court has before it an application by the Plaintiff, Corporate Documentation Management Pty Ltd ("CDM"), to amend its Statement of Claim, which application the Defendant, Ms Kathy Bagshaw ("Ms Bagshaw"), opposes. Mr D Studdy SC appears for CDM and Mr R Lovas of Counsel appears for Ms Bagshaw.
The amendment is opposed on three grounds. The first is that the proposed Amended Statement of Claim ("ASTOCL") is said by the Defendant to be embarrassing in a number of respects. The second is that the ASTOCL is said to be inadequately particularised. The third ground is based on an assertion that its filing would be a breach of an agreement reached between CDM and Ms Bagshaw in respect of the joint retention of a forensic expert. Although the submissions on behalf of Ms Bagshaw (the Defendant's Opening Submissions ("DOS")) had these items in a different order, I shall deal with them in the order set out above and deal with the first two together.
Ms Bagshaw's company Stavshaw Pty Ltd ("Stavshaw") was retained by CDM and Ms Bagshaw was employed by Stavshaw as a bookkeeper and administrative assistant for CDM between March 2003 and August 2018. The essence of CDM's claims is that she engaged in the period 2008 to 2018 in dishonest activity by which monies of CDM were diverted into accounts of or controlled by Ms Bagshaw and utilised by her or her company for her own benefit. In the balance of these reasons, I shall refer to Ms Bagshaw as including Stavshaw.
The proceedings commenced in November 2018 at which time CDM sought and obtained freezing orders over Ms Bagshaw's assets up to the amount of approximately $249K. The claims made included claims of breach of fiduciary duty. The amount frozen was increased by consent to approximately $1.2M, being the value of Ms Bagshaw's unencumbered assets.
CDM filed a Statement of Claim ("STOCL") on 27 February 2019 and Ms Bagshaw filed a defence on 13 May 2019.
In summary, CDM in the STOCL claimed that Ms Bagshaw has created fake invoices from suppliers, created Recipient Created Tax Invoices ("RCTIs") which contained lines of items that were not found on the invoices from suppliers, caused CDM to pay amounts to her or bank accounts controlled by her in excess of her entitlement, and caused CDM suppliers accounts to be entered with her banking details rather than the suppliers' which she had said were to reimburse her for payment made to Ms Bagshaw to CDM suppliers. There was also a claim in respect of a small group of American Express ("AMEX") payments, which I do not need to detail because all of those payments to AMEX have been reimbursed by Ms Bagshaw (without admissions). Ms Bagshaw denied the allegations and asserted that all the payments made to her were either: 1. consulting fees due to her; 2. reimbursement of payments made by her to CDM suppliers or CDM creditors out of her own accounts; or 3. payments for staff or other office expenses. Ms Bagshaw claims that throughout the consultancy period CDM lacked sufficient capital overdraft or income to meet its various expenses.

Grounds 1 and 2: Is the ASTOCL embarrassing and has it been inadequately particularised?

The proposed ASTOCL is very lengthy document running to 240 pages not including Appendix A and Appendix B. Appendix B is itself many pages long and it lists every invoice from the Ten Vendors in the period 2009 to 2018, but grouped with the paragraphs of the ASTOCL to which the invoice relates.
I have referred to CDM but should mention that a second company controlled by the principal of CDM (Mr Michael Jones), Gardeners 414 Pty Ltd ("G414"), is also a claimant for the relatively small sum of $127,600 which it alleges Ms Bagshaw has removed from its bank account without justification. I need say no more about that claim for present purposes, save to note that G414 contends that Ms Bagshaw had no role within G414.
Paragraphs 1 to 24K of the ASTOCL are unexceptional. At paragraph 24L, the ASTOCL commences to deal with CDM's claims in relation to NeoPost Australia Pty Limited ("NeoPost"). Neopost was a supplier to CDM and one of the Ten Vendors. The ASTOCL sets out for each year from July 2009 to October 2018 the amounts invoiced by NeoPost, the amounts paid to NeoPost, and the amounts recorded in the RCTIs.
Using NeoPost and the first period 1 July 2009 to 30 June 2010 (the 2010 financial year) as an example, the ASTOCL alleges that: 1. NeoPost rendered invoices totalling $16,619 to CDM; 2. the MYOB system operated by Ms Bagshaw recorded purchases from NeoPost of $27,258; 3. Ms Bagshaw caused CDM to pay into her AMEX account $27,258; 4. $10,415 was an overpayment to which Ms Bagshaw was not entitled; and 5. the overpayment was made in breach of her obligations owed to CDM and caused detriment to CDM, was a payment made dishonestly and without the authority of CDM, and in breach of two fiduciary duties owed by Ms Bagshaw to CDM (the duty not to use her position for personal gain, and the duty to avoid conflict: see paragraphs 14 and 15 of the ASTOCL).
The ASTOCL continues from paragraphs 120N to 528 to deal with more of the Ten Vendors. By paragraphs 575 to 842 of the ASTOCL CDM claims that there were overpayments to Ms Bagshaw for equipment leases, impressions, maintenance and service fees for Fuji Xerox Australia Pty Limited ("Fuji") and to two insurers, Allianz Australia Insurance Pty Limited ("Allianz") and AON Insurance ("AON"). Fuji, Allianz and AON are also part of the Ten Vendors. Paragraphs 843 to 855 set out CDM's claim that there have been overpayments of money due to Ms Bagshaw for her consultancy service.
I return to NeoPost again by way of example. In paragraphs 120F to 120G the ASTOCL alleges that between 1 July 2018 and 31 October 2018 Ms Bagshaw caused CDM to make payments of $6,530 into her AMEX account, paid $879 to NeoPost and retained $5,651. The particulars given refer to the ESV Report pages 33, 39, 16 and 17.
At T4.50 I asked Mr Lovas to identify the three most egregious examples of the pleading problem of which he complains. He pointed to paragraph 856 of the ASTOCL and paragraph 855A. Mr Lovas then after further discussion said that the Defendant could work out where the $6.8M referred to in paragraph 855A of the ASTOCL (the figure for the total payments made to the Ten Vendors) came from in the ESV Report, but they could not work out how that figure was derived in the pleadings.
In his submissions Mr Lovas makes reference to the prohibition on pleadings that are "unintelligible, ambiguous, vague or too general, so as to embarrass the opposite party who does not know what is alleged against him": see Meckiff v Simpson [1968] VR 62 at 70 per Winneke CJ, Adam and Gowans JJ, adopted by Johnson J in McGuirk v University of NSW [2009] NSWSC 1424 at [30] and see the decision of Bryson J (as his Honour then was) in Northam v Favelle Favco Holdings Pty Ltd (Supreme Court (NSW), Bryson J, 7 March 1995, unrep) at 5-6.
Mr Lovas contends that the ASTOCL "does not show when and where an event happened, who participated, what was said (or done), what was the relevant effect of any document and so forth" and "requires Ms Bagshaw and the Court to piece together information in other documents such as an expert's report, and it does so unintelligibly": see DOS at paragraph 68.
Mr Lovas then asserts that the ASTOCL provides insufficient particulars, and draws attention to authority in which the failure of a pleading to indicate in what respect a document alleged to be fraudulent is false. He also refers to the ratio in Johnson v Miller (1937) 59 CLR 467 emphasising in a criminal case the need for identification of "the particular act, matter or thing alleged as the foundation of the charge" at 489 per Dixon J cited in R v Walsh (2002) 131 A Crim R 299 per Phillips and Buchanan JJA.
The pleading in the ASTOCL is extensive and detailed and, in my view, the particularisation of the various amounts by reference to the ESV Report is appropriate and not at all vague or ambiguous. It appears that essentially the Defendant's real complaint about the form of pleadings is twofold. The first assertion is that the pleadings even with the particulars do not detail what entries in each RCTI or MYOB entry are fake or incorrect: see T7.31, T7.41-T8.7, and see T10.1-9. The second matter relates to the discrepancy between the amount of the loss and damage claimed, i.e. $2M, and the total of figures claimed in the earlier part of the pleading. I shall refer to this as "the pleading discrepancy" and that in effect is the issue identified in [18] above.
I should note that at the close of the hearing of CDM's Motion on 17 September 2021, Mr Studdy sought leave to reply to Mr Lovas' submissions in writing by 6:00pm that day and I acceded to that request and I granted Mr Lovas leave to file submissions in response if any new matter was ventilated rather than in reply.
Mr Studdy provided his written submissions in reply (Plaintiff's Submissions in Reply, "PSR") within the allocated time. Mr Lovas supplied submissions by 12:00noon on the following Monday (also within the allotted time) (Defendant's Submissions in Reply, "DSR"). Mr Lovas has through those new submissions added documents for which strictly no leave had been given. Indeed, I had expressly refused him leave to do so at T37.15 after he had first sought leave and then in effect resisted examination of the question of whether he had resisted an adjournment application by the Plaintiff as part of my consideration of whether any leave should be given. On the other hand, Mr Studdy in his PSR has asserted that there is no conflict between the ASTOCL and the ESV Report, and the documents now provided can be viewed as a response to that assertion, since they are merely an aide memoire and one which precludes me having to embark on the additional calculations needed to see whether the complaint is justified.
In the PSR Mr Studdy pointed out that what is claimed by CDM and G414 as the loss and damage is articulated in paragraphs 855A to 857 of the ASTOCL. The $2M loss claimed for CDM and the $127,600 claimed for G414 is precisely what is contained in the ESV Report. On the basis of the figures in Appendix A, B and C to the DSR there is a disjunct between the pleading and the ESV Report and it is by no means clear why, for example, the ASTOCL arrives at a figure of $12M as the total amounts transferred by Ms Bagshaw, but the ESV Report and paragraph 855C assert that the total of amounts transferred was approximately $9.7M.
The other point is that Mr Studdy agreed that there were some amounts in the ASTOCL which are not based on the ESV Report. The amount referred to in paragraph 577 is one such example, although it is a claim for the sum of $2,700 and the reason it is not included in the ESV Report is clear, namely that it relates to the period prior to 2008.
Mr Studdy at T12 accepted that the ASTOCL does not detail which particular items in the RCTIs or MYOB are not derived from the invoices rendered by the Vendor. CDM does not know which line item in the MYOB is false and which is correct, but on its case it does not need to do so. It says, for example in the period from 1 July 2009 to 30 June 2010, NeoPost rendered accounts totalling $16,619 and yet Ms Bagshaw created RCTIs or MYOB entries showing a debt of $27,258, paid $16,843 to NeoPost and retained the $10,415 difference: see paragraphs 24L to 24Q of the ASTOCL. CDM claims it does not have to show which items on the documents recording $27,258 equate to the genuine items totalling $16,619.
In my view, CDM is entitled to put is case as follows: 1. Vendor A issued invoices to CDM for say the 2010 Financial Year for $X; 2. Ms Bagshaw created RCTI's and or MYOB entries showing Vendor A as having invoiced CDM $X+Y; 3. Ms Bagshaw paid Vendor A $X and retained $Y for herself; and 4. Save to the extent that Ms Bagshaw was entitled to her agreed fees, $Y was an overpayment to herself.
I do not think it is necessary for the Plaintiff to endeavour to establish which particular items in the RCTI or MYOB were in fact the subject of a genuine invoice.
I do not accept that Ms Bagshaw could have any difficulty in understanding what is alleged against her and what is claimed save for the discrepancy between the total of the amounts pleaded and the amount claimed by paragraph 855A to 857, to which I shall return.
Later in these reasons I discuss the issue of the Secondary Vendors. In my view whether discovery is required of documents relating to Secondary Vendors is not a reason to refuse leave to amend the ASTOCL.
Section 64 of the Civil Procedure Act 2005 (NSW) ("CPA") is in the following terms: "64 Amendment of documents generally (1) At any stage of proceedings, the court may order - (a) that any document in the proceedings be amended, or (b) that leave be granted to a party to amend any document in the proceedings. (2) Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings. (3) An order under this section may be made even if the amendment would have the effect of adding or substituting a cause of action that has arisen after the commencement of the proceedings but, in that case, the date of commencement of the proceedings, in relation to that cause of action, is, subject to section 65, taken to be the date on which the amendment is made. (4) If there has been a mistake in the name of a party, this section applies to the person intended to be made a party as if he or she were a party. (5) This section does not apply to the amendment of a judgment, order or certificate."
The approach to whether leave should be granted for amendment of pleadings is discussed in Kelly v Mina [2014] NSWCA 9 per Barrett JA with whom Ward and Leeming JJA concurred and a recent decision dealing with the topic is Blue Mirror Pty Ltd v Pegasus Australia Developments Pty Ltd [2021] NSWSC 961 per Kunc J at [52]-[58] and requires consideration of whether the amendments are necessary to enable the real question to be determined, but also of the matters detailed in s 58 of the CPA. A similar approach giving due weight to the matters of the kind outlined in s 58 is reflected in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 in particular at [92]-[98] per Gummow, Hayne, Crennan, Kiefel and Bell JJ.
Bearing in mind the dictates of justice, the circumstances leading to the amendment (i.e. the obtaining of an expert report in respect of accounting entries and transactions spanning a long period of time), and the fact that no hearing date has yet been obtained, the need for specificity in the allegations, the absence of any evidence that the Plaintiff has to date failed to fulfil the duties required of it by s 56 of the CPA, and the degree of injustice which would flow by reason of a refusal of leave, the case is, subject to two matters, an overwhelmingly one in which leave should be granted. The first matter concerns the issue of the ESV Report which I shall consider later in these reasons.
The second matter is the pleading discrepancy. It may well be that there is a simple answer to the discrepancy, but the absence of explanation and, if need be, amendment to the ASTOCL to bring the claimed amount into line with the earlier paragraphs is likely to add to costs rather than reduce them.
The consequence is that whilst I think it is appropriate to grant leave to the Plaintiff to file an Amended Statement of Claim, I am not persuaded that I should grant leave to the filing of the ASTOCL in its present form. I think that the appropriate course is to permit the Plaintiff an opportunity to explain the reason for the discrepancy and if need be amend the draft ASTOCL so that it is clear what amount is being sought and as to how it is calculated, so that there is no disconformity between the total of the amount claimed in the later paragraphs and the earlier paragraphs. If there are amounts claimed for the period 2003 to 2008 additional to the amount in paragraph 577 that should be made clear.

Ground 3: Breach of Contract

Ms Bagshaw contends that the filing of the ASTOCL would be a breach of contract "which the Court in other circumstances would restrain" see the DOS at 1.
Ms Bagshaw claims that there was an agreement in relation to the retainer of Ms Cusack and that the agreement had been breached with the consequence, it is asserted, that the ESV Report should not be allowed to be utilised to support the ASTOCL. The breach asserted on Ms Bagshaw's contention is that it was agreed that Ms Cusack was retained to examine all of the transactions between all vendors or suppliers to CDM and not just the Ten Vendors referred to in the ESV Report. Mr Lovas draws attention to the instructions in paragraph 18 of the letter to ESV of 13 May 2019 (at CB 567-576). Mr Studdy points out that paragraph 17 must also be taken into account: "17. You are briefed with the documents listed in the attached "Index to Brief of Documents". 18. You are instructed to provide a Report which addresses the following: (a) An analysis of all supplier invoices received by CDM as against the RCTI's prepared by Kathy to establish and particularise any discrepancies; (b) An analysis identifying (by date, account, bank account debited and bank account credited) all payments made from CDM accounts to Kathy's accounts; (c) An analysis identifying (by date, account, bank account debited and bank account credited) all payments identified in (b) above which CDM accepts as proper fees for Kathy's services or proper reimbursements for expenses made in the course of providing those services; (d) An analysis identifying (by date, account, bank account debited and bank account credited) all payments made from Kathy's accounts to CDM's suppliers or creditors; and (e) A reconciliation of all amounts in items (b), (c) and (d) above disclosing the net balance of accounts as between Kathy and CDM; (f) An analysis of CDM's ability from time to time to pay its suppliers or creditors from 1 July 2003 to 31 October 2018 identifying the sum of any shortfall in cash and debts due and payable. (g) The effect on CDM's financial situation following the sale of the property at 414 Gardiners Road Rosebery in October 2015. (h) The effect on CDM's financial situation following the refinance with the National Australia Bank for $1,300,000 in November 2017. 19. The parties have agreed that they will do all things reasonably necessary and will provide all reasonable assistance to you to obtain any further documentation you may require or provide any such access you may require to complete your Report. 20. In those circumstances, the parties have also agreed to issue subpoenas to third parties, if so required."
The Index of Documents attached included documents relating to the Ten Vendors and none relating to any Secondary Vendors.
Mr Lovas contends that there could not be any proper reconciliation of amounts if only the invoices of and payments to the Ten Vendors were considered.
Both Mr Lovas and Mr Studdy took me through the correspondence between the solicitors for CDM and Ms Bagshaw, and with Ms Cusack, and emphasised the points in that correspondence which support their respective interpretation of what was agreed.
Having regard to the fact that what I am called on to decide is the rather basic matter of whether CDM should be permitted to file (and serve) an ASTOCL following receipt of a comprehensive report by an expert (the full cost of which report was to be paid for by CDM and which has cost CDM, the Court was informed, more than 200K: see T2.37), who has sought instructions when she perceived that clarification was required, I make the following observations: 1. Whilst there may be some scope for argument that the agreement between the parties was for Ms Cusack to go beyond the Ten Vendors that seems unlikely given that there was no general instruction in the Letter of Instruction to examine all vendors, but rather there was an identification of ten specific vendors through the Index to Brief of Documents referred to in paragraph 17 of the Letter of Instruction. Ms Cusack's subsequent enquiry seems to have been focused not on whether she should expand the list of vendors, but rather whether she should narrow the list to six: see CB 588. At CB 589 Ms Cusack stated "If I am instructed to analyse all suppliers for CDM for the relevant period, please provide me with all supplier invoices and RCTIs for all suppliers for the period 1 July 2003 to 31 October 2018". 2. The solicitor for Ms Bagshaw stated that the question of the scope of the class of vendors was a matter (inter alia) to be determined by CDM's solicitors: see CB 592-593. Mr Lovas described that as a "blunder": see T44.3. I am not convinced it was, but if it was a blunder it does not lie at the feet of CDM. 3. Added to (1) and (2) is the fact that the first time that Ms Bagshaw's solicitor specifically called for all vendors to be examined was in March 2020: see CB 597, and T26.14-28. I accept that it was open to request that, but it could only be demanded if that had been the agreement in the first place. 4. The ESV Report supports CDM's contention that Ms Bagshaw has created false RCTIs and false entries in MYOB for the Ten Vendors. The inference available to be drawn is that those false entries were to enable monies to be drawn out by Ms Bagshaw for her own benefit. Prima facie, the benefit which Ms Bagshaw sought to derive for herself is the difference between the genuine vendor invoice and the amount recorded in the MYOB or the RCTI. Ms Bagshaw may have a valid answer to those claims, but CDM is entitled to propound its claims. 5. Notwithstanding the point made in (4), the conclusion as to the amount actually obtained by Ms Bagshaw is, in the logic of the ESV Report, determined by: 1. ascertaining all of the monies drawn by Ms Bagshaw from CDM's account; 2. ascertaining to what amount Ms Bagshaw was genuinely entitled as her own fees; 3. ascertaining what amounts were actually paid to the Ten Vendors; and 4. deducting from (a) the amounts in (b) and (c). That conclusion does not take into account whatever amounts were paid by Ms Bagshaw to the Secondary Vendors. Every dollar paid to the Secondary Vendors would, it appears, reduce the $2M figure which the ESV Report concludes has been retained by Ms Bagshaw, improperly on CDM's case.
In relation to the Secondary Vendors, I should point out that no evidence has been put before me to indicate who those Secondary Vendors are, nor as to what amount, even arguably, might be involved. There is reference in a letter from Ms Bagshaw's solicitors (at CB 597) to a spread sheet enclosed of the suppliers but even it was not included in the Court Book. Whilst it is theoretically possible that payments to Secondary Vendors will equal the amounts claimed by CDM to have been improperly obtained and retained by Ms Bagshaw, it seems likely as a matter of practical logic that the Secondary Vendors will involve much smaller payments then those involved in the transactions for the Ten Vendors since CDM was obviously interested in discovering what it believed were the bigger overpayments rather than the smaller.
In view of the complete absence of any evidence as to what amounts were legitimately paid to the Secondary Vendors it is impossible to ascertain by how much CDM's claim could be reduced. CDM's claim as set out in the ASTOCL to an entitlement to recover approximately $2M is at risk of being impugned by, at present, an unknown amount. The ESV Report's conclusion, even if correct in all respects, proceeds upon the instructions given to Ms Cusack that the Ten Vendors were the only vendors that were to be examined. Even if the correct view of what was agreed is that advanced by CDM, the fact is that Ms Bagshaw has, at least since March 2020, contended otherwise. I do not wish to pre-empt any decision that would need to be made in due course by the Court, but it could be anticipated that Ms Bagshaw would seek to embark upon an examination of what was paid to the Secondary Vendors as a means of reducing any amount to which CDM would, if its claims are made out, otherwise be entitled. Both CDM and Ms Bagshaw and their legal advisers would need to give proper consideration as to the most expeditious and least expensive means of determining how much was paid to Secondary Vendors and it might be possible for a figure to be agreed on a broad brush basis. In saying this, I am not suggesting that this is the only area of dispute between CDM and Ms Bagshaw.
Whilst I recognise that there is strong support for the contention that all payments by Ms Bagshaw to Secondary Vendors will need to be taken into account, I am not satisfied that it is appropriate to determine on this application whether there was a breach by CDM of an agreement reached with Ms Bagshaw, and nor in my view would it be appropriate to preclude CDM from filing the ASTOCL because the ESV Report has not examined payment to Secondary Vendors.
Accordingly it follows that I would not refuse leave for the Plaintiff to amend on this basis.
As I understood it, there is no issue concerning the joinder of G414 to the ASTOCL.

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