Hewitt v McClymont

The accountant

1. Since 1998, Mr McClymont has been the accountant for Mr Hewitt and his wife, preparing and lodging their tax returns. Mr McClymont's company is Hazel-Scott Pty Ltd, which traded as "Mainstream Taxation & Accountancy Services". The company had a trust account with the Commonwealth Bank of Australia, with an account number ending 2544 (the Accountant Trust Account).
2. In 2005, Mr McClymont and his father bought an investment property in Queensland as joint tenants and subject to a mortgage in favour of Perpetual Trustee Co Ltd. Mr McClymont had a partnership with his father in respect of the property. The partnership had a bank account with the Commonwealth Bank with an account number ending 3451 (the Partnership Account).
3. In 2005, Mr McClymont also acquired Mainstream Finance Services Pty Ltd. The company operates a financial brokerage business, which Mr McClymont continues to operate today.

The Super Fund

1. In 2011, Mr Hewitt wanted to set up a SMSF. Mr McClymont set up the Geoffrey Hewitt Super Fund (the Super Fund). Mr Hewitt and Mr McClymont were co-trustees of the Super Fund. The Super Fund opened a premium business account with the Commonwealth Bank with an account number ending 7086 (the Super Business Account).
2. In November 2011, Mr Hewitt 'rolled over' $450,000 in superannuation into the Super Business Account. Over the next 10 years. Mr Hewitt's employer contributions were also periodically deposited to the Super Business Account. In total, some $586,000 was deposited into the Super Business Account. Mr McClymont accepted this figure.
3. The Super Fund opened a CommSec account with an account number ending 6418 (the Super CommSec Account). In November 2011, $340,000 was transferred from the Super Business Account to the Super CommSec Account and used to buy shares.

"Unexplained withdrawals"

1. In March 2012, $10,000 was transferred from the Super Business Account with a narration on the bank statement, "tf to Commsec". The moneys were not deposited in the Super CommSec Account; the $10,000 was deposited to the Accountant Trust Account. According to the Accountant Trust Account bank statement, the $10,000 appears to have been expended in day-to-day transactions.
2. In July 2012, $4,000 was transferred from the Super Business Account with the narration "tf to Commsec". The funds were not deposited in the Super CommSec Account but in the Accountant Trust Account. The funds appear to have been exhausted after payment of a Citibank credit card and meeting a cheque on presentation.
3. The same thing happened in October 2012, when $8,000 was noted as having been "tf to Commsec" but transferred to the Accountant Trust Account. Of this, $1,100 was used for "Fees to date", perhaps being fees owed by Mr Hewitt, while the remaining funds appeared to have been exhausted through day to day transactions. Having now reviewed multiple similar transactions, I note that, whilst a portion of an amount deposited to the Accountant Trust Account was often immediately debited to "Fees to date", it is not clear that such fees were those owed by Mr Hewitt where "Accountancy Fees" had often been debited from the Super Business Account shortly before funds were transferred from that account to the Accountant Trust Account.
4. A further $8,000 was transferred from the Super Business Account to the Accountant Trust Account in the same manner in November 2012, and similarly deployed. The same thing happened in December 2012 ($7,000) and January 2013 ($7,500 and $7,500). Some of the monies were then transferred from the Accountant Trust Account with the narration "tf CommSec" to accounts ending in 3451 and 2552. A list of bank accounts produced by the Commonwealth Bank on subpoena shows that the defendant and his father have an account ending 3451. (The list does not include an account ending 2552.) This appears to be the Partnership Account in relation to the Queensland investment property.
5. In February 2013, $12,500 was transferred from the Super Business Account to the Accountant Trust Account in the same manner. Of this, $2,500 was transferred from the Accountant Trust Account with the narration "tf Commsec", but transferred to the Partnership Account. A further $2,500 was transferred to an account ending 4507, which is not on the Commonwealth Bank's list of accounts presently held by the defendant.
6. In May, June and July 2013, regular $5,000 amounts totalling $20,000 were transferred from the Super Business Account with the description "tf to Commsec" but transferred to a Commonwealth Bank account ending 8708. According to a list of the defendant's bank statements produced by the Commonwealth Bank, the defendant has a direct investment account ending 8708. In cross-examination, Mr McClymont said this was an account into which he deposited his winnings from gambling (the Gambling Account). A further $10,000 was "tf to Commsec" from the Super Business Account but in fact transferred to the Accountant Trust Account.
7. In October 2013, $10,000 was transferred from the Super Business Account with the narration "tf to Commsec" but was not deposited in the Super CommSec account. (The Accountant Trust Account bank statement for this month is not in evidence, which may have shed light on what happened to these funds.) On 15 November 2013, $5,000 was transferred from the Super Business Account with the description "tf Commsec" but deposited to the Accountant Trust Account. Of this, $2,000 was transferred to the Gambling Account.
8. The Super Fund opened a Commonwealth Bank direct investment account ending 4808 (the Super Investment Account). Dividends were deposited to this account from the Super CommSec account or directly. By November 2013, the Super Investment Account had a credit balance of $2,393.71. This balance was transferred to the Gambling Account.
9. In January 2014, $2,000 was transferred from the Super Business Account to the Super Investment Account and transferred to the Gambling Account.
10. By February 2014, the balance of the Super Business Account had reduced from $110,000 (after the initial purchase of shares) to $900. The account was replenished by the receipt of, apparently, a dividend of $15,000. Of this, $5,000 was transferred to the Super Investment Account and then transferred onto the Gambling Account. In the days which followed, the remaining $10,000 was transferred from the Super Business Account directly to the Gambling Account. The Super Investment Account was left with a nil balance.
11. In March 2014, the Super Business Account received a deposit following a "super reconciliation". This increased the balance to some $6,700. Of this, $6,250 was transferred to the Gambling Account.
12. The same pattern can be seen in the months and years which followed according to the Super Fund's bank statements, albeit I have not reviewed the Accountant Trust Account bank statements post 1 July 2014. By these transfers from the Super Fund's bank accounts, the Super Investment Account was essentially kept at a nil balance whilst the Super Business Account had a minimal balance. On occasion, funds were deposited to the Super Business Account from the Accountant Trust Account, apparently to prevent the account from reaching a nil balance or, in September 2015, to take up a share offer with the Commonwealth Bank of $7,293. It may be that the defendant placed funds back into the Super Fund's accounts on occasion to meet particular expenses.
13. On occasion, it appears that the defendant transferred funds from the Super Fund account to another client's superannuation accounts. In July 2014, the Super Business Account received a dividend payment of some $7,000. Of this, $6,000 was transferred to an account ending 7889. According to the list of bank accounts produced by the Commonwealth Bank on subpoena, the defendant holds an account together with Geoffrey Wray ending 7889 on trust for Mr Wray's super fund. Mr Wray is another client of the defendant. Similarly, in April 2016, $2,000 was transferred from the Super Business Account to an account ending 8338. According to the list of the defendant's bank accounts produced by the Commonwealth Bank on subpoena, the defendant and Geoffrey Wray hold an account ending 8338 on trust for Mr Wray's super fund.
14. Monies continued to be transferred from the Super Fund's bank accounts to the Gambling Account. In November 2015, $3,000 was transferred from the Super Business Account to the Gambling Account. In October 2016, $5,380.87 was transferred from the Super Investment Account to the Gambling Account. In September 2017, $495 was transferred from the Super Business Account to the Gambling Account with the narration "management fees". The same thing happened in May 2018 and July 2018, with the latter transfer described as "accountancy fees". In January 2020, $2,876.30 was transferred from the Super Business Account to the Gambling Account. In March 2022, $880 was transferred from the Super Business Account to the Gambling Account, described as "management fees".
15. In July 2023, $880 was transferred from the Super Business Account to the Gambling Account, described as "management fees". The closing balance of the Super Business Account was some $25. The last entry in the Super Investment Account on 27 July 2023 is a transfer to the Gambling Account, leaving the account with a nil balance. Over the years, the value of shares held by the Super CommSec Account also declined as shares were gradually sold. As at 30 June 2023, the Super Fund's CommSec account had some $125,000 worth of shares.

A new accountant

1. By December 2022, Mr McClymont was no longer authorised to file tax returns and financial statements on behalf of SMSFs as his tax agent registration was suspended. In June 2023, the plaintiff was informed by the defendant that he was being investigated by the Tax Practitioners Board and had been deregistered as a tax agent. In July 2023, the plaintiff received a letter from the Australian Taxation Office, advising that Hazel-Scott Pty Ltd was no longer a registered tax agent and the plaintiff should appoint a new agent.
2. In August 2023, the plaintiff engaged a new accountant, Mr Matthew, who reviewed the Commonwealth Bank accounts and prepared detailed tables, highlighting unexplained withdrawals from the accounts since March 2012. The plaintiff was informed by Mr Matthew that some $770,000 had been withdrawn from the Super Fund without apparent explanation. The plaintiff said he had no knowledge of these transactions.
3. Mr Matthews has since examined additional bank statements obtained on subpoena for the period from 2012 on. By Mr Matthews' calculations: 1. the net transfer of funds from the Super Fund's accounts to the Accountant Trust Account totals $702,287.14; 2. the net transfer of funds to the Gambling Account totals $55,474.91; 3. the net transfer of funds to Mr Wray's accounts total $6,000; and 4. the net transfers to an unknown linked account total $5,380.87.
4. Mr Matthews observed that, whilst the unexplained transactions contained the description "tf Commsec" in the bank statements, the bank statements for the Accountant Trust Account and the Gambling Account did not contain any evidence of corresponding CommSec transactions. He has been unable to find any additional purchases made in the Super CommSec Account beyond the initial investment of $337,554.19 or subsequent investments made directly from the Super Investment Account.
5. Mr McClymont completely rejected Mr Matthew's analysis. Mr McClymont said: "… a very simple explanation for that and one of the issues is that a lot of the shares purchases are not through the CommSec platform but rather through share purchase agreements, capital raising ventures and so forth, which will not show in any CommSec report whatsoever because they're not purchased through the CommSec platform. That is the greatest explanation for the discrepancy."
6. Mr Matthews also observed that the Accountant Trust Account bank statements contain many transactions more likely to be found in a personal bank account than an accounting firm's trust account, including the payment of credit cards and the transfer of funds to personal bank accounts.

Requesting documents and information

1. In August 2023, the plaintiff emailed the defendant requesting information and documents. There was no response. On 29 August 2023, the plaintiff noticed another withdrawal from the Super Business Account which he did not recognise or authorise. The plaintiff called the Commonwealth Bank and froze the Super Fund's bank accounts.
2. On 11 September 2023, the plaintiff requested a copy of the trust deed from the defendant by email; there was no response. On 13 September 2023, the plaintiff went to the defendant's offices and requested a copy of the trust deed. The defendant did not oblige. On 15 September 2023, the plaintiff sent a further email to the defendant, complaining that he had had no response to any of his emails since 11 August 2023. There was no response.
3. On 9 January 2024, the Tax Practitioners Board informed the plaintiff that the defendant and his company had withdrawn their applications for a review of the board's decision, such that the matter was now finalised. On 7 February 2024, the plaintiff's solicitor wrote to the defendant at length, requesting that he resign as a trustee of the Super Fund and deliver up documents, failing which, proceedings would be commenced. The plaintiff arranged for the letter to be personally served on Mr McClymont. There was no response.

Selling a property

1. Mr McClymont owned a property in Gosford as tenants in common with his father. Mr McClymont said the Commonwealth Bank threatened to foreclose if he did not attend to loan repayments, "so I had no option other than to put the property on the market, which I did."
2. In March 2024, Mr McClymont threw out "all old records that I was no longer lawfully required to keep", apparently as his office was located in the property being sold. Mr McClymont said there was "also the sad accidental loss of the database of my entire server."

These proceedings

1. On 23 April 2024, Mr Hewitt commenced these proceedings by Summons. As interim relief, Mr Hewitt sought to remove the defendant as trustee of the Super Fund. He also sought orders for the delivery up of the Super Fund deed together with all documents held by the defendant in connection with the Super Fund. The plaintiff also sought a freezing order for an amount up to $2 million and an affidavit of disclosure. On 24 April 2024, the plaintiff filed a motion seeking expedition. On 1 May 2024, Mr McClymont was served with the Summons, motion and affidavits in support.
2. On 3 May 2024, the matter was listed before me in the Expedition List. The defendant appeared via telephone link. Mr McClymont informed the Court that he had received the Summons but not the exhibits. On receipt of this material, Mr McClymont said he would need to engage a lawyer and that he was also considering suing the plaintiff for defamation. Consent orders were made for service of the exhibits. The defendant gave an undertaking not to deal with the assets of the Super Fund and, on payment of $100, to provide a copy of the trust deed. The defendant was directed to serve his evidence by 31 May 2024. The matter was stood over to 7 June 2024, when the motion for expedition would be heard. The orders made were served on the defendant later that day, together with the exhibits.
3. On 20 May 2024, the sale of the Gosford property was completed for $850,000. Two mortgages were discharged, being in favour of the Commonwealth Bank and Brampton Private Pty Ltd. Mr McClymont said the total mortgage sum secured was some $550,000; his share of the net proceeds was some $150,000. After repaying various loans to his father, Mr McClymont received $70,000 on 22 May 2024. It appears that Mr McClymont used some of these funds to gamble, "I've retired and sold a property. I'm entitled to retire and enjoy my retirement as I understand it."
4. Meanwhile, several telephone calls were made to the defendant to obtain his bank account details in order to pay him $100, so that the trust deed could be provided. The defendant did not answer the phone. The defendant's affidavits were due at 4.00 pm on 31 May 2024. None were served. My chambers received an email from the defendant at 4.03pm on 31 May 2024, requesting a copy of the orders made on 3 May 2024. Those orders were duly provided by my chambers, but I am satisfied had already been served.
5. The matter was before the Court for directions on 7 June 2024. There was no appearance by the defendant. At 9.35 am, my Associate sent an email to MrMcClymont, enquiring whether he would be appearing in person that morning or wanted to have the dial-in details. The email was sent to Mr McClymont at an email address attached with Mainstream Taxation. (I note that Mr McClymont later advised that he could not access emails sent to this address). The matter was fixed for hearing on 11 June 2024. The plaintiff was directed to serve written submissions on the defendant later on 7 June 2024, together with a copy of my orders. The orders made on 7 June 2024 were served by email on Mr McClymont during the course of that day. The cover email noted that the matter was listed for final hearing at 10.00 am on 11 June 2024, at which time the plaintiff's claims for relief in the Summons would be heard and determined.
6. Before passing from this directions hearing, it is necessary to refer to two emails from Mr McClymont to my Chambers which were tendered on this application. At 8.53 am on 7 June 2024, Mr McClymont apparently sent an email to my Chambers, advising that he would not be attending the hearing as he was experiencing delay in finding legal representation. He had arranged to meet with solicitors on 13 June 2024 and requested a two-week adjournment for this purpose. Mr McClymont apparently forwarded this email to my Associate at 8.57 am. According to investigations undertaken by an IT System Engineer for the Department of Communities and Justice, these emails were not received by my Chambers.

The freezing order

1. There was no appearance by the defendant on 11 June 2024. The plaintiff moved on the Summons and read the affidavit of Mr Hewitt together with affidavits of service by Brendan Moore, Alysha Grundy, Jillian Miller and Penelope Roden.
2. The plaintiff's counsel proposed that the defendant provide an account "in the first instance", following which the plaintiff may then seek an account by some other process. The orders sought were re-drafted accordingly, to obtain relief in a cost-effective manner, where the plaintiff might be throwing good money after bad by proceeding directly to the taking of an account if, for example, the defendant did not further participate in the proceedings.
3. During the course of the hearing, some deficiencies in the plaintiff's evidence became apparent and the matter was stood down to permit the plaintiff to address these matters. During the course of the day, my Tipstaff emailed the plaintiff's counsel, copied to Mr McClymont at three email addresses, enquiring as to counsel's progress: "The Judge has asked me to follow up on your progress, noting that the hearing of the plaintiff's claim had been stood down to permit you to adduce further documentary or affidavit evidence going to: 1. the consent of a replacement trustee; 2. the basis on which it is said that an asset preservation order ought be made; 3. the amount specified in any asset preservation order (having regard to the plaintiff's legal costs, interest, and penalties for non-compliance with superannuation regulatory obligations). The Judge has asked me to advise that she is prepared to adjourn the hearing to tomorrow morning part-heard if need be, which will enable you to serve this material on Mr McClymont should he wish to respond to it or participate in the hearing tomorrow, including by telephone link. Please advise either way, so that we can arrange for transcript services to return to the Courtroom if the hearing is to be completed today."
4. The hearing resumed later that day. At the conclusion of the hearing, I made orders for the removal of Mr McClymont as trustee of the Super Fund and ordered that he deliver up the Super Fund deed together with all other documents held by the defendant in connection with the Super Fund. Pursuant to s 98(4)(c) of the Civil Procedure Act, I ordered that the plaintiff was entitled to a specified gross sum of $41,500 for costs and disbursements up to and including the hearing, instead of assessed costs.
5. As to the freezing order, I was satisfied that the plaintiff had established a good arguable case: Hewitt v McClymont [2024] NSWSC 1453 at [19]. As to whether there was a risk that any judgment would go unsatisfied by reason of the defendant dealing with his assets to place the matter beyond the reach of the plaintiff, I considered that three matters pointed towards such a risk. The first matter was the quality of the defendant's conduct alleged by the plaintiff. The second matter was the fact that the defendant had chosen not to participate in the proceedings in any substantive way nor engage with the plaintiff's requests for information and documents before the proceedings were commenced. Third, the defendant had disposed of a substantial asset during the currency of these proceedings. I concluded in Hewitt v McClymont at [23]: In combination, I am satisfied that the plaintiff has established that there is a risk that the defendant may seek to frustrate the processes of this Court by divesting of assets. In these circumstances, I am satisfied that it is appropriate to make such an order. However, I am not prepared to make a freezing order in the amount sought of $2 million, nor in the reduced amount proffered in closing submissions of some $1.6 million. The amount of the freezing order, for the moment, will be limited to the amount of the plaintiff's claim as may have been divined by the defendant from the material which was served on him. This appears to me to be an amount referrable to unexplained withdrawals from the Super Fund, totalling some $770,000, together with an appropriate amount for the plaintiff's legal costs and disbursements.
6. I made the following freezing order: "5. Order pursuant to r 25.11 of the Uniform Civil Procedures Rules 2005 (NSW) that the defendant must not remove from Australia or in any way dispose of, deal with or diminish the value of any of the defendant's assets in Australia (Australian assets) up to the unencumbered value of AUD$810,000 (the Relevant Amount). … 8. Order pursuant to r 25.11 of the Uniform Civil Procedures Rules 2005 that the defendant at or before the further hearing on the return date (or within such further time as the court may allow) to the best of the defendant's ability inform the plaintiff in writing of all of the defendant's assets worldwide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of the respondent's interest in the assets. 9. Order that the defendant within 5 working days, swear and serve on the plaintiff an affidavit setting out the above information. 10. Order the defendant to account to the plaintiff in respect of all dealings in relation to the Super Fund from 2011 to date. 11. Grant liberty to the plaintiff to apply in respect of the accounts and any equitable relief to which he may be entitled. 12. Grant liberty to either party to apply, including in the event that either party seeks to vary the freezing order. 13. List the matter in the Expedition List on 12 July 2024 at 9.30am."
7. Before passing from the hearing on 11 June 2024, on this application the defendant tendered an email apparently sent to my Chambers at 8.41 am on 11 June 2024, advising he would not be attending the hearing as he had not yet met with his new solicitors and would only meet with them on 13 June 2024: "I must say that I was shocked, as I felt that the circumstances explained in my previous Email were sufficient to allow a 2 week adjournment and I had every reason to believe that this would have been the case." Further, whilst it appeared that emails had been sent to his former business email addresses, he was unable to access these emails. Mr McClymont detailed his personal and financial circumstances and his difficulties in obtaining legal representation. Mr McClymont stated that he was experiencing extreme financial difficulty and hardship and had been living off the sales proceeds of two properties that he had sold; those moneys were now almost exhausted. Mr McClymont urged the Court to reconsider his previous request for an adjournment in light of these circumstances. He stated that many of the claims made by the plaintiff were untrue "and are based on ideology and assumptions, rather than the true facts." According to investigations undertaken by an IT System Engineer for the Department of Communities and Justice, this email was not, in fact, received by my Chambers.
8. The defendant was to supply the trust deed by 18 June 2024 but this did not happen. On 9 July 2024, the defendant's solicitors filed a notice of appearance. On 12 July 2024, I extended the time for compliance with the orders made on 11 June 2024, including in respect of the defendant's affidavit of disclosure.
9. On 16 July 2024, Mr McClymont affirmed an affidavit detailing the documents provided to the plaintiff in relation to the Super Fund. Mr McClymont also detailed various documents which could not be located and were thought to have been destroyed as part of his business' archiving process. Further, the hard drive used in his business was defective. He hoped to have access to the database by 22 July 2024.
10. On 2 August 2024, the defendant was represented by counsel and the parties considered the way forward. I noted, "I don't think we were sure whether I was going to do [the account] or whether a Registrar was going to do that, but you have already been found to be entitled to have an account given by the defendant." I extended the time for the defendant to comply with the orders made on 11 June 2024 and made orders for delivery up of the defendant's hard drive which, according to the defendant, had failed such that he was unable to extract the relevant accounting ledgers and trust account statements.

Disclosure of assets

1. On 2 August 2024, Mr McClymont made an affidavit of disclosure in respect of his financial circumstances. Mr McClymont did not list any bank accounts in the affidavit of disclosure "because the balances of all my bank accounts were less than $100 I didn't consider them to be substantial assets." He also did not disclose his superannuation account, "I was instructed by my lawyer at the time that I didn't need to as they're not an asset of value to creditors."
2. On 8 August 2024, the defendant made a supplementary affidavit of disclosure, listing six bank accounts which he or his companies held, in addition with his superannuation fund. The six bank accounts had negligible balances. Separately, the Commonwealth Bank produced a list of 18 current accounts in the name of the defendant together with 15 accounts of which he is a signatory (noting that there is some overlap between these two lists).
3. On 4 September 2024, the plaintiff filed a motion seeking a garnishee order in respect of the specified gross sum of $41,500 made on 11 June 2024. The plaintiff's solicitors also provided the freezing orders to the Commonwealth Bank. The bank froze the defendant's bank accounts.
4. On 5 September 2024, the defendant's solicitors sought further time from the plaintiff's solicitor to provide an account in respect of transactions concerning the Super Fund where, "Our client has encountered difficulties accounting for all transactions … because of the absence of certain documents which have been destroyed as part of our client's document control process with respect to hard copy records and the inadvertent loss of documents held electronically". On 6 September 2024, I extended the time for the defendant to provide an account until 18 September 2024.
5. On 10 September 2024, the Court issued a garnishee order.
6. On 18 September 2024, the defendant's solicitors provided an account in respect of all dealings in relation to the Super Fund from 2011 to date. The account was said to have been created with the limited documentation available to the defendant as described in earlier correspondence. The account comprised a spreadsheet with commentary on transactions on the Super Fund. The defendant gave an account for the transactions save for $146,177.
7. Mr Matthews examined the spreadsheet prepared by the defendant. He considered that the spreadsheet did not represent the total of unexplained transactions in respect of the Super Fund and deferred to his analysis: see [28]-[31].
8. On 20 September 2024, the defendant sought to vary the freezing orders and relied on a further affidavit from the defendant made on 17 September 2024, describing his personal and business expenses together with details of the moneys owed to his father, bills which required immediate payment, legal expenses and his limited income. I varied the freezing order to permit the defendant to withdraw up to $2,200 per week for living expenses and a further $3,000 immediately to meet overdue current liabilities. Directions were made for the defendant to file any motion seeking any further variation of the freezing order.
9. On 25 September 2024, the plaintiff's solicitor issued a notice to produce for inspection to the defendant, seeking documents in support of the application to modify the freezing order, in particular, documents referred to in the various affidavits of disclosure made by the defendant to that point. The defendant's solicitor later replied that the notice was regarded as "incompetent" and otherwise did not comply with the notice.
10. On 30 September 2024, the defendant filed a motion seeking to vary the freezing order, which is the subject of this judgment. The defendant made a further affidavit providing additional details in relation to business expenses, income, legal expenses and difficulties operating the superannuation accounts on behalf of ongoing customers. Mr McClymont also complained that the garnishee order had extracted $11,105.29 from his accounts such that he was now without funds.
11. On 11 October 2024, I made further notations in respect of the freezing orders to address the difficulties being experienced by the defendant's other clients in operating their superannuation accounts. The defendant's motion was stood over for hearing on 1 November 2024, as the defendant was not then available for cross-examination, although it had been indicated that he would be required.

Submissions

1. The defendant sought to discharge the freezing order or reduce the amount to the outstanding balance owing in respect of a lump sum costs order, being $30,394.71. A present insufficiency of funds with prospects of the ability to pay in full within a reasonable time was a basis for making an instalment order: SRG Civil Pty Ltd v Brolton Group Pty Ltd [2018] NSWSC 618 at [90] (N Adams J).
2. The defendant submitted that, by service of the spreadsheet on 18 September 2024, he has complied with the orders of Court save to pay the remainder of the lump sum costs order. Since service of the spreadsheet, any withdrawals from the plaintiff's superannuation fund could no longer be said to be "unexplained". The defendant submitted that there has never been a case of "wilful default" such that he would have to make up any deficiency of funds disclosed by the account: Juul v Northey [2010] NSWCA 211 at [185]-[203]; Grace v Grace [2012] NSWSC 976 at [215]-[219]. Even if there were such a claim made, it could only have gone back six years and not to 2011, as the account in common form has done: Russo v Russo [2015] NSWSC 17 at [186]; Slattery J, citing Limitation Act 1969 (NSW) ss 15, 23 and 64 and Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156.
3. The defendant submitted that there was no apparent danger that the judgment in respect of the gross lump sum would go unsatisfied by reason of improper dealing with assets by the defendant. There was no evidence to support any misappropriation or dishonesty, rather than a failure of record-keeping and delay in accounting and responding to requests for information and documents. There has been no challenge to the account provided by the defendant on admissible, objective and factual evidence or at all, apart from the vague, unsupported "analysis" by Mr Matthews nor any claim of wilful or other relevant default. No allegation of misappropriation was put to the defendant in cross-examination. (It is not clear why it was necessary to do so, when the application before the Court is whether the freezing order should be discharged or varied.)
4. The defendant submitted that he failed to appear at the hearing on 11 June 2024 due to a failure to properly respond to notice of the hearing. The failure to appear was a discourtesy to the Court and plaintiff and, contrary to his own interests. But in the case of an unrepresented defendant, to whom the serious effect of the hearing orders was not appreciated (said to be apparent from his presumptuous applications for adjournment by email to the Court), the serious inference from his non-appearance of dishonesty in hiding from the Court was unavailable. The defendant had since explained his failure to account, which was not dishonesty but the lawful destruction of old records and the accidental loss of other records during the forced closure and sale of his office, requiring lengthy reconstitution, in order to comply. The failure to produce the original trust deed had now been explained and an unexecuted copy provided.
5. The defendant submitted that he had only disposed of one of his three property assets, leaving a house (valued at $1.1 million) and a half-interest in another investment property (valued at $355,000). He had net assets of $364,538. During cross-examination, the defendant explained why the property had to be sold. His actions could not be seen as intending to avoid a judgment, which was for $41,500 (now reduced to $30,394.71). There was no evidence that any proceeds of that sale were dissipated with the intention of frustrating any judgment obtained by the plaintiff.
6. The defendant criticised the plaintiff for serving the freezing order on the defendant's banks and obtaining a garnishee order. A freezing order was not a proprietary remedy but a personal obligation imposed on the defendant not to use his right to access his assets for purposes contrary to the order: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; (1999) HCA 18 at [50]. There was no reason why a freezing order ought to affect any of the defendant's bank accounts or the paltry amounts transacted in them. Any restraint should be limited to dealing with the only substantial assets held by the defendant, being his interest in real property. However, the effect of a restraint on the partnership property in Queensland and the third party there involved ought be considered. The defendant's tenuous financial circumstances tipped the balance of convenience in his favour. The freezing order could not be used as security for payment of the judgment debt and was unnecessary in any event where all the relief sought in the Summons had been given, apart from payment of costs. The proceedings were substantively concluded. The freezing order had become unjust and should be discharged or truncated.
7. The defendant sought to pay $25,000 in legal expenses, $6,000 per month in business and employment expenses and $70 per month in residual business expenses for his closed tax and accountancy business. The shortfall in expenses of the partnership with the defendant's father of $1,300 per month were currently paid by his father, which is an unjust burden on a third party. The defendant also sought a more effective exclusion of trust accounts for superannuation clients caught by the wide application by the bank of the definition of assets as any accounts, on which he can operate. The SMSF accounts ought be released from the operation of the freezing orders.
8. The defendant submitted that there was no failure to comply with his disclosure obligations in respect of gambling. There was no relevant expenditure, where gambling winnings offset bets. The freezing order did not prevent the defendant from paying his "ordinary living expenses", which must include entertainment such as gambling. When the defendant made his affidavit of disclosure, the bank accounts used for gambling were not in credit and thus not assets which needed to be detailed. While the defendant may have held other bank accounts with the Commonwealth Bank, he was only required to disclose "assets" and these accounts held no funds at the time. Nor did was the defendant's interest in a racehorse an asset, where he held an interest in a syndicate and there was no evidence of any equity in the horse. The defendant was not obliged to disclose what had happened with the proceeds of sale of the Gosford property. The fact that loans from his father were undocumented was unremarkable. Criticisms in respect of his disclosure of income and expenses were rejected. The loan repayments of $739.40 per week were not presently being paid due to hardship terms negotiated with the lender but remained an ongoing liability. The defendant was entitled to ignore the notice to produce as it did not comply with the rules and was said to lack sense. The defendant's evidence should be accepted. To the extent there was non-disclosure, it was inadvertent and insignificant.
9. The defendant submitted that the onus was on the plaintiff to justify the continuation of the freezing order. There was no "prima facie case of fraudulent misappropriation" as suggested by the plaintiff, which was a serious allegation which must be strictly pleaded, particularised and proven: Re Galtari Pty Ltd (in liq) [2018] NSWSC 917 at [78]-[80] (per Gleeson JA); UCPR r 15.3. There was no case and no evidence to support such a case, months after disclosure and the service of the defendant's spreadsheet providing an account. There was no evidence of a danger apparent of any "prospective judgment" on any such grounds being unsatisfied by any action of the defendant. The continuation of the freezing order could not be justified. Alternatively, the unjust effect of the orders must be reduced to what is necessary and practical on balance to meet any legitimate concerns.
10. The plaintiff opposed the discharge or variation of the freezing order, given the defendant's failure to comply with the Court's orders and where the plaintiff's claim against the defendant far exceeded the lump sum order. The defendant was said to have breached the freezing order by using funds to gamble $59,000 between 11 June 2024 and 11 September 2024, being about $4,720 per week. The defendant did not disclose the existence of the bank accounts which he used for gambling. The defendant did not disclose the money spent (or won) on gambling in his income and expenses. The defendant did not disclose his interest in a racehorse. The defendant's explanations as to why he did not disclose these matters should not be accepted: he said the accounts were not in credit at the time and thus were not assets, while the accounts did have a credit balance at the time.
11. The plaintiff submitted that the defendant had also failed to disclose a number of bank accounts which the Commonwealth Bank had identified in answer to a subpoena. The defendant was required to disclose what had happened to the proceeds of sale of the Gosford property; his explanation was not given until the witness box and then was not persuasive. The defendant's disclosure of his income was also inaccurate, when compared with answers given in cross-examination. Of the defendant's weekly expenses, the largest was a weekly payment of $739.40, but this payment did not appear on the defendant's bank statements. The defendant has various loans from his father, for which no documentation was provided and the enforceability of which was uncertain: Ermogenous v Greek Orthodox Community of South Australia Inc (2002) 209 CLR 95, Reeves v Reeves [2024] NSWSC 134, Chaudhary v Chaudhary [2017] NSWCA 222, Robinson v Burns [2022] NSWSC 1713, Russell and Dunphy v Dunphy [2023] NSWSC 282 and Shymko v Lach [2022] NSWSC 1096. The defendant appeared to have under-valued a Queensland property. The defendant did not comply with a notice to produce in respect of his tax returns.
12. The plaintiff submitted that making and continuing a freezing order involved a balancing exercise. The evidence did not justify the Court further varying the freezing order. A prima facie case of fraudulent misappropriation of assets or serious wrongdoing readily supported the inference that the prospective judgment debtor would not preserve his assets. The plaintiff accepted that the defendant's business was unprofitable; it followed that the utility of permitting the defendant to have access to the accounts for this purpose was dubious. Further, unless and until the defendant provided evidence of the balances of all bank accounts in which he had an interest, there should be no variation of the freezing order. Nor has the defendant produced his tax returns, as required by a notice to produce.
13. The plaintiff also submitted that the evidence provided by the defendant as to his assets and liabilities raised questions. For example, the defendant said he had a business loan from Brampton Finance of $190,000, but this was secured by mortgage over a property recently sold and thus should have been repaid. The defendant had not satisfactorily explained what had happened to the proceeds of sale and this loan. An order has already been made that the defendant can withdraw $2,200 per week for living expenses. This was adequate on the basis of the evidence and was made before the defendant's wife commenced employment. The defendant's legal expenses are being apparently funded by his father and there is no evidence this could not continue.

Consideration

1. The Court may discharge or vary a freezing order if it is in the interests of justice: Deputy Commissioner of Taxation v Huang (No 4) [2022] FCA 618 at [19] (Jagot J). Her Honour there followed the observations made by Vickery J in Break Fast Investments Pty Ltd v Gravity Ventures Pty Ltd [2013] VSC 89 at [43]: "… a freezing order may be varied, on the application of the defendant, or indeed any other person who is affected by the making of the order. However, any such variation that is made must not, in the ordinary course, conflict with the purpose for which the order was made in the first place. Secondly, a variation must also accord with the interests of justice."
2. Her Honour also endorsed the observations of Barker J in MG Corrosion Consultants v Gilmour [2012] FCA 568 at [14]: "So far as the court's power to vary a freezing order is concerned, there can be little doubt about it. Similarly, it is also clear that having made a freezing order a court should not be quick to reverse it save for good reason and the dictates of justice. … Ultimately, the grant or discharge or variation of an interlocutory injunction, including a freezing order will be dictated by what justice demands in the particular circumstances of the case."
3. In the case at hand, the parties' submissions raise, essentially, six matters.
4. First, does the fact that the defendant provided an account on 18 September 2024 mean that the plaintiff had obtained the relief sought such that these proceedings are essentially concluded? No. By the Summons, the plaintiff seeks as final relief: 11. An order for the taking of accounts for the Super Fund. 12. An order that the plaintiff have liberty to apply in respect of the accounts and any equitable relief to which he may be entitled. 13. Costs.
5. As Brereton J observed in Torlonia v Wright [2016] NSWSC 1139 at [8]: "In an application for an account, the first and fundamental issue is whether the parties are in an accounting relationship pursuant to which there is a liability on the part of the defendant to pay to the plaintiff any amount found to be due on the taking of accounts."
6. This issue was determined on 11 June 2024 on, effectively, a summary judgment basis where the defendant did not appear. The defendant has not subsequently sought to set aside or vary that order, noting that he was entitled to apply within 14 days under r 36.16(2)(b) of the UCPR to do so as the order was made in his absence.
7. Having determined that the defendant is liable to account, the first stage in the process is that the accounting party "does account" by preparing an account from the date the first capital was received or first exercised a power in respect of it: James Watson, The Duty to Account: Developments and Principles (2016, Federation Press) page 104 at [182]. The second stage in the taking of accounts in common form is that the other party can challenge the accounting party's account by asserting that more was received (surcharges) or that less was disposed of (falsifications): Meehan v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146 at 149. Part 46 of the UCPR provides wide powers for the Court to give directions in respect of the taking of an account, including expediting the proceedings in the event of any delay: r 46.9.
8. The way forward for these proceedings, as previously canvassed with counsel, reflects these two stages: see [44] and [52].
9. The defendant has now completed the first stage by providing an account. The plaintiff challenges that account, relying on Mr Matthews' review of the defendant's spreadsheet. The next step is for the Court or a referee to take an account and ascertain the amount of the Super Fund, if any, which the defendant has expended other than in accordance with his fiduciary obligations as trustee. The plaintiff also seeks, by prayer 12 and prayer 13, equitable relief to which he may be entitled following a taking of accounts and an order for the costs of these proceedings. Both prayers have yet to be finalised.
10. Second, should continuation of the freezing order and the risk of dissipation of assets be considered having regard to the remaining gross lump sum amount of $30,000 alone? No. The quantum of a freezing order ought not be fixed at a sum greater than that which the plaintiff would potentially or likely recover: Cardile v LED Builders at [124]. The defendant's potential liability to account for missing funds from the Super Fund is $770,000. On the last occasion, I added an amount for the cost then incurred by the plaintiff, bringing the amount of the freezing order to $810,000. Whilst $11,000 of those costs has been paid via the garnishee order, likely the plaintiff has incurred further legal costs since 11 June 2024.
11. Third, ought the freezing order be discharged where the defendant's non-appearance and non-production of documents and information has now been remedied? I accept that the defendant's initial non-engagement with these proceedings has been attended to with the assistance of legal representation. This may be relevant to whether the interests of justice demand that the freezing order be varied or discharged. Other relevant considerations include those canvassed in my judgment on 11 June 2016, being whether the plaintiff has a "good arguable case" and whether there is a risk, not a "mere assertion", that the defendant may dispose of his assets so as to leave any judgment unsatisfied: Frigo v Culhaci [1998] NSWCA 88 at 16.
12. The plaintiff continues to have a "good arguable case", based on Mr Matthews' more detailed work undertaken since his first affidavit. His work suggests that Mr McClymont may have misappropriated $770,000 of superannuation monies entrusted to him by Mr Hewitt. Whether the plaintiff ultimately establishes this, or whether the defendant's explanation prevails, remains to be determined by the Court or the referee taking the account.
13. The risk of asset dissipation also remains. Absent the freezing order, there is no doubt that Mr McClymont will sell his investment property in Queensland (at least) to address the financial situation in which he now finds himself. Mr McClymont readily agreed that, if the freezing order was not in place, "most likely I would have sold [the Queensland property] to fund the legal expenses that I'm currently incurring". Mr McClymont agreed that, once these proceedings were finalised, then he would look to sell the Queensland property, repay his father "and I'll probably have nothing left over out of it."
14. An additional risk of asset dissipation was indicated on this application given Mr McClymont's gambling. In cross-examination, Mr McClymont disclosed a further bank account ending 3611. A bank statement for this account from March to August 2024 indicates that Mr McClymont continues to engage in gambling activity using providers including Sportsbet and Tatts Online. When it was pointed out during cross-examination that Mr McClymont has spent $59,000 on betting - or $4,7200 per week - since the freezing order was made, Mr McClymont insisted that the bank account only showed withdrawals for betting, but not winnings, which went into a different account. Mr McClymont said his gambling winnings were deposited into the Gambling Account. Mr McClymont did not disclose the Gambling Account in his affidavits of disclosure as it had a zero balance and he did not consider it to be an asset.
15. Mr McClymont said that his gambling was "more of a circular transaction", with little money, if any, expended overall. Mr McClymont said that the gambling expenses and winnings were "approximately the same … maybe a couple of dollars either way. I don't keep a running tally on it." The bank statements indicate that Mr McClymont's gambling is such that, in the past, he may have used superannuation moneys entrusted to him by the plaintiff to gamble. Mr McClymont may be 'in denial' that he may have a gambling problem.
16. Overall, having regard to the plaintiff's "good arguable case" and the risk of dissipation of assets, I am not satisfied that the dictates of justice require that the freezing order be discharged notwithstanding that the defendant has now engaged with these proceedings.
17. Fourth, the defendant sought, alternatively, a variation to the freezing order to permit him to withdraw "from any bank account held in his name or jointly with anyone else or controlled by him (or otherwise fund from his assets) to make payments totalling up to $25,000 for legal costs plus $6,000 a month for business expenses of a financial brokerage business conducted by him in the name of Mainstream Finance Services Pty Ltd.
18. Given the defendant's limited disclosure of bank accounts in his affidavits of disclosure, I am slightly concerned at the reference to bank accounts held by him or jointly with anyone else "or controlled by him", where I have no visibility on what those accounts may be or currently hold.
19. Mr McClymont said he has retired as an accountant but remains a licenced credit adviser and credit broker and holds an Australian credit licence. Mainstream Finance Services continues to provide brokering services to members of the public for credit applications and earns commission both up-front and trailing commission for loans written and settled. Mr McClymont values the goodwill of this business at $19,000. The balance of the bank account operated by the business is minimal. Mr McClymont is also employed by nine of his friends as an administration assistant, as this is the only way he is lawfully able to do any work.
20. In addition, Mr McClymont sought $70 per month for the residual liabilities of Hazel-Scott, which relate to the lease payments for a franking machine. He also sought to withdraw a further $7,000 immediately to meet overdue current liabilities.
21. There were some problems with Mr McClymont's disclosure of his assets and liabilities, which it is not necessary to detail. But I readily accept that his finances are in a poor state. The only assets of substance that he retains are his home and the Queensland investment property. There is substantial equity in both properties.
22. There is evidence that the defendant owes legal costs of at least $25,000. I am prepared to vary the freezing order to permit him to use funds from his bank accounts to pay these legal costs, but only from the bank accounts which he has disclosed. If he has another bank account which is presently frozen, from which he proposes to pay legal expenses, Mr McClymont should seek a further variation of the freezing order to permit this to occur. To reduce costs, I suggest that Mr McClymont request this variation by email to the plaintiff's legal representatives in the first instance and, failing consent, submit this material by email to my chambers and I will determine the application on the papers, including with reference to any material the plaintiff wishes to submit.
23. The monthly expenses of Mainstream Finance Services are $74 to the Australian Finance Group to access the electronic loan application platform, $137.50 for professional indemnity insurance, $166.66 for professional memberships required by his employment and $778,52 for a motor vehicle lease. By my calculations, these expenses add up to $1,156.68 per month, so I am unclear as to why $6,000 per month is needed.
24. Mr McClymont said he received approximately $1,000 per month in trailing commissions from the business, which were applied to the monthly motor vehicle lease, his mobile phone account and these expenses. He also receives income from his various employers of some $5,600 per month. As I understand it, the trailing commissions and employment income each month exceed the expenses of this business.
25. I consider that the freezing order should exclude the bank account for this business so that the defendant can conduct the business. Beyond this, I am not persuaded that the freezing order should be varied in the manner sought.
26. Fifth, the defendant sought to vary the freezing order to enable him to operate the superannuation account for other clients. According to an email from the Commonwealth Bank, the bank is unable to arrange electronic viewing access to an account with a stop placed on it. The defendant is an authorised operator of the superannuation account of other clients, where the method of operation for the accounts requires only one authorised operator to authorise any transaction. These clients are able to attend their local branch to conduct transactions on the accounts and obtain account statements to view the transaction history for the accounts but the accounts cannot be restored to full normal access absent being released from the operation of the freezing orders.
27. As I understand the bank's email, the clients may operate these accounts themselves by attending at their local branch. Any immediate inconvenience to these clients by the freezing order can be alleviated by this course. I am not prepared to permit the defendant to operate those client accounts absent evidence that the clients have given written consent to this course. On receipt of such written consent, and to keep costs to a minimum, I suggest that Mr McClymont request any variation to the freezing order by email to the plaintiff's legal representatives in the first instance and, failing consent, submit the material by email to my chambers and I will determine the application on the papers, including with reference to any materials submitted by the plaintiff.
28. Finally, as to the defendant's request to pay by instalments, I am not prepared to permit Mr McClymont six years to pay the balance of the gross lump sum costs. I consider that the proposed time-frame for payment is too long and the proposed instalment amounts would not result in the material and timely contribution to reduction of the balance of the outstanding judgment debt: Hellier Pty Ltd v Albaran [2009] NSWSC 403 at [11] and [22].

Orders

1. For these reasons, I make the following orders: 1. Further vary order 5 and order 7 made on 11 June 2024 such that: 1. The defendant is permitted to operate the bank account with the Commonwealth Bank of Australia in the name of Mainstream Finance Services Pty Ltd with account number 062544 10493725. 2. The defendant is entitled to withdraw up to $25,000 from the bank accounts listed at paragraph 4 of his affidavit of 8 August 2024 for the purpose of paying legal fees, being: (i) Scott McClymont Cheque Account - Commonwealth Bank (A/c: 062544 10282733) (ii) Scott & Laila McClymont Access Account - Commonwealth Bank (A/c: 062692 30138680) (iii) Scott & Laila McClymont Goal Saver Account - Commonwealth Bank (A/c: 062692 36447468) (iv) Scott & James McClymont Partnership Cheque Account - Commonwealth Bank (A/c: 062544 10593451) (v) Mainstream Taxation & Accountancy Services Account - Commonwealth Bank (A/c: 062544 1054886) (vi) Mainstream Finance Services Pty Ltd Account - Commonwealth Bank (A/c: 062544 10493725)

1. Otherwise dismiss the defendant's Amended Notice of Motion filed on 1 November 2024.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 November 2024