Solicitors:
Peninsula Law (Plaintiff)
File Number(s): 2024/151741
[2]
EX TEMPORE JUDGMENT
HER HONOUR: This is an application for summary judgment, where the defendant, Scott McClymont, has not appeared at the final hearing, nor the last directions hearing. The plaintiff, Geoffrey Hewitt, is a former client of the defendant. The defendant is an accountant and, until recently, a tax agent.
In 2011, the defendant set up the Geoffrey Hewitt Super Fund (the Super Fund), of which both the plaintiff and the defendant were co-trustees. The plaintiff does not have a copy of the trust deed, although he has asked the defendant for it several times.
The plaintiff 'rolled over' some $450,000 into the Super Fund. The Super Fund was used to establish three accounts with the Commonwealth Bank: a CommSec account comprising listed shares and an investment in a managed fund, a CDIA account and a premium business transaction account. The defendant used some $340,000 from the Super Fund to purchase shares through the CommSec account.
Employer contributions were then added over the next 10 years. In total, the plaintiff and his employer contributed some $586,000 to the Super Fund.
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 the defendant's corporate entity, Hazel-Scott Pty Ltd, was no longer a registered tax agent and the plaintiff should appoint a new agent.
In August 2023, the plaintiff engaged new accountants, HC Partners. The accountants reviewed the Commonwealth Bank accounts and prepared detailed tables, highlighting unexplained withdrawals from the accounts since March 2012. Some $575,000 of withdrawals from the CDIA account were unexplained, as was some $193,000 withdrawn from the premium business transaction account. The plaintiff was informed by the new accountants that some $770,000 had been withdrawn from the Super Fund without apparent explanation. The plaintiff has no knowledge of these transactions.
In August 2023, the plaintiff emailed the defendant requesting information and documents. There was no response. A further unexplained withdrawal from the premium business transaction account took place on 29 August 2023, in the amount of $1,480. The plaintiff called the Commonwealth Bank and froze the accounts. On 31 August 2023, the plaintiff made a complaint to the Tax Practitioners Board.
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. On 9 October 2023, the plaintiff went to the police.
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. There was no response.
On 23 April 2024, these proceedings were commenced by Summons. The plaintiff sought to remove the defendant as trustee of the Super Fund together with freezing orders for an amount up to $2 million. The Summons was supported by an affidavit of the plaintiff, together with a compendious documentary exhibit comprising two lever-arch folders. The plaintiff deposed that the remaining assets in the Super Fund were now some $280,000. The Summons and supporting affidavit was served on the defendant on 1 May 2024.
On 3 May 2024, the matter was listed before me in the Expedition List. The defendant appeared via telephone link. Consent orders were made for the service of the exhibit to the plaintiff's. 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. These orders were served on the defendant later that day, together with the exhibits to the plaintiff's affidavit.
Since 1999, the defendant had owned a property in East Gosford with James McClymont, presumably a relative. On 20 May 2024, the defendant completed the sale of the property for $850,000. The plaintiff points to this asset sale in support of a submission that the Court would be concerned that the defendant may seek to frustrate the processes of this Court.
The defendant's affidavits were due 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.
The matter was before the Court for directions on 7 June 2024. There was no appearance by the defendant. There, the matter was fixed for hearing today. The plaintiff was directed to serve written submissions on the defendant later, on 7 June 2024, together with a copy of my orders. That was attended to. There was no appearance by the defendant today.
I am satisfied in the circumstances that the defendant should be removed as a trustee of the Geoffrey Hewitt Super Fund. A consent to act as trustee has been provided by Anne Hewitt, who will be appointed in the defendant's stead. As he is no longer a trustee, the defendant must deliver up the trust deed, together with any books and records of the Super Fund.
As noted at the outset, the plaintiff also seeks an asset preservation order and disclosure order under r 25.14(4) of the Uniform Civil Procedure Rules 2005 (NSW), which provides:
"25.14 Order against judgment debtor or prospective judgment debtor or third party
…
(4) The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur -
(a) the judgment debtor, prospective judgment debtor or another person absconds,
(b) the assets of the judgment debtor, prospective judgment debtor or another person are -
(i) removed from Australia or from a place inside or outside Australia, or
(ii) disposed of, dealt with or diminished in value."
An applicant for a freezing order must establish two things: first, a "good arguable case"; and second, a risk that any judgment will go unsatisfied by reason of the other party dealing with their assets in a way which places them out of the applicant's reach: Tomasetti v Brailey [2012] NSWCA 6 at [14]-[15]; Samimi v Seyedabadi; Seyedabadi v Samimi [2013] NSWCA 279 at [72]-[74]. It must be shown that there is a risk, not a "mere assertion", that a respondent may dispose of or deal with his or her assets in such a manner as to leave any judgment unsatisfied: Frigo v Culhaci [1998] NSWCA 88 at 16.
Freezing orders are exceptional in nature; the power to make such orders must be exercised with caution, particularly in relation to the width of any orders made: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [51], [53] (per Gaudron, McHugh, Gummow and Callinan JJ). The quantum of the 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]; OXC Bidco Pty Ltd v Dickson [2016] NSWSC 968 at [14] (per Stevenson J). Importantly, a freezing order is not intended to, and does not permit, the creating of security for a judgment debt: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625 (per Deane J); Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174 at [19] (per Drummond J).
Obviously enough, the plaintiff has established a good arguable case, where I will soon make final orders in the plaintiff's favour. As to whether there is a risk that any judgment will go unsatisfied by reason of the defendant dealing with his assets to place the matter beyond the reach of the plaintiff, three matters point towards such a risk.
The first matter is the quality of the defendant's conduct alleged by the plaintiff, and not defended. The conduct is in the nature of misappropriation of funds by a trustee. The apparent dishonesty of a defendant in dealing with the plaintiff's property may provide an adequate basis for a material risk of the irrecoverability of that property under the final judgment execution process: Turner v Universal Home Loans Pty Ltd [2004] NSWSC 936 at [20] (per Palmer J). Similarly, the nature of the underlying cause of action, at least where it involves fraud, may provide a basis for apprehending a relevant risk to the efficacy of the Court's process: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325 (per Gleeson CJ).
The second matter is that the defendant has chosen not to participate in these proceedings in any substantive way. Nor did the defendant engage with the plaintiff's requests for information and documents before these proceedings were commenced. Although he was ordered to provide a copy of the trust deed on payment of $100, the defendant was required to provide the plaintiff with his bank account details in order to enable the funds to be paid. The defendant did not oblige in this regard. He is yet to produce a copy of the trust deed. One might think that would have been a simple matter for a trustee to do. This gives me some concern.
The third matter is that there is evidence that the defendant has disposed of a substantial asset during the currency of these proceedings. The proceeds of sale do appear to have been used, in part, to discharge a mortgage. No further details were before the Court.
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.
The plaintiff sought a gross lump sum under s 98(4)(c) of the Civil Procedure Act 2005 (NSW) instead of assessed costs. This does seem to be an appropriate case in which to make such an order, where there is a concern that the costs of an assessment process may involve throwing good money after bad. Having regard to the evidence of the plaintiff's solicitor and accountant, and discounting the solicitor and counsel fees to reflect what the plaintiff may recover on an assessment, I consider that an amount of $41,500 is appropriate.
In the result, I am prepared to make a freezing order in the sum of $810,000. I will grant liberty to apply to both parties in the event that the plaintiff wishes to increase the amount of the freezing order or, the defendant seeks to have the amount reduced or the order discharged.
[3]
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: 13 June 2024