By a summons filed on 5 March 2018, the plaintiffs sought freezing orders against each of the first to tenth defendants.
The plaintiffs are part of a wider group of companies known as the Pace Group and provide transport services for the group.
The first defendant, Mr Kent, was an employee of the Pace Group from 2001 and since 2006 has provided his services as a Chief Financial Officer to the group through the third defendant, Deduce Financials Pty Ltd (Deduce).
On 13 February 2018, Mr Kent confessed to Mr Paul Pace, a director of the Pace Group, that he had been stealing money from the group for the past five years. In fact, the evidence is that Mr Kent misappropriated at least $5,882,967.86 from the plaintiffs since January 2015 and misappropriated further amounts before that time, although the precise amount is not yet known.
The second defendant, Mrs Christine Poynton-Kent, is Mr Kent's wife. The remaining defendants are companies owned by Mr Kent and Mrs Poynton-Kent or companies in which one or both of them have an interest. There is no evidence that Mrs Poynton-Kent was aware that her husband was misappropriating money belonging to the plaintiffs, and nor is there any evidence that she directly received any of the money alleged to have been misappropriated. However, there is evidence that some misappropriated moneys were applied to property loans in respect of properties owned by Mr Kent (as to a 1 per cent share) and Mrs Poynton-Kent (as to a 99 per cent share), including their residential home in White Cedar Drive, Castle Hill and an investment property in Campbell Crescent, Terrigal.
On 20 and 21 February 2018, the plaintiffs applied for freezing orders and search orders before Hallen J. No orders were made by his Honour and the application was not ultimately pressed. His Honour expressed concern at the time that the application had been made on an ex parte basis and also considered that the relief may not be necessary given the level of cooperation that had been provided by Mr Kent.
The current application was originally made on the basis of further information that the plaintiffs have obtained since 21 February 2018, about which more will be said shortly.
Prior to the hearing of the application on 8 March 2018, the plaintiffs reached agreement with the eighth, ninth and tenth defendants and consequently did not press the relief they sought against them. There was no appearance for the seventh defendant, TTA Investment Holdings Pty Ltd (TTA), although the evidence is that it was served in accordance with orders made by the Court on 5 March 2018. On 8 March 2018, I made interlocutory orders against TTA pending delivery of this judgment and the plaintiffs press for freezing orders against it.
During the hearing of the application on 8 March 2018, the remaining defendants proffered undertakings to the Court. In substance, those undertakings were not to dispose of any of their assets and not to destroy any of their financial records, but on the basis that those undertakings did not prevent:
1. Mr Kent paying up to $2,000 a week on ordinary living expenses;
2. the defendants paying their reasonable legal fees;
3. the defendants dealing with or disposing of assets in the ordinary and proper course of business, including the payment of business expenses properly incurred, such as tax.
In light of those undertakings, the plaintiffs only pressed for orders in terms of paragraphs 8 and 9 of the standard form freezing order set out in Practice Note SC Gen 14 Supreme Court - Freezing Orders. Those orders are in the following terms:
PROVISION OF INFORMATION
8. Subject to paragraph 9, you must:
(a) at or before the further hearing on the return day (or within such further time as the Court may allow) to the best of your ability inform the applicant in writing of all your assets in [Australia] [world wide], giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets;
(b) within [ ] working days after being served with this order, swear and serve on the applicant an affidavit setting out the above information.
9.(a) This paragraph (9) applies if you are not a corporation and you wish to object to complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that you:
(i) have committed an offence against or arising under an Australian law or a law of a foreign country; or
(ii) are liable to a civil penalty.
(b) This paragraph (9) also applies if you are a corporation and all of the persons who are able to comply with paragraph 8 on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively:
(i) have committed an offence against or arising under an Australian law or a law of a foreign country; or
(ii) are liable to a civil penalty.
(c) You must:
(i) disclose so much of the information required to be disclosed to which no objection is taken; and
(ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and
(iii) file and serve on each other party a separate affidavit setting out the basis of the objection.
Consequently, the issues remaining to be determined are whether the Court should grant freezing orders against TTA and whether it should make disclosure orders in terms of paras 8 and 9 of the standard form of orders against the first to sixth defendants.
[2]
Legal Principles
It is common ground that the court has power to make a freezing order where it is satisfied that the plaintiff has a serious case which has a real possibility of ultimate success and where there is a danger that any judgment or prospective judgment of the court will be wholly or partially unsatisfied if the order is not made: see Uniform Civil Procedure Rules 2005 (NSW) (UCPR) rr 25.11, 25.14; UP Australia Pty Ltd v McDonald [2018] NSWSC 218 at [37] per Slattery J. It is not necessary for the applicant to show that a defendant has a positive intention to frustrate the judgment of the court, but merely that that might be the result of the defendant's conduct: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [26]. The court also has power to make an ancillary order, including an order for the purposes of eliciting information relating to assets relevant to a freezing order or prospective freezing order: UCPR r 25.12.
[3]
Orders against TTA
Fifty per cent of the shares in TTA are held by the fourth defendant, Kent Investment Holdings Pty Ltd, which is wholly owned by Mr Kent. The remaining shares in TTA are held by Mr Matthew Tumbers. Mr Kent and Mr Tumbers are directors of TTA. The evidence suggests that TTA received $230,500 in misappropriated funds in the period 1 July 2017 to 29 December 2017 indirectly via transfers from Deduce.
In my opinion, it is appropriate to continue the freezing orders made against TTA, although in a modified form.
It is unclear in what circumstances the $230,500 came to be paid to TTA. However, on the information available, it is at least seriously arguable that TTA was a volunteer and that the plaintiffs will be entitled to recover the amount paid to it on that basis and to trace the payments that were made. The attitude of Mr Tumbers is unknown and there was no appearance by TTA at the hearing. In those circumstances, there is a substantial danger that TTA will treat the money as its own and, in doing so, will deal with it in a way which will prevent tracing.
However, any freezing order should be limited to the amount known to have been paid to TTA. Consequently, the order should be limited to an amount of $230,500.
[4]
Orders against the first to sixth defendants
The first to sixth defendants resisted the orders sought against them on the basis that the Court would not make freezing orders against them and therefore should not make orders ancillary to freezing orders.
According to the first to sixth defendants, the Court would not make freezing orders because of Mr Kent's cooperation and because there is no evidence that any of the defendants have sought to dispose of any of their assets since Mr Kent's confession on 13 February 2018. They also submit that Mr Kent and Mrs Poynton-Kent should not be in a position where they might be required to incriminate themselves, although that submission can carry very little weight given the terms of order 9.
In my opinion, it is appropriate to make the orders sought. Absent the undertakings given by the first to sixth defendants, I would have been prepared to make freezing orders against them. The evidence is that the first defendant engaged in a large and deliberate fraud over an extended period of time. Although he confessed to that fraud without being prompted and has cooperated with the plaintiffs since that time, there is reason to believe that he has not been completely frank in relation to his conduct. In particular:
1. It appears that Mr Kent has under estimated the extent to which he misappropriated the plaintiffs' funds. The evidence suggests that the fraud has been continuing for a period of 10 years, not the 5 years disclosed by Mr Kent. In addition, there is evidence that Mr Kent misappropriated money from the first plaintiff, MWP Transport Pty Ltd, although he did not disclose that fact to the plaintiffs;
2. On 23 February 2018, Mr Kent met Mr Manning and others at Mr Manning's offices. Mr Manning is an accountant retained by the plaintiffs. At that meeting, Mr Kent disclosed that the three major assets owned by him and his wife were the properties at Castle Hill and Terrigal and shares in a company known as Bay Timber. He did not disclose that he and his wife owned another property at Martindale Road, Martindale through the fifth defendant;
3. There is evidence that Mr Kent deleted the Outlook data file from his work computer before returning it to the plaintiffs; and
4. there is evidence that Mr Kent asked Mr Steven Mitchell, a director of the eighth, ninth and tenth defendants, not to provide bank statements to Mr Manning.
Mr Manning also gives evidence that Mr Kent has become less cooperative in recent times by, for example, refusing to attend further meetings.
To some extent, Mr Kent's behaviour might be explained by the fact that he will likely face criminal charges and that neither he nor his wife would wish to incriminate themselves or incriminate themselves further. However, that does not alter the fact that on his own admission, Mr Kent has misappropriated large sums of money over an extended period of time. The starting point in those circumstances is that the plaintiffs would normally be entitled to a freezing order because there is a strong inference that there is a danger that the assets that were stolen will be dissipated: see Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325 (Gleeson CJ); 326 (Meagher JA); 330-331 (Rogers JA). That inference does not necessarily involve an assumption that the Mr Kent will deliberately seek to place the assets out of the reach of the plaintiffs. Rather, it is a recognition that the circumstances that brought about the misappropriation in the first place may lead to further sums being dissipated. In the present case, for example, it appears that Mr Kent has spent a significant proportion of the money that he concedes that he misappropriated, with the result that there will be no prospect of recovering it. An advantage of a freezing order is that it sets clear limits on the future expenditure of the defendants. So far as the other defendants are concerned, their position is similar to that of TTA. In light of what has happened, there is a danger that they will treat assets that arguably properly belong to the plaintiffs as belonging to themselves. To some extent, the defendants have acknowledged these points by properly proffering the undertakings they have.
Having given the undertakings, I can see no reason why the first to sixth defendants should not be required to file affidavits (subject to any claim for privilege they may have) setting out their assets.
The requirement to file such an affidavit is a normal incidence of a freezing order. In the present case, the plaintiffs seek to trace the funds they say have been misappropriated. However, their ability to do so is hampered by a lack of information and there is a danger that any relief that the court may be willing to give will be frustrated because of the difficulty in identifying the assets into which the misappropriated funds might be traced.
[5]
Conclusion
Upon the plaintiffs giving the usual undertaking as to damages, they should be entitled to a freezing order against the seventh defendant in the usual terms limited to an amount of $230,500. They are also entitled to orders in terms of paragraphs 8 and 9 of the standard freezing order against the first to sixth defendants. It seems reasonable that the affidavits contemplated by that order should be served no later than 4 April 2018. However, before making an order to that effect, I will give the first to sixth defendants an opportunity to be heard on the period they should have to prepare the affidavits.
The matter should be stood over for a short period of time to give the plaintiffs an opportunity to bring in short minutes of order to give effect to this judgment.
[6]
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Decision last updated: 13 March 2018