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[2020] FCA 1412
Federal Court of Australia
2020-09-29
Snaden J
Original judgment source is linked above.
THE COURT ORDERS THAT:
Annxure A PENAL NOTICE TO: STUART McKELVIE NATALIE McKELVIE IF YOU: (A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR (B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED.
TO: Stuart McKelvie Natalie McKelvie This is a "freezing order" made against you on 29 Sept3mber 2020 by Justice Snaden at a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this order and after the Court read the affidavits listed in Schedule B to this order. THE COURT ORDERS: INTRODUCTION
FREEZING OF ASSETS 6. (a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia (Assets) up to the unencumbered value of AUD$200,000 (the Relevant Amount). (b) If the unencumbered value of your Assets exceeds the Relevant Amount, you may remove any of those Assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Assets still exceeds the Relevant Amount. 7. For the purposes of this order: (1) the Assets include: (a) all of the property included in the definition of Assets, whether or not they are in your name and whether they are solely or co-owned; (b) all of the property listed which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions) and the following in particular: (i) the property at 74 Lake Avenue, Ocean Grove, Victoria, or if it has been sold, the net proceeds of the sale; (ii) the property at 17 Gezireh Street, Pascoe Value South, Victoria, or if it has been sold, the net proceeds of the sale; (ii) any money in account BSB 013 422 / Account no. 283251976 in your name at ANZ.
(2) the value of your Assets is the value of the interest you have individually in your Assets.
PROVISION OF INFORMATION 8. Subject to paragraph 9, you must: (a) at or before the further hearing on the Return Date (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 and world wide, including the Assets, 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 5 working days after being served with this order, affirm or swear and serve on the applicant an affidavit setting out the above information.
(b) 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.
EXCEPTIONS 10. This order does not prohibit you from: (a) paying up to $1,000 a week on your ordinary living expenses; (b) paying up to $30,000 on your reasonable legal expenses; (c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; (d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation.
(b) Any such payment and any such security will not provide the applicant with any priority over your other creditors in the event of your insolvency. (c) If this order ceases to have effect pursuant (a), you must as soon as practicable file with the Court and serve on the applicant notice of that fact.
COSTS 12. The costs of this application are reserved to the Court hearing the application on the Return Date.
PERSONS OTHER THAN THE APPLICANT AND RESPONDENT 13. Set off by banks This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order. 14. Bank withdrawals by the respondent No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order.
Schedule A UNDERTAKINGS GIVEN TO THE COURT BY THE APPLICANT (1) The applicant undertakes to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order. (2) As soon as practicable, the applicant will file and serve upon the respondent copies of: (a) this order; (b) the application for this order for hearing on the return date; (c) the following material in so far as it was relied on by the applicant at the hearing when the order was made: (i) affidavits (or draft affidavits); (ii) exhibits capable of being copied; (iii) any written submission; and (iv) any other document that was provided to the Court.
(d) a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court; (e) the originating process, or, if none was filed, any draft originating process produced to the Court.
(3) As soon as practicable, the applicant will cause anyone notified of this order to be given a copy of it. (4) The applicant will pay the reasonable costs of anyone other than the respondent which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the respondent's assets. (5) If this order ceases to have effect the applicant will promptly take all reasonable steps to inform in writing anyone to who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect. (6) The applicant will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding. (7) The applicant will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the respondent or the respondent's assets.
Schedule B AFFIDAVITS RELIED ON Name of deponent Date affidavit made (1) Kathleen Determann __ September 2020
NAME AND ADDRESS OF APPLICANT'S LAWYERS The applicant's lawyers are: Michael Michalandos Baker McKenzie, Level 46, 100 Barangaroo Avenue, Sydney NSW 2000 P: +61 2 8922 5104 E: michael.michalandos@bakermckenzie.com; michael.starkey@bakermckenzie.com
SNADEN J: 1 The applicant, Nevro Medical Pty Ltd (hereafter, "Nevro") moves the court for relief in the form of freezing and ancillary orders under division 7.4 of the Federal Court Rules 2011 (Cth) (hereafter, "the Rules"). Those orders are sought on an ex parté basis against the respondent, Mr McKelvie, and his wife, Ms Natalie McKelvie. 2 The application proceeds by means of an originating application dated 28 September 2020, and an interlocutory application of the same date. The latter was supported by an affidavit affirmed also on 28 September 2020 by Ms Kathleen Determann, Associate General Counsel and Chief Compliance & Privacy Officer of Nevro's parent company, Nevro Corporation. 3 The matter has become before me in my capacity as the court's duty judge. At a hearing conducted virtually this morning, I resolved to make orders substantially in the form that Nevro proposed. As a result, the respondent and his wife will, subject to the terms of my orders, be prohibited from disposing of, dealing with or diminishing the value of their assets up to the unencumbered value that the orders specify. 4 The reasons for my granting orders in the form sought are contained below. They were given orally at the conclusion of the hearing on Tuesday, 29 September 2020. I will direct that Nevro provide a copy of them to the McKelvies when they are available in written form. 5 As the matter has proceeded on an ex parté basis, my reasons for granting the orders that are sought are necessarily based only upon Nevro's affidavit evidence. That evidence has been neither tested nor contradicted. The McKelvies have not yet had any opportunity to make any submissions about it and, for that reason, my assessment of the strength of the case advanced against them (or, more specifically, against Mr McKelvie) should not be understood as anything other than provisional. 6 Mr McKelvie is a former employee of Nevro. In August 2020, when his employment terminated, he was employed in the role of Director Australia and New Zealand, and was Nevro's most senior employee in Australia. By this proceeding, Nevro alleges that Mr McKelvie misappropriated its funds over a period of approximately 18 months. That misappropriation is alleged to have taken various forms, including: (1) his submission of fake or doctored invoices to the business, which were then paid to him by way of reimbursement; (2) his securing of payments by Nevro to a company under the control of his wife, Natalie McKelvie, for services that were never rendered, or at least not rendered in the value that was paid; (3) his failure to repay to the business amounts that were paid to him by way of reimbursement of expenses that were later refunded; and (4) his use of Nevro-provided credit for payment of personal expenses. 7 In late August 2020, Nevro confronted Mr McKelvie about a suite of invoices totalling $62,503.54, which had been paid to him by way of reimbursement and that Nevro alleged had been doctored or were otherwise fraudulent. According to Ms Determann, Mr McKelvie admitted that he had doctored invoices, that the amounts that he had submitted for reimbursement were in some cases inaccurate, that he had misused company credit, that he had likely acted fraudulently, that he had taken advantage of the company and that he had misused Nevro funds for personal gain. He undertook to repay what he had admitted to having misappropriated. 8 Nevro has since, it says, uncovered further transactions totalling at least $80,000 that are also believed to have been misappropriated. That has been unearthed as a result of Nevro having commissioned an investigation, which has been (and still is being) undertaken by external forensic accountants. 9 In early-to-mid September 2020, Nevro made attempts to enter an agreement with Mr McKelvie for repayment of the amount that it considers was misappropriated. He was given until 18 September to indicate his willingness to do so. Via his lawyers, Mr McKelvie asked for additional time to consider his response to that request. Both the initial 18 September deadline and the extended deadline that Mr McKelvie sought (but to which Nevro did not agree) have now passed. Neither Mr McKelvie nor his lawyers have made any attempt to contact Nevro regarding the moneys that are claimed. 10 By this proceeding, Nevro seeks to recover the misappropriated funds from Mr McKelvie. It sues in contract, in equity and for breach of duties imposed by s 182 of the Corporations Act 2001 (Cth). 11 Rule 7.32 of the Rules provides as follows: (1) The Court may make an order (a freezing order), with or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. (2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets. 12 Rule 7.35 of the Rules sets out the circumstances in which the power may be enlivened. It provides as follows: (1) This rule applies if: (a) judgment has been given in favour of an applicant by: (i) the Court; or (ii) for a judgment to which subrule (2) applies - another court; or (b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in: (i) the Court; or (ii) for a cause of action to which subrule (3) applies - another court. (2) This subrule applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the Court. (3) This subrule applies to a cause of action if: (a) there is a sufficient prospect that the other court will give judgment in favour of the applicant; and (b) there is a sufficient prospect that the judgment will be registered in or enforced by the Court. (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. (5) The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that: (a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because: (i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. (6) Nothing in this rule affects the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so. 13 In Basi v Namitha Nakul Pty Ltd [2019] FCA 743 (Wigney J), the principles governing the grant of freezing orders were summarised as follows: 7. The purpose of a freezing order is to prevent an abuse or a frustration of the Court's process by depriving an applicant of the fruits of any judgment obtained in the action: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625. It is "no light matter" to freeze a party's assets and there is, accordingly, a need for the Court to exercise caution: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 324F. A freezing order is a "drastic remedy" which should not be lightly granted: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [51] citing Frigo v Culhari (unreported, NSW Court of Appeal 17 July 1998 at 10-11). 8. An applicant has a good arguable case if they have "a reasonably arguable case on legal as well as factual matters": Cardile at [68]; Insolvency Guardian Melbourne Pty Ltd v Carlei (2016) 111 ACSR 236; [2016] FCA 72 at [18]. It has also been said that a "good arguable case" is one "which is more than barely capable of serious argument, and yet not necessarily one the judge considers would have better than a fifty per cent chance of success": Curtis v NID Pty Ltd [2010] FCA 1072 at [6] citing Ninemia Maritime Corp v Trave Schiffahrtsgesselschaft mbH & Co KG (The Niedersachsen) [1983] Com LR 234 at 235 (affirmed on appeal: [1983] 1 WLR 1412); Deputy Commissioner of Taxation v Greenfield Electrical Services Pty Ltd (2016) 103 ATR 327; [2016] FCA 653 at [7]. 9. Where a freezing order is sought on the basis of a danger of the dissipation of assets, it is not necessary for the Court to be satisfied that the risk of dissipation is more probable than not. Nor is it necessary for the applicant to adduce evidence of an intention on the part of the respondent to dissipate assets: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; [2010] FCA 1014 at [8]-[10]; Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) (2012) 90 ATR 711; [2012] FCA 1064 at [23]. The making of a freezing order involves a discretionary exercise of power. The Court retains a discretion to refuse relief even if the requirements in r 7.35 of the Rules are satisfied: Patterson at 321-322. 14 I gratefully adopt that summary of principle. 15 I am satisfied that Nevro has a good arguable case against Mr McKelvie. As much arises largely from the evidence of his admissions to date, as well as from the findings of Nevro's forensic accountants. I stress that that evidence is yet to be tested and that Mr McKelvie has not had an opportunity to make any submissions about it. It might well be that Mr McKelvie has a defence against the case that is to be put against him. 16 It is not possible at this juncture to accurately quantify the amount that Nevro will allege has been misappropriated. It would appear to be at least in the order of $140,000 and, potentially, much more. On the facts as they presently stand, I am satisfied that there is a good arguable case that Mr McKelvie has contravened s 182(1) of the Corporations Act 2001 (Cth), has breached duties owed by him as a fiduciary, and has breached conditions of his contract of employment (whether implied or otherwise). Again, those conclusions are based on the as-yet untested and uncontradicted evidence, and history may prove them wrong. 17 I am also satisfied that there is a danger that a judgment made in favour of Nevro in this matter (if that were to occur) would go wholly or partly unsatisfied because, on the facts of the case before the court, the McKelvies might dispose of, deal with or diminish the value of their assets. In Spotlight Pty Ltd v Mehta [2019] FCA 1796 (Anderson J), this court made the following observations: 20 The allegations which underpin the causes of action relied upon by Spotlight involve a high level of calculated dishonesty by Mr Mehta and Mr D'Lima to defraud their employer over a number of years. Likewise, the allegations which underpin the causes of action against Mr Vincent and the Vincent Group also involve a high level of dishonesty in participating with Mr Mehta and Mr D'Lima to defraud Spotlight. 21 It is significant that the alleged dishonest scheme has been operating for a number of years and concerns a substantial sum of money being misappropriated from Spotlight. It is also significant that, according to the affidavit evidence, Mr Mehta, Mr D'Lima, Mr Vincent and the Vincent Group have ostensibly sought to conceal the allegedly dishonest scheme and that, on 13 October 2019, two days after the interviews of Mr Mehta and Mr D'Lima, steps were taken to pay back $55,000 by credit note from Vincent Group to Spotlight. It is reasonably open at this preliminary stage to characterise this payment back to Spotlight as evidencing a consciousness of guilty on the part of the respondents. 22 I also take into account that Mr Mehta and Mr D'Lima, after initially cooperating with Spotlight and making admissions as to their conduct, have refused to cooperate any further with Spotlight after obtaining legal advice. 23 Where, as here, allegations made against the respondents contain allegations of serious dishonesty, evidence of that nature is capable of satisfying the Court of the existence of the requisite danger to dispose of, deal with or dissipate assets. Such circumstances were present in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, where Gleeson CJ (with the agreement of Meagher JA and Rogers AJA) observed the following about the circumstances of that case: In particular, I consider that [the primary judge] was correct in taking the view that the evidence as to the nature of the scheme in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction. There is no reason in principle why the evidence which is relevant to the first of the issues earlier referred to might not also have a bearing on the second, and this will especially be so where the prima facie case that is made out against a defendant is one of serious dishonesty involving diversion of money from its proper channels. The present is not a case in which a plaintiff who claims simply to be an unsecured creditor seeks to prevent a dissipation of assets which have no particular connection with the claim in question. This is a case in which the plaintiff claims that the defendant, making use of a corporation controlled by him, fraudulently misappropriated a large sum of money which, if it is still under the control of the appellant, would be quite likely to constitute, directly or indirectly, the bulk of his assets. As [the primary judge] held, the nature of the scheme in which, on the evidence to date, the appellant appears to have engaged, is such that it is reasonable to infer that he is not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor. (Emphasis added.) See also Victoria University of Technology v Wilson [2003] VSC 299 at [33] per Redlich J and Distinctive FX Pty Ltd v Wright [2015] VSC 299 at [39] per Elliott J. 18 Equivalent observations - specifically relating to the dishonesty alleged against Mr McKelvie - apply in the present circumstances. On the strength of them, I am satisfied that there is a danger that a prospective judgment secured by Nevro against Mr McKelvie will be wholly or partially unsatisfied because he and/or his wife may dispose of, deal with or diminish the value of his assets, which, on the strength of searches undertaken by Nevro to date, include two jointly-owned properties. 19 I am also satisfied that there is no other interlocutory remedy suitable in the circumstances and less expensive in scope. The orders that are sought - and that will be made - do not prohibit the McKelvies from paying their ordinary living expenses, their reasonable legal expenses (up to an amount of $30,000), or bona fide business expenses. Nevro seeks to freeze the McKelvies' assets up to an unencumbered value of $200,000.00. On the available evidence, that amount is appropriate and the balance of convenience favours the granting of the relief that Nevro seeks. There is some uncertainty about the total amount that Nevro will claim against Mr McKelvie and that uncertainty gives me pause to include within the order the $200,000 figure that Nevro has sought - but I am, nonetheless, satisfied that it should be set at that level given the evidence before me and the means that the McKelvies will have to seek to alter it should circumstances require. 20 The orders that Nevro proposes are materially consistent with those that find expression in draft form in the court's practice note. In particular, they require that certain disclosures about the McKelvies' financial position be made. Those orders are both appropriate and routine in circumstances such as these. Nevro provides the undertakings that are recorded within the orders and I am satisfied that those undertakings are of substance. 21 The orders that I will make will have effect until 4:00pm on Tuesday, 6 October 2020. The matter will be returnable before me at 10:15 am on that day. Given the severity of the orders that will be made, it is important that the McKelvies have a means of ensuring that they are not abused (although, I hasten to note, there is no indication or suggestion of that). To that end, they will have liberty to apply to the court on very short notice. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Snaden.
Nevro Medical Pty Ltd
McKelvie
[2003] VSC 299
[2015] VSC 299
(1987) 162 CLR 612
(1989) 18 NSWLR 319
(1999) 198 CLR 380
(2010) 273 ALR 194