Obela Fresh Dips and Spreads Pty Limited v Coetzee

Supreme Court of NSW|2020-12-16|Before: Rees J

Solicitors: Dentons Australia (Plaintiff) File Number(s): 2020/220487

EX TEMPORE Judgment

HER HONOUR: This is an application by the plaintiff, Obela Fresh Dips & Spreads Pty Limited, for default judgment against its former employer, the first defendant, Diederik Coetzee, and his wife, the second defendant, Lydia Coetzee, under either rule 16.6 or rule 16.7 of the Uniform Civil Procedure Rules 2005 (NSW). Mr Coetzee is a 38 year old South African man who appears to have stolen $3 million from his employer before leaving the country. Mr and Mrs Coetzee did not appear today.
As to which is the appropriate rule, Obela seeks damages, equitable compensation and a declaration that Mr Coetzee and his wife hold $3,057,828 and $1,414,534 respectively on constructive trust for the plaintiff. This is not, by its nature, an unliquidated claim and thus I consider that rule is rule 16.7(1) is the applicable rule, which provides: 16.7 Default judgment on claim for unliquidated damages (1) If the plaintiff's claim against a defendant in default is for unliquidated damages only, judgment may be given for the plaintiff against the defendant for damages to be assessed and for costs.

Leave to proceed against overseas defendants

As the defendants now live overseas, likely in Spain, two preliminary matters must also be considered. First, does this case fall within rule 11.4 of the of the Uniform Civil Procedure Rules, which provides: Cases for service of originating process (1) Originating process may be served outside of Australia without leave in the circumstances referred to in Schedule 6. (2) This rule extends to originating process to be served outside Australia in accordance with the Hague Convention.
Obela was entitled to serve the statement of claim on the defendants outside Australia without the leave of the Court if its claims fall within Schedule 6 of the Uniform Civil Procedure Rules, entitled "Service out of Australia without leave". Schedule 6 provides: An originating process may be served outside of Australia without leave in the following cases - … (b) when the claim is for … damages or other relief in respect of a breach of, a contract which - (i) was made or entered into in Australia, … … (d) when the claim - … (iii) … is an application for a freezing order or ancillary order under Division 2 of Part 25 in respect of any matter or thing in or connected with Australia, … (g) when any relief is sought against any person domiciled or ordinarily or habitually resident in Australia (whether present in Australia or not), … (l) when a claim is made … for the remedy of constructive trust and the alleged liability of the person to be served arises out of an act or omission that was done or occurred wholly or partly in Australia, … (n) when the claim is founded on a cause of action arising in Australia, …
It is readily apparent that Obela's claims against Mr and Mrs Coetzee fall within Schedule 6. Mr Coetzee is sued for breach of an employment contract entered into in Australia and for breach of fiduciary duties owed to his employer. Freezing orders were sought in respect of matters connected with Australia, being fraudulently transferring funds whilst in Australia from the Obela's Australian bank accounts to the defendants' Australian bank accounts. The defendants resided in Australia until they apparently departed for Spain. Declarations of constructive trust are sought in respect of acts done by the defendants whilst in Australia.
Second, the Uniform Civil Procedure Rules requires the Court to consider whether it is appropriate to give leave for the plaintiff to proceed against overseas defendants. Rule 11.8AA of the Uniform Civil Procedure Rules provides: Leave to proceed where no appearance by person (1) If an originating process is served on a person outside Australia and the person does not enter an appearance, the party serving the document may not proceed against the person served except by leave of the court. (2) An application for leave under subrule (1) may be made without serving notice of the application on the person served with the originating process.
As explained in Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 at [40], [50]-[64] and Bingley-Pullin v Montgomery [2018] NSWSC 1308 at [1]-[5], three matters should be considered when deciding whether to grant leave. First, have the defendants been properly served? Second, does Obela have an arguable case, being one that would be sufficient to survive an application for summary judgment? Third, this Court is not a clearly inappropriate forum.
I am satisfied in respect of these matters. In particular, I am satisfied that this Court is the appropriate forum for these proceedings as Mr Coetzee was employed in New South Wales, worked at Obela's Sydney office, misappropriated funds from the plaintiff's Australian bank accounts and paid the moneys into his and his wife's bank accounts in Australia.

Facts

In November 2013, Obela employed Mr Coetzee as Finance Manager Australia on a salary of $125,000 per annum. Obela was then in its infancy and Mr Coetzee was considered to be a "core" employee. He occupied a position of trust. On 3 July 2014, eight months after he began working for Obela, the first fraudulent transaction took place, being the first of 57 fraudulent transactions. In February 2018, Mr Coetzee was appointed as a director of Obela for New Zealand.
Mr Elliot says he formed a friendship with Mr Coetzee, who told Mr Elliot at various times that his wife was suffering from mental illness, that Mr Coetzee was suffering from stomach cancer such that it was necessary for him to often leave work early, and that his wife had been diagnosed with a degenerative brain condition. It seems unlikely that any of this was true. On 1 October 2018, Mr Coetzee told Mr Elliot that his wife had committed suicide and that Mr Coetzee needed to return to South Africa to make funeral arrangements. On 1 October 2018, Mr Coetzee sent an email to the Obela staff. ...Two years ago, shortly after I underwent my second round of treatment for cancer, my wife was diagnosed with Creutzfeld-Jakob disease, a rare disease which causes a type of dementia which get's worse very fast. There is no cure. My wife has the past two years in dementia centers which treated the symptoms, however without the prospect of a cure and with her memory and even personality changing quicker than we ever anticipated, she took her own life this past-Saturday. Suffice to say that Mrs Coetzee is alive and well and living abroad.
In February 2019, Mr Coetzee sent an email saying that it was necessary to make a royalty payment to Pepsi. Various payments were then made in accordance with Mr Coetzee's instructions. Those transactions, as now verified by Mr Bell, totalled $816,662. In fact, Obela had no obligation to pay royalties to Pepsi. Royalties were being negotiated, to which Mr Coetzee was privy but not the staff to whom he gave instructions to make the payments. The payments, in fact, when into the defendants' bank accounts.
Obela had an arrangement with its bank at the time that, in the event that the company needed to draw down funds for cash flow purposes, a cash advance facility notice was completed. A series of cash advance facility notices were submitted by Mr Coetzee which, on a second page, bore Mr Elliot's signature. However, Mr Elliot had not in fact authorised the cash advance facility notices; Mr Coetzee had re-used a signature page signed by Mr Elliot on an earlier authorised drawdown. By this method, Mr Coetzee drew down substantial sums, being some $2.4 million, without authority. The payments when into the defendants' bank accounts.
In March 2019, Mr Coetzee told Mr Elliot that his daughters had obtained a scholarship to play tennis in Spain and he wished to travel to that country to help them establish themselves there. Over time, Mr Coetzee said that the daughters' scholarships in Spain had been extended from one year to three years and that he wished to move permanently to Spain to work for Obela remotely. Mr Elliot did not agree to Mr Coetzee working remotely, but agreed that Mr Coetzee could "do a phase out". In February 2020, Obela hired a new finance director, although Mr Coetzee continued to work during the 'phase out' period.
In March 2020, Mr Coetzee fabricated an email by which it was said that Obela agreed to pay his relocation costs to Spain. The email does not exist on Obela's IT system at all. Mr Coetzee forwarded the email to his wife with a message in Afrikaans which, when translated, says: I'll just get everything you and I paid together when we're done.
In May 2020, Mr Coetzee forged Mr Elliot's signature and also the signature of the chief financial officer of Obela on a circulating resolution approving the financial statements for Obela. Mr Elliot's signature was forged on the financial statements.
With the assistance of Obela's new finance director, discrepancies became apparent. Mr Elliot sought an explanation from Mr Coetzee and various explanations were proffered. Mr Coetzee provided emails said to have authorised particular drawdowns, but the emails on close inspection had been 'doctored' by Mr Coetzee. Mr Coetzee's employment was terminated.
These proceedings were brought. Freezing orders were made on 28 July 2020, extended on 3 August 2020, varied to increase the amount on 25 August 2020 and extended on 7 September 2020. Orders for substituted service were made on multiple occasions, including by email and Facebook. Mr Coetzee and his wife have been served in accordance with the orders for substituted service, such service being effected on 4 November 2020. No defence has been filed.
As now analysed by forensic accountant Mr Bell, by 57 fraudulent transactions, Mr Coetzee transferred $3,057,828 from Obela's bank accounts to his bank account or (in respect of $1,414,534) into joint bank accounts with his wife. Of these monies, Mr Coetzee falsely represented that $1,663,957 were payments for Obela's tax and $816,662 were royalty payments to Pepsi. Numerous other reasons were given for the remaining $577,209 of payments. None of it was true.

Consideration

In the absence of filing of a defence, the allegations contained in the Amended Statement of Claim stand admitted: MacDonald v Australian Securities and Investments Commission (2007) 73 NSWLR 612; [2007] NSWCA 304, followed in Alesco Corporation Limited v Te Maari [2015] NSWSC 469 at [46]-[48]. Even without these admissions, the evidence relied upon on this application by Obela was compelling. Mr Coetzee has engaged in a sustained period of serious fraudulent activity, in breach of a position of trust as financial manager of Obela. Having regard to the evidence of Mr Elliot and the careful and detailed expert report of Mr Bell, I am satisfied that Obela has suffered the damages claimed and is entitled to the relief it seeks.

Costs

Part of the relief sought by Obela, as pleaded in the Amended Statement of Claim, is an order for its costs of these proceedings. In preparation for the hearing, Obela served on the defendants - by email and Facebook messenger - an affidavit by its solicitor setting out Obela's legal costs as at 4 December 2020, being $183,967.71, including $4,040.40 on attempts to serve the defendants in Spain. Those costs have necessarily increased by the conclusion of the hearing today to some $208,000.
Section 98(4)(c) of the Civil Procedure Act provides: Courts powers as to costs In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: … (c) a specified gross sum instead of assessed costs …
As Giles JA noted in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]: The power … of [section 98(4)] is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment …
It is a relevant consideration "whether the financial capacity of the party liable to pay costs is such that the additional burden of taxation will import a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs": Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [24], citing Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd [1998] FCA 164; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; [2005] FCA 228; Bitek Pty Ltd v iConnect Pty Ltd (2012) 290 ALR 288; [2012] FCA 506 at [17] per Kenny J.
I consider that this is an appropriate case to specify a gross sum instead of putting Obela to the further time and expense involved in an assessment of its legal costs in circumstances where it is unlikely that the defendants will participate in that process; it is unclear whether the defendants have the ability to pay the costs order in any event; and, placing an additional burden on Obela to undertake a costs assessment process may be for no useful purpose.
In Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles which inform the exercise of the discretion to specify a gross sum, at [9]: ii. the touchstone requires that the Court be confident that the approach taken to estimate costs is logical, fair and reasonable: Beach Petroleum at [16]; iii. the fairness parameter includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp (2002) 54 NSWLR 738, per Giles JA at [22] …; iv. a gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place: Harrison v Schipp at [22]; v. the gross sum "can only be fixed broadly having regard to the information before the Court": Beach Petroleum at 124; [In Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] it was said that the evidence enabled fixing a gross sum "only if I apply a much broader brush than would be applied on taxation, but that … is what the rule contemplates".] vi. nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76, and Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120; vii. In terms of the necessity for the approach taken to be logical, fair and reasonable, Von Doussa J in Beach Petroleum NL & Anor v Johnson & Ors (No 2) (1995) 57 FCR 119, put the matter as follows, at [16]: "On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary "fail safe" discount on the cost estimates submitted to the Court: Leary v Leary at 265 …"
His Honour's summary has been cited with approval in the Court of Appeal: Hamod v New South Wales [2011] NSWCA 375 per Beazley JA, with whom Giles and Whealy JJA agreed, at [793]. Her Honour continued, at [816]: … the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred … the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability…
And at [820] (citations omitted): The costs ordered should be based on an informed assessment of the actual costs having regard to the information before the court (for example, by relying on costs estimates or bills). The approach taken to estimate the costs to be ordered must be logical, fair and reasonable. This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment.
Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [11]: Implicit in this principle is that the gross sum bear a reasonable relationship to the actual costs of the party making the application, and to the costs that that party might reasonably be expected to recover on assessment. That means, among other things, that there must be a reasonable evidentiary basis for the order the court makes. That evidentiary basis is normally provided by the costs applicant in the form of an affidavit setting out the actual costs incurred and how they were calculated. Often, the evidence also includes evidence of the amount that is likely to be recovered on assessment.
Obela has not specifically notified the defendants that it will be seeking an order for indemnity costs today, but has notified the amounts it will be seeking which, as I understand it, reflect Obela's costs on a full indemnity basis. Obviously, fraud may ground an order for indemnity costs: Gate v Sun Alliance Insurance Ltd (1995) 8 ANZ Ins Cas 61-251 at 75,817-75,818.
What I am minded to do is award costs in the sum notified by Obela to the defendants on 4 December 2020, being $184,000, rather than the costs incurred by the conclusion of the hearing. The defendants were notified of the former figure well in advance of the hearing. The difference between the two amounts is consistent with the fact that, even in fraud cases, costs are not necessarily ordered on a complete indemnity basis.
For these reasons I make the following orders: 1. Judgment against the first defendant in the amount of $3,057,828, being the monies misappropriated by the first defendant, together with interest in the sum of $50,420.74. 2. Judgment against the second defendant in the amount of $1,414,535 together with interest in the sum of $23,324.35. 3. Order the defendants to pay the plaintiff's costs of the proceedings. 4. Order pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW) that the plaintiff is to be entitled to a specified gross sum in the amount of $184,000 including GST in respect of its costs of these proceedings. 5. Liberty to apply.

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 December 2020

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