Rema Tip Top Asia Pacific Pty Ltd v Grüterich

Supreme Court of NSW|2018-04-20|Before: Robb J, Parker J

Solicitors: Gilbert + Tobin (Plaintiff) Schweizer Kobras (Defendant) File Number(s): 2018/117085

Introduction

The issue in this case is whether a freezing order made by Parker J on 13 April 2018 should be discharged, and if it should not, whether the amount the subject of the order should be reduced, and the amounts allowed to be expended by the defendant on living expenses and legal costs be increased.
The plaintiff is Rima Tip Top Asia Pacific Pty Ltd, which is the Australian subsidiary of a German company, Stahlgruber Otto Gruber AG. The plaintiff provides product and service solutions in three segments, being material processing, surface protection and automotive.
The defendant, Mr Christian Grüterich, was the managing director of the plaintiff from 1 March 2017 to 16 March 2018, under a written contract of employment dated 14 February 2017. The defendant had formerly been employed by the plaintiff in less senior roles, and he had been employed at earlier times by related companies of the plaintiff, particularly in South Africa.

The ex parte freezing order

The proceedings were commenced by the plaintiff by an ex parte application made in the duty list before Parker J on 13 April 2018, when the plaintiff was given leave to file its summons and a notice of motion and supporting affidavits in Court.
Relevantly, Parker J made a freezing order as sought in the notice of motion, using the standard order contained in Practice Note SC Gen 14.
The actual order made by Parker J was the following: Upon the plaintiff through their counsel giving the usual undertaking as to damages I make orders with paragraph 6 of the notice of motion except in second line I substitute the figure of $500,000. On the same undertaking I make orders in accordance with paragraph 7.
Paragraph 7 concerned the preservation of a motor vehicle owned by the plaintiff and provided to the defendant in connection with his employment. I have subsequently made by consent an order that the motor vehicle be returned by the defendant to the plaintiff. It is not now necessary to give any detailed attention to that order.
Paragraph 6 of the notice of motion concerned the freezing order. The amount sought to be covered by the freezing order, as stated in the notice of motion, was $661,113.56. I will explain the derivation of that amount below. As noted, Parker J only made an order in the sum of $500,000. I was informed by the parties that the amount was reduced because Parker J thought that it was appropriate not to allow an amount to cover the plaintiff's estimated party/party costs of the proceedings.
Parker J made the freezing order until the further order of the Court. However, Parker J made the summons and the notice of motion returnable in the duty list on 17 April 2018. The plaintiff's counsel informed the Court that the plaintiff accepted that, notwithstanding that the ex parte order had been made until further order of the Court, as the defendant challenged the continuation of that order, the burden fell upon the plaintiff to justify the making of a freezing order anew as a condition of the Court declining to discharge the order. That was an appropriate concession to be made by the plaintiff. Usually, when a freezing order is made ex parte, its term is limited to the end of the day upon which the summons is returnable. While the judge making the order may decide to make it until further order, it is always implied that if the defendant seeks a discharge of the order, the burden falls upon the plaintiff to justify the continuance of the freezing order after an inter partes hearing.
During the course of the hearing on 17 April 2018, it became apparent that the defendant wished to rely upon additional evidence. Directions were made for the service of further evidence by the parties. The hearing was completed on 20 April 2018.

The defendant's position

The position adopted by the defendant was that the freezing order should simply be discharged. If it was not discharged, the amount the subject of the order should, according to the defendant, be substantially reduced.
Finally, the defendant submitted that the amount that he was entitled to expend on living expenses and legal costs should in any case be substantially increased. Clause 10(a) of the Penal Notice only allowed the defendant to pay $500 per week on his ordinary living expenses. His reasonable legal costs were limited by clause 10(b) to $15,000.
As to living expenses, the defendant asserted that he needed $2000 per week, plus an additional $1700 per week to cover the rent on his apartment, the lease of which was in both his name and the plaintiff's name. On 17 April 2018, I made an interim variation of the Penal Notice to increase the amount for living expenses to $1500 per week.
The defendant complained that the limitation on the amount of legal costs to $15,000 had actually impaired his ability to conduct the inter partes response to the interlocutory orders, which was according to the defendant the cause of his need for an adjournment of the application. On an interim basis I increased the amount of the allowance for legal costs to $30,000.

The value of the freezing order claimed by the plaintiff

It will now be convenient to explain how the plaintiff made up its original claim that the freezing order should cover an amount of $661,113.56. It had the following components: 1. $48,082. This was half the total cost of $96,164 for furniture ordered by the plaintiff, by instructions given by the defendant to the plaintiff's staff, to purchase furniture from a company called Polyform Sydney on 1 March 2018 for use at the defendant's Australian residence at 3801/101 Bathurst Street, Sydney (Furniture Claim). The plaintiff asserted that this payment could not have been authorised unless expressly agreed to by the CEO of the parent company, Mr Udo Zimmer. The plaintiff has cancelled the contract, but has not received back the amount paid. The plaintiff referred to terms in the contract between itself and Polyform which at least cast doubt on the plaintiff's entitlement to the return of the money. 2. $47,437.69. This amount was paid out of the plaintiff's funds on the instruction of the defendant for the purposes of a holiday by the defendant and his partner in Tahiti (Holiday Claim). The plaintiff said that the defendant justified the payment when he instructed his subordinate to arrange it by claiming, falsely according to the plaintiff, that he was expending the money partially in lieu of four business class tickets between Australia and Germany to which he was entitled. 3. $22,750. This amount related to a motor vehicle allowance that the defendant instructed a subordinate to pay him (Car allowance claim). The plaintiff asserts that the defendant was not entitled to this benefit under his contract of employment. 4. $69,999.99. This amount consisted of three sums as a consequence of the defendant instructing a subordinate to pay him double his normal salary for three pay runs (Salary Claim). The defendant apparently justified the instruction on the basis of a letter that he had been given by a related company to the plaintiff at an earlier time which promised him an education allowance. The increase in salary for the three pay runs the subject of the instruction given by the defendant was effectively in lieu of the educational allowance, but the defendant had not been given specific authorisation by Mr Zimmer. 5. $103,210.88. The plaintiff described this as a "discretionary bonus" paid to the defendant on 12 January 2018 by direction made by the defendant to a subordinate, to which he was not entitled (Bonus Claim). The plaintiff's case was that it had authorised the payment to the defendant only of a retrospective increase in salary of $147,310.59, and not the further bonus of $103,210.88. 6. $213,655. When the plaintiff purported to terminate the defendant's employment on 16 March 2018, it was not according to the plaintiff's evidence aware of any of the payments listed above that were authorised by the defendant, which the plaintiff claims the defendant was not entitled to under the terms of his contract of employment. The plaintiff now says that, had it been aware of those matters, it would have summarily terminated the defendant's contract of employment for breach by the defendant. However, it did not do so as it was not aware of its right to summarily terminate the contract. Consequently, the plaintiff paid to the defendant an amount of $213,655 as a termination payment. The plaintiff now claims that it made that payment under a mistake, and is entitled to repayment by the defendant (Termination Payment Claim). 7. $156,000. The plaintiff estimated its costs of these proceedings at $240,000, which it assessed at an estimated amount of $156,000 on a party/party basis.
The plaintiff did not contend that the Court should increase the amount covered by the freezing order as made by Parker J to allow for its legal costs. I will not do so, and will not refer further to this issue.

The basis for the extension of the freezing order

There was no issue between the parties concerning the legal principles to be applied by the Court, save in respect of the entitlement of the plaintiff to repayment of the Termination Payment. I will refer briefly to the legal principles below.
First it is appropriate to make a number of brief remarks concerning the basis upon which the ex parte freezing order was sought from Parker J, and upon which the issue of whether it should be discharged was fought before me.
As will be noted below, freezing orders are not made simply to provide a plaintiff with security for its judgment on the assumption that the plaintiff succeeds in the proceedings. There must be satisfactory evidence to persuade the Court of a sufficient likelihood that the defendant will act to put the defendant's assets beyond the reach of the Court's enforcement powers, so that there is a real risk that the defendant will intentionally sterilise the jurisdiction of the Court.
However, experience as a duty judge shows that there is a class of case in which plaintiffs are given a freezing order, even ex parte, almost for the asking. That class of case in my experience is probably more common than the notional standard case, where the plaintiff has to prove on the evidence that steps are being taken, or are likely to be taken, by the defendant to put the defendant's assets beyond the reach of the Court. The class of case to which I refer is that in which the defendant is an employee or agent of the plaintiff, with authority that enables the defendant to deal with the plaintiff's funds, and the defendant misuses that power to misappropriate the plaintiff's funds. Where such misappropriation is discovered by the plaintiff, it is usually possible for the plaintiff to construct an interlocutory case that is on its face highly persuasive that the defendant has engaged in the dishonest misappropriation of the plaintiff's funds. Evidence of this nature can readily overcome the usual reticence of the Court to make a freezing order. The principles laid down in the authorities are not altered, but the barriers that the principles provide to the making of a freezing order are readily overwhelmed by the evidence. First, the evidence of the dishonesty in the defendant's misappropriation of funds not only justifies a conclusion that the hiding of the funds will be likely in the absence of a freezing order, but virtually compels the conclusion. A person who steals money would be irrational if they did not try to hide it. Secondly, in the majority of cases what has been misappropriated is liquid money. That is the easiest form of asset to hide.
These considerations are relevant because the case was put by the plaintiff, both before Parker J and myself, on the basis that the defendant had caused substantial amounts of the plaintiff's funds to be paid to himself without authorisation, and by misusing his managerial power as the plaintiff's managing director.
In this case there was no positive evidence tendered by the plaintiff of the defendant taking any steps to remove any of his assets from Australia.
The most that the plaintiff could say is that the defendant is a German citizen, who is in Australia on a Subclass 457 (Temporary Work (Skilled)) Visa (457 Visa). The plaintiff is the sponsor of the defendant's 457 Visa. Under the terms of that visa, upon termination of his employment by the plaintiff, the defendant must leave Australia within 60 days if he does not obtain new sponsorship. The plaintiff said that it does not know whether the defendant has obtained or is seeking further employment and sponsorship in Australia.
It must therefore be recognised as a possibility that the defendant will lose his visa entitlement to remain in Australia. That is not quite the same as evidence that the defendant has an intention to leave Australia, let alone to do so in a way that puts his assets beyond the Court's reach.
Whether or not, unbeknownst to itself, the plaintiff had an entitlement to terminate the defendant's contract of employment summarily, it in fact purported to terminate his contract as a matter of its own choice. It thereby put in jeopardy the status of the defendant's entitlement to remain in Australia. The Court in the circumstances should be somewhat careful in relying upon these matters as a justification for making a freezing order against the defendant.
There is evidence that the defendant is in a relationship with an Australian resident. It is likely that he will wish to remain here. Not enough time has elapsed for the defendant to be able to show that that he is likely to obtain the sponsorship of another employer in Australia. Realistically, the circumstances of the present proceedings are likely to impede the defendant being able to gain alternative employment in Australia readily. The defendant's solicitor, who apparently frequently acts for German-speaking clients, has provided some evidence, albeit that it is anecdotal, that it is the practice of the Home Affairs Department not to act precipitously in requiring the holder of a 457 Visa to leave the country when there is a dispute between the holder of the visa and the employer as to the validity of the termination of the contract of employment. In fact, the defendant does challenge the validity of the termination of his contract of employment.
In the circumstances, I will be careful not to place excessive weight on the likelihood that the defendant will be required to leave Australia. It is a possibility precipitated by the plaintiff's conduct, even though the course taken by the plaintiff may ultimately be established to have been justified.

The defendant's response

The defendant also provided evidence, which I am prepared to accept at this interlocutory stage of the proceedings, that the judgment of an Australian court properly issued in proceedings in which the defendant has appeared ought readily to be enforceable in relevant courts in Germany.
The defendant volunteered evidence of his assets in Australia and Germany. He has $460,276.73 in a bank account with HSBC, $4113.46 in a bank account with Westpac, and he has deposited $15,000 into the trust account of his solicitors. He has a laptop with an estimated value of $1500, and clothes and other personal items worth $15,000.
The defendant also has, according to the letter written by his solicitor to the solicitors for the plaintiff, an account in Germany with a balance of €104,386.22.
The defendant relied upon the fact that, on 6 April 2018, which was before the commencement of these proceedings by the plaintiff, he had instructed his solicitor to write a letter to the solicitors for the plaintiff, in which he claimed that the terms of his contract of employment by the plaintiff were not limited to the terms of the written contract of employment, but had been augmented orally by communications between him and the executives of the parent company. He claimed that the 14 February 2017 employment contract had been made at a meeting of group executives in Singapore, on about 14 February 2017, for the purpose of it being lodged with the then Department of Immigration and Border Protection for the purpose of obtaining his 457 Visa. The letter contained various specific and detailed assertions of meetings that occurred between the defendant and executives of the parent company, to the effect that there was an agreement that the defendant's employment would be for a minimum of 2 years. The letter contained a claim that the defendant was entitled to an amount of $601,863.21, being base salary (16 September 2018 to 31 December 2019) of $551,405.51, plus long service leave (1 December 2012 to 31 December 2019) of $50,457.51. The defendant also claimed an additional amount of $460,041.71 in specific amounts for bonuses for 2018 and 2019, accommodation, company car, private travel budget and repatriation costs.
The defendant did not personally provide evidence to support the claim outlined in his solicitor's letter. Indeed, the only evidence provided by the defendant in opposition to the plaintiff's claim was evidence given on information and belief by his solicitor. Much of that evidence was very detailed, and must have been in accordance with precise instructions given by the defendant, who is evidently in Sydney. The significance of the evidence being given in this manner is an issue to which I will return below.
It is nonetheless true that the defendant's solicitor's 6 April 2018 letter is a carefully and professionally prepared letter that makes a serious claim of entitlement against the plaintiff, and the fact that it was written before the defendant had knowledge that the plaintiff would allege the unauthorised payments the subject of these proceedings is of considerable significance. The letter at least supports the conclusion that the defendant formed the intention to pursue a claim against the plaintiff before he was aware that these proceedings would be commenced, which is consistent with the defendant having a desire to remain in Australia and to pursue his claim against the plaintiff.

The principles governing the granting of freezing orders

I will be content to refer primarily to the authorities relied upon by the plaintiff in stating the principles relevant to the making of a freezing order. In Alka Developments Pty Ltd v Lemery Holdings Pty Ltd [2005] NSWSC 1335, Brereton J said at [24]-[25]: [24] The claim for relief propounded by Alka is essentially one in the nature of Mareva relief. On an application for a Mareva order, as a general rule, an applicant has to establish first, a prima facie cause of action against the respondent, and secondly, a danger that by reason of the respondent's absconding or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the applicant, if it ultimately succeeds, will not be able to have a judgment in its favour satisfied. There must be evidence of at least a more than usual danger of assets being removed or dissipated [Patterson v BTR Engineering Australia Ltd (1989) 18 NSWLR 319 at 321-322 (Gleeson CJ); Frigo v Culhaci (NSWCA, 17 July 1998)]. [25] In Frigo v Culhaci, the Court of Appeal emphasised that a Mareva order was an exceptional interlocutory remedy, its function being to minimise the possibility of an unscrupulous defendant rendering itself judgment proof by taking steps which were liable to produce the result that no assets within the jurisdiction could be found on the day of judgment. The Court emphasised that such orders imposed severe restrictions on a respondent's right to deal with its assets, and that their purpose was to preserve the status quo rather than to change it in favour of the plaintiff, it not being a function of the order to provide a plaintiff with security in advance for a judgment that it hoped to obtain and feared might not be satisfied, nor to improve the position of the plaintiff in the event of the defendant's insolvency. Likewise, in Patrick Stevedores Operations (No 2) Pty Ltd v Maritime Union of Australia (No 3) (1998) 72 ALJR 873, Brennan CJ and McHugh, Gummow, Kirby and Hayne JJ approved of a passage from Jackson v Sterling Industries (1987) 162 CLR 612 at 619, to the effect that a Mareva order exists not to create additional rights, but to enable a court to protect its process from abuse in relation to the enforcement of its orders, it being neither a species of anticipatory execution, nor a form of security for any judgment which may ultimately be awarded.
Black J has recently discussed the principles in In the matter of Black Eagle Media Pty Ltd [2014] NSWSC 1778, his Honour referred to the judgment of Gleeson CJ in Patterson v BTR Engineering (Aust) Pty Ltd (1989) 18 NSWLR 319 at 325-326, and said at [7]-[10]: [7] Rule 25.11 of the UCPR allows a freezing order to be made 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 will be wholly or partly unsatisfied; and such an order may restrain a respondent from disposing of, dealing with, or diminishing the value of his or her assets. Rule 25.14 (on which BEM specifically relied) in turn allows a freezing order to be made where a plaintiff has a good arguable case and, having regard to all the circumstances, there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied, for example, because the assets of the judgment debtor, prospective judgment debtor or another person are disposed of, dealt with or diminished in value. In Jackson v Stirling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612, Deane J (with whom Mason CJ, Brennan, Wilson and Dawson JJ agreed) observed (at 625) that the purpose of a freezing order: is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him … . It is to prevent a defendant from disposing of his actual assets …so as to frustrate the process of the Court by depriving the plaintiff of the fruits of any judgment obtained in the action. His Honour also observed (at 625-626) that: It may be appropriate in a rare case that such an [freezing] order requires the defendant actually to deliver assets to a named person or even to the court itself. … Even in such cases however, the order must be confined to preserving assets until after judgment or, arguably, until there has been an opportunity to seek execution. … Any order requiring the delivery of assets should make clear that the assets will be held on behalf of the defendant until after judgment or further order and will then be redelivered to the defendant unless they are made the subject of some other claim. [8] In Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321-322, on which BEM relied, Gleeson CJ observed that: The remedy [of a freezing order] is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and second, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied. Mr Smith also points out to the observation of Gleeson CJ in that case (at 325-326) that, where a defendant was there alleged to have fraudulently misappropriated a large amount of money, comprising the bulk of his or her assets, and the evidence to date was consistent with such an allegation, then it may be reasonable for the court 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". In Beach Petroleum NL v Johnson at 405-406, von Doussa J in turn referred to Patterson v BTR Engineering above and observed that it was enough to support a freezing order that the applicants establish that "in the absence of relief, there is a danger that assets will be dealt with in a way which will prevent the applicants recovering the judgment". [9] In Clout (as trustee in bankruptcy of the Estate of Dexter) v Anscor Pty Ltd [2001] FCA 174 at [19], Drummond J similarly noted that a freezing order: …cannot be used to give the applicant security in respect of an as yet unliquidated claim, … its sole legitimate object is to prevent a respondent, pending final adjudication, from disposing of assets where the respondent's object in doing that is to abuse the process of the Court by ensuring that, if the applicant is successful in the litigation, its judgment will be an empty one. His Honour also observed that: Even in a case in which a [freezing order] is justified it can never extend to prevent a respondent from having access to its own assets to the extent necessary to meet legitimate expenses such as ordinary living and business and legal expenses. [10] In Goumas v McIntosh [2002] NSWSC 713, Barrett J (as his Honour then was) also observed (at [23]) that the sole concern with such relief is: with reasonable measures to ensure that the processes of the Court are not frustrated by removal from the jurisdiction, dissipation or misapplication of assets which will be available to meet any eventual judgment. The aim is not to stop people spending their money. It is to stop them spending it in ways which are not legitimate, having regard to the interest of the claimant in ensuring that there is no untoward removal of assets from the ownership of the person against whom a judgment may in due course be entered. His Honour also observed (at [27]) that: It has been said repeatedly by the courts that a [freezing] order must not operate as a form of de facto security for the applicants' claims and that the sole purpose is to prevent illegitimate dissipation of assets that will otherwise be available to meet any judgment. I say illegitimate dissipation to emphasise that to deny access to funds needed for ordinary living purposes or to fund the conduct of the very litigation the integrity of which the order is designed to protect goes beyond the proper protective province of the jurisdiction and causes the order sought to be a means of exerting pressure foreign to the underlying purpose.
This decision provides support for the observations that I have made above concerning the significance of evidence of apparent fraudulent misappropriation to the Court's assessment of whether there is sufficient risk of dissipation of assets to justify the making of a freezing order.

The claim for repayment of the termination payment

There was a sharp disagreement between the parties on the issue of whether any freezing order made by the Court should protect the plaintiff's $213,655 Termination Payment Claim. That was a payment made by the plaintiff voluntarily when it exercised its right under clause 15.1 of the employment contract to terminate the defendant's employment on six months' notice without cause, and pursuant to clause 15.3 paid the defendant's salary in lieu of notice, as well as other termination entitlements.
The plaintiff claims that it is entitled to repayment of the money because it was made in the mistaken belief that the defendant was entitled to the payment: see Salib v Gakas; Newport Pacific Pty Ltd v Salib [2010] NSWSC 505 at [326]. It is submitted that its mistake was causative of the payment and that the concept of mistake includes a lack of awareness of something, not just a positive but incorrect belief: see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, at 369 and 374.
The defendant responded by pointing to the fact that, although the plaintiff claims that it did not appreciate that it had a right to summarily dismiss the defendant and terminate the contract for breach without making any termination payment, in fact the plaintiff had in its possession all of the information that it now claims supports its claim. The plaintiff simply acted prematurely by exercising its contractual right to terminate the defendant, without first undertaking the investigations that would readily have brought to light the facts upon which the plaintiff now relies. According to the defendant, the plaintiff did not so much make a mistake, but decided to exercise its contractual right of termination without first exploring whether it had any alternative basis for terminating the employment of the defendant.
The defendant relied upon the decision of Ward J (as her Honour then was) in Salib v Gakas at [315]-[336], to the effect that a payment of a similar kind could not be recovered as a 'mistake', where it was not made as a result of an operative or causative mistaken belief actually held by the plaintiff. It was within the power of the plaintiff to know then what it knows now (demonstrated by its ready access to this material immediately upon the purported termination of the defendant's contract of employment).
The parties both relied upon the judgment of Ward J. The most pertinent part of that judgment for present purposes in my respectful opinion is the following: [326] Thus, to establish a right to restitution on the basis of a mistake the plaintiff must not only have held the relevant mistaken belief (whether that be a mistake of fact or law) but also the mistake must be causative of the payment or conferral of the benefit (David Securities, per Mason CJ, Deane, Toohey, Gaudron, at 378-379 and per McHugh JJ, at [43] making it clear that the prima facie entitlement to recover moneys paid under a mistake depends upon the appearance that the moneys were paid by the payer "in the mistaken belief that he or she was under a legal obligation to pay the moneys or that the payee was legally entitled to payment of the moneys"). [327] A plaintiff may be relevantly mistaken, and entitled to restitution, even where the mistaken belief is his or her own fault, provided that payment was made as a result of the mistake (Commercial Bank of Australia v Younis [1979] 1 NSWLR 444, at 450; David Securities; Kelly v Solari (1841) 9 M & W 53, at 59; 152 ER 24, at 26, per Parke B). As Parke B. said in Kelly v Solari: If, indeed, the money is intentionally paid, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all inquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain it; but if it is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been, in omitting to use due diligence to inquire into the fact. (my emphasis) [328] In David Securities the High Court did not expressly address the appropriate test for causation in this context, remitting the case to the trial judge to determine whether the payments were made 'because of' the mistaken belief (David Securities, at 386). Nevertheless, it could be inferred from the High Court's rejection of the requirement of fundamentality the question would turn on whether the mistake was a 'significant' or 'dominant' cause of the relevant payment. By way of analogy in Gould v Vaggelas (1985) 157 CLR 215, at 216, per Wilson J; at 250-251, per Brennan J; San Sebastian Pty Ltd v Minister (1986) 162 CLR 340, at 366, per Brennan J; Henville v Walker (2001) 206 CLR 459, at 493, per McHugh J, the test was whether the mistake was a reason for the enrichment. [329] Mason CJ, Deane, Toohey, Gaudron and McHugh JJ in David Securities (at [36]) addressed the question of the voluntariness of the payment or election by the payer: The payment is voluntary or there is an election if the plaintiff chooses to make the payment even though he or she believes a particular law or contractual provision requiring the payment is, or may be, invalid, or is not concerned to query whether payment is legally required; he or she is prepared to assume the validity of the obligation, or is prepared to make the payment irrespective of the validity or invalidity of the obligation, rather than contest the claim for payment. We use the term "voluntary" therefore to refer to a payment made in satisfaction of an honest claim, rather than a payment not made under any form of compulsion or undue influence.
It would appear that there is a real issue in this case about whether the plaintiff made a voluntary decision to terminate the contract of employment in the exercise of its contractual right to do so, without exercising its ability to investigate the manner in which the defendant had performed his duties as managing director, so that it cannot now be said that any mistake by the plaintiff concerning the defendant's legal entitlement to the Termination Payment was the cause of that payment being made. Arguably, the defendant was entitled to that payment, unless the plaintiff took a different course and terminated his employment for cause under clause 15.2 of the contract of employment.
The defendant also relied upon the decision of a five judge bench of the Full Court of the Federal Court of Australia in Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20; (2015) 317 ALR 665. The reasoning in that case raises difficult questions of principle and precedent which the Court on this interlocutory application cannot realistically determine. The contract of employment in that case contained a clause 7.1 that entitled the appellant in its absolute discretion to elect to terminate the contract of employment of the respondent by providing remuneration in lieu of the appropriate term of notice. Clause 7.2 provided that the appellant could summarily terminate the contract immediately by notice in writing, without any payment in lieu of notice, for cause. Ultimately, the Full Court appears to have decided that, although the appellant had purported to exercise its right of termination under clause 7.1, it had not actually made the payment that was necessary to perfect the termination before it discovered that it had a right to terminate for cause under clause 7.2: see [123]. However, the plurality, Tracey, Gilmour, Jagot and Beach JJ, considered the question, apparently obiter, of whether, if the appellant had effectively terminated the contract of employment and paid any termination payment under clause 7.1, it had a right to the return of the termination payment, if it subsequently discovered that it had a right to terminate without cause under clause 7.2. The plurality considered that question at [89]-[119], by a detailed analysis of the relevant cases. The plurality concluded at [118] that, if the respondent's employment had been terminated on proper notice or payment in lieu of notice under clause 7.1, then the appellant was not entitled under the principle in Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 to later use otherwise available grounds for cause under clause 7.2 to summarily terminate the respondent. As the plurality said at [112]: "We do not consider that Shepherd supports [the appellant's] contention that a lawfully terminated agreement, in effect, may be resuscitated and then re-terminated upon some ground not known at the time of the determination".
At [113], the plurality said that, to the extent that the judgment of the Court of Appeal in this State in Downer EDI Ltd v Gillies [2012] NSWCA 333; (2012) 229 IR 314 and the subsequent case of Bibby Financial Services Australia Pty Ltd V Sharma [2014] NSWCA 37 were to a different effect, the plurality disagreed. It is to be noted that, for the reasons mentioned by the plurality at [113], upon the particular reasoning in Downer, the Court of Appeal decisions may not have been inconsistent with the reasoning of the plurality. The plurality discussed the reasoning in Downer at [101]-[111]. The principal decision was given by Allsop P (as his Honour then was), with whom Macfarlan and Meagher JJA agreed.
Obviously, if there were in fact a relevant difference in the principles adopted by the Court of Appeal of this State and a single decision of the Full Federal Court, a trial judge of this Court would be required to apply the former principles.
The primary effect of the rule in Shepherd's case is that, where a party takes a step under a contract on a basis which is in fact unauthorised, the party is entitled subsequently to rely upon a different basis of which it was not originally aware that does justify the step taken.
The point of possible difference adopted by Allsop P is discussed by the plurality at [108], in which [136]-[138] of Allsop P's reasons are extracted. The point of difference appears to be this, as stated by the President: the Shepherd principal should not "be confined to supporting as justifiable acts done under contract which are not valid without further justification from the facts not previously known. In principle, it should equally extend to adding a further basis for justification of the act if that further basis has separate relevance…"
In my view, the real point for present purposes is that neither the facts nor the arguments are sufficiently defined in this interlocutory case to enable the Court to determine the significance to the present case of this possible divergence of reasoning in the decisions of intermediate courts of appeal. Nor is it possible to resolve clearly the possible interplay between any claim that the plaintiff may have under the contract of employment relying upon the Shepherd principle, and its claim for the return of the termination payment based upon the principle of mistake.
I consider that the plaintiff has demonstrated a sufficient prima facie case at this interlocutory stage to support the extension of the freezing order, but I will proceed on the basis that the defendant has a substantial defence with considerable prospects of success when he says that the Termination Payment was not made to him as a result of any operative mistake made by the plaintiff, and that, having elected to terminate under clause 15.1 of the contract of employment, it lost the right to terminate under clause 15.2.
I regard it to be of some significance, albeit not determinative, that the Termination Payment was a payment made voluntarily by the plaintiff to the defendant. The defendant did not cause the payment to be made to him, whether dishonestly or otherwise.
I appreciate that if a sufficient positive case is made out on the evidence that a defendant is likely to put the defendant's assets beyond the reach of the Court, a freezing order should be made, however the defendant came to receive funds or other assets from the plaintiff.
However, I view the issues in the present case as being more subtle, and as will be seen, I have not found that it would be correct to treat the payments which the defendant caused to be made to himself as being straightforward misappropriations. I have also come to the conclusion that it is proper for the Court, in a more nuanced way, to look at the individual payments separately.

Consideration

The first step taken relevant to this case was that the plaintiff decided, for its own reasons, to exercise its contractual right to terminate the defendant's employment. It did so, and it made the Termination Payment in lieu of notice. Secondly, the defendant responded by making an apparently genuine claim against the plaintiff that the written contract of employment had been varied orally, with the consequence that the termination was not effective. The defendant claimed substantial entitlements under the contract. There is no significant evidence to support the validity of the defendant's claim, but there is no appearance that it was contrived. The third step is that the plaintiff then undertook investigations, which have led it to make additional claims that the defendant arranged for unauthorised payments to be made to him. The possibility of dishonesty on the defendant's part arises only in respect of these additional claims.
It will be appropriate to consider the issues in contention between the parties in relation to the additional claims, in so far as they have a bearing on the likelihood that the defendant will try to avoid the effect of a judgment by the Court in favour of the plaintiff by removing his assets from the reach of the Court.
First, however, I will make some observations on the manner in which the defendant has put his evidence before the Court. As I have observed above, the only testimonial evidence in the defendant's case has been given on information and belief by the defendant's solicitor. The evidence is detailed, and could not realistically have been given without specific and detailed instructions from the defendant.
That reduces the weight that should be given to the evidence, although I recognise that in complex cases the tactical decision of a defendant not to give evidence personally may be justified because of the possible consequences of the defendant committing him- or herself prematurely to a detailed version of the facts without the opportunity for due consideration and a review of all relevant evidence. Nonetheless, although the decision of the defendant not to give evidence personally may be understood, its absence may still have consequences.
In the present case, where the plaintiff alleges dishonest conduct on the part of the defendant, the defendant's decision not to explain himself by his own sworn or affirmed evidence is of some consequence. Further, it is relevant that the defendant has not provided any personal explanation of his aspirations concerning remaining in Australia, and how he hopes to achieve that outcome. This is a legitimate matter to weigh in the balance when the Court comes to determine whether the continuation of the freezing order is warranted.
I will now give consideration to the individual payments that the plaintiff alleges involved misappropriations by the defendant.
It is necessary to observe that, notwithstanding the interlocutory nature of the hearing, the parties were able to put before the Court a substantial amount of evidence to support their contesting claims. However, as is usual in interlocutory applications, the parties did not have the opportunity to contest the issues fully. As a consequence, even if it were appropriate for the Court to form some view concerning the merits of each claim and the likely outcome on a final hearing, which it is not, in this particular case the attempt to do so would be unsound.
The real purpose of any consideration by the Court of the contested issues is to make a holistic judgment of the likelihood that there was an element of dishonesty in the steps taken by the defendant to cause the relevant payment to be made to him.
The matter reached the stage where the defendant was able to respond to the plaintiff's evidence by reading his solicitor's evidence on information and belief, largely from the defendant, and tendering a small number of relevant documents. The defendant made the point that his defence had been inhibited because he no longer had access to all of the documents that were now in the possession of the plaintiff. The defendant distilled his response into a schedule that became MFI 1.
I have come to the view that the various payments made by the plaintiff to the defendant should be divided into two categories.
I will deal first with what was described by the defendant as an additional bonus of $147,310 paid to the defendant, and the Bonus Claim of $103,210. It must immediately be stated that the plaintiff did not allege that the first of these amounts was not payable to the defendant. There seems to be some issue as to the proper categorisation of the payment, but that does not matter for the purpose of the outcome of the present application. The defendant explained that the payment was not a bonus, but it was a retrospective increase in the defendant's salary from $280,000 to $430,000 per annum. The defendant gave evidence as to how he agreed to the increase with Mr Zimmer of the parent company, and recorded the agreement in an email dated 13 December 2017. He explained how the increase was approved in a spreadsheet prepared by Mr Zimmer, and after the payment was made, it was reported in an email sent by the defendant to Mr Zimmer on 15 January 2018, to which a payslip said to evidence the payment was attached.
The plaintiff did not, however, challenge the legitimacy of this payment as I have stated above.
The additional payment of $103,210 was, however, in issue. The defendant responded that the payment had been authorised as a back-paid bonus of €50,000, converted to Australian dollars, using the exchange rate adopted by Mr Zimmer in the spreadsheet prepared by him in German and grossed up for tax. The defendant said that the payment of the bonus was the subject of a conversation between him and Mr Zimmer, recorded in an email dated 13 December 2017.
I am not entirely confident that I understand the full significance of the evidence on this issue, as there was insufficient time for counsel for the parties to address the issue in submissions.
The defendant relied upon a letter written to him on 22 January 2017, which offered him a "one-off special payment for 2017 in the amount of €50,000 gross". The offer was made by an executive of a company called Delta Business Service GmbH, which is related to the plaintiff's parent company, and is a company for which the defendant had previously worked.
The defendant claimed that his agreement with Mr Zimmer was recorded in a schedule prepared by Mr Zimmer on 8 January 2018 that was in evidence. The schedule stated the exchange rate between the Australian dollar and the euro, and the Australian tax rate of 35%. It included the line: "Bonus from second agreement - tax-free - €50,000 Bonus to compensate for salary before appointment".
Mr Zimmer's spreadsheet is difficult to follow without a full explanation of how it is made up. It may be that the proper way to interpret it is that while it does refer to the bonus of €50,000, that was not to be in addition to the increased fixed compensation that was to be paid with retroactive effect from 1 January 2017.
However, there is some basis for the defendant's argument that he informed Mr Zimmer that the payment had been made to him by means of the 15 January 2018 email and the attached payslip.
The payslip had a line item "plus before tax additions" for which the amount for "This Pay" was $250,521.47. The total of the additional salary (admitted by the plaintiff) of $147,310, plus the contested bonus of $103,210, is $250,520.
The defendant's 15 January 2018 email to Mr Zimmer commenced by attaching what was described as "the adjustment for January". It stated: "I had already forwarded your email with the calculation to the Payroll and the HR Department, so that this could be included in December 2017". It concluded by saying: "I have also asked our HR Manager to prepare a contract amendment for your review and signature".
Mr Zimmer affirmed an affidavit on 19 April 2018, in which he dealt with the bonus payment in pars 23 to 29. The effect of that evidence is that Mr Zimmer says that he did not approve the bonus payment of $103,210.88, and that the effect of his spreadsheet was only to authorise that the defendant be paid $147,310.59 by way of a salary increase backdated to 1 January 2017.
It is not possible for the Court to resolve this dispute on the present application. I am satisfied that the payment was not made as a result of some secretive act by the defendant. I conclude that, although the question about whether the defendant was entitled to the additional bonus under his contract with the plaintiff is an open one, the defendant did not hide from the plaintiff's parent company the fact of the payment.
Indeed, it has not been explained why the plaintiff did not put the 15 January 2018 email and the attached payslip before Parker J when it first obtained the freezing order.
The other payments that the defendant caused the plaintiff to pay to him are in a somewhat different category.
The plaintiff relies upon the fact that clause 21.1 of the employment contract provides that it may only be amended by written agreement between all parties. Clause 21.2 is what is sometimes called an "entire agreement" provision, with the effect that the written contract supersedes all previous agreements between the parties.
Clause 6.1 contained an agreement that the plaintiff would pay to the defendant the "Remuneration", which was defined as AU$268,479.
Terms of the form of clause 21.1 may not always prevent the parties entering into a subsequent oral agreement, which upon its proper construction may be taken to have amended the earlier written agreement, albeit that it is not in writing. A term such as clause 21.1 cannot prevent the parties actually entering into a subsequent oral agreement which is effective to vary the prior written agreement. Each case will depend upon an analysis of its own facts.
Consequently, I have not considered clause 21.1 to be decisive in relation to the issue of the additional bonus that the defendant claims Mr Zimmer agreed that he would be paid, as that issue depends upon events that occurred after the date of the written contract.
It may be that clause 21.2 is more effective to exclude the operation of agreements that were made with the defendant before the written contract was entered into, and plainly it is likely to be effective in relation to earlier agreements between the defendant and companies related to the plaintiff's parent company. This issue is relevant to the balance of the claims that the plaintiff makes against the defendant.
I will now address those additional claims in turn.
As noted above, the Furniture Claim for $48,082 concerns a part payment to Polyform for furniture for the apartment in Bathurst Street Sydney, leased by the plaintiff and the defendant as the defendant's residence. The evidence establishes that the amount of $48,082 was paid, but it does not show whether the plaintiff has attempted to recover any part of that money, and the plaintiff's ultimate loss is not known.
The defendant accepts that he did not obtain approval from the parent company for the expenditure. It is the defendant's case that at all times when he has been employed by the plaintiff or a related company, he has been provided with furnished accommodation. He says that he had accumulated furniture that was moved from residence to residence. A decision was made by the parent company that the head office of the plaintiff would be moved to a location in Newcastle. For that purpose, rented accommodation would be necessary for the defendant in Newcastle in order to reduce hotel fees for the period that the defendant spent away from his Bathurst Street apartment.
The defendant says that, as the managing director of the plaintiff, he decided to move his existing furniture to the new Newcastle residence, and to re-furnish the Bathurst Street apartment.
The defendant relied upon the budget for 2018, authorised by the parent company in a letter dated 22 December 2017, to which was attached a schedule that contained a line item for "New Headquarters furniture", more particularly described as "Other equipment, operating and office equipment", and made an allowance of $200,000.
The defendant said that he made the decision to refurnish the Bathurst Street apartment because he would use the new premises at Newcastle as part of the plaintiff's office arrangements.
Mr Zimmer's response was that he did not authorise the payment, and that it would have been highly improper for the defendant to use company money allocated to the purchase of office furniture and other equipment to acquire furniture for his private use.
The defendant instructed an employee of the plaintiff to make the payment, and it does not appear that he attempted to hide the payment from the plaintiff or the parent company.
The Holiday Claim of $47,000 concerns an amount paid by the plaintiff on the instructions of the defendant for the defendant and his partner to have a holiday in Tahiti.
The defendant claimed that he was entitled to a private travel budget consisting of four annual business class air tickets from Australia to Germany, and that he was entitled unilaterally to decide to apply part of the money towards the Tahiti holiday.
The alleged entitlement to the travel allowance is not provided for in the employment contract between the plaintiff and the defendant.
Mr Zimmer's position was that he has never been told by the defendant about the alleged travel entitlement (which the defendant claims was agreed with a predecessor of Mr Zimmer's) and Mr Zimmer did not authorise the defendant to apply such travel allowance on some alternative holiday.
The Car Allowance Claim of $22,750 concerns an allowance that the defendant instructed an employee of the plaintiff to pay him. The defendant's explanation is that it had been a long-standing practice that the plaintiff and its related companies had provided the defendant with two vehicles before his promotion to managing director. After his promotion, one of his vehicles was taken away by the plaintiff and given to another employee. The defendant decided that he would convert his entitlement to the second vehicle to a monetary car allowance.
Mr Zimmer pointed out that he had not authorised the payment, and that the employment contract did not entitle the defendant to a car allowance or a second vehicle. The defendant already had access to a fully paid motor vehicle provided by the plaintiff.
Finally, the Salary Claim of $69,999 involved a doubling of the defendant's pay entitlement over three pay periods. The defendant explained the payments on the basis that a related company of the plaintiff had agreed to give him a cash allowance of €10,000 for three years as a contribution to his further study. Part of that amount was paid out, leaving €22,034 owing, according to the defendant, to him. Upon the expiry of the three-year period, the defendant directed that the allowance be paid to him in Australian dollars. The defendant conceded that the payments involved an overpayment following a miscalculation of $4009.26.
The defendant justified his entitlement by reference to a letter dated 8 September 2014 that concerned a benefit given to the defendant while he was employed in South Africa by a company other than the plaintiff. The benefit was a financial contribution to a specific course of study, and was only to be used for the defendant's tuition costs. Mr Zimmer pointed out that the defendant was not entitled to receive a cash payment in lieu of the entitlement. The defendant was not authorised to cause the tuition subsidy to be converted to a cash payment to him.

The continuation of the freezing order

I will now address the significance of these claims to the question of whether the Court should continue the freezing order.
I have decided that it will be appropriate for the Court to continue the freezing order, but for a substantially reduced amount. The reasons that I have decided to take that course are as follows.
First, while I do not accept that at this interlocutory stage of the proceedings the defendant should be treated as if he has dishonestly misappropriated all of the amounts claimed by the plaintiff, there remains a serious question about the defendant's integrity in respect of the circumstances in which some of those payments were instructed by him to be made.
The defendant does not appear to have attempted to hide any of the payments from the plaintiff or its parent company, which is reflected in the ease with which the plaintiff apparently detected the payments after the defendant's employment was terminated.
So far as the additional bonus of $103,210.88 is concerned, while it remains a real possibility that the defendant was not entitled as a matter of agreement with the parent company to cause that sum to be paid to him, it does appear that he disclosed the payment to Mr Zimmer, and may well have thought he was entitled to the money, even if that belief is ultimately proved to be an error.
On the other hand, I accept that the commercial ethics involved in the defendant causing the payments for the furniture, the travel costs, the motor vehicle allowance and the double salary payments were questionable. There is at this interlocutory stage of the proceedings an adequate basis for the Court to reach the provisional conclusion that the defendant ought to have understood that, notwithstanding that he had been appointed the managing director of the plaintiff, he was not justified in causing payments to be made to himself outside of his expressly agreed entitlements under the employment contract, without the specific authorisation of the appropriate officer of the parent company.
Although, to varying degrees, the defendant may have had some practical justification for causing the payments to be made, had he properly appreciated the duty of honesty and good faith he owed to the plaintiff, he should not have authorised those payments to be made without explicit authorisation. That proposition in my view is relatively clear in relation to the alleged conversion of his alleged private travel budget to a holiday in Tahiti, the second motor vehicle allowance, and the double salary. Taking the last of those examples, it is reasonably obvious, in my view, even if that view is only provisional at this stage, that the defendant could not justify unilaterally converting an un-used study allowance into a cash payment. A person with the responsibility of the managing director of the plaintiff, with the duty of good faith that he owed to the company, could not justify the making of any of the four payments, without first bringing the issue to the attention of his superiors and obtaining their prior authorisation.
Consequently, while I do not accept that all of the payments should be treated as being dishonest misappropriations, I do accept that it has been established, at least to the level required for the giving of interlocutory relief, that the defendant has been less than scrupulous in his dealings with the plaintiff's funds.
The total amount that the defendant has received for the four payments that I regard as being most questionable is almost $190,000. Although it may be that the plaintiff does not ultimately lose the whole of the amount of $48,000 paid on account of the furniture, the Court should not ignore the possibility that the plaintiff will succeed on the Bonus Claim of $103,210, as well as the claim for the return of the Termination Payment.
I have also not forgotten the claim that the defendant has foreshadowed against the plaintiff.
It would be an illusion for the Court to pretend that there was any rational way of weighing up all of these claims to determine the amount of the defendant's assets that should continue to be the subject of a freezing order.
I must also take into account that the defendant has not personally given evidence to explain his intentions concerning his remaining in Australia. It also must be a real possibility that the defendant's visa will be cancelled, and he will be obliged to leave Australia. Finally, as I have noted above, the assets of the defendant in Australia are almost entirely cash.
I have also taken into account that, if the Court had decided to continue the freezing order which covers an amount of $500,000, the Court would have to make a proper allowance for the defendant's legal costs and living costs. That would be necessary even taking into account that the defendant has €104,386.22 in Germany.
The defendant's solicitor gave evidence as to his estimation of the legal costs that the defendant would incur in prosecuting these proceedings to a conclusion, which I infer will include his claim against the plaintiff. The solicitor said that the costs to date are $15,193.20 of which $5229.70 remains outstanding. The costs of the present interlocutory hearing were estimated at $49,100. The costs of an application for expedition were estimated at $18,100. Preparation for the hearing was estimated at $120,000, and the costs of the hearing were $109,500. The total estimate to the end of the trial was $296,700.
That figure is somewhat more than the total legal costs estimated by the plaintiff of $240,000. There is reason to think that the estimate of the defendant's costs is excessive, particularly concerning the application for expedition. There is no way that the Court can realistically estimate the defendant's likely legal costs. It may be accepted that the proceedings will probably be complex and contentious.
In addition, as I have mentioned above, the defendant claims that he should be allowed an amount of $3700 per week for his living costs, of which $1700 relates to the cost of renting the apartment at Bathurst Street.
In my view it is necessary for the Court to adopt a holistic approach to determining the proper outcome of this interlocutory application, as it would be artificial to attempt to calculate the appropriate amount to be the subject of the freezing order, and also the allowances to be made to the defendant in any arithmetical way.
I have concluded that the appropriate course is for the Court to continue the freezing order, but to reduce the amount the subject of the order to $250,000. In my view, even though that amount should not be considered to be a security for any judgment that the plaintiff may obtain in these proceedings, it is a properly balanced amount having regard to my overall assessment of the claims made by each party against the other. It also preserves funds to the defendant for his living and legal costs, without involving the Court in a continuing need to review the amounts that the defendant will be permitted to pay his lawyers and to live on.
I will hear the parties on the issue of costs. I am inclined to the view that the proper order for costs is that the costs of the interlocutory applications be the parties' costs in the cause.
If the order for costs can be agreed upon, the plaintiff should provide to my associate appropriate short minutes of order to give effect to these reasons for judgment to be made in chambers.

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: 07 May 2018

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Judgment (12 paragraphs)

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Cases Cited (19)

Cited By (3)