Good arguable case
7 Before a freezing order is made, Rentokil must show that there is a good arguable case on legal and factual matters or a sufficiently realistic prospect of success on the proceedings: Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at 408 [68] (Gaudron, McHugh, Gummow, Kirby and Callinan JJ); Re Donnelly; Hancock v Porteous [2001] FCA 345 at [9] (Stone J). In the context of r 7.35, Rentokil must establish that it has a good arguable case on a justiciable cause of action. The criterion of good arguable case is a lesser standard than the prima facie cause of action requirement favoured by the majority in Patterson v BTR Engineering (1989) 18 NSWLR 319 (Gleeson CJ and Rogers A-JA).
8 The evidence of Mr Hames on the application established the following at a prima facie level.
9 Rentokil is one of Australia's largest suppliers of pest control services, hygiene products and indoor plant servicing to commercial and household customers. It has offices in each state in Australia. Its national headquarters are located in Lidcombe, New South Wales. The business employs approximately 1,600 workers Australia-wide.
10 In addition to its Australian operations, Rentokil also has offices in New Zealand and Fiji, which are ultimately owned by Rentokil's parent company, Rentokil Initial 1927 Plc.
11 The ex parte application for urgent interlocutory relief arises out of the discovery by Rentokil of false invoices in the period 31 March 2020 and 15 July 2021 in the names of third-party suppliers, which Mr Kelly appears to have created using his work laptop computer and/or entered into Rentokil's accounting software. The invoices in issue directed that payment be made to one of two ANZ bank accounts or a CBA account. Rentokil subsequently discovered that the ANZ accounts into which payments were made are held by Mr Kelly or JJK Enterprises. The identity of the holder of the CBA account is presently unknown.
12 Mr Kelly commenced his employment with Rentokil in April 2017 in the position of Operational Implementation Manager. In around March 2019, he was promoted to National Service Support and Supply Chain Manager. He worked in that position until October 2020, when he became the Head of Operational Support and Supply Chain for the Pacific division. Mr Kelly's primary areas of responsibility involved managing Rentokil's Australian and Pacific supply chain and warehousing operations. He was also responsible for the provision of support and training in relation to Rentokil's invoicing, inventory and supply chain software, known as Navision.
13 Rentokil's discovery of the alleged fraud followed an investigation in early August 2021 into an invoice purporting to be from a supplier named Avetta, in respect of which Mr Kelly had submitted a payment request to Rentokil's accounts division. After a series of investigative steps, the details of which are not necessary to recount, Mr Kelly admitted to having created the false invoice and tendered his resignation. In his letter of resignation of 10 August 2021, Mr Kelly said:
I was responsible for creating the invoice payable to Avetta for the amount of $73,480.00, dated 2 August 2021. I created this invoice on that day using a previous Avetta invoice as a template, substituting my bank account details for Avetta's.
I then lodged the invoice by way of sending it to Kyle Ingleton at Rentokil-Initial for approval and payment. This invoice was prepared on the basis of works completed for Rentokil-Initial although no such work was undertaken.
…
I regret the conduct disclosed above and as a result I tender my resignation as Head of Operational Support Services and Supply Chain for the Pacific region. My resignation will be effective at close of business on 10 August 2021.
14 Mr Kelly is alleged to have again admitted to fabricating the Avetta invoice in a discussion with his supervisor, in which he said that he had suffered from a "moment of madness".
15 Following the discovery of the Avetta invoice, Rentokil engaged forensic investigators to examine Mr Kelly's work-related email accounts and his work-issued laptop computer and mobile telephone and to compare the results with information stored in Navision.
16 The investigators found copies of invoices in the name of Macrosphere Pty Ltd and eight invoices in the name of E&M Metal Fabrication & Powder Coating Pty Ltd on the hard drive of Mr Kelly's Rentokil laptop. The metadata for many of the files identified Mr Kelly as the author of the document. The investigators concluded that Mr Kelly had most likely created the 32 false invoices using the Rentokil laptop.
17 The Macrosphere invoices located on Mr Kelly's laptop contained the BSB and account numbers of two ANZ bank accounts. Copies of account statements for the ANZ accounts were also found on the same computer. As noted at [10], the statements indicate that one of the accounts is held by Mr Kelly and the other is held by JJK Enterprises.
18 By entering the ANZ account numbers into Navision, the investigators located further Macrosphere invoices, which used the same ANZ account numbers as part of the payment details. The additional invoices are likely to have also been created by Mr Kelly or at his direction.
19 Also located within Navision records were more than 2,500 items of stock that were described as purchased from Macrosphere. Those items have not been located in Rentokil's warehouse and storage facilities. It appears that Mr Kelly entered, or caused to be entered, false information into Navision regarding the provision of stock.
20 Between 31 March 2020 and 15 July 2021, Rentokil transferred a total of $1,901,252.98 to the ANZ accounts held by Mr Kelly and JJK Enterprises in payment of Macrosphere invoices. Of this total, $1,715,117.03 went to JJK Enterprises with the balance going to Mr Kelly.
21 Rentokil attempted to verify the authenticity of the Macrosphere invoices but the information supplied by Macrosphere was contradictory and did not dispel Rentokil's concerns that the invoices were falsified and that the payments went to accounts controlled by Mr Kelly and JJK Enterprises. Rentokil was initially told that Macrosphere had invoiced Rentokil for $850.27 but was eventually informed that between 30 November 2020 and 15 July 2021, Rentokil had paid to Macrosphere a total of $1,697,895.99. Rentokil's enquiries regarding the authenticity of the Macrosphere invoices and the account numbers stated on those invoices were otherwise left unanswered.
22 E&M is a third-party supplier with whom Rentokil contracted in around February 2020 to purchase parts for hand sanitiser dispensers. On 13 July 2021, an employee within Rentokil's accounts payable team received an alert that an email containing a remittance advice to E&M could not be delivered. Subsequent interaction between Rentokil and E&M revealed that the ABN, email address and the CBA bank account in the payment details on the invoice did not match those of E&M. This issue was reported to Mr Kelly and others within Rentokil. In response, Mr Kelly repeatedly reported that he had been advised by the owner of E&M that the owner had changed his email address and bank account details due to an ongoing divorce. At that time, Mr Kelly's colleagues had no reason to doubt the explanation proffered by Mr Kelly.
23 The discovery of the falsified Avetta invoice in early August 2021 caused Rentokil to revisit the issue in respect of the earlier E&M invoice. Subsequent investigations revealed that on or about 16 November 2020, the account details associated with E&M in Navision had been changed to the CBA account that was used in the suspect E&M invoice. In the period following the change of account number, Rentokil paid amounts totalling $1,368,540.80 to the CBA account. E&M subsequently informed Rentokil that it did not bank with the CBA and had never used any account other than the Bank of Queensland account to conduct its business with Rentokil.
24 The forensic investigators appointed by Rentokil cross-checked the CBA account number against the Navision records and identified further E&M invoices which appear to have been fabricated by Mr Kelly, in addition to those that had been found on Mr Kelly's laptop computer. Rentokil's investigations to date have not identified the holder of the CBA account to which it transferred payment on the purported E&M invoices.
25 Rentokil has not located the approximately 6,200 items of stock that are recorded in Navision as purchased from E&M. It appears on the evidence as it stands that Mr Kelly entered, or caused to be entered, false information into Navision in relation to those items.
26 It is not necessary to set out the details of Rentokil's investigation into the property of the respondents, those details are reflected in the terms of the orders as made and were supported by Mr Hame's affidavit. I note that during the period from which the false invoices date, Mr Kelly and companies controlled by him or in which he has an interest acquired various real properties.
27 Mr Kelly jointly owns real property located in Newport, Queensland, which was purchased in October 2020. He also has a number of bank accounts in his name, including the ANZ account referred to in paragraph 16 above.
28 JJK Enterprises is the registered proprietor of two properties in Clontarf, Queensland, both of which were purchased in October 2020. It also owns three motor vehicles.
29 JJK Property is the registered proprietor of three properties in the suburbs of Dalby and Emerald, Queensland, which were purchased in May 2020 and June 2020 and are each subject to a CBA mortgage. The acquisition of these properties by JJK Property occurred shortly after the earliest of the suspect invoices which Rentokil has identified. As noted above, JJK Property is controlled by Mr Kelly. There is no evidence of direct payments from Rentokil to JJK Property. The evidence does not reveal any details in respect of JJK Property's bank account(s) - other than it has mortgages with the CBA. The holder of the CBA account which received payments made by reference to some of the suspect E&M invoices has not been identified. The evidence against Mr Kelly is strong and includes an admission in respect of the Avetta invoice which was the first of the falsified invoices to be discovered. In these circumstances, notwithstanding the absence of evidence of direct payment to JJK Property, I am satisfied that Rentokil has established a case against JJK Property to the requisite standard.
30 Rentokil's claims are framed as follows:
(a) Against Mr Kelly - breach of employment contract; breach of fiduciary duty; breach of s 182 of the Corporations Act 2001 (Cth); misleading and deceptive conduct under the Australian Consumer Law; tort (deceit and conspiracy); and restitution;
(b) Against JJK Enterprises: tort (deceit and conspiracy), involvement in Mr Kelly's breach of s182 of the Corporations Act, misleading and deceptive conduct under the Australian Consumer Law; knowing assistance in Mr Kelly's breach of fiduciary duty; and restitution.
(c) Against JJK Property: tort (deceit and conspiracy), involvement in Mr Kelly's breach of s182 of the Corporations Act; knowing assistance in Mr Kelly's breach of fiduciary duty; and restitution.
31 I am satisfied that Rentokil has demonstrated for the purpose of this application that it has, at least, a good arguable case against each of the respondents.