The plaintiff, by statement of claim, filed on 1 June 2017, seeks damages of $127,808.14 for breach of contract, interest pursuant to s 100 Civil Procedure Act 2005 (NSW), and costs for losses incurred to the plaintiff's business by reason of the fraudulent activities of its employee, the defendant.
The circumstances in which the defendant is asserted to have breached his contract of employment were as follows. Having first commenced work at the plaintiff's office on 28 February 2002, he was promoted to sales manager on 15 September 2008, where he was given a degree of responsibility and autonomy which he proceeded, from some time in about 2011, to take flagrant advantage of.
In the course of his employment, as is set out in paragraphs 3 to 8, he converted or wrongly used, or otherwise failed to return property and money belonging to the plaintiff, in a scheme the details of which is set out in more detail below, which included recording fictitious customer requests for accessories to the trucks sold in the plaintiff's business, and raising company purchase orders, pursuant to fraudulent invoices.
As is set out in more detail below, the defendant, on or about 5 March 2014, admitted that he had collected accessories from the offices of a mobile phone manufacturer, which is, in fact, paid for by the plaintiff, and that he had not delivered them either to the plaintiff or to the customer. It would appear that the customers of the plaintiff involved in the defendant's scam had no idea the equipment was being ordered in their name.
The first issue that I should note is the procedural history of the claim, which is as follows. The statement of claim was served on the plaintiff on 13 June 2017 at the address given for him in the statement of claim by a licensed commercial agent, who completed a sworn affidavit of service, on 19 June 2017. As there was no defence filed, a notice of motion for default judgment for liquidated claim was filed, and after some delay, on 28 November 2017, judgment was entered by Registrar King and the proceedings were listed for assessment of damages and costs for today.
Rule 30.1 Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") sets out the circumstances in which assessments are carried out. However, when the matter came before the Court this morning, the defendant did not appear, despite being called.
The relevant procedure to be followed where the opposing party does not attend. has been set out by Barrett J in Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365, as I noted in my judgment in Prime Marble and Granite Pty Ltd ACN 077 393 938 v Mehajer [2017] NSWDC 273, where another defendant failed to appear before the Court in similar circumstances.
As Barrett J explains, the role of the Court should take, when dealing with proceedings where a party has not attended, is provided for in the rules as including having regard to the obligations to that missing party. This means, to ensure firstly that the missing party has had full and proper notice of the hearing date, secondly, that there is a level playing field and, thirdly, to have careful regard to the evidence, so that the relevant issues are considered in a manner that is fair to the missing party.
As to the awareness of today's hearing date by the defendant, I note the contents of the letter from the solicitors for the plaintiff, of 10 January 2018, which is directed to the same address at which he was served, which states:
"We refer to the statement of claim served in these proceedings.
The Court has now entered judgment against you in favour of our client.
The proceedings are listed for assessment hearing on 20 February 2018 at 9.30am in the District Court of New South Wales at Sydney. On that day, the Court will determine the amount of damages which you will be ordered to pay to our client.
We enclose by way of service, the affidavit of Nicholas John Maley, sworn 9 January 2018. We will rely on that affidavit in the hearing, on 20 February 2018."
It is clear to me that not only is the defendant aware of the date, but he must have received, and must be taken to have read, all of the relevant evidence. There has been no attempt to contact the Court that I can ascertain. My associate has checked with JusticeLink this morning, to ensure that any attempt by the defendant to contact the Court, if it had occurred, would have been available as a result.
This brings me to the evidence of the circumstances in which the defendant perpetrated the fraudulent acts which give rise to this claim.
A careful and helpful forensic accountant's report, prepared by Celia Reichelt, reports that the theft was discovered as a result of the diligence of a junior employee, Ms Goumlieh, a helpful competitor (whose name has not been provided) and the on‑site accountant, Mr David Hopkins.
The plaintiff's stock controllers regularly carry out a competitive review of suppliers. On 3 March 2014, the junior stock controller, a Ms Goumlieh, visited the offices of a local electrical supplier, a competitor to C & A Mobile (an existing electrical supplier to the plaintiff) as part of this review, taking with her an example of an invoice from C & A Mobile, to ask for a price comparison.
It was these invoices from C & A Mobile which were being used by the defendant to perpetrate the fraud, in that he was ordering equipment unbeknownst to either the plaintiff or to the purchasers of the plaintiff's products, which were "add‑ons" to the invoice to the customers. The staff at this supplier explained to Ms Goumlieh, that the invoice they were shown was for an Apple iPad, although the wording on the invoice, which was helpful to Ms Goumlieh, as the wording on the invoice had made it difficult to identify the exact nature of the item being provided.
I infer from this obscure wording that part of the fraud perpetrated by the defendant was to make it as difficult as possible to work out what had been ordered and thus hide the fraud.
The very helpful competitors to C & A Mobile pointed out to Ms Goumlieh that the items ordered would be very unusual items to be supplied for trucks of the kind which were sold by the plaintiff, especially as these could be purchased more cheaply direct from Apple or from a phone retailer. In addition, this helpful competitor told her that their company had been approached by the defendant a couple of years earlier, to set up a supply of mobile phones, but they had declined because they were suspicious of him. The local electrical supplier staff suggested to Ms Goumlieh that the plaintiff should have a close look at the orders made by Mr Williams.
As the above history shows, it was as a result of ordinary members of the community showing diligence, in the course of their employment, that the fraud was discovered.
Ms Goumlieh, who was a junior employee, was naturally very anxious about raising suspicions about such a senior and long serving sales manager as the defendant, gathered up her courage and spoke to the general manager, Mr Shearer, the next day.
Mr Shearer leapt into action, spoke to Mr Hopkins, who quickly identified from the inspection of the records, that in October and November 2013, the defendant had ordered 25 iPhones and iPads, which had not been ordered by the plaintiff's customers.
The very next day, the defendant was summoned to a meeting at the plaintiff's premises, attended by the accountant, Mr Shearer, and two other senior managers, during which he appears to have made certain admissions. The police were notified promptly on 17 March 2014, but rather surprisingly, there has as yet not even been an event report number issued, despite witness statements being provided to the New South Wales Police Force at Revesby Station. It is unclear what, if anything, the police are doing to follow the matter up, but that is irrelevant to the issues before me today.
There were further investigations, which resulted in the discovery of a long and concerted pattern of fraud. At first, the defendant attempted to conceal it, telling the plaintiff's employees that mobile phones had been ordered in accordance with customer requests and delivered to the customers. But when Mr Hopkins told the defendant that he had spoken to the 25 customers then known to him to have such items on their bills, and they had all said that they had neither ordered nor taken delivery of the iPhones and iPads invoiced, Mr Williams had confessed he had collected these and given them away to friends. He denied selling them privately, although clearly, that would appear to be a potential explanation, given the very large number of iPhones and iPads in the four and a half pages of products set out in the statement of claim.
Mr Hopkins reviewed all of the invoices from C & A Mobile and noted that the defendant was the only sales representative to place these orders. It is clear, from the evidence that is set out in exhibit A and in the forensic accountant's report, that this is a fraudulent scheme set up by the defendant alone, and that the defendant alone is responsible for the losses totalling $127,808.14, between 1 October 2011 and 5 March 2014, suffered by the plaintiff.
The method used by the defendant was deceptively simple:
1. When the defendant sold a truck to a customer, he completed a cost worksheet detailing truck specifications. He simply added a fictitious customer requested accessory or accessories, which was to be supplied by C & A Mobile. The description of these items was deceptive. One such example was "32GB Retina Grey", as opposed to "iPhone" or "iPad."
2. The defendant would then ask the stock controller to raise a company purchase order to C & A Mobile for the accessory that the customer had purportedly ordered. The descriptions were, again, deliberately technical, so as to mislead the stock controller, and the young person carrying out this task simply accepted the instructions of this senior manager, without query.
3. The defendant would then go to the offices of C & A Mobile to collect the purchased accessories, which were never delivered to the customer. None of these customers had requested these items and they, in fact, had no knowledge of the purchase which was purportedly added to their truck purchase.
4. C & A Mobile would subsequently send its invoice to Stillwell Trucks, who matched the invoice against the bona fide purchase order which had been prepared by the plaintiff, and then paid the invoice.
5. This left the defendant with the goods in question. The number of items he received every month adds up to a considerable figure. For example, in January 2014, he received six items with the value ascribed to them of a sum between $759.09 and $1,231.82. He received five items of a similar nature in February 2014. It was, of course, at this stage, that his fraudulent activities were discovered, but since these stretch back to October 2011, and he received somewhere between five and ten such items each month, it is easy to see how the amount in question was arrived at.
I am comfortably satisfied that the plaintiff has suffered the losses which add up to the sum sought in this assessment of damages, and accordingly, that judgment should be entered for that sum.
This brings me to the question of interest. There are two components in the plaintiff's claim for interest. The first is interest which is owed up until the commencement of proceedings on 1 June 2017, which sum has been calculated at $29,968.00. The second is the interest from the date of commencement of proceedings, up until today's date, which is $5,103.57. When added to the sum claimed, this will bring the total to $162,879.71.
This brings me to the issue of costs.
The plaintiff makes an application in court, for a gross sum costs order, pursuant to s 98(4) Civil Procedure Act 2005 (NSW). An order for a gross cost sum is particularly appropriate, not only in "mega litigation" style cases, but also in small cases such as the present, where the capacity of the unsuccessful party to satisfy any costs liability, and the degree of disproportion between the cost assessment process and the issues in the hearing, make it desirable that costs should be dealt with quickly and simply. The process of awarding a gross sum costs order is a two stage procedure, where the Court must firstly be satisfied the circumstances of the case were the making of the gross sum costs order (see Harrison v Schipp (2002) 54 NSWLR 738 at [22]) and, secondly, as to the quantum of costs involved.
There is a degree of informality in application, such as the present, in terms of identifying costs on an ordered basis, or costs on what is generally referred to as a "solicitor and client" basis: see Beech‑Jones J in Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863 at [8].
The costs in the present application are more than usually modest. There is a filing fee of $1,308.00, service fees of $65.00 and search fees of $114.69, making a total of $1,487.69. The solicitor and client costs for these proceedings are $8,500.00. The reasonableness of this figure can readily be demonstrated by comparing it to costs of a similar nature, costs in mega‑litigation of a not dissimilar nature in the Supreme Court in Aesthete No 3 Pty Limited ACN 127 464 966 v Gilmore Finance Pty Limited ACN 104 792 627 [2018] NSWDC 1, where costs of, in excess of $140,000, on an ordered costs basis were considered to be reasonable.
Where the costs in question are of a solicitor‑and‑client nature and where the "rule of thumb" discount is applied (see Bobb v Wombat Securities Pty Ltd (No 2) at [30]), that discount can, at times, be quite high. In Bobb v Wombat Securities Pty Ltd (No 2), it was 30%. I have seen lower figures, such as 20% in Star Diamond v Diamond (No 4) [2013] NSWCA 811, and 15% in Palladium Consulting Pty Ltd [2013] NSWSC 92.
I have discussed some figures with Mr Maley in court this morning, and clearly some deduction should be made. However, I cannot help but be persuaded by the very compelling example of the decision of the Court of Appeal in Wilkie v Brown [2016] NSWCA 128, and to determine that special indulgences should be granted where the sum in question is small. In Wilkie v Brown, where there was a cost assessment of slightly over $5,000 relating to counsel's fees, the Court of Appeal awarded the full sum and made no deduction in this regard.
I am of the view that, while a token amount should be removed for the solicitor and client nature of the costs, the fairest thing to do is to make only a token reduction from the sum of $8,500 and to award all of the disbursements. I suspect that, in fact, there are more disbursements in that there would have been postage, copying and the like, but I do not have that information before me.
Accordingly, I propose to reduce the solicitor and client costs from $8,500 to $8,000, but to allow this sum in full, which will mean that there will be a costs order for $8,000 plus $1,487.69, making a total of $9,487.69.
I also note that as there is an ongoing police investigation, it is appropriate that the Court should provide a copy of this judgment to the Commissioner of Police: Rafidi v Commonwealth Bank of Australia [2017] NSWCA 96 at [16]‑[18].
[2]
Orders
1. Defendant called outside Court 13D three times at 10:10am - No appearance.
2. Judgment for the plaintiff for the sum of $162,879.71 inclusive of interest.
3. Pursuant to s 98 Civil Procedure Act 2005 (NSW), the defendant is to pay the plaintiff's costs of $9,487.69 on a gross sum basis.
4. Direct the Registrar to provide a copy of this judgment to the Commissioner of Police.
5. Exhibits retained for 28 days.
6. Plaintiff is to notify the defendant of these orders.
[3]
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 March 2018