The Cleaning Doctor NSW Pty Ltd v Jeffrey Alexis Fonseca

The Dispute between Mr Itawi and the Fonseca Family

1. Over many years, Mr Itawi worked for businesses that provided cleaning and maintenance services to support businesses conducted by various members of the Fonseca family, the defendants, namely Mr Orlando Fonseca and his wife Mrs Vilma Fonseca and their children Mr Jeffrey Fonseca and Ms Joselyn Saada-Bancs (nee Fonseca). Mr Itawi claims he saw Mr Orlando Focesa as a father figure, who he trusted and that Mr Orlando Fonseca found Mr Itawi a house to buy in Bardwell Valley and financially assisted him in a small way in its purchase. The same house was transferred back to Mr Orlando Fonseca later, allegedly on trust for Mr Itawi. But by mid-2009, Mr Itawi was calling for its return to him.
2. Mr Itawi is the sole director and shareholder of the Cleaning Doctor, which held a bank account with Westpac, an account on which Mr Itawi was the sole signatory. Mr Itawi alleges that, in September 2009, he and the Cleaning Doctor went into an equal partnership, or joint venture, with members of the Fonseca family in a cleaning business, under which the Cleaning Doctor would be paid 50% of partnership/joint venture profits. He says that the partnership was made orally between himself and Mr Orlando Fonseca, but was also recorded in a written document dated 22 September 2009 ("the written joint venture agreement").
3. Mr Itawi says that Mr Orlando Fonseca set up the corporate entity, Cleaning Doctor, and a related bank account for him and promised that the revenues it received would be shared "50:50". Mr Itawi says that, conscious of the riskiness of this venture, he sought a secured guarantee over Fonseca family properties, so that the mortgage payments on the Bardwell Valley property definitely would be made on his behalf.
4. But the provenance of the written joint venture agreement is highly controversial. A copy of the agreement is in evidence. It provides for the 50-50 sharing of the profits of the joint-venture business (in clause 2): "The Fonsecas agree that Cleaning Doctor NSW owns half of all cleaning and property maintenance businesses and 50% of profits. If Ali leaves the business, Cleaning Doctor NSW isn't entitled to any more profits from that point on." The Fonseca's are also recorded in it as agreeing that "they will pay Cleaning Doctor's share into its chosen bank account" (clause 4).
5. The written joint venture agreement also declares that Mr Itawi is the "real owner" of the Bardwell Valley property and that "the Fonseca's promise to protect it for Ali" (clause 5) and that "The Fonsecas' share of the businesses are responsible for 50% of the mortgage repayments on Ali's house" (Clause 6).
6. Finally, the written joint venture agreement provides for the Fonsecas to grant a security interest over their properties as follows: "Each of the Fonsecas agree that any properties they own (including any new ones, ones in someone else's name, ones part of trusts or owned by companies) or control are security for Ali and Cleaning Doctor NSW to make sure the Fonsecas do everything this agreement says and pay all money owed."
7. Mr Itawi alleges, in accordance with this September 2009 alleged written joint venture agreement, that profits of over $2.6m from the joint venture were indeed paid into the Cleaning Doctor's Westpac Bank account by the Fonseca family or their businesses after September 2009. Mr Itawi says he performed his side of the bargain by bringing in business and doing the work which generated the revenue paid into the Westpac account.
8. But Mr Itawi alleges that Fonseca family members withdrew that money for their own purposes from this account and without authority from him. By the time these withdrawals were made, Mr Orlando Fonseca and his son, the defendant, had become bankrupt. The withdrawal money was lost to Mr Itawi. It is submitted on behalf of Mr Itawi that the defendants' evidence initially supported of the proposition that the Fonsecas required Mr Itawi's authorisation to withdraw money from the Cleaning Doctor's account, but that their evidence later changed.
9. Mr Itawi submits that Mr Jeffrey Fonseca first sought to explain the withdrawal of these funds from the Cleaning Doctor's bank account by saying that withdrawals followed specific instructions from Mr Itawi, and were drawn to cash which was given back to Mr Itawi. But he later said that there was no joint venture and that the Cleaning Doctor was only a labour hire company for businesses of the Fonsecas that was controlled by the Fonsecas.
10. Then Mr Itawi submits that the defendants' story changed. In a perhaps modified account, Mr Jeffrey Fonseca's evidence is that Mr Itawi did not give him permission to withdraw amounts from the Cleaning Doctor's bank account because he did not have control over it. But Mr Jeffrey Fonseca says his father Mr Orlando Fonseca gave him permission to do so, because these were Fonseca family accounts.
11. But the plaintiffs stress that the claim is based on both an oral, and in the alternative a written joint venture agreement, and that the written joint venture agreement also provides the security over the Fonseca's properties.
12. The plaintiffs seek an account of the partnership/joint venture, a constructive trust over the monies in an amount of $2.6 million taken without authorisation from them by the defendants, equitable compensation and/or damages.
13. The plaintiffs claim a security interest in the proceeds of sale of a property in Oatley which was sold in 2015. As the result of a previous application, $800,000 of property sale proceeds were paid into Court to abide the outcome of these proceedings.
14. Money was taken out of the Cleaning Doctor bank account. Some evidence supports the unauthorised withdrawal of a figure of at least $2.2 million from the Westpac account. It is expected to be contended for the plaintiffs at trial that the Fonseca family used Cleaning Doctor funds to pay down Fonseca family mortgages.
15. The plaintiffs principally rely upon the defendants' alleged misapplication of funds from the Westpac account as evidence of a risk of dissipation of assets by the defendants for the purposes of obtaining and continuing a freezing order. The plaintiffs rely on other matters which will be mentioned below.
16. The defendants strongly contest almost every part of the case that the plaintiffs' propose to present at final hearing and they contest on the motion brought against them that there is any risk of dissipation of assets. The defendants' submissions and the contest with the plaintiffs' case is dealt with below.
17. The defendants raise many issues in response to this case. First, they accuse the plaintiffs of serious fraud. The defendants submit that the written joint venture agreement of September 2009 is a fabrication. These allegations have support from an expert report of a document examiner, Ms Holt, served and relied upon by the defendants. Suffice it to say that Ms Holt's expert evidence supports the inference that the signatures of some of the defendants appear to have been copy pasted electronically from other documents containing some of the defendants' signatures onto the form of the joint venture agreement relied on by the plaintiffs (hereafter called "the questioned document"). Ms Holt's findings are that the defendants' signatures on the questioned document appear to have come from a common source; that is, they are closely identical to that common source. Mr Jeffrey Fonseca's and Joselyn Fonseca's signatures appear to have been copy pasted onto the questioned document from a Deed of Release. Vilma's signature appears to have come from a Substantiation Declaration. Although Ms Holt was only dealing with the questioned document, itself only a photocopy document, she has nevertheless drawn those inferences. The Court has no inherent expertise on these matters. But as a general observer, Ms Holt's conclusions as an expert do appear readily to coincide with a lay person's survey of the signatures in question.
18. The whereabouts of the original joint venture agreement is shrouded in mystery, which may perhaps be resolved at final hearing. Mr Itawi says that he discovered the questioned document in a safe at his house in 2018, but before that he was not aware that he had it. He says that the last time he saw the original of the agreement was in Mr Fonseca's hands. How the photocopy original was discovered, and what requests were ever made by the plaintiffs for the alleged original of the questioned document, are matters which will bear upon the credibility of the parties at final hearing. But just why Mr Itawi would discover only in 2018 the questioned document, a photocopy of the original of a document which had been signed nine years earlier, is puzzling in itself. And combined with the presently unanswered case about the forgery, it throws doubt upon his prospects of success at a final hearing.
19. The plaintiffs sought drafts of Ms Holt's report on a Notice to Produce, but the Court declined to allow calls on the Notice to Produce as this was only an interlocutory hearing.
20. The questioned document was with the defendants before 28 May 2019, so they could prepare Ms Holt's report. It was given to the plaintiff on 28 May 2019, so the plaintiffs could prepare a report in reply to Ms Holt. The plaintiffs did not have the defendants' first report until 11 June. On 14 June, before Darke J, the defendants said they wanted the questioned document back so they could undertake a second report. The plaintiffs replied that they would not reply to any report until all the defendants' expert evidence was on. As a result of consent orders made on 14 June 2019, the questioned document was returned to the defendants on 18 June so they could engage the second expert. At the hearing on 4 July 2019 it was still with the expert. There is as yet no reply on to Ms Holt's report.
21. But just why the defendants should have two reports on the same document came as something of a surprise to the Court. Mr Carnovale said that he was entitled to a separate report on each signature. There are eight signatures on the questioned document. Such a submission bears no obvious relationship to the Court's, and the parties', obligations under Civil Procedure Act 2005 s 56. The Court indicated that multiple reports were not an option and that the plaintiffs should immediately be required to put on their response to Ms Holt's report.
22. The Court cannot now make a determination as to whether the questioned document is a forgery. It can look at Ms Holt's report, but also take into account that there is no answer on to it as yet.
23. The defendants highlight the plaintiffs' delay in mounting this case. It is remarkable. Why did Mr Itawi not notice the misapplication of funds from an account to which he had access from 2009 until early 2015? Mr Rares says it was kept much like a superannuation account and that many people would not check their super money every day, and Mr Itawi saw Mr Fonseca and Mr Elia Fonseca as a father figure. But over six years, this is something of a stretch.
24. Mr Rares submits that the joint venture agreement, subject to the forgery allegations, goes only to a separate cause of action that the plaintiffs have a security over the defendants' properties to make good the money that is supposed to be paid to the Cleaning Doctor under the alleged partnership agreement. He says that the plaintiffs' misappropriation case, based on an oral partnership agreement, does not depend on the questioned document.
25. But Mr Carnovale answers this with some force by saying that if the plaintiffs' had to forge written evidence of their alleged partnership then the oral agreement that is said to underlay it is probably worthless.
26. With this background the plaintiffs obtained freezing orders on 24 May 2019 by Henry J. They came before me for extension. The applicable legal principles should first be stated.

Legal Principles - Freezing orders and Interlocutory Injunctions

1. This is a claim for a freezing order, a special kind of interlocutory injunction. Apart from showing a prima facie case, or a serious question to be tried, to be successful applicant must establish that there is a danger of assets being dissipated by the defendants so that those assets will not be available to pay the plaintiffs, if judgment is ultimately entered will in favour of the plaintiffs: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.
2. It is well-established that evidence in relation to a serious question to be tried prima facie case can also serve to establish the risk of dissipation of assets the Court of Appeal in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (per Gleeson CJ), pages 325 to 326. The plaintiffs contend that this is such a case, where the claimed risk of dissipation of assets is said to be supported by the defendants' alleged misappropriation of funds from the Cleaning Doctor's Westpac account.
3. But the general principles relating to interlocutory injunctions are also relevant and need restatement in a case such as this. In deciding whether or not to grant an interlocutory injunction, the Court must consider whether there is a serious question to be tried and then whether the balance of convenience, questions of hardship and related factors warrant the grant of an interlocutory injunction. First, the plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed, 2014, LexisNexis Butterworths), (at [21-350]), ("Equity Doctrines and Remedies"), discussing the requirements of the Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 prima facie case test. Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; (2006) 229 ALR 457; [2006] HCA 46, (at [70] - [71]) ("O'Neill").
4. Then, it becomes a matter of analysing if, in all the circumstances of the case, considering the balance of convenience and issues of hardship, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction: Equity Doctrines and Remedies, (at [21-350]); and see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; [2001] HCA 63 and Beese v Woodhouse [1970] 1 All ER 769; [1970] 1 WLR 586. Other factors to which the Court will have regard include: the adequacy of damages; the possibilities of alternative remedies; whether there has been any laches or delay; the strength of the grounds of defence suggested by the defendant; and what, if any, undertakings the defendants are prepared to give. But hardship and the balance of convenience are very important: Equity Doctrines and Remedies [21 - 375]. If any infringement of a plaintiff's right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction: McCarty v North Sydney Municipal Council (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85.
5. Once this interlocutory decision is made, it will ordinarily not be able to be varied unless circumstances change: Collier v Howard (Supreme Court (NSW), McLelland CJ, in Eq., 23 April 1996, unrep), at p 6: "Generally speaking, the interests of justice as between the parties, fortified by the public interest in the finality of litigation and the efficient deployment of judicial resources, require that where an application for interlocutory relief has been made, heard on the merits and refused, a further application for substantially the same relief should not be entertained, unless it is founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application".

Consideration - Serious Question to be Tried

1. The Cleaning Doctor can satisfy the requirement that there is a serious question to be tried. An applicant on a freezing order does not need to show they have a secured or proprietary interest in any particular asset/s of the respondents on the motion. The question is whether there is a prima facie case and a risk of dissipation of monies.
2. Prima facie on the plaintiffs' case, unless the Fonsecas had permission from Mr Itawi, they would not be permitted to withdraw money from the Cleaning Doctor's bank account. Mr Jeffrey and Orlando Fonsecas undoubtedly withdrew monies from the Cleaning Doctor's account. Mr Itawi gives evidence that the Fonseca family had no authority (from him) to make any of the withdrawals from the Cleaning Doctor account that they in fact did. The current evidence of the defendants is that they never asked Mr Itawi for permission to withdraw money from the Cleaning Doctor account.
3. The evidence in support of the allegations of the partnership/joint venture is set out extensively both orally and in writing. Because of the unauthorised withdrawals, the plaintiffs claim they have made out the elements of the causes of action f deceit and an entitlement to relief for breach of fiduciary duties.
4. But the discussion above shows that a critical fulcrum for the whole credibility of this case is the provenance and reliability of the questioned document, the joint venture agreement. If the potential stain of forgery allegations is not removed from this document, the plaintiffs' case could only be assessed as weak. If the plaintiffs wish to vindicate the strength of their case it is to be expected they would wish to have this document quickly tested by their own expert to prove their bona fides. The court will facilitate that course.

Consideration - Risk of Dissipation of Assets and The Balance of Convenience

1. The balance of convenience, or as it is often better put "the balance of justice", in the circumstances favours continuing interlocutory relief in the form of the existing orders for further short period on the basis of the undertakings offered. But supplementary orders will be made so the Court is in a better position to decide the short term balance of convenience.
2. The plaintiffs' capacity to support an undertaking as to damages is in question. An applicant's inability to provide an undertaking of any value should be regarded as but one factor to be weighed into the balance of convenience: Varley v Varley [2006] NSWSC 1025 (at [42] to [69]), per Campbell J and Cooper v Maloney (No 6) [2012] SASC 212, (at [75]), per Blue J.
3. All the money was taken out of the Cleaning Doctor; it has no value. Mr Itawi, the second plaintiff, between 2013 and 2016 resorted to using pay day lenders and small financiers so he could afford to live day to day. He owns no real estate in Australia. He owns a motor vehicle.
4. Some $100,000 of the plaintiffs' money is presently in Court, pending a resolution of this dispute. The plaintiffs submit this well covers any likely call on the undertaking as to damages. But just what the cost of such a call from a wide freezing order would be is difficult to assess.
5. And the plaintiffs also submit that their present parlous financial position is caused by the defendants' misapplication of funds. An issue such as this cannot be determined before the hearing, but it is a matter which should be weighed against the contention that the plaintiffs undertaking as to damages is weak in this case.
6. The best evidence of the risk of dissipation of assets in this case is the plaintiffs' primary case that it will present at the hearing. Whilst there is undoubtedly prima facie evidence of that risk, if no adequate expert response is forthcoming to Ms Holt's report before trial to rebuff the inference that the questioned document is forgery, one has to wonder at the strength of an alternative case based on an oral partnership agreement which needed to be supported by fraudulent document.
7. The plaintiffs' other contentions of the risk of dissipation of assets are a tribute to counsel's inventiveness but not highly persuasive on their own, apart from the primary case to be led at final hearing: it is suggested on behalf of the plaintiffs that the Fonseca Family, through their companies, do not pay their contractors as and when their contractors bills were due and payable. Whilst some evidence of this is vague and not necessarily current, the fact is some Fonseca family members have gone bankrupt, though now discharged from bankruptcy. So some degree of past financial unreliability on their part can be inferred.
8. The Fonsecas are parties to various family and other discretionary trusts. Some of these trust deeds were in evidence. It is said these show that the defendants were likely to be involved in asset protection schemes. But the Court cannot infer that from this kind of evidence. Nor can much store be placed upon a deed made between the trustee in bankruptcy of some of the defendants suggesting that they perhaps used a trust called the "Sylvania Waters Trust" to avoid their assets being captured by their bankruptcy. The compromise in the deed really only is a basis to infer there was a dispute about this question. The trust may have been a genuine long-standing family arrangement.
9. Then it is suggested that at least Mr Jeffrey Fonseca has provided incorrect or incomplete information to the Court in his evidence filed pursuant to the Court's freezing orders on this motion. He states on affidavit that he has only nominal sums of money in his bank accounts. But it does appear to own shares in two other companies. But there is doubt as to whether he owns these shares beneficially and whether they have any value.
10. Mr Jeffrey Fonseca's affidavit disclosure is questioned in relation to the company 7/49-51 Stanley St Pty Ltd. In his affidavit he says he "has no assets". He qualifies this by saying that this entity is a trustee which holds 7/49-51 Stanley St in trust. However, he does not state the value of the property, who the beneficial owners of the trust are or what level of control over the trust he has.
11. The orders, however, required more disclosure, so there is more to be investigated here. Mr Orlando Fonseca is the first general beneficiary of this trust (see Exhibit A) as are Jeffrey, Vilma and Joselyn. Mr Jeffrey Fonseca is the appointer and has the power in clause 13 of the deed to appoint anyone except the settlor to be the trustee. Who of course can distribute the trust's asset (the property). Under Cl 13, he has the power to choose a person who will distribute the property to him in its entirety, should he so choose. These facts were not disclosed by the Fonsecas who have put on affidavits so far in response to the motion. But given the complexities of the other issues argued on the motion it has not provided a suitable vehicle for investigating the adequacy of the Fonseca's affidavit evidence. All that can be said is that there are question marks over the quality of the Fonseca's affidavit disclosure on this motion, which can be weighed in the balance against them as suggesting a risk of dissipation due to unreliable disclosure of information about their assets.
12. Finally, at the time of hearing of the motion, Mr Orlando Fonseca and Mrs Vilma Fonseca had not made statements as to their assets and were in breach of orders that they should do so. This was dealt with by the Court making orders, that they should supply those affidavits.
13. The overall picture here is not a strong one for the continuation of a freezing order. A centrepiece of the plaintiffs' case may turn out to be a forgery. The plaintiffs already have potential access $800,000 in Court from the sale of a previous property, even though that is considerably less than half of their overall claim in these proceedings. And the plaintiffs' undertaking as to damages looks decidedly unstable. But balanced against that there is prima facie evidence of misapplication, and possible misappropriation, of funds by the defendants.
14. The Court will continue the freezing orders for a short period to see what kind of expert reports the plaintiffs can produce in respect of the questioned document. The freezing orders will be allowed to continue temporarily and will be adjourned for that purpose.
15. But a dispute has arisen about the appropriate orders for the plaintiffs' expert to examine the questioned document. The defendants say that the plaintiffs' lawyers cannot be trusted to convey the questioned document to the plaintiffs' experts. This is said to be because of the plaintiffs' solicitors failure to comply with orders in previous proceedings, including orders for the payment of stamp duty and because documents committed to their possession had previously gone missing.
16. But the Court has reflected upon this issue and reached the view that the very debate about this question has increased the scrutiny on the plaintiffs' solicitors, so that they are likely to be very careful about the chain of custody of the questioned document once they have uplifted it. Once they have uplifted it they can choose their experts freely, without the Court imposing the detailed regime which was discussed. The Court has no basis on the strength of the material advanced not to make a decision to place the questioned document into the hands of officers of the Court, namely the plaintiffs' solicitors. The Court will so order.
17. The matter can come back to me in the Duty List in which I am sitting in the two weeks commencing Monday, 26 August 2019. By then, the experts' report should have been done and the issue of whether the freezing order should be extended further can be considered.
18. In the meantime, the parties are directed to agree upon suitable directions to bring this longstanding matter towards final hearing. The proceedings will be listed for directions on Friday, 2 August 2019 at 9.30am for that purpose. Counsel should bring in agreed Short Minutes of Order, or marked up Short Minutes of Order showing the differences between them, to bring the matter to finality. It will then be adjourned into the Registrar's list for further trial management, apart from the freezing orders.
19. Finally, there was an argument about the limit on the defendants' expenditure of legal expenses of $20,000 in Order 10(b) of the freezing orders. The figure is unrealistically low and will need to be modified for preparation for such a complex hearing. The parties should agree to lift it. If they cannot agree, the Court will fix an appropriate figure.

Conclusion and Orders

1. For these reasons the Court makes the following orders: 1. Upon the plaintiffs continuing the usual undertaking as to damages, the Court continues the orders made by Henry J on 28 May 2019 until further order. 2. Grant liberty to the solicitors for the plaintiffs to uplift for the purposes of expert examination the documents in the Court's custody marked "Received 9 July 2019" and signed by the Court, but upon an undertaking that those documents will remain at all times in the custody of the solicitors for the plaintiffs or the expert engaged to examine the documents. 3. Adjourn the proceedings before me to Friday, 2 August 2019 at 9.30am for further directions. 4. Grant liberty to apply.

Amendments 02 August 2019 - [25] second sentence, "chest" to "safe"; "2015" to "2018" penultimate sentence, "2015" to "2018" and "six years earlier" to "nine years earlier". [30] "late 2014" to "early 2015". 02 August 2019 - [20] first sentence, "the Bardwell Valley property" to "a property in Oatley", "2018" to "2015". 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: 02 August 2019