The plaintiff, VJ Ray Pty Ltd, obtained default judgment against the defendant, Paul Ocwieja, on 21 June 2024 in respect of a claim for damages for repudiation of a Deed entered on 28 March 2023 and, in the alternative, for unjust enrichment. The amount sought to be recovered, including interest, is $391,619.16. The plaintiff also seeks a gross sum costs order, assessed on an indemnity basis. For the reasons set out below, I have accepted the plaintiff's calculations as to damages and interest and, in the exercise of my discretion, will make a gross sum costs order in the plaintiff's favour assessed on an indemnity basis.
The plaintiff relied on affidavits affirmed by its director, Anastasios Adam Papageorgiou, on 23 May 2024, 31 July 2024 and 13 August 2024 as well as an affidavit affirmed by an auditor, Sonia Rahme, on 30 July 2024 and a report prepared by her on 2 May 2023 and affidavits of Priscilla Sidey, solicitor, of 31 July 2024 and 14 August 2024. The defendant has not taken part in these proceedings and, although notified of today's hearing, did not appear.
[2]
Facts
The plaintiff is a real estate agent that manages a rent roll of about 180 properties. The defendant was employed by the plaintiff from 30 May 2016 to 16 February 2023 as a property manager, responsible for bookkeeping, lodging rental bonds as they were received and creating landlord, tenant and creditor profiles in the plaintiff's REST professional trust account software (REST).
On 16 February 2023, Mrs Colleen Silva, an employee of the plaintiff in charge of management of its trust account, met with the defendant. At that meeting, the defendant admitted misappropriating trust monies by creating a false ledger in REST, which he used to conceal trust monies paid from the trust account to "Perfect Property Care", a business name he owned. He also admitted failing to bank $7,440 cash received into the trust account, lapping trust monies between tenants, failing to lodge four rental bonds with the Rental Bond Board, creating fake tenants in the REST tenant ledgers and misappropriating payment of trust monies by DEFT payments into the trust account.
The defendant was summarily dismissed that day.
On 28 March 2023, the plaintiff and defendant entered a Deed to Secure Monies Owed (the Deed). By that Deed, the defendant admitted that he unlawfully took money from the trust account, which money was agreed to be at least $200,000, but which may exceed that amount after further investigation. He admitted liability to the plaintiff and offered to reimburse the plaintiff its cost of investigations and the final amount of the debt, once known. He also agreed to pay interest at 7% per annum, and costs of the Deed and associated documents, agreed in the amount of $4,600 inclusive of GST.
Although the admissions and offer were set out in the Recitals to the Deed, rather than in its operative terms, had there been a contest as to whether or not the Deed comprised a promise to pay, the plaintiff would have been entitled to rely on Ansett Transport Industries (Operations) Pty Ltd v Commonwealth of Australia (1977) 139 CLR 54, which provides that where recitals evidence an agreement to do certain acts, the promise will be read into the operative terms of the deed. However, as default judgment has been entered, liability was not in issue before me.
By the Deed, the defendant also agreed to charge his interest in a property on Robson Avenue, Gorokan, New South Wales and consented to a caveat being lodged on its title.
The plaintiff then engaged Ms Rahme of Askew Williams & Associates to provide a report on the extent of the defendant's misappropriations from the trust account. That report, together with the appendices setting out the materials she relied on and the calculations and reasoning that underpinned her conclusions, was exhibited to Ms Rahme's affidavit. Mr Papageorgiou's second affidavit establishes that the materials relied on by Ms Rahme were drawn from the business records of the plaintiff.
In her report, Ms Rahme found:
1. $13,738 in residential bonds had not been lodged with the Rental Bond Board.
2. $266,014.47 in 132 unauthorised creditor payments were paid into an account owned by the defendant.
3. Funds had been misappropriated from the trust account, rent monies had been paid directly into an account held by the defendant, and fake tenants had been created for the purpose of allowing internal ledger "REST AA Suspense" to receive funds, directly deposited into the trust account by tenants, and allocate them to different tenants or used to refund rental bonds.
4. The REST AA Suspense ledger could not be reconciled.
5. The total amount of rental bonds not lodged was $14,318.98.
Mr Papageorgiou deposited $205,287.98 into the trust account and paid a total of $86,287.98 to landlords' tenants and the Rental Bond Board.
On 5 October 2023, the plaintiff's solicitors demanded payment of the debt due under the Deed in the sum of $364,525.32 within 14 days. The defendant did not pay. These proceedings were commenced on 8 November 2023 and the statement of claim was served by email on 23 February 2024, pursuant to an order for substituted service.
The defendant did not enter an appearance and has not made any payments to the plaintiff.
Judgment for the plaintiff was ordered on 21 June 2024, with damages to be assessed.
The statement of claim pleads repudiation of the Deed and an alternative claim in unjust enrichment and restitution. In the latter claim, the plaintiff seeks restitution for the money taken by the defendant, which was rightfully that of the plaintiff. Significantly, the plaintiff has made good any loss suffered by any client that should have received, or received the benefit of, the funds that had admittedly been misappropriated by the defendant.
With respect to Ms Rahme's finding recorded at paragraph 10(4) above, no sum has been included in the plaintiff's calculation of damages the subject of the present assessment hearing. The plaintiff says that an assessment of damages in respect of other funds that have been recorded as passing through that ledger was not possible and could not be undertaken without the benefit of the compulsory disclosure mechanisms of the Court. As the matter has proceeded by way of default judgment in the absence of the defendant, the plaintiff has not had any opportunity to make use of such processes. Mr Widjaja, who appeared for the plaintiff, asked the Court to note that the plaintiff expressly reserves its position with respect to any damages recoverable in respect of what may be disclosed in a reconciliation of the REST AA Suspense ledger, in the event that the defendant's liability and quantum should be contested in any forum in the future.
[3]
Assessment
The plaintiff's evidence as to the calculation of its loss is primarily the Askew Williams report prepared by Ms Rahme.
Ms Rahme is an auditor with over 30 years of experience in the real estate industry dealing with trust account auditing and business compliance. She examined several records of the plaintiff over the period from August 2017 to January 2023 for the purpose of identifying funds misappropriated by the defendant. As indicated at paragraph 16 above, Ms Rahme's calculations are based only on the material available to her, and the plaintiff contends, in the event that default judgment is ultimately set aside and a contested hearing as to liability and quantum ensues, further losses may be identified and pursued.
The evidence sets out Ms Rahme's assessment, as well as the material she relied upon to reach her conclusions. It establishes that the defendant:
1. misappropriated $266,014.47 expended in unauthorised trust transfers; and
2. failed to lodge with the Rental Bond Board $14,318.98, which had been for that purpose.
According to Ms Rahme, the principal amount due by the defendant to the plaintiff was, therefore, $280,333.45. I accept this calculation.
The plaintiff's evidence also establishes that it incurred the following sums, that the defendant was required to pay to the plaintiff, calculated in accordance with Recital E of the Deed:
1. $4,600 in the plaintiff's costs of the Deed;
2. $23,966.25 in fees paid to Askew Williams for investigations and its report on the defendant's misappropriations; and
3. $55,625.62 to Black Book Solutions for investigations into the defendant's fraudulent misappropriations.
The plaintiff's investigations into the defendant's misappropriations were principally carried out by Black Book Solutions, who undertook the initial investigation into the allegations against the defendant, and Askew Williams, who conducted further investigations and was responsible for the preparation of the report by Ms Rahme. The invoices from each firm were in evidence, annexed to Mr Papageorgiou's 31 July 2024 affidavit.
I am satisfied that those invoices record the costs of the investigation into the defendant's misappropriation and are properly recoverable from the defendant under the Deed.
The plaintiff also seeks interest calculated in accordance with the Deed at a rate of 7% per annum. The plaintiff calculated such interest on a simple interest basis on the principal sum of $280,333.45 from the date of the Deed (28 March 2023) to the date of the assessment hearing. That calculation establishes that a further $27,093.84 is due by the defendant to the plaintiff.
In the circumstances, I am satisfied that the plaintiff has made good its claim for the assessment of damages in accordance with the evidence. By way of summary, damages and interest are as follows:
1. Principal misappropriated by way of unauthorised trust transfers and failure to lodge rental bonds - $280,333.45.
2. Costs of the Deed, investigations and report by Askew Williams and investigations by Black Book Solutions - $84,191.87.
3. Interest, calculated at 7% p.a. from 28 March 2023 to 14 August 2024 - $27,093.84.
My assessment of the plaintiff's damages, therefore, is $391,619.16, inclusive of interest to today.
[4]
Costs
The plaintiff also seeks its costs by way of a gross sum costs order and on an indemnity basis.
Gross sum costs orders may be made in the Court's discretion under s 98(4) of the Civil Procedure Act 2005 (NSW). The power may be exercised wherever the Court determines the circumstances warrant its exercise: Harrison and Another v Schipp (2002) 54 NSWLR 738 at 742 ([21]); [2002] NSWCA 213.
The circumstances may include where such an order would avoid the expense, delay and aggravation arising out of taxation: Bell v Hartnett Lawyers (No.2) [2021] NSWSC 1270 at [60] per Slattery J.
Indemnity costs may be awarded in the Court's discretion where a plaintiff has suffered loss by reason of the defendant's fraud and deceit: Thompson v Perpetual Trustees Victoria Ltd (No 2) [2023] NSWSC 459 at [33]. Although the present case was not pleaded as a case in fraud, the facts admitted in the Recitals to the Deed speak plainly of the fraudulent misappropriation by the defendant of funds he had been entrusted to manage. There is no doubt that circumstances exist by which the discretion to order indemnity costs is enlivened.
In my view, it is appropriate to make a gross sum costs order in the present case. The defendant has not taken part in these proceedings and is unlikely to participate in any costs assessment process. The plaintiff would be put to unnecessary further delay and expense in order to recover a comparatively modest sum. In the exercise of my discretion, I will make a gross sum costs order.
As to the basis of calculation and the quantum of such an order, I consider it appropriate that the plaintiff have its costs on an indemnity basis. This was a case of fraudulent misappropriation of a significant sum by a senior employee, the effects of which the plaintiff has borne. The plaintiff should be compensated as nearly as possible to put it in the position in which it would have been but for the misappropriation. This includes with respect to costs.
The 14 August 2024 affidavit of Ms Sidey sets out the costs and disbursements incurred in the conduct of these proceedings. Those costs include work done in preparing the statement of claim, obtaining an order for substituted service, obtaining default judgment and preparing for today's assessment hearing. Care has been taken to ensure that there has been no double counting as between sums invoiced by the solicitors and amounts due to counsel.
The plaintiff's costs calculations are:
1. Solicitors' fees - $21,230.94.
2. Counsel's fees - $7,040.00.
3. Filing and service fees - $3,604.85.
4. Other disbursements - $431.94.
I consider that these costs are reasonable and recoverable as indemnity costs. Accordingly, I will make a gross sum costs order in favour of the plaintiff in the sum of $32,307.73.
[5]
Orders
The Court, therefore, makes the following orders:
1. Judgment for the plaintiff against the defendant is assessed in the sum of $391,619.16.
2. The defendant to pay the costs of the plaintiff on an indemnity basis, assessed on a gross sum basis, in the sum of $32,307.73.
[6]
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: 14 August 2024