Obela Fresh Dips and Spreads Pty Limited v Coetzee

1. [1]

   HER HONOUR: This is an application by the plaintiff, Obela Fresh Dips & Spreads Pty Limited, for default judgment against its former employer, the first defendant, Diederik Coetzee, and his wife, the second defendant, Lydia Coetzee, under either rule 16.6 or rule 16.7 of the Uniform Civil Procedure Rules 2005 (NSW). Mr Coetzee is a 38 year old South African man who appears to have stolen $3 million from his employer before leaving the country. Mr and Mrs Coetzee did not appear today.

2. [2]

   As to which is the appropriate rule, Obela seeks damages, equitable compensation and a declaration that Mr Coetzee and his wife hold $3,057,828 and $1,414,534 respectively on constructive trust for the plaintiff. This is not, by its nature, an unliquidated claim and thus I consider that rule is rule 16.7(1) is the applicable rule, which provides:

3. [3]

   As was established by several affidavits by Obela’s solicitors, Mr and Mrs Coetzee have been served by email, registered post and Facebook messenger in accordance with orders for substituted service, such service being effective on 4 November 2020. Mr and Mrs Coetzee have not filed a defence within 28 days and, thus, Obela is entitled to bring this application today. As default judgment is sought in respect of unliquidated damages, it is also necessary for Obela to prove that it has suffered the damage claimed. Obela relied on the evidence of Chris Elliot, Obela’s general manager of Australia and New Zealand and forensic accountant Alex Bell.

Leave to proceed against overseas defendants

1. [4]

   As the defendants now live overseas, likely in Spain, two preliminary matters must also be considered. First, does this case fall within rule 11.4 of the of the Uniform Civil Procedure Rules, which provides:

2. [5]

   Obela was entitled to serve the statement of claim on the defendants outside Australia without the leave of the Court if its claims fall within Schedule 6 of the Uniform Civil Procedure Rules, entitled “Service out of Australia without leave”. Schedule 6 provides:

3. [6]

   It is readily apparent that Obela’s claims against Mr and Mrs Coetzee fall within Schedule 6. Mr Coetzee is sued for breach of an employment contract entered into in Australia and for breach of fiduciary duties owed to his employer. Freezing orders were sought in respect of matters connected with Australia, being fraudulently transferring funds whilst in Australia from the Obela’s Australian bank accounts to the defendants’ Australian bank accounts. The defendants resided in Australia until they apparently departed for Spain. Declarations of constructive trust are sought in respect of acts done by the defendants whilst in Australia.

4. [7]

   Second, the Uniform Civil Procedure Rules requires the Court to consider whether it is appropriate to give leave for the plaintiff to proceed against overseas defendants. Rule 11.8AA of the Uniform Civil Procedure Rules provides:

5. [8]

   As explained in Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 at [40], [50]-[64] and Bingley-Pullin v Montgomery [2018] NSWSC 1308 at [1]-[5], three matters should be considered when deciding whether to grant leave. First, have the defendants been properly served? Second, does Obela have an arguable case, being one that would be sufficient to survive an application for summary judgment? Third, this Court is not a clearly inappropriate forum.

6. [9]

   I am satisfied in respect of these matters. In particular, I am satisfied that this Court is the appropriate forum for these proceedings as Mr Coetzee was employed in New South Wales, worked at Obela’s Sydney office, misappropriated funds from the plaintiff’s Australian bank accounts and paid the moneys into his and his wife’s bank accounts in Australia.

Facts

1. [10]

   In November 2013, Obela employed Mr Coetzee as Finance Manager Australia on a salary of $125,000 per annum. Obela was then in its infancy and Mr Coetzee was considered to be a “core” employee. He occupied a position of trust. On 3 July 2014, eight months after he began working for Obela, the first fraudulent transaction took place, being the first of 57 fraudulent transactions. In February 2018, Mr Coetzee was appointed as a director of Obela for New Zealand.

2. [11]

   Mr Elliot says he formed a friendship with Mr Coetzee, who told Mr Elliot at various times that his wife was suffering from mental illness, that Mr Coetzee was suffering from stomach cancer such that it was necessary for him to often leave work early, and that his wife had been diagnosed with a degenerative brain condition. It seems unlikely that any of this was true. On 1 October 2018, Mr Coetzee told Mr Elliot that his wife had committed suicide and that Mr Coetzee needed to return to South Africa to make funeral arrangements. On 1 October 2018, Mr Coetzee sent an email to the Obela staff.

3. [12]

   In February 2019, Mr Coetzee sent an email saying that it was necessary to make a royalty payment to Pepsi. Various payments were then made in accordance with Mr Coetzee’s instructions. Those transactions, as now verified by Mr Bell, totalled $816,662. In fact, Obela had no obligation to pay royalties to Pepsi. Royalties were being negotiated, to which Mr Coetzee was privy but not the staff to whom he gave instructions to make the payments. The payments, in fact, when into the defendants’ bank accounts.

4. [13]

   Obela had an arrangement with its bank at the time that, in the event that the company needed to draw down funds for cash flow purposes, a cash advance facility notice was completed. A series of cash advance facility notices were submitted by Mr Coetzee which, on a second page, bore Mr Elliot’s signature. However, Mr Elliot had not in fact authorised the cash advance facility notices; Mr Coetzee had re-used a signature page signed by Mr Elliot on an earlier authorised drawdown. By this method, Mr Coetzee drew down substantial sums, being some $2.4 million, without authority. The payments when into the defendants’ bank accounts.

5. [14]

   In March 2019, Mr Coetzee told Mr Elliot that his daughters had obtained a scholarship to play tennis in Spain and he wished to travel to that country to help them establish themselves there. Over time, Mr Coetzee said that the daughters’ scholarships in Spain had been extended from one year to three years and that he wished to move permanently to Spain to work for Obela remotely. Mr Elliot did not agree to Mr Coetzee working remotely, but agreed that Mr Coetzee could “do a phase out”. In February 2020, Obela hired a new finance director, although Mr Coetzee continued to work during the ‘phase out’ period.

6. [15]

   In March 2020, Mr Coetzee fabricated an email by which it was said that Obela agreed to pay his relocation costs to Spain. The email does not exist on Obela’s IT system at all. Mr Coetzee forwarded the email to his wife with a message in Afrikaans which, when translated, says:

7. [16]

   In May 2020, Mr Coetzee forged Mr Elliot’s signature and also the signature of the chief financial officer of Obela on a circulating resolution approving the financial statements for Obela. Mr Elliot’s signature was forged on the financial statements.

8. [17]

   With the assistance of Obela’s new finance director, discrepancies became apparent. Mr Elliot sought an explanation from Mr Coetzee and various explanations were proffered. Mr Coetzee provided emails said to have authorised particular drawdowns, but the emails on close inspection had been ‘doctored’ by Mr Coetzee. Mr Coetzee’s employment was terminated.

9. [18]

   These proceedings were brought. Freezing orders were made on 28 July 2020, extended on 3 August 2020, varied to increase the amount on 25 August 2020 and extended on 7 September 2020. Orders for substituted service were made on multiple occasions, including by email and Facebook. Mr Coetzee and his wife have been served in accordance with the orders for substituted service, such service being effected on 4 November 2020. No defence has been filed.

10. [19]

    As now analysed by forensic accountant Mr Bell, by 57 fraudulent transactions, Mr Coetzee transferred $3,057,828 from Obela’s bank accounts to his bank account or (in respect of $1,414,534) into joint bank accounts with his wife. Of these monies, Mr Coetzee falsely represented that $1,663,957 were payments for Obela’s tax and $816,662 were royalty payments to Pepsi. Numerous other reasons were given for the remaining $577,209 of payments. None of it was true.

Consideration

1. [20]

   In the absence of filing of a defence, the allegations contained in the Amended Statement of Claim stand admitted: MacDonald v Australian Securities and Investments Commission (2007) 73 NSWLR 612; [2007] NSWCA 304, followed in Alesco Corporation Limited v Te Maari [2015] NSWSC 469 at [46]-[48]. Even without these admissions, the evidence relied upon on this application by Obela was compelling. Mr Coetzee has engaged in a sustained period of serious fraudulent activity, in breach of a position of trust as financial manager of Obela. Having regard to the evidence of Mr Elliot and the careful and detailed expert report of Mr Bell, I am satisfied that Obela has suffered the damages claimed and is entitled to the relief it seeks.

Costs

1. [21]

   Part of the relief sought by Obela, as pleaded in the Amended Statement of Claim, is an order for its costs of these proceedings. In preparation for the hearing, Obela served on the defendants – by email and Facebook messenger – an affidavit by its solicitor setting out Obela’s legal costs as at 4 December 2020, being $183,967.71, including $4,040.40 on attempts to serve the defendants in Spain. Those costs have necessarily increased by the conclusion of the hearing today to some $208,000.

2. [22]

   Section 98(4)(c) of the Civil Procedure Act provides:

3. [23]

   As Giles JA noted in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]:

4. [24]

   It is a relevant consideration “whether the financial capacity of the party liable to pay costs is such that the additional burden of taxation will import a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs”: Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [24], citing Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd [1998] FCA 164; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; [2005] FCA 228; Bitek Pty Ltd v iConnect Pty Ltd (2012) 290 ALR 288; [2012] FCA 506 at [17] per Kenny J.

5. [25]

   I consider that this is an appropriate case to specify a gross sum instead of putting Obela to the further time and expense involved in an assessment of its legal costs in circumstances where it is unlikely that the defendants will participate in that process; it is unclear whether the defendants have the ability to pay the costs order in any event; and, placing an additional burden on Obela to undertake a costs assessment process may be for no useful purpose.

6. [26]

   In Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles which inform the exercise of the discretion to specify a gross sum, at [9]:

7. [27]

   His Honour’s summary has been cited with approval in the Court of Appeal: Hamod v New South Wales [2011] NSWCA 375 per Beazley JA, with whom Giles and Whealy JJA agreed, at [793]. Her Honour continued, at [816]:

8. [28]

   And at [820] (citations omitted):

9. [29]

   Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [11]:

10. [30]

    Obela has not specifically notified the defendants that it will be seeking an order for indemnity costs today, but has notified the amounts it will be seeking which, as I understand it, reflect Obela’s costs on a full indemnity basis. Obviously, fraud may ground an order for indemnity costs: Gate v Sun Alliance Insurance Ltd (1995) 8 ANZ Ins Cas 61-251 at 75,817-75,818.

11. [31]

    What I am minded to do is award costs in the sum notified by Obela to the defendants on 4 December 2020, being $184,000, rather than the costs incurred by the conclusion of the hearing. The defendants were notified of the former figure well in advance of the hearing. The difference between the two amounts is consistent with the fact that, even in fraud cases, costs are not necessarily ordered on a complete indemnity basis.

12. [32]

    For these reasons I make the following orders:

    1. (1)

       Judgment against the first defendant in the amount of $3,057,828, being the monies misappropriated by the first defendant, together with interest in the sum of $50,420.74.

    2. (2)

       Judgment against the second defendant in the amount of $1,414,535 together with interest in the sum of $23,324.35.

    3. (3)

       Order the defendants to pay the plaintiff’s costs of the proceedings.

    4. (4)

       Order pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW) that the plaintiff is to be entitled to a specified gross sum in the amount of $184,000 including GST in respect of its costs of these proceedings.

    5. (5)

       Liberty to apply.