WEST AUCKLAND TRUST SERVICES LTD & ORS v ALDERSON & Ors [2015] NZHC 2571

WEST AUCKLAND TRUST SERVICES LTD & ORS v ALDERSON & Ors [2015] NZHC 2571 [20 October 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-000664[2015] NZHC 2571BETWEEN WEST AUCKLAND TRUST SERVICESLIMITED, WAITAKERE LICENSINGTRUST AND PORTAGE LICENSINGTRUSTPlaintiffsAND DALE FRANCES ALDERSONFirst DefendantMEDIASPLASH LIMITEDSecond DefendantROBERT ALDERSONThird DefendantHearing: 6 August 2015Appearances: P Revell for PlaintiffsNo appearance for defendantsJudgment: 20 October 2015JUDGMENT OF HINTON JThis judgment is delivered by me on 20 October 2015 at 4.00 pmpursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarIntroduction[1] This was initially a formal proof application against the first, second and third defendants. The third defendant filed a statement of claim out of time on 23 July2015. The third defendant's application for an extension of time was settled betweenthe parties and that claim has been separately timetabled. The formal proof is now only proceeding against the first and second defendants.[2] The plaintiffs' claim alleges that the first defendant abused her fiduciary position as an employee of the plaintiffs by causing the second defendant to fraudulently invoice the plaintiffs for advertising products. Judgment is sought against the first and second defendants jointly and severally in the total sum of $620,590.56.[3] The plaintiffs already have judgment for a portion of the $620,590.56 claim.[4] On 19 May 2014, Faire J entered summary judgment against the first and second defendants in the sum of $261,449.06 plus interest in the sum of $1,962.82, and costs and disbursements. Faire J recorded that the sum of $261,449.06 was made up as follows:(a) Billed by and paid to the second defendant between 1 October 2009 and 1 November 2012$298,371.31(b) LESS billed by and paid by the second defendant to Torque Digital Ltd between 1 October 2009 and 1 November 2012$36,922.256Total: $261,449.06[5] Judgment was also entered against "the first and second defendants forliability pursuant to r 12.3 High Court Rules, to account to the plaintiffs for the sum of $359,141.50 paid by the plaintiffs to the second defendant, between 1 October2005 and October 2009". That amount is the balance of the claim.[6] A judgment as to liability would not usually reference a sum of money. The language is the result of the Judge referring back to a paragraph of the summary judgment application. It seems clear that the intention was to enter judgment for liability but that the plaintiffs were to prove the balance of the quantum of the claim. I also note that the language of the application, incorporated in the summary judgment orders, referred to "plaintiff" not "plaintiffs" which is clearly a slip.[7] In his minute of 19 May 2015, Faire J also ordered that the first and second defendants were to file and serve a statement of defence in respect of the quantum relating to the balance of the claim in the sum of $359,141.50 within 10 working days of the service of the order on them.[8] No steps were taken by the first and second defendants, either before or after 19 May 2015.[9] On 21 July 2015, Faire J ordered that the balance of the claim can proceed by way of formal proof.Background[10] The first defendant was an employee of the plaintiffs from January 2005 until December 2012. She started as a brand manager and then from 2007, took on a new role of marketing manager. The second defendant is a company controlled by and held in equal shares by the first and third defendants. The third defendant is the firstdefendant's husband.[11] In October 2005, the plaintiffs authorised the second defendant as a supplier of signs and banners.[12] In October 2009, a third party entity, Torque Digital Limited ("Torque Digital") started to supply signage to the plaintiffs. It invoiced the plaintiffs directlyfrom October 2009 until December 2009. Then from December 2009 onwards, Torque Digital was instructed by the first defendant to invoice the second defendant for all work done for the plaintiffs.[13] From 10 October 2005, the second defendant invoiced the plaintiffs, either for work not carried out at all or for work actually carried out by Torque Digital and other suppliers, but with a substantial mark-up. In each case, where invoices could be located they were signed off for payment by the first defendant.[14] At no time until November 2012 were the plaintiffs aware of the first defendant's self-interest as a director of the second defendant; of the substantialmargins included in the second defendant's invoices or of the fact that in some cases,goods and/or services were not supplied at all.[15] The total amount paid to the second defendant by the plaintiffs from October 2005 to November 2012 was $657,512.81. Those payments have been proven.[16] The plaintiffs' evidence is that for the period from October 2009 to November 2012, Torque Digital invoiced and was paid $36,922.25 by the second defendant. On the information available to the plaintiffs, they say the amount of improper payments is therefore $620,590.56, being the difference between the total invoices rendered by the second defendant to the plaintiffs and the expenses that can be identified as actually incurred by the second defendant. The plaintiffs sought judgment for this amount.[17] As noted earlier, summary judgment was granted for the sum of $261,449.06, this being the difference between the amount paid to the second defendant and the amounts totalling $36,922.25 it had paid out over the period from 1 October 2009, for which difference the first and second defendants had no defence.[18] The balance of the claim, which is the subject of this formal proof hearing, of $359,141.50, represented the sum paid by the plaintiffs to the second defendant between October 2005 and October 2009. During this period, the plaintiffs have no knowledge whether the second defendant made any payments to outside suppliers or incurred other expenses on behalf of the plaintiffs, before invoicing the plaintiffs.[19] The plaintiffs brought causes of action in:(a) Deceit – against the first and second defendants.(b) Money had and received - against the first and second defendants.(c) Misleading conduct (breach of s 9 of the Fair Trading Act 1986) - against the second defendant.(d) Breach of fiduciary duty - against the first and second defendants.Discussion[20] Judgment as to liability has already been entered against the first and second defendants. The question now is as to the appropriate quantum in terms of the $359,141 balance of the claim.[21] Though the payments made to the second defendant have been proven, not all of the invoices actually rendered to and paid by the plaintiffs can be located in respect of the period between October 2005 and October 2009. This is relevant to show that the invoices were authorised by the first plaintiff.[22] However, Ms Gerrard, a private investigator in relation to this matter, has deposed that:1In relation to invoices prior to October 2009, the Trusts have been unable to locate all the invoices, though the payments made are in accordance with thespreadsheets annexed marked "E". Based on [the invoices] we have, it seemsthe first defendant approved them. Certainly the payments were made, and would have required approval for that to occur. It can be seen that all of those invoices [located for the period between2005 and October 2009] were approved by the first defendant and there is no reason to believe those that have been unable to be located were not also so approved.[23] Further, Mr Murray Spearman, the CEO of West Auckland Trust Services Limited from an unknown date until March 2011, deposed that:1 See affidavit of Ms Gerrard dated 24 March 2015 at [11]-[12].I had no recollection of Media Splash. I did not recall that they were a supplier. I did not get to see the monthly invoices unless they needed my signature on it. Media Splash went unnoticed by many entities as all the invoices were all signed off correctly by [the first defendant] and did not draw any adverse attention.[24] Mr Spearman says he did sign off on the second defendant as a new supplier in a form attached to his affidavit. However, the signing off process was most likely perfunctory as he says: [the first defendant] was involved in the setting up of a lot of newsuppliers and many of them would have been authorised by her [25] I am satisfied on the balance of probabilities that the relevant payments were all authorised by the first defendant.[26] I note that when Faire J entered summary judgment against the defendants in the sum of $261,449.06 to cover the period of October 2009 to November 2012, this was the full amount sought, despite the plaintiffs not being able to locate three invoices during that period.2 The fact that some invoices could not be located was not viewed by Faire J as a barrier to judgment being entered against the defendants.[27] There is no evidence as to whether the full pre-October 2009 balance was fraudulent or whether the second defendant incurred some actual costs which would require deduction, as was the case with the post-October 2009 period.[28] To determine whether this matters, I need to consider the appropriate causes of action. Despite there being a judgment for liability, it is not clear what the successful causes of action are.Breach of fiduciary duty – first defendant[29] Fiduciary obligations exist between an employer and an employee. The first defendant, as an employee of the plaintiffs, owed a duty of loyalty and a duty of confidentiality.3 Here, the plaintiffs entrusted the first defendant to perform her job2 At [13].3 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington, 2009) at [17.3.7].for the benefit of the plaintiffs. An abuse of the first defendant's expenditureapproval authority was a clear breach of the duty of loyalty.[30] As against the first defendant, equitable compensation is the appropriate remedy, as opposed to an account of profits given that it was the second defendant who apparently received the unauthorised profit, not the first defendant. For equitable compensation to be discounted to allow for expenses that may have been incurred, there has to be evidence to support such expenses.4 In other words, the burden in this regard is on the defendant. In the account of profits context, the Court of Appeal refused to speculate as to how an allowance might be made if the defendant has made no attempt to place before the Court any evidence to support the making of an allowance.5 That reasoning can be applied here.[31] There is no evidence as to whether the second defendant incurred actual costs or outgoings in respect of the invoices it rendered to the plaintiffs between October 2005 and October 2009.[32] In this case, the defendants would be fully aware if expenses were actually incurred by them in respect of the invoices rendered to the plaintiffs between October 2005 and October 2009. Service has been effected on the first and second defendants. They were given the opportunity to file a statement of defence (in fact ordered to file a statement of defence) in relation to the quantum of the balance of the claim. They chose not to. No deductions should therefore be made.[33] In the circumstances, it is appropriate to enter judgment against the first defendant in the sum of $359,141.50.Money had and received – second defendant[34] A claim in money had and received is regarded as a response to a defendant'sunjust enrichment. The obligation imposed upon the defendant to repay the moneyarises as a response to the defendant's unjust enrichment.6 This cause of action is4 See Holland Corporate Ltd v Holland [2015] NZHC 1407 at [127].5 Crampton-Smith v Crampton-Smith [2011] NZCA 308, [2012] 1 NZLR 5, at [70]-[71].6 Sir Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) at [9.2.2].established against the second defendant who has benefited at the expense of the plaintiffs. Again, the evidentiary onus was on the defendants to show that the value of the enrichment received was less than that claimed by the plaintiffs. They have not disputed that sum. Judgment is entered against the second defendant in the sum of $359,141.50.Result[35] Judgment is entered against the first and second defendants jointly and severally for the sum of $359,141.50, being the full balance of the plaintiffs' claim.[36] The plaintiffs sought interest on that sum from the date of issuing the proceeding (25 March 2015) to the date of judgment at five per cent per annum. I enter judgment accordingly for interest in the sum of $10,282.28.[37] The plaintiffs are also entitled to costs on a 2B basis which amount to $2,950.50 and disbursements of $754.14.___________________________Hinton J