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May 2019

Employer found responsible for employee’s fraud

Wilh. Wilhemsen Investments Pty Ltd v SSS Holdings Pty Ltd (2019)

The Case

Between 2011 and 2016, Wilh. Wilhelmsen Investments Pty Ltd (Wilhelmsen) purchased products and services from SSS Holdings Pty Ltd (SSS Holdings), often placing orders by email.

In November 2014, Mr Lott, Wilhelmsen’s Group IT Manager, introduced Mr Lo (SSS Holdings Sales Manager) to another Wilhelmsen employee, Mr Tony Toomalatai. Mr Lott wrote, “Please accept all orders and service requests from Tony as you would from me”.

Mr Lott had actual authority for purchases up to $10,000. This limit was not known to SSS Holdings. Mr Lott left Wilhelmsen in early 2016. Mr Toomalatai was appointed Group Technology Officer, but did not have the $10,000 authority limit.

Between August and September 2016, Mr Toomalatai fraudulently placed orders purportedly for Wilhelmsen, for 197 phones, at a value of $189,103. Mr Toomalatai explained Wilhelmsen was expanding and made excuses for not providing a purchase order. SSS Holdings never received payment for the phones and Wilhelmsen never received the phones.

SSS Holdings commenced proceedings against Wilhelmsen, claiming Mr Toomalatai had ostensible authority to purchase the phones.

Verdict

The District Court, in finding for SSS Holdings, was critical of Wilhelmsen’s lack of corporate governance, which had helped facilitate the fraud.

Wilhelmsen appealed to the NSW Court of Appeal (NSWCA). Wilhelmsen argued that it was the state of mind of the SSS Holdings employee who filled the fraudulent orders that was the relevant state of mind, not the earlier email sent by Mr Lott conveying authority on Mr Toomalatai.

NSWCA found that SSS Holdings’ reliance on Mr Toomalatai’s ostensible authority was not confined to the email. It was also conveyed by the following:

  • Wilhelmsen was an existing customer;
  • orders were regularly placed by email;
  • Mr Toomalatai held the title of Group Technology Officer; and
  • Mr Toomalatai had provided plausible explanations for the orders and absence of a purchase order.

Lessons

Employers need to be mindful of the risks of employee fraud and have appropriate processes in place, such as:

  • requiring suppliers not to fill orders until purchase orders are provided;
  • notifying suppliers of spending limits and the individual authorities of employees; and
  • training employees in the company’s processes, making them aware to be on the lookout for, and to report, fraud.
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