Aussie Ideas Pty Ltd v Tunwind Pty Ltd; Hoddinott v Tunwind Pty Ltd [2006] NSWCA 286 | Case summary

The proceedings, which comprised an appeal and two summons for leave to appeal, arose from a judgment in favour of a landlord for unpaid rent and outgoings and a judgment in favour of the accountant who controlled the tenant company. The Court allowed the tenant's appeal and reduced the judgment to give credit for items that were conceded or found below. The landlord had also sued the accountant for breaches of fiduciary duty. The trial Judge found that some breaches had been proved but upheld a limitation defence. He ordered the accountant and the tenant jointly to pay the landlord's costs of the proceedings. The accountant sought leave to appeal against this order and the landlord sought leave to cross-appeal against the decision upholding the limitation defence. HELD: (1) There was no justification for the order that the accountant pay the costs of the landlord's claim against the tenant: FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at para [206]-[210]; (2) Absent evidence of misconduct, a successful defendant is normally entitled to an order for costs. A successful limitation defence does not justify an exception to this general rule. (3) Section 23 of the Limitation Act provides that the limitation periods applicable to legal claims may apply by analogy to equitable claims. (4) The 6 year limitation periods in s 14 applicable to claims for breach of professional duty in contract and tort applied by analogy to the landlord's claims for breaches of fiduciary duty by the accountant and the claims were statute barred: Cia de Seguros Imperio v Heath Ltd [2001] 1 WLR 112 CA applied. ORDERS Aussie Ideas Pty Ltd v Tunwind Pty Ltd CA 41102 of 2004

31 OCTOBER 2006 AUSSIE IDEAS PTY LTD v TUNWIND PTY LTD MARK HODDINOTT v TUNWIND PTY LTD Judgment 1 HANDLEY JA: These proceedings comprise an appeal by a tenant against a judgment for unpaid rent and summonses for leave to appeal and cross-appeal from other orders made in the proceedings. The summons for leave to appeal sought to challenge the order for costs made by the trial Judge against Mr Hoddinott who, as director and shareholder, controlled the appellant company. The summons for leave to cross-appeal sought to challenge the dismissal, on limitation grounds, of the landlord's claims against Mr Hoddinott for breaches of fiduciary duty. The trial took 12 days and the trial Judge had to consider many issues, but there is no need to set out the facts because the legal issues in this Court have been considerably simplified. The tenant's appeal 2 The trial Judge gave judgment for the landlord on 16 November 2004 for $265,371 for unpaid rent and outgoings with interest at the contractual rate of 15% per annum fixed by the lease. His Honour failed to allow the tenant a credit for rent and outgoings paid by sub-tenants to the landlord. The tenant was entitled, on this basis, to a credit of $53,000, as agreed at the trial, but instead was only given credit for $34,151. There was a further error because the Judge awarded the landlord $1637 more than it had claimed. The notice of appeal asserting these errors was filed on 10 March 2005 but there was no formal concession of error until the respondent's written submissions were served on 6 April 2006. 3 The appellant claimed a further deduction of $4,800 in respect of the rent for June 1992 which it claimed to have paid. This should have been the subject of an express plea of payment (Young v Queensland Trustees Ltd (1956) 99 CLR 560) but evidence of payment was led at the trial without objection. The Judge found that this amount had been paid (red 49), but did not allow the tenant the appropriate credit. The point was formally covered by the notice of appeal and the appellant's written submissions but was not taken with any clarity. It really only emerged during the oral submissions of Mr Garling SC who appeared for the tenant. Mr Lindsay SC for the landlord conceded this error after the luncheon adjournment. 4 The appellant also raised a limitation defence based on the 6 year period in s 14(1)(a) of the Limitation Act 1969 and some kindred defences. These were hopeless because the lease was registered under the Real Property Act 1900 and took effect as a deed. The 12 year limitation period in s 16 applied and the claim was well within time. Mr Garling very properly withdrew this ground of appeal at the start of the hearing. 5 The appellant sought to enforce a set-off arising by estoppel in respect of professional fees of $23,806.25 alleged to be payable by the landlord to Mr Hoddinott for accounting and other services. The estoppel was based on his letter of 20 July 1994 which purported to set out an accounting reconciliation between the parties in which this amount was set-off against outstanding rent and outgoings. The landlord did not reply and did not challenge these calculations until it filed its statement of claim on 24 November 1999. 6 In the meantime Mr Hoddinott's claim for professional fees had become statute barred. The claim to an estoppel based on the landlord's silence, although argued, was without substance and the Court did not require Mr Lindsay to address on this issue. 7 The appellant's claims to a deduction for the full amount of $53,000 and the adjustment for $1637 which had not been in dispute and for credit for the payment of $4,800 which the Judge found had been made should have been raised before the Judge on or shortly after delivery of his judgment. The Judge had some doubt about his calculations because he expressly reserved liberty to apply to correct any errors. The appellant should have applied to the Judge instead of bringing these matters to this Court at greatly increased expense. This will affect the order for costs in respect of the appeal. 8 The tenant's appeal must be allowed to reflect these adjustments and a judgment for the landlord for $173,140 must be substituted with effect from 16 November 2004. It was common ground that the landlord was entitled to interest at the contractual rate until judgment. Under s 85(2)(b) District Court judgments carry interest at the prescribed rates. 9 Mr Lindsay sought an order for interest on the judgment at the contract rate but s 85 does not confer any power on the Court to vary the prescribed rates. 10 The Court's general practice, when varying the judgment below, is to substitute a judgment with effect from the date of the judgment below. The Court should not depart from this practice to preserve the landlord's right to interest at the contractual rate until judgment in the appeal. Landlord's claim for breaches of fiduciary duty by Mr Hoddinott 11 A professional relationship of accountant financial adviser and client existed between Mr Hoddinott and the landlord after October 1990 prior to the inception of the relationship of landlord and tenant between the two companies. The statement of claim alleged breaches of Mr Hoddinott's fiduciary duty to the landlord in 1992 during the negotiations leading to the execution of the lease and sought equitable compensation. By its amended statement of claim filed on 11 September 2002 the landlord added a claim for equitable compensation for breaches of fiduciary duty during the negotiations which led to the landlord purchasing the tenant's fitout of the premises at what was alleged to be an inflated price. The Judge found that some of these claims had been proved but upheld the limitation defence. 12 Although Mr Hoddinott was wholly successful in resisting the claims against him, albeit only on limitation grounds, he and the tenant were jointly ordered to pay the landlord's costs. The Judge's reasons were brief: "Although Mr Hoddinott has succeeded in the claim for breach of fiduciary duty against him, his involvement in the various transactions were such that I think it just that he jointly with Aussie Ideas should be ordered to pay the plaintiff's costs of the proceedings." 13 Mr Hoddinott sought leave to appeal from this order which made him jointly liable with the tenant for the landlord's costs of its claim for rent and outgoings which succeeded, and the costs of its claims against Mr Hoddinott for breaches of fiduciary duty which failed. The amounts must be substantial because of the length of the trial. 14 The order for the landlord's costs of its claim against the tenant ignored the separate legal identities of the defendant company and its controlling director and shareholder. It made the latter personally liable for an obligation incurred by the company without proof of relevant misconduct on his part in or in connection with the proceedings. In my judgment there was no justification for the order against Mr Hoddinott in respect of the landlord's costs of its claim against the tenant. See FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at para [206]-[210]. 15 The other costs Mr Hoddinott was ordered to pay were those incurred in the unsuccessful claim against him for breaches of his fiduciary duty. He succeeded because the landlord's claims were statute barred but this is a defence on the merits. In the absence of relevant misconduct in or in connection with the proceedings a defendant who succeeds on this ground is normally entitled to an order for costs. 16 In some circumstances a successful defendant may be deprived of his costs and in extreme circumstances he may even be ordered to pay the costs of an unsuccessful plaintiff. His Honour's brief reasons disclose no proper grounds for ordering a successful defendant to pay the plaintiff's costs. Mr Hoddinott was involved in the tenant's transactions as its director and shareholder but this, without more, provided no basis for making an order against him for these costs. His Honour's exercise of discretion miscarried and this Court must intervene, set aside this part of the order, and re-exercise the discretion. At the conclusion of oral argument the Court granted leave to appeal and directed the filing and service of the notice of appeal. 17 On a re-exercise of the discretion I would order the landlord to pay Mr Hoddinott's costs of the proceedings. The tenant and Mr Hoddinott instructed the same solicitors and counsel. In these circumstances the appropriate order is that the plaintiff should pay Mr Hoddinott's costs of the trial to the extent to which the costs incurred by the defendants were increased because of the claims made against Mr Hoddinott personally. Dismissal of the claims against Mr Hoddinott for breach of fiduciary duty 18 The landlord did not appeal against the dismissal of its claims against Mr Hoddinott, but responded to Mr Hoddinott's summons for leave to appeal by filing a summons for leave to cross-appeal against the decision upholding the limitation defence. At the conclusion of the oral argument the Court granted leave to cross-appeal and directed the filing of a notice of cross-appeal. 19 The Limitation Act 1969 does not, in terms, fix a limitation period for claims for breach of fiduciary duty. Section 23 provides, so far as relevant, that ss 14 (actions for breach of contract not founded on a deed, and actions in tort) and 16 (actions founded on a deed) do not apply "except so far as they may be applied by analogy" to "a cause of action … for … equitable relief". It was common ground that a cause of action for breach of fiduciary duty was a cause of action for equitable relief within this section. The Judge held that the relevant analogy was a cause of action in contract or tort for professional negligence so that the 6 year limitation period applied by analogy. Mr Lindsay submitted that the claims arose in relation to a lease by deed, so that the true analogy was the 12 year limitation period for actions on a deed. 20 The claims for breach of fiduciary duty were not, in any sense, based on the lease. The claims would also have been available if the plaintiff had been possession under an agreement for lease, or an informal lease. 21 Mr Hoddinott did not hold or control assets belonging to the plaintiff which he misapplied or lost through a breach of duty. In those situations equity would not permit the trustee or fiduciary to plead a limitation defence: Metropolitan Bank v Heiron (1880) 5 Ex D 319 CA; Cohen v Cohen (1929) 42 CLR 91, 99-101. 22 The claims were for compensation for breach of fiduciary duty, even if the breaches involved elements of dishonesty. The analogy in such a case, as the Judge found, is with actions for breach of professional duty in contract or in tort where the applicable period is 6 years. 23 The question is covered by the decision in Cia de Seguros Imperio v Heath Ltd [2001] 1 WLR 112 which neither counsel cited. The Court of Appeal there applied the statute by analogy to claims by a client against its insurance broker for dishonest breaches of fiduciary duty. Waller LJ said (121): "… equity would have taken the view that it should apply the statute by analogy to a claim for damages or compensation for a dishonest breach of fiduciary duty. I say that because what is alleged against Heath's as giving rise to the dishonest breach of fiduciary duty are precisely those facts which are also relied on for alleging breach of contract or breach of duty in tort." 24 Clarke LJ said (125): "… the essential nature of the pleaded case is the same whether it is put as damages for breach of contract, damages for breach of duty or damages (or compensation) for breach of fiduciary duty." 25 The following orders should be made:

Aussie Ideas Pty Ltd v Tunwind Pty Ltd; Hoddinott v Tunwind Pty Ltd

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