de Zylva v Hill

de Zylva v Hill - [2009] NSWCA 435 - NSWCA 2009 case summary — Zoe

[120]

Breach of clause 20 28 Insofar as the primary judge found that Mr de Zylva was frequently absent from work, and worked short days on some days, Mr Oakes SC provided a detailed analysis of the document in support of that finding provided to the primary judge by Mr Hill, in order to show that breach in those respects was not made out. 29 As regards the primary judge's finding that Mr de Zylva spent substantial office time working on financial planning clients, Mr Oakes submitted that this was contemplated in the definition of "business" in the agreement, and that in any event financial planning had to be conducted through Mr de Zylva's company Trade Wins, because of the need for access to a licence. Accordingly, he submitted that there was no breach of cl 20 but at most an issue of lack of full accounting to the Company. 30 Mr Robinson SC for Mr Hill submitted that the primary judge had in addition found that Mr de Zylva had breached cl 20 in failing to devote all his time and attention to the business in that: (a) the business had lost around "700 clients"; (b) Mr de Zylva had "limitations in dealing with clients" and "focussing on the issue at hand"; and (c) Mr de Zylva had "little interest in files" and gave Mr Salzone, the employed accountant, work of his own clients to do. 31 Mr Robinson also submitted that the primary judge had found that Mr de Zylva had breached an implied promise in cl 20, namely a promise that each party would not take any action that would be inimical to the other party devoting all their time and attention to the business, in that the primary judge accepted that Mr de Zylva: (a) tried to intimidate Mr Hill from early 2005; (b) was an "extremely difficult person to deal with"; (c) was "volatile, highly strung and on occasion very difficult to deal with"; (d) "started to threaten Mr Hill" from around December 2004/January 2005; and (e) by his conduct he caused a liquidator to be appointed to the Company. 32 Dealing first with the additional breaches contended for by Mr Robinson as noted in par [31], the existence and breach of the implied promise he referred to was neither pleaded nor found by the primary judge. As regards the suggested additional breaches of the express promise as noted in par [30], the findings referred to by Mr Robinson were not made by the primary judge as findings of breach of cl 20; and in my opinion they could not, without some explanation and further findings, amount to findings of breach of cl 20. 33 As regards the primary judge's finding that Mr de Zylva was "frequently absent from work", there was no explicit finding made by the primary judge that cl 20 was breached thereby. The analysis undertaken by Mr Oakes shows that it is unlikely that such a finding would be justified; and I am not prepared to make a finding of breach in those terms. 34 However, in my opinion, the finding of the primary judge that Mr de Zylva breached cl 20 by working for financial planning clients was justified. The primary judge generally accepted Mr Hill's evidence, which I would understand to include his evidence that Mr de Zylva had said he would do financial planning work for his own clients in his own time (Red 31U); and the primary judge also noted an email from Mr de Zylva of 15 July 2004 (Red 33F) in which he asserted that he retained financial income from his own client base. The primary judge found that Mr de Zylva "spent a significant amount of time at the Hill de Zylva office doing their work" (Red 33I); and in respect of that work, it is clear that Mr de Zylva intended that it be for his own benefit, not for the benefit of the Company, and that he so treated it. In respect of financial planning work he received commissions of $29,383 (Red 31R), from which he accounted to the Company for only $907.50. Mr Oakes raised a question as to whether some of the $29,383 might be excluded from the agreement under cl 25.11; but in my opinion there would have been an evidentiary onus on Mr de Zylva to show this, which was not discharged.

[123]

Loss of $160,000 42 Mr Robinson submitted that the agreement of May 2004, whereby Mr de Zylva purchased a half-share for $160,000, showed that Mr Hill's half interest in the Company was worth $160,000. This was lost entirely because of the winding-up. 43 Mr Robinson did not seek to uphold the primary judge's findings on a payment of $35,000 to the liquidator and a loss of the value of the business of $125,000. In my opinion, that concession was correct: The evidence could not in my opinion justify a finding that the business, as purchased from the liquidator, was worth only $35,000, particularly when Mr Hill did not give evidence as to what its earnings were after it was purchased by his new company. 44 The question is whether Mr Hill's loss of the value of his share in the Company is recoverable as damages for the particular breaches found by the primary judge. 45 It is important to note that there was no allegation in the pleading that the breaches amounted to fundamental breaches of contract, justifying termination by Mr Hill. No such claim was made at the hearing and there was no finding by the primary judge to that effect. Accordingly, the commencement of the winding-up proceedings cannot be treated as an acceptance by Mr Hill of a fundamental breach or repudiation of contract by Mr de Zylva. In those circumstances, in my opinion the question of recoverable damages must be approached in terms, not of damages for loss of the benefit of the contract, but rather in terms of damages consequential on particular breaches, in accordance with Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 (at 151); that is, damages: such as may fairly and reasonably be considered either arising naturally, that is, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. 46 As regards Mr de Zylva's breach of cl 20 in doing around $29,000 worth of work for his own benefit, rather than for the benefit of the Company, in Company time, this not being considered as a fundamental breach justifying rescission, and in circumstances where the consequences of breach are dealt with in cl 16 of the agreement, in my opinion the winding-up of the Company and total loss of value of the shares cannot be considered as being within either limb of Hadley v Baxendale. 47 As regards the breach in failure to endeavour in good faith to settle the dispute, there is no finding by the primary judge as to what would have happened if there had been such an endeavour, that is, whether the parties would have reached any agreement and if so what agreement. Mr Robinson properly conceded it was unlikely that any agreement would have been reached. In my opinion, the best that could possibly have been done on this basis would have been to assess some damages based on the loss of a small chance of reaching an agreed settlement, with some assessment of likelihoods as to a range of possible settlements. This was not attempted by the parties or by the primary judge. 48 In those circumstances, in my opinion this Court can do no more than rule that Mr Hill has not made out a case on the basis of which substantial damages for the breach of the promise to mediate can be found.

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