King v Lintrose Nominees Pty Ltd [1999] VSC 340

Supreme Court of Victoria|1999-09-17|Before: Byrne J

These proceedings raise a number of difficult questions which I shall address in turn. First, whether the claim now brought is available in the 1992 proceeding having regard to the fact that a final judgment has been pronounced in 1993 in that proceeding; second, whether the claim, however brought, should be dismissed on the ground that it is res judicata; third, whether it should be refused on the application of the Anshun principle; fourth, whether the relief sought should be refused for laches or delay; and, fifth, whether the heads of damage claimed are recoverable.

The evidence before the court was by affidavit. No deponent was cross-examined. The findings of Hayne J were accepted as binding all parties.

The principle that the court may make orders supplemental to final orders is well established although there may be some debate as to its scope. In Ford-Hunt v Raghbir Singh [1973] 2 All ER 700 at 702-3, Brightman J was prepared to make a supplemental order insofar as this was sought on new facts arising after judgment. That was a case where the purchasers under a contract of sale obtained specific performance in July 1972 and returned to the court in December 1972 seeking damages flowing from the delay in completion where the defendant had failed to comply with the July order. His Lordship acceded to the application to vary the order on the basis that the variation was sought on new facts occurring thereafter: In Re Scowby; Scowby v Scowby [1897] 1 Ch 741 at 754-5, per A.L. Smith LJ. See, also, Cowan v Cavanagh [1978] VicRp 61; [1978] VR 665 at 667, per Menhennitt J. Accordingly, the damages awarded were only those arising from the new facts and occurring after the date of the July order.

It may have been with this authority in mind that counsel for Mr King sought to rely upon an exchange between Hayne J and Mr McEwen, then appearing for Mr King, and Mr Anderson, then appearing for the defendants, in the course of the final address at the trial of the 1992 proceeding.

His Honour: There being no factual disclosure, then breach of duty, breach of duty gives rescission, there is here no case mounted against you that rescission cannot go in the circumstances.

His Honour: That is right, is it not, Mr Anderson, there is no separate point about rescission?

Accordingly, his Honour, in his reasons for judgment said this, after concluding that the contract of sale was liable to be set aside for breach of fiduciary duty:

"Counsel for the defendants expressly disclaimed any arguments that rescission of the contract could not be awarded if I found there had been a breach of duty. In particular it was not suggested that restitution could not be effected."

It was put that his Honour had been misled by the exchange which I have quoted into thinking that Lintrose had the financial resources to give effect to rescission. I do not understand the exchange or his Honour's observation in that light. His Honour was enquiring whether there was some legal impediment or change in circumstance which would defeat or require a particular order in order to undo the contract of sale. Nothing was pleaded and nothing emerged from the evidence to suggest such a thing. I am satisfied that his Honour did not ask about and was not told that Lintrose was able to repay the contract money received by it. While the inability of Lintrose to do so may be a new fact emerging after May 1993, it was not a fact concealed from the court by counsel at trial.

In their outline of submission, counsel for the Hopkins put it that an order varying a final order will not be made where it requires the court to re-agitate the law or the facts dealt with in the earlier order: Caboolture Park Shopping Centre Pty Ltd (In Liquidation) v White Industries (Qld) Pty Ltd [1993] FCA 471; (1993) 45 FCR 224 at 236. Such a negative formulation addresses the objective of the rule that, subject to appeal, judgments are intended to resolve once and for all the rights of the parties which they have put in issue in the proceeding. The court will not alter this determination by supplemental order.

On the other hand, the court is permitted to make subsequent orders where these are in aid of the enforcement or the working out of the consequences of the earlier order. In the exercise of this power orders have been made after final judgment with respect to costs against non-parties: UTSA Pty Ltd (In Liquidation) v Ultra Tune Australia Pty Ltd [1998] VSC 13; [1999] 1 VR 204 at 206-7, per Chernov J. The power has been more generously exercised following decrees for specific performance, not only to give effect to the decree but even to grant alternative relief where the decree could not be implemented. In McKenna v Richey [1950] VicLawRp 64; [1950] VLR 360, the plaintiff sued for specific performance of a contract for the sale to her of a leasehold interest in land and a business, alternatively for damages. A decree of specific performance was made in 1946 but the defendant did not comply with it. The plaintiff returned to the court in 1949 seeking to compel compliance with the earlier order but this was refused due to delay in making the application. The plaintiff then sought damages at common law. O'Bryan J acceded to this application saying that it was open to a plaintiff to seek specific performance and damages in the alternative, in case specific performance was not available. The primary relief of specific performance supposes that the contract remains on foot notwithstanding the repudiation by the defendant. Where, for some reason, it appears before judgment that this relief is unavailable, the plaintiff may accept the repudiation and seek the alternative remedy in damages. His Honour then applied this principle, at [1950] VLR 372, to the case such as that before him, where this unavailability arises after the decree of specific performance:

"This, in my opinion, is equally applicable both before and after decree whether the reason for the refusal or the failure of the decree of specific performance is due to inability of the defendant to give any title to the property sold, or to the conduct of the plaintiff which makes it inequitable for the contract to be specifically enforced. The case Corporation of Hythe v East [1866] LR 1 Eq 620, upon which Mr Smithers relied, is different from this case. There the plaintiff had a decree of specific performance of a contract, and he sought to recover from the defendant damages for loss suffered by him by the defendant's delay in obeying the decree of specific performance. Kindersley V-C held that an order for the assessment and payment of such damages would in effect be a supplemental decree founded on what has occurred since the decree was made, and accordingly declined to make such an order. For these reasons the plaintiff is, in my opinion, entitled to judgment for damages at common law for the loss which she has sustained by reason of the defendant's breach of contract."

His Honour's decision has commanded the approval of the House of Lords in Johnson v Agnew [1980] AC 367.

The circumstances of those cases are very different from the present. Indeed, it may be that they are its converse. Here the plaintiff purchaser has called upon the Court of Equity not to enforce an existing contract but to make orders undoing the performance of a contract which he had already elected to terminate. The importance of cases such as McKenna v Richey [1950] VicLawRp 64; [1950] VLR 360, however, lies in their demonstration of the readiness of the Court of Equity to modify its earlier order for specific performance even though this may involve substituting for that relief another and inconsistent remedy. And in so doing, questions as to whether the award of damages was in truth a working out or an enforcement of the earlier order, do not seem to have loomed large.

I was not referred to any case which approximates the present and so it is necessary to resort to first principles. Before Hayne J, Mr King sought, against Lintrose, declaratory orders for rescission and consequential orders and, against the Hopkins, declaratory orders with respect to their breach of fiduciary duty. The order made against Lintrose was not, therefore, one of equitable rescission in the sense of an order setting aside the contract of sale: Meagher, Gummow & Lehane, Equitable Remedies (3rd Ed) at [2404]; Glover, Commercial Equity - Fiduciary Relationships (1995) at [6.132]. His Honour made a declaration that the contract had been rescinded by Mr King by the issue of the writ on 8 October 1992 and orders for the repayment of monies paid under that contract. No order was made against the Hopkins other than an order against all defendants for costs. His Honour's orders were not disturbed on appeal. It may be that subsequent orders intended to implement the reconveyance of the land could be treated as supplemental of the orders of 17 May 1992. It may be that a subsequent order against Lintrose for damages or equitable compensation following the failure of the earlier order could be made on the same basis, although I doubt it. What is sought here, however, is none of these. Mr King now seeks against the two defendants against whom no substantive orders were made, orders which he did not seek in the first proceeding. This he cannot do in that proceeding for it is now at an end as to the matters in issue before the court.

In the alternative, he seeks to rely upon the leave reserved by Hayne J in May 1993. This submission, too, must fail. The reservation of liberty to apply in a final order permits the parties to return to the court to work out the order, not to make a different order: Re Porteous, deceased [1949] VicLawRp 68; [1949] VLR 383 at 385, per Herring CJ, O'Bryan, Fullagar JJ; Abigroup Ltd v Abignano [1992] FCA 567; (1992) 39 FCR 74 at 88, per Lockhart, Morling, Gummow JJ. I mention in passing, that the comment of the Full Court in Burke v Gillett [1996] VicRp 11; [1996] 1 VR 196 at 198 that this proposition may now be applied less strictly in the Court of Appeal has no application to me, sitting as a judge of the Trial Division. For reasons which I have already set out, the present application goes beyond the working out or the implementation of the May 1993 order. The relief sought in the summons of 5 February 1999 will be refused.

It was next submitted that the relief sought in the 1999 proceeding should be refused as the matter was res judicata. This cannot be correct. No substantive judgment was given against the Hopkins in the 1993 proceeding. There is, therefore, no judgment into which Mr King's causes of action against them have merged.

The submission based on the rule expounded by the High Court in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589, fastens upon the other aspect of the finality of court judgments, the avoidance of multiplicity of proceedings. It is that a party should not be permitted to return to the court to raise an issue which had not been but which ought properly to have been raised in the earlier proceeding. The applicable principle depends upon unreasonableness. "There will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it": Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 at 602, per Gibbs CJ, Mason, Aicken JJ. The principle has been applied equally to cases where it is the claimant and not the defendant who seeks to raise an issue in the later proceeding. See Terry v Permanent Trustee Australia Ltd (1995) 6 BPR 14,091 at 14,103 and the cases there cited. In Bill Gibbs & McAllion Lloyd Pty Ltd v Kinna [1998] VSCA 52, Ormiston JA at [2] and Kenny JA at [23] applied to such a case the test whether or not it was unreasonable for the plaintiff asserting a cause of action in the second proceeding not to have asserted it in the earlier proceeding. It was not necessary for Kenny JA to determine whether the test was a narrower one, as to which see also Phillips JA at [6].

In this case, the difficulty is that, in his statement of claim, Mr King did assert as a cause of action against the Hopkins that they were in breach of fiduciary duty. Why he did so, seeking only declaratory relief, is not altogether clear. Hedigan J was asked on 4 December 1992 to permit the joinder of the Hopkins, as defendants, on the basis that this was necessary because Lintrose as sole defendant denied that either of the Hopkins was its officer or employee. The transcript of the application made on that date was in evidence but it does not shed much light on this matter. It seems likely that the plaintiff's claim against Lintrose was then seen as depending upon proof of breach of fiduciary duty by Hopkins & Co with whom Mr King had a contract and that Lintrose was the knowing recipient of the benefit of this breach. As originally pleaded, it was apparently not thought necessary to have Hopkins & Co as a defendant, perhaps because there was no doubt about the retainer. But when the association of the Hopkins with Hopkins & Co was put in issue, those advising Mr King must have thought it prudent to have them as parties, against whom similar breaches were alleged, again with the substantive relief sought only against Lintrose.

The question which counsel for the Hopkins would raise about the decision of Mr King at this time not to seek equitable compensation against their clients is this. Was this relevant to the subject matter of the 1992 proceeding? Was it unreasonable for Mr King not to seek and obtain such an order? To my mind each question must be answered in the negative. His claim in the 1992 proceeding was to undo the contract of sale which had been procured by the breach of fiduciary duty by the Hopkins. As things then stood, there is, subject to one matter, no evidence to suggest that such an order obtained and implemented would not have provided a satisfactory result. The matter I have referred to is the cross-appeal. Whatever its prospects of success, the fact that it was brought on 15 June 1993 suggests that, on that date, Mr King wanted more than the mere reversal of the sale. Notwithstanding this, I am not satisfied that Mr King acted unreasonably in pursuing Lintrose alone in the first proceeding. The submission based on the Anshun estoppel must, likewise, fail.

Nearly six years passed from the date of the order of Hayne J before Mr King applied by summons for the orders he now seeks, and nearly five since the dismissal of the appeals. It is put that he should be denied relief by reason of his laches and delay. The evidence shows that he has not been idle during this period. I have mentioned the winding up of Lintrose, the sale of the land and the pursuit by the liquidator of various recovery claims at his urging and expense. It was not until 5 June 1998 that orders were made in one, and perhaps the last, of the recovery applications. To the extent that these acts were directed towards the recovery of money from Lintrose and were successful, they have the consequence of reducing the amounts payable by the Hopkins as compensation for their breaches of fiduciary duty.

The Hopkins contend, nevertheless, that he should have pursued them with like energy. They rely upon the well-known principle that equity will deny relief where a plaintiff has been guilty of delay which would make it unjust to grant the relief sought. The injustice asserted is that they are now exposed to risks from events now 10 years old. No other injustice has been asserted or demonstrated. The Hopkins have, since 1993, lived in the shadow of a finding that they committed breaches of fiduciary duty. It may be supposed, although it was not asserted, that to have such a finding, with the consequent risk that compensation might be sought, hanging over one's head for years is a hardship. Neither was it said that they acted to their detriment on the basis that compensation would not be sought. Nor was it said that the task of quantifying the plaintiff's entitlement has become more difficult by reason of the passage of years. The defence of laches is not made out. The associated allegations in paragraph 27 of the defence, delay, acquiescence and waiver were not mentioned in evidence or argument.

I will refer to the Master for assessment the amount of equitable compensation to be awarded. There was some argument before me, however, as to the approach which should be taken to the items of loss claimed by Mr King and I was asked to express my views on these for the assistance of the Master. The losses claimed and which total $838,878.33 are those set out in the document entitled Amended Particulars of Loss under paragraph 20 which was filed on 31 August 1999. I shall deal with these losses by item numbers as they appear in that document.

I make two preliminary observations. First, the object of equitable compensation in this case is to restore Mr King to the position in which he would have been had no breach of fiduciary duty occurred. In such an event the contract of sale would not have been entered into in September 1989, so that the objective of the award of equitable compensation must be to restore Mr King to the position he enjoyed prior to that date. Second, I am not limited to losses incurred before the judgment of Hayne J in 1993 nor to losses incurred after that date.

Losses associated with the Purchase (Items A1, 2, B6, 7, 8)

Had Mr King not purchased the property in September 1992 he would not have paid to Lintrose the sum assessed by the Master to be $449,266. Nor would he have incurred the costs attendant upon completing the purchase, such as commission paid to J. Hopkins & Co, procuration fees and legal and financial expenses. To the extent that these are shown to be the costs of the purchase they are recoverable in the same way as the purchase price paid to Lintrose. Against this should be brought to account the proceeds of the sale of the property. The net figure therefore is recoverable.

Losses associated with holding the Property (Items B9, 10, 11, 12, 13, 14, 15, 16)

Mr King held the property from the date of purchase until the date of rescission on 8 October 1992 and thereafter, notwithstanding the rescission, until it was sold in 1994. The property is a commercial property which was let by him or available to let during this period. He claims the net letting losses incurred by him for the period during which he held the land. A substantial portion of these are represented by interest and finance expenses paid by him on money borrowed for the purchase. I see no reason, in principle, why these amounts, if proved, should not be recoverable.

Losses associated with pursuing Lintrose (Items C21, 22)

These costs were incurred, as I have mentioned, in an attempt to recover assets from Lintrose and to recoup insolvent transactions entered into by that company. Mr King offers to bring to account moneys received by him from the liquidator but it appears from the particulars that the costs incurred exceeded those receipts. I am not concerned with this aspect, but rather with the principle. The evidence shows that, following the decision of the Court of Appeal in May 1994, Mr King had one or more meetings with the Hopkins and representatives of Lintrose. He was told that there were no funds in Lintrose and that he was wasting his time pursuing the judgment of May 1993. On 31 August 1994 he was told by them that the only asset of Lintrose was the property when it was transferred back to it. Subsequent events and enquiries undertaken by Mr King at considerable expense have verified these statements. He might have accepted this information and directed his attention immediately to the Hopkins as he now has.

What is then put is that the sums expended in what turned out to be a relatively fruitless exercise should not be laid at the feet of the Hopkins. These losses were unconnected with their breaches of duty. I do not agree. It appears from the evidence that Mr King sought to satisfy every available source of recovery before he turned to the Hopkins. His efforts in this regard were directly the result of the breaches of fiduciary duty or more particularly the predicament in which he found himself as a result. I would allow those items.

In principle, Mr King is entitled to interest. I accept the submission of counsel on behalf of the Hopkins that this is part of the equitable compensation which is to be assessed and does not therefore depend upon the provisions of the Supreme Court Act regarding interest on judgments. The interest, therefore, will run in respect of each item of expense from the date the expense was incurred. It should be simple and not compound interest. With respect to the rate, the calculations contained in the particulars of loss are based on the rates from time to time in force under the Penalty Interest Rates Act 1983. Although this is a convenient method of assessing the relevant interest rates, I agree that the proper course is to apply those rates which are available in the marketplace for Mr King were he to deposit his money with a responsible financial institution. The Master will doubtless be aware of the appropriate rates for this purpose.

1. In proceeding F3861, that the application of the plaintiff by summons filed on 5 February 1999 be dismissed with costs.

(a) declare that the defendants are liable to pay equitable compensation to the plaintiff;

(b) that the proceeding be referred to the Master to enquire into and determine the amount of compensation so payable;

(c) that the defendants pay the costs of the plaintiff of the proceeding, including any reserved costs and the costs of transcribed notes;

3. I shall invite counsel to bring in minutes of orders to give effect to these conclusions.

Interest Rates Act 1983

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