Lahoud & Anor v Lahoud & Ors

Judgment 1GILES JA : Subject to what follows, I agree with the reasons of Handley AJA. 2Counsel for the Joseph Lahoud interests agreed that the proceedings for specific performance commenced on 11 July 2007 were proceedings for the recovery of money. He submitted that s 100 of the Civil Procedure Act 2005 nonetheless did not extend to interest on 11 July 2007 because the cause of action for recovery of money did not arise until the auditor delivered his report. 3That submission should be accepted. In one sense the proceedings were proceedings for recovery of money from the beginning, in that they included a claim for payment of the amount found to be payable by the auditor. It is not necessary to decide whether they truly should be so characterised; assuming that they should, the reference in s 100(1)(b) to the cause of action arising confines the period for which interest may be ordered. The Terms of Settlement and the Deed did not provide for quantification by the auditor of a liability to pay money, but for election to have an existing position audited and for payment if an election was made and if the audit produced a difference from that position. Until that occurred, there was no liability to pay money and no cause of action. 4I agree with the orders proposed by Handley AJA. 5HANDLEY AJA : This appeal and cross-appeal from decisions of Ward J of 10 November [2010] NSWSC 1297, 25 November and 14 December 2010 is the latest round in a saga of litigation between brothers which began in 1999 when the Joseph Lahoud interests commenced proceedings against the Victor Lahoud interests in the Industrial Relations Commission. 6The proceedings in the Commission were settled and the terms of settlement (blue 2/355) provided for the Victor Lahoud interests to pay $570,000 to the Joseph Lahoud interests by 6 February 2001. The terms also provided: "The Respondents have provided written details of the profit calculation for the Cammeray Project, which is Annexure 'A' hereto, and verily believe that those details are accurate. Either party may elect to have the figures audited by an accountant to be agreed or, in default of agreement, as nominated by the President of the Institute of Chartered Accountants." 7Clause 7 provided that the parties would enter into a deed in accordance with "this agreement". The Joseph Lahoud interests enforced this clause in proceedings for specific performance against the Victor Lahoud interests which reached this Court. The parties then entered into the Deed (blue 1/105) dated 5 February 2007. 8The Victor Lahoud interests elected to have an audit of the profit calculation. This gave rise to further disputes and they brought proceedings for specific performance of the agreement for an audit. 9On 31 July 2009 Ward J [2009] NSWSC 623 ordered the Joseph Lahoud interests to perform and carry into effect the agreement for an audit (blue 1/156). Order 3 declared: "that the term 'audit' where respectively used in the Terms of Settlement and the Deed of Settlement allow [sic] an audit of the profits of the Cammeray project and not merely an audit of the figures appearing in Annexure A to the Terms of Settlement." (Order 3) 10On 12 November 2009 Ward J. noted that the President of the Institute of Chartered Accountants had nominated Mr Stephen Roger to undertake the audit, and he was willing to accept the appointment. She ordered by consent (blue 1/275) "that the procedure to be taken in undertaking the audit is a matter to be determined by the auditor" and that within 24 hours Mr Roger be provided with a joint letter of instruction in the agreed form. 11The Terms of Settlement and Deed contained the following provision dealing with the consequences of the audit (blue 2/355): "If on audit the audited profit exceeds the said profit calculation the First Applicant is to be paid one half of the difference by the Respondents. If the audit profit is less than the said profit calculation, the First Applicant will pay the Respondents one half of the difference. The reasonable costs of the audit to be paid by the Respondents in the event that the audited profit figure exceeds the said profit calculation and by the First Applicant in the event the audited profit is the same or less than the said profit calculation." 12The joint letter of instruction to the auditor (blue 1/277) provided at 278: "Both parties hereby request that, pursuant to the orders of Ward J. made on 31 July 2009, you undertake an audit of the profits of the Cammeray Project. The manner in which the audit is to be conducted is entirely a matter for your determination." 13The auditor accepted the appointment on those terms by an e-mail to the solicitors for the parties on 11 December 2009 (blue 2/408) which stated: "(1) I will be performing the engagement based on my interpretation of the Joint Letter of Instruction dated 12 November 2009 and my interpretation of the judgment dated 3 July 2009 (sic). (2) I ... will follow the guidelines set out in ASAE 3000 - Assurance Engagements Other than Audits or Reviews of Historical Financial Information when determining the procedures that I will follow to allow me to prepare my opinion." 14On 19 February 2010 the auditor wrote to the solicitors for the parties (blue 2/467) stating that: "(2) During my review of the responses filed by both parties, I have become aware of references to a number of Financial Reports having been prepared for the project. For clarity, I hereby advise that the report that will form the starting point of my audit is the version ... provided by [the solicitors for the Victor Lahoud Interests] (hereafter referred to as the 'Financial Report'). I note however that this in no way limit [sic] the extent of my audit procedures and in particular does not preclude me from reviewing data not currently disclosed in the Financial Report". 15This report, later described as the Property Development Statement (blue 2/693) showed that the project made a loss of $13,003.23. 16The auditor made his report on 24 August 2010 (blue 2/690). This stated that he had audited the Property Development Statement, and he noted that the directors of the development company were responsible for maintaining the appropriate books records and internal controls which formed the basis for that Statement. The auditor continued (690): "My responsibility is to express an opinion on the Statement based on my audit. I conducted the audit in accordance with Australian Auditing Standards. These Auditing Standards require that I ... perform the audit to obtain reasonable assurance whether the Statement is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statement. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and presentation of the Statement in order to design audit procedures that are appropriate in the circumstances ... An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the Statement. The Statement has been prepared on the basis that it records the profit of the Cammeray Project as required by Order 3 ..." 17The auditor identified a number of discrepancies and made the adjustments reflected in the Adjusted Property Development Statement attached to his report. The net effect was to increase the loss on the project to $16,454.89. The auditor reported (blue 2/691): "In my opinion, except for the effects on the Statement of the matters referred to in the preceding paragraph, the Statement for 2-4 Bells Avenue and 19 Morden Street Cammeray for the period of the project from 1997 through to 2001, gives a true and fair view of the profit of the Cammeray Project as required by Order 3 ..." 18The Joseph Lahoud interests claimed that the auditor did not carry out the audit as required by Order 3 because he took as his starting point the Property Development Statement prepared by the Victor Lahoud interests and his report was invalid. 19This led to proceedings by the Victor Lahoud interests to enforce the audit report. 20On 10 November 2010 Ward J. upheld the validity of the audit and the auditor's report, declared (blue 1/99) that Joseph was liable to pay Victor $346,027.17 and the reasonable fees of the auditor, and he was ordered to pay those amounts. 21Ward J. published additional reasons on 25 November (blue 1/105) and 14 December 2010 (blue 1/146). On the latter date she ordered the Joseph Lahoud interests to pay interest on $346,027.17 from 11 July 2007, when the Victor Lahoud interests commenced proceedings to enforce the audit procedure (blue 1/159). 22She rejected the submission for the Joseph Lahoud interests that interest on the amount payable under the order should run only from the date the auditor made his report, this being the date the cause of action accrued. 23Her Honour's decisions upholding the validity of the audit and ordering interest from 11 July 2007 are challenged in the appeal by the Joseph Lahoud interests. 24She rejected two claims by the Victor Lahoud interests which are the subject of their cross appeal. The first was that the auditor's report obliged the Joseph Lahoud interests to repay the whole of the $570,000 received under the Terms of Settlement. 25The second was that "the reasonable costs of the audit" payable by the Joseph Lahoud interests included the legal and accountancy fees incurred by the Victor Lahoud interests in the audit process. Validity of auditor's report 26The Terms of Settlement, the Deed, and Order 3 required "an audit of the profits of the Cammeray Project". The auditor was not required to determine the profits by working from the raw data in the way an Associate Judge would determine profits under an order of the Court. An audit involves the examination and verification of accounts prepared by others: Frankston & Hastings Corporation v Cohen [1960] HCA 6; 103 CLR 607, 617. The audit by Mr Roger necessarily involved the selection of an appropriate set of accounts to form the starting point. This was part of "the manner in which the audit was to be conducted" (blue 1/275, 278) that the parties had agreed, and Ward J. had ordered, should be determined by the auditor. 27The auditor said in his acceptance e-mail (blue 2/408) that he would follow the guidelines in ASAE 3000 [13] above. This document, as Exhibit 52, was not included in the appeal books. Exhibit 54 "Framework for Assurance engagements" was also omitted, but the Court was provided with copies during argument (T 24). 28Exhibit 54, issued by the Auditing and Assurance Standards Board, was relied on by Mr Neil SC, counsel for the Joseph Lahoud interests, to establish that different types of audits had been officially recognized. Exhibit 54 seems to be of little if any relevance because the auditor did not mention it in his acceptance e-mail whereas Exhibit 52, the document he did mention, was not provided to the Court or relied on. 29There is no evidence that the auditor failed to conduct his audit in accordance with the guidelines in ASAE 3000, or that those guidelines were inconsistent with Order 3, or the joint letter of appointment. 30The auditor said that he conducted the audit in accordance with Australian Accounting Standards (blue 2/690). There is nothing on the face of the report to indicate that he did not do so, or that he otherwise failed to carry out his appointed task. There is also nothing to suggest that it was not within his power to adopt the procedures he did. 31The auditor did not simply rubberstamp the Property Development Statement. Mr Einfeld QC for the Victor Lahoud interests referred the Court to evidence that the auditor had undertaken extensive work in the course of his audit as follows: blue 2/401-3, 411-13, 420-2, 425-7, 469-70, 497P, 517-8, 531-2, 542, and 552-3. 32It is not necessary to refer to the information obtained by the auditor or his reasons for seeking it. 33There is no expert evidence that the auditor did not do what he said he had done, or that he did not carry out the task assigned to him by Order 3 and the joint letter of appointment. The appeal by the Joseph Lahoud interests on this issue fails. Date from which pre-judgment interest can run 34Section 100(1) of the Civil Procedure Act provides: "(1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the Court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the Court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect." 35Ward J ordered payment of interest on the $346,027.17 the Joseph Lahoud interests were ordered to repay the Victor Lahoud interests from 11 July 2007 when the latter commenced proceedings for specific performance of the agreement for an audit. Mr Neil took two points in support of this part of the appeal. The first was that the proceedings for specific performance were not proceedings for the recovery of money. The second was that the cause of action for recovery of money did not arise until the auditor made his report on 24 August 2010. 36The statement of claim by the Victor Lahoud interests sought orders for the specific performance of the Deed requiring the Joseph Lahoud interests to join in arranging an audit of the profit pursuant to cl 2 of the Deed, and prayer 1(d) sought an order for "payment to the Plaintiffs of the amount found to be payable by [the defendants] pursuant to the contractual audit, together with the reasonable costs of the audit." 37The expression "proceedings for the recovery of money" in s 100 or its equivalent have been held to include proceedings for a salvage award: The Aldora [1975] QB 748; for compensation for a compulsory acquisition: Crisp & Gunn Co-Operative Ltd v Hobart Corporation [1963] HCA 55; 110 CLR 538, for a declaration of entitlement to a share of the proceeds of a completed sale of land: Bloch v Bloch [1981] HCA 56; 180 CLR 390; and for enforcing a statutory indemnity: Victorian Workcover Authority v Esso Australia Ltd [2001] HCA 53; 207 CLR 520. 38In the Workcover case the plurality said at pp 538-9 [41]-[42]: "... the phrase should be understood as a composite expression. It embraces any proceeding in which a claim for money is made, in contrast to declaratory relief and claims for specific forms of relief such as mandatory injunctions, charging orders and orders for specific performance. The circumstance that relief of that description is sought in addition to a money claim does not deny the application of [the section] in respect of that money claim ... Some of the cases in which interest might be awarded at general law and independently of statute may not answer the description of a proceeding for the recovery of debt or damages. An account of profits or order for the payment of equitable compensation may be examples. However [the section] preserves the operation of the general law in such cases ... [this] would suggest that, in a case where an order is made under [the section] equity, in its auxiliary jurisdiction, may not supplement the statute by providing for compound interest]." 39In my opinion proceedings by vendors for specific performance of a contract for the sale of land or other property are not proceedings for the recovery of money. In the absence of express contractual provisions equity would generally only order interest on the balance of purchase money if the purchaser had gone into possession prior to completion or the vendor had transferred title without receiving the balance of purchase money. The vendor could also sue for the purchase money or an instalment thereof it was payable on a fixed date independently of completion: McDonald v Dennys Lascelles Ltd [1933] HCA 25; 48 CLR 457, 475-6 per Dixon J. 40Where the vendor could sue at law for the purchase price or part thereof the proceedings would be for the recovery of money and pre-judgment interest could be awarded under s 100. In other cases where the vendor must seek specific performance the proceedings are not for the recovery of money although, if completion is enforced, the vendor will receive the purchase price in return for a conveyance or transfer to the purchaser. 41The orders for specific performance did not require performance of mutually interdependent obligations. The Victor Lahoud interests were always seeking to recover money. However their cause of action was originally for specific performance to compel a joint audit. At that stage those were the only orders that could be made. The proceedings could only became proceedings for the recovery of money after the auditor published his report. 42Until then the cause of action for the recovery of money was not complete. The promise by the Joseph Lahoud interests to repay was subject to a condition precedent in the form of an audit under the Deed, and they made no other promise to repay. 43The position in an arbitration under a Scott v Avery clause is analogous. Board of Trade v Cayzer Irvine & Co Ltd [1927] AC 610 established that in such a case time does not run for limitation purposes until the award because until then there is no cause of action. At p 616 Viscount Dunedin adopted this statement of Lord Herschell in Caledonian Insurance Co v Gilmour [1893] AC 85, 90: "The question is ... whether where the only obligation created is to pay a sum ascertained in a particular manner, or, in other words such ascertainment is made a condition precedent of the obligation to pay, the courts can enforce an obligation without reference to such ascertainment? If they could do so they would not be enforcing the contract made by the parties, but one of a different nature." 44Lord Herschell's principle is expressed in general terms, and its generality was confirmed in Panamena Europea Navigacion (Compania Limitada) v Frederick Leyland & Co Ltd [1947] AC 428 at 435-6 per Lord Thankerton. The certificate of the appellant's marine surveyor under a contract for the repair of a ship was a condition precedent to its liability to pay the repairer. The latter's action for the price would have failed without a certificate if the owner had not prevented one being given. 45In my judgment the appeal by the Joseph Lahoud interests succeeds on this point. Interest can only be awarded under s 100(1) for the period from 25 August 2010 until judgment was given by Ward J on 10 November 2010. The award of pre-judgment interest from 11 July 2007 to 24 August 2010 must therefore be set aside. 46This conclusion exposes persons in the position of the Victor Lahoud interests to loss if an agreed procedure for ascertaining a debt that requires the co-operation of both parties is repudiated or prolonged by delaying tactics. However, as Sackville AJA pointed out during argument, the remedy in such a case is an action for breach of the agreed procedure in which damages could be awarded equal to the loss of interest from the date when the procedure might otherwise have been completed until the date of its actual completion. Cross-appeal by Victor Lahoud 47The Terms of Settlement (and the Deed) provided in the events that happened (blue 2/355): "If the audit profit is less than the said profit calculation, the First Applicant will pay the Respondents one half of the difference. The reasonable costs of the audit are to be paid ... by the First Applicant in the event the audited profit is the same, or less than the said profit calculation." 48Annexure "A" (blue 2/360-1) contained columns of figures for costs and net revenue. The costs included "JLA cost $223,402.90". It was common ground that JLA referred to the Joseph Lahoud interests. 49The document concluded (blue 2/361) with a calculation of the gross profit of $692,054.34, followed by: "50% of gross profit = $346,027.17 Reimbursement = $223,402.90 $569,430.07 " 5027 pages of documents were attached which evidenced costs and receipts of the project. 51The first claim by the Victor Lahoud interests is that "the profit calculation" was not just the two-page document marked "A" on the first page, but included the other 27 pages. Ward J held (Red 63 [106]) that a careful review of the attached documents revealed apparent duplications. Allowing for duplications one could derive from those documents a profit figure of about $1.14 million. 52Mr Einfeld submitted below and again in this Court that "the said profit calculation" was, or included the figure of $1.14 million so that the amount repayable by the Joseph Lahoud interests was $570,000. 53Ward J rejected this argument. She construed the Terms of Settlement and Deed which referred to "written details of the profit calculation, which is Annexure 'A' hereto" as a reference to the two-page document and held that "the profit calculation" was the gross profit of $692,054.34 shown on the second page. 54She held that "the profit calculation" did not include the amount of $223,402.90 shown on page 1 as "JLA costs" and on page 2 as "Reimbursement". She said (Red 64 [107]): "Any calculation of profit would logically [exclude] the costs borne by either party. It cannot ... have been intended to compare an audited profit figure with something that was not on its face a calculation of profit as such." 55In my judgment Ward J. was clearly correct. The only "calculation" in Annexure "A", with or without the attached documents, was the figure of $692,054.34 on page 2. The attached documents are not a calculation and do not contain one. They contain data from which a calculation can be made. 56Annexure "A" did not refer to the capital contributions or advances made by the Victor Lahoud interests. He was in charge of the project, and those contributions and advances must have been reimbursed from the proceeds of sale. 57The reimbursement of the costs contributed by the Joseph Lahoud interests formed no part of the profit calculation. They are not liable to repay any part of the $223,402.90. 58The other contention in the cross-appeal was that "the reasonable cost of the audit" included the legal and accounting costs incurred by the Victor Lahoud interests as the successful party. Ward J. held [Red 66 [112]) that the ordinary meaning of "costs of the auditor" was the cost of paying the auditor, and there was nothing to suggest that the parties intended to include anything else. I agree. It is a matter of first impression and I have the same impression. Conclusion 59The appeal therefore succeeds in part and the cross-appeal fails. The applicable rate of interest under the Practice Direction was 8.5%, and the pre-judgment interest on the repayment of $346,027.17 for the 79 days from 24 August to 10 November 2010 inclusive is $6,365.95. 60On 7 September 2010, before the Victor Lahoud interests commenced proceedings to enforce the auditor's report, the Joseph Lahoud interests made a Calderbank offer (blue 2/701) to settle the remaining disputes for $346,027.17 (the repayment of the profit payment), $16,991 (the audit costs), and $1,566.45 (interest on those amounts from 24 August to 7 September). 61The Victor Lahoud interests will recover sums of $346,027.17 and $16,991 but only $1268.07 for pre-judgment interest for the same period. They did not better the offer. 62The effect of the offer on the costs in the Division was not the subject of argument before us. 63Ward J was inclined to hold (red 174 [80]) that the conditions attached to the offer made it not unreasonable for the Victor Lahoud interests to reject it. 64Order 3 made on 14 December 2010 [red 179] ordered the Joseph Lahoud parties to pay the costs of the Victor Lahoud parties of the applications heard in October, November and December 2010 which have been considered by this Court (the relevant proceedings) "together with ... the costs of the Victor Lahoud parties' application for a stay of the costs orders and in resisting the Joseph Lahoud parties' applications to set aside the subpoenas/notice to produce." 65We have not had to consider these other applications and the costs of those proceedings are not before us. 66Ward J has not had to consider the appropriate order for costs of the relevant proceedings in the light of the failure of the Victor Lahoud interests to better the offer of 7 September 2010. Order 3 must be set aside in so far as it related to the costs of the relevant proceedings but should otherwise be confirmed. 67In view of her tentative finding that it was not unreasonable for the Victor Lahoud interests to reject the offer, an order for indemnity costs against them may not be appropriate, but this would not foreclose an order for payment of some or all of the costs of the Joseph Lahoud parties on a party and party basis. All questions of costs relating to the relevant proceedings in the Division should be remitted to Ward J. 68The transcript of the argument in this Court indicates that some 29 out of 75 pages and thus a little over a third of the time was taken up with the unsuccessful challenges by the Joseph Lahoud interests to the validity of the audit. The balance of the transcript and the time were taken up with issues on which the Victor Lahoud interests failed. The appropriate order in these circumstances is that the Victor Lahoud interests should pay one third of the costs of the Joseph Lahoud interests of the appeal and cross-appeal. There should be no certificate under the Suitors Fund Act . 69The following orders should be made: (1) Appeal allowed in part; (2) Set aside order 1(a) of 14 and 17 December 2010 and in lieu thereof substitute judgment for pre-judgment interest in the amount of $6,365.95 with effect from 10 November 2010. (3) Set aside order 3 of 14 December 2010 in so far as it related to the costs of the relevant proceedings and remit all questions relating to those costs to Ward J. Order 3 otherwise confirmed. (4) Appeal otherwise dismissed. (5) Cross-appeal dismissed. (6) The Victor Lahoud interests are to pay one third of the Joseph Lahoud interests' costs of the appeal and cross-appeal. (7) The Jospeh Lahoud parties are to pay the costs of the fourth respondent as a submitting respondent, but such costs are not part of their costs payable by the Victor Lahoud parties under Order (6). 70SACKVILLE AJA: I agree with the orders proposed by Handley AJA and, subject to the qualification expressed by Giles JA, I agree with his Honour's reasons.

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