de Zylva v Hill - [2009] NSWCA 435

NEW SOUTH WALES COURT OF APPEAL

CITATION:
de Zylva v Hill [2009] NSWCA 435

FILE NUMBER(S):
40149/09

HEARING DATE(S):
24 November 2009

JUDGMENT DATE:
23 December 2009

PARTIES:
Christopher de ZYLVA (appellant)
Adam John HILL (respondent)

JUDGMENT OF:
Hodgson JA Basten JA Macfarlan JA

LOWER COURT JURISDICTION:
District Court

LOWER COURT FILE NUMBER(S):
DC 3001/06

LOWER COURT JUDICIAL OFFICER:
Balla DCJ

LOWER COURT DATE OF DECISION:
3 April 2009

COUNSEL:
M B OAKES SC (appellant)
D P ROBINSON SC/ E M PEDEN (respondent)

SOLICITORS:
Neil Lawson & Co (appellant)
Carneys Lawyers (respondent)

CATCHWORDS:
CONTRACT – Measure of damages for breach – No allegation of termination for fundamental breach – Contract between accountants concerning conduct of accountancy business – Breaches by one in failing to devote all his working time to the business, and in failing to endeavour in good faith to mediate disputes – Company through which business conducted wound up on just and equitable ground – Other party awarded damages extending to the loss of the value of his share in the company and the business – Whether such damages within either limb of Hadley v Baxendale (1854) 9 Ex 341
156 ER 145.

LEGISLATION CITED:

CATEGORY:
Principal judgment

CASES CITED:
Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145

TEXTS CITED:

DECISION:
(1) Appeal allowed.
(2) Order 2 below (the judgment on the cross-claim) set aside, and in lieu thereof judgment for Mr Hill against Mr de Zylva for $19,102.31, to take effect as at 3 April 2009.
(3) Mr Hill to pay Mr de Zylva’s costs of the appeal, and to have a certificate under the Suitors’ Fund Act 1951 if otherwise eligible.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40149/09
DC 3001/06
HODGSON JA
BASTEN JA
MACFARLAN JA
23 DECEMBER 2009

Christopher de ZYLVA v Adam John HILL

Judgment

HODGSON JA: This appeal is brought from a decision of Balla DCJ determining a dispute between former partners in an accounting practice. The appellant, Mr de Zylva, had brought proceedings against the respondent, Mr Hill, and Mr Hill had cross-claimed in those proceedings. There was an eleven day hearing in the District Court before the primary judge in March 2009, in which each party was self-represented. The primary judge gave her decision on 3 April 2009. On that day, the primary judge gave judgment for Mr Hill on Mr de Zylva’s claim, gave judgment for $476,492 for Mr Hill on his cross-claim, and ordered Mr de Zylva to pay Mr Hill’s costs of the proceedings. Mr de Zylva appeals from the judgment on the cross-claim.
Circumstances
I will commence with an outline of facts either not in dispute or clearly established.
Prior to 7 May 2004, Mr Hill conducted an accounting practice under the name of Hill and Co Accountants Pty Limited. Mr de Zylva conducted a financial planning business through his company Trade Wins Pty Limited, pursuant to an agreement with Avenue Capital Management Limited. By an…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading de Zylva v Hill

Details

AGLC: de Zylva v Hill [2009] NSWCA 435
Case: [2009] NSWCA 435
Decision Date: 23 December 2009

CaseChat Overview and Summary

This case concerned an appeal from a judgment concerning breaches of a contract between Mr de Zylva and Mr Hill, who were partners in an accountancy business conducted through a company. Mr de Zylva had claimed breaches of contract and misrepresentation against Mr Hill, which were dismissed by the primary judge. Mr Hill, however, had a successful cross-claim for breaches of contract by Mr de Zylva, specifically failing to devote all his working time to the business and failing to endeavour in good faith to mediate disputes. The company was subsequently wound up on just and equitable grounds.

The central legal issue before the Court of Appeal was the appropriate measure of damages for Mr Hill's successful cross-claim. Specifically, the court had to determine whether the damages awarded by the primary judge, which extended to the loss of the value of Mr Hill's share in the company and the business, were recoverable under the principles established in *Hadley v Baxendale*. The court was required to consider whether such losses were a foreseeable consequence of Mr de Zylva's breaches of contract.

The Court of Appeal allowed the appeal, finding that the damages awarded to Mr Hill were not recoverable. The court reasoned that the loss of the value of Mr Hill's share in the company and the business was too remote a consequence of Mr de Zylva's breaches. The court applied the principles of remoteness of damages as articulated in *Hadley v Baxendale*, distinguishing between direct losses and consequential losses that must be within the reasonable contemplation of the parties at the time the contract was made. The court found that the loss of the business's value was not a loss that arose naturally from the breaches, nor was it a loss that Mr de Zylva could have reasonably foreseen as a probable result of his actions.

Consequently, the Court of Appeal set aside the primary judge's order on the cross-claim and substituted a judgment for Mr Hill against Mr de Zylva for $19,102.31, to take effect as at 3 April 2009. Mr Hill was ordered to pay Mr de Zylva’s costs of the appeal.

Orders

Orders of the court

(1) Appeal allowed.

(2) Order 2 below (the judgment on the cross-claim) set aside, and in lieu thereof judgment for Mr Hill against Mr de Zylva for $19,102.31, to take effect as at 3 April 2009.

(3) Mr Hill to pay Mr de Zylva’s costs of the appeal, and to have a certificate under the Suitors’ Fund Act 1951 if otherwise eligible.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

Between May 2004 and 9 May 2005, Mr Hill and Mr de Zylva each made drawings from the Company, the amounts being $89,000 in the case of Mr Hill and $86,000 in the case of Mr de Zylva. Decision of primary judge Mr de Zylva’s claim was for breach of contract, in particular breach of clauses 5.2(c) and 5.2(d) in that he had not been placed in control of 50 per cent of the business and assets of the Company. The primary judge found neither breach made out. Mr de Zylva also made a claim for misrepresentation, which also failed. Mr Hill’s claim was for breaches of contract and breaches of the Corporations Act 2001 (Cth). The primary judge was not persuaded that there was a cause of action under the Corporations Act. Mr Hill’s contract claim was pleaded as follows: 4)Pursuant to clause 20 of the written agreement at completion the cross defendant must devote all of his working time and attention to the affairs of the business. 5)In breach of the said term, the cross defendant did not devote all his working time and attention to the affairs of the business thereby causing the cross claimant loss and damage. 6)Pursuant to clause 23.1 of the written agreement at completion the cross defendant must agree to endeavour in good faith to settle a dispute by mediation administered by the Australian Commercial Disputes Centre (ACDC) before having recourse to arbitration or litigation. 7)In breach of the said term the cross defendant did not agree to mediation thereby causing the cross claimant loss and damage. His claim for damages was pleaded as follows: 12)As a result of the breaches, the cross claimant has suffered the following loss and damage. Particularsa)The sum of $90,000 representing loss of earnings b)The sum of $35,000 paid to the Liquidators to re-purchase the Tax Practice c)The sum of $20,000 paid to suppliers for miscellaneous costs resulting from re-purchasing the Tax Practice d)Loss of income due to forced Liquidation e)Damages for loss of commercial opportunity f)Loss relating to devaluation of Tax Practice g)Legal Costs for 2 separate legal proceedings h)Interest at the prescribed rates from 7 May 2004 In her judgment, the primary judge made adverse credit findings against Mr de Zylva; and she accepted Mr Hill’s evidence over that of Mr de Zylva where there was a conflict. The primary judge made the following specific findings relating to breaches by Mr de Zylva: I am satisfied that that from 5 April 2004 to 9 May 2005 Mr de Zylva: 1.was frequently absent from work. Some of the absences were explained (a visit to his parents in New Zealand for two weeks within 10 weeks of starting work, some time giving evidence in unrelated Supreme Court proceedings in July 2004 and for his daughter’s wedding in January 2005) and others were not. There were also days on which he would only come to work for short periods; 2.spent a substantial proportion of the time when he was at the office seeing and working on the files of financial planning clients. He did not send bills from Hill de Zylva Pty Ltd to those clients. He received his remuneration by commissions paid by Avenue to his company Trade Wins. He only passed on $907.50 to Hill de Zylva Pty Ltd. 3.deliberately withheld from Mr Hill information on his financial planning work after Mr Hill noticed that Mr de Zylva’s billings were significantly short of the work shown in his time sheets. 4.deliberately avoided engaging with Mr Hill’s concerns to be able to receive equal drawings from the business for as long as possible. This included failing to respond to Mr Hill’s attempts to refer the dispute to mediation in compliance with clause 23 of their agreement. ……7.2.1 Clause 20 The evidence establishes that Mr de Zylva engaged in a business operation similar to or otherwise competitive with Hill de Zylva. Hill de Zylva offered clients financial planning advise. Indeed the newsletter article sent to clients written by Mr de Zylva refers to the practice offering expert financial planning services as a consequence of the merger with Mr de Zylva. At the same time Mr de Zylva was conducting a separate financial planning business from the Hill de Zylva office during working hours. That business was both similar and competitive with Hill de Zylva in breach of clause 20. 7.2.2 Clause 23 I have found that Mr de Zylva deliberately failed to respond to Mr Hill’s attempts to refer the dispute to mediation in compliance with clause 23 of their agreement. Mr de Zylva accordingly breached clause 23 of their agreement.

Ratio Decidendi

Legal Principle Established

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