Hexiva Pty Ltd v Lederer - [2006] NSWSC 1129

CITATION: Hexiva Pty Ltd v Lederer [2006] NSWSC 1129

HEARING DATE(S): 25, 28, 29 September 2006, 3, 4 October 2006

JUDGMENT DATE :
30 October 2006

JURISDICTION: Equity Division

JUDGMENT OF: Brereton J

DECISION: Declare that D2 failed to use best endeavours to pay debt as required by agreement. Order inquiry as to damages. Judgment for amount certified upon inquiry. Declare that GSP indebted to the LFP for $1,344,737, but not for interest in respect of any part of that sum. Declare that upon making of appropriate journal entries in books of LFP and GSP recording reimbursement to LFP of sum of $800,000 and reduction of indebtedness of GSP to LFP by $800,000, D2 is entitled to $200,000 contributed by P1. Amended First Cross-claim otherwise dismissed.

CATCHWORDS: CONTRACT – obligation to use “best endeavours” to pay debt – construction - whether breached – waiver – Damages – interest as damages - mitigation of damages – whether duty to mitigate applicable to claim for liquidated sum under contract – PARTNERSHIP - whether interest chargeable on inter-partnership loan account

LEGISLATION CITED: (NSW) Uniform Civil Procedure Rules, r 28.2

CASES CITED: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Banning v Wright (Inspector of Taxes) [1972] 1 WLR 972
Bennett v Jones [1977] 2 NSWLR 355
Commonwealth of Australia v Verwayen (1990) 170 CLR 394
Cook v Fowler (1874) LR 7 QB 27
Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305
Du Maurier v Wechsler [2001] NSWSC 4
Fowler v Midland Electric Corporation for Power Distribution Ltd [1917] 1 Ch 656
Francis May Pty Ltd v Tikitere Pty Ltd (NSWSC, Miles J, 2 April 1982, unreported)
General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1975] 1 WLR 819
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641
Hexiva Pty Ltd v Lederer [2006] NSWSC 318
Hospital Products Limited v United States Surgical Corporation (1985) 156 CLR 41
Hungerfords v Walker (1989) 171 CLR 125
Kadian v Richards (2004) 61 NSWLR 222
Serisier Investments Pty Limited v English [1989] 1 QdR 678
Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451
Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234
Transfield Pty Ltd v Arlo Engineering Ltd (1980) 144 CLR 83
Wechsler v Du Maurier [2002] NSWCA 13
White & Carter (Councils) Ltd v McGregor [1962] AC 413

PARTIES: Hexiva Pty Ltd (P1)
Robert Wechsler (P2)
Katie Wechsler (P3)
Hexiva Pty Ltd as Trustee Katie Wechsler Family Trust (P4)
Paul Lederer, Richard Slazenger & Douglas Hamiltom as Executors & Trustees of the late Andrew Lederer (D1)
Michael Du Maurier (D2)

FILE NUMBER(S): SC 2626/2000

COUNSEL: Mr Sahade (Ps)
Ms Sharp (D1)
Mr Hallen SC w Mr Hodgson (D2)

SOLICITORS: Oliveri Legal P/L (Ps)
Landerer & Co (D1)
PWCoopers (D2)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Monday 30 October 2006

2626/00 Hexiva Pty Limited & Ors v Lederer & Ors

JUDGMENT

1 HIS HONOUR: The late Andrew Lederer, whose executors are the first defendants, and the late Gisela Fiala, whose executor Michel Du Maurier is the second defendant, carried on in partnership a property investment business, called the Lederer-Fiala Partnership, in which each had an equal 50% entitlement. Mr Lederer, as to 50 per cent, and Mrs Fiala, as to 25 per cent, were also partners with a third partner - either one or more of the first plaintiff Hexiva Pty Limited, the second plaintiff Dr Robert Wechsler, and the third plaintiff his wife Mrs Katie Wechsler - in another partnership, known as the George Street Partnership, the principal asset of which has always been a commercial building, 822 George Street Sydney, acquired in about May 1983. There was no written partnership agreement in respect of either partnership.

2 These proceedings relate to the accounts between the two partnerships. As the Lederer Estate has a 50% interest in both, its position is financially neutral, and ultimately – as a result of the abandonment by the Plaintiffs of their claims against it at the outset of the hearing – it has played no part in the hearing. In the events that have happened, it is between the Fiala Estate (which has a 50% interest in the Lederer-Fiala Partnership, but only a 25% interest in the George Street Partnership) and the so-called third partner (which has a 25% interest only in the George Street Partnership) that the matter has been litigated.

3 The dispute arises out of the circumstance that, until the year ended 30 June 1993, profits of the George Street Partnership were not fully distributed to the partners; instead, its undistributed profits were advanced on loan account to the Lederer-Fiala Partnership, in which they funded drawings by the partners of that partnership, in excess of its own distributable profits. By 30 June 1993, the funds so advanced exceeded $3 million. In these proceedings, the Plaintiffs originally claimed equitable compensation or an account of profits from Mr Lederer (and after his death, the Lederer Estate) and the Fiala Estate, on the basis that, by causing the undistributed profits of the George Street Partnership to be advanced to the Lederer-Fiala Partnership, on terms which favoured the borrower to the detriment of the lender, Mr Lederer and Mrs Fiala had preferred their own interests to those of the Plaintiffs, in breach of their fiduciary obligations as partners in the George Street Partnership. The Plaintiffs’ one-quarter share of what they called these “unauthorised loans” amounted to $629,150.

4 The Defendants said that those loans were made with the fully informed consent of the Plaintiffs, and further, that at a meeting on 8 December 1994, an agreement was reached to the effect that, Mr Lederer's position as a 50 per cent partner in each of the partnerships being financially neutral, Mrs Fiala would repay to the Plaintiffs $529,150, and the Plaintiffs would forgive $100,000. Originally, the Plaintiffs denied that there was any such agreement, and in the alternative alleged that in breach of it, Mrs Fiala had not repaid the sum of $529,150 according to her best endeavours. However, at the commencement of the hearing, on Monday, 25 September 2006, it was announced that the Plaintiffs, who had but recently obtained legal advice, and would press only a much narrower and limited case against the Fiala Estate than had been pleaded. Accordingly, the Plaintiffs’ proceedings as against the Lederer Estate were dismissed. As against the Fiala Estate, the only claim that the Plaintiffs now press is for damages for breach of the December 1994 agreement (which agreement they now admit); in substance, this is a claim for damages, in the nature of interest, for late payment of the sum of $529,150 referred to in that agreement.

5 The Plaintiffs’ claims, as originally pleaded, resulted in cross-claims between the Defendants. In the events that have happened, to the extent that those cross-claims seek indemnity or contribution between the Defendants, they will be dismissed. However, there remains for determination a cross-claim brought by the Fiala Estate against Hexiva, Dr and Mrs Wechsler - to which the Lederer Estate is also a cross-defendant, albeit a passive one – for declarations as to the state of the accounts between the partnerships: the Fiala Estate asserts that the books should show that the George Street Partnership is liable to reimburse the Lederer-Fiala Partnership for payments of principal and interest made by the Lederer-Fiala Partnership in respect of a loan obtained by it from external financiers – originally, AMP – for the acquisition of the George Street property, and interest thereon; the Plaintiffs (and the Lederer Estate) concede that the George Street Partnership is liable to reimburse the Lederer-Fiala Partnership for the principal and interest so paid by it, but dispute that the Lederer-Fiala Partnership is also entitled to interest on those payments.

6 In the course of pre-trial case management, when the issues were far more extensive than they now are, it was ordered, pursuant to Uniform Civil Procedure Rules, r 28.2, that any question of the quantum of any compensation or damages which might be payable by the defendants, or either of them, to the Plaintiffs, be determined separately and after the trial of the proceedings on liability [Hexiva Pty Ltd v Lederer [2006] NSWSC 318]. Although one of the principal reasons for severing the quantification of compensation – namely the need for the Plaintiffs, if successful, to make an informed election between damages and an account of profits – is no longer applicable, the hearing remains limited to issues of liability, and it is contemplated that if the Plaintiffs’ claim and/or the cross-claim succeeds on liability, then the parties will then be afforded an opportunity to have their accountants confer as to the financial consequences, which should largely if not exclusively be a matter of mathematics, and should result, if not in agreement, at least in the definition and reduction of the issues of quantum requiring determination.

Dramatis personae

7 Mrs Fiala was married to Joseph Fiala, who pre-deceased her on 23 November 1983. They had two children, Marika (also known as Mary du Maurier) who was born in 1938, and Katie (the Third Plaintiff), who was born on 17 February 1947. Mrs Fiala had died before these proceedings were instituted; Michel du Maurier (the Second Defendant) is, as well as Mrs Fiala’s executor, Mary’s husband, and therefore Mrs Fiala’s son-in-law. Mr Winter was Mr and Mrs Fiala’s long-standing solicitor; and Carol Holley, originally of Perl Holley & Co and subsequently of Hill Rogers Perl Holley, was their accountant.

8 Dr Wechsler (the Second Plaintiff) is Katie’s husband; he too is therefore a son-in-law of Mrs Fiala. Hexiva Pty Limited (the First Plaintiff) is a company in which Dr and Mrs Wechsler are the shareholders, and Dr Wechsler is now the sole director.

9 Mr Lederer had been married to Agnes Lederer, who predeceased him in or about January 2000. He died on 20 April 2004, after these proceedings were instituted; as a result, his executors were substituted as First Defendant. They are also parties to the Fiala Estate’s cross-claim, although to all intents and purposes, as against them the cross-claim is uncontroversial. Mr Agoston, of Agoston Douglas & Partners, was Mr Lederer’s accountant.

The Partnerships

10 Mr Lederer and Mr Fiala had been friends, and business partners, for many years. Mr Lederer (as joint tenant with his wife until her death in January 2000), owned one-half of several properties as tenants-in-common with Mrs Fiala (as joint tenant with her husband until his death). The outgoings were shared, and the profits were distributed, 50% to the Lederer family and 50% to the Fiala family. This was the “Lederer-Fiala Partnership”.

11 In about May 1983, a 7 storey commercial building, 822 George Street Sydney, was acquired, initially in the names of the partners of the Lederer-Fiala Partnership. In order to fund its acquisition, the Lederer-Fiala Partnership borrowed, on the security of its property at Miranda, from AMP, some $800,000 (“the AMP Loan”), which was applied towards payment of the purchase price of the George Street property; an issue as to whether the whole was applied for the ultimate benefit of the George Street Partnership was not pursued.

12 Prior to his death, Mr Fiala, in the presence of Mrs Fiala, instructed his solicitor, Mr Winter, to effect the transfer of a one-quarter share in the George Street property to Hexiva. In these proceedings, it is common ground that Dr and Mrs Wechsler, or Hexiva, paid for a twenty-five percent share in the George Street property, or undertook some liability in respect of the mortgage loan arranged to fund the purchase, but that Mr Fiala originally had some reason for not taking the purchase in their names [as was found by the Court in the contested Probate proceedings over Mrs Fiala’s will: Du Maurier v Wechsler [2001] NSWSC 4, [9]; and is accepted by the Fiala Estate for the purposes of these proceedings].

13 Mr Fiala died before this instruction was implemented. On his death, in about November 1983, Mrs Fiala succeeded - presumably by survivorship - to her husband's interest in the George Street property; and after his death, in accordance with the wishes he had expressed, Mrs Fiala transferred a one quarter share – half of her half share - to Hexiva, by transfer dated 5 May 1986, which was subsequently registered. Thereafter, the registered proprietors of the George Street property were Mr and Mrs Lederer as joint tenants as to 50%, Mrs Fiala as to 25%, and Hexiva as to 25%, all as tenants in common. This was the “George Street Partnership”.

14 There has been some controversy as to the precise identity of the so-called third partner, although it is clear that it was either one, or more, of the Plaintiffs. However, it was to Hexiva that the one-quarter interest in the George Street Property was transferred, and it was Hexiva that became a registered proprietor. The Wechslers were the natural persons beneficially interested, as shareholders, in Hexiva, but it was Hexiva, as one of the registered proprietors, that was legally entitled to the rents and profits. Ultimately, no party seriously submitted to the contrary of the view that Hexiva was the third partner, and that best fits both what happened in 1983, when a share in the property was transferred to Hexiva, and the manner in which the parties have conducted their affairs since: generally speaking, they have acted as if Hexiva were the third partner. While on occasion some of the parties have acted as if Dr and Mrs Wechsler were the third partner, but in my view that has been either a result of lay persons looking through the corporate veil, or (at least at one stage) an attempt (misconceived by understandable) on the part of Mrs Fiala to equate gifts to Mrs Wechsler with distributions to Hexiva. In my judgment, therefore, Hexiva was the third partner. Whether it held upon trust for Dr and Mrs Wechsler does not appear presently relevant.

The road to the December 1994 agreement

15 The accounting records of the George Street Partnership first record an advance on “current loan account” to the Lederer-Fiala Partnership in the year ended 1986. At first, the amounts advanced were relatively small: $18,000 in 1986, and $37,000 in 1987.

16 On 19 November 1986, the partners of the Lederer-Fiala Partnership and the partners of the George Street Partnership executed an agreement on certain matters pertaining to the loan accounts of each individual partner against the two partnerships. I do not accept that this agreement related to the inter-partnership loan account, as distinct from the individual partners’ accounts.

17 However, by 1 July 1987, the balance of the inter-partnership loan account had increased to $336,548, with the George Street Partnership as net creditor, and by letter dated 1 March 1988, from Perl Holley to Mr Lederer, a request was made “on behalf of Mrs Fiala and Mr and Mrs Wechsler … that for the 1988 financial year and onwards, the partnership of Lederer and Fiala pay interest on that loan account at the same rate as is being paid to the AMP”, in order to achieve “a more equitable situation within the Fiala – Wechsler family”. Apparently as a result of this request, interest was charged, on the average yearly balance of the inter-partnership loan account during the year ended 30 June 1988, at the rate of 14.25% pa. As the George Street Partnership was the net creditor, the result was a charge for interest in its favour against the Lederer-Fiala Partnership. Also in 1988, in order to compensate Hexiva for the fact that no interest had been charged on the loan balance for the years 1986 and 1987, an amount of $15,836.50, representing 25% of notional interest of $63,346, was transferred from Mrs Fiala’s capital account to the capital account of Hexiva.

18 Thereafter, interest was charged at 14.25% pa on the average yearly balance of the inter-partnership loan account, each year until 30 June 1992. In the financial year ended 30 June 1993, interest was charged on the average yearly loan account balance at the rate of 12.25%.

19 As at 30 June 1993, the balance of the inter-partnership loan account, including interest calculated as set out above, had grown, as a result of advances made by the Lederer-Fiala Partnership, to $3,043,886.54. As Mrs Fiala was responsible for 50% of the Lederer-Fiala Partnership debt due to the George Street Partnership, namely $1,521,943.27, but was entitled to only 25% in the George Street Partnership, the practical result was that she had received the benefit of advances of $760,971.63, to which Hexiva was entitled. From about March 1994, the Plaintiffs began to agitate this issue, and from April 1994, they sought to have Mrs Fiala pay them this amount - although, at least initially, they made clear that they did not want to cause Mrs Fiala hardship. Thus, in a facsimile letter to the solicitor Mr Winter dated 2 May 1994, Dr Wechsler, in the course of explaining his position, wrote “Please understand, there is no pressure to settle this account, as I have told [Mrs Fiala], ad nauseam”. And by letter dated 13 May 1994, Mr Winter conveyed to Mrs Fiala “Mr Wechsler has indicated to me that Hexiva fully understands your position and will co-operate”. In another letter to Mr Winter, dated 18 May 1994, Dr Wechsler emphasised “We do not want to place [Mrs Fiala] under any financial constraint. Whatever settlement is proposed she should have first call on available funds”.

20 As at 30 June 1994, the balance of the inter-partnership loan account, inclusive of interest charges as described above, was $3,516,603.32, with the practical consequence that Mrs Fiala had received the benefit of $879,150 to which Hexiva was entitled. [No interest was charged on the average yearly loan account balance for the financial year ended 30 June 1994, in circumstances described later]. In the meantime, Mrs Fiala paid Hexiva $250,000, which was deposited by Dr Wechsler on or about 20 June 1994; this reduced the amount she was said to have overdrawn out of the undistributed profits of the George Street Partnership, as at 30 June 1994, to $629,150.

21 Meanwhile, in the five years up to June 1995, Mrs Fiala had gifted to Mrs Wechsler more than $1 million. She had made exactly equivalent gifts to Mary du Maurier. These gifts were funded, at least to a substantial extent, by the moneys received by Mrs Fiala from the Lederer-Fiala Partnership, and in turn from the advances made to it by the George Street Partnership. Although they were gifts to Mrs Wechsler, their proceeds formed part of the pooled assets of Dr and Mrs Wechsler, and thus benefited both. As the Court of Appeal observed in the Probate proceedings (Wechsler v Du Maurier [2002] NSWCA 13, [4]):

4 The deceased was extremely generous to her daughters. Between 1987 and 1994 she gave each of them equal gifts amounting to in excess of $1 million, that is, a total of over $2 million. The last equal gift was made on 1 November 1994. Unfortunately, it was this handsome generosity which caused the problem. Until around May 1994, the deceased clearly believed that the moneys in two partnerships, upon which she drew to make the gifts, was hers to distribute. What she was not told, in clear terms, until that time, was that her generous gifts to the daughters were accumulating a large debt to the partnerships. In particular, a large debt to her daughter Katie and to her husband, Dr Wechsler was accumulating.

The December 1994 Meeting

22 On 8 December 1994, in an endeavour to resolve the dispute between Mrs Fiala and the Plaintiffs over the inter-partnership loan account, a meeting was convened at the office of Mr Winter, solicitor, who acted as an intermediary. Present were Mr Winter, Mr Lederer, his in-house accountant Otto Slazenger, Dr Wechsler, Mrs Fiala and Mary Du Maurier. Mrs Wechsler did not participate.

23 In a Memorandum dated 8 December 1994, Mr Winter recorded that he “was requested to prepare the Minutes of the meeting which, subject to approval by those present, shall be signed and thereby the problem resolved”. Although there was some subsequent disputation over the precise contents of the minutes, on 19 January 1995 Mrs Wechsler told Mr Winter on the telephone that Dr Wechsler had signed the Minutes. Subsequently, on or about 20 January 1995, the Minutes, signed by Dr Wechsler on behalf of Hexiva, were returned, by hand, to Mr Winter. A copy of the Minutes signed by all relevant parties –relevantly, Mrs Fiala, Dr and Mrs Wechsler, and Mr Lederer - was sent to Dr Wechsler with a letter dated 8 March 1995. In their final form, the Minutes recorded the events of the 8 December meeting relevantly as follows:-

7. Krochmalik & Hurwitz Pty Limited Chartered Accountants acting for Hexiva Pty Limited stated that the amount of $629,150 ought to have been paid by Mrs Gizela Fiala to Hexiva Pty Limited. The correctness of this amount has not been conceded by Mrs Gizela Fiala.

8. Dr Robert Wechsler on behalf of Hexiva Pty Limited declared that the above sum of $629,150 may be reduced by the sum of $100,000 he promised to give credit for interest Hexiva Pty Limited may have received, making the sum owing $529,150, and that Hexiva Pty Limited will accept the sum of $529,150 in full payment of any moneys owing to it as at 30 June 1994.

9. Mrs Gizela Fiala agreed to use her best endeavours to pay the sum of $529,150, free of interest, to Hexiva Pty Limited in full settlement of any claim Hexiva Pty Limited may have. She would do so in such instalments as she may afford by using her share in the profits of the Lederer/Fiala partnership and the 822 George Street Partnership as and when she may receive same, remaining after payment of her taxes and keeping about $50,000 per year for her own purposes.

10. Dr Robert Wechsler on behalf of Hexiva Pty Limited declared that he accepts the offer of Mrs Gisela Fiala contained in clause 9 of these Minutes in full settlement of any claim Hexiva Pty Limited may have.

11. The partners of the 822 George Street Partnership agreed that from 1 July 1994 the partnership shall ensure that each of the partners will receive his, her or its share in the partnership profits directly.

24 It is now common ground that these Minutes record an agreement between the parties, reached as a result of the December 1994 meeting. No party now suggests that the agreement was uncertain or incomplete, or otherwise void, voidable or unenforceable.

25 Although there was a submission, on behalf of the Fiala Estate, that the agreement was not made at the meeting, but later when the Minutes were executed, and notwithstanding that there may have been some outstanding issues at the end of the meeting, the terms of the Minutes to which all parties assented record an agreement said to have been made at the meeting, and in my judgment the agreement should be regarded as having been made at the meeting, consistently with how the parties documented it in the Minutes. The Minutes are powerful evidence that the common intention of the parties was that there should be a written record of an agreement made orally at that meeting, as distinct from a later written agreement.

After the Agreement

26 On 1 September 1995, Dr Wechsler wrote to Mrs Fiala, stating:

Apart from the amount of $529,150.00 contained in the correspondence of Winter, which is payable to Hexiva Pty Limited, there is no money owing to Aquapore, the Wechslers, or any other company that I am connected with. I trust this letter meets with your requirements and the matter is now closed.

27 No payment on account of the $529,150 had been made by the end of 1995. Dr Wechsler cannot now recall with certainty his then state of mind, but while conceding that it is possible that he believed that something should by then have been paid, says that he was not sure of Mrs Fiala’s then financial position, so as to know whether she could have afforded a payment.

28 On 30 January 1996, Mrs Fiala wrote to Mr Lederer, with a copy to Mr Agoston, informing him that she would be away from 17 March for one month, and reminding him “at no time now or in the future my affairs should be discussed with Mr or Mrs Wechsler. Should there be any need to contact me, please call my daughter Mrs M. du Maurier who has power of attorney or Mr M. du Maurier or my accountant Mrs C. Holley”.

29 On or about 12 February 1996, the Lederer-Fiala Partnership forwarded to Ms Holley a cheque in favour of Mrs Fiala for $20,000 by way of distribution; it was on-forwarded to Mrs Fiala in March, and apparently endorsed by her to Mrs du Maurier. On or about 19 August 1996, Mrs Fiala received a further $20,000 from the Lederer-Fiala Partnership, which she again endorsed to Mr du Maurier.

30 By the end of 1996, still no payment had been made to Hexiva on account of the $529,150. Dr Wechsler explained that by that time he was surprised that no payment had been made, but that there were reasons, promoted by his wife, relating to salvaging or preserving some element of family harmony, for not demanding payment from Mrs Fiala at that time. Mrs Wechsler insisted that the issue not be raised at that time, and Dr Wechsler acceded to that position.

31 On 7 March 1997, Mr Winter sent a letter to Mrs Fiala, following a discussion that had taken place between them and Mrs du Maurier on 4 March. After summarising the substance of the December 1994 agreement, he wrote:-

You told me that you made no payment to date of this amount, basically because you have not been asked to make any payment. You have the means to make the payment if required, but prefer not to do so, and leave the debt to be paid out of your estate.
I do not believe it is wise not to make payments. The fact that Hexiva has not asked for payment is irrelevant. The agreement provided for you to use best endeavours and you have not done so. A possible response from Hexiva may be to withdraw the $100,000 “credit” earlier referred to and also to insist on payment of interest. It seems to me Hexiva would be justified in re-opening the whole issue if payments are ignored.

32 On 1 April 1997, Carol Holley forwarded, to Hexiva, Mrs Fiala’s cheque for $29,150. On 25 June 1997, Dr Wechsler wrote to Mrs Fiala, acknowledging receipt of the cheque, mentioning “At various times over the last three years you have promised me to use your best endeavours to repay Hexiva as quickly as possible” and “There is some concern about the speed with which the debt is being reduced as the debt is long standing and is of a sizeable amount”, and concluding:

With regard to your undertaking to pay the debt, I note that you informed me in December 1995 that you would pay me as soon as you received money. I can only assume that you have not received any money until recently.

I understand that you have had financial difficulties and that you are anxious to have the debt cleared.
Could you please inform me when we might receive a further payment.

33 Mrs Fiala appears to have forwarded a copy of this letter to Mr Hamilton, the solicitor who was at this time acting for her, with instructions that the assertion of promises at various times over the last three years to repay as quickly as possible, and in December 1995 to pay as soon as she received money, were untrue. Carol Holley responded to Dr Wechsler, by letter dated 14 July 1997, that neither Mrs Fiala, nor Hill Rogers, knew what Mrs her income for 1997 was likely to be, but that Mrs Fiala had asked them to indicate that she hoped to be in a position to repay $50,000 no later than the end of April 1998, subject to the income and distributions from the various properties allowing her to do so, and that should the funds become available earlier, she would make a repayment.

34 On or about 17 November 1997, Mrs Fiala received a cheque for $90,000 from the Lederer-Fiala Partnership, which she endorsed to Mrs du Maurier. On 21 November 1997, Mrs du Maurier forwarded to Hill Rogers, for sending on to Hexiva, a cheque from Mrs Fiala for $25,000. In a letter to Hill Rogers dated 18 December 1997, Dr Wechsler acknowledged receipt of the $25,000 and continued: “At various times Mrs Fiala has undertaken to use her best endeavours to reduce the loan as quickly as possible. Could you please advise me how this cheque relates to that undertaking”.

35 Mrs Fiala died on 3 December 1997.

After Mrs Fiala’s death

36 On or about 19 May 1998, Mr du Maurier filed a Summons for Special Letters of Administration pendente lite in respect of Mrs Fiala’s estate. On 22 May 1998, Mr du Maurier filed a Statement of Claim for Probate, in solemn form, of her will made on 17 October 1995, and codicil made on 19 November 1997, joining Mrs Wechsler as Defendant; under those testamentary instruments Mrs du Maurier would take 60% and Mrs Wechsler 40% of the residuary estate. Mrs Wechsler filed a Defence and cross-claim, which put in issue Mrs Fiala’s testamentary capacity, and propounded an earlier will, under which Mrs du Maurier and Mrs Wechsler would each have taken 50% of the residuary estate.

37 On 12 June 1998, Brian Raymond Silvia was appointed as Administrator pendente lite, with powers set out in special Letters of Administration granted on that date by this Court. Those powers did not extend to paying the outstanding liability of Mrs Fiala to Hexiva under the December 1994 agreement.

38 By letter dated 8 June 1999 to Mr du Maurier, Dr Wechsler asserted “Hexiva proposes to commence proceedings in the Supreme Court of New South Wales in relation to matters pertaining to the George Street Partnership”. The letter did not disclose the nature of the proceedings that Hexiva was then contemplating and/or the relief to be sought, and stated no claim for any amount, nor for interest on any amount, said to be owed by Mrs Fiala. The evident purpose of the letter was to seek agreement to the appointment of an administrator ad litem.

39 Hexiva ultimately commenced the present proceedings by Statement of Claim filed on 27 May 2000, but did not at that stage serve the Fiala Estate. Windeyer J gave judgment in the Probate proceedings on 12 January 2001 (see [2001] NSWSC 4), pursuant to which the Court granted Probate to Mr du Maurier on 30 January 2001. [Mrs Wechsler appealed, unsuccessfully, to the Court of Appeal, which dismissed the appeal on 13 February 2002 (see [2002] NSWCA 13)]. The Statement of Claim in these proceedings was ultimately served on the Fiala Estate in late January 2001. I do not accept the faint suggestion on the part of Dr Wechsler that a copy might have been provided to Mr du Maurier at an earlier point. On 17 May 2001, the Fiala estate forwarded a cheque for $475,000 to Hexiva’s then solicitors, said to be the balance of the debt due under the December 1994 agreement; on 9 July 2001, those solicitors acknowledged receipt of the cheque “in part satisfaction of the claims set out in the Statement of Claim”. After requests for particulars and responses thereto, Hexiva filed an Amended Statement of Claim on 25 July 2001.

Hexiva’s claim against the Fiala Estate

40 The only claim that the Plaintiffs now press is against the Fiala Estate, for breach of the December 1994 agreement. After the December 1994 meeting, Mrs Fiala, and after her death her estate, made payments to Hexiva amounting in total to $529,150. Each of those payments was made “off the books”, in the sense that they were not recorded in the accounts of the Lederer-Fiala Partnership and/or the George Street Partnership. The Fiala Estate contends that those payments were made pursuant to the December 1994 agreement, and that the promise made by Mrs Fiala has been fully performed. The Plaintiffs agree that the payments were made pursuant to the December 1994 agreement, but contend that they were unduly delayed. The Plaintiffs allege that Mrs Fiala breached the December 1994 agreement, by failing to use her best endeavours to make repayments, as the agreement required. The Plaintiffs’ case is that Mrs Fiala could afford, from distributions from the Lederer-Fiala Partnership and the George Street Partnership, after retaining about $50,000 per annum and paying her taxation liabilities, to repay the debt substantially more rapidly than she did, and that she failed to use her best endeavours so to do.

41 In substance, this involves a claim for damages for late payment of such instalments of the debt of $529,150 as Mrs Fiala, using best endeavours, could have paid; such damages are in the nature of interest, from the date on which she could have paid the instalments. Where there is a wrongfully caused loss of use of money (which includes such a loss caused by tort or by breach of contract), damages assessed wholly or partly by reference to the interest which would have been earned or saved had the money been available to the payee are recoverable [Hungerfords v Walker (1989) 171 CLR 125, 143-4 (Mason CJ and Wilson J), 152 (Brennan and Deane JJ)]. The liability for damages in the nature of interest for late payment of a debt is independent of any contractual obligation to pay interest [Cook v Fowler (1874) LR 7 QB 27].

42 The Fiala Estate contends:-

· That upon the proper construction of the December 1994 agreement, no breach is established; alternatively

· That any entitlement to or claim for interest has been waived by Hexiva; and alternatively

· That Hexiva has failed to mitigate its damages.

43 Construction. By clauses 8, 9 and 10 of the Minutes of the December 1994 meeting, the parties agreed that Hexiva would accept $529,150, in full settlement of any claim Hexiva might have, Hexiva forgiving $100,000 “interest”, and that Mrs Fiala would

… use her best endeavours to pay the sum of $529,150, free of interest, to Hexiva Pty Limited in full settlement of any claim Hexiva Pty Limited may have. She would do so in such instalments as she may afford by using her share in the profits of the Lederer/Fiala partnership and the 822 George Street Partnership as and when she may receive same, remaining after payment of her taxes and keeping about $50,000 per year for her own purposes.

44 In construing these provisions, one must consider the whole instrument, and if possible construe the words of every clause harmoniously with each other [Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109].

45 While an obligation to use “best endeavours” does not require the person who undertakes it to go beyond the bounds of reason, he or she is required to do all that can reasonably be done in the circumstances to achieve the contractual object (but no more) [Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451, 452; Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234, 237; Transfield Pty Ltd v Arlo Engineering Ltd (1980) 144 CLR 83, 101 (Mason J), 107 (Wilson J); Hospital Products Limited v United States Surgical Corporation (1985) 156 CLR 41, 64 (Gibbs CJ)]. As Mason J (as he then was) said in Transfield (at 101), such an obligation describes a standard of endeavour that is measured by what is reasonable in the circumstances. The content of a “best endeavours” clause is influenced by its contractual and factual contexts [Hospital Products, 64].

46 Relevant context for the construction of the clause in question here is provided by the following circumstances:-

· The parties intended their agreement to settle and compromise the outstanding dispute, and cannot have intended that payment be discretionary.

· The December 1994 agreement did not fix any time for payment, other than by reference to receipt by Mrs Fiala of distributions of profit from the partnerships.

· The “best endeavours” clause was not left unexplained; clause 9 proceeded to describe what “best endeavours” required, namely to pay the debt “in such instalments as she may afford by using her share in the profits of the [two partnerships] as and when she may receive same, remaining after payment of her taxes and keeping about $50,000 per year for her own purposes.

· The matrix of facts known to the parties included that there was an existing practice of distributing to Mrs Fiala $4,000 per month, which Mrs Fiala apparently used for her living expenses (approximately equivalent to the $50,000 per year which the agreement provided she could retain for her own purposes); and that payments of her income tax were also made from her profit share from the partnerships on her account; these tax payments can be identified in the accounts as drawings of amounts in other than round figures.

47 Mr Hallen SC, who with Mr C.F. Hodgson appeared for the Fiala Estate, submitted that – in the context that, to the knowledge of all parties, Mrs Fiala had additional commitments, other than in respect of living expenses, taxation and the partnerships, and was in the habit of making generous gifts to both her daughters that would in the future continue (at least to Mrs du Maurier) – the proper construction of clause 9 is that Mrs Fiala was obliged to use her best endeavours to repay the debt, from her share in the profits of the partnerships as and when she received them, but allowing her the opportunity to do so in such instalments as she could afford, bearing in mind her other financial obligations then in contemplation of the parties, including gifts to her daughters or either of them, and other commitments that were unrelated to the two partnerships, to her tax and/or to living expenses.

48 Such a construction – effectively inserting the words italicised on the preceding paragraph – involves reading into clause 9 words which give it practically opposite effect to those which it in fact contains: whereas the words of the clause provide for payments “in such instalments as she may afford by using her share in the profits of the [two partnerships] as and when she may receive same, remaining after payment of her taxes and keeping about $50,000 per year for her own purposes”, the suggested construction would include in the “affordability equation” other outgoings not referred to in the clause, including voluntary payments to Mrs du Maurier. Yet it was contended that the availability to Mrs Fiala of income or assets from sources other than the profits of the two partnerships was irrelevant to the “affordability equation”, because her share in those profits was the only source identified in clause 9. If that were the intended effect of clause 9, then there was no reason to limit, to tax and $50,000 per year, what Mrs Fiala could retain for her own purposes; and nothing was achieved by doing so: such a construction would effectively render Mrs Fiala’s obligation to pay discretionary, by postponing it to voluntary payments to Mrs du Maurier and such other expenses as she might choose to prefer. By excluding additional resources from, yet including additional commitments in, the affordability equation, and permitting voluntary payments to Mrs du Maurier in priority to payment of the debt, it would operate so unfairly against the Plaintiffs’ interests that it is not reasonable to regard the parties as having intended it.

49 In my judgment, clause 9 obliged Mrs Fiala to pay the debt, free of interest, by instalments constituted by what was left available to her from each distribution to her of her share in the profits of the two partnerships, as and when she received such distribution, after provision for payment of her taxes and about $50,000 per year for her own purposes. The strongest argument against this construction is that it converts a “best endeavours” obligation into an absolute one, and gives no work to the word “affords”. However, it is not in issue that there was an absolute obligation to pay the debt – indeed there could not have been a binding compromise if payment were discretionary; the question to which the “best endeavours” obligation was addressed was the timing of the payment. The parties agreed that immediate payment was not required, but that the debt would be paid as soon as possible, by such instalments as could be afforded, thus the “best endeavours” clause. They then defined what would constitute “best endeavours”. The words “as and when she may receive same” provided the timing element for the instalments, referable to receipts from profit distributions from the partnerships, and the words “as she may afford” provided the quantifying element, specifying what could be taken into account in calculating affordability. Thus, for the purposes of the clause, Mrs Fiala could “afford” what was left after deduction of tax and about $50,000 per annum from her receipts from the partnership profit distributions.

50 It may well be correct, as Mr Hallen submitted, that such a result could have been achieved by simpler words, omitting “best endeavours” and “afford”. However, the circumstance that the most felicitous drafting has not been employed is not a reason to deprive the words of the clause of the meaning that, in their contractual and factual context, they were objectively most likely intended to bear.

51 Breach. Did Mrs Fiala breach the December 1994 agreement, by failing to use her best endeavours to make repayments on that basis? Three matters combine to dictate an affirmative answer.

52 The first is Mr Winter’s 7 March 1997 letter to Mrs Fiala. In summarising a discussion between them and Mrs du Maurier on 4 March 1997, he recorded that Mrs Fiala had told him that she had made no payment to date because she had not been asked to make any payment, though she had the means to make the payment if required, but preferred not to do so, leaving the debt to be paid out of her estate. There is no reason to question the reliability of Mr Winter’s record. This establishes an admission by Mrs Fiala of a failure to use best endeavours. Even on the alternative construction of clause 9 for which the Fiala Estate contended, that would establish a breach.

53 The second is the circumstance that Mrs Fiala received at least three distributions from the Lederer-Fiala Partnership - $20,000 in or about March 1996, another $20,000 in or about August 1996, and $90,000 in or about November 1997, which she endorsed to Mrs du Maurier, rather than paying to Hexiva. That she was able to endorse such distributions to Mrs du Maurier is strong evidence that she could have “afforded” to pay them to Hexiva, but did not do so.

54 Thirdly, analysis of the distributions which Mrs Fiala received from the two partnerships over the period after December 1994 establishes that, after $48,000 per annum (drawn by her as $4,000 per month from the Lederer-Fiala Partnership), and after taxation payments, she received the following further distributions:-

· LFP 14/02/95 $30,000

· GSP 30/05/95 $35,000

· LFP 31/05/95 $50,000

· GSP 29/08/95 $30,000

· GSP 30/11/95 $35,000

· LFP 30/11/95 $25,000

· GSP 28/02/96 $35,000

· LFP 28/02/96 $20,000

· GSP 31/05/96 $35,000

· GSP 31/08/96 $32,000

· LFP 31/08/96 $20,000

· GSP 29/11/96 $38,000

· LFP 15/01/97 $5,000

· GSP 11/02/97 $25,000

· GSP 30/05/97 $30,000

· LFP 30/05/97 $5,000

· GSP 29/08/97 $30,000

· LFP 28/11/97 $90,000

55 The last of those distributions, when added to the preceding ones, exceed what was required to pay the Hexiva debt in full. I am therefore satisfied that Mrs Fiala, using her best endeavours to do so, could have afforded, by using her share in the profits of the partnerships as and when she received them, after payment of her taxes and keeping about $50,000 per year for her own purposes, to make payments to Hexiva under the December 1994 agreement, substantially as follows:

· LFP 14/02/95 $30,000

· GSP 30/05/95 $35,000

· LFP 31/05/95 $50,000

· GSP 29/08/95 $30,000

· GSP 30/11/95 $35,000

· LFP 30/11/95 $25,000

· GSP 28/02/96 $35,000

· LFP 28/02/96 $20,000

· GSP 31/05/96 $35,000

· GSP 31/08/96 $32,000

· LFP 31/08/96 $20,000

· GSP 29/11/96 $38,000

· LFP 15/01/97 $5,000

· GSP 11/02/97 $25,000

· GSP 30/05/97 $30,000

· LFP 30/05/97 $5,000

· GSP 29/08/97 $30,000

· LFP 28/11/97 $49,150

56 In fact, however, she paid only $29,150 on 1 April 1997, and $25,000 on 21 November 1997, and her estate $475,000 on 17 May 2001. Thus Mrs Fiala failed to use her best endeavours to pay the debt as required by the agreement, being in breach of her obligation to do so from as early as February 1995, and to the extent that by the time of her death, there was a breach in respect of the whole amount of the debt, because applying the relevant criteria of affordability under the December 1994 agreement, the whole debt could have been paid before her death. It is therefore unnecessary to consider whether her estate failed to use its best endeavours to pay the debt after her death, although I am inclined to the view that in the context of the contested probate litigation it committed no breach; but that does not avail it when Mrs Fiala had herself committed a breach in respect of the entire debt before her death.

57 Waiver. The Fiala Estate maintains that Hexiva has waived any entitlement to interest. Mr Sahade, who appeared at short notice for the Plaintiffs and presented a responsibly limited and confined case in place of the much more extensive one originally pleaded and foreshadowed by Dr Wechsler, rightly submitted that waiver had not been pleaded, but I permitted the Fiala Estate to pursue the issue, since it seemed clear enough on the evidence and pre-trial submissions that it would be raised in one guide or another, and I thought it could be addressed without undue prejudice to the Plaintiffs.

58 I accept the factual matters on which the Fiala Estate relied for submitting that Hexiva had waived any claim for interest. In particular, I accept that prior to December 1994 the Plaintiffs had indicated that they did not wish to cause Mrs Fiala hardship; that they did not press for payments from Mrs Fiala after 1994, and indeed decided to remain silent, notwithstanding suspicions that she was not using her best endeavours to pay, in order to keep the peace; that they did not raise the question of any breach of the best endeavours obligation, or any claim for interest, with her or anyone else on her behalf prior to her death; and that they did not prior to January 2001 make any demand for payment from her estate (save an oral request of the administrator pendente lite, who had no power to pay).

59 However, I am quite unable to find that those, or any other of the matters pointed to by the Fiala Estate, amount to a waiver. Waiver is an intentional act, with knowledge, by which a party abandons or renounces a right or benefit [Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305, 326; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, 658; Banning v Wright (Inspector of Taxes) [1972] 1 WLR 972, 979; The Commonwealth of Australia v Verwayen (1990) 170 CLR 394, 406 (Mason CJ), 423, 427 (Brennan J), 451, 457 (Dawson J), 469 (Toohey J), 481 (Gaudron J); Kadian v Richards (2004) 61 NSWLR 222, 245 [68]-[72]].

60 In particular:

· Although, in pre-contractual correspondence, Hexiva had indicated that it did not press for payment as a matter of urgency and did not want to occasion hardship to Mrs Fiala, by the time of the December 1994 agreement, an obligation to use “best endeavours”, and criteria by which those endeavours could be judged, had been agreed and stipulated. The statements of intent in the pre-contractual correspondence do not govern, negate, or even inform construction of the binding obligation undertaken in December 1994. Moreover, as Dr Wechsler explained, those statements were made in a different negotiating context, at a time when he thought Mrs Fiala was also going to compensate the Plaintiffs for their borrowing costs.

· Insofar as the December 1994 agreement expressly provided that the debt was “free of interest”, it was Mrs Fiala’s obligation to pay the sum of $529,150, free of interest, in such instalments as she could afford, using her best endeavours to do so, as and when she received distributions of her share in the profits of the partnerships. A breach of that obligation – by failing to make a payment at a time and in an amount that, with best endeavours, could have been made, results in damage, namely the loss of the time value of money that arises from its receipt later than it ought to have been received. The circumstance that the sum is “free of interest” means that there is no contractual obligation to pay interest, but does not operate to negate the obligation to use best endeavours, nor deny the right to claim damages (including in the nature of interest) for its breach.

· The absence of any allegation of breach of the “best endeavours” obligation, or of demand for payment prior to Mrs Fiala’s death, and thereafter until early 2001, is not a waiver. While it is correct that, prior to service of the Statement of Claim in late January 2001, Hexiva had not overtly alleged a breach of the best endeavours obligation, nor asserted a claim for interest, absence of a demand for payment, or of an allegation of breach, does not relieve a debtor of the obligation to pay, and to pay in accordance with the contract. Demand was not made, as Dr Wechsler explained, because he did not know enough of Mrs Fiala’s position to say whether she was in a position to make payments. Mrs Fiala knew much better than Hexiva what distributions she was receiving: Hexiva knew only what distributions were made by the George Street Partnership, and not what she received from the Lederer-Fiala Partnership. She was in a far superior position to know what she could afford, having regard to the relevant criteria, and it was her obligation to pay. Even if Hexiva suspected a breach, it was not bound to assert it.

· Dr Wechsler’s letter to Mrs Fiala of 1 September 1995, which stated that apart from the amount of $529,150 payable to Hexiva, there was no money owing to the Wechsler interests, and that the matter was closed, conveyed no more than that Mrs Fiala’s sole remaining obligation to the Wechsler interests was that arising under the December 1994 agreement. The letter did not waive the “best endeavours” obligation, nor any right to claim damages for breach of that obligation: no sensible reader would have regarded it as an intentional abandonment on behalf of Hexiva of any right to make a claim in respect of a failure to use best endeavours to pay the debt, if such a breach were discovered. Although it now appears that there had already been a breach by Mrs Fiala, that was not yet known to Hexiva, and so the letter could not have operated as a waiver in respect of any claim for damages in respect of that, as yet undiscovered, breach.

· Although Dr Wechsler’s letter to Mrs Fiala of 25 June 1997, which adverted to promises made “over the last three years … to use your best endeavours to repay Hexiva as quickly as possible”, expressed concern about the speed with which the debt was being reduced, and stated the assumption that Mrs Fiala had not received any money until recently, made no express allegation of default of claim for interest, it contains not the slightest element of waiver. To the contrary, it pressed, albeit gently, for payment, and made clear that the writer was assuming that Mrs Fiala has not paid earlier because she had not received any money earlier. Of course, that assumption was incorrect, but no intention to abandon the right to insist on performance in accordance with the contract is involved in expressing an assumption that the other party is adhering to the contract (and had not paid only because she had received no money from which a payment could be afforded according to the relevant criteria). The letter made clear that she was expected to pay, as soon as she was able to do so. It waived nothing.

· The Plaintiffs’ decision, at the instance of Mrs Wechsler, and in order to keep the peace, not to press for payments from Mrs Fiala after 1994, and to remain silent - notwithstanding suspicions that she was not using her best endeavours - does not amount to a waiver: first, because that decision was never communicated, secondly because it was not a decision never to insist upon payment, and thirdly because in any event a decision on the part of a creditor, for whatever reason, not to make a demand, when there is no requirement to make a demand, does not waive the debtor’s obligation to pay.

· Dr Wechsler‘s letter to Hill Rogers dated 18 December 1997, which having acknowledged receipt of the payment of $25,000, mentioned Mrs Fiala’s undertaking to use her best endeavours to reduce the loan as quickly as possible, and inquired how the cheque related to that undertaking, again contained not the slightest element of waiver: while it did not assert breach, or demand interest, it pressed for payment, and in effect raised the question as to whether best endeavours were being used. The mere absence of an allegation of breach, or of a claim for interest, is not a waiver of the right to claim damages, in the nature of interest, if a breach be proven.

· The evident purpose of Dr Wechsler’s letter dated 8 June 1999 to Mr du Maurier, which asserted that Hexiva proposed to commence proceedings but stated no claim for any amount, or interest on any amount, said to be owed by Mrs Fiala, was to seek agreement to the appointment of an administrator ad litem. It conveyed no abandonment of any claim; to the contrary, it made clear that some (albeit unspecified) claim was to be brought.

61 The Fiala Estate’s case on waiver seems to overlook the principle that it is the debtor’s obligation to pay, not the creditor’s to demand payment. Once payment is due, there is no requirement that the creditor demand it from the debtor: a debtor must pay a debt due under the contract, even though the creditor has made no demand for payment. As Dillon LJ, with whom Noland and Steyn LJJ agreed, said in MS Fashions Ltd v Bank of Credit and Commerce International SA (in liq) [1993] Ch 425, 446:-

Rowe v Young

'… the rules which the law has laid down as to cases in which a demand is or is not necessary, must be considered. One of these rules I take to be this, that where a man engages to pay upon demand what is to be considered his own debt, he is liable to be sued upon that engagement without any previous demand.'

62 Mrs Fiala was well aware of that obligation, and of the potential for a claim and liability for interest if she did not perform it: the risk was specifically pointed out to her by Mr Winter in his 7 March 1997 letter, in which he correctly informed her that the fact that Hexiva had not asked for payment was irrelevant; that the agreement provided for her to use best endeavours and she had not done so; that a possible response from Hexiva might be to withdraw the $100,000 interest “credit”, and also to insist on payment of interest, and that Hexiva would be justified in re-opening the whole issue if payments were ignored. In the light of that letter it can safely be concluded that Mrs Fiala did not entertain any assumption that she was relieved from the obligation of using her best endeavours to make the payment, by instalments in accordance with the December 1994 agreement, nor that if she failed to do so, she would not be liable for damages in the nature of interest.

63 In my view, nothing that occurred after December 1994 resembles an intentional abandonment, with knowledge, of a right to claim damages for any breach of Mrs Fiala’s “best endeavours” obligation. No unequivocal determination to abandon that right was ever made, let alone communicated to Mrs Fiala. Accordingly, there was no waiver on the part of Hexiva of any right to claim interest by way of damages for breach of the “best endeavours” obligation.

64 Failure to mitigate. The Fiala Estate submitted that, insofar as Hexiva claims interest as damages for breach of the “best endeavours” obligation, it has failed to mitigate its damages by failing promptly to make a claim (and that insofar as Hexiva’s claim might be sustained as one for statutory interest, its failure to make a claim promptly should result in the refusal of statutory interest on discretionary grounds). Once again, Mr Sahade rightly submitted that failure to mitigate was not pleaded, but once again I permitted the argument to be advanced, since it seemed clear enough on the evidence and pre-trial submissions that it would be raised, and I thought it could be addressed without undue prejudice to the Plaintiffs.

65 The factual matters relied upon to support the “failure to mitigate” submission overlap those invoked in aid of the “waiver” argument. In particular, Mr Hallen submitted, correctly, that until proceedings were commenced there was never any overt assertion that interest was payable, nor any claim for interest, nor any allegation of breach; that the Plaintiffs decided not to press the matter with Mrs Fiala, essentially because Mrs Wechsler wished to keep the peace; that the delay after Mrs Fiala’s death was occasioned by Mrs Wechsler, with the encouragement and support of Dr Wechsler, disputing Mrs Fiala’s testamentary capacity; that after the death of Mrs Fiala, no demand was made of the Administrator pendente lite, or of Mr du Maurier, or of Mrs du Maurier, to pay the balance of the debt (which was, by then, $475,000); and that Dr Wechsler made a deliberate decision, in or about June 1999, not to proceed with the application for an administrator ad litem pending resolution of the probate case. The theory of the failure to mitigate argument is that, had any of these steps been taken, the debt would have been paid earlier, and the damages would thereby have been reduced.

66 Mrs Fiala’s liability to Hexiva, from December 1994, was a debt for a liquidated sum: $529,150. The obligation to mitigate applies to claims for damages, but not to liquidated claims for sums due under a contract [White & Carter (Councils) Ltd v McGregor [1962] AC 413; Francis May Pty Ltd v Tikitere Pty Ltd (NSWSC, Miles J, 2 April 1982, unreported)].

67 Moreover, it is the duty of a debtor to seek out the creditor for the purpose of making payment [Fowler v Midland Electric Corporation for Power Distribution Ltd [1917] 1 Ch 656 (CA)]. In that case, that general principle was applied to require a company to seek out a debenture holder and make legal tender of the money on the due date without request, with the result that in the absence of such tender a debenture holder, who from oversight carelessness or other cause neglected to present his debenture for payment on the due date, was entitled to interest on the principal moneys secured, down to the date of actual payment.

68 Mr Hallen invoked Ardlethan Options Ltd v Easdown (1915) 20 CLR 285, in which the plaintiff’s damages for the defendant’s failure to issue share certificates were reduced on account of his standing by, while the shares dwindled in value, instead of going to the company’s office where he would have been given the certificates. However, in that case the articles of association were construed as not obliging the company to deliver a share certificate to a member without demand on the part of the member – quite contrary to the position between debtor and creditor; and what was held to be an unreasonable failure to mitigate was the shareholder’s failure to sell expeditiously in a falling market, knowing that if he asked for a certificate it would not be refused – rather than the mere failure to ask for a certificate.

69 Accordingly, a creditor is not bound to mitigate by demanding payment at the first, or any opportunity, and is not deprived of interest for failing to do so.

70 While, in Serisier Investments Pty Limited v English [1989] 1 QdR 678, Thomas J, speaking for the Full Court of the Supreme Court of Queensland, suggested that the discretion to award statutory interest might be exercised in favour a defendant where the defendant was unaware of the claim and may have ordered its affairs different had it been on notice, or if the plaintiff had been guilty of unreasonable delay, in this State it is sufficient ground for the award of statutory interest that the defendant has had the benefit of not paying the money and the plaintiff the detriment of not having it, and a fortiori in a case of a debt which was quantified and which the defendant ought to have paid, as distinct from an unascertained liability for unliquidated damages [Bennett v Jones [1977] 2 NSWLR 355, 368-70]. Indeed, Thomas J also referred (at 679) to what Lord Salmon said in General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1975] 1 WLR 819 (at 841), to the effect that interest is awarded “because it is only just that the person who has been deprived of the use of money due to him should be paid interest on that money for the period during which he has been deprived of its enjoyment”, and cited with approval the dictum of Lord Wilberforce in the same case (at 836):

Where a wrongdoer has failed to pay money which he should have paid, justice, in principle, requires that he should pay interest over the period for which he has withheld the money.

71 Essentially, the only effect of delay in this context is that the plaintiff invests its money with the defendant, who in the meantime has the use and benefit of it, instead of with a bank. The defendant, rather than the plaintiff, obtains the time value of the money, unless an award of interest is made. This involves no prejudice to the position of the defendant, and no failure to mitigate. To fail to make an award of interest would confer an unwarranted enrichment on the defendant, by permitting it to retain the benefit of its having failed to pay, when it ought to have done so.

72 It may be that during the lifetime of Mrs Fiala, and following her death until the service of these proceedings, the Plaintiffs did not demand payment, nor foreshadow a claim for interest, nor sue for an order to establish their claim. But that does not amount to a failure to mitigate. The net potential liability of the defendant was not increased: the additional interest to which a defendant is exposed by delay is offset by the additional benefit to the defendant of retaining the money and its use for the period of the delay.

73 I therefore conclude that in the circumstances, the obligation being a contractual one to pay a liquidated sum, there was no obligation to mitigate; but if there was, where the only damages claimed are interest on account of the defendant’s retention of the benefit of the money owed, there was no unreasonable failure to do so. I therefore reject the defence of failure to mitigate.

74 Mr Hallen pointed out that, to the extent that the Fiala Estate is found liable to the Plaintiffs for damages, the practical effect is that Mrs Wechsler will bear 40% of the burden (as she is a residuary beneficiary as to that percentage of Mrs Fiala’s estate). While this may be so, it is irrelevant to the issues that fall for resolution.

75 It follows that in breach of the December 1994 agreement, Mrs Fiala from as early as February 1995 failed to use her best endeavours to pay the debt as required by the agreement, by instalments constituted by what was left available to her from each distribution to her of her share in the profits of the two partnerships, as and when she received such distribution, after provision for payment of her taxes and about $50,000 per year for her own purposes, and she is liable to pay Hexiva damages, in the nature of interest, in respect of that breach.

The Fiala Estate’s Cross-claim

76 The Fiala Estate has sought to have resolutions passed by each partnership, the effect of which is to seek to adjust the accounts to, inter alia, “book” the December 1994 agreement, by adjusting the inter-partnership loan account and the capital accounts of the partners. The accounts as at 30 June 2001, which form Annexure “A” and “B” to the cross-claim, have been prepared to reflect the extinguishment of the loans by the George Street Partnership to the Lederer-Fiala Partnership as at 30 June 1994, and to reflect the payment, in full, of the amount of $529,150 by, or on behalf of Mrs Fiala, to Hexiva. Although those resolutions were not originally agreed to by the Plaintiffs, it is now accepted that the accounts annexed to the cross-claim appropriately reflect the effect of the December 1994 agreement, subject to a question about interest in respect of the post 1995 payments made by the Lederer-Fiala partnership for the benefit of the George Street Partnership on account of the external AMP/Westpac loan.

77 In about 2001, the method of securing the Lederer-Fiala Partnership’s borrowing from Westpac changed, and the Lederer-Fiala Partnership deposited $850,000 into a term deposit account. Between 30 June 1995 and 30 June 2002, the Lederer-Fiala Partnership paid a total of $544,737.34 to Westpac on behalf of the George Street Partnership in respect of the commercial bill facility [1995 - $84,921.20; 1996 - $74,094.64; 1997 - $62,622.25; 1998 - $79,605.60; 1999 - $67,066.32; 2000 - $66,843.88; 2001 - $68,482.48; and 2002 - $42,080.97]. The Lederer-Fiala Partnership retired the bill facility when it matured on or about 20 March 2002.

78 To date, the George Street Partnership has reimbursed neither the post 30 June 1994 bill rollover payments amounting to $544,737, nor the principal repayment of $800,000, to the Lederer-Fiala Partnership. There is no evidence that any demand for such payment has been made. However, in January 2003, Dr Wechsler, on behalf of Hexiva, paid into the George Street Partnership’s bank account a sum of $200,000, representing Hexiva’s one-quarter share of the $800,000, where it has since remained. The Fiala Estate claims that it is entitled to have that $200,000 released to it.

79 The Fiala Estate alleges that, by making interest payments on behalf of the George Street Partnership and then repaying the principal on behalf of the George Street Partnership, the Lederer-Fiala Partnership advanced the moneys paid on the inter-partnership loan account to the George Street Partnership. When the principal repayment of $800,000 is added to the rollover payments of $544,737.34, the total quantum of the Lederer-Fiala Partnership advances for the benefit of the George Street Partnership is $1,344,737; this does not include any interest that the Lederer-Fiala Partnership would have been entitled to charge the George Street Partnership on those payments. The Fiala Estate claims that the accounts of the George Street Partnership should therefore reflect an indebtedness to the Lederer-Fiala Partnership for the principal of $800,000 repaid by the Lederer-Fiala Partnership to Westpac; for the interest/rollover charges paid by the Lederer-Fiala Partnership in respect of that loan since 30 June 1994, amounting to $544,737.34; and for interest, on the total of $1,344,737, from the date on which each payment was made by the Lederer-Fiala Partnership. The Plaintiffs do not dispute that the George Street Partnership is indebted to the Lederer-Fiala Partnership for $800,000 for the repayment of principal, and for the rollover/interest payments of $544,737.34, which were in effect made on its behalf and for its benefit. Thus it is common ground that the accounts of the partnerships should show, as they do, the George Street Partnership as being indebted to the Lederer-Fiala Partnership for at least the total of $1,344,737. However, there is a dispute concerning whether, and if so, at what rate and for what period, interest should be chargeable on those amounts. The Fiala Estate contends that interest should be chargeable, by the Lederer-Fiala Partnership against the George Street Partnership, from the dates of payment by the former; and that in respect of the repayment of the principal amount of $800,000, interest should be chargeable by the Lederer-Fiala Partnership against the George Street Partnership from the date of its repayment. The Plaintiffs dispute that any such interest should be chargeable or shown in the accounts.

80 Essentially, resolution of this issue depends on whether, after 1994 interest was chargeable in respect of the amounts advanced by the Lederer-Fiala Partnership for the benefit of the George Street Partnership. That requires examination of the conduct of the inter-partnership loan account since its inception.

81 When the quarter interest in the George Street Property was transferred to Hexiva in 1986, the AMP Loan was not entered, in the financial records of the George Street Partnership, as having been transferred to the George Street Partnership. For the life of the AMP Loan, the Lederer-Fiala Partnership made all interest payments on it, but was notionally reimbursed by having those payments credited to it in the inter-partnership loan account. This first occurred in 1985/86, and again in 1986/87. Initially, no interest was charged on the inter-partnership loan account balance.

82 As has already been mentioned, by letter dated 1 March 1988, from Perl Holley & Co to Mr Lederer, a request was made “on behalf of Mrs Fiala and Mr and Mrs Wechsler … that for the 1988 financial year and onwards, the partnership of Lederer and Fiala pay interest on that loan account”, in order to achieve “a more equitable situation within the Fiala – Wechsler family”. This request was triggered by the substantial advances that had been made from the George Street Partnership to the Lederer-Fiala Partnership, rather than by the payments made by the Lederer-Fiala Partnership on behalf of the George Street Partnership, and resulted in interest being charged on the average yearly balance of the inter-partnership loan account during the year ended 30 June 1988, at the rate of 14.25% pa, and the adjustment being made to compensate Hexiva for interest for the two previous years; a letter from Perl Holey & Co to Mrs Fiala dated 8 August 1988 records the details of this adjustment.

83 Interest continued to be charged at 14.25% pa on the average yearly balance of the inter-partnership loan account each year until 30 June 1992. In about April 1992, the Lederer-Fiala Partnership refinanced the AMP Loan with an $800,000 commercial bill facility from Westpac. The Lederer-Fiala Partnership continued to make the interest/rollover payments to Westpac, and the amount of those payments continued to be debited to the George Street Partnership in the inter-partnership loan account. In the financial year ended 30 June 1993, interest was charged at the rate of 12.25% on the average yearly loan account balance. The change to 12.25% in 1993 probably reflects that the rate payable by the Lederer-Fiala Partnership to Westpac was less than it was previously paying to AMP.

84 Those facts, matters and circumstances support an inference, which I draw, that, in 1988, there was an agreement struck between the two partnerships that interest would be paid by the net debtor partnership to the net creditor partnership on the net balance of the inter-partnership loan account, at the rate which the Lederer-Fiala Partnership was being charged on the external loan. The overall effect was that the George Street Partnership would pay the Lederer-Fiala Partnership interest on the amount of the payments made by the Lederer-Fiala Partnership on account of the external loan, and the Lederer-Fiala Partnership would pay the George Street Partnership interest at the same rate on the amount of the advances from the George Street Partnership to the Lederer-Fiala Partnership, but they would be netted off, so that interest would be paid by the net debtor to the net creditor on the net balance. At least until 1994, the George Street Partnership was always the net creditor. [Accordingly, Dr Wechsler was right to conclude, as he had asserted in a “Summary of Facts and Law” prepared by him for the purpose of the proceedings, and about which he was cross-examined, that in 1988 an agreement was reached as to the interest rate to apply to the inter-partnership loan account, to be charged on the arithmetic mean for each financial year of the opening and closing balances; however, the agreement (as the letter of 1 March 1988 indicates) was that interest be charged, not at a fixed rate of 14.25%, but at the same rate as was being paid by the Lederer-Fiala Partnership to the AMP, which at the outset was 14.25%.

85 The crucial issue is whether anything changed as a result of the December 1994 agreement. In order to give effect to the December 1994 agreement, a number of journal entries were made which affected the inter-partnership loan account; in particular, an entry re-credited to the Lederer-Fiala Partnership in the books of the George Street Partnership a sum of $400,000, refunding interest that had previously been charged by the George Street Partnership to the Lederer-Fiala Partnership. No interest charge was made in respect of the tear ended 30 June 1994. As a result, the total balance of the inter-partnership loan account as at 30 June 1994 was reduced to $3,116,603.32, of which the one-quarter to which Hexiva was entitled was $779,150, so that after allowing for the June 1994 payment of $250,000, the balance due was $529,150; that of course was the amount which Mrs Fiala agreed to pay Hexiva to resolve the dispute. However, the December 1994 agreement was not otherwise “booked”, in the sense that no adjustment was made for Mrs Fiala’s assumption of the obligation to pay Hexiva $529,150. [As the effect of the agreement was to convert the “unauthorised loans” into drawings, they should have been removed from the inter-partnership loan account].

86 As at 30 June 1995, an entry was made in the George Street Partnership’s record of the inter-partnership loan account as follows: “Bal. 30.6.95 (No further Int. charges) DR 3,031,682.12”. Thereafter, no interest was charged to the inter-partnership loan account in the books of the George Street Partnership. This indicates an instruction that interest was no longer to be charged on the inter-partnership loan account. [The books of the Lederer-Fiala Partnership are not in evidence].

87 On 11 January 1996, an employee of Agoston Douglas & Partners sent a facsimile message to Perl Holley & Co, enclosing a copy of the loan account between the partnerships, to show the effect of the relevant journal entries, and observing “The ‘refund of interest’ entry 30.6.94 for $400,000 was not reversed, and no future interest on the account will be charged”. Although the reference to the forgiveness of $400,000 is to interest previously charged against the Lederer-Fiala Partnership by the George Street Partnership, this is not without significance, because the indebtedness of each partnership to the other had been reflected in a combined loan account, with interest being charged on the average annual balance. This note suggests that there was some arrangement or understanding that no interest would be charged in the future on the net balance of the inter-partnership loan account.

88 On 24 October 1996, Carol Holley made a file note in the following terms:

I spoke to Mr Agoston, 16.10.96, regarding charging of interest between 822 George Street and Fiala/Lederer. Mr Agoston tells me that it is all agreed between the parties that no interest is to be charged.

89 This apparent consensus between Mr Agoston (as Mr Lederer’s accountant) and Ms Holley (as Mrs Fiala’s accountant) again suggests an agreement between their principals that no interest was to be charged on the inter-partnership loan account.

90 If the indebtedness of the Lederer-Fiala Partnership to the George Street Partnership had effectively been resolved by the December 1994 agreement, then only outstanding debt between the partnerships thereafter was the indebtedness George Street Partnership to the Lederer-Fiala Partnership in respect of the payments made by the Lederer-Fiala Partnership on account of the Westpac loan, in which case the agreement to which Ms Holley’s file note referred could only have related to such indebtedness: there was no other inter-partnership loan. An alternative view is that, as the December 1994 agreement was not “booked” so as to adjust the net balance of the inter-partnership loan account, the agreement contemplated whatever was or might in the future be due from one of the partnerships to the other. That would be consistent with the previous arrangement, which had combined the inter-partnership loans to produce a net balance of the transactions in each direction. It would also be consistent with what in fact happened, with the “unauthorised loans” remaining in the inter-partnership loan account, so that the George Street Partnership continued to appear as a net creditor. On that view, too, no interest would be payable in respect of the outstanding inter-partnership debt in respect of the AMP (or subsequent Westpac) loan.

91 The third possible view, and the one for which the Fiala Estate contends, is that any such agreement related only to the indebtedness of the Lederer-Fiala Partnership to the George Street Partnership, and not vice versa. However, that would be anomalous with the previous practice of netting off the advances of each of the partnerships to the other. Moreover, interest on the inter-partnership loan account was originally charged because, while the George Street Partnership was being charged the interest paid by the Lederer-Fiala Partnership to AMP, it was advancing funds to the Lederer-Fiala Partnership on which it was not receiving interest. Now that it was no longer advancing such funds to the Lederer-Fiala Partnership, it would be surprising if it was nonetheless still to be charged interest on the AMP payments: the raison d’etre of the original interest charge had gone.

92 According to Dr Wechsler, in a conversation that he had with Mr Lederer, in or about 1998, Dr Wechsler complained that Mr Lederer continued to direct Agostons to charge the George Street Partnership interest on the Lederer-Fiala Partnership loan of $800,000, but refused to charge the Lederer-Fiala Partnership interest on the $3 million plus inter-partnership loan balance. Mr Lederer is said to have responded: “The $800,000 is external debt. The $3 million is internal debt”. At this time, the books continued to record the “unauthorised loans” in the inter-partnership loan account, despite the December 1994 agreement, so that the George Street Partnership continued to be shown as a net creditor. The interest on the $800,000 was interest payable to Westpac – not interest as between the partnerships. This conversation provides some support for the view that there was an agreement or understanding that interest would not be charged on internal debt, including the inter-partnership loan account.

93 In their original defence to the amended cross-claim, the Plaintiffs asserted that it was a condition of the George Street Partnership’s assumption of the $800,000 loan that it would be “interest only” and “available for the life of the George Street Partnership”, and that the interest rate would always be based on secured bank first mortgage rates or commercial bills, so that “any outstanding liability for interest payments interest pertaining to the $800,000 loan must be calculated using rates applying to such loans”. They asserted that by reason of the Lederer-Fiala Partnership’s refusal to consolidate the $800,000 loan against the so called “unauthorised loan”, the Lederer-Fiala Partnership was estopped from asserting that the terms of the 1988 agreement were to apply to the net consolidated balance of the two loans; and alternatively that if the 1994 agreement was upheld, any interest payable as a result of the $800,000 loan should be calculated on the net consolidated loan between the two partnerships. Although this pleading, prepared as it was by Dr Wechsler without legal assistance, is confusing, I do not take it to have admitted an agreement that interest was payable by the George Street Partnership on the interest payments made on its behalf by the Lederer-Fiala Partnership to the external creditor, as distinct from admitting that, at least in certain events, the George Street Partnership was liable to reimburse the Lederer-Fiala Partnership for the interest payments which the Lederer-Fiala Partnership made on its behalf (and not interest on the interest). The Fiala Estate’s cross-claim contains no express allegation of any agreement that interest would be payable on the interest payments, and is insufficiently precise to justify reading the defence as an admission of any such allegation.

94 Mr Hallen stresses, rightly, that Dr Wechsler did not give direct evidence of any agreement that interest would not be chargeable in respect of the Westpac payments after 1994, and that no other witness – including Mrs Wechsler - was called to prove any such agreement. However, Mrs Wechsler does not appear to have been an active participant in the negotiations and is unlikely to have been able to give relevant evidence. In his cross-examination, Dr Wechsler accepted that it was agreed that after the December 1994 agreement that there was to be no interest on the so-called “unauthorised loans” by George Street Partnership to Lederer-Fiala Partnership, but only said that it was his “expectation” that interest would not be charged in the reverse direction, as part of the “goodwill” to achieve a peace settlement. This expectation may have been unexpressed in the negotiations, but the file notes and book entries to which I have referred suggest that it was one shared by all parties and given effect by their accountants.

95 In my judgment, the evidence strongly favours the view that it was implicit in the December 1994 agreement that the inter-partnership loan account would not thereafter bear interest. While there is no direct evidence of any oral or written agreement to that effect, it is by far the preferable explanation of the 11 January 1996 facsimile, the Holley file note, the entry in the loan account, and the circumstance that no interest was in fact charged, by journal entry or otherwise, during the period from 1994 to 2002. It far more probably explains the absence of an interest charge for that period than the alternative proposed in the Fiala Estate’s submissions, namely that the omission to charge interest was “simply wrong”. It accords with what in fact happened. It is also consistent with an overall approach that the internal debts were not to bear interest, as expressed by Mr Lederer to Dr Wechsler, and as also reflected in the circumstance that, so long as she paid according to her best endeavours, Mrs Fiala was not to be liable for interest on the moneys due by her to Hexiva under the December 1994 agreement. And it also accords with the circumstance that, whereas the original reason for charging interest on the loan account was the “unauthorised loans”, that reason was removed by the December 1994 agreement; before the question of those loans had been raised in 1988, no interest was charged on the amounts for which the George Street Partnership was liable to reimburse the Lederer-Fiala Partnership for payments in respect of the $800,000 loan; and with the solution of the issue about the “unauthorised loans”, the status quo ante in respect of interest on the inter-partnership loan account – that none was originally charged - was restored.

96 Mr Hallen submitted that there was no consideration for any such agreement moving from the George Street Partnership, which was in effect being relieved of an interest burden. However, what was agreed was that in the future, in lieu of market rate interest, neither partnership would charge interest to the other on the net balance; accordingly, there were mutual promises which provided consideration each for the other. Moreover, as the balances then stood in the books, it was the George Street Partnership, as the net creditor, which was giving “net” consideration. Further, the implied agreement about interest was an albeit unexpressed part of the December 1994 agreement, which was a genuine compromise and was therefore supported by consideration, including in the case of Hexiva by its having concurred in the forgiveness by the George Street Partnership of $400,000 of interest previously charged.

97 Accordingly, from December 1994, the inter-partnership loan account reverted to an at call, interest free arrangement. The debits to that account which reflect payments by the Lederer-Fiala partnership on account of the Westpac loan do not attract interest.

98 It follows that the state of accounts between the partnerships is that the George Street Partnership is indebted to the Lederer-Fiala Partnership for the principal repayment of $800,000, and the total of the bill rollover payments amounting to $544,737.34, amounting in all to $1,344,737, but not for interest in respect of any part of that sum.

99 The Fiala Estate’s amended cross-claim also seeks a declaration to the effect that the Fiala Estate is entitled to the $200,000 which has been deposited on behalf of Hexiva in respect of the repayment of the $800,000 external loan.

100 When the $800,000 principal was repaid to Westpac by the Lederer-Fiala Partnership, half ($400,000) was contributed by each of Mr Lederer and the Fiala Estate. The Lederer-Fiala Partnership is entitled to be reimbursed by the George Street Partnership, to which reimbursement the Lederer Estate is obliged to contribute $400,000, the Fiala Estate $200,000, and Hexiva $200,000. The inter-partnership transaction is financially neutral for the Lederer Estate, but ultimately the Fiala Estate – which has contributed $400,000 when it should be liable for only $200,000 – is entitled to recover $200,000. However, it is implicit in the release of those funds to the Fiala Estate that the $800,000 is to be treated, by journal entry, as having been repaid. While I would be prepared, if all parties consent, to make the declaration sought, it would have to be on the basis that the requisite journal entries are made to “book” the transaction by reflecting the reimbursement of the Lederer-Fiala Partnership, and the contributions of Hexiva and the Fiala Estate to it. In short, it would result in the indebtedness of the George Street Partnership to the Lederer-Fiala Partnership being reduced by $800,000 to $544,737.

101 The Fiala Estate does not press for orders in terms of Paragraph 5, 6, 7, and 8 of the Amended cross-claim.

Conclusion

102 My conclusions may be summarised as follows.

103 Hexiva was the third partner.

104 The December 1994 agreement should be regarded as having been made at the meeting on 8 December 1994, consistently with how the parties documented it in the Minutes, and not subsequently.

105 Upon its proper construction, clause 9 of the December 1994 agreement obliged Mrs Fiala to pay the debt, free of interest, by instalments constituted by what was left available to her from each distribution to her of her share in the profits of the two partnerships, as and when she received such distribution, after provision for payment of her taxes and about $50,000 per year for her own purposes.

106 There was no waiver on the part of Hexiva of any right to claim interest by way of damages for breach of the “best endeavours” obligation.

107 In the circumstances, the obligation being a contractual one to pay a liquidated sum, there was no obligation to mitigate; but if there was, where the only damages claimed are interest on account of the defendant’s retention of the benefit of the money owed, there was no unreasonable failure to do so.

108 In breach of the December 1994 agreement, Mrs Fiala from as early as February 1995 failed to use her best endeavours to pay the debt as required by the agreement, by instalments constituted by what was left available to her from each distribution to her of her share in the profits of the two partnerships, as and when she received such distribution, after provision for payment of her taxes and about $50,000 per year for her own purposes, and she is liable to pay Hexiva damages, in the nature of interest, in respect of that breach.

109 It is common ground that the George Street Partnership is indebted to the Lederer-Fiala Partnership for $800,000 in respect of the repayment to Westpac of principal, and for $544,737.34 in respect of bill rollover payments, amounting to $1,344,737.

110 In 1988, there was an agreement struck between the two partnerships that interest would be paid by the net debtor partnership to the net creditor partnership on the net balance of the inter-partnership loan account, at the rate which the Lederer-Fiala Partnership was being charged on the external loan.

111 However, it was implicit in the December 1994 agreement that the inter-partnership loan account would not thereafter bear interest.

112 Accordingly, the state of accounts between the partnerships is that the George Street Partnership is indebted to the Lederer-Fiala Partnership for the principal repayment of $800,000, and the total of the bill rollover payments amounting to $544,737.34, amounting in all to $1,344,737, but not for interest in respect of any part of that sum.

113 While I would be prepared, if all parties consent, to declare that the Fiala Estate was entitled to the $200,000, that would have to be on the basis that the requisite journal entries are made to “book” the transaction by reflecting the reimbursement of the Lederer-Fiala Partnership, and the contributions of Hexiva and the Fiala Estate to it, resulting in the reduction of the indebtedness of the George Street Partnership to the Lederer-Fiala Partnership by $800,000, to $544,737.

114 It follows that there should be orders to the following general effect:

1. Declare that in breach of the December 1994 agreement, Mrs Fiala from February 1995 failed to use her best endeavours to pay the debt as required by the agreement, by instalments constituted by what was left available to her from each distribution to her of her share in the profits of the two partnerships, as and when she received such distribution, after provision for payment of her taxes and about $50,000 per year for her own purposes.

2. Order that an inquiry be held as to the amount of the damages which Hexiva has suffered by reason of the breach referred to in order 1.

3. Give judgment that the Fiala Estate pay to Hexiva the amount certified upon such inquiry.

4. Order that until further order the inquiry proceed before me.

5. Directions for the service of any evidence relevant to the inquiry.

6. Declare in accordance with claim 1 in the Amended First Cross-claim.

7. Declare that the George Street Partnership is indebted to the Lederer-Fiala Partnership for $1,344,737, but not for interest in respect of any part of that sum.

8. Declare that upon the making of journal entries in the books of the Lederer-Fiala Partnership and the George Street Partnership recording the reimbursement to the Lederer-Fiala Partnership of the sum of $800,000, and the reduction of the indebtedness of the George Street Partnership to the Lederer-Fiala Partnership by $800,000, the Fiala Estate is entitled to the $200,000.
9. Order that the Amended First Cross-claim be otherwise dismissed.

Orders

115 I direct that the Plaintiffs bring in Short Minutes to give effect to this judgment. I appoint Friday 3 November 2006 at 0930 for Short Minutes, at which time I will also hear any argument as to costs.

**********

CITATION:	Hexiva Pty Ltd v Lederer [2006] NSWSC 1129
HEARING DATE(S):	25, 28, 29 September 2006, 3, 4 October 2006
JUDGMENT DATE :	30 October 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
DECISION:	Declare that D2 failed to use best endeavours to pay debt as required by agreement. Order inquiry as to damages. Judgment for amount certified upon inquiry. Declare that GSP indebted to the LFP for $1,344,737, but not for interest in respect of any part of that sum. Declare that upon making of appropriate journal entries in books of LFP and GSP recording reimbursement to LFP of sum of $800,000 and reduction of indebtedness of GSP to LFP by $800,000, D2 is entitled to $200,000 contributed by P1. Amended First Cross-claim otherwise dismissed.
CATCHWORDS:	CONTRACT – obligation to use “best endeavours” to pay debt – construction - whether breached – waiver – Damages – interest as damages - mitigation of damages – whether duty to mitigate applicable to claim for liquidated sum under contract – PARTNERSHIP - whether interest chargeable on inter-partnership loan account
LEGISLATION CITED:	(NSW) Uniform Civil Procedure Rules, r 28.2
CASES CITED:	Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Banning v Wright (Inspector of Taxes) [1972] 1 WLR 972 Bennett v Jones [1977] 2 NSWLR 355 Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Cook v Fowler (1874) LR 7 QB 27 Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 Du Maurier v Wechsler [2001] NSWSC 4 Fowler v Midland Electric Corporation for Power Distribution Ltd [1917] 1 Ch 656 Francis May Pty Ltd v Tikitere Pty Ltd (NSWSC, Miles J, 2 April 1982, unreported) General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1975] 1 WLR 819 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Hexiva Pty Ltd v Lederer [2006] NSWSC 318 Hospital Products Limited v United States Surgical Corporation (1985) 156 CLR 41 Hungerfords v Walker (1989) 171 CLR 125 Kadian v Richards (2004) 61 NSWLR 222 Serisier Investments Pty Limited v English [1989] 1 QdR 678 Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234 Transfield Pty Ltd v Arlo Engineering Ltd (1980) 144 CLR 83 Wechsler v Du Maurier [2002] NSWCA 13 White & Carter (Councils) Ltd v McGregor [1962] AC 413
PARTIES:	Hexiva Pty Ltd (P1) Robert Wechsler (P2) Katie Wechsler (P3) Hexiva Pty Ltd as Trustee Katie Wechsler Family Trust (P4) Paul Lederer, Richard Slazenger & Douglas Hamiltom as Executors & Trustees of the late Andrew Lederer (D1) Michael Du Maurier (D2)
FILE NUMBER(S):	SC 2626/2000
COUNSEL:	Mr Sahade (Ps) Ms Sharp (D1) Mr Hallen SC w Mr Hodgson (D2)
SOLICITORS:	Oliveri Legal P/L (Ps) Landerer & Co (D1) PWCoopers (D2)