Porter v Mulcahy & Co Accounting Services Pty Ltd (No 3)
[2023] VSC 135
•21 March 2023 (ex tempore)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 02810
| TIMOTHY NORMAN PORTER & ANOR (according to the Schedule) | Plaintiffs |
| v | |
| MULCAHY & CO ACCOUNTING SERVICES PTY LTD (ACN 105 360 325) & ORS (according to the Schedule) | Defendants |
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JUDGE: | DELANY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20-21 March 2023 at trial |
DATE OF RULING: | 21 March 2023 (ex tempore) |
CASE MAY BE CITED AS: | Porter & Anor v Mulcahy & Co Accounting Services Pty Ltd & Ors (No 3) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 135 |
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EQUITY – Breach of fiduciary duty – Remedies – Alternative remedies of equitable compensation and account of profits available – Time for election – Plaintiffs not required to elect until after delivery of reasons – Tan Man Sit v Capacious Investments Ltd [1996] AC 514, Club of the Clubs Pty Ltd v King Network Group Pty Ltd (No 2) [2007] NSWSC 574 applied – Schmidt v AHRKalimpa Pty Ltd [2020] VSCA 193, Acme Office Service Pty Ltd v Ludstrom [2002] NSWSC 277 referred to.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | P Cawthorn KC with P Caillard | Nevetts Lawyers |
| For the First and Second Defendants | P Solomon KC with K Anderson | Clyde & Co |
| For the Third Defendant | S Hay KC with L Molesworth | Holding Redlich |
HIS HONOUR:
This ruling arises in the context of a bifurcated trial involving multiple parties. The trial has been split between liability and remedies.
On 13 September 2021, I delivered reasons following the conclusion of the trial on liability (‘liability reasons’).[1] I found in favour of the first plaintiff, Mr Porter, against the first and second defendants (‘the Mulcahy parties’) for breach of retainer. I rejected the other claims made by Mr Porter. I found in favour of Mr Conheady against the Mulcahy parties for breach of retainer and for breach of fiduciary duty. I found in favour of Mr Conheady against the third defendant, BFMM, for knowing assistance in breach of fiduciary duty.
[1]Porter v Mulcahy & Co Accounting Services Pty Ltd [2021] VSC 572.
At the commencement of the remedies trial, the Mulcahy parties sought an order that, after the completion of opening submissions, Mr Conheady be required to elect between inconsistent remedies that he seeks against those parties. That is, before the further evidence which will be called in the remedies trial, including expert accounting evidence. BFMM, against whom some of those same inconsistent remedies are also sought by the plaintiffs, does not seek an order that the plaintiffs elect at this time.
Mr Conheady, and Mr Porter, who reserves his position in relation to claims by him for equitable relief, the factual findings in the liability trial not providing support for such relief, oppose the making of an order that they be required to elect in relation to the relief to be pressed by them against the Mulcahy parties. They submit that the election to be made by Mr Conheady, and, if applicable, by Mr Porter, should only be required to be made after reasons on remedies have been published, and before final orders are made.
For the brief reasons that follow, I do not propose to order that Mr Conheady, and, to the extent relevant, Mr Porter, be required to elect between inconsistent remedies until after the delivery of reasons in the remedies trial.
In Schmidt v AHRKalimpa Pty Ltd,[2] the Court of Appeal described the inconsistent equitable remedies in respect of which the Mulcahy parties submit Mr Conheady should be required to elect in the following terms:[3]
Equitable compensation is aimed at restoring the innocent party, as nearly as possible, to the position in which he or she would have been had the breach of fiduciary duty not occurred. This can be contrasted to an account of profits where the errant fiduciary will be ordered to render an account of the profits made within the scope and ambit of his or her duty.
[2][2020] VSCA 193.
[3]Ibid [182] (citations omitted).
Mr Conheady claims both equitable remedies against the Mulcahy parties. In addition, he claims common law damages against them for breach of retainer. The issue of election pressed by the Mulcahy parties is in respect of the claims for equitable compensation/common law damages on the one hand and for an account of profits on the other. The same equitable claims are also made by Mr Conheady against BFMM against whom, in addition, Mr Conheady claims a declaration that the shares owned by BFMM in CBB are held on constructive trust for him.
The Mulcahy parties accept that, as found by Bergin J in Club of the Clubs Pty Ltd v King Network Group Pty Ltd (No 2) (‘Club of the Clubs’),[4] where different equitable remedies are sought against different defendants, one of whom is primarily liable and the other an accessory, the plaintiff is entitled to make a split election. One of those parties in this case, BFMM, does not seek an order that the plaintiffs elect now, rather than after the remedies reasons are delivered. In those circumstances, it is not appropriate to require the plaintiffs to elect now in respect of the same remedies sought against the Mulcahy parties.
[4][2007] NSWSC 574.
In Tan Man Sit v Capacious Investments Ltd (‘Tan Man Sit’),[5] Lord Nicholls said:[6]
In the ordinary course the decision made when judgment is entered is made once and for all. That is the normal rule. The order is a final order, and the interests of the parties and the public interest alike dictate that there should be finality. The principle, however, is not rigid and unbending. Like all procedural principles, the established principles regarding election between alternative remedies are not fixed and unyielding rules. These principles are the means to an end, not the end in themselves. They are no more than practical applications of a general and overriding principle governing the conduct of legal proceedings, namely, that proceedings should be conducted in a manner which strikes a fair and reasonable balance between the interests of the parties, having proper regard also to the wider public interest in the conduct of court proceedings. Thus in Johnson v Agnew [1980] AC 367 the House of Lords held that when specific performance fails to be realised, an order for specific performance may subsequently be discharged and an inquiry as to damages ordered. Lord Wilberforce observed, at p 398: “Election, though the subject of much learning and refinement, is in the end a doctrine based on simple considerations of common sense and equity”.
[5][1996] AC 514.
[6]Ibid 521-522.
In Acme Office Service Pty Ltd v Ludstrom,[7] Gzell J said:[8]
The plaintiff cannot have both damages for loss and an account of profits for the two forms of relief are mutually exclusive. If one takes an account of profits one condones the breach of fiduciary duty (Neilson v Betts (1871) LR 5 HL 1 at 22). It has been said that a plaintiff must elect between the two forms of relief before any hearing on the quantum of monetary relief to be ordered is embarked upon (Led Builders Pty Ltd v Eagle Homes Pty Ltd (1996) 70 FCR 436 at 443). That was not the case in this trial. Led Builders was not followed in Dr Martens Australia Pty Ltd v Bata Shoe Company of Australia Pty Ltd (1997) 75 FCR 230 in which it was held that the election need not be made until the close of evidence and possibly not until just before final judgment. I prefer that approach.
[7][2002] NSWSC 277.
[8]Ibid 39.
The ‘normal rule’ as stated in Tang Man Sit is that the plaintiff is not required to elect until the trial is concluded.
As discussed by Lord Nicholls and referred to by Bergin J in Club of the Clubs, whether the plaintiff should be required to elect now is a matter of ‘common sense and equity’.[9]
[9]Tan Man Sit v Capacious Investments Ltd [1996] AC 514, 522; Club of the Clubs Pty Ltd v King Network Group Pty Ltd (No 2) [2007] NSWSC 574, [30].
In the present case, common sense and equity dictate that Mr Conheady and, to the extent relevant, Mr Porter, should not be required to elect until the remedy reasons are delivered.
First, it makes no sense to require an election against the Mulcahy parties where none is sought or proposed to be required in the case of the same inconsistent remedies sought against BFMM.
Second, in light of the first reason, there would be no saving of time, narrowing of the issues, efficiencies or other benefits from requiring the election to be made now.
Third, I accept the plaintiffs’ submission that the key issue of the present value of CBB is relevant both to damages and to an account of profits. It follows that there is no prejudice to the Mulcahy parties in deferring the election until after the completion of the expert evidence. Both experts have traversed issues relevant to equitable compensation and damages on the one hand and an account of profits on the other. There will be no saving in time or costs in bringing forward the timing of the election.
On the other hand, if Mr Conheady is forced to make an election now in respect of his claim against the Mulcahy parties, there is a potential for real prejudice to be sustained by him. That is the case in circumstances where there are significant issues between the experts, including as to the correct EBITDA multiple. Mr Conheady may be forced into an election to take a remedy that is not otherwise an advantageous one to him.
For those reasons, I refuse the Mulcahy parties’ application that the plaintiffs be required to elect prior to the delivery of reasons at the conclusion of the remedies trial.
SCHEDULE OF PARTIES
TIMOTHY NORMAN PORTER
First Plaintiff
CHRISTOPHER GERARD CONHEADY
Second Plaintiff
- and -
MULCAHY & CO ACCOUNTING SERVICES PTY LTD (ACN 105 360 325)
First Defendant
JAMES EDWARD MULCAHY
Second Defendant
BFMM INVESTMENTS PTY LTD (ACN 625 266 891)
Third Defendant
1
2
0