Stockley Furlong v Hyde[2023] QCA 203

SUPREME COURT OF QUEENSLAND

1. [1]
   MULLINS P:  I agree with Flanagan JA.
2. [2]
   FLANAGAN JA:  This is an appeal from an order made by the learned primary judge granting the respondent leave, pursuant to r 376(4) of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”), to plead a new action for an account by way of counterclaim.^[1]  The action for an account is pleaded in response to allegations by the appellant that the respondent is indebted to it for the unpaid balance of a running account.
3. [3]
   Section 10(2) of the Limitation of Actions Act 1974 (Qld) (“Limitation Act”) provides that an action for an account shall not be brought in respect of a matter that arose more than six years before the commencement of the action.  The accepted position in Queensland is that this limitation period applies irrespective of whether the liability to account is legal or equitable.^[2]
4. [4]
   Before the primary judge, the appellant opposed the making of the order on two bases.  First, the account was sought, in part, in respect of payments made by the respondent more than six years before the commencement of the proceedings.  The court was therefore precluded, at least in respect of those payments, from granting the respondent leave under r 376(4) to make an amendment to include a new cause of action for an account.  This was because of the operation of r 376(1) which provides:

“This rule applies in relation to an application, in a proceeding, for leave to make an amendment mentioned in this rule if a relevant period of limitation, current at the date the proceeding was started, has ended.”  (emphasis added)

5. [5]
   Secondly, in relation to the remaining payments made by the respondent, the appellant contended that the action for an account did not arise out of the same facts or substantially the same facts as a cause of action for which relief had already been claimed in the proceeding.  This is a requirement of r 376(4) which provides:

“(4) The court may give leave to make an amendment to include a new cause of action only if—

1. the court considers it appropriate; and

2. the new cause of action arises out of the same facts or substantially the same facts as a cause of action for which relief has already been claimed in the proceeding by the party applying for leave to make the amendment.”

6. [6]
   The primary judge did not accept either of the appellant’s contentions.  His Honour determined that, because the payments were made into a running account, an account of all the transactions was permitted so long as at least one of them was made within the relevant six year period of limitation.  His Honour also found that the respondent’s action for an account arose out of “substantially the same facts” as had been pleaded within time because they were based on essentially the same complaints.
7. [7]
   The appeal should be dismissed.  Both the account sought by the respondent and the appellant’s claim for the debt arise out of the same running account.  Properly analysed, the account sought by the respondent is, in substance, a true defence to the appellant’s claim.  It is not an independent “cause of action” and therefore is not subject to the limitation period in s 10(2).  The respondent brought the application pursuant to r 376(4) out of an abundance of caution.  For the following reasons, the application was unnecessary.

Background

8. [8]
   The appellant, which is a firm of solicitors, acted for the respondent in relation to matrimonial proceedings in the Family Court of Australia between 21 September 2005 and 18 August 2014.
9. [9]
   The parties entered into a client agreement on 27 September 2005 (“the First Client Agreement”).  The first invoice rendered by the appellant pursuant to the First Client Agreement was on 17 October 2005.  The last invoice was rendered on 3 November 2009.  The first payment made by the respondent was on 16 November 2005, with the last payment in relation to the First Client Agreement being made by the respondent on 24 January 2014.
10. [10]
    In late 2009, the respondent instructed the appellant to institute an appeal against a decision at first instance.  A new client agreement was provided to the respondent on 18 December 2009 (“the Second Client Agreement”).  Although the Second Client Agreement was never signed, the respondent provided instructions in respect of the appeal on 6 January 2010.  Thereafter the appellant issued the respondent with invoices for work it performed.  The first invoice was rendered on 18 May 2010, with the last invoice being given to the respondent on 18 August 2014.  The first payment made by the respondent was 24 January 2014, with the last payment being made by the respondent on 29 March 2016.

The pleadings

11. [11]
    By a claim and statement of claim filed in the Magistrates Court on 12 October 2016, the appellant claimed as money due and owing by the respondent the amount of $12,488.95.  This amount was claimed by reference only to the First Client Agreement.
12. [12]
    Paragraphs 5 to 7 of the statement of claim allege that the respondent initially offered to pay the invoiced amounts at the rate of $2,000.00 per week and subsequently at the rate of $1,500.00 per week.  The first payment of $1,500.00 was made on 21 June 2011 and continued through to 24 March 2016.  On 29 March 2016 the respondent paid a further $795.07 and has thereafter refused to make any further payment.
13. [13]
    The primary judge described the statement of claim as follows:^[3]

“The statement of claim runs to 30 pages, 28 of which are taken up with a schedule containing ‘details of the invoices rendered, the balance due and payable, the interest accrued and the payments received by the plaintiff’ over an 11 year period from 17 October 2005 to 12 October 2016.  Thus, it was quite apparent even at this early stage that the plaintiff alleged that the indebtedness arose from a running account over the period specified resulting in a fluctuating balance depending on the invoices rendered by the plaintiff and the payments made by the defendant.  Put another way, the alleged indebtedness arose from an entire account into which all liabilities and payments were carried in order of date resulting in a single balance.”

14. [14]
    The parties, both before the primary judge and this Court, accepted that the account being conducted as between the appellant and the respondent constitutes a running account.
15. [15]
    By a defence and counterclaim filed in the Magistrates Court on 16 November 2016, the respondent pleaded that he had refused to make any further payment to the appellant because no amount was owing, and he denied that the balance particularised was due and payable.  Paragraph 12(a) of the defence alleged that the appellant’s claim, which involved interest immediately accruing on issued invoices, was in breach of the First Client Agreement and contrary to s 321 of the Legal Profession Act 2007 (Qld).  Paragraph 12(h) of the defence specifically pleaded that the respondent has overpaid the appellant any monies owed by him.  By way of counterclaim, the respondent alleged that the appellant was indebted to the respondent for the amount overpaid by him which the respondent claimed as “monies owing as a debt”.  At this time, the relief sought by the counterclaim did not include an account.
16. [16]
    In an amended defence and counterclaim filed in the Magistrates Court on 24 February 2017, the respondent by Annexure A (which runs for 15 pages) set out the particulars of “the value and date of each payment made by the [respondent] to the [appellant]”.^[4]  Paragraph 12(h) alleged by reference to Annexure A that the respondent has overpaid the appellant any monies owed by him in the amount of $160,605.18.  This amount was claimed by way of counterclaim as monies owing as a debt.  At this time, the respondent’s cause of action remained materially unchanged, save for the fact that it was now more fully particularised.
17. [17]
    On 18 January 2021 the proceeding was transferred by consent to the District Court of Queensland.  The respondent filed a further amended defence and counterclaim in the District Court on 5 March 2021.  The amended counterclaim pleaded that the appellant owed fiduciary duties to the respondent which had been breached.  The respondent pleaded that the breach of these fiduciary duties resulted in the First Client Agreement being void.  He sought a declaration to this effect.  In the event the First Client Agreement was found to be void, the respondent claimed the sum of $257,976.36 as set out in Annexure D or, alternatively, if the First Client Agreement was found not to be void, the sum of $222,028.24, being the sum set out in Annexure B and Annexure E.  These sums were sought as equitable compensation or, alternatively, as monies owing as a debt.  Further, for the first time, the respondent also sought “an account of the amounts overpaid by mistake” by the respondent to the appellant under the First Client Agreement.
18. [18]
    On 7 February 2022 the appellant filed an amended statement of claim in the District Court.  This was the first occasion on which the appellant pleaded that the respondent owed amounts under the Second Client Agreement.  As observed by the primary judge:^[5]

“Gone was the schedule from the [appellant’s] first pleading but in its place were two equally lengthy annexures containing even more ‘detail’ about the composition from time to time of the running balance.”

The appellant now sought an order that the respondent pay the sum of $75,565.42.

19. [19]
    On 10 March 2022 the respondent filed a further iteration of the defence and counterclaim in the District Court.  It contained no substantive amendments to the counterclaim.
20. [20]
    On 29 April 2022 the respondent filed a further amended defence and counterclaim in the District Court.  By the amendments to the counterclaim, the respondent sought “[a]n account of the amounts overpaid by mistake by the [respondent] to the [appellant] under the Client Agreements between the [appellant] and the [respondent] dated on or about 10 October 2005 and 18 December 2009”.^[6]  This was the first occasion on which the respondent sought an account in respect of the Second Client Agreement.  As will be seen below, the basis on which the respondent now claims an account is different from the basis pleaded in this iteration of the defence and counterclaim.
21. [21]
    On 20 May 2022 the respondent filed a further iteration of the defence and counterclaim in the District Court.  Again, it contained no substantive amendments to the counterclaim.
22. [22]
    On 29 July 2022 the respondent filed a third further amended defence and counterclaim in the District Court.  By the amendments to the counterclaim, the respondent alleged that the appellant had charged fees more than the hourly rates permissible under the First Client Agreement.  The respondent further alleged that his payments under the First Client Agreement were applied by the appellant as trustee to fees in excess of the amount the appellant was entitled to, and that the appellant had to account to the respondent for the sums paid in excess of proper fees incurred.  As to the Second Client Agreement, the respondent sought an order setting aside this Agreement as well as an account of sums paid in excess of proper fees incurred pursuant to the court’s scale of cost or, alternatively, proper fees incurred and payable pursuant to the First Client Agreement.
23. [23]
    On 19 September 2022 the proceeding was transferred by consent to the Supreme Court of Queensland.  The transfer was necessitated by the respondent seeking to have the Second Client Agreement set aside pursuant to s 316(3) of the Legal Profession Act 2007.
24. [24]
    On 11 October 2022 the respondent filed a fourth further amended defence and counterclaim in the Supreme Court.  At this time, by the amendments to the counterclaim, the respondent’s prayer for relief was relevantly in the following terms:^[7]

“1. A declaration the Plaintiff did not comply with their disclosure obligations pursuant to Chapter 3, Part 3.4, Division 3 of the Legal Profession Act 2007 for the Second Client Agreement and is therefore prohibited from maintaining proceedings against the Defendant pursuant to section 316(2) of the Legal Profession Act 2007 until those costs are assessed under Chapter 3, Part 3.4, Division 7 of the Legal Profession Act 2007;

2. A declaration the Plaintiff holds the sums paid under the First Client Agreement, and further and alternatively the Second Client Agreement, on trust for the Defendant.
3. Equitable compensation for breach of fiduciary duty.
4. Equitable compensation for breach of trust.
5. For the First Client Agreement:

1. payment of $350,704.78;

2. alternatively, an account of the fees paid in excess of proper fees incurred from 27 September 2005.

6. For the Second Client Agreement:

1. a order setting aside the Second Client Agreement;

(aa) payment of $158,295.07;

(ab) alternatively to (a) and (aa) above, payment of $9,126.23 for the Interst [sic] Invoices:

2. further and alternatively to (aa) and (ab) above, an account of sums paid in excess of:

1. proper fees incurred pursuant to the court’s scale of costs;

2. alternatively, proper fees incurred and payable pursuant to the First Client Agreement. …”

25. [25]
    On 2 November 2022 the respondent filed a fifth further amended defence and counterclaim which, in the same terms as the fourth further amended defence and counterclaim, alleged that the appellant overcharged under the First Client Agreement and failed to give adequate disclosure under the Second Client Agreement.  An account was sought in the same terms as the fourth amended defence and counterclaim.  It was this iteration of the defence and counterclaim that was the subject of the application made to the primary judge.
26. [26]
    In short, by the fifth further amended defence and counterclaim, the respondent contends that in respect of the First Client Agreement, he is entitled to an equitable account for a breach of trust because the appellant applied trust funds toward fees which they were not entitled to receive.  In respect of the Second Client Agreement, the respondent contends that he is entitled to an equitable account in respect of a breach of fiduciary duties because the appellant failed to draw certain things about the Second Client Agreement to his attention.  These contentions were first advanced in the third further amended defence and counterclaim filed in the District Court on 29 July 2022.
27. [27]
    On 14 November 2022 the appellant’s solicitors wrote to the respondent’s solicitors identifying that the respondent had not sought or obtained leave to include the claims for an account.  In response, the respondent’s solicitors asserted that the action for an account arose out of facts that were pleaded in its original defence and counterclaim filed in the Magistrates Court on 16 November 2016.  The respondent however intimated that out of an abundance of caution the relevant application under r 376(4) would be made.

This appeal

28. [28]
    The appellant raises the following two grounds of appeal:

“1. The learned primary judge erred in:

1. applying the ‘running account’ principle to determine … that the limitation period in s 10(2) of the Limitation of Actions Act 1974 (Qld) … in respect of the Respondent’s claims for an account was current when the proceeding was commenced;

2. failing to conclude that the relevant limitation for the account sought in respect of the payments made by the Respondent to the Appellant between 17 October 2005 and 12 October 2010 had expired before the commencement of the proceeding.

2. The learned primary judge erred by:

1. failing to undertake an analysis of the pleadings to determine whether the newly pleaded actions for an account arose out of the same, or substantially the same, facts as the earlier pleaded causes of action; and

2. concluding … that the newly pleaded actions for an account arose [out] of the same, or substantially the same, facts as the earlier pleaded causes of action.”

29. [29]
    As will be seen, the conclusion reached in addressing the first ground is sufficient to dispose of the appeal.  It is unnecessary to consider the second ground.

First ground of appeal

30. [30]
    The reference in paragraph 1(b) of the first ground of appeal to “the payments” is to what the appellant refers to as the “first tranche” of payments, being the payments made by the respondent to the appellant under the First Client Agreement between 17 October 2005 and 12 October 2010.  The date 17 October 2005 is the date of the first invoice given to the respondent.  The date 12 October 2010 is the date which is exactly six years before the date on which the appellant commenced the proceeding, namely 12 October 2016.  The first ground of appeal therefore only concerns this first tranche of payments.  The appellant has however, always pleaded the payments made by the respondent both under the First Client Agreement and the Second Client Agreement as constituting payments in the context of a running account over a period of approximately 11 years.  The appellant’s identification of a first tranche of payments, while useful for the purpose of understanding the appellant’s submissions, is artificial and not reflected in the pleadings.^[8]
31. [31]
    The primary judge rejected the appellant’s contention that because each of the payments constituting the first tranche were made more than six years before the proceeding was commenced, an account in respect of those payments was statute-barred at the outset of the proceeding.  In rejecting this contention, his Honour reasoned as follows:

    1. The period of limitation would have only expired in relation to the first tranche of payments if it was accepted that each time the appellant received a payment from the respondent, a new cause of action accrued in respect of that payment.  This was the appellant’s contention relying on the decision of Sifris J in Jane v Bob Jane Corporation Pty Ltd & Anor (“Bob Jane”).^[9]  According to the primary judge, the approach adopted by Sifris J and contended for by the appellant was not applicable to a running account “because any payments that are made are taken to have been on account of the balance generally and not on account of any particular invoice contributing to that balance”.^[10]
    2. In support of this proposition, his Honour referred to the decision of Buckley J in Re Footman Bower & Co Ltd.^[11]  In that case, Buckley J considered that where a running account is concerned, a debtor’s liability is “a single and undivided debt for the amount of the balance due on the account for the time being, without regard to the several items which, as a matter of history, contribute to that balance”.^[12]  It followed that a payment by a debtor “generally on account” imports an acknowledgment of a liability for the whole of the balance outstanding at the date of payment which was sufficient to extend the limitation period and start time running afresh from the date of the acknowledgment.^[13]
    3. Applying the reasoning in Re Footman Bower & Co Ltd, the respondent’s cause of action for an account accrued on the date of his most recent payment, being 29 March 2016.  The relevant limitation period for the whole of the claims for an account was therefore current when the proceeding was commenced.
32. [32]
    The appellant correctly submits that an account may be sought on the basis of either a legal or equitable liability to account.^[14]  In the present case, the account sought by the respondent relied upon the appellant having an equitable liability to account to him.  This proposition may be accepted.
33. [33]
    The appellant submits that the primary judge erred in applying Re Footman Bower & Co Ltd as the analogy was “inapt”.^[15]  Re Footman Bower & Co Ltd concerned the recovery of a debt, namely the balance outstanding on a running account.  It did not involve any claim for an account.  In the present case, the respondent is not seeking to recover a final balance due on a running account, but rather is alleging that on a number of occasions the appellant engaged in unlawful conduct by taking money to which it was not entitled.  The appellant therefore submits that the overall balance of the account at the end of the relationship was irrelevant because the respondent seeks an account in relation to each occasion upon which the funds were appropriated by the appellant.  It should be noted however, that given the nature of a running account and the piecemeal fashion in which the respondent undertook to repay the amount owing (see [12] above), the amount overpaid by the respondent cannot be determined without considering the overall balance of the account at the end of the relationship.
34. [34]
    It can be accepted that the principle expressed in Re Footman Bower & Co Ltd has no analogous application to this case.  Re Footman Bower & Co Ltd stands for the proposition that prima facie a payment made on a running account is in reduction of the total debt rather than in respect of a particular entry in the account.  It follows that the limitation period for a claim for the outstanding balance runs from the time of the last payment.  The case is not authority for the proposition that a limitation period applying to an action for an account in respect of amounts overpaid or misappropriated begins to accrue at the time of the last payment.  Such an action cannot be analogised with a claim for a debt representing the balance of a running account.  Even if such an analogy could be drawn, an acknowledgment by way of part payment by the person having the cause of action is not sufficient.^[16]  In the context of the present case, payment by the respondent cannot be understood as an acknowledgment by the appellant of the respondent’s right or title in his cause of action for an account.^[17]
35. [35]
    Acceptance of this aspect of the appellant’s submission, however, does not resolve the application of the limitation period in s 10(2) of the Limitation Act in the context of the present case.
36. [36]
    The appellant would have this Court adopt the approach taken by Sifris J in Bob Jane.  In that case, Sifris J observed:^[18]

“The accrual of the cause of action for account occurs when the accounting party receives money or property in respect of which he is liable to account.^[19]  Relevantly, the first cause of action for an account accrued when Bob Jane’s loan account was first credited.  Each time that BJC received money by way of a credit to Bob Jane’s loan account, a new cause of action accrued in respect of that credit.”  (original footnote)

37. [37]
    The parties disagree as to whether Sifris J was in fact considering a running account.  It is unnecessary to resolve this point.  Nor is it necessary in dealing with this ground of appeal to express any view as to whether the approach taken by Sifris J is appropriate where a running account is concerned.
38. [38]
    This is because where a claim for an account is raised as a true defence (or a matter properly in the nature of a defence) to a claim for a debt arising out of a running account, no limitation period will apply because the account sought does not constitute a “cause of action” but instead goes directly to undermining the plaintiff’s claim.^[20]  That is, a claim for an account that is “truly defensive” or in the nature of a “pure defence” cannot be defeated by reliance on any statutory period of limitation.^[21]  The point was elucidated by Lord Denning MR in Henriksens Rederi A/S v THZ Rolimpex (“Henriksens”):^[22]

“In point of principle, when applying the law of limitation, a distinction must be drawn between a matter which is in the nature of a defence and one which is in the nature of a cross-claim.  When a defendant is sued, he can raise any matter which is properly in the nature of a defence, without fear of being met by a period of limitation.  No defence, properly so called, is subject to a time-bar.  But the defendant cannot raise a matter which is properly the subject of a cross-claim, except within the period of limitation allowed for such a claim.  A cross-claim may be made in a separate action, or it may be made by way of set off or counterclaim.  But on principle it is always subject to a time-bar.  The period allowable to the defendant depends on the steps which he takes to enforce his cross-claim.  If he brings it by a separate action or arbitration, he must start his proceedings within the prescribed time or else he will be barred.  If he raises it as a ‘claim’ by way of set off or counterclaim the law is governed by section 28 of the Limitation Act 1939, which says:

‘For the purposes of this Act, any claim by way of set off or counterclaim shall be deemed to be a separate action and to have been commenced on the same date as the action in which the set off or counterclaim is pleaded.’”  (original emphasis)

39. [39]
    This passage has been expressly adopted and applied in Australia.^[23]  Both parties sought to rely upon it.  The respondent, for his part, seeks to characterise his claim for an account as a “defence”, properly so-called, which is not subject to any statutory time-bar.^[24]  For its part, the appellant submits that the respondent’s claim is a cause of action which is properly in the nature of an independent “cross-claim” (as Lord Denning MR uses that term) and is subject to the limitation period in s 10(2) of the Limitation Act.^[25]
40. [40]
    In dealing with these submissions, the observations of Lord Denning MR in relation to s 28 of the Limitation Act 1939 (UK) require further consideration.^[26]  The Queensland analogue to s 28 is s 42 of the Limitation Act.  It is expressed in materially identical terms and provides that “a claim by way of set-off or counterclaim shall be deemed to be a separate action and to have been commenced on the same date as the action in which the set-off or counterclaim is pleaded”.  A “set-off” properly so-called is a plea in bar to a claim and constitutes an answer to it.^[27]  A “counterclaim” is no answer to the claim but an independent claim which may be relied on as a cross-demand.^[28]  Importantly, what is contemplated by s 42 is something which is or can be expressed as a “claim”, not something which has a mere status as a defence.^[29]  As will be seen, the essence of the account sought by the respondent in this case is not the prosecution of an independent “cross-claim” in a proceeding against the appellant, but the impugning of the appellant’s right to recover the alleged debt.  It is a true defence, and not a “claim” for the purpose of s 42.  It is therefore not subject to the limitation period in s 10(2) of the Limitation Act.
41. [41]
    If upon the taking of an account the appellant’s claim is wholly extinguished and there is an “over-plus” (to use the language of Lord Denning MR in Henriksens^[30]), given the relationship of solicitor and client, such funds would constitute trust property which is in the possession of the trustee.  In those circumstances, s 27(1)(b) of the Limitation Act would permit the respondent to recover those funds without fear of being met by a period of limitation.
42. [42]
    Contrary to the appellant’s contention that the respondent’s claim is an independent “cross-claim”, no question of set-off or counterclaim in the sense contemplated by s 42 can arise in the present case.  This is because, where a running account is concerned, “it is certain that only the balance can be the debt”.^[31]  As observed by the editors of Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5^th ed, 2015) at [39-010]:

“Both set-off and counterclaim should be kept entirely distinct from the concept of the legal liability which arises from a running account.  When the nature of the dealings between the plaintiff and the defendant necessitates the keeping of an account, consisting of debts and credits, receipts and payments, on both sides, no question of set-off or counterclaim arises.  It is only when a balance has been struck or ascertained, as the result of the taking of an account, that any sum is due by either party to the other.  Set-offs and counterclaims have to do with countervailing claims.  No question of a countervailing claim can arise in the case of a running account.”  (footnotes omitted)

43. [43]
    Classification of the nature of a defence as a true defence or shield, as distinct from being an independent cross-claim, depends not on the procedures by which the defence is raised but upon the substance of it.^[32]  In terms of classifying the respondent’s claim for an account, it is therefore of no consequence that the action for account is pleaded by way of counterclaim.  The focus is on the substance of the action.  This is the essence of what was said by Dixon J (with whom McTiernan J agreed) in McDonnell & East Ltd v McGregor.^[33]  There, Dixon J used the neutral term “cross-demand” and observed that there is “clear distinction” between “a cross-demand affording an answer to the cause of action wholly or in part and a cross-demand which could only be enforced by an independent claim, although in the same proceedings”.^[34]  Having regard to this distinction, his Honour considered that “[w]hen the indebtedness of a plaintiff to a defendant is pleaded by the latter as an answer in whole or in part to the former’s claim, lapse of time will not bar the answer unless the indebtedness accrued more than the statutory period before the issue of the plaintiff’s writ”.^[35]
44. [44]
    Considering the parties’ mutual acknowledgment that the transactions between them constitute a running account (see [13] above), it is necessary in dealing with their submissions to further consider the true nature of such an account.  In Meriton Apartments Pty Ltd v Owners Strata Plan No 72381,^[36] Slattery J observed:

“Apartments acknowledges there is no strict legal definition of the term ‘running account’.  But judges have ventured various practical definitions of the term.  A ‘running account’ has been described as ‘a current account where the debtor/creditor relationship of the parties is recorded in one entire account into which all liabilities and payments are carried in order of date as a course of dealing extending over a considerable period’: Re Footman Bower & Co Ltd [1961] Ch 443 at 450; [1961] 2 All ER 161 at 165, per Buckley J (as his Lordship then was).  The Court of Appeal in New South Wales has described a ‘running account’ as ‘where there is truly a running account, there is a single balance which is the product of mutual dealings in the past’: Santos Coffee Co Pty Ltd v Director Freight Express Pty Ltd [2010] NSWCA 14 at [41].  Wiley v Eastern Elevators Pty Ltd (2003) 45 ACSR 261; 175 FLR 344; [2003] NSWSC 377 at [29], described a running account as arising in circumstances where ‘the transactions between the parties … resulted in a fluctuating balance with the payments made from time to time against services provided and to be provided, that is, to the general balance of the account’, a situation which is to be contrasted with an account in which ‘each party was specifically related with a specific invoice representing a particular ‘progress payment’ for past work’.”

45. [45]
    Whether a payment is part of a running account has been separately considered in the context of whether the payment has given a preference to one creditor over others.  In Airservices Australia v Ferrier,^[37] Dawson, Gaudron and McHugh JJ observed:

“The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded.  Ordinarily, a payment, although often matching an earlier debit, is credited against the balance owing in the account.  Thus, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt or by transferring the debt to the Bad or Doubtful Debt A/c.”

46. [46]
    Having regard to these views, a running account is a single, blended account and not a composite of its various parts.  In a practical sense, it is a single transaction which arises out of a single course of dealing and gives rise to a single, undivided debt for the amount of the balance due.  Where a running account is concerned, the taking of an account, or relief in the nature of an account, seeks to determine the true amount of that balance.  As has already been observed at [33] above, for a court in this case to determine, by the taking of an account, the amounts paid by the respondent in excess of the proper amounts incurred, it will be necessary to have regard to the balance of the running account.  It is in this context that the appellant seeks payment of a debt which derives from the very same balance.
47. [47]
    Any dispute concerning the transactions affecting the true balance of a running account gives rise to “one consuming cause of action”.^[38]  On the respondent’s pleaded case, the appellant’s title to its legal claim for payment of the debt would not have arisen had the appellant not breached the duties that it owed to the respondent.  It is in this sense that the account sought by the respondent is wholly intrinsic to (or is necessarily bound up with and goes to the root of, or undermines^[39]) the appellant’s claim for payment of the alleged debt.  In circumstances such as these, where the dispute is as to the true balance of a running account, the account sought by the respondent cannot constitute a countervailing claim.  Further, if the ultimate balance of the running account is found to favour the respondent, the taking of the account will be “truly defensive”^[40] in that it goes directly to undermine the appellant’s claim for payment of the alleged debt.  The appellant’s claim is in this way conditional, and depends for its existence, on the taking of the account.  This is consistent with the notion that a running account gives rise to a single, undivided debt for the amount of the balance due.  The account sought by the respondent is therefore to be properly understood as a true defence in substance.  It is not a “cause of action” and cannot be defeated by reliance on the limitation period in s 10(2) of the Limitation Act.
48. [48]
    This conclusion is sufficient to dispose of the first ground of appeal.  It is also sufficient to dispose of the second ground because, in circumstances where the account sought by the respondent is not a cause of action and is not subject to a statutory period of limitation, an application pursuant to r 376(4) was unnecessary.

Disposition

49. [49]
    The following orders should be made:

1. The appeal be dismissed.
2. The appellant pay the respondent’s costs of the appeal.

50. [50]
    HENRY J: I agree with the reasons of Flanagan JA and the orders proposed by his Honour.