Caratti v Caratti [No 3]
[2014] WASC 246
•11 JULY 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CARATTI -v- CARATTI [No 3] [2014] WASC 246
CORAM: ALLANSON J
HEARD: 16 APRIL 2014
DELIVERED : 11 JULY 2014
FILE NO/S: CIV 2006 of 2008
BETWEEN: JOHN MICHAEL CARATTI
Plaintiff
AND
ALLEN BRUCE CARATTI
First DefendantTINA MICHELLE BAZZO
Second DefendantKARENE MARIE THOMSON
Fourth DefendantLYONS ROAD LAND COMPANY PTY LTD
Fifth DefendantANKETELL LAND COMPANY PTY LTD
Sixth DefendantGUCCE HOLDINGS PTY LTD
Seventh DefendantGUCCE DEVELOPMENTS PTY LTD
Eighth DefendantMARCIA NATALIE SPARGO
Ninth DefendantDAWNLINK PTY LTD
Tenth DefendantNICOLE MADLEINE CARATTI
Eleventh DefendantMADDELEINE CARATTI
Twelfth DefendantALISHA BETH CARATTI
Thirteenth DefendantJOSEPHINE LYNETTE BAZZO
Fifteenth DefendantPAUL JOHN MANSUTTI
Sixteenth DefendantANKETELL LAND HOLDINGS COMPANY PTY LTD
Seventeenth DefendantBERNGUARD DEVELOPMENTS PTY LTD
Eighteenth DefendantDONCASTER ASSET PTY LTD
Nineteenth DefendantMAMMOTH NOMINEES PTY LTD
Twentieth DefendantMORTIMER LAND COMPANY PTY LTD
Twenty-first DefendantNEWHOME NOMINEES PTY LTD
Twenty-second DefendantOAKFORD LAND COMPANY PTY LTD
Twenty-third DefendantSTARBRAKE HOLDINGS PTY LTD
Twenty-fourth Defendant
STARBRAKE PTY LTD
Twenty-fifth DefendantSUNLAND ASSET PTY LTD
Twenty-sixth DefendantTREVALLEY INVESTMENTS PTY LTD
Twenty-seventh DefendantTURNBERRY NOMINEES PTY LTD
Twenty-eighth DefendantWEDGEPOINT PTY LTD
Twenty-ninth DefendantWESTSWAN LAND COMPANY PTY LTD
Thirtieth DefendantCAMDALE NOMINEES PTY LTD
Thirty-first defendantMOONDANCER HOLDINGS PTY LTD
Thirty-second DefendantODD BALLS (WA) PTY LTD
Thirty-third defendantMAMMOTH FINANCE PTY LTD
Thirty-fourth DefendantWESTRALIA PROPERTY HOLDINGS PTY LTD
Thirty-fifth Defendant109 ST GEORGES TERRACE PTY LTD
Thirty-sixth Defendant1110 HAY PTY LTD
Thirty-seventh DefendantGEORGE 218 PTY LTD
Thirty-eighth DefendantGOLDTUNE INVESTMENTS PTY LTD
Thirty-ninth DefendantMONTVISTA PTY LTD
Fortieth DefendantGREAT NORTHERN LAND COMPANY PTY LTD
Forty-first DefendantBELLAGE PTY LTD
Forty-second DefendantBLUEBEACH HOLDINGS PTY LTD
Forty-third DefendantANKETELL FARMS PTY LTD
Forty-fourth DefendantWESTEND ASSET PTY LTD
Forty-fifth DefendantMOSHEE PTY LTD
Forty-sixth DefendantGUCCE RANFORD ROAD PTY LTD
Forty-seventh DefendantGUNAROO INVESTMENTS PTY LTD
Forty-eighth DefendantPARKDALE ASSET PTY LTD
Forty-ninth DefendantSTARSKY PTY LTD
Fiftieth Defendant89 BURSWOOD ROAD PTY LTD
Fifty-first DefendantNICHE GROUP (WA) PTY LTD
Fifty-second DefendantOCEAN KEYS (WA) PTY LTD
Fifty-third DefendantPARLIAMENT PLACE PTY LTD
Fifty-fourth DefendantPRADA PTY LTD
Fifth-fifth DefendantHERDSMAN TECHNOLOGY LIMITED
Fifty-sixth DefendantWHITBY LAND COMPANY PTY LTD
Fifty-seventh DefendantHUSKER HOLDINGS PTY LTD
Fifty-eighth DefendantDELTA ACE PTY LTD
Fifty-ninth DefendantSUCCESS ASSET PTY LTD
Sixtieth DefendantCHRISTINA MARCIA CARATTI
Sixty-first DefendantNATALIE ROCHELLE CARATTI
Sixty-second DefendantBENJAMIN MICK CARATTI
Sixty-third DefendantOPAL NIGHT PTY LTD
Sixty-fourth DefendantRICH NIGHT PTY LTD
Sixty-fifth Defendant130 FAUNTLEROY AVENUE (WA) PTY LTD
Sixty-sixth DefendantYANCHEP INVESTMENTS PTY LTD
Sixty-seventh DefendantTAAC PTY LTD
Sixty-eighth DefendantTIMEDRIFT (WA) PTY LTD
Sixty-ninth DefendantMICHAEL NEAL CARATTI
Seventieth DefendantAARON GRANT CARATTI
Seventy-first DefendantREBECCA ANNE CARATTI
Seventy-second DefendantNATHAN JOHN CARATTI
Seventy-third Defendant
Catchwords:
Practice and procedure - Application by defendants for dismissal of partnership claim allegations - Whether abuse of process - Improper purpose for asserting facts
Practice and procedure - Alternative application for trial of a preliminary issue - Separation of issues not possible - No saving in time or cost
Legislation:
Corporations Act 2001 (Cth), s 206A, s 206B
Crimes Act 1914 (Cth), s 5(1), s 29D, s 86A
Partnership Act 1895 (WA), s 45
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B, O 32 r 4
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr D Ryan SC
First Defendant : No appearance
Second Defendant : Mr G D Cobby
Fourth Defendant : Mr G D Cobby
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : Mr G D Cobby
Eighth Defendant : Mr G D Cobby
Ninth Defendant : Mr G D Cobby
Tenth Defendant : Mr G D Cobby
Eleventh Defendant : No appearance
Twelfth Defendant : No appearance
Thirteenth Defendant : Mr G D Cobby
Fifteenth Defendant : Mr G D Cobby
Sixteenth Defendant : Mr G D Cobby
Seventeenth Defendant : No appearance
Eighteenth Defendant : No appearance
Nineteenth Defendant : No appearance
Twentieth Defendant : No appearance
Twenty-first Defendant : No appearance
Twenty-second Defendant : No appearance
Twenty-third Defendant : No appearance
Twenty-fourth Defendant : No appearance
Twenty-fifth Defendant : No appearance
Twenty-sixth Defendant : No appearance
Twenty-seventh Defendant : No appearance
Twenty-eighth Defendant : No appearance
Twenty-ninth Defendant : No appearance
Thirtieth Defendant : No appearance
Thirty-first defendant : Mr G D Cobby
Thirty-second Defendant : No appearance
Thirty-third defendant : Mr G D Cobby
Thirty-fourth Defendant : No appearance
Thirty-fifth Defendant : No appearance
Thirty-sixth Defendant : Mr G D Cobby
Thirty-seventh Defendant : Mr G D Cobby
Thirty-eighth Defendant : Mr G D Cobby
Thirty-ninth Defendant : Mr G D Cobby
Fortieth Defendant : Mr G D Cobby
Forty-first Defendant : Mr G D Cobby
Forty-second Defendant : Mr G D Cobby
Forty-third Defendant : Mr G D Cobby
Forty-fourth Defendant : Mr G D Cobby
Forty-fifth Defendant : Mr G D Cobby
Forty-sixth Defendant : Mr G D Cobby
Forty-seventh Defendant : Mr G D Cobby
Forty-eighth Defendant : Mr G D Cobby
Forty-ninth Defendant : Mr G D Cobby
Fiftieth Defendant : Mr G D Cobby
Fifty-first Defendant : Mr G D Cobby
Fifty-second Defendant : Mr G D Cobby
Fifty-third Defendant : Mr G D Cobby
Fifty-fourth Defendant : Mr G D Cobby
Fifth-fifth Defendant : Mr G D Cobby
Fifty-sixth Defendant : No appearance
Fifty-seventh Defendant : No appearance
Fifty-eighth Defendant : Mr G D Cobby
Fifty-ninth Defendant : Mr G D Cobby
Sixtieth Defendant : Mr G D Cobby
Sixty-first Defendant : No appearance
Sixty-second Defendant : No appearance
Sixty-third Defendant : No appearance
Sixty-fourth Defendant : No appearance
Sixty-fifth Defendant : No appearance
Sixty-sixth Defendant : Mr G D Cobby
Sixty-seventh Defendant : Mr G D Cobby
Sixty-eighth Defendant : No appearance
Sixty-ninth Defendant : Mr G D Cobby
Seventieth Defendant : No appearance
Seventy-first Defendant : No appearance
Seventy-second Defendant : No appearance
Seventy-third Defendant : No appearance
Solicitors:
Plaintiff: Lemonis/Tantiprasut Lawyers
First Defendant : No appearance
Second Defendant : Roe Legal Services
Fourth Defendant : Roe Legal Services
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : Roe Legal Services
Eighth Defendant : Roe Legal Services
Ninth Defendant : Roe Legal Services
Tenth Defendant : Roe Legal Services
Eleventh Defendant : No appearance
Twelfth Defendant : No appearance
Thirteenth Defendant : Roe Legal Services
Fifteenth Defendant : Roe Legal Services
Sixteenth Defendant : Roe Legal Services
Seventeenth Defendant : No appearance
Eighteenth Defendant : No appearance
Nineteenth Defendant : No appearance
Twentieth Defendant : No appearance
Twenty-first Defendant : No appearance
Twenty-second Defendant : No appearance
Twenty-third Defendant : No appearance
Twenty-fourth Defendant : No appearance
Twenty-fifth Defendant : No appearance
Twenty-sixth Defendant : No appearance
Twenty-seventh Defendant : No appearance
Twenty-eighth Defendant : No appearance
Twenty-ninth Defendant : No appearance
Thirtieth Defendant : No appearance
Thirty-first defendant : Roe Legal Services
Thirty-second Defendant : No appearance
Thirty-third defendant : Roe Legal Services
Thirty-fourth Defendant : No appearance
Thirty-fifth Defendant : No appearance
Thirty-sixth Defendant : Roe Legal Services
Thirty-seventh Defendant : Roe Legal Services
Thirty-eighth Defendant : Roe Legal Services
Thirty-ninth Defendant : Roe Legal Services
Fortieth Defendant : Roe Legal Services
Forty-first Defendant : Roe Legal Services
Forty-second Defendant : Roe Legal Services
Forty-third Defendant : Roe Legal Services
Forty-fourth Defendant : Roe Legal Services
Forty-fifth Defendant : Roe Legal Services
Forty-sixth Defendant : Roe Legal Services
Forty-seventh Defendant : Roe Legal Services
Forty-eighth Defendant : Roe Legal Services
Forty-ninth Defendant : Roe Legal Services
Fiftieth Defendant : Roe Legal Services
Fifty-first Defendant : Roe Legal Services
Fifty-second Defendant : Roe Legal Services
Fifty-third Defendant : Roe Legal Services
Fifty-fourth Defendant : Roe Legal Services
Fifth-fifth Defendant : Roe Legal Services
Fifty-sixth Defendant : No appearance
Fifty-seventh Defendant : No appearance
Fifty-eighth Defendant : Roe Legal Services
Fifty-ninth Defendant : Roe Legal Services
Sixtieth Defendant : Roe Legal Services
Sixty-first Defendant : No appearance
Sixty-second Defendant : No appearance
Sixty-third Defendant : No appearance
Sixty-fourth Defendant : No appearance
Sixty-fifth Defendant : No appearance
Sixty-sixth Defendant : Roe Legal Services
Sixty-seventh Defendant : Roe Legal Services
Sixty-eighth Defendant : No appearance
Sixty-ninth Defendant : Roe Legal Services
Seventieth Defendant : No appearance
Seventy-first Defendant : No appearance
Seventy-second Defendant : No appearance
Seventy-third Defendant : No appearance
Case(s) referred to in judgment(s):
AWB Ltd v Cole (No 2) [2006] FCA 913; (2006) 233 ALR 453
Batistatos v Roads and Traffic Authority of NSW [2006] HCA 27; (2006) 226 CLR 256
Caratti v Caratti [No 2] [2014] WASC 65
Caratti v The Queen [2000] WASCA 279; (2000) 22 WAR 527
Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47
CGU Insurance Ltd v Lawless [2008] VSCA 38
Commissioner for Corporate Affairs v Bracht [1989] VicRp 72; [1989] VR 821
Fazio v Fazio [2012] WASCA 72
Holpitt Pty Ltd v Swaab (1992) 33 FCR 474
Hudgell Yeates Co v Watson [1978] QB 451
Issitch v Worrell [2000] FCA 477
Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75
Landsdale Pty Ltd v Moore [2009] WASCA 176
Moondancer Holdings Pty Ltd v Navarac Pty Ltd [2011] WASC 250
Ridgeway v The Queen [1995] HCA 66; (1995) 184 CLR 19
Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1
Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509
ALLANSON J: There have been earlier interlocutory decisions in these proceedings, in which I have set out background information, and a short description of the issues pleaded between the parties: see Caratti v Caratti [No 2] [2014] WASC 65, and Moondancer Holdings Pty Ltd v Navarac Pty Ltd [2011] WASC 250. I will not now repeat that material. I have again adopted shorthand terms used in the pleadings (for example, the Family Business, the 2002 Companies, the Allen Caratti Interest Companies), as well as the practice of referring to groups of defendants by the firm of solicitors representing them. I refer to members of the Caratti family by their first name.
The Roe defendants bring this application seeking to in some way limit, or dispose of in a preliminary application, allegations by John Caratti relating to the partnership with his brother Allen.
The first part of the application is an allegation of abuse of process. The Roe defendants submit that John Caratti must know, or must be taken to know, that his pleaded allegation that he and Allen carried on business in partnership in respect of the Family Business has no basis in fact. They submit that in a criminal trial in 1999, John gave evidence which is inconsistent with the case he now pleads to the extent that the plea of a partnership is an abuse of process. On this basis they seek an order that the allegations pleaded in pars 11, 12, 13, 18 and 19 of the statement of claim be dismissed or stayed.
The second part of the application, an alternative, is for limited issues relating to the partnership to be tried as preliminary issues in the action.
The abuse of process
The paragraphs challenged, pars 11, 12, 13, 18, and 19, assert:
11.In or about 1978 or 1979, due to the restructure of the Family Business resulting in assets being transferred to The JM Trusts (as particularised at paragraph 1.3(g) of the Amended Particulars), the Plaintiff and the First Defendant entered into an oral agreement by which they agreed that with respect to the entities which were in their respective control or which came into their respective control or in which they held any beneficial interest:
(a)they would operate these entities going forward as a partnership between the Plaintiff and the First Defendant;
(b)notwithstanding whether any asset or interest was:
(i)held in the name of The JM Trusts or the Plaintiff or in an entity controlled by the Plaintiff; or
(ii)held in the name of The AB Trusts or the First Defendant or in an entity controlled by the First Defendant,
those assets and interests would be treated as assets of the partnership and would be accounted for on the dissolution of same on the basis that:
(iii)the Plaintiff and his children (of one part); and
(iv)the First Defendant and his children (of the other part),
were entitled to the value of one half of such assets and interests in such an accounting;
(c)in respect of any assets or interests acquired by the Plaintiff or the First Defendant or entities in their control in the future, such assets or interests would be accounted for on the dissolution of same on the basis that:
(i)the Plaintiff and his children (of one part); and
(ii)the First Defendant and his children (of the other part),
were entitled to the value of one half of such assets and interests in such an accounting;
(d)upon the Plaintiff reaching the age of 65 years, the partnership would dissolve with the assets and interests of the partnership being allocated so that the net value of the assets and interests held by:
(i)the Plaintiff and his children (of one part); and
(ii)the First Defendant and his children (of the other),
would be equal ('Oral Agreement').
Particulars of Oral Agreement
The Oral Agreement was made in or about 1978 during discussions between the Plaintiff and the First Defendant at the First Defendant’s then residence on Mt Howick farm in Esperance and at 517 Great Eastern Highway, Redcliffe.
12On or about 1 June 1989 the Plaintiff and the First Defendant entered into a written agreement entitled 'Deed of Partnership', with the common intention that the Deed of Partnership would put into writing the substance of that which had been agreed in the Oral Agreement (the 'Partnership Deed' and the partnership confirmed in writing thereby being 'the Partnership').
13By an express written term of the Partnership Deed the Plaintiff and the First Defendant agreed that they presently and would from the date of the Partnership Deed carry on in common the business contemplated by the Partnership Deed with a view to profit with each partner entitled to 50% of the profit and losses of the Partnership.
18As from the date of the Oral Agreement, or alternatively as at the date of the Partnership Deed and at all times thereafter, the Business of the Partnership was and has been property acquisition, property development and sale of developed property, property rental, earth moving and farming business.
19From the time of the Oral Agreement, or alternatively as at the date of the Partnership Deed and at all times thereafter, the Plaintiff and the First Defendant carried on the Business of the Partnership at premises at 515 ‑ 517 Great Eastern Highway, Redcliffe ('Partnership Premises') through the various entities in their control at the time and through new entities incorporated by them on the express basis of the Partnership …
Paragraph 19 then lists various entities 'which acquired property in furtherance of the Partnership'. With two exceptions (Newhome Nominees Pty Ltd and Galveston Pty Ltd) these companies are subject to the 2002 Deed, or the claim to rectify that Deed.
The Roe defendants have put in evidence John's testimony (pages 5982 to 6428 of the trial transcript) from his criminal trial in 1999. They rely upon a series of extracts from that evidence, collected in an aide memoire.
The criminal trial was on an indictment alleging an unlawful conspiracy between four members of the Caratti family: Sergio, Maddeleine, John and Allen. In particulars of the charge, the Crown alleged an agreement to deprive the Commonwealth of group tax payments to which the Commonwealth was entitled, as and when the opportunity arose in respect of business entities controlled by one or more of the conspirators from time to time, by effectively concealing from the Commonwealth the full extent of wage payments being made to various persons by such entities: see Caratti v The Queen [2000] WASCA 279; (2000) 22 WAR 527 [10] - [11]. The conspiracy was alleged to have been implemented in respect of eight business entities including Robinswood Pty Ltd from July 1989, and Venetian Nominees Pty Ltd from November 1989. Of the eight entities in issue in the criminal trial, those are the only two companies that John pleads were vehicles through which his partnership with Allen was conducted.
The first of the extracts from the transcript relates to evidence about events in 1977 (the time of the restructure of the Caratti Family Business as pleaded in the statement of claim). In effect, John said that, in 1977, his father (Sergio) was engaged in organising or re‑organising the companies with the assistance of a tax expert. John said that while he was a director of several companies, it was his father who insisted that he and Allen were to be put on the boards of these companies. He and Allen were not given control of the companies. They were all controlled by Sergio, who considered that all of the income and assets of the companies which he owned directly, or controlled through his family and shareholdings, were his. John said that his father maintained control until he died in 1992.
John described his own role as some 'nuts and bolts, the gofer type thing', including occasionally employing people, but otherwise doing what he was told. However, he also agreed that he had on several occasions dealt with property belonging to a Caratti entity and endorsed the proceeds over to his wife.
John said that Allen's involvement was confined to the farm at Mount Howick.
The Roe defendants compare the evidence given by John in the criminal trial with the plea in the current proceedings that the partnership commenced in either 1978 or 1979, alternatively 'as at' the date of the Partnership Deed in 1989. They submit that on the evidence that John gave at his criminal trial, and in the absence of any evidence to the contrary, there is no basis in fact for the allegation that John and Allen carried on business in partnership in respect of the Family Business before the death of their father.
The evidence given by John at his criminal trial is reflected at various points in the defences in the current proceedings, where the defendants plead that John has never carried on business in his own name; and that at all material times prior to his father's death, John did not exercise any control over the companies of which he was a director but acted solely at the dictate of his father: see, for example, substituted defence of the Metaxas defendants, par 9.2.
The question posed in this application is whether, in light of that evidence, it is an abuse of process for John to maintain his plea of a partnership with Allen, commencing in 1978. There is no doubt that it will be burdensome for the defendants to respond to the allegations pleaded by John regarding the partnership. The allegations span more than 30 years, and relate to many entities and transactions. That does not in itself make the plea an abuse of process. The categories of abuse of process are not closed, and the courts do not take a narrow view of what can constitute an abuse of process: Ridgeway v The Queen [1995] HCA 66; (1995) 184 CLR 19, 75; Batistatos v Roads and Traffic Authority of NSW [2006] HCA 27; (2006) 226 CLR 256; Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75. But the concept of abuse of process involves some misuse of the process of the court in a manner that has been variously described as seriously and unfairly burdensome, prejudicial or damaging, or in some way such as to bring the administration of justice into disrepute.
While not intended to be limiting, there are accepted categories of abuse of process:
(a) proceedings which involve a deception on the court, or are fictitious or constitute a mere sham;
(b) proceedings where the process of the court is not being fairly or honestly used but is employed for some ulterior or improper purpose or in an improper way;
(c)proceedings which are manifestly groundless or without foundation or which serve no useful purpose;
(d) multiple or successive proceedings which cause or are likely to cause improper vexation or oppression: see Jeffery & Katauskas [27].
The Roe defendants' application does not fit within any of these categories. They rely on the general pleading rule that prohibits a party from pleading an inconsistent set of facts in the alternative where one of those sets of facts must be known to the party to be false: see CGU Insurance Ltd v Lawless [2008] VSCA 38; Issitch v Worrell [2000] FCA 477. In CGU Insurance, Redlich JA (Maxwell P and Neave JA agreeing) said:
Such a pleading is embarrassing and will be struck out. The rationale for this pleading principle is that it would be an abuse of the Court's process to permit facts to be pleaded which deliberately place on the record positive statements of fact, one or other of which must be known by the pleading party to be untruthful [27].
In effect, the Roe defendants submit that because John has pleaded a case that is inconsistent with evidence he gave on an earlier occasion, he must know or be taken to know that his present pleading is false. They submit that the cases referred to support a more general principle that it is an abuse of process 'to permit facts to be pleaded which deliberately place on the record statements of fact known by the pleading party to be untruthful'.
The plaintiff responds that the extracts from the transcript of the criminal trial do not establish that the pleaded case is necessarily false and known to be so. First, the issue in that trial was related only to the question of criminal liability. Second, there was no evidence (and no questions) about the existence of an agreement between the two brothers, and no reference to the partnership agreement which, it is common ground, they signed in 1989. Third, the trial was not concerned with conduct in relation to the entities which are the subject of the present partnership dispute.
The plaintiff also submits that the cases relied on do support a practice of striking out a pleading by showing, by evidence, that statements in it are or are likely to be untrue. I accept that submission. This is not a case where the court could find, on the basis of the evidence adduced, that John has pleaded facts that he does not genuinely maintain. In such a case, the inference may be drawn that a party has some extraneous reason for asserting those facts, and the plea may amount to an abuse of process: see, for example, Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509. The abuse of process is not that the pleaded facts may not be true, but the improper purpose for asserting those facts. That has not been shown here. And I do not read CGU Insurance and Issitch v Worrell as establishing a more general rule that would support striking out the statement of claim on the basis asserted in this application. There is no question here of the plaintiff pursuing necessarily inconsistent cases, where he must know one to be false. In such a case, the inconsistency is patent, and the party pleading should be required to elect which of the two cases it will maintain. That is quite different from the court determining, on a summary basis, that the case now pleaded is necessarily false because it is inconsistent with evidence given on another occasion and striking it out.
As well as relying on the evidence in the criminal trial, the Roe defendants assert that documents discovered to date would not be sufficient to establish a partnership. The plaintiff submits that there is evidence consistent with the case now pleaded, referring in particular to evidence given by Allen in other proceedings between the brothers and entities associated with them. This is not, however, the occasion to enter into a consideration of the evidence.
The preliminary issues
The second part of the application, an alternative, is that the following issues be tried as preliminary issues in the action:
(a)whether an agreement was made between John and Allen as alleged in par 11 of the substituted statement of claim;
(b)whether John and Allen carried on business in partnership as alleged in par 19 of the statement of claim;
(c)further and in the alternative, whether any partnership carried on between John and Allen as alleged in par 19 was dissolved by operation of law upon:
(i)John's conviction in 1997 for having been knowingly concerned in the commission of offences against s 5(1) and s 29D of the Crimes Act 1914 (Cth);
(ii)alternatively, John's conviction on or about 4 June 1999 for having conspired to defraud the Commonwealth, contrary to s 86A of the Crimes Act.
Order 32 r 4 of the Rules of the Supreme Court 1971 (WA) provides that the court may order that any question or issue arising in a cause, whether of law or fact or partly of law and partly of fact, be tried separately before trial of the proceedings. The authorities on the considerations relevant to this rule have been collected and summarised conveniently by McKechnie J in Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47 [3] ‑ [4]; see also AWB Ltd v Cole (No 2) [2006] FCA 913; (2006) 233 ALR 453 [26] ‑ [40] (Young J). The authorities abound with counsels of caution: see, for example, Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 [168] ‑ [170]; Landsdale Pty Ltd v Moore [2009] WASCA 176 [19] ‑ [21].
In deciding whether to order the trial of a preliminary issue the court must have regard to O 1 r 4A and O 1 r 4B of the Rules of the Supreme Court, and follow the course that best ensures the attainment of the objects set out in those rules. But those objects are consistent with the considerations referred to in the earlier authorities, even though many of those authorities preceded the introduction of case management: see Landsdale Pty Ltd v Moore [19] ‑ [21]. It is still necessary to consider whether the issues for separate determination can be clearly stated and finally answered without the court having to resolve complex contested issues of fact. Unless an issue can be clearly defined and determined in isolation, the objectives of case flow management are unlikely to be met. If the issue will require extensive evidence, and may result in appeals, but will not finally determine the outcome of the case, it is unlikely that there will be real savings in time and cost.
Issue 1: Whether an agreement was made between John and Allen as alleged in par 11 of the substituted statement of claim
Issue 2: Whether John and Allen carried on business in partnership as alleged in par 19 of the statement of claim
This is not a case where the issues can be stated in terms of the legal consequences of agreed facts, or facts which will be found from identified and agreed documents. The court would necessarily have to determine disputed questions of fact regarding the conduct of the parties over a period of some years.
Paragraph 11 of the statement of claim alleges that John and Allen made an oral agreement with respect to the entities which were in their respective control, or which came into their respective control, or in which they held any beneficial interest. The agreement was made over more than one discussion: the particulars plead discussions between John and Allen at the Mount Howick farm in Esperance (Allen's then residence) and at 517 Great Eastern Highway, Redcliffe. While the 'discussions' may be a discrete topic, evidence of the parties' subsequent conduct is admissible on the question of whether a contract was formed, its subject matter, and in the identification of its necessary terms: see, for example, Fazio v Fazio [2012] WASCA 72 [193].
Whether the oral agreement was made, as pleaded in par 11, does not conclude the issue of a partnership. John also pleads, in par 12, that he and Allen made the Partnership Deed in 1989 to put into writing the substance of what they had agreed orally. Paragraphs 18 and 19 plead, in effect, that the partnership carried on business from the time of the oral agreement, or alternatively as at the date of the Partnership Deed and at all times thereafter.
Again, subsequent conduct is clearly relevant.
For the period after 1989, there is the additional factor of the signing of the Partnership Deed, and the explanation pleaded by Allen (and the other defendants) regarding the circumstances and purpose of that document. These are additional and significant factual issues that would require determination.
I am also not satisfied that the separation of issues can be achieved in such a way that determination of the 'preliminary' issues would lead to sufficient saving in time and cost to justify the course proposed.
Were the court to decide in favour of John on the question of the formation of the partnership, many pleaded issues would still have to be determined. Did the parties abandon the partnership (Roe defence pars 10.8 and 12.12)? What was the effect of John's convictions on the continuation of the partnership (Roe defence par 11)? To what extent has property that is partnership property, subject to the partnership agreement, been used for the benefit of other parties, (see, for example, statement of claim par 40(iv))? The ultimate questions are whether and how property is to be distributed on the winding up of the partnership. The court must also determine the claims by John against other defendants, where John has alleged knowing participation in breaches of fiduciary duty.
The court must also have regard to the alternative plea based on the 2002 Deed and the 2002 Arrangement. John pleads that Allen was subject to duties under the 2002 Arrangement, including duties to give his whole time and attention to the business of the 2002 Arrangement; to be just and faithful to John; to use his best endeavours in carrying on the business of the 2002 Arrangement and to promote the interests of the business of the 2002 Arrangement; not to engage in any other business; and not to lend money or property of the companies or other entities subject to the 2002 Arrangement, or to give security over their assets. In par 30 of the statement of claim, he pleads that the nature of the 2002 Arrangement was such that it imposed fiduciary duties on Allen.
Specific pleas regarding breach of the partnership agreement are expressed, in the alternative, as breaches of the 2002 Deed; breaches of fiduciary duties are alleged, alternatively, as breach of duties owed under the partnership or the 2002 Arrangement; assets and property are alleged to be held on constructive trust for the partnership, alternatively the 2002 Arrangement. Pleas regarding estoppel are similarly expressed in the alternative. The allegations against some of the Roe defendants, and in particular Ms Bazzo, include that they knowingly assisted Allen in conduct in breach of his fiduciary duties. These allegations are pleaded with regard to duties owed under the partnership, alternatively the 2002 Arrangement.
As a result, even if the court were to decide the partnership question in favour of Allen, the factual questions regarding the parties' entitlement to the assets or 'beneficial interests' of the various companies, and whether and how they are to be distributed between John and Allen, would remain. The allegations of breach of fiduciary duty, and participation in that breach, would still need to be determined on the alternative basis. I have no reason to believe that a determination of the proposed preliminary issue would lead to settlement of the action or obviate the need for a long and expensive hearing.
In these circumstances, I can see no convincing reason to depart from the usual course of determining all legal and factual issues at the same time. The various strands of the case pleaded by John cannot be disentangled in such a way as to permit a discrete determination of any part of them ‑ or at least not the parts identified in these issues.
Finally, in regard to the first two issues, I cannot discount the likelihood that any decision on a preliminary determination would result in an appeal.
Issue 3: Whether any partnership was dissolved by operation of law
Section 45 of the Partnership Act 1895 (WA) provides:
A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on, or for the members of the firm to carry it on in partnership.
The Roe defendants submit that as a consequence of John's convictions, or either of them, and by operation of s 45 of the Partnership Act, the partnership was dissolved. Although the issue in this proposal is more closely defined, the considerations set out above again apply. In particular, should I be satisfied the partnership was dissolved, the alternative claim for relief under the 2002 Arrangement would proceed.
The claim that the partnership was dissolved by operation of law would, itself, require significant factual inquiry.
Some matters can be readily and swiftly determined.
Under s 206B of the Corporations Act 2001 (Cth) (and under the Corporations Law in force at the time of conviction), a person becomes disqualified from managing corporations if the person is convicted of an offence of dishonesty that is punishable by imprisonment for at least 3 months. The disqualification starts on the day of conviction and lasts 5 years after the day on which they are released from prison. A person who is disqualified commits an offence if they engage in the conduct set out in s 206A, by which:
(1)A person who is disqualified from managing corporations under this Part commits an offence if:
(a)they make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(b)they exercise the capacity to affect significantly the corporation’s financial standing; or
(c)they communicate instructions or wishes (other than advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation:
(i)knowing that the directors are accustomed to act in accordance with the person’s instructions or wishes; or
(ii)intending that the directors will act in accordance with those instructions or wishes.
Counsel for the plaintiff referred, in written submissions, to a possible divergence in the authorities regarding the scope of what it means to take part in the 'management' of a company: compare Commissioner for Corporate Affairs v Bracht [1989] VicRp 72; [1989] VR 821 and Holpitt Pty Ltd v Swaab (1992) 33 FCR 474. It is not necessary for the purpose of these reasons to enter that area. This is not a situation, such as that in Hudgell Yeates Co v Watson [1978] QB 451, where by statute a partnership between a solicitor and an unqualified person (a person who did not hold a practising certificate) was prohibited. Nor does it involve a necessary incident of the partnership relationship, such as sharing of profits, being unlawful. John was disqualified from particular conduct, but not from carrying on the businesses that he alleges were carried on by the partnership, or from carrying on business in partnership.
The preliminary question would require the court to determine whether, to carry on business in partnership with Allen, John was required to (lawfully) manage the various corporations through which the partnership held property and carried on its business. This requires examination of what contribution from John was required for the making of decisions within the partnership. Further, it may require a qualitative examination of whether his disqualification affected the whole of the business of the partnership, or such part of the business that the partnership could not continue.
These matters are not, in my opinion, suitable for a separate and preliminary determination. But even if they were, I am not satisfied, for the reasons set out in relation to proposed issues 1 and 2, that the advantages of a preliminary determination would be sufficient to justify that course when the alternative argument under the 2002 Arrangement must proceed.
The application will be dismissed.
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