Cheng v Lam [No 4]
[2020] WASC 175
•22 MAY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CHENG -v- LAM [No 4] [2020] WASC 175
CORAM: TOTTLE J
HEARD: 14 MAY 2020
DELIVERED : 15 MAY 2020
PUBLISHED : 22 MAY 2020
FILE NO/S: CIV 1706 of 2015
BETWEEN: MARY YUEN SHAN CHENG
Plaintiff
AND
FRANCIS HUNG LAM
First Defendant
ANDREA MAN YEE CHENG
Second Defendant
(ORIGINAL ACTION)
FRANCIS HUNG LAM
First Plaintiff by Counterclaim
ANDREA MAN YEE CHENG
Second Plaintiff by Counterclaim
AND
MARY YUEN SHAN CHENG
First Defendant by Counterclaim
CHAN THANH LAM
Second Defendant by Counterclaim
DAVID CUONG CHAN LAM
Third Defendant by Counterclaim
TINH AU
Fourth Defendant by Counterclaim
(BY COUNTERCLAIM)
Catchwords:
Accounts - Registrar's report - Taking of account in accordance with orders of Judge - Proper construction and application of orders - Adoption of Registrar's report - Principles to be applied
Legislation:
Rules of the Supreme Court 1971 (WA), O 35 r 9, O 35 r 11, O 60A r 4
Supreme Court Act 1935 (WA), s 50
Result:
Registrar's report adopted in part
Category: B
Representation:
Original Action
Counsel:
| Plaintiff | : | Mr G A Lacerenza |
| First Defendant | : | Mr P G McGowan |
| Second Defendant | : | Mr P G McGowan |
Solicitors:
| Plaintiff | : | G A Lacerenza & Associates |
| First Defendant | : | Johnstone Crouse Lawyers |
| Second Defendant | : | Johnstone Crouse Lawyers |
Counterclaim
Counsel:
| First Plaintiff by Counterclaim | : | Mr P G McGowan |
| Second Plaintiff by Counterclaim | : | Mr P G McGowan |
| First Defendant by Counterclaim | : | Mr G A Lacerenza |
| Second Defendant by Counterclaim | : | No appearance |
| Third Defendant by Counterclaim | : | No appearance |
| Fourth Defendant by Counterclaim | : | No appearance |
Solicitors:
| First Plaintiff by Counterclaim | : | Johnstone Crouse Lawyers |
| Second Plaintiff by Counterclaim | : | Johnstone Crouse Lawyers |
| First Defendant by Counterclaim | : | G A Lacerenza & Associates |
| Second Defendant by Counterclaim | : | No appearance |
| Third Defendant by Counterclaim | : | No appearance |
| Fourth Defendant by Counterclaim | : | No appearance |
Case(s) referred to in decision(s):
Able Tours Pty Ltd v Mann [No 2] [2013] WASC 96
Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1
Cheng v Lam [No 2] [2018] WASC 199
Cheng v Lam [No 3] [2020] WASC 45
Culpo v Arena [1975] 1 Qd R 376
Rowe v National Australia Bank Limited [2019] WASCA 140
Super Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549
Wenco Industrial Pty Ltd v WW Industries Pty Ltd [2009] VSCA 191; (2009) 25 VR 119
Wilden Pty Ltd v Green [No 6] [2018] WASCA 198
TOTTLE J:
The issues
On 28 June 2018 Chaney J published his reasons for the primary judgment in this matter.[1] Consequent upon that judgment Registrar Whitbread published a report recording her findings on the taking of an account.[2]
[1] Cheng v Lam [No 2] [2018] WASC 199.
[2] Cheng v Lam[No 3] [2020] WASC 45.
These reasons address the following issues:
(a)Should the court adopt the report of the registrar containing her findings on the taking of an account?
(b)If so, what directions should be made to finalise the matter?
(c)If not, what directions should now be made to give effect to Chaney J's orders?
The taking of an account and the report
The background to the taking of the account was set out in the report - [1] - [19]. For present purposes it is sufficient to state that the taking of an account was ordered in respect of eight property developments which were the subject of eight informal partnership agreements made between family members. The primary accounting parties were the first and second defendants, who are married to each other. The plaintiff and the second defendant by counterclaim were also ordered to account. The plaintiff and the second defendant by counterclaim were, but are no longer, married to each other. The second defendant by counterclaim is the brother of the first defendant and the third defendant by counterclaim, and is related to the fourth defendant by counterclaim. In relation to the issues presently before the court the protagonists are the plaintiff on one side and the first and second defendants on the other.
The taking of the account was a substantial forensic exercise. The first and second defendants' account contained 497 items. It was verified by an affidavit sworn by the first defendant on 20 August 2018.
The plaintiff's account was, in effect, provided by an affidavit sworn by her on 16 May 2019. The plaintiff attached to her affidavit financial statements prepared by her (she is an accountant by profession) for each of the eight partnerships together with supporting source documents. The plaintiff also attached to her affidavit her objections to the first and second defendants' account.
The process of taking the account extended over nine days and involved the examination and cross-examination of five witnesses including the first defendant and the plaintiff. Sixty two exhibits were accepted into evidence. Following the conclusion of the oral hearing the parties filed written submissions and schedules identifying the evidence relied upon for the findings for which they contended.[3]
[3] The report contains an outline of the procedure adopted for the taking of accounts at [39] - [57].
In the course of taking the account the registrar delivered written reasons for evidentiary rulings made by her on 18 July 2019.
The report was published to the parties on 19 February 2020. The report is a substantial document totalling 732 pages. The main body of the report comprises a statement of the registrar's reasons, extending to 589 paragraphs. The report attaches three schedules. Schedule A reproduces each item in the accounts and the contentions of the opposing parties in relation to each item. Schedule B reproduced the items in the first and second defendants' account, and schedule C reproduced a statement of the facts agreed between the parties (the statement of agreed facts).
In overview the registrar's reasons were structured as follows:
(a)introduction and background - [1] - [19];
(b)statement of the governing rules and principles - [20] - [38];
(c)description of the procedure followed by the registrar - [39] -[57];
(d)preliminary findings - divided into general findings dealing principally with specific issues raised by the plaintiff in relation to the approach to be taken to the taking of accounts, to which I will refer in more detail later in these reasons - [58] - [90]; and general findings setting out the approach taken to particular categories of items within the first and second defendants' account - [91] - [124];
(e)specific findings in relation to items in the first and second defendants' account that were the subject of dispute - [125] - [553];
(f)specific findings in relation to items in the plaintiff's account -[554] - [587];
(g)a summary - [558] - [589].
The registrar recorded in the report that she contemplated that if the report were adopted then an independent accountant would be instructed to recalculate the account using her findings in substitution for the items included in the account that had been disallowed or varied.
Procedural matters
On 20 March 2020 I made orders extending the time for the parties to make any application concerning the adoption or non-adoption of the registrar's report and listed the matter for further directions on 2 April 2020. Those orders required any minutes of further directions sought to be filed and served by 30 March 2020. A further minute of orders was filed by the plaintiff on 30 March 2020.
The plaintiff sought an order that the report not be adopted, and proposed the appointment of an accountant, Mr Charles Napoli, as an independent expert who would be ordered by the court to express a 'preliminary opinion' that addressed the following questions: (i) whether the registrar's report, the first and second defendants' account and the plaintiff's account are each capable of producing a final outcome for each of the eight partnerships and a final distribution outcome for each of the partners; (ii) whether the registrar's report is capable of being utilised to provide a determination of the full assets and liabilities as at each accounting date (broken down into a series of discrete questions); and if not, (iii) what are the deficiencies and from which sets of accounts may the necessary information be identified? Mr Napoli was a witness called by the plaintiff on the taking of the account. The plaintiff sought that the matter be listed for hearing for two days on a date to be fixed 'or otherwise dealt with'. I note that on 1 April 2020, the plaintiff, without leave, filed an amended minute of orders making objection to a number of specific items contained in the registrar's report.
The first defendant filed a minute of orders proposing the adoption of the report (subject to an exception in relation to item 363) and proposing the appointment of an independent accountant to take the findings set out in the report and make consequential changes to the first and second defendants' accounts (as contemplated by the registrar) and proposing certain other directions designed to finalise the process of accounting.
On 2 April 2020 it was regrettably apparent that conferral had not taken place between the parties. The directions hearing took place over a period of close to one hour. Counsel for the first and second defendants rejected the approach of the plaintiff on the basis that it was tantamount to an appeal from the registrar's decision, contrary to O 60A r 4(3)(a) of the Rules of the Supreme Court 1971 (WA) (RSC). Counsel for the first and second defendants submitted that a wholesale review of the registrar's report, across a two day hearing, was inappropriate considering the authorities to which I refer below.
I made directions for the filing of submissions (limited to 20 pages) in relation to the issue of the adoption of the report. I directed that the plaintiff's submissions identify the orders sought by the plaintiff and identify the court's power to make such orders.
The governing rules and principles
Section 50(2) of the Supreme Court Act 1935 (WA) provides relevantly, in effect, that the report of a registrar to whom the court has referred for inquiry or report any question arising in a cause or matter (other than a criminal proceeding) may be adopted wholly or partially by the court and, if so adopted, may be enforced as a judgment or order to the same effect.
By O 35 r 9 of the (RSC) read with O 35 r 11, any party may apply to the court to adopt or carry into effect the report of (relevantly) a registrar to whom a question or issue has been referred.
In Wenco Industrial Pty Ltd v WW Industries Pty Ltd,[4] the Victorian Court of Appeal set out at [17] the following guidelines as to how the question of the adoption of a referee's report should be approached - (references to O 35 r 9 have been substituted in place of references to the comparable provisions of Victorian rules):
[4] Wenco Industrial Pty Ltd v WW Industries Pty Ltd [2009] VSCA 191; (2009) 25 VR 119. See also Able Tours Pty Ltd v Mann [No 2] [2013] WASC 96.
(a)In exercising the power conferred by O 35 r 9 to adopt the report of a special referee, the Court has a wide power which is to be exercised 'as the interests of justice require'. This broad mandate should not be the subject of restrictions laid down in advance of judges exercising it. Subject to what follows, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.
(b)The purpose of O 35 r 9 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation. Further, that purpose would be frustrated if the reference were to be treated as 'some kind of warm-up for the real contest'.
(c)Insofar as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.
(d)Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for inquiry and report.
(e)If the referee's report reveals some error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than 'unsafe and unsatisfactory'.
(f)Generally, the referee's findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.
(g)The purpose of O 35 r 9 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.
(h)The Court is entitled to consider the futility and cost of re‑litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.
(i)Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not ordinarily be (in the absence of any of the matters referred to in subpar (e) above) a proper exercise of the discretion conferred by O 35 r 9 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.
In Wilden Pty Ltd v Green [No 6],[5] the Court of Appeal cited the decision in Wenco with approval and stated:
The court exercises a judicial discretion as to whether to adopt the Registrar's report. The discretion is to be exercised in the interests of justice consistently with the object and purpose of the rules permitting the court to direct the necessary inquiries or accounts to be taken or made. An application to adopt the report is neither an 'appeal' de novo nor an appeal by way of rehearing. The nature of the complaints made about the report, the type of litigation involved and the length and complexity of the proceedings before the registrar may all be relevant considerations.[6]
If a report reveals an error of principle, an absence or excess of jurisdiction, a patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for its rejection.[7] In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from according aspects of the evidence with particular weight. Perversity or manifest unreasonableness means a conclusion that no reasonable tribunal of fact could have reached.[8] Also, the court is entitled to consider the futility and costs of re-litigating an issue determined by the registrar where the parties have had ample opportunity to place before the registrar such evidence and submissions as they desire.[9]
[5] Wilden Pty Ltd v Green [No 6] [2018] WASCA 198.
[6] Super Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549, 563 ‑ 564; Wenco [17].
[7] Super (563 ‑ 564); Wenco [17].
[8] Wenco [17].
[9] Wenco [17].
Chaney J's orders and the form of the account
On 28 June 2018 Chaney J made the following order:
(1)A declaration that the partnerships in relation to the projects referred to in paragraph 2 is dissolved from the date of commencement of this action.
(2)An account be taken between the first and second defendants the plaintiff and the second defendant by counterclaim in relation to those parties' respective entitlements under partnership agreements relating to the purchase, development and sale of each of the following properties:
(a)17 Darch Street, Yokine;
(b)73 Main Street, Osborne Park;
(c)111 Shakespeare Avenue, Yokine;
(d)78 Edgecumbe Street, Como;
(e)167 and 167A Lockhart Street, Como;
(f)70 Edgecumbe Street, Como;
(g)250 Ewen Street, Woodlands; and
(h)82 and 84 Matlock Street, Mount Hawthorn.
(3)Such account to be taken before a registrar of this Honourable Court.
(4)The account is to be based on the following findings:
(a)The accounts are to be prepared on the basis that each agreement giving rise to the interests of the parties to that agreement provided that the proceeds of the relevant development and sale of the property are to be applied first in payment of any mortgage or borrowings over the property, then in payment of all costs and expenses incurred in relation to the acquisition, development or sale of the property, and then repayment of any payments made a party to the agreement in discharge of such costs and expenses other than by use of the parties joint funds or borrowings with the balance to be divided in accordance with the interest of the parties as reflected on the title to the relevant property at the time of its purchase by the parties.
(b)Entitlements and liabilities of either the Plaintiff or the Second Defendant by Counterclaim, whether separate or joint, are to be treated in all cases as joint entitlements.
(c)The interest of parties other than the Plaintiff, First Defendant, Second Defendant, and Second Defendant by Counterclaim in any of the projects referred to are to be taken to have been settled upon completion of those projects so that there is no further liability to account in relation to those interests.
(d)For the purpose of the account, costs of development are to be brought to account on the basis of the lump sum building contract prices for the development applicable in each case. Any balance due in relation to a building contract which remains unpaid is to be taken as an expense of the partnership and be taken as payable from the net proceeds of sale of the properties concerned.
(e)Proceeds paid to the First and Second Defendants in the sum of $406,998 from the sale of 8A Spencer Avenue are not to be treated as a contribution by the Plaintiff and Second Defendant by Counterclaim to any of the other partnership projects referred to above. Proceeds paid to the First and Second Defendants from the sale of 8A Spencer Avenue are not to be treated as a contribution by the Plaintiff and Second Defendant by Counterclaim to any of the other partnership projects referred to above.
(f)For accounting, there should be no distinction drawn between the developed properties which were sold, and those that are yet unsold. The value of the unsold properties are to be treated as a receipt of value of those properties in accordance with the interest of the parties as reflected on the title to the relevant property at the time of its purchase by the parties.
(5)By 17 August 2018 the First and Second Defendants are to file and serve upon the Plaintiff and the Second Defendant by Counterclaim an account in relation to each partnership in accordance with the Orders made in paragraphs 2 and 4.
(6)Within 28 days of service on the Plaintiff and the Second Defendant by Counterclaim of the accounts in relation to each partnership the Plaintiff and the Second Defendant are to apply to a Registrar for directions as to the way any dispute as to any item of the accounts is to be resolved.
(7)Any party to the account found liable to the other party to the account do pay to that other party the amount due within 28 days of the Order being made that such party is liable to another party to make such payment.
(8)Each party is to bear its own costs of the proceedings to the date of these orders.
(9)The question of costs of the accounts is reserved to the Registrar dealing with the account.
In his reasons Chaney J addressed the question 'should an account be ordered?'. In this context his Honour stated:
115There was no issue between the parties that an account as between them was necessary, and by the end of the trial there was no issue that account should relate to all eight of the developed properties. Nor did I take it that there was any issue between the parties that it was the first defendant, Frank, who should be called upon to account. That is essentially because it was Frank who principally had control of and dealt with funds in relation to the projects.
116...
117The ultimate balance of an account as between Mary and Chan on the one hand and Frank and Andrea on the other is likely to produce a balance in favour of Mary and Chan. I am mindful, however, that Mary retains several properties in her name which will need to be brought to account, as will properties standing the names of other participants. How that might affect the ultimate balance is presently unclear. It is not necessary to finally determine whether the accounting will result in a sum being due to Mary and Chan from Frank and Andrea, because both parties seek an account and seek payment to them of any balance found due. It is clear that there is an entitlement, of any party to whom a balance of funds is due, to an order in their favour for payment of that balance. In practical terms, it is Frank who should provide that account, and I propose to so order.
The account prepared by the first and second defendants was organised as follows. Each development property was the subject of a separate section within the account. For each property the account itemised receipts and payments under the following headings: Profit/Loss Calculation, Net Profit, Capital Contributions and Profit Share & Rolled Profits.
Items under the Profit/Loss Calculation heading included payments for such items as the acquisition costs of the property, interest and other payments associated with bank finance, construction costs, and net proceeds received on sale on completion of development.
Under the Net Profit heading there were items recording how the net proceeds of sale were applied and in some instances claims for interest claimed under the building contract pursuant to which construction of the development was undertaken.
Under the 'Capital Contributions' heading there were items recording receipts in respect of capital contributed by the parties.
Under the Profit Share & Rolled Profits heading there were items recording the parties' net profit entitlements from the development and in some instances items recording that the net profits had been invested - 'rolled over' in other developments.
Plaintiff's grounds
The grounds relied upon by the plaintiff in support of her argument that the court should not adopt the report were set out in the plaintiff's written submissions. Unfortunately, and with respect, those submissions lacked clarity. This observation echoes criticism made by the registrar in the report about the plaintiff's approach to objections regarding falsification and surcharging of the first and second defendants' account.[10] In the course of oral submissions, counsel for the first and second defendants classified the plaintiff's grounds as involving:
(a)a challenge to the methodology adopted by the registrar;
(b)challenges to the approach taken by the registrar to the evidence generally and to certain items of evidence;
(c)challenges to particular factual findings.
This classification provides a convenient framework for analysis of the plaintiff's grounds.
The challenge to the methodology
[10] Cheng v Lam[No 3] [53], [196], [201], [203], [208], [211], [227], [236], [255], [268], [269], [279], [296], [300], [317], [324], [328], [338], [354], [371], [374], [380], [393], [400], [412], [427], [429], [444], [457], [463], [467], [500], [502], [504], [528], [546].
The central proposition relied on by the plaintiff is that the account prepared by the first and second defendants was inadequate for the purpose of providing a true and accurate account of the financial position of the partnerships because it did not reflect the requirements of partnership accounts. That is, it was not presented in accordance with a conventional partnership chart of accounts, it did not accord with applicable Australian Accounting Standards and did not reflect the requirements of the taxation legislation. In his oral submissions the plaintiff's counsel correctly identified this issue 'as the fundamental difference of view'.
With respect, the plaintiff's submissions reveal a confusion on the part of the plaintiff between the remedy of the taking of an account in curial proceedings and 'accounting', that is, the preparation of accounts or financial statements for the purposes of ordinary business. The nature of an account as a remedy has been extensively canvassed in decisions including Agricultural Land Management Ltd v Jackson (No 2)[11] and Rowe v National Australia Bank Limited.[12] The orders directing that an account be taken will determine the basis and scope of the account.[13]
[11] Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1 (Edelman J).
[12] Rowe v National Australia Bank Limited [2019] WASCA 140 (Murphy JA & Sofronoff AJA).
[13] Culpo v Arena [1975] 1 Qd R 376 (Dunn J).
As the registrar stated, the taking of an account was an exercise that she was bound to perform in accordance with the orders made by Chaney J. Expressed in the simplest terms it was an exercise that involved the preparation of a list of receipts and payments falling within the categories identified in paragraph 4 of the orders, which it was then open to the plaintiff to falsify or surcharge. The orders made by Chaney J did not require the first and second defendants to prepare financial statements which, when prepared, would in effect be audited or settled by the registrar. As is apparent from the paragraph [117] of Chaney J's reasons, reproduced above at paragraph [18], the object was to produce an 'ultimate balance' between the parties.
I do not accept that the registrar erred in the methodology adopted by her or that the error asserted by the plaintiff constituted an error of principle by the registrar that would justify this court not adopting the report.
It is appropriate to add that the account ordered by Chaney J was the relief that the plaintiff had sought. The authorities emphasise that the taking of an account is a flexible remedy. It was open to the plaintiff to apply to Chaney J for specific directions in relation to the taking of accounts to ensure that the remedy sought by her was structured in a way that more closely correlated to the ultimate relief that she sought, but she did not do so.
There is one further point to be made about the approach to the taking of the account adopted by the registrar. The registrar construed the order for the taking of an account to require the taking of a common account. In my view that is the form of account that was ordered. In the course of taking the account submissions were made on the plaintiff's behalf that indicated that the plaintiff wanted the account to be taken on the basis of a wilful default. The registrar rejected these submissions and she was correct to do so.
The challenges to the approach to the evidence
The applicable standard of proof
The registrar noted that the onus lay on the accounting party to prove the correctness and legitimacy of the items claimed in the account. In determining the factual issues raised by the plaintiff's objections the registrar applied the civil standard of proof - the balance of probabilities. The plaintiff contends that in so doing the registrar erred, and instead of applying the civil standard should have adopted various accounting techniques such as: 'occurrence testing', 'completeness testing' and 'valuation testing'. Neither principle nor authority supports the application of any such standard for the determination of disputed factual issues other than the balance of probabilities.
The admissibility of evidence admitted at trial
The plaintiff contends that the registrar erred by refusing to admit evidence on the taking of the account that was tendered at the trial. The plaintiff relies on O 36 r 9 of the RSC, which provides that 'all evidence taken at the hearing or trial of any cause or matter may be used in any subsequent proceedings in the same cause or matter'.
The plaintiff contends that the registrar erred by not admitting into evidence a report of Mr Charles Napoli, a chartered accountant, referred to as the 'Barrington Report'. This was a report prepared for proceedings between the plaintiff and the second defendant to the counterclaim in the Family Court. The report had been tendered as exhibit 2 at the trial and the plaintiff pressed its tender on the taking of accounts. The tender of the Barrington report was rejected by the registrar. The reasons for that rejection were set out in the report and were as follows:[14]
The Barrington Report is dated 17 December 2013 and was prepared as an independent report, for the purposes of the Family Court Proceedings, between the Plaintiff and Chan. That report forms the source of the Statement of Agreed Facts in this proceeding. To the extent that there remain issues in dispute in relation to the accounts, on the Taking of Account, I am the trier of fact and am required, in accordance with the methodology set out in the Orders, to make findings in relation to matters in dispute between the parties to the taking of account.
On many occasions throughout the hearing of the Taking of Account, the Plaintiff sought to persuade me to rely on findings in the Barrington report as binding in relation to matters in dispute. To have so found would have been to offend the ultimate issue rule. The Barrington Report was prepared at a different time and for a different purpose. Where matters referred to in that report are in dispute on the Taking of Account then I am the trier of fact.
The Plaintiff can rely on the source documents used in the Barrington Report (where they are in evidence before me) and can seek to persuade me to the same finding, if relevant, but to demand that I am bound to make the same finding and bound to find that the Barrington Report is before me as evidence on the Taking of Account (because it was an exhibit at trial) as a binding determination would be contrary to both the Orders and would usurp the function of a registrar on the taking of account in that it would mean the admission of evidence which would, as noted above, offend the ultimate issue rule.
As such I ruled that the Barrington Report, in its entirety, was not admissible on the Taking of Account but that the Plaintiff could tender any relevant source documents and could seek to persuade me, in submissions, to the same conclusions as the Barrington Report on issues in dispute, if relevant.
I also found that Mr Napoli could not give evidence as to his findings where such evidence offends the ultimate issue rule or where his evidence propounds for an accounting on a different basis to that set out in the Orders.
[14] Cheng v Lam[No 3] [67] -[71].
There was no error in the registrar's approach to the admission of the Barrington Report. I note the registrar permitted Mr Napoli to give other evidence.
The plaintiff alleges also that the registrar erred in refusing to admit exhibit 54. Exhibit 54 was a schedule of payments made to Chemech Pty Ltd, a company owned by the first and second defendants which undertook the construction work for seven of the property developments. The registrar gave reasons for refusing to admit exhibit 54 in the report. Those reasons were as follows:
As stated above, the only evidence that can be relied on in the Taking of Account is that tendered on the Taking of Account (subject to the usual rules of admissibility and relevance). For example, trial Exhibit 54 was not tendered on the Taking of Account. It was not put to the First Defendant in cross‑examination. It was not the subject of a finding by Chaney J. No reliance can therefore be placed on it by the Plaintiff on the Taking of Account. Evidence on the trial before Chaney J is not evidence on the Taking of Account; only the evidence admitted on the Taking of Account was admissible in relation to the findings to be made in this report.
In stating that the only evidence that may be admitted on the taking of an account is evidence tendered in the course of taking the account, the registrar may have overlooked the operation of O 36 r 9 of the RSC. However that provision is permissive and did not require the admission of exhibit 54. The registrar provided a reasoned basis for not admitting trial exhibit 54 into evidence and that basis did not reveal any error of principle.
The challenges to factual findings
In the course of oral submissions the plaintiff's counsel asserted that the registrar had made 'errors of millions of dollars'. It is unnecessary to rehearse the full argument developed in support of this bold assertion. It is sufficient to say that the attempts by the plaintiff's counsel to make good the assertion by reference to the best example of error that he was able to identify were not persuasive. The plaintiff's counsel argued that the plaintiff would have been able to provide detailed submissions in support of the allegations of error had the limit on the length of submissions not be 20 pages. I fear the (implicit) invitation that the limit on the length of submissions be lifted to permit the plaintiff to provide more detailed and expansive submissions would, if accepted, have led to a rehearing of the taking of the account.
In the plaintiff's written submissions she identified a number of errors said to have been made by the registrar and to warrant further examination of the registrar's fact finding. I will address each error in turn.
The first alleged error
The plaintiff contends that the registrar made no finding in relation to items 1, 48, 96, 161, 207, 240, 299, and 362. Each of these items related to the acquisition costs of the separate parcels of land that were developed, which the plaintiff asserts were misallocated by the first and second defendants as an expense instead of an asset of the partnership. The plaintiff contends that the omission to make findings was an error. This contention has no merit. The registrar was not required to make findings in respect of these items because they were agreed.
The second alleged error
The plaintiff alleges that 'the bank loan proceeds were not brought into account by the registrar and the defendants'. In support of this proposition the plaintiff incorporated in her submissions a table - Table 1B - that purported to show that the registrar's findings in respect of items 224, 276 - 283 and 445 - 449 were inconsistent with findings made by Chaney J and evidenced a 'patent misapprehension and perversity, manifest, unreasonableness in fact finding and/or lack of understanding of the evidence'. An insurmountable difficulty for the plaintiff is that many - though not all -of the items were either agreed facts or were the aggregate of other sums that were agreed. To the extent to which the items were not the subject of agreement there is nothing in the report or the materials relied upon by the plaintiff to support the contention that the registrar made an error of the nature for which the plaintiff contends.
The third alleged error
The plaintiff alleges that the registrar erred in her treatment of items 116 - 122. These items concerned bank finance and construction costs. In essence, the plaintiff's submissions sought to re-argue the objections that had been raised by the plaintiff before the registrar. This was made clear by the plaintiff's reference to:
The core issue the plaintiff sought to highlight in the objection was the fact that the items 116 - 122 transactions did not occur and are manufactured and the Defendants have been unjustly enriched in the sum of $2,853,107 to the detriment of the plaintiff. This sum should be disgorged back into 78 Edgecumbe Street partnership.
The registrar had available to her all of the records. She had the benefit of submissions from all the parties and she had the benefit of assessing the reliability of the first defendant and the plaintiff as witnesses. I am not persuaded that there is any basis for revisiting the factual findings made by the registrar in relation to these items. The plaintiff has not made out any error, let alone an error of the nature that would justify a decision not to adopt the report.
The fourth alleged error
The plaintiff alleges that the registrar erred by failing to take into account the full amount of the proceeds of sale of the properties. The essence of the error alleged appears to be that the items in the account which recorded the receipt of proceeds of sale recorded the net proceeds received, rather than the gross proceeds of sale.
The account was concerned with the actual amounts received in respect of the sale of properties. There was no error on the registrar's part in permitting the first and second defendants to bring into account the net proceeds. In my view this is what was required by the account taking process.
The fifth alleged error
The plaintiff alleges that the registrar 'failed to bring into account' all payments made to Chemech Pty Ltd since the date of the Barrington Report, 17 December 2013, being the document that the statement of agreed facts relied on.
The statement of agreed facts included all payments made to Chemech other than in relation to 250 McEwen Street and 84 Matlock Street. In relation to those two properties the registrar noted that the plaintiff relied on a document prepared by her, exhibit 49. The registrar observed that:
The Plaintiff contends that Chemech, a third party to the account, is not owed amounts claimed as outstanding under Building Contracts. In the Plaintiff's Schedule, the Plaintiff contends (at various points) that Exhibit 49 Partnership cash and other monies paid to Chemech Pty Ltd amount to $8,866,977 confirmed by bank statements valid Chemech Pty Ltd contractual documents total $6,251,839. Whilst what amount the Plaintiff contends for at any specific point in the First and Second Defendants' account is far from clear, there is an overarching assertion that Chemech has been overpaid by the partnerships. In support of this the Plaintiff relies on a document prepared by her (Exhibit 49); the problem with this document is that it is a selective analysis of payments from partnership accounts to Chemech, which focuses on payments out to Chemech without properly accounting for payments back in by Chemech. The First Defendant gave evidence that the relevant transactions (both into and out of the relevant accounts) were effected by him, as a director of Chemech, to reduce interest liability on partnership loan accounts. The Plaintiff contended for a broader interrogation Chemech's accounts to find evidence in support of her contention (this included an examination of Chemech beyond the Chemech bank statements and documents produced on the Taking of Account). Such broader interrogation of a third party is out with the scope of the Orders.
There is no basis to conclude that the registrar's approach to fact finding is affected by any error of principle.
The sixth alleged error
The plaintiff alleges that the registrar's approach to items classified by the first and second defendants as 'unsure items' revealed fundamental error.
The registrar gave detailed consideration to the plaintiff's argument and provided cogent reasons for accepting the approach of the first and second defendants. In the report the registrar recorded:
The Plaintiff has objected to the 'unsure' column entries in each of the Loan Tables forming part of the First and Second Defendants' accounts. These entries were the subject of evidence by the First Defendant at TS 792, 826 (29 May 2019) and TS 408 ‑ 409 (24 May 2019).
The Plaintiff contends that the First and Second Defendant have applied Items where the destination of those funds could not be substantiated with documentary evidence to their own benefit in the account; that is, so there is a positive benefit to the First and Second Defendant in respect of each transaction marked as 'unsure' in the loan tables.
The First and Second Defendant contend that analysis of each of the relevant entries in the First and Second Defendants' account evinces that the First and Second Defendants' account has been prepared on the basis that for any transactions, from the various loan accounts, where the destination of those funds could not be substantiated with documentary evidence then, the First and Second Defendants have assumed the value of that transaction as a liability to their side of this accounting exercise. This means that there is no detriment for each of those transactions to the Plaintiff and Chan.
Having carefully examined each of the relevant entries in the First and Second Defendants' account, my analysis finds that the First and Second Defendants' account has been prepared on the basis that for any transactions, from the various loan accounts, where the destination of those funds could not be substantiated with documentary evidence then, the First and Second Defendants have assumed the value of that transaction as a liability. This means that there is no detriment, and arguably a corresponding benefit, for each of those transactions to the Plaintiff and Chan.
Accordingly, there can be no sustainable objection to the 'unsure' column entries in each of the Loan Tables forming part of the First and Second Defendants' accounts. These entries were the subject of evidence by the First Defendant at TS 792, 826 (29 May 2019) and TS 408 ‑ 409 (24 May 2019). Given that the First and Second Defendants have accepted these unsure items as liabilities to their account and consequently, therefore, there is no detriment (but arguably a benefit) to the Plaintiff and Chan, no finding adverse to the credibility of the First Defendant (as contended for by the Plaintiff) either needs to be considered or is relevant.
There is no basis for contending that the registrar made a fundamental error, an error of principle, or otherwise misunderstood the evidence in relation to the unsure items.
The seventh alleged error
The plaintiff alleges that the registrar omitted to deal with items 409 - 410. These items concern the application of the net proceeds of sale of two properties: unit 4, 84 Matlock Street - $708,755 - and unit 5, 84 Matlock Street - $707,818. Some context is required: at [47(12)] of his judgment Chaney J identified seven 'substantial payment or receipts the source or destination of which are unclear on the evidence'. These included the application of the net proceeds of units 4 and 5, 84 Matlock Street. The registrar did not specifically address items 409 and 410 in the report but she dealt with the issue compendiously in paragraph 93 of the report when she stated:
In relation to par 47(12) above; all of those transactions were accounted for on the Taking of Account and the First and Second Defendants have identified those transactions in the relevant entries in the First and Second Defendants' account.
The plaintiff relies upon the contents of an affidavit sworn by her on 1 July 2019 to allege that the registrar's finding was in error but this affidavit was not accepted in evidence on the taking of accounts.
Further, in relation to the proceeds of sale of unit 5 Matlock Street, at [545] of the report the registrar recorded:
The Plaintiff and the First and Second Defendant all agree that Chan received the settlement monies (in the sum of $706,871 from the sale of Unit 5/84 Matlock Street. The Plaintiff's complaint is that she only found out that Chan received that money on the Taking of Account and she does not know what Chan has done with that money. That is a matter as between her and Chan and has nothing to do with a taking of account where, for the purposes of that account, the Plaintiff and Chan are one combined party.
Once again I am satisfied that the registrar did not make an error.
The eighth alleged error
The plaintiff alleges that the registrar erred in allowing as an expense the cost of construction of 17 Darch Street on the basis of a retrospective cost estimate prepared by a quantity surveyor, and further fell into error by accepting oral evidence from the first defendant without corroboration.
It was common ground that a house was constructed on 17 Darch Street. Before the registrar, the plaintiff argued that the cost of construction should be allowed in the sum of $180,000, being the property value specified in the building licence. The first and second defendants claimed $838,426. There was no building contract, and perhaps somewhat surprisingly, the first and second defendants were unable to prove the cost of construction by reference to actual payments. The first and second defendants sought to prove the construction cost by adducing evidence from a quantity surveyor, Mr McAree, who prepared a report and ascribed a value to the construction cost of $762,205 exclusive of GST or $838,426 inclusive of GST. The plaintiff was given the opportunity to adduce responsive expert evidence but declined to do so.
The issue is a factual issue which was addressed by the registrar at some length. There is no basis for concluding that the registrar made an error.
The first and second defendants' challenge to the finding on item 363
The first and second defendant submit that the registrar made an error in disallowing the amount claimed by them under item 363 by overlooking a concession made in the course of the cross‑examination of the first defendant.
Item 363 is an expense item in the account relating to 84 Matlock Street with the description 'Interest of David Lam Loans (Land Purchase & Partial Building Cost). The value of the item is $99,515. The registrar dealt with the item at [452] - [455] of the report. At [455] the registrar recorded that:
I am unable to find any support therein for David's contribution to the project. David was not called to give evidence as to his contribution.
The first and second defendants say Mr Lam's contribution was conceded by counsel for the plaintiff. I have considered the passage of the transcript on which the first and second defendants rely and consider it does support the existence of a concession in relation to this item and that it should be allowed as claimed.
Conclusion
I have concluded that I should adopt the registrar's report - other than in respect of item 363. I will frame the reasons for reaching this conclusion by reference to the factors enumerated in passage of the Wenco judgment that I have cited at [15].
First, the exercise undertaken by the registrar was the exercise ordered to be undertaken and the report is the result of that exercise.
Second, the report's content and the registrar's approach to the taking of the account dispose me to adopt the report. The report contains a careful, thorough and methodical analysis of a very significant volume of detailed accounting data put before the court for the purposes of taking the account. The report reveals a careful consideration of the submissions made by both sides. The plaintiff was afforded every opportunity to challenge the account and to present her arguments.
Third, for the reasons I have provided I do not accept that the report reveals any error of principle or any error of the nature identified in Wenco that would justify not adopting the report.
Fourth, I am satisfied that the alleged errors in fact finding asserted by the plaintiff do not reveal any error, and certainly not systemic or widespread errors of the nature alleged by the plaintiff. Many of the alleged errors asserted by the plaintiff have their origin in the plaintiff's contention that the registrar adopted an incorrect approach - a contention that misconceives the nature of the exercise to be undertaken.
Fifth, I discern from the plaintiff's submissions as a whole that the plaintiff is seeking an opportunity to re-agitate the factual issues that were determined by the registrar in the course of taking the account. To permit this to occur (in the absence of the plaintiff establishing an error of the nature discussed in the authorities as required to justify a rejection of a report) would negate the very purpose of the matter being referred to the registrar for the taking of the account.
The next steps
In the report the registrar identified deficiencies in the account prepared by the plaintiff and identified what had to be done to address those deficiencies to enable the process of taking an account to be completed.
The next steps to be taken towards finalising this matter are to make orders addressing the deficiencies in the plaintiff's account and to make orders for the appointment of an independent accountant to complete the process of taking an account. The first and second defendants have proposed orders that deal with these matters and, subject to hearing from the parties in relation to the detailed terms of the orders, I consider that orders substantially in the terms proposed by the first and second defendants should be made.
Further submissions of the plaintiff
I heard the parties in this matter on 14 May 2020 and at the conclusion of that hearing informed the parties that I would reserve my decision until 15 May 2020.
On 15 May 2020 I delivered brief oral reasons (comprising a summary of my conclusions) for adopting the registrar's report in the way outlined in these reasons and made orders giving effect to those reasons. I said that more detailed reasons would be published. I programmed the matter for a hearing as to costs and informed the parties that I would publish my reasons for decision so that they had sufficient time before the costs hearing.
On 19 May 2020 prior to publication of these reasons, notwithstanding that orders had already been formally pronounced on the application, and without leave of the Court, the plaintiff's solicitor filed and sent to my Associate an outline of further written submissions concerning the adoption of the registrar's report. Those submissions urged in effect that I give the plaintiff a further opportunity to be heard on the application and to reach a different conclusion. The submissions were not accompanied by any application or other court process, and the submissions did not address any legal principle upon which I might reconsider the judgment and orders entered.
Other than to record these matters formally I have formed the view that it is inappropriate for me to consider these further submissions in the context of these reasons and I have not taken into account their contents in preparing these reasons.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AS
Associate to the Honourable Justice Tottle22 MAY 2020
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