Constant Enterprises Pty Ltd v Westzone Enterprises Pty Ltd
[2015] WADC 35
•2 APRIL 2015
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: CONSTANT ENTERPRISES PTY LTD -v- WESTZONE ENTERPRISES PTY LTD [2015] WADC 35
CORAM: SLEIGHT DCJ
HEARD: 15, 16, 17 & 19 DECEMBER 2014
DELIVERED : 2 APRIL 2015
FILE NO/S: CIV 2350 of 2012
BETWEEN: CONSTANT ENTERPRISES PTY LTD
Plaintiff
AND
WESTZONE ENTERPRISES PTY LTD
Defendant
Catchwords:
Partnership - Alleged breach of partnership agreement - Partnership came to an end - Damages claim for wasted expenditure and loss of bargain - Alternative claim for unjust enrichment - Dissolution of partnership
Legislation:
Partnership Act 1895
Result:
Claim for damages dismissed
Order for dissolution of partnership effective as at 9 October 2008
Representation:
Counsel:
Plaintiff: Mr B Stokes
Defendant: Ms K R Lendich
Solicitors:
Plaintiff: Chris Stokes & Associates
Defendant: Thompson Downey Cooper
Case(s) referred to in judgment(s):
Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268
Codelfa Construction Pty Ltd v State Railway Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1992) 174 CLR 64
Electricity Generation Corporation t/as Verve Energy v Woodside Energy [2014] HCA 7
Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 294 ALR 550
Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351
Koompahtoo Local Aboriginal Land Council v Sanphine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115
Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638
March v Stramare (E & MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494
Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 182 CLR 221
Robinson v Harman [1848] Eng R 135; (1848) 1 Ex 850; (1848) 154 ER 363
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332
Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620
Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21
SLEIGHT DCJ:
Introduction
The defendant, Westzone Enterprises Pty Ltd, is the owner of the Armadale Central Shopping Centre.
In or about May 2008 Westzone Enterprises entered into a partnership agreement with the plaintiff, Constant Enterprises Pty Ltd, to establish and conduct a café business from leased premises (the premises) being Shop 30 at the Armadale Central Shopping Centre. The arrangement was somewhat unusual as it was proposed Westzone Enterprises would be both the landlord of the premises and, as a partner in the partnership, one of the lessees of the premises.
During the process of setting up the café business, differences occurred between Westzone Enterprises and Constant Enterprises and the partnership failed to establish a café business and ceased to operate. Central to the case of Constant Enterprises is a contention that under the partnership agreement Constant Enterprises had exclusive rights to set up the café business and that interference by Westzone Enterprises in the set‑up stage of the café business led to irreconcilable differences. Subsequently Westzone Enterprises re-let the premises to an unrelated party, Doltarc Pty Ltd, and sold to Doltarc the bulk of fittings and equipment which had been installed in the premises by the partnership. By agreement Constant Enterprises also retained some partnership assets.
Constant Enterprises makes claims in these proceedings for damages for breach of the partnership agreement and other related remedies (details of which are set out in the next section of this decision under the heading 'Pleadings') and a declaration for dissolution of the partnership.
Westzone Enterprises denies it breached the partnership agreement and claims that the partnership was abandoned by the parties.
The pleadings
Constant Enterprises pleads in a further amended statement of claim dated 15 December 2014 that a written partnership agreement was entered into on or about 28 July 2008 to establish, own and operate a coffee lounge business at the premises. The pleadings allege that the written partnership agreement consisted of a number of documents but in essence relies on an Offer to Lease document with an attached annexure 'X' containing special conditions. This annexure sets out the terms of the partnership agreement upon which Constant Enterprises relies. The terms as pleaded in the statement of claim were as follows:
(a)The partnership business would be owned jointly and equally by Constant Enterprises and Westzone Enterprises (cl 2 of the special conditions in annexure 'X') (the joint ownership clause).
(b)The partnership would enter into a lease of the leased premises (as per the Offer to Lease document) (the partnership lease clause).
(c)The partnership business would be managed and operated solely by Constant Enterprises with Westzone Enterprises being a silent partner (cl 3 of the special conditions in annexure 'X')( the business management clause).
(d)Constant Enterprises would be paid a base wage of $1,200 per week to operate and manage the partnership business and the amount of wages received by Constant Enterprises would increase based upon the following weekly turnover of the partnership business as follows:
Weekly Turnover Gross Weekly Wages
$16,000 or below $1,200
$16,000 to $17,000 $1,300
$17,000 to $18,000 $1,400
$18,000 to $19,000 $1,500
$19,000 to $20,000 $1,600
$20,000 to $21,000 $1,700
$21,000$1,800
Thereafter for every $1,000 of weekly turnover over $21,000, $100 to be added to the gross wages payable per week (cl 4 of the special conditions in annexure 'X') (the wages clause);
(a)all profits to be split equally between the parties (cl 5 of the special conditions in annexure 'X');
(b)the estimated total set-up costs of the partnership business was $270,000 comprising of set-up costs of $250,000 and working capital and sundries of $20,000, of which the plaintiff and the defendant were to each contribute 50% (cl 6 of the special conditions in annexure 'X') (the contribution clause).
Constant Enterprises also pleads that on or about 5 August 2008 the parties entered into a finance agreement on the following terms:
(a)Westzone Enterprises would advance the sum of $125,000 to Constant Enterprises and Constant Enterprises would apply the money towards the costs of establishing the partnership business;
(b)the $125,000 would be repaid on behalf of Constant Enterprises by Don Tsoutsoulis and Nadia Tsoutsoulis from monies they would receive from the sale of a property they owned at 3/190 Scarborough Beach Road, Mount Hawthorn in the State of Western Australia;
(c)Don Tsoutsoulis and Nadia Tsoutsoulis would provide Westzone Enterprises with a deed of irrevocable authority directing Envoy Settlement Agency to promptly pay Westzone Enterprises the sum of $125,000 from monies collected on settlement following the sale of a property owned by Don and Nadia Tsoutsoulis at 3/190 Scarborough Beach Road, Mount Hawthorn (the Scarborough Beach Road property).
Constant Enterprises pleads that Westzone Enterprises breached the terms of the partnership agreement and the finance agreement in the following ways:
1.In breach of the business management clause Westzone Enterprises, through its agent Margaret Langdon, on or around 23 September 2008 engaged contractors to fit out the premises without consulting Constant Enterprises;
2.In breach of the contribution clause, Constant Enterprises was required to contribute more than the agreed sum of capital to the business as result of the defendant engaging contractors to fit out the premises without consulting the plaintiff;
3.In breach of the wages clause and the finance agreement, on 24 September 2008 Westzone Enterprises through its agent Margaret Langdon instructed Westpac Bank to stop any further dealings or withdrawals from the partnership account, causing a number of cheques drawn by Constant Enterprises to pay partnership expenses to be dishonoured and frustrating the ability of Constant Enterprises to establish and operate the partnership business;
4.In breach of the joint ownership clause, the partnership lease clause, and the business management clause, in or about late September 2008 Westzone Enterprises advised in a telephone conversation with Nadia Tsoutsoulis that Constant Enterprises and its representatives would no longer have access to the premises of the partnership business;
5.In breach of the wages clause failed to pay wages to Constant Enterprises from 29 September 2008.
6.In breach of the joint ownership clause on 10 December 2008 Westzone Enterprises leased the premises to Doltarc Pty Ltd; and
7.In breach of the joint ownership clause on a date unknown Westzone Enterprises transferred ownership of fittings, equipment and other supplies retained by Westzone Enterprises to Doltarc.
Constant Enterprises pleads that following the denial of access to the premises Westzone Enterprises and a new tenant continued to operate the partnership business trading under the name 'Café Me' to the exclusion of Constant Enterprises.
Constant Enterprises further pleads that in light of Westzone Enterprises denying Constant Enterprises access to the premises and the breaches pleaded, the partnership had 'irrevocably broken down'.
As a result of the alleged breaches, Constant Enterprises claims damages being loss of wages from 29 September 2008, an amount equal to a half share in the future profits that would have been made by the partnership business (which Constant Enterprises restricted to a period of two years) and adjustments for an unequal contribution to the business.
Alternatively, Constant Enterprises seeks damages by way of an unjust enrichment in the sum of $50,528.27 being the value of items retained by Westzone Enterprises. The claim for unjust enrichment is poorly pleaded but appears to be based upon a contention that by virtue of the breaches of the partnership agreement there was a total failure of consideration and that Westzone Enterprises is required to provide restitution for contributions made to the partnership by Constant Enterprises.
Finally, Constant Enterprises seeks a declaration to dissolve the partnership and to put the partnership business into receivership pursuant to s 46(d) of the Partnership Act 1895 (although these formal partnership dissolution issues were not actively pursued at trial).
The defence filed by Westzone Enterprises does not dispute the terms of the partnership pleaded by Constant Enterprises except that it pleads that the business management clause only operated once the café was opened for business and operating. Westzone Enterprises also pleads that any steps to obtain quotes and arrange a fit out of the premises was a joint endeavour between the parties and that the engagement of a contractor to fit out the premises was with the full knowledge of Constant Enterprises.
Westzone Enterprises further pleads that there was an implied term that the parties were required to act in good faith and honestly and the parties were required to avoid profiting personally from partnership opportunities and information. Westzone Enterprises pleads that, in breach of these conditions, on or about 24 September 2008 Constant Enterprises withdrew funds from the partnership bank account without the consent of Westzone Enterprises leaving a balance of $12 in the account. Westzone Enterprises pleads that such conduct removed from the partnership any ability to conduct its business and brought the joint endeavour between the parties to an end.
Alternatively, Westzone Enterprises pleads that from on or about 1 October 2008 Constant Enterprises abandoned the partnership and failed to attend the business and the joint endeavour between the parties came to an end.
The evidence
The defendant, Westzone Enterprises, did not call any evidence and the oral evidence presented in this matter consisted of the witnesses for the plaintiff, Constant Enterprises only. Accordingly, the oral evidence of the witnesses called by the plaintiff, Constant Enterprises, has not been contradicted.
The primary witness for Constant Enterprises was Mrs Nadia Tsoutsoulis. In the course of her evidence, Mrs Tsoutsoulis gave some evidence of her intentions, understanding and/or expectations of what had been agreed between Constant Enterprises and Westzone Enterprises. This evidence was objected to by counsel appearing for Westzone Enterprises on the grounds that as the claim by Constant Enterprises was based upon a written agreement, the intentions, understandings and/or expectations of Mrs Tsoutsoulis were irrelevant as to what constituted the terms of agreement between the parties. This objection was based upon the objective theory of contract which underpins the law relating to the formation, construction and interpretation of contracts; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603, 4 (Allsop P); Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21 [72], [97] (Buss JA). Sometimes in a trial it is difficult to make a ruling during the course of the presentation of the evidence as to whether the evidence relates solely to a subjective interpretation of the contract or whether it is contextual evidence which provides an explanation for a party taking a particular course of action. Often it is better to let the evidence flow and make a ruling concerning its admissibility at a later time. In this matter I have taken this approach. In relation to the construction of the terms of the written contract between the parties, I ignore the subjective views expressed by Mrs Tsoutsoulis as to her intentions, understanding and/or expectations and take the evidence into account only in so far as it provides contextual explanations given by Mrs Tsoutsoulis for her conduct.
(a) Background
Mrs Tsoutsoulis was the driving force behind Constant Enterprises, although she was neither a director nor shareholder of the company. The company was solely owned by her son Mr Constantine Tsoutsoulis. In essence Mrs Tsoutsoulis used her son’s company as an investment tool to invest in the café business. Neither Mrs Tsoutsoulis nor her son had any prior experience of operating a café. Mrs Tsoutsoulis previously held positions of employment at the Princess Margaret Hospital, Australia Post and the Education Department. She also owned a number of small ironing shops.
In July 2007 Mrs Tsoutsoulis became interested in the possibility of purchasing a café business and made enquiries about purchasing a Dome café franchise in Mount Lawley. The building in which the Dome café was operated was owned by Westzone Enterprises. The managing director of Westzone Enterprises was Mr Gerard O'Brien. Mrs Tsoutsoulis ultimately decided not to pursue the matter as she did not have the necessary funds to purchase the business.
In about May 2008 Mrs Tsoutsoulis was contacted by Ms Margaret Langdon, who was an employee of Westzone Enterprises, enquiring as to whether Mrs Tsoutsoulis was interested in investing in a café business at a new shopping centre in Armadale. Mrs Tsoutsoulis initially expressed interest proposing to go into a partnership with a Mr Dimovski. The evidence of Mrs Tsoutsoulis was that an anticipated profit and loss statement was prepared by her. The income estimate was based in part upon Westzone Enterprises revealing that a Gloria Jean's café in the shopping centre had an average weekly turnover of $17,000 ‑ $18,000. The anticipated profit and loss statement prepared by Mrs Tsoutsoulis was lost when Mrs Tsoutsoulis' computer crashed some years later. Mrs Tsoutsoulis stated that several days before the commencement of the trial in December 2014 she reconstructed the statement from memory, albeit it was some six years earlier that the statement had been prepared. This reconstructed anticipated profit and loss statement formed the basis of a claim for loss of bargain by Constant Enterprises.
The statement of anticipated profit and loss was based upon a projected gross income of $23,666 per week in the first year and $26,033 per week in the second year. These figures were used as Mrs Tsoutsoulis was confident that the proposed café business could generate greater income than the Gloria Jean's café as the Gloria Jean's café traded 5 1/2 days per week whereas the new partnership proposed to trade seven days per week.
Based upon the gross weekly figures of $23,666 in the first year and $26,033 in the second year, a calculation was made of an anticipated yearly net profit of $184,474 in the first year and $330,500 in the second year.
Notwithstanding these profit estimates, Mr Dimovski withdrew from the proposed partnership as he was not satisfied that even on these projections he would receive sufficient income to satisfy his expectations.
Negotiations continued between Westzone Enterprises and Mrs Tsoutsoulis notwithstanding the withdrawal of Mr Dimovski and by early June 2008 Westzone Enterprises and Mrs Tsoutsoulis reached an agreement whereby the café business would be established and operated by a partnership between Westzone Enterprises and Constant Enterprises. All of the negotiations on behalf of Constant Enterprises were conducted by Mrs Tsoutsoulis.
Mrs Tsoutsoulis evidence was that the intention of the parties was that after 12 months trading Constant Enterprises would buy out Westzone Enterprises.
(b) The partnership and finance agreements
It was agreed between Mrs Tsoutsoulis and Mr O'Brien of Westzone Enterprises that the partnership was to be a 50/50 partnership in terms of contributions and sharing profits. The evidence of Mrs Tsoutsoulis was that Westzone Enterprises was going to be a silent partner to 'nearly everything' (ts 67). She stated in her evidence that
they were not interested of [sic] being partners for a long time. They were only doing it just for us to open the shop and to get it going and Gerard (O'Brien) did not have any time. He's – he made it clear, he had no time for – to open a coffee shop. (ts 67)
Later in her evidence Mrs Tsoutsoulis stated that the set‑up of the coffee shop was her sole responsibility.
Eventually, following these negotiations, documentation was prepared primarily relating to the lease that was to be granted by Westzone Enterprises to a partnership consisting of Westzone Enterprises and Constant Enterprises. The documentation prepared was enclosed in a letter to Constant Enterprises from Westzone enterprises dated 23 June 2008. Included in the lease documentation was an Offer to Lease document which provided for a lease of the shop premises for a period of 10 years from or about July 2008 in accordance with the terms and conditions set out in the pro forma lease document. A formal lease document was to be prepared by the solicitors acting for Westzone Enterprises in accordance with a pro forma lease document and executed by the parties. No such lease document was ever executed by the parties.
The Offer to Lease document incorporated special conditions in an annexure 'X. The annexure 'X' contained the agreed terms of the partnership between Westzone Enterprises and Constant Enterprises, consistent with the terms pleaded by Constant Enterprises in these proceedings. The Offer to Lease document included a guarantee by Mrs Tsoutsoulis.
The Offer to Lease document contained a provision (cl 6.2) which required the tenant to comply with the requirements of a Tenancy Fitout Guide. The Tenancy Fitout Guide contained provisions for a landlord appointed tenancy coordinator with whom the tenant was required to liaise to ensure that the fit out of the premises was completed within a required timeframe and complied with design criteria set by the landlord. Westzone Enterprises nominated a Ms Rosalba D'Annolfo as the tenancy coordinator.
The Offer to Lease document provided for the shop fit out to be completed by 31 August 2008 with the opening date of the shop being 1 September 2008. Mrs Tsoutsoulis in her evidence stated that this was never a realistic expectation and that it was always understood that it would take longer for the shop fit out to be completed.
Mrs Tsoutsoulis stated in her evidence that the base wage amount of $1,200 to be paid (with increments based upon increasing turnover) pursuant to the partnership agreement was a payment to cover the work that she was to provide in the running of the business. She said this base wage was based on the anticipated income of the café being equivalent to that earned by the Gloria Jean's café in the shopping centre as revealed by representatives of Westzone Enterprises.
Mrs Tsoutsoulis also stated that initially there was no agreement that she be paid a wage during the setting up of the business but in August 2008 she asked for a wage to be paid to her because of the time she was spending in setting up the business. She said it was orally agreed with Mr O'Brien on behalf of Westzone Enterprises that she be paid $800 per week.
Mrs Tsoutsoulis' evidence was that it was agreed between the parties that the total set-up costs would be $250,000 which was to be contributed equally.
Mrs Tsoutsoulis also stated that an agreement was reached with Westzone Enterprises to provide financial assistance to Constant Enterprises to cover the initial set-up costs. Her evidence was that Westzone Enterprises agreed to advance $125,000 'to start towards opening the shop' (ts 67). Initially Westzone Enterprises proposed that this advance be secured by a second mortgage over the home of Mrs Tsoutsoulis and her husband but this was rejected by Mrs Tsoutsoulis. Eventually security was provided in the form of an irrevocable authority dated 25 August 2008 signed by Mrs Tsoutsoulis and her husband which provided that from the proceeds of the sale of the Scarborough Beach Road property, the agents, Envoy Settlements, were authorised to pay to Westzone Enterprises the sum of $125,000.
Mrs Tsoutsoulis' evidence was that at some point in time Ms Langdon had mentioned that the set-up costs may be an additional $30,000 and that Westzone Enterprises would lend this additional sum to Constant Enterprises. Mrs Tsoutsoulis said she protested stating that they had a budget of $250,000 and that they were going to stick to this budget. Mrs Tsoutsoulis' evidence was that she was confident that if she was left to organise the set-up costs she would have been able to set-up the café within the budget of $250,000. She stated that from other business interests she had developed skills of working within a budget.
(c) Ancillary set-up steps
Shortly after the signing of the Offer to Lease document on 23 July 2008, steps were initiated for the purchase of numerous items of equipment for the café business, the establishment of taxation records, creation of a logo design for signage and stationery, and business registration. The total expenditure covering these items was $56,794.95 (see exhibit 24). The equipment was purchased from a number of outlets, being Harvey Norman, Sofas and More, Lighting by Design and Ross's Auctioneers and Valuers. Mrs Tsoutsoulis evidence was that she was in company with Ms D'Annolfo when she purchased items from Sofas and More and Ross's Auctioneers and Valuers. Mrs Tsoutsoulis also enrolled in some cooking classes for herself.
Before a partnership bank account was established, Westzone Enterprises paid the sum of $30,000 into a bank account of Mrs Tsoutsoulis to enable initial equipment purchases to be made. On or about 8 August 2008 a partnership bank account was established with Westpac and Westzone Enterprises paid further amounts of $20,000 (8 August 2008) and $100,000 (26 August 2008) into the account. Also a further sum of $5,000 was paid into the account by Mrs Tsoutsoulis on 8 August 2008 but it is not clear from the evidence whether this was the residue of the $30,000 initially paid by Westzone Enterprises. In closing submissions, counsel for Westzone Enterprises did not dispute that this $5,000 should be treated as a separate contribution by Constant Enterprises.
Mr Cesare Michael Cenaviva, an accountant acting for Mrs Tsoutsoulis, set up the ABN number, the tax file number, the GST registration and the Pay As You Go Withholding registration for the partnership on instructions received from Ms Langdon.
(d) Store fit out
In or about late in July 2008 a quotation was obtained from a Mr Troy Hall for a fit out of the shop premises. This quotation was organised by Ms D'Annolfo and Ms Langdon of Westzone Enterprises. The quotation was in the sum of $162,720 plus GST. The quotation was unacceptable to Mrs Tsoutsoulis for two reasons; firstly, it was too high and, secondly, it was not itemised. At Mrs Tsoutsoulis' insistence a written itemised quotation was requested and on 22 July 2008 this was presented by Mr Hall by an email copied to Mrs Tsoutsoulis and Westzone Enterprises. Mrs Tsoutsoulis then arranged for a second quotation from a person by the name of Ron whose quotation was under $200,000. This quotation was also unacceptable to Mrs Tsoutsoulis. In early September 2008 Mr Hall indicated he was not available to carry out the fitting out of the shop premises. At this point of time Ms Langdon of Westzone Enterprises expressed concern about the delay in the shop premises being fitted out and recommended a fit out contractor, Resivest. The representative of Resivest was a Mr Hedley Chan who met with Mrs Tsoutsoulis, her son Constantine Tsoutsoulis and Ms Langdon of Westzone Enterprises. Subsequently, Mrs Tsoutsoulis, her son Constantine Tsoutsoulis and Mr Chan attended a meeting with a kitchen supplier (Practical Products).
Mrs Tsoutsoulis' evidence was that a mistake was found in the floor plans and Mr Chan was to obtain from Ms D'Annolfo a revised plan before presenting a quotation. Mr Chan agreed he would provide a quotation promptly, although before doing so he needed to meet with a plumber. Tendered into evidence was a quotation from Resivest dated 22 September 2008 for $118,805 plus GST, but the quotation did not include electrical works, air-conditioning works, signage and graphics and gasworks. The evidence of Mrs Tsoutsoulis was that this quotation was not received by her until sometime later. Tendered into evidence was a copy of an email from Ms Langdon dated 24 September 2008 addressed to Mrs Tsoutsoulis which enclosed a copy of the quotation. The email concludes:
I have asked Hedley (Chan) to go to council and get the building licence so that we can start.
I think Hedley's quote is fair and hope that you agree. (see exhibit 8)
Initially Mrs Tsoutsoulis' evidence was that she did not receive this email but later she conceded in cross-examination that she may have received the email but she never read it.
In addition to the works to be performed by Resivest a quotation was also obtained from Practical Products for kitchen equipment in the sum of $64,225.50.
On or about 22 September 2008 Constantine Tsoutsoulis visited the shop premises and found that Mr Chan of Resivest had commenced the fitting out works. Constantine Tsoutsoulis telephoned his mother from the premises and Mrs Tsoutsoulis spoke to Mr Chan on the telephone. Mr Chan informed her that Ms Langdon of Westzone Enterprises had accepted the quotation of Resivest. Mrs Tsoutsoulis' evidence was that she informed Mr Chan that Westzone Enterprises was a silent partner and Mr Chan required her authorisation to proceed. Mrs Tsoutsoulis said Mr Chan refused to talk to her further and said that he was taking his instructions from Ms Langdon. Constantine Tsoutsoulis stated in his evidence that he also spoke to Mr Chan and was told by Mr Chan to leave the premises. When he refused to do so he was escorted from the shopping centre. Mrs Tsoutsoulis said she telephoned Ms Langdon immediately but Ms Langdon refused to discuss the issue with her stating that Mrs Tsoutsoulis was impossible to deal with and that she was taking too much time and things had to be kept moving.
On 24 September 2008 Mrs Tsoutsoulis instructed her son Constantine Tsoutsoulis to attend the Westpac Bank to make a number of withdrawals from the partnership bank account to pay various expenses including cooking class fees, Direct Lighting and a payment of $800 for wages. Constantine found that the bank account had been frozen by Westzone Enterprises and reported this to Mrs Tsoutsoulis. Mrs Tsoutsoulis immediately telephoned Ms Langdon of Westzone Enterprises and complained bitterly that the account was frozen which prevented her from paying various accounts. Ms Langdon made immediate arrangements to ensure that the account could be operated and Mrs Tsoutsoulis instructed her son Constantine to pay various accounts and to withdraw the sum of $69,113.54 which was paid into Mrs Tsoutsoulis' bank accounts leaving only a nominal amount left in the partnership account. Mrs Tsoutsoulis' explanation for withdrawing the sum of $69,113.54 was that she was becoming worried by what had occurred and wanted to secure the partnership funds until Mr O'Brien returned from an overseas trip and she had an opportunity to discuss matters with him and resolve differences.
Ms Langdon requested a meeting on 25 September 2008 to discuss matters but Mrs Tsoutsoulis sent an email stating Constant Enterprises would not attend such a meeting (see exhibit 28). The evidence of Mrs Tsoutsoulis was that she was not prepared to attend such a meeting until Mr O'Brien had returned from overseas. On the same date Mrs Tsoutsoulis caused to be sent by email to Resivest and Ms Langdon a letter dated 25 September 2008 addressed to Resivest directing that Mr Chan was not to commence any further work on the shop premises as the work required the authorisation of both Mr O'Brien (of Westzone Enterprises) and Constantine Tsoutsoulis (of Constant Enterprises).
(e) Negotiations in October 2008
On 9 October 2008 Mrs Tsoutsoulis met with Mr O'Brien with a view to trying to resolve differences. Mr O'Brien proposed that Resivest should complete the fit out of the shop premises and a number of options were then discussed as to how the future operation of the business would be conducted. The next day on 10 October 2008 Westzone Enterprises sent a letter to Mrs Tsoutsoulis by email proposing that Westzone Enterprises withdraw from the business. Westzone Enterprises would advance the sum of $187,433 consisting of the following:
1.Cash advanced as at that date: $150,000
2.Payment due for design work: $7,732
3.Deposit paid to Resivest: $29,701
The advance would be secured by way of a second mortgage over the home of Mrs Tsoutsoulis and her husband. The proposal was conditional upon Resivest completing the fitting out of the shop premises.
This proposal was rejected by Mrs Tsoutsoulis and eventually, following further negotiations, a settlement was reached on the following terms:
1.The business be taken over by Westzone Enterprises;
2.Mrs Tsoutsoulis would retain certain items of purchased partnership property, consisting of three massage chairs, a pizza oven, a freezer and a computer, all at an agreed valuation of $15,000. (In closing submissions counsel for the plaintiff allowed $16,500 for equipment retained by Constant Enterprises and this does not appear to be in dispute. The evidence Mrs Tsoutsoulis was that she paid approximately $2,000 to Westzone Enterprises for the computer immediately after the agreement was reached, which means there remains $14,500 worth of unaccounted equipment retained by Constant Enterprises);
3.Westzone Enterprises would take over all other partnership equipment; and
4.Constant Enterprises would provide a personal cheque to Westzone Enterprises in the sum of $84,560 which was to be held by Westzone Enterprises until the settlement of the sale of the Scarborough Beach Road property owned by Mr and Mrs Tsoutsoulis.
5.Westzone Enterprises would provide a release of the irrevocable authority.
The evidence of Mrs Tsoutsoulis as to when this agreement was made and when it was to be effected conflicted with a tendered letter (exhibit 43) from Chris Stokes & Associates (solicitors for Constant Enterprises) dated 29 October 2008. According to the evidence of Mrs Tsoutsoulis the agreement was reached on 9 October 2008 and the settlement of the sale of the Scarborough Beach Road property was due on 5 January 2009. However the letter from Chris Stokes & Associates suggests that the agreement was reached on 17 October 2008 and that settlement of the sale of the Scarborough Beach Road property was to take place on 20 October 2008.
Mrs Tsoutsoulis in her evidence stated that she did not have sufficient funds to cover the $84,560 cheque she had given to Westzone Enterprises (she only had the $69,113.54 she had withdrawn from the partnership account); and hence the agreement between the parties was that the cheque for $84,560 would be held by a Westzone Enterprises and presented for payment on the morning of the settlement of the sale of the Scarborough Beach Road property. Mrs Tsoutsoulis stated that she approached her bank to confirm that they would give a special clearance to the cheque for $84,560 on the morning of the settlement. The bank was prepared to do this providing that it would receive the proceeds of the settlement.
Mrs Tsoutsoulis stated that when she discussed the arrangement with the settlement agency, Envoy Settlements, she was informed that the irrevocable authority remained in place and that Westzone Enterprises had lodged a caveat over the property. Mrs Tsoutsoulis stated that she contacted Mr O'Brien to discuss the situation and he proposed that the settlement proceed and that he would provide the $125,000 to Mr and Mrs Tsoutsoulis within three days of the settlement. In the meantime her cheque $84,560 would be held unpresented in the interim. Mrs Tsoutsoulis agreed to this proposal and she telephoned the bank and told the bank that a special clearance would no longer be required and that the parties were sorting the matter out.
No explanation was given by Mrs Tsoutsoulis in her evidence‑in‑chief as to why these arrangements were not finalised. When cross‑examined about the matter she initially stated that Westzone Enterprises simply never presented the cheque for $84,560. However, the letter from Chris Stokes & Associates dated 29 October 2008 stated that as result of the non-release of the irrevocable authority Mrs Tsoutsoulis stopped payment on her cheque for $84,560 and considered the agreement between the parties concerning the dissolution of the partnership at an end. The letter then goes on to state that a further agreement was reached on 23 October 2008 whereby it was agreed between the parties that the original partnership agreement would continue. It was proposed by Constant Enterprises that any set-up costs over and above $250,000 would be borne exclusively by Westzone Enterprises.
Although Mrs Tsoutsoulis agreed under cross-examination, as result of being shown a copy of the letter from Chris Stokes & Associates dated 29 October 2008, that she had placed a stop on the cheque of $84,560, no evidence was given by her as to the details of any further negotiations.
In the meantime, Constant Enterprises retained the property items that in October 2008 it was agreed it would retain and Westzone Enterprises retained the balance of partnership assets, proceeded with the completion of the fit out of the shop premises and leased the shop premises to Doltarc Pty Ltd.
On or about 5 January 2009 Westzone Enterprises received the $125,000 pursuant to the irrevocable authority.
(f) Sale of café lease to Doltarc Pty Ltd
Mrs Robyn Sexton, the owner of Doltarc, gave evidence that she had prior to the purchase of the café business by Doltarc considerable experience in catering. Mrs Sexton and her sister conducted a catering business for 16 years; and owned and conducted a café business in Midland for five years. The café business had been profitable.
In 2008 Mrs Sexton was looking for the opportunity to invest in a further café business and was approached by Ms Langdon of Westzone Enterprises. Following this approach, Doltarc took a lease of Shop 30 from December 2008. Pursuant to an Offer to Lease document, Doltarc borrowed from Westzone Enterprises $341,000 to cover the costs of the set-up of the premises. The Offer to Lease had a list of items and expenses incurred relating to the set-up of the premises. This itemisation totalled $340,779.14 inclusive of GST. Of this list the following items related to items acquired by the partnership (with the balance of the items acquired by Doltarc were paid for by Westzone Enterprises after the partnership had ceased to operate):
Audio equipment and speakers $1,466.99
Sofa, chairs and coffee tables $19,759.99
Lights$4,245.89
Various items purchased from
Ross' (Auctioners & Valuers) $20,286.99[1]
Fit-out plans $7,700.00
Building licence $611.73
Application fee $120.00
Kitchenware $2,568.40
$56,759.99
[1] This figure was originally $22,486.99 but adjusted downwards to exclude $2,200 for a pizza oven retained by Constant Enterprises
Mrs Sexton in her evidence indicated that subsequently there were a number of items of equipment she did not require that had previously belonged to the partnership, being a centrifugal juicer, a semi‑auto meat slicer and a double contact grill. I infer Westzone Enterprises retained the equipment that Doltarc did not require as no evidence was led as to what happened to these items of equipment. Further, the final agreement entered into between Westzone Enterprises and Doltarc indicates the items of equipment purchased by Doltarc were sold to it free of GST, which further reduced the figure of $56,759.99. I infer that Westzone Enterprises received the benefit of credits against the GST paid on equipment items purchased by the partnership and this was the reason GST was deducted from the price paid by Doltarc.
Before purchasing the leased premises, Mrs Sexton was told by Mr O'Brien that Gloria Jean's café in the shopping centre was returning $15,000 ‑ $17,000 per week gross income. Mrs Sexton's evidence was that when Doltarc commenced to operate the café the income returns were well below the expectations based upon turnover of the Gloria Jean's café. In the first 12 months the weekly income was approximately $7,000. Initially the café was open for six days per week, it then opened for seven days per week for a period but reverted back to six days per week. Doltarc operated the café for a number of years and occasionally, but not consistently, the weekly income reached $10,000.
As result of Doltarc failing to receive the expected income, it was unable to pay rent and very quickly built up a significant debt to Westzone Enterprises under the loan arrangement and for outstanding rental. Eventually Doltarc sold the business at a considerable loss in or about February 2012 for approximately $100,000. Doltarc, and Mrs Sexton and her husband as guarantors under the loan, were pursued by Westzone Enterprises for monies outstanding under the loan agreement and eventually some form of compromise was reached. The full details of this were not provided in evidence.
Mrs Sexton's evidence was that in her opinion the reason Doltarc was unable to obtain the income it expected from the business was that there was not the amount of traffic in the shopping centre that had been expected. There were also other competing coffee outlets in the shopping centre.
Conclusions
Although Mrs Tsoutsoulis' evidence was not contradicted by evidence called by Westzone Enterprises, I find that at times during her evidence Mrs Tsoutsoulis was prone to exaggeration and gave self‑serving evidence. This was particularly so in relation to the issue of whether Constant Enterprises was to be solely responsible for the set-up of the café business. Mrs Tsoutsoulis' evidence that Constant Enterprises was to have the sole responsibility is contrary to her email to Resivest on 25 September 2008 stating that the authority to proceed with the set-up works required the joint authorisation of Mr O'Brien and Mrs Tsoutsoulis.
I will deal firstly with each of the alleged breaches by Westzone Enterprises.
Alleged breach of the business management clause
The contention of Constant Enterprise is that Westzone Enterprises breached the business management clause by unilaterally engaging Resivest to conduct a fit out of the premises. The case of Constant Enterprises is that it was solely responsible for the set-up of the business.
The initial question that arises in relation to this alleged breach is whether the provision concerning Westzone Enterprises being a silent partner meant that the process of setting up the café, including the fitting out of the café, was to be arranged solely by Constant Enterprises. The question is a matter of construction of the written terms contained in the Offer to Lease. As I have already indicated oral evidence of the intentions, understanding and/or expectations of the parties is not admissible in relation to this construction question.
The construction of words in a written contract is more than assigning to the words their ordinary meaning. The surrounding circumstances can be taken into account as an aid in the construction of the contract: Codelfa Construction Pty Ltd v State Railway Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337.
The general principles were recently restated by the plurality in the High Court decision of Electricity Generation Corporation t/as Verve Energy v Woodside Energy [2014] HCA 7:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. … It will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. … [U]nless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'. [35]
There are limits to the extent to which the surrounding circumstances can be taken into account. Evidence of the surrounding circumstances cannot be taken into account to contradict the language of the contract when it has a plain meaning. In Codelfa Mason J stated as follows (352):
[t]he true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not permissible to contradict the language of the contract when it has a plain meaning.
The wording of a contract is 'ambiguous or susceptible of more than one meaning' if the scope or applicability of the contract is doubtful. Hence, the concept of ambiguity is not confined to lexical, grammatical or syntactical ambiguity: Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 294 ALR 550, 677 [76].
Evidence of prior negotiations is admissible in so far as it tends to establish objective background facts which were known to both parties and the subject matter of the contract. However, prior negotiations are not admissible to establish the actual intentions and expectations of the parties. Whatever are the parties' intentions and expectations, they merge into the contract itself: Codelfa [23] (Mason CJ).
In my opinion there is sufficient doubt as to the applicability of the business management clause (cl 3 of annexure 'X') to the set-up arrangements of the café business for the surrounding circumstances to be taken into account. This is because the wording of cl 3 does not deal expressly with the issue of the set-up arrangements. Further, the word 'business' is not defined in the written agreement.
In this matter it is clear that Westzone Enterprises was seeking a tenant for the premises. The partnership agreement was designed as a means of enabling Constant Enterprises to run a café business which otherwise was beyond its means or willingness to establish. Westzone Enterprises was contributing a substantial sum of money (both in the form of a 50% contribution and also providing funding to enable Constant Enterprises to make its 50% contribution) to the establishment costs. This took Westzone Enterprises' interest beyond that of simply the interests of a landlord who wishes to maintain design standards for the shopping centre. In my opinion it is likely that the intention of the parties was that Westzone Enterprises would retain a say (that is, it would not be silent) in relation to the set-up of the business, particularly as to the amount of money spent and how it was spent in relation to the fit out of the premises.
I believe it is significant that the wages clause (cl 4) providing for a payment of $1,200 per week uses the expression 'to operate and manage the business'. This is similar to the expression used in the business management clause (cl 3) which provides that 'the business will be managed and operated solely by Constant Enterprise …'. It is not contested by Constant Enterprises that the wages clause provided for wages payable once the café was operational and did not cover the set-up stage. This is consistent with the fact that the wages clause provided for adjustment of the wage depending on the turnover of the business. It would be contrary to common sense to construe the wording 'to operate and manage the business' in the wages clause as not including the set-up stage, yet construe the words 'the business will be managed and operated solely by Constant Enterprises' in the business management clause as applying to the set-up stage of the café. In my opinion, for the sake of consistency of construction, both clauses should be construed as not applying to the set-up stage.
Further, cl 6 of the Particulars contained in the Offer to Lease document uses the expression 'set up costs for the business'. This implies that the setting up process is a precursor to the business and not a part of the business itself. This is consistent with the Offer to Lease document which provides that for a period of 28 days prior to the commencement date of the lease the tenant shall have access to the premises for the purposes of the carrying out the tenant's fit out in accordance with a standard Tenancy Fitout Guide (see cl 5).
Counsel for Constant Enterprises in closing written submissions sought to rely upon the conduct of the parties after entering into the agreement to support a submission that the intentions of the parties was that Constant Enterprises was to be solely responsible for the set-up of the premises prior to the operation of the business. In part counsel relied upon the fact that a bank account was opened by Mrs Tsoutsoulis in the partnership name and all withdrawals were made by Mrs Tsoutsoulis. Also it was submitted that the bulk of the fit out tasks were arranged by Mrs Tsoutsoulis, except tasks which were consistent with the role of the Tenancy Coordinator.
However, post‑contract conduct of a written contract cannot be used to provide an interpretation tool on the construction of terms of the contract. Although evidence of conduct after an alleged contract that is partly oral and partly in writing can be taken into account to ascertain whether a contract was entered into, such post‑contract conduct cannot be used to ascertain the meaning of the terms of a written contract: Codelfa (348); Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570, 35 [163]. Accordingly, the post‑contract conduct relied upon by counsel for Constant Enterprises cannot be taken into account on the construction question.
Further, in any event, in my opinion the evidence of post contract conduct by the parties is equivocal. The bank account was in the name of the partnership. Westzone Enterprises had an operational involvement in the bank account by making deposits and also had at one point exercised control over the account by stopping payments from the account. There were other involvements by Westzone Enterprises suggestive that 'the business' for the purpose of cl 3 of the annexure did not commence until after the café was operational. For example, the evidence of Mrs Tsoutsoulis concerning the payment of a wage of $800 per week during the set-up stage is consistent with the interpretation I have given to cl 3 and cl 4 of annexure 'X'. Further, I find that Westzone Enterprises engaged in more than a silent role in the set-up stage. For example, representatives of Westzone Enterprises were involved in organising quotes for the fit out of the premises. Finally, as I have already noted, Mrs Tsoutsoulis acknowledged in her email to Resivest on 25 September 2008 that authority to proceed with the set-up works required the joint authorisation of Constant Enterprises and Westzone Enterprises.
For the above reasons I conclude that the business management clause did not provide that the decisions concerning the set-up stage of the café were the sole responsibilities of Constant Enterprises.
I find that Westzone Enterprises did engage Resivest unilaterally without the express consent Constant Enterprises. This was done in the context that the shop premises needed to be fitted out prior to the opening of the café, the opening date of the café as provided for in the Offer of Lease had expired, Mr Hall had indicated he was unwilling to carry out the fit out works and the quotation from Resivest appeared to be a reasonable quotation based upon other quotations obtained. Notwithstanding this finding, given the construction I have given to the business management clause (cl 3), I am not satisfied that any breach of the business management clause has been established.
It should be emphasised that Constant Enterprises did not plead in the alternative that all decisions concerning the fit out of the premises were to be joint decisions. Section 34(5) of the Partnership Act 1895 provides that a partner 'may take part in the management of the partnership business'. Although such a right to participate existed it does not mean that every decision of the partnership must be a joint decision. This will depend upon the terms of the partnership either express or implied. In this matter, Constant Enterprises does not rely on any express term (other than cl 3 being the business management clause) nor an implied term to contend that Westzone Enterprises was not entitled to make a unilateral decision concerning the engagement of Resivest. Given the pleaded case of Constant Enterprises it is unnecessary for me to make any finding as to whether Westzone Enterprises was entitled to unilaterally engage Resivest.
The alleged breach of the contribution clause
The contention of Constant Enterprises is that Westzone Enterprises breached the contribution clause because Constant Enterprises was required to contribute more than the agreed sum of capital to the business as result of Westzone Enterprises engaging a contractor to fit out the premises without consulting Constant Enterprises.
I am not satisfied on the evidence that the engagement of Resivest required Constant Enterprises to contribute more than the agreed sum of capital to the business.
The evidence of Mrs Tsoutsoulis was that the maximum to be contributed to the set-up costs of the business by each partner was $270,000. Constant Enterprises contends that this was the effect of cl 6 of the special conditions being the contribution clause. It relies upon the surrounding circumstances for this construction, including that Constant Enterprises needed to borrow money from Westzone Enterprises to finance its participation in the partnership and the amount borrowed was $125,000 (being close to the alleged maximum contribution).
However, the clear wording of cl 6 is that the amount of $270,000 for the set-up costs was an estimate only.
Further, on the evidence before me, even if I were to find that it had been agreed that the maximum contribution by the partners to the set-up costs was to be $270,000 (that is $135,000 each), I am not satisfied on the evidence that the engagement of Resivest meant that Constant Enterprises was required to contribute more than the alleged maximum contribution of $135,000. The quote of Resivest for the work it was engaged to perform was $118,805 plus GST. There is insufficient evidence for me to conclude that the costs of the remaining essential items of the fit out of the premises would necessarily have led to overall costs in excess of the estimate of $270,000. No attempt was made by Constant Enterprises to present evidence of a costing of the essential residual items needed to complete the set-up. Obviously, in a fit out of premises there are choices to be made in respect to furniture, equipment and other fittings. Although Westzone Enterprises ultimately spent more than $270,000 in setting up the premises ($317,671.98), there is insufficient evidence for me to conclude that the set-up costs would have necessarily exceeded the sum of $270,000.
For the above reasons I reject the claim by Constant Enterprises that Westzone Enterprises had breached the contribution clause.
The alleged breach of the wages clause and the Finance Agreement by putting a stop on the partnership bank account
Constant Enterprises alleges that Westzone Enterprises put a stop on the partnership bank account and in doing so have breached the wages clause and the Finance Agreement by preventing Constant Enterprises drawing wages and otherwise having the benefit of funding provided by Westzone Enterprises to establish the café business.
I find that Westzone Enterprises did on or about 24 September 2008 put a temporary freeze on the partnership bank account. This did not constitute a breach of the wages clause as I find that at the time of the freeze the obligation to pay wages pursuant to the wages clause had not arisen as the café business was at that time not operational. Further, I find the Finance Agreement had not been breached by the temporary freezing of the partnership bank account. I find that Westzone Enterprises had provided the sum of $125,000 pursuant to the Finance Agreement. The freezing of the partnership bank account may have been in breach of other implied obligations under the partnership but that is not the pleaded case of Constant Enterprises. In any event, the freezing of the partnership bank account was only a temporary step taken which was immediately rectified when complained of by Mrs Tsoutsoulis and had no consequences. The same could not be said of the more significant action taken by Mrs Tsoutsoulis who withdrew approximately $69,000 from the partnership bank account and placed this in her own bank account. In my opinion this provoked a conclusion from Westzone Enterprises that it did not wish to remain in partnership with Constant Enterprises. In light of findings I will make later in this decision, that the parties abandoned the partnership, it is unnecessary for me to consider the pleading of whether the withdrawal of funds from the partnership bank account by Mrs Tsoutsoulis constituted a breach of an implied condition of acting in good faith as pleaded by Westzone Enterprises.
The alleged breach by denying access to the shop premises
The contention of Constant Enterprises is that in breach of the joint ownership clause, the partnership lease clause, and the business management clause, in or about late September 2008 Westzone Enterprises advised in a telephone conversation with Mrs Tsoutsoulis that Constant Enterprises and its representatives would no longer have access to the premises of the partnership business.
I find that on or about 22 September 2008 Mr Chan of Resivest indicated to Mrs Tsoutsoulis that he had been engaged by Ms Langdon of Westzone Enterprises and he was only prepared to take instructions from her. I also conclude that as an engaged contractor he was not prepared to accept interference from Constantine Tsoutsoulis and therefore arranged for Constantine Tsoutsoulis to be escorted from the shop premises. However the actions of Mr Chan were not necessarily endorsed by Westzone Enterprises. I conclude that when Mrs Tsoutsoulis telephoned Ms Langdon the conversation became heated and nothing was resolved. However, by 25 September 2008 Westzone Enterprises was proposing a meeting with a view to resolving differences which by then also included issues concerning the bank account. As acknowledged by Mrs Tsoutsoulis in her evidence, she received an email confirming such a proposal but declined to attend such a meeting as she wished to wait until Mr O'Brien had returned from overseas.
On the evidence before me I am not satisfied that Mr Chan's refusal to allow Constantine Tsoutsoulis access to the premises constituted a breach by Westzone Enterprises of the joint ownership clause, the partnership lease clause and the business management clause.
In any event, I find, for reasons I will give later in this decision, that the issue of Constant Enterprises access to the premises was resolved sometime in early October 2008 by Constant Enterprises deciding to abandon the partnership, which included abandoning any entitlements to take possession of the premises pursuant to the Offer to Lease.
Alleged breach of the wages clause
The contention of Constant Enterprises is that Westzone Enterprises breached the wages clause by not paying wages to Constant Enterprises as from 29 September 2008.
My finding is that the clause requiring the payment of wages to Constant Enterprises only applied once the business was operational. The business was never operational and therefore the obligation to pay wages did not arise as at 29 September 2008.
Alleged breach of joint ownership clause by leasing to Doltarc
It is common ground that as from about early October 2008 Constant Enterprises took no further part in the partnership and that Westzone Enterprises completed the set-up of the premises, leased the premises to Doltarc and sold to Doltarc the bulk of the balance of the partnership equipment retained by Westzone Enterprises. The evidence of Mrs Tsoutsoulis concerning the circumstances of how this occurred was most unsatisfactory and, as I have already noted, in part contradicted by a letter from her solicitors dated 29 October 2008 sent to the solicitors acting for Westzone Enterprises. The evidence presented during the trial trickled out as to what occurred after Westzone Enterprises received the $125,000 on settlement of the sale of the Scarborough Beach Road property. There is no evidence of any demands made by Constant Enterprises for the partnership to continue. There was no evidence of attempts by Constant Enterprises to block or even object to the sale of equipment and lease of the premises to Doltarc.
I conclude on the evidence of Mrs Tsoutsoulis that Constant Enterprises abandoned the partnership in October 2008 and from that time played no part in the proposed partnership business. I find that also at this time the parties agreed as to how the partnership assets were to be distributed and what adjustments were necessary between them so as to give effect to final accounts on the dissolution of the partnership. I find that pursuant to this agreement Constant Enterprises retained three massage chairs, a pizza oven, a freezer and a computer. The balance of equipment owned by the partnership at that time was retained by Westzone Enterprises. Further, it was agreed that a payment was to be made by Constant Enterprises of the sum of $84,560 to Westzone Enterprises. The final payment due by Constant Enterprises was not made as issues arose over the irrevocable authority which had earlier been given by Mrs Tsoutsoulis and her husband to Westzone Enterprises in the amount of $125,000 to be deducted from the settlement of the sale of the Scarborough Beach Road property belonging to Mr and Mrs Tsoutsoulis. This led to Mrs Tsoutsoulis putting a stop on a cheque for $84,560 which had been given to Westzone Enterprises. In my opinion the fact that the final payment was not made pursuant to the agreement between the parties did not cause the parties to deviate from their intention that Constant Enterprises would withdraw from the partnership. Certainly no evidence was given by Mrs Tsoutsoulis of any change of intention.
On the evidence before me I am not satisfied that any substitute agreement was entered into to the effect that the original partnership agreement should be reinstated as suggested in a letter from Chris Stokes & Associates dated 29 October 2008. This was not supported by any evidence given by Mrs Tsoutsoulis.
I further find that at the time Constant Enterprises abandoned the partnership business, no formal lease agreement had been entered between Westzone Enterprises as landlord and the partnership. I find that neither Constant Enterprises nor Westzone Enterprises took any steps to formally terminate the Offer to Lease agreement but both parties abandoned the Offer to Lease agreement and treated it as at an end. This is consistent with the fact that no claim has been made by Constant Enterprises in these proceedings claiming an entitlement in its capacity at law or equity as lessee.
Further, I find that as both parties had abandoned the partnership and treated the Offer to Lease as at an end, Westzone Enterprises was entitled to proceed to lease the premises to another party, which it did. Accordingly, for these reasons I reject the claim by Constant Enterprises that there was a breach of the joint ownership clause of the partnership agreement by Westzone Enterprises leasing the premises to Doltarc.
Alleged breach of joint ownership clause by transferring equipment to Doltarc
Similar to my conclusions in relation to the alleged breach of the joint ownership clause in relation to Westzone Enterprises leasing the premises to Doltarc, I find that pursuant to the agreement reached on or about 9 October 2008 or 17 October 2008, the parties had agreed that Westzone Enterprises would keep the partnership assets in the form of equipment and other fittings other than those items retained by Constant Enterprises which I have mentioned earlier in this decision. Accordingly, the subsequent transfer of these items of partnership equipment and fittings kept by Westzone Enterprises to Doltarc was not in breach of the partnership agreement.
Claim for damages
In view of my findings that Westzone Enterprises did not breach the partnership agreement as alleged by Constant Enterprises, it necessarily follows that there is no entitlement to damages. However, I will for the sake of completeness make findings concerning provisional damages.
Damages for breach of contract are awarded on the principle that the injured party is, so far as money can do, to be placed in the same situation as if the contract had been performed: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1992) 174 CLR 64, 80, 98, 117, 134, 148, 161; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 503; Robinson v Harman [1848] Eng R 135; (1848) 1 Ex 850; (1848) 154 ER 363.
The general rule is that the damages are assessed at the time of the breach. However, this is not a universal rule. It gives way in particular cases to provide solutions best adapted to give an injured plaintiff an award of damages which will most fairly compensate the plaintiff for the wrong the plaintiff has suffered: Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351.
The claim by Constant Enterprises is based upon the premise that the partnership had come to an end due to breaches of the partnership agreement by Westzone Enterprises. Such a claim is normally made on the basis that the breaches of contract constituted a repudiation of the contract which was accepted by the plaintiff or the breaches constituted a breach of fundamental or essential terms (see, for example, Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620, 626 (Gibbs J)). However the law also recognises a third category of cases that give rise to a right of termination where breaches of intermediate terms (that is non‑essential terms) deprive the other party of the substantial benefit of the contract: Koompahtoo Local Aboriginal Land Council v Sanphine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115.
In this case Constant Enterprises does not plead a repudiation and has not pleaded a breach of a fundamental term. In the statement of claim Constant Enterprises pleads rather obliquely that due to the breaches by Westzone Enterprises, and by Westzone Enterprises and a new tenant (Doltarc) operating the partnership business, the partnership had 'irrevocably broken down'. I interpret this pleading to be in effect a claim under the third category of cases recognised in Koompahtoo's case that Westzone Enterprises by breaches of the terms of the partnership agreement deprived Constant Enterprises of the benefits of the partnership business and thereby led to the partnership irrevocably breaking down.
In order for Constant Enterprises to establish that any alleged breaches of the partnership agreement caused the breakdown of the partnership, in accordance with the principles of contractual causation, it must establish that any such alleged breaches caused or materially contributed to the breakdown of the partnership. But the question is not simply a 'but for' test. The question of causation includes common sense notions of causation so that some breaches of the partnership agreement can be disregarded even though 'but for' those breaches the injury claimed would not have happened: March v Stramare (E & MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506, 523; BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268 [43].
For reasons that I have given earlier, I find that no breaches occurred as pleaded. However, even if I am wrong in this conclusion, the alleged breaches were of a temporary nature only. What led to the breakdown of the partnership were not the alleged breaches of the partnership agreement, but a realisation by both parties that there was insufficient goodwill between them for the partnership to continue and they agreed in early October 2008 to terminate the partnership agreement on the basis that Constant Enterprises would withdraw from the business venture. This led to Westzone Enterprises finding a new tenant (Doltarc) and leasing the premises to Doltarc. Also pursuant to the arrangement agreed to between the parties in October 2008, Westzone Enterprises retained the bulk of the setting up equipment which it treated as its own and later sold to Doltarc.
I find that a significant contributor to the lack of goodwill between the parties was the provocative behaviour of Mrs Tsoutsoulis withdrawing approximately $69,000 from the partnership bank account and placing it in her own bank account, particularly in circumstances where those funds had been provided solely by Westzone Enterprises under the Finance Agreement for purposes associated with the partnership.
I now turn to the particulars of the damages claimed by Constant Enterprises. In closing submissions counsel for Constant Enterprises particularised the claim for damages in the sum of $174,780.55, with an alternative claim in the sum of $194,805.
The claim for $174,780.55 can be summarised as follows:
(a)An amount due to Constant Enterprises for
contributions to the partnership: $76,276.14
(b)Interest on (a) for six years at 6% per annum: $27,459.41
(c)Loss of wages for a period of one year at
$1200 per week less tax: $54,145.00
(d)Loss of profit: $16,900.00
TOTAL:$174,780.55
(a) An amount due to Constant Enterprises for its contribution to the partnership
The claim for damages by Constant Enterprises takes into account contributions made by it in the nature of what is known as a reliance claim, that is, a claim based upon wasted expenditure (see Commonwealth v Amann Aviation Pty Ltd). This claim, although based upon a damages claim for an alleged breach of contract, largely mirrors, in terms of the mathematical exercise, the taking of an account on the dissolution of the partnership. It takes into account contributions made by the parties and credits received in the form equipment and money.
For reasons I have given above, I reject the claim for damages. However, as both parties have presented calculations to me that in essence mirror a taking of an account on dissolution of the partnership, I believe I should set out what I believe to be the correct calculation. The calculations I make are set out in the following balance sheet.
| Assets of Partnership | ||
| Contribution by: Westzone Enterprises to bank account | $150,000.00 | |
| Contribution by: Constant Enterprises to bank account | $5,000.00 | |
| Contribution by: Constant Enterprises through irrevocable authority | $125,000.00 | |
| Amount paid for computer by Constant Enterprises | $2,317.00 | |
| Amount received by Westzone Enterprises from irrevocable authority | $125,000.00 | |
| Amount received by Westzone Enterprises from Constant Enterprises | $2,317.00 | |
| Money retained by: Constant Enterprises | $69,113.54 | |
| Property retained by: Constant Enterprises | $14,500.00 | |
| Computer retained by Constant Enterprises | $2,317.00 | |
| Equipment and benefits retained by: Westzone Enterprises | $56,759.99 | |
| Unaccounted for expenditure | $12,309.47 | |
| TOTAL | $282,317.00 | $282,317.00 |
The figure I have assigned to unaccounted expenditure is simply an accounting balance arrived at after taking into account contributions made by the parties to the partnership and benefits received by Constant Enterprises and Westzone Enterprises in accordance with the evidence before me. In part it is represented by such things as wages paid to Mrs Tsoutsoulis, cooking classes fees and other fees. However, no attempt was made during the trial to present me with a comprehensive reconciliation of the bank statement tendered into evidence and the expenditure made.
Counsel appearing for Westzone Enterprise contended that as Doltarc defaulted under its loan agreement that Westzone Enterprise did not receive the full benefit of the partnership assets retained by it. I reject this contention. As I have already found, as result of the agreement reached in October 2008 Westzone Enterprises retained equipment and benefits worth $56,759.99, which it then treated as its own and sold to Doltarc as a part of the leasing arrangement with Doltarc. Doltarc's default under its loan agreement with Westzone Enterprises does not detract from the fact that Westzone Enterprises sold the set-up equipment and facilities to Doltarc.
In view of this finding, the proprietorship accounts of each individual partner can be calculated as follows:
| Constant Enterprises | |
| Contribution payment | $5,000.00 |
| Irrevocable authority payment | $125,000.00 |
| Payment for computer | $2,317.00 |
| TOTAL | $132,317.00 |
| Less value of computer received | $2,317.00 |
| Less monies retained | $69,113.54 |
| Less items retained | $14,500.00 |
| Less half of unaccounted expenditure | $6,154.73 |
| SHORT FALL | $40,231.73 |
| Westzone Enterprises | |
| Contribution payment | $150,000.00 |
| Less payment received | $125,000.00 |
| Less payment for computer | $2,317.00 |
| Less assets and benefits retained | $56,759.99 |
| Less half of unaccounted expenditure | $6,154.74 |
| EXCESS | $40,231.73 |
On the basis of these calculations Westzone Enterprises would be required to pay Constant Enterprises the sum of $40,231.73 by way of final account (excluding any claim for interest). This is on the basis that the $125,000 paid by Mr and Mrs Tsoutsoulis under the irrevocable authority is treated as a payment made on behalf of Constant Enterprises. The accuracy of these calculations is confirmed by the fact that they approximate the difference between the amount received by Westzone Enterprises under the irrevocable authority ($125,000) and the amount that Constant Enterprises had agreed to pay under the arrangement entered into in October 2008 ($84,560), being the sum of $40,440.
(b) Claim for loss of profit and loss of wages
A further claim for damages is made by Constant Enterprises for loss of profit and loss of wages it would have received if the partnership had opened and operated the café business. This claim for damages is commonly referred to as 'expectation damages'.
The onus of proving damages sustained lies on the plaintiff. The amount of the expected rewards, if the contract had been honoured, is to be assessed objectively: Commonwealth v Amann Aviation Pty Ltd [24] (Mason CJ & Dawson J). How this onus of proof operates in relation to proving damages for lost opportunities involves drawing a distinction between the standard of proof for past facts and the standard of proof for future occurrences. Past facts must be proved on the balance of probabilities. However, future occurrences involve the courts making an estimate of the likelihood that the possibility will occur. Accordingly, an award of damages for expected future returns is assessed making an adjustment for the likelihood of the expected return: Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638, 639, 700 (Brennan & Dawson JJ), 642, 643 (Deane, Gaudron & McHugh JJ). However, the expectation of return must be established as being something more than mere speculation or of more than a negligible value: Malec v JC Hutton Pty Ltd (642 ‑ 643) (Deane, Gaudron & McHugh JJ); Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 [39] (Mason CJ, Dawson, Toohey & Gaudron JJ).
In Commonwealth v Amann Aviation Pty Ltd, Deane J stated as follows:
The profit which one experienced commercial person may see as lying at the end of some commercial undertaking might be seen as an inevitable and disastrous loss by another. What seems to one person to be of benefit may be thought by other wiser people to be valueless and even a detriment. The nature of what would have been obtained if the contract had been performed may be so completely speculative that 'it is quite impossible to place any value' upon it. In such cases, recovery of other than nominal damages by the plaintiff will depend either upon the applicability of principles of restitution to enable the direct recovery of the benefit obtained by the defendant or upon the presumption of value ... to enable recovery of wasted expenditure [10] (126). (citations omitted)
For reasons I have given earlier in this decision, I am not satisfied that Constant Enterprises has established that any breach of the partnership agreement by Westzone Enterprises caused a loss of profit and a loss of wages as claimed by Constant Enterprises. The loss of any such potential arose because Constant Enterprises decided to withdraw from the partnership and abandoned the business venture.
A second issue that arises is whether Constant Enterprises, even if it had succeeded in convincing me that it was entitled to damages for loss of bargain, whether it has proven its loss. Based upon the evidence called by Constant Enterprises from Mrs Sexton, I conclude that the expectations as to profitability by Mrs Tsoutsoulis were speculative. There was no sound basis upon which the estimated gross weekly income claimed by Constant Enterprises can be justified. The estimated weekly gross income claimed by Constant Enterprises is well above that which Doltarc received. The difference cannot be explained away simply on the basis that the partnership was intending to open a café seven days per week. Mrs Sexton tried this unsuccessfully. Further, Mrs Sexton had greater experience in running a café business than Mrs Tsoutsoulis and I conclude that if Mrs Sexton could not run the café business profitably then it is unlikely that Constant Enterprises would have run the business profitably when neither Mrs Tsoutsoulis or her son had any prior experience of running a café. Further, the anticipated expenses included in the anticipated profit and loss statement prepared by Mrs Tsoutsoulis were not based upon any factual grounds relating to the running of the café but were based upon percentages of the gross income only. For these reasons I am not satisfied that Constant Enterprises has proved a loss of income by the partnership not proceeding. Further, without any profitability, I am not satisfied the partnership would have had the capacity to pay the wages claimed by Constant Enterprises.
(c) Alternative claim for damages
The alternative method of calculation advanced by Constant Enterprises in its claim for damages (which amounts to $194,805) is based in part on the difference between what Doltarc agreed to pay Westzone Enterprises in the Offer to Lease, being the sum of $341,000 less what Constant Enterprises had budgeted for the set-up, being $250,000. I do not accept that such a calculation validly represents any loss suffered by Constant Enterprises even if it was able to establish that a loss arose due to a contractual breach. The alternative claim also included claims for loss of wages and loss of profit similar to that claimed under the first methodology of calculation and I again reject such a claim on the basis that I am not satisfied that the business would have traded profitably.
Claim of unjust enrichment
As stated earlier Constant Enterprises seeks damages by way of an unjust enrichment in the sum of $50,528.27, being the value of items retained by Westzone Enterprises. This amount is different to the amount of $56,759.99 referred to earlier in this decision due to adjustments by deducting GST and not including fees paid.
The concept of unjust enrichment was described by French CJ, Crennan and Kiefel JJ in Equuscorp Pty Ltd v Haxton [2012] HCA 7 [30]; (2012) 246 CLR 498 as serving a taxonomical function of the category of cases in which the law allows recovery by one person of a benefit received by another. Recovery in such cases is based upon four features:
1.Recovery depends upon enrichment of the defendant by reason of one or more recognised classes of 'qualifying or vitiating factors';
2.The category of case must involve a qualifying or vitiating factor such as mistake, duress, illegality or failure of consideration, by reason of which the enrichment of the defendant is treated as unjust;
3.Unjust enrichment so identified gives rise to a prima facie obligation to make restitution; and
4.The prima facie liability can be displaced by circumstances which the law recognises would make an order for restitution unjust.
A classic circumstance of a claim of unjust enrichment is where money is paid by mistake or without consideration. There the claim is based upon the question of whether it would be unconscionable for the recipient to retain the money. Unconscionable remains a seminal notion of the remedy based upon the concept of what is just in the circumstances: Equuscorp Pty Ltd v Haxton [32]. In Commonwealth v Amann Aviation Pty Ltd Deane J at (117) stated as follows in the context of considering the question of the entitlement to recover wasted expenditure made on a contract that has not been performed:
There are … circumstances in which the doctrine restitution or unjust enrichment overlays the ordinary general rule as to the assessment of damages and gives rise to a direct right of claim to recover from the other party money paid under the contract to that other party for a consideration which has failed completely. Even in a case where the consideration does not fail completely it would seem that the doctrine will found a direct action for the excess money paid by the innocent party to the other party over the value of any consideration acts to the received in the circumstances are such that it would be unconscionable conduct on the part of the party to retain the excess. [3]
The recognised classes of cases where a claim for restitution can be based upon an unjust enrichment do not include situations where an existing enforceable contract covers the rights sought to be enforced by the claim: Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 182 CLR 221, 256.
An obvious claim for an unjust enrichment would be a claim by Mrs Tsoutsoulis and her husband that it would be unconscionable for Westzone Enterprises to retain the full sum of $125,000 under the irrevocable authority attached to the Finance Agreement when Constant Enterprises and Westzone Enterprises had agreed to terminate the partnership and pursuant to the agreement it had been agreed between the parties that Westzone Enterprises' cash entitlement was limited to $84,560. However, Mrs Tsoutsoulis and her husband are not parties to these proceedings and therefore no such claim is made.
The claim based upon unjust enrichment made by Constant Enterprises is in reality a claim for restitutional damages based upon alleged breaches of contract and therefore is in substance a similar claim already dismissed by me for damages claimed by Constant Enterprises in the form of reliance damages, that is damages calculated on the basis of the lost contribution made by Constant Enterprises to the partnership. In light of my findings earlier in this decision that there were no breaches of contract as alleged by Constant Enterprises and that, even if there was, it was not the cause of the partnership coming to an end, I likewise dismiss the claim based upon an unjust enrichment. Further, in my opinion a remedy based upon unjust enrichment is not available in this matter because there was an enforceable contract of partnership and in my opinion the rights of a recovery, if any, by Constant Enterprises are governed by the contractual provisions and the Partnership Act 1895.
Dissolution of partnership
Section 46 of the Partnership Act 1895 provides that on an application by a partner a court may decree a dissolution of partnership in a number of circumstances including 'whenever in any case whatever circumstances have arisen which, in the opinion of the court, render it just and equitable that the partnership be dissolved'. Constant Enterprises seeks a declaration of dissolution of the partnership in these proceedings and I am satisfied that such an order should be made. I am satisfied that on 9 October 2008 when Mrs Tsoutsoulis and Mr O'Brien met that both parties had reached the point where they agreed that the partnership could not continue due to irreconcilable differences and were looking for a means by which the dissolution could be achieved. Accordingly, I propose to order that the partnership be treated as dissolved as at 9 October 2008.
On dissolution of a partnership, the parties are entitled to have a winding up of the partnership business and final accounts prepared (s 50 of the Partnership Act 1895). I will return to this issue shortly.
Constant Enterprises also seeks that a receiver be appointed but I do not believe this is appropriate in view of the time that has elapsed and the use of the partnership assets by both Constant Enterprises and Westzone Enterprises.
Summary
For the above reasons I dismiss the claim by Constant Enterprises for damages for breach of contract. However, I make an order for dissolution of the partnership which is to be effective as at 9 October 2008.
In my opinion it is appropriate that I seek to resolve all outstanding issues between the parties and I will hear counsel as to whether leave should be given for Constant Enterprises to amend its claim to include a taking of an account on the dissolution of the partnership. I have already indicated my view as to what adjustments are necessary on the taking of an account but there may be other factors in the unaccounted expenditure item which require further adjustment to the final accounts. Accordingly, I will hear counsel as to what orders should be made by the way of the taking of an account if an amendment to the claim is made. Alternatively, it may be unnecessary to make final orders concerning a taking of an account on the dissolution of the partnership if the parties are able to reach an agreement concerning this issue.
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