Corporate Systems Publishing Pty Ltd v Lingard [No 4]
[2008] WASC 21
•28 FEBRUARY 2008
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: CORPORATE SYSTEMS PUBLISHING PTY LTD -v- LINGARD [No 4] [2008] WASC 21
CORAM: BEECH J
HEARD: 17 - 19 & 21 SEPTEMBER, 5 - 8 & 12 NOVEMBER 2007 & 15 FEBRUARY 2008
DELIVERED : 28 FEBRUARY 2008
FILE NO/S: CIV 1788 of 2003
BETWEEN: CORPORATE SYSTEMS PUBLISHING PTY LTD (ACN 009 412 622)
First Plaintiff
NICK CHRISTOU
Second PlaintiffAND
KEITH GRAEME LINGARD
First DefendantSTANTON PARTNERS AUSTRALASIA PTY LTD (ACN 085 103 206)
Second DefendantSTANTON ACCOUNTANTS & ADVISORS PTY LTD (ACN 085 059 909)
Third DefendantNEIL KEVIN JOYCE
Fourth DefendantDEMANDEM HOLDINGS PTY LTD (ACN 009 258 664)
Fifth DefendantGLENLEA ENTERPRISES PTY LTD (ACN 065 274 544)
Sixth Defendant
Catchwords:
Trusts - Express trust - Breach of trust - Defence of consent to breach of trust
Contract - Written contract - Construction of contract - Whether conditional - Identification of parties - Whether implied term
Equity - Recipient liability - First limb of Barnes v Addy - Whether defendants had sufficient knowledge of breach of trust
Equity - Assistance - Based liability - Second limb of Barnes v Addy - Whether trustee acted with dishonest and fraudulent design - Whether defendants had sufficient knowledge of breach of trust
Partnership - Partnership terminated - Whether winding up order should be made
Legislation:
Trustees Act 1962 (WA), s 65(7)
Result:
Monetary claims against all defendants dismissed
Order for winding up of partnership
Counterclaim upheld
Category: B
Representation:
Counsel:
First Plaintiff : Mr P G Clifford
Second Plaintiff : Mr P G Clifford
First Defendant : Mr M L Bennett
Second Defendant : Mr M L Bennett
Third Defendant : Mr M L Bennett
Fourth Defendant : Mr M L Bennett
Fifth Defendant : Mr M L Bennett
Sixth Defendant : Mr M L Bennett
Solicitors:
First Plaintiff : Alan Rumsley
Second Plaintiff : Alan Rumsley
First Defendant : Lavan Legal
Second Defendant : Lavan Legal
Third Defendant : Lavan Legal
Fourth Defendant : Lavan Legal
Fifth Defendant : Lavan Legal
Sixth Defendant : Lavan Legal
Case(s) referred to in judgment(s):
Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99
Baden v Societe Generale Pour Favoriser Le Developpement du Commerce et de L'Industrie en France SA [1993] 1 WLR 509
Barnes v Addy (1874) LR 9 Ch App 244
Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
Briginshaw v Briginshaw (1938) 60 CLR 336
Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Cummings v Lewis (1993) 41 FCR 559
Farah Constructions Pty Ltd v Say‑Dee Pty Ltd [2007] HCA 22; (2007) 81 ALJR 1107
Foran v Wight (1989) 168 CLR 385
Hancock Family Memorial Foundation Ltd v Porteous [1999] WASC 55; (1999) 151 FLR 191
Hatt v Magro [2007] WASCA 124; (2007) 34 WAR 255
Home Building Society Ltd v Pourzand [2005] WASCA 242
International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3
Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144; (2006) 156 FCR 1
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; (2004) 218 CLR 273
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Permanent Building Society (in liq) v Wheeler (1992) 10 WAR 109
Posgold (Big Bell) Pty Ltd v Placer (WA) Pty Ltd [1999] WASCA 217; (1999) 21 WAR 350
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355
Re Diplock's Estate [1948] Ch 465
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359
Spellson v George (1992) 26 NSWLR 666
Toll (FGCR) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484
Zhu v Treasurer (New South Wales) [2004] HCA 56; (2004) 218 CLR 530
BEECH J:
Introduction
This action involves disputes between former partners of an accounting firm and entities associated with them or with the accounting practice.
The first plaintiff (Corporate Systems) is the trustee of the family trust associated with the second plaintiff (Mr Christou). The fifth defendant (Demandem) is the trustee of the family trust associated with the fourth defendant (Mr Joyce). The sixth defendant (Glenlea) is the trustee of the family trust associated with the first defendant (Mr Lingard). I will refer to these companies as the private companies.
The accounting practice was conducted by the second defendant, Stanton Partners Australasia Pty Ltd (SPA), with services provided to SPA, for a fee, by the third defendant, Stanton Accountants & Advisors Pty Ltd (SAA). Those entities were trustees of unit trusts. The profits of the enterprise were distributed through the units in the unit trusts. The plaintiffs each hold units in one of the unit trusts.
The plaintiffs' primary complaint is that they have not received their equal (one‑third) share of profits received by the other two partners and their private companies. The defendants say that to the extent that that is so, it occurred by agreement.
By way of broad outline, as will appear, I find that the plaintiffs have not received the one‑third share of profits to which they are entitled under the relevant trust deeds. However, I also find that the plaintiffs agreed to that occurring, so that relief is to be refused on grounds of the plaintiffs' consent to the breaches of trust.
It is convenient to begin with an outline of some background facts, which will provide a context in which to explain the claims made by the plaintiff. I will then make further factual findings, before turning to the plaintiff's claims. Finally, I will deal with the counterclaim by the fifth and sixth defendants.
Background facts
From 1989 until 1998, an accounting practice in the name of Stanton Partners was carried on by a partnership comprising four partners: Mr Christou, Mr Lingard, Mr Joyce and Mr Stan Palassis. From 1997, the four partners were entitled to an equal share of profit.
By 1998, disputes emerged between Mr Palassis and the other three partners, with litigation being commenced late in 1998. This led to Mr Palassis leaving and a new partnership being formed, in the name of Stanton Partners, by Messrs Christou, Lingard and Joyce. That was effected, in a formal way, by deed dated 21 January 1999 by which, with effect from 30 September 1998, the former 4 person partnership was dissolved and Messrs Joyce, Christou and Lingard were entitled to practice as Stanton Partners.
In late 1998 or early 1999 there was a restructure of the legal structure through which the accounting practice was conducted. SPA and SAA were incorporated and, on 12 November 1998, a number of instruments were executed, namely:
1.Licence agreement (the Licence Agreement) between Messrs Christou, Lingard and Joyce and SPA;
2.Trust deed (the Stanton Partners Trust Deed) between SPA and Mr Joyce;
3.Trust deed (the NFI Trust Deed) between Frances Coull and SAA; and
4.Service agreement (the Services Agreement) between SPA and SAA.
Messrs Christou, Lingard and Joyce became the directors and equal shareholders of SPA and SAA.
In broad outline, the practice was to be conducted by SPA, to which SAA would, for a fee, provide services.
By the Licence Agreement, Messrs Christou, Joyce and Lingard, defined as 'the Partners', granted an exclusive licence to SPA to use the goodwill of the accountancy practice carried on by them, including the personal connection of the Partners in the name Stanton Partners.
The Licence Agreement recites that the Partners had carried on the accountancy practice of Stanton Partners for the past 10 years. This was not accurate, in that, for most of those years, Mr Palassis had been one of the partners of the 4 person partnership which had conducted the Stanton Partners accounting practice.
By the Stanton Partners Trust Deed, SPA became the trustee of the trust known as the Stanton Partners Trust. By cl 7.7.1 and cl 22.1, holders of Capital Units are entitled to a share of the trust income remaining after any distribution to the holders of Discretionary Income Units, in the proportion which the number of Capital Units held by the unit holders bears to the number of Capital Units then on issue.
By cl 7.8.1, a Discretionary Income Unit entitles the holder to such of the trust income as the trustee, in its discretion, determines.
On 12 November 1998 SPA issued 30 Capital Units in the Stanton Partners Trust, being 10 units to each of the individuals (ie, Messrs Christou, Joyce and Lingard).
The third defendant SAA was, by the NFI Trust Deed, constituted the trustee of the NFI Trust.
Clause 11.3 of the NFI Trust Deed provided, relevantly, that the trustee shall, in each accounting period, apply or set aside the net income of the trust fund for the accounting period, to or for the benefit of the unit holders in proportion to the number of units of which they are respectively registered as holders at the end of the accounting period.
On 12 November 1998 SAA issued, pursuant to the NFI trust deed, 90 Ordinary Units in the NFI trust, being 30 units to each of the three private companies (ie, Corporate Systems, Demandem and Glenlea).
By the Services Agreement, it was agreed between SPA and SAA that SAA would provide services to SPA to enable SPA to conduct the accounting practice. SPA agreed to pay a fee to SAA, calculated in accordance with the formula set out in the schedule to the Services Agreement.
It can be seen, therefore, that the scheme created by these instruments was, subject to one qualification, one of equality of entitlement as between the three individuals (and their associated private companies). The qualification is the provision for Discretionary Income Units in the case of the Stanton Partners Trust. The defendants plead and the plaintiffs deny that Discretionary Income Units were issued. As I will explain later in these reasons, in the events that happened, I do not consider that Discretionary Income Units have any significance for the determination of the issues in this action.
With the exception of the question of whether any Discretionary Income Units were issued and, if so, whether such issue was valid, the factual matters set out above were not in significant controversy at the trial.
I turn to the question of the amounts paid to each of the relevant persons or entities during the relevant periods.
As is commonplace in many small businesses, regular monthly payments, by way of an advance against anticipated profits, were made to the three people who were, in substance, the principals (or to the private companies associated with them). At the end of each financial year, accounts were drawn, net income was calculated, distributions of that income were made to unit holders and loan account balances were calculated, taking into account the amounts already advanced.
The plaintiffs make no complaints as to payments or distributions made by SPA or SAA in the period up to and including the end of January 2001. For that period, payments were made, in equal amounts, to each of the three individuals or their private companies. For full financial years in that period, accounts were prepared reflecting equal distributions.
In February and March 2001, payments were made, to or for the benefit of each of Messrs Joyce and Lingard and their respective entities, in the sum of $60,000 each month. No payments were made to the plaintiffs.
It is the first and fourth to sixth defendants' case that, in early April 2001, an oral agreement was reached between Messrs Joyce, Lingard and Christou. The effect of the oral agreement is said to be that, with effect from February 2001, the profit entitlements of the plaintiffs from SPA and SAA would be an amount equal to 50% of Mr Christou's professional fee collections. In addition, if Mr Christou's maintainable collections reached $100,000 per month then he or Corporate Systems would be entitled thereafter to receive a one‑third share of the profit of SPA and SAA.
The plaintiffs deny that any such agreement was reached. Mr Christou's evidence was that, in April 2001, he was told by Messrs Joyce and Lingard that the plaintiffs would not be receiving equal profit entitlements, but would be paid an amount equal to 50% of his collections, but he denies that he agreed to that position.
At the meeting of early April 2001 Mr Christou was given a cheque for $33,683, said to represent 50% of Mr Christou's collections for February and March 2001.
From May to September 2001, payments were made to the plaintiffs on the basis of a calculation of 50% of Mr Christou's collections.
No payments were made to the plaintiffs during the months October, November and December 2001.
Payment in respect of those months was made on 2 January 2002.
In January 2002 there were several meetings between Messrs Lingard, Joyce and Christou.
On 24 January 2002 an agreement (the January 2002 Agreement) was signed by Messrs Christou, Lingard and Joyce. Because the agreement is of central significance to this action, and because it is relatively short, it is convenient to set out the agreement in full (excluding 'Template A', which was an attachment):
AGREEMENT BETWEEN
NICK CHRISTOU, KEITH LINGARD AND NEIL JOYCE ('the Parties')
The following are the Terms and Conditions of an Agreement reached by the Parties on 24 January 2002 relating to the potential sale of the practice and settlement of all disputes and differences of opinion regarding practice entitlements.
1.The attached Template 'A' which forms part of this Agreement and the calculations and rationale contained therein will overlay the sale of the practice should such a sale eventuate. The principles set out in that template include:
(i)Mr Nick Christou shall be entitled to 29% of the cash component of the sale price achieved by the practice. If there is any increase or decrease in the sale price then Nick Christou's share of the cash component will be determined at 29% of the revised sale price cash component. All other adjustments will be in accordance with the Template.
(ii)The line headed Castensen in the Template is recognised as a means of equalising the Incentive that may be payable to Mr Lingard and Mr Joyce for them to work with the owners of the business following the sale of the practice. Should the incentive component change from that set out in the Template, then Mr Christou's share of the Castensen deal, which has a total agreed and set value of $4.815 million, will adjust accordingly to compensate Mr Christou for the increase/decrease of the incentive provided to Mr Lingard and Mr Joyce. There is to be no change to the agreed value figure of $4.815 million.
(iii)The practice agrees to invest in the said Castensen investment to earn an additional 39% bringing the total investment to 49%. The effect of the transaction will be such that the Parties loan accounts will be debited equally pro rata for the consideration paid for the increased equity. The final investment price will be determined once the debtors and work in progress offset amounts have been finalised.
(iv)The loan account of the practice in respect of Nick Christou's entitlement will be determined in accordance with the accounts ruled off at 30 June 2001. The loan account of the Parties at 30 June 2001 after effecting the debit adjustment referred to at paragraph (iii) will be equal.
(v)When the practice is sold, Mr Christou may, if he so chooses, utilise an office, parking and secretarial services at rates not exceeding cost to the practice.
(vi)Mr Christou will be entitled to a profit entitlement equalling 50% of his professional fee collections until such time as the practice is sold. If Mr Christou attains average collections over a 12 month period of $100,000 per month, then Mr Christou reverts to a profit entitlement from that point equal to Mr Joyce and Lingard at his discretion.
2.Mr Nick Christou will take over all of the practice's interest in the company E Genius in settlement of Mr Christou's past claims of profit entitlements other than the entitlement referred to at 1(vi). The transfer of the firm's interest in E Genius shall take place immediately upon signing of this Agreement and is effective regardless as to whether a sale of the practice eventuates. Mr Christou will be responsible for Stamp Duty and related costs associated with the transfer. Upon transfer of the shares, Mr Christou will take over E Genius as a client for the consideration of $1 and Nick Christou will be entitled to all future benefits from that client relationship.
3.If the current dispute with Esanda is settled, it will be paid by the practice. On the sale of the practice, any outstanding lease commitments that may arise as a result of the practice financing the settlement funds required in relation to this action, will be paid equally by the Parties.
4.The current action with Chattock (Palassis) will continue. Any proceeds from settlement of that action will be split equally and any work and legal costs incurred in arriving at a settlement in relation to that action will be split equally between the Parties.
5.If any of the above Terms and Conditions are disputed by the Parties, then the matter shall be referred to Mr Michael Hollingdale, Barrister, Mr Hollingdale's interpretation and direction will be binding and final on the Parties.
Signed: Nick Christou: [Signature] Date: 24-1-02
Witness: [Signature] Date: 24/01/02
Signed: Keith Lingard: [Signature] Date: 24/01/02
Witness: [Signature] Date: 24/01/02
Signed: Neil Joyce: [Signature] Date: 24/1/02
Witness: [Signature] Date: 24/01/02
Since making the January 2002 Agreement, Messrs Lingard and Joyce have adopted the position that the plaintiffs' profit entitlements from SPA and SAA are governed by that agreement. They, primarily Mr Joyce, have made what are described as 'adjustments' to the accounts at the end of each financial year so that the net profit available for distribution by SPA and SAA was an amount equal to three times what they considered Mr Christou's entitlement to be in a relevant year, namely an amount equal to 50% of his professional fees collected.
Those adjustments were made in 2001 and 2002 by payments to Messrs Joyce and Lingard's private companies (Demandem and Glenlea). These payments have been referred to in the accounts as salaries or partner's salaries.
In the 2001 financial year, the Stanton Partners Trust accounts showed that each of the private companies was credited with (equal) net income of $194,080.61, being one‑third of $582,241.84 (exhibit 1 pages 653, 657 – 658). That amount was said by Mr Joyce to have been calculated as 50% of Mr Christou's professional fees collected. Payments by way of salary in the sum of $211,237 to each of Messrs Joyce and Lingard were shown as an expense in the accounts (exhibit 1 page 549). Mr Joyce's evidence was to the effect that those payments were in fact made to the private companies, namely the fifth and sixth defendants. Those amounts were the 'adjustments' and reflected the amount by which payments to Messrs Lingard and Joyce and their private companies exceeded payments to the plaintiffs.
Similarly, the 2002 accounts for Stanton Partners show net income of $57,761.36 (exhibit 1 page 647), a third of which was credited to each of the private companies (exhibit 1 pages 652, 659, 666). An amount of $1,474,105 was recorded under expenses as partners' salaries (exhibit 1 page 647), half of which was paid to each of Demandem and Glenlea.
The position for Stanton Partners for the 2002/2003 financial year is different, in that the accounts do not reflect the making of an adjustment by way of partners' salary. The computer generated accounts show net income of $987,482.73 (exhibit 1 pages 670, 672). Mr Joyce's evidence (exhibit B par 114; ts 819) was that net income (after allowing for minority unit holders share of income) was not distributed but was preserved as retained earnings.
I turn to the distributions made by SAA under the NFI Trust.
No complaint is made by the plaintiff in respect of the 2001 financial year for the NFI Trust.
Some of the financial statements of SAA tendered at trial were incomplete. Only the first page of the profit and loss statements were included in the trial bundle (exhibit 1 pages 660, 665).
The evidence of Mr Joyce was to the effect that the amount shown as net income in the profit and loss statements for 2001 and 2002 was distributed equally between the three private companies (exhibit B pars 101, 102, 108, 109).
Mr Joyce also gave evidence as to the 2003 and 2004 accounts for SAA. Those financial statements were exhibit 1, pages 674 ‑ 681 and 696 – 704 respectively. The substance of his evidence was that the net income has not been distributed. However, this must be viewed against what is revealed by the tax returns for the Trust for these financial years.
Exhibits 19 ‑ 22 are the tax returns for the NFI Trust for the 2001 ‑ 2004 financial years. The 2001 return (exhibit 19) records equal distribution of the income of the Trust to the three private companies.
The position is, however, different for the 2002, 2003 and 2004 financial years. The tax returns record the following distributions of income for those years:
Financial Year Demandem Glenlea Corporate Systems
2002 $239,862 $239,862 $91,847
2003 $147,530 $147,529 nil
2004 $151,579 $151,579 $114,066
The plaintiffs base their claim against SAA on these tax returns.
On 3 July 2003, Mr Christou gave notice of termination of the partnership of Stanton Partners.
Since July 2003, SPA has continued to conduct the Stanton Partners accounting practice, pursuant to the Licence Agreement.
I turn to outlining the plaintiffs' claims.
Outline of the plaintiffs' claims
The plaintiffs' claims may be summarised as follows:
1.Mr Christou makes claims against SPA for breach of its duty as trustee of the Stanton Partners Trust by the making of payments of income to beneficiaries in unequal amounts;
2.In respect of those breaches, Mr Christou also claims, against Messrs Lingard and Joyce, and against Demandem and Glenlea, that each of them knowingly assisted SPA's breach of trust, and, or alternatively, that each knowingly received moneys paid by SPA in breach of the Stanton Partners Trust;
3.Corporate Systems claims that SAA made payments and 'adjustments' in breach of the NFI Trust;
4.Corporate Systems also claims that Messrs Lingard and Joyce, and Demandem and Glenlea, knowingly assisted SAA in its breach of trust, and, or alternatively, received moneys from SAA knowing that these moneys were paid by SAA in breach of the NFI Trust;
5.Finally, Mr Christou claims orders for the winding up of the partnership.
The plaintiffs plead (pars 23, 24 and 24A of the statement of claim) that SPA made payments to or for the benefit of Messrs Lingard and Joyce in amounts greater than was paid to Mr Christou, and in amounts greater than Messrs Lingard and Joyce's entitlements under cl 22.1 of the Stanton Partners Trust Deed. The particulars of payments refer to the amounts of $211,237 for the 2001 year, $737,052.50 for the 2002 year and $226,136 for the 2003 year.
The amounts for the 2001 and 2002 years reflect the amounts shown in the 2001 and 2002 accounts as partners salaries, as I have already outlined. The statement of claim pleads that the amount of $226,136 for the 2003 year was similarly characterised as 'partners' salaries', however there is no entry to that effect in the accounts for 2003 (exhibit 1 pages 667 – 670). The figure of $226,136 appears to be derived from the Notice of Meeting dated 12 December 2003 (exhibit 5), to which I refer later.
In support of the claims of knowing assistance, the plaintiff pleads that SPA intended to act in breach of cl 22.1 of the Stanton Partners Trust Deed and to pay some of the income to which Mr Christou was entitled to Messrs Joyce and Lingard, or Demandem and Glenlea, and that SPA thereby acted with a dishonest and fraudulent design. SPA's intention is particularised by reference to conduct of SPA in February and March 2001. The particulars plead that on 28 February 2001 and 29 or 30 March 2001, SPA distributed income of the trust to Messrs Lingard and Joyce and Demandem but not to the plaintiffs, and that this occurred prior to any alleged agreement that income of the trust could be distributed unequally.
The plaintiffs claim that Messrs Lingard and Joyce are liable under both limbs of the rule in Barnes v Addy (1874) LR 9 Ch App 244, 251 ‑ 252: receipt with notice of breach of trust; and knowing assistance in a breach of trust.
They are said to have been knowingly involved or assisted in SPA's breaches, and to have had knowledge of the dishonest and fraudulent design of SPA already referred to.
Messrs Lingard and Joyce are also said to have received, via Demandem and Glenlea, the payments, knowing them to have been made by SPA in breach of trust. The payments are said to have been made to Demandem and Glenlea at the instructions of Messrs Joyce and Lingard (in circumstances in which Messrs Joyce and Lingard held the units in the Stanton Partners Trust).
Corresponding claims are also made against Demandem and Glenlea.
Against SAA, the plaintiffs plead that SAA paid net income of the NFI Trust to Demandem and Glenlea in amounts greater than were paid to Corporate Systems. The particulars set out payments in amounts corresponding to those reflected in the NFI Trust's tax returns for the 2002, 2003 and 2004 financial years, as set out earlier in these reasons.
The plaintiffs also plead that Mr Joyce, acting for SAA, recalculated the fee under the Services Agreement. This is said to have been a breach of cl 11.3 of the NFI Trust Deed. In opening (ts 532) counsel for the plaintiff made it plain that the plaintiffs' complaint in this respect hinged upon establishing that because the adjustment had the effect of removing profit, it involved a breach of the obligation in cl 11.3 of the NFI Trust Deed to distribute the profit equally. The claim by the third defendant in respect of these adjustments is in the alternative to Mr Christou's claim for breach by SPA of the Stanton Partners Trust Deed.
In support of the claims of knowing assistance, the plaintiffs say that SAA engaged in the conduct of which the plaintiffs complain, intending to deny Corporate Systems the benefit of profits and income of the NFI Trust, and that this was a dishonest and fraudulent design.
It is pleaded that Messrs Joyce and Lingard knew of the terms of the NFI Trust; knew of the dishonest and fraudulent design of SAA; took part in and directed the relevant conduct of SAA; and were thereby knowingly involved with and assisted in SAA's breaches of trust by way of payments of unequal amounts to the beneficiaries.
Demandem and Glenlea are said to have knowingly received the benefit of the unequal payments by SAA.
They are also said to have been knowingly involved and assisted in SAA's breaches, although what those companies are said to have done, by way of assistance, is not spelt out in the pleadings.
Finally, the plaintiffs also seek an order for the winding up of the partnership. It is pleaded that the partnership was terminated on 3 July 2003. That is common ground. It is also pleaded that SPA has continued to use the goodwill and carry on the practice of the partnership, under the Licence Agreement, without paying the licence fee. It is pleaded, and admitted, that Messrs Joyce and Lingard have taken no steps to wind up the affairs of the partnership.
The defences and the issues
Separate defences have been filed by SPA and SAA, on the one hand, and the remaining defendants on the other hand.
The defence filed on behalf of SPA and SAA consists, with one exception, of admissions, non‑admissions and bare denials. The only positive defence pleaded by SPA and SAA is a defence under s 65(7) of the Trustees Act 1962 (WA). (I will deal later in these reasons with the application by SPA and SAA to amend their defence.)
The trustees contend that s 65(7) precludes the commencement of proceedings against them, as trustees, prior to the conclusion (by way of entry of judgment) of the plaintiffs' action against the beneficiaries.
I turn to the defence filed on behalf of the first, fourth, fifth and sixth defendants (the beneficiary defendants).
There is no dispute in relation to the relevant primary instruments governing the conduct of the accounting practice, namely the Licence Agreement, the Stanton Partners Trust Deed, the NFI Trust Deed and the Service Agreement.
The beneficiary defendants deny that unequal payments of income were made by SPA in breach of trust. Further, they rely upon the oral agreement which they allege was entered into in April 2001, and the January 2002 Agreement, in defence of the claim that SPA made payments in breach of the Stanton Partners Trust Deed.
They plead that, on a proper construction of the January 2002 Agreement, all claims by the plaintiffs in respect of net income or profit from SPA and SAA for the period February 2001 to December 2001, were settled by the transfer to Mr Christou of certain shares in E Genius Ltd. They plead that the entitlements of the plaintiffs in respect of income of SAA and SPA was set in an amount equal to 50% of Mr Christou's professional fees collected in the accounting practice until such time as those professional fee collections reached $100,000 per month, in which event the plaintiffs would be, at their election, entitled to a one‑third share of the income.
The beneficiary defendants plead that pursuant to the two agreements, SPA made payments to Mr Christou or Corporate Systems for the period 1 February 2001 to 30 June 2001, and for the financial years ending 30 June 2002 and 30 June 2003, in amounts equal to 50% of Mr Christou's professional fee collections in each of those periods.
The beneficiary defendants plead that Glenlea and Demandem received additional payments from SPA, which were equal to the difference between the entitlements of Corporate Systems or Mr Christou under the January 2002 Agreement and a one‑third share of all profits. These payments are particularised as being the sums referrable to salaries for the 2001 and 2002 financial years.
The beneficiary defendants deny that SPA intended to act in breach of cl 22.1 of the Stanton Partners Trust Deed. They say that the payments made in February and March 2001 were not distributions of income but were drawings, and that what occurred in that period is that the drawings to the plaintiffs were withheld pending discussions between the parties as to the professional performance of Mr Christou.
The beneficiary defendants raise corresponding issues in relation to the claims against them relating to the payments by SAA, said by the plaintiffs to be in breach of the NFI Trust Deed. The beneficiary defendants say that SAA did not breach the NFI Trust Deed, but made payments in accordance with the agreements of April 2001 and January 2002. Further, they plead that the intention of SAA was to give effect to those agreements, so that there was no dishonest and fraudulent design on the part of SAA.
The beneficiary defendants also plead that the plaintiffs are estopped from making the claims pleaded by them. The estoppel is said to arise from representations made from April 2001 to May 2002, including by the April 2001 Agreement and January 2002 Agreement. The representation and assumption arising from those matters is said to be to the effect that the plaintiffs would accept, in substitution for a one‑third share of profit from the trustees, a share of profit calculated at 50% of professional fee collections. It is said that the beneficiary defendants relied upon these representations in choosing to continue to be involved in the accounting practice and the activities of the two trustees.
The fifth and sixth defendants also bring a counterclaim. That will be dealt with separately, later in these reasons.
In their reply, the plaintiffs deny the existence of the April 2001 agreement.
The plaintiffs' reply makes a number of points in relation to the January 2002 Agreement. First, they plead that it was an agreement between the three individuals, in their capacity as partners of the partnership only, and that it was not made by or with the authority of Corporate Systems, SPA or SAA, and accordingly did not bind those companies.
Secondly, it is said that the agreement was conditional upon a sale of the partners' rights in the practice. That allegation is particularised by reference to various provisions of the January 2002 Agreement.
Thirdly, the plaintiffs say that it is an implied term of the January 2002 Agreement that the sale would take place within a reasonable time, and that because this had not occurred the agreement was terminated.
Further, the plaintiffs claim that the January 2002 Agreement was made by Mr Christou in reliance on misleading or deceptive conduct on the part of Messrs Joyce and Lingard. It is pleaded that they represented that the sale of the practice was imminent and settlement would take place by June 2002, and that Mr Christou would be paid 50% of his professional fee collections each month until the sale of the practice. The plaintiffs plead that these representations are with respect to future matters within the meaning of s 9 of the Fair Trading Act 1987 (WA), and invoke the presumption in s 9(2) of the Fair Trading Act.
The plaintiffs also plead a number of alleged breaches by Messrs Lingard and Joyce of the January 2002 Agreement. Those breaches are said to amount to a repudiation, by Messrs Joyce and Lingard, of the January 2002 Agreement. It is said that Mr Christou terminated the January 2002 Agreement by his letter of 21 March 2002.
As to the application for an order winding up the partnership, the defendants plead that there are no steps to be taken to wind up the affairs of the partnership.
The following are some of the main issues which emerge between the plaintiffs and the beneficiary defendants.
First, were unequal payments of net income of the relevant trust made by SPA and SAA? If not, all of the plaintiffs' monetary claims will fail.
Secondly, a number of issues arise respecting the January 2002 Agreement, and, to a lesser extent, the alleged agreement of April 2001.
There is a factual issue as to whether an agreement was made in April 2001.
There are substantial issues between the parties as to whether (assuming the January 2002 Agreement is valid and in effect) on its proper construction it provides a defence to a claim of the breach of trust by SPA and SAA. These include questions as to the identification of the parties; the implied term alleged by the plaintiffs; and whether the agreement as a whole, or any relevant terms, are conditional. There are also issues as to whether the agreement is valid and in effect; is it liable to be set aside on the ground that it was entered into as a result of misleading conduct on the part of Messrs Joyce or Lingard? Further, has the agreement been validly terminated for repudiatory breach by those parties?
Next, there is an issue as to whether, in breaching their respective trusts, SPA and SAA acted with a fraudulent and dishonest design. If so, there will be questions as to whether the beneficiary defendants had the required knowledge so as to be liable as being knowingly involved or knowingly assisting in the trustees' breach.
There are also issues as to whether the beneficiary defendants had the required knowledge so as to be liable as recipients with notice of breach of the trust.
Further factual findings
I make the following further findings of facts.
From before the formation of the 3‑man partnership in or about late 1998, there were issues between Messrs Christou, Joyce and Lingard as to the level of billings of Mr Christou and the section of the practice for which he was responsible. Messrs Joyce and Lingard considered that Mr Christou's billings were substantially too low.
Nonetheless, the 3‑man partnership and the unit trust structures for SPA and SAA, created by agreement in 1998, reflected equality of entitlement between the three persons.
From late 1998 Mr Christou was, by agreement between the three 'partners', responsible for the administration of the practice. It was agreed that Mr Christou would be given a credit of $400,000 per year in fees to reflect the time and work he would be required to spend on administration. Messrs Lingard and Joyce expressed the view to Mr Christou that they considered that a partner, or principal under the unit trust structure, should generate fees of at least $1.2 million per annum.
During mid 2000 the parties appointed a consultant, Mr Ted Thacker of Shirlaws, to review the practice. Shirlaws provided a report in October 2000 identifying a number of problems in relation to the administration of the practice.
Following on from recommendations made by Mr Thacker, a general manager was sought to take over the administration of the practice. Mr Jim Haughton was appointed in about November 2000.
By late 2000 or early 2001, Messrs Joyce and Lingard were dissatisfied with the levels of billings of Mr Christou and his section in the circumstances that Mr Christou (or Corporate Systems) derived an equal one‑third share of the profits of the practice.
Shirlaws advised Messrs Joyce and Lingard that Mr Christou's profit share and drawings should be reduced to decrease the pressure he was under to generate fees of a level similar to Joyce and Lingard.
In early 2001 Messrs Joyce and Lingard agreed, between themselves, that because of their concerns about Mr Christou's fee performance, his monthly drawings (which were then set at $60,000 per month) would be suspended pending a resolution of their concerns.
In late February and late March 2001 cheques totalling $60,000 were paid to or for the benefit of Messrs Joyce and Lingard. A cheque to Corporate Systems dated 28 February 2001 was cancelled. No payments were made to Corporate Systems or Mr Christou in February or March 2001.
The cheque butt for SPA's cheque No 2046 is dated 4 April 2001. It is a cheque payable to Corporate Systems in an amount of $33,683. The cheque butt, which was written by Mr Joyce, has written on it 'Nick drawings - 50% of collections February/March as agreed' (exhibit 1 page 844).
The notation on the cheque butt dated 4 April 2001 of the words 'as agreed', is difficult to reconcile with the evidence of Mr Joyce that the agreement was made at a meeting between Messrs Christou, Joyce and Lingard on 6 April 2001. Mr Joyce fixed that date on the basis that the meeting with Mr Christou had followed a meeting with Mr Thacker, which by reference to his diary, Mr Joyce said had occurred on 6 April 2001.
Messrs Joyce and Lingard say, and Mr Christou denies, that at a meeting in early April 2001, Mr Christou agreed to a proposal put by Mr Lingard or Mr Joyce to the effect that his profit share would be set at 50% of his fees collected, but that if and when Mr Christou's collections reached $100,000 per month, he could revert to an equal one‑third share of profits.
Mr Lingard's evidence was to the following effect. By early April 2001 Messrs Joyce and Lingard had agreed with each other to put a proposal to Mr Christou to the effect I have just stated. A meeting was held one day in April 2001 in the boardroom sometime after 5.00 pm. Mr Lingard or Mr Joyce put the proposal to Mr Christou. One of Messrs Joyce and Lingard said words to the effect that, from their point of view, there was no other option but to agree to these changes if the three were to continue in business together. Mr Christou agreed to the proposal.
Mr Lingard's evidence in cross‑examination that he did not have a memory of which individual specifically said what (ts 834) does not, to my mind, alter the substance of his evidence as just summarised.
I accept Mr Lingard's evidence as to the making of the agreement in April 2001. I do not accept Mr Christou's evidence to the effect that he never agreed to the arrangement, but was simply told by the other two partners that that was what would occur. On 14 December 2001, solicitors wrote on behalf of Mr Christou to Messrs Lingard and Joyce (exhibit 1 page 503). Mr Christou saw a draft of the letter and agreed with its contents before it went out (ts 647). The letter stated that:
We are instructed that in April 2001 our client was coerced into agreeing to drawings representing 50% of his collection and, under protest, was from the period February 2001 to September 2001 (inclusive) paid 50% of such collections.
There are differences as to the terms in the letter, said to have been agreed under coercion, and those alleged by Messrs Joyce and Christou. However, the point for present purposes is the statement in the letter that Mr Christou had agreed, rather than simply having been informed of what would, regardless of his consent, occur.
The statement in the letter of 14 December 2001 that Mr Christou had been 'coerced into agreeing' was put to Mr Christou in cross‑examination (ts 648), but not in a way that focused upon the statement that he had been coerced into agreeing, in other words that he had in fact agreed. Rather, the focus in cross‑examination was upon the delay from April 2001 to December 2001 before such statement was made.
However, the statement in the letter of 14 December 2001 is significant not only as a prior inconsistent statement, but also as an admission by the plaintiff that he had agreed in April 2001. The admission was not explained by any evidence. As explained further later in these reasons, the letter of 14 December 2001 sought to enforce, not deny, the agreement which the letter said had been made in April 2001.
Notwithstanding doubts arising from the cheque butt dated 4 April 2001, taking into account the admission in the letter of 14 December 2001 that an agreement had been reached in April 2001, and the evidence of Mr Lingard, which I accept, I find that an oral agreement to the effect contended by the beneficiary defendants was made in early April 2001.
From May 2001 to September 2001, payments were made to Mr Christou or Corporate Systems based on the 50% of collections formula. Mr Christou said in his evidence that they were accepted 'under protest' and without prejudice to his rights. The letters said to have been written after receipt of each payment were not produced. There is, therefore, no evidence as to whether, during this period, Mr Christou denied that any agreement had been reached or, rather, asserted rights on another basis (as he subsequently did in December 2001).
There was an issue between the parties at trial as to whether on 15 June 2001, or on some other date, a meeting of directors of SPA occurred, following which discretionary income units in the Stanton Partners Trust were issued to each of the private companies. Unit certificates dated 15 June 2001 and stamped 19 June 2002 in respect of one discretionary income unit for each of the private companies were tendered at trial (exhibit 1 pages 490 ‑ 492). Also tendered by the defendants were minutes of a meeting of the board of SPA said to have been held on 15 June 2001 at the offices of Stanton Partners. According to the minutes, Mr Christou was an apology, and it was resolved that one discretionary income unit be issued to each of the three private companies.
It is clear from the evidence that emerged in the cross‑examination of Mr Joyce that the meeting referred to did not occur on 15 June 2001. Mr Lingard was interstate on that day. The plaintiffs invited the conclusion that no such meeting ever occurred.
Notwithstanding that the matter received some attention during cross‑examination, the question of whether, and if so when, any directors' meeting of SPA occurred at which resolutions to issue the discretionary income units were passed, is not, on my analysis, significant to the resolution of the issues in this action. The defendants have not pleaded that the payments that the plaintiffs claim were made by SPA in breach of trust are justified as distributions to a discretionary income unit holder. Nor is there any evidence of a resolution by SPA that there be any distribution to discretionary income unit holders, or that the payments recorded as salary (or any other payments) were, or were to be treated as, discretionary income unit distributions. The defendants submitted (as one of a number of alternative submissions), that the adjustments recorded in the 2001 and 2002 accounts as 'salaries' or 'partner's salaries' could be 'seen' as distributions to holders of discretionary income units. I do not accept that submission. There is, as I have said, no evidence that that is how the distributions were treated or that any resolution to that effect was passed. That being so, it is not for the court to seek a way in which such payments might have been structured, but were not. Moreover, I do not accept that I should, as invited by the defendants, infer, from the fact that monthly drawings were paid and the distributions recorded as made to the private companies (which did not hold Capital Units), that the distributions (in equal shares) recorded in the 2001 and 2002 SPA accounts were distributions to holders of discretionary income units. The evidence does not suggest that the parties paid close attention to the terms of the instruments governing the conduct of the practice.
In closing submissions the beneficiary defendants sought to place reliance on s 1322 of the Corporations Act 2001 (Cth) in respect of any invalidity of the issue of the discretionary income units. However, no party has pleaded any claim for relief in respect of any issue of validity of the discretionary income units. In the circumstances already referred to, it seems to me to be inappropriate and undesirable to enter into any such question.
By the later part of 2001 the working relationship between Mr Christou and Messrs Joyce and Lingard was, to say the least, problematic. Letters were exchanged between the parties in September 2001 (exhibit 10; exhibit 1 page 493). By this stage, negotiations had commenced with another party (SageCorp Ltd) for the possible sale of the practice to it.
In October, November and December 2001, no payments of drawings were made to Mr Christou or to Corporate Systems. That was because, according to Messrs Lingard and Joyce, Mr Christou had not prepared the tax return for the NFI superannuation fund, which was his responsibility.
On 14 December 2001, by the letter already referred to, solicitors wrote on behalf of Mr Christou to Messrs Lingard and Joyce (exhibit 1 pages 503 ‑ 512). In this letter Mr Christou demanded: payment of the balance of drawings said to be owing to him for the period February 2001 to September 2001, to bring his drawings to a level equal to Messrs Lingard and Joyce; payment of drawings for October and November 2001; and all unpaid practice expenses incurred by him. It was demanded that payment be made by cheque in favour of Corporate Systems by noon on Monday 17 December 2001. The letter was attached to a memorandum of the same date, circulated by Mr Christou to Messrs Lingard and Joyce requesting a written resolution to approve the payments to Mr Christou. The letter stated that, if the resolution was not passed and Mr Christou was not paid as demanded, an urgent application would be made for the appointment of a receiver.
As I have said, the letter stated that the solicitors were instructed that in April 2001 Mr Christou was coerced into agreeing to drawings representing 50% of his collections. Mr Christou was, the letter stated, told by Messrs Lingard and Joyce that he would be paid the balance of drawings to bring him to an equal footing with Lingard and Joyce once he reached billings of $100,000 per month. The letter stated that Mr Christou had reached billings of $100,000 in November 2001 and claimed that he was, therefore, now entitled to the balance of his drawings. Thus the letter sought to enforce the April 2001 agreement, in the terms Mr Christou said had been agreed.
The letter also enclosed draft letters to SPA's bank and to clients of the practice. The letter to the bank stated that the application for a receiver may breach the security investments between SPA and the bank. In fact, as Mr Christou said in cross‑examination, he knew that such an application would breach those instruments. The draft letter to the bank was, he said, just a way of informing Messrs Joyce and Lingard that Mr Christou was about to make an application which would put SPA's securities in default (ts 649).
The letter concluded with the statement that, if the resolution was not passed and payments made by 17 December 2001, the solicitors were instructed to make urgent application to the Supreme Court for the appointment of a receiver without further notice.
The letter made no complaint of failure to pay 50% of Mr Christou's collections.
The memorandum referred to in the solicitor's letter was dated 14 December 2001, from Mr Christou to Messrs Lingard and Joyce (exhibit 1 pages 514 ‑ 516). The memorandum stated that Mr Christou had reached billings of $100,000 in November 2001, and attached a written resolution authorising payment of drawings for Mr Christou for the period February 2001 to November 2001 in an amount equal to that of Messrs Lingard and Joyce.
By letter of 17 December 2001 solicitors responded on behalf of Messrs Lingard and Joyce to the letter of 14 December 2001. The allegation of coercion was denied.
The parties agreed to meet in the New Year.
Mr Haughton sent a memorandum dated 21 December 2001 to Messrs Joyce and Lingard (exhibit 16).
On 2 January 2002 Messrs Christou, Joyce and Lingard met. The minutes of the meeting were tendered (exhibit 1 pages 522 – 523). The accuracy of the minutes was not in dispute.
The minutes record that the meeting was called by Mr Christou to discuss his drawings position, and that Mr Lingard requested that Mr Christou's equity position also be discussed 'given his substantial underperformance over the past 15 months'.
Mr Christou's drawings for October, November and December 2001 were said to have been withheld pending the completion of the NFI superannuation fund financial statements and tax returns for the 2000 year. There was also a discussion of what was noted to be the refusal of Mr Christou to sign the finance agreement for authorised capital expenditure on the building computers and phone system, which had the consequence of leaving suppliers unpaid for services rendered by them in good faith. Messrs Joyce and Lingard reiterated that the April 2001 agreement provided that Mr Christou's share of profits would be fixed at 50% of his monthly collections until his maintainable monthly collections reached $100,000 per month.
Mr Christou said words to the effect that the NFI superannuation fund accounts and tax returns had been prepared. On the basis of that statement Mr Christou was given a cheque for his drawings for October to December 2001.
There was also a discussion in relation to Mr Christou's 'past performance' and a possible solution by way of a dilution of Mr Christou's equity (in the sense of share in the capital value of the business). Mr Christou proposed to freeze his equity at one‑third of the value of the practice as at 30 June 2001, on the basis that Messrs Lingard and Joyce would share the increase in value since that date, subject to any arrangement with possible incoming unit holders.
Mr Joyce suggested that they endeavour to sell the practice by 30 June 2002. Mr Christou said words to the effect that he would consider a reduction of his unit holder entitlement on the sale of the practice if and when an offer to purchase the practice was made.
On 2 January 2002, after the meeting, Mr Joyce sent a handwritten note to Mr Haughton, summarising what had occurred at the meeting (exhibit 17).
An indicative offer to acquire the practice of Stanton Partners was received from SageCorp in or about mid‑January 2002.
On 21 January 2002 Messrs Joyce and Lingard sent a memorandum to Mr Christou (exhibit 1 pages 535 ‑ 536). It referred to the meeting between the three earlier that day. The memorandum attached a schedule entitled 'Analysis of Equity Position' which was said to summarise the understanding of Messrs Joyce and Lingard of the agreement which was said to have been reached that day. The document was said to detail the agreed split of the proceeds from the sale of the practice to SageCorp Ltd, and the agreed split of the proceeds of 'two projects you are presently involved in, Castensen and E Genius'. The memorandum stated that 'the Castensen and E Genius deals offered to you are subject to the successful sale of the practice to SageCorp Ltd'. The SageCorp deal was said to be indicative, and 'should it fall through', then the sale of the practice on similar terms would, the memorandum stated, be sought. The memorandum invited Mr Christou to sign the memorandum should he agree with the terms set out in the analysis of equity position.
Mr Christou had for some time been involved in doing work for a company called E Genius Pty Ltd. Corporate Systems held 625,000 shares in E Genius, which it held beneficially for Messrs Christou, Joyce and Lingard. E Genius was, at that time, in the process of seeking capital for the commercialisation of its educational software. Mr Christou was a director and secretary of E Genius and had attended various board meetings in early January 2002 (see exhibit 1 pages 801 ‑ 807). At the meeting held on 8 January 2002, the board resolved to issue shares and options in the company to Mr Christou and another to reward them for their extensive efforts in raising the required funds and various other actions to progress the company into the expansion stage.
Mr Castensen had been a client of Mr Joyce. Mr Joyce had transferred Mr Castensen, as a client, to Mr Christou in around January 2002. At that time Mr Castensen owed money to Stanton Partners. Mr Castensen was also trying to put together a syndicate of investors to develop a retirement village at Bunbury.
Late on 21 January 2002, after receiving the memorandum of that date from Messrs Joyce and Lingard, Mr Christou spoke to Mr Lingard. Mr Christou said that he was scheduled to fly to Singapore shortly to raise $5 million capital for E Genius and wanted to resolve all disputes with Messrs Joyce and Lingard within the next couple of days. He said that he wanted 50% of the interest of Messrs Joyce and Lingard in E Genius to be transferred to him regardless of whether the practice was sold, in settlement of issues relating to past and future profit entitlements. (As appears from my earlier findings, at that time, there were disputes in relation to past and future profit entitlements in that Mr Christou had, by then, disputed the validity of the April 2001 agreement and had claimed in December 2001 that his November 2001 billings entitled him to return to an equal share of profits).
Mr Lingard said that he agreed to the proposal.
He told Mr Joyce of this the next day.
The three parties met again on 23 January 2002. At the meeting Mr Christou said words to the effect that he now required Messrs Joyce and Lingard to assign the whole of their interest in E Genius in return for a reduction in Mr Christou's share of profits. Messrs Joyce and Lingard protested that it had recently been agreed between Mr Christou and them that they would be required to transfer 50%, not the whole of, their interest in E Genius. Nonetheless, after further discussion, Messrs Joyce and Lingard agreed to what Mr Christou had proposed.
Mr Christou said that the agreement needed to be finalised by 25 January 2002 because he was scheduled to fly on that day to Singapore.
Mr Christou's notes of the meeting were exhibit 1 pages 537 ‑ 538. The notes included words to the following effect:
1.The template will overlay any sale of the practice.
2.Mr Christou would receive 29% of the total cash component of any sale
...
4.Mr Christou would take over 100% of E Genius for past and future entitlements.
5.Mr Christou would continue to receive 50% of his collections until the practice was sold.
(The limited purpose for which this evidence, and evidence of a similar character, may be used will be explained later in these reasons.)
At the conclusion of the meeting of 23 January 2002, Mr Lingard was asked to prepare a draft written agreement.
On 24 January 2002, Messrs Joyce, Lingard and Christou met. Their evidence, and the minutes of the meeting (exhibit 1 pages 540 and 540.1), which I accept, are to the effect that the meeting was a combined board meeting of SPA and SAA.
Mr Lingard opened the meeting, stating that it was convened for the parties to discuss and agree the terms of settlement of the dispute between them in respect to practice entitlements. The draft agreement prepared by Mr Lingard was tabled. Following lengthy discussion, agreement was reached on the terms, requiring some amendments to be made to the document. The amendments were made that day and the January 2002 Agreement was signed.
I will deal with the various issues as to the construction of the January 2002 Agreement and as to the identification of the parties to it later in these reasons.
On 21 March 2002 Mr Christou wrote to Messrs Lingard and Joyce (exhibit 1 page 544). The letter referred to the January 2002 Agreement. It asserted that Messrs Lingard and Joyce had engaged in conduct that was misleading or deceptive or likely to mislead and deceive in that:
(a)they had represented that if Mr Christou signed the January 2002 Agreement he would be paid 50% of the collections;
(b)he was induced to sign the January 2002 Agreement on the basis of those representations;
(c)in reliance on their representations he had entered into the January 2002 Agreement to the detriment of his loan account position and his equity position; and
(d)despite repeated requests he had not been paid 50% of his professional fee collections.
It was said that, accordingly, the January 2002 Agreement was void and demand was made for payment of the balance of drawings owing to Mr Christou to bring his drawings to a level equal to Messrs Lingard and Joyce.
I will deal with the claim by the plaintiffs of misleading and deceptive conduct on the part of Messrs Joyce and Lingard later in these reasons. As will appear, I am not satisfied that Mr Christou entered into the January 2002 Agreement in reliance on misleading and deceptive conduct on the part of Messrs Joyce and Lingard.
There continued to be issues between the parties on various topics, including the level of Mr Christou's drawings and cash flow issues for the practice. See, for example, the memorandum of 2 May 2002 from Mr Haughton to Mr Christou (exhibit 1 pages 572 - 574), and the memorandum from Mr Christou to Messrs Lingard and Joyce of 7 May 2002 (exhibit 1 page 575). Mr Joyce wrote to Mr Christou in relation to issues respecting the performance of Mr Christou's section by memorandum of 15 May 2002 (exhibit 1 pages 576 -577).
The NFI superannuation fund tax returns for the year 2000 also continued to be an issue; see the memorandum of 21 May 2002 (exhibit 1 page 578).
During this period there were further communications with SageCorp regarding the possible sale of the practice. In around mid‑2002 negotiations were suspended and, then, later in the year, terminated.
On 7 August 2002, at a meeting of directors of SPA, Mr Christou advised the meeting that he wished to trigger the mediation process pursuant to the January 2002 Agreement. When asked why it was necessary to trigger the mediation process Mr Christou advised that he wanted to mediate over issues such as the banking facilities that had been proposed. Mr Lingard said that there was no problem in triggering the mediation procedure and invited Mr Christou to organise it. However, no further steps were taken in that regard by Mr Christou or by anyone else.
On 28 June 2002 Mr Christou prepared an invoice from Stanton Partners to Stanton Partners in the sum of $850,000 (exhibit 1 page 579). Mr Christou said in his evidence that this was because it had been agreed between Messrs Joyce, Lingard and him that any settlement proceeds from the Palassis matter would be able to be shown as billings to be credited to Mr Christou. (Messrs Joyce and Lingard denied, in evidence, that any such agreement was reached.) The payments in question were made under the deed of settlement with Mr Palassis. Mr Palassis made various payments from November 2000 until the end of October 2001. Only $350,000 of the various sums paid had been paid during the 2002 financial year.
Mr Haughton wrote to Mr Christou's solicitors enclosing the invoice and stating that he had no alternative but to refuse to process the invoice.
By memorandum of 30 July 2002 Mr Christou purported to provide a written warning to Mr Haughton that he had failed to follow Mr Christou's direction to Mr Haughton, which may result in termination of his employment (exhibit 1 page 530). Mr Christou directed Mr Haughton to process the invoice.
The invoice was never processed.
Throughout the second half of 2002 there continued to be serious issues between Mr Christou and Messrs Joyce and Lingard, including in relation to the preparation by Mr Christou of a budget or business plan for his division and the level of his billings, debtors and work in progress. (See, for example, the series of memos at exhibit 1 pages 627 ‑ 631).
As I have said, on 3 July 2003 Mr Christou provided written notice terminating the partnership. The following day this action was commenced.
On 13 November 2003 notice was given of a meeting of directors of SPA, proposed to be held on 18 November 2003. The resolution the subject matter of the meeting was that the payments, in the 2001 financial year of $211,237 and, in the 2002 year, of $737,052.50, to each of Glenlea and Demandem be ratified pursuant to the January 2002 Agreement and cl 18.2.20 of the Stanton Partners Trust Deed.
On 18 November 2003, an interim injunction was issued by Scott J of this court restraining the conducting of the proposed meeting. On 27 November 2003 the injunction was extended until further order.
On 12 December 2003, notice was given of a meeting of the directors of SPA to be held on 16 December 2003. Among the business proposed for that meeting was a resolution that certain payments (set out in the resolution) be ratified pursuant to the January 2002 Agreement and cl 18.2.20 of the Stanton Partners Trust Deed. In respect of the 2001 and 2002 years, the payments were those already referred to. In respect of the year ending June 2003, the notice of meeting referred to payment of $226,136 to each of Glenlea and Demandem. Mr Joyce said, in his evidence, that he could not remember why this notice of meeting was given. Mr Lingard, who signed the notice, was not asked any questions about it. In any event, the meeting evidently did not proceed.
In early 2004, there were discussions between Mr Haughton and a representative of another accounting firm, Bentleys MRI, regarding a possible sale or merger agreement between the two accounting practices. See the letter of 5 February 2004 from Mr Samson, a director of Bentleys MRI, to Mr Haughton.
On 28 June 2004, an agreement for sale and purchase of business assets was signed between SPA and SAA as vendors, and a company called Stantons International Pty Ltd as purchaser. Mr Lingard was a director of Stantons International Pty Ltd, as were some other employees of the Stanton Partners accounting practice, including Mr Haughton.
On 30 June 2004, Pullin J made an interim order restraining the parties from proceeding to settlement on the sale of the business. By an undertaking dated 1 July 2004, SPA, SAA and Messrs Lingard and Joyce undertook not to proceed to settlement under the agreement dated 28 June 2004.
That brings me to the claims made by the plaintiffs. I begin with the claims against the trustees, SPA and SAA.
The claims against SPA and SAA
It is convenient to begin by considering the defence under s 65 of the Trustees Act raised by the trustee defendants since, if the point is made out, it provides a complete bar to the claims against the trustees. However, for the reasons set out below, I do not accept the trustees' contentions with respect to s 65(7) of the Trustees Act.
Does s 65(7) of the Trustees Act bar the plaintiffs' claim?
Section 65(7) of the Trustees Act is in the following terms:
65 (7)Notwithstanding any rule of law to the contrary, where a trustee has made a distribution of any assets forming part of the estate of a deceased person or subject to a trust -
(a)a person may exercise the remedies (if any) given to him by this section and all other rights and remedies available to him (including all rights that he may have to follow assets and any money or property into which they have been converted) without first exercising the rights and remedies (if any) available to him against the trustee in consequence of the making of the distribution; and
(b)a person shall not exercise any remedy that may be available to him against the trustee in consequence of the making of the distribution, until he has exhausted all other remedies available to him, whether under this section or in equity or otherwise.
The trustee defendants submit that s 65(7)(b), on its proper construction, precludes a person from commencing litigation against a trustee claiming that assets subject to a trust were distributed in breach of trust, until that claimant has exhausted all other remedies available to him. The necessary exhausting of remedies, it is submitted, includes pursuing to judgment or compromise claims against persons alleged to have knowingly received the distributions made in breach of trust or to have knowingly assisted in the making of the distributions in breach of trust.
In terms of the language of s 65(7)(b), the question is whether a plaintiff 'exercises a remedy' by commencing (and prosecuting) an action, as the trustee defendants contend, or whether a person exercises a remedy only when a remedy is obtained and enforced (as the plaintiffs contend).
In Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; (2004) 218 CLR 273 [11] McHugh ACJ, Gummow and Hayne JJ restated the following principles of statutory interpretation, by reference to earlier authorities:
In Newcastle City Council v GIO General Ltd [(1997) 191 CLR 85, 112], McHugh J observed:
'[A] court is permitted to have regard to the words used by the legislature in their legal and historical context and, in appropriate cases, to give them a meaning that will give effect to any purpose of the legislation that can be deduced from that context.'
His Honour went on to refer to what had been said in the joint judgment in CIC Insurance Ltd v Bankstown Football Club Ltd [(1997) 187 CLR 334, 408]. There, Brennan CJ, Dawson, Toohey and Gummow JJ said:
It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses 'context' in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd [[1986] 6 NSWLR 363, 388], if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.' (footnotes omitted)
A statutory provision should be construed, so far as possible, consistently with the language and evident purpose of all of the provisions of the statute: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 [69], [78].
The proper construction of s 65(7) should be considered in the context of s 65 as a whole. The section applies in circumstances where a trustee has distributed assets forming part of a deceased estate or subject to a trust. Subsections (2) and (3) create a new statutory right (in favour of beneficiaries of a trust, and others) to claim against persons to whom trust assets have been distributed. The statutory claim is in addition to any other rights and remedies available to the person making the claim: subs (4). Subsections (7) and (8) restrict the general law rights and remedies available to the person making a claim in respect of the distribution of trust assets: s 65(4).
Paragraph (a) of s 65(7) is said to be a statutory reversal of the rule in Re Diplock's Estate [1948] Ch 465, 503 that (in the context of a distribution of a deceased's estate) all remedies against the personal representative of the estate had first to be exhausted before monies could be recovered from a recipient, and that the claim against the recipient was limited to the amount the claimant could not recover from the personal representative; Ford & Lee, Principles of Law of Trusts (looseleaf service) [17370]; Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (7th ed 2006) [2321] and [2710].
Section 65(7) was modelled on the then provision in New Zealand: Administration Act 1952 (NZ), s 30B(5). The current NZ legislation mirrors s 65(7)(a), but par (b) has not been retained: Administration Act 1969 (NZ), s 50(a). I have not found any cases dealing with the proper construction of the New Zealand provisions.
There appears to be no equivalent provisions in the legislation of other States of Australia. (Queensland has a provision to different effect: see the Trusts Act 1973 (Qld) s 109(2).)
Section 65 of the Trustees Act was substantially in its present form when the Trustees Act was passed in 1962. No reference to s 65 appears to have been made during the parliamentary debates on the Bill. During the Second Reading speech, extensive reference was made to the report of a Law Society sub‑committee headed by Mr D Allen, upon which the Bill was said to have been based.
The sub‑committee report seems to me to be capable of assisting in the ascertainment of the meaning of s 65 and so regard may be had to it: Interpretation Act 1984 (WA) s 19(1).
There is a question as to the scope of the reference in s 65(7)(b) to 'all other remedies'. Its language is general and, on its face, universal. However, consideration of the report of the sub‑committee provides some support for a reading of s 65(7) as being intended to affect only proprietary remedies available to a claimant, and not reaching personal claims. At p 23 of the report it is stated that 'all remedies against the assets are to be exercised before any personal remedy against the trustee is pursued'. At p 62 it is said that subs (7) is 'of general application to all remedies concerned with following or tracing assets'.
It is not necessary to decide whether s 65(7) is limited in scope to proprietary remedies because, in my opinion, if it applies also to personal remedies, it does not prohibit the commencement and prosecution of concurrent proceedings against the trustee and against recipients (or those who have assisted the trustee in the breach), so long as any judgment against the recipients or assisters is satisfied before any judgment is sought to be enforced against the trustee.
While the language of the section is, I accept, susceptible of differing interpretations, the conclusion I have reached seems to me to find support in the language of the subsection as a whole. Moreover, it is reinforced by consideration of the inconvenience which would result from the construction advanced on behalf of the trustee defendants.
The construction invited by the trustee defendants would involve reading the subsection as requiring, in every case, an action against recipients of payments in breach of trust, or against those knowingly assisting in a breach of trust by way of distribution of trust assets, to be prosecuted to judgment before any action against the trustee could be commenced. A substantial number of common issues will or are likely to arise in an action against the trustee and in an action against those assisting in or receiving the fruits of the distribution in breach of trust. It is an element of claims under each of the two limbs of Barnes v Addy that a breach of trust be proved.
In those circumstances, the construction invited by the trustee defendants would require separate litigation in respect of claims in which substantial common issues will or may well arise. The question is whether the language and evident purpose of this subsection requires such a construction.
Ford & Lee [17370] suggest that the rule in s 65(7) is based on a perception that a recipient receives an unjustified windfall and thus should first be required to disgorge benefits received. Such a purpose would still be achieved by reading the subsection in the manner contended by the plaintiffs.
Analysed in terms of the language of s 65(7), the question is, as I have said, whether the plaintiff 'exercises a remedy' by commencing and prosecuting an action, or whether the remedy is exercised only at the point where it is obtained by curial decree and then to be enforced. The latter interpretation is supported by the reference, in s 65(7)(a), to a person exercising 'the rights and remedies' as distinct from 'exercising a remedy' in s 65(7)(b). A person who commences an action may be said to have exercised a right, in that litigation, but not to have exercised any remedy until a court decree is obtained.
It was submitted on behalf of the trustee defendants that if the legislation had been intended to preclude a person from enforcing a remedy in the circumstances referred to in s 65(7)(b) Parliament could easily have said so by using the word 'enforce'. However, for the reasons given, in my view the word 'exercise' in s 65(7)(b) is to be read as if it means 'enforce'.
Accordingly, the trustee defendants' defence based on s 65(7) fails.
Having rejected the trustees' defence based on s 65(7) of the Trustees Act, I turn to the question of whether the plaintiffs have established their claims that SPA and SAA breached their respective trusts.
The breaches of trust by SPA and SAA
One of the primary duties of a trustee is to obey the terms of the trust: Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 [32]; Jacobs [1704]; Ford and Lee [9050].
Both trust deeds relevantly required equal distributions of the income of the trust to unit holders. No defendant pleaded that the January 2002 Agreement effected a variation of the terms of the trust deeds. In any event, for reasons to be given later, in the course of considering the claim against the beneficiary defendants, I find that the January 2002 Agreement was not a variation of the terms of the trust in accordance with either of the trust deeds.
The provision in the trust deeds for equality of distribution of income therefore invites attention to whether the income of each trust was distributed equally between unit holders. That in turn requires consideration of what the income of each trust was, for each relevant year.
In the Stanton Partners Trust, the relevant term for the profit of the enterprise, to be distributed to unit holders, is 'income', while in the NFI Trust the defined term is 'net income of the trust fund'. The two terms are defined in substantially the same way, as meaning the 'net income of the trust estate' under the Income Tax Assessment Act 1936 (Cth) as amended or re‑enacted by the Income Tax Assessment Act 1997 (Cth). In substance, the net income of a trust estate is the total assessable income of the trust estate calculated as if the trustee were a resident and taxpayer in respect of the income, less all allowable deductions, with certain immaterial exceptions: Income Tax Assessment Act 1936, s 95.
I begin with the Stanton Partners Trust. The 2001 and 2002 financial years can be considered together. As explained earlier in these reasons, in each case an expense termed 'salary', or 'partner's salary', was deducted from the revenue of the trust so as to produce a final amount of income for the trust equal to three times what the beneficiary defendants considered to be the plaintiffs' entitlements (calculated as 50% of Mr Christou's net collections). No other reason for the deduction, as an expense, of the amounts termed 'salaries' was advanced in the defendants' evidence. In my opinion, the amounts claimed as expenses by way of salary in 2001 and partner's salary in 2002 were part of the income, as defined, of the Stanton Partners Trust for those years.
Thus the payments of an amount totalling $422,474 in 2001 (half of which was paid to each of Demandem and Glenlea), and the amount of $1,474,105 in 2002 (half of which was paid to each of Demandem and Glenlea), formed part of the income of the Stanton Partners Trust for the financial year in question, but were paid to, or for the benefit of, only two of the three beneficiaries.
That being so, SPA did not distribute the income of the Stanton Partners Trust equally between the three beneficiaries. It thereby breached its obligations as trustee of the Stanton Partners Trust.
As to the 2003 financial year, I am not satisfied that SPA distributed the pleaded amount of $226,136 to the beneficiary defendants in excess of distributions to the plaintiffs. That amount is based on exhibit 5 - the notice of meeting to be held on 16 December 2003 dated 12 December 2003. Although that notice seeks 'ratification' of the payments referred to, including the sum of $226,136 for the 2003 year, and notwithstanding the statements in general terms in exhibit B par 96 and exhibit C pars 74 ‑ 76, I am not satisfied that any such distribution in that amount occurred. I accept Mr Joyce's evidence (exhibit B par 114; ts 819) that in the 2003 financial year, income has been retained as reflected in the accounts (exhibit 1 pages 671 - 672).
Accordingly, the plaintiffs have not established the alleged breach of unequal payment in respect of the 2003 financial year. However, if the plaintiffs were to succeed in their claim in respect of SPA, I would have declared that Mr Christou was entitled to one‑third of the income of Stanton Partners Trust for the 2003 financial year.
No issue was raised by Mr Christou, by pleading or submissions, as to whether the assignment amounted to an assignment of a bare right to litigation and, if so, whether, on that account, it was unenforceable.
For the reasons given, I would give judgment for Demandem and Glenlea on their counterclaim against Mr Christou in the sum of $150,000.
Conclusion
I would summarise my major conclusions as follows:
1.As to the claim against SPA and SAA:
(a)the defence based on s 65(7) of the Trustees Act fails;
(b)on the pleadings, no other defence is available to SPA and SAA;
(c)SPA and SAA breached their respective trusts by the making of unequal payments;
(d)SPA and SAA should be granted leave to rely upon the January 2002 Agreement as a defence, should the beneficiary defendants' defence in that regard succeed;
(e)because the beneficiary defendants' defence based on the January 2002 Agreement succeeds, the claims against SPA and SAA fail on grounds of consent and acquiescence.
2.The claims against Mr Joyce, Mr Lingard, Demandem and Glenlea fail because:
(a)by the January 2002 Agreement, the plaintiffs consented to SPA and SAA breaching their respective trusts by the making of unequal payments (and, as to the period February 2001 to December 2001, acquiesced in such conduct);
(b)the requirements of knowledge, on the part of the beneficiary defendants, for liability under each of the two limbs of Barnes v Addy are not satisfied.
(c)Further, the claim based on the second limb in Barnes v Addy fails on the additional ground that I am not satisfied that the trustees acted with a fraudulent and dishonest design;
3.An order for winding up of the partnership should be made;
4.Demandem and Glenlea are entitled to judgment on their counterclaim against Mr Christou in the sum of $150,000.
I will hear from the parties as to the precise orders necessary to give effect to these reasons.
Note
A previous version of these reasons was published on 28 February 2008. After having heard argument as to the orders which should flow from my reasons it seemed to me that certain passages in my reasons did not, or may be read in a way which did not, reflect my reasoning. Paragraphs [204], [303], [304] and [337] have been revised to ensure that they reflect my reasoning. The revisions made are as follows:
(1)Paragraph [204](a) originally read:
SPA breached the Stanton Partners Trust in that it made unequal payments of the income of the Trust in the years 2001 and 2002, in the amounts already referred to.
(2)In par [303] the word 'distribution' has replaced 'payments'.
(3)In par [304](e) the words 'and payments' originally followed distribution, and have been deleted.
(4)In par [337] the words 'over and above the amount calculated' have replaced the words 'after the plaintiffs were paid'.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: CORPORATE SYSTEMS PUBLISHING PTY LTD -v- LINGARD [No 4] [2008] WASC 21 (S)
CORAM: BEECH J
HEARD: 17 - 19 & 21 SEPTEMBER, 5 - 8 & 12 NOVEMBER 2007 & 15 FEBRUARY 2008
DELIVERED : 28 FEBRUARY 2008
SUPPLEMENTARY
DECISION :28 MARCH 2008
FILE NO/S: CIV 1788 of 2003
BETWEEN: CORPORATE SYSTEMS PUBLISHING PTY LTD (ACN 009 412 622)
First Plaintiff
NICK CHRISTOU
Second PlaintiffAND
KEITH GRAEME LINGARD
First DefendantSTANTON PARTNERS AUSTRALASIA PTY LTD (ACN 085 103 206)
Second DefendantSTANTON ACCOUNTANTS & ADVISORS PTY LTD (ACN 085 059 909)
Third DefendantNEIL KEVIN JOYCE
Fourth DefendantDEMANDEM HOLDINGS PTY LTD (ACN 009 258 664)
Fifth DefendantGLENLEA ENTERPRISES PTY LTD (ACN 065 274 544)
Sixth Defendant
Catchwords:
Practice and procedure - Trial of action - Final orders to be made - Turns on own facts
Practice and procedure - Pleadings - Amendment of pleadings - Whether leave should be granted to amend pleadings after delivery of reasons for decision
Legislation:
Nil
Result:
Final orders made
Category: B
Representation:
Counsel:
First Plaintiff : Mr A P Rumsley
Second Plaintiff : Mr A P Rumsley
First Defendant : Mr M L Bennett
Second Defendant : Mr M L Bennett
Third Defendant : Mr M L Bennett
Fourth Defendant : Mr M L Bennett
Fifth Defendant : Mr M L Bennett
Sixth Defendant : Mr M L Bennett
Solicitors:
First Plaintiff : Alan Rumsley
Second Plaintiff : Alan Rumsley
First Defendant : Lavan Legal
Second Defendant : Lavan Legal
Third Defendant : Lavan Legal
Fourth Defendant : Lavan Legal
Fifth Defendant : Lavan Legal
Sixth Defendant : Lavan Legal
Case(s) referred to in judgment(s):
Beatty v Brashs Pty Ltd [1998] 2 VR 201
Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386
Clairs Keeley v Treacy [2003] WASCA 299; (2003) 28 WAR 139
Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148
National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514
Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR 390
Re Timothy's Pty Ltd and the Companies Act [1981] 2 NSWLR 706
Trendtex Trading Corporation v Credit Suisse [1982] AC 679
BEECH J:
Introduction
On 28 February 2008 I delivered reasons for decision after the trial of the plaintiffs' action and the fifth and sixth defendants' counterclaim.
Having received an advance copy of the reasons, on 28 February 2008 the parties each provided minutes of proposed orders. The orders proposed by each party were in markedly different terms. Thereafter, the parties filed a series of written submissions in support of the orders sought. These supplementary reasons relate to the orders to be made in the plaintiffs' action and the fifth and sixth defendants' counterclaim, following delivery of my reasons on 28 February 2008.
I propose to deal with the orders to be made under the following headings:
1.the plaintiffs' monetary claim against the second and third defendants;
2.the plaintiffs' monetary claims against the beneficiary defendants;
3.the winding up of the partnership;
4.the costs of the action;
5.the fifth and sixth defendants' counterclaim.
The plaintiffs' monetary claim against the trustee defendants
First, I deal with an uncontroversial matter. An order should be made granting leave to the second and third defendants to amend their defence, as I concluded in the reasons [208] ‑ [226]. Order 1 will be in these terms:
1.The second and third defendants have leave to amend their defence by inserting a new paragraph in terms that, in the event that the defence in pars 9, 23 and 32D of the first and fourth to sixth defendants' defence is made out, then the second and third defendants rely on such defence.
There were substantial issues between the parties as to the orders which should flow from my reasons on the plaintiffs' monetary claim against the second and third defendants. The plaintiffs sought an order that judgment be entered for the plaintiffs in the amount of $540,661.05 against the second and third defendants. The defendants invited an order that the claims against the second and third defendants be dismissed. For the reasons which follow, I do not accept the submissions of either of the parties as to the orders which should be made.
In the reasons, I came to the following relevant conclusions:
(1)Both the Stanton Partners Trust Deed and the NFI Trust Deed required equal distributions of the income of the trust to unitholders [194].
(2)Subject to the question of the effect of the January 2002 Agreement:
(a)SPA breached the Stanton Partners Trust by failing to distribute the income of the Trust in the 2001 and 2002 financial years equally between the three beneficiaries, in that the payments of partner's salary ($422,474 in 2001 and $1,474,105 in 2002) were, properly characterised, income of the Trust which should have been distributed equally; and
(b)SAA breached the NFI Trust in that it distributed the net income of the Trust for the 2002, 2003 and 2004 financial years in unequal amounts, as reflected in the NFI tax returns for those years [204].
(3)By the January 2002 Agreement, the plaintiffs consented to the distribution to the plaintiffs of the income of SPA and SAA in an amount equal to 50% of Mr Christou's fee collections, in satisfaction of the plaintiffs' entitlement under the trust deeds to equal distributions of income. The balance of what would have been the plaintiffs' share of income was to be distributed equally between Messrs Joyce and Lingard or their private companies. (There was an immaterial qualification relating to Mr Christou attaining average collections over a 12 month period of $100,00 per month) [303] and [304(e)].
Thus, I did not find that the plaintiffs consented to receiving no distribution of income of the two trusts. What they consented to, by the January 2002 Agreement, was to receiving an amount calculated as 50% of net collections in satisfaction of their entitlement to an equal distribution of income. Thus, to the extent that the trustees did not distribute the excess of an equal share of net income above the amount representing 50% of collections, the January 2002 Agreement provides a defence of consent. However, the agreement would not provide a defence of consent in respect of any amount by which distributions made to the plaintiffs were less than 50% of Mr Christou's collections (and less than an equal one‑third share).
The plaintiffs claim that they are entitled to judgment in the sum of $540,661.05, on the basis that it represents the amount by which distributions to the plaintiffs fell short of the amount calculated as 50% of Mr Christou's net collections. For reasons to be developed, I accept that the plaintiffs are entitled to judgment in an amount representing the extent (if any) to which distributions of the plaintiffs' equal share of income fell short of the amount due based on the 50% formula, but I do not accept that the sum claimed by the plaintiffs represents that amount.
The defendants submit that, for a number of reasons, no orders in favour of the plaintiffs should be made.
First, the defendants point to passages in the reasons in which it is concluded that the plaintiffs' monetary claims should be dismissed: [5], [228], [323], [324] and [397]. These passages state a conclusion that the plaintiffs' monetary claims should be dismissed by reason of the consent constituted by the January 2002 Agreement. However, in submissions at trial, while numerous issues were raised respecting whether the January 2002 Agreement gave rise to a defence of consent, attention was not given to whether distributions were made to the plaintiff in an amount equal to 50% of collections and whether, to the extent that that was not so, the agreement could give rise to any defence. On the findings which I have made, this seems to me to remain an issue. The plaintiffs should not be foreclosed from putting submissions on the point.
Secondly, the defendants complain that the plaintiffs did not plead, whether in the alternative or otherwise, any claim of the sort which would support the orders now sought. The defendants say that there was no monetary claim in respect of amounts said to be unpaid under the 50% formula.
I accept that no claim of the kind referred to was pleaded by the plaintiffs. However, I accept the submissions of the plaintiffs that it was not incumbent upon the plaintiffs to plead a claim in this respect, because the Agreement was relied on by the defendants as a defence. The plaintiffs' claim pleaded a breach of trust. In some respects (although not in all respects pleaded by the plaintiffs) I made findings of breach of trust, set out in [6(2)] of these reasons. The defendants pleaded the January 2002 Agreement as a defence. The defendants succeeded in relation to a defence based upon the Agreement in that I found that it gave rise to a defence of consent. Consent is by its nature a positive defence [207]. In my opinion, it was for the defendants to prove that the consent of the plaintiffs, arising from the Agreement, to breaches of trust extended to authorise all breaches of trust that were established by the plaintiffs.
However, in that context, it is important to give careful attention to the proper identification of the trustees' obligations and any breaches of those obligations. The relevant obligations of the trustees were to make distributions of income in equal amounts [14], [18], [194], [199] and [202]. Although the plaintiffs' case complained of the making of unequal payments, the breaches of trust which I have found to have occurred related to the making of distributions in unequal amounts [199], [202], [204] (the conclusion at [397](1)(c) and (2)(a) mistakenly refers to payments when it should refer to distributions). In this regard, I also refer to the discussion, in the reasons, of the distinction between drawings and distributions: see, for example, [330], [333].
The breaches by SAA were the distributions of net income for the 2002, 2003 and 2004 financial years in unequal amounts, as reflected in the NFI tax returns for those years. The breaches I have found in respect of the Stanton Partners Trust relates to the financial years 2001 and 2002. In those years, the accounts of the company reflected equal distributions of what was stated in the accounts to be the net income of the trust. However, I found [197] ‑ [199] that the amounts shown in the accounts for those years as partners' salary were, properly characterised, part of the income of the trust which should have been distributed equally, but were not, in that they were paid to Demandem and Glenlea and accounted for as salary.
The plaintiffs' calculation of the amount which they now claim to be entitled to, in light of the reasons, is based upon evidence as to payments made to the plaintiffs. For the reasons I have given, attention is not to be directed to the amount of payments made to the plaintiffs, but rather to the amount of distributions of income made to them. Consequently, I do not accept the basis of the plaintiffs' calculation of the amount they now claim to be entitled to.
However, to the extent that the amount of income distributed to the plaintiffs fell short of the amount calculated under the 50% formula (and fell short of the plaintiffs' one‑third share), then, in my opinion, the plaintiffs are entitled to judgment in such an amount. I turn to identifying the amounts actually distributed to the plaintiffs and the amounts to which they were entitled under the 50% formula.
The evidence as to the amounts distributed to the plaintiffs is of a different character in respect of the two trusts. The evidence respecting the Stanton Partners Trust is the financial statements of the company. The evidence respecting the NFI Trust is the tax returns of that company. Because of that difference, there may be thought to be a degree of artificiality in the exercise I now undertake. Nonetheless, it seems to me that the exercise must be undertaken and must be done with such evidence as is available.
The plaintiffs are content for the court to proceed on the basis of the defendants' evidence as to the amounts to which the plaintiffs were entitled under the 50% formula. Mr Joyce's witness statement (exhibit B, par 136) referred to and tendered a document entitled 'Summary' that set out Mr Christou's collections for each financial year and calculated an amount for 50% of collections net of disbursements (exhibit 1, page 838). That evidence is to the effect that, under the 50% formula, the plaintiffs' entitlements in respect of each financial year were as follows:
2001 $118,389.10
2002 $233,500.17
2003 $183,650.32
2004 $151,608.90
2005 $145,075.87
2006 $152,157.40
2007 $115,461.70
I turn to the amounts distributed to the plaintiffs. For the 2001 financial year, the plaintiffs received a distribution of $194,080.61 from SPA [37], and $245,408 from SAA [45], (exhibit 19). The total of those sums comfortably exceeds the amount to which the plaintiffs were entitled under the 50% formula. The plaintiffs are not entitled to any relief in respect of the 2001 financial year.
In the 2002 financial year, distributions to the plaintiffs were made in amounts of $19,253.79 by SPA [38], and $91,847 by SAA [46]. Thus, the distributions made in favour of the plaintiffs totalled $111,100.79. According to the 50% formula, the plaintiffs were entitled to distributions in the sum of $233,500.17. Thus, to the extent of the difference - $122,399.38 - the defence of consent does not apply. It is necessary to consider the position of the two trusts separately.
SPA's breach of trust in respect of the 2002 financial year was its failure to distribute the amount of $1,474,105 (shown in the accounts as partners' salaries) equally between the beneficiaries. Mr Christou's one‑third of that sum is $491,368.33. To the extent of the sum of $122,399.38, the defence of consent does not excuse the breach. Mr Christou is entitled to judgment against SPA in that sum. Because the 'partners' salaries' were paid to Demandem and Glenlea, it is appropriate to order payment of the amount by SPA to Mr Christou, rather than simply declaring that he is entitled to a further distribution in that amount. Thus, order 2 will be in these terms:
2.The second defendant do pay to the second plaintiff the sum of $122,399.38, and interest thereon at 6% per annum from 30 June 2002 until judgment.
SAA's breach of trust in respect of the 2002 financial year was in distributing $239,862 of its income to each of Demandem and Glenlea, but only $91,847 to Corporate Systems. Thus, the distribution to Corporate Systems should have been its equal one‑third share - $190,523.66, whereas the distribution to it was $91,847. SAA is liable in respect of the difference of $98,676.66.
Corporate Systems is, consequently, entitled to judgment against SAA in the sum of $98,676.66.
The plaintiffs submitted that, on the defendants' case (which was, it said, accepted), the plaintiffs' entitlement to distribution based on the 50% formula is not conditioned upon or limited by the extent of the income of the trust for that year. That would be relevant if the plaintiffs were enforcing the January 2002 Agreement. However, as I have said, the plaintiffs' claims are not of that character. Their claims are for breach of the obligation to distribute income equally. Thus against SAA, in respect of the 2002 financial year, Corporate Systems is entitled to judgment in the sum of $98,676.66 (not $122,399.38).
Order 3 will be in these terms:
3.The third defendant do pay to the first plaintiff the sum of $98,676.66, and interest thereon at 6% per annum from 30 June 2002 until judgment.
It will be seen that orders 2 and 3 included a provision for payment of simple interest on the sum awarded, calculated from the end of the relevant financial year. The defendants opposed interest on the basis that the plaintiffs were not entitled to payment of any sum, but only to an order that a distribution be made by an accounting entry. Because there was the evidence that interest was charged on loan amounts, interest should not, it was submitted, be awarded. As I have given judgment for payment of a sum of money, I consider an award of interest to be appropriate.
The plaintiffs' entitlement under the trust deeds and the January 2002 Agreement is to distributions totalling the sum calculated by the 50% formula. Payment to either Mr Christou or Corporate Systems would satisfy the entitlements of both. If, for example, order 2 is satisfied, any entitlement under order 3 would disappear. Thus, order 4 will be in these terms:
4.Satisfaction of order 2 discharges order 3 and satisfaction of order 3 discharges, to the extent of the payment made, order 2.
In the 2003 financial year (and subsequently) I found, accepting Mr Joyce's evidence, that the income of SPA was not distributed, but was retained, as is reflected in the accounts [200]. No amount was distributed to the plaintiffs by SAA in the 2003 financial year [46]. In respect of the 2003 financial year, I found that no breach was established in respect of SPA, but a breach was established in respect of SAA [200] ‑ [204]. (In their written submissions in reply dated 14 March 2008, the plaintiffs made reference to and attached copies of correspondence between the parties' solicitors relating to the sum of $226,136 in respect of the 2003 financial year. I made findings in relation to that issue [200] ‑ [201]. The correspondence was not put before me at trial, including on 15 February 2008 when the question of the evidence supporting the claim that a distribution was made in 2003 in the sum of $226,136 was specifically raised with the parties. Consequently, I have not had regard to the correspondence attached to the plaintiffs' submissions of 14 March 2008.)
The January 2002 Agreement permitted the defendants to deal with the income of SPA and SAA in a global fashion; so long as the plaintiffs received distributions in amounts totalling the sum calculated under the 50% formula, there could be no complaint by the plaintiffs.
I note that a one‑third share of the income of SPA for the 2003 financial year exceeds the amount of $183,650.32, that is the amount which the plaintiffs are entitled to under the 50% formula.
In the circumstances I have outlined, I would grant declaratory relief in respect of the 2003 financial year.
At trial, less attention was directed to the accounts of SPA for the 2004 and subsequent financial years, because no claim of breach was made in relation to those years. (An application to amend to add such a claim, made by the plaintiffs on resumption of the trial in November 2007, was refused.) Nonetheless, had I found that the Agreement did not give rise to a defence of consent, I would have been inclined to make a declaration that the plaintiffs were entitled to a one‑third share of the income of the trusts of which each was a beneficiary [229]. For corresponding reasons I would make a declaration in respect of the 2004 and subsequent years in terms similar to that for the 2003 year. I note that the accounts for SPA for these years suggest or may suggest that the distribution to Corporate Systems exceeded the amount to which it was entitled under the 50% formula. The making of declarations should not be thought to cast any doubt on whether that is so. I do not consider that issue was joined at trial in respect of the amount of distributions in the financial years 2004 onwards, so I do not make any findings in that regard.
For these reasons, order 5 will be in these terms:
5.The court declares that the plaintiffs are entitled to a distribution of their respective shares of the income of SPA and SAA for the following financial years in amounts which total the following sums:
2003 $183,650.32
2004 $151,608.90
2005 $145,075.87
2006 $152,157.40
2007 $115,461.70
The claims against the beneficiary defendants
The plaintiffs sought orders that judgment be entered for the plaintiffs in respect of the amounts owed by the second and third defendants, and interest thereon, against the beneficiary defendants.
Given the findings I have made in the reasons, I do not consider the plaintiffs are entitled to judgment against the beneficiary defendants. The claim based on knowing assistance failed because of the absence of a dishonest and fraudulent design on the part of the trustee [325] ‑ [338].
In its submissions following delivery of the reasons, the plaintiffs sought to reformulate the fraudulent and dishonest design said to have been engaged in by the trustees. I would not be prepared to permit that course. A party alleging a dishonest and fraudulent design is confined to the matters pleaded and particularised in support of that allegation [326]. In any event, I would not be prepared to make findings of the (new) fraudulent and dishonest design invited by the plaintiffs, which were not put to Mr Lingard or Mr Joyce.
As to the claim based on recipient liability, I was not satisfied that the beneficiary defendants had the knowledge required for liability to be established [340]. I would not be prepared to make the finding now invited by the plaintiffs: that Messrs Lingard and Joyce knew at the relevant time that the payments made to Demandem and Glenlea (characterised in the accounts as partners' salary, but on my findings properly characterised as part of the income of the Stanton Partners Trust), were made in circumstances where the distributions to the plaintiffs were insufficient to cover their entitlements under the 50% formula. No such allegation was put to Mr Lingard or Mr Joyce and I would not draw an inference to the effect sought by the plaintiffs.
For these reasons I would not make any orders against the beneficiary defendants.
The winding up claim
I found that the partnership ought be wound up [362] ‑ [364].
The plaintiffs seek orders in the following terms:
1.Pursuant to s 50 of the Partnership Act 1895 (WA) the partnership of the second plaintiff, first defendant and fourth defendant be wound up under the direction of the court.
2.Pending the winding up of the partnership, the second defendant, pursuant to the licence agreement dated 12 November 1998, continue to operate the practice as defined in the licence agreement.
The defendants propose an order that the business and affairs of the partnership known as Stanton Partners be dissolved pursuant to s 50 of the Partnership Act.
There appears to be a little dispute in substance as to the first of the orders sought by the plaintiffs in respect of the partnership. Order 6 will be in the following terms:
6.Pursuant to s 50 of the Partnership Act 1895 (WA) the business and affairs of the partnership of the second plaintiff, first defendant and fourth defendant known as Stanton Partners be wound up.
The plaintiffs sought an order in terms that the winding up be 'under the direction of the court', submitting that such an order would allow applications to be made to the court as and when required. In the event that the need for an application to the court arises in the course of the winding up of the partnership, such an application is to be made by way of new proceedings.
I would not be prepared to make an order in terms of the second order sought by the plaintiffs. The order for winding up of the partnership does not warrant an order compelling the second defendant to continue to operate the Practice (as defined in the licence agreement), under the licence agreement. Apart from anything else, the licence agreement is, as explained in the reasons, terminable by either party by not less than three months' written notice [354]. It would not be appropriate to make an order precluding the exercise by any party of that right.
Order 7 is not controversial and will be in the following terms:
7.The plaintiffs' claims be otherwise dismissed.
Costs of the action
The plaintiffs sought orders that the trustees pay both the plaintiffs' costs and the beneficiary defendants' costs of the action. The plaintiffs relied upon O 66 r 4 of the Rules of the Supreme Court 1971 (WA), and submitted that in a claim arising out of a trust the successful applicant's costs are usually paid from the trust fund. The plaintiffs also pointed to the fact that they succeeded in establishing breaches of trust; that the consent defence was, they submitted, only partially successful; and the fact that the trustees' defence was amended at a late stage (to plead reliance on the January 2002 Agreement to the extent that the beneficiary defendants' defence succeeded in that regard).
I do not accept the plaintiffs' submissions that the trustees should pay the costs of the plaintiff beneficiaries and the beneficiary defendants.
In substance, this litigation involved a contest between the plaintiffs, on the one hand, and the beneficiary defendants, on the other. The central issues related to the existence, enforceability, conditionality, construction and effect of the January 2002 Agreement. In my judgment, the beneficiary defendants have been substantially successful in the contest. A beneficiary whose claim of breach of trust fails on the ground that the beneficiary had consented to the breach of trust should not necessarily expect that the costs of the action will be paid by the trustee. Given the equal beneficial entitlements of the three parties, an order that the costs of the action be paid by the trustee defendants would, in substance, have the result that two‑thirds of those costs would be borne by the beneficiary defendants. To my mind, that would not be a just exercise of the costs discretion in this case. Rather, the plaintiffs should pay the beneficiary defendants' costs of the action. However, because the plaintiffs had a measure of success in certain respects, I would not order that the plaintiffs pay the whole of the beneficiary defendants' costs, rather, order 8 will be in these terms:
8.The plaintiffs pay 80% of the first and fourth to sixth defendants' costs of the action, including reserved costs, such costs to be taxed if not agreed and to be taxed as one set of costs.
The defendants sought that the costs order in their favour include a specific provision including the costs of the appeal in appeal proceedings FUL 24 of 2004. However, there is no need or occasion for any orders in that regard; the Full Court made orders on 15 June 2004 that the applicants (the plaintiffs in this action) pay the respondents' costs of the application to be taxed if not agreed. Nor is there any need to provide for the costs of the application to the Full Court in CIV 1936 of 2004. The order of the Full Court was that the costs of the application be costs in this action. By force of that order the costs of that application will be governed by order 8.
The trustee defendants were very much secondary players in the defence of the action. It is to be expected that the costs incurred on behalf of the trustee defendants are relatively insignificant. The argument which they advanced in respect of s 65(7) of the Trustees Act was not successful. It seems to me appropriate that there be no order as to the costs of the trustee defendants. Order 9 will be in these terms:
9.There be no order as to the costs of the second and third defendants.
Counterclaim
In the reasons I upheld the fifth and sixth defendants' counterclaim against Mr Christou. The fifth and sixth defendants brought the counterclaim pursuant to an assignment, by SPA, of SPA's relevant rights against Mr Christou. At [371] ‑ [392] I dealt with the merits of the counterclaim, finding that Mr Christou breached his duty of reasonable care and diligence as a director of SPA causing loss and damage to SAA which I assessed in the sum of $150,000. I then dealt with the plaintiffs' pleadings and submissions in relation to the assignment by SPA of SPA's rights against Mr Christou [393] ‑ [394]. I rejected the point raised by the plaintiffs in relation to the enforceability of the assignment.
In concluding that section of my reasons, I recorded [395] that no issue was raised by Mr Christou, by pleading or submissions, as to whether the assignment amounted to an assignment of a bare right of litigation and, if so, whether, on that account, it was unenforceable. Based upon that observation, following delivery of my reasons for decision, the plaintiffs applied for leave to amend Mr Christou's defence to counterclaim to plead that the assignment by SPA was unenforceable as an assignment of a bare right to litigation.
The plaintiffs did not, on the delivery of the reasons, advance any substantive submissions in relation to the merits of the defence which they now seek to raise. The plaintiffs seek that leave be given and that, subsequently, they be given an opportunity to put on submissions in support of the plea that the assignment was unenforceable. In their final written submissions in reply to the defendants' submissions as to the orders to be made following the reasons, the plaintiffs referred to the proposition that 'the prohibition against assigning a bare right to litigation still remains a fundamental principle of our law': Trendtex Trading Corporation v Credit Suisse [1982] AC 679, 703; Clairs Keeley v Treacy [2003] WASCA 299; (2003) 28 WAR 139 [141].
In Trendtex (703) it was held that an assignee who has a genuine commercial interest in taking the assignment and enforcing it for his own benefit, can enforce an assignment without infringing any prohibition against assigning a bare right of litigation.
That principle has been applied and considered in many cases in Australia: see, for example, Re Timothy's Pty Ltd and the Companies Act [1981] 2 NSWLR 706, 711; Beatty v Brashs Pty Ltd [1998] 2 VR 201; Re Daley; ex parte National Australia Bank Ltd (1992) 37 FCR 390, 394; Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148.
There is, at the least, doubt as to whether a claim for damages in tort can be effectually assigned to a party with a 'genuine commercial interest'; compare Monk and National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514.
There may also be room for doubt as to whether a genuine commercial interest would permit an effective assignment of a claim by a company for breach of duty by its director (see, generally, Meagher RP, Gummow WMC and Lehane JRF, Equity: Doctrines and Remedies (4th ed, 2002) [6‑480]).
The decision of the High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386 does not determine the questions which would arise in this case if leave were granted.
In determining whether an assignee has a genuine interest in taking the assignment, the court may look at the totality of the circumstances surrounding the transaction: Seddon NC and Ellinghaus MP, Cheshire & Fifoot's Law of Contract (8th Aust ed, 2002) [8.7].
In opposing the plaintiffs' application to amend their defence to counterclaim, the fifth and sixth defendants submit that they would plead by way of reply that they had a genuine commercial interest in taking the assignment and say that they would adduce evidence in support of that plea. While the defendants have not identified such evidence with any specificity, I am unable to be satisfied that the granting of leave to amend Mr Christou's defence to counterclaim would not give rise to the need for the trial to be re‑opened so that further evidence could be led.
Mr Christou's application for leave to amend his defence to the counterclaim, after the delivery of reasons after trial, must be viewed in the context of the history of this litigation. The action was commenced in 2003. In September 2007 the action came on for trial. It was listed to be heard in five days from 17 to 21 September 2007. The plaintiffs opened their case on 17 September 2007. Following submissions from both parties on 18 September 2007, I made rulings, as a result of which the plaintiffs applied for leave to amend their statement of claim to plead a fraudulent and dishonest design on the part of the trustees. The plaintiffs first attempted to move for an amendment on 19 September 2007 and were ultimately granted leave on 21 September 2007. The result was that the trial was adjourned to November 2007.
When account is taken of the history of the matter, the circumstances in which the application is made and the prospect that the proposed amendment may give rise to the need for the re‑opening of the trial for further evidence to be adduced, I would not grant leave to Mr Christou to amend his defence to the counterclaim.
That leaves the question of the appropriate orders to be made in consequence of the success of the counterclaim.
I assessed damages on the counterclaim in the sum of $150,000. Notwithstanding that, the plaintiffs propose that judgment be entered for the fifth and sixth defendants on the counterclaim in the amount of $100,000, and for the first plaintiff in the amount of $50,000, against Mr Christou. In support of that submission, the plaintiffs point to cl 2.2 of the deed of assignment between SPA, Demandem and Glenlea (exhibit 1 page 706). By that clause, Demandem and Glenlea agree that they would hold one‑third of the net proceeds of SPA's claim against Mr Christou, after deduction of all legal costs associated with its enforcement, in trust for Corporate Systems. It does not seem to me to be appropriate to make an order which seeks, in effect, to enforce, in a pre‑emptive way, the trust arising from cl 2.2 of the deed of assignment. Rather, the appropriate order is that Mr Christou pay damages in the sum of $150,000 to Demandem and Glenlea. It will then be for those companies to perform their obligations arising from cl 2.2 of the trust deed.
It is not in dispute that there should be an order that the second plaintiff pay the fifth and sixth defendants' costs of the counterclaim to be taxed if not agreed, or that interest should be payable on the damages, calculated from about when the proceeds of sale on 16 August 2002 should have been received. Orders 10 and 11 will be in these terms:
10.The second plaintiff pay the sum of $150,000 to the fifth and sixth defendants, together with interest thereon at 6% per annum from 20 August 2002 until judgment.
11.The second plaintiff pay the fifth and sixth defendants' costs of the counterclaim to be taxed if not agreed.
Conclusion
For the reasons given, I make orders in the following terms:
1.The second and third defendants have leave to amend their defence by inserting a new paragraph in terms that, in the event that the defence in pars 9, 23 and 32D of the first and fourth to sixth defendants' defence is made out, then the second and third defendants rely on such defence.
2.The second defendant do pay to the second plaintiff the sum of $122,399.38, and interest thereon at 6% per annum from 30 June 2002 until judgment.
3.The third defendant do pay to the first plaintiff the sum of $98,676.66, and interest thereon at 6% per annum from 30 June 2002 until judgment.
4.Satisfaction of order 2 discharges order 3 and satisfaction of order 3 discharges, to the extent of the payment made, order 2.
5.The court declares that the plaintiffs are entitled to a distribution of their respective shares of the income of SPA and SAA for the following financial years in amounts which total the following sums:
2003 $183,650.32
2004 $151,608.90
2005 $145,075.87
2006 $152,157.40
2007 $115,461.70
6.Pursuant to s 50 of the Partnership Act 1895 (WA) the business and affairs of the partnership of the second plaintiff, first defendant and fourth defendant known as Stanton Partners be wound up.
7.The plaintiffs' claims be otherwise dismissed.
8.The plaintiffs pay 80% of the first and fourth to sixth defendants' costs of the action, including reserved costs, such costs to be taxed if not agreed and to be taxed as one set of costs.
9.There be no order as to the costs of the second and third defendants.
10.The second plaintiff pay the sum of $150,000 to the fifth and sixth defendants, together with interest thereon at 6% per annum from 20 August 2002 until judgment.
11.The second plaintiff pay the fifth and sixth defendants' costs of the counterclaim to be taxed if not agreed.
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