Doherty v Bruce Ronald Sampey as administrator of the estate of Patricia Adele Addison (Aka Sampey)
[2023] WASC 10
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: DOHERTY -v- BRUCE RONALD SAMPEY as administrator of the estate of PATRICIA ADELE ADDISON (AKA SAMPEY) [2023] WASC 10
CORAM: ALLANSON J
HEARD: 18, 19, 22, 25, 27-29 JANUARY 2021, 10-12 MARCH 2021, 17-18 MARCH 2021 & 7 APRIL 2021
DELIVERED : 25 JANUARY 2023
FILE NO/S: CIV 1337 of 2014
BETWEEN: PHILLIP CARL DOHERTY
First Plaintiff
PHILIP CARL DOHERTY as trustee for THE PD TRUST
Second Plaintiff
GREGORY JOHN NORRIS
Third Plaintiff
ANGOURIE INVESTMENTS PTY LTD (ACN 064 357 651) as trustee for THE ANGOURIE UNIT TRUST
Fourth Plaintiff
FANFARE PTY LTD (ACN 051 059 342)
Fifth Plaintiff
HEATHER JOANNA DOHERTY
Sixth Plaintiff
AND
BRUCE RONALD SAMPEY as administrator of the estate of PATRICIA ADELE ADDISON (AKA SAMPEY)
JENNIFER ANNE SAMPEY as administrator of the estate of PATRICIA ADELE ADDISON (AKA SAMPEY)
First Defendants
BRUCE RONALD SAMPEY
Second Defendant
BRUCE RONALD SAMPEY as trustee for THE MUSTANG UNIT TRUST
STEPHEN JOHN WAKE as trustee for THE MUSTANG UNIT TRUST
Third Defendants
BRUCE RONALD SAMPEY as trustee for THE SAMPEY SUPERANNUATION FUND
LINDA JUNE SAMPEY as trustee for THE SAMPEY SUPERANNUATION FUND
Fourth Defendants
STEPHEN JOHN WAKE as trustee for THE WAKE SUPERANNUATION FUND
TONYA ALLISON WAKE as trustee for THE WAKE SUPERANNUATION FUND
Fifth Defendants
Catchwords:
Partnership - Where parties purchase premises and conduct car yard from the premises - Where parties later purchase further interests in land including commercial property leased to a third party - Whether parties carrying on business in partnership
Partnership - Fiduciary duties - Where two members of partnership purchase land as an investment - Where land brought to their attention by another partner - Whether appropriation of an opportunity for the partnership in breach of fiduciary duty
Fiduciary duties - Where member of partnership also provides accountancy services to other partners and a business conducted by them - Where partnership owns land on which business conducted - Whether breach of fiduciary duties to obtain benefit by reason of payment of rent
Contract - Where accountant engaged without written retainer - Whether scope of retainer includes obligation to advise regarding solvency - Whether breach of contract or duty in tort by failing to advise - Whether plaintiffs have proved what advice would have been given by insolvency practitioner
Unconscionable conduct - Where plaintiffs and defendants execute deeds of loan - Where plaintiffs signed contracts and transfers of land as security for loan - Where defendants registered transfers - Whether in all circumstances the conduct of the defendants was unconscionable
Transfer of Land Act - Compensation for lodging caveat without reasonable cause
Legislation:
Australian Consumer Law
Civil Liability Act 2002 (WA)
Partnership Act 1895 (WA)
Transfer of Land Act 1893 (WA)
Result:
Plaintiffs' claim upheld in part
Counterclaim dismissed
Representation:
Counsel:
| First Plaintiff | : | GD Cobby SC & GBA Visscher |
| Second Plaintiff | : | GD Cobby SC & GBA Visscher |
| Third Plaintiff | : | GD Cobby SC & GBA Visscher |
| Fourth Plaintiff | : | GD Cobby SC & GBA Visscher |
| Fifth Plaintiff | : | GD Cobby SC & GBA Visscher |
| Sixth Plaintiff | : | GD Cobby SC & GBA Visscher |
| First Defendants | : | PG McGowan |
| Second Defendant | : | PG McGowan |
| Third Defendants | : | PG McGowan |
| Fourth Defendants | : | PG McGowan |
| Fifth Defendants | : | PG McGowan |
Solicitors:
| First Plaintiff | : | Fourlion Legal |
| Second Plaintiff | : | Fourlion Legal |
| Third Plaintiff | : | Fourlion Legal |
| Fourth Plaintiff | : | Fourlion Legal |
| Fifth Plaintiff | : | Fourlion Legal |
| Sixth Plaintiff | : | Fourlion Legal |
| First Defendants | : | Spyker Legal |
| Second Defendant | : | Spyker Legal |
| Third Defendants | : | Spyker Legal |
| Fourth Defendants | : | Spyker Legal |
| Fifth Defendants | : | Spyker Legal |
Cases referred to in decision:
ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1
ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia [2014] NSWCA 402; (2014) 89 NSWLR 209
Astley v Austrust Ltd (1999) 197 CLR 1
Badenach v Calvert [2016] HCA 18; (2016) 257 CLR 440
Barescape Pty Ltd as Trustee for the V's Family Trust v Bacchus Holdings Pty Ltd as Trustee for the Bacchus Holdings Trust (No 9) [2012] NSWSC 984
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179; (2007) 35 WAR 27
Bryant Bros v Thiele [1923] SASR 393
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410
Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20
Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178
Commissioner of State Revenue v Rojoda [2020] HCA 7; (2020) 268 CLR 281
Con-stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226
Cubillo v Commonwealth of Australia (No 2) (2000) 103 FCR 1; [2000] FCA 1084
Ekes v Commonwealth Bank of Australia [2014] NSWCA 366; (2014) 313 ALR 665
Gray v Motor Accident Commission [1998] HCA 70; (1998) 196 CLR 1
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296
Helton v Allen [1940] HCA 20; (1940) 63 CLR 691
Heydon v NRMA Limited (2000) 51 NSWLR 1
Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41
Howard v Commissioner of Taxation [2014] HCA 21; (2014) 253 CLR 83
King v Adams [2016] NSWSC 1798
Lym International Pty Ltd v Marcolongo [2011] NSWCA 303
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2022] WASCA 26
Murdoch v Mudgee Dolomite and Lime Pty Ltd (in liq) [2022] NSWCA 12; (2022) 398 ALR 658
Pavan v Ratnam (1996) 23 ACSR 214
Pilmer v Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165
Rosselli v Rosselli [2007] VSC 414
Sangha v Baxter [2009] NSWCA 78
Steinberg v Commissioner of Taxation (Cth) [1975] HCA 63; (1975) 134 CLR 640
Townsend v Roussety Co (WA) Pty Ltd [2007] WASCA 40; (2007) 33 WAR 321
Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155; (2018) 266 FCR 631
Visnic v Sywak [2009] NSWCA 173; (2009) 257 ALR 517
Westgyp Pty Ltd v Northline Ceilings Pty Ltd [2018] WASC 244
Table of Contents
The parties
The plaintiffs
The defendants
Some defined terms
The pleadings
Fact finding
An overview
The witnesses
For the plaintiffs
Norris
Doherty
Ms Katie Santich
Roger Hughes
Giovanni Gregorio (John) Previti
Dr Peter William Melville-Smith
For the defendants
Sampey
Wake
John Hirniak
Linda Sampey
The expert evidence
The documentary evidence
Findings of fact - some preliminary matters
MDN Partners
MDN Partnership - the pleadings
Was there a partnership
Partnership property
Fiduciary duties
Findings of fact - a chronology of events
2003
2004
2005
2006
2007
2008
Fanfare's financial history
2009
2010
Fanfare's solvency
The retainer of Sampey & Co - the pleadings
The retainer of Sampey & Co - findings
The failure to advise - the pleadings
Failure to advise - findings
The expert evidence on solvency: Mr Catena
The expert evidence on solvency: Mr Morgan
Conclusion
The Unprocessed Contracts
Breach of fiduciary duties
2011
The June 2011 loan - the pleadings
The June 2011 loan - findings
The failed auction
December 2011 - 2012
The December 2011 agreement - the pleadings
The December 2011 agreements - the evidence and findings
2012
The July 2012 meeting
The valuation evidence
The December 2011 agreement – the relief sought
The December 2011 agreement - findings
2013
From 2014
716 Albany Highway
Management fees
Claim for MDN partnership to be dissolved
Claim for compensation for lodgement of caveats
Claim for exemplary damages
Contributory negligence
Delay and Laches
The Counterclaim
Conclusion
ALLANSON J:
In 2003, Philip Carl Doherty, Gregory John Norris (through the company Angourie Investments Pty Ltd (Angourie)), Bruce Ronald Sampey and Stephen John Wake purchased a property in East Victoria Park on which Fanfare Pty Ltd operated a used car sales business.[1] In 2004, the same parties purchased another property in East Victoria Park, which was leased, and an interest in a property in Brookdale. The Brookdale investment was very profitable for all.
[1] In these reasons, I must frequently refer to names, in particular to four main participants: Philip Carl Doherty, Gregory John Norris, Bruce Ronald Sampey and Stephen John Wake. For readability, and consistency with the pleadings, I have adopted the practice of referring to each of those individuals simply by family name. In referring to other individuals, I have used both first name and family name.
From 2004, Fanfare was owned by Doherty and Angourie, and Doherty and Norris were its sole directors. The accounting firm of Sampey & Co acted as the accountant for Fanfare, and also as tax accountant for Doherty, Norris, and Angourie.
After a few modestly successful years, Fanfare began to lose money. It continued to trade until mid-2012, but suffered further and greater losses. The relationship between Doherty, Norris and Sampey broke down irretrievably in 2012.
In 2012, Fanfare ceased trading. Doherty and Norris needed to sell their homes to repay debts incurred in the business. They also lost their interest in the two properties they had bought with Sampey and Wake, those properties were transferred to their former business partners.
In this action, Doherty, Norris, Fanfare and Angourie seek compensation for losses they say were incurred by various breaches of duty by Sampey and Wake, and by unconscionable conduct by Sampey, in particular, in the dealings that led to the loss of their interest in the two properties.
The parties
The plaintiffs
Doherty (who was named as both the first and second plaintiffs) and Norris were, for many years, in the business of selling cars.
Doherty is a trustee of the PD Trust, a trust operated for the benefit of Doherty and his family.
Norris is a director of Angourie. Angourie is the trustee of the Angourie Unit Trust, a trust operated for the benefit of Norris and his family.
From late 2003, Fanfare Pty Ltd operated a used car business at 707 and 709 Albany Highway, Victoria Park, called the Park Auto Centre. Doherty and Norris were, and continue to be, directors of Fanfare.
Heather Joanna Doherty is the wife of Doherty. Her claim is limited to a claim for compensation under s 140 of the Transfer of Land Act 1893 (WA).
The defendants
Until early 2014, Patricia Adele Addison (also known as Patricia Adele Sampey) carried on an accounting and tax agency business named Sampey & Co. When these proceedings commenced, Patricia Addison was represented by a guardian. In 2020, she died and the proceedings were continued against her estate.
Sampey (who was named as second, third and fourth defendants) practiced as an accountant and was employed by Sampey & Co. With his wife, Linda June Sampey, he was trustee of the Sampey Superannuation Fund.
Linda Sampey conducted a settlement agency, Worldwide Settlements Pty Ltd, which was used in some of the land transactions.
Wake (named as second and fifth defendants) ran a motor vehicle wholesale business.
Wake and his wife, Tonya Alison Wake, were the trustees of the Wake Superannuation Fund.
Sampey and Wake were trustees of the Mustang Unit Trust.
Sampey and Wake were also directors of Fanfare until 27 September 2004 and, for a time, shareholders.
Some defined terms
In these reasons, I refer frequently to the following:
(1)The Fanfare premises: the property at 707 to 709 Albany Highway, Victoria Park at which Fanfare carried on business as Park Auto Centre.
(2)716 Albany Highway and 720 Albany Highway: two properties at 716 Albany Highway and 720 Albany Highway purchased by Sampey and Wake (716 Albany Highway) and by MDN Partners (720 Albany Highway). I will refer to each property simply by its address.
(3)The Brookdale property: a property at 67 Willows Road, Brookdale, in which Sampey, Wake, Doherty and Norris held an interest between 2004 and 2007. Sampey appears to have separately held an interest in that property which he acquired in 2005 with Wake and Stephen James Mulhall.
(4)Sampey, Wake, Doherty and Norris (through Angourie) jointly owned the Fanfare Premises and 720 Albany Highway, and contracted to purchase an interest in a property in the suburb of Brookdale, in the name MDN Partners. While the parties disputed whether it was a partnership in law, the terms 'MDN Partners' and 'the MDN Partnership', standing for Mustang, Doherty and Norris, was used in pleadings and other documents. Except where quoting from a document which uses the expression MDN Partnership, I will refer to MDN Partners, the name registered.
The pleadings
The pleadings for the purposes of the trial were
(1)a Further Re-Amended Statement of Claim, filed 20 January 2021;
(2)the First Defendant's Amended Substituted Defence and the Second to Fifth Defendants' Further Re-amended Defence and Counterclaim, filed 28 January 2021; and
(3)the plaintiffs' Amended Reply to the First Defendant's Defence, filed 24 September 2019.[2]
I refer to the final version in each case as the Statement of Claim, and the Defence and Counterclaim.
[2] The First Defendant's Defence was subsequently overtaken by a substituted defence, filed 25 October 2019, by which the defences of the five defendants were consolidated. The reply was not subsequently amended, and no longer corresponded to a defence plea.
In their reply, the plaintiffs introduced a plea of the obligations of Sampey & Co as a tax agent and Chartered Accountant, including obligations pursuant to the Supplemental Charter, By‑Laws and Regulations of the Institute of Chartered Accountants Australia. The plea was a reply to the defence of the First Defendant, Patricia Addison which, by trial, had been superseded.
The plaintiffs filed Amended Further and Better Particulars of the Statement of Claim and Amended Answers to the Second to Fifth Defendants' Request for Further and Better Particulars of the Plaintiffs' Reply on 24 September 2019.
The plaintiff also filed Amended Further Particulars of Loss and Damage on 14 November 2019.
The Second to fifth defendants filed answers to the Plaintiffs' Request for Further and Better Particulars of Defence and Counterclaim on 23 December 2015.
The pleadings were wordy and confusing, with numerous pleadings in the alternative and frequent incorporation of the matters pleaded in other paragraphs by reference to paragraph number - a device that was further confused by some of the referenced paragraphs having been deleted in subsequent amendments, or not being pursued at trial.
The plea can be simplified, in part, by adherence to two principles.
First, subject to statute, trusts have no separate legal personality from the trustees. Whether a person acted as a trustee, and in accordance with their obligations as trustee is relevant if recourse is to be had to the assets of the trust, and may be a material fact in some circumstances. But an obligation incurred by a trustee, whether or not it is properly incurred in accordance with the trustee's obligations as trustee, may ordinarily be enforced in the same way as an obligation incurred by a person who is not a trustee.[3] It is easier to set out and understand what happened without constantly referring to a party's status as trustee, or whether they were acting on behalf of a trust, unless that is relevant in the particular circumstances.
[3] ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia[2014] NSWCA 402; (2014) 89 NSWLR 209 [16] ‑ [18]. See also Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth[2019] HCA 20 [24] (Kiefel CJ, Keane & Edelman JJ).
There is one occasion when it is convenient to refer to a trust fund. Two loan agreements were made in December 2011 or January 2012, where the lenders were the trustees of the Sampey Super Fund and the Wake Super Fund, acting on behalf of the funds.
Second, 'a partnership is not an entity distinct from its members; it is not the partnership that carries on business as such, but the individual members who carry on business in partnership'.[4]
[4] Steinberg v Commissioner of Taxation (Cth) [1975] HCA 63; (1975) 134 CLR 640.
Fact finding
The relevant events occurred between 2003 and 2012, and included matters relating to the formation and operation of Fanfare, the ownership of four properties, including the Fanfare premises, and three written loan agreements (possibly modified by collateral oral agreements). Although the issues arising out of various transactions overlap in time, I will set out my findings on the facts chronologically.
There is an extensive, although not complete, documentary record. The documents often show what was done, at least to the extent of establishing a broad outline of events. Some of those documents purport to record conversations or agreements. In some cases, I have found the documents to be an inaccurate record.
When it came to matters of detail outside the terms of the documents, there was limited agreement about the facts, and the fallibility of memories posed obvious difficulties. The witnesses were attempting to give evidence of events, meetings, and conversations that occurred between 2003 and 2012. Recollections have not only been affected by the passage of time, but by the strong emotions felt by at least some of the participants, and, in the case of Norris, his health. I have approached the evidence by reference to the following principles.
First, in determining liability, the plaintiff always bears the onus of proving their case including any fact relevant to the issue of causation on the balance of probabilities.[5]
[5] Civil Liability Act 2002 (WA), s 5D.
Second, where facts must be proved in a civil trial on the balance of probabilities, they must be established to the reasonable satisfaction of the court. That is, the court 'must feel an actual persuasion of [their] occurrence or existence'.[6] Reasonable satisfaction is not attained or established independently of the nature and consequence of the facts to be proved.[7]
[6] Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 361; Helton v Allen [1940] HCA 20; (1940) 63 CLR 691, 712, 305.
[7] Briginshaw v Briginshaw, 362.
Third, the plaintiffs rely, in part, on losses said to have been incurred by the failure of Sampey and Sampey & Co to give advice. By s 5C(3) of the Civil Liability Act 2002 (WA):
If it is relevant to the determination of factual causation to determine what the person who suffered harm (the injured person) would have done if the tortfeasor had not been at fault —
(a)subject to paragraph (b), the matter is to be determined by considering what the injured person would have done if the tortfeasor had not been at fault; and
(b)evidence of the injured person as to what he or she would have done if the tortfeasor had not been at fault is inadmissible.
Fourth, the court must recognise the doubts that attend the recollection of conversations many years in the past. But, as Vaughan J said in Westgyp Pty Ltd v Northline Ceilings Pty Ltd:
[It] does not follow that the correct starting point is to simply place little reliance on oral recollection. Rather, I should assess that evidence in light of its inherent probabilities in the context of the objectively established facts.[8]
[8] Westgyp Pty Ltd v Northline Ceilings Pty Ltd[2018] WASC 244 [53].
Fifth, the court is not bound to accept or reject a witness' evidence in its entirety. Some aspects of the evidence of a witness may be unreliable, but that does not mean that all of the evidence of that witness should be rejected:
The principles enunciated in the cases indicate that the trial judge is entitled to believe part of the evidence given by a witness and to reject the rest. After making an assessment of the evidence, after utilising the advantage of having seen and heard all the witnesses, and after forming an impression of each, the confidence that the judge reposes in a particular witness is assessed accordingly. Where evidence has a logical probative value, a judge will rely on it; where it contains discrepancies, displays inadequacies, is tainted or otherwise lacks probative force, the judge will, in all probability reject it or, at least, not rely on it.[9]
[9] Cubillo v Commonwealth of Australia (No 2) (2000) 103 FCR 1; [2000] FCA 1084 [118]. And see Sangha v Baxter [2009] NSWCA 78 [155] ‑ [156].
An overview
Because the pleaded cases involve several separate transactions and events, over a period of 10 years, I will first give a short chronological overview.
In 2003, Doherty and Norris first met Sampey. They already knew Wake.
Doherty, Norris (through Angourie), Sampey and Wake bought the property which became the Fanfare premises. The property was held by the four trading as MDN Partners. The property was financed in part by the MDN Partners, but primarily by debt.
From late 2003, Fanfare operated a car yard from those premises. Doherty, Norris, Sampey and Wake were each directors and shareholders of Fanfare.
Sampey & Co provided services to MDN Partners and Fanfare as an accountant and tax agent, primarily carried out by Sampey. Sampey also provided accounting and tax agent services to Doherty.
In 2004, Sampey and Wake purchased 716 Albany Highway as an investment.
Later in 2004, Sampey, Wake, Doherty and Norris entered a contract acquiring an interest in a property in the suburb of Brookdale, as an investment. The contract was in the name of MDN partners, although Norris (not Angourie) was named as a party.
In 2004, Sampey and Wake resigned as directors of Fanfare, and sold their shares in the company to Doherty and Angourie. Sampey continued as the accountant for Fanfare.
Fanfare continued to trade in 2005, at a modest profit after paying salaries to Doherty and Norris.
In 2006, MDN Partners, purchased 720 Albany Highway, as an investment. The purchase was funded entirely by debt.
In 2008, Doherty and Norris sold their interest in the Brookdale property to Sampey and Wake.
In 2008, Fanfare began to record trading losses. The financial position of Fanfare deteriorated over the following years, a period coinciding with the Global Financial Crisis.
In about July 2011, Doherty and Norris borrowed $200,000 from Sampey for the purposes of the Fanfare business.
In September 2011, the MDN Partners attempted, unsuccessfully, to sell the Fanfare premises at auction.
In December 2011 and February 2012, Sampey and Wake provided further funds to Doherty and Norris. The amount was nominally $600,000, but $200,000 was taken as repayment of the July loan, and $5,500 withheld as fees. The precise time and details of this transaction are in contention. Doherty and Norris signed loan agreements but also, at some time, signed contracts and transfers for the sale of their interest in the Fanfare premises and 720 Albany Highway to Sampey and Wake.
In 2012, Fanfare renewed the lease of the Fanfare premises for two years.
Sampey and Wake sold 716 Albany Highway in January 2012.
In 2012, Norris suffered severe mental illness, resulting in admission to hospital.
In July 2012, Doherty, Norris and Sampey met. At the meeting, Doherty and Norris signed further transfers for the for the sale of their interest in the Fanfare premises and 720 Albany Highway to Sampey and Wake.
In 2012, Sampey caused transfers of the Fanfare premises and 720 Albany Highway to be registered.
Doherty sold the remaining cars that Fanfare held in stock and the business closed.
Sampey and Wake sold 720 Albany Highway on 30 October 2012.
These proceedings were commenced in 2014.
The witnesses
I will refer to matters affecting the credibility of witnesses on specific issues, when making findings on those issues. For the present, I will record some general observations.
All of the witnesses were testifying about events between 2003 and 2008. Recollection was limited and, the impression I formed is that it was sometimes selective.
Each of the primary witnesses was at times frustrated by the restrictions of the court process for taking evidence. That led, on occasion to asides such as Norris saying, 'I can't speak about what really happened because you won't let me'. The only restrictions on his evidence were from the application of basic rules of evidence.
There was a palpable hostility between Norris, Doherty (together with Mr Hughes), and Sampey. The continuing level of animosity between the plaintiffs and Sampey influenced the way in which Doherty, in particular, gave his evidence. It was necessary for me to remind him in cross examination of the need to answer questions, and to co‑operate in the process rather than being combative.[10]
For the plaintiffs
Norris
[10] ts 555.
The plaintiffs' primary witnesses were Doherty and Norris. Each had been comparatively successful in his business activities in the car industry for many years. Each testified to have either not read or not understood many of the documents relating to their business affairs. Perhaps, in their successful careers, they had been carried to some degree by their colleagues. But it is difficult to accept that someone whose business regularly required the making of contracts could survive with the level of ignorance or indifference that each professed as to basic business matters. Ultimately, Fanfare did not survive under their directorship.
Doherty and Norris both attributed their failure to their reliance on Sampey - despite the fact that he had no involvement in the day to day running of Fanfare. The question of their reliance was a central issue in the proceedings.
Norris was the first witness called. He was examined in chief for a little over two days. He was obviously not at ease in giving evidence, and was not assisted by questions which went from topic to topic, not necessarily in chronological order.
Norris' recollection was not good, despite being frequently prompted by being taken to contemporaneous documents. Even when taken to documents, he was disinclined to read them. Norris asserted that he was 'useless with paperwork'.[11] He said that Ms Katie Santich (a Fanfare employee) looked after things and 'all I used to do was - was, you know, make sure we were fine; make sure we were making money, and buying cars, and doing that sort of paperwork'.[12]
[11] ts 322.
[12] ts 324.
Norris accepted, however, that he knew whether the business was making a profit,[13] he and Doherty made business decisions jointly about the stock they needed,[14] and received monthly reports prepared by Ms Santich on the operation of the business.[15] Doherty kept a record of all sales.[16]
[13] ts 365.
[14] ts 365.
[15] ts 367.
[16] ts 367.
Norris had agreed to go into the Fanfare business on condition that he was a part owner of the land and the business, not just an employee.[17] That was not on anyone's advice. Once the yard was not making money, Norris adopted the strategy of burying his head in the sand. Although he attributed blame to Sampey, in certain important decisions he took the lead from Doherty.
[17] ts 225.
Following the failure of the Fanfare premises to sell at auction in 2011, Norris was hindered by anxiety attacks and deteriorating mental health, coupled with a long term back injury.
Perhaps influenced by Mr Hughes and others around him, Norris blamed Sampey for everything. The reliability of his evidence was affected by that uncritical attribution of all responsibility in that way.
Doherty
Doherty professed a surprising lack of business knowledge for someone who had, for several years, occupied a senior position with a major car franchise. He was very ready to rely on the claim of being 'a bit of a bunny when it comes to the financial side of things'.[18] For example, he agreed that, with his experience, he needed to know the level of stock to put into the yard, but not to knowing that the amount Fanfare needed to borrow was a function of the amount of stock.[19]
[18] ts 465.
[19] ts 557.
Doherty agreed that he and Norris decided what cars to buy and at what price;[20] and he kept the stock sheets of all vehicles purchased and a book of all sales.[21] He accepted that wages and, advertising and expenses were his responsibility;[22] and that Sampey and Wake were never involved in the day to day operations of Fanfare.[23] He attributed poor decisions to his reliance on Sampey's advice. But no advice or conduct on the part of Sampey was identified that could cause a modestly successful business in 2007 to record such substantial losses in 2008 to 2011. The reason for those losses appears to have been a combination of external events, including the Global Financial Crisis, and the inability of Doherty and Norris to run their own business.
[20] ts 559.
[21] ts 559.
[22] ts 572.
[23] ts 565.
Doherty knew that Fanfare was struggling - he either knew that the value of stock on the yard was less than what Fanfare owed the bank, or chose not to think about it.[24] He did not read the profit and loss statements,[25] but knew that Fanfare lost money in 2008 and 2009. He said that he expressed concern about how the business was going, but he accepted Sampey's assurance (denied by Sampey) that everyone was 'doing it tough' and they would get through it, and to not worry about the losses.[26]
[24] ts 609 - 611.
[25] ts 501.
[26] ts 500, 503.
I find it incredible that Doherty would accept advice not to worry about the losses they were incurring. In any event, as I understood his evidence, the assurance he relied on was not that the business was robust, but that he and the other owners of the real estate would make the money up on the sale or development of the land if they could hang on.
Doherty also played a more active role in Fanfare than he presented. Although he sought to put responsibility for the refinancing with Westpac in 2008 on Sampey, Doherty had a long relationship with Westpac and it was the bank which suggested that he should finance with them on GE Finance leaving the industry.[27] In 2011, it was Doherty who approached Sampey asking for a loan to buy more vehicles.[28]
[27] ts 489.
[28] ts 504 ‑ 505.
It was also Doherty who formed the view, after the failed auction in 2011, that the selling price for the Fanfare premises should be at least $3 million.[29] Doherty wanted the profit from the sale of the land.
[29] ts 514.
Doherty's attitude when things started to go wrong was described in the evidence of Katie Santich, the Fanfare bookkeeper. Ms Santich was asked:
Did you have discussions with Mr Doherty on a regular basis as to the performance of the business?---Not on a regular basis.
How frequently would you have discussions with him as to the performance of the business?---Maybe closer to the last few years when it was not doing very well. I would – they didn't even want – they didn't look – want to look at the reports when we were coming in the last few years. They didn't even want to know how bad it was. They would basically just ask if they made money or lost money.[30]
[30] ts 685 ‑ 686.
Doherty said on many occasions in his examination in chief, almost as a litany, that he did not get any 'legal, financial or tax advice', whether tax advice was responsive to the question or not.[31] He gave the impression of a witness who had been very thoroughly proofed to respond in that way, on one occasion with some prompting.
[31] For example, ts 476, 479, 480, 488, 499, 502, 516, 524.
On matters, some of which were quite basic, Doherty frequently said he did not recall. These were not matters on which he was asked to remember a conversation or a sequence of events. For example, he could not recall where he obtained his share of the funds to purchase the Fanfare premises.[32] Despite his many years in the motor vehicle sales industry, he was reluctant to agree that he knew how a bailment plan operated.[33] He said he could not recall whether he had put any further money into Fanfare beyond the initial capital contribution, when he had, in fact, put in a substantial sum.[34]
[32] ts 554.
[33] ts 556.
[34] ts 568.
Yet he said that he could remember specific things that were said, particularly where they would cast Sampey in a bad light: for example that he was told that the original owners of the Fanfare premises were reluctant to deal with Sampey.
Throughout his evidence, Doherty veered between the combative, and the evasive. His evidence was not convincing. I did not find him to be a reliable witness.
The plaintiffs called four other witnesses to the facts.
Ms Katie Santich[35]
[35] Also referred to in some documents before she married as Katie Vankuyl.
Ms Santich was employed by Fanfare to act as receptionist and to do general administration. She had previously been employed at City Toyota and knew Norris and Doherty from there, but had not previously kept the books of a business.
As a general comment, Ms Santich impressed as both an honest witness and, to the extent that she could remember matters that occurred several years ago, I accepted her evidence as reliable.
Fanfare's financial records were kept using a software package which was specific to the vehicle sales industry. When Ms Santich was employed, she was to learn bookkeeping from Tonya Wake and eventually be the company's bookkeeper. Ms Wake was familiar with the software as the bookkeeper in her husband's vehicle wholesale business. Ms Wake came out to the premises for the first six to 12 months. After Doherty and Norris took over, with Sampey and Wake no longer involved in the business of Fanfare, she would still help finalise end of month accounts and Ms Santich could still phone her from time to time. Ms Santich would, however, mainly speak to Sampey on matters relating to the accounts.[36]
[36] ts 647 ‑ 648.
Ms Santich clearly learned what was required, and her evidence demonstrated sound knowledge of the books of Fanfare. She would, on a monthly basis, produce reports including a balance sheet which showed the assets and liabilities, the vehicle Department report, and the 'admin department' report which would show income and expenses.[37] She also produced a trial balance, the debtors report, creditors report, stock report, and GST deferred claims report.
[37] ts 648; Exhibit 1.996.
Ms Santich prepared a summary document that she would send to Sampey & Co each month, which was usually to do with the business activity statement.[38] Occasionally she would hear from Sampey or one of the employees of Sampey & Co with regards to making adjustments or journal inputs.
[38] ts 650.
Ms Santich would supply the monthly reports to Norris and Doherty if they asked for them.[39] She could not say how often she spoke to Doherty about the performance of the business, but did talk to him and provide him reports from time to time.[40] Doherty also keeps the stock file in his office.
[39] ts 680.
[40] ts 681.
At the end of each financial year, Sampey would contact Ms Santich if there were any adjusting journal entries that needed to be made or if he needed detailed reports for particular accounts.[41] Ms Santich kept a file in her office which had the stock reports, creditors reports and debtors trial balances which she could print out for Sampey as he required.
[41] ts 653.
While it appears Ms Santich did her job well, she was not trained as an accountant and her role was limited. There was little she could do to overcome the fact that the business was poorly operated. It conducted a stock take once in the approximately eight years it operated. Doherty engaged in the practice of holding back certain contracts from being processed. These were contracts for the sale of vehicles on which Fanfare was making a loss. As a result, even though the purchaser had paid for the vehicle it appeared in the books as though the customer had credit for the amount the car was sold for, and the vehicle showed as still in stock.[42]
[42] ts 664.
The proper treatment of unprocessed contracts in the debtors report was beyond Ms Santich's expertise. Similarly, she had not been trained how to deal with money put into the business by Doherty and Norris, and required Sampey's advice on how to make adjusting journal entries to put them into loan accounts.[43]
Roger Hughes
[43] ts 657.
Mr Hughes worked in the car sales industry. He has known Norris since 1988. He was a loyal friend. He took Norris into his home when Norris was at his lowest ebb. He had lent money to Norris, including for legal fees.
Mr Hughes' evidence was confined to events in the last months of this saga.
Mr Hughes saw that Norris became really concerned after the auction of the Fanfare Premises failed to attract a satisfactory bid.[44]
[44] ts 694.
The evidence of Mr Hughes was largely peripheral to matters that I have to decide. There is an issue on the evidence about what occurred at the meeting on 13 July 2012, but Mr Hughes was not present for most of that meeting.
In fact finding, the evidence of the independent witnesses may be important in resolving conflicting evidence of interested parties. I could not, however, regard the evidence of Mr Hughes in the same way as I would the evidence of a truly independent witness. He was obviously affected by his friend's distress and, despite his own limited involvement, was in no doubt about where the blame lay. In his evidence, and his conduct in court, he did not hide his animosity towards Sampey, to the extent of being abusive towards him from the witness box. It is not possible to say to what extent his animosity may have distorted his recollection of events.
Giovanni Gregorio (John) Previti
Mr Previti is a chartered accountant. He had been the accountant for Norris between about 2006 and around 2009.
In 2012, Norris called him and asked for help with accounting and taxation issues, including in relation to Angourie and his self‑managed super fund. Doherty engaged him for similar purposes at the same time.
Doherty and Norris asked Mr Previti to also take on the Fanfare account. In 2018, Mr Previti prepared Fanfare's financial statements for the years ending 30 June 2012 and 30 June 2013. Although Mr Previti said that the solvency declaration 'probably' should not have been included, he agreed that it was and was probably signed by the directors.[45]
[45] ts 759.
Mr Previti's firm also prepared the Fanfare taxation returns for the 2012 and 2013 years, under a separate engagement. The taxation returns were prepared in about 2016, two years before the financial statements.[46]
Dr Peter William Melville-Smith
[46] ts 761.
Dr Peter Melville-Smith is a consultant psychiatrist in the Department of Psychiatry at Joondalup Health Campus. He held that position in June and July 2012 while Norris was an inpatient at the Joondalup Hospital. During that period he would generally see a patient once or twice a week, possibly more often depending on the patient's clinical status.
Dr Melville-Smith prepared a report.[47] In his opinion, around 13 July 2012, Norris was suffering from a major depressive disorder, generalised anxiety disorder, and panic attacks with episodic chest pain. Dr Melville‑Smith noted, from progress notes of 11 July 2012, that Norris was stressed by uncertainty about where he was going to live after his discharge from hospital, and starting work at a new car yard.
[47] Exhibit 12.
Before leaving for the meeting on 13 July 2012, Norris requested medication. Nursing staff recorded that he returned that day without incident and reported that he felt anxious during the meeting.
Dr Melville-Smith did not see Norris on 13 July 2012, but saw him on 16 July. His opinion regarding the events of 13 July 2012 was based on the hospital records.
Doctor Melville-Smith reported on 'the potential cognitive impact of his medication' on his ability to practice adequate judgment or insight. In his opinion, Norris would not have had the capacity to understand a document (although it does not appear that Dr Melville‑Smith saw Norris on the day or the documents in question).
For the defendants
Sampey
Sampey began his evidence on Friday, 29 January 2021. His evidence was interrupted by the measures introduced to meet the public health emergency caused by COVID-19. Rather than resuming the following week, as originally scheduled, it was necessary to adjourn to 10 March 2021.
Mr Sampey also demonstrated his frustration in giving evidence, particularly over an argumentative cross examination that began during the morning of 10 March and continued on the next three sitting days.
The plaintiffs sought to rely on general credit issues, pointing to business practices that were implemented on Sampey's advice and potentially unlawful. There was evidence at trial that some of the practices adopted by Fanfare, such as the splitting of the income of Norris and Doherty with their spouses, to reduce personal income tax, and the failure to include vehicles provided by Fanfare to Ms Santich, Ms Doherty and Ms Matkovich in fringe benefit tax returns, were done on his advice. To the extent those practices reflect on credit, they are not to the credit of anyone involved. Doherty and Norris knew their wives were not employees of Fanfare. I do not accept that they were unaware of the purpose of splitting the income.
Sampey professed a recall of some events which I found surprising. For example, his account of events of around 10 December 2010, where he gave detailed evidence about Doherty and Norris listening to a horse race on the radio, what was said, and even remembering the amount of the bet Norris said he had.[48] On his evidence about that day, he had tried to speak to Doherty and Norris about Fanfare accruing a loss of $600,000 but gave up after they listened to the race.
[48] ts 840 ‑ 841.
The most important matters going Sampey's credibility were, first, his conduct in December 2011 and early 2012, leading to the registration of the transfers for the Fanfare premises and 720 Albany Highway to Sampey and Wake and their spouses; and second, his conduct at and his evidence about the meeting of 13 July 2012.
Wake
Wake had been an associate of Sampey for many years, and the two had previously bought investment properties together. Wake and Sampey were the trustees of the Mustang Unit Trust.
Wake was a party to some of the business arrangements, but lacked any detailed knowledge of what had happened. He had little direct involvement, relying on Sampey to organise matters, even where he was committing substantial sums of money (such as the 'loan' to Fanfare in January 2012)[49] or where the Mustang Unit Trust was involved.
[49] I use inverted commas because the nature of the arrangement was in dispute. Wake described the loan documents as an interim arrangement until he and Sampey could organise the money to pay out the St George Bank financing and purchase the interests of Doherty and Norris in the Fanfare premises and in 720 Albany Highway: ts 1171.
Wake's conduct during these matters was, on my assessment, largely controlled by Sampey. I did not form the view that he actively participated with knowledge of what was going on, but rather that he did what he was told. His view of what had occurred appeared to reflect what Sampey said, I infer because that was what he had been told.
John Hirniak
Mr Hirniak had been a car dealer for many years, but was retired at the time of the hearing. He had an interest in City Toyota at the time Doherty was the dealer principal, in the period before Doherty was dismissed.
Mr Hirniak's evidence was primarily directed to showing the level at which Doherty had been able to function as a dealer principal at City Toyota. It was of limited assistance in resolving any questions arising in this action.
Linda Sampey
Linda Sampey is a licensed settlement agent. She prepared some of the relevant transaction documents, based on what she was told by her husband.
Linda Sampey's evidence was primarily relevant to the completion of documents (including by dating and inserting the price) in 2012 for the transfer of the interests of Doherty and Norris in the Fanfare premises and 720 Albany Highway. Her personal knowledge of the transactions was limited. She did not speak to either Norris or Doherty at any time. I formed the opinion that her conduct, and her evidence, were largely dictated by what Sampey told her.
The expert evidence
Each party called expert evidence in two fields of knowledge: valuation and accounting.
Accounting evidence was given by Patrick Riccardo Catena, instructed by the plaintiffs, and by Russell Morgan, instructed by the defendants. Although each witness gave evidence under the broad rubric of accounting evidence, the expertise and focus of the witnesses was quite different.
Mr Catena is a Fellow of Chartered Accountants Australia and New Zealand, and a Chartered Taxation Adviser of the Taxation Institute Australia. His expertise was in general accounting. He did not profess to be a specialist in insolvency.
Mr Catena prepared a report[50] and gave oral evidence.
[50] Exhibit 10.
Mr Morgan is a chartered accountant and holds professional qualification as a registered liquidator (1990) and official liquidator (2015). He is the principal of Morgan Corporate Recovery, and was for 12 years an executive director of KordaMentha. His practice areas include corporate insolvency.
Mr Morgan prepared a report and also gave oral evidence.[51]
[51] Exhibit 16.
The expert accountants produced a joint report.[52]
[52] Exhibit 11.
Valuation evidence was given by Matthew Garmony, a Certified Practising Valuer and managing director of Garmony Property Consultants, instructed by the plaintiffs, and by Donald Eftos, Licensed Valuer, instructed by the defendants.
I deal with the expert evidence in the context of the issues to which it was directed.
The documentary evidence
The parties produced an 18 volume trial bundle, many documents in which were tendered. Documents received as exhibits from the trial bundle were identified as Exhibit 1 and by tab number.
By agreement, the court also received two documents prepared by the plaintiffs, described as aides-memoires, which extracted the financial results for each of Fanfare and MDN Partners from the source documents.
The parties tendered the reports of the expert witnesses, and documents relevant to those reports, and a joint memorandum with Mr Catena.
One difficulty in Mr Morgan's report is that he had been briefed with witness statements by Mr Sampey and Ms Matich (at a time when it was contemplated that evidence in chief would be on witness statement). The evidence at trial was given orally, and the witness statements were not in evidence. I am, however, satisfied that the opinions he expressed were supported by matters which were proved in evidence, in particular with regard to the role of Ms Santich and Mr Sampey in providing accounting services.
Findings of fact - some preliminary matters
MDN Partners
MDN Partnership - the pleadings[53]
[53] Statement of Claim [15] ‑ [17].
The plaintiffs plead that:
(1)In or about mid-2003, Sampey recommended to Doherty and Norris that Doherty and Angourie enter into a partnership with Sampey and Wake.
(2)In reliance on the recommendation, in or about August 2003, Doherty and Angourie, entered into a partnership with Sampey and Wake, under the style MDN Partners.
(3)Each of the partners entered the partnership in their capacity as trustee: Doherty as trustee of the PD Trust, Angourie as trustee of the Angourie Unit Trust, and Sampey and Wake as trustees of the Mustang Unit Trust. The plaintiffs do not plead that Norris entered into partnership with Sampey and the others.
(4)In or about August 2003, Sampey & Co was retained to prepare accounts, business activity statements and taxation returns and provide financial advice as and when required for MDN Partners.
The defendants deny the partnership alleged. They plead specifically, in relation to the business arrangement:
12.8on 4 September 2003, Sampey on behalf of the third defendants, the PD Trustee and Angourie adopted the trading name MDN Partners when obtaining registration on their behalf for an Australian Business Number, with the intention that they together account for both tax and accounting purposes in relation to their co-ownership of the Premises, but the defendants deny that the third defendants, the PD Trustee and Angourie thereby, or at any time, entered into partnership;
12.9.in or about September 2003, it was agreed by the third defendants, the PD Trustee, Angourie and Sampey & Co that Sampey & Co would:-
(a)prepare accounts and financial statements, business activity statements and tax returns in order to satisfy the accounting and tax obligations imposed upon the third defendants, the PD Trustee and Angourie by reason of their co-ownership of the Premises; and
(b)provide property management services in relation to the Premises, including management of funds associated with that co-ownership, within Sampey & Co's trust account (Trust Account) …
Was there a partnership
By s 7 of the Partnership Act 1895 (WA):
(1)… partnership is the relation which subsists between persons carrying on a business in common with a view of profit.
(2)In deciding whether a partnership exists in any particular case, the court shall have regard to the true contract and intention of the partners as appearing from the whole facts of the case.
Whether there is a partnership is a question of fact depending upon the joint intention of the parties. The intention is not to be determined by an examination of the private intention of each party, but is to be ascertained by inference from their conduct and actions throughout the whole course of their dealings with each other.[54]
[54] Bryant Bros v Thiele [1923] SASR 393, 401; Rosselli v Rosselli [2007] VSC 414 [39].
Section 8 of the Partnership Act sets out rules that apply in determining whether a partnership exists. Relevantly, in the present circumstances, by s 8(1), the joint ownership of property does not of itself create a partnership as to anything so held or owned.
But there are many factors in this case that show that Sampey, Wake, Doherty and Norris (through Angourie) were carrying on business through a partnership.
Sampey, Wake, Doherty and Norris agreed to jointly acquire the Fanfare premises and to conduct the business of Park Auto Centre on the premises, using Fanfare, a jointly owned company, as the vehicle for the business. They borrowed money jointly from St George Bank to purchase the Fanfare premises, and used the receipts from the leasing of the land for the purpose of servicing that debt. In borrowing, they represented to St George Bank that the business structure included the partnership MDN Partners.[55]
[55] Exhibit 1.31.
The parties adopted the name MDN Partners, registered it as a trading name, and (through Sampey & Co) filed partnership tax returns.[56] The partners disclosed income from MDN Partners in their individual returns.[57]
[56] For example, Exhibit 1.95, 384, 488.
[57] See Exhibit 1.271.
Sampey & Co maintained a trust account in the name MDN Partners,[58] and produced partnership financial statements for MDN Partners.[59]
[58] Exhibit 1.1009.
[59] Exhibit 1.41, 64, 94, 383.
A partnership can be confined to one joint activity or be a continuing relationship between its members.[60] The subject matter over which the fiduciary obligations undertaken by partners extend is determined:
by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm.[61]
[60] Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178, 196.
[61] Murdoch v Mudgee Dolomite and Lime Pty Ltd (in liq) [2022] NSWCA 12; (2022) 398 ALR 658 [81].
MDN Partners may, initially, have been conceived as a single venture, relating solely to the purchase of the Fanfare premises and the operation of Park Auto Centre from there. MDN Partners, as lessors, leased the Fanfare premises to Fanfare to conduct business on the land, while intending to either sell or develop the land at some time in the future and to share the profits of that venture. That purpose survived Sampey and Wake separating themselves from the Fanfare business and company.
But the course of dealings went beyond a single venture. MDN Partners continued to invest, first in Brookdale, and later in 720 Albany Highway. It was not a single venture partnership, but an ongoing business of purchasing and owning land with a view to profit. Mr Sampey's evidence was that he was always looking for opportunities 'for us to develop - to buy', and he would take anything to the other partners and ask what they thought.[62]
[62] ts 923.
I am satisfied that the Brookdale investment was part of the business of MDN Partners. Although Norris, and not Angourie, was named as a party to the contract, the payments under the agreement with the vendors (Russell and Lisa Atthowe) were recorded in the financial statements of MDN Partners. Sampey's evidence about the payment of management fees from the partnership showed that he treated the commitment to the Atthowes as part of the partnership cashflow, so that when that deal was completed there was surplus income.[63] When Norris sold his interest in Brookdale, the payment was made to Angourie.[64]
[63] ts 829.
[64] Exhibit 1.910.
MDN Partners continued from 2003. On 26 April 2013, Sampey sent an email to the then accountant for Doherty, providing the 2012 financial statements for MDN Partners and advising of the dissolution of the partnership on 31 December 2011.[65] The defendants did not, however, plead that notice of dissolution was given pursuant to s 43(c) of the Partnership Act.
[65] Exhibit 1.919.
Whether or not the partnership had been then dissolved, there has to date been no winding up or distribution of the property of the partnership to the partners.
Partnership property
Part of the plaintiffs' claim is for loss and damage suffered by Doherty and Norris as a result of Sampey improperly using his position as a their accountant to obtain a benefit for himself and the Mustang Unit Trust.[66] In pleading the particulars of damage suffered, the plaintiffs plead that MDN Partners received rental payments from Fanfare and 'as a consequence, Sampey and Wake as trustees for the Mustang Unit Trust received 50% of the rent … that they would not otherwise have received an amount of $47,500'.[67]
[66] See Statement of Claim [80] ‑ [81].
[67] Particular of [81] of the Statement of Claim.
The plea assumes that money received by the partnership should be treated, before the winding up of the partnership, as having been received by each partner according to their share of the partnership property. It misconceives the nature of partnership property.
The nature of a partner's interest in partnership property was authoritatively stated by the plurality in Commissioner of State Revenue v Rojoda.[68] In equity, and under the Partnership Act, the interest of partners in relation to partnership assets is not an interest in any particular asset but is an indefinite and fluctuating interest in relation to the assets, being the right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership. This remains the position after the dissolution of the partnership following death or retirement of a partner but before completion of the winding up:
… a partner's interest was not an interest in, or in relation to, any specific asset other than an entitlement to the partner's share of the net proceeds from the sale of each asset at the completion of winding up. In other words, the only right that the partners have, both before and after dissolution, in relation to each asset is a right to the account and distribution after sale of the proceeds of that asset – 'not to an individual proportion of a specific article, but to an account: the property to be made the most of, and divided'.[69]
[68] Commissioner of State Revenue v Rojoda [2020] HCA 7; (2020) 268 CLR 281 [21], [27] ‑ [39].
[69] Commissioner of State Revenue v Rojoda [33]. Citation of authority omitted.
Section 33 of the Partnership Act preserved equity's treatment of the interest of partners:
The share of a partner in the partnership property at any time is the proportion of the then existing partnership assets to which he would be entitled if the whole were realised and converted into money, and after all the then existing debts and liabilities of the firm had been discharged.
Fiduciary duties
The plaintiffs plead two separate sources of fiduciary duty. The first is that arising from the partnership relationship, so that each of Sampey, Wake, Doherty and Norris owed fiduciary duties to the other members of MDN Partners.[70] It is long settled that the relationship between partners is fiduciary.
[70] Statement of Claim [18].
The plaintiffs also plead that each of Doherty, Norris, Angourie and Fanfare 'reposed trust and confidence in Sampey to provide them with accounting and financial advice in their best interests, [and] Sampey and Sampey & Co owed … a fiduciary duty'.[71] The plaintiffs allege failures by Sampey to avoid a conflict of interest and duty and improper use of his position as the plaintiffs' accountant, tax adviser and business adviser to gain an advantage for himself.
[71] Statement of Claim [59] ‑ [60], [58], [80], and [101].
The relationship between an accountant or business advisor and client is not one of the established categories of fiduciary relationship, although in the particular circumstances it can be or become one.[72] A number of factors may characterise a relationship as having a fiduciary nature, including the reposing of trust and confidence where a person 'has undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that other's interest to the exclusion of his or her own or a third party's interest'.[73] In ABN Amro Bank NV v Bathurst Regional Council, the court summarised five principles of fiduciary relationships:
1.The 'critical feature is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person'.
2.It is the element of undertaking (from the point of view of the fiduciary) or obligation (for and on behalf of the beneficiary) that has the consequence that equity insists that the principal must act in the 'interests of' or 'for the benefit of' the beneficiary rather than in the principal's own interests.
3.Whether a fiduciary relationship exists in a particular case, and if so, the scope of that fiduciary relationship, are matters which depend critically upon the particular circumstances of the case.
4.The characteristics which define a fiduciary relationship cannot be exhaustively defined. It is inappropriate to treat the existence of a fiduciary obligation as being dependent upon whether the principal and beneficiary fall into a particular status relationship:
5.Similarly, whether a fiduciary relationship has come into existence does not depend upon the motivation or desire of one party to establish a relationship of trust or confidence. What matters is whether there is a relationship involving the requisite undertaking, determined as a matter of objective characterisation, rather than by having regard to the subjective expectations of the parties.[74]
[72] Townsend v Roussety Co (WA) Pty Ltd [2007] WASCA 40; (2007) 33 WAR 321; Pavan v Ratnam (1996) 23 ACSR 214, 224-225.
[73] Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 [177].
[74] ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1 [1066].
Importantly, the scope of the fiduciary relationship, if one exists, depends on the particular circumstances.[75] In Howard v Commissioner of Taxation, French CJ and Keane JJ referred to the principle that:
The scope of the fiduciary duty generally in relation to conflicts of interest must accommodate itself to the particulars of the underlying relationship which give rise to the duty so that it is consistent with and conforms to the scope and limits of that relationship.[76]
[75] Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41, 96 ‑ 97; Pilmer v Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165, 196 ‑ 197.
[76] Howard v Commissioner of Taxation [2014] HCA 21; (2014) 253 CLR 83 [34].
In determining the scope of fiduciary duties, the court must have regard to the facts that Doherty and Norris were parties to the partnership styled MDN Partners, in which Sampey and Wake were also partners. MDN Partners paid interest on the finance obtained by MDN Partners from St George Bank - initially for the Fanfare premises and later for 720 Albany Highway as well - from the rent received from Fanfare. The confusion of relationships should have been avoided, but it is part of the context in which the obligations of the parties must be assessed. Sampey should not be held to have undertaken to act solely in the interests of Fanfare, Doherty, Norris or Angourie where he has (to their knowledge) obligations to act in the interests of MDN Partners, even where he also might benefit as a member of the partnership.
The plea that Sampey had a conflict arising from Fanfare continuing to lease the Fanfare premises from MDN Partners because he was a partner in that partnership cannot, in my opinion, be sustained.[77]
[77] Statement of Claim [58], [66], [100].
Findings of fact - a chronology of events
2003
Doherty and Norris were both experienced in the business of selling motor vehicles. Doherty had been a dealer principal for City Toyota, a major Toyota dealership in Perth, and Norris had worked with him. Norris described himself as a very successful car salesman, an opinion shared by Doherty.
Doherty and Norris knew Wake, who was also in the industry as a car wholesaler.
The plaintiffs say that Doherty met Sampey through their common membership of the Derby Club of the Fremantle Football Club.
Doherty said they met in March or April 2003, introduced by Wake. He said that he spoke for a while with Sampey, and Sampey eventually said, 'I would like to go into business with you'.
Doherty several times expressed his lack of recollection about matters during the subsequent running of Fanfare. However, he professed recollection of specific matters at this early stage.[78] For example, he said he could remember quite clearly Sampey saying, 'One thing about me you better realise is that I'm a power freak and I have to have control'.[79] Whether that is a true memory, or a reconstruction based on subsequent events, it quite accurately reflected the way in which Sampey appears to have conducted himself during the last months of the parties' relationship.
[78] Perhaps more generally, he professed recollection of matters which were calculated to discredit Sampey.
[79] ts 471.
Doherty said that, a couple of days later, Sampey rang him, and asked to take him out to show him something. Sampey took him to what later became the Fanfare premises and said that he and Wake were looking at buying the property to run a used car outlet, and asked whether Doherty would be interested in joining them.[80] Doherty said it looked like the property had potential and he was interested. He then rang Norris who, he knew, was not satisfied where he was working.[81] Norris spoke to his de facto spouse, Julie Matkovich, and to a couple of friends and decided he would be interested but only if he had a share of the business and the land. Doherty spoke to Sampey and Wake, and they agreed.[82] Norris gave evidence generally consistent with that of Doherty.[83]
[80] ts 469.
[81] ts 470.
[82] ts 471.
[83] ts 225.
The defendants recalled the matter differently.
Wake said that he had become aware that the owner of the Fanfare premises may be interested in selling. He spoke to Sampey about purchasing the property as an investment through the Mustang Unit Trust.[84] The plan was to find a tenant and lease it out.[85]
[84] ts 1139 ‑ 1140.
[85] ts 1153
Wake said that he told Doherty about the property, and Doherty told him that he was looking at diversifying and expressed interest in purchasing a share.[86] Wake mentioned Doherty's interest to Sampey. Wake said that it was only after Doherty and Norris were involved that they decided that they would run a car sales business from the premises.[87]
[86] ts 1141.
[87] ts 1154.
Wake was asked if he regarded Doherty as a good person to go into business with, and he replied, 'Not necessarily business, into purchase of the property … We had not discussed business at that stage'.[88]
[88] ts 1154.
Sampey denied Doherty's evidence about how they were introduced, and denied telling Doherty that he wanted to go into business with him. He said, 'I am not in the habit of doing that with complete strangers'. He denied showing Doherty the property, and telling him that he and Wake wanted to run a car yard business there.[89]
[89] ts 1122.
The following matters, in my opinion, have been established.
Doherty, Sampey and Wake agreed to purchase to the premises. The first offer to purchase the property did not include Norris.[90] The date of the offer was 29 May 2003.
[90] Exhibit 1.6.
Within a quite short time, no more than a month, the agreement included the owners running a car yard on the premises. Doherty was still employed at City Toyota and did not intend to have an active role in the dealership. Doherty wanted Norris to be the manager of the business. The inclusion of Norris followed a decision to conduct a car yard.
A second offer to purchase was made in June 2003, with Wake or his nominee as the purchaser.[91] Sampey did not have any direct dealings with Norris before the offer for the Fanfare premises was accepted on 23 June 2003.[92]
[91] Exhibit 1.7.
[92] ts 817.
In the resulting contract for sale, the purchasers were Sampey and Wake as trustees for the Mustang Unit Trust, Doherty as trustee for the PD Trust, and Angourie Investments Pty Ltd as trustee for the Angourie Unit Trust. The property was held by the purchasers as tenants in common. Sampey and Wake held 50%, and Doherty and Angourie each held 25%.
The purchase price for the property was $1,010,000, financed by contributions from each of Doherty, Norris, Sampey, and Wake, and finance from St George Bank.
Doherty, Norris, Sampey, and Wake agreed to use Fanfare, a shelf company then owned by Sampey, to conduct the car dealership. It was not disputed that Sampey suggested using a company as the vehicle to run the business.
Although Sampey recommended using Fanfare to conduct the Park Auto business, I am not satisfied that Doherty and Norris entered business on Sampey's recommendation. Doherty was invited to join in the purchase of the property. Norris (and Angourie) entered the arrangement on his own request, after being approached by Doherty. There was no evidence that Sampey played any part in Doherty recruiting Norris.
In September 2003, the trading name MDN Partners was registered as a partnership and it obtained an ABN.[93]
[93] Exhibit 1.13/191.
On 9 October 2003, the members of MDN Partners entered into a facility agreement with the St George Bank for the purchase of the Fanfare premises. The agreement was for 10 years, with a facility limit of $700,000.[94]
[94] Exhibit 1.15.
The interest payments to St George Bank were from the rental income received from Fanfare as lessee of the premises.[95]
[95] ts 1145.
Fanfare and St George Bank also entered a Motor Vehicle Finance Facilities Agreement.[96] Each of Doherty, Norris, Angourie, Sampey and Wake signed guarantee and indemnity agreements, both in their own capacity and as trustees of their respective trusts, as security for the liability of Fanfare to St George Bank.[97]
[96] Exhibit 1.16.
[97] Exhibit 1.26.
On 25 November 2003, Fanfare entered into a Dealer Agreement and a Bailment Agreement[98] with St George Bank.[99] In December 2003, the bank registered a fixed and floating charge over the assets of Fanfare.[100]
[98] Exhibit 1.28/384. The effect of the bailment agreement was the bank owned the used car stock purchased by Fanfare.
[99] Exhibit 1.27/361, Exhibit 1.28.
[100] Exhibit 1.888.
The facilities with St George Bank, by both MDN Partners and Fanfare, were arranged by Sampey who was, at that time, both a member of MDN Partners, and a director of Fanfare.[101]
[101] Exhibit 1.33.
Doherty had intended to maintain his position with City Toyota, not advising his employer of his involvement with Park Auto Centre. In October 2003, City Toyota discovered what Doherty was doing and summarily dismissed him. Doherty eventually received a substantial payout on leaving, but he was now running a used car yard that was not affiliated with a major manufacturer. He described it as 'quite a comedown'.[102]
[102] ts 552.
The evidence demonstrated that it was not simply a come down in status. Both Norris and Doherty had been successful when well supported in larger, well run, organisations. Neither showed ability to run a business without that support.
On 10 November 2003, Angourie and Doherty each acquired 2,499 shares in Fanfare, with Sampey and Wake acquiring 4,988 shares as trustees of the Mustang Unit Trust.[103]
[103] Exhibit 1.908.
The lease of the Fanfare premises, signed by Sampey and Doherty on behalf of MDN Partners (as lessors) and Norris and Doherty on behalf of Fanfare (as lessee), commenced on 1 December 2003, and Fanfare began trading from the Fanfare premises as Park Auto Centre.[104] The lease was for a monthly rental of $10,000 and a period of three years.
[104] Exhibit 1.978/12397.
Sampey & Co were the accountants for Fanfare from the outset, but the terms of the retainer were never stated. The firm prepared company tax returns and business activity statements for Fanfare. It also prepared partnership tax returns and financial statements for MDN Partners.
Sampey said that the services provided to Fanfare involved, 'collecting the rent, paying the interest, paying St George fees, organising valuations if required, lodging business activity statements, submitting GST and those sorts of chores'.[105] His summary is essentially accurate, save for the omission of assistance with corporate compliance requirements.
2004
[105] ts 821.
On 15 March 2004, Sampey and Wake contracted to purchase 716 Albany Highway for $650,000. Norris had earlier advised Sampey that 716 and 720 Albany Highway were advertised for sale.
It is not in dispute that Sampey and Wake did not advise Doherty or Norris of their intention to purchase 716 Albany Highway, or seek their consent.[106]
[106] Statement of Claim [23] ‑ [26]; Defence [14] ‑ [16].
On 17 June 2004, Sampey, Wake, Doherty and Norris signed an agreement to purchase a 50% share of a property at 67 Willows Road, Brookdale. The agreement referred to Norris, Doherty, and The Mustang Unit Trust (MDN Partnership) as the purchaser.[107] The vendors were Russell and Lisa Atthowe. Sampey described them as his clients and friends, and said they had 'got themselves into a bit of bother investing in a hotel'.[108]
[107] Exhibit 1.39.
[108] ts 829.
The purchase price was $800,000. The terms for payment and settlement required a deposit of $100,000 paid in four instalments between 17 May 2004 and August 2004; $200,000 by way of 40 consecutive monthly instalments of $5000; and $500,000 by way of interest only payments of $3000 each (or the amount charged to the vendors by their lending institution) for a period of 40 months, followed by consecutive monthly instalments of principal and interest of $8,000 each until such time as the property was sold or the debt repaid in full. The vendors were entitled to retain possession and receipt of rents and profits or to occupy the property free from rent for a period of five years from 17 May 2004. Even with those conditions, the transaction was favourable to MDN Partners.
On 30 June 2004, Sampey and Wake disposed of 3,000 of their shares in Fanfare to Angourie and Doherty.[109] In September 2004, Sampey and Wake ceased to be directors of Fanfare.
[109] Exhibit 1.908/9804.
The ostensible reason for Sampey and Wake withdrawing from the Fanfare business was Sampey's disagreement with Doherty and Norris over their decision to use company funds to purchase memberships in the Derby Club of the Fremantle Football Club, season tickets for the football, and other sponsorships and promotions.[110] The amounts involved were comparatively small, although perhaps significant when compared to the modest earnings of the business, which made a loss in its first full year of trading.
[110] Doherty insisted the sponsorship was later, in about 2006: ts 636.
It may be that such a little thing should have been an early signal that Doherty and Norris - even if successful in businesses operated by others - lacked the necessary discipline to run a business themselves. That conclusion is supported by their own evidence that they failed to read documents and were unable, or unwilling, to read or understand financial records of the company, and their demonstrated ignorance of the duties and responsibilities of a company director. It also demonstrated that, while Doherty and Norris may have intended to place their trust in Sampey, they were making their own decisions, and he was going to act in his own best interests.
2005
In January 2005, Fanfare changed financing for the business from St George Bank to GE Automotive Financial Services.[111] The change did not significantly alter how Fanfare conducted its business.
[111] ts 565; Exhibit 1.60.
The financing again included a bailment facility for $1.25 million, and a retail finance facility.[112] It also included a capital loan of $150,000 to Doherty and Angourie, which was expressed to be for the purpose of purchasing shares from a minority shareholder.
[112] Exhibit 1.60.
The facilities were secured by a Bailment Plan Agreement and Trade Agreement, and also by guarantees and second registered mortgages over the residential properties of Doherty and Norris.[113] As part of the bailment facility, a representative of GE would regularly do a check of what cars were in the yard.[114]
[113] Exhibit 1.61.
[114] ts 392.
Norris and Doherty signed, accepting the terms and conditions, on 18 April 2005.
St George Bank discharged the fixed and floating charge and GE registered a fixed and floating charge.[115]
[115] Exhibit 1.888/3932.
The plaintiffs said the move to GE was initially organised by Sampey.[116] According to Norris, he and Doherty did not even discuss what they required, even though they were now solely running the business.[117] Doherty, however, said that GE came out to the dealership and spoke to him and Norris, and they became good friends with the GE representative, a Mr Lean.[118] Mr Lean used to come with them to the football on their Fremantle Football Club membership.[119]
[116] ts 364, 380.
[117] ts 365.
[118] ts 481.
[119] ts 356.
Sampey said he had nothing to do with the change to GE.
None of the contemporary documents assists in resolving the conflict. The letter of offer to Fanfare was addressed to Doherty and Norris, at the Fanfare premises, and there was no correspondence with Sampey.[120] Sampey's involvement, if proved, is relevant to the general case advanced by the plaintiffs that they relied on his advice. There is otherwise nothing relevant arising out of the transfer of finance for Fanfare to GE.
[120] Exhibit 1.60.
Although Norris and Doherty presented themselves as entirely dependent upon Sampey for financial advice, in about April 2005 Norris gave instructions to Australian Property Consultants to inspect the Fanfare premises and provide an opinion on fair rent for the property. The advice was that a fair rent for the property was between $95,000 and $115,000, or $100,000 with the lessee responsible for payment of outgoings and GST.[121] Fanfare was paying $120,000 a year.
[121] Exhibit 1.59.
On 31 May 2005, Sampey and Wake disposed of the balance of their shares in Fanfare to Angourie and Doherty.[122] Their relationship to Fanfare from then was, as partners in MDN Partners, the lessor of the Fanfare premises. Sampey continued to provide accounting services.
2006
[122] Exhibit 1.908.
On 12 July 2006, Sampey, Wake, Doherty and Angourie entered into a contract to purchase 720 Albany Highway for $1,025,000.[123] The purchase was funded entirely by an increase in the loan facility with St George Bank. The amount now owed was $1,812,000.
[123] Exhibit 1.105/893.
The property was held by the MDN Partners in the same proportions as the Fanfare premises.
The plaintiffs plead that Sampey recommended the purchase. Sampey admits that he advised the others that the property was available, but denies that he recommended purchase by MDN Partners.[124]
[124] Statement of Claim [40] ‑ [44]; Defence [29] ‑ [31].
The property was subject to an existing lease to a third party. Sampey (through Sampey & Co) managed the leasing of 720 Albany Highway between 2006 and 2012 on behalf of MDN Partners.[125]
[125] Statement of Claim [44]; Defence [32].
Fanfare entered into a further lease agreement of the Fanfare premises for 36 months commencing on 1 December 2006 at a monthly rental of $13,000. Doherty, Norris, and Sampey signed the lease as lessor.[126]
[126] Exhibit 1.185.
On 13 December 2006, net asset position forms were completed for St George Bank by each of Doherty, Norris, Sampey and Wake.[127]
2007
[127] Exhibit 1.108.
In January 2007, Sampey commissioned a valuation for the property in Brookdale. The valuation report set out title particulars, including encumbrances on the title. The report did not refer to the agreement made in 2004. It did, however, record a caveat lodged on 26 July 2005. The caveators were Sampey, Wake, and Stephen James Mulhall. The interest claimed was an estate in fee simple under an option agreement, dated 25 March 2005, between the Atthowes as vendors and the caveators as purchaser.[128] How this option was obtained during the existing agreement made by MDN Partners was not explained.
[128] Exhibit 1.128.
On 19 January 2007, Sampey sent a copy of the report to each of Wake, Doherty, and Fanfare, and also to Stephen and Bernadette Mulhall.[129] He suggested that they 'get together and discuss a strategy for the next three years or so'.[130] The valuation report adopted a value of $10 million for the property.
[129] Exhibit 1.129.
[130] Exhibit 1.128.
On 25 January, Sampey, Wake, Doherty, Norris, and Stephen Mulhall met. At the meeting, Sampey offered to buy the interest of Doherty and Norris in the Brookdale property. There was also an offer to buy Wake's share.[131]
[131] ts 1163.
On 31 January 2007, Doherty and Norris sent an email to Sampey accepting an offer to sell their interest in the 'brookdale island venture'.[132]
[132] Exhibit 1.135.
On 9 February 2007, Doherty and Norris contracted with Sampey and Wake to sell their 'interest in the agreement dated 21/7/2004 between Russell James Atthowe and Lisa Frances Atthowe and the partnership known as MDN partners'.[133] Each was to be paid $1 million: $50,000 within seven days; $750,000 within seven days of settlement of the contract dated 21 July 2004;[134] and $200,000 payable on 13 March 2009 (plus interest). Each was also released from their obligations under the original agreement - a substantial part of which was still owing.[135] It was not in dispute that Doherty and Norris were paid in accordance with the agreement.
[133] Exhibit 1.138, Exhibit 1.139.
[134] Settlement was anticipated in July 2007.
[135] ts 377. Norris had contributed on $10,000 in total, borrowed from Doherty: ts 374.
Norris used the money received on the sale of his interest in share investment, and also acquired interests in racehorses.[136]
[136] ts 380 ‑ 381.
It is not clear what Doherty did with his windfall, other than that he had effectively disposed of it (as well as the substantial payout he received on his departure from City Toyota) by mid-2011.
The plaintiffs plead the Brookdale transaction in some detail,[137] and led evidence about it, but ultimately sought no relief in relation to it. Although it is an example of Doherty and Norris making up their own mind about their financial interests, I have no doubt that the success of this venture encouraged them to put faith in Sampey's ability to make them money.
[137] Statement of Claim [28] ‑ [34].
Claim for exemplary damages
The plaintiffs plead that:
(1)Doherty, Norris, Angourie and Fanfare reposed trust and confidence in Sampey and Sampey & Co to provide them with accounting and financial advice in their best interests, and Doherty, Norris, the PD Trustee, Angourie and Fanfare were accustomed to acting in accordance with the advice of Sampey and Sampey & Co;
(2)by reason of Sampey's failure to advise or advice to Doherty and Norris between November 2009 and March 2010, in relation to the loan agreement in July 2011, and in relation to the agreements in December 2011 and January 2012, Sampey and Sampey & Co breached the duty to exercise all reasonable skill and care;[405] and
(3)Sampey and Sampey & Co, exercised a contumelious disregard for the rights of each of Doherty, Norris, Angourie and Fanfare.[406]
[405] The plaintiffs also pleaded matters related to the Brookdale property, the claims in relation to which were not pursued.
[406] Statement of Claim [131].
The plaintiffs confined the claim for exemplary damages to the alternative allegation of breach of duty of care, recognising that such damages will not be awarded for breach of contract, unless such breach is also a tort for which punitive damages are available.[407] In opening, counsel for the plaintiffs submitted that Sampey's failure to advise that Fanfare should cease trading or the need to consult an insolvency practitioner was motivated by self-interest, such as to attract an award of exemplary damages.
[407] Gray v Motor Accident Commission [1998] HCA 70; (1998) 196 CLR 1 [13].
The allegation of contumelious disregard refers to about 100 paragraphs of the Statement of Claim: some of those pleadings have been deleted, including, importantly, pleas that Sampey knew Fanfare, Doherty and Norris would risk incurring loss;[408] some are patently irrelevant to the allegation (for example, the recommendation to Doherty and Norris that MDN Partners purchase a share in the Brookdale property); and some require considerable effort to intuit their relevance to the allegation.
[408] See, for example, Statement of Claim [46.2] ‑ [46.5], [47].
The purpose of an award of exemplary damages is to punish the wrongdoer and to deter others from engaging in such conduct. The conduct of Sampey and Wake in relation to the December 2011 loan, and the subsequent registration of the transfers, was unconscionable, and on that basis the plaintiffs are entitled to relief under the Australian Consumer Law.
The plaintiffs have not established that the conduct alleged against Sampey and Sampey & Co, in failing to advise Fanfare, Doherty, Norris and Angourie was tortious. The plaintiffs have not sustained their claim for an award of exemplary damages.
Contributory negligence
The defendants meet the plaintiffs' claims of loss and damage arising from the defendants' negligence by pleading contributory negligence.
The plaintiffs' claim is pleaded alternatively in negligence and breach of duty under contract. Had the plaintiffs established the obligation to advise on which they relied, that obligation would have been contractual, or there would have been a concurrent contractual obligation. Contributory negligence does not provide a defence to the contractual claim.
Delay and Laches
The defendants plead that any equitable claim by Doherty and Angourie, including as partners in MDN Partners, with respect to 716 Albany Highway had become unmaintainable by early 2010 by virtue of the delay and acquiescence of the Doherty and Angourie such as to give Sampey and Wade an equitable defence of laches.[409]
[409] Defence [97.5].
The defendants neither pleaded nor led evidence as to prejudice suffered by the plaintiffs delay in bringing the claim. They made no submissions in support of the plea.
The plea in laches has not been established.
The Counterclaim
The third to fifth defendants counterclaimed for rent and outgoings under the lease dated 1 January 2012. For the reasons given above, I am satisfied that lease should be declared void for unconscionable conduct. The counterclaim must, as a result, fail.
Conclusion
The claim against the first defendant should be dismissed.
The parties should bring in minutes of orders to give effect to these reasons and in particular:
(1)the winding up of the partnership known as MDN Partners;
(2)that in taking of accounts in relation to partnership property, that property includes the proceeds of the sale of the property at 716 Albany Highway and the management fees paid to Sampey and Wake as trustees of the Mustang Unit Trust;
(3)alternatively, an order that Sampey and Wake pay equitable compensation to Doherty and Angourie;
(4)orders to give effect to the finding that the conduct of Sampey and Wake in obtaining the contracts and transfers of 707‑709 Albany Highway and 720 Albany Highway and registering the transfers was unconscionable;
(5)an order that the lease in relation to 707‑709 Albany Highway, dated 1 January 2012, is void from 23 July 2012;
(6)an order that Sampey and Wake pay compensation under s 140 of the Transfer of Land Act to the first and fifth plaintiffs;
(7)the counterclaim is dismissed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TB
Associate to the Honourable Justice Allanson
25 JANUARY 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: DOHERTY -v- BRUCE RONALD SAMPEY as administrator of the estate of PATRICIA ADELE ADDISON (AKA SAMPEY) [2023] WASC 10 (S)
CORAM: ALLANSON J
HEARD: 1 FEBRUARY 2023
DELIVERED : 7 FEBRUARY 2023
FILE NO/S: CIV 1337 of 2014
BETWEEN: PHILLIP CARL DOHERTY
First Plaintiff
PHILIP CARL DOHERTY as trustee for THE PD TRUST
Second Plaintiff
GREGORY JOHN NORRIS
Third Plaintiff
ANGOURIE INVESTMENTS PTY LTD (ACN 064 357 651) as trustee for THE ANGOURIE UNIT TRUST
Fourth Plaintiff
FANFARE PTY LTD (ACN 051 059 342)
Fifth Plaintiff
HEATHER JOANNA DOHERTY
Sixth Plaintiff
AND
BRUCE RONALD SAMPEY as administrator of the estate of PATRICIA ADELE ADDISON (AKA SAMPEY)
JENNIFER ANNE SAMPEY as administrator of the estate of PATRICIA ADELE ADDISON (AKA SAMPEY)
First Defendants
BRUCE RONALD SAMPEY
Second Defendant
BRUCE RONALD SAMPEY as trustee for THE MUSTANG UNIT TRUST
STEPHEN JOHN WAKE as trustee for THE MUSTANG UNIT TRUST
Third Defendants
BRUCE RONALD SAMPEY as trustee for THE SAMPEY SUPERANNUATION FUND
LINDA JUNE SAMPEY as trustee for THE SAMPEY SUPERANNUATION FUND
Fourth Defendants
STEPHEN JOHN WAKE as trustee for THE WAKE SUPERANNUATION FUND
TONYA ALLISON WAKE as trustee for THE WAKE SUPERANNUATION FUND
Fifth Defendants
Catchwords:
Costs - Where plaintiffs not successful on all causes of action - Where plaintiffs and defendants seek orders for costs in their favour - Whether court should attempt to estimate percentage of costs payable by parties - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA)
Supreme Court Act 1935 (WA)
Result:
Costs orders made
Category: B
Representation:
Counsel:
| First Plaintiff | : | G D Cobby SC |
| Second Plaintiff | : | G D Cobby SC |
| Third Plaintiff | : | G D Cobby SC |
| Fourth Plaintiff | : | G D Cobby SC |
| Fifth Plaintiff | : | G D Cobby SC |
| Sixth Plaintiff | : | G D Cobby SC |
| First Defendants | : | P G McGowan |
| Second Defendant | : | P G McGowan |
| Third Defendants | : | P G McGowan |
| Fourth Defendants | : | P G McGowan |
| Fifth Defendants | : | P G McGowan |
Solicitors:
| First Plaintiff | : | Fourlion Legal |
| Second Plaintiff | : | Fourlion Legal |
| Third Plaintiff | : | Fourlion Legal |
| Fourth Plaintiff | : | Fourlion Legal |
| Fifth Plaintiff | : | Fourlion Legal |
| Sixth Plaintiff | : | Fourlion Legal |
| First Defendants | : | Spyker Legal |
| Second Defendant | : | Spyker Legal |
| Third Defendants | : | Spyker Legal |
| Fourth Defendants | : | Spyker Legal |
| Fifth Defendants | : | Spyker Legal |
Cases referred to in decision:
Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; (2022) 96 ALJR 426
Brookvista Pty Ltd v Meloni [2009] WASCA 180
Comcare v Banerji [2019] HCA 23; (2019) 267 CLR 373
Harding v Essey [2005] WASCA 30 (S)
Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164
Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72
ALLANSON J:
Introduction
Following the delivery of judgment in the action, the parties presented competing minutes for costs orders.
It is not in dispute that the defendants should pay the costs of the counterclaim.
The action resulted in judgment for the plaintiffs, but not against all defendants, and on some only of the causes of action pleaded. As a result, the formulation of costs orders for the action is not a straightforward exercise, and the parties have produced competing minutes of proposed orders.
Principles
The principles regarding the award of costs are not controversial, but their application can be contentious.
The costs of and incidental to all proceedings in court are in the discretion of the court. The discretion conferred on the court by s 37(1) of the Supreme Court Act 1935 (WA) and O 56 r 7 of the Rules of the Supreme Court 1971 (WA) is, like any discretionary power conferred by statute, 'to be exercised judicially, that is, fairly and reasonably having regard to the subject matter, scope and purpose of the legislation'.[410] The discretion is otherwise unconfined.[411]
[410] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; (2022) 96 ALJR 426; Comcare v Banerji [2019] HCA 23; (2019) 267 CLR 373 [40]; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [22], [65], [134]; Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 [24].
[411] See, for example Oshlack v Richmond River Council [21] - [22], [134]; Northern Territory v Sangare [24] ‑ [25].
Consistency in the exercise of judicial discretion is important to the administration of justice. The Rules and the authorities offer guidance and help to ensure consistency. In the present matter, the Rules offer guidance in O 66 r 1 and r 2. Relevantly:
(1)without limiting the general discretion conferred on the Court, the Court will generally order that the successful party to any action or matter recover his costs;[412]
(2)if the Court is of opinion that the conduct of a party either before or after the commencement of the litigation has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part, and may further order him to pay the costs of an unsuccessful party either wholly or in part;[413]
(3)where a party though generally successful in an action has, by the introduction of some issue or issues on which he has failed, increased the costs the Court may order such party to pay the costs of such issue or issues;[414]
(4)where the statement of claim contains more than one cause of action and the plaintiff succeeds on one or more causes of action and the defendant succeeds on another or others, costs shall be allowed to the plaintiff on the cause or causes of action on which he succeeds and to the defendant on that or those on which he succeeds, in the same manner as if separate actions had been brought.[415]
[412] Order 66 r (1)(1).
[413] Order 66 r 1(2).
[414] Order 66 r 1(3).
[415] Order 66 r 2(a).
The court will not make an order pursuant to a particular rule as of course, but will 'look to the realities of the case and attempt to do substantial justice'.[416] But in attempting to do substantial justice, the court should be satisfied that it has material before it on which it can make fair and reasonable judgments and estimates.
[416] Harding v Essey [2005] WASCA 30 (S) [11].
The issues
In determining appropriate orders, I have had regard to these issues.
First, the number of parties, and the different capacities in which they were sued.[417] The plaintiffs claimed against the first defendant (as the principal of Sampey & Co) and Sampey as their accountants and business advisors. The plaintiffs claimed against Sampey and Wake for their conduct as members of MDN Partners, and also for unconscionable conduct where their liability was not dependent on the fiduciary relationship between partners. Linda Sampey and Tonya Wake were defendants only to part of the claim. However, none of the defendants sought any apportionment of the costs between them.
[417] In these supplementary reasons, I will refer to parties in the same manner as in the principal reasons.
Second, the first defendant, Patricia Sampey, was under a disability. She was separately represented until 13 June 2018, when notice of change of representation was filed. From then all defendants had the same representation. That joint representation continued after the death of the first defendant and the substitution of her personal representative as first defendant.
Third, the trial was listed for nine days, but was heard over 14 days. I gave the plaintiffs notice during the trial that I considered the length of the trial was partly the result of failure by the plaintiffs to present their case in an efficient manner, including the examination in chief of the plaintiffs' witnesses and the long and frequently repetitive cross examination of the defence witnesses.
Fourth, the plaintiffs brought their claim on multiple causes of action. They were successful in their claims:
(1)that MDN Partners should be dissolved and an account taken;
(2)that Sampey and Wake breached their fiduciary duties as partners by purchasing the property at 716 Albany Highway for themselves;
(3)that Sampey and Wake breached their fiduciary duty as partners by charging management fees to the partnership
(4)that Sampey and Wake engaged in unconscionable conduct in breach of the Australian Consumer Law in relation to the transactions in December 2011 and 2012;
(5)that the defendants, other than the first defendant, are liable to pay compensation to Doherty and Heather Doherty pursuant to s 140 of the Transfer of Land Act.
The first defendant was successful in the claims against her:
(1)for breach of the duties pleaded in Statement of Claim [10] and [12], between November 2009 and March 2010, in failing to advise Doherty and Norris that Fanfare should cease trading or consult an insolvency expert;[418]
(2)for breach of fiduciary duty, between November 2009 and March 2010, in failing to advise Doherty and Norris that Fanfare should cease trading or consult an insolvency expert;[419]
(3)alternatively, for breach of those duties in failing to advise Doherty and Norris that Fanfare should cease trading or consult an insolvency expert in June 2011;[420]
(4)for breach of duty in relation to the loan agreements made in December 2011.[421]
[418] Statement of Claim [55] - [57] and [66] - [67]: separate claims are brought for loss and damage to Fanfare, and for loss and damage to Doherty and Norris.
[419] Statement of Claim [59] - [60].
[420] Statement of Claim [75] - [78] and [80] - [81].
[421] Statement of Claim [91].
Sampey was also successful on each of those claims that had been brought against him jointly with the first defendant.
Fifth, the plaintiffs also pleaded claims against Sampey and the first plaintiff for negligence in the preparation of tax returns,[422] and failure to take reasonable care in providing advice regarding financing with Westpac in 2008.[423] Those claims did not proceed to trial, but the defendants pleaded to them.
[422] Statement of Claim [38] - [39].
[423] Statement of Claim [49] - [52].
Sixth, the plaintiffs pleaded a claim for exemplary damages, which was not upheld. I am not satisfied the claim resulted in any increase in the costs of the defendants so as to warrant an adjustment to the costs orders.
The competing minutes
The plaintiffs proposed orders that:
1.The plaintiffs' costs be taxed as one set of costs.
2.The second to fifth defendants pay 70% of the plaintiffs' costs of the action, including any reserved costs and the costs thrown away by reason of the adjournment of the trial on 2 December 2019, to be assessed if not agreed.
3.The third to fifth defendants pay the fifth plaintiff's costs of the counterclaim.
4.There be:
4.1.a certificate for transcript;
4.2.allowances under item 35 of the Legal Profession (Supreme Court) (Contentious Business Determination 2018 (WA) in relation to:
4.2.1.the costs of preparing written closing submissions; and
4.2.2.the costs of preparing a chronology.
5.The plaintiff pay the first defendant's costs of the action to 13 June 2018, and thereafter:
5.1.the defendants' costs be taxed as one set of costs;
5.2.the plaintiffs pay those costs exclusively related to the claim against the first defendant.
The defendants proposed orders that:
1The Plaintiffs pay the First Defendant's costs of the action, including any reserved costs, to be taxed if not agreed, such taxation to be undertaken on the following basis:
a.Up to 13 June 2018, the First Defendant's costs be taxed on a party-party basis;
b.Thereafter, the Defendants' costs be taxed as one set of costs on a party-party basis, and the Plaintiffs pay 70% of that amount to the First Defendant;
c.There be a certificate for transcript;
d.The taxation proceed without reference to the limits provided for as to time in the applicable Legal Profession (Supreme and District Courts) (Contentious Business) Determinations in respect of:
(i)Item 3(b) - Defence;
(ii)Item 7(b) - Giving discovery of documents; and
(iii)Item 17/18/19 - Preparation of case.
2.The Second to Fifth Defendants pay 30% of the Plaintiffs' costs of the action, including any reserved costs, to be taxed if not agreed.
Resolution
In fixing a percentage of the costs to be paid by each party, the court is in a similar position to where an application is made to fix costs: the power to award a fixed sum should only be exercised when the court considers that it can determine the amount of the costs fairly, where the court is confident it can arrive at an appropriate sum.[424]
[424] See Brookvista Pty Ltd v Meloni [2009] WASCA 180 [26].
As the trial judge, I have an understanding of the course of the trial. That enables me to estimate, perhaps in a rough and ready way, the proportion of the time at trial that was devoted to particular issues. It also enables me to understand the extent to which there was an overlap in issues at trial. But I have no confidence that I could make a fair and reasonable estimate of the proportion of costs attributable, for example, to those claims where the plaintiffs have succeeded. Those costs include not only costs of trial, but also preparation and pleading.
On the claims on which the first defendant and Sampey succeeded, the plaintiffs prepared and filed extensive particulars of loss and damage attributable to those claims. Each party adduced expert evidence - the report prepared on behalf of the plaintiffs being very long with many attachments. I cannot fairly estimate what proportion of the overall costs are attributable to those claims simply from the way they were dealt with at trial. While it might avoid difficulties for the taxing officer were I to determine the percentage of costs recoverable by each party, I am not satisfied the result would be just.
In my opinion, the way in which the court can best achieve substantial justice between the parties is to make the costs orders by reference to the guidance in O 66 r 2.
1.The plaintiffs to pay the costs of the first defendant and second defendant attributable to defending the causes of action for breach of the duties pleaded in Statement of Claim [10] and [12], and for breach of fiduciary duty by failing to avoid a conflict of interest and making improper use of their position as the accountant, tax agent and business advisor of the plaintiffs.
2.Other than as set out in order 1, the defendants pay the plaintiffs' costs of the action.
In awarding costs to Sampey, I have considered the argument advanced by the plaintiffs regarding the conduct of Sampey, and my criticism of his conduct and his evidence at the trial. For example, Sampey put the existence of MDN Partners as a partnership in issue. His evidence about the agreements made in December 2011 and January 2012 was not believable. That conduct, however, is attributable to those causes of action on which the plaintiffs have succeeded and for which they are entitled to costs. The plaintiffs identified no conduct regarding the causes of action on which the defendants succeeded which might be subject to similar criticism, or which resulted in the plaintiffs unreasonably incurring additional costs. The first and second defendants were required to meet a claim for very substantial damages, a claim on which they were wholly successful. I do not believe it would be a sound exercise of my discretion to deny or discount the costs that might be awarded to the defendants in defending that claim because of conduct related to the other causes of action.
Other issues
The plaintiffs offered to settle the proceedings by two offers made pursuant to O 24 A, in April 2017 and again in December 2018. The proposed settlement amount was reasonable. In each case, however, the proposed compromise was required to be accepted by all defendants. The first defendant was, ultimately, successful. The O 24A offers to compromise should not, in my opinion, result in different orders being made.
Costs were reserved on 2 December 2019 as a result of two issues. The first arose out of my reservations that all defendants were jointly represented, where a conflict might arise between the interests of the first defendant and second defendant. Had that been the sole reason for the adjournment, costs thrown away by reason of the adjournment might have been awarded to the plaintiffs. But I was also informed on 2 December that one of the plaintiffs' expert witnesses might not be available, for medical reasons, until 17 December 2019 - and that depended on a medical review on 16 December. On that estimate, the trial could not have been completed in the time allotted and would have been adjourned part heard. In the circumstances, I believe that there should be no order as to costs incurred by reason of the adjournment.
It is appropriate, in my opinion, to make the orders sought by the plaintiffs that there be:
(1)a certificate for transcript;
(2)allowances under item 35 of the Legal Profession (Supreme Court) (Contentious Business Determination 2018 (WA) in relation to:
(3)the costs of preparing written closing submissions; and
(4)the costs of preparing a chronology.
The defendants sought a special costs orders in relation to three items: the defence, discovery and getting up.[425] The matter was, to have regard to one of the relevant criteria for making a special costs order, complex. I take into account that the defendants are entitled to their costs on part only of the overall action. But the causes of action on which they succeed were complex: the plaintiffs relied on detailed particulars and a substantial amount of expert accounting evidence. I am satisfied that it is arguable that the taxing officer might allow an amount for discovery and getting up outside that provided for in the relevant determinations because of the nature of the claims and the evidence on which those claims relied. I have considered the pleadings and see no basis for a special costs order relating to that item.
[425] The plaintiffs did not apply for special costs orders.
Finally, there is the question of the length of trial. In my opinion, on a conservative estimate, the conduct of the trial by the plaintiffs resulted in it proceeding for two days longer than it should have. I have been conservative because there was some additional time resulting from the adjournments caused by COVID measures. The costs of the plaintiffs for the hearing itself should, on that estimate, be reduced by 15%.
Summary
In summary, the orders that follow from these reasons are:
1.The plaintiffs to pay the costs of the first defendant and second defendant attributable to defending the causes of action for breach of the duties pleaded in Statement of Claim [10] and [12], and for breach of fiduciary duty by failing to avoid a conflict of interest and making improper use of their position as the accountant, tax agent and business advisor of the plaintiffs.
2.Other than as set out in order 1, the defendants pay the plaintiffs' costs of the action.
3.The costs of the plaintiffs for the hearing be reduced by 15%.
4.Costs to be taxed if not agreed.
5. There be:
(1)a certificate for transcript;
(2) allowances under item 35 of the Legal Profession (Supreme Court) (Contentious Business Determination 2018 (WA) in relation to:
(3) the costs of preparing written closing submissions; and
(4) the costs of preparing a chronology.
6.The taxation of the costs of the first defendant and second defendant proceed without reference to the limits provided for as to time in the applicable Legal Profession (Supreme and District Courts) (Contentious Business) Determinations in respect of:
(a)Item 7(b) - Giving discovery of documents; and
(b)Item 17/18/19 - Preparation of case.
7.The defendants, other than the first defendant, pay the fifth plaintiff’s costs of the counterclaim
I will hear the parties on the final form of the orders.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TB
Associate to the Honourable Justice Allanson
7 FEBRUARY 2023
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