Hardley v Hardley
[2015] VCC 1492
•23 October 2015
Fadopt
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for Publication |
AT MELBOURNE
COMMERCIAL DIVISION
GENERAL CASES LIST
Case No. CI-13-04890
| Graeme Russell Hardley | Plaintiff |
| v | |
| Roger John Hardley | Defendant |
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JUDICIAL REGISTRAR: | Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 September 2015 | |
DATE OF JUDGMENT: | 23 October 2015 | |
CASE MAY BE CITED AS: | Hardley v Hardley | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 1492 | |
REASONS FOR JUDGMENT
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Catchwords: Partnership – Partnership Property - Taking of Accounts
Legislation Cited: Partnership Act 1958 (Vic), Property Law Act 1958 (Vic), Civil Procedure Act 2010 (Vic)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Appeared in person | |
| For the Defendant | Mr M Gronow | Kearneys Solicitors |
JUDICIAL REGISTRAR:
Introduction
This proceeding arises out of a dispute between two brothers pursuant to their partnership agreement. The plaintiff and defendant had, from about 1984 until late 2012, held a “farm” partnership in which property located at Wild Dog Road, Apollo Bay (“the Wild Dog Road property”, alternatively, “the Apollo Bay property”) and a number of associated bank and credit card accounts gave rise to duties under the agreement. During the course of the partnership, the Wild Dog Road property was subdivided into three Lots, with two being sold.
The partnership agreement contended that the plaintiff be the registered proprietor of the original property, and subsequently the remaining land (Lot 1), the ‘farm’ bank accounts and other partnership property. The defendant and his life partner were to live on the property and improve the land and the farm. Both the plaintiff and defendant would share the benefits of income profits and improvements to the property under the partnership. In or about late 2012, following a disagreement in relation to the further development of the property, the plaintiff notified the defendant that he wished to dissolve the partnership and divide the partnership funds.
Scope of the taking of accounts
Pursuant to the orders of Judge Cosgrave made on 2 June 2015, the Court was tasked with:
a) undertaking a taking of accounts in relation to the Partnership and the Partnership property, and a fair distribution to each party of his respective share of the partnership property and profits. In doing so, there must be proper allowance made for any money, assets or property taken from the Partnership property by one or other party for his own use and for any private profits made by either party for which he has not accounted to the other party or the Partnership.
b) taking the accounts in relation to the partnership pursuant to sections 43, 46 and 48 of the Partnership Act 1958 and the plaintiff and the defendant pay to each other all sums due to the other in relation to the Partnership and the Partnership property.
In executing the abovementioned orders, the Court is to take accounts and make enquiries including the following:
a. How much and on what dates each of the parties respectively contributed to the Partnership funds which were used to purchase the Apollo Bay property, whether such contribution was in money or kind, between 1984 and 25 October 2012.
b. How much and on what dates each of the parties respectively drew or took out of the Partnership funds or assets, whether in money or kind, between 1984 and 25 October 2012.
c. How much and on what dates each of the parties respectively paid to third parties for stock, plant, equipment and other material needed to conduct the farming business on the Apollo Bay property.
d. The amount and sources of income of the Partnership between 1984 and 25 October 2012.
e. The amount of outgoings and expenses of the Partnership between 1984 and 25 October 2012.
f. An account of all partnership dealings and transactions between the plaintiff and the defendant between 1984 and 25 October 2012.
g. An account of the credits, property and effects belonging to the Partnership at 25 October 2012.
h. An account of the Partnership debts and liabilities at 25 October 2012.
i. An enquiry whether any of the Partnership debts and liabilities have since been paid and by whom and out of what fund.
j. An enquiry whether either of the plaintiff or defendant has carried on business since 25 October 2012 using any capital or assets of the Partnership and, if so, what share of profits made by that party since that date is attributable to the use of the Partnership assets.
k. Such further or other enquiries or accounts as may hereafter be ordered.
The plaintiff was self-represented and relied on the following documents:
a) the affidavit of the plaintiff sworn on 28 July 2015.
b) the plaintiff’s chronology dated 1 June 2015;
c) the plaintiff’s list of issues dated 1 June 2015;
d) the plaintiff’s court book (with supplementary material);
e) the plaintiff’s submissions entitled “G Hardley analysis of NAB Investment Account and Bendigo Bank Overdraft Account” filed on 17 September 2015;
f) written closing submissions by the plaintiff dated 19 October 2015.
The defendant relied on the following material at the hearing of the trial assessment.
a) the affidavit of the defendant sworn on 17 June 2015;
b) the further affidavit of the defendant sworn on 12 August 2015;
c) the affidavit of Dylan Terence Simmons sworn on 11 June 2015;
d) the further affidavit of Dylan Terence Simmons sworn on 11 August 2015;
e) the fourth expert report of Dylan Terence Simmons dated on 21 September 2015;
f) the affidavit of Gary Theordore sworn on 7 July 2015;
g) the defendant’s court book;
h) the defendant’s written outline of submissions following assessment/accounting hearing on 17-21 September 2015.
The parties’ claims
The defendant sought to file a third report of Mr Simmons dated 28 August 2015 at the hearing which was responsive to the matters raised by the plaintiff and by the KPMG letter of 23 July 2015 in “exhibit D” to his affidavit sworn on 28 July 2015. In particular, Mr Simmons took into account the Bendigo Bank statements. There was an adjustment downwards of the amounts said to be owing by the plaintiff to the defendant from $428,838.03 to the sum of $340,363.68.
The plaintiff submitted that he was still critical of the third report as there were missing bank statements and tax returns over the course of the 28 year time period of the partnership. He had provided two statements of position at “exhibit B” to his affidavit as at the date of the dissolution of the partnership and as at June 2015. He also disputed the distribution of the proceeds of the major assets of the partnership as Mr Simmons had not dealt with other assets of the partnership, which the plaintiff claimed were worth some $70,000, other than the land itself. The plaintiff claimed that he had made a rough estimate of the assets basing his valuation on a sample of advertising for sale of similar items. He had not exhibited his source material and is not an expert valuer. The plaintiff had not engaged an expert due to financial constraints.
The plaintiff submitted that he had been served with the third report on 7 September 2015 and had done his best to analyse the calculations to prepare for the trial assessment. He had prepared a submission with handwritten annotations on Mr Simmon’s spreadsheet by way of reply.
10. The plaintiff claimed that the problem with the defendant’s expert’s report was that the defendant had cherry picked the partnership accounts and that the two crucial accounts, being the NAB Farm Account and the NAB Visa Account Statements. Statements for those accounts had not been provided to Mr Simmons by the defendant. Another confusing aspect to the accounts was that all electronic entries had the plaintiff’s initials as a reference and the expert had allocated these amounts to him in the absence of any information to the contrary. The plaintiff’s handwritten annotations on the third report of Mr Simmons adjusted the amount owing to the defendant to the amount of $28,838.70, although the plaintiff did not concede that this amount was owing to the defendant. It was simply the mathematical exercise based on Mr Simmons’ analysis.
11. It was common ground between the parties that not all of the partnership records existed. The analysis undertaken by Mr Simmons was not a complete analysis of the 28 years. The defendant submitted that each party ought to retain their respective properties and, if there is a net balance, then those sums ought to be paid in relation to the partnership property.
12. The plaintiff had purchased his property in Newstead, Tasmania, for $345,000 in 2014 and a second hand Subaru station wagon in 2013 using partnership funds. The defendant sought to rely on the contract of sale as best evidence of the value of that property. There was a valuation of the Wild Dog Road, property for the plaintiff in the amount of $445,000 dated 20 August 2014 and for the defendant in the sum of $425,000 dated 1 October 2014. Although the plaintiff had filed a valuation with the Court, he did not rely on it but rather asserted that the value of the remaining 25 acres was $530,000 pursuant to a verbal offer passed on to the parties by their real estate agent at the time that they sold the rest of the block for $1.275m. He further claimed that there was no provision for the $108,000 spent on the development of the retained 25 acres at the Wild Dog Road property between August 2011 and 25 October 2012. These improvements have been taken into account by the property valuers in their respective reports.
13. The plaintiff seeks relief of the taking of accounts of the partnership contributions and withdrawals and then selling the assets including the properties and distributing the funds 50:50.
14. The defendant sought an order by way of declaration that the plaintiff transfer the title of the Wild Dog Road property to the defendant to reflect his equitable title as an owner in equity and a declaration that the plaintiff retain his Tasmanian property. Counsel for the defendant conceded that if any stamp duty was required to be paid then this was a matter for the defendant. Given the fact that the Wild Dog Road property was partnership property then the legal interest should be transferred to the defendant pursuant to the Property Law Act 1958. Absent any agreement between the parties, the Partnership Act does not empower the Court to make orders in specie.
15. Counsel for the defendant submitted that the Court ought to adopt the report of the qualified Chartered Accountant unless some fundamental error could be shown. Mr Simmons had taken into account the review of the plaintiff and had decreased the assessment by $88,000 in favour of the plaintiff. Following cross examination by the plaintiff on the first day of the hearing, Mr Simmons was provided with copies of the available statements of the NAB Farm Account and the NAB Visa Account and the amount said to be outstanding to the defendant was reduced again by $32,306.30 as between the partners. After further cross examination, Mr Simmons was willing to make a further $11,829.40 adjustment in favour of the plaintiff. According to Mr Simmons, the outcome of these adjustments was that the plaintiff owes the defendant the sum of $296,227.98. For the reasons outlined below, I adopt Mr Simmons’ fourth report with the $11,829.40 in adjustments plus $2,500 adjustment for the John Merritt loan, providing a total of $298,727.90 plus $5,000 to the plaintiff for the John Merritt loan (plus statutory interest and 50% of the interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property).
16. I have undertaken the taking of accounts task as referred to me by his Honour and otherwise reserve the question of the ownership of the respective properties and final relief to Judge Cosgrave.
Procedural Matters
17. On the last day of the hearing, the plaintiff sought to make an oral application to re-open his case and to rely on fresh material that he had failed to discover in his two affidavits of discovery made on 24 June 2014 and 17 March 2015. The documents were described as ANZ Access Bank statements numbered 205-230 (215 missing) for Account number 9512 46567 for the period 30 June 2006 – 31 July 2008. This was said to be the account used by the plaintiff for his last job. The plaintiff said that Mr Simmons’ third report of 28 August 2015 took into account statements 157-204 and the plaintiff referred to paragraph 12 of the defendant’s further affidavit sworn on 11 August 2015, which deposed that there were no contributions from the plaintiff’s salary to the farm while he worked at Tolhurst and Chimera. The defendant instructed his son in Tasmania to send across a box of papers after the second day of the hearing to show that over a 23 month period the plaintiff earned $120,000 and contributed $63,000 to the partnership. The defendant objected to the fresh material as the plaintiff had closed his case and it was procedurally unfair for the new documents and arguments to be raised at this late state.
18. I refused to exercise my discretion to allow the plaintiff to re-open his case and rely on documents which he had failed to discover when he was on notice of these matters from around 12 August 2015 and 7 September 2015. I also took into account s 49 of the Civil Procedure Act 2010 and the overarching obligation of a just, efficient and timely resolution of issues in dispute. The new material was not called on before the close of the plaintiff’s case, in circumstances where the evidence could have been discovered by reasonable diligence by the plaintiff and where the defendant would suffer prejudice if the material was admitted. Mr Simmons had prepared three further reports based on the alleged “deficiencies and omissions” articulated by the plaintiff in response to each of his reports, paid for by the defendant.
19. In any event, in my view, the material would probably not affect the outcome of the case as the evidence was that the financial resources were put into “the one pot” and to balance the books there must be a corresponding credit. The plaintiff was seeking a full credit of the $63,000 said to have been transferred into the partnership accounts and Mr Gronow submitted on behalf of the defendant, without the benefit of full instructions, that the documents were either irrelevant to the outcome as the income contribution would be “netted off” or that the effect could be a $70,000 increase in the amount owed to his client. In my view there would be no effect on the ultimate result as there was no evidence that the plaintiff had contributed cash in excess of the defendant’s contribution to the farm by way of personal effort for those same years.
Value of chattels on the farm
20. The plaintiff had left the Wild Dog Road property on 25 October 2012 and had not inspected the chattels since that date. He had not engaged an expert valuer to complete a report on the value of the stock and chattels. The defendant gave evidence that the remaining chattels had no significant market value. He had conceded that some stock had been sold in the sum of $5,113.68 for sheep on 8 April 2013 and $5,352.50 for cows on 9 May 2013, but $5,655.00 of these monies had been applied to pay outstanding partnership invoices. The remaining $6,000 had been deposited into an ANZ bank account in his name and needed to be taken into account in the partnership assets. The plaintiff had been informed of the sale of the stock and the amounts received. Therefore, the $6,000 proceeds currently held by the defendant must be accounted for and 50% applied to the plaintiff in the sum of $3,000. When the matter was put to Mr Simmons, he properly reduced the amount said to be owing to the defendant by the amount of $3,000.
21. The plaintiff sought to rely on two statements of position at “exhibit B” to his affidavit as at the date of the dissolution of the partnership and as at June 2015 in which he had ascribed various values to the farm stock and chattels. He said that he had referred to recent advertisements to obtain an estimate value such as the second hand car but he did not exhibit the source documents. In any event, apart from the invoice for the plumber and the Origin electricity bill, and the two receipts of the sale of the sheep and cows, there was no evidence before the court as to the value of these chattels.
22. The parties have also purchased motor vehicles with partnership funds. The plaintiff purchased a second hand Subaru station wagon in 2013. The defendant possesses a Holden Rodeo motor vehicle registered in his name, purchased new in 2000 for a deposit and lease payments paid with partnership monies. However, I have no admissible primary evidence of the contract of purchase for these vehicles, nor the current valuations, nor the values as at the date of the dissolution of the partnership. As such, I do not take into account the motor vehicles in the taking of accounts.
The Simmons Reports
23. The plaintiff provided his disagreement with the Simmons Reports’ assumptions in “Ex D” to his affidavit in attachment 1 and in his submission filed in court on the first day of the hearing. He conceded that the matters were otherwise correct on the limited documents given to the expert.
24. The defendant said that he was a secondary signatory on the NAB Home Loan Account, the NAB Farm Account and the NAB Investment Account. He was not a signatory and did not make any transactions on the NAB Visa credit card.
25. The defendant said that he had arranged for the provision of what he understood to be the necessary primary documents to the expert to undertake the task of reviewing the settlement of Wild Dog Road, and exploring the flow of funds surrounding the settlement, to try and reconcile monies owed or owing to each party, and also to review the entire history of the NAB Investment Account to determine, where possible, what transactions were of a personal nature to each party and what were business or non-personal transactions. The defendant was of the view that the vast bulk of the transactions came from the NAB Investment Account. He said that if he was in error in not providing copies of the NAB Farm Account to Mr Simmons, it was not consciously done.
26. Further, the defendant said that he was not in possession of the Bendigo Bank Account statements which were discovered by the plaintiff on 18 June 2014, whilst the expert had been briefed on 14 February 2014. Therefore, on 28 April 2014 when the first expert’s report had been produced, the defendant was not in possession of those bank statements. The third Simmons report took into account a review of the Bendigo Bank Account statements and which resulted in a downward adjustment. Mr Simmons found that rather than the plaintiff accounting to the defendant for the sum of $428,838.03, the total amount owing by the plaintiff to the defendant was the amount of $340,363.68.
27. The plaintiff claimed that amounts deposited directly into the Wild Dog Management Services Pty Ltd bank account by his employers were contributions by him to joint funds. Mr Simmons had taken into account the balance sheets and profit and loss statements for the years 2001, 2002 and 2003 because the plaintiff had provided pay slips for these years. Mr Simmons said that Wild Dog Management was a separate legal entity with its own set of financial reports. Contributions were made and acknowledged in his report. In any event, if there is an issue about transactions involving Wild Dog Management Services Pty Ltd, it was a separate legal entity, is not a party to these proceedings, and ceased to operate in 2004 and was deregistered on 13 May 2009. It is open to the plaintiff to pursue the company separately on re-registration.
28. It was accepted by all parties that the documentation was incomplete and Mr Simmons had done the best he could do with the materials available. Mr Simmons said that he had allocated the amounts as a personal or business amount based on the information given to him. He had been asked by the defendant to make allocations on accounts given to him and he was not necessarily able to identify where the transactions interrelated with each other. Without further information, a reference to “gh” was allocated to the plaintiff. The plaintiff said that all but the ANZ Access Account was in his name. When the plaintiff took Mr Simmons to the NAB Farm Account statements which had not previously been provided to him by the defendant, it was accepted that it was possible that transactions deemed as belonging to the plaintiff or the defendant could be reallocated on one or both sides.
29. I made orders that Mr Simmons provide a fourth expert report taking into account the NAB Farm Account BSB: 082-080 Account Number: 55-150-2453 and the NAB Visa Account 4557 0168 3504 2164 to verify the entries on Page 1 of the third expert report dated 28 August 2015, under the heading ‘Transaction Deemed as Belonging to Roger’ and Page 2 under the heading ‘Total Amounts for Graeme’ by 10:30am on 21 September 2015.
30. On 21 September 2015, Mr Simmons provided a fourth report which reconsidered the John Merritt loan and reviewed the transactions originally allocated to either the plaintiff or the defendant in light of the NAB Farm Account and the NAB Visa Account statements and to determine whether any transactions allocated to either party as private withdrawals should be removed and treated as partnership transactions.
31. Having reconsidered the treatment of the loan to John Merritt which is the subject of dispute, similar to the MF Global item, he removed the 3 items relating to John Merritt from the allocations of the plaintiff and replaced them in the unknown column. The sum of $5,000 ought to be added back as belonging to the plaintiff, as I accept the evidence of the defendant that the first $5,000 amount lent to J Merritt was provided without his knowledge or consent but the subsequent $5,000 and $2,000 loans to J Merritt were the subject of discussions between the partners. When the matter was put to Mr Simmons, he reduced the amount said to be owing to the defendant. As such, $2,500 ought to be adjusted and the full sum of $5,000 belongs to the plaintiff.
32. The adjustments to the transactions, when matched to the NAB Farm Account and the NAB Visa Account, resulted in an outcome that the plaintiff owes the defendant $308,057.38 (an adjustment of $32,306.30).
33. The plaintiff sought an adjustment in the sum of $1,500 for cheque # 3 from the Bendigo Bank Account on 14 July 2009 as belonging to the defendant, however, the defendant gave evidence that this was a cheque to Colac solicitors for court action triggered on behalf of the partnership for well contractors who completed work on the dam on the 25 acre block that was not done to specifications. Similarly, the $40,000.00 cheque deposit on 24 July 2009 was in relation to the partnership.
34. The plaintiff claimed that the $683.73 deposited on 30 January 2012 for Commonwealth Bank cards belonged to the defendant. The defendant gave evidence that his CBA card operated on behalf of the partnership for farm vehicle expenses.
35. The plaintiff referred to deposits for the rental of the farm cottages, generally in the sum of $50.00, which had been deposited into the defendant’s personal ANZ Access Cheque Account. The defendant said that these funds were initially placed into the ANZ account to separate them from farm income but all the deposits were transferred to partnership accounts to pay farm accounts. The plaintiff had returned to living on the farm at this time and the cottage rental was the only income for the three occupants so the funds went into the one pool.
36. The defendant agreed that the 11 March 2010 “unknown transaction” with the reference “Forssman/Harldey” (sic) in the sum of $600.00 was in relation to partnership expenditure on a contractor engaged to work on a small dam on the farm to prepare the farm for sale. The defendant was not sure if the two amounts recorded as deemed to belong to the plaintiff on 13 January 2010 in the sum of $5,000 and 14 January 2010 in the sum of $3,650 were in relation to the same Mr Forssman. Given Mr Simmons’ assumptions that a reference to “GR Hardley” in the account statements is personal to the plaintiff, in the absence of any evidence to prove otherwise, these amounts cannot be moved to another category. Mr Simmons said that he did not treat these items by reference to a particular person “Forssman” as these facts were not known to him. He proceeded on the basis of the “GR Hardley” reference, pursuant to his stated assumptions.
37. Under cross examination, Mr Simmons acknowledged two mistakes in the sum of $1,000 and $500 which had been recorded as belonging to the plaintiff when the notation was “rh” and should be transactions of the defendant. Mr Simmons conceded the full amounts for these items, therefore his assessment should be reduced by $1,500.
38. The plaintiff sought to deduct the sum of $2,700 from 30 October 2008 as to the NAB Investment Account, however, Mr Simmons had already netted that amount in the report.
39. The plaintiff sought to rely on a deposit book of 6 January 2004 in the sum of $2,000, however, Mr Simmons could not recall if he had seen that particular deposit book in relation to the NAB Investment Account at the time of his first report dated 28 April 2014. There was no notation on the statement of the account in relation to an alleged loan. Mr Simmons had not been sent the statements for the whole period so he did not have a statement to check against such that he could ascribe it to the partnership.
40. Mr Simmons in his fourth report, save for the first three transactions which had a corresponding contra entry, accepted the plaintiff’s handwritten notations on pages 1 and 2 in relation to the transactions deemed as belonging to either the plaintiff or the defendant with an adjustment of some $70,000 which when divided between the partnership made a $35,000 difference in the amount owing by the plaintiff to the defendant.
41. On three occasions following the provision of the first Simmons report, the plaintiff’s material and submissions in response to the various Simmons reports were taken into account by the expert. It is up to the plaintiff to make out his case. Further, he not did avail himself of his own expert accountant to meet Mr Simmons' reports nor did he retain an expert valuer in relation to the current valuation of the farm chattels, which the plaintiff had not seen since on or around 25 October 2012 when he left the Wild Dog Road property.
42. Save for the analysis above, all other handwritten adjustments made by the plaintiff on his submission filed on 17 September 2015 were not the subject of evidence - either led by way of examination in chief or cross examination of any witness. Therefore, the Court cannot take these matters into account. Further, the plaintiff demonstrated a lack of understanding of accounting principles in the treatment of partnership allocations where property is split 50:50 between the parties and the notion of a loan debit and credit on the partnership accounts. As such, the Court cannot rely on plaintiff’s assertions made in his submissions.
Law of adopting expert reports and Simmons’ expertise
43. Mr Simmons is a Chartered Accountant and Company Director of RHS Business Services. He received his Bachelor of Business (Accounting) Degree from La Trobe University in 1998 and completed the Chartered Accountants Program in 2001. Since September 1998, Mr Simmons has been constantly employed as an Accountant progressing through various levels of seniority to Partner and now Company Director and Owner. His company, RHS Business Services, provides a number of business and consulting services including advisory, tax compliance, management consulting and others. As such, I find that Mr Simmons’ expert reports are admissible evidence given his specialised knowledge based on his training, study or experience pursuant to s 79 of the Evidence Act 2008 (Vic).
44. In Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, McHugh JA held at 335 to 336 that:
If it is, it is nothing to say that the valuation may have proceeded on a basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account … The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.
45. Similarly, a mistake involving the process of the valuation will not vitiate the valuation: WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) (unreported) Full Court of Supreme Court of Western Australia at 23.
46. The adoption or otherwise of an expert’s report is considered by Rule 50.04 of the County Court Civil Procedure Rules 2008 in circumstances of a reference out. The principles to be applied were set out in Wenco Industrial Pty Ltd v WW Industries Pty Ltd [2009] VSCA191 at [17] (footnotes omitted):
“Adopting the report: the principles to be applied
(a) First, in exercising the power conferred by r 50.04 to adopt the report of a special referee, the Court has a wide power which is to be exercised ‘as the interests of justice require’. This broad mandate should not be the subject of restrictions laid down in advance of judges exercising it. Subject to what follows, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised. [“the First Wenco Principle”]
(b) Secondly, the purpose of rules 50.01 and 50.04 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation. Further, that purpose would be frustrated if the reference were to be treated as ‘some kind of warm-up for the real contest’. [“the Second Wenco Principle”]
(c) Thirdly, insofar as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh. [“the Third Wenco Principle”]
(d) Fourthly, where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for inquiry and report. [“the Fourth Wenco Principle”]
(e) Fifthly, if the referee’s report reveals some error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than ‘unsafe and unsatisfactory’. [“the Fifth Wenco Principle”]
(f) Sixthly, generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence. [“the Sixth Wenco Principle”]
(g) Seventhly, the purpose of r 50.01 and r 50.04 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based. [“the Seventh Wenco Principle”]
(h) Eighthly, the Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire. [“the Eighth Wenco Principle”]
(i) Ninthly, even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not ordinarily be (in the absence of any of the matters referred to in sub para (e) above) a proper exercise of the discretion conferred by r 50.04 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.” [“the Ninth Wenco Principle”].
47. Applying these principles, in my view, the fourth report ought to be adopted with some qualifications. The identification of the “errors” by the plaintiff is not a complaint about manifestly unreasonable conclusions pursuant to the Fifth Wenco Principle, but rather a series of differences of opinions regarding how the expert treated or otherwise should have treated the evidence. Such differences of opinion do not provide a basis for the rejection of the expert’s report.
48. A mere mechanical error, such as the division of the first $5,000 loan to John Merrit, can be remedied by the intervention of the Court to correct that error: WMC Resources per Ipp J at 11 and 23.
49. The reality is that Mr Simmons was first briefed on 14 February 2014 and both parties have had ample opportunity to put submissions and materials before him. Both parties availed themselves of those opportunities. The Eighth Wenco Principle requires the court to consider the futility and cost of re-litigating an issue determined by the expert where the parties have had ample opportunity to place before the expert such evidence and submissions as they desire.
Bendigo Bank
50. Although there are no monies owing on the mortgage on the Wild Dog road property, there is $20,000 on the Bendigo Bank statement which was used by the defendant as a deposit for the Tasmanian property. This amount remains outstanding and secured by a mortgage over the Wild Dog Road property. Interest is accruing on the Bendigo Bank line of credit account, secured by mortgage over the Wild Dog Road property, on the $20,000 withdrawn by the plaintiff. The $20,000 amount has been incorporated into the purchase price of the Tasmanian property currently held by the plaintiff in his sole name. I find that the Tasmanian property is partnership property, and as such, both partners are liable for the interest accruing on the $20,000 withdrawal.
MF Global Investment Account
51. The parties established an MF Global Investment Account in the defendant’s name in around 2009. The defendant gave evidence that although his brother had the carriage of financial matters and he and his life partner conducted the work on the farm, his name appeared on the account due to the plaintiff’s financial circumstances at the time. The plaintiff conceded that initially the account was a joint enterprise up until about August 2011 when the balance of the block was sold. The plaintiff claimed that the parties had a disagreement about the account. The plaintiff claimed that he did not want to transfer the funds from the sale of part of the farm to the MF Global account as it was too risky when they wanted to develop a house and two cottages. He said that the defendant transferred $80,000 from the NAB Investment Account on 11 August 2011 after receiving the deposit from the purchasers and then a further $20,000 after settlement on 19 September 2011. Given the losses made on the MF Global account, only the house and one cottage could be built. The plaintiff claimed that the $100,000 should go to the defendant’s account as he was operating on his own.
52. The defendant claimed that the $100,000 paid into the MF Global account was partnership funds and a business expense. The defendant said that he did not know how to do electronic transfers until his life partner passed away. The plaintiff transferred the $80,000 and the $20,000 and the plaintiff agreed to the transfer and traded the account because of his experience in stockbroking. In my view, the $100,000 ought to be moved from the unknown category and moved to the business expenses. Therefore, the $9,650 paid back by MF Global and placed in the defendant’s personal ANZ bank account must be accounted for in the partnership and split between the two partners in the sum of $4,825.00. When the matter was put to Mr Simmons, he properly reduced the amount said to be owing to the defendant by that amount.
Loan to J Merritt
53. A loan in the sum of $12,000 to J Merritt was allocated to the plaintiff comprising 2 x $5,000 and $2,000. The plaintiff claimed that this loan was agreed between the parties. The defendant said that he did not know about the first $5,000 loan but was aware of the second $5,000 and $2,000 loans. Mr Simmons said that if the defendant agreed then these amounts could be moved from the plaintiff’s allocation. I find that $7,000 ought to be moved and $5,000 remain. The $5,000 sum is then allocated to the plaintiff. Mr Simmons mistakenly divided this amount in half between the partners in the accounts to $2,500 each during questioning. The amount of $2,500 must be added to the total amount owing by the plaintiff to the defendant resulting in the total of $298,727.90 and the sum of $5,000 added as belonging to the plaintiff.
Outstanding Accounts
54. The defendant paid two partnership accounts outstanding prior to the dissolution of the partnership. The Origin power account in the sum of $1,367.36 on 3 December 2012 and David Ferey Plumbing Maintenance on 12 June 2013 in the sum of $5,350. These amounts were paid following the application of the proceeds of sale from the cattle of the partnership and therefore the amounts are set off and can be left out of the accounts.
Motor Vehicle Expenses
55. The plaintiff raised with Mr Simmons in cross examination the issue of motor car expenses allegedly misallocated to the plaintiff personally. On 28 August 2012, cheque 35 in the sum of $160.80 was withdrawn and a direct credit from Blue Car Service in the sum of $152 was credited. Mr Simmons had put one entry in and one entry out, however, technically there was an $8.80 differential and half ought to be adjusted in the sum of $4.40.
Answers to his Honour’s questions
56. Although taking of accounts is often a difficult task, the Court must do the best it can with the material before it. In light of the above reasons, I answer his Honours’ questions as follows.
a. How much and on what dates each of the parties respectively contributed to the Partnership funds which were used to purchase the Apollo Bay property, whether such contribution was in money or kind, between 1984 and 25 October 2012.
It is common ground that the Wild Dog Road property was purchased in 1984 using joint funds, including proceeds of the sale of their joint property in Malvern and money given to the parties by their father. Therefore, it is jointly owned partnership property.
b. How much and on what dates each of the parties respectively drew or took out of the Partnership funds or assets, whether in money or kind, between 1984 and 25 October 2012.
I refer to the fourth report of Mr Simmons and adopted it with the qualification of a further $11,829.40 adjustment in favour of the plaintiff in the sum of $296,227.90 as at 25 October 2012, plus $2,500 for the John Merritt loan, plus $5,000 to the plaintiff for the John Merritt loan, plus statutory interest and 50% of the interest accrued on the Bendigo Bank Account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property.
c. How much and on what dates each of the parties respectively paid to third parties for stock, plant, equipment and other material needed to conduct the farming business on the Apollo Bay property.
I refer to the fourth report of Mr Simmons and adopted it with the qualification of a further $11,829.40 adjustment in favour of the plaintiff in the sum of $296,227.90 as at 25 October 2012, plus $2,500 for the John Merritt loan, plus $5,000 to the plaintiff for the John Merritt loan, plus statutory interest and 50% of the interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property.
d. The amount and sources of income of the Partnership between 1984 and 25 October 2012.
I refer to the fourth report of Mr Simmons and adopted it with the qualification of a further $11,829.40 adjustment in favour of the plaintiff in the sum of $296,227.90 as at 25 October 2012, plus $2,500 for the John Merritt loan, plus $5,000 to the plaintiff for the John Merritt loan, plus statutory interest and 50% of the interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property.
Further, in my view, the plaintiff’s income contribution would be “netted off” as there was no evidence that the plaintiff had contributed cash in excess of the defendant’s contribution to the farm by way of personal effort for those same years.
The evidence from the parties was that the Wild Dog Road property did not generate profit from its farming activities but only through the subdivision and sale in 2000 of 12 acres for the sum of $107,000 and in 2011 for $1.275m for 103 acres.
e. The amount of outgoings and expenses of the Partnership between 1984 and 25 October 2012.
I refer to the fourth report of Mr Simmons and adopted it with the qualification of a further $11,829.40 adjustment in favour of the plaintiff in the sum of $296,227.90 as at 25 October 2012, plus $2,500 for the John Merritt loan, plus $5,000 to the plaintiff for the John Merritt loan, plus statutory interest and 50% of the interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property.
f. An account of all partnership dealings and transactions between the plaintiff and the defendant between 1984 and 25 October 2012.
I refer to the fourth report of Mr Simmons and adopted it with the qualification of a further $11,829.40 adjustment in favour of the plaintiff in the sum of $296,227.90 as at 25 October 2012, plus $2,500 for the John Merritt loan, plus $5,000 to the plaintiff for the John Merritt loan, plus statutory interest and 50% of the interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property.
As set out above, in my view, the $100,000 sum for MF Global ought to be moved from the unknown category and moved to the business expenses. Therefore the $9,650 paid back by MF Global and placed in the defendant’s personal ANZ bank account must be accounted for in the partnership and split between the two partners in the sum of $4,825.00.
g. An account of the credits, property and effects belonging to the Partnership at 25 October 2012.
The Newstead, Tasmanian, property has a value of $345,000.
The Wild Dog Road property is worth an average of the two valuations before me, being $435,000.
I do not take into account the motor vehicles as I do not have admissible evidence in relation to their value nor do I have any material indicating the relative depreciations of such assets.
The defendant conceded that some stock had been sold in the sum of $5,113.68 for sheep on 8 April 2013 and $5,352.50 for cows on 9 May 2013. $5,655.00 of these monies had been applied to pay outstanding partnership invoices (Power and Plumber) and the remaining $6,000 had been deposited into an ANZ bank account in his name which the defendant must account for and 50% applied to the plaintiff in the sum of $3,000.
Otherwise, there is no further admissible evidence in relation to the value of any other partnership property before the court.
h. An account of the Partnership debts and liabilities at 25 October 2012.
Ongoing interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property.
Outstanding rates on the Newstead, Tasmania property and Wild Dog Road property, which ought to be borne by the defendant and the plaintiff on each of their occupied properties post 25 October 2012.
i. An enquiry whether any of the Partnership debts and liabilities have since been paid and by whom and out of what fund.
The Origin power account in the sum of $1,367.36 on 3 December 2012 and David Ferey Plumbing Maintenance on 12 June 2013 in the sum of $5,350. These amounts were paid for applying the proceeds of sale from the cattle of the partnership and, therefore, the amounts are set off and can be left out of the accounts.
Ongoing interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property.
j. An enquiry whether either of the plaintiff or defendant has carried on business since 25 October 2012 using any capital or assets of the Partnership and, if so, what share of profits made by that party since that date is attributable to the use of the Partnership assets.
There is no evidence that either party has carried on business since the dissolution of the partnership. The evidence is that the farm business was not profitable save for the two sales of the subdivisions of land.
k. Such further or other enquiries or accounts as may hereafter be ordered.
Not applicable.
Possible Outcomes
Scenario 1 - Parties keep their respective properties
57. If I accept that the Tasmanian property has a value of $345,000 and that the Wild Dog Road property is worth an average of the two valuations before me, being $435,000 then the defendant has access to a benefit of $45,000 more than his entitlement of the assets and the plaintiff has access to $45,000 less. If I accept Mr Simmons’ fourth report with the adjustments set out above, then the plaintiff owes the defendant the amount of $296,227.98 plus $2,500 adjustment for the John Merritt loan, providing a total of $298,727.90 plus $5,000 to the plaintiff for the John Merritt loan. Therefore, if the parties keep their properties, the plaintiff owes $303,727.98 minus $45,000 leaving a difference of value in the amount of $258,727.98 (plus statutory interest and 50% of the interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property).
Scenario 2 – Sell the assets
58. If the parties sell both properties then the value of both of the properties equates to the amount of $780,000. The partners then divide the proceeds of sale 50:50 in the amount of $390,000 each. The plaintiff then owes the defendant the amount of $303,727.98 leaving him with the amount of $86,272.02 (minus statutory interest and 50% of the interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property).
Scenario 3 – Equitable charge
59. A final iteration of relief open to the parties and the Court is the plaintiff owes the defendant the sum of $303,727.98 (plus statutory interest and 50% of the interest accrued on the Bendigo Bank account of the $20,000 withdrawn by the plaintiff as a deposit on the Newstead, Tasmania, property) which can be secured as an equitable charge over the two properties.
Conclusion
60. The further hearing of the substantive proceeding be adjourned before Judge Cosgrave on a date to be fixed.
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Certificate
I certify that these 25 pages are a true copy of the reasons for decision of Judicial Registrar Burchell delivered on 23 October 2015.
Dated: 7 October 2015
Simon Bobko
Associate to Judicial Registrar Burchell
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