Hasleby v DRAGICEVICH

[2002] WASC 159

HASLEBY -v- DRAGICEVICH & ANOR [2002] WASC 159

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2002] WASC 159
Case No:	CIV:1936/1999	Heard:	16-18 JANUARY 2002
Coram:	PARKER J	Delivered:	20/06/02
No of pages:	24	Judgment Part:	1 of 1
Result:	Declarations as to partnership and its dissolution Judgment for the plaintiff in the sum of $23,100 together with interest from 1 May 1999
Category:	B
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Parties:	MARILYN ANNE HASLEBY KATE NEVES DRAGICEVICH REGISTRAR OF TITLES
Catchwords:	Partnership Agreement between plaintiff and first defendant Whether a partnership Whether partnership dissolved by agreement Whether first defendant holds property on trust for partnership
Legislation:	Nil
Case References:	Anning v Anning (1907) 4 CLR 1049 Carter Bros v Renouf & Anor (1962) 111 CLR 140 Harvey v Harvey (1970) 120 CLR 529 Kelly v Kelly (1990) 92 ALR 74 Miles v Clarke [1953] 1 All ER 779 O’Brien v Komesaroff (1982) 150 CLR 310 Re Bubnich; Marion v Bubnich [1965] WAR 138 Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 Pearce v Bulteel [1916] 2 Ch 544

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : HASLEBY -v- DRAGICEVICH & ANOR [2002] WASC 159 CORAM : PARKER J HEARD : 16-18 JANUARY 2002 DELIVERED : 20 JUNE 2002 FILE NO/S : CIV 1936 of 1999 BETWEEN : MARILYN ANNE HASLEBY

Plaintiff

AND

KATE NEVES DRAGICEVICH
First Defendant

REGISTRAR OF TITLES
Second Defendant

Catchwords:

Partnership - Agreement between plaintiff and first defendant - Whether a partnership - Whether partnership dissolved by agreement - Whether first defendant holds property on trust for partnership

Legislation:

Nil

(Page 2)

Result:

Declarations as to partnership and its dissolution

Judgment for the plaintiff in the sum of $23,100 together with interest from 1 May 1999

Category: B

Representation:

Counsel:

Plaintiff : Mr A C Thorpe
First Defendant : Mr A O Karstaedt & Mr D B South
Second Defendant : No appearance

Solicitors:

Plaintiff : A C Thorpe
First Defendant : Karp Steedman Ross-Adjie
Second Defendant : No appearance

Case(s) referred to in judgment(s):

Anning v Anning (1907) 4 CLR 1049
Carter Bros v Renouf & Anor (1962) 111 CLR 140
Harvey v Harvey (1970) 120 CLR 529
Kelly v Kelly (1990) 92 ALR 74
Miles v Clarke [1953] 1 All ER 779
O’Brien v Kornesaroff (1982) 150 CLR 310
Re Bubnich; Marian v Bubnich [1965] WAR 138

Case(s) also cited:

Federal Commissioner of Taxation v Everett (1980) 143 CLR 440
Pearce v Bulteel [1916] 2 Ch 544

(Page 3)

1 PARKER J: By writ filed on 23 August 1999 the plaintiff originally sought a declaration that she is the equitable proprietor of a half interest in land known as 60 Willis Street, East Victoria Park and more particularly described as Lot 423 on Plan 2042 and being the whole of the land in Certificate of Title Volume 1954 Folio 592 (the "property").

2 The pleadings as amended raise many more issues. The relief now sought by the plaintiff includes declarations that an agreement between the plaintiff and the first defendant made in or about early August 1998 constituted a partnership, that the first defendant purchased the property on behalf of the partnership, and that on 30 June 1999 the plaintiff terminated the partnership. As a consequence an order for winding up and the taking of accounts is sought. Alternatively, the plaintiff seeks a declaration that the first defendant holds the land on trust equally for the plaintiff and the first defendant, together with an order for the sale of the property, the division of the proceeds and the taking of accounts. As a further alternative, the plaintiff claims the repayment of moneys pursuant to an agreement to dissolve the partnership, or pursuant to a loan agreement, together with interest. The precise amount of the money claimed on these bases is the subject of disputed calculation but is between $20,000 and $25,000, plus interest.

3 In addition to denying that the plaintiff is entitled to any of the relief claimed, the first defendant counterclaims for a declaration that any agreement between the plaintiff and the first defendant ceased to be of any force or effect on or about 28 October 1998, or that it was void pursuant to s 77(3)(a) of the Fair Trading Act 1987. The first defendant also seeks a declaration that the plaintiff has no interest in the property, or in the alternative is estopped from claiming an interest, or in the further alternative that the agreement relied on is unenforceable by reason of s 34(1)(a) of the Property Law Act 1969.

4 The second defendant is the Registrar of Titles who takes no active part in the proceedings. In these reasons I will at times refer to the parties, intending by that to mean only the plaintiff and the first defendant.

5 I propose now to seek to deal with the factual issues relevant to the resolution of this dispute. The evidence of the parties is widely conflicting on most material matters. There is little by way of contemporaneous record and almost no other documentary evidence. The only witnesses called are the parties. The evidence of each of them is unsatisfactory in some respects.

(Page 4)

6 As a general observation it is clear that the plaintiff was less attuned to matters of business and less alert to the need to protect her own interests than the first defendant. As a consequence the conduct of the plaintiff, in particular, was at times surprising and not what would have been expected of a business woman. To a degree both of the parties, but in particular the plaintiff, went into this venture without the forethought and care which would normally be expected. In part, this explains, in my finding, why there is so little which records what was agreed and what occurred, and why some things were done and not done. It is also my clear impression that the evidence of both of the parties has been affected, in my finding, by a degree of retrospective justification, arising no doubt once the parties received legal advice and became aware of the significance of certain issues. All of that having been taken into account, however, there remain matters of fact that are the subject of fundamentally different evidence from the parties. Regrettably, I have been forced to the conclusion that there has been some conscious dishonesty in the evidence. In my view, it is not all on the one side.

7 Hence, the task of discerning where the truth lies has been difficult. What little there is by way of contemporaneous documents or undisputed events has provided some markers which assist. There were also some snippets in the evidence that had a clear ring of truth, or by contrast showed clear signs of contrivance or deception. Nevertheless, of necessity in this case, in the evaluation of the evidence the mannerisms and reactions of the plaintiff and the first defendant as they gave their evidence have played a significant part in my evaluation of where the truth lies on various issues.

8 The findings of fact in the reasons which follow depend significantly on these considerations.

9 In or about August 1998 the plaintiff and the first defendant did reach an agreement which contemplated that they should purchase a residential property. They had been close friends for several years. At times over those years the plaintiff had provided board and lodging in her home for overseas exchange students. For this she received a weekly payment in the order of $150 per student pursuant to a government-administered scheme. The nature of this student accommodation arrangement had been discussed in conversations between the plaintiff and the first defendant. It was agreed between them that, if they could find and purchase a suitable property, the first defendant would live in it and take in overseas exchange students. It was contemplated that the capital funds necessary to purchase the property would, in the main part,

(Page 5)

be borrowed. It was contemplated that by accommodating four students there would be a return greater than any outgoings and that the parties would jointly acquire the property as an asset and have the advantage of capital growth.

10 At this time, while the first defendant was the owner of a unit near Hyde Park in Mount Lawley, this was subject to a mortgage and was leased to tenants. She was living in a rented unit in South Perth and had expressed the wish to the plaintiff to invest in a property which she could make her home and gain some advantage from capital growth. The plaintiff was living with a partner. Her daughter lived with them.

11 The first defendant had some familiarity with properties. She accepted the primary responsibility of locating a property suitable for their purpose. She identified the property at 60 Willis Street, East Victoria Park. After discussion with the plaintiff, and with her concurrence, the first defendant offered to purchase the property. On 30 September 1998 an agreement was concluded between the first defendant as purchaser and the then owners of the property to purchase it for $167,000. Settlement was to occur in 30 days from acceptance of the offer. A deposit of $10,000 was to be paid within five days of acceptance. That deposit of $10,000 was paid. In my finding, however, that $10,000 was provided by the plaintiff who, on 7 October 1998, had withdrawn $20,000 from a term deposit she held as trustee for her daughter. Of that $20,000 half of it, ie $10,000, was used for the deposit for the purchase of the property, and $9,000 was deposited into a joint bank account with the National Australia Bank Limited at Booragoon. This was opened on 7 October 1998 by the plaintiff and the first defendant, and was intended by the parties to be the working account for the venture. While the evidence on the issue is not satisfactory I am persuaded, as a matter of probability, that the remaining $1,000 of the $20,000 was used towards fees; stamp duty, etc associated with a loan of $140,000 which was obtained to enable the purchase of the property.

12 Among the many hotly disputed factual issues between the parties is the question of what was agreed as to financial contribution by each of them. The plaintiff had $40,000 in the term deposit account for which she was trustee for her daughter. The first defendant knew of this. The first defendant's case is that the plaintiff agreed to contribute the whole of this $40,000, as that was the amount they anticipated would be needed above what could be borrowed for the venture. It is the first defendant's case that at that time, for more than one reason, she was temporarily without any available capital so that the plaintiff agreed to provide the full

(Page 6)

$40,000 on the basis that the first defendant should contribute half of this amount when she could, and so recoup the plaintiff.

13 On the other hand it is the plaintiff's case that each were to contribute equally. Her position as to the amount each was to contribute has varied. In my finding this is substantially explained by the circumstances that the original very rough estimates of the parties suggested that about $30,000, ie $15,000 each, would be required, but when the property was located that estimate appears to have been revised to about $40,000, ie $20,000 each. Hence, in the plaintiff's case she eventually agreed to contribute up to $20,000, with a like contribution by the first defendant. To this end, and for this purpose, she withdrew the $20,000 from the trust account and applied it in the manner indicated.

14 On 23 October 1998 the plaintiff deposited a further $6,200 into an account of the first defendant. This was to facilitate payment of the moneys due at settlement and associated expenditure. A further $7,000 was withdrawn by the first defendant from the joint account on 29 October 1998 for the purposes of effecting settlement and the first defendant herself contributed a further smaller amount.

15 The evidence does reveal clearly enough that the plaintiff made the two financial contributions described above which totalled $26,200. I will consider later why she exceeded $20,000. As will also appear, although the amount is now disputed by the first defendant, in and following January 1999 the parties dealt with each other on the basis that the plaintiff had contributed altogether $26,600. The evidence does not specifically identify any further repayment of $400. Given the general nature of their financial dealings, however, I am persuaded, as a matter of probability, that their relatively contemporaneous mutual acceptance of $26,600 as the correct figure provides the most reliable indication of the true amount, and I find that in all, by the end of October 1998, the plaintiff had contributed sums totalling $26,600 to the venture.

16 Between 23 and 28 October 1998, in the days immediately preceding settlement, there was a significant development. The evidence of the plaintiff and the first defendant differs materially as to what occurred. The first defendant says that the plaintiff advised her she was not prepared to put up any further money. The first defendant says that this was in breach of the original agreement whereby the plaintiff was to put up the whole of the $40,000. The plaintiff says that having contributed her $20,000 she had been persuaded to advance further moneys (ie to the total of $26,600) because the first defendant had indicated in effect that she

(Page 7)

was unexpectedly and temporarily financially embarrassed. In the days immediately preceding settlement, however, it is the plaintiff's evidence that the first defendant advised her she would not be able to provide the funds necessary to contribute her share in time for settlement. The first defendant assured her, on the plaintiff's evidence, that with some bonuses due from the first defendant's employment and the prospect of the sale of the Mount Lawley unit the first defendant would soon be in a position to make her full contribution. It was the plaintiff's evidence that the first defendant seemed to expect that the plaintiff would advance the balance of the $40,000 the plaintiff held in her daughter's trust account to enable the purchase of the property to proceed. The plaintiff, however, refused to put up any more money. It is her evidence that she felt that she had contributed more than her half share and that at the last moment the first defendant was trying to avoid her responsibility to contribute.

17 Of these fundamentally opposed accounts I am persuaded that the account of the plaintiff is more probable. In my finding she had never agreed to contribute $40,000 and her understanding was, as had been agreed, that each of the parties would contribute equally. This was anticipated originally to be in the order of $15,000 each, but later it was thought that some $20,000 each would be needed.

18 When the plaintiff refused to advance further moneys, the suggestion was made by the first defendant that they should try to persuade a friend of the first defendant, a Mr Vile, to become a third member of the venture and to advance moneys sufficient to enable the settlement to proceed. On about 28 October 1998 there was a meeting attended by the parties and Mr Vile. The prospect of Mr Vile entering into the venture was discussed. The following day, however, Mr Vile indicated to the first defendant that he did not wish to participate in the venture. Instead, he agreed to lend the first defendant the sum of $10,000. A cheque for $10,000 was provided to the first defendant by Mr Vile. In my finding this $10,000 from Mr Vile was pursuant to a separate loan between him and the first defendant. It merely provided the means by which the first defendant was able to make some significant contribution towards the funds necessary to complete the purchase of the property. Her contribution though, fell well short, even with the $10,000, of a contribution equal to that of the plaintiff, and was also well short of $20,000.

19 In the meantime, following the acceptance of the offer to purchase, the first defendant had obtained approval for a loan of $140,000 to be secured by a first mortgage on the property. This was borrowed from Perpetual Trustees Australia Limited through the Superannuation

(Page 8)

Members' Home Loans Limited. Fees, duty and charges in respect of the approval of this loan totalled just over $1,000, as mentioned earlier.

20 By virtue of the $140,000, Mr Vile's $10,000, and a much smaller sum of the first defendant's own money, together with the $6,200 the plaintiff had provided earlier on 23 October 1998, and funds drawn from the joint account, settlement was able to proceed on 30 October 1998. The first defendant became the registered proprietor. A mortgage was registered to secure the borrowing of $140,000 and it was the first defendant who was the mortgagee.

21 The first defendant's evidence is that in the week preceding settlement, when the plaintiff refused to advance the balance of the $40,000 for the purposes of the venture, it had been agreed between them that the venture should be abandoned and that the moneys which the plaintiff had put into the venture should stand as a loan to the first defendant. She undertook to repay that loan, she said, as soon as she was able to sell her Mount Lawley unit. It is suggested that by virtue of this agreement the property was not only purchased in the name of the first defendant but that in truth the first defendant became the sole legal and equitable proprietor of the property.

22 The fact that she alone became the registered proprietor, was the sole borrower of funds for the purchase, and was the mortgagee offers strong apparent support for the first defendant's position. Nevertheless, the first defendant's evidence was denied by the plaintiff, her account being as I have indicated earlier in these reasons. Notwithstanding the title, the loan and the mortgage, I am not persuaded of the honesty or reliability of the first defendant's evidence in this respect. As a matter of personal credibility, I found the evidence of the plaintiff far more satisfactory and persuasive in respect of this matter. I note, however, that neither party called Mr Vile who may well have been able to provide assistance with this disputed issue. The plaintiff's account is also more consistent with events that followed. I have in mind matters which I will deal with shortly, especially that following settlement the plaintiff allowed the first defendant to continue to draw funds from the joint account in November and December 1998 for the purpose of repairs and improvements to the property and for furnishings, their meeting around 20 January 1999, and a facsimile letter of the first defendant to the plaintiff dated 1 February 1999.

23 The original offer to purchase the property was made by the first defendant alone, which indicates that the decision that the first defendant

(Page 9)

should be the registered proprietor had been made before 14 September 1998, when the first defendant signed the original offer to purchase. It is also the case that the application for finance was made by the first defendant alone. These matters, however, are consistent with the accounts of both parties. It was the plaintiff's evidence that, as she understood what the first defendant had told her, the first defendant would be able to borrow the necessary money through her employer, Telstra, and could do so at good rates. The plaintiff understood from the first defendant that the first defendant would be able to borrow the money in this way as long as the property was registered in her name. On the plaintiff's evidence what was contemplated was that the borrowing and acquisition having been effected, the first defendant "would put my name on the title afterwards". The first defendant's evidence was that the plaintiff was not in a position to borrow money because, although she was involved in a small business, she was not in a consistent money making situation. Further, the first defendant suggested that the plaintiff did not want her then partner to know that she was going into the venture with the first defendant.

24 In my finding there is some element of truth in both of these accounts, although that of the plaintiff is affected by her lack of detailed attention to, and appreciation of, matters of business. That appears to be characteristic of her. Further, the position appears to be consistent with what I find to have been a degree of manipulation of the plaintiff by the first defendant. In my finding, the plaintiff was persuaded by the first defendant that by virtue of the first defendant's secure employment with Telstra she was in a position to borrow funds, no doubt at a good rate, and that the plaintiff had been effectively persuaded that in this respect the first defendant had a capacity to borrow the necessary funds, whereas she did not. It was also the case, however, that the plaintiff preferred that her then partner not know of her investment. Although this was not a critically determinative matter it added a degree of weight to the persuasiveness of the first defendant's proposal that she alone should be the initial borrower and purchaser. Hence, in my finding, the plaintiff agreed with the first defendant's proposal which involved the first defendant acquiring the property in her name alone and becoming the mortgagee. This is what occurred, even though the acquisition and borrowing were for the purposes of, and pursuant to, their agreed venture.

25 After the purchase of the property the first defendant was quick to move in. It became her place of residence and she has lived in the property ever since. Some items of redecoration and repair were necessary to the main house and some fittings and furnishings had to be

(Page 10)

acquired including the furnishing of two rooms to accommodate overseas students. It had been contemplated originally that the first defendant would take in four students at a time. However, the house was equipped by the first defendant to accommodate only two students, not four. I accept that in order to accommodate four students, renovations were needed to a detached building at the rear of the property which was sometimes referred to as a studio. This would have accommodated two further students, once renovated, but these renovations were never undertaken. The funds necessary to do so were not provided by either party. Within a few weeks of settlement the remaining funds in the joint account had been effectively exhausted by withdrawals by the first defendant for some of the necessary maintenance, refurbishment and refurnishing of the property. The first defendant also paid directly for some of these costs. The evidence indicates quite a number of individual items of expenditure by the first defendant on maintenance, refurbishment and refurnishing. The first defendant did not ever deposit funds into the joint account, however, although she did draw from it as indicated.

26 While the parties had originally discussed how each would help with the physical work necessary to ready the house for occupation, it was the first defendant, with the help of friends and tradespeople, who performed the work. Some students were taken in by the first defendant in November, December and January. The moneys payable pursuant to the government scheme were received by the first defendant. She also met the costs involved in providing food, etc for the students.

27 The balance of the moneys in the joint account at the date of settlement had not been withdrawn by the plaintiff and the first defendant continued to operate the joint account until it was substantially depleted. It was also the case, however, that no further moneys were deposited to that account or otherwise contributed by the plaintiff. In my view, it had been made clear by the plaintiff in late October, just before the settlement, that she was not prepared to contribute any more funds as she had already exceeded, in her view, the half contribution she had agreed to make and the first defendant had failed to live up to her agreed contribution. It was in that context and for that reason that her contribution was not added to and the first defendant was left to her own resources to find what additional funding was required for the purposes of establishing and running the house, beyond what remained in the joint account. Because the first defendant continued to be embarrassed by a shortage of funds, despite the payments to her of some bonuses, and because she had not sold her Mount Lawley unit, there were not funds sufficient to enable the renovation of the detached studio. A consequence of this was that no

(Page 11)

more than two students could be accommodated at any one time, and in fact there were not always two students in residence. As a result of these matters the income from students in November, December and January was insufficient to cover the outgoings involved in servicing the borrowing and meeting running costs including food, etc. This shortfall was met by the first defendant.

28 At some time in December 1998 the first defendant indicated to the plaintiff that it was proving inconvenient to her to have to provide for the students and to have them sharing the house with her. It is fair to say that by this time the previously close friendship of the parties was under strain because of the circumstances that have been related so far in these reasons. In my finding, this indication of her discomfort was not well received by the plaintiff who insisted that the first defendant continue to take in students. She did so into January, but failed to make arrangements to replace students when they left around mid-January. Since then no students have been accommodated at the property.

29 On or about 20 January 1999 a significant meeting took place between the plaintiff and the first defendant. Inevitably, the evidence of the two parties differed materially as to what occurred at this meeting. The first defendant indicated that the principal concern of the plaintiff was to ensure the repayment of the $26,600, which on her account had been converted to a loan to her, by mutual agreement, on or about 28 October 1998.

30 On the plaintiff's evidence, however, the real point of this meeting was to determine the future of the venture between the parties. On her evidence that venture was ongoing at the end of January, even though it was under strain and not functioning as anticipated. The effect of her evidence was that, at this meeting, the first defendant stressed that their original financial expectations could not be realised because the house was not equipped to accommodate four students and, perhaps more significantly, she was no longer prepared to take in students for personal reasons. It was the plaintiff's evidence that during this meeting she told the first defendant that what had occurred had "changed the whole nature of the original idea of having this business". The outcome of this meeting on the plaintiff's evidence was that the venture was abandoned.

31 It is clear that the subject of the repayment to the plaintiff of her contributions to the venture were discussed at this meeting. The parties dealt with the subject on the basis that the amount contributed was $26,600. It was at the least agreed at that meeting that an immediate

(Page 12)

payment would be made to the plaintiff by the first defendant of $2,000. It seems further to have been agreed at that meeting that the first defendant would do all she could to ensure the speedy sale of her Mount Lawley unit and, as soon as that could be completed, she would repay the outstanding balance. What is strenuously disputed, however, is the true nature of these agreed payments.

32 As has been indicated, on the first defendant's evidence it was the repayment of the loan pursuant to the agreement, reached on the eve of settlement, that their venture should then be abandoned and that the $26,600 should be treated as a loan to be repaid by the first defendant. On the plaintiff's evidence, however, what was agreed was that the venture, which she described as a partnership, should be dissolved, and that by way of agreed terms of dissolution the first defendant would repay to her the whole of her contribution of $26,600. There are further elements of disagreement. The plaintiff's evidence is that the first defendant agreed that she would effect payment in full by the end of June 1999, ensuring by some means that she would sell the Mount Lawley unit by that time. The plaintiff said she had insisted on this as a final ultimate payment date. Further, it was the evidence of the plaintiff that the "partnership" was to be dissolved when that final payment was effected, and in addition to the $26,600 she was to have an equal share in the capital appreciation of the property from its acquisition to the date of final payment. All of this is strenuously denied by the first defendant, who insists there was never any agreed final date for payment as that always depended on the sale of her Mount Lawley unit, and that there was no discussion of any sharing of any capital appreciation as all that had been agreed was the repayment of the outstanding loan (as it had existed since 28 October 1998).

33 Events that followed provide a little assistance with the resolution of these disputed factual matters.

34 On a day between 21 and 25 January 1999 the first defendant deposited $2,000 into the joint account. From that point on the plaintiff appears to have used that account for her own purposes, making both deposits and withdrawals. The first defendant, however, did not ever withdraw funds form the joint account after the 20 January 1999 meeting, but she did deposit funds twice, the first of these deposits being the $2,000 just mentioned. The plaintiff closed the joint account on 7 May 1999, applying the funds in it to her own purposes.

35 On 1 February 1999 the first defendant wrote to the plaintiff by facsimile saying:

(Page 13)

"After due consideration I have come to the conclusion that the sale of my property, 545 William Street, Mount Lawley is taking an ungodly amount of time to move hence I offer the following repayments in lieu of one complete payment of $24,500 until the property is sold.

The original money you placed was $26,600 towards the share in the East Victoria Park property, this amount now becomes what I owe you. Last week, 21st Jan 1999 I paid $2,160 to the National Bank account, that leaves $24,500 outstanding.

From my salary I am able to make the following repayments;

Feb 99	$1,000
March	$1,000
April	$3,000

Hopefully the property is sold by this time, if not I shall continue as follows;

May	$1,000
June	$1,000
July	$3,000

possible second payment in July/Aug of $3,000."

36 While this facsimile referred to a payment of $2,160 on 21 January 1999 the amount actually paid was $2,000. The figure of $2,160.15 was the balance in the joint account after that payment of $2,000 was credited on 25 January. This appears to have been error on the part of the first defendant which was not noticed by the plaintiff. As a consequence the outstanding sum following that payment was $24,600, rather than $24,500.

37 It is to be noted in the second paragraph of the facsimile it is said that the $26,600 was placed "towards the share" in the property and that this amount "now becomes what I owe you" (emphasis added). This is written a little over a week following the meeting on or about 20 January 1999. The first defendant's words in this facsimile are hardly consistent with an agreement at the end of October the previous year that the $26,600 should be a loan. The contents of this facsimile are particularly relevant to findings made earlier as to what occurred immediately before the settlement date and at the meeting on or about 20 January 1999.

(Page 14)

38 It is also to be noted that neither in the facsimile was there any suggestion that the $24,500 was to be repaid by the end of June, nor was this suggested by the proposed repayment schedule which proposed payments continuing in July and August of 1999 if the property had not been sold by this time.

39 It appears the proposal in the 1 February 1999 facsimile, for monthly payments on account of the outstanding balance until sale of the Mount Lawley unit, was accepted by the plaintiff. However, the first defendant did not keep to the repayments she had proposed. Nothing having been paid in February 1999, the first defendant wrote again to the plaintiff on 8 March 1999 saying:

"I have been unable to make the payments as originally planned, ie monthly and quarterly…

I am not in the position to make a payment before April 18th when we should receive a bonus pay, however as discussed with you by phone a couple of weeks ago, I am in the process of selling the apartment at Hyde Park. Should this not come to fruition by June 99 I shall sell my shares in order to pay you back the entire amount. The shares will be sold in two lots, half in June and half in July 99.

…

Your debt WILL be paid no matter what."

40 The plaintiff responded in a letter dated 15 April 1999 in which she said:

"I am compelled to insist you make the February, March and April deposits as stated in your fax, and which total $5,000.00, no later than close of banking on Friday, April 23, 1999.

The balance of monies is required by close of banking on Friday, June 25, 1999."

41 The first defendant replied on 27 April 1999 saying that she would transfer funds that afternoon. A further payment of $1,500 was made into the joint account on 28 April 1999. No further payments were made after that.

42 On 5 May 1999 the plaintiff sent a facsimile to the first defendant, following a mistake in mailing by the first defendant's bank which led to

(Page 15)

the plaintiff receiving the first defendant's credit card statement. The statement revealed to the plaintiff that the first defendant could borrow up to $11,000 on her credit card account. The plaintiff said:

"For some inexplicable reason I have received your credit card statement.

As stated previously, your deposit last week was insufficient to my needs — if the amount of $4,500.00 (which brings your commitment of Feb, March, April and May up to date) is not forthcoming by end of business this week, I will proceed as per the contents of my letter of Thursday April 15.

This has become an insidious situation and obviously from the balance of your credit card, one which can be rectified immediately. I am in no mind to carry this debt."


The letter of April 15 had threatened legal proceedings. Having received the payment of $1,500 on 28 April, the plaintiff proceeded on the basis that the amount then outstanding was $23,000. The plaintiff had clearly not picked up the error in the first defendant's letter of 1 February 1999 which wrongly stated the amount of the deposit in January. The true amount outstanding after the 28 April deposit was $23,100.

43 As no further payment was received a summons was issued out of the Local Court on 27 May 1999 by which the plaintiff, acting in person, claimed the amount of $23,000, together with interest from the first defendant. The particulars of claim were "money owing for intended purchase of share in 60 Willis St East Victoria Park $23,000.00 together with interest …". The court and service fees on the summons totalled $202.95. That summons appears to have been served on 17 June and on 23 June 1999 the plaintiff sent a brief note to the first defendant in which she said:

" … The total amount is $23,202.95 together with interest at the rate of 6% on $23,000.00.

Either deposit a Bank Cheque in the following account for the amount of $24,582.95 … or you may post a cheque for that amount to my PO Box in Applecross."

44 The plaintiff then consulted her present solicitor. She had not previously had legal advice. On 30 June 1999 a caveat was lodged on the property. The statutory declaration in support of the caveat deposed to an interest in the land by virtue of an oral partnership by which it was agreed

(Page 16)

that the plaintiff would purchase the land for the purpose of providing the first defendant with a residence and to conduct a business providing board and lodging to international students. She deposed to claiming an interest as an equitable proprietor of a 50 per cent share in the property. The plaintiff's solicitor wrote to the first defendant on the same date suggesting that the conduct of the first defendant amounted to a repudiation of the partnership agreement, which repudiation the plaintiff accepted, and gave notice that the partnership "is hereby terminated". Sale of the property was proposed. The letter also indicated that the claim lodged in the Local Court was lodged without the benefit of legal advice as to the plaintiff's rights under the partnership. The Local Court summons was discontinued. On 23 August 1999 these present proceedings were commenced.

45 A significant issue in these proceedings, arising from the events outlined, is the nature of the relationship as originally agreed between the parties in or about August 1998. In these reasons to this point I have often referred to a venture. I have done so as a matter of convenience and without implying anything as to the nature of their relationship. The plaintiff claims that there was an equal partnership. This is disputed by the first defendant who suggests that there was merely a joint venture.

46 A partnership is defined by s 7 of the Partnership Act 1895 as:

"(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 does or does not exist 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."

Section 8 provides for rules to be applied in determining whether a partnership exists. None of the rules are directly applicable to the circumstances of this case as I find them to be.

47 There is obviously absent from this case a great deal of the formal indicia of a partnership relationship. There is no formal written partnership agreement, no formal accounts have ever been prepared although the time for that had not arisen, and as no profits had been earned there had been no sharing of them. The task of determining what was agreed and the nature of the resulting relationship is, of course, complicated by the lack of contemporary written record and by the factual disputes in the evidence. In evaluating what was agreed, and indeed what

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was left without firm agreement, it is relevant that the agreement reached was not of a sophisticated commercial nature. The parties clearly lacked significant commercial experience. It was also influenced by the circumstance that they entered into the original agreement as longstanding personal friends with the consequence that many of the more usual precautions in such a situation are absent.

48 In my finding, however, the essential terms of what was agreed is that the parties together should enter into a relationship with a view to earning profit from the business of accommodating international exchange students under the government-managed scheme. To achieve this the parties needed to acquire a suitable house in which to accommodate the students, to equip it for that purpose and to provide the ongoing services such as meals which were required as part of the accommodation scheme. It was foreseen that the costs of providing these things would be more than met by the income to be achieved by virtue of providing the accommodation. It was further the clear initial plan that the first defendant should both live in the house and provide the day to day services and supervision which was necessary. This she would do without making a contribution for her accommodation or receiving any remuneration for the services she provided, although it had been foreseen that should there be at any time a shortfall between income and expenditure, by further agreement, the first defendant might make some contribution for her own accommodation in the house. Rather than drawing down profits as they occurred, the initial intention was to apply profits in reduction of the borrowings necessary to purchase the necessary house, ie such profits as might be earned from time to time would be reinvested in the capital asset. Although I have not previously mentioned it, the parties also foresaw that if the initial plan proved successful they might in time decide to acquire one or more further houses to be put to the same use. This was merely a prospective possibility and would be subject to decision should the circumstance arise. Importantly for present purposes, in my finding, the parties initially agreed that they should contribute equally to the working capital required for the venture and, although I am not able to find that there was an express term agreed, in the circumstances the clear implication was that they should share equally in both meeting any liabilities that might arise and in any profits made, whether trading or capital.

49 As has been indicated their budget estimation, such as it was, would have required an initial contribution by each of the parties of some $15,000. This rose to some $20,000. It was not that the plaintiff and the first defendant agreed that they would contribute working capital of

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between $15,000 and $20,000. The situation in my finding is that they agreed to equally contribute the necessary working capital. Their initial estimate of what was needed being some $30,000, which was revised to some $40,000.

50 The burden of proving that property has become partnership property rests with the party making the claim: Harvey v Harvey (1970) 120 CLR 529 at 549 per Barwick CJ; Miles v Clarke [1953] 1 All ER 779 at 782; Kelly v Kelly (1990) 92 ALR 74 at 78. The mere fact that the property may have been used by the partnership does not mean that it is necessarily partnership property: Harvey v Harvey at 549; O’Brien v Kornesaroff (1982) 150 CLR 310; Kelly v Kelly at 78.

51 In the case of Carter Bros v Renouf & Anor (1962) 111 CLR 140 at 163 it was said by the Court at 163:

"Accordingly the question whether or not property acquired during the partnership in the name of one only of the partners was acquired as partnership property, and therefore upon trust for the partnership, is simply a question whether or not the acquisition was in fact an acquisition on account of the firm or for the purposes and in the course of the partnership business. In most cases the answer depends upon the proper inference to be drawn from the manner and circumstances of the acquisition.

…

But where there is no proof that the partners had any common intention inconsistent with that which the unexplained employment of partnership moneys suggests, the conclusion must be that the purchase was on account of the firm and that therefore the purchasing partner is a trustee of the property for the firm: Lindley on Partnership 12th ed (1962) p 361; Underhill on Trusts 11th ed (1959) p 216. It could not be otherwise, for the general principle of equity applies between partners that a person in a fiduciary relation to another is not permitted to keep for himself a gain which he has made by the use of his fiduciary position: Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342 at p 350; Hugh Stevenson & Sons v Aktiengesellschaft fur Carton-Nagen-Industrie [1918] AC 239 at pp 250, 251."

52 Having dealt with the factual differences between the parties and the other factual findings in this respect, I find myself well persuaded that it is

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more probable than not that the plaintiff and the first defendant entered into an equal partnership relationship. Because of their friendship, and their lack of significant commercial experience, the financial and other terms of the partnership were only loosely defined and much was left to be resolved by joint decision as necessary. Nevertheless, in my view, a partnership it was.

53 The purchase of the property was directly contemplated by, and an essential element of the intended partnership business. As agreed, the first defendant had sought out an appropriate property and had identified 60 Willis Street as suitable. Together the parties agreed that it should be bought and made plans for its limited modification to fit it for the intended business purpose of the partnership. While, for the reasons canvassed earlier, there was a shortfall in the original contribution by the first defendant to the working capital of the partnership, and an over-contribution by the plaintiff, nevertheless there was a joint contribution of funds to enable the deposit to be paid, the costs of acquisition to be met and the difference between the funds that had been borrowed and the total purchase price to be paid at settlement. In part, these funds were drawn from the joint bank account and in part they were directly contributed by each of the parties albeit, in the case of the first defendant, using the $10,000 she had borrowed from Mr Vile. While, more naturally, the acquisition and registration would have been in the name of both parties, for the reasons given earlier, I am satisfied that it was agreed between the parties that the first defendant alone should become the registered proprietor even though it was an acquisition for the purposes of the partnership. For the reasons given earlier I am also satisfied and find that there was no decision between the parties shortly before settlement, ie on or about 28 October 1998, to abandon the partnership business, dissolve the partnership and leave the contribution of $26,600 by the plaintiff to stand merely as a loan to the first defendant.

54 It follows, in my finding, that although the property was purchased in the name of the first defendant, she held the property upon trust for the partnership. Even though the property was acquired in the sole name of the first defendant, when the true facts and circumstances of the acquisition are evaluated it is established, in my finding, that the property was acquired for the purposes of the partnership, as an asset of the partnership, and using partnership funds.

55 I turn now to the meeting toward the end of January 1999. I accept that at this meeting both parties realised that their objectives which had launched them into the partnership would not be realised. On the

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financial side more capital would be needed if the property was to be able to accommodate four students and so generate sufficient income. The first defendant was not in a position to contribute capital and the plaintiff quite reasonably felt she had contributed more than her equal share. Of particular significance was the decision of the first defendant that she would no longer be bothered with students. By the time of this meeting there were no students accommodated at the property and the first defendant was treating the house as her personal place of residence.

56 It is not at all surprising, that at this meeting the inevitable decision was that the business venture should be abandoned and the partnership dissolved, although neither of the parties may have used that language. In my finding, that is what occurred. I am satisfied from my assessment of the oral evidence, confirmed by the tenor of the correspondence between them in the months that followed, that it was further agreed that the first defendant should buy out the plaintiff's interest in the partnership and the partnership assets by the repayment to her in full of the $26,600 which the plaintiff had advanced to the partnership for working capital.

57 It is clear, in particular from the subsequent correspondence, that it was agreed at the January meeting that the $26,600 should be paid by an immediate payment of $2,000 with the balance to be paid on the sale of the first defendant's Mount Lawley unit. While the first defendant may well have indicated that she was confident that sale could be concluded by the end of June 1999, I am not able to find that a firm date for final repayment was ever agreed, even though some months later the plaintiff sought to insist on payment by 25 June 1999. In my view, that was merely an attempt to bring matters to a head. In January 1999 the probabilities in my view are that the final payment of the $26,600 was always dependent on the sale of the defendant's Mount Lawley unit although the plaintiff may well have expected, at the encouragement of the first defendant, that this would be achieved before June.

58 While the plaintiff further says that it was agreed that she should have interest on the outstanding balance until it was paid and, more importantly, that the partnership should be dissolved on the final repayment to her of the $26,600 together with an amount to cover her half share in the capital appreciation of the property to the date of that final payment, I am not able to make these findings. These would have been sound and sensible terms to have been agreed in the circumstances. Having listened very carefully to the competing evidence on this issue, however, I am persuaded that by January 1999 the plaintiff had realised how foolish she had been. She had allowed the first defendant to become

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the sole registered proprietor of the property, and the sole mortgagee, and she had no written partnership agreement or other record of her interest in the property. It was clear from her evidence, and in particular her demeanour as she dealt with this issue, that by January 1999 she was in dreadful fear that she would lose her whole investment. Her dominant concern, in my finding, became the recovery of the money she had invested. While she no doubt recognised that there may have been some capital appreciation, although only a few months had passed since the acquisition, and she may well have raised the possibility of receiving interest, I am persuaded that the probabilities favour the view that the plaintiff was so relieved to secure agreement to the payment to her of the $26,600 that, in effect, she counted her blessings and did not press further the issues of interest or a share in the capital appreciation. This is a result quite consistent with the tenor of the correspondence between the parties in the months that followed. I find, in that correspondence, an understanding by both parties that an amount of $26,600 was to be paid by the first defendant to the plaintiff and there is absent any suggestion of either of an ongoing interest liability or that there should be some share in growth in capital value. By and large the $26,600 is referred to as being in the nature of a debt and that is how it was treated by the plaintiff in the Local Court summons which she issued. Although a claim for interest was made in the summons, the plaintiff's calculation of that interest in her 23 June 1999 correspondence with the first defendant indicates she sought interest only from the date of issue of the summons, not from January 1999.

59 A more difficult factual issue is whether the agreement reached in January was that the partnership was then and there dissolved on the agreed basis that the first defendant should pay $26,600 to the plaintiff, or that the partnership would be dissolved when the first defendant paid the $26,600 to the plaintiff. The conduct of the parties in the months that followed does not consistently indicate one of these positions, or the other, eg the purported dissolution of the partnership by the plaintiff's solicitor in June 1999 would suggest that the plaintiff regarded the partnership as still in existence to that time. The plaintiff did not consult a solicitor, however, until June 1999 and the correspondence of both parties until then does not contain any indication of an ongoing partnership relationship. On the contrary, the concern is only with the payment of the $26,600 essentially as a debt due by the first defendant to the plaintiff.

60 While a sound and informed commercial judgement may well have favoured dissolution only after the full payment of the $26,600 it was, in my view, relevant that this would have left the plaintiff with an ongoing

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liability in respect of the partnership and without any student income to meet that liability. That liability would have continued until the payment in full of the $26,600.

61 While the plaintiff’s evidence was quite emphatic that dissolution was only to occur on final payment and, as a consequence, that any capital appreciation until that payment would be shared, it is not apparent from her conduct and correspondence that this was her view after the 20 January 1999 meeting, or for the months that followed until she received legal advice. I have come to the view that this, and also the question of interest, only became a matter of concern for the plaintiff after she first received legal advice at the end of June 1999. In January 1999 I am persuaded, as indicated earlier, that her overwhelming concern, for what were no doubt to her very persuasive reasons, was to obtain the return of her unsecured investment and to be free of any further liability or financial relationship with the first defendant. In this state of mind, in my finding, she neither insisted on a share of capital appreciation or interest, nor sought to delay the dissolution of the partnership until she had been paid in full. She was greatly relieved, in my finding, to obtain a commitment to the repayment of her investment and to secure an immediate termination of any liabilities arising from the partnership. It is also consistent with these findings that, as was the fact, the plaintiff had no involvement with the property and met no obligations in connection with it in the months that followed January 1999. As had been the position before the January 1999 meeting, it is the first defendant alone who has met all financial obligations following that meeting. That has been the position over the intervening years to the present.

62 In my finding, therefore, the parties agreed at the meeting in January 1999 that the partnership between them should be then and there dissolved and they agreed, as a term of that dissolution, that the plaintiff should then and there relinquish all her interest in the partnership and partnership property and that in exchange there should be paid to her by the first defendant the sum of $26,600 in full discharge of her interest in the partnership and the partnership property. The terms on which that payment of $26,600 were to be made were also agreed at that time. As then agreed they called for an immediate payment of $2,000 by the first defendant with the payment of the balance to occur on the sale of the first defendant's Mount Lawley unit. There was no agreement that anything should be paid by way of ongoing interest until that payment was completed, or that there should be any sharing of whatever capital appreciation may have occurred to the property since its acquisition.

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63 In making these findings, which I have expressed more in terms of their legal significance than what may have been the language of the parties, I have in mind that an assignment of a partner's interest in land may be effected without the formalities required for the transfer of a legal interest in land, although here of course it was an equitable interest: Anning v Anning (1907) 4 CLR 1049. It is also the position that the assignment of an entire interest to another partner, where there are only two partners, operates as a dissolution of the partnership: Re Bubnich; Marian v Bubnich [1965] WAR 138 at 140.

64 For reasons that have been sufficiently canvassed, it is my finding that since the meeting on or about 20 January 1999 the first defendant has paid to the plaintiff the sums of $2,000 and $1,500 on account of the $26,600, leaving an outstanding balance of $23,100 yet to be paid.

65 The first defendant sought a declaration that the original partnership agreement was void. In this respect she relied on s 77(3)(a) of the Fair Trading Act 1987 (WA) and asserted misleading and deceptive conduct of the plaintiff. This proposition depends on facts which are not established. In essence, it was that the first defendant's proposition that the plaintiff had agreed to advance the whole of the funds required for working capital of the partnership, ie $40,000 and that in this respect her conduct was misleading and deceptive. For the reasons given that was not the factual position and I see no merit in this claim. In view of the factual findings that have been made it is not necessary to give consideration to other issues raised in the pleadings.

Conclusion

66 For the reasons given it is my finding that the parties did enter into a partnership agreement in or about August 1998 which was dissolved by mutual agreement on or about 20 January 1999. It was a term of the January agreement that the plaintiff then and there assigned and transferred to the first defendant the plaintiff's share of the partnership and its assets, including her equitable interest in the property. The agreed terms of dissolution required that there should be paid to the plaintiff by the first defendant the sum of $26,600 being the total of the amounts which the plaintiff had contributed to the partnership. Having regard to that term there was no need for any other settlement of accounts between the partners on the dissolution. Of that sum of $26,600 there remained outstanding at the date of the commencement of these proceedings, and there remains due to the plaintiff from the first defendant, the sum of $23,100.

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67 In my view of the circumstances the plaintiff should also have an award of interest. While it is clear that interest should certainly be paid at least from 23 August 1999 when these proceedings were commenced, I am persuaded that in the circumstances of this case interest should actually be paid from an earlier date. By the end of February 1999 the first defendant had defaulted in making what had become the agreed terms of payment of the balance of the $26,600. Following that, her only further payment was on 28 April 1999 and this fell well short of what she had agreed to repay to that time. She has paid nothing since then. By s 32 of the Supreme Court Act 1935 interest may be included in the judgment when a sum of money is recovered in an action, for any part of the period between the date when the cause of action arose and the date when judgment takes effect. In my view, the circumstances of this case warrant an award of interest to be included in the amount of the judgment, to be calculated on the $23,100, at 6 per cent which is the prescribed rate (RSC O 36 r 20) from 1 May 1999 to the date when judgment takes effect.

68 I will hear the parties as to the most appropriate form of orders in view of these findings, the calculation of the interest for the purposes of the judgment sum, and on the matter of costs.