Ibbs v Ibbs
[2020] WASC 230
•18 JUNE 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: IBBS -v- IBBS [2020] WASC 230
CORAM: REGISTRAR MCDONALD
HEARD: 23 APRIL 2020
DELIVERED : 18 JUNE 2020
FILE NO/S: CIV 1420 of 2019
BETWEEN: HAYDON ERNEST IBBS
First Plaintiff
HAYDON ERNEST IBBS AS EXEC OF ESTATE OF ERNEST GEORGE IBBS
Second Plaintiff
AND
NOLA LYDIA IBBS
Defendant
Catchwords:
Practice and procedure – Costs – Partnerships – Application for winding up – Whether costs payable out of partnerships assets – Turns on own facts
Legislation:
Partnership Act 1895 (WA)
Result:
Parties costs of the application be costs in the winding up and paid from the partnership assets
Category: B
Representation:
Counsel:
| First Plaintiff | : | T Darbyshire |
| Second Plaintiff | : | T Darbyshire |
| Defendant | : | M de Reus |
Solicitors:
| First Plaintiff | : | Kott Gunning |
| Second Plaintiff | : | Kott Gunning |
| Defendant | : | Mendelawitz Morton Commercial Lawyers |
Case(s) referred to in decision(s):
Giumelli v Giumelli [2003] WASC 259
Leach v Williams [2017] WASC 188
Murray v Feros (2019) 135 ACSR 569
Queensland Trustee Ltd v Fawkner [1964] Qd R 153
REGISTRAR MCDONALD:
Summary
These proceedings commenced by way of originating summons for orders for the winding up and the appointment of a receiver and manager to the EG, NL and HE Ibbs Partnership (the partnership). On 23 April 2020 I made orders to that effect by consent. The parties are in dispute as whether the costs of this action should paid by the defendant or from the partnership assets. For the reasons that follow I order that the parties' costs of the application be the costs in the winding up of the partnership and be paid out of the assets of the partnership.
The Partnership
The plaintiff, the defendant and Mr Ernest Ibbs were partners in the partnership which carried out farming activities on land which does not form part of the partnership assets. On 14 March 2017 Mr Ernest Ibbs passed away. The plaintiff is the son of the deceased and the executor of the deceased's estate. The defendant is the wife of the deceased and mother of the plaintiff.
As of late 2017 the parties have attempted to reach agreement about the sale and ownership of the partnership assets. The assets of the partnership are modest and include, or have included, plant and equipment, livestock and monies held in accounts. The plaintiff, in his affidavit sworn 27 February 2019 (the plaintiff's affidavit), states that the value of the partnership assets at that time was in the vicinity of $125,000.
The parties' respective interests in the farm on which the partnership carried out its activities is the subject of a separate dispute in CIV 2611 of 2017 (the Land Action).
The action
On 11 March 2019 the plaintiff, in his own capacity and in his capacity as executor of the deceased's estate, brought an application for the winding up of the partnership pursuant to s 44 and 57 of the Partnership Act 1895 (WA). As noted by counsel for the plaintiff, the application is in fact made pursuant to s 50 of that Act (the Partnership Action).
The Partnership Action arose out of the parties' inability to come to an agreement as to what constituted the plant and equipment of the partnership, its value, how it should be disposed of and which liabilities were partnership liabilities. The Partnership Action has been case managed together with the Land Action.
On 23 April 2020 orders for the winding up of the partnership and the appointment and remuneration of a receiver and manager were made by consent and I reserved the question of costs following written and oral submissions by the parties.
Legal principles
The principles governing costs of proceedings consequent upon the dissolution and winding up of a partnership are set out in the decision of Le Miere J in Leach v Williams [2017] WASC 188 as follows:
[6]Subject to the provisions of the Supreme Court Act 1935 (WA) and to the Rules of Court or any other Act the costs of proceedings are in the discretion of the Court. The general rule is that costs follow the event, that is the Court will generally order that the successful party recover his costs.
[7]Both parties referred to 'the usual rule in proceedings for winding up or dissolution of a partnership' and referred to Slim v Kabra [2006] NSWSC 837 and Xie v Zhou [2002] NSWSC 1114. In Slim v Kabra Palmer J said at [9]:
The usual rule in proceedings for winding up or dissolution a of partnership is that the costs of proceedings consequent upon, and necessary for, the dissolution should be paid out of partnership assets unless there is a good reason for making some other order. This is established in cases such as Hamer v Giles (1879) 11 Ch D 942, Xie v Zhou [2002] NSWSC 1114, and see also 'Lindley & Banks on Partnership' (18th Ed) paras 23‑120.
[8]The 'usual order' is referred to in the 19th edition of Lindley & Banks at [23‑120]:
Prior to the advent of the Civil Procedure Rules, it had long been an established rule that all the costs of proceedings consequent on a dissolution should be paid out of the partnership assets, unless there was a good reason for making some other order. Although the court now has a wide discretion on costs, and must have regard to a number of factors in exercising that discretion, the old rule will continue to be applied in most cases as confirmed both in Sahota v Sohi and Stocking v Montila. Where, however, proceedings are, in reality, commenced in order to obtain an adjudication on some disputed claim between the partners, the unsuccessful litigant will, as before, normally be ordered to pay the costs unless his conduct justifies some other order. (footnotes omitted)
At [24‑61] the learned authors distinguish dissolution proceedings from proceedings relating to the winding up of partnerships:
Although costs will normally follow the event in the usual way, the court has a wide discretion and must take into account the various factors listed in the Civil Procedure Rules. This should be compared with the approach historically adopted by the courts in the case of proceedings relating to the winding up of partnerships, where there has been a tendency to orders costs to be paid out of the partnership assets. (footnotes omitted)
[9]In Rahman v Ahmed [2009] NSWSC 1028 [30] Slattery J observed that Palmer J's formulation of the 'usual rule' in Slim v Kabra is derived from the following statement of the Master of the Rolls in Hamer v Giles [1879] 11 Ch D 942, 944 ‑ 945:
My opinion is that the rule is not as stated in Seton. It appears to me that where there is no fault on either side, but the partnership accounts have to be taken in this Court, the costs of the action for taking the accounts from the beginning ought to be dealt with as all other costs of necessary administration, that is, they must come out of the partnership assets. Of course, where an action for dissolution is rendered necessary by the misconduct of a partner ‑ as, for instance, where a partner whose duty it is to keep the accounts has neglected to do so ‑ the Court not only has jurisdiction, but is bound to exercise it, by making that partner pay so much of the costs as are occasioned by his misconduct. But in all other cases there is no difference between the costs of the action for taking the accounts prior to the trial and the subsequent costs, and I have always acted on that rule.
[10]Hamer v Giles was a case concerning the costs of the action for taking accounts consequent upon the dissolution of a partnership.
[11]In Slim v Kabra the costs in issue arose out of notices of motion seeking orders for the working out of accounts between the parties following upon the dissolution of their partnership, not a motion for the dissolution of the partnership.
[12] It is true that in Xie v Zhou Hamilton J ordered that the defendant pay the plaintiff's costs of proceedings in which the plaintiff claimed a dissolution of a partnership and the appointment of a receiver to wind up its affairs. However his Honour said:
The costs are usually ordered out of the partnership assets or, where no body of partnership assets is available, to be borne equally among the partners. This is on the basis that the intervention of the Court must be obtained to facilitate the winding up for the benefit of all partners. But this is a case where the plaintiff quite reasonably prepared for a contested hearing and, whilst there is no question of any great blame on the defendant, much less his solicitor, for the course that events took, it is in my view, appropriate that the plaintiff have the costs of the proceedings up and including 20 August 2002 [3].
20 August 2002 was the day fixed for the hearing of the summons.
[13]In Sahota v Singh [2006] EWHC 344 Park J cited Hamer v Giles as authority for the proposition that, in cases where the assistance of the court is required for the winding up of a partnership's affairs, the costs are ordinarily borne out of the partnership's assets before the final division of them between the partners. Park J referred to [23 ‑ 120] of the 18th edition of Lindley & Banks, which is in essentially the same terms as [23 ‑ 12](sic) of the 19th edition to which I have referred.
In Leach v Williams the partners were in disagreement about whether the partnership should be dissolved pursuant to s 46 of the Partnership Act. Although consent orders disposing of the action were filed in that case, the application was necessary due to the defendant's previous denials of the grounds for dissolution advanced by the plaintiff. Therefore, orders were made that the defendant pay the plaintiff's costs of the application.
In Murray v Feros (2019) 135 ACSR 569; [2019] NSWSC 260 Parker J referred to both Xie v Zhou and Leach v Williams and the making of an order that a defendant pay a plaintiff's costs even where there was no opposition by the defendant at the hearing for the dissolution of the partnership. Parker J held:
[52]In my view, the proper approach to costs in dissolution proceedings is to ask whether, having regard to the grounds of the application, the proceedings are adversarial. But even if the proceedings when commenced could be classified as being adversarial, in deciding to make a costs order inter partes the Court should also take into account the principle reflected in Lai Qin (Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622; 143 ALR 1). That principle is that where as a result of supervening events such as a settlement, it proves unnecessary for the Court to determine the matters which have been put in issue, then generally the Court will not make an order for costs in favour of one party against the other. This is because the Court will not, as a general rule, conduct a trial of a case for the purpose of determining only the incidence of costs.
[53]Of course it can be seen that if one party has effectively capitulated then the principle does not apply and costs should follow the event. In my view, that explains the orders made in Xie v Zhou and Leach v Williams. In fact in the latter case, Le Miere J specifically referred to the Lai Qin principle (at [21]) and concluded that the defendant in those proceedings had effectively surrendered to the plaintiff.
In Giumelli v Giumelli [2003] WASC 259 [67] Master Sanderson held that:
[67]…Both the parties accepted that, as a general rule, the costs of an action for dissolution and winding‑up of a partnership are ordered to be paid out of the partnership assets unless there are good reasons to the contrary: see Queensland Trustee Ltd v Fawckner [1964] Qd R 153. However, counsel for the plaintiff submitted that where an action is, in essence, instituted to try some disputed right, then the unsuccessful party may be ordered to pay the costs of the action. Counsel submitted that this was such a case. In essence, so it was said, the parties were engaged in an action in all but name.
[68]While there is considerable force in counsel's submission, I am not satisfied that this is a case where I should depart from the usual rule. It cannot be suggested that in defending this action the defendants adopted an unreasonable position. The circumstances of the case were such that there was considerable doubt surrounding the four issues that fell for determination. While I have found in favour of the plaintiff in each case, the position of the defendants was both reasonable and principled and I am satisfied that the usual rule with respect to costs should apply.
In the present action the dissolution of the partnership has occurred by operation of s 44(1) of the Partnership Act due to the death of Mr Ernest Ibbs. Therefore, unlike in Leach v Williams and Murray v Feros, there was no issue about whether the partnership should be dissolved. The only issue was whether the parties could agree to the process of winding up the partnership without recourse to the court.
Dispute as to costs
The plaintiff seeks an order that the defendant pay the plaintiff's costs of the action. The defendant seeks an order that the costs of the action be the costs in the winding up of the partnership to be paid out of the assets of the Partnership.
Both parties rely on the correspondence attached to the plaintiff's affidavit which outlines the attempts between the parties to agree to a proposal to dispose of the partnership property.
On 29 January 2018 the plaintiff put a proposal to the defendant relating to how the plant and equipment should be valued and split between the parties in lieu of an auction (plaintiff's affidavit, HEI‑4). On 1 February 2018 the defendant responded with an in‑principle agreement to the liquidation of the partnership assets but disagreed on the proposed split in light of her entitlements under the deceased's will to his interest in the partnership. The defendant also raised various issues concerning the liabilities of the partnership, including the ownership and value of certain assets. The defendant was otherwise agreeable to the winding up of the partnership and the administration of the deceased’s estate (plaintiff's affidavit, HEI‑5).
On 20 February 2018 the plaintiff's solicitors disputed that a number of items listed by the defendant were partnership assets or that certain expenses should be paid from the assets (plaintiff's affidavit, HEI‑6). On 28 February 2018 the defendant took issue with a number of matters raised in the plaintiff’s letter (plaintiff's affidavit, HEI‑7). On 26 March 2018 the defendant sought the return of some equipment and raised the prospect of appointing a third party to wind up the partnership by way of a court order (plaintiff's affidavit, HEI‑8).
On 2 May 2018 the defendant responded by email to a letter from the plaintiff dated 18 April 2018 (which is not attached to the plaintiff's affidavit). The email of 2 May 2018 refers to a previously reached written agreement for the orderly winding up of the partnership, stating there is nothing to prevent finalisation of the winding up of the partnership within a couple of weeks (plaintiff affidavit, HEI‑9). The plaintiff relies on the defendant's email of 2 May 2018 as evidence that, had the defendant applied to the court to wind up the partnership, the defendant would have claimed the costs of doing so from the plaintiff. The defendant's solicitor submits that the reference to seeking costs should be read in the context of the alleged failure by the plaintiff to progress the agreement to wind up the partnership, administer the deceased's estate and take steps in the Land Action.
The plaintiff put forward a further proposal to wind up the partnership on 25 May 2018 dealing with the plant and equipment, the cattle proceeds and monies held (plaintiff's affidavit, HEI‑10). By email dated 15 June 2018 the defendant specified which matters were agreed and advised that if the defendant's terms were not agreed, she would apply to the court to wind up the business and affairs of the partnership (plaintiff's affidavit, HEI‑11).
On 27 June 2018 the plaintiff put a further proposal to the defendant agreeing to certain matters but there still remained outstanding issues between the parties. The plaintiff indicated that if an agreement could not be reached then it would be necessary to appoint a receiver and any concession made would be withdrawn if the plaintiff's terms were not accepted. Further, the plaintiff stated that any costs of the application to appoint a receiver would be sought from the defendant's share of the partnership assets or the defendant personally if insufficient (plaintiff's affidavit, HEI‑12).
After a period of four months the plaintiff renewed the offer of 27 June 2018 and extended the time in which to accept its terms to 15 November 2018 (plaintiff's affidavit HEI‑15). It appears there may have been telephone exchanges in September, October and November between the solicitors, but there was no substantive response from the defendant to the plaintiff's proposal of 27 June 2018.
On 29 January 2019 the plaintiff sent a further email advising that as an agreed division of partnership assets could not be achieved, an order for winding up would be sought at the defendant's cost (plaintiff's affidavit, HEI‑16). The defendant's solicitor sent an email on 31 January 2019 advising he had received instructions but that they needed to be refined into a written position to the plaintiff (plaintiff's affidavit, HEI‑17). There was no further response by the defendant and the Partnership Action was commenced by the plaintiff on 11 March 2019.
What is clear is that both parties sought the winding up of the partnership. While there was an indication that there may have been an in‑principle agreement reached at an earlier stage about how to deal with or dispose of the partnership assets, that seems to have been superseded by the plaintiff's proposal of 27 June 2018 to which there was no substantive response.
Parties' submissions
The plaintiff submits that costs should follow the event because there was never any dispute between the parties about the necessity to wind up the partnership and the plaintiff was obliged to incur the expense of the application by the intransigence and delay of the defendant. The plaintiff submits that the proposal of 27 June 2018 should have disposed of the matter.
The defendant submits there is no reason to depart from the general rule that the costs of winding up of a partnership are to be paid out of the partnership assets unless there are good reasons to the contrary (see Queensland Trustee Ltd v Fawckner [1964] Qd R 153 at 156 and Giumelli v Giumelli [2003] WASC 259 at [67]).
While the defendant’s failure to respond to the plaintiff's proposal of 27 June 2018 was no doubt frustrating, this is not the forum to determine whether a failure to agree to the way in which each of the assets of the partnership should be dealt with was unreasonable by either party. The court does not conduct a trial of the case for the purpose of determining only the incidence of costs when the orders have been agreed to by consent.
Certainly there was a lengthy delay from the plaintiff's proposal of 27 June 2018 to the commencement of the action relative to the initial endeavours to finalise the partnership, which was unexplained. However, that is not to say that had the defendant responded, it would have avoided the need for the application.
There is no evidence that the outstanding matters between the parties contained in the plaintiff's proposal of 27 June 2018 were agreed to by the defendant. In fact, throughout the various exchanges both parties indicated at different times that, failing agreement by the other, an application would be made to the court to wind up the partnership.
As such, I do not find that the defendant's failure to engage substantively with the plaintiff's proposal after 27 June 2018 was causative of the action being commenced. It is equally consistent with the defendant appreciating that there was never going to be any agreement reached with the plaintiff in relation to the outstanding matters. Despite the lack of commerciality of the application, it seems that it was inevitable.
Order
The appropriate order is that the parties' costs of the action be the costs in the winding up of the partnership and be paid from the assets of the partnership. For the reasons stated I will make that order.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KW
Court Officer18 JUNE 2020
0
7
1