Idacorp P/L v Freshglen P/L
[1999] QSC 33
•26 February 1999
IN THE SUPREME COURT
OF QUEENSLAND
No. 8722 of 1998Brisbane
Before Mr Justice Muir
[Idacorp P/L v Freshglen P/L]
BETWEEN:
IDACORP PTY LTD (ACN 010 827 040)
Plaintiff
AND:
FRESHGLEN PTY LTD (ACN 062 571 313
Defendant
No 7499 of 1998
IN THE MATTER OF the Property Law Act 1974
and
IN THE MATTER OF an application by FRESHGLEN PTY LTD (ACN 062 571 313)
and
IN THE MATTER OF the Land Titles Act 1994
and
IN THE MATTER OF a caveat lodged by IDACORP PTY LTD (ACN 010 827 040)
REASONS FOR JUDGMENT - MUIR J
Judgment delivered 26 February 1999
CATCHWORDS: Whether one or two partnerships exist - whether partnership terminated by notice - termination of partnership by abandonment - estoppel by convention - fiduciary obligations arising out of agreement to enter into a partnership - whether loans made to partnership or to a partner personally
Counsel:P.E. Hack for the plaintiff
D.R. Cooper for the defendant
Solicitors:Macrossan & Amiet for the plaintiff
W.G. Allen for the defendant
Hearing Dates: 7 - 8 January 1999
IN THE SUPREME COURTOF QUEENSLAND
No. 8722 of 1998Brisbane
Before Mr Justice Muir
[Idacorp P/L v Freshglen P/L]
BETWEEN:
IDACORP PTY LTD (ACN 010 827 040)
Plaintiff
AND:
FRESHGLEN PTY LTD (ACN 062 571 313)
Defendant
No 7499 of 1998
IN THE MATTER OF the Property Law Act 1974
and
IN THE MATTER OF an application by FRESHGLEN PTY LTD (ACN 062 571 313)
and
IN THE MATTER OF the Land Titles Act 1994
and
IN THE MATTER OF a caveat lodged by IDACORP PTY LTD (ACN 010 827 040)
REASONS FOR JUDGMENT - MUIR J
Judgment delivered 26 February 1999
Issues for determination
The main issues in the matters before me for determination are -
(a)Whether moneys paid by Anthony John Huisman (“Mr Huisman”) or persons or entities under his control and at his direction to Donald William Allen (“Mr Allen”) or entities under his control were, as Mr Huisman contends, loans to Mr Allen personally or, as Mr Allen contends, sums paid by the Huisman interests to obtain shares in Freshglen Pty Ltd (“Freshglen”) and an interest in a development project on the coast north of Mackay known as Dolphin Quays.
(b)Whether another parcel of land purchased by Freshglen and registered in its name is held by Freshglen as trustee for itself and Idacorp Pty Ltd (“Idacorp”) on the basis that the land was acquired for the purposes of a joint venture between Freshglen and Idacorp to develop the land, as Mr Allen contends, or whether there was no joint venture and no trust in respect of the land, as Mr Huisman contends.
Introductory
There is no written agreement constituting or witnessing either of the partnerships or joint ventures under consideration and no consensus between Mr Allen and Mr Huisman as to the content of relevant oral communications. It is thus necessary to analyse in some detail the relevant dealings between the parties.
Idacorp is a company which at all material times has been controlled by Mr Allen, an accountant and property developer who carried on his accountancy practice under the name D.W. Allen & Co. Freshglen was incorporated in November 1993 with a share capital of $2. On incorporation, the shares were held by Mr Allen’s former wife and by their son Mark Allen. On 15 November 1993 Mrs Allen entered into a contract (“the first contract”) to buy a parcel of land (which subsequently became part of the Dolphin Quays development) for a purchase price of $80,000.
On 15 April 1994 Idacorp and Freshglen entered into a contract (“the second contract”) to acquire land adjoining the land the subject of the first contract for a price of $610,000. Mrs Allen paid $10,000 deposit on behalf of Freshglen and Idacorp. That land also became part of the Dolphin Quays development.
Payment of $95,000 by Huisman Builders and acquisition by Huisman Builders of 40 per cent of the issued shares in the capital of Freshglen.
By a deed dated 17 May 1994, Mrs Allen agreed to transfer her share in Freshglen to Huisman Builders Pty Ltd (“Huisman Builders”) and Idacorp and Freshglen agreed to pay to Mrs Allen $95,080 in consideration of her agreeing to assign to them all her right title and interest in the first contract. Huisman Builders, at all relevant times, has been under the effective control of “Mr Huisman”, a builder.
On 16 May 1994 Huisman Builders gave Mr Allen a cheque for $95,000.
On 17 May 1994 -
(a)Mrs Allen and Mark Allen transferred their respective shares in Freshglen to Huisman Builders;
(b)Mrs Allen resigned as a director of Freshglen and Mr Huisman and Mr Allen were appointed directors;
(c)15 shares in Freshglen were allotted to Idacorp and three shares were allotted to Huisman builders;
(d)the sum of $95,079 was paid to Mrs Allen by Freshglen.
The form of share transfer executed by each of Mrs Allen and Mark Allen stated that the consideration for the transfer was $1. The return prepared by D.W. Allen & Co and lodged with the Australian Securities Commission showed the allotment price per share of the 18 shares as $1.00.
In cross-examination, Mr Huisman agreed that the payment of $95,000 “... was a payment which was (his) contribution to the venture which would then be conducted between (him) and Mr Allen through Idacorp”.
On 17 May 1994 Mr Allen wrote to Mr Huisman stating as follows-
“A 20% equity is offered to you in the project which equates to a cost of $252,800 based on projected costs for stage I which is expected to produce a total dividend of $69,200 from stage I, $183,066 from stage II and total management fees from both stages of $55,000 which have been costed into the project feasibility study. This would produce a total return of $287,266 based on an investment of $252,800 over a 14 month period. ...
If you wish to take up the offer of equity in the project it is proposed to transfer 40% of the shares in Freshglen Pty Ltd to Huisman Builders Pty Ltd and to transfer the 4,000 square metre block of land to Freshglen Pty Ltd and Idacorp Pty Ltd as joint tenants. The payment of $95,000 is required today made payable to the Trust Account of D.W. Allen & Co in return for the transfer of the 40% shareholding in Freshglen Pty Ltd and the transfer of the 4,000 square metre block of land to Freshglen Pty Ltd and Idacorp Pty Ltd concurrently today. The balance of the funds, being $157,800 are required on the 15th August 1994.”
There was no written response to the letter.
In a letter dated 19 July 1996 (“the July 1996 letter”) written by John Taylor & Co, solicitors, to Mr Allen on Mr Huisman’s instructions, it is stated -
“First loan ($95,000) 16.05.1994
Mr Huisman informs us that on or about the 16th May 1994 you approached Mr Huisman and requested that he or his company Huisman Builders Pty Ltd provide an interest free loan of $95,000 to facilitate the buy out of Janice Allen’s interest under a contract for the purchase of land by Dolphin Heads Developments Pty Ltd. ...
In consideration for the interest free loan of $95,000 Huisman Builders Pty Ltd was to be given a 40% shareholding in Freshglen Pty Ltd which in effect resulted in a 20% share in the project. ... On the 24th March 1995 the loan moneys of $95,000 plus an additional $5,000 to cover some of the additional outlays paid by Huisman Builders was repaid to Huisman Builders Pty Ltd.”
It may be noted that the identity of the borrower of the sum of $95,000 is not stated in the letter, whereas the letter asserts that the second loan of $70,000 and the third loan of $90,000 were made to Mr Allen personally. In cross examination, Mr Huisman accepted that the thrust of his affidavit evidence was that -
“... the loan [of $95,000] was made to the joint venture and was to be repaid out of joint venture profits.”
On 15 November 1996 Mr Allen had a telephone conversation with Mr Taylor of John Taylor & Co, the contents of which were the subject of a diary note made by Mr Taylor on that day. It records in part-
“... telephoning him in relation to my letter to him. of the 14th November 1996. ... He then said in relation to the alleged loan of $160,000. That was not a loan and he said that Tony had no holding costs with respect to this. It was all paid through QIDC out of the Dolphin Quays account. He said that what he should remember in March 1995 this matter was brought to a head and Tony had agreed that $160,000 was to be repaid by Dolphin Quays project prior to the distribution of profits.”
The second contract was completed on about 14 October 1994.
Payment of $70,000 by Mr and Mrs Huisman and the acquisition of a further 40 percent of the issued shares in the capital of Freshglen
On or about 11 November 1994 -
(a)$70,000 was paid by Mr and Mrs Huisman to Mr Allen;
(b)55 shares in Freshglen were allotted to Huisman Builders, 20 shares were allotted to Mr and Mrs Huisman and 5 shares were allotted to Idacorp.(The returns in respect of these allotments showed the price per share payable on allotment to be $1.)
Once these allotments were effected, the Huisman interests held 80% of the issued shares in the capital of Freshglen.
It is stated in the 19 July 1996 letter that -
“Second loan ($70,000) 11.11.1994
On or about the 11th November 1994 you approached Mr Huisman and informed him that you personally would like a $70,000 interest free loan as you were short of funds to meet payment with respect to a shopping centre development that your associated company was involved in ... at North Mackay. In consideration of the interest free loan of $70,000 Huisman Builders Pty Ltd was to be given a further 20% interest in the project by means of a further 40% shareholding in Freshglen Pty Ltd. According to Mr Huisman it was agreed that the sum of $70,000 was to be repaid at the end of the project either by Mr Allen personally or by Idacorp Pty Ltd out of its share of the profits of the project. There was never any agreement that the sum of $70,000 was to be paid out of the profits of the project itself.”
In a letter of 4 July 1996 written by John Taylor & Co to Idacorp, it is noted -
“Mr Tony Huisman, a director of Freshglen Pty Ltd informs us that he has reached agreement with your Mr Don Allen for payment out of the settlement proceeds of the sum of $160,000 to Freshglen Pty Ltd representing repayment of loans of $70,000 and $90,000 respectively made to Mr Don Allen or his companies in late 1994 by companies associated with Mr Huisman.” (emphasis supplied)
Mr Allen telephoned Mr Taylor on 4 July after receipt of the letter denying that the payments of $95,000 and $70,000 were loans to him personally and asserting that they were consideration for the acquisition of an interest or interests by Mr Huisman and his entities in Freshglen. Mr Allen asserted that approximately 12 months before he had had a conversation with Mr Huisman in which Mr Huisman said that he, Mr Huisman, believed that the moneys were provided by way of loan and in which Mr Allen said he would accept that the moneys were loans but loans to the joint venture and not to him personally.
The sum of $90,000 had been paid out of a superannuation fund. In early 1995 Mr Huisman’s accountant expressed concern to Mr Huisman as to whether such use of fund moneys was permissible. Shortly after Mr Huisman received such advice he spoke to Mr Allen at Mr Allen’s unit at Dolphin Quays. The topic of loans to Mr Allen was raised by Mr Huisman and Mr Allen said that the moneys provided were not by way of loan. The next morning Mr Huisman went to Mr Allen’s office and had a conversation with him about his payments totalling about $160,000. He swears that he told Mr Allen that he, Allen, knew that Huisman was owed $160,000 by Allen and further that -
“I told him that I took issue with him on the question of the loans as the money I had given him the previous November and December have been loans to him which were paid at the end of the project. We had a stand up argument and at the end of the argument Mr Allen agreed that my recollection was correct.”
In a conference with Mr Taylor on 17 August 1996, Mr Huisman informed Mr Taylor that -
“The deal was that the $160,000 was to be paid at completion of stages I and II.”
In cross examination, Mr Huisman asserted that Mr Allen was responsible for repaying the loan and if no profits were made he was nevertheless obliged to repay it. He was unable to recall whether there was any specific agreement by Mr Allen to that effect and accepted that there was no discussion about what might happen if the project did not make a profit. Mr Huisman accepted that he told Mr Allen that the making of the loan would be “the price of giving him ... a further 40% of the shareholding of Freshglen”. The cheque butt completed by Mr Huisman in respect of the payment of $90,000 bears the notation “20% equity in Freshglen Pty Ltd”. A reconciliation statement prepared by Mrs Huisman also records the payment as being “20% in Freshglen from super fund”.
Payment of $115,000 by Huisman Builders and the acquisition by Huisman Builders of the remaining 20 percent of the issued shares in the capital of Freshglen in December 1994.
On or about 23 December 1994, Huisman Builders paid $115,000 to Mr Allen.
On 9 February 1995 Idacorp transferred its 20 shares in Freshglen to Huisman Builders with the result that Mr Allen and his interests no longer held any shares in Freshglen. The share transfer form used to implement that transaction disclosed a total consideration of $20. $1.20 stamp duty was paid on the transfer. $12,500 of the sum of $115,000 was repaid on or about 31 March 1995, a further $12,500 was paid on or about 14 June 1995 leaving a balance of $90,000. Mr Huisman swears to a conversation with Mr Allen on 23 December 1994 in which Mr Allen asked for a loan of $90,000 “on the same basis as the previous $70,000 loan” to be repaid “on the completion of stage 2". The balance of the $115,000 “would be repaid in about 4 to 6 weeks”.
In about March 1995 Mr Huisman borrowed the sum of $100,000 from a Mr Vidler. He swears -
“I understand that that sum was repaid to Mr Vidler about three months later and was effected by Freshglen and Idacorp paying to me a share of profits.”
The sum of $100,000 was paid by QIDC to Mr Vidler (and another) at the direction of Messrs Huisman and Allen on 26 June 1995. On 24 July 1996 a sum of $2,630 on account of interest on the principal sum of $100,000 was paid to Vidler and another out of partnership moneys. Mr Allen swears that the payments to Vidler were by way of distribution of partnership profits and that -
“Huisman requested me to agree to repayment by the partnership to Vidler against future distribution of profits by the partnership to Freshglen Pty Ltd. ... ”
The February 1996 draft memorandum of agreement
In mid-February 1996, after a lengthy meeting with Mr Huisman, Mr Allen wrote out a proposed memorandum of agreement which provided inter alia -
“The parties acknowledge that a loan of [leave blank] has been advanced by Huisman to Allen and that this loan is to be repaid out of proceeds from the sale of Stage I (being the subdivision) and Stage II (being the unit development on Lot 10). It is agreed that Idacorp will receive Lot 1 at an agreed valuation of $150,000 as part of the distribution of profits from Stage I. It is also acknowledged that the parties will jointly hold Lot 10 at an agreed valuation of $300,000 and this will represent a partial distribution of profits from Stage I. Freshglen is to receive the surplus amount of cash as a distribution of profits after repayment of directors’ loan accounts up to an amount equal to half of the total profit on Stage I.
It is further agreed that Idacorp will loan the amount received as repayment of its loan account mentioned above to Freshglen for the purpose of reducing the loan with QIDC for the Pirate’s Cove property. Freshglen agrees to introduce the amount received as repayment of its loan account as loan funds into the Pirate’s Cove development and in addition Freshglen agrees to introduce the funds received as distribution from Stage I into the Pirate’s Cove development. After repayment of the Huisman Builders Pty Ltd overdraft account at the QIDC ...”
The parties’ respective contentions
The respondents contend that -
(a)The payment of $95,000 was made on behalf of Huisman Builders as consideration for the purchase of shares in the capital of Freshglen. [Presumably, the allegation is intended to be that the allotment of the 2 shares to Huisman Builders referred to in para. 7 above was also in consideration of the payment of the $95,000.]
(b)The payment of $70,000 in November 1994 was in consideration of the allotment of 20 shares in Freshglen.
(c)$90,000 of the sum of $115,000 paid by Huisman Builders on or about 23 December 1994 was consideration for the purchase of the balance of the issued shares in the capital of Freshglen. The remaining $25,000 was an interest free loan made by Huisman Builders to Mr Allen.
The applicants contend that -
(a)the sum of $95,000 was an interest free loan made by Huisman Builders to Mr Allen in consideration of Mr Allen’s procuring the allotment to Huisman Builders of the 40% shareholding in Freshglen;
(b)the sum of $70,000 was lent by Mr and Mrs Huisman to Mr Allen on or about 11 November 1994 in consideration of the allotment to Huisman Builders of shares in the capital of Freshglen so as to give Huisman Builders 80% of the issued capital of Freshglen. The loan was “repayable out of Mr Allen’s share of the profit of the joint venture”.
(c)the sum of $115,000 paid by Huisman Builders on or about 23 December 1994 was made up of a component of $25,000 repayable in 4-6 weeks and the balance of $90,000 by way of a loan repayable out of Mr Allen’s share of profits in the joint venture. It was interest free and part of the consideration for making it was the transfer to Huisman Builders of the balance of the shares in the capital of Freshglen held by Idacorp
The Pirate’s Cove issue
On 16 December 1994 Mr Huisman, on behalf of Freshglen, was the successful bidder at the auction of a parcel of land adjoining the Dolphin Quays land (“the Pirate’s Cove land”). On that day Mr Allen and Mr Huisman signed the contract of sale and purchase on behalf of Freshglen. Some months prior to 16 December 1994 they had discussed the acquisition of the Pirate’s Cove land for development in conjunction with the Dolphin Quays land for some months prior to 16 December 1994 and there had been unsuccessful negotiations in August 1994 for the purchase of the land by Freshglen.
On 26 December 1994 Mr Huisman faxed a three page, handwritten note to Mr Allen entitled “Oz Oasis Pirate’s Cove”. The document listed matters which occurred to Mr Huisman in relation to the proposed Pirate’s Cove development such as: the rezoning application to the Council, finance application to QIDC, the naming of the Pirate’s Cove development, the design of the Pirate’s Cove subdivision by Surveys and the means of access to the Pirate’s Cove land.
Mr Allen participated in planning and feasibility studies in relation to the proposed Pirate’s Cove development and, in particular, attended a number of meetings with Whitsunday Surveys Pty Ltd (“Surveys”), the town planners engaged for the venture. Mr Allen also attended meetings with the Mackay City Council in relation to the venture. A body of correspondence in 1995 concerning the venture from Surveys is addressed to either Mr Huisman and Mr Allen or to Mr Allen. Surveys addressed accounts throughout 1995 and up until 30 April 1996 to Idacorp and Freshglen care of D.W. Allen & Co.
The following payments were made by the Allen interests in respect of the Pirate’s Cove venture -
·Idacorp paid QIDC $3,340 on account of a loan establishment fee and stamp duty;
·Mr Allen’s service company, Elemberg Pty Ltd, paid Surveys fees of $4,450 on 7 July 1995;
·$10,000 on account of fees was paid to Surveys out of the account in respect of the Dolphin Quays venture;
·Idacorp paid a valuation fee of $800.
Huisman Builders paid the following sums on account of the Pirate’s Cove
venture -
.a deposit of $27,000
.a further $27,000
.stamp duty of $7,927
.legal costs of $2,830
.between April 1995 and August 1998, all interest, costs and costs charged by QIDC amounting to $74,490
From time to time in 1995 Mr Huisman raised with Mr Allen the matter of contributions by the Huisman interests for the Pirate’s Cove venture and was informed by Mr Allen that he was not in a position to contribute more moneys.
Some time after a March 1995 meeting with Mr Allen, Mr Huisman prepared a projection of profits in respect of the Dolphin Quays and Pirate’s Cove ventures on the basis that he and Mr Allen had an equal interest in the Pirate’s Cove venture. In cross examination, Mr Huisman explained the document on the basis that it was prepared at a time when he anticipated that there would be an equal joint venture between his and the Allen interests.
In John Taylor & Co’s letter dated 19 July 1996 it is stated -
“Mr Huisman informs us that Mr Allen had agreed to buy into that property [Pirate’s Cove] and share equally the costs associated with the deposit, the land tax, rates and interest payments to QIDC. You will recall that Freshglen borrowed an amount of approximately $200,000 from QIDC to refinance this purchase. No assistance has been forthcoming from you.” (emphasis supplied)
The letter invited Mr Allen’s response by 24 July. No response was forthcoming.
On 9 February 1996 Mr Shepherd, Freshglen’s accountant, wrote to Mr Allen advising that his firm had been requested to provide accounting services to Freshglen and enquiring as to whether there were any ethical or other reasons why the firm should not accept such appointment. The letter stated inter alia -
“I also understand that you will be attending shortly to the preparation of the financial statements for the Oz Oasis and Pirate’s Cove partnerships in which Freshglen is a partner.”
Mr Shepherd was not called as a witness and no explanation for his absence from the witness box was volunteered..
In about mid February 1996 Mr Huisman and Mr Allen met at Mr Allen’s office in order to discuss the differences between them. The meeting lasted for two to three hours. After the meeting, Mr Allen drew up terms of the proposed agreement between Idacorp and Freshglen. The document recited that the companies “... are currently engaged in a joint venture and joint ownership of a property known as Oz Oasis now known as Dolphin Quays”. The document provided, in relation to the Pirate’s Cove development-
“It is hereby acknowledged that the ownership and title of the Pirate’s Cove development is in the name of Freshglen, who introduced funds of $44,000 approximately, plus funds for stamp duty and legal fees on settlement. Freshglen has taken a loan of $216,000 to assist with the purchase of the Pirate’s Cove property. The loan facility is in the form of a bank bill facility with interest being paid by Freshglen monthly in advance with the QIDC. It is noted that Idacorp has paid a fee account of $4,450 to Whitsunday Surveys on account of Pirate’s Cove on the request of the directors of Freshglen.
Idacorp agrees to introduce further funds into the Pirate’s Cove development equal to the funds which have been introduced by Freshglen which equal to the deposit of $44,000 and on the purchase of the land, the associated stamp duty and legal fees, other related accounts paid to date by Freshglen including rates and Whitsunday Surveys’ accounts and interest paid by Freshglen on the relevant bank bill facility.
This agreement seeks also to witness the intention of the parties to enter into a joint venture arrangement whereby on the introduction by Idacorp of funds equal to the funds introduced to that date by Freshglen then the parties will jointly secure funding to develop the property into a strata title or group title development with the profits on sale to be shared equally between the joint venture parties and the surplus funds on realisation of the property are to be shared equally after repayment of the respective loan accounts.” (emphasis supplied)
On 6 February 1996 Mr Huisman signed a document headed “Confirmation of instructions” under which Surveys confirmed its acceptance of an appointment from Idacorp and Freshglen to provide services in respect of the Pirate’s Cove project. Mr Huisman conceded in cross-examination that at the time he signed the document he was endeavouring to hold Freshglen jointly liable with Idacorp for fees charged by Surveys.
In cross examination, Mr Huisman conceded that a stated course of action had been taken “because it was agreed between each of you that the partnership between you would develop both blocks”. That was with reference to June 1995. He said, in effect, that he “struck a deal” with Mr Allen in December 1994 that if Mr Allen or his interests made a 50% contribution to the outgoings of the Pirate’s Cove project within six months of 16 December 1994 Pirate’s Cove would become a 50% joint venture between Idacorp and Freshglen. He also conceded that he was aware that Mr Allen was attending meetings and generally being involved in the project because Mr Allen was acting in anticipation of an agreement being reached or finalised. In the course of his cross examination he said, “He was supposed to be a partner.”
On 17 July 1998 a caveat over the Pirate’s Cove land was lodged in the Queensland Land Registry by Idacorp claiming an interest as “beneficiary of a constructive resulting or implied trust”. The grounds of claim were expressed as follow -
“Pursuant to a verbal joint venture agreement between the caveator and the registered owner to develop the land such joint venture agreement being evidenced by acts of part performance by the caveator and also by exchange of correspondence.”
Credibility
I do not consider either Mr Huisman or Mr Allen to be reliable witnesses. In my view, Mr Huisman is a person who, at least in respect of concepts of a legal nature, tends to think in general and even vague terms. He is a person with a practical orientation and, as such, has not been overly concerned with precisely identifying the nature of transactions entered into by him. He tended to leave those matters to legal advisers. As appears from the foregoing narrative, though he generally had timely recourse to legal advice. I did not think that he took much care to ensure the accuracy of the evidence which he gave. I have the same criticism of Mr Allen. Curiously, for an accountant, Mr Allen took even less trouble than Mr Huisman to provide an appropriate record of his dealings. Overall, I thought his evidence even less reliable than that of Mr Huisman.
Conclusions on the loan issues
I find that the payment of $70,000 in November 1994 and the payment of $90,000 on or about 23 December 1994 were loans to Mr Allen repayable out of Mr Allen’s share of profits of the joint venture between the Allen and Huisman interests in respect of the Dolphin Quays development.
Matters which lead me to that conclusion include the following -
(a)The statutory records prepared by, or on behalf of, Mr Allen do not show either payment as consideration for the purchase of equity in the venture and there is no accounting evidence which supports the stance adopted by Mr Allen.
(b)I accept Mr Huisman’s evidence to the effect that he raised the topic of these loans with Mr Allen on an evening in March 1995 and that, on the following day, he went to see Mr Allen again and asserted that the payments of $70,000 and $90,000 had been by way of loan. After an argument Mr Allen agreed with Mr Huisman’s contention.
(c)The November 1994 and December 1994 payments were not made to either Idacorp or Freshglen.
(d)The February 1996 memorandum, prepared by Mr Allen, acknowledges the existence of a loan or loans by Mr Huisman to Mr Allen. I do not find Mr Allen’s explanation for this compelling. The acknowledgement of the loans was to Mr Allen’s considerable financial determent.
There is evidence which points in the contrary direction, such as -
(i)Mr Huisman’s evidence that the May 1995 payment of $95,000 was made on the same basis as the subsequent payment of $70,000.
(ii)The manner in which Mr and Mrs Huisman completed respectively the cheque butt and reconciliation statement in respect of the $90,000 payment.
The matters I have just mentioned are capable of explanation as broad generalisations or rationalisations on the part of Mr and/or Mrs Huisman.
The termination of the Dolphin Quays partnership
Both parties now accept that any partnership or partnerships have come to an end. Mr Huisman asserts that the Dolphin Quays partnership was determined on 19 July 1996 by letter from Mr Taylor to Mr Allen. Even if the Dolphin Quays partnership could be terminated on notice by one partner to the other, it does not seem to me that the letter of 19 July 1996 constitutes a letter of termination. After narrating some historical matters, the letter contains a “proposal” as to: the alleged loan moneys of $160,000; an alleged loan of $3,000, the further development of Lot 10; and the Pirate’s Cove land. The letter may be seen as part of a process of negotiation between the parties.
A breakdown in the relationship between the parties occurred at about the time of the meeting in February 1996 which led to the production by Mr Allen of a draft proposed agreement. Although Mr Huisman at about that time contended that the partnership was at an end, Mr Allen contended to the contrary. It was not until the trial that Mr Cooper, on Mr Allen’s behalf, conceded that the partnership had been effectively abandoned. From that time both partners proceeded on the basis that the partnership had been abandoned and the partnership must be taken as being at an end.
Termination of Partnership
I have held that the letter dated 19 July 1996 from John Taylor & Co to Mr Allen was not an effective notice of dissolution. Freshglen relies, in the alternative, on a formal notice of dissolution dated 16 September 1998. It is in respect of the “Dolphin Quay’s” partnership only and is thus ineffective as a notice of dissolution in respect of the Pirate’s Cove partnership. As each partnership was entered into for a single venture or undertaking (the development of the subject land) it was not determinable until the end of the undertaking in the absence of agreement or an order of the Court. (Section 35 of the Partnership Acts 1891.)
The date of dissolution was 7 January 1999, on which day Mr Cooper informed the Court that Idacorp was no longer contending that any partnership remained in existence. The partnerships were then abandoned.
Findings in respect of the Pirate’s Cove issue
The contract of purchase of the Pirate’s Cove land was entered into by Freshglen on the basis of an understanding by Mr Huisman and Mr Allen that there would be a joint venture development of the Pirate’s Cove land between the Huisman interests and the Allen interests. Both Mr Huisman and Mr Allen proceeded on the basis of such an assumption. That is witnessed by Mr Huisman’s fax of 26 December 1994, by the extensive participation by Mr Allen in progressing the proposed Pirate’s Cove development and by Mr Shepherd’s letter of 9 February 1996. Mr Huisman was aware at all times of Mr Allen’s participation and of the fact that moneys were being expended by the Allen interests in furtherance of the development of the Pirate’s Cove land. It was understood by Mr Allen that his own interests would contribute equally with the Huisman interests. Mr Allen was unable to make appropriate contributions, although requested to do so by Mr Huisman from time to time.
I do not accept that there was an oral agreement between Mr Allen and Mr Huisman in December 1994 under which it was agreed that Mr Allen or his interests could acquire the 50% joint venture interest by matching the contributions of the Huisman interests within six months of late December 1994. If there was such an agreement, it was treated as being still in existence well after the time for making the contribution had past. For example, on 6 February 1996 Mr Huisman was still attempting to ensure that Freshglen was jointly liable with Idacorp for fees charged by Surveys. Also, in February 1996, his accountant was of the understanding that a partnership existed in respect of the Pirate’s Cove land.
The position may be summarised by saying that at all times until Mr Huisman asserted that there was no joint venture agreement, he and Mr Allen proceeded on the basis that the Pirate’s Cove land would be developed by means of a joint venture between the Allen and Huisman interests and that the contributions by such interests to the venture would be equal.
Mr Huisman’s argument receives some support from Mr Allen’s February 1996 memorandum which acknowledges that “the Pirate’s Cove development is in the name of Freshglen” and which speaks prospectively of “The intention of the parties to enter into a joint venture arrangement”. However, having regard to the other considerations to which I have referred and to Mr Allen’s consistent assertions as to the existence of a joint venture in respect of the Pirate’s Cove land, I reject that conclusion. The memorandum is explicable as exhibiting a poor choice of language or by embodying matters which Mr Allen thought would achieve his purposes whilst satisfying Mr Huisman. It is also quite possible that at the time of writing the memorandum Mr Allen failed to understand the strength and nature of his legal position in relation to the Pirate’s Cove land.
Mr Allen’s claim to an interest in the Pirate’s Cove land was advanced on the basis that -
(a)the Pirate’s Cove land was an asset of the Dolphin Quay’s partnership;
(b)the parties conducted their affairs on the conventional basis or understanding that the assets of the Dolphin Quay’s partnership included the Pirate’s Cove land.
I doubt that either contention can be sustained in the form in which it is pleaded. In my view the evidence suggests that Mr Huisman and Mr Allen each intended that the Pirate’s Cove development be undertaken by means of a venture separate from the Dolphin Quay’s partnership even though it was understood that the parties and their respective percentage interests would remain the same. Support for this conclusion may be found in : Mr Allen’s February 1996 memorandum; Mr Shepherd’s letter of 9 February 1996; John Taylor & Co’s 19 July 1996 letter and in Mr Taylor’s diary note of his conversation with Mr Allen of 15 November 1996. (I note that Mr Huisman at one state of his cross-examination conceded that “... it was agreed between each of you that the partnership between you would develop both blocks” i.e. Dolphin Quays and Pirate’s Cove. In my view Mr Huisman providing this answer, did not give consideration to the question of whether there was one partnership or two.)
In my view Mr Huisman and Mr Allen at around the time the Pirate’s Cove land was purchased, agreed, if not expressly, then by conduct that Freshglen and Idacorp would develop the Pirate’s Cove land by means of a joint venture, that the land would be joint venture property, that each entity would contribute equally to the capital of the joint venture and share equally in profits and losses. An agreement contemplating as it did the carrying on of business in common with a view to profit was, for the entering into of a partnership.
Had I not arrived at that conclusion it would nevertheless have followed from my earlier findings that Freshglen holds the land on constructive trust for itself and Idacorp. Even if no agreement was actually concluded, as the land had been acquired with the common understanding that it would be joint venture property and the parties had proceeded on that shared understanding, it is plain that Freshglen owed fiduciary obligations to Idacorp in respect of the land. It is well established that a fiduciary relationship with attendant fiduciary obligations will arise:-
“ ... between prospective parties who may have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled ... Likewise the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.”
United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 11-112. See also the discussion by Wilcox J in Ravinder Rohini Pty Ltd v Krizaic (1991) 30 FLR 300 at 311-312.
At the very least, Freshglen and Idacorp reached an informal arrangement to enter into a 50:50 joint venture and proceeded to take steps towards its implementation.
The content of Freshglen’s duty or obligation is defined or delimited by the understanding (if contrary to my view no agreement existed) that the land be sold and that profits and losses be shared equally.
Again, in the absence of a finding that an agreement existed, I would have found that Freshglen was estopped from denying the existence of a joint venture in respect of the land. The following exposition of principle by Dixon J. in Grundt v The Great Boulder Proprietary Gold Mines Ltd (1938) 59 CLR 641 at 674-6 is relevant for present purposes -
“The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations. This is, of course, a very general statement. But it is the basis of the rules governing estoppel. Those rules work out the more precise grounds upon which the law holds a party disentitled to depart from an assumption in the assertion of rights against another. One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite paraty to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequences would be to make his original act or failure to act a source of prejudice.”
...
The justice of an estoppel is not established by the fact in itself that a state of affairs has been assumed as the basis of action or inaction and that a departure from the assumption would turn the action or inaction into a detrimental change of position. It depends also on the manner in which the assumption has been occasioned or induced. Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. But the law does not leave such a question of fairness or justice at large. It defines with more or less completeness the kinds of participation in the making or acceptance of the assumption that will suffice to preclude the party if the other requirements for an estoppel are satisfied. A brief statement of the recognized grounds of preclusion is contained in the reasons I gave in Thompson v. Palmer [1], and it is convenient to repeat it:-’Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct, as in Yorkshire Insurance Co. v. Craine [2]; cp. Cave v. Mills [3]; Smith v. Baker [4]; Verschures Creameries Ltd. v. Hull and Netherlands Steamship Co.[5]; and Ambu Nair v. Kelu Nair [6]; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party’s adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption.”
[1] (1933) 49 C.L.R. at p. 547
[2] (1992) 2 A.C., at pp. 546, 547; 31 C.L.R. 27, at pp. 30, 31
[3] (1862) 7 H. & N. 913, at pp. 927, 928; 1258 E.R. 740, at pp. 746, 747.
[4] (1873) L.R. 8 C.P., at p. 357.
[5] (1921) 2 KB 612
[6] (1933) L.R. 60 Ind. App. 266, at p. 271
Freshglen, through Mr Huisman, actively assisted in inducing Mr Allen’s belief in the existence of a joint venture in respect of the Pirate’s Cove land. The assumption of a joint venture was “the conventional basis” on which Freshglen and Idacorp proceeded with the acquisition and development of the land. Clearly, Idacorp, having spent time and money and having devoted expertise to the development, would be prejudiced materially were Freshglen permitted to depart from the common assumption.
The fact that Idacorp was in breach of its obligation to contribute equally to the capital of the joint venture does not mean that it lost its interest in the land or that Freshglen was free to apply it to its own purposes. The joint venture remained on foot. Even if it had been terminated Freshglen would have held the land subject to the fiduciary obligations which an entity owes to a former partner in respect of partnership property. Chan v Zacharia (1983-84) 154 CLR 178 and the authorities cited in Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128 at 138.
Although I have found a separate joint venture rather than the extended joint venture for which Freshglen contends, the pleaded allegations were sufficiently broad to raise the factual matters upon which the conclusions expressed above depend.
The $3,000 Loan
It is alleged in the points of claim that Huisman Builders lent Mr Allen $3,000 on or about 23 March 1995. It is further alleged that it was an express term of an agreement between Huisman Builders and Mr Allen that the sum would be repaid within three weeks. It is common ground that the moneys have not been repaid. Mr Allen denies that “the term for repayment was defined”.
In an affidavit filed by Mr Allen on 6 January 1999 he swore that -
“I requested a payment of $3,000 loan to me repayable when funds were distributed by the partnership to the shareholder Article Pty Ltd by way of profits. There has been no distribution.”
I accept Mr Huisman’s evidence that on 23 March 1995 Mr Allen asked Mr Huisman for a loan of $3,000 “until he got back from holidays”. He said that that would take two to three weeks. Accordingly, the moneys were repayable on or before 13 April 1995.
The Vidler Loan TransactionIn the points of defence and cross-claim Idacorp seeks -
“A declaration [that Huisman Builders Pty Ltd] is indebted to the partnership in the amount of $100,000”.
The matter was not pursued in the submissions made by Mr Cooper on behalf of Idacorp. In my view the evidence does not support any such claim. The payment made to Vidler was by way of a distribution of partnership profits to Freshglen. The moneys were paid to Vidler at the direction of Freshglen.
Consequential Orders in Relation to the Partnership Dispute
Mr Hack presses for the appointment of receivers to finalize the partnership affairs. That course is opposed by Mr Cooper. I see no reason why, at this stage, the parties cannot be left to prepare partnership accounts and to get in and distribute the partnershsip assets.
I propose to make orders under which either Freshglen or Idacorp will have the responsibility of preparing properly supported partnership accounts which it will be required to submit to the other of them for approval. Any dispute as to the accounts can be dealt with under the liberty to apply to be contained in the orders.
Mr Huisman will be authorised on behalf of the Pirate’s Cove joint venturers to sell the Pirate’s Cove land. He will be required to keep Idacorp informed in a timely manner of all material steps he proposes to take in that regard and to answer all reasonable written requests of Idacorp in relation to such sale of proposed sale. Idacorp, Freshglen and their respective nominees will be at liberty to bid at any auction of the Pirate’s Cove land.
I invite the parties to prepare, and hopefully agree on, minutes of order to give effect to these reasons. I will hear submissions as to costs.
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