Kang-Kem v Paine

[2004] NSWSC 3

CITATION:	Kang-Kem v Paine [2004] NSWSC 3
HEARING DATE(S):	08/10/03, 09/10/03, 21/11/03
JUDGMENT DATE:	3 February 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Application for declarations as to existence of partnership and consequential orders dismissed with costs
CATCHWORDS:	PARTNERSHIP - generally - whether partnership exists - whether business carried on in common - no question of principle
LEGISLATION CITED:	Partnership Act 1892, ss.1, 2
CASES CITED:	The Duke Group Ltd v Pilmer (1999) 73 SASR 64
PARTIES :	Kem Weichoreak Kang-Kem - Plaintiff Marilyn Jean Paine - Defendant
FILE NUMBER(S):	SC 4091/03
COUNSEL:	Mr J T Johnson - Plaintiff Mr J E Thomson - Defendant
SOLICITORS:	Harris Wheeler - Plaintiff Sparke Helmore - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

TUESDAY, 3 FEBRUARY 2004

4091/03 – KEM WEICHOREAK KANG-KEM v MARILYN JEAN PAINE

JUDGMENT

1 By his summons filed on 1 August 2003, the plaintiff claims:

(a) a declaration that the plaintiff and the defendant commenced trading as a partnership in 1992;

(b) a declaration that the partnership continues;

(c) a declaration that the restaurant known as Milano Junction Café Restaurant at The Junction, Newcastle (which I shall call “the Junction restaurant”) and the lease of the premises are assets of the partnership;

(d) a declaration that the restaurant known as Milano’s on the Lake at Pelican on Lake Macquarie (which I shall call “the Lake restaurant”) and the sublease of the premises are assets of the partnership; and

(e) orders that the affairs of the partnership be wound up, that a receiver be appointed and that an account be taken.

2 After the summons had been filed, an order was made (by consent and without admissions) allowing the Junction restaurant and leasehold to be sold. By implication, therefore, claim (c) above must now be taken to relate to the proceeds of sale.

3 The plaintiff and the defendant met in 1987. In mid-1988, the plaintiff went to live with the defendant and her children in her house at Merewether. A de facto relationship had commenced in late 1987 or early 1988 when they began to live together in a rented flat. The relationship continued until 1998 or perhaps 2001. The defendant had previously operated a life insurance agency business. The plaintiff had started in the restaurant industry when he left school but, between 1987 and 1992, worked in what he called “the merchant banking area”. The plaintiff was a bankrupt between late 1989 and 5 December 1992, having also suffered an earlier bankruptcy.

4 In November 1991, the plaintiff expressed to the defendant an interest in opening a restaurant in Newcastle. The Junction restaurant opened in May 1992. It was the plaintiff who wished to open the restaurant. He told the defendant he had no money because of the failed business venture that had caused him to become bankrupt. She kept him, paying his personal expenses. When he expressed an interest in opening a restaurant, she was prepared to help him with the venture as it would be in the interests of both of them if he could find something at which he could prosper financially.

5 The lease of the Junction restaurant premises was taken in the defendant’s name alone. The lease, in its typewritten form, contained a covenant against sub-letting. The document as executed contained a handwritten exception allowing sub-letting to the plaintiff by way of a tenancy from month to month.

6 The defendant says that she opened an ANZ bank account in her name shortly before the Junction restaurant opened and deposited in it $100,000 to be used for the fit-out of the restaurant. The defendant says that $100,000 was lent by her to the plaintiff and that he acknowledged his obligation to repay. The plaintiff says that there was no loan and that half of the $100,000 deposited by the defendant represented commissions she owed him in relation to transactions in which he had been involved in her life insurance agency. Each of the plaintiff and the defendant had authority to operate the ANZ account independently of the other. That account became the destination for takings from both restaurants.

7 The second restaurant (that is, the Lake restaurant) was opened late in 2001. Again, the lease or, more accurately, sublease was taken in the defendant’s name alone. She also became sole licensee under the Liquor Act. About $150,000 was spent on fit-out. It appears that some $115,000 of this was obtained by a loan from Westpac on an overdraft account in the names of both the plaintiff and the defendant and that the balance was drawn from the ANZ account already mentioned. The Westpac loan was secured by a mortgage of the defendant’s home.

8 It is necessary, at this early stage, to say something about the credibility of the parties, each of whom gave evidence on affidavit and upon cross-examination. Much of the plaintiff’s oral evidence was given under the protection of a certificate issued under s.128 of the Evidence Act 1995. The matters of potential self-incrimination that led to the issue of the certificate related to the making or procuring by the plaintiff of what, on his present evidence, were false statements in the past, including for the purposes of preparation of taxation returns and to immigration officials. Statements of the former kind were to the effect that the defendant was the sole owner of the Junction restaurant. Statements of the latter kind were to the effect that the plaintiff was the sole owner of that restaurant. Neither of those positions is, of course, consistent with the case the plaintiff now seeks to make, that is, that the Junction restaurant was, from 1992 until its recent sale, partnership property of a partnership subsisting between the plaintiff and the defendant. The plaintiff showed himself to be someone who will say whatever suits his purposes at the time with little, if any, regard for the truth. I accordingly approach the whole of the plaintiff’s evidence with considerable reservations. The court cannot accept any of his evidence as reliable unless it can be seen to be supportable by some other means.

9 The defendant was also subjected to challenge as to her credit. She was confronted in cross-examination with certain statements in affidavits she had sworn in October 2001 for the purposes of the liquor licence application in relation to the Lake restaurant that are inconsistent with evidence she gave in these proceedings. The statements are to the effect that she was “a co-proprietor of” the Junction restaurant, that “my partner” would be able to manage that restaurant so that she could devote time to the Lake restaurant; also that she had been “involved in the restaurant business, owning a non licensed restaurant for the last 10 years” and that she had “experience in the supervision of alcohol provided by patrons within that restaurant”. The defendant acknowledged in cross-examination that these statements were not correct when made.

10 There is, however, a significant difference between the defendant and the plaintiff in this respect. The defendant has offered an explanation to the effect that the liquor licensing documents in which the statements appear were prepared by a solicitor whose office she attended with the plaintiff, that virtually all of the discussion was between the solicitor and the plaintiff and that she afterwards signed what the solicitor had prepared without first reading it. The plaintiff, on the other hand, admits that he consciously and deliberately misrepresented matters where it was in his interests to do so. I am satisfied that the statements in the defendant’s liquor licence affidavits represent what the plaintiff, rather than the defendant, told the solicitor and that, while the defendant acted in a trusting but extremely unwise way in signing the affidavits without first reading them, the messages they conveyed were put into them not by her but by the plaintiff.

11 I therefore do not entertain in relation to the defendant’s evidence the reservations I have in relation to the plaintiff’s. In the defendant’s case, there is not the same clear need for independent support or verification before her evidence can be accepted.

12 I turn now to the evidence of matters relevant to the question whether a partnership was formed in 1992 and subsisted thereafter as the plaintiff alleges In doing so, I remind myself that, according to s.1(1) if the Partnership Act 1892:

“Partnership is the relation which exists between persons carrying on a business in common with a view of profit”;

also that, according to s.2 of the Act:


“ 2 Rules for determining existence of partnership

In determining whether a partnership does or does not exist, regard shall be had to the following rules:

(1) Joint tenancy, tenancy in common, joint property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.

(2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.

(3) The receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business, but the receipt of such a share, or of a payment contingent on, or varying with the profits of a business does not of itself make the person a partner in the business; and in particular:

(a) The receipt by a person of a debt or other liquidated demand by instalments or otherwise out of the accruing profits of a business does not of itself make the person a partner in the business or liable as such:
(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such:
(c) A person being the widow, widower or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such:
(d) The advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person, that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing and signed by or on behalf of all the parties thereto:
(e) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by the person of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such.”

13 A business was undoubtedly carried on by way of the operation of the two restaurants or each of them. The business (or each business) was obviously carried on “with a view of profit”. The central question to be answered by reference to the evidence is whether the business (or each business) was carried on “in common”. It is to that question that the criteria in s.2 of the Act are relevant in this case.

14 I consider first the evidence in relation to the establishment and ownership of the Junction restaurant. The lessee of the premises was the defendant. I have already mentioned the provision in the lease, obviously added at a late stage, permitting sub-letting to the plaintiff on a month to month basis. The sum of $100,000 needed to set up the restaurant was provided by the defendant. She says she lent this sum to the plaintiff; he says she contributed $50,000 and he contributed $50,000 by way of a payment made by her to pay him something she owed him from the insurance business. Because of what I have already said about the plaintiff’s credibility, I prefer the defendant’s evidence on this.

15 The defendant says that, in accordance with discussions between the parties, the lease was put in her name at the plaintiff’s suggestion to protect her “investment”. He says it was in her name because of problems associated with his bankruptcy. The defendant says that there was an informal sublease arrangement in favour of the plaintiff (he says this began only in 1997) but that he did not pay rent to her after 30 June 1998. The defendant was recorded by the Newcastle City Council in relation to the Junction restaurant. The relevant Business Names Act registration was in both names initially but in 1998 the plaintiff alone was registered and in 2002 the name became registered in respect of a company of which the plaintiff is sole director and shareholder. The plaintiff alone is the holder of an ABN for “Milano Junction Restaurant”.

16 Income and expenditure relating to the Junction restaurant were included in income tax returns of the defendant in certain years. She says (and he does not deny) that this was done at his behest in the context of arrangements under which he gave information to an accountant to prepare the returns and she later went to the accountant’s office and signed. The plaintiff says that the sublease arrangement entered into in 1997 was part of a wider arrangement under which he acquired the “operating rights” but only as “a tax arrangement” – a euphemism the plaintiff admitted he used when conveying to the Australian Taxation Office information at odds with reality. That particular information was given by him to the Taxation Office by letter dated 10 September 1998. The plaintiff also testified that a sublease “was installed at discretion every now and then for tax purposes”. The defendant wrote to a solicitor in October 1998 asking him to prepare a sublease document.

17 In July 2003, the plaintiff had his accountant prepare a letter to the Department of Immigration and Multicultural Affairs saying that the plaintiff was “the owner and operator of two restaurants namely The Milano Junction Restaurant and Milano’s On The Lake and has owned and operated these business since 1992” – a statement that is patently false to the extent that it suggests that any kind of interest in the Lake restaurant dated from 1992. The accountant’s letter is dated 21 July 2003 and was written in connection with the plaintiff’s continuing attempts to obtain immigration permission for a Ms Sheppard who is now his wife. The defendant has put into evidence unsigned versions of letters and other documents of 1998 found on the computer in the home she shared with the plaintiff which appear to have been prepared in connection with his attempts to assist Ms Sheppard’s immigration. Whether the letters and documents were sent to immigration authorities is not clear. What is clear, however, is that the plaintiff either represented or was prepared to represent himself as the owner of the Junction restaurant and that Ms Sheppard had purchased a 50% interest in it.

18 On 8 October 2001, the accountant who wrote the letter of 21 July 2003 to which I have just referred wrote to Westpac Banking Corporation, under the heading “Kem Kang”, saying:

“We refer to our discussions in relation to the abovementioned and enclose the following for your information:

· Statement of Assets and Liabilities

· Statement of Trading and Profit & Loss of Milanos Restaurant in respect of the financial year ended 30 June 2000 and 2001.”

19 The accompanying statement of assets and liabilities is headed “Marilyn J Paine & Kem Kang” and includes an item “Goodwill Milanos Restaurant - $480,000”. The financial statements in respect of the Junction restaurant business purport to be based on “information provided by the principle of [sic] Kem Kangkem”.

20 Also in evidence are the plaintiff’s tax returns for the years 1999, 2000 and 2001. The first of these shows net income from business of $20,254 which corresponds with the net profit figure in an accompanying profit and loss statement of “Kem Kangkem T/As The Milanos Junction Café”. The 2000 and 2001 returns were prepared on a consistent basis by the accountant who prepared the 1999 return.

21 The evidence thus shows (and I find) that the plaintiff himself represented the Junction restaurant business to have been owned solely by the defendant until about 1997, with proprietorship, in terms of enjoyment of the “operating rights” passing to him thereafter under an arrangement which included a sublease of the premises. The representation of his sole ownership reached its high point in the 1998 documents prepared for the purposes of Ms Sheppard’s immigration (whether the documents were ever activated is beside the point), the plaintiff’s tax returns for 1999, 2000 and 2001 and the documents the plaintiff had the accountant prepare in 2003. The representation is entirely at odds with any assertion that the Junction restaurant business was, or formed part of, a business carried on by the plaintiff and defendant “in common”.

22 Before leaving the Junction restaurant, I must consider the evidence about the day to day operations, including financial operations. Takings from the restaurant were paid into the ANZ bank account, to the extent that they were banked at all. A significant part of the operations was cash-based, in that cash received from customers was put into a safe at the Merewether home of the defendant at which the plaintiff also lived. Each of them had a key to the safe. The plaintiff says that these cash resources were used to meet outgoings of the parties, both domestic and otherwise. The defendant says that she never took cash from the safe and supported herself from her own resources. The ANZ account, as already noted, was in the name of the defendant but with each of the plaintiff and the defendant alone able to draw cheques. The defendant says that, until about July 2003, she did not have a cheque book for the account and did not use the cheque book held by the plaintiff to draw cheques except with the plaintiff’s prior approval. The plaintiff says that the defendant drew cheques on behalf of the business, as did he, and that he tried to keep track of them to ensure that the account did not become overdrawn. The plaintiff also says that he alone dealt with the landlord, paying the rent by means of cheques drawn by him on the ANZ account. The defendant does not dispute that. I am satisfied that it was the plaintiff who, at all times, dealt with financial matters. As to the use of the money in the safe and in the ANZ account, I accept the evidence of the defendant.

23 As for actual work done in and about the Junction restaurant business, the defendant says that, during the first year of operations, both she and the plaintiff worked to establish the business. She says that she worked under his direction as she had no knowledge of the hospitality industry. After the initial stage, the defendant says, she was involved in the operation of the Junction restaurant only when the plaintiff was unwell or did not attend to matters, particularly from a point in 2003 when the plaintiff apparently lost interest in the business. The plaintiff had by then formed an attachment to Ms Sheppard whose immigration attempts he was keen to assist. The plaintiff, by contrast, says that the defendant was involved in all aspects of running the restaurant, including the hiring and firing of staff.

24 Both the plaintiff and the defendant led evidence from persons who had been employed at the Junction restaurant, notably, Ms Blanch, Mr Dara Kang (the plaintiff’s brother), Mr Walmsley and Mr Jones. Several matters emerging from this evidence should be recorded. The mobile telephone number given in a recruiting advertisement in the Newcastle Morning Herald in 2001 was that of the defendant – or, at least, it was the defendant who answered the relevant mobile phone. The defendant played a role in interviewing certain potential employees, as did the plaintiff. Some employees dealt exclusively with the plaintiff in employment matters. Others had extensive contact also with the defendant in relation to such matters. The defendant spent time at the restaurant regularly. She and members of her family ate there frequently without paying. She was interested in staff members’ deportment and appearance. She was observed to clear the till and take the money away on a regular basis.

25 Evidence was given by Ms Yates who, with her husband, runs a milk vending business that supplied the Junction restaurant. She deposed to having dealt with the plaintiff alone for two years up to June 2003 in relation to the collection of moneys due for milk delivered. After June 2003, Ms Yates could not contact the plaintiff and the account fell into arrears. The defendant later contacted Ms Yates and arranged for payment of the outstanding $1,800. The defendant’s son, Mr David Paine, gave evidence about his involvement at the Junction restaurant in helping his mother after the plaintiff had stopped attending to the business. He relieved her of part of the workload that, according to her account, had fallen upon her after the plaintiff no longer devoted himself to the business.

26 I turn now to the Lake restaurant which, as I have said, was opened in late 2001, with the defendant as sub-lessee of the premises and the licensee under the Liquor Act. I have already referred to the way in which the fit out was financed. It is said by the plaintiff that a further $50,000 for an unexpected element involving a function pavilion was provided by a loan from his father that was paid into the joint overdraft account. The defendant says she was unaware of this but does not deny it.

27 There was no Business Names Act registration for the Lake Restaurant until August 2002. The registration obtained at that time was obtained by the defendant in her own name but she says that she has not herself traded under the name. The ABN held by the plaintiff alone for “Milano Junction Restaurant” is also used for the Lake restaurant. Takings from the Lake restaurant were dealt with in the same way as takings from the Junction restaurant, at least until August 2003 when takings began to be paid into a bank account of a company wholly owned and controlled by the defendant. This followed some action taken by the plaintiff which caused the defendant to be unable to operate the ANZ account.

28 The plaintiff says that he worked very hard in establishing the Lake restaurant and devoted considerable time to the venture. The defendant says that the plaintiff “made some effort to establish it” but lost interest in the first half of 2003. It is clear that each of them attended the Lake restaurant for business purposes.

29 Again, there is evidence from employees as to the activities of the plaintiff and the defendant in relation to the restaurant. Those employees are Mr Fairleigh, Ms Daya, Mr Lee, Ms Senior, Ms Pinkerton and Mr Smith. It is clear from this that the defendant played an active role in the selection and recruitment of staff, although the plaintiff was also involved. The evidence also shows that the defendant attended the restaurant on virtually a daily basis. One employee dealt almost exclusively with the plaintiff until he ceased coming there in about May 2003. The preponderance of the evidence is that it was the plaintiff who paid employees up to that point and that the defendant did so thereafter. Ms Pinkerton, who was the functions manager and in that capacity had dealings with customers involving substantial sums, says that it was obvious to her that all financial, employment, purchasing and operational matters concerning the Lake restaurant were authorised by the plaintiff and that the defendant’s activities were confined to day to day managing. Ms Pinkerton further says that this changed in about May 2003 when the plaintiff “disappeared from the Lake”. After that, she observed the defendant paying all business accounts. Several of the employees had difficulties in obtaining group certificates. They looked to the plaintiff for these.

30 I also record, in relation to the Lake restaurant, that, in July 2002, the plaintiff notified all staff by circular (or notice on a noticeboard) that the restaurant was “taken over by a new owner Lexington Green Pty Limited” on 1 July 2002 and that this should be noted when employment declaration forms were being completed.

31 Mr Henderson, a friend of the plaintiff and the defendant, gave evidence that he saw both parties dining regularly at the Junction restaurant after 1994, clearing the till, instructing staff and hiring and firing staff. When the plaintiff lost his driver’s licence in 2002, Mr Henderson used to drive him around. He testified to having driven the plaintiff to the Lake restaurant almost daily during its establishment, as well as to other places in connection with tasks associated with the establishment.

32 Mr Skyver is retired and lives in a residence above the Lake restaurant. He saw the plaintiff and Mr Henderson near the Lake restaurant in about late November 2002. The plaintiff was dressed in a suit and, when Mr Skyver commented on this, the plaintiff said, “Yes, I’ve just attended an interview for a job”.

33 Having reviewed the evidence concerning both the Junction restaurant and the Lake restaurant, I proceed to the findings I consider to be warranted by that evidence, in addition to the findings concerning credibility already stated. As stated in the finding at paragraph 21 above, the plaintiff represented the Junction restaurant to have been owned solely by the defendant until about 1997 and that proprietorship, in terms of enjoyment of “operating rights” passed to him thereafter under an arrangement which included a sublease of the premises, the defendant remaining the lessee at all times. After that change, he represented himself as sole owner of the Junction restaurant.

34 I also find that the defendant alone was the lessee of the premises at the Lake and was the licensee under the Liquor Act. I further find that the funds used to establish the Junction restaurant were, to the extent of $100,000, provided by the defendant by way of loan to the plaintiff. Next, I find that the funds used to establish the Lake restaurant were borrowed, to the extent of some $115,000, by the plaintiff and the defendant as joint borrowers. I also find that, until some time in the first half of 2003, it was the plaintiff who played the principal role in the operation of both restaurants. Although the defendant attended regularly at each, she did so to support and assist the plaintiff and, in the later stages, because she feared for the security of her “investment” when he apparently began to lose interest and to neglect business affairs.

35 This last matter requires some elaboration. It was the plaintiff who had a background in the restaurant business and who, in 1991, expressed a wish to open a restaurant. He was then a bankrupt who had no regular employment or vocation but fancied himself as some kind of entrepreneur, describing himself as “an accountant, tax law specialist and merchant banker” despite having no formal qualifications. He said in cross-examination that he had worked in an accountant’s office for two or three years in the early 1980s and had had 12 or 15 years “looking at leveraged situations, structures”. It was that self-professed and unsubstantiated expertise, plus genuine experience in the hospitality industry in his earlier years, that he brought to the restaurant endeavours. The defendant, although having operated a successful life insurance agency, knew nothing about the restaurant business. But she had recently entered into an emotional relationship with the plaintiff that caused her to wish to help him realise his desire to become a restaurateur. She also had money. She used this to help her bankrupt de facto partner in various ways. Not only did she outlay funs to help him set up the Junction restaurant, she also bought him a boat, a jet ski and other things, as well as paying his ordinary living expenses.

36 Having helped the plaintiff financially and in other ways to establish the Junction business (including by taking the lease in her name, making a loan of $100,000 and allowing her ANZ account to be used, he still being a bankrupt), the defendant had three reasons to involve herself in the operation of the business. First, she had, as she herself put it, an investment to protect. Second, it is clear that she enjoyed the idea of being associated with what she wished to see develop into an upmarket establishment - hence her apparent concern to see standards of dress and deportment observed by staff members. Third, she was living with the plaintiff as his de facto wife and was no doubt motivated by considerations of affection to help him in the venture. She assisted him in the way wives often assist their husbands to pursue success in small businesses.

37 My next finding is that the defendant’s predominant role in the operation of the restaurants did not emerge until the plaintiff lost interest in them in 2003 following his estrangement from the defendant and the formation of his attachment with Ms Sheppard.

38 Finally, I find that the proceeds of the business activities were, until changes were made after the plaintiff’s loss of interest already mentioned, either placed in the safe at the Merewether home or deposited in the ANZ account which, although held in the name of the defendant, was effectively controlled by the plaintif. He held the cheque book and the defendant did not use it without his permission. The money in the safe was also controlled by the plaintiff.

39 Turning to application of the relevant legal principles to the facts, I begin with a consideration of the criteria in s.2 of the Partnership Act.

40 As far as s.2(1) is concerned, this is not a case in which any property is held in co-ownership. Rather, relevant property was held predominantly in the name of the defendant. Nor, on the facts as I have found them, was there sharing of joint receipts as contemplated by s.2(2). In relation to s.2(3), the evidence there is about the destination of profits does not indicate any sharing The tax return evidence suggests that profits were enjoyed wholly by the defendant at the beginning and wholly by the plaintiff at a later stage. None of the matters with which s.2 of the Act is concerned have been shown by the plaintiff to point in the direction of the existence of a partnership.

41 Remembering that it is for the plaintiff to make out the case he asserts, he cannot be successful unless he shows that the business that was undoubtedly conducted was conducted in such a way that the plaintiff and the defendant were “carrying on a business in common”. An explanation of the meaning and significance of these words is found at paragraphs 952 to 956 of the joint judgment of Doyle CJ, Duggan and Bleby JJ in The Duke Group Ltd v Pilmer (1999) 73 SASR 64:

“In order to meet this criterion, it is not necessary that each of the alleged partners should take an active part in the direction and management of the firm. The business may well be carried on by or on behalf of the partners by someone else. The person carrying on the business must be doing so as agent for all the other persons who are said to be partners. Lord Wensleydale stressed the need for an agency relationship in Cox v Hickman (1860) 8 HL Cas 268; at 312–3; 11 ER 431; at 449:
‘A man who allows another to carry on trade, whether in his own name or not, to buy and sell, and to pay over all the profits to him, is undoubtedly the principal, and the person so employed is the agent, and the principal is liable for the agent’s contracts in the course of his employment. So if two or more agree that they should carry on a trade, and share the profits of it, each is a principal, and each is an agent for the other, and each is bound by the other’s contract in carrying on the trade, as much as a single principal would be by the act of an agent, who was to give the whole of the profits to his employer. Hence it becomes a test of the liability of one for the contract of another, that he is to receive the whole or a part of the profits arising from that contract by virtue of the agreement made at the time of the employment. I believe this is the true principle of partnership liability.’
Likewise, Griffith CJ said in Lang v James Morrison & Co Ltd (1911) 13 CLR 1; at 11:
‘Now in order to establish that there was a partnership it is necessary to prove that JW McFarland carried on the business of Thomas McFarland & Co on behalf of himself, Lang and Keates, in this sense, that he was their agent in what he did under the contract with the plaintiffs — not that they would get the benefit, but that he was their agent.’
However, more than mere agency is required. There must be mutuality of rights and obligations. James LJ said in Smith v Anderson (1880) 15 Ch D 247; at 275:
‘Persons who have no mutual rights and obligations do not, according to my view, constitute an association because they happen to have a common interest or several interests in something which is to be divided between them.’
Those requirements of agency and mutuality are reflected in ss 5 and 6 of the Partnership Act as being the consequences of entering into a partnership. They read:
‘5. Every partner is an agent of the firm and of the other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which the partner is a member bind the firm and the other partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be a partner.
6. (1) An act or instrument relating to the business of the firm and done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person authorised, whether a partner or not, is binding on the firm and all the partners.’
(2) …’
Unless there is that mutuality, however, there can be no partnership.”

42 In the present case, there was no such mutuality. Neither party acted, in the affairs of the business, as the agent of the others and of both together. The rights and obligations arising from the business (with the sole exception of the joint borrowing from Westpac) were not mutual rights and obligations. They were separate or several rights and obligations, even though each party played a part in the totality of activities. The plaintiff and the defendant both had an interest in seeing the restaurants successfully operated. But the interest was not an interest in common. The defendant, as she put it, had an investment to protect. That was the source of her interest. It was the interest of an investor rather than a proprietor or business operator. In addition to that, she had the natural interest of one party to a de facto relationship in seeing the other party achieve personal fulfilment and success in his chosen field.

43 In the result, therefore, the plaintiff has not discharged the burden of proof that lies upon him to establish an entitlement to the declarations outlined in items (a) to (d) of paragraph 1 of these reasons, with the result that there is no basis on which the order in item (e) can be made. The claims in the summons are dismissed with costs. There is no cross-claim.

**********

Last Modified: 02/05/2004