L and H New Developments Pty Ltd v MYR Investments Pty Ltd (No 3)
[2019] VSC 354
•3 June 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL DIVISION
COMMERCIAL COURT
S CI 2012 02002
| L & H NEW DEVELOPMENTS PTY LTD (ACN 099 383 810) | Plaintiff |
| v | |
| MYR INVESTMENTS PTY LTD (ACN 005 446 373) | Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 February 2019 and 2 May 2019 |
DATE OF JUDGMENT: | 3 June 2019 |
CASE MAY BE CITED AS: | L & H New Developments Pty Ltd v MYR Investments Pty Ltd (No 3) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 354 |
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PARTNERSHIP – Taking of accounts – Adoption of special referee report – Application for further issues to be referred to special referee – Wenco Industrial Pty Ltd v W W Industries Pty Ltd (2009) 25 VR 119 referred to – Issues raised do not warrant further investigation – Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J M Ross | Hall & Wilcox |
| For the Defendant | Mr M T Settle | Benjamin Ian Zylberszpic |
HER HONOUR:
This proceeding concerns a dispute between the members of a partnership for the development of various properties in suburban Melbourne (‘partnership’).
The affairs and activities of the partnership and the disputes between the parties have been extensively canvassed in decisions delivered in December 2013 (‘2013 ruling’)[1] and March 2015 (‘2015 ruling’),[2] as well as in an unpublished ruling delivered on 11 April 2014. The 2013 ruling concerned, among other things, whether the partners were bound by the accounts of the partnership for the year ending 30 June 2009 (‘2009 accounts’). I concluded they were so bound. The following extract of the 2015 ruling provides some background and context to the current dispute, which, once again, concerns whether the 2009 accounts should be re‑opened.
The plaintiff (‘LHND’) and the defendant (‘MYR’) were, until March 2012, partners in a property development business spanning some nine years. The partners were in dispute about a number of matters concerning the finances of the partnership, and in particular, the size of the loan balances of the two partners in the partnership accounts, and the amounts owing to Furman Constructions Pty Ltd (‘Furman Constructions’), a company associated with Mr Moshe Furman, the principal of MYR, which was the builder engaged by the partnership to construct the various development projects undertaken by the partnership.
On 17 August 2012, Almond J made orders for a number of questions concerning the financial affairs of the partnership to be referred to an associate judge for determination prior to there being a final taking of accounts for the partnership (‘17 August orders’). Four of these questions were determined following a hearing in 2013 (‘2013 hearing’), with reasons published on 12 December 2013 (’12 December ruling).[3] By reason of the manner in which the 2013 hearing was conducted, the making of orders consequent upon the 12 December ruling was deferred until after a hearing on 31 March 2014 (’31 March hearing’). At the 31 March hearing, MYR was invited to make submissions as to why I should not find that MYR was bound by the 2009 accounts of the partnership (‘2009 accounts’), given that I had found that there had been an agreement between the partners regarding the process to investigate the financial affairs of the partnership and to resolve disputes between them about the balances of the partners’ loan accounts, which culminated in Mr Moshe Furman signing the 2009 accounts on behalf of MYR in December 2010.
On 11 April 2014, I made a ruling (’11 April ruling’) to the effect that I was not persuaded that MYR had demonstrated why, by reason of any errors in the accounts of the partnership, MYR should not be bound by the 2009 accounts, and orders were made on that day providing answers to the first four questions, and making directions for the hearing and determination of the remaining questions.[4]
[1][2013] VSC 689.
[2][2015] VSC 89.
[3]See [2013] VSC 689.
[4]2015 Ruling [1]-[3].
Orders were made in May 2015 following the 2015 ruling that the special referee prepare a report to, in effect, finalise the affairs of the partnership. On 22 February 2016, I made the following orders:
The Special Referee is directed to prepare partnership accounts for the financial years ending 30 June 2010, 2011, 2012, 2013, 2014 and 2015 (Partnership Accounts) together with any outstanding quarterly GST returns and tax returns of the partnership for the financial years ending 30 June 2010, 2011, 2012, 2013, 2014 and 2015 (Taxation Compliance Documents). The Special Referee is appointed Tax Agent for the partnership to facilitate lodgement of the Taxation Compliance Documents, such appointment to cease upon final lodgement of the said documents. The Partnership Accounts and the Taxation Compliance Documents are to be prepared in accordance with the findings of the Court in respect to each of the preliminary questions (copies of which orders are attached as Schedule 1 hereto) and the reasons for decision in L & H New Developments Pty Ltd v MYR Investments Pty Ltd [2013] VSC 689 and L & H Developments Pty Ltd v MYR Investments Pty Ltd [2015] VSC 89.
The report of the special referee (‘report’) was delivered to the Court on or about 31 May 2018. One cause of the delay in the preparation of the report was the death in late 2015 of the special referee originally agreed by the parties and appointed by the Court.
On 14 August 2018, I made orders directing that the parties make any applications with respect to the report returnable on 12 November 2018. On 8 October 2018, the solicitors for the plaintiff sent an email to the Court which stated, among other things:
We are seeking that these orders be made because we are still engaging in negotiations with the liquidators of Furman Constructions (Vic) Pty Ltd with a view to finalising the claim brought by Furman Constructions (Vic) Pty Ltd (in liquidation) against the Partnership (being Supreme Court of Victoria Proceeding no. S CI 202 [sic] 03718). This is so that the liability of the partnership to Furman Constructions (Vic) Pty Ltd (in liquidation) may be determined before the parties make submissions to the Court regarding final orders to be made in the proceeding. We are required to confer with our client’s accountant, Mr Robert Lebovits, regarding the complexities of the matter so as to be in a position to meaningfully continue our negotiations with the liquidators. We are hopeful that these steps will be completed by 26 November 2018 such that the parties will be in a position to consider the special referee’s report in the context of the claim by Furman Constructions (Vic) Pty Ltd (in liquidation) having been resolved and that, accordingly, the liability of the partnership to Furman Constructions (Vic) Pty Ltd (in liquidation) having been confirmed.
On 27 November 2018 the plaintiff (‘LHND’), issued a summons seeking the following relief:
1.Pursuant to rule 50.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), the Report of the special referee, Mr Rod Naismith (the ‘Special Referee’), dated 31 May 2018 (the ‘Report’) be adopted.
2.The Special Referee is directed to prepare partnership accounts for the financial years ended 30 June 2018 and part year 2019 (‘Partnership Accounts’) together with any quarterly GST returns and tax returns of the partnership that are outstanding as at the date of this order (‘Tax Compliance Documents’). The Special Referee is appointed Tax Agent for the partnership to facilitate lodgement of the Tax Compliance Documents, with such appointment to cease upon final lodgement of the said documents. The Partnership Accounts and Tax Compliance Documents are to be prepared in accordance with the findings of the Court in respect of each of the preliminary questions and the reasons for decision in L&H New Developments Pty Ltd v MYR Investments Pty Ltd [2013] VSC 689 and L&H New Developments Pty ltd v MYR Investments Pty Ltd [2015] VSC 89.
3.Paragraphs 3 to 20 of the Order made 12 May 2015 apply to appointment of the Special Referee and the preparation of the Partnership Accounts and Tax Compliance Documents.
4.Final orders be reserved pending:
(a)preparation of the Partnership Accounts and Tax Compliance Documents; and
(b)the determination or resolution of Furman Construction (Vic) Pty Ltd v L&H New Developments Pty Ltd and MYR Investments Pty Ltd (proceeding SCI 2012 03718).
This summons followed a summons issued on 26 November 2018 by the defendant, (‘MYR’) seeking the following relief:
[The Court]
(i)require the special referee to provide a further report explaining any matter mentioned or not mentioned in the report; or
(ii)remit the whole or any part of the question originally referred to the special referee for further consideration by that referee or any other special referee; or
(iii)vary the report;
as the justice of the case requires.
MYR relied upon an affidavit sworn by one of its directors, Mr Moshe Furman, on 26 November 2018 in support of its summons. After deposing to some background matters, Mr Furman deposed, in summary, as follows:
(a) the partnership borrowed $11,828,051.00 from Westpac Banking Corporation (‘Westpac’). Of this sum, some $1,453,984.95 has not been accounted for;
(b) MYR denies that $1,782,257.00 is owed by the partnership to LHND;
(c) between April and June 2009 MYR transferred $6,608,051.00 to LHND’s bank account, being the proceeds of sale from the Mordialloc project. However, LHND failed to record this amount in its loan account to reduce the balance of its loan account; and
(d) Mr Furman deposed as follows:
Even though the Plaintiff received $11,828,051.00 from the Commercial Bills, the Plaintiff only transferred to the partnership the sums of $6,106,772.05 for construction costs, $1,516,294.00 for interest, and $2,751,000.00 for the purchaser of the land, a total of $10,374,066.05, or a difference of $1,453,984.95. The Defendant alleges that the Plaintiff has retained this sum for its own use and has not accounted to the partnership for this amount. Further particulars will be provided at or prior to the trial hereof. This amount when taken into account will dramatically affect the final distribution of the partnership proceeds as referred to in Mr Naismith’s report.
I submit that after the proceedings were concluded the parties reconstructed the construction costs of the projects and determined that there was a difference between the original figures and the reconstructed figures of some $1,500,000.00 less. This has implications for the partnership distribution and the profits for the partnership. Further particulars will be supplied at or prior to the trial hereof.
MYR also relied upon an affidavit of Mr Furman affirmed on 13 February 2019 in support of MYR’s application that, in effect, the 2009 accounts be re‑opened. While this affidavit canvassed a range of alleged errors and/or inconsistencies in the 2009 accounts, at the hearing on 27 February 2019, counsel for MYR confirmed that the only matters MYR would rely upon would be the treatment in the partnership accounts of the receipts of the sale of the properties developed by the partnership as part of the Mordialloc project, being the two sums of $6,310,000.00 and $18,051.00 transferred from the bank account of MYR to the bank account of LHND on 27 April 2019 and 4 June 2009.
In regard to this matter, Mr Furman deposed as follows (excluding references to exhibits):
12.I understood and appreciated that the mandate provided by this Honourable Court to Mr Naismith as Special Referee was limited to matters post 30 June 2009, that is 2009 year (the Special Referee’s Mandate).
13.I also understood that the closing balance of the L&H Loan Account on 30 June 2009 would also be the opening balance of the L&H Loan Account on 1 July 2009, that is, the commencement of the 2010 year, which ended on 30 June 2010. The 2010 year comes within the Special Referee’s Mandate. On that basis I became anxious to confirm the accuracy of the closing balance of the L&H Loan Account on 30 June 2009, and accordingly the opening balance of the L&H Loan Account on 1 July 2009.
14.In this regard, I focussed on the development at 97-103 McDonald Street, Mordialloc undertaken by the Partnership (the Mordialloc Project), which consisted of the purchase of land and the construction of nineteen (19) residential units (the Mordialloc Units).
15.The Mordialloc Project involved MYRI, with the agreement of L&H, purchasing the land for the Mordialloc Project (the Mordialloc Land), in its own name as nominee for the Partnership for $1,408,000.00, pursuant to Contract of Sale dated 22 September 2004. A deposit of $140,800 was paid upon the signing of the Contract of Sale. The balance of the purchase price of the Mordialloc Land (including duty and fees) and the construction costs of the 19 units was financed by a Commercial Bill from the Westpac Bank taken by L&H in its own name in the amount of $5,465,000.00 (the Mordialloc Project Commercial Bill) which funds it on‑lent to the Partnership.
16.Effectively, L&H took the Mordialloc Commercial Bill as nominee for the Partnership. That Commercial Bill was secured by a mortgage over the Mordialloc Land and guarantees as required by Westpac Bank from each of L&H, MYRI and the Directors of L&H and MYRI, that is, Mr New, his wife, Mr Furman and his wife.
17.The Mordialloc Units were sold by the Partnership in essentially two (2) tranches. The first tranche consisted of the sale of fifteen (15) of the Mordialloc Units that were sold to fifteen (15) separate third party purchasers, each sale pursuant to a separate Contract of Sale. The settlement of those fifteen (15) units took place between on or about 17 April 2009 and on or about 27 April 2009 inclusive. The proceeds of the sale of those fifteen (15) units, net of the deposits on each sale and adjustments, were deposited into the Westpac Bank Account No. 033-002 20-7954 of MYRI between 17 April 2009 and 21 April 2007 inclusive, which MYRI received on behalf of the Partnership. The settlement of the sale of the fifteenth (15th) unit took place in two transactions, with:
(a)$277,196.49 being paid by the purchaser on or about 27 April 2009, which was deposited into the Westpac Bank Account No. 033-002 20-7954 of MYRI, which was received on behalf of the Partnership; and
(b)$160,000.00 being paid (upon the direction of the Partnership to Furman Constructions (Vic) Pty Ltd (to discharge debts owed thereto by the Partnership) (the Direction Payment).
18.On 18 May 2009 a further amount of $18,051.00 in regard to settlement of unit 5 of the Mordialloc Project was received into the Westpac Bank Account No. 033-002 20-7954 of MYRI as nominee of the Partnership (the Additional Unit 5 Payment).
19.Excluding the Direction Payment and the Additional Unit 5 Payment, the total proceeds of sale for the said fifteen (15) units was $6,610,961.56 (the Net Proceeds for 15 Mordialloc Project Units).
20.On 27 April 2009 $6,310,000.00 of the Net Proceeds for 15 Mordialloc Project Units was transferred from the Westpac Bank Account No. 033-022 20-7954 of MYRI as nominee of the Partnership to the Westpac Bank Account No. 033-169 23-5391 of L&H, thereby reducing the indebtedness of the Partnership to L&H.
21.Later on 27 April 2009, L&H transferred $6,318,447.97 from its Westpac Bank Account No. 033-169 23-5391 to repay the Commercial Bill taken by L&H and on‑lent to the Partnership to finance the Mordialloc Project.
22.On 4 June 2009 a further amount of $18,051.00 was transferred from the Westpac Bank Account No. 033-002 20-7954 of MYRI as nominees of the Partnership to the Westpac Bank Account No. 033-169 23-5391 of L&H, thereby further reducing the indebtedness of the Partnership to L&H.
23.Later on 4 June 2009, L&H transferred $18,051.00 to repay the balance owing on the Commercial Bill taken by L&H and on‑lent to the Partnership to finance the Mordialloc Project.
24.The L&H Loan Account for the year ended 30 June 2009, which was prepared by Mr Lebovits (the 2009 L & H Loan Account), does not record the appropriate commensurate decreases in the indebtedness of the Partnership to L&H referrable to the transfers of either of:
(a)the amount of $6,310,000.00 transferred from the Westpac Bank Account No. 033-002 20-7954 of MYRI as nominee of the Partnership to the Westpac Bank Account No. 033-169 23-5391 of L&H referred to in paragraph 20 hereof; or
(b)the amount of $18,051.00 transferred on 4 June 2009 from the Westpac Bank Account No. 033-002 20-7954 of MYRI as nominee of the Partnership to the Westpac Bank Account No. 033-169 23-5391 of L&H referred to in paragraph 23 hereof.
This is to be contrasted with the way in which $280,000.00 that was transferred on 4 May 2009 from the MYRI Westpac Bank Account No. 033-002 20-7954 to the Westpac Bank Account No. 235391 of L&H, was recorded in the 2009 L&H Loan account where there was an appropriate decrease of the indebtedness of the Partnership to L&H recorded.
Now shown and produced to me and marked ‘MF-7’ is a true copy of the 2009 L&H Loan Account that shows:
(i)no movement therein referrable to the transfer of the said $6,310,000.00;
(ii)no movement therein referrable to the transfer of the said $18,051.00;
(iii)the appropriate decrease in indebtedness of the Partnership to L&H of $280,000.00 referable to the payment on 4 May 2009 of $280,000.00 from the Partnership to L&H.
26.The consequence of the L&H Loan Account not recording a decrease in the indebtedness of the Partnership to L&H upon the Partnership transferring:
(a)the $6,310,000.00 on 27 April 2009, as I have detailed in paragraphs 20 and 25 hereof; and
(b)the $18,051.00 on 4 June 2009, as I have detailed in paragraphs 23 and 25 hereof
is that the L&H Loan Account as at 30 June 2009 overstates the indebtedness of the Partnership to L&H by $6,328,051.00. So instead of the Partnership owing L&H $1,974,830.00 as per the 2009 Accounts referred to in the Special Referee’s Report at paragraph 23.1 thereof, to which I refer in paragraph 11 hereof, actually L&H owes the Partnership $4,353,221.00 of which MYRI is entitled to half, that is $2,176,610.50.
LHND relied upon affidavits affirmed by its solicitor, Mr Thomas McMahon, and its accountant, Mr Robert Lebovits, on 26 February 2019 in response to Mr Furman’s affidavit of 13 February 2019. Mr Lebovits was, prior to the appointment of the special referee, also the partnership’s accountant.
Mr McMahon deposed that the directors of LHND, Mr Lewis New and Mrs Hannah New, are aged 85 and 80 years respectively. Mr Lebovits commented upon certain documents exhibited to Mr Furman’s affidavit, namely the L&H Loan Account summary, which he said had been provided by him to Lowe Lippman, MYR’s accountants, in September 2009, and a document headed ‘Second Construction Summary’, which he said had not been prepared by him or his firm.
In its written outline of submissions filed on 10 February 2019 (that is, prior to the filing and service of Mr Furman’s affidavit), LHND submitted that the report should be adopted, and the special referee be directed to prepare the outstanding accounts and tax returns for the partnership. LHND submitted as follows:
The Report has been prepared by an expert accountant and demonstrates on its face a thorough, analytical and scientific approach. In accordance with Wenco, the Court should adopt the Report unless it reveals an error of principle or perverse or manifest unreasonableness in fact finding.
To the extent that the matters on which the defendant relies are discernible, they do not reveal an error of principle, perverse or manifest unreasonableness in fact finding. Nor do they reveal significant inconsistencies or uncertain meaning in the Report, or that the Report is based on a misconception.
LHND’s submissions identified and discussed the issues raised in Mr Furman’s affidavit of 26 November 2018, and submitted that ‘[MYR] appears to be re‑agitating issues that have already been raised and determined by the Court … ‘.
LHND filed and served further submissions on 22 February 2019 following Mr Furman’s affidavit of 13 February 2019, noting as follows:
This proceeding was commenced on 5 April 2012, almost seven years ago. The controllers of the plaintiff are now aged 80 and 85. Over 11 hearing days in 2013 and 2014 the Court determined various preliminary issues, including that the defendant agreed to be bound by the 2009 partnership accounts. The defendant has applied twice already to re-open the issue of whether it is bound by the 2009 accounts. Each of those applications failed.
LHND submitted that:
The Report should be adopted for the following reasons:
(a)The principles for adoption of a special referee’s report are set out in Wenco Industrial Pty Ltd v W W Industries Pty Ltd (2009) 25 VR 119. Even if the 2009 accounts are somehow wrong, there is no error in the sense discussed in Wenco that would justify the Report being set aside or varied.
(b)The defendant identifies no basis on which to set aside the finding that it entered into an agreement to be bound by the 2009 accounts.
(c)The defendant has applied twice already to re-open the 2009 accounts. Most of the matters the defendant relies on as demonstrating errors in the 2009 accounts have already been raised and determined by the Court. To the extent the defendant relies on matters not already considered by the Court, there is no explanation, or at least no adequate explanation, why those matters could not have been raised earlier.
(d)There is an obvious interest in finality of litigation, particularly where the controllers of the plaintiff are elderly, the proceeding has been ongoing for almost seven years and has involved significant time and resources of both the Court and the parties.
(e)Mr Furman’s opinion that there are errors in the 2009 accounts is inadmissible. He is not an accountant and has no expertise to give that opinion.
LHND submitted that the special referee was ordered to prepare the partnership accounts in accordance with the 2015 ruling and orders, including my finding that the parties were bound by the 2009 accounts. LHND submitted:
Even if the 2009 accounts are wrong, which is denied, there would be no error of principle or perverse or manifest unreasonable (sic) in fact finding in the Report to justify it being set aside or somehow varied: the Special Referee did what he was ordered to.
LHND submitted that, in effect, MYR is seeking to re‑open the 2009 accounts, noting that MYR has twice been unsuccessful in making such an application. Further, the complaints made by Mr Furman in his affidavit of 13 February 2019 have already been dealt with by the Court when determining that the parties were bound by the 2009 accounts. The documents relied upon by Mr Furman in his affidavit were provided to MYR’s accountants in 2009, or were not prepared by Mr Lebovits.
Finally, LHND submitted as follows (footnotes omitted):
The Court is entitled to consider the strain the litigation places on litigants. The controllers of the plaintiff are elderly. If the 2009 accounts are set aside on the third attempt to do so and at the eleventh hour, the parties will in effect have to go back to the start of this litigation, ten years after the relevant events, almost seven years after the proceeding was commenced and after significant resources and costs will have been wasted. Such an outcome is not in the interests of justice.
Mr Furman provides, in effect, an opinion that because certain matters should be recorded or are not recorded in the 2009 accounts, those accounts are wrong. … Mr Furman is not an accountant. He cannot express an admissible opinion on what the accounts should show or do show or whether they are wrong.
Written submissions were filed on behalf of MYR on 25 February 2019 and 27 February 2019 in support of its application that ‘the mandate of the appointment of the special referee be extended to include the year ended 30 June 2009.’
MYR submitted that its review of the report identified errors, or ‘serious issues’, based upon the indebtedness of the partnership to LHND as at 30 September 2017 (as determined by the special referee in the report) being based upon the indebtedness of the partnership to LHND as at 30 June 2009. The matters raised in the affidavit of Mr Furman of 13 February 2019 concerned a number of specific large transactions which should have had an impact on the LHND loan account, which were not fully recorded, or not recorded at all. MYR submitted as follows:
It is respectfully submitted that the matters detailed in the paragraphs 13 to 53 inclusive of the Further Furman Affidavit demonstrate that there are material errors in the 2009 accounts such that, notwithstanding the findings of the Honourable Court that there was a binding agreement between the parties which culminated in the signing of the 2009 accounts, this Honourable Court should exercise its equitable jurisdiction to re-open the 2009 accounts, and refer the matter to the Special Referee.
In its submissions filed on the day of the hearing, MYR submitted again that in the exercise of the Court’s discretion, the 2009 accounts ought be re‑opened, and referred to the special referee, limited to there being a proper accounting for the sums of $6,310,000.00 and $18,051.00 referred to in paragraph 26 of Mr Furman’s affidavit of 13 February 2019 and the preceding paragraphs (see paragraph 10 of these reasons). MYR submitted that these matters have not been raised in this proceeding prior to the date of Mr Furman’s affidavit of 13 February 2019, and thus amount to ‘additional evidence’ within the meaning of the 2015 ruling, sufficient to satisfy the Court that there were material errors in the 2009 accounts.
During the course of the hearing on 27 February 2019, I indicated to the parties that I expected that a number of the concerns identified Mr Furman with respect to the treatment of the receipts from the Mordialloc project in the 2019 accounts may well be resolved by a further explanation from Mr Lebovits, and made orders accordingly (’27 February orders’). Mr Lebovits subsequently affirmed an affidavit on 18 March 2019, in which he confirmed the evidence given by him in this proceeding in 2012 and 2013 to the effect that:
(a) the development projects of the partnership were funded by borrowings by LHND from Westpac Banking Corporation (‘Westpac’) and on‑lent to the partnership;
(b) the amount outstanding on the loans from Westpac were shown in the accounts of the partnership as liabilities of the partnership under the heading ‘Bank Loans’, and not in the partnership loan account headed ‘L&H New Developments Ltd’, which recorded the amount owing by the partnership to LHND; and
(c) when development projects were completed and sold, the proceeds of sale were paid by LHND (and on occasion, MYR) to Westpac to reduce the amount owing on the loans made by Westpac to LHND, with the ‘Bank Loan’ account in the partnership accounts adjusted accordingly. That is, even if the receipts were received into the bank account operated by LHND, and then paid on to Westpac, the ‘passing through’ of these funds through the LHND bank account did not alter the amount owing to LHND by the partnership.
Mr Lebovits referred to two affidavits affirmed by him in 2012 and 2013, which were tendered into evidence at the hearing which resulted in the 2013 ruling. In his affidavit affirmed on 7 December 2012, Mr Lebovits deposed, in summary, as follows:
(a) his firm prepared a schedule for each of the partnership projects showing, among other things, the loan funding for each of the projects, accompanied by the drawdown notices issued by Westpac. These schedules were provided to Mr Gideon Rathner, MYR’s accountant, in 2009 and 2010;
(b) during a telephone call with Mr Rathner on 26 March 2010, Mr Rathner said words to the effect that ‘we’ve made substantial progress in the conduct of the investigation, the bank bills are accepted and all allegations are dropped’;
(c) during a meeting with Mr Rathner on 27 July 2010, Mr Rathner said words to the effect that ‘Moshe instructed me to check every single commercial bill and not do a random sample review to make sure that the interest and the bills were accurately recorded in the books of the partnership’; and
(d) on 26 August 2010, Mr Rathner sent him an email stating that ‘[w]e also confirm that the Westpac commercial bills and interest charge is not in issue.’
In his affidavit affirmed on 25 March 2013, Mr Lebovits, among other things, responded to allegations made by Mr Mark Saltzman, another accountant engaged by MYR, regarding the treatment of the Westpac loans in the partnership accounts, as follows:
(a)each drawdown of a Commercial Bill was initially paid by Westpac into the Plaintiff’s bank account (Drawdown);
(b)the cash received under the Drawdown was next transferred by the Plaintiff to the partnership’s bank accounts (Transfer), or in some cases applied wholly or partly to reduce a pre‑existing loan balance owing by the partnership to the plaintiff (Reduction); and
(c)the face value amount of each Commercial Bill included an interest component which was payable to Westpac by the Plaintiff contemporaneously with the Drawdown (Interest). For example, if a Commercial Bill facility provided by Westpac to the Partnership Business in the face value amount of $200,000 had Interest of $10,000, Westpac would:
(i)pay $190,000 into the Plaintiff’s bank account under the drawdown; and
(ii)retain $10,000 representing payment by the Plaintiff of the Interest.
10The accounting treatment employed by Green & Sternfeld in relation to each Drawdown in the Plaintiff’s Accounts was to:
(a)debit the cash at bank for the actual amount of money transferred into the plaintiff’s bank account by Westpac under the Drawdown (Cash Received Amount);
(b)credit the partnership’s loan account for the face value amount of the Commercial Bill. This entry increased the indebtedness of the plaintiff to the partnership and reflected that the Commercial Bill facility was provided by Westpac to the plaintiff for the Partnership Business; and
(c)debit the partnership’s loan account for the Interest to reduce the plaintiff’s indebtedness under the entry created in 10(a) above by the amount of the Interest. This entry resulted in the amount of this indebtedness equalling the Cash Received Amount.
11The accounting treatment employed by Green & Sternfeld in relation to each initial drawdown in the Partnership’s Accounts was to:
(a)debit the Interest as an expense of the partnership;
(b)debit the plaintiff’s loan account in the Cash Received Amount. This entry reduced the partnership’s indebtedness to the plaintiff; and
(c)credit the Westpac loan for the face value amount of the Commercial Bill.
12The accounting treatment employed by Green & Sternfeld in the Plaintiff’s Accounts in relation to each Transfer was to:
(a)debit the partnership’s loan account in the Cash Received Amount. This entry reduced to zero the indebtedness of the plaintiff to the partnership arising from the Cash Received Amount and records that this amount had been transferred to the partnership’s bank account; and
(b)credit the cash at bank to reflect the Transfer.
13The accounting treatment employed by Green & Sternfeld in the Partnership’s Accounts in relation to each Transfer was to:
(a)debit the cash at bank in the Cash Received Amount to reflect the Transfer; and
(b)credit the plaintiff’s loan account in the Cash Received Amount. This entry neutralized (or cancelled out) the entry previously made in paragraph 11(b).
14The accounting treatment as described in paragraphs 10 to 13 above has the effect that the loan account entries made in relation to each Drawdown are cancelled out or neutralised by the loan account entries made in relation to the Transfer, except for the Westpac loan account referred to in paragraph 11(c) above (which discloses the face value amount of the Commercial Bill in the Partnership’s Accounts).
In his affidavit of 18 March 2019, Mr Lebovits exhibited a number of documents to illustrate the accounting for the Westpac loan drawdowns and repayments were treated in the partnership accounts, and to show how the proceeds of sale of the Mordialloc properties were dealt with in the partnership accounts. These documents included the General Ledger Transaction Report for the partnership,[5] the LHND loan account summary,[6] the LHND general ledger,[7] letters from Westpac to LHND in 2009 regarding the amounts owed with respect to various facilities, and an extract of LHND’s bank statements.
[5]Exhibit ‘RL-3’.
[6]Exhibit ‘RL-4’.
[7]Exhibit ‘RL-6’.
In his affidavit of 18 March 2019, Mr Lebovits explained how the difference between the opening balance and the closing balance of the Westpac loan balance in the 2009 accounts was achieved. The difference was a reduction of $4,730,857.00, which was accounted for in the General Ledger Transaction Report. The General Ledger Transaction Report shows that the sum of $6,310,000.00 comprised two debit entries of $5,465,000.00 and $845,000.00 on 27 April 2009. Further, Mr Lebovits deposed that Mr Furman’s statement in paragraph 25 of his affidavit of 13 February 2019 regarding the accounting for the payment of $280,000.00 from MYR to LHND on 30 June 2009 was incorrect. Of the $280,000.00 paid to LHND, $270,000.00 was paid to Westpac in reduction of the outstanding loan balance, $10,000.00 was retained by LHND, and the LHND loan account balance was reduced accordingly.
Further, in addition to the debit entries referred to above (being a reduction in the amount owed by the partnership to Westpac) the General Ledger Transaction Report shows two credit entries of $994,400.00 and $872,800.00, which represents drawdowns upon the Westpac loan facilities. The net amount of the debits and credits was $4,730,851.00.
On 15 April 2019, Mr Benjamin Zylberszpic, the solicitor for MYR, affirmed an affidavit on behalf of MYR in response to Mr Lebovits’ affidavit of 18 March 2019. In this affidavit, Mr Zylberszpic accepted that the funds borrowed by LHND from Westpac for partnership purposes were partnership liabilities, not liabilities of LHND, but asserted that Mr Lebovits’ affidavit did not comply with the 27 February orders, as it did not ‘explain the treatment in the accounts of the partnership sums referred to in paragraph 26 of [Mr Furman’s] affidavit’, namely, one amount of $6,310,000.00, and another of $18,051.00, which Mr Furman contends should have been credited against the LHND loan account in the partnership accounts. Mr Zylberszpic deposed further, that:
As detailed below aspects of [Mr Lebovits’] affidavit are inconsistent with one another or mis‑describe the exhibits to which reference is made.
In particular, Mr Zylberszpic referred to the following issues:
(a) no explanation has been provided for the reference to various transactions apparently concerning ‘commercial bills’ in the LHND loan account summary (paragraph 9 of his affidavit);
(b) there was no explanation of how the sum of $2,423,110.31 was said to be owed by the partnership to LHND as at 1 July 2008 (paragraph 12);
(c) Mr Zylberszpic has been unable to reconcile the entries showing cash advances in the LHND loan account summary with the entries in the LHND general ledger for funds borrowed by Westpac and said to have been on‑lent to the partnership by LHND for the 2009 financial year (paragraphs 13 to 19). Mr Zylberszpic referred to the three credit entries in the LHND loan account summary which were identified as ‘cash advances’ totalling $634,000.00. However, the LHND general ledger shows six credit entries for the Mordialloc project totalling $994,400.00 which do not appear in the LHND loan account summary. It was said by Mr Zylberszpic that these entries (described as ‘Not Included on Lent Funds’) should not be considered to be represented by the entry of $994,400.00 in the LHND loan account summary, and the coincidence of these amounts is, in fact, a mere coincidence. The difference between the ‘Total Not Included On Lent Funds’ and the cash advances is $359,000.00. Mr Zylberszpic deposed:
Due to the insufficiency of the information detailed in the RL Affidavit and each of the Exhibits thereto, I have been unable to reconcile the above difference...
(d) Mr Zylberszpic has been unable to reconcile one credit entry and four debit entries on 30 June 2009 in the LHND loan account summary with the LHND general ledger. He deposed that ‘[i]n total, I have been unable to reconcile $1,159,935.40 … in the 2009 Financial year’ (paragraphs 20 to 22);
(e) the amount of $2,423,110.31 for the amount owed by the partnership to LHND at the start of the 2009 financial year needs to be ‘properly reconciled’, given that the first drawdown for the Hastings project was made on 26 April 2004 and the first drawdown for the Mordialloc project was made on 20 December 2004. Mr Zylberszpic deposed that ‘I am concerned that there may not have been a proper reconciliation since that time which has a flow on effect or flow on effects to all later financial years including but not limited to the year ended 30 June 2009 and beyond that may amount to a considerable sum’ (paragraph 23);
(f) he queried whether the difference between the opening and closing loan balance for the Westpac loans in 2009 was properly calculated, and noted that that LHND was legally liable for the Westpac loans (paragraph 25);
(g) the Annual General Ledger of the partnership is a summary document which does not show individual transactions. (paragraph 26). The difference between the opening balance and the closing balance of the Westpac loan account of $4,730,000.00 is shown in the Annual General Ledger[8] as a single entry on 30 June 2009, while Mr Lebovits in his affidavit refers to various individual transactions which made up that amount, which did not occur on 30 June 2009;
[8]Exhibit ‘RL-2’ to the affidavit of Mr Lebovits affirmed on 18 March 2019.
(h) Mr Lebovits has not explained the different treatment of the payments to LHND of $280,000.00 and $994,000.00 in the partnership accounts (paragraphs 27 to 28);
(i) the debit entry of $50,100.00 in the LHND loan account summary on 30 June 2009 referable to the Croydon deposit does not appear in the LHND general ledger. He was instructed by Mr Furman that Furman Constructions Pty Ltd paid the deposit for the Croydon property on 14 October 2004, but, despite request, Furman Constructions Pty Ltd has never been repaid by the partnership or LHND (paragraph 29);
(j) Mr Lebovits has provided no breakdown of the $5,465,000.00 owing on the Mordialloc facility as at 31 December 2008, stating that the figures in paragraph 26 of Mr Furman’s affidavit of 13 February 2019 are based upon this sum (paragraphs 30 to 31);
(k) bank statements for LHND provided to him by Mr Furman show the receipt of drawdowns of the Westpac loans by LHND, and the sums on‑lent to the partnership by LHND. However, these amounts do not coincide, as follows (paragraph 32):
(a)Westpac statement number 75: on 18/1/08 $236,749.26 received and on 21/1/08 $180,000 paid (Difference of $56,749.26);
(b)Westpac statement number 76: on 8/2/08 $294,083.97 received and on 8/2/08 $272,000.00 paid (Difference of $22,083.97);
(c)Westpac statement number 80: on 6/6/08 $325,574.24 received and on 6/6/08 $298,000.00 paid (Difference of $27,574.24);
(d)Westpac statement number 81: on 15/7/08 $226,376.16 received and on 15/7/08 $198,000.00 paid (Difference of $28,376.16); and
(e)Westpac statement number 82: on 8/8/08 $185,680.79 received and on 8/8/08 $160,000.00 paid (Difference of $25,680.79).
(l) he detailed further apparent discrepancies in the sum of $5,465,000.00 arising out of transactions on 24 December 2007 and 28 November 2008 (paragraph 33), and deposed as follows:
On the basis of the matters detailed in paragraphs 32 and 33 hereof, it appears that the Partnership may not have been indebted to L & H New (in part) to the extent of $5,465,000.00 as is asserted in paragraph 14 of the RL Affidavit, which it repaid on 27 April 2009 (See paragraphs 10(a) and 12 of the RL Affidavit) as recorded in Exhibit RL-3 and Exhibit RL-6. According, the proof of the Bank Loan Difference detailed in paragraph 12 of the RL Affidavit may be flawed. This is so as the Bank Loan Difference of $4,730,000.00 is predicated in part that the Partnership being indebted in regard to the Bank Loan concerning the Mordialloc Commercial Bill to the extent of $5,465,000.00 and that may not be so (See paragraphs 32 and 33 hereof).
(m)finally, Mr Zylberszpic deposed as follows:
On my analysis detailed above in response to the matters detailed in the RL Affidavit in some respects there may be an increase in the amounts owing to the Partnership (See for example paragraph 13 hereof, $359,800.00) and that it would be in the interest of all parties for a thorough reconciliation of all accounts by way of forensic examination be performed by the Special Referee to finally resolve all accounting matters.
Mr Zylberszpic exhibited the following documents to his affidavit:
(a) a bank account statement and corresponding cheque butt for the alleged payment of the deposit for the Croydon property on 14 October 2004;
(b) extracts of LHND’s bank statements in 2007 and 2008, and letters from Westpac; and
(c) the LHND loan account summary and the LHND general ledger exhibited to Mr Lebovits’ affidavit of 18 March 2019.
Accordingly, there are three issues that require determination:
(a) should the report be adopted or somehow varied, remitted or a further report required;
(b) should the special referee prepare the outstanding accounts and returns; and
(c) should final orders be reserved pending the preparation of the outstanding accounts and returns and the determination or resolution of another proceeding in this Court whereby Furman Constructions Pty Ltd, claiming money said to be owed by the partnership (‘Furman Constructions proceeding’).
The parties agree that final orders need to be reserved pending the resolution or determination of the Furman Constructions proceeding, given that the special referee did not account for any liability of the partnership to Furman Constructions Pty Ltd. Orders were made on 28 March 2019 directing the special referee to prepare, but not lodge, any outstanding partnership accounts and returns pending the outcome of the parties’ applications.
In his submissions, counsel for LHND relied upon the decision of the Court of Appeal in Wenco Industrial Pty Ltd v W W Industries Pty Ltd[9] as establishing the principles as to when the Court should adopt a report of a special referee. These principles, which I did not understand to be disputed by MYR, include the following (omitting footnotes):
[9](2009) 25 VR 119.
(a)the reference is not to be treated ‘as some kind of warm up for the real contest’;
(b)where a report shows a thorough, analytical and scientific approach, the Court has a disposition towards adoption of the report;
(c)a report may be rejected if it reveals an error of principle or perverse or manifest unreasonableness in fact finding; and
(d)findings of fact should not be re-agitated in the Court.
An order that a special referee make a further report may be appropriate where the original report contains significant inconsistencies, or its meaning is uncertain, or it is based on a misconception.[10]
[10]Plaintiff’s outline of submissions dated 10 December 2018 [10]-[11].
I do not understand MYR to be criticising the accuracy of the report insofar as the special referee performed the task assigned to him: that is, to complete the partnership accounts for the years after 2009, based upon the findings made by me in the 2013 ruling and the 2015 ruling. Indeed, the report appears to be in an orthodox form, and, as submitted by LHND ‘demonstrates on its face a thorough, analytical, and scientific approach to the preparation of the partnership accounts’. Rather, MYR’s challenge is made on the basis that the report is based upon a ‘misconception’, being that the 2009 accounts were an accurate statement of the affairs of the partnership as at 30 June 2009, and, in particular, that the partner’s loan account balances were accurate. The affidavits of Mr Furman and Mr Zylberszpic are directed at undermining the Court’s confidence that this underlying assumption, upon which the report is based, is correct, with particular attention being directed to the accounting for the Mordialloc project in the 2009 accounts. MYR submitted that the question of whether the Mordialloc project has been properly accounted for in the books of the partnership should be referred to the special referee.
There are a number of difficulties with this submission. First, the only basis for disturbing my finding in the 2013 ruling that the parties were bound by the 2009 accounts is, given that the taking of accounts is an equitable remedy, if it could be established that there are material errors in the 2009 accounts, such that it would be unjust that the parties be so bound. Secondly, while I accept (and have accepted in the past) that it is open to the Court to allow a party to re‑agitate a determination upon an interlocutory application should the justice of the case require, this is the third occasion upon which I have been asked to do so. There does come a point where enough is enough, noting that my finding that the parties were bound by the 2009 accounts was made some five and a half years ago, and, despite engaging at least three firms of accountants since the commencement of the dispute between the parties in 2009, MYR has not been able to establish any material errors in the 2009 accounts that were not dealt with by negotiations between the accountants for LHND and MYR which took place in 2009 and 2010. Further, the finding that the parties were bound by the 2009 accounts was made in the context of there having been an exhaustive investigation of the accounts of the partnership by MYR’s accountants in 2009 and 2010.
Thirdly, having reviewed the exhibits to Mr Lebovits’ affidavit of 18 March 2019, I am satisfied that the extracts from the partnership accounts and the bank statements are consistent with the accounting procedures described by Mr Lebovits in his affidavit of 25 March 2013, and his explanations of the transactions concerning the Mordialloc project queried by Mr Furman in his affidavit of 18 March 2019. I am satisfied that, of the payments of $6,310,000.00, $280,000.00 and $18,051.00 received by LHND from MYR representing the proceeds of sale of the Mordialloc project, all but $10,000.00 was used to repay the loans made by Westpac, and as such, had no impact upon the closing balance of the LHND loan account in the 2009 accounts. The $10,000.00 retained by LHND was properly accounted for by a reduction in the LHND loan account balance.
Fourthly, the 27 February orders were directed at having Mr Lebovits confirm that the matters raised by Mr Furman in his affidavit of 13 February 2019 could be explained on the basis that drawdowns on the Westpac loans and the repayments of the Westpac loans were accounted for in the accounts of the partnership by adjustments to the ‘Bank Loan Account’ line item in the partnership accounts. While the transactions were conducted through the bank accounts of LHND, the accounting for the drawdowns and the repayments did not affect the loan balance of LHND in the partnership accounts, because the LHND bank account was no more than a conduit for these funds. The 27 February orders were not made with a view to re‑opening the question of the accuracy of the 2009 accounts in their entirety.
Finally, I am satisfied that Mr Lebovits’ affidavit adequately explains the treatment of the drawdown and repayment of the Westpac loans for the Mordialloc project. I do not accept that his evidence is inconsistent and confusing. Further, the matters raised by Mr Zylberszpic go well beyond the limited scope of the inquiry envisaged by the 27 February orders. Notwithstanding this, and the fact that neither Mr Furman or (to my knowledge) Mr Zylberszpic are qualified accountants, I have considered the matters raised by Mr Zylberszpic in his affidavit later in these reasons.
MYR relies upon the following passage of the 2015 ruling in support of its contention that it is open to it to seek to re‑open the 2009 accounts should new issues be raised regarding the 2009 accounts while this proceeding is still on foot:
In summary, an (sic) order to succeed in its application to re‑open the 2009 accounts, MYR would need to satisfy me that:
(a)there was a reasonable explanation for why the additional evidence relied upon by MYR, being the third Hockley report, was not available at the 31 March hearing; and
(b)this additional evidence should satisfy me that there were material errors in the 2009 accounts such that, notwithstanding my findings that there was a binding agreement between the partners which culminated in the signing of the 2009 accounts, I should exercise the equitable jurisdiction of the Court to re‑open the 2009 accounts, and refer the matter to a special referee.[11]
[11]2015 ruling [77].
MYR’s submissions appear to be premised upon the assumption that, provided that the ‘issues’ raised with respect to the 2009 accounts have not been raised before, or raised in precisely the same terms, the above statement provides an open invitation to MYR to revisit the 2009 accounts. That submission is misconceived.
In 2014 (following an earlier unsuccessful application) MYR sought to re‑open the 2009 accounts based upon three discrete issues: two concerning the accounting for the Poath Road project, and what was describes as the ‘Westpac overborrowing issue’. I determined that the accounting for and distribution of profits with respect to the Poath Road project had been expressly compromised during the course of the accountants’ review which led to the parties signing the 2009 accounts, and that the Westpac overborrowing issue concerned a complaint by Mr Furman with respect to the manner in which Mr New administered the affairs of the partnership, not the accuracy of the 2009 accounts.
The paragraph of the 2015 ruling extracted above was immediately followed by the following paragraph:
As noted earlier in these reasons, the explanation provided on behalf of MYR was hardly satisfactory, and, in my view, the interests of the parties and the public in finality of litigation is a significant consideration. However, the primary reason for refusing the application is that, despite its best endeavours, MYR has not been able to advance evidence which would persuade me that there may be errors in the 2009 accounts which warrant their re‑opening.
In other words, read in its context, the passage relied upon by MYR in this application was not an invitation to bring forward more evidence in an attempt to impugn the 2009 accounts: rather, it set out what MYR was required to do to be successful in that application, and had not done.
Earlier in the 2015 ruling, I summarised the reasons for rejecting MYR’s application, as follows:
(a)first, the explanation as to why the material put before me on the current application was not available to be put forward at the hearing on 31 March 2014 was inadequate, and, to the extent that an explanation was provided, the difficulties experienced by MRY seem to be as a result of resource allocation decisions and forensic decisions made by MRY and its legal representatives rather than unforeseen events or circumstances beyond their control, or any conduct on the part of LHND;
(b)none of the evidence or submissions relied upon by MYR squarely address the findings made in the 12 December ruling that there was a binding agreement between the partners with respect to the validity of the 2009 accounts. No evidence is before me that that agreement is void or voidable on the grounds of fraud, misrepresentation, duress, or unconscionable conduct. I do accept that the Court has a general equitable jurisdiction with respect to the affairs of the partnership, but my finding that there was an agreement between the parties is a significant consideration in determining whether to exercise that jurisdiction; and
(c)further, upon close analysis, the ‘errors’ summarised in paragraph 30 of the 5 August affidavit, which in turn are derived from the third Hockley report, do not justify the exercise of the Court’s equitable jurisdiction to re‑open the accounts. The ‘errors’ include matters which are not errors at all, but potential claims, are matters of form rather than substance, relate to matters which were the subject of review and compromise during the course of the Rathner review, or are of such monetary insignificance that they do not warrant the Court exercising its jurisdiction to re‑open the 2009 accounts.
Adopting a similar framework in the current application, the explanation as to why these matters were not raised in 2014 or 2015 is unsatisfactory. Mr Lebovits’ evidence that he provided the LHND loan account summary (upon which many of Mr Zilberszpic’s queries and issues were based) to MYR’s accountants in 2009 is uncontested, as is his statement to the effect that Mr Furman had mischaracterised its contents, and his evidence that neither he or his firm had any hand in the ‘second summary of construction document’ referred to by Mr Furman in his affidavit of 13 February 2019. Similarly, there is no suggestion that the agreement between the partners with respect to the 2009 agreement ought to be set aside for any of the usual vitiating factors. Finally, the matters raised by Mr Furman in his affidavit of 13 February 2019 have been comprehensively addressed by Mr Lebovits in his affidavit of 18 March 2019. To the extent that Mr Zylberszpic in his affidavit of 15 April 2019 raises further issues, those issues seem to be unrelated to the specific complaints of Mr Furman regarding the accounting for the receipts of the partnership from the Mordialloc project. Rather, it appears as if Mr Zylberszpic has used the documents exhibited to Mr Lebovits’ affidavit to identify further queries and issues in an attempt to cast doubt on the accuracy of the 2009 accounts. This is inconsistent with what was submitted to me by counsel for MYR at the hearing on 27 February 2019 as being the limited scope of any further inquiries, and inconsistent with the terms of the 27 February orders.
As for the specific issues identified in Mr Zylberszpic’s affidavit (see paragraph 30 above), my observations follow.
First, in relation to the matter raised in paragraph 9 of Mr Zylberszpic’s affidavit, three of the transactions referred to by Mr Zylberszpic have been explained by Mr Lebovits in his affidavit, being the drawdowns from the Westpac loan facility of $994,400.00 and $872,000.00, and the repayment of $270,000.00 (which I note related to the Croydon project, not the Mordialloc project). I do not see how Mr Lebovits was required to explain the other amounts of $35,000.00 and $8,697.00 by reason of the 27 February orders.
Secondly, in relation to Mr Zylberszpic’s comment that there is no explanation as to why the sum of $2,423,110.31 was said to be owed by the partnership to LHND as at 1 July 2009, no such explanation was called for by the 27 February orders, noting that at the hearing on 27 February 2018, counsel for MYR said that Mr Furman’s sole remaining queries related to the accounting for two transactions representing the proceeds of sale of the Mordialloc properties, and none of the other matters raised in Mr Furman’s affidavit of 13 February 2019. Any ‘explanation’ of this amount would require Mr Lebovits to traverse all the matters already dealt with by him over the course of the hearing resulting in the 2013 ruling.
Thirdly, I do not accept Mr Zylberszpic’s contention that the fact that the credit entries in the LHND general ledger for the Mordialloc project total $994,400.00 (being the amount of the drawdowns for the Mordialloc project referred to in the General Ledger Transaction Report and the LHND loan account summary) is a mere coincidence. The nomenclature in the accounts is a little confusing, but what are described as ‘credits’ in the LHND general ledger seem to be actual payments into the LHND bank account, which are shown as debits in the LHND loan account summary, decreasing the balance of the LHND loan account. The cash advances are separate transactions, representing payments by LHND from its own funds to the partnership, and are shown as debits in the LHND general ledger, and as credits in the LHND loan account summary (increasing the LHND loan balance). They are quite separate transactions, and may well have nothing to do with the Mordialloc project at all.
Fourthly, in relation to the absence of certain entries made in the LHND loan account summary in the LHND general ledger, I note that the entries referred to by Mr Zylberszpic in paragraph 20 of his affidavit do not represent actual cash transactions, but rather notional adjustments to the LHND loan account balance at the end of the financial year. The debit for ‘profit share’ would not necessarily be a cash payment (which would have been recorded in the general ledger) but rather, a reduction in the balance of the LHND loan account balance by reason of an allocation of LHND’s share of the partnership profits, which would have been made by way of an accounting entry, not an actual cash payment. The reference to ‘Croydon Deposit’ (not profit as referred to by Mr Zylberszpic) of $50,100.00 represents a reduction in the balance of the LHND loan account, presumably representing the payment of the deposit for the Croydon property by Furman Constructions Pty Ltd. The credit for ‘Legal Fees’ matches the amount recorded for legal fees under the heading ‘Expenses’ in the 2009 accounts, which were presumably paid by LHND. This amount is referred to in the profit and loss statement in the 2009 accounts, and to the best of my knowledge has never been the subject of any dispute by MYR. Finally, the debit of $40,000.00 with the reference ‘Adj; 121 Charman as agreed’ represents the amount said to be owed to MYR for its share of the profits for the Charman Road project, as agreed by MYR’s accountant, Mr Rathner, and Mr Lebovits on 27 October 2010 (see paragraph 236 of the 2013 ruling).
Fifthly, in relation to Mr Zylberszpic’s comment that the starting figure of $2,423,110.31 needs to be ‘properly reconciled’, I refer to my observations in paragraph 49 above.
Sixthly, the question of whether the Westpac loan balances were accurately calculated was the subject of detailed review by Mr Rathner in 2009 and 2010, as shown by the evidence of Mr Lebovits referred to in paragraph 24 above (see also paragraph 216 of the 2013 ruling). There is nothing in Mr Zylberszpic’s affidavit which suggests that these balances have been inaccurately calculated, apart from his assertion to that effect. In any event, the loan balances are evidenced by the letters from Westpac exhibited to Mr Lebovits’ affidavit of 18 March 2019.
Seventhly, the fact that the Annual General Ledger is a summary document which does not show individual transactions is not a matter which necessarily casts doubt upon its accuracy.
Eighthly, I disagree that the fact that the sum of five entries in the LHND general ledger for the Mordialloc construction costs totals $994,400.00, equal to the reference to $994,400.00 in the LHND loan account summary, is a mere coincidence, as contended for by Mr Zylberszpic. In that regard, I refer to my comments in paragraph 50 above. Further, Mr Lebovits has explained the treatment of the sums of $994,300.00 and $280,000.00 in the partnership accounts. The sum of $994,000.00 represented drawdowns of the Westpac loans for the Mordialloc project, while the sum of $280,000.00 represented part of the proceeds of sale from the Mordialloc project, most of which were repaid to Westpac.
Ninthly, in relation to Mr Zylberszpic’s comments regarding the debit entry in the LHND loan account summary of $50,100.00 for the Croydon deposit, see my comments in relation to that matter in paragraph 51 above.
Tenthly, in relation to Mr Zylberszpic’s comments that Mr Lebovits has provided no breakdown of the $5,465,000.00 owing on the Mordialloc project as at 31 December 2008, it is not at all clear what is meant by the word ‘breakdown’. In any event, while Mr Lebovits was not required by the terms of the 27 February orders to provide a ‘breakdown’ of the amount owing, the letter from Westpac dated 30 March 2009 exhibited to Mr Lebovits’ affidavit of 18 March 2019 shows that, in fact, the partnership owed Westpac the sum of $5,465,000.00 as that date.
Eleventhly, Mr Zylberszpic produced a number of LHND bank statements between 21 January 2008 and 8 August 2008 which were said to show that there was a discrepancy between the funds received by LHND from Westpac loan drawdowns and funds on‑lent to the partnership. However, an examination of these bank statements shows that the debits from this bank account not only included payments to the partnership bank account, but also substantial debits for establishment fees, bill rollover fees, and debits titled ‘Discount security transaction Commercial Bill drawdown’, which, given the regularity with which they appear, may well be payments of interest on the Westpac loans. I have not undertaken a line by line reconciliation of the flow of funds through the LHND bank accounts, but I see nothing sinister in LHND retaining funds from the Westpac loan drawdowns sufficient to cover the costs of maintaining those facilities, noting that the interest paid by the partnership on the Westpac loans in the 2009 financial year was $443,466.66, or an average of approximately $37,000.00 per calendar month. This figure provides some insight as to why LHND would be withholding in its account sums in the order referred to by Mr Zylberszpic in paragraph 32 of his affidavit, particularly given that it was LHND, not the partnership, that was liable to Westpac for the Westpac loans. My understanding is also consistent with the evidence given by Mr Lebovits in his affidavit of 25 March 2013, referred to at paragraph 25 above.
Twelfthly, in relation to further alleged discrepancies with respect to the sum of $5,465,000.00, I refer to my comments in paragraph 57 above. Further, in relation to the specific queries raised in paragraph 33 of Mr Zylberszpic’s affidavit of 15 April 2019, I do not have ready access to the accounts and bank records for the 2008 financial year. However, regarding the transaction referred to in paragraph 33(b) of Mr Zylberszpic’s affidavit, Mr Zylberszpic refers to a letter from Westpac stating that on 28 November 2008 the sum of $240,945.12 was credited to the LHND bank account. The LHND bank statement in fact shows a credit of $223,960.81 on that day titled ‘Discount Security Transaction Commercial Bill Rollover’. However, the LHND general ledger shows the sum of $241,850.00 being credited to the account that day, against the reference ‘C/Bill Mor’, along with debits of $125.00 and interest of $805.88 referable to the Mordialloc project, being a net amount of $240,820.12. While this sum does not exactly match the amount in the letter from Westpac, the difference is a mere $125.00 (noting another fee of $125.00 was debited on 19 November 2008, which could account for the discrepancy). While the discrepancy between the sum referred to in the Westpac letter and the amount credited to the LHND bank account has not been explained, I am confident that the payment from Westpac to LHND was properly recorded in the partnership accounts.
Accordingly, the matters raised in Mr Zylberszpic’s affidavit do not warrant granting the relief sought by MYR. I reject the contention that it is in the interest of all parties that the question of the accuracy of the 2009 accounts be referred to the special referee. This proceeding has been underway for an inordinate amount of time. The parties have expended considerable resources on the accountants’ review in 2009 and 2010 (to my recollection, approaching $200,000.00), in legal costs in this proceeding, and no doubt upon the work of the special referee. This is the third attempt by MYR to revisit the 2009 accounts, and on no occasion have I been presented with any evidence to seriously undermine my confidence in the accuracy of the accounts. The interests of the parties and the public interest requires that there be finality in litigation. Accordingly, I will make orders adopting the report, and will direct the special referee to finalise the accounts and returns of the partnership as best he can pending the finalisation of the Furman Constructions proceeding.
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