Leach v WILLIAMS
[2017] WASC 188
•11 JULY 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: LEACH -v- WILLIAMS [2017] WASC 188
CORAM: LE MIERE J
HEARD: 13 APRIL 2017 & ON THE PAPERS
DELIVERED : 11 JULY 2017
FILE NO/S: CIV 1258 of 2017
MATTER :Section 46 of the Partnership Act 1893 (WA)
Order 59 of the Rules of the Supreme Court
BETWEEN: JEFFERY JOHN LEACH
Plaintiff
AND
HARVEY NORMAN WILLIAMS
Defendant
Catchwords:
Practice and procedure - Costs - Partnerships - Application for dissolution order - Whether costs payable out of partnership assets - Turns on own facts
Legislation:
Partnership Act 1895 (WA), s 46(d), s 46(f), s 46(g)
Result:
The defendant pay the plaintiff's costs of the proceeding
Category: B
Representation:
Counsel:
Plaintiff: Mr L F G Swanson
Defendant: Mr S R Sirett
Solicitors:
Plaintiff: Hotchkin Hanly Lawyers
Defendant: Borrello Graham Lawyers
Case(s) referred to in judgment(s):
Hamer v Giles [1879] 11 Ch D 942
One.tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548
Rahman v Ahmed [2009] NSWSC 1028
Re Minister for Immigration and Ethnic Affairs (1997) 186 CLR 622
Sahota v Singh [2006] EWHC 344
Slim v Kabra [2006] NSWSC 837
Xie v Zhou [2002] NSWSC 1114
LE MIERE J:
Summary
The plaintiff commenced this proceeding by way of originating summons seeking an order for dissolution of the partnership between the plaintiff and the defendant, an order for the taking of accounts and an order that the partnership business be sold. On 13 April 2017 I made orders by consent dissolving the partnership and for the taking of accounts in the sale of the partnership business. The parties are in dispute concerning the costs of the proceeding. For the reasons which follow the defendant should pay the plaintiff's costs of the proceeding.
The partnership
The plaintiff and the defendant carried on a pharmacy business in partnership. The plaintiff holds a 60% interest and the defendant a 40% interest in the pharmacy. The defendant is registered with the Pharmacy Registration Board of Western Australia as the pharmacist with overall responsibility for the pharmacy and worked at and managed the pharmacy. The landlord of the pharmacy's premises was Arandell Nominees Pty Ltd. The plaintiff is the sole director of Arandell. The relationship between the plaintiff and the defendant started to deteriorate and since about February or March 2015 each has been represented by lawyers. In correspondence each of the partners made allegations against the other regarding alleged breaches of the partnership deed and mismanagement of the pharmacy.
This proceeding
On 15 February 2017 the plaintiff commenced this proceeding by originating summons seeking an order for dissolution of the partnership pursuant to s 46(f) of the Partnership Act 1895 (WA) (Partnership Act) on the ground that the business of the partnership can only be carried on at a loss and further or alternatively under s 46(g) of the Partnership Act on the ground that it is just and equitable that the partnership be dissolved and further or alternatively under s 46(d) of the Partnership Act on the ground that it is not reasonably practicable that the plaintiff carry on the business in partnership with the defendant on the basis of the way the defendant conducts himself in matters relating to the partnership business. The plaintiff also sought an order for a taking of accounts and an order that the partnership business be sold on certain terms and conditions.
On 28 March 2017 the plaintiff's solicitors wrote to the Court stating that the matter required an urgent hearing on the basis that the defendant was refusing to inject capital into the business and that without capital injection the business was unable to pay its creditors and further that the partners had been in discussions for over two years regarding the possible dissolution of the business. The letter sought urgent orders that required the defendant to file any affidavit he intended to rely upon by 7 April 2017. On 7 April 2017 the defendant's solicitors sent an email to the plaintiff's solicitors attaching proposed consent orders. The proposed orders were the same or similar to those sought by the plaintiff in his originating summons. The defendant proposed additional orders which the plaintiff consented to. On 13 April 2017 I made orders by consent dissolving the partnership and for the taking of accounts and the sale of the partnership business.
Dispute as to costs
The parties are in dispute as to the costs of the proceedings. The plaintiff seeks an order that the defendant pay his costs. The defendant seeks orders that the plaintiff bear his own costs of the preparation of the affidavits in support of the application by originating summons, the plaintiff pay the defendant's costs incurred in preparing his affidavit and filing submissions for his application for costs and otherwise the parties' costs of the dissolution be paid out of the partnership assets or, where no partnership assets are available, be borne equally between the partners.
Legal principles
Subject to the provisions of the Supreme Court Act 1935 (WA) and to the Rules of Court or any other Act the costs of proceedings are in the discretion of the Court. The general rule is that costs follow the event, that is the Court will generally order that the successful party recover his costs.
Both parties referred to 'the usual rule in proceedings for winding up or dissolution of a partnership' and referred to Slim v Kabra [2006] NSWSC 837 and Xie v Zhou [2002] NSWSC 1114. In Slim v Kabra Palmer J said at [9]:
The usual rule in proceedings for winding up or dissolution of a partnership is that the costs of proceedings consequent upon, and necessary for, the dissolution should be paid out of partnership assets unless there is a good reason for making some other order. This is established in cases such as Hamer v Giles (1879) 11 Ch D 942, Xie v Zhou [2002] NSWSC 1114, and see also 'Lindley & Banks on Partnership' (18th Ed) paras 23 ‑ 120.
The 'usual order' is referred to in the 19th edition of Lindley & Banks at [23‑120]:
Prior to the advent of the Civil Procedure Rules, it had long been an established rule that all the costs of proceedings consequent on a dissolution should be paid out of the partnership assets, unless there was a good reason for making some other order. Although the court now has a wide discretion on costs, and must have regard to a number of factors in exercising that discretion, the old rule will continue to be applied in most cases as confirmed both in Sahota v Sohi and Stocking v Montila. Where, however, proceedings are, in reality, commenced in order to obtain an adjudication on some disputed claim between the partners, the unsuccessful litigant will, as before, normally be ordered to pay the costs unless his conduct justifies some other order. (footnotes omitted)
At [24‑61] the learned authors distinguish dissolution proceedings from proceedings relating to the winding up of partnerships:
Although costs will normally follow the event in the usual way, the court has a wide discretion and must take into account the various factors listed in the Civil Procedure Rules. This should be compared with the approach historically adopted by the courts in the case of proceedings relating to the winding up of partnerships, where there has been a tendency to order costs to be paid out of the partnership assets. (footnotes omitted)
In Rahman v Ahmed [2009] NSWSC 1028 [30] Slattery J observed that Palmer J's formulation of the 'usual rule' in Slim v Kabra is derived from the following statement of the Master of the Rolls in Hamer v Giles [1879] 11 Ch D 942, 944 ‑ 945:
My opinion is that the rule is not as stated in Seton. It appears to me that where there is no fault on either side, but the partnership accounts have to be taken in this Court, the costs of the action for taking the accounts from the beginning ought to be dealt with as all other costs of necessary administration, that is, they must come out of the partnership assets. Of course, where an action for dissolution is rendered necessary by the misconduct of a partner ‑ as, for instance, where a partner whose duty it is to keep the accounts has neglected to do so ‑ the Court not only has jurisdiction, but is bound to exercise it, by making that partner pay so much of the costs as are occasioned by his misconduct. But in all other cases there is no difference between the costs of the action for taking the accounts prior to the trial and the subsequent costs, and I have always acted on that rule.
Hamer v Giles was a case concerning the costs of the action for taking accounts consequent upon the dissolution of a partnership.
In Slim v Kabra the costs in issue arose out of notices of motion seeking orders for the working out of accounts between the parties following upon the dissolution of their partnership, not a motion for the dissolution of the partnership.
It is true that in Xie v Zhou Hamilton J ordered that the defendant pay the plaintiff's costs of proceedings in which the plaintiff claimed a dissolution of a partnership and the appointment of a receiver to wind up its affairs. However his Honour said:
The costs are usually ordered out of the partnership assets or, where no body of partnership assets is available, to be borne equally among the partners. This is on the basis that the intervention of the Court must be obtained to facilitate the winding up for the benefit of all partners. But this is a case where the plaintiff quite reasonably prepared for a contested hearing and, whilst there is no question of any great blame on the defendant, much less his solicitor, for the course that events took, it is in my view, appropriate that the plaintiff have the costs of the proceedings up and including 20 August 2002 [3].
20 August 2002 was the day fixed for the hearing of the summons.
In Sahota v Singh [2006] EWHC 344 Park J cited Hamer v Giles as authority for the proposition that, in cases where the assistance of the court is required for the winding up of a partnership's affairs, the costs are ordinarily borne out of the partnership's assets before the final division of them between the partners. Park J referred to [23‑120] of the 18th edition of Lindley & Banks, which is in essentially the same terms as [23‑12] of the 19th edition to which I have referred.
I do not consider that the costs of the parties, other than of the application for orders for costs, should, by reason of the Hamer v Giles principle be paid out of partnership assets. The plaintiff's application was not an application merely for the taking of accounts and winding up of the partnership's affairs. It was not an application for the winding up of the partnership affairs consequent upon a dissolution or an application for the taking of accounts. It was primarily an application for dissolution of the partnership which the plaintiff anticipated would be opposed by the defendant. That is why the plaintiff prepared and filed affidavits to make out grounds for a dissolution under s 46(f), (g) and (d) of the Partnership Act. The plaintiff acted reasonably in bringing the application and supporting it by evidence to make out the grounds on which it was brought because the defendant had denied the grounds on which the plaintiff sought the partnership to be dissolved.
Defendant's submissions
The defendant submits that the plaintiff has not been put to expense in preparing to argue contested issues because the defendant filed an appearance and consented to orders necessary for the winding up of the partnership at the first directions hearing. That does not adequately describe the parties' respective positions in relation to dissolution of the partnership.
In May 2016 the plaintiff's solicitors wrote to the defendant's solicitors observing that cl 14.1 of the Partnership Agreement sets out a procedure to be observed upon dissolution whether it occurs 'by mutual agreement' or under any circumstance not provided for in the agreement. The plaintiff's solicitor observed that the latter reference was to the circumstances set out in s 43 of the Partnership Act. The plaintiff's solicitor stated that he was 'instructed to invite your client to agree to mutually terminate the partnership, failing which an application will be made by my client for an order to dissolve the partnership on "just and equitable" grounds'. The defendant's solicitor responded that there was no basis for making an application to dissolve the partnership on just and equitable grounds. There followed correspondence between the parties concerning one of them acquiring the other's share in the partnership. On 13 June 2016 the plaintiff's solicitors stated that if the matter was not resolved then the plaintiff would apply for a dissolution of the partnership either on the just and equitable ground or under s 46(f) on the ground that the partnership can only be carried on at a loss. By letter of 27 June 2016 the defendant's solicitor stated that their client 'strongly disagrees that the partnership business can only be carried on at a loss'.
There was further correspondence with a view to one partner acquiring the other's share in the partnership. In November 2016 BankWest advised that on the expiration of the pharmacy's loan and overdraft facility on 30 November 2016 BankWest would not extend or renew the pharmacy's banking facilities. The payout figure as at that date was $385,766. From 1 December 2016 Peak Strategies was instructed to take control of the debtor reports of the pharmacy. By letter dated 22 December 2016 the defendant again offered to sell his interest in the business to the plaintiff for a consideration which the plaintiff had previously rejected. By email dated 22 December 2016 the plaintiff rejected that offer and noted the disconnection between the plaintiff and the defendant as to the value of the pharmacy. On 1 January 2017 Peak Strategies took control of the pharmacy's bookkeeping and accounting.
On 15 February 2017 the plaintiff commenced these proceedings. In the circumstances, the plaintiff acted reasonably in commencing the proceedings and supporting its application by the affidavits filed.
In his affidavit the defendant says that between November 2016 and February 2017 he and the plaintiff were negotiating with a view to one of them acquiring the other's share in the partnership. The defendant says that he was seeking accounting advice at this time and the value of the partnership business was the matter of key contention between him and the plaintiff. The defendant says:
My decision to consent to the dissolution of partnership was taken with the benefit of the opportunity I had to consider the financial position further and, also, in light of the evident antagonism displayed in the affidavit of [the plaintiff]; I decided that it would be much more sensible for me to consent to the partnership's dissolution with a view to acquiring [the plaintiff's] interest.
As I have said, in 2016 the defendant maintained that there was no basis for making an application to dissolve the partnership on the grounds advanced by the plaintiff, which were the grounds on which the plaintiff sought a dissolution of the partnership in these proceedings. The defendant did not offer to consent to orders for the dissolution of the partnership and consequential orders for its winding up until the plaintiff applied for urgent orders on 28 March 2017.
Where an action is compromised before hearing and the parties have reached no agreement as to costs, the court will often determine that the appropriate course is that each party bear its own costs. However, the court has a discretion and will exercise that discretion to award costs to one party where it is just to make a costs order: Re Minister for Immigration and Ethnic Affairs (1997) 186 CLR 622, 624 (McHugh J).
In One.tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 Burchett J drew attention to the case where one party effectively surrenders to the other:
In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs. In Ex Parte Lai Qin, McHugh J was careful to state (at 624) that the principles with which he was concerned were those that 'govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra‑curial means' (553).
In this case the plaintiff acted reasonably in bringing the originating summons and supporting it by the affidavits setting out evidence in support of the grounds upon which the plaintiff sought a dissolution of the partnership. That was reasonably necessary in view of the defendant's previous denial of the grounds for dissolution advanced by the plaintiff. Notwithstanding the defendant's explanation for why he eventually consented to orders dissolving the partnership the defendant effectively surrendered. The appropriate orders are that the defendant pay the plaintiff's costs of the action and of the plaintiff's application for costs.
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