Li v Tse
[2016] VCC 1876
•7 December 2016
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-15-01206
| Li & Anor | Plaintiff |
| v | |
| Tse & Ors | Defendant |
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JUDGE: | Judicial Registrar Tran | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17, 18 October 2016, 28, 29 November 2016 | |
DATE OF JUDGMENT: | 7 December 2016 | |
CASE MAY BE CITED AS: | Li & Anor v Tse & Ors | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 1876 | |
REASONS FOR JUDGMENT
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Subject: Taking of Accounts and Contributions
Catchwords: PARTNERSHIP – distribution of contributions following dissolution, determination of capital contributions
Legislation Cited: Partnership Act 1958 (Vic) s.48
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Sowden of Counsel | James D Mapleston Barrister & Solicitor |
| For the Defendant | Mr M Black of Counsel | Sharrock Pitman Lawyers |
JUDICIAL REGISTRAR:
At a Judicial Resolution Conference conducted by Judicial Registrar Burchell, the parties consented to an order in the following terms:
1. The trial date fixed for 27 June 2016 be vacated.
2. The plaintiff pay the first defendant's costs thrown away by reason of the adjournment and the vacation of the trial date fixed in the amount of $500.00 plus $220.00 for the cost of the Mandarin interpreter for day 1 of the trial.
3. Extend the time for the plaintiff to file and serve an affidavit of document for the paragraphs 2(a) and (b) documents referred to in the order of Judicial Registrar Tran made on 20 June 2016 and otherwise dispense with compliance with paragraph 2(c) and (d) and 3 therein.
4. The Judicial Resolution Conference be reconvened on 21 July 2016 at 11:30am.
5. By 4pm on 8 July 2016, the plaintiffs must file and serve their accountant's report verifying the defendants' spreadsheets filed on 30 May 2016 divided into four columns, being:
(a) the date;
(b) the person making the contribution;
(c) the amount;
(d) a reference to any supporting discovered document and setting out all of the:
i. expenses of the development of the property;
ii. contributions of time or labour to the development of the property made by that party;
iii. capital contributions of any party, and
iv. holding costs including references to any supporting documents which they say have been incurred as a result of the alleged breaches of the plaintiffs.
6. The accountant be provided with a copy of the:
(a) further Amended Statement of Claim dated 27 April 2014;
(b) further Amended Defence dated 16 May 2016;
(c) counterclaim dated 23 May 2016;
(d) spreadsheet of the defendants dated 29 May 2016;
(e) a copy of the defendants discovered documents given to the plaintiffs;
(f) a copy of this order
7. The purpose of the accountant's report is to enable the plaintiffs to determine a fair distribution to each party of their respective share of the partnership property and profits either at 20 January 2014, or at the date of the accountant's report, assuming that:
(a) the property will be sold for the sum of $4,000,000.00;
(b) there was a partnership agreement among the plaintiffs (45%), the first and second defendants (45%) and the third defendant (10%); also
(c) the plaintiffs contributed a capital of $175,000 or ($174,500) of $225,000, which the plaintiffs originally agreed to the acquisition of the property, and then varied to $252,000.
8. Reserve liberty to the parties to apply to the Commercial Division Judicial Registrar for further directions upon giving reasonable notice to all other parties.
[Emphasis added]
At the conclusion of the reconvened Judicial Resolution Conference on 21 July 2016, Judicial Registrar Burchell made the following orders by consent:
1. By 4pm on 3 October 2016, the defendants are to file and serve a further updated spreadsheet setting out all of the expenses of the development of the property and the contributions of time or labour to the development of the property including references to any supporting documents.
2. By 4pm on 3 October 2016, the defendants file and serve their affidavit of documents of any further material evidencing the updated expenses of the development and contributions of time or labour.
3. The time by which the plaintiffs must file and serve their expert report as set out in paragraph 5 of the Orders of Judicial Registrar Burchell made on 23 June 2016, be extended to 4pm on 1 September 2016.
4. The taking of accounts and making of enquiries and the determination of the question set out in paragraph 6 of the Orders of Judicial Registrar Burchell made on 23 June 2016 be adjourned to Judicial Registrar Tran for hearing on 17 October 2016 on an estimate of 2 days and the hearing of the Counterclaim be adjourned to a date to be fixed at the conclusion of the taking of accounts and making of enquiries.
5. On completion of the development the parties are to jointly appoint a valuer to produce a sworn valuation of the property, such report to be filed and served by 4pm on 10 October 2016. The costs of such valuation to be borne equally between the parties in the first instance.
6. By 4pm on 15 September 2016, the plaintiffs to file and serve any further affidavit material and submissions upon which they intend to rely.
7. By 4pm on 30 September 2016, the defendants file and serve affidavit material and submissions upon which they intend to rely.
8. By 4pm on 12 October 2016, the parties file and serve any submissions in reply and notify the other party in writing of any witness required to attend for cross examination.
9. Reserve liberty to the parties to apply to the Commercial Division Judicial Registrar for further directions upon giving reasonable notice to all other parties.
10. Costs reserved.
[Emphasis added]
The taking of accounts and making of enquiries referred to in Order 4 of the Orders of Judicial Registrar Burchell made 21 July 2016 ultimately came on for hearing before me.
I assume (without any knowledge of what actually transpired during the without prejudice discussions at the Judicial Resolution Conference) that the parties consented to the orders of Judicial Registrar Burchell because the view was taken that a determination of a “fair distribution of the partnership property and profits either at 20 January 2014, or at the date of the accountant's report” through the mechanism of a taking of accounts and making of enquiries would increase the prospects of the early resolution of all issues in dispute in the proceeding.
The orders of Judicial Registrar Burchell left open the question of whether a fair distribution of the partnership property and profits should be calculated “at 20 January 2014” or “at the date of the accountant’s report”. When the matter came on before me, the parties agreed as follows:
Without prejudice to any entitlement of the Defendants/Plaintiffs by Counterclaim to the relief sought in their Counterclaim, the parties agree:
1) The Partnership was dissolved on or about 20 January 2014
2) For the purposes of a taking of accounts:
- the assets of the partnership are to be valued as at 20 January 2014
- it was a term of the partnership agreement that:
- the first plaintiff would take a 25% interest in the business
- the second plaintiff would take a 20% interest in the business
- the second defendant would take a 45% interest in the business
- the third defendant would take a 10% interest in the business.
- the rules for distribution of assets in s.48 of the Partnership Act 1958 (Vic) apply.
This agreement had the effect of significantly reducing the number of expenses in dispute between the parties and therefore the duration and complexity of the taking of accounts.
Section 48 of the Partnership Act provides as follows:
In settling accounts between the partners after a dissolution of partnership the following rules shall subject to any agreement be observed—
a)losses including losses and deficiencies of capital shall be paid first out of profits next out of capital and lastly if necessary by the partners individually in the proportion in which they were entitled to share profits;
b)the assets of the firm including the sums (if any) contributed by the partners to make up losses or deficiencies of capital shall be applied in the following manner and order—
i.in paying the debts and liabilities of the firm to persons who are not partners therein;
ii.in paying to each partner rateably what is due from the firm to him for advances as distinguished from capital;
iii.in paying to each partner rateably what is due from the firm to him in respect of capital;
iv.the ultimate residue (if any) shall be divided among the partners in the proportion in which profits are divisible.
In order to perform the exercise contemplated by s.48(b) of the Partnership Act 1958 (Vic) I must therefore determine, as at 20 January 2014:
a. the assets of the firm and their value;
b. the debts and liabilities of the firm to third parties;
c. the advances by each partner over and above required capital contributions; and
d. the capital contributions of each partner.
As is made clear from the orders of Judicial Registrar Burchell and the agreement reached during the hearing before me, I do not make any findings today as to the entitlement of the defendants to damages for breach of the partnership agreement or any other agreement.
The assets of the firm
10 The only asset of the firm of which there is any evidence is the property situated at 10 Burroughs Road, Balwyn North, Victoria (“the Balwyn property”). On 18 October 2016, I ordered (by consent, pursuant to section 65L of the Civil Procedure Act 2010) that an expert be jointly engaged by the parties to provide a valuation of the Balwyn property as a vacant block of land as at 20 January 2014. That valuation was provided by Sam Tamblyn of Urban Property Australia Pty Ltd and has been tendered in evidence. In Mr Tamblyn’s opinion, the as is land value of the Balwyn property as at 20 January 2014 was $1,200,000.
11 Ordinarily in a taking of accounts, the assets of the partnership would be sold and the proceeds of sale applied in the manner contemplated in sub-section 48(b). In the present case the Balwyn property has not been sold but remains in the ownership of the First Defendant. If the agreed exercise under s.48 is to be conducted a value must be ascribed to the Balwyn property as at 20 January 2014.
12 It was submitted on behalf of the Defendants that in calculating the value of the Balwyn property I should deduct the costs of sale and interest to settlement date that would have been incurred had the Balwyn property been placed on the market on 20 January 2014. However, the reality is that the property was not sold and the partnership has not incurred the expense of selling the property. Effectively, ownership of the property is assumed to have been transferred to the remaining partners as at 20 January 2014. The value of the property ought not be reduced by reference to something which did not occur.
13 In any event, the evidence of the amount of those costs was extremely scant, consisting solely of Mrs Tse’s evidence of oral conversations between Mrs Tse and a real estate agent as to the costs of sale at about the date of the hearing.
14 As to interest, this seems to me to be something which might be encompassed by the claims in the Defendants’ Counterclaim, but ought not be used to artificially reduce the value of the Balwyn property as at 20 January 2014.
15 I am of the view that the best evidence of the value of the Balwyn property is the valuation. I find that as at 20 January 2014, the partnership had assets of $1,200,000.
Debts and liabilities of the firm to third parties
16 I have treated all expenses which were incurred but not paid as at 20 January 2014 as a debt and liability of the firm to persons who are not partners therein within the meaning of sub-s.48(b)(i).
17 Column F of the schedule to these reasons contains my findings as to the debts and liabilities of the firm to third parties as at 20 January 2014 (other than the loan of $840,000). Where those amounts were not agreed, column H contains the reasons for my ruling. The total of such debts and liabilities is $12,955.85.
18 As to the loan of $840,000, it was submitted on behalf of the Defendants at the hearing that the loan from Westpac of $840,000 could be treated as a capital contribution by the First and Second Defendants up to the amount of capital contributions required and thereafter an advance by the First and Second Defendants. This was the first time that the loan had been sought to be characterised in this way.
19 There is no allegation in the Further Amended Defence or the Amended Counterclaim that the loan could be characterised as a capital contribution or advance by the Defendants. To the contrary:
a. paragraph 2B of the Further Amended Defence refers to the First Defendant performing a “representative role…to assist on organising documents for all parties for the facilitation of lending with the Bank”;
b. paragraph 3 alleges that she purchased the Balwyn property “as representative”;
c. paragraph 6 draws a distinction between “funds of the first and Second Plaintiff, Third Defendant and First Defendant” on the one hand and the land loan on the other; and
d. the schedule filed by the Defendants on or about 3 October 2016 draws a distinction between “contributions from parties” and “drawn from loan”.
20 Further, the loan was secured over the Balwyn property and interest repayments have been treated as an expense of the partnership.
21 I find that the $840,000 loan should be treated as a debt of the partnership incurred by 20 January 2014 and dealt with pursuant to sub-s.48(b)(i).
Advances of the partners over and above capital contributions
22 There were no advances of the partners over and above capital contributions.
Capital Contributions
23 I accept the evidence of Mr Thomas Tse that the Third Defendant made $50,000 in capital contributions in cash.
24 In their Further Amended Statement of Claim filed 29 April 2016, the Plaintiffs alleged that they had paid a total sum of $175,000 in capital contributions as follows:
a. $15,000 in or about February 2012
b. $60,000 in or about June 2012; and
c. $100,000 on or about 21 December 2012.
25 On 18 October 2016, after evidence had commenced, I permitted the Plaintiffs to amend the Further Amended Statement of Claim so as to allege total capital contributions of $180,500 as follows:
a. $1,000 on 12 March 2012;
b. $3,500 on 19 March 2012;
c. $21,000 on 2 April 2012;
d. $25,000 on 11 April 2012; and
e. $130,000 on 24 December 2012.
26 As can be seen, the timing and amount of the capital contributions relied upon since these amendments bears little or no resemblance to the capital contributions previously pleaded.
27 The evidence given by the Plaintiffs in support of these alleged capital contribution was extremely vague. Mr Li gave evidence that he withdrew $21,000 on 2 April 2012 and $25,000 on 11 April 2012. He said he “normally” gave it to Thomas. He could not say where he gave this money to Thomas, only that “It should be in Box Hill” and “I collect money straight away and gave it to him at Box Hill, something like that”. He said that “normally” he paid everything to Thomas. When asked how he carried the money he said that “normally” the bank gave him an envelope. Later under cross-examination he said “I think I gave it to him. I am pretty sure…I am pretty sure, I give you money. In that period, too many times give you money. I can’t really remember.”
28 Ms Chen gave evidence that she was present when $21,000 was withdrawn by Mr Li on 2 April 2012, but not when it was handed to Mr Tse. She was not present when Mr Li withdrew $25,000 on 11 April 2012, nor when it was handed to Mr Tse. She gave evidence that she was never given an account of expenses or any accounting. She gave evidence that she paid the Plaintiffs’ share of the $3300 airfares to China in cash to Thomas (Mr Tse) and that she “always” paid Mr Tse and never replied to Mrs Tse requesting payment of the plaintiffs’ share of the airfares.
29 My distinct impression of the evidence of both Ms Chen and Mr Li was that it was a reconstruction of events based on a recent analysis of their bank statements and the bank statements of the defendants. In the end, Mr Li quite candidly admitted that he lacked any actual recollection of the events in question. My impression is confirmed by the very late amendment to the Further Amended Statement of Claim. Ultimately, I am not satisfied that Ms Chen or Mr Li had any independent recollection of the amount, timing or purpose of any capital contributions made to the Defendants.
30 The only evidence of any weight as to the capital contributions made by the Defendants is the admissions in paragraph 5 of the Further Amended Defence and Mr Tse’s evidence that “All up they gave me $175,000.” I find that the capital contributions of the plaintiff were $175,000.
31 It was agreed that any expenses paid by the First or Second Defendants prior to 20 January 2014 should be treated as capital contributions by the Second Defendant. The capital contributions of the Second Defendant can be calculated by deducting the capital contributions made by the Plaintiffs and Third Defendant from the total expenses paid by the First and Second Defendants by 20 January 2014.
32 My findings as to the total expenses of the partnership paid by 20 January 2014 are in column G of the attached schedule, with reasons for disputed amounts in column H. The total paid expenses of the partnership as at 20 January 2014 was $358,929.17. If one deducts $175,000 for the Plaintiffs’ capital contributions and $50,000 for the Defendants’ capital contributions, this leaves $133,929.17 in capital contributions by the Second Defendant.
Conclusion
33 My findings as to the rateable proportion of capital contribution repayable to the Plaintiffs is found under the heading “Ruling on distribution of assets” in the attached Schedule. The amount available for repayment of capital is $1,200,000 less the debts of the partnership as at 20 January 2014 ($12,955.85 plus $840,000), which is $347,044.15. This is 96.69% of the total capital contributions of $358,929.17. It follows that 96.69% of $175,000 is the rateable amount of capital contributions payable to the Plaintiffs in respect of capital, which is $169,205.32.
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I certify that these 9 pages are a true copy of the reasons for decision of Judicial Registrar Tran delivered on 7 December 2016.
Dated: 7 December 2016
Simon Bobko
Associate to Judicial Registrar Tran
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