McKeagg v Cortland

[2004] WASC 130

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   McKEAGG -v- CORTLAND [2004] WASC 130

CORAM:   SIMMONDS J

HEARD:   29 APRIL 2004

DELIVERED          :   15 JUNE 2004

FILE NO/S:   CIV 1143 of 2004

BETWEEN:   KATHERINE LAVINIA McKEAGG

Plaintiff

AND

CHRISTINE TE AUMIHI CORTLAND
Defendant

Catchwords:

Partnership - Dissolution and winding-up - Appointment of receiver and manager - Whether parties are in serious dispute - Meaning of "serious dispute"

Legislation:

Rules of the Supreme Court 1971 (WA), O 59 r 9

The Partnership Act 1895 (WA), s 50, s 51, s 57

Result:

Application allowed

Category:    B

Representation:

Counsel:

Plaintiff:     Mr P A Monaco

Defendant:     Mr A C McIntosh

Solicitors:

Plaintiff:     Godfrey Virtue & Co

Defendant:     Ruby & Associates

Case(s) referred to in judgment(s):

Rowlands v MacDonald [2002] NSWSC 282

Wedge v Wedge (1995) 12 WAR 489

Case(s) also cited:

Barclay v Barclay [1978] ACLD 90

Boyle v Willis (1880) 1 ALT 189

Drinan v Drinan (1908) 8 SR (NSW) 109

Eliot v Cassils Co Ltd (1907) 15 SLT 190

Fetherstonhaugh v Fenwick [1808] All ER 89

Lamerand v Lamerand (No 1) [1962] NSWR 246

Rowlands v Evans (1861) 30 Beav 302

Stone v McLaughlin (1914) 14 SR (NSW) 146

Syers v Syers & Paraire (1876) 1 App Case 174

Tate v Barry (1928) 28 SR (NSW) 380

Wild v Milne (1859) 26 Beav 504

1. SIMMONDS J:  This is the return of an originating summons dated 9 February 2004 of the plaintiff seeking a declaration that the partnership between the plaintiff and the defendant constituted by an oral agreement between them to run a tearoom and takeaway business in the town of Newman was dissolved by written notice by the defendant to the plaintiff dated 24 July 2003.  Consequential on this are further orders to appoint a Mr Fleay of South Perth, identified in the plaintiff's proposed orders as an "accountant", or some other proper person on the usual terms a receiver and manager of the business pending winding‑up and/or sale of the business as a going concern.  Further orders call for such as delivery of assets to the receiver and manager by the parties, disclosure of relevant information by the parties to the receiver and manager, and provision of certain powers to the receiver and manager, as well as an order that the property of the partnership be sold on the direction of the Court as a going concern with certain further orders consequential on that one.  Finally, the originating summons calls for an order directing accounts and inquiries to be taken and made with the defendant to pay the costs of the summons and the matter generally on a solicitor and own client basis, to be taxed if not agreed.  An affidavit of the plaintiff was filed at the same time as the originating summons. 

2. Following a memorandum of appearance of the defendant, the plaintiff filed a notice of appointment to hear the originating summons before a Judge in chambers on 29 April 2004, together with a certificate of readiness. This was followed by a summons by the solicitors for the defendant to the solicitors for the plaintiff to attend a status conference shortly thereafter. Then followed a chamber summons by the defendant to the plaintiff to strike out certain paragraphs of the affidavit of the plaintiff, together with a request for certain directions, including that the parties attend a mediation conference before a Registrar. With the chamber summons was a memorandum of conferral for the purpose of O 59 r 9 of the Rules of the Supreme Court1971 (WA) recording that the plaintiff was of the view that her affidavit did not require any amendment and that she was not prepared to attend a mediation, as she had met with the defendant previously in attempts to resolve the matter.

3. Then followed on 6 April 2004 a hearing before Master Sanderson at which he adjourned the application to strike out sine die, but made an order for mediation with certain programming‑type orders in the matter.  I was informed by counsel that the programming orders had been substantially complied with and that the issues between the parties to be resolved at mediation had, in general terms, been defined, although there was some residual disagreement about the import of aspects of them which would be addressed at the mediation. 

4. It only remains to add that an affidavit of the defendant sworn 26 April 2004 was produced to me and relied upon at the hearing by counsel for both parties, although it appears that this affidavit was only filed on 3 May 2004, three days after the hearing. 

5. This rather detailed procedural history as set out assumed some significance in the hearing.  It did so in two ways.  The first was the submission by Mr McIntosh, counsel for the defendant, that the mediation order raised as a preliminary issue the question whether, in accordance with a minute of proposed orders for this hearing prepared by the defendant dated 27 April 2004, par 2, the originating summons in this matter should be adjourned until after the mediation so ordered had occurred, apart from the making of a declaration as to the dissolution of the partnership of the sort called for in the writ of summons, upon which the parties were agreed, and apart from other matters raised in the proposed orders of the defendant to which I will return. 

6. After hearing from counsel, I determined that the matter of the mediation order was a factor relevant to the exercise of my discretion in relation to the relief that the plaintiff seeks.  It did not, however, constitute a matter which was appropriately dealt with as a preliminary issue before the other merits were considered.  This is because of the fact that the mediation ordered did not itself address any stay of proceedings, although I was informed that Master Sanderson had felt he was unable to vacate the hearing scheduled for today, the matter resting with me.  In addition, I considered that there had to be weighed in the balance the substantive entitlements of the plaintiff, if any, which required entry into those matters. 

7. It emerged at the hearing that the defendant was particularly concerned about the additional costs imposed on a relatively small partnership of a receiver or receiver and manager who was independent of the parties.  The defendant, in her minute of proposed orders for the hearing before me, had, in fact, indicated in par 3 that, upon her undertaking as set out in her affidavit, she be appointed an interim receiver and manager of the partnership until further order. 

8. Counsel for the plaintiff, Mr Monaco indicated at the hearing that the orders that the plaintiff proposed would not, in fact, be the entirety of the ones the subject of the originating summons and that appropriate amendments to the plaintiff's minute of proposed orders dated 29 April 2004 should be made.  Rather, the plaintiff was seeking a declaration as to the dissolution referred to, and the appointment of Mr Fleay as receiver, rather than receiver and manager, with the appointment of the defendant as the manager of the partnership business on behalf of the receiver.  The obligations of the parties to provide material and information to the receiver, as well as his powers, should be the same as those in the originating summons, except that the receiver would not be directed to move towards a sale.  The matter of a sale of the partnership business as a going concern was at first proposed to be adjourned to abide further order of the Court.  Subsequently, the proposed order as amended was replaced at the hearing by one omitting any reference to a sale.  This would allow room for the mediation to address an issue of importance to the defendant, that of buying the plaintiff's share.  In addition to the declaration and receivership matters, so amended, there should be the originating summons' orders for accounts and inquiries and that the defendant pay the costs of the appearance of 29 April 2004, to be taxed, that is, not on an indemnity basis.  Finally, there should be liberty to apply for either party on 48 hours' written notice, which would allow for, amongst other things, a move towards a sale following an opportunity for mediation.  At the hearing, counsel for the defendant indicated that an order of this sort, if not precisely in these terms (such as by reference to the person who should be appointed the independent receiver), might more appropriately be made following the opportunity for mediation.  At that stage, counsel for the defendant indicated, it might be possible for the defendant to agree to the matter, although counsel for the defendant had no instructions on the matter at this stage.

9. The matter whether I should make the orders indicated, or some variation of them, resolved itself into one of the significance I should ascribe to the mediation proceedings as one of the factors I could properly weigh in determining whether to make the orders sought. The starting‑point, it seems to me, is firstly the fact that the partnership was dissolved, by written notice by the defendant in July 2003, as the parties have both conceded, and is agreed as an order I should make. There are also s 50, s 51 and s 57 of ThePartnership Act 1895 (WA). The first two provisions confirm the entitlement of a partner following a dissolution to seek to have the assets of the partnership, including its goodwill, sold, while the third provision indicates how the proceeds are to be applied.

10. The plaintiff in this case laid heavy reliance on a number of matters that did not appear to be in dispute between the parties.  These were that the defendant was the only member of the partnership who was in day‑to‑day control of its affairs, although both members of the partnership, at all material times following the dissolution, were Newman residents.  This was until the defendant left Newman in April 2004 to return to New Zealand to attend to a member of her family who was gravely ill.  Although the defendant had not returned to Australia by the time of the hearing before me, nor given a definite return date, neither party assigned significance to either fact for the purpose of the decision I had to make.  In addition, it was not disputed between the parties that the defendant had been running the business since the dissolution and had been doing so otherwise than with a view to the sale of it.  In addition, as the plaintiff submitted to me, rightly, I believe, there had been, to date, a pattern of limited compliance with requests for information and accounting by the plaintiff to the defendant.  It is also the case that the defendant appears, as agreed by the parties, to have been proceeding on the basis of seeking to have the plaintiff sell to the defendant her share of the business, with adequate discussions of the matter not yet having taken place.  Counsel for the defendant emphasised strongly to me, by reference to the affidavit of the defendant, that this lack of such discussion was due to ill‑feelings between the plaintiff's husband and the defendant, and that the defendant had herself no ill‑feelings towards the plaintiff.  Defendant's counsel indicated that the defendant was prepared to make an undertaking to the Court to supply a full accounting, as indicated by the defendant's affidavit.  Defendant's counsel also indicated that the position the defendant had taken with respect to the matters I have previously referred to was more fully to be explained as the defendant's affidavit indicated. 

11. Counsel for the plaintiff, Mr Monaco, drew my attention to the authorities of Wedge v Wedge (1995) 12 WAR 489 and Rowlands v MacDonald [2002] NSWSC 282, which refers to Wedge with approval.  In Wedge, his Honour Parker J made an order for the appointment of an independent receiver and manager, citing Banks, R C  and Lindley, N, Lindley and Banks on Partnership 16th ed, Sweet & Maxwell, London 1990 par 23,150, quoting, without disagreement, from a judgment of Lord Lindley that "whilst if the partnership is already dissolved, the Court usually appoints a receiver, almost as a matter of course", and from Fletcher, K and Higgins, P, Higgins and Fletcher:  Law of Partnership in Australia and New Zealand 5th ed, Law Book, Sydney, 1987, at page 301 that "a receiver will be appointed almost as a matter of course, where partnership assets are in danger", or "the parties are in serious dispute".  His Honour referred to the circumstance in his case of the "breakdown of relations between the parties", at page 409, where the previous quotations also appear.  In that case, the breakdown appears to have been rather more serious than anything that appeared before me, as there was evidence of physical violence over partnership affairs.  His Honour does not, however, make particular reference to this violence in this connection.  However, that fact, when added to the other facts in Wedge of litigation in the court between the partners and "persistent disagreement over the running of the partnership" appears to have persuaded him that it would be "inappropriate for one of the parties to be appointed receiver or to manage the property (except under the supervision and control of an independent party)". 

12. In Rowlands v MacDonald (supra), the following appears at [30]:

    "In the present case, two particular factors point strongly towards the appointment of a receiver.  The first is that the parties are in what can properly be regarded as a state of serious dispute making resolution through co‑operation sufficiently problematic to warrant the introduction of a third party.  The relevance of that factor to the exercise of the court's discretion is recognised in Wedge v Wedge (1994) [sic (1995)] 12 WAR 489. The second matter is the evidence suggesting that there may have been irregularities in the partnership's financial affairs, with accounting records misdescribing entries and the intermingling of partnership moneys with those of individuals. Possibilities of that kind were material to the decision to appoint a receiver in the Anderson Group Pty Ltd v Davies (2001) 19 ACLC 1112. The factors in both these categories to which I have referred must very seriously call into question the ability of the partners themselves to reach an accounting."

13. The plaintiff's counsel, Mr Monaco, drew to my attention in the affidavit evidence the matter of concerns between the parties as to drawings they had made.  Reference here was made by Mr Monaco to the defendant's affidavit, par 17(d), confirming that it was a term of the oral partnership agreement between the parties that they would not take drawings from the partnership until it was generating a reasonable cash flow, at which point they would agree drawings.  He also made reference to an entry in the table of "Contributions and drawings from owners" included with a letter, part of exhibit "CTC1" to the defendant's affidavit showing drawings by Ms McKeagg and drawings by Ms Cortland.  I notice also from the plaintiff's affidavit par 15 read with the following paragraphs that the drawings, or some of them, by the plaintiff appear to have precipitated a significant dispute with the defendant and had immediately preceded the defendant's written notice of dissolution of the partnership. 

14. Mr Monaco further placed strong emphasis on the allegations that the plaintiff had been excluded from the partnership premises, which was largely associated, it seems, with the unresponsiveness of the defendant to a request by the plaintiff for keys.  Mr McIntosh, counsel for the defendant, sought to justify the defendant's unresponsiveness by reference to the limited number of persons working at the premises, which apparently meant only a limited number of keys were available.  Mr Monaco also emphasised at the hearing the plaintiff's alleged exclusion from participation in the partnership business, which appears to be an aspect of the concern for an alleged lack of information about it since dissolution, and an alleged failure by the defendant to consult with the plaintiff about the acquisition of a lease for adjoining premises before dissolution. 

15. Mr McIntosh submitted strongly to me that, while there might be matters in dispute between the parties sufficient, as Mr Monaco reminded me, for the defendant itself to be seeking the appointment of a receiver and manager, those matters were not sufficient to warrant the Court putting the parties to the additional expense of an independent receiver, even one appointed on the terms of the plaintiff's proposed order, at least until the opportunity for a mediation had occurred. 

16. Mr McIntosh stressed that there simply had not been a sufficient opportunity to this point for the plaintiff and the defendant to consult with one another, apart from the plaintiff's husband, with a view to seeing what resolution could be reached.  This resolution might make it unnecessary to proceed to a sale.  Even if it meant a sale was appropriate, it might well be that no independent third party needed to be involved.  Even if an independent third party needed to be involved, the defendant took objection to the appointment of Mr Fleay at this point, a person about whom she had no information, and for whom no consent had by the time of the hearing been filed.  I note parenthetically that the plaintiff's counsel submitted to me that there was no need for the filing of such consent prior to any order, and the defendant's counsel was unable to point me to any authorities requiring this. 

17. Counsel for the defendant strongly urged on me that if an independent third party were to be appointed, either now or following a mediation, it would make more sense to appoint the partnership's prior accountant or a member of that firm.  This was because that firm was resident in Newman, where the partnership business was located, and would be coming to the job with a prior acquaintance with the affairs of the partnership.  My attention was drawn to the identification of this accountant in the defendant's affidavit at par 30. 

18. The defendant's counsel again reminded me of the potential risk to an effective mediation that might be represented by making an order of the sort called for by the plaintiff here.  That risk arose from the additional costs that would need to be addressed at that mediation, represented by the receiver and what the receiver was asked to do.  The defendant's counsel referred me to the defendant's proposed undertaking, which, in effect, would amount to an obligation to account to the solicitors for the plaintiff.  Although that would create additional costs for those solicitors, those costs would be less, in the defendant counsel's submission, than any accountant's costs, in light of the other orders sought by the plaintiff at the hearing, including those for delivery up of possession and the undertaking of formal accounting processes. 

19. The defendant's counsel submitted to me that there was evidence from the terms of the plaintiff's order, including its provision for the appointment of the defendant as manager, and the removal of the request for indemnity costs at least for this part of the proceedings, that the parties were, in fact, moving towards agreement of the sort that a mediation conference would be able to capitalise on.  In these circumstances, the Court should be even more astute than otherwise not to prejudice the chances of a successful mediation.

20. In the circumstances, I have concluded that I should make the order proposed by the plaintiff in the exercise of my undoubted discretion in this area.  As counsel for the plaintiff submitted to me, she has a significant investment in this partnership, and following a dissolution by the defendant's written notice the plaintiff is entitled in general terms to an orderly sale of the business.  The history of relations between the parties would make it undesirable not to have the supervision of this process, pending a mediation, under an independent third party.  That independent third party should, it seems to me, be someone who is readily amenable to supervision if necessary by the Court.  This would argue in favour of Mr Fleay, whose address is given as 12 Charles Street, South Perth, in the original writ of summons.  Provision for his consent and security is contained in the proposed order of the plaintiff.  I do not consider that any cost or information advantages of the Newman‑based accountants would, in any event, be particularly significant, given that the business in this case commenced no earlier than 20 March 2003, on the defendant's affidavit at par 16.  I have anxiously considered the possible risk to the mediation process if an appointment and the other orders called for by the plaintiff in her proposed orders are made.  Counsel for the plaintiff strongly urged on me that the work of the receiver could facilitate the mediation by establishing accounting and other information against which the mediation could better proceed.  I should add that there would also be risks to the mediation, given the history in these proceedings as I recited it at the beginning of these reasons, if the order were not made.  Those risks related to the level of confidence with which the plaintiff could enter the mediation process.  From the standpoint of the defendant, who, on the agreed facts, is the party in possession of the bulk of the information required, there appears to be no issue as to her making that information available to someone.  I have noted counsel for the defendant's argument about the additional costs represented by the incidental orders in this case.  However, I am of the view that they would not add substantially to the costs in this matter that would be incurred in any event as part of the process of responsible and detailed accounting.  They also offer the prospect of reassuring the plaintiff as to the proper operation of such matters as the partnership bank account, a subject of some concern to the plaintiff on her affidavit. 

1. I have noted the defendant's concern that she knows nothing of Mr Fleay other than his status as an accountant.  However, I have no reason to doubt his qualifications to be an independent receiver, and the defendant offers me none.  By the terms of the plaintiff's proposed orders, he will of course be required to provide security and will become an officer of the court.  I should note also that the order includes a liberty to either party to apply on 48 hours' written notice to either party.

2. Order in terms of the plaintiff's amended proposed orders dated 29 April 2004 as further amended and initialled by me.