Mochkin v Klein
[2022] VCC 1385
•29 August 2022
| IN THE COUNTY COURT OF VICTORIA AT Melbourne | Revised (Not) Restricted Suitable for Publication |
Case No. CI-20-05675
| Yosef Mochkin | Plaintiff |
| v | |
| Yechiel Klein & Ors | Defendants |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18, 19, 23–26 May and 23 June 2022 | |
DATE OF JUDGMENT: | 29 August 2022 | |
CASE MAY BE CITED AS: | Mochkin v Klein & Ors | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 1385 | |
REASONS FOR JUDGMENT
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Subject:PARTNERSHIP – FIDUCIARY DUTIES
Catchwords: Dissolution of partnership – loan agreement – breach of fiduciary duties – denuding of partnership property – damages – equitable compensation – taking of accounts
Legislation Cited: Partnership Act 1958 (Vic) ss 25, 28, 33, 39, 42, 43, 46 and 48; County Court Civil Procedure Rules2018 rr 50.01(1)(b) and 50.02.
Cases Cited:Barnes v Addy (1874) LR 9 Ch App 244; Grimaldi v Chameleon Mining NL (No 2) (2012) 287 ALR 22; Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA; Turner, Kempson & Co Pty Ltd v Camm (1922) VLR 498; Masters v Cameron (1954) 91 CLR 353; Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601; Jones v Dunkel (1959) 101 CLR 298; Winn v Bull [1877] 7 Ch. D. 29; Vero Insurance Ltd v Tran [2008] NSWSC 363; Buildum Construction Pty Ltd v Pile & Bucket Pty Ltd [2017] NSWSC 1260; Weimann v Allphones Retail Pty Ltd (No 2) (2009) 261 ALR 343; United Group Rail Services Ltd v Rail Corporation (NSW) (2009) 74 NSWLR 618; Kardos v Sarbutt (No 2) [2006] NSWCA 206; Knight v Bell (1887) 13 VLR 878; Fexuto P/L v Bosnjak Holdings P/ L (2001) ACSR 672; Re Amalgamated Syndicate [1897] 2 Ch 600; Re Tivoli Freeholds Ltd, Herald & Weekly Times Ltd v Tivoli Freeholds Ltd [1972] VR 445; Hungerford (by his tutor Ahadizadeh) v Richardson [2017] NSWSC 297; Crawshay v Collins (1808) 33 ER 736; Barber v Rasco International Limited [2012] EWHC 269; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australian Friendly Society Ltd (2018) 265 CLR 1; Warman International Ltd v Dwyer (1995) 182 CLR 544; Barescape Pty Limited as trustee for The V's Family Trust & Anor v Bacchus Holdings Pty Limited as trustee for The Bacchus Holdings Trust & Anor (No 9) [2012] NSWSC 984; Jones v Lenthal (1669) 1 Ch Cas 154; Sang Lee Investment Co Ltd v Wing Kwai Investment Co Ltd (1983) 127 Sol Jo 410; Meyers v Casey (1913) 17 CLR 90; Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218; Chan v Zacharia (1984) 154 CLR 178; Maguire v Makaronis (1997) 188 CLR 449; Burmeister v O’Brien [2010] 2 NZLR 395; Birtchnell v Equity Trustees (1929) 42 CLR 384; Fry v Oddy [1999] 1 VR 557; Keech v Sandford (1726) 25 ER 223; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; The Lindsay Petroleum Company v Hurd & Ors (1874) LR 5 PC 221; Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 278 ALR 291; Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318; Bullhead Pty Ltd v Brickmakers Place Pty Ltd (In Liq) (2018) 58 VR 91; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Heanes v Herangi (2007) 175 A Crim R 175; Director of Public Prosecutions v Boardman [1975] AC 421; Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; Celermajer Holdings Pty Ltd v Kopas [2011] NSWSC 40; Rosebanner Pty Ltd v Energy Australia (2009) 223 FLR 406 ; State of Queensland v The Estate of Jennifer Masson (2020) 381 ALR 560.
Texts Cited:Thurston, Philip H, “When Partners Fall Out” Harvard Business Review November 1986; Lindley and Banks on Partnership (19th ed, Thomson Reuters, 2010); Heydon, Leeming and Turner, Meagher, Gummow & Lehane, Equity Doctrines and Remedies (5th ed, 2015); Young, Croft and Smith, On Equity (Thomas Reuters, 2009); LexisNexis, Halsbury's laws of Australia, 305 Partnerships and Joint Ventures; G S Clarke QC, “Breach of Fiduciary Duties in Commercial Cases: Recent Developments” (March 2020).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Ravech | Rotman & Morris Lawyers |
| For the Defendants | Mr S Tatarka | Rosendorff Lawyers |
CONTENTS
Introduction
The Factual Background
IT Evidence
Partnership Agreement
Issue (1) What were the terms of the partnership agreement between the plaintiff and the first defendant?
Submissions
Reasoning
Issue (2) What terms of the partnership agreement were varied when the second defendant was admitted to the partnership as a new partner?
Submissions
Reasoning
Issue (3) Did the partners enter into a concluded settlement agreement on 9 August 2018 whereby:
(a) Klein and Segman immediately acquired Mochkin’s share in the partnership; and
(b) subject to the provision of evidence by Mochkin of the actual amount that was advanced by him to the partnership, Klein and Segman agreed to pay to Mochkin that amount plus $10,000.00?
Issue (4) If the answer to issue 3 is YES:
(a) did Klein and Segman thereby acquire Mochkin’s share in the partnership?
(b) are Klein and Segman entitled to an order for specific performance of the settlement agreement?
Submissions
Reasoning
Partnership Dissolution
Issue (5) On what ground, and with effect on and from what date, should the Court dissolve the partnership under s39 of the Partnership Act?
Submissions
Reasoning
Partnership Property
Issue (6) What assets constituted the property of the Partnership?
Submissions
Reasoning
Breach of Fiduciary Duties
Issue (7) Did Klein and Segman breach their fiduciary duties and/or the statutory duties, by conducting, together initially and then through Getafix, to the exclusion of Mochkin, the online business known as “WilliamKlein”?
Issue (8) If the answer to question 7 is YES, is Mochkin entitled to:
(a) an order against Klein and Segman for an account of profits and/or a constructive trust, and ancillary orders?
(b) an order against Getafix, as a knowing recipient under the second limb of Barnes v Addy, for an account of profits and/or a constructive trust and ancillary orders?
Submissions
Reasoning
Issue (9) Did Mochkin breach his fiduciary duties and/or the statutory duties by conducting, through JMEC, an online business known as “augoods retail”?
Issue (10) If the answer to question 9 is YES, are Klein and Segman entitled to:
(a) an order against Mochkin for an account of profits and/or equitable compensation, and ancillary orders?
(b) an order against JMEC, as a knowing recipient under the first limb of Barnes v Addy, for an account of profits and/or equitable compensation, and ancillary orders?
Submissions
Reasoning
Loan
Issue (11) What is the amount owed to Mochkin for money lent to the partnership under the Loan and by whom is it owed?
Submissions
Reasoning
Credibility Issues
Segman and Klein’s Witness Statements
Segman’s Dishonesty towards his Partners
Simon Mochkin’s Evidence
Conclusion
HER HONOUR:
Introduction
1Partnerships are usually formed when two (to twenty) people have complementary skills. This organisational arrangement allows each partner to focus on the part of the business that plays to their particular strengths, knowing that the other party is making their own contribution to the enterprise. It can be a powerful and profitable structure if it works. However, when conflict escalates, whether it be over concerns about a partner’s performance and contributions, second guessing the next actions of the other partner, or making both subtle and openly hostile moves against each other resulting in deeper disagreements in which former enthusiastic partners and close friends grow to distrust one another and make ultimatums, it has been observed that “in all partnerships partners get the experience and lawyers get the money”.[1]
[1]. Thurston, P.H (1986) “When partners fall out” Harvard Business Review, 64(6) 24 –34.
2In this proceeding, the plaintiff (“Mochkin”) seeks, amongst other relief, an order that the first defendant (“Klein”) and the second defendant (“Segman”), who were formerly his partners (“the Partnership”) in an e-Commerce business (“the Partnership Business”) that commenced to trade on eBay under the name “Shop OzStore” and on Amazon under the name “OzStore”, account to him for all profits derived by them through their use, in conducting the Partnership Business for their own benefit to the exclusion of Mochkin, of property of the Partnership (“Partnership Property”) since the dissolution of the Partnership on 11 August 2018. Mochkin says that Klein and Segman excluded him from the Partnership Business by changing the passwords of the Partnership Business’ Gmail, eBay and Amazon accounts and locked him out, but continued to use Partnership assets and funds that he provided to the Partnership.
3Klein and Segman claim that, on 10 August 2018, Mochkin denuded the Partnership when he logged into Klein’s PayPal account without their authority and caused the balance of the funds held (in the sum of $1,255.99) to be transferred to his personal account; changed the passwords of all the Partnership Business’ internet accounts; ended approximately 1,500 of the Partnership Business’ listings on the Amazon and eBay platforms; took possession of approximately $30,000.00 in stock that remained in his premises and retained a number of Partnership assets valued at $5,000.00 (“Mochkin’s Conduct”).
4Klein and Segman allege that, as result of Mochkin’s Conduct, the Partnership was, in effect, dissolved, as all of the listings on the online platforms established by Klein on eBay and Amazon (“Online Platforms”) had been ended and they did not have access to stock to fulfil outstanding orders. They say that Mochkin’s Conduct amounted to a repudiation of the Partnership agreement and Klein and Segman claim they are entitled to an account of profits from Mochkin’s use of the Partnership assets to establish a competing business without their permission.
5Needless to say, the partners’ friendship has not survived the fall out. The crux of the proceeding revolved around whether the partners had resolved the disagreement through a buy-sell agreement, or whether the negotiations faltered into an impasse which has culminated in costly, protracted and very public litigation in both the Magistrates Court, the Jewish Court and this Court.
6Unfortunately, there is no written partnership agreement. Although the terms of the oral partnership agreement were agreed between the parties, there was no exit clause agreed between the parties.
7On day one of the trial, the defendants sought leave of the Court to amend their counterclaim to allege that at a meeting on 9 August 2018 at the Kremnizer home, the parties concluded an agreement whereby Mochkin was to exit the Partnership upon terms that he be repaid the balance of the monies that he had loaned to the Partnership (subject to verification) and a sum of $10,000.00 for “goodwill” in instalments of $10,000.00 per month. This alleged agreement was said to be constituted orally, in writing and by implication.
8The partnership terms, the content of the partners’ fiduciary duties and the law on constructive trustees and accessorial liability under Barnes v Addy[2] and Grimaldi v Chameleon Mining NL (No 2) (“Grimaldi”)[3] were the subject of common ground between the parties. What was not common ground is whether any interest was to be applicable to Mochkin’s loan; who breached the fiduciary duties; whether the eBay Account and the Amazon Account constituted Partnership Property; whether there was a concluded settlement agreement made on 9 August 2018 at the Kremnizer home between the parties; and any liability of the partners (and their alter-ego corporate vehicles) for any private profits made using Partnership assets.
[2] (1874) LR 9 Ch App 244.
[3] (2012) 287 ALR 22 at [242] and [243].
9The main questions for determination by the Court were:
(a) Whether the partners entered into a concluded settlement agreement on 9 August 2018 whereby:
(i)Klein and Segman immediately acquired Mochkin’s share in the Partnership; and
(ii)subject to the provision of evidence by Mochkin of the actual amount that was advanced by him to the Partnership, Klein and Segman agreed to pay to Mochkin that amount plus $10,000.00?
(b) If there was a concluded settlement agreement, did Klein and Segman thereby acquire Mochkin’s share in the Partnership and are they entitled to an order for specific performance?
(c) If there was no concluded settlement agreement, then:
(i)was the Partnership dissolved on or about 10 August 2018 by repudiatory breaches of the Partnership agreement committed by Mochkin which Klein and Segman elected to accept, thereby bringing the partnership agreement to an end; or
(ii)was the Partnership dissolved on or about 11 August 2018 by repudiatory Breaches of the Partnership agreement committed by Klein and Segman which Mochkin elected to accept, thereby bringing the partnership agreement to an end?
(iii)alternatively, on what ground, and with effect on and from what date, should the Court dissolve the Partnership under s39 of the Partnership Act 1958 (Vic) (“Partnership Act”)?
(d) What assets constituted the property of the Partnership as at the date of dissolution?
(e) Did Klein and Segman breach fiduciary duties and/or the statutory duties, by conducting, together initially and then through Getafix, to the exclusion of Mochkin, the online business known as “WilliamKlein”?
(f) Did Mochkin breach fiduciary futies or any of them and/or statutory duties by conducting, through JMEC Retail Pty Ltd (ACN 628 23 953) (“JMEC”), an online business known as “augoods retail”?
(g) Whether Getafix and/or JMEC are also liable, as knowing recipients of property and profits of the Partnership, to account to the Partnership as constructive trustees?
(h) What is the amount owed to Mochkin for money lent to the Partnership under the loan and by whom is it owed?
10On the first day of trial, the defendants obtained leave to amend their prayer for relief to seek declarations that the parties remain bound by the settlement agreement and a declaration that after 9 August 2018, the partners of the Partnership were the first and second defendants only.
11For the reasons outlined below, the Court proposes to make the following declarations and orders.
12The Court declares that:
1.Pursuant to s39(f) of the Partnership Act 1958 (Vic), the business carried on by the plaintiff, first defendant and the second defendant in partnership under the name “Shop OzStore” (“the Partnership”) was dissolved on 11 August 2018.
2.A declaration that the profits of the business carried on under the name “William Klein” by the first and second defendants:
a. in partnership; and
b. through the third defendant (Getafix),
constitute property of the Partnership and are held on a constructive trust for the benefit of the Partnership.
3.A declaration that the profits of the business carried on under the name “augoods retail” by the plaintiff and through JMEC constitute property of the Partnership and are held on a constructive trust for the benefit of the Partnership.
4.A declaration that the Partnership owes the plaintiff the sum of $30,485.60 for moneys lent by him to the Partnership, together with interest on that sum calculated at the rate of 7 per cent per annum from 7 August 2018, being the date upon which the last increment of the moneys was advanced, until payment.
13The Court orders that:
1.Pursuant to ss 33, 43 and 48 of the Partnership Act 1958 (Vic), there be a taking of accounts in relation to the Partnership and the Partnership Property, and a fair distribution to each party of his respective share of the Partnership Property and profits. In doing so, there must be proper allowance made for any money, assets or property taken from the Partnership Property by one or other party for his own use and for any private profits made by either party for which he has not accounted to the other party or the Partnership.
2.Accounts be taken in relation to the Partnership pursuant to ss 33, 43 and 48 of the Partnership Act 1958 (Vic) and the plaintiff and the first and second defendants pay to each other all sums due to the other in relation to the Partnership and the Partnership Property.
3.Pursuant to r 50.01(1)(b) of the County Court Civil Procedure Rules2018 (“the Rules”), it is ordered that the proceeding is referred to a special referee for the taking of accounts of the Partnership in accordance with the Partnership Act 1958 (Vic).
4.The special referee may indicate the acceptance of the nomination by emailing the associates to her Honour Judge Burchell ([email protected]) within 7 days of the date of this order, a written consent to act. The special referee must thereupon deliver to each of the parties a copy of the consent to act and a statement of proposed remuneration for so acting.
5.Subject to the filing by the nominee of a written consent to act as special referee under this order and provided no party objects to the proposed remuneration within 7 days after the date of the filing of the consent to act, the nominee is appointed as the special referee under this order such appointment to be effective on the date of the filing of the consent to act.
6.The special referee must make a report in writing to the associates to her Honour Judge Burchell on each of the questions. The report must state the opinion of the special referee upon each of the questions giving reasons for this opinion. The report together with a copy for each of the parties must be emailed to the associates to her Honour Judge Burchell not later than 8 weeks after the date of the filing of appointment or by such later date as her Honour Judge Burchell may direct.
7.Within 14 days after the date of the filing of the consent to act, the parties must provide security for the payment of the remuneration of the special referee by the payment into Court, or if all parties agree in writing, by payment into an interest bearing account in the names of the solicitors for the parties. The amount of security will be the amount proposed by the special referee or such other sum as her Honour Judge Burchell may from time to time direct. In the event that this direction is not complied with, the reference will be stayed pending further order.
8.Security for the payment of the remuneration of the special referee must be provided in the first instance in equal shares by the parties. All other questions as to the remuneration of the special referee, including its final determination and which party or parties should ultimately bear it, are reserved.
9.The sum provided by way of security for the remuneration of the special referee, including interest, shall not be disbursed otherwise than pursuant to an order of the Court.
10.Unless the Court otherwise orders, the reference shall be conducted by the special referee in accordance with the procedures set out in Annexure 1.
11.At the time of giving the report pursuant to this order, the special referee must deliver to each of the parties a signed memorandum setting out the remuneration claimed including any disbursements and email a copy to the associates to her Honour Judge Burchell.
12.The parties must make discovery for the purposes of the taking of accounts within 14 days of this order.
13.The plaintiff must file and serve any accounting report and affidavits upon which they will seek to rely upon the taking of accounts.
14.The defendants must file and serve any accounting report and affidavits upon which it will seek to rely upon the taking of accounts.
15.The parties must file and serve an outline of submissions limited to 5 A4 pages and any court books.
16.Reserve liberty to the parties to apply by email to the Commercial Division Registry ([email protected]) for further directions upon giving reasonable notice to all other parties
17.The issue of costs of the proceeding is reserved until after the taking of accounts in accordance with this order.
ANNEXURE 1
ANNEXURE 1 – CONDUCT OF THE REFERENCE The following directions are given pursuant to r 50.02 of the Rules:
1.Subject to the requirements of the rules of natural justice and the following directions and any further directions which may be given by her Honour Judge Burchell, the special referee may conduct the reference in such manner as is appropriate for the efficient and economical implementation of this order.
2.Within 21 days after the date of appointment, the special referee must conduct a preliminary conference with the parties or their legal representatives to determine the manner of conducting the reference.
3.The special referee is authorised for the purposes of the reference to have and use the following material in addition to any material which may be tendered and received as evidence in the reference:
a.a copy of this judgment and order;
b.a copy of the pleadings including any particulars;
c.the Court Book.
4.A copy of each of the above must be delivered to the special referee by the plaintiff within 14 days after the date of appointment.
5.The special referee may make such enquiry and inspection of any document or thing and apply such personal knowledge and expertise as is reasonably necessary for the purpose of the reference.
6.The special referee is not bound by the rules of evidence.
7.The attendance of witnesses and the production of documents may be compelled by the issue of subpoena in accordance with O42 of the Rules.
8.Each of the parties must comply with any lawful direction that the special referee considers necessary for the reference.
9.Where a party wishes to rely upon the opinion of an expert, the special referee may direct that a copy of the expert’s opinion and the reasons in support be provided to the other parties. The special referee may direct that the experts meet in the absence of the special referee and the parties with a view to settling any points of difference between them and to presenting a joint report for use in the reference. Except as all the parties whose experts have participated in such a meeting in writing agree, no evidence may be admitted in the reference or otherwise in this proceeding of anything said or done at the meeting.
10.The parties may be represented on the reference by legal practitioners.
11.The special referee may administer an oath or take an affirmation for the purpose of the reference.
12.For the reasons outlined below, I find that the following items constitute property and profits of the Partnership for the purposes of the taking of accounts:
a. stock held in Segman’s garage, located at 3 Titcher Road, Noble Park North, Victoria valued by Klein at about $1,000.00;
b. proceeds from the sale of stock of the Partnership held in a PayPal account for Merchant ID BQURAKK3PD6J2 [email protected] as at 15 August 2018 in the sum of $16,261.97;
c. proceeds from sales of stock of the Partnership Business held in the Yechiel Yonoson Klein & Yehoshua Shneor Zalman Rapp t/as The Sukkah Boys (bank account BSB: 013 304 – Account: 2291 92389) in the sum of $4,626.31;
d. proceeds from sales of stock of the Partnership Business held in The Sukkah Boys ANZ (bank account BSB: 013 304 – Account: 2291 92346) under Klein’s control;
e. the OZS Retail Pty Ltd bank account held in the name of OZS Retail Group Pty Ltd (ACN 627 559 068) (“OZS”);
f. a McLeod Excel spreadsheet created to organise the business data of the Partnership Business and enable that data to be integrated into the e-commerce platforms of the Partnership Business (“McLeod Spreadsheet”;
g. the Gmail account of the Partnership Business entitled [email protected];
h. stock held at the Amazon FBA warehouse;
i. stock imaging;
j. stock held in Mochkin’s premises at 48/117 McLeod Road, Patterson Lakes, Victoria (“McLeod Road Apartment”) purchased at a cost of $19,819.16 by the Partnership;
k. the Products Spreadsheet;
l. the eBay Account, including the data of the Partnership Business that was stored on it;
m. the Amazon Account, including the data of the Partnership Business that was stored on it;
n. all property, including stock, bought with money belonging to the Partnership which is deemed, by operation of s 25 of the Partnership Act, to have been bought on account of the Partnership, including but not limited to the photobox, packaging supplies, label printer, printing supplies, shelving, trolleys and postal stamps located at the McLeod Road Apartment at 11 August 2018;
o. the profits of the business carried on under the name “WilliamKlein” by the first and second defendants:
i.in partnership; and
ii.through the third defendant (“Getafix”),
in the percentages and proportions set out in these reasons;
p. the profits of the business carried on under the name “augoods retail” by the plaintiff and through JMEC, in the percentages and proportions set out in these reasons.
13.Accordingly, I order that Getafix and JMEC are also liable, as knowing recipients of property and profits of the Partnership, to account to the Partnership as constructive trustees pursuant to the alter-ego principles in Grimaldi.[4]
The Factual Background
[4] (2012) 287 ALR 22 at [242] and [243].
14This is a very emotional case which involves the breakup of two high school friends who lived at the McLeod Road Apartment together, worked together in a joint enterprise and who belong to a tight knit community. The Klein and the Mochkin families used to be next door neighbours and the children have known each other since birth. Mochkin, Klein and Segman all attended Yeshiva College. Segman and Klein were friends at school.
15In about 2012, Klein opened an eBay account in his own name and commenced trading on a very small scale. He subsequently opened an Amazon account in his own name and also established a PayPal account.
16Mochkin says that Amazon was going to open up in Australia and had invited applications for online trading in Australia and he wanted to take advantage of the launch. Mochkin did not have an ABN to open an Amazon account. Klein had an ABN, and the Amazon account was opened under the name “Sukkah Boys” (ABN 86 399 567 784). Mochkin assisted Klein to open up the Amazon account to sell goods online. Klein denied that the Amazon account was Partnership Property and claimed that the Partnership did not commence until January 2018.
17In December 2017, Mochkin and Klein started to work together and in March 2018 Segman joined them. Segman was Klein’s friend and he started to come to the McLeod Road Apartment to “hang out”. Klein wanted Segman to join the Partnership and gave him part of his 50% Partnership interest to join the Partnership Business.
18The Partnership sold products on eBay and Amazon. The Partnership Business used the accounts Online Platforms, with most of the stock stored at and delivered from the McLeod Road Apartment leased by Mochkin.
19At all relevant times, the Partnership and the Partnership Business were owned by Mochkin as to 50%, by Klein as to 30% and by Segman as to 20%.
20The relevant terms of the Partnership agreement are as follows:
(a) The Partnership would use Klein’s existing Online Platforms, business name and account to conduct the Partnership Business;
(b) The profits of the Partnership would be split equally between Mochkin and Klein;
(c) Mochkin and Klein would have equal control and decision-making authority with respect to the Partnership Business;
(d) Depending on the availability of funds and the requirements of the Partnership Business from time to time, Mochkin would periodically advance funds as a loan to the Partnership (“the Loan”) to enable the Partnership Business to operate;
(e) The Partnership would repay the Loan to Mochkin;
(f) Klein would make his Hyundai iLoad van available to the Partnership, to meet the requirements of the Partnership Business, free of charge;
(g) Mochkin and Klein would:
(i)act in good faith in all matters concerning the Partnership;
(ii)not act contrary to the interests of the Partnership; and
(iii)not use their powers for an improper purpose.
(h) Klein’s responsibilities in the Partnership Business included (amongst other things) monitoring stock levels, organising distribution of goods, receiving goods, order fulfilment, co-ordinating logistics and assisting Mochkin with data entry and customer service.
21On or around 11 March 2018, the Partnership agreement was varied by consent so that:
(a) Segman was admitted to the Partnership as a partner;
(b) Segman would assist Klein with his responsibilities in the Partnership Business;
(c) the percentage of ownership held by each partner in the Partnership and the Partnership Business was;
(i)Mochkin as to 50%;
(ii)Klein as to 30%; and
(iii)Segman as to 20%;
(d) the partners would share in profits in line with their percentage of ownership in the Partnership and the Partnership Business;
(e) all decisions of the Partnership were required to be unanimous and without regard to the partners’ respective interests in the Partnership; and
(f) the terms of the partnership agreement would otherwise remain unaltered, save as necessary to accommodate Segman’s admission to the Partnership.
22Mochkin said there were some tensions between the partners from around June 2018 when Klein went overseas to attend a wedding in Israel and did not tell the Mochkin how long he would be away. Mochkin said that on 17 July 2018, OZS was established because a bank account needed to be opened to manage the funds of the Partnership Business as Klein was overseas, and the accounts were solely accessible by him. Mochkin said it was not functional when he was buying from suppliers using his various credit cards, and those of his brother, Simon Mochkin, and having to pay interest on those amounts. Mochkin was the financier of the Partnership. The monies in the Partnership accounts were to be used to pay off his credit card debts. Mochkin said that Klein was not responsive while he was overseas, which made it difficult to manage the Partnership Business when he could not see the disbursements and access the funds to pay the credit cards.
23Klein said that the text messages from 6 July 2018 were written to calm Mochkin down. Mochkin had sent messages to Klein asking him when he planned to return to Australia. Klein informed Mochkin that he intended to leave Israel and travel to Greece and then return to Australia. Klein sent the following WhatsApp message to Mochkin:
“I know I have done to [sic] much damage already and I will accept the consequences as such
Sorry for having to put you in this position in the first place
I don’t deserve any sympathy
I did a very selfish thing and was completely dishonest wit [sic] you at the beginning of the business”
24Although the texts include an apology and acceptance of fault for being overseas for longer than he said he would be away, Klein said that he sent the messages because Mochkin had made many phone calls and had hit him with a bombardment of text messages. Klein felt that Mochkin was treating him like an employee and demanding that he return immediately. He did not appreciate this. Mochkin says this was the start of the conflict between the parties.
25Segman says that there were tensions among the partners even earlier, from March 2018, when Mochkin would purchase stock on behalf of the Partnership Business without consultation with Klein and Segman. Klein and Segman did not wish to trade end of line stock. Mochkin said that the issue was Klein being away from 29 June 2018 to 27 July 2018 and the consequences of that absence. Mochkin said that the partners had not discussed what the consequences might be. It could be that Mochkin, in a new corporate structure, would have more of a shareholding than his partners as he was the sole funder, or Klein could have convinced him that he would not leave the Partnership Business for 5 weeks without agreement and neglecting the Partnership Business in future.
26Mochkin said that there was a telephone conversation with Klein while he was overseas, and he discussed with him the establishment of OZS and the ANZ bank account. Segman said that Mochkin insisted that the new company be started, and he acted on his instructions. Klein said that first time he knew about the ANZ account was connected to OZS was on his return to Australia. This was disputed by Mochkin. There were contemporaneous text message exchanges between Klein and Mochkin between 19 and 24 July 2018 in which Mochkin requests funds transfers into the named OZS account and Klein agrees. Further, Segman gave evidence that he called Klein shortly after registering OZS and told him that he helped Mochkin register the company to calm him down and delay any further action until Klein returned from overseas.
27By early August 2018, relations between Mochkin, on the one hand, and Klein and Segman on the other hand, had soured. They endeavoured to reach an agreement to bring about a termination of the Partnership and to resolve the question of their individual entitlements concerning the Partnership Business upon termination. There is a dispute between the parties as to whether a concluded agreement eventuated on 9 August 2018 at the Kremnizer home.
28It is common ground between the parties that the breakdown in relations led to negotiations in early August 2018, where the parties canvassed a few mechanisms to separate their interests respectively.
29On 8 August 2018, at around 7.00pm, Klein changed the passwords to the eBay, Amazon and the OZS accounts locking Mochkin out of the Partnership accounts. Between 8.00pm-8.27pm, Mochkin attempted to contact Klein. At 8.49pm, Klein gave Mochkin the new passwords to the accounts and sent a WhatsApp message stating:
“Mate this crazyness [sic] was getting to me and definitely was wrong to change the passwords.
Sorry
Got ahead of myself”
30On 9 August 2018, Getafix commenced purchasing stock from Partnership suppliers.
31In the further further amended counterclaim, the defendants amended their claim to assert that there had been an oral agreement on 9 August 2018, at the Kremnizer home, in which there was a concluded settlement agreement between the parties that Klein and Segman would purchase Mochkin’s share of the Partnership, subject to the true value of the debts owed by the Partnership Business to Mochkin for monies advanced by him. Klein and Segman contend that at a meeting on 9 August 2018 the parties orally agreed to end the Partnership Business by way of a settlement agreement upon the terms that:
(a) Mochkin would be repaid all monies that he loaned to the Partnership Business (subject to verification) payable in instalments of $10,000.00 per month; and
(b) Mochkin would receive a further payment for “goodwill” of $10,000.00 to be paid by way of monthly instalments.
32They say that, in part performance of the settlement agreement, and in part payment of the debt owed by the Partnership Business to Mochkin, Klein transferred the sum of $15,005.98 to Mochkin from the Partnership Business’ PayPal account. Klein said that they paid the $15,005.98 as a gesture of goodwill following the 9 August 2018 meeting at the Kremnizer home.
33Klein agreed that the emails dated 9 August 2018, from Mochkin to Klein at 4.27pm and a reply from Segman to Mochkin at 10.07pm, were an accurate record of what was discussed at the 9 August 2018 meeting at the Kremnizer home. In WhatsApp messages between Klein and Mochkin after the meeting, Klein says:
“9/8/18, 10:03 pm - Bill Klein: We can only do drafting tomorrow
9/8/18, 10:03 pm - Bill Klein: Coz we need to do the accounting to find out the final amounts before we make the contract”
34Mochkin said that Segman had not agreed to all the terms that he offered the partners. He felt there was not going to be an agreement on the “at least approx. $72,000” that he claimed was owing to him by way of loan. Mochkin said that his bottom line was $72,000.00 or above. Mochkin said that the 9 August 2018 email from him was a record of the conversations at the meeting. The exact number needed to be finalised and Mochkin said that the agreement needed to be finished and a document drafted. Mochkin said that they were working towards getting a document drafted. There was an agreement that there would need to be a payment structure because Klein and Segman needed to earn the money through the Partnership Business in order to pay the Loan. Mochkin felt that he was boxed into a corner and had no choice but to accept $10,000.00 for “goodwill”.
35Mochkin claimed that the terms to exit the Partnership were a moving feast. Mochkin said that the bottom line was $72,000.00, as set out in the email of 9 August 2018 at 4.27pm. Mochkin thought the deal was north of $72,000.00. He did not like the fact that he was not given the option to buy the Partnership Business. Mochkin said that they were forcing him to sell his entitlements to the Partnership.
36The 9 August 2018 emails relevantly provided as follows —
From Mochkin to Klein and Segman:
“We agreed today that the partnership we opened whereby I was 50% shareholder Yechiel30% and Menashe 20% in the business trading on eBay and Amazon under The SukkahBoys I.E our shopOzstore and Ozstore accounts on both platforms.
The partnership owes me
at the least and agreed by youthe approx. $72.000 (the Exact number will be clarified tomorrow) and this is to be repaid by you. As we agreed you would send the Balance of the PayPal and ANZ accounts and the other accounts (i.e Amazon) across first to begin to pay the debt owed.We agreed that the debt to me which was a loan to the business will be repaid $10.000 per month until the debt is paid plus a goodwill of $10.000 to be paid on top of the debt.
As well as a Personal Debt of 12000 From Yechiel which will be incorporated into the above-mentioned payment structure.
We agreed that tomorrow the 11th Friday, August we will finalize the exact numbers and finish the agreement.
The agreement is really a loan document to you as the balance owing is really a loan to you and the business.
Please respond to this email so we are all clear to proceed”.
From Segman to Mochkin (there is a dispute between the parties as to whether Segman sent the reply on his own behalf or on behalf of himself and Klein):
“I agree with everything written below excluding what I have highlighted in red. I did not agree that the business owes you ‘at the least' $72,000. Everything on the current accounting sheet will be tallied up. On top of the expenditures already noted in the spreadsheet, every transaction that you believe is missing will need documented proof of purchase such as a bank statement charge or receipt.
Once the receipts are in we will have a final figure of what the business owes you.
Otherwise, I agree to all the payment structures indicated.
It seems like Monday 13 August will work best for us to move everything out, I hope that you’re ok with that”.
37Klein agreed that he received Mochkin’s email dated 9 August 2018 at 4.27pm. He read it soon after it was sent. Klein had read the email before he started his WhatsApp messages at 9.32pm. Klein wanted to know the receipts to work out what Mochkin was owed. He did not want to get into a discussion with Mochkin about the minimum $72,000.00 sum. Klein agreed that Mochkin felt that he had spent more than $72,000.00. Klein agreed that Mochkin was owed whatever he had put into the Partnership Business, yet he did not know what the amount was. He believed Mochkin had spent $72,000.00 in total, however, this did not take into account the $39,712.49 that he had repaid some 3 weeks before.
38Mochkin said that once he was locked out of the Partnership Business on 8 August 2018 when Klein changed the passwords to eBay, Amazon and the OZS accounts, the Partnership was unworkable. He logged onto PayPal and saw $15,005.98 was in the account that could have been used to pay off part of his Loan and a further $1,255.99 was still remaining in the PayPal account. Mochkin said that Klein was not transparent about the Partnership Business accounts. Klein claims that at the 9 August 2018 meeting at the Kremnizer home and 10 August 2018 telephone call, Mochkin agreed to transfer the funds held in the PayPal account other than those required to meet eBay fees already incurred. Mochkin denied that this had been discussed and was shocked to see a balance of $1,255.99 available in the PayPal account and he felt that it was being withheld from him. Mochkin said that he could not understand why Klein did not send a screenshot of the accounts to him to verify the balances despite request.
39Klein agreed that, in the WhatsApp messages, Mochkin asked for screenshots of the ANZ and Partnership Business bank accounts. He did not send the screenshots, however Klein said that he told Mochkin that there was nothing in it and the ANZ account had a balance of $2.00. Klein said he expected Mochkin to trust him. However, Mochkin did not trust Klein because he did not disclose the $1,255.99 remaining in the PayPal account.
40In response to Mochkin’s request for proof for the balance in the accounts. Klein left a voice message that said:
“10/8/18, 5:24 pm - Bill Klein: fbf1261d84b6f1aa0c2a4aa5c7106ff5.opus (file attached)
Mate.. All you need, is to know, what you spent. And that’s it. Alright. Come back to me with what you spent and we’ll speak. Have a good Shabbos”.
41Mochkin and Klein were ships passing in the night. Mochkin wanted comfort in relation to the account balances and did not know at that time that he had access to the PayPal account. Klein said that if Mochkin wanted screenshots of all the accounts he would send them to him after Shabbat. Klein’s position was that the account balances were irrelevant. He wanted Mochkin’s accounting to verify what the Partnership Business owed him. Mochkin did not trust Klein and wanted the display of the balances to confirm that Klein had honoured his commitments to send all the money through to him to pay off the Loan to the Partnership Business.
42Klein said that the balances were irrelevant to the calculations to work out how much Mochkin was owed. He could not appreciate Mochkin’s point of view that when he had logged into the PayPal account, and it looked like $1,255.99 had been held back, Mochkin had felt that Klein had not been transparent, and Klein was not prepared to give him the screenshots of the balances. This is supported by the WhatsApp messages between Klein and Mochkin as follows:
“10/8/18, 5:32 pm - Bill Klein: The balances r irrelevant
10/8/18, 5:32 pm - Yossi Mochkin: Lol kk if u can’t now u can’t
10/8/18, 5:32 pm - Yossi Mochkin: No biggie
10/8/18, 5:32 pm - Yossi Mochkin: Ok”
43Klein submits that this passage meant that Mochkin accepted that the balances were irrelevant. Mochkin says he had to accept that Klein was not in a position to provide them to him that night because of Shabbat.
44Simon Mochkin, the plaintiff’s brother, also gave evidence denying that the issue of outstanding eBay invoices being due in a few days, such that the funds in the accounts would be sent over minus the invoiced amounts, was never discussed at the 9 August 2018 meeting at the Kremnizer home. He said that if Mochkin was being asked to leave the Partnership, then the PayPal and ANZ funds would be used to pay the debt owing to Mochkin. This is consistent with Mochkin’s claim that the Partnership would repay the Loan from the Partnership’s cashflows until the Loan was paid in full.
45Mochkin said that this made him worried about what funds were held in the other accounts, including the ANZ account. Mochkin said that he then closed the door on the Partnership Business to keep the status quo. He then ended the listings on the Online Platforms because he did not know where the funds were going. Mochkin said that he then wanted to work out with Klein and Segman the terms to end the Partnership. He said the terms had not been honoured by Segman and Klein. The Amazon store was restored on 15 August 2018. The following day, the eBay store was up and running, and generating sales.
46Mochkin says that he ended the listings because he had received Segman’s email saying he was not happy with Mochkin’s reply. Also, he could see there was an amount held back in the PayPal account and the alleged outstanding invoice had not been discussed at the 9 August 2018 meeting at the Kremnizer home. Mochkin submitted that the outstanding invoice was raised for the first time by Klein and Segman on 19 May 2022 during the trial. Klein said that he did not refer to the outstanding invoice in his witness statement because he did not appreciate the significance of it.
47Klein said that he was at his parents’ house when Mochkin sent voice messages at 11.32pm on 10 August 2018. He found out that the 1,500 listings had been ended and that he was locked out of the McLeod Road Apartment. The voice mail message is set out below:
“10/8/18, 11:32 pm - Yossi Mochkin: PTT-20180810-WA0045.opus (file attached)
Hey Yechiel, um.. I started this partnership with you, ush, your my mate you’re the person that I entered this venture with.
10/8/18, 11:32 pm - Yossi Mochkin: PTT-20180810-WA0046.opus (file attached)
When you’re able to, come down to Paterson. I’ve changed the locks and uh, Menashe is not..
10/8/18, 11:33 pm - Yossi Mochkin: PTT-20180810-WA0047.opus (file attached)
really a part of this as far as I’m concerned. We started this partnership together, um. I’ve made some changes uh….
10/8/18, 11:33 pm - Yossi Mochkin: PTT-20180810-WA0048.opus (file attached)
..i’m sorry. I’ve made some changes in the listings, and I think I’ve got a good solution, and a way that we can work this out together. So when you are ready to come down, come down
10/8/18, 11:33 pm - Yossi Mochkin: PTT-20180810-WA0049.opus (file attached)
and we’ll have a chat face to face. I don’t want to do this over the phone. Let me know when works for you”
48Klein said that there was a concluded agreement on 9 August 2018, at the Kremnizer home, and that they only needed to determine the final amount owing. On 11 August 2018, Klein and Segman took steps to reverse the $15,005.98 and $1,255.99 PayPal payments to Mochkin.
49The PayPal payments to Mochkin of $15,005.98 and $1,255.99 were reversed on 15 August 2018. Klein said that he called PayPal to reverse the sum of $1,255.99 because he required the funds to pay the outstanding invoices. Klein said that PayPal reversed both the $15,005.98 and the $1,255.99. Mochkin says that there cannot be part performance of any concluded agreement because Klein did not then proceed to repay the part payment.
50Klein and Mochkin then met at Lakeview Café in Patterson Lakes to try to work out terms and conditions. Klein said that Mochkin had ended the listings, logged into the PayPal account and transferred the amount, changed the passwords, took possession of the $30,000.00 stock, took some stationery and locked him out of the apartment. He said that at that point the Partnership had dissolved. There was nothing left in the Partnership Business.
51On 13 August 2018, Mochkin emailed Klein and Segman relevantly stating:
“Should you require any items to fill our orders for today for our eBay user ID Shopozstore.
Please let me know today so I can assess what is available and prepare accordingly”.
52Mochkin said that he sent Klein an email, dated 13 August 2013 at 9.41am, offering that if Klein required any items to fulfil orders, that Mochkin would access them and prepare the stock. Klein said he felt it was a fake offer. Klein said that he could not access or see if the stock was available. Mochkin said that the stock was visible on the McLeod Spreadsheet.
53On 15 August 2018, the sum of $4,626.31 was deposited into the Sukkah Boys bank account from the Partnership’s Amazon sales.
54Mochkin claimed that Klein had complete control over the Partnership Business because Klein had access to the accounts, had the passwords to the eBay and Amazon accounts and the [email protected] email account. In relation to the alleged Mochkin Conduct, Klein said he changed the passwords because he was concerned and, knowing Mochkin’s personality, what he could do to the accounts. Klein was able to reverse the $1,255.99 and changed the passwords back very quickly. The 1,500 listings that had been deleted by Mochkin were able to be relisted by Klein by adding a product, however, without the sales history on the eBay products. He conceded that it was not a big deal. The alleged $30,000.00 stock in Mochkin’s possession includes profit margin. The value of the stock on the McLeod Spreadsheet is shown as $19,318.61. The McLeod Road Apartment was where the partners worked from every day to organise the shipping of products and was also where the stock was kept.
55Segman and Klein carried out Klein’s personal belongings from the McLeod Road Apartment on 12 August 2018. Klein says that Mochkin has retained various stationery valued at $5,000.00. Mochkin said that the desks, printer and chairs were his personal property in the Apartment. Klein said that the photo box, packaging supplies, a label printer, printing supplies, shelving, trolleys and postal stamps were Partnership Property. Klein said that there was more than one desk and chairs used which could be Partnership Property.
IT Evidence
56Mr Spencer gave IT evidence on behalf of Mochkin in relation to the effect of Mochkin ending the listings on the Online Platforms. Mr Spencer said that the ranking of an item on the Online Platforms is set behind the scenes by algorithms. Whether there is an impact on ranking when a listed item is delisted, and then relisted, is dependent on whether the item’s sales history reappears.
57Klein and Segman say that there is a difference between the front end (consumer facing) and back end (vendor facing) of the Online Platforms. The front end shows the Amazon Standard Identification Number (“ASIN”) and sales history of the item. The back end contains sales history of any listing, which is attached to the seller. On Amazon, as soon as each ended product listing is relisted on the Amazon platform, the ASIN sales history re-appears, and the status quo is restored.
58Mr Simonetti gave expert IT evidence for Klein and Segman. Mr Simonetti conceded that even when Amazon and eBay listings were ended by Mochkin on 10 August 2018, by re-listing them the next day, the back end would be entirely unaffected. The difference when a listing is ended in eBay, is that the sales history from a consumer perspective cannot be recovered. It is listed as a new item with no sales history in the front end. The algorithm for eBay would mean the item would not be on the first page of search results. The presentation is in order from the first result down. Mr Simonetti agreed that the priority could be improved by paying eBay a sponsorship. Whether Klein and Segman could have accelerated their marketplace growth strategies, by sponsoring products on the platform to mitigate their losses from the ending of the listings on eBay, depends on the quantum of the losses and the cost of sponsorship.
59Mr Simonetti had not taken any stock into account, such as the pallet of stock in Segman’s garage, stock held in the FBA warehouse, the stock held by Mochkin at the McLeod Road Apartment and the monies held in the PayPal and Partnership Business accounts, when assessing the value of the Partnership Business.
60As far as an Amazon consumer is concerned, it was common ground that the front end is unaffected on ending a listing and re-establishing a listing. The ASIN is restored after one delists and relists and nothing has changed.
61Both experts agreed that there is a difference between the performance of Amazon and the performance of eBay. Mr Spencer explained that on eBay platform, every item listed is associated with that item itself, whereas on the Amazon platform, the item is generic and different vendors will share that item listing and the listing is separate from the item.
62On Amazon, if the product is identical, then the vendors are meant to use the same ASIN. Mr Spencer said that when Amazon is responding to your search, it will, first of all, primarily focus on trying to find the right product. Where a product has sold well, it will have a higher preference than a product that has not sold well, which does have a tendency to put forward products that have been around for longer (rather than newer products) and then it will use any number of other different aspects to then rank those results within the platform itself.
63The ASIN identification of a particular product as a number 1 best seller in its category has got nothing to do with the particular vendor and has everything to do with how many sales that particular product has made via the Amazon platform.
64On eBay, there is no common number for the product sold on the platform. Each vendor on eBay, when they create a listing, are given a listing number for that listing. What is built up on the eBay platform is a sales history for that particular item within that particular listing. Mr Spencer referred to this as an auction history within that product of how many times that exact product has been sold within that listing for that particular vendor.
65Mr Spencer explained that eBay has come from individual auctions for individual users and has grown into a platform for organisations, whereas comparatively Amazon has started as a platform, that was meant to be selling from organisations rather than individuals and has subsequently expanded outwards.
66It was also common ground between the experts that the back end of eBay was unaffected by the ending of listings to whoever has access to the seller account. However, the eBay sales history is gone forever. Mr Simonetti concedes that, on Amazon, the ASIN history is restored. Klein agreed that the damage on Amazon was not as bad as on the eBay listings and the sales history of Amazon was not lost in the same way as it was on eBay.
67Mr Simonetti agreed that the longer a seller is on eBay, the better the standing. Further, that if one knew one could not fulfil the order, there would be no point in listing a product for sale.
68eBay is different to Amazon as each item has its own ID number. The ending of a listing on eBay ends the sales history of the item within the listing. For a consumer looking at the item, the history of the sales of the item is lost. For example, a vendor may have sold 300 items and then, on ending the listing and relisting, the sales history restarts from zero. The vendor retains their product feedback reviews even after ending the listing as these reviews are not tied to an individual listing. However, the individual product history is gone forever. The top seller ranking is retained.
69For eBay, the sales history is tied directly to the listing and once deleted, there is no value that can be passed onto a new business. The new business would need to rebuild the sales history and recreate the description of the item from knowledge. Experience can be used to speed up the process of recovery, which is different from restarting at zero with no understanding of sales and what customers are searching for. There are ways that are available to eBay vendors to increase the priority of listings or improve the search result priority that was held prior to the ending of the listing. eBay also has product reviews which is attached to the seller and product rather than the listing.
70Mr Simonetti said that, in order to establish a similar revenue and ranking as the Partnership Business on eBay, every product would need to be relisted and the history of the product sales would need to be built up again. This includes providing good customer service, answering customer questions, handling shipping and returns, dealing with suppliers. Mr Simonetti said that it took about 6 months from August 2018 to January 2019 for Klein and Segman to return to comparable revenue and rankings on eBay.
71An organisation’s feedback reviews are considered in the eBay algorithm in listings priorities even after the listing is ended and relisted. The most efficient way for an item to attain priority listing is for the vendor to refine the description of the item and otherwise to build up the sales history. The vendor can pay eBay for the privilege of sponsored listing placements to have the sponsored listing result appear at to the top of the search list. Alternatively, the vendor can buy the item themselves to build up the sales.
72Klein said they were able to relist on eBay very quickly. Amazon was a little more involved and the descriptions were on the McLeod Spreadsheet. Segman relisted the items on the platforms by 15 and 16 August 2018 and also added new items. They took the information, the titles, description and images from the McLeod Spreadsheet on eBay and Amazon for the existing items. Klein and Segman uploaded the new NETO system (now known as Maropost) around 7 November 2018.
Partnership Agreement
Issue (1) What were the terms of the partnership agreement between the plaintiff and the first defendant?
Submissions
73The plaintiff and defendants agree that, save for the issues of what constitutes Partnership Property, there was no dispute between them as to the terms of the Partnership agreement between Klein and Mochkin.
Reasoning
74It is uncontested and agreed on the pleadings that in December 2017, Mochkin and Klein agreed to carry on the Partnership Business in partnership, selling products on eBay and Amazon via an online store known as “Shop OzStore”.
75I therefore accept, as agreed on the pleadings, that the Partnership agreement as between the plaintiff and first defendant contained the following terms:
(a) The partnership would use Klein’s existing Online Platforms, business name and account to conduct the Partnership Business;
(b) The profits of the Partnership would be split equally between Mochkin and Klein;
(c) Mochkin and Klein would have equal control and decision-making authority with respect to the Partnership Business;
(d) Depending on the availability of funds and the requirements of the Partnership Business from time to time, Mochkin would periodically advance funds as a loan to the Partnership to enable the Partnership Business to operate;
(e) The Partnership would repay the Loan to Mochkin;
(f) Klein would make his Hyundai iLoad van available to the Partnership, to meet the requirements of the Partnership Business, free of charge;
(g) Mochkin and Klein would:
(i)act in good faith in all matters concerning the Partnership;
(ii)not act contrary to the interests of the Partnership; and
(iii)not use their powers for an improper purpose.
(h) Klein’s responsibilities in the Business included (amongst other things) monitoring stock levels, organising distribution of goods, receiving goods, order fulfilment, co-ordinating logistics and assisting Mochkin with data entry and customer service.
Issue (2) What terms of the partnership agreement were varied when the second defendant was admitted to the partnership as a new partner?
Submissions
76The plaintiff and defendants agree that there is no dispute that the terms of the partnership agreement were varied when Segman was admitted to the Partnership, as a new partner.
Reasoning
77It is uncontested and agreed on the pleadings that on or around 11 March 2018, the terms of the Partnership were varied by consent so that Segman was admitted to the Partnership.
78I therefore accept, as agreed on the pleadings, that the terms of the Partnership agreement were varied as follows:
(a) Segman was admitted to the Partnership as a partner;
(b) Segman would assist Klein with his responsibilities in the Partnership Business;
(c) The percentage of ownership held by each partner in the Partnership and the Partnership Business was as follows:
(i)Mochkin as to 50%;
(ii)Klein as to 30%; and
(iii)Segman as to 20%;
(d) The partners would share in profits in line with their percentage of ownership in the Partnership and the Partnership Business;
(e) All decisions of the Partnership were to be unanimous and without regard to the partners’ respective ownership interests in the Partnership; and
(f) The terms of the Partnership agreement would otherwise remain unaltered, save as necessary to accommodate Segman’s admission to the Partnership.
Issue (3) Did the partners enter into a concluded settlement agreement on 9 August 2018 whereby:
(a) Klein and Segman immediately acquired Mochkin’s share in the partnership; and
(b) subject to the provision of evidence by Mochkin of the actual amount that was advanced by him to the partnership, Klein and Segman agreed to pay to Mochkin that amount plus $10,000.00?
Issue (4) If the answer to issue 3 is YES:
(a) did Klein and Segman thereby acquire Mochkin’s share in the partnership?
(b) are Klein and Segman entitled to an order for specific performance of the settlement agreement?
Submissions
79The plaintiff submits that the alleged settlement agreement contended by the defendants has little force and the evidence itself does not support its existence.
80The settlement agreement, as claimed to be oral, was said to be contained in a conversation between the parties and Simon Mochkin that occurred on 9 August 2018 at a meeting held at 47 Orrong Crescent, Caulfield North, Victoria. The plaintiff argues that contrary to the defendants’ pleaded case, Klein and Segman each gave evidence, during cross examination, that the alleged settlement agreement incorporated a further term whereby Mochkin was to be paid a discrete sum for a personal debt that Klein owed him, in addition to being repaid the balance of moneys that he loaned to the Partnership, and a further sum of $10,000.00 for “goodwill”. The plaintiff submits that this is contrary to the alleged settlement agreement pleaded in the defendants’ further further amended counterclaim.
81The settlement agreement, insofar as it was claimed to be in writing, was said to be constituted by Mochkin’s email and an email in reply sent by Segman at 10.07pm on 9 August 2018.
82The plaintiff argues that Mochkin’s email and Segman’s reply did not come into existence until after the meeting held earlier that afternoon, at which the alleged settlement agreement is said to have been concluded orally during a conversation. The emails are therefore post-contractual, as argued by the defendants. However, it is well established, that regard may be had to the emails for the purpose of determining whether the alleged settlement agreement was formed in the absence of no formal written agreements.[5]
[5] Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA 286 per Warren CJ, Kyrou and McLeish JJA at [133] and [134].
83The plaintiff contends that, read as a whole, Mochkin’s email and Segman’s reply prove that the alleged settlement agreement never came into existence as they demonstrate that the offer of settlement made by Mochkin to Klein and Segman, as contained in Mochkin’s email, was never accepted, as evidenced by Segman’s email. In turn, it relies on the “mirror principle” as articulated in Turner, Kempson & Co Pty Ltd v Camm.[6]
[6] (1922) VLR 498.
84In the alternative, the plaintiff submits that, despite the purported acceptance of Mochkin’s offer, Segman introduced a new term and made a counteroffer, the effect of which was to destroy the original offer. Because a new term was included in the purported acceptance, there was no concluded contract.
85The plaintiff further submitted that Mochkin’s email and Segman’s reply both envisaged a further meeting to “finalise the exact numbers and finish the agreement”. That meeting never occurred, so the alleged settlement agreement was never concluded and did not come into being.
86The settlement agreement, insofar as it is alleged to arise by implication, is said to be implied from the fact that Klein transferred the sum of $15,005.98 to Mochkin from the Partnership’s PayPal account in part performance of the alleged settlement agreement.
87The plaintiff submits that this is contrary to the defendants pleaded case and, on the evidence, the sum of $15,005.98 was ultimately not paid to Mochkin in part payment of the debt owed to him under the alleged settlement agreement. The payment of $15,005.98, which was transferred to Mochkin from the PayPal Account on 10 August 2018, was subsequently reversed on 15 August 2018 and retained by the defendants.
88The defendants submit that Klein, Segman and Mochkin entered into a concluded settlement agreement on 9 August 2018. They contend that the agreement was oral, made in person at the Kremnizer home, and that the subsequent emails are not the actual settlement agreement. Instead, that the subsequent emails are simply evidence of the settlement agreement.
89The defendants contend that Mochkin accepted Klein and Segman’s final offer to pay him $10,000.00 on top of the actual amount owed to him under the Loan in order to surrender his interests. In turn, the only matter of substance in dispute that remained, was whether Mochkin demanded a minimum floor amount of $72,000.00. The defendants relied on Segman’s prepared file note, produced at trial, titled “The Founders 2.0” and dated 13 August 2018 (“the Founders Document”), to corroborate the evidence.
90The defendants argue that the Court should find that there was a concluded settlement agreement with both offer and acceptance and sufficiently certain terms that Mochkin would forthwith transfer/surrender his share in the Partnership to Klein and Segman, and that Klein and Segman would pay, subject to calculation, the amounts owed by the Partnership to Mochkin plus $10,000.00. Further, that the parties exchanged emails shortly after the meeting at the Kremnizer house which evidences both the existence of the settlement agreement and its terms.
91The defendants reject the plaintiff’s submission that there was no concluded agreement because Segman’s reply did not “mirror” Mochkin’s initial email. They emphasised that the emails were not the agreement. The email was neither the offer nor the acceptance. Further, that the settlement agreement had already occurred in person at the Kremnizer home. As such, the “mirror principle” had no application to the emails, as argued by the plaintiff.
92The defendants further submit that the inclusion of a further term in relation to the repayment of the debt owed by Klein to Mochkin did not undermine the settlement agreement in relation to the Partnership. Instead, they argue that any agreement between Mochkin and Klein, while part of the same negotiations, was in a legal sense a separate agreement and it was not a further term of the settlement agreement in the manner contended by the plaintiff.
93The defendants also reject the plaintiff’s contention that Segman, by his email, introduced a further term requiring calculations of Mochkin’s loans and thereby made a counteroffer. They argue this was already a term of the agreement made at the Kremnizer home. Relying on Masters v Cameron,[7] they argued that it is well established that parties may agree to be bound immediately even if there is some further discussions to be had. Further, that the evidence of Klein and Segman’s conduct being the payment to Mochkin of $15,005.98, even if that amount was subsequently clawed back, evidenced part performance of the concluded settlement agreement.
[7] Masters v Cameron (1954) 91 CLR 353 at 360; Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, 619.
94The defendants submit that, if the Court finds that there was a concluded settlement agreement made on 9 August 2018, there is no need for an order for specific performance, and none is sought, because Mochkin’s share in the Partnership would have already passed onto Klein and Segman.
95In reply, the plaintiff further submitted that the existence of the alleged settlement agreement is inconsistent with objective contemporaneous evidence and was raised for the first time in the defendants’ original counterclaim filed on 21 July 2020. Further, the plaintiff submitted that the defendants’ position is inconsistent with the instructions given by their legal representatives to their expert at paragraph 4 of the Letter of Instruction dated 15 January 2021, which stated:
“The breakdown in relations led to negotiations in early August 2018, where the parties canvassed a number of mechanisms to separate the parties’ interests. No concluded agreement was reached as a result of these negotiations”.
96The plaintiff contends that the Court should reject the defendants’ suggestion that the statement contained in the Letter of Instruction to Mr Simonetti was a mistake and an adverse inference should be drawn under the rule in Jones v Dunkel.[8]
[8] (1959) 101 CLR 298.
Reasoning
97In Turner, Kempson & Co Pty Ltd v Camm,[9] applying Winn v Bull,[10] Chief Justice Irvine and Justices McArthur and MacFarlan held that “inasmuch as there was a material distinction between the terms of the offer and the terms set out in the contract note, there was no binding contract”.
[9] [1922] VLR 498.
[10] Ibid referring to [1877] 7 Ch. D. 29.
98The High Court in Masters v Cameron[11] reasoned there to be three classes of negotiations in respect of verbal or oral agreements, with only the first two classes said to form a binding contract:
1. The parties have agreed on all terms and intend to be immediately bound to perform those terms, but at the same time purpose to have the terms of their bargain restated in a form which will be fuller or more precise but not different in effect.
2. The parties have agreed on all terms and intend no departure from, or addition to, that which the agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.
3. The parties do not intend to make a concluded bargain at all, unless and until they execute a formal contract.
[11] (1954) 91 CLR 353 at 360.
99In Vero Insurance Ltd v Tran,[12] Justice Hamilton of the Supreme Court of New South Wales adopted a common-sense and commercial approach to the issue. Dismissing the application, Hamilton J held that there was no binding agreement reached despite the oral agreement between the parties, as the parties intended that the agreement was not binding until an executed written agreement was created.[13]
[12] [2008] NSWSC 363.
[13] Ibid at [34] and [37].
100More recently, in Buildum Construction Pty Ltd v Pile & Bucket Pty Ltd,[14] Justice Parker considered the issues of oral settlement agreements and the application of Masters v Cameron. Relevantly, the proceeding concerned an informal settlement conference. What occurred at the settlement conference was a matter of dispute between the parties. Justice Parker analysed the case in terms of the tripartite classification adopted in Masters v Cameron. In the circumstances, Parker J reasoned that, given the requirement of the deed was only mentioned after parties had agreed on the figure and other terms, in his opinion, a binding settlement agreement came into existence at that point. In turn, when the figure was agreed, the parties reached a binding and enforceable settlement agreement.[15]
[14] [2017] NSWSC 1260 (Unreported Judgment).
[15] Ibid at [34] - [36].
101Justice McKerracher in Weimann v Allphones Retail Pty Ltd (No 2)[16] also considered principles derived from Masters v Cameron. He reasoned that, especially in a complex commercial matter, the Court must determine whether the parties intended to make a concluded bargain, which must be objectively ascertained from the parties’ language or inferred from their conduct in light of the surrounding circumstances.
[16] (2009) 261 ALR 343 at 344.
102Further, in applying United Group Rail Services Ltd v Rail Corporation (NSW),[17] McKerracher J held that the document evidencing the oral agreement contemplated that additional matters remained to be negotiated and agreed upon, such that a binding oral agreement would be void for uncertainty.
[17] Ibid at 344 referring to (2009) 74 NSWLR 618.
103There was no dispute between the parties that by August 2018, relations between the partners had soured with Klein and Segman on the one hand, and Mochkin on the other hand, and they were endeavouring to reach an agreement to bring about a termination of the Partnership.
104In my view, for the following reasons, despite negotiations between the parties, an agreement as to Mochkin’s entitlements was not reached. First, the email sent by Mochkin to Klein at 4.27pm on 9 August 2018 relevantly stated:
“The partnership owes me at the least and agreed by you the approx $72,000 (the Exact number will be clarified tomorrow) and this is to be repaid by you”.
105However, in his reply email, Segman expressly rejected this proposition by stating:
“I agree with everything written below excluding what I have highlighted in red. I did not agree that the business owes you ‘at the least’ $72,000”,
with the result that there was no unqualified assent to the terms of the offer and no contract eventuated. I further find that, given the language of the reply email, the sign off contained in the reply, and the chronology of the reply in the context of Klein’s WhatsApp messages, that Segman responded on his own behalf and not on behalf of himself and Klein. Therefore, there was no acceptance by all parties for a concluded agreement to eventuate.
106Segman said that he had spoken with Klein before sending his reply email of 9 August 2018. In the amended defence dated 29 January 2020, the defendants pleaded that Segman sent the email on his own behalf. This position changed in the further amended defence to say that Segman was sending the email on behalf of himself and Klein.
107It is clear on the contemporaneous documents that there was no unreserved assent to the exact terms of the proposal made by Mochkin. Instead, there was a counteroffer made by Segman in the following terms:
“Everything on the current accounting sheet will be tallied up. On top of the expenditure already noted in the spreadsheet, every transaction that you believe is missing will need documented proof of purchase such as a bank statement, charge or receipt”.
108Segman said that he did not agree with the amount. He crossed out the part “at the least and agreed by you” because it was wrong. Segman gave evidence that, on 9 August 2018, he drafted an email in response and then called Klein and read him the email, and that Klein agreed that Segman should send it on their behalf. However, in the Founders Document at paragraph 34, Segman recorded that:
“At 4:27 PM, Joe sent an email to Menashe and Bill outlining the deal agreed upon requesting they respond so that it will be contractual. Bill did not agree with all the details and therefore did not respond. Menashe did respond to the email outlining points that he did not agree with, however, agreeing to the points discussed in the negotiations”.
109Klein conceded that the WhatsApp message sent at 10.03pm on 9 August 2018, referred to above, was about the email of 4.27pm on 9 August 2018 and that the exact number owed to Mochkin would be clarified the following day. Klein said that his reference to the “drafting” was in relation to a written loan agreement for the amount to be repaid to Mochkin rather than the drafting of terms for the exit of Mochkin from the Partnership.
110Klein said that the accounting needed to be done to confirm the amount that Mochkin would be paid back in monthly instalments. His view was that the deal was done and that all that needed to be confirmed was the exact amount owed. Mochkin contended that the reference to the “accounting to find out the final amounts before the parties could make the contract”, as set out in Klein’s WhatsApp message, meant that it was a contingent condition to the finalisation of the agreement.
111Klein said that he and Segman did not agree with the $72,000.00 minimum and that they wanted finalisation of the exact numbers to finish the agreement. Mochkin says that before any contract could be made, the finalisation of the figures had to be ascertained.
112The chronology of the WhatsApp chat, read together with the emails between Mochkin and Segman, reveal that there must have been a communication between Klein and Mochkin between 10.03pm and 10.23pm when Klein informed Mochkin that 1.00pm worked better for Segman to meet. There is no reference to Segman’s response by email at 10.07pm to Mochkin.
113Segman said that he read Mochkin’s email soon after it was received. Segman says that he spoke with Klein before responding to the email at 10.07pm. Segman struck out the section in Mochkin’s email that he did not agree with. Segman deleted the words “at the least and agreed by you”.
114Klein said that the parties did not agree on the exact amount that needed to be calculated. What he was waiting on was an accounting by Mochkin to finalise the contract. There was no point meeting until the accounting had been done. Segman said that the point of the meeting was they agreed that Mochkin would be paid what he was owed. There were numbers thrown around at the meeting, but Segman said that Mochkin was throwing numbers around representing what he had spent rather than what he is owed. Segman said that the number was not important, it was an accounting exercise.
115Based on the excel spreadsheet that Segman authored and maintained during the Partnership, Segman calculated what he thought Mochkin was owed. He calculated $77,166.70 as between December 2017 and August 2018. The sum of $39,712.49 was repaid to Mochkin in July and early August 2018 and, according to Segman, the balance owed to Mochkin was $37,454.21.
116Segman said that they did not have their laptops or the spreadsheets at the 9 August 2018 meeting. He agreed, with the benefit of hindsight, it would have been a better response for him to have provided the calculations according to the spreadsheet and satisfy Mochkin with what Segman thought the Partnership Business owed Mochkin according to his folder of receipts. Segman said that Mochkin did not ask for the folder or spreadsheet at the time. Segman said that Mochkin was to add in extra receipts (if any) from his bank statements and credit card statements.
117Segman said that it might have been better if he had used the spreadsheet to provide the payout figure and that way the figure and the amount would have been crystallised. On Klein and Segman’s case, that would then be the final piece in the agreement. Instead, they waited for Mochkin to verify the amounts said to be owing to him.
(b) For “same product, same supplier” and “same product, new supplier” goods, Klein, Segman and Getafix must account for the full benefit they obtained and Mochkin is entitled to his 50% share of the entire profits for the entire post partnership period to date of judgment.
(c) For “new product, same supplier” and “new product, new supplier” goods, Klein, Segman and Getafix must account for the full benefit they obtained and Mochkin is entitled to 50% of his share of 50% of the profits made for the entire post partnership period to date of judgment.
226In my view, Klein, Segman and Getafix used the Partnership Property, such as the rolling profits from Mochkin’s initial financial contributions, stock, and the McLeod Spreadsheet, which had intellectual property and know-how in the form of product price, discount offers, photography and description of products for listings and to maximise priority position on eBay and Amazon.
227For categories (a) and (b) above, I find that Klein and Segman and Getafix utilised the same approach, language, key words, and photo setup as the Partnership Business. There was a rolling profit, and knowledge of approach with the listings, which is directly derived from the Partnership.
228For category (c), I find that these products are new products, but an allowance must be made for the new business’ fortune which arose from Mochkin’s initial financial contribution to the Partnership and the derived intellectual property to enter into the market. In my view, there would be a diminished return from the McLeod Spreadsheet intellectual property, particularly in circumstances where the listings for the new products would contain different language, descriptions and photographs to the Partnership words and stock images/photographs, as they are different product types. The WilliamKlein business was facilitated by the funds and labour of Mochkin’s contribution to the Partnership such that the WilliamKlein business could exist. I accept that, where Mochkin provided the foundation, Klein and Segman built the walls of the new business. The WiliamKlein business does not exist in isolation. It benefitted from the knowledge, intellectual property and funds from the Partnership to enter into the PPE market. However, I further find that the profits derived from the “new product, same supplier” and “new product, new supplier” goods arose from factors other than just the Partnership assets. The Court recognises the exertions of Klein and Segman in developing their new business by adding new products, running the business, reinvesting in the current platforms, adding new marketplace platforms and generally applying and adapting the intellectual property over time in relation to category (c). In those circumstances, I find that Mochkin is entitled to 50% of his entitlement.
229I have considered if there should be a distinction in treatment for the category “new product, same supplier” as opposed to “new product, new supplier” given the former is clearly arising from a business connexion and the later involves a circumstance where Mochkin has been prevented from the business connexion by the defendants because of the break down in the Partnership. It may be contended that the “new product, same supplier” commercial consequences are to a greater credit of the plaintiff because of the business relationship development with that supplier under the Partnership and the business contribution cannot be said to exist to the same extent when contemplating and “new product, new supplier” with whom the Partnership had not previously engaged. However, whilst the conceptual distinction has merit, assessing the quantum and outcome of the contribution is, in my view, too remote.
230Even if I allowed more than 50% of Mochkin’s entitlement for and “new product, same supplier”, I would necessarily allow less than 50% for and “new product, new supplier”. Mathematically there is likely to be very little difference in outcome by allowing 50% of the plaintiff’s share of 50% of the profits which appropriately accounts for the uncertainty associated with forecasting the plaintiff’s contributions to the sale of products in each circumstance.
231I do not accept Mr Simonetti’s analysis that in a 12-month period, Mochkin’s entitlement to profits of the WilliamKlein business diminished from 50% to 0% and eBay from 10% to 0%. In my view, it is not sufficient justification that the intellectual property needs iterative development to conclude that the initial intellectual property value is 0% after 12 months. This is because not all the intellectual property can be replaced 100% by iterative developments, otherwise it would be a completely different category of intellectual property. Taking into account the maintenance of business and product data, it is more likely that the value of the intellectual property and data files, with respect to the original Partnership Business, would diminish by 5 to 10% per year. It would not decline by 100% in 12 months. This discounting has been taken into account in the above analysis.
232Further, in respect of submissions in relation to equitable doctrines of “laches” and “unclean hands”, I am of the view that there does not exist sufficient evidence or submissions to support the equitable defences. Any mere delay in initiating proceedings in the Magistrates Court, approximately 12 months after the Partnership broke up, is not sufficient to engage the defence of “laches”. Indeed, given the attempt to finalise the dispute through the Jewish Court, at which the defendants did not appear, there must be something more that is prejudicial to the defendants than is the case here. Further, in respect of “unclean hands”, the evidence before the Court is that there is conduct of both the plaintiff and defendants respectively, being improper against each other, so as to “wash their hands” and thus negating the impropriety and rebutting the defence.
233For the above reasons, I further find that where the third party is a company which is the alter ego of an individual fiduciary, liability is imposed directly upon the company and not as a ‘knowing recipient’ under Barnes v Addy limbs.[74] Where the third party is the corporate creature, vehicle or alter ego of the fiduciary who uses it to secure a benefit by breach of fiduciary duty, the corporate vehicle is fully liable for that benefit.[75] That is because the company had full knowledge of the facts; it is the alter ego of the fiduciary with transmitted fiduciary obligations, or, it jointly participated in the breach. Proof of the breach of the fiduciary suffices for the plaintiff establishing liability in the company. The liability of the director and/or the company is a joint liability.[76]
[74] Grimaldi v Chameleon Mining NL (No 2) (2012) 287 ALR 22 per Finn, Stone and Perram JJ at [243].
[75] Ibid see also G S Clarke QC, “Breach of Fiduciary Duties in Commercial Cases: Recent Developments” (March 2020) at 27.
[76] Farah Constructions (2007) 230 CLR 89 at [128].
234In the present circumstances, applying the principles set out in Grimaldi, liability is imposed directly on Getafix, as a third party company, which is the alter ego of Klein and Segman. I, therefore, find that Klein, Segman and their alter-ego, Getafix, have breached fiduciary and statutory duties by conducting the WilliamKlein business. Mochkin is entitled to an order against Klein, Segman and Getafix for an account of profits with appropriate deductions for its skill, efforts, property, and resources set out above.
Issue (9) Did Mochkin breach his fiduciary duties and/or the statutory duties by conducting, through JMEC, an online business known as “augoods retail”?
Issue (10) If the answer to question 9 is YES, are Klein and Segman entitled to:
(a) an order against Mochkin for an account of profits and/or equitable compensation, and ancillary orders?
(b) an order against JMEC, as a knowing recipient under the first limb of Barnes v Addy, for an account of profits and/or equitable compensation, and ancillary orders?
Submissions
235Mochkin submits that he did not engage in any conduct which would constitute a breach of either fiduciary or statutory duties. He contends that he did not use any property of the Partnership or engage in any business, through JMEC or otherwise, that would fall within the scope or ambit of the Partnership Business. JMEC was in the business of selling excess and unwanted stock, end of line stock and clearance stock.
236Mochkin, relying on his own evidence, submits that Klein and Segman expressed to him that they were no longer interested in trading in such stock in the course of the Partnership Business, the result being that the Partnership Business could not, thereafter, have traded in such stock, even if Mochkin had personally wanted to, as all of the decisions of the Partnership had to be unanimous.
237Accordingly, Mochkin submits that, given he did not engage in any conduct which would constitute a breach of either fiduciary or statutory duties, Klein and Segman should not be entitled to any orders against Mochkin or JMEC.
238The defendants submit that Mochkin breached fiduciary and statutory duties by conducting, through JMEC, an online business known as “augoods retail”.
239They contend that JMEC’s business is selling excess and unwanted stock, end of line stock and clearance stock. JMEC sells that stock on the same platforms as used by the former Partnership being eBay and Amazon and, further, sources that stock from a supplier, the TIC Group, formerly used by the Partnership.
240The defendants submit that, in respect of fiduciary and statutory duties, the Court does not need to direct its attention to whether Klein and Segman agreed to the former Partnership selling excess and unwanted stock, end of line stock and clearance stock. Instead, the question is whether Mochkin, through JMEC, exploited an opportunity of the Partnership. They argue that, plainly, it was an opportunity belonging to the former Partnership and Mochkin conceded that it was part of the former Partnership.
241Further, the defendants submit that Mochkin used the intellectual property of the Partnership and had access to the same data and McLeod Spreadsheet that was available to both Klein and Segman.
242Accordingly, the defendants submit that Mochkin and JMEC are required under s 33(1) of the Partnership Act to account to the former Partnership and that Mochkin does not offer a defence to breaches of fiduciary and statutory duties.
243In reply, Mochkin submits that JMEC did not exploit any opportunity of the former Partnership and that he did not breach any statutory or fiduciary duties and, therefore, no liability to account arises.
Reasoning
244As set out above, courts have been prepared to treat the wrongdoing fiduciary and the company that it controls as relevantly the same actor. Finn, Stone, and Perram JJ in Grimaldi clarified that liability to account may be imposed on it directly, without the need to establish accessorial liability under Barnes v Addy.[77]
[77] (2012) 287 ALR 22 at [243] – [244].
245Section 33(1) of the Partnership Act provides that:
“Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership or from any use by him of the partnership property name or business connexion”.
246Segman and Klein seek similar relief from Mochkin and JMEC as Mochkin has with Segman, Klein and Getafix. Accordingly, principles and authorities discussed in respect to fiduciary duties, breaches, accounts, and quantification under issues (7) and (8) are also applicable and relevant to the current issues (9) and (10).
247Klein and Segman claim that JMEC’s business involved selling excess and unwanted stock, end of line stock and clearance stock. They contend that JMEC sells the stock on the same platforms as the Partnership, being eBay and Amazon. JMEC also sources stock from TIC Group, a supplier formerly used by the Partnership.
248Klein and Segman allege that Mochkin, via JMEC, exploited an opportunity of the Partnership. They say he, too, used the intellectual property of the Partnership, and had access to the same data and McLeod Spreadsheet that was available to Klein and Segman. Mochkin and JMEC must account for the full benefit they obtained and Klein, Segman and Getafix are entitled to their 30% and 20% share respectively for the entire post partnership period to date of judgment.
249Mochkin set up JMEC within 7 days of the end of the Partnership. He bought a userID on eBay and started buying and selling products from the TIC Group, a former supplier of the Partnership. Mochkin said that, in early August 2018, prior to the breakdown of the Partnership, Klein and Segman did not wish to pursue the TIC Group line. It was too much effort and not enough pay off. Mochkin continued to have an interest and association with the TIC Group through JMEC.
250On 10 August 2018, there were a handful of DVDs for sale by the Partnership and as soon as the Partnership broke down, Mochkin ordered about 20 pallets of DVDs from another supplier. Mochkin conceded that the Partnership and JMEC both sold goods online. Mochkin downloaded the McLeod Spreadsheet on 8 August 2018 on the Google drive, however, had not been able to access the live document since that date as he had been denied access. Mochkin could see that there had been updates to the McLeod Spreadsheet which occurred automatically in accordance with his formula. Mochkin says that he now sells on Kogan and DickSmith.
251Mochkin says that he made sure that he did not sell goods that competed with Klein and Segman so, that his new business would not need to account to the Partnership.
252There is a dispute between the parties as to whether Mochkin has on-sold the Partnership stock that he held at the McLeod Road Apartment purchased by the Partnership at a cost of $19,819.16. In his relief, he gives an allowance for this amount towards the loan amount outstanding. The defendants claim that Mochkin has used this Partnership Property and that it must be taken into account. There is no evidence that Mochkin has on-sold these goods. However, in a taking of accounts, it is appropriate that the sum of $19,819.16 be deducted from any sums due to him. There is no conclusive evidence before the Court as to the profit that could be made (if any) by the on-sale of the stock retained at the McLeod Road Apartment if sold by Mochkin or JMEC. Further, there is no conceded or agreed evidence that Klein and Segman expressed to Mochkin that they were no longer interested in trading in excess and unwanted stock, end of line stock and clearance stock, amounting to consent.
253I accept Klein and Segman’s submissions that the profits of the business carried on under the name of “augoods retail” by Mochkin initially, and then through JMEC, constitute benefits within the meaning of s 33(1) of the Partnership Act.
254JMEC sells stock on the same platforms used by the former Partnership, being eBay and Amazon, and sources stock from a supplier, the TIC Group, formerly used by the former Partnership. Indeed, Mochkin conceded that it was part of the former Partnership Business. Mochkin also had access to some office equipment identified above, the McLeod Spreadsheet and the intellectual property, such as titles, descriptions, dimensions, pricing and images, which were all property of the Partnership. In turn, the JMEC business did concern the former Partnership and clearly involved the use of a business connexion within the ambit of the Partnership Business. I reject the plaintiff’s assertion, based on Mochkin’s evidence alone, that JMEC’s business of selling excess and unwanted stock, end of line stock and clearance stock was outside the scope or ambit of the Partnership Business.
255Consistently applying my anterior findings in relation to the defendants’ breach of fiduciary duties, I find that, because the Partnership agreement provided for a 50% partnership, even without cash contributions from the defendants, for the category of excess and unwanted stock, end of line stock and clearance stock supplied by the TIC Group, that Mochkin and JMEC must account for the full benefit they obtained and Klein and Segman are entitled to their 30% and 20% share of the profits for the post partnership period to the end of judgment. This is because, under the Partnership Agreement, the plaintiff’s contribution was cash and the defendants’ contributed sweat equity.
256Similarly, for any “same product, same supplier” and “same product, new supplier” goods (if any), Mochkin and JMEC must account for the full benefit they obtained and Klein and Segman are entitled to their 20% and 30% share of the entire profits for the entire post partnership period to date of judgment.
257For “new product, same supplier” and “new product, new supplier” goods, Mochkin and JMEC must account for the full benefit they obtained and Klein and Segman are entitled to 50% of their share of 30% and 20% of the profits made for the entire post partnership period to date of judgment.
258For the above reasons, I find that Mochkin and his alter-ego JMEC have breached fiduciary and statutory duties by conducting the “augoods retail” business. Klein and Segman are entitled to an order against Mochkin and JMEC for an account of profits with appropriate deductions for Mochkin’s skill, efforts, property and resources.
Loan
Issue (11) What is the amount owed to Mochkin for money lent to the partnership under the Loan and by whom is it owed?
Submissions
259Mochkin submits that the amount owed to him under the Loan is $30,485.63, being the sum amount of $90,017.28 loaned less $39,712.49, which had been repaid to him, and $19,819.16, being the cost price of the McLeod Road Apartment stock retained by Mochkin, which he has offset against the Loan.
260Mochkin also seeks interest on the said sum of $30,485.63, under s 28(3) of the Partnership Act, at the statutory rate of 7 per cent per annum from 6 August 2018, being the date upon which the last increment under the Loan was advanced by him.
261Mochkin contends that there is no dispute between the parties that, under the Partnership agreement, Mochkin would periodically advance funds, as a loan to the Partnership, to enable it to operate. In turn, the Court should accept Mochkin’s evidence that some of the Loan instalments were paid from funds made available to him by his brother Simon Mochkin. Further, it should be inferred from the course of conduct, that the money used to pay the Loan instalments was advanced on Mochkin’s behalf.
262The defendants submit, based on contemporaneous evidence and relying on the ledger maintained by the former Partnership, that the total sum loaned by Mochkin was $71,155.45 (compare Segman’s evidence and the Founders Document which suggested the sum of $77,166.70). Mochkin conceded that he has been repaid $39,712.49 and that he has retained and converted for his own benefit stock of the former Partnership valued at $19,819.16, which should be offset against his loan account, leaving an outstanding balance of $11,623.80.
263The defendants contend that, in the absence of a settlement agreement, the sum of $11,623.80 is owed by the members of the former Partnership jointly to Mochkin. In turn, Mochkin remains liable in equity to contribute 50% of the debt and, accordingly, the appropriate order is for Klein and Segman to pay $5,811.90 to Mochkin.
Reasoning
264Pursuant to s 28(3) of the Partnership Act:
“A partner making for the purpose of the partnership any actual payment or advance beyond the amount of capital which he has agreed to subscribe is entitled to interest at the rate of Seven per centum per annum from the date of the payment or advance”.
265The plaintiff amended his claim to seek 7 per cent interest pursuant to s 28(3) of the Partnership Act, rather than as an express term of the loan. This was because the Loan agreement was oral and not in writing.
266It was common ground between the parties that the Loan was to be repaid. Mochkin is a creditor of the Partnership. The dispute is who should pay the Loan (how it should be adjusted) and whether it was interest free or whether 7 per cent interest pursuant to the Partnership Act applies, as opposed to an explicit agreement between the parties that interest should accrue on the debt.
267The agreement was that Mochkin’s Loan would be repaid by the Partnership before the partners took any profits from the Partnership Business. This is consistent with Mr Ferrier’s evidence.
268Mr Ferrier gave forensic accounting evidence on behalf of the defendants. He said that, usually the terms of the partnership agreement or loan agreement would stipulate how loans made by partners to the partnership would be repaid. Mr Ferrier said that, in most circumstances, the loan would be paid out in full to the partner before the other creditors and paying out the partners’ entitlements. I, therefore, find in accordance with the terms of the Partnership agreement, in relation to Mochkin’s Loan to the Partnership, that Mochkin ought to be repaid the Loan amount outstanding in full.
269I accept Mochkin’s evidence and his calculations of the Loan amount outstanding which were supported by bank statements. I prefer the plaintiff’s evidence over the defendants’ spreadsheet of invoices in circumstances where the receipt book has disappeared, and the ledger entries could not be independently verified. I, therefore, find that the amount owing to Mochkin under the Loan is $30,485.63, taking into account the amounts repaid to him and the offset of the McLeod Road Apartment stock retained by him.
270I further accept that, pursuant to the operation of s 28(3) of the Partnership Act, that the plaintiff is entitled to interest at the statutory rate of 7 per cent per annum from 6 August 2018.
Credibility Issues
Segman and Klein’s Witness Statements
271Both parties urged the Court not to accept the evidence of the other party’s lay witnesses unless supported by objective evidence. The plaintiff submits that Klein and Segman’s respective witness statements incorporated many passages that were couched in identical language, which is indicative of collusion.
272Indeed, there were many large passages in the witness statements of Klein and Segman that were practically identical to each other. Klein denied that he and Segman colluded in drafting their evidence and were not in the same room when they gave their proofs of evidence. Klein said that he and Segman had discussions beforehand about the matters, as a whole, before drafting his witness statement. He said that, given the critical nature of the matters, he was not surprised that he and Segman used the same words to recount the events. Segman agreed that he discussed the events from 2018 with Klein before they prepared their witness statements. Segman said that the witness statements were prepared separately. The witness statements were prepared by the same legal team who had regard to the Founders Document. Mochkin argued that it is implausible that two witnesses would use identical words for multiple passages of their evidence.
273The issue of identical witness statements was dealt with by Justice Johnson in Heanes v Herangi.[78] In that case, Johnson J rejected an appeal against conviction by which a basis of appeal was that the police officers' evidence was inadmissible because one of the police officers had used the other’s statement as a template in making her own statement. Her Honour rejected the argument and ultimately decided that the issue of collaboration was a question of weight.[79]
[78] (2007) 175 A Crim R 175.
[79] Ibid at [87]-[88].
274However, Johnson J did refer and relied on the observations of Lord Wilberforce in Director of Public Prosecutions v Boardman,[80] where his lordship reasoned that the possibility of concoction, not a probability or real chance of concoction, served to render such evidence inadmissible. Further, Justices Brennan and Dawson held that a trial judge should exclude similar fact evidence unless they are satisfied that there is no real chance that it is the product of a cause common to the witnesses.[81] Indeed, Chief Justice Mason and Justices Wilson and Gaudron observed:[82]
“On the other hand, if the depositions or the statements indicate that the complainants have a sufficient relationship to each other and had opportunity and motive for concoction then, as a matter of common sense and experience, the evidence will lack the degree of probative value necessary to render it admissible”.
[80] Ibid at [56]-[57] referring to [1975] AC 421 at 444.
[81] [1975] AC 421 at 300-301.
[82] Ibid at 297.
275In the more recent civil case of Re Colorado Products Pty Ltd (in prov liq),[83] Justice Black set out various matters in circumstances where a “cut and paste” was involved and importantly noted the following:[84]
“I accept that, in some cases, the courts have taken the view that difficulties of this kind do not render the credit of a witness worthless, although they require care before accepting the evidence of one or other of the witnesses
…
In this case, where the difficulties relate to the most important disputed conversations and where the manner in which they arose remains unexplained by the Plaintiffs, I consider that they substantially devalue the weight to be given to the affidavit evidence of each of Helen and Kenneth as to those matters, to the point that neither's affidavit evidence can be treated as reflecting a genuine individual recollection of events as distinct from a collective reconstruction of them”.
(Emphasis added.)
[83] (2014) 101 ACSR 233.
[84] Ibid at [18]-[19].
276Justice Black’s reasoning was adopted by Justice Ward in Celermajer Holdings Pty Ltd v Kopas.[85] Further, in Rosebanner Pty Ltd v Energy Australia,[86] her Honour observed:[87]
“At the very least, the way in which Mr Lyons’ affidavit evidence was prepared must give rise to doubts as to whether that evidence represented his own views uninfluenced by Mr Wawn. While I accept it likely that Mr Lyons expressed to Mr Wawn in no uncertain terms what he recalled of the meeting, the fact that Mr Wawn cast (or perhaps recast) it in such substantially similar terms can be consistent only with the pair having near perfect and identical recall of a particular conversation, some two years later, (which seems unlikely, particularly as the way in which Mr Lyons gave evidence was not in such formal language) or did so in collaboration with each to an extent which must devalue the weight of their evidence”.
(Emphasis added.)
[85] [2011] NSWSC 40.
[86] (2009) 223 FLR 406.
[87] Ibid at [334].
277The practice of collaboration and collusion in preparation of witness statements is strongly discouraged by the Court.
278The High Court in State of Queensland v The Estate of Jennifer Masson[88] recently emphasised the importance of avoiding “professional drafting” and the preference for language that accurately reflected a witness’ actual recollection and understanding of the relevant events. This Court’s practice note, operational at the time of the hearing, provides that each witness statement must, as far as possible, be expressed in the witness’ own words. Paragraph 14(b) of the orders made by Judicial Registrar Burchell (as her Honour then was) on 19 February 2021 and paragraph 16(b) of the orders made by Judicial Registrar Muller on 26 July 2021 also states that:
“as far as possible, [the witness statement] should be expressed in the witness's own words …”
[88] (2020) 381 ALR 560 at [75] and [112].
279Following on from the above reasoning and, in consideration of the evidence and the question of weight, I am of the view that, although both Klein and Segman had a sufficient relationship to each other and had discussions about the proceeding before giving their proofs of evidence, they did not collude on their witness statements. In my view, this is a case that bears the hallmarks of professional drafting where one witness’ statement has been used as a template for the other witness, which has the effect of devaluing the weight of the witness’ evidence in respect of those matters. Both legal practitioners and witnesses should be reminded of their respective roles and obligations in relation to affidavits and witness statements to uphold fundamental principles to ensure the veracity of evidence.
Segman’s Dishonesty towards his Partners
280The plaintiff submits that in respect of OZS, Segman misled Klein by telling him that whilst Klein was overseas, Mochkin had established OZS with himself as the sole shareholder when, in truth, Segman had established OZS with himself as a 20% shareholder and Mochkin as an 80% shareholder.
281Klein said in his witness statement that on or about 17 July 2018, Mochkin established OZS and that he was registered as the sole director and shareholder. This in fact was not the case. Mochkin held 80% shares and Segman held 20% shares. Klein did not amend his witness statement to state that this was his state of mind at the time. As at 14 February 2022, Klein was still giving evidence that Mochkin was registered as the sole director and shareholder of OZS, when this was not in fact the case.
282Klein gave evidence that it was only upon return to Australia that he discovered the new OZS bank account had been established in his absence and without his knowledge. Mochkin said that there were WhatsApp messages dated 17 July 2018, while Klein was overseas, that discloses that Mochkin told him that he had opened bank details in the name of OZS. Klein admitted that he knew that Mochkin had opened a new bank account, however, did not know that it was connected to a new company with new shareholders despite being told the name of the bank account.
283Segman said that he told Klein about OZS after he had helped Mochkin register the company. He said that he told Klein what he had done to calm Mochkin down and delay any further action by him until Klein returned from overseas. The company he set up was a 20:80 split. Segman said that he wanted the Partnership to be in a corporation structure and he could not recall if he told Klein if he had set up OZS with Mochkin being the sole shareholder.
284Segman said that there was a time difference with Klein being in Israel, yet he did not think that the incorporation of OZS was an issue about the bank accounts and access to Partnership funds. He said that Mochkin wanted more control, and that he wanted the structure to change with full voting rights. Segman did not include Klein in the split. Segman conceded that he was dishonest with Mochkin because he did not tell him that he reserved, for himself, 20% shares in OZS. He told Klein that Mochkin wanted 100% of the shares and did not tell Klein that Segman held 20% of the shares. Mochkin submits that Segman drove a wedge between Mochkin and Segman and took 50% of the Partnership for himself. Segman said that he registered the company to either sort out the issues or agree to split up. Segman said that he was dishonest with his partners because he was trying to keep the peace. However, in acting in the manner that he did, Segman did not assist with the level of trust and transparency between his partners. Mochkin was not supposed to keep the majority shares forever. The idea was that when Klein returned, the partners would work out their relevant percentages in the new corporate structure. Only some money was moved into the OZS bank account. It was otherwise a shelf company.
285Segman did not convey to Klein that Mochkin was not going to hold 100% of the shares in OZS forever. Instead, Segman conveyed to Klein the impression that Mochkin was excluding both Klein and Segman, that Mochkin wanted sole rights to decision making and that he would only allocate shares to Segman and Klein over time if they met Mochkin’s standards. Klein was told that the structure was going to change when he returned to Australia. Segman agreed that it would be easy to add shareholders and directors at a later point in time, if OZS did become the owner of the Partnership Business.
286Klein said that he was distraught that he was being ousted from the Partnership. However, Segman’s failure to convey to Klein the real reasons behind establishing OZS did not assist the mounting conflict between Klein and Mochkin.
287Further, under the Founders Document at paragraph 9, Segman recounted:
“Feeling nervous and threatened, Menashe assisted Joe in opening a new company thinking that he will play along until Bill comes home. Menashe requested for his original agreement to be adhered regarding 20% equity in the new company. Joe agreed to this but did not sign off on the 20% equity and he remained sole director and shareholder of O.Z.S Retail Group (“the new company”). Joe also opened new bank accounts for the new company and sent Bill a message demanding him to transfer all the money from sales to the new bank account. Bill sent over all the money to show that he was not being malicious and does not want to hurt the business in any way”.
(Emphasis added.)
288Mochkin submitted that as of 13 August 2018, Segman was still telling Klein that Mochkin was the sole director and shareholder when in fact Segman held 20% of the shares. Segman said that he continued to give the impression that Klein held 100% of the shares “not on purpose”.
289Segman’s dishonesty with his partners and lack of transparency in his communications with them is apparent from the evidence and from his breaches of his fiduciary duties, set out above. At paragraph 32 of the Founders Document, Segman recounts that during the negotiations with Mochkin in early August 2018:
“[Mochkin] asked [Segman] whether he cares about his position and [Segman] responded “I care more about myself, my wife and my family prior to your interests”.
290This position is not consistent with what is expected of a fiduciary.
291The defendants sought to rely on the spreadsheet kept by Segman which suggested that the total sum loaned to Mochkin was in fact $71,155.45 (compare Segman’s evidence and the Founders Document that the sum was $77,166.70). As set out above, given the fact that Segman lost the receipt folder sometime after the breakup of the Partnership, the lack of supporting evidence to verify the ledger entries, and issues as to his credibility, in light of his own confession of being dishonest with his partners, and that he filed a witness statement that was not drafted in his own words, I prefer the evidence of Mochkin.
Simon Mochkin’s Evidence
292The defendants submit that the evidence of Simon Mochkin was less than satisfactory and that his evidence should be treated with particular caution. They argue that his evidence is of limited scope and relevance.
293I accept the defendants’ submissions that Simon Mochkin’s oral evidence is of limited scope and relevance to the issues of this proceeding. Further, based on my earlier reasoning, it was not necessary to rely on Simon Mochkin’s evidence to reach the conclusion that there was no concluded oral agreement on 9 August 2018 whereby Klein and Segman immediately acquired Mochkin’s share in the partnership and, subject to the provision of evidence by Mochkin of the actual amount that was advanced to him to the partnership, Klein and Segman agreed to pay Mochkin that amount plus $10,000.00.
294As reasoned earlier, other contemporaneous evidence shows a clear distinction between initial terms and those set out in further email correspondence. The email dated 9 August 2018 expressly evidenced that there were matters which remained to be negotiated and agreed upon. The agreement was not to be binding considering the meeting the following day, on 10 August 2018, as Mochkin, Klein and Segman had not agreed on the final figures and other essential terms of the agreement.
295Further, Simon Mochkin conceded in cross-examination that though his intentions were “that we end this… like gentleman”, he is Mochkin’s brother, so “impartialness is difficult”. While I accept that Simon Mochkin was intending to be as impartial as possible, at the meeting on 9 August 2018 between the parties, his relationship with Mochkin and his evidence to the Court raises caution as to his objective impartiality.
Conclusion
296For the forgoing reasons, the Court declares that the Partnership was dissolved on 11 August 2018 pursuant to s 39(f) of the Partnership Act and the matter is referred to a special referee for the purposes of a taking of accounts.
Certificate
We certify that these 88 pages are a true copy of the judgment of her Honour Judge Burchell delivered on 29 August 2022.
Dated: 29 August 2022
Nikki Thomson & Andrea Ko
Associates to Her Honour Judge Burchell
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