Morton v Morton (No 2) No. Scgrg-96-1816 Judgment No. S66

[1999] SASC 66

MORTON v MORTON
[1999] SASC 66

Civil

1. PERRY J. 

2. In this matter I delivered final judgment on 8 February 1999.[1]  Essentially, I found that the plaintiff had made out his claim that the first defendant, George Villiers Morton, held a property known as Barraroo Station situated in New South Wales, of which he is lessee pursuant to a perpetual lease, on a constructive trust in favour of the plaintiff.

   [1] See reasons for judgment, 8 February 1999, judgment No [1999] SASC 31.

3. At the same time I made a declaration that the partnership between the plaintiff and the defendants known as Pandie Proprietors (“the partnership”) was on the 15th day of March 1996 dissolved as from the 30th day of June 1996, and that the affairs of the partnership be wound up.  I further held that the distribution of losses within the partnership for the financial years ending 30 June 1985 and 1986 be as to each of them, the plaintiff and the defendants, 25%.

4. After I had given judgment, Mr Randle of counsel for the plaintiff pointed out that I had overlooked dealing with another question upon which I had been asked to rule.  I undertook to give separate reasons dealing with that point.

5. The issue which remains to be addressed is as to the distribution of profits within the partnership in the year 1988.

6. In the second of the tables referred to at page 19 of my reasons, being a table which appears in the Statement of Issues and Contentions which was put before me at the commencement of the trial, the plaintiff’s contention was that for the years 1988 to 1991 inclusive his share of profits should be 25% as opposed to 13.33% which is the percentage of profits which he enjoyed in all other years when there was a profit, down to 1994.  During the course of the hearing before me, it was eventually agreed between counsel that I should give a ruling only as to one year, that is, 1988.  Further, it was agreed between counsel that in fact for that year the distribution made to the plaintiff was 25% of the net profits of the partnership.

7. During the course of the reasons for judgment published by me on 8 February 1999, I comment on the paucity of evidence adduced as to the administration of the affairs of the partnership, more particularly as to accounting matters, including the failure to tender all of the partnership profit and loss accounts and balance sheets, or to call the accountant Mr Sach.  While Mr Wilkinson for the defendants suggested that Mr Sach could not throw any light on the relevant issues.  I would be surprised if he could not have explained how it came about that the 25% allocation was made to the plaintiff in the 1988 year.

8. It will be clear from my earlier reasons for judgment that all relevant decisions as to the partnership, including decisions as to the distribution of profits and loss, were made by the defendant Mr George Morton, either on his own or in consultation with Mr Sach.

9. Insofar as Mr Wilkinson contended at the trial that the profit allocation of 25% to the plaintiff for the 1988 year should be ordered by me to be adjusted back to 13.33%, the onus was on the defendants to indicate a satisfactory evidentiary basis to support such a reconstruction of the accounts.  No evidence was given at the trial which satisfies me that any such adjustment should now be made, retrospectively, after so many years.

10. The parties must be presumed to have accepted the distribution of profits recorded in their individual tax returns, which should have reflected the distribution recorded in the partnership tax returns.  Furthermore, like many small businesses, it does not appear that any formal accounting was made except for the purposes of the income tax returns.  It follows that the returns must be regarded as the accounting records of the partnership insofar as they include profit and loss accounts and balance sheets for the respective years to which they relate.

11. If any of the partners wished to challenge the basis of the accounting effected by Mr George Morton and Mr Sach, they should have done so at the time, or when they became aware of the distributions of profit recorded in their individual tax returns.  Likewise, Mr George Morton himself cannot blow hot and cold and make a decision which for some reason or other happened to suit him in a particular year with respect to the distribution of profits, and many years later suggest that it ought to be changed to some other figure on the basis that the partners as a whole had not agreed upon a variation of the figures, or that it is not as provided in the formal partnership agreement.  Such a suggestion could hardly be entertained in a situation where he exercised such autocratic control over the affairs of the partnership, and gave such little opportunity for the other members of the partnership to become aware of the manner in which he was directing its affairs.

I dismiss the application by the defendants seeking an order or declaration varying the 25% profit allocation to the plaintiff in the 1988 year.

JUDGMENT CITATION

1. See reasons for judgment, 8 February 1999, judgment No [1999] SASC 31.