Murray v Lesicar (No 2)
[2014] SASC 82
•25 June 2014
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
MURRAY & ORS v LESICAR & ORS (No 2)
[2014] SASC 82
Reasons of Judge Dart a Master of the Supreme Court
25 June 2014
PARTNERSHIP
Application by plaintiffs to have accounts prepared on dissolution of partnership - 6R 251 - appointment of independent accountant - cost of preparation of accounts.
Henry Mulherin as trustee for the HD Mulherin Family Trust No. 4 v Quinn Villages Pty Ltd [2007] QSC 231; Wombats Downunder Pty Ltd & Anor v G & W A Dicenso Pty Ltd & Anor (No 2) [2011] SASC 3, considered.
MURRAY & ORS v LESICAR & ORS (No 2)
[2014] SASC 82JUDGE DART:
This matter involves a partnership dispute. The defendants initially denied the existence of a partnership. The matter was listed to proceed to a trial before Stanley J.
On 15 November 2013, by consent, detailed declarations and orders were made by Stanley J. Those which are relevant for present purposes are:
1.The business operating under the name `Lesicar Murray Trento' (the Firm) was carried on as a partnership within the meaning of s 1(1) of the Partnership Act 1891 (SA).
2.The partnership commenced on 23 January 2012 (commencement date).
3.The partnership was dissolved on 30 September 2013.
4. The equal equity partners of the duration of the Firm were:-
4.1 Mr Lesicar; and
4.2 Mr Murray.
…
7.Upon the final settlement of accounts, the parties' entitlements to any ultimate residue or obligation to pay losses or deficiencies of capital (as those expressions are defined in Section 44 of the Partnership Act 1891 (SA) are:
7.1 Mr Lesicar or entities associated with him - 50%;
7.2 Mr Murray or entities associated with him - 50%.
As a consequence of Mr Lesicar, the first defendant, taking the position that there was no partnership, no partnership accounts were ever prepared. The accounts that were prepared treated the business of the partnership as being the business of Mr Lesicar and as a division of a trust, the DL Partnership Trust. Mr Lesicar is trustee of that trust. The accounts were prepared by an accountant, Mr Con Karykis, who, the material discloses, is also Mr Lesicar’s personal accountant. That appears to have been the position for a considerable period of time.
The first plaintiff, Mr Murray, now applies pursuant to Rule 251, for the appointment of an independent accountant to prepare partnership accounts. The Rule provides as follows:
251—Orders for accounts or report
(1)The Court may, on its own initiative or on application by a party, order that accounts or a report relevant to a question in issue in an action be prepared and filed in the Court.
(2)The order may provide for preparation of the accounts or report by a party, an independent expert or other person.
(3)The Court may, in the same or a later order, give directions about the nature and extent of the inquiry to be carried out for the preparation of the account or report.
Example—
The Court might (for example) give directions about the extent to which the person preparing the accounts or report is required to inquire into the adequacy of existing accounts or records.
(4)The Court may order the examination of a party or other person on accounts or a report filed under this rule.
(5)The Court may order that, on the filing of accounts under this rule, a party is to pay to another an amount certified by the person preparing the accounts, to be owing from that party to another party.
The appointment of an independent accountant to prepare partnership accounts was opposed by the defendants. It should be noted that order 7 made by Stanley J on 15 November 2013 appears to anticipate the preparation of accounts.
The position of the defendants is that Mr Karykis should prepare the partnership accounts which, given the duration of the partnership, will involve accounts for three separate financial years. Mr Lesicar proposed that partnership accounts be prepared by Mr Karykis and that he will initially bear the costs of the preparation of the accounts. He reserved the right to seek an order from the Court that the partnership pay the fees in whole or part.[1]
[1] Sixth Affidavit of Drazen Lesicar sworn 16 June 2014, FDN43, at paragraph 13.
There is no dispute that the partnership accounts need to be prepared. The dispute is in respect of who should prepare those accounts and also who should pay for the preparation. The plaintiffs say that Mr Karykis is not independent and the Court should appoint an accountant independent of both the plaintiffs and defendants to prepare the accounts.
The parties have filed numerous affidavits making allegations each against the other. As between the former partners, there is now a complete breakdown of trust and confidence. Broadly, the allegations of the plaintiffs are that Mr Lesicar did not treat the business of Lesicar Murray Trento as a partnership but, rather, treated it as his personal business. The plaintiffs say, as a result, that there are a number of inappropriate expenses incurred by Mr Lesicar and charged to the partnership.
One purpose for preparing the accounts of the partnership is to document all of the relevant partnership transactions. The parties will then consider those transactions. It seems highly likely that there will follow a claim and counterclaim in relation to various financial transactions of the partnership. The preparation of the accounts is the first step in identifying more accurately the claims that each party believes it has against the other.
The defendants oppose the making of the order for the appointment of an independent accountant on two bases. The first is that Rule 251 is interlocutory and does not permit the making of an order of the nature sought by the plaintiffs. The second is that the partnership should not bear the expense of the preparation of the accounts.
The plaintiffs seek a common account, rather than a wilful default account. In a situation where there is a dissolution of a partnership, an order for an account is the usual approach.[2] In Henry Mulherin as trustee for the HD Mulherin Family Trust No. 4 v Quinn Villages Pty Ltd[3] Muir J said:
For example, upon the dissolution of a partnership an account is normally ordered.[4] Lord Lindley wrote in Lindley on Partnership[5] that “The right of every partner to have an account from his co-partners of their dealings and transactions is too obvious to require comment”. It is generally not necessary for a partner seeking such an account to establish that moneys will be found due to him.
[2] Fletcher, The Law of Partnerships in Australia (9th ed) page 347.
[3] [2007] QSC 231 at [20].
[4] See eg 35 Halsbury’s Laws of England 4th ed (reissue) paras 139, 140 and Lindley & Banks on Partnership 18th ed pages 611-612.
[5] 14th ed, page 553.
The plaintiffs provided minutes to the Court in respect of the proposed appointment of an accountant to prepare the accounts.[6] It became apparent during the course of the argument the defendants’ opposition was largely based on the question of the costs of the preparation of the accounts. The defendants have had Mr Karykis commence preparation of the partnership accounts at the expense of Mr Lesicar. Those accounts are not yet complete.
[6] Fourth affidavit of Alan James Foster sworn 10 June 2014, FDN40, Exhibit AJF6.
The defendants do not object to the independence of the proposed accountant, Mr James Hooper.[7] The defendants say the major issue is the cost of the preparation of the accounts by an independent accountant.[8]
[7] Transcript 17 June 2104, page 9, line 9.
[8] Transcript 17 June 2014, page 10, line 1.
There was an adjournment during the course of the argument to allow the parties to take further instructions in relation to the issues on which they were apart. This led to the defendants coming to the position, subject to an exception in relation to proposed orders 6 and 7 which I will deal with later, that they would not object to orders in the terms of the minutes, subject to the question of costs.[9] The defendants say that the plaintiffs should bear the cost of preparing the accounts. The defendants acknowledge that if the plaintiffs incurred the cost of the preparation of the accounts, they would have an entitlement in due course to seek an order that the costs be shared.[10]
[9] Transcript 17 June 2014, page 17, line 1.
[10] Transcript 17 June 2014, page 17, line 18.
In the circumstances, I do not propose to deal at any length with the defendants’ proposition that Rule 251 deals with interlocutory orders only and is not appropriate for the ordering of final accounts. In my view, that is clearly not the case. The rule and its predecessors provide for accounts to be taken in a wide range of circumstances including, for example, wilful default accounts which require, first, the wilful default to be established at a trial.
In Wombats Downunder Pty Ltd & Anor v G & W A Dicenso Pty Ltd & Anor (No 2)[11] Judge Lunn considered that the rule was primarily concerned with orders to be made after a trial of the action. Interlocutory orders are an exception to the normal position.
[11] [2011] SASC 3.
The proposed orders 6 and 7 in the minutes deal with the handling of money held in the partnership bank account. It is a separate issue to the preparation of the financial accounts of the partnership. That issue can be severed from the issue with respect to the preparation of the accounts of the partnership. The proposed orders 6 and 7 involve a variation of some of the orders made by Stanley J on 15 November 2013. It is not clear that the variation is necessary at the moment.
Whatever initial costs order is to be made at the time of the appointment of the independent accountant, it can later be revisited. The question is one of the exercise of the Court’s discretion.
It is necessary that, given the numerous allegations of inappropriate dealing with partnership property and monies, independent accounts be prepared. A set of accounts prepared by the personal accountant of one of the parties will not provide a satisfactory starting point from which to embark on further enquiries. The validity of the accounts would be in question, which would be a distraction from the other issues before the Court. An independent set of accounts should avoid that problem.
In my view, a neutral position should be adopted in relation to the costs. The partnership should, at first instance, be liable for the costs of the preparation of its own accounts. That would have been the position if the accounts had been prepared when the partnership was trading. An adjustment can be made to that position if wrongdoing is later established against either the plaintiffs or defendants.
In addition to the question of appointing an accountant to take accounts, the plaintiffs’ application FDN30 was before the Court. Paragraphs 7 to 10 of that application remain unresolved. The parties agreed that that matter could be stood over pending preparation of the accounts.
Orders
In the result, I make the following orders:
1Order appointing Mr James Hooper of HLB Mann Judd to prepare the partnership accounts in the terms of paragraphs 1, 2, 3, 4, 5, 8 and 9 of the minutes of order annexed to the affidavit of Alan James Foster sworn 2 June 2014 (Exhibit AJF6 to FDN 40).
2Further consideration of paragraphs 7 to 10 of FDN30 adjourned.
3I will hear the parties as to any consequential orders.
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