MW Corp Pty Ltd v Sabata Lalita Nominees Pty Ltd
[2018] VCC 213
•8 March 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMON LAW DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-16-03458
| MW CORP PTY LTD & ANOR | Plaintiffs |
| v | |
| SABATA LALITA NOMINEES PTY LTD | Defendant |
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JUDGE:HIS HONOUR JUDGE COSGRAVE
WHERE HELD: Melbourne
DATE OF HEARING: 2 March 2018
DATE OF JUDGMENT: 8 March 2018
CASE MAY BE CITED AS: MW Corp Pty Ltd & Anor v Sabata Lalita Nominees Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION: [2018] VCC 213
REASONS FOR JUDGMENT
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Subject:COSTS – PARTNERSHIP
Catchwords: COSTS – how costs are to be borne in a partnership dispute involving a taking of accounts – whether conduct by defendant warranted cost order against it
PARTNERSHIP – dissolution – taking of accounts
Legislation Cited: Partnership Act 1958 (Vic)
Cases Cited:England v Moore (1879) 5 VLR (E) 312; Hamer v Giles (1879) 11 Ch D 942; Idacorp Pty Ltd v Freshglen Pty Ltd [2000] QSC 136; Queensland Trustees Ltd v Fawckner [1964] Qd R 153
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B Wyatt (solicitor) | Sladen Legal |
| For the Defendant | No appearance |
HIS HONOUR:
Nature of application
1 The application before me is one by the plaintiffs seeking an order for the costs of the proceeding against the defendant (save for the costs of the taking of accounts which were dealt with by Judicial Registrar Burchell in her orders made on 17 August 2017).
Background
2 The proceeding has a somewhat lengthy history in this Division.
3 On 4 August 2016, the plaintiffs commenced proceedings against the defendant seeking:
(a)a declaration that the sales partnership between the plaintiffs and the defendant was dissolved on 31 August 2015;
(b)alternatively, an order that the sales partnership be dissolved;
(c)an order that the affairs of the sales partnership be wound up;
(d)all necessary accounts inquiries be taken and made;
(e)all such necessary and consequential accounts inquiries, directions and orders;
(f)an order that a receiver be appointed;
(g)costs;
(h)interest pursuant to statute; and
(i)any other orders the Court considers appropriate.
4 The plaintiffs and defendant had been partners in a real estate sales partnership business operating under the name “Wilson Real Estate”.
5 According to the plaintiffs at the trial on 21 March 2017, the defendant initially sought to resile from its previously admitted position that the sales partnership ceased on 31 August 2015, and sought to rely upon an amended defence which asserted that the second plaintiff retired from the partnership on 27 August 2015. If this were correct, then the only remaining partners in the business were the first plaintiff and the defendant.
6 After the plaintiffs completed their opening at the trial, the parties agreed to declarations and orders, including the following:
(a)The real estate sales partnership operating under the name Wilson Real Estate between the first plaintiff, the second plaintiff and the defendant was dissolved on 31 August 2015.
(b)As at 31 August 2015, the sales partnership was constituted by the first plaintiff, the second plaintiff and the defendant.
(c)The proceeding was referred to a Judicial Registrar for the taking of accounts of the sales partnership in accordance with the Partnership Act 1958 (Vic).
(d)Reserve to the Judicial Registrar taking the accounts, the question whether commission is payable on contracts which were conditional at the date of dissolution of the sales partnership but subsequently received form part of the property of the sales partnership.
(e)Reserve to the Judicial Registrar taking the accounts, the question whether commission is payable on contracts entered into after the date of dissolution of the sales partnership but negotiated prior to the date form part of the property of the sales partnership.
(f)The issue of costs of the proceeding is reserved until after the taking of accounts.
7 Judicial Registrar Burchell conducted the taking of accounts on 7 and 8 June 2017. She delivered reasons for judgment on 28 June 2017.
8 It appears from the Judicial Registrar’s reasons that there were four areas of dispute between the parties:
(a)the accounting for commissions earned from sales contracts which were either:
(i)conditional as at 31 August 2015; or
(ii)entered into after 31 August 2015 but made pursuant to an exclusive sale authority entered into before that date;
(b)the allowance made in the sales partnership’s balance sheet regarding a potential liability for what was known as “the Richardson case”;
(c)whether the partners’ loan and capital accounts were to be “equalised”.
9 The plaintiffs contended that the defendant had to account to the sales partnership for commissions earned on sales contracts which were conditional as at 31 August 2015 and sales contracts entered into after 31 August 2015 in respect of exclusive sales authorities entered prior to that date. However, an appropriate allowance had to be made for the skill and care of the defendant with respect to the conduct of those matters.
10 The plaintiffs argued that the allowance for the Richardson case should be removed as a liability from the balance sheet, because the sales partnership did not have to refund the commission represented by this balance sheet item.
11 Finally, the plaintiffs argued that there was no agreement between the partners to “equalise” the loan accounts. As a result, the disparate sums shown in the balance sheet prepared by the partnership’s accountants, Sinclair Wilson, on 24 September 2015 as “partners’ funds” were accurate.
12 The defendant took a different view of the matter. It contended that it did not have to account to the sales partnership for any part of the commissions earned in respect of either sales contracts conditional as at 31 August 2015 or sales contracts entered into after that date in respect of exclusive sales authorities entered prior to that date.
13 The defendant said that the balance sheet ought not be amended to remove the liability for the Richardson case because, as at 31 August 2015, in accounting terms, the sales partnership had a liability to repay the Richardson commission.
14 Finally, the defendant submitted that there had been an express agreement between the partners at a meeting held on 29 September 2015 that the partners’ loan accounts would be “equalised” to $68,453.42 each.
15 Judicial Registrar Burchell in each case favoured the submissions advanced by the plaintiffs:
(a) in relation to contracts entered after 31 August 2015 regarding exclusive sales authorities entered before that date, she found that an allowance of 70% was an appropriate allowance for Mr Wilson’s exertions in finalising the 70 listings and for any expenses incurred. Thus, she found that 30% of the sum of $310,464 was to be taken into account as part of the sales partnership assets.
(b) regarding the conditional contracts at 31 August 2015, she found that 85% of the conditional sales commissions of $149,420.02 were assets of the sales partnership.
(c) the Richardson commission and the related excess were not liabilities of the partnership.
(d) in relation to the partners’ loan accounts, she found that the appropriate amounts for the loan and capital accounts of the partners were as set out in the Sinclair Wilson working paper dated 24 September 2015.
16 Having reached these conclusions in her reasons, Judicial Registrar Burchell made orders adjourning the further hearing of the proceeding to me for determination of:
(a) the question of interest to be applied on the amount owing to the plaintiffs;
(b) the question of final relief;
(c) final orders; and
(d) costs of the proceeding.
17 On 17 August 2017, Judicial Registrar Burchell made orders for monetary sums and costs in favour of the first plaintiff and second plaintiff upon the taking of accounts.
18 Thereafter, the defendants sought to review the decision of the Judicial Registrar and a Notice of Review was issued dated 31 August 2017. The Notice of Review was withdrawn on 14 November 2017 by consent and by order of the Court.
Parties’ positions
19 Consistently with the earlier parts of this litigation, the parties have different views regarding the question of costs.
20 For their part, the plaintiffs contend that they have been vindicated by the litigation and costs should follow the event in the usual way. They say that the defendant has caused the plaintiffs to incur considerable costs in seeking to obtain their proper entitlements upon the dissolution of the sales partnership. The plaintiffs contended that the defendants had adopted an adversarial approach to the issues of dissolution and receipt of entitlements. This approach to the litigation manifested itself in a number of ways: the defendant filed a defence; it filed a notice of dispute in which it did not agree that the first plaintiff was a partner in the property sales partnership known as Wilson Real Estate Property Management; it denied that the second plaintiff was a partner in the same business; it denied that the plaintiffs were owed sums of money from the sales partnership capital accounts and loan accounts and that the defendant placed an advertisement in the Warrnambool paper in May regarding the dissolution of the partnership; the notice of dispute also contested the authenticity of a report dated 24 September 2015 by the partnership accountants, Sinclair Wilson, and the loan balance paperwork for the partnership for the period ending 31 August 2015; the defendant failed to respond to a notice to produce dated 16 March 2017 served by the plaintiffs; the defendant failed to give discovery notwithstanding a court order made on 25 October 2016; the defendant adduced expert evidence in connection with the proceeding; the defendant’s counsel recognised that the proceeding constituted adversarial litigation; the Court rejected each of the grounds contended for by the defendant to oppose an adjustment to the balance sheet of the sales partnership.
21 In those circumstances, the plaintiffs contend that they had no option other than to proceed with the trial before me in March 2017 and then have the contested taking of accounts before Judicial Registrar Burchell in June 2017. Accordingly, they say that the costs of the proceeding should follow the event and be borne by the defendant.
22 There was no appearance before me at the hearing of the costs application by the defendant. On the morning of hearing, the defendant’s solicitor sent an email to the Court advising that its client had instructed him not to appear at Court. The defendant thus relied upon submissions which were filed with the Court earlier in the week. These submissions were dated 14 July 2017 and were prepared for an earlier hearing. The defendant relied upon that part of the written submissions pertaining to costs. In the context, it was not entirely clear whether the submissions regarding costs were necessarily referrable to the present context or whether they related to events at an earlier point in the proceeding. Doing the best I can, I understand the gist of the defendant’s argument to be as follows:
· the proceeding concerned the taking of accounts for a partnership.
· as such, there were no usual “claims” made between the parties in the sense that the pleadings addressed various causes of action.
· the procedure required the parties to each appoint their own expert accountants to prepare balance sheets because the partnership accountants, Sinclair Wilson, faced a conflict of interest.
· because the taking of accounts was for the benefit of the partnership as a whole, there should be no order made against the defendant alone for the costs of the proceeding.
Legal principles
23 During the hearing, I expressed my surprise to the plaintiffs’ representative that this question of costs had not arisen previously in reported cases. I was assured that the lawyers’ searches of case law and texts such as Lindley & Banks on Partnership and Dal Pont’s Law of Costs revealed only one case which was relevant. This was the case of England v Moore.[1]
[1](1879) 5 VLR (E) 312.
24 In that case, the plaintiff was a partner who sued two others for accounts and contribution. The partnership was losing money. The plaintiff was entitled to one half of the partnership and the defendants to one quarter each. The principal cause of the expense in litigation was that the defendants executed a composition with their creditors to pay a small sum. They contended the plaintiff was bound by the composition. Molesworth J decided that he was not. A Master took the accounts and found a sum due by the defendants to the plaintiff on the partnership transactions. The trial judge held that each defendant was liable to half of that sum, not being a joint liability, although he held them jointly liable for the costs.
25 His Honour said that there was not much litigation in the Master’s office but so far as it went, the defendants were beaten. The usual course was to apportion the costs as between the partners but in this case, in all the circumstances and in order to meet the justice of the case, the trial judge ordered that the defendants pay the plaintiff his costs up to and inclusive of the hearing, leaving the parties to abide their own subsequent costs.
26 The gist of the decision in England v Moore seems to be that other than in unusual circumstances, the taking of accounts is to be a cost borne by the partnership.
27 England v Moore has been referred to subsequently in the decision of Idacorp Pty Ltd v Freshglen Pty Ltd.[2] In that case, after a trial and the giving of reasons for judgment, the judge ordered that there be a taking of an account of the dealings and transactions of two partnerships which he found to exist. Accounts were duly prepared. The plaintiff objected to the partnership accounts in one partnership and the defendant objected to the accounts in the other partnership. The judge ordered that the parties file submissions on costs. In their written submissions, the parties both treated separately the original hearing and the later hearing on the objections to the accounts.
[2][2000] QSC 136.
28 In the course of his judgment, Muir J accepted that as a general rule, the costs of an action for dissolution and winding up of a partnership are ordered to be paid out of the partnership assets unless there are good reasons to the contrary. This view was supported by a decision of the Full Court of the Queensland Supreme Court in Queensland Trustees Ltd v Fawckner.[3] The judge said that the position was different where the action was, in essence, instituted to try some disputed right. In that case, the unsuccessful litigant may be ordered to pay the costs of the action. Reference was made to Hamer v Giles.[4]
[3][1964] Qd R 153.
[4](1879) 11 Ch D 942.
29 In Queensland Trustees Ltd v Fawckner,[5] the executor of the will of the deceased partner commenced an action against the surviving partner for the winding up of a partnership business. The surviving partner entered an appearance but did not deliver a defence. After the time for delivering a defence expired, the plaintiff moved for judgment seeking, inter alia, an order that an account of the plaintiffs’ costs of the action be taken and such costs be taxed by the Taxing Officer and paid by the defendant. The solicitors who had entered the appearance on behalf of the defendant appeared at the hearing of the motion and informed the court that they had no further instructions and withdrew from the proceeding. The plaintiff obtained judgment including an order for costs as sought.
[5][1964] Qd R 153.
30 On 6 April 1969 the surviving partner applied for an extension of time within which to appeal from the judgment insofar as it related to costs. At the time of the application, the costs had not yet been taxed. The partnership account had been taken and the surviving partner had paid to the plaintiff the amount assessed by the court in the taking of accounts. Apart from the question of costs and interest, nothing remained to be done in relation to the partnership affairs.
31 At first instance, the trial judge held that it was a settled rule that the costs of an action for dissolution and of the taking of the account in court are to be paid out of the partnership assets unless there is some good reason to the contrary. The court considered that there was no material before his Honour which justified a departure from the general rule. Accordingly, the Court held that an appeal lay from the costs decision without leave of the judge making that decision. However, in the circumstances of the case, the trial judge declined to extend the time for giving notice of appeal.
32 When the refusal of leave was appealed to the Full Court of the Queensland Supreme Court, it dismissed the appeal. Although it did not form part of the ratio of the case, the judgment of Skerman J, with which Mack and Wanstall JJ agreed, appeared to accept without question that the costs of an action for dissolution of the partnership referred to in the particular statement of claim and of the taking of account in court were to be paid from the partnership assets unless there was good reason to the contrary.
Discussion
33 When I raised with the plaintiffs’ lawyer during the hearing the statement of principle in Idacorp Pty Ltd v Freshglen Pty Ltd, he contended that, to the extent that the defendant had acted in an adversarial manner during the proceeding and, at least until the trial of the matter had commenced before me, had contested the hearing, that constituted a reasonable basis to “order otherwise” within the meaning of the principle.
34 In Hamer v Giles,[6] the plaintiff and defendant had been carrying on business as equal partners. There was a proceeding for dissolution of the partnership for accounts and for a receiver. On 10 May 1879, the plaintiff moved for, and obtained, a receiver and the motion was treated, by consent, as a motion for judgment. The court thereupon declared the partnership dissolved as from the date of the order and it was referred to a special referee to take accounts and to report to the court. In part of his judgment, Jessel MR said:[7]
“It appears to me that where there is no fault on either side, but the partnership accounts have to be taken in this Court, the costs of the action for taking the accounts from the beginning ought to be dealt with as all other costs of necessary administration, that is, they must come out of the partnership assets. Of course, where an action for dissolution is rendered necessary by the misconduct of a partner – as, for instance, where a partner whose duty it is to keep the accounts has neglected to so – the court not only has jurisdiction, but is bound to exercise it, by making that partner pay so much of the costs as are occasioned by his misconduct. But in all other cases there is no difference between the costs of the action for taking the accounts prior to the trial and the subsequent costs, and I have always acted on that rule.”
[6](1879) 11 Ch D 942.
[7]Ibid, 944-45.
35 Accordingly, in all the circumstances, I consider that the better view appears to be that, absent misconduct or some other significant disqualifying behaviour, the costs of the proceeding seeking the dissolution of the partnership and the taking of accounts ought be borne by the partnership. Contesting aspects of the proceeding and making arguments with respect to the taking of accounts do not, in my view, constitute misconduct which would warrant the making of a costs order against the defendant.
36 Having regard to my finding on the primary issue, it is unnecessary for me to consider the plaintiffs’ argument that, by reason of an Offer of Compromise dated 1 March 2017 which the plaintiffs served upon the defendant, the plaintiffs ought be paid their costs from 3 March 2017 on an indemnity basis.
Conclusion
37 In relation to the plaintiffs’ application for the costs of the proceeding, I order that the costs of the proceeding, save and except for the costs order already made by Judicial Registrar Burchell with respect to the taking of accounts (such order not being the subject of any challenge or appeal) be borne by the partnership.