Nicvira Nominees Pty Ltd v Humich Nominees Pty Ltd
[2001] WASC 243
NICVIRA NOMINEES PTY LTD & ORS -v- HUMICH NOMINEES PTY LTD & ORS [2001] WASC 243
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 243 | |
| Case No: | CIV:1411/2000 | 12 JULY 2001 | |
| Coram: | WHITE AUJ | 11/09/01 | |
| 24 | Judgment Part: | 1 of 1 | |
| Result: | Clauses construed | ||
| B | |||
| PDF Version |
| Parties: | NICVIRA NOMINEES PTY LTD (ACN 008 782 401) CLINTWAY PTY LTD (ACN 008 943 075) NICOLA STATI HUMICH NOMINEES PTY LTD (ACN 008 815 718) ANILIA PTY LTD (ACN 009 392 330) ZANGEL PTY LTD (ACN 009 115 262) ALPINE LAND PTY LTD (ACN 053 856 170) IVAN HUMICH |
Catchwords: | Contract Construction of two clauses in a Deed of Dissolution of Partnership Entitlement of partners to an accounting The effect of the existence of settled accounts on a claim for an accounting ab initio Turns on own facts |
Legislation: | Nil |
Case References: | Allegretta & Anor v Allegretta & Anor [2001] WASC 115 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 Brian George Sims & Ors v Maxwell Oliver Sims & Anor [1997] WASC 1 Butt v M'Donald (1896) 7 QLJ 68 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Endo v Caleham (1831) Younge 306 Gordon v Rutherford (1823) T & R 373 Maund v Allies (1840) 5 Jur 860 Noyes v Crawley (1878) 10 Ch D 31 Parkinson v Hanbury (1867) LR2 HL 1 Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979)144 CLR 596 Wilson v Carmichael (1904) 2 CLR 190 American Home Assurance Co v Ampol Refineries Ltd (1987) 10 NSWLR 13 Bagot v Scammell (1888) 22 SALR 15 Bedson Trusts (1885) 28 Ch D 523 Dunstan v Simmie & Co Pty Ltd [1978] VR 669 Gray v Haig (1855) 52 ER 587 Hilbers v Parkinson (1883) 25 Ch D 200 Hill v Manchester and Salford Waterworks Co (1833) 110 ER 1011 Holgate v Shutt (1884) 27 Ch D 111 Jodrell v Seale (1890) 44 Ch D 604 Lodge v Prichard (1853) 43 ER 354 Maund v Allies (1840) 5 Jur 860 Metropolitan Gas v Federated Gas Employees' Industrial Union (1925) 35 CLR 449 Shepperd v Ryde Corporation (1952) 85 CLR 1 Shire v Wilson (1842) 8 ER 450 Stirling Marine Services Pty Ltd v Austral Tiling Constructions Pty Ltd & Anor, unreported; SCt of WA; Library No 970620; 21 November 1997 Throckmerton v Tracy (1555) 1 Plowd 145 Trade Practices Commission v CC (NSW) Pty Ltd (1994) 125 ALR 94 Walmsley v Walmsley (1846) 3 Jo & La T |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- First Plaintiff
CLINTWAY PTY LTD (ACN 008 943 075)
Second Plaintiff
NICOLA STATI
Third Plaintiff
AND
HUMICH NOMINEES PTY LTD (ACN 008 815 718)
First Defendant
ANILIA PTY LTD (ACN 009 392 330)
Second Defendant
ZANGEL PTY LTD (ACN 009 115 262)
Third Defendant
ALPINE LAND PTY LTD (ACN 053 856 170)
Fourth Defendant
IVAN HUMICH
Fifth Defendant
(Page 2)
Catchwords:
Contract - Construction of two clauses in a Deed of Dissolution of Partnership - Entitlement of partners to an accounting - The effect of the existence of settled accounts on a claim for an accounting ab initio - Turns on own facts
Legislation:
Nil
Result:
Clauses construed
Category: B
Representation:
Counsel:
First Plaintiff : Mr P G Kennard
Second Plaintiff : Mr P G Kennard
Third Plaintiff : Mr P G Kennard
First Defendant : Mr M C Hotchkin
Second Defendant : Mr M C Hotchkin
Third Defendant : Mr M C Hotchkin
Fourth Defendant : Mr M C Hotchkin
Fifth Defendant : Mr M C Hotchkin
Solicitors:
First Plaintiff : Costantino & Co
Second Plaintiff : Costantino & Co
Third Plaintiff : Costantino & Co
First Defendant : Hotchkin Hanly
Second Defendant : Hotchkin Hanly
Third Defendant : Hotchkin Hanly
Fourth Defendant : Hotchkin Hanly
Fifth Defendant : Hotchkin Hanly
(Page 3)
Case(s) referred to in judgment(s):
Allegretta & Anor v Allegretta & Anor [2001] WASC 115
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363
Brian George Sims & Ors v Maxwell Oliver Sims & Anor [1997] WASC 1
Butt v M'Donald (1896) 7 QLJ 68
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Endo v Caleham (1831) Younge 306
Gordon v Rutherford (1823) T & R 373
Maund v Allies (1840) 5 Jur 860
Noyes v Crawley (1878) 10 Ch D 31
Parkinson v Hanbury (1867) LR2 HL 1
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979)144 CLR 596
Wilson v Carmichael (1904) 2 CLR 190
Case(s) also cited:
American Home Assurance Co v Ampol Refineries Ltd (1987) 10 NSWLR 13
Bagot v Scammell (1888) 22 SALR 15
Bedson Trusts (1885) 28 Ch D 523
Dunstan v Simmie & Co Pty Ltd [1978] VR 669
Gray v Haig (1855) 52 ER 587
Hilbers v Parkinson (1883) 25 Ch D 200
Hill v Manchester and Salford Waterworks Co (1833) 110 ER 1011
Holgate v Shutt (1884) 27 Ch D 111
Jodrell v Seale (1890) 44 Ch D 604
Lodge v Prichard (1853) 43 ER 354
Maund v Allies (1840) 5 Jur 860
Metropolitan Gas v Federated Gas Employees' Industrial Union (1925) 35 CLR 449
Shepperd v Ryde Corporation (1952) 85 CLR 1
Shire v Wilson (1842) 8 ER 450
Stirling Marine Services Pty Ltd v Austral Tiling Constructions Pty Ltd & Anor, unreported; SCt of WA; Library No 970620; 21 November 1997
Throckmerton v Tracy (1555) 1 Plowd 145
Trade Practices Commission v CC (NSW) Pty Ltd (1994) 125 ALR 94
(Page 4)
Walmsley v Walmsley (1846) 3 Jo & La T
(Page 5)
1 WHITE AUJ: The first, second and third plaintiffs (collectively the Stati related parties) were at the material times in partnership ("the Partnership") with the first, second, third fourth and fifth defendants (collectively the Humich related parties) from approximately 1987 until September 1998.
2 On 22 September 1998 the parties entered into a Deed of Dissolution of Partnership ("the Deed"). The Deed provided for the distribution of partnership assets to each of the parties. Pursuant to the Deed, settlement of the registrations of transfers of interest in land took place on 24 December 1998. There remains undistributed the moneys held in Partnership bank accounts.
3 Pursuant to O 32 r 4 of the Rules of the Supreme Court, the defendants now seek the determination of two of the three issues arising in this action, namely whether:
(1) On a proper construction of cl 15 of the Deed the plaintiffs are required to sign the final accounts of the Partnership and make payments therefrom, irrespective of the other issues; and
(2) On a proper construction of cl 22 of the Deed, the plaintiffs and defendants are required to account to each other for all transactions dating from the commencement of the partnership.
4 Clause 15 and cl 22 of the Deed are in the following terms:
"15. BANK ACCOUNTS
The parties hereto shall as soon as practicable following registration of all the transfers of interests in land to be effected pursuant to this Deed cause all bank accounts existing between them relating to the properties referred to above to be closed and after verification of the financial and other records by the accountants for the parites hereto and in any event within 60 days after completion of the registrations referred to all moneys held therein shall after making all payments of any outstanding debts of the relevant partnerships be distributed after equalising the parties capital accounts as to one half to the Stati Related Parties and one half to the Humich Related Parties.
(Page 6)
- 22. PARTNERSHIP ACCOUNTS AND RECORDS
(a) The Humich Related Parties shall forthwith upon execution of this Deed by the Stati Related Parties make available to the Stati Related Parties and their nominated advisers such of the Partnership Accounts as are presently within their possession, custody or control and provide all such reasonable assistance in respect to the inspection of such Partnership Accounts. PROVIDED however performance of this obligation shall not relieve any of the Humich Related Parties from any of their obligations at law or in equity to provide such accounting as any court of competent jurisdiction may order from time to time in respect of the conduct of the relevant Partnerships prior to the date hereof and the Humich Related Parties agree that the Stati Related Parties shall notwithstanding anything contained herein be entitled to an accounting of all matters relating to the Partnerships applying the principles which would be applied by the court on a general dissolution of partnership. The rights set out in this Clause 22(a) shall be in addition to the rights set out in Clause 22(f). For the purposes of this Deed 'Partnership Accounts' means all books of account and records of whatsoever nature which relate to any of the transactions of the Partnerships or any of them up to an including the date of this Deed including without limitation those accounts and records detailed in the Sixth Schedule.
(b) The Partnership Accounts shall be kept at the offices of Munro's situated at 789 Wellington Street, Perth until otherwise agreed between the Parties or by the Order of the Supreme Court.
(c) Each Party shall upon reasonable notice be entitled to inspect the Partnership Accounts and take copies.
(Page 7)
- (d) No one on behalf of the Humich Related Parties or the Stati Related Parties shall be permitted to remove or otherwise interfere with any of the Partnership Accounts without the consent in writing of a representative of one of the Humich Related Parties or Stati Related Parties respectively.
(e) The Parties hereto acknowledge that Colliers Jardine currently manage a number of properties described in this Deed and have with the consent of the Parties continued to retain possession of all leases and other documentation relating to Leased Premises. Notwithstanding anything else contained in this clause the Parties shall be free to remove documents from Colliers Jardine in the event that they terminate their managing agency in relation to a property to be transferred to that Party. Before removing such documentation the relevant Party must give notice in writing to the other Party as to where such documents shall be placed and where they may be inspected by the other Party. The Parties acknowledge that they have no right to inspect documents created after the Effective Date in relation to the various properties.
(f) Except as otherwise expressly stated herein each Party's rights in law or in equity arising out of the conduct of their mutual relationship prior to the date of this Deed are hereby expressly reserved and except as otherwise expressly stated herein nothing in this Deed shall be taken to release or modify in any particular the obligations that any Party may have had to the other or others of them arising out of their conduct of the management and control of the Partnerships on behalf of any of the Parties prior to the date of such management and control ceasing. Settlement of the transfers of the properties referred to in this Deed is not conditional upon performance of the obligations contained in this clause and settlement shall take place on the Settlement Date irrespective of any
(Page 8)
- outstanding issues regarding compliance with this clause by the Parties but such settlement shall be without prejudice to any Party's right to pursue its rights reserved in this clause after a Settlement Date.
- (g) For the purposes of clause 22(f), 'conduct' shall be construed having regard to the following principles:
(i) each Party is taking on their selected properties as is. To the extent that there may be any structural problems in relation to the buildings or leasing disputes of any kind or any other such matters, each Party accepts their properties as they are; and
(ii) each Party's primary concerns are to ensure that no other Party has unfairly or improperly benefited himself or itself at the expense of any of the Partnerships."
5 In relation to the question of the proper construction of cl 15, the defendants place some emphasis on the phrase "and in any event" in support of the proposition that the plaintiffs are required to sign the final accounts of the Partnership and make payments therefrom, irrespective of whether there has been a verification of the financial and other records by the accountants for the parties.
6 The plaintiffs contend that, upon the proper construction of the Deed, the verification of the financial and other records of the partnership is a prerequisite to the distribution of the funds in the bank accounts.
7 The phrase "the financial and other records" is not defined in the Deed. Clause 22(a) contains a provision concerning "Partnership Accounts", which are defined to mean "all books of account and records of whatsoever nature which relate to any of the transactions of the Partnerships or any of them up to and including the date of this Deed including without limitation those accounts and records detailed in the Sixth Schedule" and it would, in my opinion, be reasonable to construe
(Page 9)
- the phrase "the financial and other records" as having the same meaning as that attributed to the phrase "Partnership Accounts".
8 The Sixth Schedule is in the following terms:
"1. All cheque books.
2. All credit deposit books and credit vouchers.
3. All bank statements.
4. All original invoices supporting the above cheque books and bank statements.
5. All supporting bank correspondence.
6. All supporting bank documentation detailing Loan Agreements/Mortgage details.
7. Any other partnership records or documents dealing with any or all partnership matters.
8. Details of any fees or charges paid to Humich Realty during the partnership. Details of any fees/commissions or considerations received by Humich from any finance institution or bank.
9. Copies of all leasing agreements, leases, rent review negotiations and files held by Humich or by Humich Realty in regard to partnership properties.
10. Original copies of all Selling Agency Agreements entered into with other real estate agency companies. All original copies of all Leasing Agreements entered into with other real estate agents.
11. During an earlier period of the partnership the financial statements were prepared by accountants other than Francis A Jones & Associates. Mr Humich to provide details of the contact person who performed such financial statements during this period.
12. All original copies of monthly property reports from managing agents.
(Page 10)
- 13. All original files relating to Humich Realty or Ivan Humich, involved in the management of all partnership properties.
14. All original copies of all Sales Agreement Contracts, Sale Contracts and all original copies of Offer and Acceptance Contracts. Being all documents regarding the purchase and sale of all partnership assets."
9 The plaintiffs contend that the defendants have failed to comply with cl 22(a) of the Deed and that, in consequence, the accountants for the parties have not been able to complete "verification of the financial and other records", as stipulated in cl 15 of the Deed. Accordingly, the plaintiffs say that, until proper accounts have been taken, they are not obliged to facilitate the distribution of the funds.
10 The defendants submit that the determination of the effect, upon its proper construction, of cl 15 is a simple matter of the interpretation of the Deed. They submit that the parties intended that the accounts be resolved and paid out within 60 days after the completion of the registrations of the real property, irrespective of any other questions arising under the remaining provisions of the Deed and support this submission by a reference to the terms of the Deed which -
(i) contemplate the existence of disputes arising between the parties and make provision for this - see cl 12 which is as follows:
"12. MUTUAL INDEMNITIES & RELEASES
Subject to Clause 25:
(a) The Parties to this Deed acknowledge that they each accept full responsibility and liability in relation to the respective properties to be transferred to the Parties subject to the terms set out herein;
(b) to the extent permitted by law the Stati Related Parties shall indemnify and keep indemnified the Humich Related Parties from all costs and expenses of any nature and description whatsoever which may be suffered or incurred by the Humich Related Parties as a consequence of any third party action, claim, demand, suit, proceeding, order or judgment of whatsoever
(Page 11)
- nature suffered or incurred by or made against any of the Humich Related Parties in respect of any property of the Partnerships transferred to the Stati Related Parties hereunder or prior to the date hereof irrespective of the date any such claim or cause of action accrued;
- (c) to the extent permitted by law the Humich Related Parties shall indemnify and keep indemnified the Stati Related Parties from all costs and expenses of any nature and description whatsoever which may be suffered or incurred by the Stati Related Parties as a consequence of any third party action, claim, demand, suit, proceeding, order or judgment of whatsoever nature suffered or incurred by or made against any of the Stati Related Parties in respect of any property of the Partnerships transferred to the Humich Rleated Parties hereunder or prior to the date hereof irrespective of the date any such claim or cause of action accrued;
(d) the indemnities referred to in this clause do not apply to rates and taxes or other outgoings payable in respect of such properties which shall become the sole responsibility of the transferee of such properties."
- That clause is subject to cl 25, which provides:
"25. WARRANTY AND REPRESENTATION
(a) The Humich Related Parties hereby represent and warrant to the Stati Related Parties that:
(i) they have to the best of their knowledge and belief disclosed to the Stati Related Parties all such information as is material to an intending purchaser of the interests to be transferred to the Stati Related Parties hereunder;
(Page 12)
- (ii) they have full authority to enter into and complete the transactions contemplated by this Deed.
- (b) The Stati Related Parties hereby represent and warrant to the Humich Related Parties that:
(i) they have to the best of their knowledge and belief disclosed to the Humich Related Parties all such information as is material to an intending purchaser of the interests to be transferred to the Humich Related Parties hereunder;
(ii) they have full authority to enter into and complete the transactions contemplated by this Deed."
- (ii) provide for the giving of personal guarantees by Humich and Stati to each other in contemplation of matters arising between the parties that would require payment, notwithstanding that the payments have been made out of the partnership accounts within the 60 day period as required by cl 15 of the Deed - see cl 29 of the Deed.
"29. PERSONAL GUARANTEES
(a) In consideration of the Parties entering into this Deed Humich guarantees the performance of each of the Humich Related Parties and Stati guarantees the performance of each of the State Related Parties of their respective obligations under this Deed and that each agree to indemnify and keep indemnified the State Related Parties and the Humich Related Parties respectively from and against all losses, expenses, damages or claims whatsoever which may be incurred or suffered as a result of any default by the Stati Related Parties or the Humich Related Parties respectively and they agree that their guarantees and indemnities shall be a continuing obligation which shall not be impaired by reason of the granting of any time or indulgence to the Parties
(Page 13)
- herein and shall be binding on their respective successors and personal representatives.
- (b) In support of his guarantee the Humich Related Parties represent and warrant that Humich's statement of assets and liabilities set out in Schedule 9 is accurate and complete at the date hereof."
- (iii) requires dissolution as soon as possible - see cl 27.
"27. DISSOLUTION OF PARTNERSHIPS
The Humich Related Parties of the one part and the Stati Related Parties of the other hereby agree that the overall Partnership and each of the separate Partnerships shall upon completion of the transfers of the properties and the making of the payments contemplated by this Deed be dissolved (without prejudice nevertheless to the accrued rights of the relevant partners preserved by this Deed) and each of the Parties shall do all things necessary to effect such dissolution including the taking of final accounts as soon as practicable after the date hereof and the gazettal of the dissolution of the Partnerships."
12 The defendants submit that the plaintiffs' contention that a term should properly be implied into the Deed that the 60 day period for closing the bank accounts in cl 15 does not begin to run until the defendants have complied with their obligations under cl 22(a) of the Deed is irrelevant and wrong, in that:
(i) The implication of such a term is not pleaded by the plaintiffs;
(ii) The implication of such a term is not necessary to give business efficacy to the agreement;
(iii) It would contradict an express term of the Deed - see the reference to the phrase "in any event" in cl 15.
13 The defendants cited BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363.
(Page 14)
14 The plaintiffs submitted that:
"1. Principles of Construction
1.1 The object of construing a deed is to discover and give effect to the intention of the parties: Throckmerton v Tracy (1555) 1 Plowd 145 at 160; [1558-1774] All ER Rep 168; Shore v Wilson (1842) 8ER 450 at 517. The whole context of the deed must be construed, not individual clauses in isolation: Metropolitan Gas Co v Federated Gas Employees' Industrial Union (1925) 35 CLR 449 at 455 per Isaacs and Rich JJ.
1.2 Clause 15 deals with the closing of the partnership bank accounts and the distribution of the funds to the parties. This is to take place after verification of the financial and other records by the accountants for the parties and within 60 days after the completion of transfers of interests in land. The 60 day time frame should be construed in the context of the deed as a whole, which requires verification of financial an dother records. Clause 22(a) deals with partnership accounts and records and clearly imposes an obligation on the defendants to make available to the plaintiffs forthwith such of the partnership accounts as are in the defendants' possession, custody or control.
1.3 The third plaintiff, Mr Stati, maintains that the defendants have not complied with cl 22(a) of the Deed and that a large number of partnership transactions is in dispute.
1.4 That the missing invoices and other disputed accounts were in the possession, custody or control of the defendants should not be a matter of contention. In paragraph 1(d) of the Defence the defendants admit that they paid accounts related to construction activities yet they have not produced the missing invoices for accounts which the plaintiffs have queried.
1.5 The partnership accounts which the defendants were required to produce forthwith under clause 22 of the Deed were defined under clause 22(a) as all books of account and records of whatsoever nature which relates to any partnership transactions including those accounts and records set out in the Sixth Schedule of the Deed. Paragraph 4 of the Sixth Schedule specifies all original invoices supporting cheque book transactions and bank statements. Invoices and bank statements
(Page 15)
- concerning the disputed transactions have not been made available to the plaintiffs.
1.6 Partnership records also include the detailed general ledgers of the four partnership entities comprising the partnership between the parties. Without them it is impossible to verify the accuracy of the financial and other records of the partnership or identify the respective equity positions of the partners.
1.7 Clause 15 of the Deed expressly provides that the bank accounts are to be closed 'after verification of the financial and other records by the accountants for the parties.' That point has not been reached and the plaintiffs are under no obligation to close the accounts.
1.8 Insofar as the reference to 60 days for signing off on the accounts is concerned, it should be construed on the pre-condition that the defendants would comply with their obligation under clause 22(a) of the Deed to enable that course to be taken."
15 Although the plaintiffs do not plead the existence of an implied term in the Deed, they submit that, if it is necessary to imply a term that the 60 day period for closing the accounts in cl 15 of the Deed does not begin to run until the defendants have complied with their obligations under cl 22(a) of the Deed, the court may imply such a term as an aid to the proper construction of the Deed and in order to give effect to the intention of the parties. Reference was made to Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979)144 CLR 596 at 607, per Mason J.
16 There, his Honour referred to the fact that it was common ground that the contract in question imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract and mentioned that Griffith CJ said in Butt v M'Donald (1896) 7 QLJ 68 at 70-71:
"It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract."
17 It does seem to me apparent that, on the plain meaning of the wording of cl 15, the parties contemplated that there would be a
(Page 16)
- "verification of the financial and other records by the accountants for the parties" prior to the distribution provided for in that clause. The distribution is to be made after such verification. No doubt, the parties assumed that the verification of the financial and other records would be effected within less than 60 days after completion of the registrations of all the transfers of interests in land to be effected pursuant to the Deed. I think that the expression "in any event within 60 days" is to be understood accordingly as governing the earlier expression "as soon as practicable".
18 The true construction is to be ascertained by a consideration of the intention of the parties, as gathered from the terms of the deed itself.
19 As I have indicated above, the defendants have pointed to the several provisions which, they submit, go to show that the parties intended that the distribution should be effected within the 60 day period.
20 Clause 12 does not, in my opinion, make provision for disputes of the nature relevant to the matter before me. It is in its terms directed to the properties the transfer of which is provided for in the Deed. I do not read that clause as extending beyond matters connected with those properties and I do not think that this clause assists in the construction of cl 15.
21 Clause 29 provides personal guarantees by each of Humich and Stati of the obligations of the Humich Related Parties and the Stati Related Parties, respectively, in case of default by either. I do not think it is germane to the issue of the construction of cl 15 presently before me.
22 Clause 27 does provide for the dissolution of the Partnership as soon as practicable after the date of the Deed. I do not think, however, that that clause bears upon the construction of cl 15. Clause 15 itself contemplates the early conclusion of the matters required to be attended to in order to dissolve the Partnership, and it, too, uses the expression "as soon as practicable." I have no doubt that the intention of the parties was to bring about the dissolution of the Partnership as soon as practicable and it seems most unfortunate that this matter has taken so long to be finalised.
23 If one were to construe cl 15 as providing that the distribution of the funds is to take place after the verification of the financial and other records but, if such verification does not occur within 60 days of the registration of the transfers in accordance with the Deed, then the distribution is to be made before the verification of the records, it seems to me that an inherent contradiction arises in the clause. It seems to me to be a necessary conclusion that the parties intended that there should be a
(Page 17)
- verification of the records before the distribution. The inconvenience that might arise if a distribution were made before such verification and, thereafter, the records as verified required a variation in the distribution, is obvious.
24 Applying the decision in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, for a term to be implied, it must be reasonable and equitable, necessary to give business efficacy to the contract, obvious, capable of clear expression and non-contradictory of an express term of the contract. The plaintiff submits that the following term is to be implied, namely a proviso to cl 15 reading:
"PROVIDED however that the Humich Related Parties shall have first complied with their obligations under clause 22(a) of this Deed"
- or, alternatively, the insertion at the beginning of cl 15 of the words:
"Subject to the Humich Related Parties complying with clause 22(a) hereof …"
Such a term, the plaintiffs assert, complies with those requirements.
25 In my opinion, the proper construction of cl 15 is that the distribution of the funds must be effected after verification of the accounts and not before. I do not, therefore, think that it is necessary to imply a term as contended for by the plaintiff. In any event, there is no pleading by the plaintiffs of an implied term and the issue of an implied term does not fall within the ambit of the learned Master's order.
26 In relation, therefore, to the proper construction of cl 15, I uphold the plaintiffs' submissions.
Clause 22
27 I have set out above in extenso the provisions of cl 22 of the Deed.
28 Paragraph 6 of the Defence pleads:
"6. The Stati Related Parties consented to and settled all accounts of the partnerships prior to 30 June 1998."
29 In the Reply, the plaintiffs plead in par 1:
"1. Save as the same consists of admissions, the First, Second and third Plaintiffs (the Stati related parties) take issue on the
(Page 18)
- contents of the First, Second, Third, Fourth and Fifth Defendants' (the Humich related parties) Defence."
30 That pleading constitutes a joinder of issue on the matters raised in the defence, so Mr Hotchkin's submission (T58) that the defendants' pleading of the accounts having been settled had been ignored by the plaintiffs was mistaken. It is, however, apparent that the plaintiffs' pleading in relation to the accounts, contained in par 19 of the statement of claim, complains only that "a large number of the financial documents, especially source invoices, are missing and or have not been disclosed" and that "a number of amounts have been wrongly debited to the Stati/Humich Partnership accounts when they were in fact amounts relating to expenses incurred solely for the benefit of the Humich Related Parties."
31 The plaintiffs refused to provide particulars of the financial documents allegedly missing or not disclosed. In relation to the allegation that debits were for the benefit of the Humich Related Parties, the plaintiffs referred to a cheque for $60,000 for management fees payable to Humich Realty and a cheque for $743 in favour of solicitors in relation to the proposed purchase of 569 Wellington Street, Perth.
32 The defendants submit that Partnership accounts have been prepared each year of the Partnership up to the date of its dissolution and that no objection had been taken to these accounts by the plaintiffs. Accordingly, the defendants submit, the plaintiffs should be taken to have consented to and settled all accounts of the Partnership prior to 30 June 1998 - see Brian George Sims & Ors v Maxwell Oliver Sims & Anor [1997] WASC 1 (9 October 1997), per Scott J.)
33 In that case, his Honour said, at page 14:
"On the evidence before me, and bearing in mind that the parties signed off the partnership accounts over the years in which the partnership operated, I have come to the view that the best course is for no adjustments to be made in relation to this aspect of the case. Should it be the case that one party or the other can establish that there is some error that has been made in the accounts which results in a sum payable by one party to the other, then that can be resolved by independent litigation which can identify those claims. In addition, in such litigation the Statute of Limitations may be pleaded where relevant and
(Page 19)
- evidence could be taken as to the issues resolved at family conferences."
34 As the defendants submitted, an account which has been agreed between the partners constitutes a good defence to an action seeking a further account of any transactions or dealings covered thereby. (see Endo v Caleham (1831) Younge 306). Lord Lindley summarised the requirements for a settled account as follows:
"No precise form is necessary to constitute a stated and settled account; but an account stated, unless it be in writing, is no defence to an action for a further account. It is not however, neessary that the account should be signed by the parties, if it can be shown to have been acquiesced in by them; and an account may be stated and settled, although a few doubtful items are omitted." (see "Lindley & Banks on Partnership", 17th ed, Sweet & Maxwell 1995, page 648).
35 An account of partnership dealings and transactions will usually be taken as from the commencement of the partnership, unless there is an account that has been settled between the partners thereafter (Gordon v Rutherford (1823) T & R 373).
36 In Wilson v Carmichael (1904) 2 CLR 190 at 195 it was held that the right to the taking of partnership accounts continues until an end is put to it by release, by settled accounts or by the lapse of such time as may induce the Court to refuse to interfere.
37 Absent fraud, an account which has been long settled will not normally be re-opened; albeit the Court may give leave to surcharge and falsify. The mere fact that items are treated in an improper way or are improperly omitted, is not in itself sufficient to induce the Court to re-open a settled account; (Allegretta & Anor v Allegretta & Anor [2001] WASC 115 per Templeman J at page 15). If the partners knew about those items and no fraud or undue influence can be proved it will be inferred that they were dealt with in an agreed manner: Maund v Allies (1840) 5 Jur 860. In that case, the Lord Chancellor said, at 861:
"… in the absence of fraud, or abused confidence, or pressure, every item in an account, of which the parties were fully cognizant at the time they settled it, may be considered as the subject of agreement between them, which they are no more at liberty to repudiate than any other contract or undertaking into
(Page 20)
- which they may deliberately have entered. (see "Lindley & Banks", 17th ed, Sweet & Maxwell 1995, page 649).
38 In order to impeach a settled account any errors must be positively identified and proved: In Parkinson v Hanbury (1867) LR2 HL 1, Lord Chelmsford,LC, said, at 11:
"I apprehend that where a party seeks to open a settled account, there must be a distinct statement in the bill of some errors in the account – there must be some direct, distinct, and specific averment of errors to entitle the party to open the account."
39 Clause 22(a) entitles the plaintiffs to such accounting as a partner would be entitled to, applying principles which would be applied by a Court on a general dissolution of partnership. In these circumstances, the defendants submit, the plaintiffs are not entitled to re-open the settled accounts as:
(a) There has been no allegation of fraud, misrepresentation or recent error in the partnership accounts pleaded by the plaintiffs.
(b) Section 38(1)(c)(iii) of the Limitation Act 1935 excludes actions of account brought more than six years from settlement of the account. (See BrianGeorge Sims & Ors v Maxwell Oliver Sims & Anor (supra)).
40 The defendants contend that they have at all times made all existing partnership accounts and source documents available to the plaintiffs and have repeatedly answered the plaintiffs' queries regarding the partnership accounts and dealings.
41 The onus will of course lie on the defendants to establish the existence of the settled accounts.
42 The plaintiffs submit:
"3.2 Clause 22(a) does not purport to limit in any way the period over which an accounting of the partnership accounts should be conducted. If the statute of limitations applies at all, then it is only from the time of the dissolution of the partnership in 1998. It is only then that the statute begins to run: Noyes v Crawly (1878) 10 ChD 31 at 39 per Mallins VC.
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- 3.3 Clause 22(a)(g)(ii) of the Deed acknowledges that each party's primary concerns are to ensure than no other party has unfairly or improperly benefited himself or itself at the expense of any of the partnerships. Some of the transactions raised in issue go back to the early years of the partnership. The first of the four partnerships was formed in 1987.
3.4 The fifth defendant kept the partnership accounts and records in his possession. A large number of invoices from tradesmen and others for whom he drew cheques on partnership bank accounts are missing.
3.5 As a general principle of law, if a partner has destroyed any books or accounts in his possession or otherwise improperly refused to produce them, all necessary presumptions will be made against him in the taking of an account: Walmsley v Walmsley (1846) 3 Jo & La T 556. Along the same lines is the principle that any fraudulent or erroneous omission or insertion of items in partnership books may be evidenced, in the absence of proof, by the books themselves for or against any of the partners: Hill v Manchester and Salford Waterworks Co (1833) 110 ER 1011 at 1015 per Denman CJ; Lodge v Prichard (1853) 43 ER 354. In the same sense, it has been held that where accounts have been improperly destroyed by a partner, it is presumed that the partner had an improper purpose: Gray v Haig (1855) 52 ER 587.
4. Plaintiffs' rights to true accounts
4.1 The right is enshrined in section 39 of the Partnership Act 1895 WA. It continues until an end is put to it by release, or by settled accounts or by the lapse of such time as may induce the Court to refuse to interfere: Wilson v Carmichael (1904) 2 CLR 190 at 195 per Griffith CJ. In the same case his Honour held that one of the incidental results of an order directing a partnership account to be taken is a stay of proceedings of actions brought by one party against the other in respect of matters which prima facie form part of the partnership agreement. Each party was entitled to a lien on the partnership property for the balance due to him after the taking of the partnership accounts.
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- Accordingly, there is no justification for limiting the period of an accounting. Clause 22(a) does not impose any limit and there is no requirement at law to impose one. On the contrary, the plaintiffs are entitled to a full and true accounting of the partnership accounts from the date of the inception of each of the four partnerships the subject of these proceedings."
43 It seems clear, and, indeed, it is common cause, that the partners are entitled to a proper accounting in relation to the partnership accounts. The issue between the parties, stated briefly, is as to whether the plaintiffs are entitled to a full accounting from the outset of the partnership in 1987 to 1998, notwithstanding the fact that accounts have been rendered to them by the defendants from time to time in the intervening years.
44 Clause 22 provides expressly that the Stati Related Parties shall "be entitled to an accounting of all matters relating to the Partnerships applying the principles which would be applied by the court on a general dissolution of partnership".
45 In my opinion, the plaintiffs' entitlement to an accounting pursuant to cl 22 of the deed is subject to the defence that accounts have been provided by the defendants from time to time, which accounts have been settled. Clause 22 does not entitle the plaintiffs to re-open settled accounts in general terms. No fraud is pleaded against the defendants. In my opinion, on the proper construction of cl 22, the plaintiffs are entitled to an accounting from the defendants subsequent to the last settled account between them. I am told that there was a settled account as at 30 June 1998. If, in relation to earlier accounts, the plaintiffs are able to establish specific misrepresentations or errors, the court may order a reopening of the earlier accounts to the extent only of permitting an investigation into such alleged misrepresentations or errors. I note that on 4 December 2000, the plaintiffs' solicitors wrote to the defendants' solicitors with a statement of the partnership accounts and transactions that were said to be in dispute, while saying that the list was not exhaustive. If the plaintiffs wish to pursue those and other matters of dispute, it will be necessary for them to prove specific misrepresentation or error in relation thereto. This may involve amendments to the pleadings. As I have said, there is no suggestion of fraud on the part of the defendants.
46 I have mentioned the arguments concerning the question of limitation of actions in respect of the plaintiffs' desire to re-open old accounts. The defendants submitted that s 38(1)(c)(iii) of the Limitation
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- Act1935 excludes actions of account brought more than six years from settlement of the account. The plaintiffs respond that cl 22 does not impose any limitation and that, if the Limitation Act does apply, it does so only from the date of dissolution of the Partnership in 1998. They cited Noyes v Crawley (1878) 10 Ch D 31 in support of this submission. In that case, at 39, Malins VC said:
"I entirely agree with the law as laid down by Mr Justice Lindley in the passage to which Mr Bristowe has referred me. Mr Justice Lindley says ["Lindley on Partnership", 4th ed, page 966]: 'So long, indeed, as a partnership is subsisting, and each partner is exercising his rights and enjoying his own property, the statute has, it is conceived, no application at all; but as soon as a partnership is dissolved … or there is any exclusion of one partner by the others, the case is very different, and the statute begins to run.' He then says: 'This has been decided by the House of Lords in Knox v Gye Law Rep 5 HL 656".
"(iii) Actions of account other than such accounts as concern the trade of merchandise between merchant and merchant, their factors or servants
Six years."
48 In the present case, the Partnership was dissolved in 1998. Accordingly, applying Noyes v Crawley to the present case, the Limitation Act has been enlivened. I do not think that the fact that the Limitation Act would not have been applicable to the Partnership (if that were so) before September 1998, would affect the periods of limitation prescribed in the statute. In other words, as the statute does now apply to the Partnership, on any view of the matter, I do not think that the effect would be that the periods of time prescribed in the statute as commencing when the respective causes of action arose, would, instead, commence to run from the date of the dissolution of the Partnership. However, this issue was not argued before me and I make no concluded finding in respect of it, leaving it for determination, if necessary, at another time.
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49 In view of the length of time that has elapsed since the termination of the Partnership, it is indeed unfortunate that the parties have been unable to reach an agreed settlement of their disputes.
50 I shall hear from counsel as to the appropriate orders to give effect to these reasons.
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