Paltos v Bartier Perry Pty Ltd (No 2) - [2020] NSWSC 1706

Supreme Court

New South Wales

Medium Neutral Citation: Paltos v Bartier Perry Pty Ltd (No 2) [2020] NSWSC 1706
Hearing dates: 17 July 2020
Decision date: 01 December 2020
Jurisdiction: Common Law
Before: Rothman J
Decision:
(1)   Judgment in the proceedings for the plaintiff;
(2)   The defendant shall pay the plaintiff the sum of $1,411,707;
(3) Pursuant to the terms of s 100 of the Civil Procedure Act 2005 (NSW) the defendant shall pay interest on the aforesaid judgment sum from 22 July 2016 until the date of judgment at the rate prescribed in Supreme Court Practice Note SC Gen 16;
(4) Pursuant to the terms of s 101 of the Civil Procedure Act 2005 (NSW), the defendant shall pay post-judgment interest at the prescribed rate;
(5)   The defendant shall pay the plaintiff’s costs of the proceedings up to and including 28 February 2018 on the ordinary basis and on and from 1 March 2018 on an indemnity basis.

Catchwords:
COSTS – Offer of Compromise – Offer by plaintiff of judgment dismissing proceedings is an offer “in favour of the defendant” and complies even though it provides “no order for costs”.
JUDGMENTS and ORDERS – Possibility of other proceedings diminishing damages – unlikely result – assess as uncertainty or require undertaking as to repayment – other consequential issues – indemnity refused

Legislation Cited:
Civil Procedure Act2005 (NSW), ss 100, 101
Uniform Civil Procedure Rules 2005 (NSW), r 20.26, Pt 42

Cases Cited:
Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25
Lee Transport Co Ltd v Watson (1940) 64 CLR 1; [1940] HCA 27
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20
Mulholland v Mitchell [1971] AC 666
Paltos v Bartier Perry Pty Ltd [2020] NSWSC 705
Petroleum & Chemical Corporation of (Aust) Ltd v Morris (1973) 1 ALR 269
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4

Category: Consequential orders (other than Costs)
Parties: Dennis Paltos (Plaintiff)
Bartier Perry Pty Ltd (ACN 124 690 053) (Defendant)
Representation:
Counsel:
C Freeman (Plaintiff)
J Emmett / H Grace (Defendant)
Solicitors:
Polczynski Robinson Lawyers (Plaintiff)
Yeldham Price O’Brien Lusk Lawyers (Defendant)

File Number(s): 2017/301216

Judgment

HIS HONOUR: On 9 June 2020, the Court, as presently constituted, issued judgment dealing with the liability of the defendant, Bartier Perry Pty Ltd (“Bartier Perry”) to the plaintiff in professional negligence. The parties were asked to agree on a formal minute of order reflecting the reasons for judgment issued on 9 June 2020. The reasons for judgment of 9 June 2020 are, in these reasons, referred to as “the First Judgment”. [1] It is necessary to expand on some complications associated with the litigation and its relationship with other proceedings.
1. Paltos v Bartier Perry Pty Ltd [2020] NSWSC 705 (“the First Judgment”).

Background

In very broad terms, the First Judgment dealt with professional negligence of the defendant in relation to advice given or not given on the availability to the plaintiff of the terms of a Put and Call Option Agreement (hereinafter “the Put and Call Option Agreement”). The Put and Call Option Agreement granted to the plaintiff an option, which was capable of being exercised in circumstances of total and permanent disablement and required the plaintiff’s partner, at the time, Mr Milevski, to purchase the plaintiff’s interest in the partnership in which the plaintiff and Mr Milevski were engaged (hereinafter “the Partnership”) at a price calculated in accordance with the Put and Call Option Agreement.
The conclusion of the Court was that the effect of the negligent advice and/or failure to advise deprived the plaintiff of his entitlement to exercise the option or the benefits of the option, once exercised.
At the same time as these proceedings were before the Court, as presently constituted, other proceedings in the Equity Division were dealing with the dissolution of the Partnership and the rights and liabilities, respectively, of each of the partners thereto. Apparently, at some stage, the defendant in these proceedings sought for this matter to be consolidated with the proceedings before the Equity Division (hereinafter “the Partnership Proceedings”). For reasons of which I am unaware, these proceedings and the Partnership Proceedings were not consolidated and were not ordered to be run at the same time, without formal consolidation.
The current proceedings first came before the Court, as presently constituted, on 20 May 2019. At that time, the Partnership Proceedings were the subject of interlocutory orders relating, amongst other things, to the dissolution of the partnership and the taking of an account. The Partnership Proceedings were to have determined finally the value of the Partnership; the amount owed by the plaintiff in these proceedings to the Partnership, being amounts of overdrawing of Partnership income and the like; personal loans from the Partnership to the plaintiff; and the amount owed by the plaintiff as a result of guarantees provided by the Partnership to one or other lending institution to secure private loans of the plaintiff.
The heads of damage in these proceedings included the calculation by a prescribed formula of the value of the interest in the Partnership of the plaintiff and the reimbursement of the amount that underpinned or secured the guarantee from the Partnership to one or other lending institution.
As is obvious from the foregoing, that which was to be determined in the Partnership Proceedings, as amounts owing to the Partnership by Mr Paltos were amounts that would be finally determined. So too was the value of the Partnership and debts, if any.
It had been hoped, by the Court as presently constituted, that judgment in the Partnership Proceedings would issue, before it was necessary to determine a concluded view as to one or more of the issues associated with these proceedings. Those proceedings were not finalised and, as far as the Court is presently aware, have not been finalised.
The foregoing is not intended as a criticism of any judge of the Court. Apparently, the Partnership Proceedings were delayed as a result of the further incapacity of the plaintiff in these proceedings. Over and above the foregoing, the Partnership Proceedings were delayed as a result of the terminal illness of one of the expert witnesses, whose evidence was crucial in the determination of those proceedings. Now, it is delayed because of the suggestion in the First Judgment that Mr Paltos’ rights in the Partnership Proceedings should be subrogated.
At one stage, the Court, as presently constituted, expressed the fear that each of the judges of the Court was awaiting the other before issuing judgment. Ultimately, the Court, as presently constituted, could wait no longer. As a consequence, the First Judgment issued.
The Partnership Proceedings, in the meantime, were listed for September 2020. Those proceedings have been vacated as a result of the issues to which earlier reference has been made.
During the course of the proceedings on the minute of the order and the appropriate manner of expressing in formal judgment the outcome of the First Judgment, the Court, as presently constituted, expressed the view that there were risks, associated with issuing orders as a result of these proceedings, that the plaintiff would be overcompensated or undercompensated. It would be a stark and unusual coincidence if the result of each of the proceedings were consistent, given that there are at least some different parties and the evidence is manifestly different.
At the proceedings on the minute of the order, held on 17 July 2020, Counsel for the defendant, Bartier Perry, quite properly submitted that the Court should not defer the issuing of the judgment to any extent as a result of the existence of the Partnership Proceedings. Further, it was the duty, in the submission of the defendant, of the Court to issue orders on the basis of that which had been proved in these proceedings.
That submission, about which no complaint is made, was a timely reminder of a trite proposition that the Court, as presently constituted, accepts. This judgment must issue on the basis of the evidence before the Court in these proceedings. While some attempt will be made to ameliorate difficulties associated with the existence of the Partnership Proceedings, ultimately, the orders that the Court will issue in these proceedings will be as a result of the First Judgment on liability and reflect the evidence adduced in these proceedings and not otherwise.

The extent of the liability

It is unnecessary to restate or re-agitate some of the complications associated with the poor drafting of the three partnership documents. Those documents include the Heads of Agreement; the Deed of Agreement of Partnership Terms; and the Put and Call Option Agreement.
In the First Judgment, the Court concluded that the Put and Call Option Agreement granted to the plaintiff an option that, on the occurrence of a Trigger Event, was exercisable and required the other partner to purchase the proportionate interest of the outgoing partner, who had suffered a total and permanent disablement. Those options were granted by clause 2 of the Put and Call Option Agreement.
Further, the Court determined that the options granted by clause 2 survived the dissolution of the Partnership, in part because they so operated in relation to a deceased partner, whose family, necessarily, could exercise the options after the demise of the partner and the dissolution of the Partnership.
Clause 3 of the Put and Call Option Agreement dealt with the exercise of the option and required the option to be exercised within 30 days of the date at which a TPD Event occurred, which, for present purposes, was, on the preferred basis that the Court adopted in the First Judgment, the period between 23 June 2016 and 22 July 2016. As a result of the advice or failure to give advice, the Option Exercise Period expired and the option granted by clause 2 lapsed on or about 22 July 2016. (It may have been 25 July, as a result of the weekend, but it matters not.)
Most relevantly for present purposes, clause 5 of the Put and Call Option Agreement prescribed the basis for the calculation of amounts that were required to be paid, once the option had been exercised.
Clause 5.1 was the basis for the calculation of the “value” of the proportionate share of the interest in the partnership for the purpose of the exercise of the option and the requirement on the surviving partner. The amount calculated in accordance with the formula operating under clause 5.1 is an amount of $1,411,707.
Clause 5.2 of the Put and Call Option Agreement required the repayment of monies that underpinned or secured bank guarantees utilised by the Partnership. The amount of the guarantee is $634,638.96. So much has been proved, on the balance of probabilities, from the documentation before the Court.
The evidence before the Court establishes, on the balance of probabilities, that some of the amount of the guarantee related to loans taken by the Partnership for the personal benefit of the plaintiff. The precise amount of those personal loans is unclear, but a figure of $215,000 has been used in relation to some at least of those liabilities. That last-mentioned figure has not been established even on the balance of probabilities.
The evidence before the Court establishes, on the balance of probabilities, that the overdrawing by the plaintiff amounts to $373,809. That is the evidence before the Court in these proceedings. It may be that in the Partnership Proceedings the evidence will be different. At this point, from the material before the Court in these proceedings, the Court is aware that the evidence before the Court in the Partnership Proceedings will be different.
Nevertheless, the Court is required to assess damage on the basis of the evidence before it in these proceedings. The Court is also unaware as to whether the $373,809 includes the amount of drawings that are guaranteed by any part of the guarantee to which earlier reference has been made. The absence of that information is one of the reasons that the Court required an undertaking as to the outcome of the Partnership Proceedings.
The other aspect of the orders that required argument was whether subrogation was appropriate and the nature of subrogation that was proposed by the Court in the First Judgment. The subrogation was suggested because, if an undertaking were given as to the repayment to the defendant in this case of any amount awarded to the plaintiff in the Partnership Proceedings, there would be no incentive on the plaintiff to agitate the Partnership Proceedings genuinely.
The defendant raises issues associated with the terms of the subrogation. Those issues are powerful. Further, the defendant asserts that it was not afforded an opportunity to be head on the issue. I assume that was before the First Judgment.

Costs

The plaintiff seeks indemnity costs on the basis of the effect of an Offer of Compromise. By letter dated 28 February 2018, the plaintiff served an Offer of Compromise, by email, pursuant, purportedly, to the provisions of Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) r 20.26 and, in the alternative, taking effect as a Calderbank letter.
The Offer of Compromise was less favourable to the plaintiff than the amount assessed by the Court, confining that amount to the amount of compensation arising from clause 5.1 of the Put and Call Option Agreement.
In the circumstances, it is appropriate to award costs on the ordinary basis up to 28 February 2018 and thereafter on an indemnity basis.
As a matter of abundant caution, the Court clarifies that it considers the Offer of Compromise complies with the UCPR, but, if it were incorrect in that regard, would consider that it should be treated as a Calderbank letter and would, in the exercise of the Court’s discretion, order indemnity costs on and from the same date. It was unreasonable to refuse the offer.
The defendant submits that the Offer of Compromise does not comply with the provisions of UCPR r 20.26 because it refers to consent orders dismissing the proceeding “with no order as to costs”, within 14 days of the plaintiff’s receipt of the payment. The offer was open for 28 days. The covering letter made clear that it was, in the alternative, intended to be a Calderbank letter.
In terms of the provisions of UCPR r 20.26, the offer does not “include an amount for costs” and is not expressed “to be inclusive of costs”. Rather, the defendant is required to pay the plaintiff the amount of the offer and the proceedings would be dismissed with no order as to costs.
In my view, such an order does not fail to comply with the provisions of UCPR r 20.26(2). Nor, as a matter of discretion, does it interfere with the operation of the special rules dealing with the payment of costs associated with the acceptance of an offer and prescribed by UCPR Pt 42.
At a technical level, the offer proposes an order of the Court dismissing the proceeding with no order as to costs. An offer from a plaintiff for an order of the Court, by consent, dismissing the proceeding is an offer that proposes “a judgment in favour of the defendant” and, as a consequence, is governed by the terms of UCPR r 20.26(3)(a)(i).
In other words, the offer as framed, pursuant to the provisions of UCPR r 20.26, was an offer for a payment by the defendant of $1.4 million and a judgment “in favour of the defendant”, with no order for costs. As a consequence, the fact that the offer includes the proposition that there be no order as to costs in the order issuing from the Court is permitted by the terms of UCPR r 20.26(3).
Further again, the offer, including the proposal to pay the plaintiff an amount of money is an offer that is a real and genuine Offer of Compromise and is for an amount that is less favourable to the plaintiff than that obtained in the judgment of the Court. As a matter of completeness, I note that the Offer of Compromise specifies the period of time within which the offer is open for acceptance, being a period of 28 days from the date of the offer, and required payment within 14 days of the acceptance of the offer. The period of 28 days is both reasonable and otherwise complies with the provisions of UCPR r 20.26(5)(a).
The fallacy in the submission of the defendant on this matter is that it mistakes an offer of a payment required to be made extra-curially for a proposal for a “judgment in favour of a plaintiff”. [2] As a matter, again, of completeness, I note that a judgment dismissing proceedings is a judgment in favour of a defendant in the proceedings. That was the proposal in the Offer of Compromise and such a proposal is caught by the terms of UCPR r 20.26(3)(a)(i).
2. Defendants Written Submissions on Costs at [8].
Otherwise, the plaintiff has achieved a more favourable result than the terms of the offer. Even though the difference between the terms of the offer and the damages arising as a result of the failure to exercise the option and obtain the value calculated in accordance with clause 5.1 of the Put and Call Option Agreement, is not great, there are also the issues of costs and interest foregone. Acceptance of the offer would have saved the defendant all of the costs of the proceedings in Court, which are and would have been substantial. The interest has been calculated as $408,319.83 at 16 June 2020. As at 28 February 2018, it would have been over $200,000.
The fact, if it be the fact, that the credit of Mr Paltos was an issue that the defendant sought to agitate does not detract from the reasonableness of the offer. The defendant was aware of the facts, which were ultimately determined by the Court. Further, the defendant was aware of the state of health of the plaintiff at the time that its advice was sought and obtained (or not provided).
It is unclear how the defendant is entitled to rely upon the fact that it sought to cross-examine the plaintiff on credit. The proceedings determine the facts that existed on the basis of the evidence before the Court. The defendant is presumed to know those facts and to have known those facts, at least from the date of its retainer and, on the evidence before the Court, sometime earlier than that.
More importantly, whatever be the ultimate outcome of the Partnership Proceedings, the amount that was realisable as a result of the exercise of the Put and Call Option was an amount that has been calculated at over $1.4 million. That calculation was extremely easy and its basis already known.
The fact that the plaintiff may be required to repay money owing to the Partnership does not detract from the benefits forgone as result of the negligence of the defendant. The plaintiff will, to the extent he would have otherwise, still be required to repay those amounts.
The effect of the Partnership Proceedings is on the amount of the return of any guarantee; not on the value of the Partnership. Technically, were the option exercised within the Option Exercise Period, Mr Milevski may have paid the amount owing under the calculation and left for other proceedings the repayment of debts owed to the Partnership and or the satisfaction of any bank guarantee.
The issues of subrogation and the repayment undertaking, suggested by the Court in the First Judgment, relate to, in the latter case, any amount received by way of goodwill in the Partnership Proceedings. In relation to the subrogation, it relates to what otherwise might be payable under the provisions of clause 5.2 of the Put and Call Option Agreement.
A difficulty in terms of the minute, foreshadowed in the First Judgment and adumbrated by the Court in the course of the hearing on the minute of the order, is that the amount allowed for goodwill in the Partnership Proceedings, together with the repayment of any guarantees or amounts underpinning a guarantee paid by the plaintiff, will be offset by the debts owed on account of overdrawing and other matters. In those circumstances, if the overdrawing and other debts are a greater amount than the Court in the Partnership Proceedings values the goodwill of the Partnership, no amount would be awarded to the plaintiff as a result of the Partnership Proceedings.

On the other hand, if the amount of overdrawing is deducted from that which is payable pursuant to any damages assessed on the basis of the realisation of the Put and Call Option Agreement and its exercise, then the plaintiff will be paid that amount twice.
None of the foregoing relates to the value of the option once exercised in so far as it deals with the value of the Partnership for the purpose of the exercise of that option. Last, the Court’s attempt to overcome the plaintiff receiving the goodwill or credit for the goodwill as well as the value calculated under clause 5.1 of the Put and Call Option Agreement, and the attempt to ensure that the defendant is not prejudiced by being required to offset the amount of damages payable by the plaintiff for the amount of overdrawing, led the Court to suggest the undertaking and the subrogation that is identified in the First Judgment.
Nor does the foregoing affect the reasonableness of the offer of $1.4 million and whether that results in a true compromise. That amount excludes any recompense for the return of the guarantee, which on the above analysis was appropriate. But the comparison between the offer and the judgment needs to include both costs and interest. Once interest, even up to the date of offer, is included, the offer is significantly better for the defendant.
Ultimately, the Court could have, more easily, awarded the judgment of $1.4 million, which had been shown to be owed and required an undertaking to repay any amount attributed to the goodwill of the Partnership in the Partnership Proceedings. The difficulty, contemplated by the Court, with that approach would have been that it may have been open to the plaintiff to settle the Partnership Proceedings (or arrange with Mr Milevski for them to be run) on the basis that the Court would determine goodwill at a very low figure and a consequential lower figure for the debt from overdrawing and otherwise.
I am not suggesting that the Court has a view relating to the plaintiff or the plaintiff’s legal representatives; or, for that matter, those of the defendant or Mr Milevski. And, in the circumstances, the Court ought not to go to such extraordinary lengths to avoid the possibility of bad faith in proceedings that, in any event, are to be overseen by the Court itself.
It is no part of the contemplation of the Court that the costs of the Partnership Proceedings were to be paid by the defendant in these proceedings. Further, the Court was not given details of the so-called Westpac proceedings and made no allowances for it. It is not a circumstance that the Court has taken into account in determining liability. Nor should it, as there is no evidence to support it being taken into account.
The difficulty then arises that, if the Court, in these proceedings, ordered subrogation of the rights of the plaintiff in the Partnership Proceedings, or required an undertaking in or to that effect, the defendant in these proceedings could conduct the Partnership Proceedings in a manner that sought unreasonably to agitate matters that were consistent with its interests, but not those of the plaintiff.
If the defendant, on subrogation, was indemnified of its cost by the plaintiff in these proceedings, they could run issues and points that were, at best, only arguable. Further, the converse applies. The defendant could settle or run the Partnership Proceedings on an arrangement that the “value” of the partnership would be optimised and the debts to the partnership increased accordingly.
All of these issues arise as a result of the fact that the Partnership Proceedings have not been finalised prior to the requirement on the Court, as presently constituted, to issue orders giving effect to the damages assessed by it in these proceedings. Of course, these are damages in negligence; not contract.
As a consequence, the assessment of damage does not need to be “perfect”. That expression was used in relation to personal injuries which are, necessarily, imprecise, but it has, in that area, been applied to both pecuniary and non-pecuniary loss. [3]
3. Lee Transport Co Ltd v Watson (1940) 64 CLR 1 at 13-14; [1940] HCA 27, per Dixon J; Petroleum & Chemical Corporation of (Aust) Ltd v Morris (1973) 1 ALR 269 at 271, per Menzies J for actions under the Lord Campbell’s Act.
In addition to the foregoing recitation of the problems associated with the form of the orders and the submission of the defendant, to which earlier reference has been made and which the Court accepts, that the Court should award damages on the basis of the amount proved and no more; the Court adds, also, it should award no less. I also accept that the Court should not defer the making of the orders until such time as the Partnership Proceedings are finalised.
It is a fundamental principle of litigation based upon public interest that there be an end to litigation. The principle is embodied in the maxim interest reipublicae ut sit finis litium. The submissions put to the Court on the issues associated with the suggestions made in the First Judgment as to recompense and subrogation undermine the principle of finality and require the defendant to continue in litigation that does not directly concern them.
In those circumstances, it is necessary to fashion the orders bearing that principle in mind. As stated, there must be an end to litigation. [4]
4. Mulholland v Mitchell [1971] AC 666, per Lord Pearson at 681; Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552; [1996] HCA 25, per McHugh J, discussing the rationale for limitation periods.

The Form of the Orders

As earlier stated, and as described in the First Judgment, clause 5.1 of the Put and Call Option Agreement requires purchase of the share of the Exiting Owner by the remaining owner. In this case, there is only one non-Exiting Owner, namely Mr Milevski.
In essence, clause 5.1 prescribes a particular method of valuing the proportionate share of the Exiting Owner in the Partnership and requires payment of that value by the non-Exiting Owner, or, if there were more, by all of them in proportion. This calculates as $1,411,707. It is a more generous calculation than would be calculated in the absence of the prescription and provides certainty in the event of death or permanent disablement. The payment must be made on or before the Completion Date (the 30^th day, relevantly, after the six month period).
The provisions of Clause 5.2 relate to other mechanical aspects of the retirement or death, occasioned by the exercise of the option. These include an indemnity, which is sought to be enforced in the plaintiff’s proposed Short Minutes. It also requires the release of any “assets of Exiting Owner with respect to debts of the Business Entity” and the release of “any guarantees or personal covenants with respect to debts of the Business Structure”.
As noted in the First Judgment and above, the plaintiff had deposited an amount for the purpose of a guarantee. That amount was $634,638.96.
There is no express provision for the repayment of debts to the Partnership, but such is or would otherwise be a requirement of the law. As already stated, the evidence before the Court in these proceedings establishes that there were overdrawings by the plaintiff of $373,809.79 as at 31 March 2016 and no further drawings thereafter. That results in net assets of $260,829.17, on the evidence in these proceedings.
There is also evidence of the Partnership extending its loan facility and/or borrowing for the purpose of the plaintiff paying his personal income tax. The amount involved is $215,000 approximately. It is unclear whether this amount is subsumed within the $373,809.79 or other amounts. If not, and it is a debt to the Partnership, there is not much left of $260,830 approximately.
More importantly, at this stage of these proceedings, the issues associated with the value of any guarantee and the debts owed to the Partnership are matters not expressly dealt with in the Put and Call Option Agreement and arise under the general law. They are matters that are required to be, and will be dealt with, and finalised, in the Partnership Proceedings. The plaintiff has not lost any rights, in relation to those issues, as a result of the failure to exercise the option and they cannot be a basis for a head of damages or for financial loss for which Bartier Perry can be held responsible. Nor do the debts add to or subtract from the liability of Bartier Perry.
In the event that the plaintiff is adjudged to owe the Partnership money on the reconciliation of the guarantee and money deposited together with overdrawings and other debts, it does not reduce the damages for which Bartier Perry is responsible. This is because, if the option had been exercised, the $1,411,707 would have been required to be paid, or, if there were litigation, credited and the other debts set off against that amount.
As a consequence of the foregoing, and after considering the additional submissions on the orders, it is unnecessary to make any allowance for other damages. When the matter was listed before the Court, as presently constituted, on 17 July 2020, the issues associated with the foregoing were raised by the Court with the parties. [5]
5. Tcpt, 17 July 2020, p 1-2.
The Partnership Proceedings will, no doubt, determine the assets and debts of the Partnership. As already indicated, although there is little evidence in these proceedings on this issue, the Partnership Proceedings will value the Partnership based essentially on work in progress and, perhaps, goodwill on the basis that the clients of the Partnership continued with Mr Milevski. Whether or not goodwill is to be assessed, some account will, presumably, be taken of work in progress as an asset of the Partnership.
To the extent that the Partnership Proceedings might determine that the plaintiff has suffered a lesser financial loss by reason of not exercising the option than has been determined in these proceedings, as a consequence of findings made about the value of the Partnership, the Court must, in these proceedings, take that contingency into account. The only way in which the Partnership Proceedings could reach that conclusion is as a result of valuing Mr Paltos’ proportionate share in either goodwill or work in progress.
During the course of the proceedings, the suggestion of an undertaking to repay an appropriate amount was discussed. The alternative would be the more conventional mechanism of taking account of that possibility as a contingency and assessing the likelihood of receiving an amount and the likely amount to be received. [6] No party has suggested that course or suggested any other alternative.
6. Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4.
On the basis of the evidence before the Court in these proceedings, the likelihood of any substantial amount being determined for the value of the Partnership (even accounting for work in progress) proportionately assigned to Mr Paltos, is a very small percentage indeed. That finding could work most unjustly on the defendant, if, despite the evidence in these proceedings, the value of the Partnership determined in the Partnership Proceedings is significant.
The difficulty with the terms of the proposed undertaking, suggested initially by Mr Paltos, is that it requires payment to the defendant of any amount to which the plaintiff becomes entitled as a result of the Partnership Proceedings. The likelihood of a result in the Partnership Proceedings that entitles the plaintiff to an amount is even lower than the contingencies to which the Court has earlier referred.
If the Court were to be required to assess that amount as a contingency, there would be no allowance made. It is more probable than not, on the material before the Court in these proceedings, that the plaintiff will be required to contribute to the debts to be satisfied and would not receive an amount as a result of the dissolution and circumstances with which the Partnership Proceedings are concerned.
On the other hand, it is the factor or amount relating to the value of the Partnership that needs accommodating; not the net results of the Partnership Proceedings. To be more precise the net result for each partner will be determined by the sum of X and Y; where X is the proportionate interest in the value of the Partnership that is assessed; and Y is the proportionate contribution or entitlement to liquid assets or liabilities (Z = X + Y where Z is the result for each partner). On that equation, it is X that requires payment to the defendant, at least to the extent that X is equal to or less than $140,000.
The underlying difficulty is that the Put and Call Option Agreement establishes a valuation formula and values the Partnership on the basis of an ongoing practice to which the continuing partners then become entitled. Because Mr Milevski dissolved the Partnership, it was not, thereafter, a “continuing practice”. In many respects, because of the plaintiff’s disablement, Mr Milevski gained the benefit of a continuing practice, even though it was dissolved.
In a continuing practice, the value of the practice includes goodwill and also includes work in progress. Over and above those figures, there are disbursements, debts and credits (including debtors). As a result of the dissolution of the Partnership, there is technically no goodwill, even if, as a practicality, Mr Milevski continued the “practice”.
Nevertheless, allowances will presumably be made for work in progress, but not for a percentage of fee revenue. [7] Nor will allowance be made in the assessment of “value” for: continuing expenses; the annual base rate of remuneration; or the required return on net tangible assets (if any). The net tangible assets and respective debts to the Partnership will be assessed, but not as part of the value of the practice.
7. See the Put and Call Option Agreement at Schedule C.

Conclusion

As a consequence of the foregoing, the Court will issue orders as sought by the plaintiff in relation to costs and will order pre-judgment and post-judgment interest in accordance with ss 100 and 101 of the Civil Procedure Act2005 (NSW), respectively.
As to the level of damage, notwithstanding that, on the balance of probabilities, the evidence before the Court establishes that the value of the guarantee is $634,638.96, it will not be the subject of an order for damages against the defendant. Moreover, the amount by which the plaintiff has overdrawn was, on the balance of probabilities, based on the evidence in these proceedings, an amount of $373,809.79. If, in the Partnership Proceedings, a different amount is determined, that will be the result of there being different evidence. The negligence of the defendant has not affected the capacity of the plaintiff to recover such amounts or the liability to pay such amounts.
Taking into account the value of the guarantee to which the plaintiff would be entitled under the provisions of clause 5.2 of the Put and Call Option Agreement and reducing that amount by the amount of the overdrawing, to which reference has been already made, would require, on the evidence in these proceedings, damages for a further amount of $260,829.17. That is a sum certain, in the sense that it is a sum proved on the balance of probabilities to be owing as a result of the value of the guarantee, to which the plaintiff would be entitled under clause 5.2, and the amount owing in overdrawing by the plaintiff during the period of his partnership. But these amounts or these heads of damage and/or liability will be determined in the Partnership Proceedings; are not lost by virtue of the non-exercise of the option; and should not be damages awarded for the defendant’s negligence.
Over and above the foregoing, it is clear that the damages awarded in these proceedings cannot affect that which would be the subject of orders in the Partnership Proceedings. Those Partnership Proceedings will determine the relative liabilities and assets of Mr Paltos and Mr Milevski.
As a consequence, the Court in the Partnership Proceedings will need to assess the overdrawing from which the plaintiff may have benefited during the Partnership and the amounts recoverable as a result of the relinquishment of the guarantee. Those amounts, therefore, will be the subject of consideration and factored into any amount associated with the orders ultimately made in the Partnership Proceedings.
Thus, in the Partnership Proceedings, the plaintiff in these proceedings will be compensated, either by payment or credit in calculating other payments to be made or received, for the amount recoverable as part of the guarantee and will have deducted any amount of overdrawing or other debt owed to the Partnership.
Technically, the value of the Partnership will not be the subject of calculation in the Partnership Proceedings, because the Partnership was dissolved and not continued. Nevertheless, the Court in the Partnership Proceedings will value work in progress and, possibly, the benefits obtained by Mr Milevski by the transfer of work and goodwill, if any.
On the material before the Court, that amount will not be greater than the amount that is payable pursuant to the terms of clause 5.1 of the Put and Call Option Agreement. Moreover, it is most unlikely that the amount to be calculated in that regard would be greater than the amount of debts and other deductions owed by the plaintiff to the Partnership.
To the extent that the plaintiff will be given credit for his proportionate interest in work in progress and other assets, apart from the guarantee, that would be credit for amounts that are otherwise covered by the damages for the inability to exercise the option. Conceptually, and probably only theoretically, the plaintiff could recover twice for the value of the Partnership.
He would receive the value of the Partnership, calculated pursuant to the Put and Call Option Agreement under clause 5.1 in the damages awarded in these proceedings, and also have credited to him the amount of the value of work in progress and other assets as part of the reconciliation in the orders made for the purpose of the Partnership Proceedings.
On the material before the Court in these proceedings, the possibility that the proportionate value attributed to the Partnership or assets such as work in progress would be greater than $260,829.17 is most unlikely. It is, on the evidence before the Court, more likely than not that Mr Paltos’ proportionate value of the assets of the Partnership would be a significant amount less than $260,000.
In those circumstances, and bearing in mind the public interest in the finality of litigation, it is preferable for the Court simply to ignore the amounts that might have been recoverable pursuant to the terms of clause 5.2 of the Put and Call Option Agreement if the option had been exercised. These proceedings, on the basis that these amounts will not be lost to the plaintiff as a consequence of his continuing rights, which will be agitated in the Partnership Proceedings.
Further, given that the result of any calculation of the assets, including work in progress, of the Partnership at the time of its dissolution will be significantly less than that which would otherwise be awarded pursuant to the terms of clause 5.1 of the Put and Call Option Agreement, at least on the basis of the evidence adduced in these proceedings, the defendant will probably not be paying greater damages than otherwise would be awarded, even in circumstances where the two sets of proceedings were the subject of the same evidence.
The plaintiff also seeks, pursuant to the terms of clause 5.2 of the Put and Call Option Agreement, an indemnity from and against all actions, claims, demands, notices, losses, damages, costs or expenses for which the plaintiff may become liable in respect of the Partnership. In the terms sought, such an indemnity would indemnify the plaintiff against any orders made against the plaintiff in the Partnership Proceedings. The terms of clause 5.2(a) of the Put and Call Option Agreement require the partner to indemnify the outgoing partner in those respects.

But the objectively determined construction of clause 5.2(a) is not to indemnify the Exiting Owner (Mr Paltos) for past losses and the like. It is to indemnify for future claims or losses. As proposed, the draft Short Minutes would require the defendant to indemnify Mr Paltos against the claim by Mr Milevski.
Given the dissolution of the Partnership in April 2016, before the indemnity would otherwise have operated, the plaintiff’s damage as a result of not possessing the indemnity would relate only to claims made after July 2016 relating to issues that arose prior to 2016. There is no evidence of any such issue and the plaintiff has failed to show damage, in this respect, arising as a result of the defendant’s negligence or a need for an order of this kind.
Penultimately, I return to the issue of subrogation. Such was not proposed by the defendant and it was suggested by the Court for the defendant’s protection. Given that there are theoretical difficulties associated with the resolution of the Partnership Proceedings, whichever of the plaintiff or the defendant herein conducts them, no order for subrogation will issue. As earlier stated, I am not prepared to assume bad faith on behalf of the plaintiff or the defendant; or, for that matter, Mr Milevski.
Lastly, the undertaking as to the repayment will not refer to amounts received by Mr Paltos from the Partnership Proceedings. It will refer to the payment to Bartier Perry of the amount, if any, assessed as the proportionate goodwill of the Partnership, and, if there be none assessed, the proportionate value, if any, of work in progress utilised to the advantage or benefit of Mr Paltos in assessing what, if any, amounts he is, as a consequence of the Partnership Proceedings, to pay or to receive.
For the foregoing reasons, the Court notes the following and makes the following orders:

UPON THE PLAINTIFF PROVIDING AN UNDERTAKING IN THE FOLLOWING TERMS:
The plaintiff, Dennis Paltos, undertakes to pay to the defendant, Bartier Perry Pty Ltd, any amount received or allowed to him in proceedings brought by Peter Milevski, being proceedings 2016/118930 and 2017/246841, confined to amounts received or allowed by or to the said Dennis Paltos in any calculation on account of goodwill, if any, of the Paltos/Milevski Partnership or on account of work in progress, if any, in the said partnership at the date of its dissolution.
THE COURT ORDERS:

Judgment in the proceedings for the plaintiff;

The defendant shall pay the plaintiff the sum of $1,411,707;

Pursuant to the terms of s 100 of the Civil Procedure Act2005 (NSW) the defendant shall pay interest on the aforesaid judgment sum from 22 July 2016 until the date of judgment at the rate prescribed in Supreme Court Practice Note SC Gen 16;

Pursuant to the terms of s 101 of the Civil Procedure Act2005 (NSW), the defendant shall pay post-judgment interest at the prescribed rate;

The defendant shall pay the plaintiff’s costs of the proceedings up to and including 28 February 2018 on the ordinary basis and on and from 1 March 2018 on an indemnity basis.

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Endnotes

Decision last updated: 01 December 2020

Medium Neutral Citation:	Paltos v Bartier Perry Pty Ltd (No 2) [2020] NSWSC 1706
Hearing dates:	17 July 2020
Decision date:	01 December 2020
Jurisdiction:	Common Law
Before:	Rothman J
Decision:	(1) Judgment in the proceedings for the plaintiff; (2) The defendant shall pay the plaintiff the sum of $1,411,707; (3) Pursuant to the terms of s 100 of the Civil Procedure Act 2005 (NSW) the defendant shall pay interest on the aforesaid judgment sum from 22 July 2016 until the date of judgment at the rate prescribed in Supreme Court Practice Note SC Gen 16; (4) Pursuant to the terms of s 101 of the Civil Procedure Act 2005 (NSW), the defendant shall pay post-judgment interest at the prescribed rate; (5) The defendant shall pay the plaintiff’s costs of the proceedings up to and including 28 February 2018 on the ordinary basis and on and from 1 March 2018 on an indemnity basis.
Catchwords:	COSTS – Offer of Compromise – Offer by plaintiff of judgment dismissing proceedings is an offer “in favour of the defendant” and complies even though it provides “no order for costs”. JUDGMENTS and ORDERS – Possibility of other proceedings diminishing damages – unlikely result – assess as uncertainty or require undertaking as to repayment – other consequential issues – indemnity refused
Legislation Cited:	Civil Procedure Act2005 (NSW), ss 100, 101 Uniform Civil Procedure Rules 2005 (NSW), r 20.26, Pt 42
Cases Cited:	Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25 Lee Transport Co Ltd v Watson (1940) 64 CLR 1; [1940] HCA 27 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20 Mulholland v Mitchell [1971] AC 666 Paltos v Bartier Perry Pty Ltd [2020] NSWSC 705 Petroleum & Chemical Corporation of (Aust) Ltd v Morris (1973) 1 ALR 269 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4
Category:	Consequential orders (other than Costs)
Parties:	Dennis Paltos (Plaintiff) Bartier Perry Pty Ltd (ACN 124 690 053) (Defendant)
Representation:	Counsel: C Freeman (Plaintiff) J Emmett / H Grace (Defendant) Solicitors: Polczynski Robinson Lawyers (Plaintiff) Yeldham Price O’Brien Lusk Lawyers (Defendant)
File Number(s):	2017/301216