Robson v Brown
[2008] WADC 42
•31 MARCH 2008
ROBSON -v- BROWN [2008] WADC 42
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WADC 42 | |
| Case No: | CIV:1869/2000 | 6 MARCH 2008 | |
| Coram: | PRINCIPAL REGISTRAR GETHING | 31/03/08 | |
| PERTH | |||
| 15 | Judgment Part: | 1 of 1 | |
| Result: | Account made | ||
| PDF Version |
| Parties: | KEVIN OWEN ROBSON RODNEY BROWN |
Catchwords: | Partnerships Dissolution Account and inquiry |
Legislation: | Partnership Act 1895 (WA) |
Case References: | Robson v Brown [2007] WADC 120 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
RODNEY BROWN
Defendant
Catchwords:
Partnerships - Dissolution - Account and inquiry
Legislation:
Partnership Act 1895 (WA)
Result:
Account made
(Page 2)
Representation:
Counsel:
Plaintiff : Mr A J Lloyd
Defendant : Mr D C Leask
Solicitors:
Plaintiff : Anthony James Lloyd
Defendant : Leask & Co
Case(s) referred to in judgment(s):
Robson v Brown [2007] WADC 120
(Page 3)
1 PRINCIPAL REGISTRAR GETHING: In the course of 1995 and 1996 the plaintiff (Mr Robson) and the defendant (Mr Brown) were in partnership in a water sports business in Bali. The relationship between the partners broke down parties and consequently on 17 July 2000 this action was commenced. By judgment dated 31 July 2007, his Honour Judge Sleight declared the partnership to be dissolved and that the dissolution take effect from 1 July 1996 (reported as Robson v Brown [2007] WADC 120). His Honour further ordered that the following account and inquiry take place before a Registrar:
(a) an account of the assets and liabilities of the partnership of the parties at the date of dissolution of the partnership; and
(b) an account of the amounts payable to the Plaintiff and the Defendant in accordance with Partnership Act 1985 (WA) s50.
2 The account inquiry took place on 6 March 2008. Orders were made previously that the account proceed by way of affidavit evidence. The plaintiff relied on his affidavit sworn 10 October 2007 and two affidavits of Mr Lloyd, his solicitor, which annexed portions of the transcript of the hearing before Judge Sleight on 26 March 2006 (which is referred to in these reasons as the "Transcript"). The defendant relied on affidavits sworn by him on 21 December 2007 and 5 March 2008. He was cross-examined at the hearing of the account.
Factual background as found by Judge Sleight
3 The following findings by Judge Sleight provide the background for this decision (the paragraph references being to the judgment reported at [2007] WADC 120):
(a) Prior to the partnership in issue being entered into, Mr Brown had operated a water sport business in Bali for a period of about 9 months using a boat by the name of "Melissa B" (par 148). The business had not been profitable over this period except for a short period immediately prior to him travelling to Australia in September 1995 when he had experienced a surge of business which he believed indicated the business had potential (par 149).
(Page 4)
- (b) Mr Brown formed the view that the Melissa B was not powerful enough to use for parasailing business and that he should acquire a new, more powerful, boat. To do this he needed to attract capital. He decided the best way to do this was to attract a partner (par 150).
(c) The business proposed would include the Melissa B which would provide rides in a boom-net and a new boat (Melissa B II) which was to provide parasailing (par 151).
(d) In order to attract a partner, Mr Brown placed an advert in a newspaper (pars 17, 154).
(e) Mr Robson answered the advert and met with Mr Brown (par 18). He was offered a half share in a water sport business in Bali (par 18). They subsequently agreed to form a partnership to run the business.
(f) The partnership was established without a formal written agreement (par 157). The terms of the oral agreement were that (par 158).
(1) Mr Robson would pay $110,000;
(2) This money would be allocated as follows:
(i) $35,000 to Mr Brown. He was to use $10,000 to cover import tax on a new boat. The balance was to be retained by him.
(ii) The balance was to be paid for the purchase of Melissa B II and cover the expenses of the business.
(3) By investing in the business Mr Robson acquired:
(i) a 50 per cent share in all assets of the business;
(ii) a right to participate equally in the profit and loss of the business.
(4) The business was to be conducted in Bali by Mr Brown. Mr Robson was to be a silent partner
- and was to visit Bali about once every six months (at the partnership's expense). On such visits he was to inspect the books and there was to be a dividing of any profit.
- (g) There was no agreement as to the form of bookwork, the use of an accountant, the formalisation of the partnership by written agreement, and insurance arrangements on the main assets of the business (the two boats). Further, there was no understanding reached as to the frequency or mode of communications whilst Mr Brown was in Bali and Mr Robson was in Australia (par 159).
(h) Almost immediately the partnership was formed there was tension between the partners (par 162).
(i) Using funds supplied by Mr Robson, a second boat, the "Melissa B II" (sometimes referred to as the "Ashley B"), was built. It was transported to Dampier. In early September 1995, Mr Robson and Mr Brown travelled to Bali in the Melissa B II (pars 24, 25, 26 and 33-35).
(j) By letter dated 11 June 1996 from Mr Robson to Mr Brown the partnership was terminated (pars 167-169).
(j) In October 1996, due to Melissa B II being damaged, Mr Brown decided to tow Melissa B II back to Australia to have it refitted. As a result of what the trial Judge described as "the reckless attitude of Mr Brown", Melissa B II was lost at sea (par 170). It was subsequently found.
4 The primary claim determined by the trial Judge was by Mr Robson alleging that the amount of $110,000 was a loan for which repayment had been unsuccessfully demanded. His Honour concluded that at no time was there an agreement that Mr Robson's interest in the partnership be converted to a debt owed by Mr Brown to Mr Robson (par 178). As noted, the remedy given was to dissolve the partnership.
Law relating to partnership accounts
5 The power to order and account and inquiry is found in Rules of the Supreme Court 1971 (WA) O 45. This includes a power in a Judge to direct that the account be taken, or inquiry made, by a Registrar (RSC
(Page 6)
- O 45 r 11). In the usual course, one party is designated as the "accounting party" and is directed to prepare a set of accounts and file and serve it, along with an affidavit verifying the account and providing any supporting materials (see generally RSC O 45, Atkin's Court Forms (2nd ed, 1992 Issue, pp 606-617)). However, in this case given the 10 years that have elapsed since the date on which the account is to be taken (1 July 1996) and the paucity of documents, let alone financial records, this course was not feasible. Rather, the best that can be done is to reconstruct a list of assets and liabilities from the available primary evidence.
6 Thus, the first two issues for determination are:
(a) what were assets and liabilities of the partnership as at 1 July 1996;
(b) what value ought to be ascribed to these assets and liabilities as at 1 July 1996.
7 The third issue is to provide an account of the amounts payable to the plaintiff (Mr Robson) and the defendant (Mr Brown) in accordance with Partnership Act 1895 (WA) ("PA") s50. PA s 50 provides:
"On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively, after deducting what may be due from them as partners to the firm; and for that purpose any partner or his representatives may, on the termination of the partnership, apply to the court to wind up the business and affairs of the firm."
8 PA s 57 is also relevant, providing:
"In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed:
(a) Losses, including losses and deficiencies of capital shall be paid first out of profits, next out of capital, and lastly,
- if necessary, by the partners individually in the proportion in which they were entitled to share profits.
- (b) The assets of the firm, including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order —
(1) in paying the debts and liabilities of the firm to persons who are not partners therein;
(2) in paying to each partner rateably what is due from the firm to him for advances as distinguished from capital;
(3) in paying to each partner rateably what is due from the firm to him in respect of capital;
(4) the ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible."
"On the dissolution of a partnership every partner shall be entitled, in the absence of any agreement to the contrary, to have the goodwill of the business sold for the common benefit of all the partners."
Liabilities of the partnership
10 It is convenient to first deal with the liabilities of the partnership. It was accepted by the parties that the only liability of the partnership was an outstanding loan of approximately $5,000 from a Graham Sertorio. Mr Sertorio had lent the partnership $10,000 in about July 1995. He subsequently went to Bali apparently to consider whether he should become a third partner in the business. When he was leaving Bali he asked Mr Brown for "his investment" back (though he had earlier referred it as a loan). Mr Brown gave him approximately $5,000 or $4,800 (Transcript 57-58).
11 In submissions on behalf of Mr Robson, the point was made that any recovery of this outstanding loan amount would now be outside the
(Page 8)
- relevant limitation period. It would follow that it would be unfair for Mr Brown to be given the benefit of this amount by subtracting it from the value of the assets. It was agreed that I should record this amount as a liability, but allocate the benefit of it equally to the parties for the purposes of PA s 50.
Assets of the partnership
12 It was common ground that the following were assets of the partnership:
(a) the Melissa B;
(b) the Melissa B II;
(c) an 11 foot Zodiac rubber boat;
(d) 3 parasails; and
(e) a set of boom nets.
13 The only contested asset was a coolroom. The existence of the coolroom was referred to in a list of assets which is annexure KOR1 to Mr Robson's 10 October 2007 affidavit. I will refer to this as the "Asset List". The Asset List was tendered at the trial. Mr Sertorio gave evidence that he met with Mr Brown in October 1995 with a view to purchasing Mr Robson's interest in the partnership. At this meeting, Mr Sertorio said that Mr Brown gave him the Asset List. In his affidavit of 21 December and, in cross-examination at the account hearing, Mr Brown acknowledged that he wrote the Asset List but could not recall the reason for the list having been written, the date on which it was written or how it came into the possession of Mr Sertorio. Given Mr Brown's lack of recollection, I accept Mr Sertorio's evidence that the Asset List was given to him in October 1995 by Mr Brown. Moreover, I find that it was given to Mr Sertorio in the context of a discussion in which Mr Sertorio was considering purchasing a share in the partnership (see generally Transcript 57-61).
14 In his 21 December affidavit, Mr Brown deposed that the coolroom was his own property. He purchased it for about $2,000 in about 1990. He purchased and fitted a refrigeration unit and used the coolroom during a fishing operation in Broome. In 1995, prior to meeting Mr Robson, he paid all the shipping costs to get the coolroom to Bali. He deposes that it was never part of the partnership. He used the coolroom to store his property, though he did also use it to store items that belonged to the
(Page 9)
- partnership. In cross-examination at the account hearing, Mr Brown maintained this position.
15 In submissions, counsel for Mr Robson placed weight on the fact that Mr Brown represented to Mr Sertorio that the coolroom was an asset of the partnership in the Asset List. However, the partnership between Mr Brown and Mr Robson was to operate a watersports business. It is not immediately apparent that a coolroom was required as part of this business. There is no evidence that Mr Robson considered the coolroom to be part of the partnership assets, nor indeed that he was even aware of the existence of the coolroom. In this context, I find that the coolroom was not part of the partnership assets.
16 The partnership assets are thus as set out in par 12.
Value of the partnership assets – Melissa B
17 The Melissa B is a catamaran which was built by Trailcraft in or about 1988. Mr Brown purchased the Melissa B in about 1989 for $90,000. He deposes that in the time between purchasing the Melissa B and 30 June 1996 he did not make any improvements to the boat, although he did undertake routine maintenance and repairs.
18 Mr Brown deposes to a number of factors which led him to believe that the sale value of Melissa B on 30 June 1996 was significantly less than the price he paid for it. The first is that the vessel was 8 years old and, in addition to general wear and tear, its condition had generally deteriorated. The second is that whilst the Melissa B was in Bali between April 1995 and 30 June 1996, the vessel was broken into and electrical equipment was stolen. The stolen equipment included the vessel's plotter, echo sounder and GPS. The stolen items were never recovered, and, as the vessel was uninsured, no claim was made. The plotter was worth $5,000, the echo sounder $2,500 and the GPS $1,000.
19 The third factor is that as at 30 June 1996 the wiring of the Melissa B had been extensively damaged by rat infestation. Mr Brown first became aware of this in about October 1995 during an inspection of the vessel after the bilge pump stopped working. He estimated that the costs of repairing the electrical system would have been in the region of $10,000, but he didn't then have the money to pay for the repairs. He was only able to effect temporary repairs whilst in Bali. These first three facts were not the subject of contention by Mr Robson.
(Page 10)
20 The fourth factor is that, around Christmas 1995, the starboard engine developed a malfunction. The Melissa B is a twin engine vessel, having two Volvo Penta AQAD 41a diesel engines. Mr Brown deposes that on inspection, one of the big end bearings seemed to have seized. He described this as a massive set back as money was tight and he had spent $20,000 having both engines overhauled prior to his departure from Broome. He goes on to depose that the damaged engine was never repaired and on the rare occasions the boat was used after that, he operated on one engine. He never used the boat much because running on one engine puts a lot of strain on the universal joint between the engine and the stand drive. If a universal joint fails at high revolutions it can do a tremendous amount of damage to the bell housing of the engine and even threaten the water tight integrity of the vessel.
21 The fifth factor was that both fuel tanks were said to be in very poor condition. Mr Brown deposes that they were corroded and had split as they did not have longitudinal baffles. He further deposes that the fuel tanks had been in a very poor condition for years and both needed replacing. He describes this as an extremely big job, which he later undertook in Karratha.
22 On the basis of those five factors Mr Brown valued the Melissa B I at $40,000.
23 In October 1996 Mr Brown used the Melissa B I to tow the Melissa B II back to Australia to have the latter refitted. In cross-examination at the account hearing, the line taken by counsel for Mr Robson was that it was unbelievable that Mr Brown would set out to travel from Bali to Dampier in the Melissa B I, towing the Melissa B II, if the Melissa B I was in the condition described by Mr Brown. The suggestion was that either or both of the engine malfunction or the split in the fuel tanks occurred during the course of the initial trip back to Australia (in which the Melissa B II was lost) or the subsequent trip from Bali to Australia in the early 2000's in which the Melissa B II was towed back to Australia. Importantly, either would have occurred after 30 June 1996, meaning the Melissa B I would have been in a significantly better condition than Mr Brown describes as at 30 June 1996.
24 Counsel for Mr Robson submitted that I should put very little weight on any evidence given by Mr Brown, either by affidavit or cross-examination, subsequent to the trial. Rather, I should prefer the evidence given at trial. This is because in any of the hearings after the trial, there is an obvious self interest to Mr Brown to minimise the value
(Page 11)
- of the partnership assets, thus minimising the money he had to pay to Mr Robson.
25 The issue of the Melissa B I's engine problems as at June 1996 was not dealt with at the trial. Nor was its general state as at this time canvassed. In the course of cross-examination and re-examination at the account hearing, Mr Brown gave evidence that the Melissa B I was still seaworthy. It could operate quite satisfactorily at low revolutions. However, it was not suitable for passenger work as passengers wanted to travel at high speed. In this way, it was quite feasible for Mr Brown to have undertaken the voyage back to Australia as he was doing it at a low speed. In the absence of any direct evidence to the contrary, I accept Mr Brown's description of the condition of the Melissa B I as at June 1996. Although Mr Brown's evidence was vague and confusing at times, it would be difficult to expect more given the time that has passed since these events occurred.
26 The value of the Melissa B I is listed in the Asset List as being $120,000. Counsel for Mr Robson concedes that it would not be appropriate to value the boat at this figure, a figure $30,000 in excess of its purchase price some six years earlier. Accepting that there were electrical repairs in the order of $10,000, decreasing the effective value of the boat to from its $90,000 purchase price to $80,000, counsel suggested a mid point between this figure and Mr Brown's assessment of $40,000 would be the appropriate value of the boat.
27 The valuation exercise in this case is made very difficult by the fact that neither party adduced any objective valuation evidence of the Melissa B I. One would have thought it would have been reasonably straight forward for someone involved in the sale of boats (at least in Perth) to have provided an estimated sale value of the boat as at June 1996.
28 Mr Brown provides his estimate of value of $40,000 from the perspective of someone who has had an involvement in the water sports industry in Bali during the period 1993 to 1996. He also holds a Maritime Masters Certificate and states that he spent most of his life working as a "seafarer". There is at least some basis for Mr Brown being able to assess the market value of the Melissa B I in Bali in June 1996. By contrast, counsel for Mr Robson invites me to effectively guess at a valuation. In the end, there is no evidence before me suggesting that a value in excess of $40,000 would be appropriate. The five factors set out above by Mr Brown provide a rational basis for a value significantly less than the
(Page 12)
- purchase price of the boat. Therefore I find that the value of the Melissa B as at 30 June 1996 was $40,000.
Value of the partnership assets – Melissa B II
29 The Melissa B II was purchased new for $80,000 in 1995. It was purpose built as a parasailing boat with a single V8 petrol engine and a duo-proper stern drive. It was sailed by Mr Brown and Mr Robson to Bali in September 1995.
30 In his 21 December 2007 affidavit, Mr Brown deposes that in early April 1996, whilst the Melissa B II was being used for parasailing off Nusa Dua, the Balinese skipper stopped the boat too quickly which resulted in seawater entering the engine compartment through the breather space between the boat's transom and the underside of the flight deck. This allowed seawater to enter the air intake and the carburettor and then into the engine. The engine seized as soon as this happened. The boat had to be towed back to the beach by a jet ski. Mr Brown deposes that he recalls the date well as the engine was just out of warranty. In cross-examination, Mr Brown said that the warranty was a 6 month warranty which took effect from the time at which the boat left Australia, which was 2 September 1995.
31 Mr Brown goes on to depose that he spoke to Moller Sea Power in Fremantle about one of their mechanics coming over for what amounted to a free holiday to do the work as Mr Brown had no confidence in local mechanics. The arrangement was not put into effect as the mechanic ran the risk of being prosecuted for working in Bali without a work visa. Mr Brown stripped the motor down to inspect the damage. The engine was not repaired because of the prohibitive costs, which he estimated would have been $10,000. The Melissa B II was in that condition when it arrived back in Australia. He also deposed that all further parasailing was done by outside Balinese operators.
32 Mr Brown then deposes that he believed that the Melissa B II was worth no more than $30,000 as at 30 June 1996.
33 Mr Robson put in issue the date on which the damage occurred to the Melissa B II's engine. He did so primarily on the basis of Mr Brown's evidence at the trial of the action. The relevant portion of the transcript is as follows (Transcript 88):
"All right. So you left Bali in October of 1996? - - - Yes.
(Page 13)
- What made you decide to do that? - - - Well, a couple of months before, the parasailing boat had blown up - been sabotaged. The engine had been sabotaged.
How do you know it had been sabotaged? - - - It was just full of water, the cylinders and so on. You have to understand a lot of Indonesian water sports companies were afraid of us because we had the big – we were new, you know, we were the only boat in Bali – the only winch boat in Bali. The only safe water sports in Bali. And they were scared of us."
34 Counsel for Mr Robson put to Mr Brown that the reference to "a couple of months before" was a reference to an event occurring in July or August, and not to one occurring in April. The question of the damage to the Melissa B II is not mentioned again in the trial transcript.
35 At the account hearing, Mr Brown was cross-examined closely as to how the Melissa B II was damaged. Counsel sought to demonstrate an inconsistency between way in which Mr Brown described the damage occurring in his affidavit (more by way of accident) and the reference to "sabotage" he made at the trial. In my view, not much turns on the way in which the damage occurred. My assessment of the evidence was that the damage occurred as a result of water coming in to the engine. Mr Brown's suspicion was that the Balinese skipper deliberately drove the boat in a way that would cause this to occur, hence his use of the term "sabotage".
36 The key issue is when the damage to the Melissa B II occurred. Mr Robson did not adduce any direct evidence on this point. His counsel asserted that I should make a finding based on the evidence at the trial that the accident occurred "a couple of months before". Common sense would suggest that Mr Brown would not stay in Bali with no boats to operate a business with. However, he does depose that "all further parasailing was done by outside Balinese operators", suggesting the use of contractors (p 4, 21 December affidavit).
37 The only direct evidence is that of Mr Brown. Mr Brown places the date of the damage occurring as being early April 1996, based on the date of expiry of the 6 month warranty on the Melissa B II's engines. Although Mr Brown evidence was vague in some respects, this is understandable given the time that has passed since the events occurred. On balance I find that the damage to the Melissa B II occurred before 30 June 1996.
(Page 14)
38 As to its value, as I have noted, Mr Brown had been involved in the water sports industry on Bali since 1993. That and his more general maritime background give him at least some basis to estimate value. There is no independent expert valuation. I accept Mr Brown's assessment that the value of the Melissa B II as at 30 June 1996 was $30,000.
Value of the partnership assets – remaining partnerships assets
39 Mr Robson conceded that the parasails had no value as at 30 June 1996.
40 The value of the Zodiac rubber boat in the Asset List is $3,000. Mr Brown deposes that he purchased the boat second-hand in late 1994 for $3,000. He estimated that the most he could have sold it for in Bali in June 1996 was $1,000. As I have noted, there is some basis for Mr Brown being able to estimate the market value of a boat on Bali in June 1996. In cross-examination he further stated that skin of the boat had been holed and repaired on a number of occasions. In submissions, counsel for Mr Robson stated that the value should be higher than $1,000 as I should I disregard the evidence of holing for the reasons set out above and that it was used as security for payment of the fuel Mr Brown used when the returned to Australia in October 1996. The fact that it was used as security suggests the boat has some value. Whether or not it was holed and repaired would seem to have minimal impact on its overall value. In the absence of any objective evidence of market value, I am prepared to accept Mr Brown's evidence and find that the value of the Zodiac rubber boat in June 1996 would have been $1,000.
41 As to the boom nets, Mr Brown deposed that they were made and supplied to him free of charge by a friend. His counsel in submissions stated that there was no evidence on which a value could be placed on the boomnets. In the Asset List they are valued at $2,000. Counsel for Mr Robson submitted that this was the appropriate value. In my view, the boom nets would have minimal, if any, value apart from the Melissa B I which they were to be used with. On the other hand, with the Melissa B I, they enable the boat to be used for the purposes of income generation through boom netting, increasing the marketability of the boat. In all likelihood, if the assets of the partnership had been sold in or about 30 June 1996, the boom nets would have been included with the Melissa B I. I do not assess the boom nets as having any value.
(Page 15)
Goodwill
42 During the time in which the partnership business was operating prior to 30 June 1996 it did not appear to make any profit (Transcript 87-88). The Melissa B I was not operating in any income generating capacity (from boom netting) because of its engine problems. The Melissa B II was likewise damaged and could not be the source of revenue. There is no evidence suggesting that the various concessions which the partnership business had from time to time to operate parasailing businesses from particular locations had any particular value. In this context, I find that the partnership business had no goodwill as at 30 June 1996.
Answers to account and inquiry questions
43 The assets of the partnership as at 30 June 1996 were thus the Melissa B I (valued at $40,000), the Melissa B II (valued at $30,000) and the Zodiac (valued at $1,000), totalling $71,000. There is no goodwill. There was one liability of $5,000.
44 As noted, it was agreed by counsel that the $5,000 liability should be divided equally between both partners for the purposes of PA s 50. The amount payable to the plaintiff and the defendant pursuant to PA s 50 is thus $33,000 ($71,000 assets divided between the two partners, less $2,500 being their share of the liability).
45 The plaintiff claims interest on this amount. It is appropriate that the question of final orders be referred back to Judge Sleight.
46 The parties agreed that, in view of the trial Judge's orders as to costs, I should make no orders as to the costs of the account hearing.
47 Accordingly, I make the following orders:
(1) The parties attend a hearing before His Honour Judge Sleight on a date to be fixed for the purpose of settling final orders.
(2) Not less than three clear days prior to the hearing, each party do file and serve a minute of proposed orders and an outline of submissions on the question of interest.
(3) There be no orders as to the costs of the account hearing.
0