Salib v Gakas - [2010] NSWSC 505

No judgment structure available for this case.

CITATION: Salib v Gakas; Newport Pacific Pty Ltd v Salib [2010] NSWSC 505
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 22-26 February, 8 & 9 March 2010

JUDGMENT DATE :
21 May 2010

JURISDICTION: Equity

JUDGMENT OF: Ward J

DECISION: Dismiss plaintiff's claim in proceeding 2007/00256633
Judgment for plaintiff in proceedings 2008/00278795

CATCHWORDS: PARTNERSHIP - principles concerning existence of partnership - whether business relationship constituted a partnership entitling Ms Salib to share of capital of business - HELD - no partnership but arrangement whereby Ms Salib provided administrative services in return for commission on profits earnt - RESTITUTION - whether Ms Salib had been overpaid commission by mistake - whether final payment made by Mr Gakas was due to a mistaken belief as to accuracy of calculations concerning Ms Salib’s entitlement or was to determine business relationship between them on a final basis - HELD - final payment was not made under a mistake although earlier payments were made under a mistake

LEGISLATION CITED: Limitation Act 1969 (NSW)
Partnership Act 1892 (NSW)

CASES CITED: Adam v Newbigging (1888) 13 App Cas 308
Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; (1988) 164 CLR 662
Badeley v Consolidated Bank (1888) 38 Ch D 238
BSP Technical Services Pty Limited v AMEV-UDC Finance Limited (unreported, Hodgson J, 25 March 1985
Canny Gabriel Castle Jackson Advertising Pty Limited v Volume Sales (Finance) (1974) 131 CLR 321; (1974) 3 ALR 409
Cartwright v Rowley (1799) 2 Esp 723; 170 ER 509
Commercial Bank of Australia v Younis [1979] 1 NSWLR 444
Cribb v Korn (1911) 12 CLR 205; [1911] HCA 9
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; (1992) 109 ALR 57
Elkin & Co v Specialised TV Installations [1961] SR (NSW) 165; (1959) 77 WN (NSW) 844)
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89; (2007) 236 ALR 209
Gould v Vaggelas (1985) 157 CLR 215
Henville v Walker (2001) 206 CLR 459
Hybernia Management & Development Co v Newfoundland Steel Inc (1996) NFLD & PEIR 90
In re Young: Ex parte Jones [1896] 2 QB 484
Industrial Equity Limited v Lyons (NSWSC unreported, Cohen J, 15 October 1991)
Kelly v Solari (1841) 9 M & W 53; 152 ER 24
Lumbers v W Cook Builders Pty Limited [2008] HCA 27; (2008) 232 CLR 635; (2008) 247 ALR 412
Makita (Australia) Pty Limited v Sprowles (2001) 52 NSWLR 705
Malco Engineering Pty Limited v Ferreira & ors (1994) 10 NSWCCR 117
Mollwo, March & Co v Court of Wards (1872) LR 4 P.C. 419; 17 ER 495
Momentum Productions Pty Limited v Lewarne [2009] FCAFC 30; (2009) 268 FCR; (2009) 254 ALR 471
Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221; (1987) 69 ALR 577
Phillips-Higgins v Harper [1954] 1 QB 411; [1954] 2 All ER 51
San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340
Television Broadcasters Limited v Ashton’s Nominees Pty Limited [No 1] (1979) 22 SASR 552
Torrens Aloha Pty Ltd v Citibank NA [1997] FCA 77; (1997) 72 FCR 581; (1997) 144 ALR 89; (1997) 35 ATR 36
United Dominion Corporation Limited v Brian [1985] HCA 49; (1985) 157 CLR 1; (1985) 60 ALR 741
United Builders Pty Limited v Mutual Acceptance Limited (1980) 144 CLR 673; (1980) 33 ALR 1
Wasada Pty Limited v State Rail Authority of New South Wales (No.2) [2003] NSWSC 987
Weiner v Harris [1910] 1 KB 285
Wiltshire v Kuenzli (1945) 63 WN (NSW) 47

TEXTS CITED: Halsbury Laws of Australia, Butterworths
Lindley & Banks on Partnership 18th ed, Sweet & Maxwell, 2002
Mason K., Carter J. and Tolhurst G., Mason & Carter’s Restitution Law in Australia Butterworths, 2008

PARTIES: 2007/00256633
Hyam (aka Helen) Salib (Plaintiff)
William Gakas (Defendant)
2008/00278795
Newport Pacific Pty Ltd (Plaintiff)
Hyam (aka Helen) Salib (Defendant)

FILE NUMBER(S): SC 2007/00256633; 2008/00278795

COUNSEL: 2007/00256633
J Morahan (Plaintiff)
J Simpkins SC with T Anderson (Defendant)
2008/00278795
J Simpkins SC with T Anderson (Plaintiff)
J Morahan (Defendant)

SOLICITORS: 2007/00256633
Brydens Law Office (Plaintiff)
Alfred J Morgan & Son (Defendant)
2008/00278795
Alfred J Morgan & Son (Plaintiff)
Brydens Law Office (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WARD J

21 May 2010

07/256633 HYAM (aka HELEN) SALIB V WILLIAM GAKAS
08/278795 NEWPORT PACIFIC PTY LIMITED V HYAM (aka HELEN) SALIB

JUDGMENT

1 Before me for hearing together were two related proceedings, broadly comprising disputes between Ms Hyam (Helen) Salib, on the one hand, and Mr William Bronius Gakas and a company incorporated by him (Newport Pacific Pty Limited), on the other hand, arising out of the breakdown in late 2006 of a business relationship between Ms Salib and Mr Gakas. For some time from about 2000, the two had worked together in relation to a furniture importing business carried on by a separate company (Kent Newport Pty Limited), which had also been incorporated by Mr Gakas. The capacity in which they had worked together in relation to that business is one of the principal matters of contention between the two.

2 Ms Salib pleads, in summary, that she and Mr Gakas had entered into an oral partnership agreement (terminable at will) under which they agreed to carry on a furniture importation and distribution business through Kent Newport (paras 1-3, Amended Statement of Claim in the first set of proceedings). In the witness box, Ms Salib was adamant that the partnership was one which was between herself and Mr Gakas personally “through him and his businesses” (T 40.40; T 40.34; T 165.41). Although Ms Salib accepted that the moneys she received through her involvement in the furniture importation business were paid out of Newport Pacific (T 166.17), she emphasised that she had no agreement or partnership with Newport Pacific (T 166.10), the arrangement being one which she says was between herself, Mr Gakas and Kent Newport (the latter not being a party to either of the sets of proceedings). The precise nature of the alleged partnership arrangements seemed to vary somewhat as between what was pleaded and what Ms Salib recounted in the witness box (she being adamant when giving evidence that the arrangement was one in which she owned a percentage of Kent Newport (see for example T 44.15), though this was not pleaded as such).

3 Mr Gakas (and Newport Pacific), on the other hand, deny that there was any partnership with Ms Salib and say that there was no more than a contractual arrangement between Ms Salib and Newport Pacific, pursuant to which Ms Salib was retained to provide administrative services to that company and was to be remunerated by way of a commission calculated by reference to a portion of the net operating profits of Newport Pacific (and paid to various companies in accordance with invoices prepared by Ms Salib).

4 Both parties agree that the broad structure of the overall business enterprise (if I may call it that) was that Kent Newport was the entity which carried out the furniture importation business (importing furniture, invoicing overseas suppliers and on-selling the furniture to Harvey Norman Holdings Limited or a company within the Harvey Norman Group) and that, in consideration of the provision by Newport Pacific to Kent Newport of office staff and administrative services, all of the profits earned by Kent Newport were transferred to Newport Pacific. According to Mr Gakas, Newport Pacific had an additional role in that it was responsible for all design and necessary work to produce the range of furniture for the business (and that it expended funds in the acquisition of samples for that purpose), since Kent Newport’s role was limited to matters requiring or relating to the utilisation of the line of credit provided to it through the Harvey Norman Group (T365.15).

5 Ms Salib’s view of the overall corporate structure seems to have been that this was as a vehicle to maximise tax benefits for her and Mr Gakas (T 41.2; T 40.29).

6 As I understand it, the only substantial purchaser for which Kent Newport sourced furniture from overseas from 2001 was the Harvey Norman Group (although Mr Gakas said that in about 2000/2001 he had sourced some furniture for two or three other customers) and furniture orders were not placed with overseas suppliers without there first being a Harvey Norman purchase order. The benefit of this arrangement was that at any particular time Kent Newport had the comfort of knowing that there was an end purchaser in some way committed to purchase the goods (subject to the furniture being of ‘good quality’ – T 331), though the actual on-sale did not take place until individual stores within the group placed orders for delivery of stock. Reliance is placed by Ms Salib’s accountant (Mr Gamal Kolta) on this ‘unique’ feature of the business relationship between Mr Gakas’ companies and the Harvey Norman Group to warrant a valuation of stock otherwise than in accordance with what is accepted to be the standard accounting practice for valuation of inventories.

7 Following the transfer of the profits of Kent Newport to Newport Pacific (by way of management or administration fees) a share of the net profits in Newport Pacific’s hands was distributed to Ms Salib through a succession of corporate entities. (According to Ms Salib this occurred simultaneously with the distribution from Kent Newport to Newport Pacific and was a straight percentage calculation - T 57.16.) (Ms Salib’s percentage share was initially calculated after adjustments for a percentage of some of the company’s expenses which Ms Salib had agreed to bear and, at a later point, made on a gross profit basis with Ms Salib’s company then being invoiced for that share of the relevant company expenses.) Significantly, there seems to have been a ready acceptance (or perhaps an assumption) that Mr Gakas’ share of the profits in the hands of Kent Newport would be left in the business and/or distributed by way of dividend in due course – something consistent with this being, in substance, Mr Gakas’ business from which Ms Salib through her retainer by Newport Pacific was earning a share of the profits. There seems to have been no suggestion that any calls for capital were made on Ms Salib throughout the term of the business relationship.

8 The payments representing Ms Salib’s share of the net profits of Newport Pacific were made on receipt of invoices prepared by Ms Salib which variously described the invoiced amount as being either by way of administration fees and services or as commission (and which seem to have been recorded in the books and accounts of Ms Salib’s companies as commission).

9 Ms Salib attributed the wording of the invoices (that wording on its face being inconsistent with the payments amounting to a partnership draw or partnership share of profits) to the fact that the accounting software was not a customised programme and it depended on whatever button came up first (T 57.29; T 57.36). Ms Salib said that she simply pushed a button to generate an invoice quickly (“in a nano second” T 56.46) and without regard to the description of the fee or service for which the invoice was being rendered (it being ‘just one small line’ T 58.19) – accepting that there might well be some invoices which said ‘commission’. She attributed the treatment of those amounts in the accounts of her companies to the manner in which her accountant had prepared the accounts and again apparently paid scant regard thereto (see eg T 92.22) (nor, she says, would she have cared less how her companies’ accounting records been created, they being “my books and my books alone” (T 93.39).

10 It is agreed between the respective parties that the net operating profits in the hands of Newport Pacific were to be paid to Ms Salib and to Mr Gakas in accordance with an agreed proportion (which varied over time from an initial 30%/70% percentage split, in Mr Gakas’ favour, to an increased percentage for Ms Salib of 35%), their disagreement being as to whether that represented a partnership drawing by Ms Salib or a commission pursuant to her retainer. (It is not clear to me whether Mr Gakas has in fact received his 70% (or, as varied, 65%) distribution of profits from Newport Pacific in each of the years from 2001 to 2006, a matter which Mr Kolta has assumed in his calculation of the moneys said to be owing to Ms Salib. However, this would become relevant only if it were to be necessary to calculate the entitlement of Ms Salib on dissolution of their arrangements to a share, as a partner, of the assets of the partnership she contends was in place with Mr Gakas, since such a calculation must inevitably take into account any liabilities of the partnership.)

11 In early December 2006, for reasons which it is not necessary for the purposes of these proceedings for me to determine (and which may indeed be the subject of litigation elsewhere), the business relationship between Ms Salib and Mr Gakas broke down. In his 13 March 2009 affidavit (para 41), Mr Gakas says that Ms Salib orally tendered her resignation on 29 November 2006 (after he informed her that she was not invited to a meeting with Harvey Norman at which a possible sale of the business or part of the business to her was to be discussed). Ms Salib denies that the conversation to which Mr Gakas deposed in this regard took place (para 35 of her affidavit of 19 May 2009). Ms Salib contends that Mr Gakas gave her notice of an intention to dissolve the partnership and/or repudiated the partnership agreement during a conversation in December 2006 (which, on her evidence, must have been on or before 4 December 2006).

12 Ms Salib accepts that she ceased work with Mr Gakas and Newport Pacific on or about 4 December 2006 and Ms Salib’s own pleadings proceed on the basis that the business relationship between them came to an end at that time.

13 At some stage on 4 December 2006, going through to the early hours of 5 December 2006, Ms Salib prepared a calculation, based on the Newport Pacific ‘figures’, of what she regarded as owing to her (the note she prepared for Mr Gakas is not precise in this regard but does refer to payment of an outstanding amount). Ms Salib prepared a note, which she left for Mr Gakas’ attention, in which she foreshadowed a discussion as to the final payment to her (and expressed the view that she was sure agreement could be reached for an amount in respect of office furniture and the like). Ms Salib says that with the note she left the workings or paperwork on which she had based her calculations, to enable Mr Gakas to check her figures. Mr Gakas denies receiving anything other than the note.

14 (The relevance of the question whether Ms Salib’s calculations, a copy of which were annexed to Mr Kolta’s affidavit, were left with her 5 December note is as to the knowledge or understanding of Mr Gakas at the relevant time as to what was comprised by the sum specified in the invoice ultimately paid by Newport Pacific on 6 December 2006. From those calculations Mr Kolta itemised the components of that sum as being stock value as at 4 December 2006, cash at bank and outstanding debtors, less outstanding trade loans and an item ‘JOD’ – a 35% portion of that figure, together with a 35% portion of a sum allocated to ‘new recliners/products’, totalling $518,065.55.)

15 An invoice dated 4 December 2006 in the sum of $518,065.55 plus GST was prepared by Ms Salib on her then company (Blue Coast Pty Ltd)’s letterhead. (Ms Salib’s note suggests that there was an earlier invoice in a somewhat smaller sum left with the 5 December 2006 note, but there is no copy of any such invoice in evidence.)

16 The circumstances in which Ms Salib rendered the invoice, and in which it was paid in full by Newport Pacific, are in dispute between the parties but it is accepted by both sides that on 6 December 2006 Mr Gakas gave Ms Salib a cheque (drawn payable to Blue Coast) for the full amount of the invoice dated 4 December 2006. There is also no dispute that on 6 December 2006, when the cheque was provided to Ms Salib, she (and Mr Gakas) signed a document (titled “Receipt”) acknowledging the receipt of those moneys. However, in evidence before me there were two versions of that document. One was produced in evidence by Mr Gakas, being a computer generated document with three lines of text and bearing the handwritten signatures of the two parties (to which I will refer as the “3-line receipt”). The other was produced in evidence by Ms Salib, being a photocopy (but not necessarily the original photocopy she had received) of what seems to be a version of the 3-line receipt but containing only the first line of text (to which I will refer as the “1-line receipt”).

17 Given that both parties accept that only one document was signed by way of receipt on that date (and the expert evidence is that the 1-line receipt must have been produced from the 3-line receipt or an earlier version of that receipt), there are only two alternative conclusions open to be drawn. Either the genuine receipt (that being the one actually signed by the parties) was the 1-line version (to which two extra lines have subsequently been added to the existing text) or the genuine receipt was the 3-line version and the photocopy tendered in evidence by Ms Salib is the result of someone subsequently masking two lines which were contained in the original signed version. This gives rise to clear issues of credit (which I address in due course). Suffice it at this point to note that not only is there a question as to which of the two versions of the receipt in evidence is the one that was actually signed by both Ms Salib and Mr Gakas on 6 December 2006 but also there is a dispute as to the status of that document (namely, whether it operated as a release or merely as a receipt).

18 In the first set of proceedings, Ms Salib seeks orders consequent upon what she says is the dissolution (or repudiation by Mr Gakas) of her alleged partnership with Mr Gakas. While the relief Ms Salib seeks is principally for an inquiry to be taken as to the assets and liabilities of the partnership on a winding up of that partnership and judgment for any amount found to be owing to her, evidence was adduced from Mr Kolta to the effect that (irrespective of the claim Ms Salib is bringing in relation to the share she claims of the assets of the (alleged) partnership on its dissolution), Ms Salib has been underpaid the sum of $165,889.99 during the course of her business relationship with Mr Gakas up to 6 December 2006. This is said to arise by reference to certain expenses (described as discrepancies) which Mr Kolta says were wrongly included as Newport Pacific expenses in the calculation of the payments made to Ms Salib over the relevant period but which it is said were amounts paid by way of bonus to Mr Gakas, or management fees paid to the Gakas Family Trust, or fees for artwork paid to Mr Gakas’ wife’s superannuation fund or private expenses paid for Mr Gakas or his family. (The discrepancies so identified by Mr Kolta are based on assumptions made by him or instructions given to him by Ms Salib. While some have been accepted by Mr Gakas’ current accountant, Mr Janes, who has adjusted his corresponding calculations accordingly, others are not conceded.)

19 For Mr Gakas and Newport Pacific (to whom I will refer jointly as the Gakas interests), it is contended that even if (contrary to their primary position) it were to be found that there was a partnership between Mr Gakas and Ms Salib and that (in accordance with that partnership agreement) Ms Salib was entitled as at December 2006 to 35% of the profits of the partnership, the financial consequence of such a finding would not mean that there is an entitlement on the part of Ms Salib to a payment of the kind suggested on the figures produced by Mr Kolta.

20 Senior Counsel for the Gakas interests, Mr Simpkins SC, submits that the calculations advanced by Mr Kolta (even apart from the fact that they assume an entitlement to a share of the unsold stock) are based upon an incorrect valuation of the stock on hand (Mr Kolta using the retail value of the stock for that purpose). It is said, for the Gakas interests, that the relevant accounting standards which should be adopted would require the valuation of unsold stock at the lower of either the cost of the stock or the net realisable value of the stock. There is also a dispute as to the correct figure to be used as representing the stock on hand at the relevant date (whether that be 4 December 2006, when Ms Salib calculated her entitlements and about the time at which she ceased work for the business, or 31 December 2006, being the date on which the relevant financial quarter ended).

21 It is further contended by the Gakas interests that even if there was a partnership as alleged by Ms Salib in the first set of proceedings there is no resulting entitlement of Ms Salib to, or interest of Ms Salib in, any share of the unsold stock or any other assets held by Kent Newport or Newport Pacific, given that the partnership she asserts was one between the two individuals (and that the entitlements of the partners, as between themselves, must be dependent on the terms of their agreement). The Gakas interests contend that the agreement with Ms Salib went no further than to a share of profits (after the exclusion of certain expenses) and that Ms Salib has no entitlement (whether she be a partner or not) to any share in the capital or assets of Newport Pacific (to the former of which, at least, it seems to be accepted that she did not contribute, though Ms Salib contends that she made a significant contribution to the building up of the business over the years after the incorporation of Kent Newport).

22 Newport Pacific claims that Ms Salib was overpaid (under what it contends was the retainer of Ms Salib by Mr Gakas on its behalf to provide administrative services to it) close to $800,000 in the period from financial year 2001 to 31 December 2006 and, in the second set of proceedings, an order is sought for the recovery of the sums said to have been overpaid to Ms Salib by way of commission (after adjustments, totalling $799,889.97).

23 The claim for overpayment of commission does not turn on any issue in relation to the methodology for valuation of stock (the applicable valuation methodology being relevant only if Ms Salib is entitled, as a partner, to a share of the unsold stock on dissolution of the partnership). Further, it seems to be accepted by accountants for both sides that, over the financial years up to 30 June 2006, there was a net overpayment to Ms Salib (after offsetting any amounts underpaid in one or more of those years) of some amount (the precise quantum of which depends on what adjustments should be made to reflect any incorrect inclusion in the profit calculations of private or non-business expenses for Mr Gakas or his family).

24 On the calculations put forward for the Gakas interests (and accepting the force of some but not all of Mr Kolta’s expense adjustments), the overpayment to 30 June 2006 amounts to $172,752.60. On the calculations put forward for Ms Salib, the overpayment to that date is considerably less, some $55,681.11 (even assuming all of Mr Kolta’s expense adjustments are correct).

25 As for the period from July 2006 until the termination of Ms Salib’s business relationship with Mr Gakas, it seems to be accepted by both parties that the sum paid to Ms Salib on 6 December 2006 is greatly in excess of any entitlement she had if that entitlement was limited to a 30/35% share of profits (whether by way of commission or profit share).

26 The principal basis on which recovery of overpaid commission was pressed was that of a claim for moneys had and received (on the basis of payment under an operative mistake of fact) but alternative claims are made on the basis of the alleged breach by Ms Salib of a contractual or tortious duty of care.

27 Handed up to me in court on 17 February 2010 was a statement of accounting issues prepared by Mr Simpkins for consideration by the respective experts. I directed the accounting witnesses (Mr Kolta, Mr Janes and Mr Jugmans) to confer in relation to certain of those issues in order to see if agreement could be reached on those issues; and a joint report was duly prepared dated 23 February 2010 in relation to the accounting (but not expense adjustment) issues, the conclusions stated in which I refer to in due course.

Issues

28 As will be apparent from the above introduction, the issues in the two proceedings are to some extent interlinked. Taken as a whole, the issues in the proceedings are:

(i) Was there a partnership between Ms Salib and Mr Gakas (pursuant to an oral agreement) as alleged by Ms Salib or was there simply a contractual arrangement (also oral) under which Ms Salib was retained to provide administrative services for Newport Pacific in return for remuneration based on a percentage share of profits of the company, as contended by Mr Gakas?

(ii) If there was a partnership between Ms Salib and Mr Gakas, as alleged, pursuant to which the two parties agreed to carry on business together, through Kent Newport, was Ms Salib entitled as a partner to receive any (and if so what) proportion of the capital or assets of that partnership (and what did any such partnership capital/assets comprise) when the partnership came to an end in December 2006?

29 In determining the latter two issues, a number of accounting issues have been identified. Mr Simpkins categorised the accounting issues in the proceedings as falling within three broad headings – first, how the amount payable to Ms Salib (whether for commission, on Mr Gakas’ case, or as her profit share, on Ms Salib’s case) was to be calculated for the period from 1 July 2006; secondly, whether Ms Salib is entitled to any, and if so what, capital payment (which logically could only be the case, if at all, if Ms Salib establishes first that there was a partnership in existence and, secondly, that it extended to a share of capital/assets); and, thirdly, whether or not in relation to the earlier of the accounting periods (ie up to 30 June 2006) there was any overpayment or underpayment of commission (or profit share) to Ms Salib.

30 The particular matters thrown up in addressing those issues, as I understand them, are (adopting consecutive numbering for those issues to follow on from the issues listed in paragraph 29 above):

(a) what account must be made for any liabilities of the partnership (including any undistributed profits to Mr Gakas)?

(b) what accounting principles should be used to value the inventory of the partnership on its dissolution or termination?

(c) (assuming stock on hand comprised part of the partnership capital or assets) should stock be valued at retail value or at the lower of cost or net realisable value?

(a) should the appropriate date for determining the value of closing stock be 4 December 2006 or 31 December 2006?

(b) if the appropriate date is 4 December 2006, what stock quantities should be used for the calculation?

(c) should stock be valued at retail value (as Mr Kolta contends) or at the lower of cost or net realisable value (as the two accountants called for the Gakas interests – Mr Janes and Mr Jugmans - contend)?

(d) if stock should be valued at the lower of cost and net realisable value, should that value be determined by replacement value as an approximation of the actual cost (as Mr Janes contends) or the “retail method” (as Mr Jugmans contends, though I note that he ultimately seems to have accepted that Mr Janes’ approach might be preferable)?

(e) if the retail method ought to be applied, what gross profit percentage should be used (noting that 51.1% was the figure suggested by Mr Jugmans)?

(f) if, in the calculations before the court, the closing stock figure is calculated on a different basis to the opening stock figure (ie as at 4 December 2006 rather than 31 December 2006), should any (and, if so, what) adjustment be made to the opening stock figure?

and, in relation to the period from 2001 to 4 December 2006,

(g) having regard to the correct opening and closing stock figures, what commission was Ms Salib entitled to receive for the period 2001-2006?

(h) should any adjustment (beyond that accepted in the calculations prepared by Mr Janes) be made for amounts which Mr Kolta says should be excluded as private expenses of Mr Gakas?

Summary

31 For the reasons set out below, I am of the view that the above questions should be answered as follows:

(ii) In light of my finding in (i), the question as to how any partnership assets should be distributed on dissolution of the partnership does not arise. However, had I been satisfied that there was a partnership between Ms Salib and Mr Gakas, as alleged by Ms Salib, pursuant to which they agreed to carry on business together (through Kent Newport) in the importation and on-sale of furniture to members of the Harvey Norman Group, I would nevertheless have found that Ms Salib’s entitlement as a partner in that partnership did not extend beyond her right to receive a 35% percentage share of the net operating profits of Newport Pacific (after deduction of certain expenses for which Mr Gakas conceded he was responsible, such as his salary and motor vehicle expenses), less expenses for which Ms Salib herself was responsible; and hence that Ms Salib was not entitled on a winding up or dissolution of the partnership to receive any portion of the capital or assets of the partnership (whatever may have been comprised thereby). The arrangements between Mr Gakas and Ms Salib, even if (contrary to my conclusion) they constituted a partnership as a matter of law in my view were at all times limited to an entitlement on Ms Salib’s part to a share of the operating profits (not an entitlement to a share of capital or other assets).

As to the claim for moneys had and received, by reference to the alleged overpayment of commissions totalling $799,889.97, I am not satisfied that the moneys paid to Ms Salib’s company (Blue Coast) on 6 December 2006 were paid under any mistake of fact, or mistaken belief on the part of Mr Gakas, that this was the actual sum due and owing to Ms Salib. Rather, on the evidence, I find that the moneys paid by Mr Gakas on 6 December 2006 were paid by him in the knowledge (and thus accepting the risk) that the calculations may not have been accurate (hence his attempt on 5 December 2006 to check those calculations with Mr Kolta) and with the intent (and, no doubt, fervent hope in the circumstances of the business relationship breakdown) of bringing his business relationship with Ms Salib finally to an end. (The reliance said to have been placed by Mr Gakas on the alleged representations made by Ms Salib, for the purpose of the estoppel claim in the first set of proceedings, and the emphasis placed by him on the 3-line receipt, also seems to me to be consistent with Mr Gakas, and through him Newport Pacific, intending the payment made on this date to bring to an end any further business claims by Ms Salib or any of her companies – even though in terms Ms Salib had not agreed personally to release Mr Gakas.) Accordingly, there is no operative mistake so as to enliven a claim for unjust enrichment or for moneys had and received in respect of the 6 December 2006 payment.

I accept, however, that moneys paid to Ms Salib’s companies over the period from the financial year ended June 2001 to the financial year ended 30 June 2006 (purportedly representing 30% or 35% of net operating profits as the case may be) were made by Mr Gakas in reliance on the accuracy of Ms Salib’s calculations. To the extent that those have been shown to be in error (noting that no defence based on a change of position has been pleaded and accepting Mr Janes’ calculations in this regard), I find that Mr Gakas is entitled to recover the sum of $172,752.60 as moneys had and received, having offset the underpayments in certain of those years.

(a) account must be made for any liabilities of the partnership (including any undistributed profits to Mr Gakas) when determining the respective entitlements of the partners on dissolution of the partnership;

and (which again I do not) had I also considered that the capital included stock held by Kent Newport, then I would further have found that:

Inventories

and I would have referred the matter for an account to be taken of the partnership’s assets and liabilities, as I am not satisfied that all the relevant material to enable me to carry out that task was before me.

(a) the appropriate date for determining the value of closing stock is 4 December 2006 (that being the date on which the business relationship came to an end);

(b) the stock quantities to be used are those contained in the Stock Valuation summary as at 4 December 2006 printed from the Quickbooks accounting programme (a copy of which is Annexure A to the affidavit sworn 16 February 2010 of Ms Sonya Farrawell, the accreditated Quickbooks consultant who gave evidence in these proceedings);

Inventories,

(d) this question does not strictly arise given my findings above but, had it been necessary to determine this (ie had it been found that unsold stock in the hands of Kent Newport should be valued, for the purposes of calculating commission of profit share payable to Ms Salib during the course of her business relationship with Mr Gakas, at the lower of cost and net realisable value), then I consider that that value would best be determined by reference to the “retail method”, as explained by the accounting expert called for the Gakas interests, Mr Claude Jugmans even though the replacement method might also have been acceptable from an accounting viewpoint (since Mr Janes’ calculations based on the ‘replacement cost’ method still involved a measure of estimation and since Mr Jugmans was the only wholly independent accounting witness);

(e) again, in the light of the findings I have made, this question does not strictly arise; however, had it been necessary to determine, I would have applied a gross profit margin derived from the average obtained over the previous 3 years’ sales, as indicated by Mr Janes (on the basis that Mr Jugmans confirmed the appropriateness of such a figure and it allowed greater account to be made of the historical performance of the company);

(f) I do not see any logic in calculating the closing stock figure on a different basis to the opening stock figure, when determining the amount of commission (or percentage profit share) payable to Ms Salib (nor was any such logic suggested); accordingly, I consider that adjustment would have been necessary to calculate opening and closing stock on the same basis, had 31 December 2006 been the appropriate date for the latter;

(g) I would adopt the calculations of Mr Janes (as adjusted by him following the matters raised by Mr Kolta) for the period through to end June 2006 in respect of the amount Ms Salib was entitled to receive for that period as I am not satisfied that any further adjustment has been shown to be warranted in terms of the expenses attributed to Newport Pacific. In light of my finding in (iii) above, it is immaterial what commission or profit share Ms Salib was in fact entitled to receive for the period from 1 July 2006 to 4 December 2006. (If that were to be necessary to determine, then I would take refuge in the evidence of Mr Janes that this could readily be determined, having regard to my findings above as to the closing stock quantities and the methodology of valuation, and I would leave that task to those better qualified than I in accountancy.)

(h) I do not consider that any adjustment (beyond that inherent in the revised calculations prepared by Mr Janes) is warranted, in light of the evidence given by Mr Gakas as to the so-called discrepancies; (in that regard, even though Mr Gakas accepted that the payment in 2006 to his granddaughter of a sum of $1,800 was probably a way of giving her pocket money, he nevertheless gave an explanation for what she had done for the business in order to earn that pocket money; similarly, even though he conceded that part of a $6,000 odd payment was referable to private travel, it was in the context of a trip which he said had a component of business purpose to it and it is impossible for me to assess how that apportionment should be carried out).

Proceedings

Partnership dispute

32 The subject matter of the first set of proceedings (07/256633), which were commenced by Ms Salib against Mr Gakas, is the partnership dispute, namely the allegation by Ms Salib that she and Mr Gakas entered into an oral partnership agreement on or about October 2000, pursuant to which it was agreed that they would carry on (in partnership) the business of importing and distributing furniture (for on-sale to Harvey Norman Holdings Limited).

33 The alleged terms and conditions of the partnership agreement, as pleaded, include that the business of the partnership be conducted through Kent Newport; that Ms Salib and Mr Gakas would share in the profits and bear the losses of the said partnership business in specified shares (initially 30%:70% as between Ms Salib/Mr Gakas and, as later varied, 35%:65% as between the two); that the assets of the business would belong to Ms Salib/Mr Gakas in the same proportions; and that the partners would contribute to the expenses of the partnership business in the same proportionate shares.

34 Ms Salib’s claim relates to the cessation of her business relationship with Mr Gakas. (Given that Ms Salib accepts that the partnership was terminable at will, the dispute is not as to the termination of the relationship as such. Rather, it is as to the financial consequences which followed therefrom.) In paragraphs 8A and 8B of the Amended Statement of Claim filed by Ms Salib on 4 December 2007, it is alleged that in or about December 2006 Mr Gakas gave notice (in a conversation with Ms Salib) that he intended to dissolve the partnership and that both the partnership and the partnership agreement were dissolved at that time. Further, or in the alternative, it is alleged in paragraphs 9 and 10 of the Amended Statement of Claim that, in or about December 2006, Mr Gakas repudiated the partnership agreement, which repudiation was accepted by Ms Salib who left the premises of the business and ceased involvement in the business. From the evidence on both sides it would seem that the time at which any such conversation took place must have been no later than 4 December 2006 (since that was the date on which Ms Salib commenced to calculate her ‘final’ payment).

35 By way of relief, Ms Salib seeks a declaration that the partnership was dissolved as from December 2006; orders that the partnership business be wound up under the direction of the court, that a receiver and manager be appointed to the partnership business and consequential orders following such an appointment; an order for an account to be taken of all the dealings and transactions of the partnership; an order that an inquiry be held as to what the assets of the partnership consisted of and as to the respective interests of the partners therein; and judgment for an amount for which Ms Salib is found to be entitled following the inquiry in respect of her interest in the partnership and its assets, and/or damages.

36 In paragraph 9 of the relief sought in the Amended Statement of Claim, there is a reference to goodwill as an asset of the alleged partnership. In that regard, Counsel for Ms Salib (Mr Morahan) recognised that there would be a question as to whether any goodwill now remains in the business (or could be reinstated) in circumstances where the business enterprise between Mr Gakas’ companies and Harvey Norman was terminated in early 2007 (and, I might add, where there is evidence that Ms Salib unsuccessfully sought in early 2008 to resurrect that or a similar business relationship with Harvey Norman). In those circumstances, it is difficult to see that any goodwill in the business of the Gakas interests (attributable as it seems to have been to the relationship with its only substantial sole customer, the Harvey Norman Group, through which its line of credit arrangements subsisted) could now remain or have any value.

37 By Amended Defence to the Amended Statement of Claim, filed by Mr Gakas on 11 September 2009, Mr Gakas denies the alleged agreement in relation to the partnership. Mr Gakas says, in essence, that his working relationship with Ms Salib arose out of her retainer in October 2000 to provide administrative duties for Newport Pacific.

38 Mr Gakas says that he and his wife had, prior to June 2000, operated an importing business and that, during 2000, he had created another company (Kent Newport) to operate with Newport Pacific in the business of importing furniture for Harvey Norman Holdings Limited (this being what is defined in the Amended Defence as “the business”). At the time of commencement of the business it is said by Mr Gakas (and not challenged by Ms Salib) that Newport Pacific had approximately $52,000 in funds (to which there is no suggestion that Ms Salib had contributed).

39 It is asserted by the Gakas interests that, during October 2000, Mr Gakas and Ms Salib reached an oral agreement that she would perform administrative duties for Newport Pacific (or, as pleaded, in the operation of ‘the business’) and would receive a commission on the net profits of ‘the business’ at the rate of 30% (later increased to 35% effective from November 2005). In paragraph 1(e) of the Amended Defence it is alleged that it was not a term of the contract that Ms Salib would share any losses of ‘the business’. (Ms Salib’s contention to the contrary, though reflected in her pleading both in its original form and as amended, was not addressed in Ms Salib’s affidavit evidence.)

40 Mr Gakas admits that Ms Salib left the business in December 2006 but says (in the particulars to paragraph 6 of the Amended Defence) that Ms Salib did so having resigned from the company following an unsuccessful attempt to purchase the business from him. There is evidence that in the period 2006/7 there was some consideration given to a sale of the business to, and purchase of the business by, Ms Salib. This did not eventuate.

41 Ms Salib was paid the sum of $569,872.11 on 6 December 2006. (It is relevant to note that this was considerably in excess of the total amounts which had been paid to Ms Salib in previous financial years in respect of her entitlements, whether or not those entitlements be properly characterised as being to a commission or to a partnership profit share.)

42 Mr Gakas alleges (in paragraph 12 of the Amended Defence) that on receipt of this sum Ms Salib waived any further rights she may have had against ‘the business’ (relying in this regard on a document titled “Receipt” and dated 6 December 2006, which was signed by both Ms Salib and Mr Gakas in front of a witness, Ms Debra Hutchen, who gave evidence in the proceedings of the circumstances in which this took place). It is further pleaded in paragraph 13 of the Amended Defence that, in making that payment, Mr Gakas relied on Ms Salib’s calculations and her representations to him that the payment of that amount represented her entitlements until the date of her resignation, and that Ms Salib is now estopped from pursuing a claim for any further payments.

43 (The Gakas interests nevertheless seek, through the second proceedings, to reopen the accuracy not only of the final payout but also as to the earlier payments made to Ms Salib. Mr Simpkins noted, in answer to a question I had raised on this point, that no release by Newport Pacific of any claim it might have against Ms Salib in this regard was pleaded and that Ms Salib had made it clear that she alleged no such release - T 390.49).

44 In paragraph 10 of the Amended Defence, Mr Gakas asserts that Ms Salib was overpaid ‘commission’ (at that stage put as being in the sum of $853,901.65). It is this allegation that forms the nub of the second set of proceedings (in which Newport Pacific seeks to recover that overpayment, the quantum of which has been reduced to $799,889.97 following acceptance by Mr Gakas’ accountant of certain adjustments raised by Mr Kolta).

Dispute as to alleged overpayment of commission

45 In the second set of proceedings (08/278795), Newport Pacific claims repayment from Ms Salib of the sum of $799,889.97 and/or damages pursuant to the alleged overpayment of commission by Newport Pacific to Ms Salib (under the alleged retainer agreement for the provision of administrative services by Ms Salib) over the period from October 2000 to December 2006.

46 Under its Amended Statement of Claim, which was filed in court on 22 February 2010, Newport Pacific asserts that it retained Ms Salib to perform administrative duties in return for a fixed commission (which varied from 30% to 35% over the relevant period of time) of any net profits generated by Newport Pacific.

47 The claim for recovery of these moneys is based alternatively on a claim for monies had and received and on claims for breach of an implied term of the retainer agreement (that Ms Salib would take all reasonable care in her performance of the administrative duties) or of a tortious duty of care owed to Newport Pacific in relation to the calculation and payment of sums payable by Newport Pacific under the retainer agreement (paragraphs 21, 18 and 24, respectively of the Amended Statement of Claim). While each of those claims is pressed before me, Mr Simpkins indicated that the Gakas interests accept that the strongest of those claims is for moneys had and received.

48 In this regard, Mr Simpkins quite fairly concedes that if Mr Gakas had paid the money, not caring whether it had been properly validated and simply in order to finalise matters with Ms Salib, then this would be a payment which was voluntary in character. However, Mr Simpkins submits that the evidence demonstrates a belief on Mr Gakas’ part as to Ms Salib’s entitlements at the time the payment was made and hence that, prima facie, there is an entitlement to recovery in the absence of any injustice being pleaded and established.

49 It is alleged that, during the period from October to December 2006, sums paid by Newport Pacific to Ms Salib under the agreement by way of commission were in the amount of $2,131,699.72 (paragraph 14) whereas Newport Pacific should only have made payments representing commission in the sum of $1,087,299.98 (paragraph 15). In addition, salary and superannuation payments are said to have been made by Newport Pacific to Ms Salib as particularised in paragraph 16 of the Amended Statement of Claim. In all, Newport Pacific claims the sum of $799,889,97 as monies had and received by Ms Salib and, in the alternative, damages.

50 In paragraph 4 of her Defence, filed in November 2008, to Newport Pacific’s claim, Ms Salib denies the alleged retainer agreement but goes on by way of further pleading to say “and further says that [in] or about October 2000 the parties entered into an agreement which established a partnership between them (“the partnership”)” (my emphasis). As a strict matter of pleading, it can thus be seen that there is an inconsistency between the allegation of partnership here made (as being one between Ms Salib and Newport Pacific) and the allegation made in the first set of proceedings (that being a partnership between Ms Salib and Mr Gakas personally). The explanation for this seems likely to be simply an error in preparation of the Defence, since no partnership between Ms Salib and Newport Pacific was pressed during the hearing (and, indeed, in the witness box Ms Salib expressly disavowed any such partnership T 166.10). I think it fair to say that the case proceeded on the basis that the only partnership in fact being alleged by Ms Salib was one between herself and Mr Gakas personally (albeit that Ms Salib’s allegation that this was through Kent Newport verged at times on an allegation that there was a tripartite partnership of some kind – T 165.41).

51 It is alleged (in paragraph 13 of the Defence) that the said partnership agreement (pleaded as containing the same broad terms as those set out in the first set of proceedings) was repudiated in or about December 2006 by the ‘defendant’, although (again read having regard to what is pleaded in the first set of proceedings and the conduct of the case at trial) it seems clear that the pleading is intended to aver that the partnership agreement was repudiated by Newport Pacific (not Ms Salib herself).

Facts

Events pre-2000

52 It is not disputed that Mr Gakas had, for some years prior to the events in question, worked in the furniture business. In Mr Gakas’ affidavit of 13 March 2009, he deposes to having been involved in the furniture business from the 1960’s.

53 By the time the events the subject of these proceedings took place, Mr Gakas was aged about 70 (and had experienced some problems with his health).

54 At some stage in or about the mid-1990’s, Ms Salib was employed as a bookkeeper or to perform some clerical duties by Mr Gakas’ then company. Ms Salib (in her affidavit of 7 August 2008) says she was employed from 1994 to 1997 by W B Gakas & Co as a bookkeeper. Mr Gakas says that, in fact, his business was not called W B Gakas & Co at the time but he accepted that Ms Salib had performed some clerical duties for his company around 1994. That said, Mr Gakas also says that in 1995 he closed the business down after he was diagnosed with cancer. Mr Gakas says that he later restarted his furniture business (as Gakas HN Pty Limited, which was incorporated on 30 May 1996) with his son, Darius, and that in 1998 the name of the company changed to Newport Pacific. On 26 March 1999, Mr Gakas’ wife, Ms Diane Eddington, became the sole director and secretary of the company. Mr Gakas and his wife held the two issued shares in the company (and still do).

Arrangements with Harvey Norman Group in 2000

55 Mr Gakas says that from the period 1999 to 2000 he carried on some business involving the importation and wholesaling of furniture and that in early 2000 he had discussions with representatives from the Harvey Norman Group in which the prospect of the Harvey Norman Group providing finance in order to enable Mr Gakas to take on a role of importing furniture for the Group was raised (para 13 of Mr Gakas’ affidavit).

56 Kent Newport was incorporated on 13 June 2000. Mr Gakas was its sole director and secretary. The shareholding was again held as to one share each by Mr Gakas and his wife. Mr Gakas says that Kent Newport was incorporated in order to deal with the financing and management of importation of furniture and to take a line of credit to be provided by the Harvey Norman Group in relation to the role he was then considering taking on for the Group or within the Group. (Mr Gakas, in the witness box, explained that the function of Kent Newport surrounded the exercise of the line of credit made available to it through the Harvey Norman Group.)

57 In July 2000, fixed and floating charges over Kent Newport and Newport Pacific were put in place. Mr Gakas said, and was not challenged on this in cross-examination, that in accordance with his arrangements with Harvey Norman Group the authority to transfer moneys from Kent Newport to Newport Pacific was required to issue from Harvey Norman Group and that he, Mr Gakas, was the only one who had the authority to make such a request from Harvey Norman.

58 A copy of the letter of offer from ANZ for access to a line of credit of up to $1.3 million was Annexure B to Mr Gakas’ 13 March 2009 affidavit. Also annexed was the acceptance and a surety acknowledgment apparently required in that regard.

59 Mr Gakas says, and it does not seem to be disputed, that Ms Salib was not involved in any discussions or negotiations between himself and the Harvey Norman Group in relation to the establishment and financial arrangements with the Harvey Norman Group. More relevantly, these discussions seem to have taken place well prior to the time at which Ms Salib says she was consulted with a proposal to become a partner in the enterprise (which casts doubt on the content of the discussions which she says took place at that later time).

60 The significance of this goes, in part, to Ms Salib’s evidence that she was first approached by Mr Gakas in late 2000 to become involved in the business. By that time, on Mr Gakas’ account of events (which is supported by the documentary evidence as to when Kent Newport was incorporated and when the line of credit was established), the arrangements in relation to the proposed venture between Mr Gakas and the Harvey Norman Group were already in place. Nevertheless, Ms Salib in her oral evidence stressed that “…. Kent Newport was formed when we started the business, it did not exist before. It did not exist before our conversation to start the business again. It was only formed when the discussion took place to start the business” (T 42.7)

Ms Salib’s involvement with Newport Pacific

61 Ms Salib’s involvement with Newport Pacific came about following an approach made to her by Mr Gakas. However, even apart from the question of the time at which this approach was made, there are significant differences in the respective accounts of what had occurred on that occasion.

62 Ms Salib, in her first affidavit of 7 August 2008 (paras 6/7), says that in late 2000 Mr Gakas came to her house at Malabar and told her that he was thinking of getting into the furniture business with Harvey Norman again; that he was too old and no bank would finance him; and that he asked if she wanted to go into partnership together. (By this stage, of course, depending on how ‘late’ is “late 2000”, Mr Gakas had already secured a line of credit through Harvey Norman and well knew that he was proposing to restart his business and that Harvey Norman was supportive of that proposal.)

63 According to Ms Salib’s affidavit, her immediate response to this (not only remarkably forthcoming but also, on her version of events, without there having been any opportunity for or discussion with her then husband, the joint owner of the home) was “yes, if necessary I can put my house up as equity for the money required to commence the business. If I am putting my house up I would expect to get 70% of any profits” and that Mr Gakas said ‘OK’ to that. Apart from the fact that this seems an extraordinary alacrity to enter into onerous financial obligations, there is then a complete reversal when, according to Ms Salib, the week after that initial conversation (and thus presumably also in late 2000) Mr Gakas told her that Harvey Norman was putting the money up and that she would not have to put up her home, her reaction to Mr Gakas’ reported statement that he wanted 70% of the profits and she could have 30% was a ready acceptance without demur. (In the witness box, Ms Salib said this was the subject of some complaint by her but there was no account of this in her affidavits).

64 Ms Salib said that Mr Gakas told her in this conversation that the business would pay a wage until there was “enough fat” to draw down profit shares. Ms Salib also said that Mr Gakas told her that she would have to pay 30% of associated expenses and that she agreed to this. (Ms Salib points to this as an agreement that she would bear her proportion of the losses of the business, though it is by no means apparent that this was the import of what was agreed.)

65 In this conversation Ms Salib says that Mr Gakas said that they would have to establish a company to do the buying and this would be called ‘Kent Newport’. (However, by this stage (late 2000), Kent Newport was already incorporated, thus casting doubt on Ms Salib’s recollection of events.)

66 Apart from the fact that the chronology of events, as deposed to by Ms Salib, puts her initial discussions with Mr Gakas at some time after Kent Newport and the ANZ line of credit (through Harvey Norman) had already been established, there is a distinct air of unreality as to the alacrity with which (according to Ms Salib’s evidence) she not only acceded to the proposition that she enter into a business partnership with Mr Gakas (there being no suggestion of any previous attempt by him to seek out third party partners) but offered her home (jointly owned with her then husband but without his consent) as security for a venture as to which she had (on her own account) almost no information other than the bare bones of what was proposed.

67 Even on the more detailed version of events given by Ms Salib in the witness box, a matter itself the subject of criticism by Mr Simpkins, the manner in which Ms Salib says events unfolded seems hardly credible.

68 In the witness box, Ms Salib said for the first time that she had spoken with Mr Gakas on the telephone before the meeting at her Malabar home. She says that in that conversation Mr Gakas told her what his and Harvey Norman’s intentions were (inconsistent with the suggestion in her affidavit that Mr Gakas thought he was too old to go back into business). Ms Salib says that Mr Gakas did not tell her what the proposed business would be (as she already knew what the business was because it was identical … “the same setup that he had before whenever I worked for him…” T 224.11). Later she said that she did not know when he approached her if he was supplying Harvey Norman (T 227.15). This evidence must be seen in the context that Ms Salib’s previous work for Mr Gakas was over a limited period and when there is no suggestion that she was then privy to his business arrangements.

69 The evidence as to the offer Ms Salib says she made to put up her house as security was, I think, revealing. Ms Salib accepted that at that stage Mr Gakas had not told her anything that permitted her to understand the amount of money likely to be required to commence the business (T 226.17; T 226.34) but said “even up to a million dollars was fine”, though professing that she knew it would not be that amount. At best, this suggests a degree of impetuosity and willingness to jump headfirst into serious business arrangements with almost no information as to the terms of those arrangements. At worst, it seems to be a wholesale reconstruction of events. This is compounded by the fact that (on Ms Salib’s version of events) she was prepared to commit her husband to such an arrangement without even bothering to discuss it with him. At first, in cross-examination, Ms Salib said that she had consulted her former husband as to the issue of putting up their home as security (T 226.44), then she corrected that evidence saying “No, actually I had it [the conversation with her husband] afterwards because as soon as I spoke to Mr Gakas I told him afterward and my ex-husband did not agree. So I had made my decision on my own because I was the sole income earner anyway. It didn’t matter” (T 226.48). Insofar as Mr Simpkins submits that Ms Salib’s account of the relevant conversations is extraordinary (by reference to the cross-examination at T 220.47 to T 233.11), I am inclined to agree.

70 Even apart from the ease with which Ms Salib dismissed the question whether her co-owner would agree with what she was proposing, the facts are that Ms Salib accepted that she did not know how much money would be involved in raising funds on the security of her home (T 227.36) or how long they would be required (T 227.36) and said that she didn’t care (T 227.40). She expressed supreme confidence in the future profitability of a business about which she knew almost nothing other than that it would mirror the previous setup (about which it is not clear what she knew). She said that she had worked with Mr Gakas for ‘several’ years before that (T 227.44), seemingly an exaggeration of itself, but had no idea how substantial the business would be (T 228.11). It is difficult to accept Ms Salib’s broad brush account of events in this regard. This gives cause to doubt similar broad assertions by Ms Salib (such as “one hundred percent that 30% what was in Kent Newport is mine and 70% is William Gakas’” – T 42.35)

71 According to Mr Gakas, he says that he discussed no business matters with Ms Salib at her home in Malabar. He admits that he approached Ms Salib and that he made the suggestion to her (in a conversation he placed as being about July 2000 after a trip to China to source potential products for the venture with the Harvey Norman Group - in para 20, saying that his conversation with Ms Salib was “at that time”) in a conversation in his office at Botany that Ms Salib might work for Newport Pacific (para 19). Mr Gakas said “at the time I could not offer Ms Salib a salary other than a small wage because there was no income for the business, but I wanted her to work for me because she had been a good worker when I had previously employed her …”.

72 Mr Gakas says that after July 2000, he invested $46,000 in Newport Pacific, using a direct deposit and a payment of an outstanding debt to him (and that his wife invested $15,000). Ms Eddington, in her affidavit, confirmed that in 2000 she had invested a sum of $15,000 in Newport Pacific. She was not cross-examined on that evidence. In the witness box, Mr Gakas asserted that steps to set up the business took place in early 2000.

73 Mr Gakas’ evidence was that he did not discuss with Ms Salib either the creation of Kent Newport or his financial arrangements with Harvey Norman (para 17). Insofar as this evidence was intended to suggest that he did not habitually discuss financial information with office staff, I note that there was some evidence from Ms Hutchen to the effect that Mr Gakas had on one occasion referred to his credit arrangements with Harvey Norman for the purchase of stock in a conversation with her (see para 16, affidavit of 6 February 2009), which suggests that Mr Gakas may not generally have been as reticent in discussing with his office staff the details of his business arrangements as his evidence would imply.

74 Mr Gakas says that at the start of their business relationship (as at August 2000) he was paying Ms Salib $225.00 per week as a part-time worker. He said “it was very complicated because of her desire not to disqualify her family from the right to receive Government benefits”. (In passing, I note that this seems consistent with the evidence which emerged during the hearing from Ms Salib as to the manner in which she later structured her affairs with Newport Pacific at least in part so as to avoid them being taken into consideration during her divorce proceedings, a matter to which I will return in due course.)

Profit share arrangement

75 On either account, it seems that the working relationship between the two did not commence until around August 2000 and that shortly thereafter a percentage profit share arrangement (not necessarily in place of the weekly wage, since that seems to have continued) was agreed. Mr Gakas says that in about August or September 2000 Ms Salib said that she wanted more money and wanted some other kind of arrangement; and that he offered her a commission. Mr Gakas said that Ms Salib wanted 50% and that he said that he would agree to 30% on net profits (not receipts, para 23 of his affidavit of 13 March 2009, as subsequently amended). (Mr Morahan points to the immediacy with which Mr Gakas (on his own account) accepted Ms Salib’s request for a percentage profit share arrangement as an indicator that there was a partnership – I would have been more inclined to see this as a preparedness to link remuneration to profits at a time when the business was still being established and hence perhaps more economically advantageous than a straight out salary arrangement. However, this was not really explored and I doubt whether it takes matters very far.)

Incorporation of Silver Coast

76 Ms Salib incorporated a company (Silver Coast Pty Ltd) on 10 November 2000. Ms Salib and her then husband were directors of the company. Ms Salib says that Silver Coast was to be the vehicle into which her net profit from the “business” would pass (para 11 of her affidavit). (In cross-examination, Ms Salib said, quite candidly, that Silver Coast was purely for taxation purposes to minimise her tax profits at the end of the year (T 59.47).) Ms Salib says that approximately 12 months after the business commenced ‘the partners’ started to draw profit shares (para 13 of her affidavit).

77 From 2001 until early 2004, Ms Salib’s (initial 30% and then later 35%) profit share (or commission) was paid to Silver Coast. Ms Salib also received a small salary (and the benefit of superannuation payments) throughout the period from 2000 to 2006.

78 Mr Gakas says that Newport Pacific gave Silver Coast a loan of $2,456 on 9 March 2001 and a further sum of $5,000 on that date. It is not clear to me to what this evidence related. No claim seems to be made for repayment of any loan to Silver Coast, nor is there any evidence (other than Mr Gakas’ assertion) to support the characterisation of either of these payments as a loan.

Draft deed of agreement prepared for Ms Salib

79 In about May 2001, Ms Salib gave Mr Gakas a draft deed of agreement which had been prepared by a solicitor friend of Ms Salib’s, apparently on Ms Salib’s instructions. It would seem that this was an attempt by Ms Salib to record either the basis of their then working relationship or of the relationship she wished to put in place going forward. This seems to have been around the time when, on both accounts, distributions were first made to Ms Salib’s company referable to the first year’s profits of Newport Pacific.

80 It is quite understandable that Ms Salib would have wished for her working arrangements (whatever they were or were to be) to be formally documented and so it does not seem to me that anything can be drawn simply from the fact that she had proffered such a document. However, nor is there any suggestion that Mr Gakas agreed with the content of the draft deed of agreement. Therefore one might think there is little to be read into this. Ms Salib said in cross-examination that Mr Gakas never agreed to sign anything – that he “refused to sign a document from the outset” (T 44.22) and that “Mr Gakas’ motto was his word is his honour. Everything is verbal” – T 56.2. However, Mr Gakas seems to have been perfectly capable of committing in writing to financial written arrangements with ANZ.

81 The draft deed would be revealing to the extent that it was based on Ms Salib’s instructions (and might therefore be thought to reflect her then understanding or wishes as to the business relationship with Mr Gakas). In that regard, I note that the draft deed was prepared naming as the proposed parties as Silver Coast, Newport Pacific and Kent Newport (but not Mr Gakas himself). The draft recited an agreement of the parties to use their ‘contacts and expertise’ to import into and to sell furniture in Australia. (It is not suggested that either Silver Coast or Ms Salib had any overseas contacts at that stage to assist with the importation of furniture, nor that Ms Salib had any particular expertise in the furniture business prior to her entry into the working relationship with Newport Pacific.) The body of the agreement was largely blank but contemplated that the responsibilities to be undertaken for various aspects of the business by each of the proposed parties would be set out in the document.

82 The draft made provision only for the division of profits from the importation and sale of the business and not for any sharing of losses. Therefore, even had an agreement been entered into in those terms, there might still have been a dispute as to whether the arrangement constituted a partnership or was simply a commercial joint venture between the parties which fell short of giving rise to a partnership at law.

83 In any event, for present purposes it is relevant to note first that the proposed parties to the deed did not include Mr Gakas (though it is Mr Gakas with whom Ms Salib says she was in partnership) and that the draft deed does not record any arrangement as to the sharing of losses in relation to the joint venture (though it is impossible to know whether that reflected Ms Salib’s instructions or whether the substance of the proposed arrangements in this regard was simply a matter left to the purview of her solicitor friend in the drafting of the deed).

Ms Salib’s role in the business

84 There was, perhaps not surprisingly, conflicting evidence given by each of Ms Salib and Mr Gakas as to Ms Salib’s role and the level of her involvement in the business. I have no doubt, having regard to Ms Salib’s emphatic evidence in the witness box (T 59-60), that she considered that she had made a substantial contribution to the business and that she believed the attempts by Mr Gakas to characterise this as simply clerical or administrative work are not accurate. Mr Gakas, on the other hand, was keen to downplay the significance of Ms Salib’s role in the company business.

85 Mr Gakas does agree that Ms Salib accompanied him on some buying trips to Asia (T 357.43), which may suggest that Ms Salib’s involvement in the business of the company was more than merely administrative. Moreover, I note that Ms Salib was described by one of the Harvey Norman group representatives (Marshall Mills) in an internal email as Mr Gakas’ ‘business offsider’, which suggests that (whatever her actual position) the image conveyed to at least one of the persons dealing with Newport Pacific was that Ms Salib was involved with the business at something more than an administrative level. Ms Salib called evidence from one business associate, Mr Primerano (who is admittedly a friend of hers) to the effect that Mr Gakas had introduced Ms Salib to him on one occasion as his partner (T 200). However, Mr Primerano was unable to point to any other conversation in which this was said and was unable to give the context of that discussion. Mr Simpkins pointed to the absence of corroborating evidence for this. It was suggested to Mr Primerano, but not accepted by him, that his recollection was not clear in relation to this one conversation (which he had no other reason to recall and of which he had taken no notes and which he had only been asked to recount relatively recently and many years after the conversation is said to have occurred). I saw no reason not to accept his evidence. I think, however, that relatively little weight can be placed on what is at best a single comment from the (no doubt many) customers of Kent Newport as to Ms Salib’s status in the company, particularly when the word ‘partner’ seems to be used in a variety of contexts in modern day parlance (and could, for example, have been understood in the context of the conversation to which Mr Primerano deposed as a reference to a business offsider or co-venturer rather than partner strictly so-called). I do not think this evidence is sufficient to outweigh the lack of any business documentation to support the allegation of a partnership.

86 There was evidence that for a time Ms Salib was permitted by Mr Gakas to use business cards (which she or her husband had caused to be printed) in which she was described as ‘director’ (T 418.23) (though Ms Salib was never in fact a director of Newport Pacific) and that Ms Salib became angry when Mr Gakas’ wife (the sole director of Newport Pacific) had business cards reprinted for Ms Salib showing her as ‘General Manager’. (Ms Hutchen deposed to Ms Salib having thrown the replacement cards into the bin.)

87 In the event, I think it unnecessary ultimately to make any finding as to the precise tasks fulfilled by Ms Salib in that it seems apparent, even on Mr Gakas’ evidence, that Ms Salib was performing more than simply clerical or secretarial roles (and Ms Eddington’s apparent willingness to hold her out as the company’s general manager, in lieu of its director, supports this).

88 From a financial point of view, however, Ms Salib was never the sole signatory on company cheques (as confirmed by one of the company’s office assistants, Ms Overman, in her affidavit of 2 December 2008) and held no formal role as an officer of the company. Of relevance to the second set of proceedings seems to be the evidence of Ms Overman, insofar as she has deposed to Ms Salib not being authorised to sign cheques as a sole signatory (and to her observation that previously Ms Salib had prepared all figures in arriving at what she was to be paid by the company over the relevant period).

2004

89 Of difficulty for Ms Salib to reconcile with her partnership claim, was that during 2004 she was recorded on the books of Newport Pacific as an employee and the company in due course issued a group certificate for Ms Salib in that period. (In some respects this evidence cuts both ways, as it suggests that for the period prior to this Ms Salib was not treated as an employee. However, it does cast significant doubt on the assertion that there was a partnership in existence in 2004 – and Mr Simpkins placed emphasis in cross-examination on the failure of Ms Salib to make any reference to this in her affidavit material.)

90 Ms Salib’s explanation for what occurred is that during January 2004, she was going through divorce proceedings, Ms Salib says that she told Mr Gakas that she was going to resign from Silver Coast making her ex-husband the sole director (because her husband had refused to resign). Up to then, Ms Salib had rendered invoices to Newport Pacific on the letterhead of Silver Coast (the income from which being described in the books of Silver Coast as commission). Ms Salib said in cross-examination not only that Mr Gakas had recommended that she start a new company (T 80.33) but also that he had said that he could be a director of that company.

91 Ms Salib says that she couldn’t change the corporate vehicle in which she was receiving distributions from Newport Pacific because she would then have been working for nothing (T 78.48) (on the basis that she says there were freezing orders in place issued by the Family Court) (T 80.48). On her version of events, Mr Gakas said that “… it is best to set up another company. He advised me not so much advised, we had a discussion. If anything, I said to him I can’t it is not worth it to me. I would be working for nothing. He said he could even be a director. I said, no, I would not put him through that” (T 79.7).

92 Ms Salib denied that this was to hide assets from her husband (T 80.1) but her evidence varied considerably in this regard and ultimately I formed the view that any restructure of her arrangements during that period was precisely for that reason.

93 In any event, whether or not Mr Gakas had recommended that she do so, and it seems to me not outside the realms of possibility that he would have done so (having incorporated at least two companies himself through which to run his business enterprises), Ms Salib did cause to be incorporated a new entity in substitution for Silver Coast (Betta Coast Pty Ltd). Ms Salib said in her affidavit that she was the sole signatory of Betta Coast and that her profit share from the business went into Betta Coast. The wording of her affidavit seems carefully chosen in that regard, since, as was clear from the company search put in evidence by the Gakas interests, Ms Salib was neither a director nor shareholder of Betta Coast and her evidence is that she drew no profits from Betta Coast until it was subsequently closed down. Ms Antonella Vitale (a friend of Ms Salib’s) was the director, public officer and sole shareholder of Betta Coast, not Ms Salib, yet Ms Salib signed the accounting documentation in place of Ms Vitale (under a letter authorising her to do so) and Ms Vitale’s discretionary trust rendered at least some invoices for services rendered to the company which on paper was Ms Vitale’s own company.

94 It was difficult to see any commercial purpose for such an arrangement (when it seemed that Ms Salib regarded the company as hers at all times) if it were not an attempt to shield those assets from disclosure in the Family Court proceedings then ongoing. Nevertheless, Ms Salib said at first that it was not to avoid the company being regarded as one of her assets (T 80.26; T 81.27; T 82.5) or to hide earnings from her husband in the Family Court (T. 34.34). Ms Salib (confronted by the evidence she had sworn in her Family Court proceedings in which no disclosure was made of any partnership interest in a partnership with Mr Gakas, and in which no reference was made to her beneficial interest in Betta Coast) denied initially that the shareholding in Betta Coast was on her behalf (T 64.17). However, later in cross-examination (and an example of her inconsistency in the witness box) Ms Salib conceded that she was always the beneficial owner of Betta Coast (T 64.40, T 64.32, T 64.47), explaining the lack of reference to this in her other proceedings as being on the basis that there was only a verbal agreement (T 59.1;.11), and agreed that the decision not to be a director or shareholder of the company was because of the Family Court proceedings (T 35.29) and to avoid disclosure of her arrangement with Mr Gakas (T 35.47). She then asserted that the Betta Coast arrangements were “Under Mr Gakas’ advice” (T 38.27), though at most it seems that she recalls him telling her that she could or should incorporate a new company.

305 In Mr Gakas’ affidavit of 12 February 2010 he responded to various of the other asserted discrepancies identified to in Mr Kolta’s affidavit of 3 September 2009 in relation to anomalies. In particular, he says that:

306 Mr Gakas says that Mr Kolta was responsible for checking Mr Newport’s accounts and had prepared those accounts for the period; that Mr Kolta had never raised any issue until he was asked to prepare a report for Ms Salib nor had he contacted Newport to advise that new accounts would need to be raised in order to take into account the alleged discrepancies.

307 In general, Mr Kolta’s assessment of discrepancies seems to have been based on assumptions made by him or instructions received by him from Ms Salib. Mr Gakas had an explanation for the various items which had not been conceded by Mr Janes. There is nothing to gainsay that explanation. (He was cross-examined, for example, as to whether there had in fact been any payment for samples and as to whether the payment of certain overseas moneys had been a method of avoiding the payment of tax in this country. He responded to those issues with explanations which on their face are not fanciful and it does not seem to me that I am in a position to make any finding contrary to Mr Gakas on those amounts.) I would accept the adjusted calculations of Mr Janes in this respect (largely because it does not seem to me that Mr Kolta had any evidence to support his assertion that the amounts should have been dealt with in a fashion other than that which he had himself originally adopted in the books of account). The amounts paid to Mr Gakas’ granddaughter (even if a way of providing her with pocket money) were, according to Mr Gakas, in payment for steps taken by her in relation to the company. The travel expenses (of a relatively minor amount) which Mr Gakas conceded were a mixture of business and private expense, are nevertheless amounts as to which there is no information available to me to make any assessment in relation thereto.

Overpayment/underpayment

308 Once Ms Salib’s entitlement to commission has been assessed for the period through to 4 December 2006, it needs to be offset for the payments made to her referable to the same period. The payments made to Ms Salib for the six months to 31 December 2006 totalled $682,998.07 ($714,070.33 - $31,072.26), though these comprised in the main the payment referable to what Ms Salib claimed was her partnership entitlement.

309 It is submitted by Mr Simpkins (and seems from the above to be the case) that the total payments made over the period from 2001 to the end of 2006 greatly exceeded Ms Salib’s entitlement to commission even on Mr Kolta’s calculations, since those calculations assumed an entitlement to recovery of $165,988.99 only after showing a claim for a share of capital of $518,065.55 (Mr Kolta’s affidavit, paragraph 12 (vii)(b)(c)). Mr Simpkins submits that the only issue with Mr Janes’ calculations (as adjusted) is whether Mr Kolta’s claim to private expenses needs to be considered, beyond those accepted by Mr Janes in his recalculation which reduced the claim from $853,901.65 to $799,889.97. It is said that none of the balance of Mr Kolta’s adjustments has been made good. In substance that seems to me to be the case. Accordingly, it seems to me that Newport Pacific has established that there was not only a net overpayment in the period through to 30 June 2006 but a much more substantial overpayment in the period from 1 July 2006 to the end of that year.

Unjust enrichment claim

310 It seems to be accepted by Mr Kolta (and hence, as I understand it, by Ms Salib) that there was some overpayment of commission to her over the relevant period. Is that amount (however it be properly calculated) recoverable by Newport Pacific?

311 In relation to any overpayment to Ms Salib, Newport Pacific contends that its strongest claim is in relation to a claim for moneys had and received.

312 Mr Simpkins submits that Newport Pacific (through Mr Gakas) mistakenly believed in the accuracy of Ms Salib’s invoices and notes indicating her entitlements to pay, on the faith of which payments were made to Ms Salib from a period from 2001 to 4 December 2006 (reference is made to paras 45-47 of Mr Gakas’ affidavit of 13 March 2009, para 10 of his affidavit of 10 September 2009, and to his evidence at T 385.10-385.50; T 387.45). The mistake is said to be that the amount paid to Ms Salib was the amount to which she was in fact entitled.

313 In relation to the final payment of $569,872.11, it is submitted that this occurred ‘partly’ because of Mr Gakas’ mistaken belief as to the accuracy of Ms Salib’s invoice (when Ms Salib made her calculations on an incorrect assumption that she was entitled to 35% of the business’ stock, cash and outstanding debtors and mistakenly calculated the value of stock in any event).

314 It is submitted that Mr Gakas believed that the final amount sought by Ms Salib represented her final commission charged at 35% net profit and that he relied upon the accuracy of the 4 December 2006 invoice from Ms Salib to Newport Pacific (and the note she had provided setting out her entitlements) in making the payment of $569,872.11.

315 Mr Morahan submits that Mr Gakas must have known that such a payment was well in excess of the share of net profits which Ms Salib had previously received. He submits that the payment made on 6 December was a voluntary payment, in the sense that Mr Gakas knew, at the time the payment was made, all the relevant circumstances and yet chose to pay Ms Salib rather than to withhold payment, so that no action for moneys had and received can be maintained (relying on Cartwright v Rowley (1799) 2 Esp 723, at 723; 170 ER 509, at 510, cited in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; (1992) 109 ALR 57, at 69).

316 As to the nature of the payment, Mr Simpkins submits that it cannot be seen as an acknowledgement by Mr Gakas of Ms Salib’s entitlement to assets of the business, on the basis that it was a response to a demand from Ms Salib in the context of a threat to charge Mr Gakas with sexual harassment. In that context an issue might also arise as to the voluntariness of the payment.

317 Mr Morahan submits that Ms Salib provided Mr Gakas with notes detailing the calculation of this final pay out sum so that Mr Gakas had adequate opportunity to have the figures checked and to ascertain what he now says is inaccurate. There is, however, some doubt as to what documentation, if any, was left with the note of 5 December 2006 and therefore I cannot be confident that Mr Gakas had knowledge of all the relevant matters from which to assess for himself the accuracy of the figures. That said, unless Mr Gakas paid no attention to the payments out from his business over the years it is hard to believe that he could have understood the claim made by Ms Salib on 5 December to be one related solely to what he understood to be her entitlement to commission. It should have been apparent to Mr Gakas that the payment, being over $500,000 could not have represented a six month 35% share of net profits unless the business for that period had been performing well in excess of the earlier years (when annual payments of commission to Ms Salib did not exceed $300,000). Mr Gakas surely did not need his accountant to confirm to him that this payment must have been in relation to more than a 35% commission payment.

318 Further, I have difficulty accepting Mr Gakas’ assertions as to reliance on Ms Salib’s final figures, when it seems from his evidence that his first response was to chase up the accountant to verify those very calculations. The fact that he later chose to proceed without having been able to verify the calculations (or that, as submitted by Mr Simpkins, he did not have a realistic opportunity to do so) seems to me to be beside the point when considering whether Mr Gakas had relevantly relied on the accuracy of Ms Salib’s calculations. I do not accept that he did so. His conduct in seeking confirmation from Mr Kolta is quite inconsistent with this.

319 Mr Morahan submits that the final payment was made by way of a settlement of outstanding claims between the parties. I think there is force in that submission. Mr Gakas was being told that he had the opportunity to check Ms Salib’s figures and he made some attempt to do so. His concern at the time seems to have been (by reference to his instructions to his lawyers) to ensure that this was a final resolution of Ms Salib’s claims. In those circumstances, knowing that he had not been able to obtain verification from Mr Kolta and in the face of advice from his lawyers against so doing, Mr Gakas sought from Ms Salib an acknowledgment as to the finality of the payment and proceeded to make payment to her without reserving his position as to any inaccuracy in the calculations.

320 It is not sufficient for Newport Pacific to establish that the calculation of Ms Salib’s entitlements (if that is what he understood the payment to represent) was incorrect. It is necessary for Newport Pacific to establish the existence of some recognised qualifying or vitiating factor, which operates to make Ms Salib’s retention of the sum received ‘unjust’ in the relevant sense. Deane J in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221; (1987) 69 ALR 577 emphasised (at [14]) that to identify the basis of such actions as restitution was “not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate”.

321 In David Securities, at 378-379, Mason CJ, Deane, Toohey, Gaudron and McHugh JJ said that:

… it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable. Instead, recovery depends upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality. (my emphasis)

322 That restitution, on the basis of unjust enrichment, will be available only where a recognised ‘unjust’ factor has been established, was again affirmed by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89; (2007) 236 ALR 209, where Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ stated at [150]-[151];

First, whether enrichment is unjust is not determined by reference to a subjective evaluation of what is unfair or unconscionable: recovery rather depends on the existence of a qualifying or vitiating factor falling into some particular category; Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; (1988) 164 CLR 662 at 673 per Mason CJ, Wilson, Deane, Toohey and Gaudron JJ; David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 379 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ. In David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 379, Mason CJ, Deane, Toohey, Gaudron and McHugh JJ gave as instances of a qualifying or vitiating factor mistake, duress or illegality.

323 In Lumbers v W Cook Builders Pty Limited [2008] HCA 27; (2008) 232 CLR 635; (2008) 247 ALR 412, Gummow, Hayne, Crennan and Kiefel JJ stated (at [80]) that;

the bare fact of conferral of the benefit

does not suffice to establish an entitlement to recovery

324 In a passage, the earlier edition of which was approved by Campbell J in Wasada Pty Limited v State Rail Authority of New South Wales (No.2) [2003] NSWSC 987, at [16], Mason, Carter and Tolhurst, in Mason & Carter’s Restitution Law in Australia, state at [166]:

‘Unjust’ is the ‘generalisation of all the factors which the law recognises as calling for restitution’. Because we need to search for recognised factors, examination of which involves an analysis of case law, the reference to ‘injustice’, as an element of unjust enrichment, is not a reference to judicial discretion. Normal judicial processes are involved and it is only in cases where there is no recognised basis for saying that injustice has arisen that problems can arise.

325 One of the categories of case in which it is recognised that the

facts give rise to a prima facie obligation to make restitution, as noted in Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; (1988) 164 CLR 662, (at p 673 per Mason CJ, Wilson, Deane, Toohey and Gaudron JJ) is the receipt of a payment which has been made under an operative mistake. (In David Securities the High Court unanimously rejected the notion that such a mistake need be fundamental, emphasising, at 43, the requirement that the mistake be causative.)

326 Thus, to establish a right to restitution on the basis of a mistake the plaintiff must not only have held the relevant mistaken belief (whether that be a mistake of fact or law) but also the mistake must be causative of the payment or conferral of the benefit (David Securities, per Mason CJ, Deane, Toohey, Gaudron, at 378-379 and per McHugh JJ, at [43] making it clear that the prima facie entitlement to recover moneys paid under a mistake depends upon the appearance that the moneys were paid by the payer “in the mistaken belief that he or she was under a legal obligation to pay the moneys or that the payee was legally entitled to payment of the moneys”).

327 A plaintiff may be relevantly mistaken, and entitled to restitution, even where the mistaken belief is his or her own fault, provided that payment was made as a result of the mistake (Commercial Bank of Australia v Younis [1979] 1 NSWLR 444, at 450; David Securities; Kelly v Solari (1841) 9 M & W 53, at 59; 152 ER 24, at 26, per Parke B). As Parke B. said in Kelly v Solari:

If, indeed, the money is intentionally paid, without reference to
the truth or falsehood of the fact, the plaintiff meaning to waive all
inquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly
entitled to retain it

328 In David Securities the High Court did not expressly address the appropriate test for causation in this context, remitting the case to the trial judge to determine whether the payments were made ‘because of’ the mistaken belief (David Securities, at 386). Nevertheless, it could be inferred from the High Court’s rejection of the requirement of fundamentality the question would turn on whether the mistake was a ‘significant’ or ‘dominant’ cause of the relevant payment. By way of analogy in Gould v Vaggelas (1985) 157 CLR 215, at 216, per Wilson J; at 250-251, per Brennan J; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, at 366, per Brannan J; Henville v Walker (2001) 206 CLR 459, at 493, per McHugh J, the test was whether the mistake was a reason for the enrichment.

329 Mason CJ, Deane, Toohey, Gaudron and McHugh JJ in David Securities (at [36]) addressed the question of the voluntariness of the payment or election by the payer:

The payment is voluntary or there is an election if the plaintiff chooses to make the payment even though he or she believes a particular law or contractual provision requiring the payment is, or may be, invalid, or is not concerned to query whether payment is legally required; he or she is prepared to assume the validity of the obligation, or is prepared to make the payment irrespective of the validity or invalidity of the obligation, rather than contest the claim for payment. We use the term "voluntary" therefore to refer to a payment made in satisfaction of an honest claim, rather than a payment not made under any form of compulsion or undue influence.

330 It seems to me that there is a relevant distinction between the making of the final payment and the earlier commission payments. As to the earlier payments, there is no reason not to accept the evidence of Mr Gakas that he made those payments in reliance upon a belief as to the accuracy of Ms Salib’s calculations. This is supported by the evidence of Ms Overman as to the manner in which Mr Gakas made those payments (without question, Ms Salib having prepared all the figures). Therefore, I consider that Newport Pacific has established an entitlement to recovery of any overpayments established in the years through to the end of June 2006 (after offsetting any established underpayments in that period).

331 Where I am not satisfied is that Newport Pacific has established that the final payment was made under an operative or causative mistake.

332 Whether or not Mr Gakas had available to him at the time (as Ms Salib suggests he did) sufficient documentation to explain and detail the method of calculation of the amount claimed by Ms Salib, and whether or not he appreciated (from the unusual quantum of the sum) that it had been prepared on the basis that Ms Salib was entitled to more than a 35% share of commission, the evidence is inconsistent with Mr Gakas relying on the accuracy of Ms Salib’s figures at all. The initial enquiry made by Mr Gakas of Mr Kolta to check and confirm Ms Salib’s calculation and final figures is inconsistent with him placing reliance on the accuracy of Ms Salib’s figures. The very fact that Mr Gakas felt a need to check the figures indicates that there was the existence of doubt in his mind concerning the accuracy of Ms Salib’s calculations. Where there is this existence of doubt it is difficult to find that Mr Gakas was operating under a mistaken belief that Ms Salib’s calculations were correct.

333 Further, not only does the existence of doubt speak to whether a mistake existed at all, it indicates that Mr Gakas was prepared to proceed in the knowledge that there was a risk that the figures might not be accurate. In this regard, the enquiry made of his solicitors is relevant. What Mr Gakas clearly wanted was to obtain finality by means of the payment of the amount claimed. In those circumstances I cannot find that there was an operative mistake which renders retention by Ms Salib of the final payment unjust. It seems to me that Mr Gakas, knowing that the figures had not been checked, nevertheless chose to make the payment (and assumed the risk that Ms Salib might be claiming more than that to which she was strictly entitled) in order to achieve a final resolution of her claims (and, when she would not sign the deed of release, he did so on the basis of the more limited acknowledgement in the receipt signed by her).

334 Moreover, insofar as I find that the final payment was made by Newport Pacific in order finally to determine the business relationship between the parties (and to encompass any claim which might be made in the context of that business association), even had there been a mistaken belief on Mr Gakas’ part as to the accuracy of Ms Salib’s calculation of entitlement to commission (and I find that there was no such belief) was one which would not seem to me to have been causative of the payment in question.

335 I find that the payment by Newport Pacific on 6 December 2006 was a voluntary payment in the sense referred to in David Securities and hence that the claim for moneys had and received has not been established in relation to that payment.

336 Insofar as I have found that there is an entitlement to recover for overpayments in the earlier years, and some of those payments were made more than 6 years before these proceedings were commenced, no limitations defence was pleaded and in any event to the extent that such claims are based on a mistaken payment, then s 56 of the Limitation Act 1969 (NSW) would apply to defer the reckoning of time until such time that the mistake was discovered, or would have been discoverable with reasonable diligence (Torrens Aloha Pty Ltd v Citibank NA [1997] FCA 77; (1997) 72 FCR 581; (1997) 144 ALR 89; (1997) 35 ATR 36).

Breach of duty claims

337 Little emphasis was placed on these claims during the hearing. Mr Morahan points to the fact that no particulars of the alleged breaches of duty (assuming a duty of care to have arisen) were provided. It may well be the case that no such particulars were ever sought. In any event, in circumstances where the methodology used for valuation of the stock was one apparently applied or approved by the company’s then accountant (and the evidence from Mr Jugmans was to accept that in certain situations use of other than the standard methodology for valuation of inventories might be appropriate) it is difficult to argue that Ms Salib’s use of such methodology evidences any breach of a duty of care on her part. Similarly, the fact that she seems to have exported data from the Quickbooks programme into Excel spreadsheets so as to re-order stock valuation summaries in a form she considered more workable in a business context does not of itself suggest a breach of a duty of care on her part.

338 I find that Newport Pacific has not established its alternative claims for damages for breach of any duty of care.

Conclusion

339 For the reasons set out above, I find as follows.

340 In the first set of proceedings, I find that there was no partnership of the kind alleged between Ms Salib and Mr Gakas and therefore that Ms Salib’s claim against Mr Gakas fails.

341 In the second set of proceedings, I find that Newport Pacific has established a claim for recovery of overpayments of commission in the period through to the end of June 2006 but not otherwise and that it has not established a claim for damages for breach of duty. The net overpayments for the period through to 30 June 2006 (taking into account the underpayment for the 2003 financial year and the adjustments accepted by Mr Janes) amount to $172,752.60. In terms of the claim for interest, it seems to me that the appropriate order may be to award interest from 1 July 2006 (on the basis that the amount repayable by Ms Salib is an aggregate sum taking into account underpayments over that period). Alternatively, it may be appropriate for there to be an offset for interest on the underpayments over the relevant period against the interest payable on the overpayments from the date of payment. However, I will hear any submissions in that regard.

342 Subject to any correction on the applicable mathematics, having regard to my findings in principle, I order as follows:

1. I dismiss the plaintiff’s claim in proceedings 07/256633.

343 I will list the matter for a convenient time to hear any submissions as to costs or as to the computation of interest on the net amount to be repaid by Ms Salib by way of overpaid commission.

**********

01/06/2010 - In para 99, second line the word "Graham" has been replaced by "Gakas"In para 341, third sentence, "2007" has been replaced by "2006" - Paragraph(s) 99, 341

Citations

Salib v Gakas [2010] NSWSC 505

Most Recent Citation

Cases Citing This Decision

30

Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14

David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48

Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17

Cases Cited

22

Statutory Material Cited

2

David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48

Pavey & Matthews Pty Ltd v Paul [1987] HCA 5

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CITATION:	Salib v Gakas; Newport Pacific Pty Ltd v Salib [2010] NSWSC 505 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	22-26 February, 8 & 9 March 2010
JUDGMENT DATE :	21 May 2010
JURISDICTION:	Equity
JUDGMENT OF:	Ward J
DECISION:	Dismiss plaintiff's claim in proceeding 2007/00256633 Judgment for plaintiff in proceedings 2008/00278795
CATCHWORDS:	PARTNERSHIP - principles concerning existence of partnership - whether business relationship constituted a partnership entitling Ms Salib to share of capital of business - HELD - no partnership but arrangement whereby Ms Salib provided administrative services in return for commission on profits earnt - RESTITUTION - whether Ms Salib had been overpaid commission by mistake - whether final payment made by Mr Gakas was due to a mistaken belief as to accuracy of calculations concerning Ms Salib’s entitlement or was to determine business relationship between them on a final basis - HELD - final payment was not made under a mistake although earlier payments were made under a mistake
LEGISLATION CITED:	Limitation Act 1969 (NSW) Partnership Act 1892 (NSW)
CASES CITED:	Adam v Newbigging (1888) 13 App Cas 308 Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; (1988) 164 CLR 662 Badeley v Consolidated Bank (1888) 38 Ch D 238 BSP Technical Services Pty Limited v AMEV-UDC Finance Limited (unreported, Hodgson J, 25 March 1985 Canny Gabriel Castle Jackson Advertising Pty Limited v Volume Sales (Finance) (1974) 131 CLR 321; (1974) 3 ALR 409 Cartwright v Rowley (1799) 2 Esp 723; 170 ER 509 Commercial Bank of Australia v Younis [1979] 1 NSWLR 444 Cribb v Korn (1911) 12 CLR 205; [1911] HCA 9 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; (1992) 109 ALR 57 Elkin & Co v Specialised TV Installations [1961] SR (NSW) 165; (1959) 77 WN (NSW) 844) Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89; (2007) 236 ALR 209 Gould v Vaggelas (1985) 157 CLR 215 Henville v Walker (2001) 206 CLR 459 Hybernia Management & Development Co v Newfoundland Steel Inc (1996) NFLD & PEIR 90 In re Young: Ex parte Jones [1896] 2 QB 484 Industrial Equity Limited v Lyons (NSWSC unreported, Cohen J, 15 October 1991) Kelly v Solari (1841) 9 M & W 53; 152 ER 24 Lumbers v W Cook Builders Pty Limited [2008] HCA 27; (2008) 232 CLR 635; (2008) 247 ALR 412 Makita (Australia) Pty Limited v Sprowles (2001) 52 NSWLR 705 Malco Engineering Pty Limited v Ferreira & ors (1994) 10 NSWCCR 117 Mollwo, March & Co v Court of Wards (1872) LR 4 P.C. 419; 17 ER 495 Momentum Productions Pty Limited v Lewarne [2009] FCAFC 30; (2009) 268 FCR; (2009) 254 ALR 471 Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221; (1987) 69 ALR 577 Phillips-Higgins v Harper [1954] 1 QB 411; [1954] 2 All ER 51 San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 Television Broadcasters Limited v Ashton’s Nominees Pty Limited [No 1] (1979) 22 SASR 552 Torrens Aloha Pty Ltd v Citibank NA [1997] FCA 77; (1997) 72 FCR 581; (1997) 144 ALR 89; (1997) 35 ATR 36 United Dominion Corporation Limited v Brian [1985] HCA 49; (1985) 157 CLR 1; (1985) 60 ALR 741 United Builders Pty Limited v Mutual Acceptance Limited (1980) 144 CLR 673; (1980) 33 ALR 1 Wasada Pty Limited v State Rail Authority of New South Wales (No.2) [2003] NSWSC 987 Weiner v Harris [1910] 1 KB 285 Wiltshire v Kuenzli (1945) 63 WN (NSW) 47
TEXTS CITED:	Halsbury Laws of Australia, Butterworths Lindley & Banks on Partnership 18th ed, Sweet & Maxwell, 2002 Mason K., Carter J. and Tolhurst G., Mason & Carter’s Restitution Law in Australia Butterworths, 2008
PARTIES:	2007/00256633 Hyam (aka Helen) Salib (Plaintiff) William Gakas (Defendant) 2008/00278795 Newport Pacific Pty Ltd (Plaintiff) Hyam (aka Helen) Salib (Defendant)
FILE NUMBER(S):	SC 2007/00256633; 2008/00278795
COUNSEL:	2007/00256633 J Morahan (Plaintiff) J Simpkins SC with T Anderson (Defendant) 2008/00278795 J Simpkins SC with T Anderson (Plaintiff) J Morahan (Defendant)
SOLICITORS:	2007/00256633 Brydens Law Office (Plaintiff) Alfred J Morgan & Son (Defendant) 2008/00278795 Alfred J Morgan & Son (Plaintiff) Brydens Law Office (Defendant)