Segal v Sharma

[2022] NSWSC 496

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Segal v Sharma & Anor [2022] NSWSC 496

Hearing dates:

16 – 17 December 2021

Date of orders:

27 April 2022

Decision date:

27 April 2022

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Report of referee adopted in the manner identified in the Court’s orders. Directions made to resolve remaining questions of costs and residual issues.

Catchwords:

CIVIL PROCEDURE – reference out to a referee – Uniform Civil Procedure Rules 2005 r 20.24 – dissolution of a partnership between doctors – complex structure of partnership entities – reference to referee to undertake final accounting between the partnership entities – referee reports – parties dispute whether the whole of the referee’s report should be adopted – whether the referee’s report should be adopted or varied in part and if so in which respects.

Legislation Cited:

Civil Procedure Act2005, s 21

Corporations Act2001

Trustee Act1925, s9(5)

Conveyancing Act1919, s 12

Uniform Civil Procedure Rules2005

Cases Cited:

ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia (2014) 89 NSWLR 209

Anglican Development Fund Diocese of Bathurst [2015] NSWSC 440

Bermria Pty Ltd v Homebush Abattoir Corporation (1991) 22 NSWLR 600

Carter Holt Harvey Wood Products Australia Pty Ltd v The Commonwealth [2019] HCA 20

Cherry v Boultbee (1839) 4 My & Cr 442

Chocolate Factory Apartments Pty Ltd v Westpoint

Finance Pty Ltd & Ors [2005] NSWSC 784

Franks v Berem Constructions Pty Ltd [1998] NSWCA 87

Council of the City of Sydney v Baboon Pty Ltd [2020] NSWSC 1480

Gray v Gray (2004) 12 BPR 22,755

Thompson v Golden Destiny Investments Pty Ltd [2015] NSWSC 1929

Harvey v Harvey (1970) 120 CLR 529

Illawarra Hotel Company Pty Ltd v Walton Constructions Pty Ltd (2013) 84 NSWLR 410

Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549

Tryhaz Pty Ltd v Fielders Engineers Pty Ltd [2005] NSWSC 906

Texts Cited:

JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths)

Category:

Procedural rulings

Parties:

Plaintiff: Phillip Segal
First defendant: Praneal Dutt Sharma
Second defendant: Gregory Chen
Third defendant: Adam Preiner in his capacity as receiver and manager of the property, assets and undertaking of the SWR Holding Unit Trust
Fourth defendant: SWR Pty Ltd as trustee of the SWR Unit Trust
Fifth defendant: Park Central Radiology Pty Ltd

Representation:

Counsel:
Plaintiff: S. Keizer
First defendant: E. Finnane
Second Defendant: H. Kiely
Third defendant: T. Bagley

Solicitors:
Plaintiff: M. J. Rozdal, Key Point Law
First defendant: M.S. Robert, Uther Webster & Evans
Third defendant: A. Kozary, Piper Alderman

File Number(s):

2018/190679

Publication restriction:

No

Judgment

1. Dr Phillip Segal, the plaintiff, Dr Praneal Sharma, the first defendant, and Dr Gregory Chen, the second defendant, are specialist radiologists. Dr Segal and Dr Sharma practised in partnership together in south-western Sydney between 2010 and 2013. In 2013 they formed a new three-way partnership that included Dr Chen through a complex structure using family trusts controlled by each partner. But the three-way partnership ceased operation in 2016, when Dr Sharma commenced legal proceedings against his two partners.

2. That litigation resolved after a hearing in the Commercial Division of this Court in 2017. Dr Segal commenced the present proceedings in 2018 seeking the appointment of receivers to the partnerships and a partnership accounting. After a further hearing, the accounting aspects of the present proceedings were referred out to Dr Ian Ferrier for determination as a referee under Uniform Civil Procedure Rules 2005 (“UCPR”), Part 20 Division 3. Dr Ferrier reported on 20 December 2020.

3. This judgment determines a contest about the adoption of Dr Ferrier’s report. By his Amended Notice of Motion dated 15 April 2021 Dr Segal seeks the substantial adoption of the referee’s report (“Dr Segal’s motion”). By his Further Amended Notice of Motion Dr Sharma seeks to add to the issues considered by the referee, and to adopt the report but subject to set-off (“Dr Sharma’s motion”). The issues raised by these two motions are dealt with more precisely below. Dr Segal, Dr Sharma and Dr Chen agree that much of the referee’s report should be adopted. But they disagree about limited numbers of the referee’s findings and conclusions. These questions have now been resolved following submissions during a two-day hearing on 16 and 17 December 2021.

4. The Court had the benefit of careful written submissions from all the parties appearing at this hearing. Mr S Keizer of counsel appeared for the plaintiff, Dr Segal. Mr E Finnane of counsel appeared for the first defendant, Dr Sharma. Mr H Kiely of counsel appeared for the second defendant, Dr Chen. And Mr T Bagley of counsel appeared for the third defendant, the receiver of the assets of the principal trading trust through which the three doctors conducted their practice.

5. Despite the complex partnership structure and a protracted procedural history, the important relevant background facts may be shortly stated.

Dr Segal, Dr Sharma, and Dr Chen in Partnership

6. The Partnership Structures. In February 2004 Dr Segal and Dr Sharma purchased a commercial property in the Sydney suburb of Liverpool (“the Liverpool property”) in partnership, which they called, and which has been referred to throughout these proceedings as “the Segal Sharma Partnership”, shortened for convenience to “SSP”. Their partnership, SSP, commenced to operate a radiology business known as “South-West Radiology” at the Liverpool property.

7. In February 2007 through SSP Dr Segal and Dr Sharma acquired a second commercial property, this time in the Sydney suburb of Campbelltown (“the Campbelltown property”). And on 6 February 2007, they incorporated Park Central Radiology Pty Ltd (“Park Central”) to lease the operating equipment and to run the South-West Radiology business that was being conducted from the Campbelltown property.

8. On 6 May 2009, Dr Segal and Dr Sharma decided to structure the business conducted from the Liverpool property in the same way they had structured the business conducted from the Campbelltown property. They incorporated SWR Pty Ltd (“SWR”) as trustee of the South-West Radiology Unit Trust (“SWRUT”) to lease the equipment and run the business being conducted from the Liverpool property.

9. In June and December 2010 respectively, the SSP partnership acquired two ultrasound machines, an MRI machine, and a CT Scanner, for use at the South-West Radiology business being conducted at the Campbelltown and Liverpool properties.

10. After he had been working for a few years as an employed doctor at South-West Radiology, in 2012 Dr Chen commenced discussions with Dr Segal and Dr Sharma about acquiring a 20% interest in South-West Radiology. These discussions came to fruition in December of that year when Dr Segal, Dr Sharma and Dr Chen set up a new unit trust owned by them in the proportions 40:40:20, the SWR Holding Unit Trust (“SWRHUT”). The function of the SWRHUT was to acquire the business of South-West Radiology and hold it in these proportions.

11. On 15 December 2012 the SWRHUT was formally established, with South-West Radiology Pty Ltd as its trustee. The family trusts of Dr Segal, Dr Sharma and Dr Chen held their respective interests in the SWRHUT in the agreed proportion 40:40:20.

12. South-West Radiology Pty Ltd as trustee of the SWRHUT acquired the business of South-West Radiology in a suite of transactions on or about 18 April 2013. On that date Dr Segal, Dr Sharma and Dr Chen, the unit holders in the SWRHUT, its trustee South-West Radiology Pty Ltd, SWR and Park Central, all executed an instrument entitled “Deed of Agreement Commercial Arrangements” (“the April 2013 Deed”), under which Dr Chen and the trustee of his family trust agreed to pay $1,000,000 to the SWRHUT and receive in exchange one fifth of all units in the SWRHUT. The April 2013 deed also provided for wider commercial arrangements among the parties consequent upon the transfer of the business of South-West Radiology to the SWRHUT.

13. On 18 April 2013 the goodwill and operating business assets of the business South-West Radiology at the two locations, Liverpool and Campbelltown were also assigned to South-West Radiology Pty Ltd as trustee of the SWRHUT. Each of SWR in respect of the Liverpool operations) and Park Central (in respect of the Campbelltown operations) entered a Deed of Assignment of Goodwill with South-West Radiology Pty Ltd. And each of SWR and Park Central entered a Deed of Assignment of Equipment with South-West Radiology Pty Ltd.

14. From April 2013 SWRHUT operated the business of South-West Radiology from the Liverpool property and the Campbelltown property. But the Liverpool property and the Campbelltown property each remained in the ownership of the original partnership, SSP, and were leased by SSP to South-West Radiology Pty Ltd as trustee for the SWRHUT. The leases of each of these properties from SSP were unregistered and each was for the five-year term from 15 December 2012 to 14 December 2017, with options to renew for two further 5-year periods.

15. In 2014 Dr Segal, Dr Sharma and Dr Chen also formed a new tripartite partnership, the Segal Sharma Chen partnership (abbreviated in these reasons to “SSCP”), which acquired and owned limited property of its own (referred to below). Dr Segal, Dr Sharma and Dr Chen mostly conducted their business operations through SWRHUT from 2013.

16. Post April 2013 dealings. Dr Segal’s dealings with the money Dr Chen paid to the SWRHUT upon the settlement of the April 2013 deed feature prominently in the present dispute over the acceptance of the referee’s report. On 24 April 2013, Dr Chen paid or caused to be paid the settlement funds of $1,000,000 into a bank account in the name of South-West Radiology Pty Ltd as trustee of the SWRHUT. Thereafter the following dealings occurred. On the same day, 24 April 2013, Dr Segal caused $1,000,000 to be transferred from SWRHUT’s bank account to another bank account in his own name.

17. On 26 May 2014, Dr Segal transferred $115,000 from the bank account in his own name to an account in the name of SSP. Also, on 26 May 2014, Dr Segal transferred $400,000 from the bank account in his own name into an account in the name of South-West Radiology Pty Ltd as trustee for SWRHUT.

18. On 29 May 2014, the sum of $400,035 was transferred out of the account in the name of South-West Radiology Pty Ltd as trustee for SWRHUT into an account in the name of Dr Sharma and his wife.

19. The SSCP acquired a commercial property in May 2014 with funds from SSP. On 29 May 2014 the sum of $118,000 was paid from the account of the SSP and applied as the deposit for the purchase of a property situated in the Sydney suburb of Moorebank (“the Moorebank property”), which was being purchased in the three names of Dr Segal, Dr Sharma and Dr Chen in the SSCP partnership in the proportion 40:40:20 respectively. In addition, a fee of $400 was debited to the account of SSP on 30 May 2014.

20. On or about 6 August 2014, Dr Segal and Dr Sharma signed an Amended Tax Return and Financial Statements for SSP for the financial year ended 30 June 2014 (FY 14).

21. The purchase of the Moorebank property settled on 29 April 2015. After settlement the SWRHUT conducted fit-out and building works at the Moorebank property. Thereafter SWRHUT operated the South-West Radiology business from the Moorebank property in addition to the Liverpool and Campbelltown properties.

22. Legal Proceedings and Asset Disposal. A loss of trust developed between Dr Sharma, Dr Segal, and Dr Chen. In the first half of 2016, Dr Sharma commenced proceedings against Dr Segal and Dr Chen (proceeding number 2016/332612 – “the 2016 proceedings”).

23. Hammerschlag J (as his Honour then was) determined the 2016 proceedings on 30 June 2017. It was common ground before Hammerschlag J that Dr Sharma, Dr Segal and Dr Chen had fallen out. The issue before Hammerschlag J was whether that rupture had triggered potentially applicable provisions in the April 2013 deed providing for agreed transactional consequences. Hammerschlag J determined that in the circumstances there had been an “agreed determination” within the meaning of the April 2013 deed, which then required that the South-West Radiology business conducted by SWRHUT be sold. But for a long time after Hammerschlag J’s decision there was little agreement among the parties about how the sale process would be conducted.

24. On 20 June 2018, Dr Segal commenced these proceedings (number 2018/00190679 – “the partnership receiver proceedings”) for the appointment of receivers to the SSP and SSCP partnerships. Soon afterwards a preliminary consensus was reached. On 26 June 2018, consent orders were made in these proceedings. These orders provided among other things for the following:

1. the SSP and SSCP were to be dissolved and Jennifer Nettleton and Cassandra Matthews (the receivers) would be appointed receivers of the assets of those partnerships;

2. the receivers were to dispose of the assets of the SSP and SSCP and discharge their liabilities, after which they would pay the net proceeds into Court; and

3. accounts for the SSP and SSCP were to be taken by the receivers.

25. On 16 November 2018, the receivers completed the sales of the South-West Radiology business and the assets used in the business owned by SWRHUT. Concurrently the receivers sold certain ultrasound, CT and MRI machines owned by the SSP.

26. On 11 December 2018, Dr Sharma commenced proceedings, seeking orders for the winding up of South-West Radiology Pty Ltd either in insolvency, or on the just and equitable ground or on the ground of oppression (proceedings 2018/381397 – “the winding up proceedings”). At the commencement of the winding up proceedings Dr Segal, Ms Rosalind Chen (Dr Chen’s wife) (Ms Chen) and Dr Sharma were the directors of South-West Radiology Pty Ltd.

27. By early 2019 the receivers had sold all the real estate of SSP and SSCP. They completed the sale of the Moorebank, Campbelltown, and Liverpool properties respectively on 24 January 2019, 1 March 2019, and 6 March 2019.

28. Shortly thereafter, on 10 April 2019, faced with the winding up proceedings, Dr Segal and Ms Chen appointed Giles Woodgate as the administrator of South-West Radiology Pty Ltd. On 20 May 2019, Rees J refused an application to adjourn the winding up proceedings and made orders that South-West Radiology Pty Ltd be wound up in insolvency. Rees J appointed Adam Preiner as the liquidator of the company. Her Honour also appointed Mr Preiner as the receiver and manager of the property, assets and undertaking of SWRHUT.

29. On 30 July 2019, the Court made further orders in these proceedings, the partnership receiver proceedings, by consent, for securing the sale proceeds of the partnerships and the taking of accounts. These included the following orders that:

1. the net proceeds of sale of the assets of SSP and SSCP, after payment of the receivers’ remuneration and certain unrelated creditors of SSP and SSCP, be paid into Court;

2. SWR, Park Central and Adam Preiner as receiver and manager or the property, assets and undertaking of SWRHUT, be joined as defendants to the proceeding;

3. the proceeding be listed for further directions in respect of the taking of accounts of SSP and SSCP, including as to the procedure for determining:

1. whether SSP and SWRHUT are creditors of SSCP, and if so in what amounts;

2. whether the SWRHUT, the SWRUT, or and Park Central are creditors of SSP, and if so in what amounts; and

3. such other questions as are identified by the parties as being necessary or desirable to resolve prior to, or during the taking of accounts.

30. On 17 September 2019, Glenn Livingstone was appointed to replace Adam Preiner as liquidator of South-West Radiology Pty Ltd. On 25 October 2019 the receivers paid the net proceeds of sale of SSP’s and SSCP’s assets into Court, being the sums of $2,845,025.93 and $596,655.80 respectively.

31. On 30 April 2020, orders were made in these partnership receiver proceedings, by consent providing for each party to notify the other parties of the amounts that are alleged to be owed by the SSP and SSCP and any other questions that the parties consider to be necessary or desirable to be resolved as part of the taking of partnership accounts for those partnerships.

32. On 12 May 2020, Dr Sharma’s solicitor sent the other parties a letter which set out his position, the books and information required, and the questions that he contended were necessary to be resolved to finalise all remaining issues between the parties. The letter enclosed a list of issues to be determined. The solicitors for Dr Chen, Dr Segal and Mr Preiner also sent correspondence over the period 14 May 2020 to 10 June 2020, which set out their clients’ respective positions and the the books and information required, and the issues to be determined.

33. As a result of these exchanges, on 2 July 2020, the parties agreed to further orders in these partnership receiver proceedings. Order 3 provided in terms that the taking of partnership accounts would include the following issues:

“a.   whether the Plaintiff and the First Defendant (in their capacity as partners of SSP) and/or the trustee of the SWR Holding Unit Trust and/or any other entity are creditors of the Segal Sharma Chen Partnership and, if so, in what amount; and

b.   whether the trustee of the SWR Holding Unit Trust, the trustee of the SWR Unit Trust and/or Park Central Radiology Pty Ltd and/or any other entity are creditors of the Segal Sharma Partnership and, if so, in what amount.”

34. Order 4 of those orders provided that the parties were to seek to reach agreement by 23 July 2020 as to whether the taking of accounts or any part thereof ought to be conducted by a referee and the directions to be made for the purpose of any accounting including any reference out to a referee.

35. On 12 August 2020 the parties agreed to orders in these partnership receiver proceedings referring to the referee for inquiry and report under UCPR Part 20 Division 3 matters that were identified in questions 1 to 6 in the Schedule to those orders. Those six matters were as follows:

“1. Whether each of:

a. the plaintiff [Dr Segal] and the first defendant [Dr Sharma] (in their capacity as partners of the SSP); and

b. the trustee of the SWRHUT;

are creditors of the SSCP and if so in what amount.

2. What amounts, if any, are due to each of:

a. the plaintiff;

b. the first defendant; and

c. the second defendant [Dr Chen];

from the SSCP prior to distribution of any partnership surplus.

3. What amounts, if any, are due by each of:

a. the plaintiff;

b. the first defendant; and

c. the second defendant

to the SSCP prior to distribution of any partnership surplus.

4. Whether each of:

b. the trustee of SWRHUT; and

c. the trustee of SWRUT;

c. Park Central;

are creditors of the SSP, and if so, in what amount.

5. What amounts, if any, are due to each of:

a. the plaintiff; and

b. the first defendant;

from the SSP prior to distribution of any partnership surplus.

6. What amounts, if any, are due by each of:

a. the plaintiff; and

b. the first defendant;

to the SSCP prior to distribution of any partnership surplus.”         

36. A proviso to these questions was that if the referee considered the questions he was asked to answer involved questions of law or were otherwise not suitable for him to determine, then he should state alternative answers to the questions as affected by each party’s respective contentions.

37. As can be seen from the structure of the questions the first three questions relate to what is owing to and by the SSCP and the second three questions relate to what is owing to and by the SSP.

38. Thereafter, the parties submitted their statements of fact and submissions to the referee in support of their respective positions. On 5 December 2020 Dr Ferrier provided a draft report to the parties. The parties submitted their comments in response to this draft report. On 20 December 2020 Dr Ferrier issued his final report.

36. The referee answered all six questions. Only a limited number of the answers to these questions are now in contention. But during the reference Dr Sharma asked the referee to deal with another question that was related to the fourth question. The fourth question asked the referee to determine what amounts were owing by SSP to SWRHUT, SWRUT and Park Central. Dr Sharma asked the referee to report additionally upon the converse question: whether SSP was a creditor of SWRHUT. The referee reported on this additional question as requested by Dr Sharma, although the other parties disputed that it was part of the reference. This additional question was called “question 4a” by the referee and he included his reasoning and findings in relation to question 4a in paragraphs [61] – [89] of his report.

37. On 15 April 2021 Dr Segal filed his motion for the adoption of the referee’s report.

38. The issues for determination. It is not necessary to set out Dr Ferrier’s complex findings as to the respective liabilities of the various persons and entities featuring in the trading history of these partnerships. The parties’ legal representatives have conveniently isolated the concise remaining issues raised by their respective motions that still divide them in relation to the acceptance of the referee’s report. Those concise issues, and the additional evidence in relation to them, are dealt with in these reasons.

Applicable Legal Principles

42. The legal principles that apply when the Court considers whether to adopt or reject a referee’s report in whole or in part may be shortly stated. The Court has a broad discretion as to how a referee’s report is dealt with under UCPR, Part 20, Division 3. Once a report is received by the Court under UCPR, r 20.23, the Court’s powers to deal with it are provided for under UCPR, r 20.24, which relevantly states:

“20.24 Proceedings on the report

(1)   If a report is made under rule 20.23, the court may on a matter of fact or law, or both, do any of the following –

(a)    it may adopt, vary or reject the report in whole or in part,

(b)   it may require an explanation by way of report from the referee,

(c)    it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report,

(d)    it may decide any matter on the evidence taken before the referee, with or without additional evidence,

and must, in any event, give such judgment or make such order as the court thinks fit.

(2)   Evidence additional to the evidence taken before the referee may not be adduced before the court except by leave of the court.”

43. The following distillation of principles relevant to judicial consideration of a referee’s report, by McDougall J in Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd & Ors [2005] NSWSC 784 (“Chocolate Factory Apartments”) has been referred to or quoted in numerous subsequent cases:

“(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.

(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.

(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.

(4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.

(5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.

(6) If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”.

(7) Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.

(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.

(9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.

(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.

(11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.

(12) The right to be heard does not involve the right to be heard twice.

(13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The real question is far more limited: “to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence”.

(14) Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.

(15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified.”

44. See also Illawarra Hotel Company Pty Ltd v Walton Constructions Pty Ltd (2013) 84 NSWLR 410; [2013] NSWCA 6 at [15] – [16]. The principles require the most efficient disposal of the adoption contest which means that where the issue with the report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion may require the judge to consider and determine that matter afresh.

45. In limited circumstances the Court may also consider whether it is appropriate to review the evidence which was before the referee. But this should only be considered in the three circumstances set out in Franks v Berem Constructions Pty Ltd [1998] NSWCA 87 (‘Franks’) at 8 (Priestley JA, Fitzgerald AJA and Hodgson CJ in Eq) and cited with approval in Tryhaz Pty Ltd v Fielders Engineers Pty Ltd [2005] NSWSC 906 (Macready AJ at [14]):

“If there were a real question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come. This was not required “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The application was far more limited: ‘to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence.’

A second circumstance in which it could be necessary or appropriate for a court considering the adoption of a referee’s report to go to the evidence is where the referee’s reasons on the face of them appear adequate, but the party challenging the report contends that the reasons are not adequate because there was very significant evidence against the referee’s finding which the referee did not deal with at all. Such a contention may concede that the referee’s conclusion was one which a reasonable referee could have reached on the whole of the evidence, and also that the referee’s reasons on the face of them appear sufficient; and yet claim that examination of evidence would show that the reasons were in fact quite inadequate because some very significant evidence was not referred to at all.

Thirdly, if a court considering the adoption of a referee’s report decided that the referee’s reasons were flawed, either on the face of them or because they did not deal at all with an important matter appearing in the evidence, the court could, if it thought appropriate, rather than automatically declining to adopt the report, itself look at the detail of the evidence in order to decide whether or not the expense of further proceedings before the referee was really justified.”

46. Rejection or variation of a referee’s report pursuant to UCPR, r 20.24 requires proper justification. Neither party has an automatic right to have the evidence leading to the referee’s report re-heard by the Court; and the nature and purpose of the exercise of discretion under UCPR, r 20.24 is such that rejection of the report is not justified by mere disagreement with a referee’s factual findings: Bermria Pty Ltd v Homebush Abattoir Corporation (1991) 22 NSWLR 600 (“Bermria”); Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; and Ryde City Council v Tourtouras [2007] NSWCA 218.

47. These reasons will shortly deal with the various issues raised on Dr Segal’s motion and Dr Sharma’s motion. The receiver takes no position on most of the issues between the parties. But those motions raise one common preliminary question upon which the receiver of the assets of SWRHUT wished to be heard. The receiver takes no position on most of the issues between the parties. That issue is dealt with first in these reasons.

The Receiver’s Argument: SWRHUT’s Debts to SSP and SSCP

48. Introduction. The receiver challenges the referee’s jurisdiction to make binding determinations of the debts that are owed by South-West Radiology Pty Ltd, the trustee of SWRHUT to each of the two other partnerships, SSCP and SSP. In different parts of his report the referee determined what debts are owed by South-West Radiology Pty Ltd as trustee of SWRHUT to each SSCP and SSP. But these separate determinations raise a common question of the referee’s jurisdiction. This common question arises the following way.

49. The referee concluded in answer to question 1 that SSCP owed $109,716 to SWRHUT (report paragraph [25]). But to reach that conclusion the referee set-off $40,000 in rent (report paragraph [22] - [24]) that he found to be due by SWRHUT to SSCP in relation to the Moorebank property. A separate issue as to whether the referee’s assessment of the quantum of that $40,000 offset is correct is dealt with later in these reasons. But the issue raised by the referee’s present contention is whether the referee was entitled to apply that offset, or whether the full amount owing to SWRHUT before the application of the offset should be paid to the receiver, who will then deal with it.

50. The referee also concluded (in answer to question 4) that SSP owed $484,000 to SWRHUT (report paragraph [52]) and that SWRHUT owed $382,745 to SSP (report paragraph [89]). The referee’s determination that SWRHUT owed $382,745 to SSP came at the conclusion of a section of his report entitled “Question 4a”. The referee acknowledged in paragraph [61] that the question of the amount owing by SWRHUT to SSP had not been referred to him. Dr Sharma had asked the referee to deal with the issue that became Question 4a and the referee decided that he would do so and he answered it between paragraphs [61] and [89] of his report.

51. Dr Sharma now submits that SSP’s debt of $484,000 to SWRHUT and SWRHUT’s debt of $382,745 to SSP should be offset against one another, leaving a net obligation of SSP to SWRHUT of $101,255. Dr Sharma submits that only this net amount should be paid to SWRHUT. But the receiver’s present contention is that the full amount owing to SWRHUT before the application of the offset should be paid to the receiver, who will then deal with it.

52. Although the question arises in these different ways with respect to SSCP and SSP it in substance raises the same question. It is convenient now to consider the competing contentions. The first contention is Dr Sharma’s argument for the offset to take place and for the payment only of net amounts to the receiver after the application of the offset. The counter contention is that of the receiver (supported by Dr Segal) that the full amount owing to SWRHUT before the application of the offset should be paid to the receiver, who will then deal with it.

53. An Incidental Issue about Question 4a. But first there is an incidental issue raised by Dr Sharma’s motion, as to whether question 4a should now be included in the schedule of issues considered by the referee, retrospectively confirming the validity of the referee dealing with the issue in his report. Dr Sharma’s motion seeks the addition of question 4a into the schedule of issues for the referee’s determination. In contrast, Dr Segal’s motion seeks the entire rejection of paragraphs [61] to [89].

54. On this incidental issue Dr Sharma’s submissions are persuasive. The referee has considered the additional material put before him about what was owed by SWRHUT to SSP and reached a determination of $382,745. Apart from the issue raised by the receiver about whether that finding is binding on the liquidator, the parties do not contest the correctness of the receiver’s reasoning in paragraphs [61] to [89]. And as will be seen later in these reasons, even if the referee’s finding is not binding upon the liquidator, it nevertheless still serves an important purpose of binding Dr Segal, Dr Sharma and Dr Chen to the referee’s determination. The parties had every opportunity to contest the material put before the referee. The Court’s view is that there is no basis not to accept this part of the referee’s report.

55. The Contentions - Dr Sharma. It is not necessary for the Court to elaborate Dr Sharma’s argument in detail, but the essentials may be summarised as follows. Dr Segal brought the present proceedings in June 2018 for the dissolution of two partnerships, SSP and SSCP, resulting in final relief in consent orders on 26 June 2018. These final orders included the appointment of the receivers and the remission of the proceedings to a judge or registrar for an account. By the time the receiver’s task was almost completed in July 2019 further orders were made for the approval of the remuneration of the receivers, the termination of the receiverships and the payment of the balance of receivership proceeds into Court. The orders on that occasion also included the joinder of SWR and Central Park and the receiver of the SWRHUT.

56. Dr Sharma submits that the overall intent of these orders was that the entities whose claims were left unpaid were the partners to the partnerships and the entities associated with them and that the only accounting that remained to be done was among them and that that accounting was referred out to the referee.

57. He submits that as part of that accounting the referee, and now the Court, are entitled to set-off the amount owed by SSP to SWRHUT of $484,000 (question 4) against the amount owed to SSP by SWRHUT of $382,745 (question 4a), such that upon the final distribution a single amount payable by SSP to SWRHUT in the sum of $101,255 should now be made. Dr Sharma contends a set-off after determining how much SWRHUT owes SSP is within the present terms of reference.

58. And Dr Sharma submits that the same logic applies to set-off of the $40,000 (rent that SWRHUT owed SSCP) that the referee incorporated into his conclusion on question 1 that SSCP owed $109,716 to SWRHUT (report paragraphs [20] – [25]). Dr Sharma contends that the referee applying a set-off after determining how much SWRHUT owes SSCP is within the terms of reference.

59. Dr Sharma puts an alternative submission. He submits that if the Court finds that applying such a set-off is not within the terms of reference then the following different course should be pursued. The orders made on 12 August 2020 referring the matter out to the referee for report should be varied under UCPR, r 20.22 to add question 4a, “whether the trustee of SWRHUT is a debtor to SSP and if so in what amount”. Dr Sharma’s submissions refer to the detail of how that issue was dealt with thoroughly by the referee during the reference and contends that the Court has the power to vary the original order for referral so that the referee can deal with this question.

60. Dr Sharma submits that the Court should adopt the referee’s report, without the need to vary the report. Dr Sharma submits this can be achieved by adoption of the report subject only to the amounts in paragraphs [52] of the report (SSP owes $484,000 to SWRHUT) and [89] of the report (SWRHUT owes $382,745 to SSP) being set-off against each other in the making of final orders, to reach a net balance due by SSP to SWRHUT of $101,255. Dr Sharma says that his submissions can be considered during the making of final orders without disturbing the content of the report or interfering with its adoption.

61. Dr Sharma further submits that if the matter is dealt with when the Court makes final orders, the Court can set-off the amounts in paragraphs [52] and [89] of the report and find that the single balance of $101,255 is owing. Dr Sharma submits that the question of set-off is purely a question of law or the application of legal standards to established facts and can readily be dealt with by the Court after adoption of the report. Dr Sharma then submits that the set-off is legally available and can occur by and application of Corporations Act2001, s 553C.

48. Corporations Act, s 553C provides as follows:

“(1)   Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:

(a)   an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and

(b)   the sum due from the one party is to be set off against any sum due from the other party; and

(c)   only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2)   A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.”

63. Dr Sharma submits that the Court can and should apply Corporations Act, s 553C here. He says the partnerships had mutual dealings with South-West Radiology Pty Ltd which is now being wound up.

64. The Contentions – The Receiver and Dr Segal. The receiver agrees with Dr Sharma’s submission at least to the extent that that the Court should determine whether and how the liabilities determined by the referee are to be accounted for as between the parties.

65. But the receiver and Dr Segal raise a more fundamental question about the competence of the referee to deal with this issue. The receiver points out that the trustee of SWRHUT, South-West Radiology Pty Ltd is in liquidation and that neither this Court nor the referee upon a reference from this Court can make binding findings as to what is owed by South-West Radiology Pty Ltd to SSCP or SSP in the liquidation. The receiver and Dr Segal submit that the determination of what is owed by South-West Radiology Pty Ltd to SSCP and SSP will be resolved after SSP and SSCP submit proofs of debt in the liquidation. Moreover, the receiver and Dr Segal submit that the liquidator was not a party to the reference and is not a party to these proceedings, another reason why this Court cannot make a finding binding the liquidator as to what debts are owed by South-West Radiology Pty Ltd to SSCP or SSP.

66. The receiver and Dr Segal submit that the Court should: (a) disallow the set-off between SSCP and SWRHUT that the referee has applied within his answer to question 1, and (b) should not permit any set-off between SSP and SWRHUT in the answers to questions 4 and 4a. They submit that SSP and SSCP should instead now submit proofs of debt in the liquidation of South-West Radiology Pty Ltd for the liquidator’s adjudication.

67. The receiver also challenges Dr Sharma’s submission that a set-off would be permitted here under Corporations Act, s 553C. The receiver submits that s 553C does not apply to the debts determined by the referee. He explains that as receiver he was appointed to the trust assets of SWRHUT, and a liquidator was appointed to the corporate trustee, South-West Radiology Pty Ltd. The receiver submits that the consequence of this double appointment is that there were no “mutual debts” to which Corporations Act, s 553C could apply.

68. The receiver develops this argument as follows. He begins by identifying other facts relevant to the claim that a set-off is possible here. The debts the subject of the claimed set-off are debts owed by the two partnerships, SSP and SSCP, to SWRHUT and by SWRHUT to those two partnerships. The SWRHUT, vested on 31 January 2019 by clauses 2.5 and 11 of the April 2013 trust deed. But the vesting of the trust did not cause any transfer of trust property to the SWRHUT unit holders: Trustee Act1925, s9(5) requires property, such as the debts in question here, owned by the trust to be “duly transferred” which would require compliance with Conveyancing Act1919, s 12 which has not occurred here. By its orders made on 20 May 2019 the Court appointed a liquidator to the trustee of SWRHUT, South-West Radiology Pty Ltd, and at the same time the Court separately appointed the receiver to the trust assets of SWRHUT.

69. The receiver submits that the Court’s 20 May 2019 orders severed the connection between the debts of the SWRHUT, which were held by the trustee, South-West Radiology Pty Ltd, and the assets of the SWRHUT, which were thereafter held by the receiver. The receiver submits that in those circumstances there were no “mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company” within the meaning of Corporations Act, s 553C.

70. The receiver submits that the inapplicability of set-off here is supported by analogous reasoning in the application of the set-off provisions in Civil Procedure Act2005, s 21: Anglican Development Fund Diocese of Bathurst [2015] NSWSC 440 (“Anglican Development Fund”). He argues that the matter is covered by decision of the High Court in Carter Holt Harvey Wood Products Australia Pty Ltd v The Commonwealth [2019] HCA 20.

71. The receiver further submits that because s 553C does not apply, the rule in Cherry v Boultbee (1838) 4 My & Cr 442; 41 ER 171 (“Cherry v Boultbee”) applies: Anglican Development Fund at [39]. The ‘rule’ in Cherry v Boultbee provides that where a person entitled to participate in a fund is also bound to contribute in aid of that fund, the person cannot be allowed to participate unless and until the person has fulfilled the person’s duty to contribute: Gray v Gray (2004) 12 BPR 22,755; [2004] NSWCA 408 at [91]. The rule is an illustration of the maxim that a person who seeks equity must do equity: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) at [3-080]. The receiver submits that effect of the rule in Cherry v Boultbee in this case is that the whole of the amount that constitutes the SWRUT trust property must be paid to the receiver before any claim could be made by SSP or SSCP for those funds. The rule in Cherry v Boultbee applies at the time of distribution of funds.

72. Moreover, the receiver submits that because the context of the referee’s report is that the funds in question are funds that have already been paid into Court, the Court retains a wide discretion about how those funds should be dealt with: UCPR, r 41.3(1) and Thompson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929 at [151] – [152] and Council of the City of Sydney v Baboon Pty Ltd [2020] NSWSC 1480 at [7]. The funds paid into Court are also trust funds and a similar wide discretion is conferred on the court under UCPR, r 55.11(1).

73. The receiver submits that in this case that discretion justifies the making of an order that the whole of the debts owed to the trust should be paid to the court appointed receiver. Thus, the receiver says that he should be paid the whole of the debts that constitute the trust property (being $109,716 owed by SSCP and being $484,000 owed by SSP) or such other amounts that the Court adopts based on the challenges to the referee’s report. The receiver submits that it should then distribute those amounts for the benefit of the creditors of the trust.

74. Consideration. The submissions put by the receiver and Dr Segal on this issue are persuasive. The Court cannot make a binding determination against South-West Radiology Pty Ltd in respect of its liabilities to SSP or SSCP on a final basis for several reasons.

75. First, the liquidator is not a party to the proceedings. The liquidator is a necessary party to any final determination of South-West Radiology Pty Ltd’s liabilities to the partnerships. It is South-West Radiology Pty Ltd that owes the debts in question here to SSP and SSCP. There is a widespread misunderstanding that a trust has a separate legal personality from the trustee. That misunderstanding is potentially exacerbated in a case such as this where a receiver has been separately appointed to the assets of the trust, SWRHUT, and a liquidator appointed to the trustee, South-West Radiology Pty Ltd. Subject to statute, a trust has no separate legal personality from the trustee. An obligation incurred by a trustee, whether or not it is properly incurred in accordance with the trustee’s obligations as trustee, may ordinarily be enforced in the same way as an obligation incurred by a person who is not a trustee: ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia (2014) 89 NSWLR 209; (2014) 110 ASCR 1; [2014] NSWCA 402 at [16] (per Leeming JA). Without the liquidator, the participation of the receiver alone cannot make or submit to binding arrangements concerning the external liabilities of SWRHUT.

76. Second, it is not competent for this Court or for the receiver to determine what is owing by South-West Radiology Pty Ltd, a company in liquidation, to SSCP. The effect of the winding up order is to stay court proceedings against the company or in relation to property of the company except with the leave of the Court: Corporations Act, s 471B. The liquidation commences a process in which the liquidator considers provable claims, the admission to proof of debts and claims, the computation of those debts and claims, and the ascertainment of relevant priorities under Corporations Act, Part 5.6, Division 6. The Court cannot circumvent this statutory scheme in respect of any debts owed to South-West Radiology Pty Ltd, whether incurred as a trustee or otherwise. To the extent that Dr Sharma’s submissions invite the Court to make orders that look directly to the trust, SWRHUT, and ignore the role of the liquidator of South-West Radiology Pty Ltd, they cannot be accepted.

77. Third, Corporations Act, s 553C does not provide any shortcut to the parties here to avoid the liquidator’s administration. All that s 553C does is to provide a convenient mechanism so that “only the balance of the account is admissible to proof against the company or is payable to the company” as the case may be: Corporations Act, s 553C(1)(c). The balance of account reached under s 553C must still be submitted to the liquidator for admission to proof.

78. Thus, final determination of the debts owed by SWRHUT to SSP and SSCP and whether and in what amount they can be set-off against the obligations of SSP and SSCP to SWRHUT must await the decision of the liquidator in the administration of the affairs of South-West Radiology Pty Ltd. The Court cannot now decide the set-off issues without creating the potential for the receiver being bound by the Court to an outcome inconsistent with that reached by the liquidator.

79. But much can still be done among these parties. After the parties have gone through the lengthy process before the referee resulting in his findings in the report on the best material they could advance to the referee, there is every reason why the parties should remain bound as between themselves to the outcomes of the referee’s report. And most of those outcomes will not generate a potential conflict with future decisions of the liquidator. Perhaps the only area of potential conflict is the quantum of SWRHUT’s obligations to the partnerships and the application of any set-off of those obligations.

80. The parties should otherwise remain bound by the referee’s report to the maximum extent possible. For example, they should not be permitted to seek to admit to proof with the liquidator claimed debts of SWRHUT that are inconsistent with the findings in their favour in the referee’s report. Nor should they be permitted to contend that they owe SWRHUT debts that are inconsistent with the referee’s findings. Those questions can be resolved among the parties to these proceedings by adopting the referee’s report. But the receipt of actual entitlements based upon those outcomes must await the liquidator’s decisions.

81. There are also good reasons for the Court to exercise its wide discretion with respect to funds in Court, to require the whole of the amounts that the referee has found were owing to SWRHUT and constitute the trust property, to be paid out of Court to the receiver. Those funds are the amount of $109,716 owed by SSCP to SWRHUT and the amount of $484,000 owed by SSP to SWRHUT. As the receiver submitted, the receiver was appointed by the Court and is neutral as among the parties. Allowing the whole of the trust debts to be made payable to the receiver will ensure that the funds are paid to the creditors of the trust (including to the former trustee to meet its indemnity) and distributed in accordance with the statutory priority rules of the Corporations Act. Moreover, the trust debts are the only source of remunerating the receiver. And if the receiver does not receive and administer the funds the Court will have to do so, which will be more expensive for the parties.

82. The parties to these proceedings should also take action to assist the liquidator to address the issue in the near term. The parties will be directed to bring in short minutes of order to give effect to the reasoning in this section. The parties should provide a copy of these reasons to the liquidator within 14 days and should attempt to formulate a joint plan for the further management of the proceedings consistent with these reasons.

83. But in the meantime, the Court will consider and determine among the parties the other quantum issues.

Question 1 (a) what SSCP owes SWRHUT.

84. Introduction to the Issue. The referee found that SSCP owed $109,716 to SWRHUT. This is a net figure. In reaching that figure the referee brought to account by way of set-off amounts which the parties claim that SWRHUT owed to SSCP. The bringing to account of SWRHUT’s claimed liabilities led to the receiver raising the issue of the position of the liquidator. But it is worthwhile to examine the contest about the underlying claim that SWRHUT owed anything to SSCP.

85. The referee found (at [20] of his report) that the principal factors giving rise to an amount owing by SSCP to SWRHUT mostly relate to financial transactions relating to the development and occupation of the Moorebank property, which had been acquired by SSCP in May 2014 after the creation of the SWRHUT. These factors comprise the following: (a) amounts paid by SSCP on behalf of SWRHUT in relation to the fit out of the Moorebank property prior to SWRHUT entering a finance facility with Bank of Queensland (BOQ) on 5 November 2015; (b) property and other expenses paid by SWRHUT on behalf of SSCP; minus (c) rent payable by SWRHUT to SSCP for occupation of the Moorebank property from May 2015.

86. The disputed component of this liability results from SWRHUT’s treatment in its accounting records of factor (c) above. SWRHUT treated the payments that it made to the Moorebank property mortgagee, BOQ, as being loans or advances to the SSCP partnership. But Dr Sharma contends that those payments do not increase the indebtedness of SSCP, because SWRHUT had an existing liability to pay rent to SSCP for its occupation of the Moorebank property and those payments were simply discharging its liability for that rental.

87. The referee accepted that argument. The referee helpfully sets out (in [21] of his report) a table comparing the individual loan transactions as reflected in the records of SSCP and SWRHUT and as asserted by Dr Sharma. This table shows the monetary differences between the parties on this issue. SWRHUT records an amount of $8000 per month (amounts actually paid to BOQ) for four months between November 2015 and February 2016 totalling $32,000 as though they are loans from SWRHUT. But the referee found that the payments comprising this $32,000 were in satisfaction of rental obligations and should be treated accordingly in the accounts. The dispute only relates to these four months’ rent at $8000 per month between November 2015 and February 2016. Another single payment of $8000 in April 2018 is not included in the dispute.

88. Dr Segal’s Submissions. Dr Segal answers this argument without disputing the referee’s conclusion that there was an informal agreement between SWRHUT and SSCP that SWRHUT would pay rent to SSCP for the Moorebank premises. But Dr Segal contends that even accepting such an informal agreement, at the earliest the rent that was payable by SWRHUT on the Moorebank premises was not from May 2015 but from about March 2016, when SWRHUT’s medical practice commenced at the Moorebank property. That difference in commencement time explains why the rental payments between November 2015 February 2016 are disputed. Dr Segal submits that that the referee’s conclusion that the rental commenced in May 2015 was contrary to the evidence before the referee, because the practice, operated by SSCP, was not renting the Moorebank premises at that time.

89. The relevant background facts are not especially complex. SSCP completed the purchase of the Moorebank property on 29 April 2015 (the date that the title transfer was registered). Dr Sharma gave evidence during the reference that SSCP operated from the Moorebank premises “from about May 2015”. He says that he, Dr Segal, and Dr Chen agreed with Dr Segal’s statements on several occasions in 2015 that in relation to the rent of the Moorebank property, they should do “[s]imilar to what we did with Liverpool and Campbelltown, the business can service the Moorebank property loan – it can pay $8000 and that can be the rent.”

90. Dr Sharma’s evidence is the basis on which the referee found that the monthly rental of $8000 was to be paid from May 2015 onwards. In contrast, Dr Segal’s evidence on the reference was that the practice did not commence at the Moorebank property until March 2016. Dr Segal submits that the referee does not acknowledge the competing evidence of Dr Segal about the later commencement of the practice and does not give reasons why he preferred Dr Sharma’s evidence to Dr Segal’s evidence.

91. Dr Segal points to the contemporaneous documents as contradicting the conclusion that the practice commenced at the Moorebank property in May 2015, immediately after the purchase. Dr Segal’s evidence was that the Moorebank property was part of an old Franklins supermarket which required a substantial amount of work to be done before it would be fit for occupation and use by SSCP as a medical practice. This work was substantial and included the installation of walls and doors and electrical wiring, fit for purpose sewerage, and air-conditioning ducting.

92. Dr Segal submits that Dr Sharma’s own evidence supports the conclusion that there was a delay of some months before the premises were ready for occupation by the medical practice. Dr Segal points out that Dr Sharma says that in November 2015 SWRHUT obtained a facility from BOQ (“the BOQ facility”) to fund the fit out of the Moorebank property and to purchase equipment. Dr Sharma identifies an “escrow agreement schedule” of substantial items totalling $800,000 as ancillary to the BOQ facility. Dr Segal submits it is reasonable to infer that if the BOQ facility for the fit-out works was not obtained until November 2015, that the fit-out works occurred thereafter, and that the practice only commenced operating at Moorebank in about March 2016, and not 10 months earlier, in May 2015 as the referee has found.

93. Dr Segal accepts that the general principle is that a Court will not allow the re-agitation of disputed issues of fact where there is factual material sufficient to entitle a referee to reach the conclusion that he did: Chocolate Factory Apartments at [11]. But here Dr Segal submits there is no factual material upon which the conclusion that rent was payable by SWRHUT from May 2015 was based, apart from the unsupported assertion of Dr Sharma, and therefore referee’s conclusions based upon that should be rejected.

94. Consideration. The Court will not reject the finding of the referee. The available evidence of Dr Sharma identified above supports the referee’s conclusion. And on the application of Chocolate Factory Apartments principles this alone is a sufficient basis for the Court not to interfere with the referee’s finding on this subject.

84. But the materials to which Dr Segal points are not inconsistent with the referee’s conclusion based on Dr Sharma’s evidence. On the materials before him it was open to the referee to infer that a date very shortly after the settlement of SSCP’s acquisition of the Moorebank property (say 1 May 2015) was the date from which SWRHUT’s informal rental of the Moorebank property commenced. The evidence supports the inference that the Moorebank property was fully committed to SWRHUT from the time of settlement giving SWRHUT the security of knowing that it could plan to fit out the premises, did not have to look for other premises, could obtain the BOQ facility in respect of the Moorebank premises, could advertise for patients on the basis that the practice would be commencing at those premises, and then could arrange for the fit out of the Moorebank premises based on that planning and that finance. None of this could have been done without some degree of security of tenure on SWRHUT’s part which is consistent with it renting the premises from 1 May 2015.

85. Depending upon market conditions, commercial tenants may sometimes be able to take a lease on the basis that the first rental payments will not occur until after fitting out was completed. But again, depending upon market conditions it is equally possible for the obligation to pay rent to accrue immediately upon signing a lease and before fitting out commences. The payment of rent secures the property. That seems to be what occurred here and is consistent with the referee’s finding. The evidence to which Dr Segal points is not inconsistent with the referee’s findings.

86. The Court will not vary the referee’s report in relation to the amounts owed by SSCP to SWRHUT.

Question 4a: the Quantum of the Debts owed by SWRHUT to SSP

98. Introduction to the Issue. The referee found in answer to question 4a, the additional question posed by Dr Sharma, that $382,745 was owed by SWRHUT to SSP. This issue also raises the jurisdictional issue discussed earlier in these reasons.

99. But there is also a contest between the parties as to the accurate calculation of the quantum of this debt. The referee found that factors giving rise to a balance owing by SWRHUT to SSP included the rent payable by SWRHUT to SSP for the Liverpool and Campbelltown properties. But the parties disagreed as to the computation of the rent due.

100. The referee calculated the rent that was payable by SWRHUT to SSP in successive years in respect of both the Liverpool and Campbelltown properties using the consumer price index (CPI). But Dr Segal submits that the referee had leases available to him which provided for a five-year term and a further option for five years. During the five-year term the lease provided that the rent would increase by CPI increments and upon renewal a market rent would be fixed and then continued to be increased by CPI increments.

101. There was no material before the referee in relation to the market rental of the Liverpool and Campbelltown premises when the two leases (made in 2012) expired in 2017. This was so, even though rent reviews had been done for both properties. The annual market rent for the Campbeltown property was fixed on 21 January 2018 at $184,000 + GST and the market rent for the Liverpool property was fixed at $150,000 per annum on 9 February 2021. After the referee’s report and prior to the hearing for the adoption of the report, Dr Segal submitted evidence of these reviews of the appropriate market rent for both properties as at the 2017 lease renewal.

102. Submissions and Consideration. Dr Segal submits that the referee calculated the rent due based upon continuous CPI increments both before and after the exercise of their option for renewal in 2017, without having regard to the market rental determined upon review in 2017.

103. Dr Segal’s submission is correct that the referee applied continuous CPI increments throughout the term of both the Liverpool and Campbelltown leases without making an adjustment for the determination of market rent in 2017. The Court accepts that the leases do provide for a market rent review, which was not incorporated into the referee’s calculations. But that is hardly surprising as the market rent reviews were not before the referee.

104. Any potential error on this issue is relatively minor and relates only to one year, FY 2018. The referee’s calculations with respect to FY 2013 to FY 2017 are accurate. FY 2018 does not include the market rent review figure. But there are no figures in dispute for subsequent years, because the parties’ relationship had broken down by then and the practices had ceased to operate. In respect of the Liverpool property the differential is $11,898.20 and in respect of the Campbelltown property the differences $13,248. For FY 2018 for each of the properties, as calculated by reference to the financial records of the various entities, rent was overpaid. The overpayment arose because upon the review the market rent fell.

105. Dr Sharma submits that there is no basis for the Court now to interfere with the referee’s determination of CPI rental increases for FY 2018. Upon the assumption that this issue is within the scope of the reference, Dr Sharma submits that the referee determined the question correctly by reference to what evidence was before him and what submitted to him. Dr Sharma points out that all that was placed before the referee was the leases. The referee did not have before him the evidence which is now before the Court about market rent review. He submits that Dr Segal has not shown any error on the part of the referee, as the referee determined the question of the market rent correctly by reference to the material before him. And he submits that Dr Segal cannot now adduce additional evidence that should have been tendered before the referee.

106. There is no contest between Dr Sharma and Dr Segal about the correctness of the FY 2017 market review evidence. Its addition into the present proceedings will not add any additional time to the contest concerning the referee’s report. And the additional evidence, once available, produces a simple adjustment to the rental figures.

107. But Dr Segal could readily have foreseen this issue before the referee and did not adduce evidence of the market rent review. The principles in this area are clear that a party should not have a second opportunity to contest a simple factual matter which was not put before the referee and could have been put before the referee. As McDougall J succinctly put in Chocolate Factory Apartments: the right to be heard does not involve the right to be heard twice. The Court will therefore not allow this additional evidence.

108. The referee’s report will therefore not be varied on this ground.

Question 5 – Amounts Owed by SSP to Dr Segal or Dr Sharma

109. Introduction to the Issue. In question 5 the referee considered what amounts, if any, were owing by SSP to Dr Segal or Dr Sharma before the distribution of any partnership surplus. Dr Sharma contended that there were no such amounts owing. Dr Segal asserted that he was owed $115,000 by SSP arising from a loan which he claims he made to SSP on 26 May 2014.

110. The contest on this issue relates to Dr Segal’s dealings with the money Dr Chen paid to the SWRHUT upon the settlement of the April 2013 deed. The outcome of that issue bears upon the determination of what amounts are owed by SSP to Dr Segal or Dr Sharma.

111. It is useful to set out at the outset the essential relevant transactions, before analysing the referee’s reasons. The following relevant transactions occurred between late April 2013 and late May 2014:

1. On 24 April 2013, Dr Chen paid or caused to be paid the settlement funds of $1,000,000 into a bank account in the name of South-West Radiology Pty Ltd as trustee of the SWRHUT.

2. The same day, 24 April 2013, Dr Segal caused $1,000,000 to be transferred from SWRHUT’s bank account to another bank account in his own name.

3. On 26 May 2014, Dr Segal transferred $115,000 from the bank account in his own name to an account in the name of SSP.

4. The same day, 26 May 2014, Dr Segal transferred $400,000 from the bank account in his own name into an account in the name of South-West Radiology Pty Ltd as trustee for the SWRHUT.

5. On 29 May 2014, the sum of $400,035 was transferred out of the account in the name of South-West Radiology Pty Ltd as trustee for the SWRHUT into an account in the name of Dr Sharma and his wife.

112. The fact of these payments is not in dispute. The contest between the parties relates to the characterisation of the payments.

113. The Referee’s Report. The referee determined that on the financial information available to him for FY 2018 SSP did not owe any amount to Dr Segal, Dr Sharma or Dr Chen other than potential distributions of a partnership surplus of SSP.

114. The referee recorded Dr Segal’s submission that determining the amount owed by SSP to other entities required interpretation of the April 2013 deed and other commercial arrangements. Dr Segal also submitted to the referee that he contributed the sum of $115,000 to SSP by way of a loan, which Dr Segal contended had not been repaid.

115. The referee also recorded Dr Sharma’s contrary submissions on this subject. These were that no amounts were now owing by SSP either to Dr Segal or Dr Sharma. Dr Sharma submitted that the payment of the $115,000 to SSP identified by Dr Segal was in fact a capital contribution, not a loan and is not now due to Dr Segal.

116. The referee’s conclusion was in accordance with Dr Sharma’s submission that the $115,000 was a capital contribution to SSP and was not now owing to Dr Segal. The referee’s analysis of relevant to this issue appears in paragraphs [104] to [110] of his report, which is set out below:

“Considerations – amount owing by SSP to Segal and/or Sharma

104.   The financial records of SSP indicate that the partners made capital contributions of $115,000 in the 2014 financial year. Those contributions have been credited equally to Segal and Sharma ($57,500 each).

105.   On the basis of the submissions made to me in relation to the deposit of $115,000 by Dr Segal to the SSP bank account in May 2014, I have concluded that:

a.   The withdrawal of $1,000,000 from SWRHUT by Dr Segal apparently related to the amount paid by Dr Chen for his share in the business owned by Dr Segal and Dr Sharma. As such, I have concluded that Dr Segal and Dr Chen were entitled to that amount in equal shares. The consequence of the withdrawal of $1,000,000 by Dr Segal was, therefore, that Dr Segal owed Dr Sharma $500,000 (50% of $1,000,000);

b.   After Dr Segal repaid $400,000 to SWRHUT on 26 May 2014 and Dr Sharma withdrew that amount on 28 May 2014, Dr Segal owed Dr Sharma $100,000 ($500,000 - $400,000);

c.   The deposit of $115,000 by Dr Segal to SSP was credited equally to Dr Segal and Dr Sharma in the amount of $57,500 each. After that credit to Dr Sharma, Dr Segal owed an amount of $42,500 to Dr Sharma ($100,000 - $57,500);

d.   I have accepted Dr Sharma’s submissions that he has no concerns in relation to the remaining balance of $85,000 ($1,000,000 - $400,000 - $115,000) withdrawn by Dr Segal.

106.   As the information available to me in relation to the deposit of $115,000 made by Dr Segal to SSP’s bank account is consistent with the submissions made by Dr Sharma, I have accepted those submissions. I have therefore considered that the amount of $115,000 is not a loan which is repayable by SSP to Dr Segal. Rather, it is a capital amount contributed by Dr Segal as to 50% for his benefit and 50% for the benefit of Dr Sharma.

107.   As the $115,000 contribution has been recorded to the capital accounts of the partners in SSP, that amount remains as an amount distributable to the partners by way of a partnership surplus.

108.   The amount of partnership surplus owing to each of Segal and Sharma depends upon the assets and liabilities remaining in the partnership. Changes to the treatment of rental and equipment lease payments by SWRHUT to SSP as referred to in the previous section of this report may have an effect on the GST liabilities of the partnership.

109.   There is no evidence that any amount is owed by SSP to Segal or Sharma (other than their potential entitlement to a distribution of a partnership surplus).

110.

   In my opinion, SSP does not owe any amount to Segal or Sharma prior to the distribution of any partnership surplus.”

(emphasis in original)

117. Dr Segal’s Submissions. Dr Segal is the moving party in challenging the referee’s report on this issue. He contends that the referee’s reasoning in paragraphs [104] to [110] of his report lacked a proper basis, did not properly consider the facts and was manifestly unreasonable. Dr Segal’s main challenge is to the referee’s conclusion that each of Dr Segal and Dr Sharma was entitled to 50% of the $1 million which Dr Chen paid to SWRHUT. Dr Segal submits that the referee’s error with respect to that first matter led to consequential errors.

118. Dr Segal’s submissions start with the referee’s characterisation of the payment of $1,000,000 that Dr Chen made pursuant to the April 2013 deed. Dr Segal challenges the referee’s conclusion that Dr Segal and Dr Sharma were entitled “to that amount in equal shares”. Dr Segal submits that the referee’s conclusion that Dr Segal and Dr Sharma were entitled to that amount “in equal shares” is incorrect and that it is also incorrect to treat Dr Segal’s withdrawal of that amount of $1,000,000 as leading to the inference that Dr Segal thereby owed Dr Sharma $500,000 (being 50% of that sum).

119. Dr Segal submits that the referee therefore erroneously dealt with the next transaction, namely Dr Segal’s payment of $400,000 to SWRHUT on 26 May 2014 and Dr Sharma’s withdrawal of that amount on 29 May 2014. Dr Segal notes the referee’s conclusion that this transaction led to Dr Segal owing Dr Sharma $100,000. The referee reasoned that Dr Segal had withdrawn $600,000 from SWRHUT but was only entitled to $500,000 and Dr Sharma had withdrawn $400,000 but was entitled to $500,000. This imbalance could be rectified by Dr Segal paying Dr Sharma $100,000.

120. But Dr Segal does not accept that the referee’s conclusion of such a set-off between Dr Segal and Dr Sharma is open on the evidence. Dr Segal submits that the referee’s conclusion that Dr Chen’s payment of $1,000,000 was distributable by SWRHUT to Dr Segal and Dr Sharma in equal shares, was fundamentally flawed, as is the consequential conclusion that Dr Segal owed Dr Sharma $100,000.

121. Dr Segal draws attention in argument to the April 2013 deed which provides for Dr Chen’s payment of the $1,000,000 and the subsequent use of that capital sum by the parties. In the April 2013 deed SWRHUT is referred to as “the New Trust”, the Campbelltown and the Liverpool properties are referred to as “the Properties”, the “Effective Date” is 1 April 2013, Park Central is referred to as “PCR”, and Dr Chen’s interests are referred to as “the Chen Group”. Dr Segal points to the following provisions of the April 2013 deed.

“Recital I: The New Trust will have assigned to it all assets, rights and benefits associated with SWR and PCR which involves the operation, equipment and goodwill of the healthcare clinics located at the properties from The Effective Date.

Recital J: The Chen group will pay $1 million to New Trust and will receive 1/5 of all units in new trust on the effective date.

Recital K: At such time as Dr Segal and Dr Sharma agree that it is to occur, but no longer than 12 months from the Effective Date, New Trust will purchase all assets, rights and benefits of Dr Sharma, Dr Segal, SWR and PCR associated with the operation of the healthcare clinics located at the Properties assigned to it from the effective date, with the $1,000,000 contributed by Dr Chen being used towards that purpose.

Recital L: The intended ultimate effect is that the $1,000,000 paid by the Chen group will be distributed to SWR and PCR with the Chen group thereafter owning a one fifth share in the businesses at both properties.

Recital M: The $1,000,000 paid by the Chen group is to be used solely for no purpose other than that for the purchase of the management, goodwill and equipment of SWR, PCR, Segal and Sharma of the medical practices.

3.1 On the Effective Date the Chen Group will pay to New Trust the amount of $1,000,000 and in return the Chen group will receive 1/5 of all units in new trust.

4.5 On the Effective Date resolution we passed by south-west that the $1,000,000 held by SWRHUT is to be utilised for no other purpose than for the acquisition by the trust of the equipment, facilities and goodwill of SWR, PCR, Dr Sharma and Dr Segal referred to herein.”

122. The various assignments of assets by SWR, PCR, Dr Sharma and Dr Segal contemplated by the April 2013 deed took place pursuant to a series of deeds of assignment dated 18 April 2013. Those deeds of assignment on their face do not provide for any consideration to be paid by SWRHUT to the transferors.

123. Dr Segal submits that two possible scenarios arise as to how the $1,000,000 paid by Dr Chen to SWRHUT ought to have been disbursed. Either there was an obligation on SWRHUT to pay the $1,000,000 as consideration to the various transferors, or alternatively if there was no such obligation, and the $1,000,000 remained an asset of SWRHUT.

124. On the former scenario each of the transferors is entitled to some portion of the $1,000,000 in proportions that are yet to be determined. In the latter case the $1,000,000 remained an asset of SWRHUT and is ultimately to be distributed to the beneficiaries of SWRHUT, being interests associated with Dr Segal, Dr Sharma, and Dr Chen in the ratio 40:20:20. Either way, Dr Segal submits there was no basis for Dr Ferrier’s conclusion that Dr Segal and Dr Sharma were each entitled to 50% of the $1,000,000 which Dr Chen paid to SWRHUT. As a result, Dr Segal submits, the referee misunderstood the evidence before him on this question and made an unreasonable finding that should not be adopted by the Court.

125. Dr Segal submits that the referee continued this error in his reasoning. Dr Segal submits that there was no evidence as to the circumstances in which Dr Segal and Dr Sharma each withdrew the $400,000 from SWRHUT. And in the absence of evidence to the contrary, these two withdrawals should be regarded as loans to each of the two doctors, which they are now obliged to repay to SWRHUT. Dr Segal submits that he remains indebted to SWRHUT in the sum of $600,000, being the $1,000,000 which he withdrew less the $400,000 which he repaid to SWRHUT, and that Dr Sharma remains indebted to SWRHUT for the $400,000 paid to him. This conclusion conflicts with the referee’s finding (at [105](a)) that Dr Segal and Dr Sharma were entitled to the $1,000,000 “in equal shares”. Dr Segal submits that that finding is erroneous, as is the consequential set-off the referee applied between Dr Segal and Dr Sharma (that Dr Segal owed Dr Sharma a further $100,000).

126. Dr Segal further submits that the referee fell into additional error with respect to the $115,000 that Dr Segal paid to SSP on 26 May 2014. He submits that there is no basis to conclude that the $115,000 Dr Segal paid to SSP was a repayment of a loan that Dr Segal owed SSP. Either the amount of $115,000 was a loan by Dr Segal to SSP, or was a capital contribution to SSP, (as to 50% for his own benefit and 50% for the benefit of Dr Sharma) as the referee found (at [106]). Dr Segal submits that if the referee’s reasoning at [105](a) is in error then this reasoning at [106] must also be in error.

127. But quite apart from what flows from the referee’s reasoning at [105](a), Dr Segal submits that the evidence before the referee supports the conclusion that his payment of the $115,000 to SSP was a loan and not a capital contribution. How it should be characterised is a matter of inferring the intention of the partners from express agreement or the parties’ conduct: Harvey v Harvey (1970) 120 CLR 529. Here there was no written partnership agreement, nor did Dr Segal or Dr Sharma provide evidence as to how the $115,000 was to be treated by SSP. Dr Segal submits it is inherently improbable that in the absence of express evidence to the contrary that such a payment would be regarded as a capital contribution, when the other party did not also make an equivalent capital contribution. Dr Segal submits that the referee sought to overcome this problem by treating half of the $115,000 as a payment of $57,500 on behalf Dr Sharma, as a part payment of the $100,000 Dr Segal owed to Dr Sharma on the set-off. But Dr Segal submits this logic fails because there is no basis for the set-off.

122. Dr Sharma’s submissions. Dr Sharma’s submissions accepted that the financial accounts of SSP did not record any amounts owed by or due to Dr Segal or Dr Sharma. But Dr Sharma contended that the way this issue arose during the reference was relevant. In the reference Dr Sharma contended that SSP was a creditor of SSCP in the sum of $118,400, which was advanced by SSP to SSCP to supply the deposit for the purchase of the Moorebank property. As will be recalled from earlier in these reasons the Moorebank property was acquired in the name of SSCP. In the reference Dr Segal countered this contention by arguing that he had advanced $115,000 to SSP for the purpose of providing funds for SSP to pay to SSCP for the purchase of the Moorebank property.

123. Dr Sharma rejected Dr Segal’s contention to this effect in the reference. He pointed out the following: the claim of a loan of $115,000 to SSP had only first been made very recently; the tax returns and financial statements for SSP treated the $115,000 as a capital contribution from Dr Sharma and Dr Segal of $57,500 each and do not record a loan from Dr Segal; and, the draft financial statements for both SSP and SSCP for FY 2015, FY 2016 and FY 2017 show a loan of $118,400 from SSP to SSCP but no loan from Dr Segal to SSP.

124. Dr Sharma’s account in the reference was that Dr Segal’s payment of the $115,000 was that it was unconnected with providing a deposit to assist in the purchase of the Moorebank property. Dr Sharma said that in the reference Dr Segal had explained to him at the time that the $115,000 was for an unrelated purpose, as follows. Dr Sharma submitted Dr Segal had transferred $400,000 into the SWRHUT bank account as Dr Sharma’s share of the $1,000,000. When Dr Sharma questioned why it was only $400,000 (rather than $500,000) Dr Sharma says Dr Segal said to him the following:

“I paid $115,000 to the partnership for the deposit for the Moorebank property, there is $400,000 for you and $400,000 for me – that leaves $85,000 for the business for cash flow.”

131. Dr Sharma submitted that the objective materials that he had put before the referee supported the referee’s conclusion of an overall arrangement between the parties to the following effect: of the $1,000,000 paid to Dr Segal, $400,000 would be repaid to SWRHUT for onpayment to Dr Sharma; $400,000 would be retained by Dr Segal; $115,000 would be paid to SSP to fund the deposit for the Moorebank property; and $85,000 would be left in SWRHUT for “business cash flow”. Although there is no evidence that Dr Segal paid this $85,000 back to SWRHUT to boost its working capital, Dr Sharma does not complain about this omission.

132. Dr Sharma points to the following objective materials before the referee as supporting this conclusion. The signed financial statements for SSP and SWRHUT for FY2014 both show a loan from SSP to SWRHUT in the sum of $85,000, although in the accounts of the latter the figure is the very slightly different amount of $84,571, probably reflecting some other minor adjustment. The bank statements show that the sum of $115,000 was received into SSP’s account on 26 May 2014 and on 29 May 2014 SSP did pay out the sum of $118,000, which Dr Sharma said in evidence was for the deposit on the acquisition of the Moorebank property.

133. Dr Sharma submits that after the referee provided his draft report to the parties in December 2020 and invited further submissions, Dr Segal lodged a further statement with the referee in which he claimed that he had advanced the $115,000 from his own personal bank account and there was no evidence of any contribution to this amount by Dr Sharma. Dr Segal disputed the inferences that might be drawn from the financial accounts and other objective materials before the referee, on the basis that Dr Sharma’s wife had prepared them.

134. Consideration. Dr Sharma’s submissions in support of the referee’s conclusion should be accepted. There was ample evidence before the referee to justify the conclusion that the referee reached, and his conclusion is consistent with the overall logic of contemporaneous events. This is so for several reasons.

135. First, Dr Segal’s contention that the $115,000 was a loan from him is contradicted by Dr Sharma’s evidence of the conversation that he had with Dr Segal in 2014. It was open to the referee to accept Dr Sharma’s evidence that Dr Segal was treating the $115,000 as part of the bringing into balance of the distribution of the $1,000,000 received into SWRHUT from Dr Chen. And it was therefore open to the referee to reject Dr Segal’s contentions in statements to the referee that the advance of this sum was a loan.

136. Second, the contemporaneous accounting records confirm that SSP acted in accordance with some conversation such as that put forward by Dr Sharma, recording the $85,000 loan in both the accounts of SSP and SSCP. For Dr Segal to point out that these accounts were created by Dr Sharma’s wife is beside the point. The fact they were created by anybody in the form that they were, shows that someone was told at the time that a sum of $85,000 was being left in SWRHUT as working capital. This confirms the account of Dr Sharma that the SSP partners deducted $115,000 from the balance of $200,000, leaving $85,000 in SWRHUT.

137. Third, the financial records of SSP indicated that the partners made capital contributions of $115,000 in FY 2014 without some being credited equally to Dr Sharma and Dr Segal, contradicting Dr Segal’s version of the making of a loan.

138. Fourth, Dr Segal did not put to the referee the argument that was advanced at the present hearing based on the terms of the April 2013 deed. The referee was not asked to determine whether Dr Segal was entitled under the April 2013 deed to pay the $1,000,000 away from SWRHUT consistently with the terms of April 2013 deed, and particularly Recital M. The failure of Dr Segal to advance his argument at the right time, before the referee, does not allow him to advance the argument now. This is particularly so when, had the issue been raised before the referee, the referee could have, for example, explored the evidence as to whether the splitting of the $1,000,000 was generally regarded by the parties as consistent with Recital M and clause 4.5 of the April 2013 deed.

139. Fifthly, even without the referee exploring that issue in any depth, it is consistent with the April 2013 deed that Dr Segal and Dr Sharma, who between them controlled, SWR and PCR would be able to direct the distribution of the $1,000,000 received from Dr Chen directly to themselves. Once the assets of SSP, SWR and PCR were transferred to SWRHUT all that SWRHUT was obliged to do to comply with Recital M and clause 4.5 was to utilise the $1,000,000 “for no other purpose than for the acquisition” of the assets and undertaking of those various entities. The assets and undertaking of those entities had been fully transferred to SSCP by 18 April 2014. Thereafter, Dr Segal and Dr Sharma were free as the controllers of SSP, SWR and PCR, consistently with Recital M, to direct how the $1,000,000 paid for the undertakings of those entities be applied, because the acquisition by SSCP had by then occurred.

140. Dr Segal’s challenge on this question fails and the referee’s report will be adopted.

An Ancillary Issue

141. SWR and Central Park have been deregistered. Evidence of that should be admitted now. One result of the Court’s findings is that monies may ultimately need to be paid out of Court to these companies. But that cannot happen until they are restored to the register of companies. The Court has power to make orders for their restoration to the register under Corporations Act, s 601AH and will do so as an ancillary matter in these proceedings should any party require it. The parties will have leave to file and make returnable at the next directions hearing date any summons for the restoration of these companies to the register of companies.

Conclusion and Orders

142. The parties should bring in short minutes of order to give effect to these reasons. The Court encourages the parties to consult with one another to produce short minutes of order which reflect the maximum degree of consensus. If the Court has not resolved any issue between the parties in these reasons that they wish to have resolved then the parties should identify that issue clearly in their draft short minutes. Remaining disagreements should be reflected by marking up short minutes so the Court can easily see the outstanding differences between the parties.

143. Each party has had a measure of success on the arguments that have taken place on 16 and 17 December 2021. It is unclear what position the parties wish to take in relation to the costs of the motions for adoption of the referee’s report. And there are other ancillary issues to be dealt with concerning the payment of funds out of Court and the liquidator of South-West Radiology Pty Ltd, flowing from the adoption of the referee’s report.

144. The parties should therefore provide a concise outline of written submissions to the Court in relation to costs and other ancillary issues in accordance with the timetable set below. The liquidator of South-West Radiology Pty Ltd should be encouraged to participate in this timetable with respect to the ancillary issues. The volume of these submissions has been limited by these directions to encourage the parties to resolve those remaining issues expeditiously. If the parties seek for the Court to make other directions generally consistent with the timetable below then in the first instance they should attempt to agree upon those orders and submit them to the Chambers of Slattery J to be made by consent.

145. For these reasons the Court will make the following orders and directions:

1. direct the parties by 6 May 2022 to bring in agreed short minutes of order to give effect to these reasons as to the adoption of the report of the referee Dr Ian Ferrier dated 20 December 2020 (or orders marked up showing the differences between the parties);

2. the parties shall by 13 May 2022, file a concise outline of written submissions (of no more than six pages) in relation to costs and other ancillary issues;

3. the parties shall by 27 May 2022, file a concise outline of written submissions in reply (of no more than three pages) in relation to costs and other ancillary issues;

4. list the proceedings for further argument and directions on Wednesday, 8 June 2022 at 9:30 am or at such other time convenient to all the parties that is arranged with the associate to Slattery J; and

5. grant liberty to apply.

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Amendments

28 April 2022 - Coversheet: appearances

Decision last updated: 28 April 2022