Sobey v Sobey
[2016] VSCA 36
•15 March 2016
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2014 0111
| ANDREW GEOFFREY SOBEY | Appellant |
| v | |
| GEOFFREY KEITH SOBEY, JENNIFER MARY SOBEY, JAMES STUART SOBEY and CAVERNDALE PTY LTD (ACN 086 924 950) | Respondents |
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| JUDGES: | TATE, SANTAMARIA and FERGUSON JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 25 June 2015 and 17 November 2015 |
| DATE OF JUDGMENT: | 15 March 2016 |
| MEDIUM NEUTRAL CITATION: | [2016] VSCA 36 |
| JUDGMENT APPEALED FROM: | Sobey v Sobey [2014] VSC 373 (Almond J) |
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EQUITY & TRUSTS – Constructive Trust – Family farming enterprise involving parents and two sons – Parents told sons that farming properties would be left to them if adequate provision could be made for their siblings from ‘off farm’ assets – Failure of joint endeavour when falling out with one son – Provision not yet made for siblings – Whether son has a proprietary interest in farming land based on principles in Muschinski v Dodds (1984) 160 CLR 583 or proprietary estoppel – No departure from representation – No unconscionable retention of benefit – Muschinski v Dodds (1984) 160 CLR 583; Baumgartner v Baumgartner (1987) 164 CLR 137; Sidhu v Van Dyke (2014) 251 CLR 505.
PARTNERSHIP – Properties registered in name of two partners – Properties included as assets in partnership accounts – Accounts altered to remove properties from partnership accounts – No agreement that properties were brought into partnership – Properties not assets of partnership – Partnership Act 1958 (Vic) s 24(1).
PARTNERSHIP – Taking of accounts – During partnership arrangement that accounting matters would be dealt with informally – Partnership dissolved by agreement on basis that no formal taking of accounts to be undertaken – No order for taking of accounts to be made – Partnership Act 1958 (Vic) s 48.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr C R Northrop | Harwood Andrews Lawyers |
| For the Respondents | Mr P H Caillard | Nevett Ford Lawyers |
TATE JA:
I have had the benefit of reading, in draft form, the reasons of Ferguson JA. I agree with Ferguson JA, for the reasons her Honour gives, that the appeal should be dismissed.
I wish to add a few observations of my own with respect to the claim made by Andrew for equitable relief based on proprietary estoppel. As the High Court said in Sidhu v Van Dyke:[1]
This category of equitable estoppel serves to vindicate the expectations of the representee against a party who seeks unconscionably to resile from an expectation he or she has created.[2]
[1](2014) 251 CLR 505 (‘Sidhu’).
[2]Ibid 527 [77].
The focus of the appeal was ultimately on whether there is sufficient evidence to demonstrate that Geoff has resiled from the expectation he had created that Andrew would have ‘a stake in the farm’.[3]
[3]Sobey v Sobey [2014] VSC 373 (‘Reasons’), [80]. The farm assets are relevantly Caverndale and Murphy’s.
The trial judge found that:
1.Geoff encouraged Andrew to work on the farm for low remuneration;[4]
2.Andrew relied on Geoff’s encouragement and assurances to act to his detriment;[5]
3.Geoff’s encouragement and assurances created in Andrew an expectation of a proprietary interest in the farm.[6]
[4]Ibid [71]– [72], [77].
[5]Ibid [76]. This was the subject of a Notice of Contention dated 14 July 2015 (ground 2). See [8] below.
[6]Ibid [80]. This is distinct from any entitlements that might arise on the basis of a testators’ family maintenance claim under the Administration and Probate Act1958.
The difficulties Andrew faces in establishing his claim based on proprietary estoppel are two-fold. The first relates to the nature of the representation made. I agree with Ferguson JA that the representation made by Jenny and Geoff is accurately stated by saying that they hoped to build sufficient ‘off farm’ assets to enable adequate and fair provision from their estates to be made for Sally and David and, if that could be done, then upon the death of Geoff and Jenny, Andrew and James would receive their parents’ farm assets.[7] The trial judge made a finding of fact that a representation was made in those terms and that was not ultimately challenged on the appeal. That representation clearly has a number of separate preconditions, none of which are currently met. It also reflects a considerable flexibility on the part of both Geoff and Jenny as to the manner in which they currently deal with their wealth-creating assets, in order to provide for Sally and David, before determining their bequests.
[7]See [28] below.
The second difficulty relates to the question of whether Geoff has sought unconscionably to disavow any obligations he owes to Andrew by reason of encouraging and assuring him. On the appeal, counsel for Andrew urged the Court to take the view that Geoff, by his conduct, had demonstrated that he considers himself unconstrained by any obligation to provide for Andrew. In particular, the Court was urged to conclude that Geoff has acted unconscionably by his refusal to treat Andrew as having any proper claim on the farm assets. It was argued that Geoff, by treating the farm assets as if they are his own to do with as he likes in the future, revealed that he considers, wrongly and unconscionably, that Andrew has no entitlement of a proprietary kind to the farm assets on the death of Geoff and Jenny. This is not a matter of Geoff attempting to ensure that proper and fair provision can be made for Sally and David, after which the farm assets would be bequeathed to Andrew and James. Rather, so the submission went, Geoff’s conduct demonstrates that he has no intention of honouring Andrew’s expectation of a proprietary interest, regardless of whether adequate provision can be made for Sally and David. On this view, it is unnecessary for Andrew to wait until all the preconditions of the representation are met (including his parent’s death) before he can complain of, or prove, that there has been an unconscionable resiling from the expectation that was created. As he argues, his claim to equitable relief is already made out.
In my view, there is evidence which suggests that Geoff, wrongly and unconscionably, considers that he can deal with the farm assets on his death unconstrained by any obligation to Andrew that he has created by reason of his encouragement and assurances; that is, Geoff treats the farm assets as his own.[8] However, I agree with Ferguson JA that, ultimately, there is insufficient evidence for Andrew to make out his case. Taking the evidence as a whole, it does not demonstrate that Geoff intends to resile from the expectation he has created.[9] The evidence is consistent with the statements made by Geoff, that he and Jenny intend that, if adequate and fair provision can be made for Sally and David, they can honour the assurances they extended to Andrew upon which he has relied to his detriment.
[8]See [58] and [60] below.
[9]See [67] and [70] below. See Reasons [93].
Geoff and Jenny question the finding of reliance. They do this by way of a Notice of Contention. As the appeal is to be dismissed, it is strictly unnecessary to determine this issue. Nevertheless, as the issue was argued on the appeal, it may be useful to observe that I consider this challenge to be without merit. As the trial judge said, it would be ‘wholly unrealistic to suppose that Andrew would have committed himself for so long as he did to hard work on the farm for modest reward unless he had an expectation of a stake in the farm’.[10] Andrew incorrectly considered that his proprietary interest would crystallise upon Geoff and Jenny’s retirement rather than their death. However, I do not consider that this precluded a finding that the object which Andrew ‘work[ed] towards’[11] was the acquisition of a proprietary interest in the farm assets. Andrew worked for many years, for little reward. The mistaken assumption he had as to the nature of Geoff’s representation and encouragement does not undermine the core of Andrew’s evidence that he worked on the farm, to his prejudice, because he believed he would acquire an interest in the farm assets.
[10]Reasons [80].
[11]Reasons [29] and [71].
I consider that the judge was correct to identify what was implicit in the relationship between Andrew and Geoff. As he said:
Andrew’s reliance and detriment are implicitly reflected by the fact that he accepted low remuneration (including a weekly allowance of $100 a week) for approximately 18 years. He fully committed himself to the farming business from the time he left school in 1989 until October 2010. He forwent the opportunity of starting out on his own outside the family farming business (though in part this coincided with his apparent desire to leave school after year 10 which limited his education standard and therefore his opportunities outside the farm). He undertook without complaint the obligation to repay debts relating to the farming properties from time to time including a debt for his parents’ new home on the Murphy’s block and he went along with broad-brush accounting arrangements for the family without insisting on rigorous four-way accounting.[12]
[12]Reasons [77].
It was submitted, on behalf of Geoff and Jenny, that there were plenty of alternative reasons why Andrew may have stayed working on the farm for so many years, including to advance his interest in the partnership; because he understood his family expected him to ‘earn his keep’; and to receive a relatively high superannuation balance. These factors may have played a part in Andrew’s decision over the years to remain on the farm. This does not preclude the finding that Andrew nevertheless relied on Geoff’s encouragement and assurances. As Gageler J said in Sidhu:
The respondent [the representee] did not need to establish that the belief to which she was induced by the appellant’s representations was the sole or predominant cause of the course of action or inaction she took but, in the language of Rich, Dixon and Evatt JJ in Newbon v City Mutual Life Assurance Society Ltd, she did need to establish that the belief was a ‘contributing cause’.[13]
[13]Sidhu (2014) 251 CLR 505, 531 [90] (citation omitted).
In my opinion, the evidence supports the view that Andrew would have adopted a different course to that which he did had he not been induced to assume that he would acquire a proprietary interest.[14] I consider, as the trial judge did, that
it would be ‘unrealistic’ to infer otherwise.[15] I am of the view that the trial judge was correct to infer from the circumstances that Andrew relied upon his father’s assurances and encouragement to his detriment.
[14]Ibid 531 [93].
[15]Reasons [80].
SANTAMARIA JA:
For the reasons given by Ferguson JA, I agree that the appeal should be dismissed. I should also add that I agree with Tate JA, for the reasons that she gives, that the trial judge was correct to find that Andrew relied upon the assurances and encouragement that he received from his father to his detriment.
FERGUSON JA:
Introduction
Geoff and Jenny Sobey have four children — Andrew, James, Sally and David.[16] Geoff and Jenny are farmers in the Ballarat region. Andrew and James joined the family farming business when they left school. Sally and David did not. The farming business was operated through partnership structures — originally a partnership between Geoff and Jenny (G & J Sobey Partnership), then a partnership between Andrew and his parents (G J & A Sobey Partnership), then a partnership between Andrew, James and their parents (G J A & J Sobey Partnership). In 2007, Geoff and Jenny retired from the partnership. Andrew and James continued the farming business in partnership (A & J Sobey Partnership).
[16]As the parties did, I will refer to each of the Sobeys by their first name without intending any disrespect to them.
There was a falling out between Andrew on the one hand and his brother and parents on the other. Andrew left the farm in October 2010 and the partnership with his brother ended in early 2011. James continued to operate the farm and his father continued to work on it.
In July 2011, Andrew commenced a proceeding against Geoff, Jenny, James and Caverndale Pty Ltd (which is the trustee of the family superannuation fund). I will refer to Caverndale Pty Ltd as the Superannuation Fund. Andrew claimed that he had an interest in various properties based upon equitable principles. The properties relevant to the appeal are known as ‘Murphy’s’ and ‘Caverndale.’ The Superannuation Fund is the registered proprietor of part of Murphy’s with Geoff and Jenny being the registered proprietors of the balance of that property and the whole of Caverndale. In addition to his claim to an interest in the two properties, Andrew sought orders for the taking of accounts of the partnerships he had with his parents and brother and a declaration that Caverndale and Murphy’s were partnership assets. He also sought other relief that is not relevant on the appeal.
Andrew alleged that his parents encouraged him to work in the farming business and that Geoff made representations that the properties would be divided between Andrew and James when their parents retired from the business. Andrew alleged that this was the common intention of all of the partners and that he assumed and expected that improvements to the properties would be for the benefit of all of the Sobeys, not just the registered proprietors.
The trial judge found that Geoff encouraged Andrew to work on the farm, that Andrew did so to his detriment and that Geoff had given assurances that the properties would be left to Andrew and James not on retirement but after Geoff’s death. The judge also found that there had been a joint endeavour that involved the Sobeys pooling resources to farm in partnership with the intention being that the joint endeavour would continue after the death of the parents, with Andrew and James remaining on the farm together as owners of the land. His Honour found that the joint endeavour came to an unexpected end without attributable blame when Andrew left the farm in October 2010.
Relevant to the appeal, the trial judge held that Andrew had failed to establish his claim to equitable relief because the intention and representations focussed on what was to happen to the properties upon the death of the parents, not upon what was to happen when they retired from the farming business. In addition, the judge found that the parents had not resiled from their intention to leave the properties to Andrew and James upon their deaths, if provision could be made for their other children from non-farm assets. The judge dismissed Andrew’s claim. The judge also found that Murphy’s and Caverndale were not partnership assets and a declaration to that effect was made. The judge also refused to order the taking of accounts for the four-way partnership as at the date of dissolution. Andrew has appealed in respect these three matters.
For the reasons that follow, I would dismiss the appeal. I will deal with each of the three matters in turn.
A.Did Andrew have a proprietary interest in Caverndale and Murphy’s pursuant to a constructive trust or based in equitable or proprietary estoppel? (Grounds 4 – 8; Notice of Contention)
Legal principles
Andrew claimed that Caverndale and Murphy’s are held on trust for him on the basis of a common intention trust. The judge rejected this claim and Andrew does not challenge this on appeal.
Andrew also claimed that the two properties were held on constructive trust based upon either the principles expounded in Muschinski v Dodds[17] or the principles of equitable or proprietary estoppel.
(a) Muschinski v Dodds
[17](1984) 160 CLR 583 (‘Muschinski v Dodds’).
It is not uncommon for family members to enter into long term joint endeavours, part of which involves only one of them holding the legal title to property although the intention is that they will all benefit from the endeavour. If the joint endeavour comes to an unexpected and premature end through no-one’s fault, then equity will intervene to prevent the legal owner from denying the property entitlement of the others if it would be unconscionable to do so. This principle was explained in Muschinski v Dodds.[18]There a de facto couple purchased a house with the woman paying the purchase price. They were registered as tenants in common. They intended to restore a cottage on the property which the woman was to use for a crafts business. The man did some work towards this. They also intended to erect a prefabricated house on the property in which they intended to live. The parties separated before the house was built. The woman contributed approximately $25,000 to the purchase and improvement of the property whilst the man contributed about $2,500. Deane J (with whom Mason J agreed) said:
the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do.[19]
[18]Ibid.
[19]Ibid 620.
In Baumgartner v Baumgartner[20] the plurality cited the general equitable principle relied upon by Deane J in Muschinski v Dodds as one which:
restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.[21]
[20](1987) 164 CLR 137 (‘Baumgartner’).
[21]Ibid 148 (Mason CJ, Wilson and Deane JJ).
In both Muschinski v Dodds and Baumgartner the court determined that on the facts the property in question was held on a constructive trust.
(b) Equitable or proprietary estoppel
There are various circumstances in which equity (under the broad heading of proprietary or equitable estoppel) will intervene to prevent a person from relying upon what at first glance might appear to be their legal entitlement to property because it is registered in their name. It is not necessary to describe all of the circumstances in which equitable estoppel will apply. Relevantly here, if to the knowledge of Geoff and Jenny, Andrew had an expectation or belief (either encouraged or acquiesced in by his parents) that if he worked on the farm they would give him Caverndale and Murphy’s on the happening of a specified event (here retirement or death), then Geoff and Jenny would be estopped from denying his interest if to do so would be unconscionable in all the circumstances.[22]
[22]Dillwyn v Llewlyn (1862) 4 De G F & J 517; 45 ER 1285 (estoppel by encouragement); Ramsden v Dyson & Thornton (1866) LR 1 HL 129 (estoppel by acquiescence); Giumelli v Giumelli (1999) 196 CLR 101, 112, [5]–[6] (Gleeson CJ, McHugh, Gummow and Callinan JJ); Sidhu v Van Dyke (2014) 251 CLR 505, 511 [2] (French CJ, Kiefel, Bell and Keane JJ) 530 [89] (Gageler J); Donis v Donis (2007) 19 VR 577, 582–583 [19]–[20].
Facts relevant to Andrew’s property claim
After Andrew left school near the end of 1989, he worked hard in the family business and undertook various tasks which contributed to improvement of the farm properties. Examples of Andrew’s contribution by way of manual labour are the installation, improvement and maintenance of drains, irrigation dams and systems, pasture and soil improvement and fencing.
In June 1994, Andrew and his parents entered into a partnership (GJ & A Sobey Partnership). The following year, James became a partner in what was then a four-way partnership (GJA & J Sobey Partnership).
For most of the time that Andrew worked on the farm, he was paid $100 a week. The low drawings enabled more money to be left in the business as working capital and facilitated debt reduction more quickly than would otherwise have been the case. In family conversations, Geoff and Jenny told Andrew and James, that they hoped to build sufficient ‘off farm’ assets to enable adequate and fair provision from their estates to be made for their other children, Sally and David, and that if that could be done, Andrew and James would have the farm assets when their parents died.
In February 2004, Geoff and Jenny obtained legal advice about estate planning. Part of the planning involved providing for the two siblings who did not work in the farming business by purchasing a house for Sally (financed with the assistance of the partnership) and making a gift to David. Geoff and Jenny were advised to make mutual wills, each leaving their estate to the surviving spouse. They were advised that on the death of the surviving spouse, the estate would be distributed as follows:
(a) properties at Learmonth (which have since been sold) would be transferred to Andrew and James, subject to them assuming liability for loans which were secured against those properties;
(b) Sally would be released from any debt that was owed to the partnership regarding the purchase of a house for her;
(c) David would receive a gift of $300,000 indexed in accordance with the consumer price index from 1 January 2004;
(d) upon provision for Sally and David being made in accordance with (b) and (c), Caverndale and Murphy’s would be transferred to Andrew and James equally.
The advice contemplated that the money to be used to repay the loan on Sally’s property and to make the gift to David would come from the balance of the surviving spouse’s estate. If the estate was insufficient to achieve this, then Andrew and James were to raise the money themselves. If provision for Sally and David could not be made as contemplated, then Murphy’s and/or Caverndale were to be sold to raise the money necessary to repay the loan and pay the gift, with any balance of the proceeds of sale to be shared equally between Andrew and James.
Geoff and Jenny did not make wills in accordance with the advice that they received. Nevertheless, in May 2004, a property was purchased for Sally at Black Hill using funds borrowed by the partnership from Westpac Banking Corporation. Andrew and James each signed an acknowledgment stating that they were satisfied that they would receive a direct benefit from the Westpac loan because the loan had ‘been structured on a long term strategy for estate planning.’ The bank was not satisfied with this explanation and sought further clarification. They both signed a letter which read:
We confirm that the direct benefit of borrowing $250,000 for the purchase of [18A Napier Street, Black Hill] is to protect our interest in the family farm.
As part of long term estate planning, going forward it is our understanding that the residence being purchased will be transferred to our sister, Sally Sobey, negating her claim on the farm.
In 2007, Geoff and Jenny retired from the partnership. Nevertheless, Geoff continued to work on the farm.
In about 2008, Andrew injured his back playing football which restricted him in the type of work that he could do. He continued to work on the farming properties until 12 October 2010. On that date, intervention orders were made by consent against Geoff, Andrew and James requiring each of them not to commit family violence and not to intentionally damage one another’s property.
As I mentioned at the outset, the two-way partnership between Andrew and James ended in 2011 and this litigation followed.
Judge’s reasons about entitlement to an interest in the properties[23]
[23]Sobey v Sobey [2014] VSC 373 (‘Reasons’).
Having summarised the principles applicable to each type of claim made by Andrew,[24] the judge made factual findings (which Andrew does not challenge).
[24]Reasons [44]–[55].
The judge found that Geoff encouraged Andrew to devote himself to working on the farming properties for low remuneration so that the partnership could invest the funds generated in the farming properties, plant and equipment.[25] He also found that part of the encouragement given to Andrew was to the effect that after Geoff’s death (rather than on his retirement) Andrew and James would receive the farming land.[26]
[25]Ibid [72].
[26]Ibid [73].
The judge also found that the Sobey family took on a joint endeavour which came to an unexpected premature end without attributable blame.[27] The judge found that everyone made a significant contribution with all funds being pooled and the partnership paying all expenses, including living expenses in addition to the small wages that were paid to Andrew and James.[28]
[27]Ibid [74]–[75].
[28]Ibid [78]–[79].
The judge was satisfied that Andrew had relied to his detriment upon the encouragement of his father.[29] Among the matters that the judge took into account were Andrew’s low remuneration, commitment to the business for approximately 18 years and assumption of responsibility for farming property related debts.[30]
[29]Ibid [76].
[30]Ibid [77], [81].
The judge went on to state his conclusion that Andrew had failed to establish encouragement or assurances to the effect that he and James would receive the farm properties upon the retirement of their parents.[31] He also held that Andrew had failed to establish that either Geoff or Jenny have or intend to resile from their position that if adequate and fair provision could be made for Sally and David from ‘off farm’ assets, then upon their deaths Andrew and James would receive their farm assets.[32] He said:
At no time during the trial did Geoff and Jenny resile from that expression of intention. On the contrary, Geoff alluded to the issue when he said ’my wife and I were trying to handle it our way and we were going to do that, and we still are going to do that.’
This statement was not challenged in cross-examination. It was not put to Geoff and Jenny that they had resiled from that position.
When Andrew ceased working with his brother on the farm, it was an act of his own volition. When Andrew left the farm he did so of his own volition. Those events did not occur as a result of unconscionable acts of his parents. It was always intended that Geoff and Jenny would enjoy for their lifetimes the benefits of improvements to the farming properties which accrued from the joint efforts of the parties. There is nothing unconscionable about them continuing to enjoy those benefits. At this point it has not been established that Geoff or Jenny have or intend to resile from their intentions, as expressed, and admitted in the pleadings. If, in the future, they do so, then the position would need to be revisited. Likewise, if Geoff or Jenny fail to make adequate provision for the proper maintenance and support of Andrew in their will, then Andrew, if he sees fit, will be able to have recourse to the family provisions of Part IV of the Administration and Probate Act 1958 (Vic).
The vicissitudes of life may make it difficult for Geoff and Jenny to satisfy Andrew and James’s expectations and their (Geoff and Jenny’s) present intentions. Something could happen to Sally or David which might result in a greater or lesser proportion of family assets being used to provide for one or either of them. Andrew might never resume working on the farm such that adequate provision for his proper maintenance and support may be satisfied in a different way. All these considerations are matters for the future. It would be premature to address them now.[33]
[31]Ibid [93].
[32]Ibid.
[33]Ibid [94]–[97].
The judge concluded that Andrew did not have an interest in Caverndale or Murphy’s pursuant to a constructive trust or based in proprietary estoppel.[34]
[34]Ibid [98].
Grounds of appeal and Notice of Contention
Grounds 4–8 of the appeal concern the judge’s determination that Andrew did not have an interest in the Caverndale or Murphy’s properties. Andrew contends that having found that:
1.he was encouraged to work on the farm on the basis of assurances that the land would eventually be left to him and James;
2.the family was involved in a joint endeavour for its mutual benefit which involved the pooling of resources;
3.the joint endeavour came to an end unexpectedly without attributable blame;
4.he had made out a case of detrimental reliance on the encouragement and assurances he was given,
the judge did not but should have found that he was entitled to equitable relief under a constructive trust or pursuant to equitable or proprietary estoppel.[35] He also appeals on the basis that the judge erred because he did not but should have found that Geoff and Jenny were seeking to resile from the expectation they had created by denying he had any interest in the land, expressing an intention to deal with the land as they wished and retaining for themselves the benefit of his endeavours and the detriment that he had suffered.[36] The final ground concerning this aspect of the appeal is that the judge should have found that Andrew had suffered additional detriment to that which the judge found.[37] Andrew submitted that if he were to succeed, it would be necessary for the matter to be remitted to the trial division for consideration of the appropriate remedy which may, for example, take the form of monetary compensation or some other form of declaratory relief rather than a registered interest in the properties.
[35]Grounds 4 and 5.
[36]Grounds 7 and 8.
[37]Ground 6.
The respondents have filed a notice of contention comprised of two grounds. First they contend that the judge erred in finding that Andrew relied on the encouragement or assurances of his father.[38] The second ground of contention concerns that part of Murphy’s registered in the name of the Superannuation Fund. The respondents contend that Andrew’s claim to an interest in that property must fail because of the indefeasibility of the Superannuation Fund’s title pursuant to ss 42 and 43 of the Transfer of Land Act 1958.[39]
[38]Notice of Contention ground 2.
[39]Notice of Contention ground 1.
Before turning to the grounds of appeal concerning Murphy’s and Caverndale, it is necessary to consider a preliminary matter that was raised by the respondents; that is whether Andrew was seeking to run a new case on appeal to that which he pursued at trial. The respondents’ primary complaint is that central to Andrew’s claim as pleaded, opened and run at trial was his allegation that the properties were to be left to him and his brother on the retirement of Geoff and Jenny. The respondents contend that on appeal, Andrew should not be permitted to run a case based upon a representation or expectation that Andrew and his brother were to have an interest in the properties upon the death of their parents.
The pleaded claim and the opening of the case by Andrew raised three alleged bases for relief. First, common intention trust. Secondly, premature end of a joint endeavour in accordance with the principles described in Muschinski v Dodds. Thirdly, equitable or proprietary estoppel in the form of estoppel by encouragement. Most of the focus of the evidence and submissions was on the first and third claims and whether Geoff had made representations to and encouraged Andrew to work on the farm with a view to him obtaining an interest in the properties on the retirement of his parents. The respondents had pleaded that no such representation had been made by Geoff and Jenny but that what they did say was that they hoped to build sufficient ‘off farm’ assets to enable adequate and fair provision from their estates to be made for Sally and David and, if that could be done, then upon the death of Geoff and Jenny, Andrew and James would receive their parents’ farm assets. I will describe the evidence about this issue and whether Geoff and Jenny have departed from their pleaded position in more detail later in these reasons. Suffice for present purposes to say that no evidence was elicited from Geoff on the question of whether he proposed to deviate from any representation associated with what was to happen on his death.
Andrew’s closing written submissions and his oral closing made reference to each of the three bases for the claim that he made to an interest in the properties. Again, the emphasis was on the representation part of the case and what that representation was, but the other aspects of Andrew’s claim were not ignored in closing.
The judge dealt with all three bases for the claims made by Andrew, including the claim founded on Muschinski v Dodds. He set out the law in relation to each basis of the claim and made findings in respect of each of them.
In relation to proprietary estoppel, as I have noted above, he found that there was no representation or expectation created concerning what was to happen on retirement of the parents. As set out in the passage quoted above at [39], the judge found that there was no unconscionability on the part of Geoff and Jenny. The issue of unconscionability was relevant not only to the proprietary estoppel claim, but also to the Muschinski v Dodds claim.
In my view, insofar as it is based on Muschinski v Dodds, Andrew’s case on appeal is consistent with his case at first instance. That case does not depend upon a representation having been made or an expectation created. Rather, it concerns whether there is any unconscionability now that the joint endeavour has come to an end unexpectedly.
To the extent that Andrew’s proprietary estoppel case now rests upon a representation or expectation created surrounding the death of his parents (rather than their retirement) it is different and conflicts with the case that he pleaded and ran at trial. There is then the question as to whether he should be permitted to pursue that part of the appeal.[40] It is unnecessary to determine that question because, for the reasons which follow later, that altered case would fail.
[40]Whisprun Pty Ltd v Dixon(2003) 200 ALR 447.
I will deal first with the grounds of the appeal so far as they concern Andrew’s Muschinski v Dodds claim. To recap, this aspect of the appeal turns on whether there has been any unconscionable retention of the legal title to the properties by Geoff and Jenny, the Sobey family joint endeavour having come to an unexpected and premature end.
Andrew submitted that Geoff did not acknowledge any obligations to him and at every point Geoff has considered himself free to do as he liked with the properties unconstrained by equity.
To make an assessment of whether it would be unconscionable for Geoff and Jenny to retain the properties, it is first necessary to examine the scope of the joint endeavour and the context in which it operated. The judge described the joint endeavour in the following terms:
The Sobey family embarked on a joint endeavour for mutual benefit, which involved the pooling of resources to farm their successive farming properties in partnership; initially as a three-way partnership with Andrew, then as a four-way partnership with Andrew and James and ultimately as a two-way partnership between Andrew and James. Viewed objectively, it appears that the parties expected this joint endeavour would continue until after the death of Geoff and Jenny with Andrew and James remaining on the farm together as owners of the land.[41]
[41]Reasons [74].
The joint endeavour operated in a family context. The purchase of the house for Sally illustrates this. Geoff’s evidence was that he and Jenny were trying to help all of their children and Sally was struggling. He said that he suggested to Jenny that they help their daughter and they did by financing the house. He thought that ‘the family’ could do that and that although there had not been much discussion about it, Andrew and James knew why they were doing this and that Sally was part of the family. As noted above, Andrew and James signed acknowledgments that they benefited from the partnership borrowing money from the bank to purchase the property for Sally because it would negate her claim to the farm. As the judge observed, all of the participants made a significant contribution to the venture. As part of the endeavour, the properties were used and improved by them. Yet the participants envisaged that if beneficial entitlement to the properties was to change, provision had to be made for Sally and David in one way or another. Secondly, they envisaged that the parents would enjoy the benefits of the properties during their lifetimes and it would only be on their deaths that the sons would come to enjoy ownership of them.
It is in those circumstances that Andrew must establish that it is unconscionable for ownership of the properties to remain where it is for the time being without any constructive trust in his favour. In my view, to succeed, Andrew must show that Geoff and Jenny have abandoned their position that if adequate provision is made for Sally and David, the properties will pass to Andrew and James on the death of their parents. The judge correctly decided that he has failed to establish this.
I will deal first with the evidence of Geoff. It was never directly put to him at trial that he denied any obligation to Andrew. Rather, Andrew relied upon various passages from Geoff’s evidence which he claimed established that Geoff does not believe that he is under any obligation arising from Andrew’s contributions and that Geoff will organise his affairs to best suit his personal benefit. Andrew submitted that Geoff’s evidence showed that he was responsible for all the decisions and did not consult the other partners with advisors acting on Geoff’s instructions alone. Andrew pointed to Geoff’s initial evidence denying that he discussed what was to happen with the properties with his sons.
The judge recorded in his reasons that Geoff had difficulty with hearing.[42] So much is apparent from parts of the transcript. Geoff’s evidence should be read with this in mind as at times it appears disjointed and unresponsive. Nevertheless, the thrust of his evidence disclosed that he wanted to assist and provide for all of his children. To some extent he felt that he had done this for Andrew by including him as a registered proprietor of other property which is not the subject of this appeal. He thought it unfortunate that they had not yet been able to assist David.
[42]Reasons [113].
True it is that Geoff appears to have taken the lead in family discussions, in providing instructions to the partnership’s accountants and solicitors, in dealings with the purchase and sale of land and in making the major decisions in the business. He also described himself as ‘the boss’ of the business. In a family context, none of that is surprising. In and of itself, it does not establish any unconscionability. There was no evidence identified by Andrew that he was in any sense excluded against his will from participation in decision making whilst the joint endeavour operated.
Geoff did give evidence that might support Andrew’s contention that his father treats the properties as his own. He testified that he will continue to work the properties because he loves it and they are his. He described it as his farm. Perhaps the best illustration of his view as to his entitlement to the properties arises from what occurred with the 2003 partnership accounts. Those accounts were corrected to remove entries that had appeared in earlier accounts listing Murphy’s and Caverndale as partnership assets. Geoff gave the instruction to remove those properties from the accounts. He did not consult Andrew or James about it. Geoff gave evidence that as far as he was concerned, those properties were not partnership assets and he did not need to discuss the correction of the accounts to reflect this with Andrew or James. He believed it was his and Jenny’s land. Although in isolation it might appear that Geoff was suggesting that he could do as he liked for all time with the properties to the permanent exclusion of Andrew, in the context of his evidence as a whole, I do not think that is a fair reading.
In this regard, more telling evidence was given by Geoff about his intentions. When asked whether he had discussed with Andrew what would happen with the properties when he retired, Geoff responded by saying that he had four children. When pressed about whether he had said to Andrew and James that he would leave the properties to them provided provision was made for Sally and David, he said:
I discussed it with Andrew and James to some length at one time and I said “Do you fellas ever think that you’re going to get all our land and our asset and the other two are to get nothing”. I said: “What do you think you two fellas are going to do for Sally and…David”. That was discussed.
Yes?---Yes, and nothing more; they never come up with an answer how they would treat that. And I was trying to treat it - my wife and I were trying to handle it our way and we were going to do that, and we still are going to do that.
It is true that when he was taken to the letter from his solicitor about estate planning, Geoff was quick to distance himself from it as anything that was binding upon him. He described it a number of times as a mere proposal. For example, he said:
I’m quite certain that this – that’s not even a will, that’s a proposal and I’m quite certain now we are 12 years down the track, ten years down the track, that I couldn’t of changed that will again…I would have still owned the land wouldn’t I, and I could have still made a change to my will and that’s not an odd thing to have happened and that’s not a will, that’s a proposal.
He was then taken to his defence which pleaded that from time to time, he and Jenny had said to Andrew and James that:
(i)they hoped to build sufficient ‘off farm’ assets to enable adequate and fair provision from their estates to be made for their other children, neither of whom had worked in the farming business;
(ii)if such adequate and fair provision could be made, then upon the deaths of the parents, Andrew and James would receive their parents’ farm assets.
Geoff said that this was true and when challenged that he had denied this earlier, he responded that he had thought that he had been asked a different question. Geoff then testified:
I was talking to them. I was asking, telling them what we’re doing, not they weren’t. I was telling them “What do you think we’re going to do to help Sally and David, suggest something to me”.
…
I was trying to get the boys to help me with where we’re going with Sally and David, that was where that was… So if you turn it round the other way I suppose it’s there. I’m sorry. Um, he had – they - I was - Jenny and I were asking for some direction what we could do.
Geoff was also asked about the acknowledgement letters signed by his sons as to the benefit that they received from the partnership loan from Westpac used to assist in the purchase of Sally’s house. He agreed that by providing for Sally in this way, it gave Andrew and James some protection in the future against a claim by her in respect of the farm. In this context, he agreed that the family farm was to go to Andrew and James ‘a long way down the track.’
Geoff gave more evidence in re-examination about what was to happen with the properties and what had been discussed. He said he asked Andrew and James:
how they’re going to go about providing - if they were to get the farm, how were they going to go about providing for Sally and David. What are they going to do to satisfy me that it would be right and equitable and there wouldn’t be some court action taken against them in the will or what happens down the track.
Geoff said that he discussed this around the family table more than once, that he could not get any proper answer from Andrew but rather he gave an answer like ‘I don’t care’ and that James would always say that it was up to his father as it was his farm.
Jenny did not give any evidence that casts doubt on her intention and that of her husband to leave the properties to Andrew and James after the death of their parents as long as provision is made for her two other children.
When the whole of the evidence is considered, the judge was right to find that Geoff and Jenny have not resiled from their intention that Andrew and James will be left the properties after their parents have died, if adequate provision is made for Sally and David. He was also correct in finding that it was intended that Geoff and Jenny would enjoy the benefits of the properties which were improved over time by the joint efforts of them and their two sons.[43] There is nothing unconscionable in them continuing to do so. It would only be unconscionable if the evidence supported a conclusion that Geoff and Jenny now intend to exclude Andrew permanently from any interest in the properties. But it does not. When the totality of the evidence of Geoff is taken into account, he does not disavow a sense of obligation to Andrew. Rather, his evidence reflects a father’s sense of obligation to all of his children aimed at ensuring that they are all taken care of and that there is a fair and reasonable distribution of the family’s wealth between them taking into account their individual contribution, needs and circumstances.
[43]Reasons [96].
The scope and context of the joint endeavour and the circumstances in which it came to an end in other cases is in contrast to that here. In Muschinski v Dodds the participants both intended the property would be owned immediately by both of them. They were both to use it and live in it together. That could not occur once the relationship broke down prematurely. The woman had contributed the purchase price and had made all or almost all of her expected contribution to the joint endeavour. The man had made almost none of his.[44] In those circumstances, it would have been unconscionable for the man to have taken the benefit of the much greater contribution made by the woman. In Baumgartner v Baumgartner the de facto couple lived together in the property in question until their separation. Although they had pooled their resources for the purposes of their joint relationship, the man denied the woman had any interest in the property. Again, it was unconscionable on the break-up of the relationship for the man to deny his former partner’s interest in the property. In neither case did the joint endeavour contemplate the involvement of third parties. Here, there is that complicating and distinguishing factor. As I have described, the participants here contemplated that whilst the properties would be used in the joint endeavour it was only if provision could be made for two other siblings that the properties would pass to Andrew and James. That is, there was no intention that they would have an unconditional interest in the properties. Whilst Andrew submitted that provision has been made for Sally by the purchase of the property at Black Hill, Geoff gave evidence that that property had had to be sold so that in his view, provision still had not been made for his daughter. As for David, no provision has been made for him at this time. So the pre-condition has not been satisfied. At present, there is nothing unconscionable about keeping the status quo in relation to ownership of the properties.
[44]Muschinski v Dodds 621 (Deane J).
Further, in Muschinski v Dodds and Baumgartner, there was clear evidence that the males did not have regard to the contribution made by the women to the joint endeavour but rather took unconscionable advantage of the contribution that had been made before the endeavour came to an end. Here, the evidence does not establish that Geoff, Jenny and James will unconscionably deprive Andrew of reward for the contribution that he made to the joint endeavour it having ended prematurely without attributable fault. I would add that unlike in Muschinski v Dodds, this is not a case where the contribution made by one participant (here Andrew) significantly outweighs the contribution made by the other (here Andrew’s parents and brother).
Turning then to the equitable or proprietary estoppel claim by Andrew, as I have stated, his claim must fail because he did not make out his pleaded representation which was as to what would happen on the retirement of his parents from the business rather than on their deaths. Even if he had pleaded and run a case based upon a representation as to what was to happen when his parents passed away, his claim would have failed. This is because, for the reasons that I have given above, his parents have not departed from the representation they made and there is nothing unconscionable in the parents continuing to own the properties. This is in contrast to the case of Rodda v Ian Rodda Pty Ltd[45] which was an estoppel by encouragement case. Whilst Andrew sought to rely upon it, it is of no assistance to him, albeit that some of the facts are similar to those in the present case. In Rodda, a father had encouraged his son to work with him in a farming business for low wages rather than pursue other opportunities on the basis that he was working towards taking over the farming business at some time in the future. The son understood that his siblings had to be fairly (in relation to him) and equally (in relation to each other) provided for out of their father’s property. The son also recognised that allowance had to be made for his father to have a comfortable retirement. The son worked in the farming business for about 18 years and relied to his detriment on his father’s representational conduct. The son was excluded from the business. His father subsequently made a will leaving his estate to all four of his children. By the time of the trial, the father had changed his will and his son was removed as a beneficiary altogether. The court held that the father had irrevocably resiled from the expectation that he had induced in his son such that the son was entitled to relief. In a similar vein is Flinn v Flinn[46] where a woman made a new will excluding her nephew as a beneficiary in circumstances where he had been promised an interest in a farm. The change to the wills in Rodda and Flinn[47] have no parallel in this case. Whether Geoff and Jenny have wills in place is unclear. If there are any wills, their terms are unknown. These matters were not explored at trial, perhaps understandably given that Andrew’s case was that the properties were to be made over on Geoff and Jenny’s retirement. Be that as it may, there is no objective documentary evidence such as the wills in Rodda and Flinn that were pivotal to the finding that the representors had resiled from their expressed intentions. For the reasons given, the facts in this case do not establish on the balance of probabilities that Andrew’s parents have departed from any expectation they may have created in him.
[45][2015] SASC 95 (‘Rodda’).
[46][1999] 3 VR 712 (‘Flinn’).
[47]See also, Delaforce v Simpson-Cook (2010) 78 NSWLR 483 which also involved a will which had been changed.
I would add that Andrew put store in the suggestion that he had suffered greater detriment than that recognised by the judge. He relied on the expert evidence of an accountant, Ross McKenzie. I will say more about this evidence later in these reasons. Suffice to say here, that in one part of his reports he quantified the possible financial disadvantage that Andrew had suffered as more than $1million. In my opinion, this does not make it unconscionable if Andrew does not receive an interest in the properties or compensation now. Again, he was always going to have made that contribution (given the way that the family treated accounting matters) yet was not to have an interest in the properties without his siblings being provided for and then only upon the death of his parents.
For these reasons, appeal grounds 4-8 must fail. In those circumstances, it is not necessary to consider the matters raised by the notice of contention.
B.Were Caverndale and Murphy’s assets of the GJA & J Sobey Partnership? (Grounds 1-1B)
Murphy’s and Caverndale were purchased before either Andrew or James became partners in the farming business. Both properties were registered in the names of Geoff and Jenny. They were included in the balance sheets of the partnership between them (G & J Sobey Partnership). Those entries carried over into the balance sheets for the three-way partnership (GJ & A Sobey Partnership) and the four-way partnership between the parents and their sons (GJA & J Sobey Partnership). Both properties were removed from the partnership balance sheet in 2003. This occurred as a result of instructions given by Geoff through his solicitor to his accountant. Andrew contends that the properties were partnership property and were wrongly removed from the accounts.
Section 24(1) of the Partnership Act 1958 provides that property originally brought into the partnership or acquired on account of or for the purposes of the firm in the course of the partnership business is partnership property and must be used exclusively for the purposes of the partnership and in accordance with the partnership agreement. Whether property has been brought into a partnership depends upon the agreement of the partners.[48]
[48]Harvey v Harvey (1970) 120 CLR 529, 549 (Barwick CJ); O’Brien v Komesaroff (1982) 150 CLR 310, 319 (Mason J).
The judge found that there was no evidence that the partners expressly agreed that the properties were to be partnership assets.[49] His Honour noted that in the absence of such an agreement, or conduct from which an agreement could be implied, it was necessary to decide whether inferences could be drawn from the documentary evidence, the conduct of the Sobeys and other relevant matters.
[49]Reasons [106].
The judge concluded that the properties were not partnership assets.[50] He did so for a number of reasons. First, the four partners attended a meeting with their accountant in June 2007 when a proposal was discussed which involved transferring Murphy’s into the family superannuation fund with a lease back to the farming enterprise. This is what happened. Andrew and James signed a lease between the Superannuation Fund as lessor and themselves as lessees with a yearly rental of $70,000 charged by the Superannuation Fund. The judge found it improbable that the sons would have agreed to a lease if Murphy’s was partnership property. The judge took into account that there had been no lease of the properties before June 2007 but noted that in a family partnership it may simply indicate a willingness on the part of the parents to allow the properties to be used by the family for partnership purposes.[51]
[50]Ibid [117].
[51]Ibid [118]–[120].
The second reason that the judge gave for finding the properties were not partnership assets was that it was inconsistent with Andrew’s claim that the properties were to be given to him and his brother on the retirement of their parents.[52]
[52]Ibid [121].
Thirdly, the judge observed that Caverndale had been purchased before Andrew became a partner. The purchase contract for Murphy’s was entered into and the first $250,000 of the purchase price was paid before Andrew was a partner. That property was purchased on 5 year vendor terms. The partnership did not pay any of the principal but rather only interest which suggested to his Honour that the partnership was using the asset but was not purporting to acquire it in its own right.[53]
[53]Ibid [123].
Fourthly, the judge took into account that when they were purchased, Murphy’s and Caverndale were registered in the names of Geoff and Jenny. In respect of other properties and assets, when it was intended that Andrew or James should have an interest, it was discussed and in the case of real property, the relevant son’s name was included on the title. The discussions about Murphy’s and Caverndale were premised on the footing that Andrew and James would be bequeathed the farm if adequate provision was made for their other siblings.[54]
[54]Ibid [124]–[125].
Fifthly, Caverndale was mortgaged by Geoff and Jenny for a loan to the four partners. The judge found this to be consistent with the parents allowing the property to be used by the partnership as security, not that it would be a partnership asset.[55]
[55]Ibid [126].
Sixthly, Andrew made a nominal contribution to join the partnership yet if his contentions were correct, he would have received in exchange a one-third interest in Murphy’s and Caverndale. The judge found that this could not have been intended.[56]
[56]Ibid [127].
Next the judge found that the four-way partnership was dissolved on terms that were consistent with the properties not being partnership assets:[57]
Andrew and James would continue farming together in partnership; they would lease part of the land (that part of Murphy’s owned by Caverndale Pty Ltd) but would not have to lease the remainder of the land; and they would have a half-interest in stock, plant and equipment instead of a quarter interest; and they would become responsible for the liabilities of the four-way partnership.[58]
[57]Ibid [128]–[140].
[58]Ibid [138].
Lastly, the judge observed that when the four-way partnership dissolved no-one suggested that the properties were assets of the partnership.[59]
[59]Ibid [141].
The judge was not satisfied that the alteration to the accounts to remove the properties from the list of partnership assets was explicitly drawn to the attention of Andrew and James. He did not regard as determinative the fact that Andrew had signed the financial statements for the five financial years after the amendment had been made and in which the properties were not listed as assets of the partnership.
Andrew’s grounds of appeal are that the judge should have found that Murphy’s and Caverndale were assets of the three-way partnership (GJ & A Partnership) because they were included in the 1995 balance sheet and the capital accounts[60] and were assets of the later four-way partnership (GJA & J Partnership) because they were included in the 1996 balance sheet and capital accounts.[61]
[60]Grounds 1 and 1B.
[61]Ground 1A.
Andrew’s grounds of appeal and submissions proceeded on the erroneous assumption that the mere inclusion of the properties in the accounts meant that they were partnership property.
In my opinion, for the reasons that he gave, the judge correctly found that Murphy’s and Caverndale were not partnership property. There was no agreement (whether express, implied or to be inferred) that Geoff and Jenny brought the properties into either the three-way or four-way partnership. In particular, the mere inclusion of the properties in the accounts until 2003 is just one factor to be taken into account. It certainly does not compel a conclusion that there was an agreement that the properties would be partnership property. Indeed, the evidence (including Andrew’s evidence) of the discussions between the family members about what was to happen to those properties (whether on the death or retirement of Geoff and Jenny) is quite contrary to a conclusion that the parents brought the properties into the partnership. So too is the agreement that was reached upon dissolution of the four-way partnership in 2007 before there was any dispute between Andrew, his brother and parents. One might ask rhetorically, why would Andrew have signed a lease of property that was a partnership asset? It makes no sense and is indeed quite contrary to the proposition that Murphy’s and Caverndale were partnership property. When Andrew was to have an interest in property, his name was included on title. That is what happened with a property at Learmonth. That is to be contrasted with Murphy’s and Caverndale for Andrew was never a registered proprietor of either of those properties.
88 Grounds 1, 1A and 1B must fail.
C.Should the Court have ordered the taking of accounts of the GJA & J Sobey Partnership? (Grounds 1C, 2, 2A)
The four-way partnership came to an end in 2007. No accounts were taken. The judge refused Andrew’s application for the taking of accounts as at 30 June 2007.
Section 48 of the Partnership Act sets out rules for settling accounts on dissolution of a partnership. The section makes clear that the application of those rules is subject to any agreement between the partners.
The judge found that there had been a meeting between Geoff, Jenny, Andrew and James in June 2007 at which it was agreed that the four-way partnership would be dissolved. Jenny took notes of the meeting which they all signed. The signed notes were put into a filing cabinet by Geoff and later removed by Andrew. The notes were not in evidence. The judge inferred that there was an agreement to dispense with any accounting formalities.[62]
[62]Reasons [147].
The judge declined to exercise his discretion to order a taking of accounts.[63] He observed that during the course of the four-way partnership, the partners adopted a consensual broad brush approach to accounting matters.[64] He also noted that there had been an harmonious transition within the family from the four-way partnership to the two-way partnership.[65] In passing he noted that it was questionable whether any formal taking of accounts would ultimately produce any benefit to Andrew but that such an exercise would almost certainly be very expensive.[66] The judge took into account that during the trial it was conceded that Andrew had not received his full benefit from a property at Learmonth. The judge found that Andrew was entitled to a third of the sale price of that property with the precise figure needing to be calculated. To that extent, the judge observed that an account was necessary.[67]
[63]Supreme Court (General Civil Procedure) Rules2015 r 52.01 provides that ‘the Court may at any stage of a proceeding make an order for the taking of any account or the making of any inquiry.’
[64]Reasons [148].
[65]Ibid.
[66]Ibid [149].
[67]Ibid [150]–[151].
Andrew accepted that the remedy of accounts is discretionary and that it would be necessary for him to identify error of the House v The King[68] type if the judge’s refusal to order the taking of accounts was to be disturbed. Andrew’s grounds of appeal are that:
[68](1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ).
1.the judge erred in not ordering the taking of accounts[69] and in the exercise of the discretion because he should have considered:
[69]Ground 2.
(a)the evidence of the expert accountant to the effect that the existing accounts financially disadvantaged Andrew and James;
(b)that the accounts were prepared primarily for tax and compliance purposes without regard to the interests of individual partners;
(c)the agreement for dissolution of the partnership was made informally without independent advice and involved Andrew and James assuming and relieving their parents from significant liabilities;
(d)the accounts were prepared as part of a joint endeavour that ended without fault;[70]
2.the removal of the properties from the list of assets in the accounts of June 2003 was not authorised by the partners and was done to the detriment of him and James and to the benefit of their parents by making adjustments against all capital accounts.[71]
[70]Ground 2A. Andrew’s counsel accepted that para (d) did not add anything to the matters that he had raised in paras (a) and (b) set out above.
[71]Ground 1C.
Andrew submitted that the judge did not take into account that the expert accountant, Mr McKenzie had identified that there were irregularities with the four-way partnership accounts and that there was a resultant benefit to two of the partners (Geoff and Jenny) over the other partners (Andrew and James).
Mr McKenzie recorded in his report of 16 December 2010 that Geoff and Jenny ‘appear to have extracted significantly greater value from the partnership than Andrew has or has been permitted to.’ He quantifies the ‘possible financial disadvantage’ to Andrew at just over $1million. In his second report, Mr McKenzie concluded that further information that he had been provided with and reviewed confirmed his view that the partnership records ‘have been accounted for in a manner that resulted in [Geoff and Jenny] receiving an excessive value from the partnership at the direct cost of Andrew and James.’
It is not evident from the judge’s reasons that he took into account Mr McKenzie’s evidence for there is no mention of it. The respondents submitted that this did not matter because Mr McKenzie’s reports were irrelevant as they were based upon two assumptions which the judge had dismissed. First they submitted that Mr McKenzie had assumed that drawings were taken from the partnership by Geoff to the detriment of the other partners, but the judge found that it was Mr Mackley, the partnership’s accountant, who determined where to allocate income and expenses. I do not think that this affects the substance of Mr McKenzie’s evidence. It was Geoff who provided at least some instructions to Mr Mackley, in particular the instruction (through his solicitor) to rectify the accounts by removing Murphy’s and Caverndale as partnership property. More importantly, whilst he made comment about it, Mr McKenzie’s financial analysis did not rest upon why or how the entries in the accounts had been made. His analysis was purely an accounting exercise based upon the documentary records and assumptions that he made about financial matters and common practices in partnerships between family members.
The respondents submitted that the second false premise upon which Mr McKenzie based his reports was that Murphy’s and Caverndale were partnership assets. The respondents submitted that after the judge found that the properties were not partnership assets, Mr McKenzie’s evidence about any supposed financial disadvantages resulting from accounting errors was no longer relevant. I do not accept this submission because it does not address the accounting entries that were made when the properties were originally erroneously included in the accounts and the entries made when the accounts were rectified to remove the properties as partnership assets. In this regard, the first balance sheet for the three-way partnership for the year ended 30 June 1995 showed both Caverndale and Murphy’s as non-current assets worth about $600,000 with Geoff and Jenny each having capital accounts of approximately $242,000 and Andrew having a capital account of approximately $4,000. The accounts for the financial year ended 30 June 1997 for the four-way partnership included the properties as non-current assets and showed Geoff and Jenny as having capital accounts of approximately $292,000, Andrew approximately $54,000 and James approximately $40,000. In 2003, when the accounts were rectified by removing the properties as non-current partnership assets, an adjustment was made to the partners’ capital accounts by way of reduction in an amount of approximately $267,000 for each partner. On Andrew’s case, the value of the properties when they were included in the accounts was attributed to the capital accounts of Geoff and Jenny but when the properties were removed from the accounts, their value was deducted not only from Geoff and Jenny’s capital accounts but also from the capital accounts for James and Andrew.
I am satisfied that Mr McKenzie’s evidence was a matter that was relevant in the exercise of the discretion and that the judge may not have taken it into account. However, in re-exercising the discretion, I arrive at the same conclusion as the judge and would not order a taking of accounts for the four-way partnership for the following reasons.
First, over the course of more than 10 years when the partners were not in dispute, the arrangement that they had was that there would be little formality when it came to accounting matters. No doubt the partners recognised that sometimes this approach would be individually advantageous to them and at other times, disadvantageous. To now impose a rigid and technical approach by way of the formal taking of accounts does not sit comfortably with that history.
Secondly, the parties agreed that they would not have a formal taking of accounts when they dissolved the four-way partnership. Andrew has not attempted to have that agreement set aside. The fact, if it be one, that Andrew did not have independent advice at the time of dissolution does not on its own mean that any unconscionable advantage was taken of him by his parents nor that he was subject to any undue influence nor other matter that would vitiate the agreement.
Thirdly, the reports of Mr McKenzie and his oral evidence are not persuasive when consideration is given to the general approach to financial matters that the Sobeys took and to the evidence of their accountant, Mr Mackley. The judge said:
it appears that the accounting for the respective partnerships was done fundamentally to maximise tax benefits. The Sobey family accountant, Mr Mackley, decided where to allocate income and expenses. Mr Mackley gave evidence that his firm could not ascertain which drawings related to which partners, so drawings were allocated to the partner that the firm determined was the ’number one’ partner. This had the effect that drawings were disproportionately represented as attributable to one partner. Likewise, the partnership financial statements were prepared to satisfy compliance requirements and did not necessarily accurately reflect receipts by individual partners. For example, the capital and current accounts for 1997, the first year of the four-way partnership, show drawings of each partner of $26,777 recorded against the names of each of the partners when the unchallenged evidence is that Andrew and James drew wages of $100 per week and Geoff did not draw any wages. There were no annual distributions of partnership profits or precise allocation of expense items to individual partners save where an expense item was personal, such as a medical expense, health insurance or superannuation. Otherwise, expenses were allocated to a general drawings account.[72]
[72]Reasons [77].
Fourthly, although Andrew contended that the agreement reached for dissolution of the four-way partnership was for Geoff’s benefit, it is far from clear that this is so. It is true that on dissolution of the four-way partnership in 2007 all liabilities were transferred to the two-way partnership between Andrew and James. However, each of the sons also increased his interest in the partnership assets from a 25 percent interest to a 50 percent interest. That is, they took the benefit of the assets together with the burden of the liabilities that went with those benefits.
Fifthly, I do not accept that it would be appropriate to confine the manner and scope of the account to be taken by orders limited to the matters raised in Mr McKenzie’s reports. Given Mr Mackley’s evidence about the manner in which the accounts had been prepared and expenses, drawings and the like had been allocated, it would not be reasonable to limit the taking of accounts in scope to only those matters about which Andrew complained. The task would be complex and would involve delving into the historical detail of accounting entries that were made and the underlying documentation (if any remains) for those entries. It would be a costly and time consuming exercise. All of this in circumstances where the partners had conducted their affairs harmoniously for many years without objecting to the broad-brush approach to accounting.
There should be no order for the taking of accounts of the four-way partnership.
Conclusion
The appeal should be dismissed.
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