Sobey v Sobey

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT

SCI 2011 03588

ANDREW SOBEY	Plaintiff
v
GEOFFREY SOBEY	First Defendant
JENNIFER SOBEY	Second Defendant
JAMES SOBEY	Third Defendant
CAVERNDALE PTY LTD (ACN 086 924 950)	Fourth Defendant

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JUDGE:	ALMOND J
WHERE HELD:	Melbourne
DATES OF HEARING:	21, 23, 24, 28-30 January, 5-6, 10 February 2014
DATE OF JUDGMENT:	14 August 2014
CASE MAY BE CITED AS:	Sobey v Sobey & Ors
MEDIUM NEUTRAL CITATION:	[2014] VSC 373	Revised 22 August 2014

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EQUITY & TRUSTS – Common Intention – Constructive Trust – Proprietary Estoppel – Unconscionability – Family farming enterprise – Successive family partnerships – Failure of joint endeavour – Whether plaintiff has a proprietary interest in farming land – Contribution – Substantial part of working life spent on farm – Alleged representations and common intention to work on the farm – Expectation of receiving a proprietary interest – Reliance on encouragement and assurances – Detriment – No unconscionable retention of benefit.

PARTNERSHIP – Partnership Act 1958 (Vic) – Whether properties were assets of the partnership – Dissolution of partnership – Date of dissolution – Taking of accounts.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C Northrop	Harwood Andrews Lawyers
For the Defendants	Mr P Caillard	Nevett Ford

HIS HONOUR:

Since 1969 the Sobey family has conducted a family farming business in the Ballarat region of Victoria.

Initially the business was conducted by Geoff and Jenny Sobey. In 1994, their eldest son Andrew became the third partner. In 1995, their second son James became the fourth partner. The four-way partnership (the G J A & J Sobey partnership) continued until 2008 when Geoff and Jenny Sobey retired from the partnership. Andrew and James continued to run the farming business in partnership (the A & J Sobey partnership) until the latter part of 2010 when hostility and conflict within the family resulted in Andrew leaving the farm. Since then, James has continued to operate the farming business without Andrew.

In this proceeding, Andrew sues his parents, his brother James and the family superannuation fund, Caverndale Pty Ltd. Andrew’s other siblings, his sister Sally and his brother David, are not parties to the dispute. For ease of reference at trial, each member of the Sobey family was referred to by their first name. I will take the same approach in these reasons.

In essence, Andrew alleges that: after he left school, he worked full time in the family farming business in the successive family partnerships for low remuneration; profits from the business were reinvested in the partnership enabling the family to acquire more property and improve the family business; his parents encouraged him to devote his efforts for the benefit of the family business and improvement of the farming properties;[1] his parents made representations, and it was the common intention, that when they retired from the farming business, the farming properties would be divided between Andrew and James;[2] and he contributed his labour for the benefit of the farming business and improvement of the farming properties on the assumption and in the expectation that the benefits would be shared between the four partners, not just the registered proprietors.[3]
[1]Statement of claim filed 12 July 2011 (‘Statement of Claim’), [35].
[2]Ibid, [36]–[37].
[3]Ibid, [38].

Andrew alleges that in reliance on the encouragement, representations, common intention, assumption and expectation, he worked in the farming business and made contributions to the improvement of the properties to his detriment.[4]
[4]Ibid, [39].

It is alleged that it would be unconscionable for Geoff and Jenny now to deny Andrew an interest in the farming properties, known as ‘Caverndale’ and ‘Murphy’s’, and that they are estopped from doing so.

Independently of the equitable claim, Andrew seeks a taking of accounts of the four-way partnership with his parents and James, and the two-way partnership with James and a declaration of dissolution of the two-way partnership.

The principal issues for determination give rise to the following questions:

(1)Does Andrew have an interest in Caverndale and Murphy’s pursuant to a constructive trust or based in proprietary estoppel?
(2)Were Caverndale and Murphy assets of the G J A & J Sobey partnership?
(3)Should there be a taking of accounts of the G J A & J Sobey partnership as at 30 June 2007?
(4)What is the date of dissolution of the A & J Sobey partnership?
(5)Has James made use of A & J Sobey partnership assets subsequent to the dissolution of the A & J Sobey partnership?
1.Does Andrew have an interest in Caverndale and Murphy’s pursuant to a constructive trust or based in proprietary estoppel?

Andrew testified that he commenced working on the family farm from the end of 1989 when he was in Year 10 at school, aged 15 years. At that time the Sobey farm interests consisted of Caverndale, a rural cropping and grazing property[5] and some nearby land leased from the Baird family, which was used for growing potatoes.[6]
[5]Property Summary in Valuation, Exhibit D4, 3, 5.
[6]Transcript of Proceedings, 21 January 2014 – 10 February 2014 (‘Transcript’), 88.1–2, 90.10–17.

Evidence of Andrew’s Work

Andrew performed general farming work on these properties and on properties acquired from time to time. Property acquisitions included properties known as Carngham, Learmonth (Selwoods Road), Learmonth (Morton Street) and Murphy’s.

Andrew gave detailed evidence about the nature of the work he performed and the extent of his contribution to making improvements on these properties over a period of approximately 20 years. This is summarised as follows.

In relation to Caverndale, Andrew said he was involved in: erecting kilometres of fences and over 50 gates covering the majority of the 15 paddocks; installing approximately 16 troughs with associated pressure systems and piping; clearing around 100 trees, including about 30 large cypress trees around the house, a couple of oak trees and a row of pine trees and an additional number of smaller trees; substantial tree planting; installing new drains and improving existing drains; the constructing of at least five stock and vehicle crossings; improving a stock dam and two irrigation dams; improving power supplies to various parts of the farm (principally by levelling trenches and laying cable and back filling for underground cabling); installing an irrigation pump; and making home improvements to the family home on Caverndale. This included re-plastering, re-carpeting, re-flooring, re-roofing and renovating a new kitchen; demolishing and renewing existing sheds, constructing a six-car garage; improving and extending a hay shed and installing a cool room; adapting cattle yards for use for sheep; installing sheep yards behind a new shearing shed and making the associated galvanised gates; clearing to enable a sealed driveway to be laid; constructing bore holes; installing pivot irrigation systems and concrete hydrant pads; pasture and soil improvement; weed control; removal of rocks and boulders; and connecting the irrigation systems on Caverndale with the irrigation system on Murphy’s to enable water sharing.

In relation to Carngham, Andrew said he was involved in: fencing; pasture and soil improvement; improving the sheep yards; cleaning out and re-plumbing water troughs; fixing a windmill; and planting pine tree plantations.

In relation to Learmonth, Andrew said he was involved in: installing and improving drainage on approximately half of the property; re-pasturing over time substantially the whole property; installing at least three concrete troughs and associated pipeworks; re-fencing and re-hanging gates; installing electric fences; constructing sheep yards; removing pine tree plantations; installing pump and pressure systems including levelling of approximately a kilometre of trenches; removing and installing a tank stand; improving stock dams; and installing stock and heavy vehicle crossings.

In relation to Murphy’s, Andrew said he was involved in: replacing nearly all the fences (including decisions on the positioning of new fences); installing electric fences[7] and wiring under gateways; installing at least 30 gates (including positioning of double gates to enable centre pivot irrigators to be moved without cutting fences); installing pivot irrigation concrete pads; improving the hay shed; converting a stock dam into an irrigation dam; deciding where additional stock dams should be located; cleaning and maintaining dams; suggesting locations for test bore holes; improving the existing bore; installing an electric pump on a stock dam and associated piping; installing concrete pads for a centre pivot irrigator; constructing a new bore; installing at least three stock and heavy vehicle crossings; removing rocks and boulders using machinery and by hand; re-pasturing including ploughing (nearly the entire property during the initial years after Murphy’s was purchased); improving soils; removing a 200 metre row of mixed gum trees and re-planting at least three golden Cyprus plantations for a total length in excess of two kilometres; removing gorse hedges; installing at least ten water troughs and extensive associated pipe work; installing a hydrant for the pivot irrigation system; and work relating to gateways and spreading blue metal.
[7]Ibid, 142.

Andrew’s uncle, Mr Ian Sobey, and neighbours Messrs Allen and Jamie Baird each gave evidence to the effect that Andrew worked on the Sobey farm properties after he left school and substantially for the whole of his working life. Ian Sobey agreed that Andrew and James worked hard. He said ‘[o]bviously they worked reasonably hard to achieve what they achieved…’[8]
[8]Transcript, 130.19–21.

Although Andrew gave persuasive evidence about the nature and extent of his involvement in work on the various properties, he was generally imprecise about when particular work was carried out. An aerial photograph of Caverndale taken in 1989[9] suggests that some of the work Andrew recalls being involved in at Caverndale, such as the extension of a hayshed, the installation of a cool room, the installation of a loading ramp and galvanised gates in the sheep yard, the installation of some bore holes and piping, the installation of a stock crossing, and some cypress tree plantations were carried out prior to the taking of the photograph, presumably before Andrew had left school to work on the farm.
[9]Aerial photograph of Caverndale, Exhibit D5.

Geoff gave evidence that: tinning work on the hay shed at Caverndale was probably completed in 1984; the cool room was installed shortly after the shed was built around 1984 or 1985; the loading ramp was completed around 1983 or 1984; the sheep yard work was completed before the photograph was taken, possibly 12 months before; the galvanised gates were installed when the sheep yards and the shed were completed; the majority of the tree removal from Caverndale was carried out not long after Caverndale had been purchased; and the tree plantations near the house were planted within the first year or two of purchase of the property. I accept this evidence. Geoff recalled the approximate dates and the photographic evidence corroborates this evidence. There was no evidence from Andrew to the contrary.

In giving evidence, Geoff conceded that Andrew worked hard on the properties. He agreed that Andrew worked around six days a week. James agreed that the efforts of Geoff, Andrew and himself improved the farm properties.

In about 2008, Andrew injured his back. According to Andrew, ‘work continued the way it was’ in that he worked on the potatoes, James worked on the sheep, and ‘the major working infrastructure of the property stayed the same’, except that he was unable to do heavy lifting and tried to avoid doing things which would exacerbate the injury.[10]
[10]Transcript, 201.01–29.

James gave evidence that Andrew had returned from a doctor’s visit in 2008 or 2009 and said that he was not allowed to do any heaving lifting. He said he felt that between then and the breakup of the partnership in 2010 that Andrew was not doing as much work as he (James) was doing and that (Andrew) ‘did selective jobs, driving the tractor and the easier stuff’.[11]
[11]Transcript, 420.7–22.

Andrew continued to work on the relevant farming properties until about 12 October 2010, the date upon which intervention orders were made by consent (but without admissions) against Geoff, Andrew and James requiring each of them not to commit family violence or intentionally damage each other’s property.[12] At this time, the family was under significant financial pressure as the bank was insisting on the sale of property to repay loans and had fixed upon February 2011 as the date upon which loans would need to be repaid.
[12]Intervention Orders dated 12 October 2010 against Geoff, James and Andrew Sobey, Exhibit P10.

In my view, nothing turns on the fact that much of the work to improve the property was carried out by or in conjunction with contractors engaged by and paid for by the relevant partnership. Andrew’s contribution on those occasions was often in the form of manual labour, driving machinery and providing assistance as and when required. These matters do not detract from the significance of Andrew’s contribution. Further, whilst Andrew’s back injury may have necessitated some modification to the tasks he was able to perform, no blame or adverse consequence flows from that circumstance.

I am satisfied that Andrew worked diligently on the respective Sobey farming properties to the best of his ability from the time he left school near the end of 1989 to near the end of 2010. At trial, the defendants did not dispute that Andrew worked or worked fairly hard on the various properties. I find that Andrew devoted a substantial part of his working life to the family farming business in the respective partnerships and in the process contributed to the improvement and development of the farming properties.

Alleged encouragement and representations

Andrew contends that he was encouraged by Geoff to devote his efforts to the farming business in the expectation that when Geoff retired from the business the farm properties would become his and James. He contends that in reliance on the encouragement, he worked continuously in the farming business receiving low remuneration of $100 a week for most of the time. Further, he contends that when Learmonth was sold he was told by Geoff that Caverndale and Murphy’s would become his and James’s properties.

It is necessary to consider the evidence in support of these contentions.

In evidence-in-chief on this issue, Andrew was asked whether he ever had occasion to speak to his father about the fact that he was receiving only $100 a week. According to Andrew:

[Geoff] said I will be far better off to be on $100 a week instead of a salary. We’ll use the salary to be used in the partnership to pay off the land or stock and plant or whatever it may be and you’re working for that.
COUNSEL: Did you have a discussion with him about what would happen to the land?---Yes.
What was that? What discussion did you have?---He said that the – we’re constructing it this way so that you’re not wasting your money and the money like I said put into – back into the land and the land would be given to you on retirement.[13]

[13]Transcript, 98.29–99.10. This and the following transcript excerpts are a correct record despite any grammatical errors.

Under cross-examination, Andrew said:

COUNSEL: When you joined the partnership in 1994, you didn’t think they were giving you an interest in Caverndale did you?---In 1994, after growing potatoes I still had some money left over from the potatoes from the contract and Geoff wanted to put me on – I was on $100 a week but I still had some money from my potatoes and he wanted to keep my contract with McCain’s so partnership contract was bigger for more borrowing power but he said the conditions for me to stay on $100 a week and not get any money from the potato contract was that that money was to be put into the partnership, into the stock and plant and the land and that would be handed over and that’s what I worked hard for, it would be handed over when they retired.[14]

[14]Transcript, 210.15–27.

In other parts of Andrew’s evidence in relation to the same issue, namely being paid $100 a week:

COUNSEL: During this period did you continue to get paid $100 a week?---Yes.
Did you ever have occasion to speak to Geoff about that, about the money?---Yes.
Could you just describe to his Honour the conversations you have with Geoff about the money you were getting paid?---…I asked him on a number of occasions cos I was – I never had much money and he said you’re far better off having $100 a week than having a full wage so that we can pay off property in principal and stock and plant.
Did he say anything to you about why that was a good thing?---So that we had – James and myself had something to work towards and the more you put in when you’re young the bigger the investment is when you receive it when you’re older.
COUNSEL: Do you recall any specific discussions about what might happen to the three properties, Caverndale, Learmonth and Murphys?---Yes, he said he’d – in return he would leave us the properties.[15]

[15]Transcript, 160.13–161.1.

The issue of what would happen to the properties arose in the context of Geoff wanting to retire:

COUNSEL: Well, how did you know he wanted to retire?---He said he wanted to retire and he wanted me and James to – to buy Learmonth.
…
Well, did he say to you why his selling Learmonth was connected to his retirement?---Yes, he – he did say he wanted a million dollars to retire, and there was another discussion that did come up another time that Learmonth was to be sold, and myself and James were to be left Murphys and Caverndale. But the decision was never explained to me, the actual final decision.[16]

[16]Transcript, 164.13–27.

The plaintiff called three lay witnesses, Allen Baird, Jamie Baird and Ian Sobey.

Jamie Baird is a local farmer who knows the Sobey family. He gave the following evidence:

COUNSEL: When you were having discussions with the Sobey family do you recall discussions with Geoffrey about the farm?---Well there was one thing that sort of stuck in me mind there at one stage like most fathers say their farm will be left to their sons eventually but yeah, that was a long time ago now, yeah.
What can you recall about that occasion when Geoffrey said those things?---Just in speech and it just sort of stuck in my mind I suppose. I can’t – like I said it could have been 15 years ago, but just one of them things, yeah.
As best you recall, did he give any indication of when that would happen, the farm going to his sons?---No, well probably when he retires I suppose. That’s normally when things like that happen.[17]

[17]Transcript, 80.9–23.

Mr Ian Sobey, Geoff’s nephew and a cousin of Andrew and James (and David and Sally), gave the following evidence:

COUNSEL: Now do you recall having discussions with Geoffrey about the boys working on the farm, Andrew and James?---I guess we had you know reasonable conversations from time to time.
With Geoffrey?---Yep.
Did he say anything to you about what would happen to the farms?---I guess you know it would have been the normal conversation that you know the boys are running the farm and eventually the boys will have the farm.

When you say you guess, do you recall a specific occasion when you spoke to Geoff?---Not an actual time or date, but it would be certainly something that was talked about for different periods of time.
That’s between yourself and your uncle Geoffrey?---Yep.[18]

[18]Transcript, 130.24–131.5.

Allen Baird said he had known the Sobey family all his life and that it was common in the local area that sons had the farms passed on to them.[19] Allen Baird was careful to distinguish common practice from specific arrangements made within a family. He gave the following evidence:

COUNSEL: In your experience, what would commonly happen to the property when the father ceased to farm it?---Well, I don’t know the arrangements that the Sobey family have got with their farm but my farm will certainly be left to my son. But that’s got nothing to do with me – sorry, with me or anybody else. What they do with their farm so that’s their decision.[20]

[19]Transcript, 78.11–13.

[20]Transcript, 78.4–10

Geoff gave evidence that he had always encouraged his boys to work hard and ’put in’ but never made the promises claimed.[21] He denied ever speaking to Andrew or James about leaving them land when he retired and asserted that he did discuss that he would lease the land to Andrew and James after he retired from the partnership. He denied making any promises in relation to what would happen to the land. He denied that he ever at any stage told Andrew that he would be leaving one property to Andrew and one to James. He also denied ever discussing his will with Andrew or James.
[21]Transcript, 272.23–31.

Geoff did admit to having a discussion with Andrew and James ‘15 years ago or maybe 10 years ago’ in the following terms:

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. 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.[22]
…
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”.[23]
…
I was trying to get the boys to help me with where we’re going with Sally and David, that was where that was…Jenny and I were asking for some direction what we could do.[24]

[22]Transcript, 299.25–300.4

[23]Transcript, 338.27-31.

[24]Transcript, 339.6-11.

These conversations were elaborated upon in re-examination. Asked by his counsel in reference to an earlier remark by Geoff, “What did you ‘put’ to Andrew and James?”, Geoff said:

[H]ow 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…
Q:     Can you tell me was that discussion you had more than once with James and Andrew?---More than once, yes.
Q:     Can you tell me where were those discussions, do you remember?---It had been discussed round the table, the family table on occasions…[25]
Q.     What did James and Andrew say when you had these discussions with them?---I usually got a ridiculous answer from Andrew like, “I don’t care”. James would always say, “It’s up to you Dad”.[26]

[25]Transcript, 379.16–27.

[26]Transcript, 381.5–9.

In about May 2004, Andrew (and James) signed a borrower’s acknowledgement and a letter addressed to Westpac Banking Corporation in connection with a loan taken out by the four-way partnership for the purpose of the purchase of a house for his sister Sally. The borrower’s acknowledgement relevantly states:

This loan has been structured on a long term strategy for estate planning.[27]

The letter relevantly states:
We confirm that the direct benefit of borrowing $250,000 for the purchase of the above mentioned property 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.[28]

[27]Borrower’s Acknowledgment dated 13 May 2004, Exhibit P1 Court Book (‘CB’) 1913.

[28]Letter from Andrew and James Sobey to Westpac Banking Corporation, undated, CB 1916–1917.

Geoff agreed that he gave the Westpac letter to Andrew and James and asked them to sign it.[29] He also agreed that the references in the letter to the residence being transferred to Sally were to give some protection for Andrew and James against a further claim to a share of the farm by Sally. Asked by counsel for the plaintiff if the protection for Andrew and James was ‘[b]ecause they were to get the family farm?’, Geoff replied, ‘yeah, a long way down the track’.[30] Consistent with his pleaded defence, Geoff admitted that he and Jenny, from time to time, said to 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 children Sally and David, and that if adequate and fair provision could be made for Sally and David from ’off farm’ assets, then upon their deaths then Andrew and James would receive the farm assets.[31]
[29]Ibid; Transcript, 342.14–30.
[30]Transcript, 343.12-13.
[31]Amended Defence and Counterclaim filed 2 December 2011, [36(a)]; Transcript, 338.5–19.

Jenny made identical admissions in her pleaded defence.[32] She denied ever having discussed with Geoff whether there would be a change of ownership of the land if she retired from the partnership. She gave evidence that Geoff made the main decisions about the farming business and its structure but always consulted her on commercial decisions on the farm. Jenny was not asked any questions about the admissions.
[32]Amended Defence and Counterclaim filed 2 December 2011, [36(a)].

James gave evidence that he had spoken to his parents about what would happen to the farm when they retired to the effect that they (Andrew and James) would continue running the farm. He denied that there was any discussion about there being a change of ownership of properties when they retired. He said there was a discussion to the effect that when his parents died, if he and Andrew bought a house for Sally and helped David out, Andrew and James would get the land.

I am satisfied that conversations between Geoff, Jenny, Andrew and James along these lines occurred. On the balance of probabilities, Geoff and Jenny, having four children to consider, would have been concerned about the adequacy of provision to be made for their two children who had not worked on the farm (Sally and David). It was not suggested to Geoff or Jenny that such conversations did not occur.

Relevant principles

The plaintiff claims an interest in Caverndale and Murphy’s based on an inferred common intention[33] or pursuant to a constructive trust based on the principles expounded in Muschinski v Dodds[34] and applied in Baumgartner v Baumgartner[35] or the principles of proprietary estoppel expounded in Donis v Donis.[36]

Common intention

[33]See Rasmussen v Rasmussen [1995] 1 VR 613. The description ‘common intention constructive trust’ is apt to mislead. See commentary in G E Dal Pont, Equity and Trusts in Australia (LexisNexis, 5^th ed, 2011), [38.20].

[34](1985) 160 CLR 583.

[35](1987) 164 CLR 137 (‘Baumgartner’).

[36](2007) 19 VR 577.

A common intention trust is based on actual intention, which is either expressly stated or is to be inferred from the conduct of the parties. The elements of a common intention trust were summarized in Hohol v Hohol as follows:

(a)that the parties formed a common intention as to the ownership of the beneficial interest;
(b)that the party claiming a beneficial interest must show that he or she has acted to his or her detriment;
(c)that it would be a fraud on the claimant for the other party to assert that the claimant had no beneficial interest in the property.[37]

[37]Hohol v Hohol (1981) VR 221, 225.

These elements and the approach to be taken were discussed in Rasmussen v Rasmussen by Coldrey J who said:

In determining whether there is a common intention that a claimant was to have a beneficial interest in the property the court will look firstly for direct evidence of any express communications between the parties or the making of admissions by them. In addition, the common intention may be inferred from the conduct of the parties, for example, contributions to the cost of the property claimed or its maintenance. Such conduct is also of factual importance in determining whether a claimant has acted to his or her detriment. However, what is to be enforced is an actual intention inferred as a matter of fact.[38]

Constructive Trust

[38]Rasmussen v Rasmussen (1995) VR 613, 615.

In Muschinski v Dodds, Deane J discussed the equitable principle that prevents a person from asserting or exercising a legal right in circumstances where it would be unconscionable to do so:

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.[39]

[39]Muschinski v Dodds (1985) 160 CLR 583, 620; see generally 619–621.

In essence, where there is a joint relationship or endeavour which fails, equity will impose a constructive trust by restoring contributions made in relation to property in circumstances where it was not intended that the other party enjoy them. In those situations, it would be unconscionable for the legal owner to retain or assert sole title to the relevant property.

Justice Deane said that such equitable relief by way of constructive trust will only properly be available if ‘principles of the law of equity require that the person in whom the ownership of property is vested should hold it to the use or for the benefit of another’.[40]
[40]Ibid, 616.

His Honour rejected the proposition that a constructive trust represents a medium for the indulgence of idiosyncratic notions of what is fair or just by subjective views of who ought to win[41] and elaborated as follows:

[n]otions of what is fair and just are relevant but only in the confined context of determining whether conduct should, by reference to legitimate processes of legal reasoning, be characterised as unconscionable…[42]

[41]Ibid, 615-616; see also 594–595 per Gibbs CJ, 608 per Brennan J (in dissent).

[42]Ibid, 621; see also Baumgartner (1987) 164 CLR 137, 148.

The principles in Muschinski v Dodds were confirmed and applied by the High Court in Baumgartner. In that case, the parties pooled their earnings with a view to meeting all the expenses and outgoings arising from their living together as a family. The individual contributions of each party were not allocated to a particular category or particular categories of expenses and outgoings. The pool of earnings was used to pay outgoings, including mortgage instalments as well as other living expenses. There was no suggestion that the respondent’s contributions were paid and received by way of rent or a charge for use and occupation and for living expenses.[43] The joint relationship subsequently broke down. The court held that the appellant’s assertion after the relationship had failed that the relevant property (which was registered in his name) was his sole property, amounted to unconscionable conduct.[44]
[43]Baumgartner (1987) 164 CLR 137, 148.
[44]Ibid, 149.

In determining the scope of a constructive trust, a court can take into account matters including direct financial contributions to the purchase price of the property, the pooling of financial resources for the purposes of a joint endeavour,[45] and contributions of labour.[46]
[45]Ibid.
[46]Miller v Sutherland (1990) 14 Fam LR 416, 424.

As a guide to the approach to be taken, their Honours Mason CJ, Wilson and Deane JJ stated in Baumgartner:

[t]he court should, where possible, strive to give effect to the notion of practical equality, rather than pursue complicated factual enquiries which will result in relatively insignificant differences in contributions and consequential beneficial interest.[47]

Proprietary estoppel

[47]Baumgartner (1987) 164 CLR 137, 150.

In Donis v Donis, Nettle JA considered the principles of equitable estoppel in a case where the expectation which was encouraged was the acquisition of an interest in property. His Honour said:

[i]n such cases the remedy relates to the understanding of the parties and the expectation that has been encouraged. Prima facie the estopped party can only fulfil his or her equitable obligation by making good the expectation which he or she has encouraged. The estopped party, having promised to confer a proprietary interest on the party entitled to the benefit of the estoppel and the latter, having acted upon the promise to his or her detriment, is bound in conscience to make good the expectation.[48] (citations omitted)

His Honour then went on to say:
[p]rinciple and authority compel the view that where a plaintiff’s expectation or assumption is uncertain or extravagant or out of all proportion to the detriment which the plaintiff has suffered, the court should recognise that the claimant’s equity may be better satisfied in another and possibly more limited way. Thus, as was also said in Giumelli v Giumelli, before granting relief the court is required to consider all of the circumstances of the case, including the possible effects on third parties, and to avoid going beyond what is required for conscientious conduct or would do injustice to others. But that does not mean that the court is required to be “constitutionally parsimonious” or that it is necessary for there to be substantial correspondence between expectation and the monetary value of the detriment suffered, or which but for the relief to be accorded would be suffered. The object of the exercise is to do equity and for that purpose “detriment” is no narrow or technical concept. It need not consist of expenditure of money or other quantifiable financial disadvantage so long as it is something substantial. The requirement must be approached as part of a broad inquiry as to whether departure from a promise would be unconscionable in all the circumstances.[49] (citations omitted)

[48]Donis v Donis (2007) 19 VR 577, [19].

[49]Ibid, [20]; Flinn v Flinn (1999) 3 VR 712, 744 [96].

Speaking of detriment, his Honour said:

[w]here…the detriment suffered is of a kind and extent that involves life-changing decisions with irreversible consequences of a profoundly personal nature, it is in my view beyond the measure of money and such that the equity raised by the promisor’s conduct can only be accounted for by substantial fulfilment of the assumption upon which the respondent’s actions were based.[50]

[50]Donis v Donis (2007) 19 VR 577, 588 [34].

In Sidhu v Van Dyke, the High Court (French CJ, Kiefel J, Bell J, Keane J (Gageler J agreeing)), cited Donis v Donis, and observed:

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.[51]
[51](2014) 308 ALR 232; (2014) 88 ALJR 640; [2014] HCA 19 (‘Sidhu’), [77] citing Donis v Donis (2007) 19 VR 577, 582-583, [18]-[20].

Resolution
Findings on common intention and representations

There was a major divergence between the case as alleged by the plaintiff and the defence of the defendants on the alleged representations and common intention. The plaintiff’s case was to the effect that the family properties would be divided equally between Andrew and James when the parents ’retired from the Sobey farming business’.[52] The defendants’ case was to the effect that any discussion about who would get the Sobey farm properties was not in any relevant way connected with the retirement of Geoff and Jenny from the four-way partnership but occurred in the context of estate planning for the whole family. This version of events seems to me to be more plausible than Andrew’s version.
[52]Statement of Claim, [36].

First, the evidence in support of Andrew’s case is relatively weak. His evidence as to timing was vague and ambiguous. When giving evidence, he appeared unsure about when the land would be given to him. In evidence-in-chief, when he said that the land would be given to him ‘on retirement’, he seemed to add the words ‘on retirement’ as an afterthought, although under cross-examination he was more emphatic. Andrew gave evidence that his father had said he ‘would leave us the properties’.[53] This language suggests to me that his father meant that the properties would be bequeathed to Andrew and James.
[53]Transcript, 160.30–161.1.

Secondly, none of the plaintiff’s lay witnesses corroborated Andrew’s pleaded case that the family properties would be divided between Andrew and James upon the retirement of their parents. I am satisfied that on some unspecified occasion Geoff said to his brother, Ian, and his neighbour, Jamie Baird, that the farm would be left to his sons eventually. Jamie Baird’s statement that that would occur ‘probably when he retires’[54] is merely an expression of opinion which is of no probative value. The neighbour Alan Baird’s evidence of common local practice is of no assistance to the plaintiff’s case.
[54]Transcript, 80.22.

Thirdly, Andrew’s claim depends upon the court accepting his evidence that the representation that the land would be given to Andrew and James on his parents’ retirement was made, and the common intention was formed or was forming, at the time Learmonth (Selwoods Road) was purchased in about 1993. At that time, the Sobeys were developing their farming business, acquiring properties and improving them.

No evidence was adduced to the effect that Geoff or Jenny were planning to cease actively farming at any particular time or an any particular age. It is clear that Geoff continued to actively farm the properties after his retirement from the partnership in 2007 until the dispute arose in October 2010. He continues to do so (although the extent to which he has worked since retiring from the partnership is likely to have been affected by the fact that Andrew no longer works on the farm).

Fourthly, in February 2004, Geoff and Jenny sought and received estate planning advice from their solicitor. The solicitor’s letter of advice makes reference to the estate plan discussed recently with Geoff. It included a proposal for mutual wills whereby Geoff would leave his estate to Jenny and vice-versa, and that when both Geoff and Jenny had died:

(a)the Learmonth properties (which were in fact sold subsequently) would be transferred to Andrew and James, subject to them assuming liabilities on the loans against those properties;

(b)Sally would be released from any debt regarding the purchase of her house;
(c)David would receive a gift of $300,000 indexed in accordance with the CPI from 1 January 2004; and
(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.[55]

[55]Letter from Paul Stephens of Nevett Ford to G & J Sobey dated 24 February 2014, Exhibit P7.

As events transpired, Geoff and Jenny were not entirely satisfied with the proposal and did not prepare wills at that time.

The estate planning proposal suggested to Geoff and Jenny by the solicitors is consistent with the premise that Geoff and Jenny intended to retain the farm properties until their deaths with Andrew and James not to receive the land unless Sally and David had first been provided for.

Andrew did not recall having signed the borrower’s acknowledgement and the letter to Westpac in connection with the loan taken out to purchase a house for Sally nor was he able to recall the circumstances of discussions which occurred at the offices of Nevett Ford solicitors at that time.

The circumstances of the coming into existence of the loan for Sally’s house and the relevant context are consistent with family estate planning. Such estate planning pre-supposes that Geoff and Jenny have family farm assets to bequeath. If the parents had previously transferred their interest in the farming properties to two of their children, they would have had no farming assets remaining at the time of their deaths.

Fifthly, the issue of retirement from the farming partnership arose in 2007 as a consequence of Geoff becoming aware that he may be eligible for a Total and Permanent Impairment (‘TPI’) pension arising out of his service in the army in Vietnam. Mr Bruce Mackley, an accountant and financial planner to the Sobey family, gave evidence to the effect that while Geoff was in a farming partnership he would be deemed to be working and would not be eligible for a TPI pension. Mr Mackley’s evidence provides independent corroboration of a rationale for the discussion in early-to-mid 2007 of Geoff Sobey’s retirement from the partnership.

Significantly, though Andrew became aware of the impending retirement of his parents from the partnership, he failed to give any evidence to the effect that he had asserted or made reference to the entitlement to the interest in Caverndale and Murphy’s, which he now alleges crystallised upon his parents’ retirement from the four-way partnership. In particular, Andrew did not raise any issue about leasing and paying rent for property which, on his case, had rightfully become his and James’ by that time. This would have been a natural issue to raise at that time.

Further, at no time during a meeting which Andrew and James attended at the accountant’s office (where advice was given which involved transferring part of Murphy’s into the superannuation fund for the benefit of Geoff and Jenny), or in subsequent family discussions (which resolved the terms upon which the parents would retire from the partnership), did Andrew assert that he and James would become entitled to the farming properties in equal shares upon retirement of Geoff and Jenny from the four-way partnership.[56]
[56]Statement of Claim, [36], [37].

Had there been a departure from a previous representation or common intention to that effect one would have expected a contemporaneous complaint, a discussion or some reaction from Andrew consistent with the position now asserted.

In my view, there was no common actual intention to create a trust, nor can it be inferred from the conduct of the parties that Geoff and Jenny as registered proprietors after their retirement intended that they should hold their interests in Caverndale and Murphy’s as registered proprietors on trust for Andrew and James (in equal shares or at all). I do not accept Andrew’s evidence that his father ever represented that the farm properties would be divided between Andrew and James upon his or their retirement from the four-way partnership or upon his or their retirement generally.

Findings on encouragement and assurances

In this case, I accept that Geoff encouraged Andrew to work on the farm for low remuneration by assuring him he would be ‘far better off to be on $100 a week instead of a salary’[57] and that this would enable the partnership ‘to pay off the land or stock and plant or whatever it may be and [he was] working for that’.[58] Geoff had said that this was so Andrew would not be wasting his money and the money would be ‘put…back into the land’[59] and that the reason for taking this approach was so that Andrew and James ‘had something to work towards’.[60] Further, Geoff had said, in effect, ‘the more you put in when you’re young the bigger the investment is when you receive it when you’re older’.[61]
[57]Transcript, 98.29–31.
[58]Transcript, 98.31–99.3.
[59]Transcript, 99.6–10.
[60]Transcript, 160.24–28.
[61]Ibid.

The tenor of the encouragement to Andrew was that he accept a low remuneration and devote himself to working on the farming properties on the basis that this would better enable the partnership (initially comprising Andrew and his parents and later including James) to use funds generated by the partnership to invest in the farming properties and plant and equipment.

I am satisfied that part of this encouragement was to the effect that ultimately Andrew and James would receive the farming properties, however, I do not accept Andrew’s evidence that the handover of properties was to occur on retirement. I am satisfied that the encouragement included assurances from time to time by Geoff to the effect that the land would eventually be left to Andrew and James and that, in context, this meant after his death. I accept Andrew’s evidence that part of the rationale given by Geoff that Andrew and James be limited to drawing $100 a week for wages rather than having a full wage included express reference to paying off the land and implicit reference to the ultimate goal for Andrew and James of receiving the land.

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. The joint endeavour came to an end prematurely when Andrew and James argued in October 2010. The argument may have arisen from a misunderstanding. The evidence given by James suggests it may have arisen because James expected Andrew to connect some machinery to a tractor but did not do so. It may have been indirectly to do with limitations to Andrew’s capacity to do heavy work caused by Andrew’s back injury.

Ultimately, it matters not, and I attribute no blame with regard to the circumstances in which the partnership between Andrew and James came to an end. What is clear though is that the partners did not expect or provide for this eventuality. The joint endeavour came to an end unexpectedly.

Findings on reliance and detriment

I am also satisfied that Andrew relied on the encouragement and the assurances of his father to his detriment. He said so in express terms that ‘that’s what [he] worked hard for’.[62]
[62]See paragraph 28 above. Transcript, 210.15-27.

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 family 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. In this regard, 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.

Everyone made a significant contribution. Geoff and Jenny allowed Caverndale to be used by the successive partnerships rent-free and as collateral for borrowings. They also contributed labour and expertise. Geoff physically farmed the properties and managed the business. Jenny participated in the management of the business and did some of the physical work, particularly in the early years. She also wholly managed the domestic work. Andrew contributed by combining his potato contract with McCain’s with his parent’s potato contract with McCain’s and by allowing his interest in Carngham and Learmonth (Selwoods Road) to be used in the partnership business rent-free. He also contributed his labour and commitment to working full-time on the farm. James allowed his interest Learmonth (Morton Street) to be used in the partnership rent free and also contributed his labour and commitment to working full time on the farm.

All funds were pooled. The partnership paid for all expenses, including work performed by contractors, all equipment, all outgoings, whether they were business expenses, including servicing all debt for the farming properties, including accommodation expenses and borrowings with respect to Geoff and Jenny’s house and farm machinery, and/or living expenses, as well as providing a small wage of $100 a week for Andrew and James, which later increased to $700 per week.

In my view, it would be wholly unrealistic to suppose that Andrew would have committed himself for as long as he did to hard work on the farm for modest reward unless he had an expectation of a stake in the farm. I find that he has made out a case of detrimental reliance on the encouragement and assurances.

It is true that some of the improvements effected to Caverndale (such as the extension of the hay shed, the installation of a cool room, a loading ramp, galvanised gates to the sheep yard, installation of some bore holes, pipe work, stock crossing and some cypress tree plantations) were carried out prior to 1989 and before Andrew started working full-time on the farm. As the defendants rightly contend, to the extent that Andrew worked on making these improvements to Caverndale, he cannot have done so in reliance upon the alleged encouragement or assurances from his father. The encouragement and assurances occurred after Andrew started working on the farm full-time and after he had left school. These matters need to be taken into account in assessing the reliability of Andrew’s evidence. It is not surprising that Andrew did not remember precisely when works were carried out on the farming properties, particularly those carried out in his youth. In the overall scheme of things, though, these instances do not detract from the broad picture of Andrew’s reliance on the encouragement and assurances over a lengthy period of approximately 18 years, during which he worked hard for very low remuneration. There is little to be gained by attempting to specifically evaluate the work done on one property or another. The individual properties were worked as one farm. The general picture of a commitment to working and improving the properties overall is sufficient.

Issues with reliability

Andrew insisted that he had acted to his detriment by accepting low remuneration of only $100 per week over many years. This was emphasised in the pleadings, in the plaintiff’s opening and in Andrew’s evidence.

In my view Andrew significantly overstated the financial detriment he is alleged to have suffered. There is no doubt that a payment of $100 per week over a period of almost 18 years is very low remuneration, but the impression initially conveyed to the Court of latter day serfdom and penury was overstated, as the following evidence demonstrates.

In 1987, Andrew was a relatively unskilled 16 year old. He did not pay board. He received all his personal needs including food, clothing, accommodation, medical expenses, health insurance and telephone charges, at no cost. When he was about 18 years old, he was provided with a second-hand motor vehicle (an early model Valiant). There was some dispute about whether he paid for petrol. Andrew said that in the early 1990s when he first had the car he had to pay his father for the petrol. Geoff gave evidence that to his knowledge, Andrew never paid for petrol and that he never sold fuel to anyone. Under cross-examination, Andrew agreed that the partnership paid for his petrol from time to time. On this issue, it appears that Andrew did not have to pay for petrol, at least after the early 1990s.

Andrew gave evidence that he did not recall having any other source of income apart from the amount he was being paid. It emerged that Andrew was allowed to use the family farm equipment at no cost to do casual jobs in the district, for which he was paid, and was able to keep the proceeds. Andrew also received tax refunds from time to time and contributions were made into a superannuation fund on his behalf. Mr Mackley gave evidence in effect that the credit balance in Andrew’s account in the family superannuation fund in 2010 was in the order of $161,000 (though Geoff insisted that Andrew’s entitlement was only $51,000 and only wrote a cheque for that amount).[63] Furthermore, he had been given an interest in land. Within about two years of working full time on the farm he was included as a registered proprietor of Carngham when it was purchased in 1992. When Carngham was sold about a year later, the proceeds of sale were used to purchase Learmonth (Selwoods Road) and Andrew was included as a registered proprietor of that property.
[63]Transcript, 496.29–498.17.

In my view, Andrew significantly overstated the frequency of discussions he had with his father about the fact that he was receiving only $100 a week. Asked to indicate how frequently he had such discussions, Andrew said it was ’quite a few times a year’.[64]
[64]Transcript, 99.11–20.

Geoff’s evidence on this issue was also problematic. He said that he could not recall Andrew ever having an issue with how much he was paid. When asked whether he was saying that Andrew never complained to him or spoke to him about the fact he was getting only $100 per week, Geoff was unresponsive. He did not deny that there had been a complaint but said ‘I never forced Andrew to do anything on my farm, neither did his mother’.[65] I am satisfied that the issue was raised by Andrew, but only occasionally.
[65]Transcript, 300.21–25.

The above instances of exaggeration have cast some doubt on the reliability of Andrew’s evidence. At times it seems to me that his perception of events has replaced his memory of those events. He was clearly in error on some factual issues. There were also some issues with the reliability of Geoff’s evidence. When giving evidence, he frequently appeared angry and exasperated with Andrew and tended to downplay the significance of Andrew’s contribution. Nevertheless, I accept that overall, Geoff, Jenny, Andrew and James were truthful witnesses. With respect to the evidence of all parties, some allowance needs to be made for the effluxion of time and the difficulty of reliably remembering the sequence of relevant matters.

Findings on unconscionability

In this case, the parties were engaged in what was intended to be a lifelong joint endeavour. All parties devoted themselves to the same end. Geoff and Jenny applied to themselves the same parsimonious principles as they applied to Andrew and James. Neither parent drew a salary from the partnership. Andrew’s home, work and future were all tied up with a family undertaking.

As I have found, the joint endeavour ended prematurely without attributable blame. The consequence is that everyone’s expectations have changed very significantly and, if there is no reconciliation, irreversibly.

Counsel for the plaintiff contends that it is unconscionable for Geoff and Jenny to deny that Andrew has an equitable interest in the land. This is where Andrew faces a major difficulty with his case. Before the Court will intervene to vindicate the expectations of a representee, the representee must demonstrate that the representor (Geoff and Jenny in this case) seek to unconscionably resile from an expectation that he or they have created.[66]
[66]Sidhu (2014) 308 ALR 232, 247 [77].

For example, in Donis v Donis,[67] the parents resiled from a promise to their daughter-in-law that she would have a share in the property by the act of selling the property to a land developer without recognising her entitlement. In Flinn v Flinn,[68] a promise by a testator that he and his wife would amend their wills to leave their nephew and his wife an interest in their farm was resiled from when a new will was made by the wife in which no provision was made for the promisees.
[67](2007) 19 VR 577.
[68]Flinn v Flinn (1999) 3 VR 712, 744.

In this case, Andrew has failed to establish a common intention, encouragement or assurances to the effect that he and James would receive the farm properties upon the retirement of their parents. In my view, Andrew has also failed to establish that either Geoff or Jenny have or intend to resile from the position set out in paragraph [36] of their amended defence to the effect that if adequate and fair provision could be made for Sally and David from ’off farm’ assets, then upon their deaths Andrew and James will receive their farm assets.

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.’[69]
[69]Transcript, 299.31–300.04.

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.

I find that Andrew does not have an interest in Caverndale or Murphy’s pursuant to a constructive trust or based in proprietary estoppel. It follows that the answer to question 1 is no.

2. Were Caverndale and Murphy’s assets of the G J A & J Sobey partnership?

Geoff and Jenny Sobey initially purchased farming property in 1972 at Ascot in northern Victoria. They sold this land in 1974 and used the proceeds of sale to purchase a farming property at Learmonth. This property was known as ‘Sunnyside’. Sunnyside was sold in 1982. The proceeds of sale were used to purchase Caverndale. The purchase price for Caverndale was $350,000. Geoff and Jenny borrowed $100,000, which was repaid by about 1992. Geoff and Jenny are the joint registered proprietors of Caverndale.

In 1994, Geoff and Jenny entered into a contract to purchase Murphy’s. The purchase price was $700,000 with a deposit of $250,000. The deposit was financed by Westpac Banking Corporation by way of a loan of $250,000 to Geoff and Jenny. Caverndale was used as collateral security for the loan. Andrew joined his parents in a three-way partnership in 1994. At the commencement of the following year, on 1 July 1995, the four-way partnership, which included James, was formed. Neither Andrew nor James paid any amount to join the respective partnerships.[70]
[70]Andrew contributed the benefit of his potato contract in 1993 with McCain’s which, on the evidence, would have been terminated had the tonnage not been combined with the tonnage under the potato contract of his parents.

A question for determination is whether Caverndale and Murphy’s became assets of the four-way partnership or remained assets of the registered proprietors Geoff and Jenny.

Relevant principles

The Partnership Act 1958 (Vic) relevantly provides:

24 Partnership property
(1)All property and rights and interests in property originally brought into the partnership stock or acquired whether by purchase or otherwise on account of the firm or for the purposes and in the course of the partnership business are called in this Act partnership property and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement.
(2)The legal estate or interest in any land which belongs to the partnership shall devolve according to the nature and tenure thereof and the general rules of law thereto applicable but in trust so far as necessary for the persons beneficially interested in the land under this section.
(3)Where co-owners of an estate or interest in any land not being itself partnership property are partners as to profits made by the use of that land or estate, and purchase other land or estate out of the profits to be used in like manner, the land or estate so purchased belongs to them in the absence of an agreement to the contrary not as partners but as co-owners for the same respective estates and interests as are held by them in the land or estate first mentioned at the date of the purchase.

25 Property bought with partnership money
Unless the contrary intention appears property bought with money belonging to the firm is deemed to have been bought on the account of the firm.

As partnership property must be held and applied by partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement it becomes necessary to determine whether Caverndale and Murphy’s have become partnership property.

In O’Brien v Komesaroff, Mason J said:

not all the property of each partner used for the purposes of the partnership business can be said to be brought into the partnership. It may in some circumstances remain the separate property of one partner: Gian Singh & Co v Nahar; Harvey v Harvey. Whether the property of a partner becomes partnership property depends on the agreement of the parties. In Harvey v Harvey, Barwick CJ said “Of course the answer to the question whether or not the land itself has been brought into the partnership as distinct from a mere licence to use it for partnership purposes, must ultimately depend on the agreement which the partners have made.”… The acts and intentions of the parties, not the operation of s 24, determine finally and ultimately the question whether property owned by a partner becomes partnership property.[71] (citations omitted)

[71]O’Brien v Komesaroff (1982) 150 CLR 310, 322.

In this case, the four-way partnership agreement entered into in July 1995 does not decide the question. Clause 6 provides:

The capital of the partnership shall be such a sum and consist of such assets as may from time to time mutually agreed upon by the partners.[72]

[72]Deed of Partnership – Geoffrey, Jennifer, Andrew and James Sobey dated 11 July 1995, CB 1342.

There is no evidence that the partners expressly agreed that Caverndale and Murphy’s were to be assets of the partnership.

In the absence of express agreement, or conduct from which an agreement can be implied, it is necessary to determine whether inferences can be drawn from the conduct of the parties, the financial records of the partnership and any other relevant matters.

The plaintiff submits that the fact that Caverndale and Murphy’s appeared in the financial statements of the four-way partnership from its inception in 1995 until the financial year ended 30 June 2002 as assets of that partnership is a compelling indication that Geoff and Jenny intended that Caverndale and Murphy’s would become partnership property. Further, the plaintiff contends that partnership funds were used to work Caverndale and Murphy’s and to effect improvements to those properties and that a mortgage of Caverndale in 1996 identifies the four partners as debtors.[73]
[73]Mortgage of Land (Caverndale) dated 4 March 1996, Exhibit D7.

The defendants contend that Caverndale and Murphy’s are not assets of the partnership. At the time of dissolution of the four-way partnership on 30 June 2007 the relevant balance sheet shows that the partnership assets did not include real property.

Although Caverndale and Murphy’s were initially recorded as assets of the partnership, for the last five years of that partnership and at the time of its dissolution, they were not recorded as assets. Geoff gave evidence that in 2003 he became aware through his solicitor that Caverndale and Murphy’s were listed as assets of the partnership in the partnership financial statements when they should not have been and that he instructed his solicitor to speak to the accountant and have the assets removed to correct the matter.

A letter dated 25 February 2004 from Mr Paul Stephens, solicitor of Nevett Ford, to Mr Mackley, of Spencers Accountants, relevantly states:

It is my instructions that the properties were never a partnership assets, and what is sought (if possible) is not to in fact treat the property as being transferred out of the partnership, but rather to rectify the accounts to reflect the real situation. Would it be possible to do so without making such a significant change to the current and capital accounts? Of course Geoff and Jenny understand that if Caverndale and Murphys move from the partnership so should the associated loans. In that regard I am instructed that there was no money owing on Caverndale, but there is still money owing on Murphys. The payments made by the partnership in reduction of those loans ought to be treated as payment of rent.[74]

[74]Letter from Paul Stephens of Nevett Fort to Mr B Mackley dated 25 February 2004, CB [1934].

It is evident that at that time Mr Stephens was giving some estate planning advice. He states in a letter that:

The estate plan discussed recently with Geoff was as follows:
A.An acknowledgement be prepared pursuant to which:
(i)Andrew and James acknowledge that Caverndale and Murphys are not partnership assets, but rather are jointly owned by Geoff and Jenny;
(ii)Geoff and Jenny acknowledge that the loan used to buy Murphys is not a partnership debt, but is their personal debt (I understand there is no outstanding loan on Caverndale); and
(iii)The acknowledgement record that the loan repayments made by the partnership on the Murphys loan are in lieu of rent.

B. Will
(i)Geoff leaves everything to Jenny and Jenny leaves everything to Geoff;
(ii)When both Geoff and Jenny have died;
(1)The Learmonth farms be transferred equally to Andrew and James, subject to them assuming liability for the loans against those properties (this may require an alteration to the current ownership of those properties);
(2)You will release your share of any debt owed by Sally regarding the purchase of her house. Such a debt would arise because that house has been bought and paid for with partnership funds. The will will provide that the boys must release their share of that partnership debt, and further must repay the balance outstanding on the loan used by buy Sally’s house so she ends up with an unencumbered property.
(3)You give a cash gift of $300,000.00, index in accordance with the consumer price index from 1 January 2004 to David.
(4)Upon (2) and (3) occurring Caverndale and Murphys are to be transferred to Andrew and James equally (subject to any loans secured on those properties), together with your interest in any farming plant and equipment and stock. The money used to repay the loan on Sally’s property, and to make the gift to David is to come from the balance of your estate. If the estate of insufficient to repay the loan on Sally’s house and make the gift to David then Andrew and James must raise that money themselves. If (2) and (3) do not occur Murphys and/or Caverndale must be sold to raise the money necessary to repay the loan on Sally’s house and make the gift to David. The balance and the proceeds of sale are to be paid equally to Andrew and James.
(5)The residue of your estate being the insurance shares, savings and other off farm assets to be distributed amongst your four children in a manner yet to be determined.[75]

[75]Letter from Paul Stephens of Nevett Fort to Mr G and Mrs J Sobey, dated 24 February 2004, Exhibit P7.

Under cross-examination, Geoff said that before the letter was sent in February 2004, he did not speak to Andrew or James about the removal of the two properties from the partnership account because ’they weren’t partners in that’.[76] Asked whether he told Andrew and James about the removal of Caverndale and Murphy’s from the partnership accounts after the letter was sent, Geoff said, ’Well, if he [his solicitor] asked me to ask them, well then I would have’.[77] Asked whether he obtained an acknowledgment that the loan used to buy Murphy’s was not a partnership debt, Geoff said ’[i]f Paul Stephens has asked me to ask the boys then I imagine we would have done that but I can’t recall, I can’t’.[78] As to the suggested acknowledgement that loan repayments made by the partnership on the Murphy’s loan were in lieu of rent, he responded that he couldn’t recall any repayments on the land on Murphy’s. Although this was not a responsive answer to the question I took the view that Geoff had had difficulty hearing the question. It was evident throughout the case that Mr Sobey had difficulty with his hearing. I was informed of this at the commencement of the trial. In this instance in my view the unresponsive answer was connected with his inability to hear and I draw no adverse inference as a consequence. Subsequently, Geoff was asked whether he had the acknowledgement prepared that recorded the things in the letter that had been recommended by his solicitor. Geoff said:

Well I’d have rang him back and told him that yes, go ahead there’s no objection. But I can’t recall the time that’s all.[79]

[76]Transcript, 331.1-5.

[77]Transcript, 332.16-19.

[78]Transcript, 333.3-5.

[79]Transcript, 333.14-24.

Given the fact that there were no acknowledgement documents tendered in evidence, I conclude that no acknowledgement documents were prepared. Having regard to the terms to Geoff’s vague response on this subject matter generally, I cannot be satisfied on the balance of probabilities that Andrew or James were fully informed or were informed of the circumstances of the removal of Caverndale and Murphy’s from the partnership financial statements or that oral acknowledgments were ever given.

Mr Mackley, the accountant for the partnership, gave evidence that whenever his firm prepared financial statements they always sent them out for all partners to sign, and that to be able to lodge a tax return, it is necessary to have a lodgement declaration signed by the clients. I infer that all partners, including Andrew, signed off on the partnership financial statements for the year ended 30 June 2003 to 30 June 2007.[80] Andrew has had limited formal education, having left school in 1989 in Year 10. In 2003, he was approximately 30 years old. He gave evidence that he was not involved in the preparation of the accounts, did not understand accounting, and signed documents from time to time when asked to do so.
[80]Partners’ Declaration for the Year Ended 30^th June 2004, CB 805; Partners’ Declaration for the Year Ended 30^th June 2005, CB 829; Partners’ Declaration for the Year Ended 30^th June 2006, CB 852; Partners’ Declaration for the Year Ended 30^th June 2007, CB 865. Only one of the declarations showed signatures for the year ended 30 June 2006: see Exhibit P1.

I am not satisfied that the amendments to the accounts (in particular the removal of Caverndale and Murphy’s from the list of assets in the accounts) were explicitly brought to the attention of Andrew or James. Although some weight needs must be given to the fact that Andrew signed five years of the four-way partnership financial statements for the years ended 30 June 2003 to 30 June 2007, and for part of the year ended 30 June 2008, which did not include Caverndale and Murphy’s as assets, I do not regard this conduct as determinative of the question.

Nevertheless, I have concluded that Caverndale and Murphy’s are not assets of the partnership for the following reasons.

First, in June 2007, Andrew attended a meeting with the accountant. Geoff, Jenny and James were also present. During this discussion, the proposal to transfer part of Murphy’s into Geoff and Jenny’s super fund and then lease it back to the farming enterprise was explained. Although no decisions were made on that day, Andrew did not object to the suggestion then or at any other time prior to the transactions being effected. Subsequently, it was agreed that valuations would be obtained to implement and facilitate an in specie contribution of part of Murphy’s into the super fund. Andrew agreed to the transfer of part of Murphy’s to the superannuation fund. Andrew admitted that he said words to the effect that when Geoff and Jenny died it would mean that Sally and David could not claim an interest in the land. Andrew and James subsequently agreed to pay rent to the superannuation fund with respect to use of the land which had been transferred. To give effect to this agreement Andrew and James signed a lease agreement between Caverndale Pty Ltd (the family superannuation fund) as lessor and themselves as lessees dated 30 June 2007.[81] The lease agreement provided for rental of $70,000 per annum plus GST.[82] The fact that Caverndale Pty Ltd charged rent for part of Murphy’s indicates that that land was not treated as an asset of the partnership.
[81]Lease Agreement, Exhibit D1.
[82]Lease Agreement, Exhibit D1, Clause 12(a).

In my view, it is improbable that Andrew and James would have agreed to an arrangement to lease Murphy’s (essentially from their parents through the super fund) had Murphy’s truly been an asset of the four-way partnership. Even if there were advantageous tax benefits, it seems incomprehensible that Andrew would not have at least made the point that Murphy’s was an asset of the partnership.

The fact that rent was not charged to the four-way partnership for the use of Caverndale and for the use of Murphy’s up to the date of dissolution of that partnership is consistent with the properties being assets of the four-way partnership but it does not necessarily follow that they were assets of that partnership. In the context of a family farming partnership, it may simply indicate a willingness on the part of the registered proprietors (the parents in this case) to permit the properties to be used by the family for partnership purposes.

Secondly, the claim now made by Andrew that Caverndale and Murphy’s are assets of the partnership is difficult to reconcile with his other claim in the proceeding (not pleaded in the alternative) that Caverndale and Murphy’s would be given to Andrew and James on Geoff and Jenny’s retirement. When this was put to counsel for the plaintiff, it was submitted that the enquiry should first be directed to whether the properties were partnership assets and thereafter, to the extent that there was an interest held by the registered proprietors, such interest should be held subject to the asserted constructive trust. This was a subtlety first introduced during the trial, which is not apparent from the pleadings or the opening. The explanation is plainly open, but I find it unconvincing.

Thirdly, Caverndale had been purchased and paid for before the three-way partnership with Andrew was entered into.

Murphy’s was purchased in 1994 for $700,000. The first $250,000 of the purchase price was paid by Geoff and Jenny before they entered into partnership with Andrew in 1994. Murphy’s was purchased on five-year vendor terms with the balance of approximately $450,000 being payable during 1999.[83] Geoff gave unchallenged evidence, which I accept, that the partnership paid the interest on borrowings for Murphy’s but not the principal. To the extent that it is possible to discern payments referable to Murphy’s from the financial statements, those statements appear to indicate that interest only was paid. The fact that no evidence of repayments of principal by the partnership of loans relating to Murphy’s is another factor which suggests that the partnership was using the asset but was not purporting to acquire it in its own right.
[83]Profit & Loss Account for Year Ended 30 June 2000, CB 657.

Fourthly, when Geoff and Jenny determined to confer benefits on Andrew and James, they did so by registering properties in their names. This is illustrated by the purchase of Carngham and Learmonth. When Carngham was acquired, Geoff and Jenny gifted Andrew a one-third interest (Andrew gave evidence that he was not aware of this but is now). When Learmonth (Selwoods Road) was acquired from the proceeds of sale of Carngham, Andrew received a one-third share and his name appeared on title as a registered proprietor. When Learmonth (Morton Street) was acquired, James was gifted a one-third share and his name appeared on title as a registered proprietor. When Andrew became a partner in 1994, he was given a share of plant and equipment. This was a matter which was discussed at the time. When James subsequently became a partner, he was also given a share of plant and equipment. This was also a matter which was discussed at the time. When Geoff and Jenny retired from the four-way partnership and Andrew and James commenced in partnership together, there was a family discussion about the terms upon which the four-way partnership would be dissolved which involved the two-way partnership taking on all liabilities and Andrew and James increasing their quarter interest to a half interest in the stock, plant and equipment of the former partnership.

There was no such discussion with regard to Caverndale or Murphy’s. Geoff and Jenny treated these properties as their own to the knowledge of Andrew and James. To the extent that Geoff and Andrew had discussions about the ultimate disposition of the farm, such discussions were premised on the footing that Andrew and James would be bequeathed the farm if adequate provision could be made for Sally and David. In my view, it was never the intention of any of the parties that the farm assets would first be divided four ways between the partners and that Geoff and Jenny’s interests in Caverndale and Murphy’s would then be given to Andrew and James in equal shares.

Fifthly, the fact that the mortgage of Caverndale identifies the four partners as debtors does not in my view indicate that Caverndale is an asset of the partnership. The mortgage document bears stamps which show that Caverndale was mortgaged on 20 March 1996 as collateral security for advances of $70,000. The mortgagors are Geoff and Jenny. The debtors are Geoff, Jenny, Andrew and James. This is consistent with the parents allowing Caverndale to be used as security for borrowings by the partnership; it does not follow that it was intended that Caverndale itself would be an asset of the partnership.

Sixthly, the plaintiff’s argument that Caverndale and Murphy’s were assets of the partnership, taken to its logical conclusion, would dictate that when Andrew became a partner with his parents in the three-way partnership at the age of 20, he would have become entitled to a one-third interest in Caverndale and Murphy’s, despite having made only a nominal contribution on entering into the partnership. Viewed objectively, that cannot have been intended. Not only would this have been a windfall to Andrew at a very young age but it would have significantly prejudiced the reasonable expectations of his siblings.

Seventhly, in 2008, all four partners agreed to the terms of the dissolution of the four-way partnership. The agreement occurred in the following context. Geoff gave evidence that: for two years he had done national service with the Australian army and served in Vietnam; in 2007, he had obtained advice from his accountant Mr Mackley to the effect that he might be eligible for a TPI pension which he would not be eligible for whilst in a partnership or running a business; a few days after receiving the advice, he, Jenny, James and Andrew met and discussed the basis upon which he and Jenny would retire from the partnership; Andrew and James agreed to lease some of the land for $73,000 (sic) and not lease the rest; they would continue paying ‘the outstanding interest, whatever had to be paid… that [the] partnership… was responsible for’; and the rent would be paid into the superannuation fund on the understanding that ‘if they were in trouble’, some of the money could be paid back into the partnership.[84] Further, he gave evidence that Jenny took notes which were signed by all present and which he put in a filing cabinet.
[84]Transcript, 290.10–291.22.

In her testimony, Jenny had a limited recollection of the meeting. She recalled that if she and Geoff retired from the partnership then Geoff may be eligible for compensation. Otherwise she couldn’t remember the details. She did remember jotting some things down that everyone signed.

James gave evidence that: there was discussion to the effect that his mother and father would retire to try and get Geoff’s pension; he and Andrew would continue farming; they would pay rent into the super fund at the rate of $73,000; he and Andrew would get a half share in the stock and plant instead of a quarter share; and he and Andrew would take up partnership liabilities, or as James expressed it, ’we’d pay the – what was owing on, or the interest on things…’[85] He said that his mother took notes that were signed by everyone.
[85]Transcript, 415.15-24.

Andrew had a poor recall of any discussions about the change from the four-way partnership to the two-way partnership. He did recall having had a discussion with Geoff prior to the transfer of part of Murphy’s into the Caverndale superannuation fund. Andrew said that:

Geoff was very aware of the situation with his sons with girlfriends and relationships and had no intentions of having a farm taken away if there had of been a dispute. And at the time he thought it was a good idea that we put as much property into the super fund. It would secure that money or that asset and I said that would be a good idea.[86]

[86]Transcript, 170.14–31, 171.1–16

Asked whether there was a mention of rent to be paid, Andrew said:

Yes, the – one of the encouraging things Geoff made to me was that we could – Geoff’s intentions was if there was that asset in the fund the partnership could show they could pay the fund the rent and then the super fund would pay back the partnership to get around not paying so much tax, but that did not happen.[87]

[87]Ibid.

Asked what he recalled about the circumstances in which there was a change in the four-way partnership to the two-way partnership, Andrew said:

Geoff said that he wanted to retire, but I didn’t understand or I didn’t have any conversations to say it would be, the construction of what it, I didn’t understand it.[88]

[88]Transcript, 172.9-13.

Andrew gave evidence that he did not recall:

(a)attending a meeting at the accountant’s office to discuss the issue of his parents’ retirement from the partnership;
(b)attending any meeting in the kitchen at Caverndale with James, Geoff and Jenny during which the terms of the parents’ retirement from the partnership was discussed;
(c)having a discussion to the effect that he and James would run the partnership together where the two of them would receive the stock and equipment, assume responsibility for the ongoing liabilities of the partnership, pay rent to use (part of) Murphy’s to give their parents a tax effective income and where he, his father, mother and James agreed that Geoff and Jenny would retire from the partnership;
(d)his mother attending any meeting or taking notes; or
(e)seeing any handwritten notes in documents that he subsequently removed from a filing cabinet at Caverndale.

I do not accept Andrew’s evidence that he had no recollection of this meeting. It was an important meeting during which his parents’ retirement and his transition into a two-way partnership with his brother was discussed. I did not gain the impression during the trial that Andrew had any particular difficulty with his memory. He had no difficulty remembering in detail work he had performed on the farm properties, in some cases 20 years’ earlier. Furthermore, Andrew signed documents following the family discussion. That he had no recollection at all of these events is, in my view, highly improbable.

It is significant that Andrew did not deny that the meeting occurred or that the discussion took place in the terms alleged.

In my view, there was an agreement reached at a meeting in the kitchen at Caverndale in June 2007 and notes of what was discussed and agreed upon were taken by Jenny and were signed by all parties, including Andrew. I find that the signed notes were placed in a filing cabinet by Geoff and that Andrew removed documents from the filing cabinet at a later time. It is possible that Andrew did not see any handwritten note among the documents removed from the filing cabinet but it is not necessary to make any finding on this point.

While there is now no physical note of the agreement, I am satisfied that agreement was reached in the terms of the evidence given by Geoff and James to the effect that: 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. It is evident that the parties were seeking to ensure a seamless transition from the partnership of four individuals to a partnership of two individuals, and that is what occurred. Importantly, Geoff and James each gave evidence that distinguished between interest payments and repayment obligations with respect to outstanding liabilities for plant and equipment.

In my view, the agreement to take on liabilities of the four-way partnership did not, when properly construed, include taking on liabilities for repayment of the principal on the loan to purchase Murphy’s but (in relation to that loan) extended only to the payment of interest. That was what had happened with the four-way partnership and the essence of what was agreed was a continuation of prior arrangements.

Subsequently, and before any dispute arose, the parties acted consistently with this agreement. Following the meeting a portion of Murphy’s was transferred in specie to Caverndale Pty Ltd. A lease agreement was entered into whereby Andrew and James agreed to pay rent to the Caverndale superannuation fund in respect of the use of that land. All four partners in the four-way partnership signed a notice of election that items of plant and equipment to the value of $218,362 be transferred to Andrew and James. Andrew and James paid the rent and serviced interest obligations with respect to borrowings on Murphy’s and made repayments on loans for plant and equipment for a period of more than three years, at least, until the family dispute erupted in October 2010.

Finally, when the transition between the four-way partnership to the two-way partnership occurred in 2007, there is no evidence that anyone suggested or asserted that there was any real property of the partnership that needed to be dealt with. This reflects a common understanding that Caverndale and Murphy’s were not partnership assets and therefore did not need to be dealt with at the time of the dissolution of the partnership.

For these reasons, in all the circumstances, the answer to question (2) is no.

3.Should there be a taking of accounts of the G J A & J Sobey partnership as at 30 June 2007?

The plaintiff submits that there should be a taking of accounts of the four-way partnership as at 30 June 2007. Counsel for the plaintiff submits that there was no evidence that the parties entered into any agreement not to take accounts for the four-way partnership and that the agreement contended for is vague, inconsistent with the defence and the note (allegedly signed by all partners) has not been produced.[89]
[89]Plaintiff’s written submissions, [54], [55].

Further, it was submitted that the evidence in support of an agreement does not permit a finding that there was an agreement in the terms alleged by the defendant; that even if there was an agreement, it would not preclude an order for the taking of accounts of the four-way partnership; and that whilst there was a meeting of minds that the four-way partnership would end, it was not ended on the basis that the plaintiff would give up any rights he might have to the taking of accounts under the Partnership Act 1958 (Vic). It was further submitted that it was inherently implausible, unlikely and inequitable that Andrew and James would assume full responsibility for repayment of the $500,000 for the house on the Murphy’s block.

The defendants submit that there should be no taking of accounts of the four-way partnership which was dissolved by consent on terms which were agreed upon.

Given my earlier findings, I reject the submission that the agreement contended for is too vague. Granted there are some inconsistencies with the terms of the agreement alleged in the defence and the terms of the agreement which emerged in evidence. Some inconsistency is to be expected where notes of what was agreed have been mislaid and witnesses are reliant on the recollection of events some years ago. To some extent the inconsistencies lend authenticity to the evidence. In my view, the plaintiff is not on strong ground when he seeks to rely on the failure to produce the original notes when the circumstances suggest that he may have disposed of the notes himself (perhaps inadvertently) when he removed documents from the filing cabinet.

It is true that the parties did not explicitly agree not to take accounts at the time of the dissolution of the four-way partnership. After agreement was reached as to the terms of the dissolution, the agreement was fully performed. It is significant that when implementing what had been agreed, the parties did not include a formal taking of accounts. It is also significant that when finalising the four-way partnership, no financial provision was made out of the assets of the partnership for the taking of accounts. Nor is there any evidence that any of the partners sought a taking of accounts at the time. I infer from the course of their dealings that the parties implicitly agreed that all matters to do with the four-way partnership would be finalised and there would be no formal taking of accounts.

This conclusion is fortified by, and is consistent with, the conduct of the partners throughout the period of the four-way partnership where a consensual broad brush approach was taken to accounting matters. In these circumstances and where there was a harmonious transition within the family from the four-way partnership to the two-way partnership, agreement to dispense with any accounting formalities can be readily inferred.

In passing I note that it is questionable whether any formal taking of accounts would ultimately produce any benefit to Andrew. Revisiting the accounts of the four-way partnership would, in all probability, require extensive reconstruction of those accounts, which would almost certainly be a very expensive task.

In exercising my discretion not to order a taking of accounts of the four-way partnership as a whole, I have taken into account the fact that during the trial, counsel for the defendants conceded that Andrew was entitled to a one-third share of Learmonth (Selwoods Road) and that it appeared that Andrew had not received the full benefit of his interest after the property was sold in December 2006.

This led to a subsidiary issue during argument as to whether Andrew’s one-third share should be one third of the gross value or one third of the net value of Learmonth (Selwoods Road). In this regard, Geoff gave evidence that Andrew was given a third share of Selwoods Road and that James subsequently was given a third share of Learmonth (Morton Street). Geoff acknowledged that Andrew had made a contribution towards the purchase price of Learmonth (Selwoods Road) to the extent that Andrew was entitled to a share of the profit from the sale of Carngham, in which he also had a one-third share. In the absence of any evidence to indicate that the ’gift’ of Learmonth (Selwoods Road) was qualified, I find that Andrew is entitled to one-third of the gross value of Learmonth (Selwoods Road) which is in the order of a third of its sale price of approximately $800,000. The precise figure will need to be calculated. To that extent, it will be necessary for an account to be taken limited to that subject matter.

The position is different with the two-way partnership. As has been properly conceded, it will be necessary for there to be a taking of accounts of the two-way partnership between Andrew and James as at the date of dissolution of that partnership.

For the foregoing reasons, the answer to question (3) is no, save with respect to ascertaining Andrew’s entitlement to one-third of the gross value of Learmonth (Selwoods Road).

4. What is the date of dissolution of the A & J Sobey partnership?

Initially, the plaintiff contended that the date of dissolution should be date upon which the court makes an order for dissolution of the partnership. The defendants contended that the partnership dissolved as a matter of fact when Andrew left the partnership and that it was dissolved on 12 October 2010, being the date upon which intervention orders were made against each partner. Counsel for the plaintiff submitted that the intervention orders required each partner not to commit family violence against the other and not to intentionally damage each other’s property and that the orders were not in a form which prohibited the partners from going within a certain distance from each other. In substance, it was submitted that the intervention orders would not prevent Andrew and James from continuing to work together, particularly given its size.

The defendants submitted that the conduct of the parties may constitute an agreement to dissolve the partnership, such that the date of dissolution would be when the partnership ceased to function.

The Partnership Act 1958 (Vic)relevantly provides:

36 Dissolution by expiration or notice
Subject to any agreement between the partners a partnership is dissolved—
(a)…;
(b)…;
(c)if entered into for an undefined time by any partner giving notice to the other or others of his intention to dissolve the partnership.

In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution or if no date is so mentioned as from the date of the communication of the notice.
39 Dissolution by the court
On application by a partner the court may decree a dissolution of the partnership in any of the following cases—
(a)when a partner is found to be mentally ill, in which case the application may be made as well on behalf of that partner by his or her guardian or administrator if appointed under the Guardianship and Administration Act 1986 or other person having title to intervene as by any other partner;
(b)when a partner other than the partner suing becomes in any other way permanently incapable of performing his part of the partnership contract;
(c)when a partner other than the partner suing has been guilty of such conduct as in the opinion of the court regard being had to the nature of the business is calculated to prejudicially affect the carrying on of the business;
(d)when a partner other than the partner suing wilfully or persistently commits a breach of the partnership agreement or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him;
(e)when the business of the partnership can only be carried on at a loss;
(f)whenever in any case circumstances have arisen which in the opinion of the court render it just and equitable that the partnership be dissolved.

Notice of intention to dissolve a partnership may be inferred from conduct. In Yard v Yardoo Pty Ltd, the Court of Appeal held that the date of commencement of a proceeding in which dissolution was sought constituted notice of the plaintiff’s intention to dissolve a partnership and the date of the filing of the writ was adopted as the relevant date.[90]
[90][2007] VSCA 35, [104]-[105]; See also Keith Fletcher, The Law of Partnership in Australia (Thomson Reuters, 9^th ed, 2007) [215]-[216].

This proceeding was commenced on 11 July 2011. In the prayer for relief, the plaintiff sought an order for dissolution of the A & J Sobey partnership.

In my view, relevant conduct in this case from which either agreement or notice of intention to dissolve the partnership might be inferred includes:

(a)Andrew’s (alleged) conduct in threatening to shoot James in early October 2010 and ceasing to work on the farm after that time;[91]
(b)the taking out of intervention orders on 10 October 2010;
(c)withdrawal by Andrew of $93,000 from the partnership account; and
(d)Andrew leaving the farm near the end of January 2011 and not returning.

[91]No findings are made on the issue of the alleged threat.

I accept the plaintiff’s submission that the intervention orders did not, in their terms, prevent Andrew and James continuing to farm the properties together. The effect of the orders was to require Andrew and James to behave in a certain manner which was not inimical to the partnership continuing.

James gave evidence that Andrew ceased working after 12 October 2010. In an affidavit sworn on 15 November 2011, Andrew deposes that in late 2010 he continued to do work at the farm. It is unnecessary to determine precisely when Andrew ceased working on the farm. Even if he had ceased to work after 12 October 2010, in my view, it cannot be concluded that he unequivocally manifested a notice of intention to dissolve the partnership. More evidence would be required before such a conclusion could be drawn.

As to the withdrawal of funds from the partnership account, Andrew conceded he made the drawings out of incoming revenue from the proceeds of the sale of lambs. Notably, he only transferred half of those proceeds into the account. In simplistic terms, this is an implicit acknowledgment of the continuing existence of a partnership in which both had a 50% share. In my view, it was not conduct which was tantamount to the giving of notice of intention to dissolve the partnership.

By contrast, I find that Andrew’s conduct in finally leaving Caverndale near the end of January 2011 does constitute the giving of notice of an intention to dissolve the partnership. In his affidavit sworn on 15 November 2011, Andrew deposes that he left the farm on 28 January 2011 and not in late 2010 as had been suggested by his father in another affidavit. In my view, it is probable that Andrew would clearly remember the day when he left the farm, and I accept his evidence on this point. In the circumstances, 28 January 2011 ought to be adopted as the date which constituted the giving of notice of Andrew’s intention to dissolve the partnership. It follows that the answer to question (4) is 28 January 2011.

5.Has James made use of A & J Sobey partnership assets subsequent to the dissolution of the A & J Sobey partnership?

Section 46 of the Partnership Act 1958 (Vic) provides:

Share of profits made after dissolution
Where any member of a firm has died or otherwise ceased to be a partner and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate then in the absence of any agreement to the contrary the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since the dissolution as the court may find to be attributable to the use of his share of the partnership assets or to interest at the rate of seven per centum per annum on the amount of his share of the partnership assets:
…

James gave evidence that: he continued to operate the business after Andrew left the farm; used the plant and equipment that was formerly used by the partnership to do so; he sold lambs; and may have had a crop of potatoes in the field at the beginning of 2011. It is self-evident that James has made use of A & J Sobey partnership assets subsequent to dissolution of the A & J Sobey partnership. Accordingly, the answer to question (5) is yes. The extent of such use can be addressed when the accounts of the A & J Sobey partnership are taken, if that should become necessary.

Conclusion

In this difficult matter, I have decided that Andrew does not have a proprietary interest in the land at Caverndale and Murphy’s pursuant to a common intention trust, a constructive trust or based in equitable estoppel and that Caverndale and Murphy’s were not assets of the G, J A & J Sobey partnership. I have found there should not be a taking of accounts of that partnership (save for the limited purpose of ascertaining Andrew’s entitlement to his proper share of Learmonth (Selwoods Road)) because the parties had agreed upon the basis upon which that partnership would be dissolved and acted upon that agreement. I have determined that the date of dissolution of the A & J Sobey partnership is 28 January 2011 and that James has made use of the A & J Sobey partnership assets subsequent to its dissolution. Such use will need to be brought to account (at Andrew’s option) either as a share of the profits made since the dissolution attributable to the use of Andrew’s share of the partnership assets or as interest on the amount of his share of the partnership assets pursuant to s 46 of the Partnership Act 1958 (Vic).

It is clear that Andrew has been substantially unsuccessful in the claim he makes in this proceeding. Nevertheless, if his parents fail to make adequate provision for him in their wills, some of the issues raised in this proceeding might need to be revisited in a future proceeding.

In due course, I will hear counsel on the appropriate form of orders.

[2014] VSC 373

14 August 2014