Thomas Charles Reed v Paul Lambert
[2012] NSWSC 50
•10 February 2012
Supreme Court
New South Wales
Medium Neutral Citation: Thomas Charles Reed v Paul Lambert & Anor [2012] NSWSC 50 Hearing dates: 29.08.11, 30.08.11, 31.08.11, 01.12.11 Decision date: 10 February 2012 Before: Nicholas J Decision: Par 28
Catchwords: PARTNERSHIP - dissolution - dispute as to share of partnership profits upon dissolution - turns on facts - no questions of principle Legislation Cited: Civil Procedure Act 2005
Partnership Act 1892
Uniform Civil Procedure Rules 2005Cases Cited: Briginshaw & Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Cubillo v Commonwealth of Australia [2000] FCA 1084; (2000) 103 FCR 1Category: Principal judgment Parties: Thomas Reed - plaintiff
Paul Francis Lambert - first defendant
Mortgage Quick Pty Ltd - second defendantRepresentation: Counsel:
A Korakis - plaintiff
B Levet - defendants
Solicitors:
Taitz Solicitors - plaintiff
Kinghan & Associates - defendants
File Number(s): 09/287080 Publication restriction:
Judgment
These proceedings arise out of a dispute between the plaintiff and the first defendant following the dissolution, on 1 April 2008, of their partnership in a real estate business.
During the hearing disputed issues were narrowed which resulted in the following:
(1) On 29 August 2009, by consent, declarations were made that:
(a) The relationship between the plaintiff and the first defendant was conducted as a partnership within the meaning of the Partnership Act 1892;
(b) It was agreed between the first defendant and the plaintiff that the second defendant be utilised as an instrument of the partnership.
(2) On 30 August 2011 Mortgage Quick Pty Ltd, the second defendant and second cross-claimant, discontinued its cross-claim against the plaintiff, without objection. On 1 December 2011 the plaintiff, by consent, discontinued his claim against the second defendant. The case proceeded on the basis that the court had dispensed with the requirement for filing a notice of discontinuance under Uniform Civil Procedure Rules 2005 Pt 12, r 12.1.
(3) On 1 December 2011 the cross-claim of the first defendant and first cross-claimant was abandoned, and dismissed.
The issue which remained for determination in these proceedings was the plaintiff's claim against the first defendant for payment of the amount of $42,920.55, with interest, being the amount claimed to be payable as the plaintiff's one half share of the profits of the partnership upon its dissolution.
Background
The following history is taken from the statement of facts agreed by the parties on 1 December 2011:
1. The plaintiff and the first defendant conducted a partnership in a real estate agency trading under the name of Atlas Property Group pursuant to the Partnership Act 1892 (NSW) and utilising Atlas Property Group Pty Ltd (the company), now called Mortgage Quick Pty Ltd (ACN 084 637 070), as the 'instrument' of the partnership.
2. The first defendant was at all material times the only shareholder of the company.
3. The agreement for the conduct of the business of Atlas Property Group was reached on or about June 2007. A term of the agreement was that the plaintiff and the first defendant would be entitled to an equal share of the profits of the company. In accordance with the agreement the plaintiff was the registered licensee in charge of the business of Atlas Property Group from 18 June 2007 to 1 April 2008, and a director of the company from 1 July 2007 to 1 April 2008. In accordance with the agreement the plaintiff and the first defendant each contributed the sum of $20,000 as 'start up' capital for the business to the company's bank account on 25 July 2008.
4. On 26 July 2007 a lease for the premises of the business located at Suite ##, Royal Arcade ## ### Road, Double Bay 2025 was signed by each of the plaintiff and the first defendant in their own names.
5. On 11 October 2007 [sic] an amount of $20,460 was credited to the company account for agent's commission for the sale of the property located at ### Street, Pyrmont.
6. On 12 October 2007 an amount of $55,336.06 was credited to the company account for agent's commission for the sale of the property located at ## ### Avenue, Bondi Beach.
7. On 8 November 2007 two amounts of $10,000 were debited from the company account comprising return of part of the capital contributed by each of the plaintiff and defendant in the amount of $20,000 in start up capital.
8. On 14 December 2007 two amounts of $10,000 were debited from the company account comprising return of all of the capital contributed by each of the plaintiff and defendant in the amount of $20,000 in start up capital.
9. On 19 December 2007 an amount of $11,990 was credited to the company account in agent's commission for the sale of ## ### Avenue, Bondi.
10. On 26 February 2008 an amount of $11,076.71 was credited to the company bank account for agent's commissions for the sale of ## ### Avenue, Vaucluse, NSW
11. On 14 March 2008 amounts of $14,423.80 and $14,423.81 were credited to the company accounts agent's commissions for the sale of units ## and ## of ### Avenue, Bondi.
12. On 1 April 2008 the partnership between the plaintiff and the first defendant ceased and was dissolved.
13. On 1 April 2008 the plaintiff and first defendant attended the offices of Mr Ian Sapier chartered accountant ... A file note of the meeting was drafted by Mr Ian Sapier.
14. On 8 April 2008 it was agreed between [sic] that the property management division of Atlas Property Group would be conceded to Reed Estate Agents Pty Ltd as part of the division of assets agreed to in the dissolution of the partnership. A letter was drafted to this effect by Mr Ian Sapier and dated 8 April 2008.
15. On 1 May 2008 an amount of $9,603 was credited to the company account for sales commission for the sale of ## ### Street, Redfern marketed by Atlas Property Group. The sale was marketed by the business of the plaintiff and the defendant during the period they were in partnership.
16. On 7 May 2008 an amount of $11,440 was credited to the company account for agent's commission for the sale of ## ### Street, Bondi Beach. The sale was marketed by the business of the plaintiff and defendant during the period they were in partnership.
17. On 23 May 2008 an amount of $15,444.00 was credited to the company bank account in sales commission for the sale of ## ### Street, Darlington NSW. The sale was marketed by the business of the plaintiff and defendant during the period they were in partnership.
18. On 30 May 2008 an amount of $18,600 was debited from the company accounts by the first defendant.
19. On 20 June 2008 an amount of $25,000 was credited to the company account for the sale of the property located at ## ## Road. The sale was marketed by the business of the plaintiff and defendant during the period they were in partnership.
20. On 12 August 2008 an amount of $30,730 [sic] was debited from the company accounts and made payable to an entity owned by the first defendant's father, Julius Lambert, Australian Texas Holdem Poker League Pty Ltd.
The claim
The plaintiff's claim was based on the information contained in the company's profit and loss statement for the period of nine months ending 31 March 2008. By agreement, this document was before the court and was referred to by both parties in submissions concerning the contested items. The plaintiff claimed that the amount of gross income of the partnership was $183,706.02, and expenses were in the total amount of $98,834.66, leaving a net profit of $84,871.36. In calculating the amount of total expenses, the plaintiff agreed to the inclusion of the amount of $10,292 in respect of commission paid after 1 April 2008, an item which he had previously disputed. He claimed that he was entitled to a one half share of the profit in the amount of $42,435.68, and the return of the balance of a loan in the amount of $484.87, which together amounts to the sum of $42,920.55.
The first defendant denied the claim. He asserted that the amount of gross income as claimed by the plaintiff erroneously included an amount of $20,464 which should have been treated as a loan from him to the business and not as income by way of commission earned. Accordingly, the first defendant asserted that the gross income was reduced to an amount of $163,241.22. He also asserted that the plaintiff had failed to include as expenses an item for legal costs in the amount of $12,286, and an amount in respect of consultancy fees paid to Australian Texas Holdem Pty Ltd for services rendered by Mr Julius Lambert in the amount of $30,636.36. It was put that inclusion of these items increased the expenses of the partnership to the amount of $141,757.02, leaving a net profit of $21,484.20, of which the plaintiff was entitled to the amount of $10,742.10. The plaintiff's claim for the repayment of $484.87 as the balance of a loan was not disputed, with the result that the plaintiff's entitlement was for a total amount of $11,226.97.
However, towards the conclusion of the hearing (T p 316) the first defendant abandoned his contention that the item of $12,286 for legal costs was an expense of the partnership. As a consequence, on the first defendant's case, the total expenses amount to the sum of $129,471.02, leaving a net profit of $33,770.20, of which the plaintiff would be entitled to an amount of $16,885.10. It follows that, allowing for repayment of the balance of the loan from the plaintiff in the amount of $484.87, the plaintiff is entitled to the amount of $17,369.97.
In this context the issues left for determination are:
(1) whether the amount of $20,464 was an amount received as commission income, or whether it was received as a loan from the first defendant and not as income, and
(2) whether the amount of $30,636.36 was an expense properly incurred for consultancy services rendered by Mr Julius Lambert.
Determination of these issues requires the resolution of the conflicting evidence of the plaintiff and first defendant. During the course of the hearing I came to the firm view that neither party was a witness upon whose evidence reliance should be placed where it was contested unless it was corroborated by, or was consistent with, independent and accepted documentary or other evidence. Nevertheless it is well settled that a trial judge is entitled to believe part of the evidence given by a witness and to reject the rest. (A discussion of the cases is in Cubillo v Commonwealth of Australia [2000] FCA 1084; (2000) 103 FCR 1, pars 118-123, O'Loughlin J.)
I turn first to the loan/commission issue as to the amount of $20,464.
The money was paid into the bank account of Atlas Property Group Pty Ltd on 12 October 2007, and was then entered in its books as a receipt of commission. Of the amount of $20,464, the sum of $18,600 was for commission and the sum of $1,864 was for GST.
Although the plaintiff deposed (aff 30.12.10 par 53) that he had considered the books and records of the company, he made no reference to the payment or the circumstances in which it was made. He gave no evidence in chief about it. In cross-examination he agreed it was commission earned by the first defendant in respect of the sale of a property at ### Street, Pyrmont under an arrangement made about 1 January 2007, prior to commencement of the partnership. He denied that it was paid by the first defendant as a loan to the business. He gave the following evidence of a discussion with the first defendant (T p 49, l 21 - l 24):
"... So, he said to me, he is going to put the commission in the company in recognition of all the sales that I had already done, so we are contributing, you know, somewhat equally to the business. That is why he put it in and I said, 'Well, that's great, Paul', and that was all that was said about it."
and (T p 53, l 32 - l 36):
"... Paul said, 'In recognition, you have done a lot of sales. I have not actually contributed anything in sales to the business so I am putting this sale through because we need all the money in our war chest so we can grow and become a huge firm'. I said, 'That's great, Paul. Thanks'; that's what happened."
The first defendant's evidence was that on about 12 October 2007 he informed the plaintiff that he would advance the money as a loan to the business to provide it with additional funds, and the plaintiff agreed to him doing so. He said that when he became aware that the payment had been recorded in the books as a commission he instructed the bookkeeper, Ms Helen Nuzzo, to record it as a loan instead. He said that he included the commission as part of his taxable income, and was taxed on it. In cross-examination he adhered to his evidence, and denied the plaintiff's version of the discussion. He said that the payment of GST by the company was a mistake, and he advised his accountants about it.
In evidence were the relevant entries from the general ledger of the company. Under the heading (p 20) "Real Estate Commission" the sum of $18,600 on 12 October 2007 is recorded, and also the entry on the same date of the same amount as a debit described as "loan from Paul". On the same page, under the heading "Paul Lambert Capital" an amount of $20,460 is entered as "12.10.07 loan from Paul" as a credit. Beneath it is the entry "30.08.08 Paul Lambert $18,600" as a debit. The bookkeeper was not called to explain the entries or the circumstances in which they were made and I am not prepared to speculate about them.
In the circumstances, the court was left with no alternative but to take a broad view of the evidence overall. In my opinion, the onus lay on the plaintiff to prove, on the balance of probabilities, that the payment was a component of the income of the business and was not provided as loan. It was for him to establish these facts to the reasonable satisfaction of the court. Relevantly, in Briginshaw & Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at p 362 Dixon J said:
"But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences."
The state of the evidence leaves me unpersuaded that the amount should be included as income of the company for the relevant period. I reject the plaintiff's submissions to the contrary. Furthermore, I reject the submission that it was for the first defendant to disprove the amount was income, and to prove it was the loan as he asserted. In any event, having regard to the history of the relationship between the parties, and the evident concern of each to safeguard his personal commercial interests during the course of the partnership, I find it inherently implausible that the first defendant would provide the amount unconditionally, and without the expectation that it would be repaid. Furthermore, it is reasonable to expect that if, in truth, the plaintiff maintained from the outset that the amount was not a loan, he would have raised the issue following what he deposed to have been the consideration given by him of the company's books. With these matters in mind, I find it highly improbable that there ever was a conversation concerning the payment of the money as described by the plaintiff in his evidence, and I reject his version of it. It follows that I prefer the first defendant's evidence on this issue to that of the plaintiff's.
Accordingly, I find the plaintiff has failed to establish that the amount of $20,464 should be included as income of the business.
I now turn to the issue as to the payment made by the business in respect of consultancy services rendered by Mr Julius Lambert (Julius). During submissions various amounts were identified by the first defendant namely $30,730, $30,636.36 and $28,884. The amount referred to in the first defendant's final written and oral submissions was $28,884 and accordingly I take this to be the amount in issue. No attempt was made to reconcile these variations and I cannot speculate about them.
The payment was caused to be made by the first defendant on 12 August 2008, on invoices rendered by Julius under the name Texas Holdem Poker League, which directed payment to a bank account in the name of Australian Texas Holdem Poker League.
The first defendant contended that Julius had been engaged by him as a consultant to resolve disputed claims against the business by former consultants including Eli Barel, Britta Quinlan, and Alan Somer, for outstanding remuneration for services rendered. It was put that involvement of Julius in the finalisation of these claims was reasonably necessary to enable the winding up of the partnership after 1 April 2008. The plaintiff's case was that he was not party to any agreement to engage Julius, and the amount paid to him was not an amount for expenses legitimately incurred by the business, and thus should not be taken into account in calculating the net profit for division on dissolution.
The following is a summary of the relevant evidence.
The first defendant said that, in a conversation on about 12 March 2008, the plaintiff agreed to the engagement of Julius at a fee of $80 per hour to assist in dealing with the consultants' claims. Subsequently, Julius was engaged and his work included attending upon solicitors, courts, and participating in various meetings.
Julius gave evidence that he was engaged by the first defendant, and received a letter of engagement dated 14 March 2008. (The letter was not in evidence.) He said that about a week later he spoke to the plaintiff who indicated acceptance of the arrangement, and the amount of the fee. He described his activities with respect to the claims which ultimately resulted in their settlements. He deposed in detail to attendances at courts, and with solicitors, analysing the claims, and corresponding with, and telephoning, interested persons including the plaintiff and the consultants (aff 29.04.11, pars 48, 61-72). He also deposed (pars 82-86) to his recorded conversation with the plaintiff on 14 July 2008 in which the claims were discussed.
The plaintiff accepted that he was aware that Julius was involved in the negotiations with the consultants to settle their claims, and had been engaged by the first defendant, but asserted that the question of engagement and remuneration was not discussed with him. In cross-examination, the plaintiff agreed that until the consultants' claims had been resolved it was not possible to finalise the partnership accounts. (These accounts were prepared on 19 February 2009.) He accepted that although he disagreed with the first defendant about the claims, they had to be resolved, and payments owing as at 1 April 2008 should be met by the business. He accepted (T p 110) that costs and expenses in relation to the claims were, if reasonable, properly payable. The plaintiff denied that he agreed to engage Julius and said (T p 109, l 40 - l 44):
"I think it is totally unreasonable to employ somebody to do that role who has never done it before and has no knowledge of how to do it and is related to, you know, somebody. It is not an arm's length transaction. That's how I look at it."
The following passage indicated his position (T p 110, l 36 - l 42):
"His Honour: It remained a company expense, didn't it? Whether or not you personally disagreed with the engagement of a particular person in relation to the consultant fees it was a company matter, was it not?
A. If they would have engaged somebody who does that sort of work, yes, then it is a company matter. But if they engaged somebody who has got no experience then I don't think it is a fair expense. I'm only giving you my opinion. That's what I think."
Neither the first defendant nor Julius was shaken in cross-examination on their evidence of the conversation with the plaintiff as to the engagement of Julius. Julius was not undermined in cross-examination on his account of the scope of the work done or of his conversation with the plaintiff on 14 July 2008. No rational basis for rejecting Julius' evidence relevant to the disputed payment was established, and I accept it. It corroborated the evidence of the first defendant on the issue. In my assessment, the evidence of the first defendant and of Julius where it conflicts with that of the plaintiff on this issue must be preferred. I have not overlooked the plaintiff's submissions to the effect that the invoices were false and the first defendant made the payments on 12 August 2008 to strip the partnership of assets. As there was no credible evidentiary support for the submissions, I reject them.
Accordingly, I find that the amount paid to Australian Texas Holdem Poker League Pty Ltd in the total amount of $28,884 was incurred as a necessary expense in the course of winding up the affairs of the partnership, and for completion of transactions begun but unfinished as at 1 April 2008, the time of dissolution. The amount was not shown to be unreasonable. It follows, in my opinion, that it is an item to be taken into account as an expense for the purpose of calculating the net profit of the business on dissolution.
Conclusion
I find that the plaintiff has failed to establish that the amount of $20,464 was income, and the amount of $28,884 was not a proper expense of the business.
For the purpose of these proceedings, I find that the gross income was the amount of $163,241.22. I find that total expenses were of the amount of $127,718.66. It follows that the net profit was the amount of $35,522.56, of which the plaintiff is entitled to an amount of $17,761.28. Allowing for repayment of the balance of the loan from the plaintiff in the amount of $484.87, the plaintiff is entitled to a verdict in the amount of $18,246.15, with interest.
I expect the parties to agree on the interest component. They should bring in short minutes of orders in accordance with my findings.
The question of costs remains outstanding. My prima facie view is that the appropriate order, in all the circumstances, is that each party should pay his and its costs of the proceedings. However, absent agreement, the parties should have the opportunity to make submissions on the issue, mindful of the object of proportionality under s 60 Civil Procedure Act 2005. I direct the parties to arrange with my associate by 22 February 2012 for the matter to be re-listed.
In conclusion I register my concern that this sorry piece of litigation has been before the court on about 23 occasions since the filing of the summons on 14 January 2009. Its history is of the kind which inspired the enactment of s 56 Civil Procedure Act 2005 the obligations under which appear to have been entirely disregarded by all involved in these proceedings.
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Decision last updated: 10 February 2012
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