Truong v Lam - [2009] WASCA 217

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: TRUONG -v- LAM [2009] WASCA 217

CORAM: OWEN JA
PULLIN JA
NEWNES JA

HEARD: 10 NOVEMBER 2009

DELIVERED : 9 DECEMBER 2009

FILE NO/S: CACV 108 of 2008

BETWEEN: HOANG THO TRUONG
Appellant
AND
THANH VAN LAM
Respondent

ON APPEAL FROM:
Jurisdiction              :  DISTRICT COURT OF WESTERN AUSTRALIA
Coram  :MCCANN DCJ
Citation  :LAM -v- TRUONG [2008] WADC 156
File No  :CIV 1820 of 2005

Catchwords:

Partnership - Retirement of partner - Distinction between retirement and dissolution - Retirement of one partner in two person partnership

Legislation:

Nil

Result:

Leave to appeal granted
Appeal allowed

Category: B

Representation:

Counsel:

Appellant: Mr B H Taylor
Respondent: No appearance

Solicitors:

Appellant: Talbot Olivier
Respondent: No appearance

Case(s) referred to in judgment(s):

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321

OWEN JA: I agree with Pullin JA.
PULLIN JA: This is an appeal against the judgment of Judge McCann in the District Court. As will appear, the judgment was an interlocutory judgment and leave to appeal is therefore necessary. The orders made will affect the subsequent inquiries and if errors were made then justice requires that the errors be remedied now to avoid the wastage of costs. For that reason I would grant leave. The appeal was instituted on 7 November 2008 after delivery of reasons but before any judgment was extracted. That irregularity should be cured pursuant to O 2 r 1 by ordering that the appeal be treated as though it were instituted on 5 December 2008 when the judgment was sealed.
The case concerned a partnership between the parties formed for the purpose of growing strawberries on the appellant's land. The trial had its difficulties. As the trial judge records in his reasons:
The trial occupied seven days in three hearings over eight months. Further, both the plaintiff and defendant speak very little English and testified through a succession of different interpreters. Accordingly, there were real difficulties with the flow of the evidence, especially that of the plaintiff, whose inter-communication with his interpreters, and hence testimony, was markedly less fluent than appears from the transcript. (I have mentioned some examples in these reasons.) There are numerous factual issues and, as will be seen, both parties were unreliable witnesses. For all of these reasons the task of reviewing the evidence and making factual findings has been painstaking and time-consuming. Regrettably, this has resulted in a lengthy delay in the delivery of this judgment [3].
Unfortunately the difficulties continued after the conclusion of the three hearings as will appear below.
The plaintiff's prayer for relief in the statement of claim sought an order that the partnership had been dissolved on 6 June 2005 with damages for breach of contract, conversion, damages pursuant to the Fair Trading Act 1987 (WA) based on alleged misrepresentations inducing the plaintiff to enter into the partnership agreement, or alternatively a declaration that the terms of the partnership agreement were unenforceable because of the deceptive and misleading conduct. The defence threw up issues about the terms of the partnership and denied that the partnership had been terminated. The defendant counterclaimed damages for breach of the partnership agreement.
At [13] of the reasons for decision, the trial judge said:

At the commencement of the trial the parties informed me that they have agreed that the trial should be limited to matters going to liability, and that the assessment of damages, or the taking of any accounts, should be deferred until later. I concurred with that course of action. Thus, the issues for determination are presently limited to establishing:
(i)The terms of the partnership agreement (including terms as to the lease of the land, plant and equipment).
(ii)Whether the defendant engaged in misleading or deceptive conduct regarding his intention or capacity to carry out his obligations.
(iii)Whether the defendant breached the partnership agreement and, if so, whether the plaintiff was thereby entitled to terminate the agreement and did so.
(iv)Whether the parties entered into the alleged dissolution agreement and, if so, what were the terms thereof?
(v)When did the partnership agreement come to an end?
(vi)Whether the defendant wrongfully detained and/or damaged any of the plaintiff's property.
(vii)Whether the defendant is entitled to damages or other recompense for expenses which he incurred after the plaintiff's retirement.

In the reasons for judgment, the claim under the Fair Trading Act was dismissed as were the claims for damages for breach of contract and damages for conversion. In the reasons for judgment the trial judge dismissed the counterclaim. The dismissal of these claims were not recorded in the judgment itself.
The trial judge found that a partnership had been formed on or about 15 January 2005 [87]. The trial judge also made findings about the terms of the partnership [94]. It was a partnership for a fixed term of 12 months. However, the trial judge found that the partnership terminated before the expiry of the fixed term. In fact there was no dispute about this because his Honour said:
It was common ground between the parties that the plaintiff retired during a meeting with the defendant at the Badgerup property [131].
It may be observed that at commencement the parties were arguing about whether there was a 'dissolution' agreement but then found common ground that the plaintiff retired. The distinction in terminology is significant because if there were a 'dissolution' then, in the absence of agreement, assets would have to be sold and an accounting would have to be carried out. A 'retirement' of the plaintiff suggests that the defendant took over and became the owner of the partnership assets. His Honour found that the defendant retired on 10 June 2005. That finding is not in dispute.
What is in dispute is the finding by the trial judge that there had been an agreement between the parties about the price the defendant was to pay for the plaintiff's share. That finding is challenged by the grounds of appeal.
Before referring to the precise terms of the finding and the grounds of appeal, I should refer to the evidence given by the respondent about what he said was agreed as to the terms on which he was to retire. In effect, he said that it was agreed in June 2005 that he would retire from the partnership, that the appellant would take over his share of the partnership and that the appellant would pay him $80,000; $40,000 immediately and $40,000 at a later date (see ts 47). The appellant denied there was such an agreement.
The trial judge did not accept the plaintiff's evidence as to the agreement. His Honour said:
I find that the plaintiff genuinely but wrongly believed that the defendant agreed to pay him $80,000. If one adds the total of exhibit 19 ($60,858) and the amounts for casual wages in exhibit 21 ($7,413.10) and an indemnity for the PN Chemfert account of $11,216.10, one arrives at a total of $79,487.20 (that is, approximately $80,000). The plaintiff took the fact that the defendant had expressed no objection to paying him his entitlements and constructed an agreement that he would be paid that sum [133].
It is also necessary to refer to cross‑examination of the plaintiff when he was asked by counsel for the defendant whether he (the plaintiff) said to the defendant that the defendant could pay $20,000 in cash and the rest when the strawberry crop was finally harvested. The respondent said:
I didn't say that. But at the time when he said that - when he said so I agree that he would let me have the amount but he didn't have enough money and he paid the rest at the - but he refused to go with me to either see the lawyer or the accountant for the witness signature.
The trial judge referred to this piece of evidence and at [45] said:
As I understand it, the plaintiff here testified that an advance of $20,000 was discussed and agreed upon, but that the proposal came from the defendant and not him, and he was content to be paid the balance of his money later when the defendant was in funds, and the defendant refused to commit the agreement to writing.
At [137] his Honour then made his finding about the agreement:
In my opinion a very simple construction is to be placed upon the events of early June. The plaintiff was permitted to retire from the partnership (that is, dissolve it) in consideration of him selling or ceding his share in the firm to the defendant, who became sole proprietor and solely entitled to the profits (if any). The plaintiff remained entitled to the repayment of his partnership account (his expenses and wages) from the proceeds of strawberry sales, as was the case under the partnership agreement. The parties simply drew a line across the partnership accounts when the plaintiff retired. The parties also agreed that the defendant would make an immediate advance of $20,000 which would include payment of PN Chemfert's account.
Earlier his Honour said:
I find that:
(i)After complaining about some issues that he had, the plaintiff told the defendant that he wanted to retire from the partnership and the defendant agreed to allow him to do so.
(ii)…
(iii)The defendant agreed to pay him his wages (and those of his wife) and his expenses (ie, his 'partnership account') and also agreed to pay the outstanding account with PN Chemfert. (This led the defendant to apply to the National Australia Bank for an overdraft of $20,000.)
These findings are supported by the following facts. First, payment of the plaintiff's wages (and those of his wife) and expenses was no more than would become payable pursuant to the partnership agreement once strawberry sales commenced and the defendant could hardly refuse the plaintiff. Second, there were reasons for the defendant to be content to release the plaintiff, and go it alone, if that is what the plaintiff wanted to do. The crop was in good condition and nearly ready for harvesting to commence and the plaintiff was unhappy and quarrelsome. Third, both the plaintiff and the defendant agreed in their evidence that there was discussion about a pay-out figure. The issue was not whether the plaintiff would be paid, but how much he would be paid. The plaintiff prepared exhibits 19, 20 and 21 for the purpose of discussing his entitlements with the defendant [131].
As already mentioned above, his Honour found that there was no agreement concerning the dollar amount that was to be paid by the defendant to the plaintiff but he did say:
I find that the plaintiff and defendant only agreed that the latter would pay an immediate advance of $20,000 including PN Chemfert's outstanding account [132].
The trial judge published his reasons on 17 October 2008. It is evident from what happened subsequently that his Honour suggested to the parties on that day that the plaintiff might consider amending the statement of claim so that relief could be formulated to accord with his Honour's conclusion that there had been a retirement from the partnership and sale of the plaintiff's interest rather than a dissolution requiring an immediate winding up and sale of the business and assets.
On 17 November 2008, the parties appeared again before the trial judge. There is a transcript of what happened on that day. The transcript reveals that there was discussion about the fact that the trial judge had suggested on 17 October 2008 that the pleadings should be amended. His Honour asked counsel for the plaintiff whether she had a minute of proposed amendments to the statement of claim. Counsel said that she did not. This led to further difficulty. There was a process of discussion between the trial judge and counsel for the plaintiff during which some proposed amendments to the statement of claim were formulated. Once this proposed amendment had been formulated, largely as a result of his Honour's drafting, the plaintiff was given leave to amend in those terms. The amendments are referred to in the judgment which was eventually extracted and which is referred to below. His Honour then said, in the course of discussing the orders that he proposed to make, that there would be a 'declaration that the partnership between the plaintiff and defendant was dissolved on 10 June 2005 on the term pleaded in paragraph 5(d) of the amended statement of claim'.
In fact no such declaration appeared in the extracted judgment. The judgment was drafted by the solicitors for the plaintiff, considered by the defendant and then eventually sealed. It read:
1.The Plaintiff have leave to amend the statement of claim to plead:
'The terms of agreement number 2 were that:
(a)the Plaintiff was permitted to retire from the partnership from 10 June 2005, in consideration of the Defendant purchasing the Plaintiff's share in the firm.
(b)the Defendant would pay the Plaintiff his expenses incurred in respect to and on behalf of the partnership, including in respect of P.M. Kemfert account.
(c)the Defendant would pay the wages of the Plaintiff and his wife on an hourly basis at the same rate as was paid by the Plaintiff to the firm's casual labourers.
(d)The Defendant would pay an immediate advance of $20,000 which includes the balance of the P M Kemfert account and would pay any balance of the sum, owing from the proceeds of the sale of the former firm's strawberry crop on a dollar for dollar basis with reimbursement of the Defendant's like expenses incurred up to and including 10 June 2005.
2.There be a declaration in terms of (a) - (d) of paragraph 1 of this order.
3.The Plaintiff file and serve amended papers for the Judge within 14 days.
4.The matter be referred to a pre‑trial conference before a Registrar on a date to be fixed.
5.There be liberty to either party to apply in respect of costs and liberty to apply generally.
6.The matter otherwise be adjourned sine die.
Counsel for the appellant conceded that the declaration in terms of par 1(a) of the judgment which records the fact that the plaintiff was 'permitted' to retire from the partnership 'from' 10 June 2005 was intended to be a declaration that the plaintiff did retire from the partnership on 10 June 2005. This seems clear from [131(i)] of the reasons coupled with the finding as to the date being 10 June 2005. However, the appellant contends that the declarations should otherwise be set aside.
The appellants amended grounds of appeal read:
The trial judge erred in fact in finding:
(a)as a term of the dissolution agreement the defendant agreed to pay the plaintiff his wages (and those of his wife) and his expenses (ie, his 'partnership account'), and also agreed to pay the outstanding account with P N Chemfert (judgment paragraph 131(iii)) in that the findings made were:
(i)inconsistent with facts incontrovertibly established by the evidence;
(ii)alternatively, against the overwhelming weight of the evidence
(b)the plaintiff was permitted to retire from the partnership (that is, dissolve it) in consideration of him selling or ceding his share in the firm to the defendant who became sole proprietor and solely entitled to the profits (if any), (judgment paragraph 137) in that the findings made were:
(i)inconsistent with facts incontrovertibly established by the evidence;
(ii)alternatively, against the overwhelming weight of the evidence when the evidence was as set out in the appellant's submissions (including the Schedule attached).
The respondent has filed a notice of respondent's intention, reading:
The respondent does not intend to take part in this appeal and will accept any order made by the court in the appeal other than as to costs.
Ms Varughese, who was counsel for the respondent at the appeal, attended a directions hearing in this court on 14 July 2009 by telephone link. She advised that she was without instructions and would not appear at the hearing. As a result, the respondent was not represented by counsel at the hearing of this appeal.
Before discussing the grounds of appeal, it is necessary to note that the parties and the trial judge seemed not to appreciate that there was any distinction between a 'dissolution' of the partnership and a 'retirement' of the plaintiff from the partnership as indicated above. A 'retirement' is shorthand for indicating that a retiring partner departs with an entitlement to the price of his share (if any), with the surviving partner or partners taking over the partnership property and being left to conduct the business. The difference between 'dissolution' and 'retirement' was considered by Goff J (as he then was) in Sobell v Boston [1975] 1 WLR 1587. In that case the plaintiff, who was a solicitor, practised in partnership with the defendants. The plaintiff, by agreement with the defendants, withdrew from the partnership and did not then take any further part in the partnership affairs. The defendants took over the assets and continued to run the business. The plaintiff brought an action against the defendants and moved for the appointment of a receiver and manager on the ground that the agreement was for the dissolution of the partnership and the winding up of its affairs. The plaintiff contended that even if the agreement was intended to be one whereby he should retire, it could not take effect in that way because it was incomplete and therefore operated as a dissolution. Since the agreement was silent as to the terms on which the share of the assets was to be ascertained, he was entitled to a sale of all the partnership assets since that was the only way in which the value of his share could be fairly ascertained. The motion was dismissed. Goff J held that the plaintiff had failed to make out a prima facie case that the defendants had agreed on a dissolution. His Honour concluded that the agreement was that the plaintiff should retire. His Honour said:
If the agreement had remained wholly executory it would, in my judgment, have been unenforceable and of no effect because the financial terms were unsettled. It was no more than an agreement to retire on terms to be agreed. It was argued for the defendants that its shortcomings in this respect were cured by s 42 of the Partnership Act 1890 but in my judgment that begs the question and cannot be right. The section applies only when a member of a firm has ceased to be a partner, and applies only to what is to happen after he has so ceased. It does not read anything into an incomplete agreement for retirement.
(The s 42 referred to is a reference to a section equivalent to s 55 of the Western Australian Partnership Act 1895.)
Goff J concluded, however, that the agreement did not remain executory because the plaintiff had withdrawn from the partnership, had taken no further part in the affairs of the business and that the defendants took over the assets and continued to run the business. His Honour then considered what the effect of that conduct was and he said:
I am satisfied that in the light of it I cannot regard the partnership as still subsisting between all four partners. The alternatives are either that it worked a general dissolution, as the plaintiff contends, or that the plaintiff thereby retired leaving the partnership subsisting between the other three.
Goff J then repeated his view that the plaintiff retired and that the agreement did not work a dissolution and then turned to consider the consequence of the fact that financial terms were never finally settled. He said:
In my judgment what he is entitled to is the value of his share at the date of his retirement … Accordingly he is merely an unsecured creditor and has no right to interfere or ask the court to interfere in his debtors' business.

In my opinion this should be understood as a finding that there was an implied agreement that the retiring partner should be entitled to the amount he would have received on a dissolution and sale of assets.
The reasoning of Goff J in Sobell's case was referred to with evident approval by Williams J (Prior J and Martin J agreeing) in Chia v Ireland [2000] SASC 47 [37]. The South Australian Full Court also concluded on the facts of that case that there had not been a general dissolution of partnership but a retirement by one partner. In addition, the Full Court pointed out that even if there had been a dissolution, the court would have discretion to decline to make an order for sale of partnership assets. In lieu it would order that the outgoing partner's share be valued at the date of dissolution as if the business had been sold as a going concern with the ongoing partner being permitted or required to purchase the outgoing partner's share at that value. See Syers v Syers (1876) 1 App Cas 174; L'Anson Banks R, Lindley & Banks on Partnership, (2002) 18th ed, 23‑185 ‑ 23‑186; Chia v Ireland [34].
The question then arises as to whether there is some significance in the fact that in Sobell there were more than two partners, so that on retirement of one of their number there remained others who continued in partnership. In other words, if in Sobell there had been only two partners, would Goff J's reasons have been any different? At one level they would. Obviously, if in a two‑person partnership one agrees to retire, there is no partnership to continue in existence and so Goff J, in those circumstances, would not have said that once retirement had occurred it would leave the partnership 'subsisting between the other[s]'. However, in my opinion it would have made no difference to the principle that if a partner in a partnership (whether there be two or more partners) retires and impliedly agrees that he should receive as the price for his share the value of that share, then the retiring partner has rights only as an unsecured creditor of the partner who takes over the partnership business and as a result owns it outright. The last passage I have quoted in blocked form from Goff J's reasons above applies with equal force to the circumstances of the retirement of one partner in a two‑man partnership.
I turn then to the appellant's grounds of appeal. I repeat that counsel for the appellant, in oral submissions, accepted that his Honour was correct to state that it was common ground that the respondent retired from the partnership. The appellant does not challenge his Honour's finding that this retirement occurred on 10 June 2005. On that basis, the aspect of ground 1(b) which challenges this finding should be dismissed, although the declaration that the plaintiff was 'permitted' to retire from the partnership 'from' 10 June 2005 should be reformulated to reflect what was intended, namely that the plaintiff did retire on 10 June 2005.
The point the appellant pursues in ground 1(a) and the other aspect of ground 1(b) is the contention that the trial judge erred in concluding that any agreement was reached about the price the appellant was to pay the respondent as retiring partner.
By making an order that the matter be referred to the registrar, it seems that his Honour contemplated that at least the registrar should conduct an inquiry as to the expenses of the plaintiff and the number of hours worked by the plaintiff and his wife.
The declaration (d) in terms of par 1 gives rise to potential problems. If the reference to the 'sum' in that paragraph is intended to be a reference to the amount of the purchase price the defendant was obliged to pay to the plaintiff, then the assumption which seems to lie behind it is that the sale of the crop of strawberries (which was damaged by hail) would, after payment of expenses of harvest, produce sufficient moneys to pay the purchase price when ascertained. There was no finding to this effect. That immediately prompts a question about what would happen if the sale of the crop did not produce sufficient funds to pay the purchase price that his Honour contemplated would be determined after inquiry.
The crux of the appellant's argument is the submission that there was no evidence that any express agreement was reached between the parties about the price payable by the defendant to the plaintiff for the plaintiff's share upon his retirement. In my opinion, this submission must be accepted. The plaintiff gave evidence about there being an agreement between the parties about a sale price of $80,000. I have already referred to that evidence. That evidence was completely rejected by his Honour. The defendant gave evidence denying that there was any agreement about price. In the light of the trial judge's firm rejection of the plaintiff's evidence about a price being agreed, there remained no evidence of any concluded agreement.
To make a finding that there was an agreement without any evidence to support it is an error of law: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 355 ‑ 356 per Mason CJ. His Honour gave reasons for concluding that there had been an agreement about price in [131] of his reasons. There were three points that his Honour identifies as supporting the existence of the agreement. It is true that if there had been some evidence of the agreement found by his Honour then these points were factors that his Honour could have taken into account in preferring that evidence over the evidence of the defendant denying that there had been any agreement. However, there was no evidence given by the plaintiff that there had been an agreement of the kind that his Honour found. In effect, his Honour found that an agreement existed in terms that would have been a good idea for the parties to agree but without any direct evidence and no evidence from which he could infer that there was such an agreement. Once the plaintiff's evidence about price was rejected, the only conclusion open was that the parties impliedly agreed that the defendant, would take over the partnership assets, that there would be an accounting to determine what expenses had been incurred and what the income was. In other words without the parties saying so, or even knowing of the existence of the rules laid down in s 57 of the Partnership Act, that such rules would be applied as though there had been a dissolution on 10 June 2005.
This implication follows from the following facts, namely that the plaintiff had carried out work and met expenses; that the plaintiff departed and did not return to the property; and that the defendant took over the conduct of the business, harvested the fruit, met all the expenses and sold the fruit. As in Sobell's case, the agreement concerning the retirement of the plaintiff and the taking over the partnership assets by the defendant was executed and carried into effect.
Reference must also be made to par (d) of the declaration. This declaration was made as a result of the confusing evidence given by the plaintiff referred to and set out above. In my opinion, it is impossible to draw from the evidence of the plaintiff on this point what the trial judge found had been was agreed. The trial judge concluded that the plaintiff's evidence was that the defendant agreed to pay $20,000 on account of the purchase price. However, the purchase price the plaintiff was referring to was $80,000 and the trial judge found that this had not been agreed. Not only is the evidence about the $20,000 very confusing, but it could not stand in view of his Honour's conclusion that there was no agreement that the purchase price was $80,000. In my opinion, because his Honour concluded that there was no agreement concerning the price the plaintiff contended for there could have been no agreement to advance the sum of $20,000 against that price.
In my opinion, the judgment so far as it makes declarations in terms of pars (a) to (d) of par 1 should be set aside and there should be a judgment which declares that the plaintiff retired from the partnership on 10 June 2005, that the defendant was entitled to retain the partnership assets, and that it was impliedly agreed that the financial position between the parties would be dealt with via an account prepared as though there had been a dissolution of the partnership on 10 June 2005 and the accounts settled pursuant to the rules in s 57 of the Partnership Act 1895.
The matter should be remitted to the District Court with an order that the trial judge or the registrar (if the judge makes a direction pursuant to O 45 r 2) should conduct an inquiry to determine what would have been the position had there been a settlement of accounts pursuant to the rules in s 57 of the Partnership Act 1895 following a dissolution of the partnership on 10 June 2005.
Clearly, if this process is carried through to a conclusion, it will cost the parties considerable sums of money, far more than any of them expect from the completion of the process. My hope is that the trial judge will order that the parties be required to participate in a mediation to see if the matter can be concluded before more substantial legal costs are incurred. These reasons should be sent to the respondent who should be given an opportunity to make submissions about the form of the proposed orders. The respondent has 21 days from today to make any such submissions in written form and the judgment of this court should not be sealed before the expiry of that time.
I would make the following orders:
(1)the appeal be allowed;
(2)paragraph 1 of the judgment be set aside and in lieu par 1 should read:
The plaintiff have leave to amend the statement of claim to plead that pursuant to Agreement number 2 the plaintiff retired from the partnership on 10 June 2005.
(3)Paragraph 2 of the judgment should be set aside and in lieu there be a declaration that:
The plaintiff retired from the partnership on 10 June 2005.
(4)Paragraph 4 of the judgment should be set aside and in lieu there be orders that:
(a)the trial judge or the registrar (if the trial judge so orders pursuant to O 45 r 2 of the Rules of the Supreme Court), inquire into and determine what would have been the position had there been a settlement of accounts pursuant to s 57 of the Partnership Act 1895 following a dissolution of the partnership on 10 June 2005.
(b)The amount payable by the plaintiff to the defendant or the defendant to the plaintiff be determined in accordance with the rules in s 57 of the Partnership Act 1895.

The other orders made by the trial judge should not be disturbed.
The question of costs and consideration of whether any order should be made under s 10 of the Suitors Fund Act 1964 will be dealt with after hearing from the parties.
NEWNES JA: I agree with Pullin JA.