Walters v Scarborough - [2011] NSWSC 1380

Supreme Court

New South Wales

Medium Neutral Citation: Walters v Scarborough [2011] NSWSC 1380
Hearing dates: 8-11 August, 24 October 2011
Decision date: 15 November 2011
Jurisdiction: Equity Division
Before: Ward J
Decision:
Alleged partnership/joint venture not established. Declaratory relief refused. Plaintiffs' claim dismissed.

Catchwords: PARTNERSHIP - JOINT VENTURE - whether the parties engaged in partnership or joint venture for the importation and sale of insulation ceiling batts - whether breach of fiduciary obligations on unilateral termination of any such agreement - questions of liability only to be determined in preliminary hearing - HELD - no partnership or joint venture for the importation and sale of batts established - no breach of fiduciary obligations
Legislation Cited: Evidence Act 1995 (NSW)
Partnership Act 1982 (NSW)
Cases Cited: Adam v Newbigging & Townend (1888) 13 App Cas 308
Agricultural and Rural Finance v Gardiner [2008] HCA 57; (2008) 251 ALR 322
Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1995) 37 NSWLR 405
Sargant v ASL Developments Ltd; Turnbull v ASL Developments Ltd (1974) 131 CLR 634
Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59; (1998) 195 CLR 566 Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137
Birtchnell v Equity Trustees, Executors & Agency Co. Ltd (1929) 42 CLR 384
Brostoff v Clark Kenneth Leventhal (March 11,1996, Dyson J)
Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) (1974) 131 CLR 321
Commonwealth v Verwayen [1990] HCA 39; (1990) 95 ALR 321
Davies v Newman (2000) W.L.1841655
Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd (1996) S.L.T 186
Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101
Industrial Equity Ltd v Lyons (NSWSC unreported, Cohen J, 15 October 1991)
Jones v Dunkel (1959) 101 CLR 298
Keech v Sandford (1726) 25 ER 223
Liquor National Wholesale Pty Limited v Redrock Co Pty Limited [2007] NSWSC 392
Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583
Sargent v ASL Developments Ltd; Turnball v ASL Developments Ltd (1974) 131 CLR 634
United Dominion Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1
Weiner v Harris [1910] 1 KB 285
Texts Cited: Handley, Estoppel by Conduct and Election
Lindley & Banks On Partnership (18th edn)
Category: Principal judgment
Parties: Paul Walters (First Plaintiff)
*Aussie Insulations* Pty Ltd (Second Plaintiff)
Kent Paul Scarborough (Defendant)
Representation: Counsel
M W Sneddon with A Ahmad (Plaintiffs)
S Bell (Defendant)
Solicitors
Lee Hourigan & Brooks (Plaintiffs)
Terrett Lawyers (Defendant)

File Number(s): 09/291363

Judgment

HER HONOUR: This matter involves a dispute as to the existence (or otherwise) of a partnership or joint venture between Mr Paul Walters and Mr Kent Scarborough for the importation and sale of insulation ceiling batts. The plaintiffs (Mr Walters and a company incorporated by him in June 2009, *Aussie Insulations* Pty Ltd) contend that by about mid March 2009 (variably put at 12 and 15 March 2009) such a partnership or a joint venture had come into existence and that Mr Scarborough breached and/or repudiated the partnership/joint venture agreement (and fiduciary obligations owed to the plaintiffs) on 29 August 2009 by unilaterally terminating the partnership/joint venture on that date.

Mr Scarborough denies that there was any such partnership or joint venture, although he concedes that Mr Walters provided assistance to him in the importation of a number of containers of ceiling batts from China (including the provision of funds for the deposit required in relation to the initial order for batts). Mr Scarborough contends that at most there was an agreement by him in June 2009 that he would pay Mr Walters a fixed amount per bag in respect of imported ceiling batts the sale of which was procured by Mr Walters (in effect, by way of a commission on sale of the batts) and that Mr Walters did not ultimately effect any such sale (or, more precisely, the one customer order he did arrange was subsequently cancelled).

Mr Walters contends that the arrangement reached with Mr Scarborough was that they were each to have an equal share in the profits in respect of the business (para [2] of the Amended Statement of Claim) and that it was further agreed between them (on or about 3 June 2009) that a new company was to be incorporated as a vehicle for the purposes of carrying on the partnership and the business (para [3] of the Amended Statement of Claim), *Aussie Insulations* being the company said later to have been incorporated for that purpose. In submissions provided in advance of the hearing, a further arrangement (whether by amendment to the alleged partnership/joint venture arrangement or simply as some form of collateral agreement) was relied upon, it being contended by Counsel for the plaintiffs (Mr Sneddon) that the terms of the partnership or joint venture were that profits from the sales of imported ceiling batts to third parties were to be shared equally but that if imported ceiling batts were used by Mr Scarborough for his own purposes then Mr Walters would be paid $8 per bag for those ceiling batts. (Mr Sneddon contends that the agreement that Mr Scarborough maintains is the only agreement that was reached between the parties, i.e. to pay $8 a bag for certain of the batts, is one that is in conformity with Mr Walters' claim as to the alleged partnership and inconsistent with a denial of the partnership/joint venture.)

Before me for hearing was solely the question of liability. The plaintiffs' claims for damages, equitable compensation and/or the taking of accounts (predicated as they are on any finding of liability that might be made in these proceedings) are to be separately heard and determined (if they arise) following judgment on the question of liability.

Issues

It does not seem to be disputed that, if a partnership or joint venture did come into existence in or about March 2009, then it came to an end for all practical purposes following the exclusion of Mr Walters from the operation of what Mr Walters contends was the partnership business on around 29 August 2009. Thereafter Mr Scarborough continued to import and either sell or install the ceiling batts under his own business name to the exclusion of Mr Walters at least up until the withdrawal of the government incentives in relation to ceiling batt insulation (the government incentive programme having prompted the importation of the batts in the first place).

The issues for determination were identified by Mr Sneddon as being limited in compass: namely, whether or not there was a partnership or joint venture between Messrs Walters and Scarborough (on their own behalf or through *Aussie Insulations*) for the importation and sale of insulation ceiling batts; and, if so, what were the terms governing that joint venture or partnership agreement. It seems to me that a further question might also then arise as to whether, if there were found to have been a partnership or joint venture on the terms emerging on one or other version of events, there would be any purpose in ordering the taking of accounts.

Summary

For the reasons set about below, I am not satisfied that there was an agreement reached in March 2009 for a partnership or joint venture as alleged by the plaintiffs (namely, for the importation and sale of the batts). What the evidence in my view establishes is that Mr Walters and Mr Scarborough were jointly engaged in the process of the importation of ceiling batts from China during the period from March to August 2009, with the initial purpose of each separately looking to make a profit out of the sale (or, in the case at least of Mr Scarborough, the use in his own business) of the batts. I do not accept that their involvement in this process constituted a partnership between them with a view to profit, although it might loosely be described as a joint venture (using that term descriptively and not as having a distinct legal meaning).

I consider that the evidence shows that at some point around the time of the placement of the first order for the ceiling batts in question, there was consideration given to an expansion of the scope of the enterprise in which Mr Scarborough and Mr Walters were then jointly engaged, with discussion as to the joint sale of the imported batts (whether through a corporate vehicle or otherwise). However, I am not satisfied that the parties ever reached a concluded agreement as to the form in which that expanded venture would take place or as to the terms of the arrangement between them. What the Skype communications reveal is an assumption that some form of arrangement would ultimately be reached and that they would then share in the profits of the ceiling batt sales in some fashion and would together be involved in the funding of the purchases). In that sense, I accept that the evidence shows that by around June 2009 the two were in a sense working together in a commercial context to import ceiling batts from China (and acting in anticipation of a joint venture being put in place) but I do not accept that the arrangements between them ever amounted, as a matter of law (noting, as I do, that the question whether there is a partnership involves mixed questions of fact and law), to a partnership for the importation and sale of the ceiling batts from China; nor do I consider that their arrangements amounted to a joint venture analogous to a partnership of the kind alleged.

Even if (contrary to the conclusion I have reached) the arrangements between the two amounted to a venture for the joint importation (and/or in due course for the joint sale) of the batts, the discussions between the two in my view make it clear that it was anticipated that Mr Scarborough would be able to make use of such of the imported batts as were required for his own business (carried out under the AAA Trade Power name), subject only to the possible qualification that sufficient stock be made available to satisfy any orders for batts that Mr Walters may have procured (and, at least on Mr Walters' version of events, to some form of account being made to Mr Walters for the benefit of having done so). Therefore, Mr Scarborough's conduct after August 2009 in using imported batts for his own business purposes cannot amount to a breach of any fiduciary obligation to Mr Walters under such arrangement (even assuming that the arrangements between the parties were such as to give rise to the imposition of fiduciary obligations on the two men, which I do not accept was the case) since the use by Mr Scarborough of the batts was expressly contemplated. Nor do I consider that termination of any such joint venture would be a breach of fiduciary obligation per se, in circumstances where there was no suggestion that any period of notice would be necessary to bring the arrangements to an end and there was by August 2009 clearly a lack of trust between the parties that would have justified a termination of the relationship.

As for *Aussie Insulations*, it was not in existence at the time the partnership or joint venture agreement is alleged to have come into existence and it seems only ever to have been contemplated that a corporate vehicle might be used in the course of the venture - not that it was to be a partner or joint venturer as such.

Accordingly, I find that the plaintiffs are not entitled to the declaratory relief claimed as to the existence of the alleged partnership or joint venture. Given that the balance of the relief sought is predicated on the existence of a partnership or joint venture, it follows that the need for a separate hearing as to the claims for damages, equitable compensation or the taking of accounts does not arise.

Having regard to the financial contribution made by Mr Walters to the purchase of the first 4 container loads of ceiling batts (which I consider to have been jointly purchased pursuant to, or as part of, an informal enterprise under which each of the men was independently to have the opportunity to sell or make use of the batts), there may have been a basis (though it was not put in the pleadings as such) on which Mr Walters could have contended that he was entitled to a refund of the balance of his financial contribution to the purchase of the batts (after taking into account the payments made for his benefit in August 2009), namely that it would be unconscionable for Mr Scarborough to retain the balance of those funds after the breakdown of the relationship between the two and the consequential failure of the commercial enterprise between the two (applying the principles expounded in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 and Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 where there is a joint endeavour between the parties in which expenditure is shared for their common benefit and that joint endeavour comes to an end, and it is found to be unconscionable for the contributions to or benefit of that joint endeavour to be retained). Any such claim would have been for a relatively small amount on the evidence before me and no such claim would in my view have arisen in relation to the subsequent orders placed for ceiling batts in circumstances where there was no financial contribution made by Mr Walters at all towards the purchase of those batts or the cost of their importation. In any event, this does not fall for consideration in these proceedings.

Skype transcripts

Before turning to the factual background in which this dispute has arisen, I note that (apart from the respective accounts by each of Mr Scarborough and Mr Walters as to their conversations in relation to the importation of the ceiling batts, as to which there are material differences), the bulk of the evidence (to which both parties referred in documents handed up by way of aide memoire during the course of submissions) as to what was said between the parties in relation to the ceiling batts (from which their involvement in the process of their importation can be assessed) is to be found in transcripts of "Skype" communications between the two over the period from 28 February 2009 to late August 2009.

Those transcripts were exhibited to Mr Walters' principal affidavit in these proceedings, affirmed on 8 October 2010, and were admitted in evidence as Exhibit A. (Other Skype transcripts, of communications between Mr Walters and the overseas supplier, were admitted as Exhibit B but only as to the fact of the communications not as to the truth of what was said subject to a ruling as to whether they were business records of the alleged partnership. Similarly, Mr Scarborough exhibited to his affidavit some Skype transcript of communications in September 2010 with the overseas supplier, which I have again read only as to the fact of the communication not as to the truth of what was said therein.)

There is an obvious issue as to the completeness and accuracy of the Skype transcripts contained in Exhibit A. Although in Mr Walters' affidavit of 17 January 2011, he affirmed that, to the best of his knowledge and belief, the pages of Skype transcripts that had been exhibited as PW1 to his 21 December 2010 affidavit were a true and complete copy of the original Skype conversations with Mr Scarborough between 28 February 2009 and 27 August 2009, in the witness box he accepted was not the case - T 69). There are some undeniable gaps in the Skype transcripts and other places where it is possible that there was some missing transcript although not obvious that this is the case. For example, and I concede this may not be an exhaustive list:

(i) the conversation at the bottom of CB 126A (ending mid-sentence with a communication on 14 April 2009 at 10:07:21pm from Mr Walters) does not continue onto the top of CB127 (that being a new entry on 15 April 2009 at 10:46:39am from Mr Scarborough);

(ii) the conversation at the bottom of CB 127A concluding with an entry at 11:50:32am on ...from Mr Walters (advising he was off to St Vincents) followed by the next entry on CB 128 at 20 April 2009 (1:10:17pm) [though this gap may well be explicable by reference to Mr Walters spending some time in hospital];

(iii) a gap of some 5 days when there were no Skype communications (23-27 April 2009 inclusive) although it seems clear that there was some communication in that period by reference to the comment by Mr Walters on 28 April 2009 at 10:12:26am (CB 139)that "like i said in yesterdays e-mail...");

(iv) the conversation at 3:09:21pm on 30 April 2009 CB 132A, which may well be the end of that Skype chain of communications on that day but which is followed on the next page by a sentence commencing mid-stream and then by an entry on 1 May 2009;

(v) the conversation on 15 May 2009 at 11:32:59am which concludes mid-sentence on CB 137A per Mr Scarborough and commences on the following page with a message from Mr Walters on that same date but at 8:45.24pm [and I note that the content of the following exchanges makes it clear that there is missing communication at least as to the "above price of $25.77", which does not appear above that entry, and a reference to "both samples", without identifying which samples in the text of the communications);

(vi) the conversation on 21 May 2009 (CB 140) which appears to end mid sentence and resumes over the page with what appears to be an extract from a notice of some kind, followed by a communication on 22 May 2009;

(vii) the entry by Mr Scarborough at 11:53:19pm on 15 June 2009 at CB 165A which is followed by an entry apparently pasted by Mr Walters (an assumption I make on the basis that other entries were so done) of a conversation with Mr Peng on an unidentified date and then an apparently new conversation on 16 June 2009 by Mr Scarborough at 9:17:55pm; (What is somewhat troubling about this gap in the Skype communications is that the portion of conversation between Mr Peng and Mr Walters that appears at the top of CB 166 (followed by the entry on 16 June) also appears midway at CB 168A as part of a longer conversation with Mr Peng and apparently forwarded to Mr Scarborough by a message from Mr Walters on 22 June 2009, there also being a doubling up of a conversation appearing at CB 166A with Mr Peng forwarded to Mr Scarborough on 17 June 2009 appearing again as part of the Skype communications at CB 168A); although part of the confusion seems to be that CB 168A should in fact follow CB 170, that does not necessarily explain the doubling up and interposition of the Rosen Peng conversations at different places in the Skype transcript; that said, I cannot discount the possibility that in this instance Mr Walters was simply forwarding the same message twice to Mr Scarborough (and Mr Walters was not called upon to explain this particular entry);

(viii) at CB 180A, the order of the Skype exchanges goes from an entry from Mr Walters on 1 July 2009 at 11:58:16pm straight to an entry on 2 July 2009 at 12:00:34am from Mr Walters; that said, at CB 182, following another pasted copy of a conversation between Mr Peng and Mr Walters, there is an entry by Mr Walters on 2 July 2009 at 10:09:01pm followed by exchanges on that date going through to 11:15:07pm; it would seem that CB 182 should have followed CB 180A so this is likely just to be a problem with the collation of the Skype transcript; and

(ix) at CB 197A there is a duplication and/or juxtaposition in the Skype transcript of a discussion between Mr Peng and Mr Walters on 13/14 July 2009 in the middle of what appears to be a conversation with Mr Peng and "Betty" on 17/18 July 2009.

Mr Walters deposed that he had downloaded the Skype transcripts from his computer (or "the server") and printed them in or about early September 2009 and that, since then, he had endeavoured to re-open the said conversations in the history folder of his Skype program but was unable to locate them (T 133.11). At T 133/134, he gave contradictory and confused evidence as to how the gaps in the pages had occurred (due to problems with photocopying/printing) and as to how many sets of documents had been printed (first, saying 2 then saying 3 or 4) and how many pages had been printed (500/600) - T 134.27. A call was made for the original Skype pages produced to Mr Walters' solicitor and that call was in due course answered, although there remained some doubt as to what exactly had been printed off by Mr Walters from his machine and whether the original pages supplied to his solicitor had been able to be identified. In any event, no additional material was produced following that exercise.

Mr Scarborough deposes that he no longer has any electronic or other form of copy of most of the Skype conversations or emails between himself and either Mr Walters or Mr Peng prior to 17 August 2009 ([61]) and does not accept that the Skype transcripts represent a complete or accurate record of the Skype conversations (but, as I understand it, the complaint is as to the missing parts of the transcripts not as to the accuracy of the portions that are contained in the now admittedly incomplete transcript which is attached to Mr Walters' affidavit).

As a general observation, where there is a discrepancy between an account of a conversation or meeting given by one or other of the parties and that which appears in or by inference from the Skype transcripts, I place greater reliance on what can be gleaned from the Skype transcripts, those being a contemporaneous (though incomplete) record of what the parties were saying to each other (admittedly in an informal context, complete with profanities, typographical errors and use of the vernacular), as opposed to an (occasionally stilted and far more formally expressed) account given some time later by the respective protagonists of conversations on which in hindsight (not surprisingly) they may well have put their own gloss (whether consciously or otherwise).

In relation to the Exhibit B Skype transcripts of communications between Mr Walters and the overseas supplier, they were tendered by Mr Sneddon as business records of the partnership. Logically, they could only be admissible on that basis if there is a partnership and therefore cannot be used in order to determine whether there was a partnership (hence they were admitted only provisionally). In light of the finding below, they would not be admissible as business records. Further, even if they were admissible as business records of the alleged partnership, I would remain inclined to read them only as to what was communicated by Mr Walters to the overseas supplier, not as to the truth of that communication, given the scope for self-serving communications to have been made in correspondence to which, for the most part, Mr Scarborough was neither a party to nor copied with, and that, as Mr Walters accepted, the Skype material in relation to his communications with the supplier is incomplete (T 65). (I have read the Skype transcript of the conversations between Mr Scarborough and Mr Peng on a similar basis, simply for the fact of the communications.) For ease of reference, I refer to the Skype transcripts by reference to the page at which they appear in the Court Book.

Background facts

Turning then to the factual background to the present dispute, I note as follows:

General background

Both Mr Scarborough and Mr Walters are businessmen and have, during the course of their respective business careers, been involved in various business enterprises.

From around 2003, Mr Scarborough had operated a business under the registered business name AAA Trade Power, through which Mr Scarborough organised groups of contractors and workmen to perform home building services work, including carpet cleaning, pest control, window cleaning and related activities. As at 2009, he was also registered with an ABN to trade under the names Connectors Call and Commission Centre and World Wide Home Loans. He was not involved in the business of roofing insulation at that time (although from time to time it is possible that tradesmen arranged through AAA Trade Power may have carried out such work for customers if that arose incidentally as part of the home building services provided by tradesmen organised by him - T 154).

Mr Walters had also operated a number of businesses prior to the events in question in 2009 and over a longer period. In his first affidavit, Mr Walters deposes to having been the principal owner of an importing/exporting business called Heaven & Earth Pty Ltd for approximately ten years between 1993 and 2003. (Mr Scarborough was aware generally of Mr Walters' business background in that he says Mr Walters had told him that he had had an import/export business importing gold from Hong Kong and that he had lived in Hong Kong for 8-15 years and had experience negotiating with the Chinese (T 161).) Mr Walters, for his part, admitted that he had experience in running an export business to the Philippines and did not deny that he had spent time working and carrying on business in Hong Kong.

As at early 2009, Mr Walters (through Heaven & Earth, which was wholly owned by a company owned in turn by Mr Walters and his wife, First Art Pty Ltd) was carrying on a gourmet hamburger business operating out of two "Real Deal Gourmet Hamburgers" cafes, one at Bondi and one at Darlinghurst. During March/April 2009, Mr Walters was trying to sell the Darlinghurst cafe business (T 39) but does not accept that the company was in financial difficulties at that stage. Heaven & Earth was placed into liquidation by early June 2009 (due, according to Mr Walters, to a debt in respect of which he said he had put forward a compromise for settlement and had heard nothing since then). Mr Walters said that he only became aware of the liquidation after the fact (since the notices had been sent to a different address). Mr Walters nevertheless accepted in the witness box that he was in a position of personal financial difficulty at least by around July/August 2009.

Mr Walters and Mr Scarborough first met in about 2005 in a social context, their respective children then attending the same school and their wives having become friends. They regularly had coffee together at either Bondi or Coogee (the venue for many of the now disputed conversations as to the alleged partnership or joint venture) and generally this occurred in the early evening from around 6.30pm onwards. During those meetings, Mr Scarborough and Mr Walters discussed (it is not suggested exclusively) their respective businesses and new or potential business opportunities. They also regularly engaged in conversations on Skype.

Mr Scarborough gave evidence that there had been earlier financial transactions between he and Mr Walters during the course of their friendship. He refers to a loan (not disputed by Mr Walters) of $60,000 made by Mr Walters to him between 5 and 7 August 2007 (which he says he repaid by instalments between 20 August 2007 and 1 November 2007) to buy land on which to establish a duck farm in Thailand (para [18] of Mr Scarborough's affidavit sworn 2 February 2011); that loan being undocumented, without any obligation to pay interest, and described by Mr Scarborough as a "private transaction between friends". (This is relied upon as dispelling the suggestion that payment later of a sum of $20,000 by Mr Walters in connection with the ceiling batts was more than an act of friendship.)

In turn, Mr Scarborough says that he had helped Mr Walters over the years (as described in paras [20] and [25] - [28] of his affidavit). While Mr Walters disputes the extent of the assistance provided by Mr Scarborough in his businesses over the years, it does not seem to be disputed that both men had provided assistance, support or advice of one kind or another in relation to the other's business affairs during the course of their relationship (the Skype conversations, for example, disclose that during 2009 Mr Scarborough had discussed with Mr Walters matters relating to the proposed sale of the gourmet hamburger businesses and the latter's dealings with the liquidator of Heaven & Earth, though there is no suggestion that Mr Scarborough was in any way involved in those businesses or that company).

Announcement of insulation rebate scheme

In early 2009, the Federal Government announced an incentive programme for the installation of home roof insulation as part of an energy initiative. It seems that both Mr Walters and Mr Scarborough saw this as a potential business opportunity (presumably anticipating a demand for the supply of ceiling batts for those seeking to take up the rebates offered). Mr Walters referred to that announcement in a Skype conversation with Mr Scarborough on 28 February 2009 (CB 105). Mr Scarborough's evidence was that he was already aware of the announced rebate scheme. Nothing turns, however, on who first introduced the topic. What is relevant is that both seem to have seen this as a business opportunity for themselves individually (not jointly) and Mr Scarborough, in particular, seems to have contemplated the implementation of this (for his part at least) through the "infrastructure that I already have in place" (CB 105A), by which I understood him to be referring to the AAA Trade Power business name under which he was already operating.

In February 2009, Mr Scarborough (acting under the business name AAA Trade Power) took steps to take up the business opportunity so presented, by placing advertisements offering to install home insulation roofing batts in houses under the government scheme and starting to purchase quantities of ceiling batts from local suppliers. (Indeed, a constant theme throughout the communications between the men during the period from early 2009 to August 2009 was the sourcing of locally produced ceiling batts for use in Mr Scarborough's business and the mechanics of securing those products from local hardware stores. Mr Walters, for example, assisted in collecting batts from various stores for use by Mr Scarborough in his installation business (and was reimbursed from time to time for petrol/diesel costs and toll charges in so doing). However, there is no suggestion that this formed any part of the alleged partnership or joint venture - that relating only to the imported batts. Therefore, any amounts expended on those matters cannot be part of any claim in relation to the present proceedings.) At that stage, i.e. in February, according to Mr Scarborough, there was not a shortage of batts but he thought there was a potential shortage to come (T 157) and he says that he realised in early March that he should look at the importation of batts in conjunction with retail purchases having regard to the likelihood that there would be a shortage (T 157).

On 9 March 2009, the first AAA Trade Power batt installation quote was noted in a Customer Order Book kept by Mrs Scarborough, marking the commencement of AAA Trade Power's involvement in the rebate scheme.

Around March 2009, it seems (from the content of the Skype conversations) that what Mr Walters and Mr Scarborough were discussing was the way in which each might (independently) exploit the business opportunities presented by the government scheme (albeit perhaps with assistance from the other). So, for example, when Mr Scarborough told Mr Walters in a Skype conversation on 3 March 2009 that he had applied for registration as a government authorised insulation installer, the response from Mr Walters was "u beat me to it" (CB 106) and, on 5 March 2009, Mr Walters referred to his own attempts at registering "for insulation" (CB 107).

Similarly, Mr Scarborough referred in a Skype conversation that day to the number of bookings taken at that stage for ceiling insulation. The reference in that conversation to "We took [the bookings]" and "We now have [a total number of responses booked in for measurements and quotes]", must logically be a reference by Mr Scarborough to the business he was conducting (with the assistance of his wife) through the business name AAA Trade Power (since there is no suggestion at that stage that any bookings were being taken for a joint enterprise with Mr Walters). (I raise this because there is scope for ambiguity in at least some of the later Skype conversations as to what was meant by "we" when used by Mr Scarborough - it not always being clear from the content whether Mr Scarborough meant by that pronoun he and his wife or he and Mr Walters. I note that on at least some occasions, such as when working out the costing for the importation of the batts and comparing those costs with "our" current costs, I accept Mr Scarborough's evidence that he was there referring to the AAA Trade Power business conducted by him with his wife and not any potential enterprise with Mr Walters. On other occasions, such as the reference to a million dollars profit "each", I consider that the most logical reading of the transcript is that Mr Scarborough (despite his evidence in the witness box to the contrary) must have been referring to a joint enterprise of some kind with Mr Walters.)

Oz Insulations (Mr Walters' business name)

On 6 March 2009, Mr Walters applied to register the name "Oz Insulations" as a business name (Exhibit 3). This, in the context of his stated intention the day before to register 'for insulation', and his comment "u beat me to it", is consistent with Mr Walters setting himself up as an insulation installer in his own right (and the nature of the business specified in the business names application was "Install Roof Insulation Panels"). In the application form, Mr Walters identified the entity carrying on the business as Heaven & Earth "as at 17 March 2009". Mr Walters sought Mr Scarborough's opinion as to the name that sounded better (Aus Insulations or Oz Insulations) but there was no suggestion that this name was to be for a joint vehicle. (This might give some credence to the proposition that later soundings of Mr Scarborough by Mr Walters as to company or business names were not necessarily referable to joint entities, although the context of those later communications suggests that Mr Walters was referring to entities in which Mr Scarborough was then to be involved.)

Mr Walters contends that the Oz Insulations business name was registered for the purpose of providing a second quotation on work for which AAA Trade Power had quoted (T 40.49) and was never active (T 40.25). There is some discussion contained in the Skype communications that tends to support the assertion that the business name "Oz Insulations" was only intended to be used for the provision of quotes (although that is inconsistent with its stated purpose at the time of application for registration and with the earlier Skype communications referred to above). So, for example, Mr Walters' Skype communication to Mr Scarborough on 6 March 2009 referred to someone ("your guy") who wanted a second quote and from whom Mr Walters had not heard. There are also references in the Skype conversations, at least throughout the period from March to June 2009, as to the provision of second quotes (those apparently being needed at that stage as a requirement of the government rebate scheme) and as to complaints about "friendlies" in the quote process involving other companies and the need to "distance" AAA Trade Power and Oz Insulations in advertisements.

However, given that the name Oz Insulations was registered before the discussions in which Mr Walters says that agreement was reached for a partnership or joint venture in relation to the importation of ceiling batts, and before (or on the same day as) the conversation in which importation of batts is said first to have been raised (and given the reference in the Skype conversation the day before as to his attempts at registration for insulation, coupled with the purpose stated on the application for registration), it seems to me that the inference to be drawn from the registration of this business name on 6 March 2009 must be that at that stage Mr Walters had (at least in contemplation, if not the actual intention) the idea of himself becoming involved in his own business involving ceiling batt insulation.

Mr Walters described himself as someone who was on the look out for any business opportunity (T 76), which in my view makes it not at all inconceivable that Mr Walters may have been interested, as the early Skype communications suggest, in becoming involved independently of Mr Scarborough in the importation of ceiling batts (i.e. in order to explore a business opportunity for himself rather than by way of entry into any joint enterprise, to use a neutral term, with Mr Scarborough to do so).

Mr Walters accepted in the witness box that Mr Scarborough did not ask him to register Oz Insulations as a business name (T 70.20; T 71.18) and that he did not record any discussion in his affidavit about this, but says this is "because it wasn't relevant for importation of batts" and was "very separate" (for the purpose of giving second quotes for second quotes for home installations) (T 70.30).

Discussions re importation of batts in March 2009

Mr Walters alleges (and Mr Scarborough denies) that on 6 March 2009, he had a conversation with Mr Scarborough at a coffee shop at Bondi some time after 7.30pm in which he says he referred to the possibility of obtaining supplies of ceiling batts from China and in which he says that Mr Scarborough said "Let's both us look into this and see if it is worth pursuing, if it is then we can do a joint venture and go into business together" ([10] of Mr Walters' first affidavit, the substance of that conversation being denied by Mr Scarborough). The Skype conversation recorded on 6 March 2009 at around 6.30pm suggests that the two had agreed to meet for coffee at around that time (CB 109). However, there is no reference in the Skype conversation recorded the following morning to any discussion the previous day as to (or as to the investigation of) the possibility of a joint venture or joint enterprise in this regard.

I interpose to note that Mr Walters attributed a number of conversations to meetings over coffee in Bondi (or Coogee) at around 6.30pm, largely it would seem on the basis that this was around the time that the pair tended to meet for coffee (and Mr Scarborough does not deny that there were many such meetings over the period in question, at which he says there were wide-ranging discussions about a number of matters). There is reference in the Skype communications to some of those meetings (such as the 6 March meeting) that supports Mr Walters' recollection as to the time or date of those meetings (and perhaps from which Mr Walters' recollection was refreshed).

On other occasions (such as the 7 March 2009 coffee shop meeting said to have occurred some time after 6pm (para [11] of Mr Walters' affidavit) or the later coffee shop meeting said to have occurred on 20 August 2009) the Skype transcript is silent as to such a meeting and/or seems inconsistent either with there having been such a meeting or as to the time or venue at which it is said to have occurred. So, for example, on 7 March 2009, there is a Skype message by Mr Walters at 5:29:30pm enquiring as to follow up insulation calls and silence until another entry at 7:43:48pm "R u there", without any reference (before or after) to a coffee shop meeting in between. Even more obvious is the inconsistency between Mr Walters' account of the 20 August 2009 coffee shop meeting (to which I refer later) insofar as the conversation he deposes to there having taken place is said to have occurred at a time after the internet transfer of the funds he says Mr Scarborough offered to pay him in that conversation (something, if not impossible, then highly unlikely unless Mr Scarborough had a crystal ball when he made the transfers before the request for them.)

Mr Walters says that on 7 March 2009, in the coffee shop meeting to which I have referred above, he again discussed the sourcing of supplies from overseas, possibly China, and suggested that he "focus on sourcing, ordering, shipping, and importation of the goods from the supplier, everything that needs to be done to get them into a Sydney warehouse". He says that Mr Scarborough agreed with that proposition. (Again, the substance of that conversation is denied by Mr Scarborough.)

By this time, Mr Scarborough already seems to have been making enquiries as to possible overseas suppliers of batts. On 8 March 2009 he informed Mr Walters in a Skype conversation that he had researched manufacturers on an "Alibaba" search vehicle and had sent out an enquiry as to manufacture of batts referring to some of the specifications for those batts for use in Australia. He also referred Mr Walters to the website of an organisation in China (Zibo Double Egret Imp & Exp Co Ltd, also apparently identified in some of the email communications from Mr Rosen Peng, the owner or manager of that business, as Double Egret International Industry). Although it is fair to say that Mr Walters' first affidavit might be read as suggesting that it was he who had initiated this contact, in the witness box Mr Walters readily accepted that Mr Scarborough had referred Double Egret's details to him to follow up.)

In their 8 March Skype conversation as to the Double Egret possibility, Mr Scarborough said:

I think, if they prove to be good, a trip to China is required immediately. I am, at this stage, assuming that it would be you that goes (after TRD [i.e. The Real Deal gourmet hamburger cafe in] Darlinghurst has sold, assuming you want to and are available to go - am thinking out loud here). My best guess is that it would probably take a week of travel and do the business in China. Cost wise - go halves in all expenses (CB 110)

While the suggestion of a trip overseas to investigate the possibility of importing batts is not inconsistent with both men pursuing independently the opportunity to make money out of the process (and simply assisting each other in that enterprise), the fact that Mr Scarborough seems readily to have made the assumption that Mr Walters would travel to China to "do the business" there suggest some understanding on his part at that stage as to the potential for a joint enterprise of some kind between the two in relation to the importation of ceiling batts. Mr Scarborough said that Mr Walters was interested in travelling to Thailand but that would not necessarily explain the assumption stated above. However, again, the suggestion of a trip to China seems to be in the context of investigation as to the possibility of some kind of joint importation of batts rather than there being any arrangement to do business together in relation to those batts.

There were further Skype communications between the pair from 8 - 11 March 2009 as to local Council rebates; potential suppliers in China; second quotes for customers (in the context of which Mr Scarborough seems to have used the word "we" as referable to his business not including Mr Walters - see 9/3/09 at 11:55:02 "what did we go in at?"); reference to freight costs and sailing time from China; and calculations as to costs related to the transport and package of batts, in the context of which Mr Scarborough suggested that there could be "a saving of $301 more than half our current costs" (which could only logically be a reference to his (under the trade name AAA Trade Power) current costs of purchasing locally sourced batts). Mr Scarborough's calculations led him to observe that a $316 saving was "very substantial and very much in our favour", which again would seem more logically to be read as a reference to the business conducted with his wife (although I accept that it could also be read as meaning that the cost saving would be favourable to a jointly conducted business). At T 174.29, Mr Scarborough was asked about the reference to "we are still under half price an incredible saving" and accepted that this could refer to Mr Walters "if he was doing the installing correct but if he is not doing installation it related to myself and my wife".

Reference was also made in the Skype communications over this period to the onus being on the installer to make sure the product met Australian standards and to the need for it to be tested and approved. On Skype, Mr Scarborough asked Mr Walters' opinion on how that could be done (although in the witness box he gave evidence that he had also been involved in this aspect of the process).

(The conversations at that time also ranged over other topics in which it was not suggested that Mr Scarborough had any business interest or involvement, including the negotiations for the sale of Mr Walters' Darlinghurst gourmet hamburger business.)

At 10:33:40pm on 10 March 2009, Mr Scarborough said "At that rate we would be importing 2-3 containers per week". Again, Mr Scarborough says that this was a reference to what he and his wife would be importing for their business. By this stage, however, if it was not Mr Scarborough's intention to refer to a joint enterprise with Mr Walters, there was at least scope for it to be read that way (and it seems to me likely that in at least some of the communications he and Mr Walters may have been at cross-purposes in this regard).

There were also communications in that period as to the use of a backpacker (named Samantha) to knock on doors and seek quotes for the ceiling batt installations, in the hire of which both Mr Scarborough and Mr Walters were involved (again possibly for their separate business purposes). Mr Scarborough was also providing updates on, and information to Mr Walters about the 'putting together' of, quotes on ceiling insulation.

Interestingly, the Skype conversation on 11 March 2009 in relation to 2 quotes issued by Samantha focussed on the name in which those quotes were issued. Mr Walters noted that they were "done under Tradepower" and questioned why this was the case (CB 116A). (Such a query seems inexplicable if the mutual understanding of the parties was that each was to carry out his own separate business of home installation.) Mr Scarborough's response to this is equally revealing, namely to say "if and when u get ur first booking - simply let me know and I will get 1 of my guys to complete it" and to point out that, as the quotes had been issued by Trade Power, "u have to do the 2 nd quote" (a reference, as I understand it, to the second quote then part of the requirements for a government rebate). (In other words, Mr Scarborough was there drawing a clear distinction between the two businesses).

This suggests that at this point there may have been disconformity between what each of the pair understood was happening in relation to the proposed importation or any business involved therewith. Mr Walters' query suggests that he thought the quotes should have been issued as part of a joint business or enterprise between the two of them. Mr Scarborough's response suggests that what he understood was happening was that Mr Walters would be operating his own business in relation to the importation and sale of the batts and hence taking his own bookings for the batts (i.e. separate from those taken by Trade Power). Nevertheless, Mr Scarborough's response should have drawn to Mr Walters' attention that there was no then common understanding as to a joint business operation and Mr Walters did seem to appreciate that there were two separate business operations at that stage (CB 116A at 9:58:32 and :57).

Mr Scarborough then said "but even if she goes under Oz Insulations [Mr Walters' registered business name] you'll be using my infrastructure in the beginning anyway so if you want her to go under Oz thats fine by me. either it doesn't worry me, what ever is doable and gets results". This seems to me again to indicate that what Mr Scarborough, at least, was contemplating was an arrangement whereby the two would collaborate or work together on the importation of batts for use in their separate business operations (and that in the beginning he would provide the 'infrastructure', by which I assume he meant the workmen, for the installation of batts by Mr Walters under the latter's separate business operation).

At T 28.32ff, Mr Walters, orally giving further evidence in chief (by leave) deposed to the steps taken by him from 10 March 2009 to the end of March 2009 (broadly, making internet enquiries and searching web-sites to ascertain whether, and at what cost, batts complying with Australian safety standards, could be sourced overseas). Although there is a dispute as to the extent of the assistance provided, and as to any suggestion that Mr Walters did "all the work", Mr Scarborough accepts that Mr Walters did spend time (and probably a considerable amount of time) and effort in relation to the steps taken to import the batts from China.

12/15 March conversations - alleged partnership/joint venture agreement

Mr Walters says that he met with Mr Scarborough at a coffee shop in Bondi some time after 6pm on 12 March 2009 at which time he says Mr Scarborough said that "The best way to progress the insulation business is to install product from China and that seems very doable" and that, in response to Mr Walters' question as to "How will we structure this from a business point of view", Mr Scarborough said (and Mr Walters says he told Mr Scarborough he agreed with this) that:

I think we should set up a company and we will be 50/50 partners on the importation of the insulation batts. I can then buy the product I need for the insulation business from the company. That way we still share the profits from importation and I can then use what I need for my business

Mr Scarborough denies the substance of this conversation ([55] of his affidavit).

Mr Walters is adamant that it was Mr Scarborough who was the one suggesting a company (T 78) (although since Mr Scarborough had run his other business through a business name for some time it is not apparent why he would have regarded it as necessary to incorporate at this stage). On the other hand, Mr Walters in the witness box seemed to think it was necessary for there to be a company for there to be an ability to import in the first place (T 80), which might make it more likely that he would have raised the issue of a company. That said, Mr Walters' evidence in this regard in the witness box was confused, he saying later that when he had referred to a company he was "generalising" and that he meant "its any person or company who conducts a business", which may make it difficult to draw any inference from his evidence on this point.

Relevantly, the agreement to which Mr Walters here deposed seems to be one that contemplates there will be, in effect, a jointly owned company which would import insulation ceiling batts to be on-sold to Mr Scarborough for use in his installation business. Mr Walters does not record any discussion at this stage as to sales by the jointly owned company to any third party or to Mr Walters himself of the batts so imported (though this seems, from later discussions, to have been contemplated).

There is nothing in the Skype communications on 12 March 2009 that corroborates Mr Walters' account of the above conversation. There is a reference at around 2pm to a meeting to take place at Bondi with Samantha (at 6.30pm) but no reference to any meeting or discussion between the two men as to the business arrangements to which Mr Walters has since deposed. (Moreover, it seems unlikely that a discussion as to formation of a corporate vehicle and partnership would have taken place at a meeting with the door-to-door operator, Samantha, though there may of course have been a separate meeting between the two men before or after their meeting with Samantha.)

As to the likelihood that the parties would at that stage have been entering into any commitment requiring substantial expenditure by Mr Walters (whose then business operations, at least with hindsight, were close to liquidation), Mr Walters agrees that at this stage he was trying to sell the Darlinghurst shop but he says that he was not aware of any creditors pressing Heaven & Earth (and did not become of this until after the company had been placed in liquidation) (T 76). This is consistent with the explanation that Mr Walters gave to Mr Scarborough on Skype shortly after the company went into liquidation.

I do not regard it as wholly implausible that the two may have been talking about an enterprise involving a corporate vehicle with such a level of informality (and at a time when Mr Walters was at least trying to sell down some of his business exposure in relation to the cafe businesses). On Mr Scarborough's own evidence, the parties had operated at a relatively informal level in their business dealings in the past. However, what I do regard as unlikely is that the only time that business matters of this kind would have been discussed was during coffee shop chats (and not Skype conversations) when the pair seem regularly to have discussed other business matters on Skype (with the exception of issues relating to the dealings with the liquidator of Heaven & Earth, that Mr Scarborough at a later point in time suggested, for unstated reasons, ought not be in Skype).

I am unable to accept that a conversation of the kind to which Mr Walters deposes occurred on 12 March 2009, if it was understood as giving rise to an agreement to import batts on a particular profit share basis, would not have been referred to at all in the Skype conversations. With no corroboration of that conversation I am not persuaded that I should accept it occurred as alleged by Mr Walters, the evidence being at least consistent with the alternative version of events put forwarded by Mr Scarborough.

Mr Walters alleges that another conversation took place at a coffee shop in Bondi at about 8.30pm on 15 March 2009. (The Skype communications are consistent with there being a meeting on 15 March 2009 (at a time around 8.30pm) but there is nothing to shed light on what was discussed at that meeting (CB 118).) Mr Walters says that in this conversation Mr Scarborough said "As we discussed, we should run this importation business through a company on a 50/50 basis. I think you should focus on sourcing the product and importation and supply side of the business".

Given the doubt I have as to whether any conversation in the terms alleged by Mr Walters in fact took place on 12 March 2009, I cannot place any weight on the introductory words said to have been said by Mr Scarborough in this conversation (i.e. "As we discussed") and the attribution of those words to Mr Scarborough seems to me to carry with it a self-serving flavour.

Mr Walters deposes that later in the conversation (after he says Mr Scarborough had said that it was very important to get the importation business underway as soon as possible because he needed the batts for his own insulation business) Mr Walters said "If you are going to be taking some of the imported batts yourself, I suggest that we discuss what price you would be buying them through the company at" and Mr Scarborough said that he would pay to Mr Walters separately a fixed dollar amount per bag and suggested that this be about $8 per bag for every bag he took. That conversation is denied by Mr Scarborough. (The alleged arrangement in relation to the fixed price per bag, as already noted, has not been pleaded as a term of the alleged partnership or joint venture agreement).

I interpose to note that, although the Amended Statement of Claim pleads that the agreement to enter into the partnership (or, alternatively, the joint venture) was made "on or about 12 March 2009", in submissions Mr Sneddon fixed the time at which the partnership/joint venture was constituted as being on 15 March 2009. While nothing turns on whether the agreement was reached between the parties on 12 March or on 15 March (and I accept that the pleading uses the formulation "on or about", which would encompass an agreement reached not on 12 March but on 15 March 2009), the seeming discrepancy between the two positions seems to me to highlight the uncertainty as to the status of any accord (to use a neutral term) reached between the parties on either of those dates - i.e. whether it could be said that there was objectively a common intention immediately to be bound by any agreement that may have been expressed by Mr Walters or Mr Scarborough to one or more of the statements said to have been made in the respective discussions.

In at least one respect, Mr Walters' account of what was said on 15 March 2009 does not appear to sit conformably with what he says was said three days earlier. The 12 March conversation, as recounted by Mr Walters, seems clearly to contemplate that Mr Scarborough's business was to be purchasing batts imported by the proposed jointly owned company (that being the stated result of such an arrangement according to Mr Walters). If so, then there should have been no doubt that Mr Scarborough would be "taking some of the imported batts" himself (yet the tenor of the comment Mr Walters says he made on 15 March in relation to the price at which Mr Scarborough would be buying those batts suggests that there was some doubt whether Mr Scarborough would be taking any for his own business). There is also no apparent logic to a payment being made to Mr Walters "separately" of money for the purchase by Mr Scarborough from the company of batts imported by the company if the very purpose of the company was to import batts and then sell them to Mr Scarborough (and/or others) for use in his business.

Again, the absence of any contemporaneous note or reference in the Skype conversations to such an arrangement at this time casts real doubt in my mind as to the likelihood that it was in fact said; particularly since there were various Skype discussions over the period between Mr Scarborough and Mr Walters as to the cost of importation of the batts and as to the pricing of the batts without any reference to an agreement already having been struck as to the price at which Mr Scarborough would be required or entitled to purchase those batts. (I consider later the import of the communications in which reference to the figure of $8 per bag "as agreed" is made).

Mr Walters accepts that he thought the 50/50 profit split was important (T 96) but says that discussions as to that issue would all have been during coffee meetings rather than on Skype (T 96.38). There is no logical explanation proffered for such a suggestion. I think the inference to be drawn from the lack of reference to it in Skype is that the conversation did not take place in the terms now recounted by Mr Walters. I accept that Mr Walters genuinely believes that there was a concluded agreement for a partnership or joint venture but the contemporaneous evidence does not support a conclusion that there was such an agreement.

Further communications in March 2009

On 22 March 2009, there was reference in the Skype communications (CB 121A) to an "insulation problem" the exact nature of which was not made clear (though it may have been a reference to the "drama" experienced in one out of four installations to which Mr Scarborough had referred in Skype the previous day (CB 121). In any event, Mr Walters expressed the hope that it could be solved "or else can see will effect [sic] everyone one way or another", to which Mr Scarborough responded (at 10:57:02pm) that "there are quite a few solutions that I can think of, where this can work for both of us. I think its best to wait for Teen [a reference to Steve Teen, who I understand to be a lawyer who gave some advice in relation to matters involving the two men] and his advice and go from there". Again, that communication seems to me to be is consistent with Mr Scarborough still proceeding on the assumption that the business operations were, in effect, to be conducted by each separately (not jointly).

On 24 March 2009, there was a further discussion on Skype in which insulation problems were discussed and Mr Scarborough said (at 12:01:26am that "I think it best to run separately, like we discussed in the first place" and Mr Walters responded that it was the second quote that was a major part in how well [they] could do. (CB 122A). Mr Scarborough later said (at 12:13:33am) "The more I think about it, the more I think its common sense to have both tradepower and oz insulations advertising on google (either close or far apart)", apparently in the belief that this would overcome the perception that the two were in some way colluding in the quotations (or in the origination of the customer leads), a matter that Mr Walters suggested they should discuss over coffee.

On 25 March 2009, Mr Scarborough sent Mr Walters a message over Skype that "spoke to Teen and now have clarity and a plan" suggesting a coffee meeting but there is no indication as to the "plan" to which he had referred.

April 2009

By the end of March, the Skype communications indicate frustration by both Mr Scarborough and Mr Walters as to matters related to the ceiling insulation process and, in Mr Walters' case at least, in relation to the second quote procedure. On 3 April 2009, via Skype, Mr Scarborough said "am speaking with teen today re you instructing Tradepower to create and send Oz Insulation quotes to CI [ceiling insulation] customers", the purpose of which is not immediately apparent but does suggest some involvement of Mr Walters in the business operations of Mr Scarborough (albeit for the benefit it would seem of Mr Walters' business).

Mr Walters says that he spent time on the internet seeking to source possible overseas manufacturers for batts; communicated with Mr Peng in relation to the possible supply of batts and paid an amount of about $450 to import sample batts from China for testing in Australia. The Skype communications in April record various communications in relation to the steps taken in that regard (see, for example (CB 125A) and on 7 April 2009 at 9:52:20 pm where Mr Scarborough referred to a website link and commented that "if these are the Thai imports, then they are perfect. We would simply have to brand them and give equivalent info and guarantees" (CB 126).

Mr Walters says that on 8 April 2009 he had a meeting with Mr Scarborough in which he says he advised Mr Scarborough that he had located a company to test the samples under Australian standards (ERA Polymer) and Mr Scarborough emphasised his desperation to start the importation of batts for his own business. (In relation to the latter, Mr Scarborough in the witness box said that the supply of batts became very scarce in August/September 2009, T 157, and it is not clear that he would have been in the throes of desperation at that stage. Therefore, if he did tell Mr Walters that he was desperate to get the importation going (and this conversation is not denied in Mr Scarborough's affidavit) it would seem likely to be a product of the anticipated need for batts rather than an actual need for batts at that time.) (It was not until July/August that the imported batts started to arrive in the country and Mr Scarborough's evidence, consistent with this, was that it was not until August 2009 that Mr Scarborough used any imported batts in any ceiling installation.

On 14 April 2009, Mr Walters by Skype suggested that it was worth going back to China and trying other possible companies "and also the previous one which you were discussing with [Double Egret], and see if we can price quotes on Polyester, and also price comparison from other companies for Glass wool as well", asking "Shall I go back to the previous company u spoke to, no problems for me to do so, will just need to explain to Rosen That I am working with you , but using different e-mail address" (CB 126A) (my emphasis). (In the context of later communications, and the vexed issue as to Mr Scarborough's stated discomfort at being asked to describe himself as Mr Walters' business partner, it is relevant to note that here Mr Walters does not himself suggest that he should describe himself as Mr Scarborough's "partner" or "business partner", rather that he would just need to explain he was working with Mr Scarborough. Further, the suggestion that there would be a need to explain his involvement in the matter indicates to me that at this stage Mr Walters did not see himself as part of any partnership or joint venture at that stage, since if that were there should surely have been no need to question Mr Scarborough as to his ability so to describe himself.)

On 16 April 2009, Mr Walters sent a number of messages in which he advised as to issues in relation to the thickness/cost of insulation batts as quoted by Mr Peng, though with no response from Mr Scarborough until later in the afternoon when he suggested a discussion over coffee in relation, inter alia, to Thailand batts.

"Aussie Batts" trade name

In his affidavit, Mr Walters deposes to a discussion over coffee with Mr Scarborough on 19 April 2009 in the evening in which he says there was a discussion as to the name of the company to be set up for the purpose of importing and selling the batts and says that he suggested the name "Aussie Batts Pty Ltd" with the trade name being Aussie Batts. Mr Walters says that Mr Scarborough said he thought Aussie Batts was both a great company name and trade name and worked well.

For his part, Mr Scarborough admits that in a meeting with Mr Walters over coffee in late April 2009 Mr Walters raised the idea of having a distinctive packaging for the batts and that Mr Walters suggested in early May that the batts be called "Aussie Batts" and the name registered as a trade mark - [84] [86] but denies that the conversation deposed to by Mr Walters happened in substance or in fact ([55]). Mr Scarborough says that the trade mark suggestion was not one in which he was immediately interested but that he "went along with that suggestion" ([85] [87]). The Skype conversations do not seem to me to suggest any particular reluctance or disinterest on Mr Scarborough's part, although I accept that Mr Walters seems to have had a greater involvement in (and perhaps enthusiasm for) the arrangements for the packaging.

There is no record of any Skype communication around this time which would confirm or corroborate the conversation deposed to of 19 April 2009, though it appears that Mr Walters did make enquiries as to the name Aussie Batts (only to find out that the trade mark was already registered) and there is reference to Mr Scarborough enquiring as to the outcome of such enquiries at a later stage. (There is no reference to *Aussie Insulations* as a company name in Skype at that stage.)

Further communications in April 2009

On 21 and 22 April there were further Skype communications in relation to the batts. Mr Walters gave evidence (at [28]) of his affidavit and in the witness box in chief) as to steps he took in relation to the testing and supply of samples from Mr Peng during April 2009. On 28 April, 2009, Mr Walters (CB 131) suggested on Skype that if batts could be deemed up to standard allowing sale, while testing was ongoing, then "that would I imagine give a fair amount of leeway and allow to import a few containers and quickly turn them back into $ whilst [Testing is being done];" and that "then when finances allow, testing is done accordingly", with which sentiments Mr Scarborough appeared to agree. "). Mr Walters also reported on the steps he was taking to arrange the testing at 3:42:27 on 28 April 2009 (and in his affidavit deposes to having paid the cost of that testing by ERA Polymers - $500) and as to further testing on 29 April 2009.

It was left to Mr Walters to order the sample for testing (see CB 132A 29 April 2009 9:20:48pm where Mr Scarborough asked if Mr Walters had ordered the sample yet and the response the following morning where Mr Walters confirmed that the sample had been ordered).

By this stage, the Skype communications seem to me increasingly to be written with a joint project in mind (so, for example, Mr Scarborough's comments as to the testing (at CB 131) "I don't want us to be the wizards of AS. I want the 3 rd party independent source to be the experts and do the testing. That's why we will be paying them. So after testing is done, if there is a problem or any issue then the authorities don't bite off our arses").

I find it difficult to read this kind of communication as a reference to the business carried on by Mr Scarborough and his wife, as opposed to comment on the position vis a vis the enterprise in which he was then seemingly engaged with Mr Walters in relation to the importation of the batts.

Suggestion that company be incorporated

Mr Walters deposes (at [33] of his affidavit) to a meeting on 30 April 2009 at a coffee shop in Bondi at which he says Mr Scarborough said that "this might not be a short term thing. Even after the rebate program has ended, we should have a good customer base and I would think we would be looking at importing batts on a long-term basis", to which Mr Walters says he agreed that this was "definitely on the cards". Mr Scarborough denies this conversation.

Mr Walters says these was further discussion of the trade name for the batts and that he said to Mr Scarborough (and to which Mr Scarborough agreed) that Aussie Batts would fit in nicely with the proposed name of Aussie Insulations for the company. Mr Scarborough agrees that the name Aussie Batts was raised by Mr Walters but denies that the name Aussie Insulations was raised either at that meeting or in any discussion in May 2009. He also accepts that Mr Walters raised the issue of forming a company at a coffee shop meeting (which he placed as being in mid May) in general terms but denies the conversation as to the proposed trade name fitting nicely with the proposed company name ([90]). (Mr Scarborough was adamant in the witness box that had he been asked about the company name as actually registered, i.e. complete with the asterix at beginning and end, he would have rejected its use - for reasons that seemed to me quite logical, namely that it was inviting trouble with the use of a name so similar to one already registered. He nevertheless admitted that he had agreed Aussie Insulations was a good name but said he did not think it worth continuing with it after the trade mark was rejected (T 180.50). He also agreed that he had suggested using AAA and Aussie Batts together (T 181).)

On 1 May 2009 there appears to have been a discussion on Skype as to registration of a business name as opposed to a company (at least insofar as sense can be made of the incomplete portion of the conversation appearing at the top of CB 133: "would be cleaner and solve problems with registering of each state under department of fair trading, if doing a 'trading as' registration"), although it is not clear by whom that comment was made.

Clearly, there was contemplation at that time by Mr Scarborough as to the prospect of setting up a company, although he maintains that this was only for the purposes of protection of the trade mark (the logic of which was not explained). Mr Sneddon notes that during the course of that chain of communications on 1 May 2009, Mr Scarborough (at 4:33:44pm) said "re company - can a new company set up under say Heaven & Earth obtain any financial benefit from the so called "mother" company?" (Mr Bell, Counsel for Mr Scarborough, submits that this is the first mention of a company in Skype). Mr Scarborough agrees that he talked with Mr Walters about a company to be set up under Heaven & Earth (T 176.23) in order, he says, to obtain some financial benefit from tax losses but denies he was foreshadowing the incorporation of a new company to import or sell the batts (T 179). Mr Scarborough says (T 176.30) that Mr Walters had told him that there were a substantial amount of carried forward tax losses under Heaven & Earth and had said that if Mr Scarborough wanted, and there was a way to do so, he could set a company up under the umbrella of Heaven & Earth and use those carried forward tax losses. (The content of the discussion in Skype is consistent with this).

There was also discussion on Skype at this stage as to the "commission on sales structure", Mr Walters suggesting that Mr Scarborough "may want to think about an upwards sliding scale", which he suggested would mean that "hopefully we will keep a loyal customer" (my emphasis). This exchange is of interest for two reasons. First, it is consistent with Mr Walters' understanding that there was a joint business operation in contemplation and, secondly, because (like other communications) it seems that Mr Walters deferred to Mr Scarborough's opinion in relation to business decisions - that being perhaps more consistent with a recognition by Mr Walters that it was Mr Scarborough's business operation in which he was to have some involvement than with a jointly run operation.

Also on 1 May 2009, Mr Walters discussed on Skype the preparation of a design for "Aussie Batt's font along with tm [presumably, trade mark]" to which Mr Scarborough did not demur. By 4 May 2009, however, Mr Walters had discovered that was not available. He also confirmed that the samples were to be sent that coming week. Later on 4 May (at 7:04:38pm) Mr Walters revisited the position in relation to the trade mark and conveyed advice in relation to the possibility of applying for it in one continuous word and then using in 2 words.

Financial contributions

In Mr Walters' second affidavit affirmed 24 March 2011 (but, significantly in my view, not contained in his earlier affidavit) Mr Walters (responding to Mr Scarborough's affidavit para [48]) deposes that in a conversation at Bondi in early May 2009 Mr Scarborough, after having said that they were going to have to put some money in to "get this going" said:

I was thinking we could both contribute $20,000 each and that would allow us to make an initial order of 4 containers. We can also do as other importers are doing and that is pre sale batts to customers with a 25% - 50% deposit been paid upfront, with balance paid as soon as the containers hit Sydney Harbour, that way the whole thing will be financed.

In oral evidence in chief (at T 31) Mr Walters says that he said he would put his contribution in first so that this would free up Mr Scarborough's cash flow to enable him to buy locally manufactured batts and continue with the business of home insulation. At T 34, he then says that during the coffee shop meeting in May [query March] 2009 when the $20,000 was discussed, it was said that Mr Scarborough could use his $20,000 for the final 50% payment to Mr Peng after 6 weeks (although it is not clear where the timing for that was drawn at that stage).

Again in his later affidavit but not referred to in his first), Mr Walters refers to a conversation at Bondi in or about the second week of May 2009 in the course of which he says that Mr Scarborough said:

You have already paid for the testing of the batts and other matters. We can call that part of your contribution and then with profits received from orders for batts bought by AAA Trade Power we can use that money to help finance further containers.

(In the witness box, Mr Scarborough's position was that in relation to subsequent container loads, what he was proposing was to use either the money received from the government's early bird programme that he had saved or money from his installation business or deposits from customers, an explanation consistent with the financing concept attributed to him by Mr Walters above.)

Warehouse site

Communications about a possible warehouse site had taken place from around the end of April (CB 131A) and on 5 May 2009, Mr Walters reported as to some warehouse space in the short term (CB 134A). On 6 May 2009 at 2:46:40, Mr Walters reported that he had reviewed that site, which was not suitable but that "some thing similar can work for us on a temporary basis". Later that evening, Mr Scarborough commented on the warehouse issue and commented that "If however, we got big, fast, then we will have neighbourly problems for sure" (CB 135).

Further communications re trademark/company set up

At 9:42:32pm on 6 May 2009, Mr Scarborough sent a message to Mr Walters on Skype saying "I am happy to start the trademark application if you are. However, I think we need to set up a company first to override the registered business name people. What do you think?". It seems to me that this is clear evidence of an intention on Mr Scarborough's part at that stage to proceed in a venture involving a corporate entity in which both were to be involved (even if only in relation to the trade mark) (CB 135A). Otherwise, I ask rhetorically, why seek Mr Walters' confirmation that he was happy to start the trade mark application? Further, although not expressly in conflict with what was said in Mr Scarborough's 13 May 2010 affidavit (for the purposes of discovery) as to the company "Aussie Insulations" (namely that he had no recollection of ever having agreed to form the company referred to as Aussie Insulations and believes that he had not said anything that could be construed as having agreed to do so; and that he had not recollection of ever having given his consent to becoming a director of that company (para [25]), it is clear that in this exchange he was contemplating the setting up of a company.

Mr Walters then acknowledged Mr Scarborough's earlier query in relation to Heaven & Earth, responding by saying that "regarding heaven and earth with any potential positives concerning using their tax losses and will let you asap, and then u can decide which way you want to go" (9:47:24pm, 6 May 2009). (I interpose to note that this seems to suggest a separate business there being contemplated by Mr Walters.) Mr Scarborough's response to that (on which some weight is placed by Mr Sneddon) seems to be at 9:59:31 "The way I want to go is the way that the experts suggest is the best way for you and I to pull ourselves completely out of the shit and set us up for our retirement....". While I accept that this could be read as referring to ways in which each might individually escape his financial woes and set himself up for retirement, the comment does read to me as being a reference to a joint (so-called retirement) plan of some kind. Mr Scarborough nevertheless suggests that the business opportunity he envisaged for Mr Walters was, in effect, that he be able to earn commission on sales (this being the opportunity he said he offered to Mr Walters at around the time that Heaven and Earth was placed in liquidation (to which I refer later).

May 2009 communications

Mr Walters deposes in his affidavit (at [40]) to a meeting on 12 May 2009 at a Coogee coffee shop in which he says that Mr Scarborough suggested that the sale price of the batts would be $42-$45 for large container orders and smaller orders around $28, with which Mr Walters says he agreed and that on his calculations that would make a profit of between $18 and $24 per bag. The Skype communications corroborate a meeting arranged in Coogee for that day but there is nothing to indicate what was discussed at that meeting.

On 14 May 2009, at 10:52:29pm, Mr Walters concluded a Skype conversation about various matters with the following "catch u tomorrow have to discuss business name set up/trademark, etc etc etc". Again, there is nothing to indicate the content of that discussion (assuming it took place).

On 15 May 2009, at 9:06:21pm, Mr Scarborough conveyed his calculations as to the price per container landed "in our warehouse" (by reference to a missing part of the Skype records) and asked for bank details so that he could transfer funds for both samples (by reference, it would seem, to a missing part of the Skype records).

On 17 May 2009, Mr Scarborough sent a message on Skype to Mr Walters asking him to arrange a second sample from Mr Peng (CB 138A), following discussion between the two as to the import of a further announcement in relation to the ceiling installation rebate scheme. On 18 May 2009, there was discussion between the two as to the testing of samples, in which Mr Scarborough directed Mr Walters as to how he should communicate with Mr Peng:

So it's a case of emailing Rosen back and letting him know that ... and 2. that unless we can get a product to fit within the law we can go no further with his company ...

Mr Walters deposes (at [44]) that on 19 May 2009, he had a meeting with Mr Scarborough at a coffee shop in Coogee at which he says Mr Scarborough said "The costing of the batts look really good, and if we can get moving quickly on this, there will be a lot of money being made by both of us" and "Don't forget that even if I take a lot of the batts for myself, you will under our agreement still be getting $8.00 a bag". This is another conversation denied by Mr Scarborough (though there is reference in the Skype exchanges on 19 May 2009 (CB 139) at 7:42:14pm to a meeting at 8pm at Mr Walters' place, at least providing corroboration of a meeting on that occasion though not at Coogee). Further, later that evening, Mr Scarborough (after advising Mr Walters of the booked and confirmed jobs "from the new marketing boy Steve") concluded at 11:14:22pm "Enjoy calculating the profit" - a statement that can only be interpreted as a recognition that Mr Walters would have a share in the profit realised from those booked and confirmed jobs (and since Mr Walters was not involved in the installation side of things, this must surely amount to an acknowledgement that he was to obtain a profit from the sale of the ceiling batts to be used in these jobs - it cannot be easily read as a reference to commission profit on yet to be booked sales) (CB 139A).

View of profit

Was the common enterprise one with a view of profit? Certainly, each of the men was looking for business opportunities from which to make profits for himself (and, on Mr Scarborough's account of events, he felt sorry for Mr Walters in the financial position he was in and saw this as a way to assist Mr Walters to make some money). As noted earlier, an agreement to share profits and losses is seen as being generally of the essence of a partnership contract. Lindley & Banks notes Lord Lindley's explanation for this:

Whatever difference of opinion there may be as to other matters, persons engaged in any trade, business, or adventure upon the terms of sharing the profit and losses arising therefrom, are necessarily to some extent partners in that trade, business or adventure.

Thus it is said that, subject to exceptional cases, persons who agree to share profits and losses will normally find themselves treated as partners ( Lindley & Banks at [5-25]). Here, there is little to suggest how the parties contemplated that any losses were to be borne (nor as to how the costs were to be allocated in order to permit the calculation of profit - a matter of no little import when it is appreciated that what Mr Walters is seeking is a substantial sum of money representing what he contends was an agreement payment of $8, or half the anticipated profit, per bag in respect of the subsequent container loads imported but without any liability for the costs of the purchase and importation of those batts).

There were discussions on Skype from which it may be inferred that the parties assumed there would be a joint sharing of profit in some fashion though the mechanics of this (and how it was to be calculated) were not precisely outlined. (Insofar as Mr Walters relies on the agreement he says was reached in the 12/15 March conversations as to the 50/50 profit split and Mr Scarborough relies on the June conversation in which he says agreement was reached as to the payment of a commission per bag, I treat both parties' accounts of oral conversations with some caution unless corroborated in the contemporaneous written communications between the parties.)

Mr Walters asserts that each of the men had agreed to contribute $20,000 as his "share" or his initial contribution to the costs of importing the batts, and some support for that may be derived from the fact that Mr Scarborough did not later challenge the underlying assumption on which Mr Walters made reference to this in the Skype communications. That said, insofar as Mr Walters seemed (albeit confused in his evidence on this issue) to accept that in August 2009 he was seeking reimbursement of this amount, then that is inconsistent with it being some form of capital contribution to a partnership or joint venture and is more consistent with it being a loan or advance to assist Mr Scarborough. Mr Scarborough accepted that some of the costs were to be shared (namely, the cost of the initial trip to China suggested by him in relation to the sourcing of the product) but again suggests that this was assistance from Mr Walters on the basis of their friendship.

Where, as here, there is a clear conflict between the parties as to whether there was a partnership or joint venture and, if so, on what terms, regard needs to be paid to what in fact happened. There is no dispute that a payment was made (if not personally by Mr Walters then through his company, First Art) of the initial deposit for the purchase of the first order of batts. Although Mr Scarborough accepted that he was responsible for payment of the balance of the purchase price, that would be consistent with either side's version of events. That said, Mr Scarborough did not correct Mr Walters when the latter referred in Skype communications to the $20,000 as his contribution nor did he cavil with the suggestion that this represented a half share of the costs when Mr Walters offered to provide funds for the final payment in respect of that first order.

At least at the outset there was no bank account set up for the purpose of any business partnership (and, perhaps significantly, it was not until around the time of the subsequent container orders that Mr Walters seems to have seen this as necessary or desirable). Nevertheless, there were discussions as to the steps to be taken as to the application for a trade mark and for the setting up of a company in which it seems to have been intended that Mr Walters would be involved.

The request for invoices to be put into the name of AAA Trade Power is another matter that might be consistent with either version of events - it is not surprising that Mr Scarborough took objection to the invoices being in the name of Heaven & Earth at least once that company was subject to external administration but such a concern would equally be indicative of his understanding that the orders were being placed for his business purposes alone (and for that purpose he would presumably need to have the invoices in the correct business name for tax or other reasons).

By around June 2009, the discussions between the two were clearly proceeding on the basis that there was a profit to be made by each out of the importation and sale or use of the batts (though such a profit seems to have been contemplated as arising for each in respect of his individual business) and at least by July/August Mr Walters had in mind what arrangements might need to be made for the financing of the later orders.

Policy of joint venture

As to the policy of the joint venture, this factor focuses attention on how the parties' affairs (said to be the subject of the joint venture or partnership) are to be determined - who it is that makes the decisions as to what is done in the context of that association. (So, for example, it is said in Lindley & Banks at [15-01] that it is inherent in the contract of partnership that each partner will have the right to participate in the management and administration of the partnership, thus is might be thought that if one party has no involvement in the making of decisions then this is not consistent with a partnership. Nevertheless, a right to participate in management can be modified by agreement (see s 24(1)(5) of the Act) and it is by no means unusual for there to be partnerships in which different partners have different responsibilities.)

Insofar as a right to direct or control the policy of the common enterprise may be a relevant factor to take into account in determining whether there is a partnership, it seems from the Skype communications that at least at the outset Mr Walters deferred to Mr Scarborough for decisions in relation to the sourcing of the batts (consistent with Mr Scarborough's view that all Mr Walters was doing was giving him assistance at a time when Mr Walters may not have been fully employed). Nevertheless, as time went on the Skype communications also show instances where Mr Scarborough sought Mr Walters' opinion on various issues. Hence, I think little can be drawn from the evidence in relation to this factor.

Property

As to the indicator that there be discernible partnership "property", there is little doubt that what the two men were involved in was the importation of ceiling batts and hence there is something clearly identifiable as partnership property. While it is not clear is whether it was the common intention of the parties that the batts so acquired were to be joint property, the fact that both contributed the funds for the purchase of the first 4 container loads seems to me to warrant the conclusion that those batts were batts in which both Mr Scarborough and Mr Walters had an interest (and hence that could be regarded as capable of forming partnership property).

Conclusion as to issue (i)

At the outset I note that even on Mr Walters' version of events, any partnership or joint venture seems to have been one between he and Mr Scarborough, not one to which the then yet to be incorporated company (*Aussie Insulations*) was not a party (even though the proposed venture may have been intended to be carried out through a corporate vehicle such as that company).

As to whether there came into existence a partnership between Mr Scarborough and Mr Walters (or a joint venture, using that term as a description of the effect of their relationship and not suggesting that it has any technical legal meaning) in March 2009, as contended for by Mr Walters, I have concluded that there did not.

I note that in UDC v Brian , Mason, Brennan and Deane JJ said (at 10):

The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred. (my emphasis)

So, for example, in IEL v Lyons (where there was a joint venture), the question was whether that was such as would amount in law to a partnership, whatever name the parties may have put on that relationship. Cohen J noted that the phrase "joint venture" (which the parties there had adopted) did not establish any particular form of relationship. In both UDC and IEL v Lyons it was recognised that there may be a joint venture which does not constitute a partnership (as is also recognised in the extract from Lindley & Banks cited earlier).

As at March/April 2009 and even later, Mr Scarborough and Mr Walters were clearly discussing (both on Skype and in their coffee shop meetings, though I do not accept the accuracy of the respective accounts of the latter) arrangements for a joint venture (in the sense of an activity in which they would be mutually engaged) in relation to the importation of ceiling batts but I am not satisfied that these discussions had resulted in a partnership (i.e. a joint commercial enterprise "with a view of profit" in the sense that the parties were to share the profits and losses of the enterprise, whether equally or otherwise) or joint venture analogous to a partnership of the kind alleged (i.e. for the joint importation and joint sale of the batts so imported).

The initial discussions (insofar as they may have contemplated that Mr Walters would have an opportunity to make money from the sale of the imported batts) seemed to proceed on the basis that Mr Scarborough was to be in a position to use the batts for his own business and that any sale of the batts to third parties would be a separate matter. Hence any joint enterprise at that stage seems to have been one in which the pair were jointly involved in importation but would make any profit from the sale or use of the batts separately in the context of their respective business operations.

As the discussions continued, and the excitement at the business opportunity presented by the importation of the batts became more palpable, discussion took place as to the proposed mechanics for what seems to have been envisaged as a jointly owned vehicle through which the batts might be sold (and as to the mechanism by which intellectual property in the packaging of the batts could be protected by way of trade mark). However, I am not satisfied that those discussions ever reached a concluded agreement as to the arrangements such that a conclusion could be drawn that a partnership or joint venture had come into existence.

(ii) If there was a partnership or joint venture for the importation and sale of batts, what were its terms?

In light of the finding in (i) above, this issue does not arise. However, if it had (such that at least by around the time that the first (or subsequent) order(s) of batts were placed, there was a mutual understanding or arrangement that the parties would work together for the importation and then sale of the batts through a joint vehicle of some kind, so as to give rise (contrary to the conclusion I have reached) to a partnership or joint venture at that stage (which I note is not the one in the terms pleaded by the plaintiffs)), then it seems to me that it is clear that any such arrangement was one under the terms of it was recognised that there was also to be a sharing of the capital required for the joint venture (and I would infer in the absence of anything to the contrary that the capital contribution, and costs of the venture, would be shared equally). This seems recognised by Mr Walters' concerns as to how finance could be arranged for the funding of the subsequent purchase orders. Secondly, I would have found that under such an arrangement Mr Scarborough was to have the ability to make use of some or all of the batts (subject to any third party orders for which deposits had been accepted) for his own business (albeit, on Mr Walters' version of events, on the basis that he would pay an amount per bag so used). The significance of the last proposition is that it could not be said that the fact that Mr Scarborough (after the breakdown in the relationship) had used some of the batts in the conduct of the AAA Trade Power business amounted to breach of any fiduciary obligations arising out of any such joint venture.

In other words, even if a partnership or joint venture had been established, I would not have found that it was on the terms pleaded by the plaintiffs (though nor would I have found it as limited as the agreement asserted by Mr Scarborough). Further, I would not have found that Mr Scarborough was in breach of any fiduciary obligation not to take for his own benefit a profit made available through the importation of the batts (since it was contemplated at the outset of the arrangements that he could do so). The only issue in that event would be a claim for any monetary amount payable by Mr Scarborough under the terms of the arrangement for so doing.

I also note that if (as I consider is the case) there was no partnership and at most there was merely an unincorporated joint venture between the parties (in the sense of an undertaking in which they were mutually engaged), it is by no means the case that a fiduciary duty would flow therefrom. In UDC, Mason, Brennan and Deane JJ said (at 11-12):

The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken . If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship: see, generally, Birtchnell v. Equity Trustees, Executors & Agency Co. Ltd (1929) 42 CLR 384 at pp. 407-409.)

In the present case, the arrangements between Mr Scarborough and Mr Walters seem to me to go no further than to amount to informal arrangements under which each considered there was an opportunity to make a business profit for himself. I do not see the relationship between them as one of such trust and confidence as to import fiduciary obligations on either of them in relation to their dealings with the overseas suppliers or otherwise. Even had such an obligation arisen (so as to preclude one from taking for himself a benefit intended to be enjoyed jointly), that would at most seem to have precluded Mr Scarborough from taking the benefit of the warehouse lease in the name of AAA Trade Power alone (it would not have precluded him from making use of the batts in the course of the AAA Trade Power installation business) and since the lease in question was a short term lease it is hard to see what damage would have been sustained from the diversion of that opportunity (on a Keech v Sandford (1726) 25 ER 223 type claim).

As to the exclusion of Mr Walters from dealing with the importation and sale of the batts from 29 August 2009, even assuming that I had been satisfied that there was a partnership or analogous joint venture, in the absence of a term specifying the manner in which that arrangement could be brought to an end, it seems to me that such a relationship must have been terminable at will (at least on the provision of reasonable notice). Given that one of the fundamental aspects of a partnership relationship is the subsistence of mutual trust (see Birtchnell ), the fact that this had clearly gone (at least on the part of Mr Scarborough) by 29 August 2009 means that it would surely have been open to him to bring any such partnership or joint venture to an end at that point. I do not see Mr Walters having any claim for damages or for equitable compensation as a result of the relationship having been brought to an end in those circumstances (and irrespective of whether or not the suspicions on Mr Scarborough's part or his criticisms of Mr Walters' moods or conduct were warranted) provided only that Mr Scarborough was by then genuinely of the view that the parties could no longer work together (as I accept he was).

Leaving aside any claims arising out of the alleged breaches of fiduciary obligations (which must fail for the reason that I am not satisfied that there were fiduciary obligations owed by Mr Scarborough or, if there were, that they have been breached by reason of his conduct in terminating Mr Walters' involvement in relation to the importation of the batts and using the batts for his own business purposes), where does that leave the parties? No claim was made based on the failure of what might be seen as the joint enterprise or undertaking in which the parties were involved (of the kind of claim considered in Muschinski v Dodds ).

In Baumgartner v Baumgartner, Mason CJ, Wilson and Deane JJ referred to the result reached by Deane J in Muschinski as an application of the general equitable principle which restores to a party contributions which he or she has made to a joint venture which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them referring to what Deane J said (at [620]) namely that a constructive trust may arise when an assertion of a legal right would be unconscionable:

Those circumstances can be more precisely defined by saying that 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 specifically provided that that other party would so enjoy it. The content of the principle is that, in such a case, equity will not permit the other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable to do so ....

It has been recognised that these principles may in an appropriate case be applied in a commercial context. Thus, in Liquor National Wholesale Pty Limited v Redrock Co Pty Limited [2007] NSWSC 392 at [42], Brereton J (recognising that the principle explained by Deane J in Muschinski has potential application in commercial joint ventures) expressed the principle at [42] that "where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, equity will intervene where it is unconscionable to draw a line leaving assets and liabilities to be owned and borne according to where they may, prima facie, lie, to the intent that the parties recover what they have contributed to the failed joint venture".

Caution has, however, been advocated in imposing a proprietary remedy of this kind, not least because of the priority it gives the beneficiary over unsecured creditors (see Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59; (1998) 195 CLR 566 at [585]) and in such circumstances it is incumbent to consider whether there is an appropriate equitable remedy falling short of the imposition of a trust ( Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [113]).

It seems to me that the present case might well have fallen within the concept of a joint relationship or endeavour (which has failed without attributable blame), in which expenditure is shared for the common benefit (though that benefit was to be independently acquired in the parties' separate businesses) so as to give rise to the question whether it would be unconscionable for one party (Mr Scarborough) to retain the benefit of the other (Mr Walters)'s contributions.

Had such a question arisen, I would have been inclined to the view that, in relation to the first 4 container loads (to the purchase of which Mr Walters contributed around $15,000 and costs in relation to which were borne by Mr Walters bringing his monetary contribution to around $20,000), it would be unconscionable for Mr Scarborough to retain the profits from the sale of those containers without accounting to Mr Walters for the contribution he had made to their acquisition (though that would have to take into account the sum of around $10,000 the benefit of which has already been made available to Mr Walters). That would result in a payment to Mr Walters of not more than around $10,000 on the evidence before me. There would be no unconscionability in the retention of profits referable to the subsequent container loads to the acquisition of which Mr Walters made no monetary contribution at all. Therefore, any such claim would have resulted in only a nominal amount (if at all) in favour of Mr Walters. In any event, the plaintiffs' claim was not put on this basis and I have not heard submissions on this issue. Hence it is inappropriate to make any findings in this regard.

For completeness, I should note that had I found the arrangements between Mr Scarborough and Mr Walters to have constituted a partnership or analogous joint venture, by reference to the Skype discussions and the actions taken by the parties from March through to August 2009, I would not have found that the terms of that arrangement entitled Mr Walters to a notional half profit share (or to $8 per bag) for those batts which are unsold and remain in storage. Further, I would have held that Mr Walters had an obligation to account for half of the costs incurred in the importation, storage and sale of the batts, when determining any profit share to which he was entitled under those partnership arrangements. The suggestion that Mr Walters should be paid a substantial sum of money for unsold batts to the acquisition of which he did not contribute any funds (based on the assertion that Mr Scarborough has, by excluding Mr Walters from the alleged partnership, taken those batts for himself) is not a suggestion which I consider has any merit.

Orders

Having regard to the above findings, it seems to me that the appropriate orders are to dismiss the proceedings with costs. I will hear submissions from Counsel in that regard.

**********

Decision last updated: 15 November 2011

Medium Neutral Citation:	Walters v Scarborough [2011] NSWSC 1380
Hearing dates:	8-11 August, 24 October 2011
Decision date:	15 November 2011
Jurisdiction:	Equity Division
Before:	Ward J
Decision:	Alleged partnership/joint venture not established. Declaratory relief refused. Plaintiffs' claim dismissed.
Catchwords:	PARTNERSHIP - JOINT VENTURE - whether the parties engaged in partnership or joint venture for the importation and sale of insulation ceiling batts - whether breach of fiduciary obligations on unilateral termination of any such agreement - questions of liability only to be determined in preliminary hearing - HELD - no partnership or joint venture for the importation and sale of batts established - no breach of fiduciary obligations
Legislation Cited:	Evidence Act 1995 (NSW) Partnership Act 1982 (NSW)
Cases Cited:	Adam v Newbigging & Townend (1888) 13 App Cas 308 Agricultural and Rural Finance v Gardiner [2008] HCA 57; (2008) 251 ALR 322 Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1995) 37 NSWLR 405 Sargant v ASL Developments Ltd; Turnbull v ASL Developments Ltd (1974) 131 CLR 634 Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59; (1998) 195 CLR 566 Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 Birtchnell v Equity Trustees, Executors & Agency Co. Ltd (1929) 42 CLR 384 Brostoff v Clark Kenneth Leventhal (March 11,1996, Dyson J) Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) (1974) 131 CLR 321 Commonwealth v Verwayen [1990] HCA 39; (1990) 95 ALR 321 Davies v Newman (2000) W.L.1841655 Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd (1996) S.L.T 186 Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 Industrial Equity Ltd v Lyons (NSWSC unreported, Cohen J, 15 October 1991) Jones v Dunkel (1959) 101 CLR 298 Keech v Sandford (1726) 25 ER 223 Liquor National Wholesale Pty Limited v Redrock Co Pty Limited [2007] NSWSC 392 Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 Sargent v ASL Developments Ltd; Turnball v ASL Developments Ltd (1974) 131 CLR 634 United Dominion Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 Weiner v Harris [1910] 1 KB 285
Texts Cited:	Handley, Estoppel by Conduct and Election Lindley & Banks On Partnership (18th edn)
Category:	Principal judgment
Parties:	Paul Walters (First Plaintiff) Aussie Insulations Pty Ltd (Second Plaintiff) Kent Paul Scarborough (Defendant)
Representation:	Counsel M W Sneddon with A Ahmad (Plaintiffs) S Bell (Defendant) Solicitors Lee Hourigan & Brooks (Plaintiffs) Terrett Lawyers (Defendant)
File Number(s):	09/291363