WILLIAMS v Nicoski
[2003] WASC 131 (S)
WILLIAMS -v- NICOSKI & ANOR [2003] WASC 131 (S)
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2003] WASC 131 (S) | |
| Case No: | CIV:1404/1999 | 1, 4-8 NOVEMBER 2002 & 8 JULY 2003 | |
| Coram: | BARKER J | 8/07/03 | |
| 10/07/03 | |||
| 14 | Judgment Part: | 1 of 1 | |
| Result: | Final orders for winding up and taking of accounts of partnership and in respect of limited agency agreement | ||
| A | |||
| PDF Version |
| Parties: | TROY WILLIAMS GEORGETTE NICOSKI NUTRIMETICS INTERNATIONAL (AUSTRALIA) PTY LTD |
Catchwords: | Partnership Final orders in partnership and contract actions Whether s 34(5) of The Partnership Act 1895 (WA) prevents the award of an allowance for work and skill |
Legislation: | The Partnership Act 1895 (WA), s 34(5) |
Case References: | Airey v Borham (1861) 29 Beav 620; 54 ER 768 Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
DECISION : 10 JULY 2003 FILE NO/S : CIV 1404 of 1999 BETWEEN : TROY WILLIAMS
- Plaintiff
AND
GEORGETTE NICOSKI
First Defendant
NUTRIMETICS INTERNATIONAL (AUSTRALIA) PTY LTD
Second Defendant
Catchwords:
Partnership - Final orders in partnership and contract actions - Whether s 34(5) of The Partnership Act 1895 (WA) prevents the award of an allowance for work and skill
Legislation:
The Partnership Act 1895 (WA), s 34(5)
(Page 2)
Result:
Final orders for winding up and taking of accounts of partnership and in respect of limited agency agreement
Category: A
Representation:
Counsel:
Plaintiff : Mr T B Lyons (8 July 2002)
First Defendant : Mr C L Zelestis QC & Mr P C Blackman
(8 July 2003)
Second Defendant : Mr C L Zelestis QC & Mr P C Blackman
(8 July 2003)
Solicitors:
Plaintiff : Gibson Lyons
First Defendant : Tottle Partners
Second Defendant : Tottle Partners
Case(s) referred to in judgment(s):
Airey v Borham (1861) 29 Beav 620; 54 ER 768
Case(s) also cited:
Nil
(Page 3)
- BARKER J:
Introduction
1 On 8 July 2003, I published my reasons for decision in these proceedings.
2 I then indicated that for the reasons which I had published, I would find for the plaintiff in the partnership action against the first defendant, but would dismiss the plaintiff's action for damages or equitable compensation against the second defendant, save in respect of the making of a declaration that on 2 April 1997, the plaintiff and the second defendant concluded a limited agency agreement in the form of the 1997 limited agency agreement attached to the reasons.
3 I further indicated that I would hear from the parties as to why declarations and orders should not be made in accordance with the draft orders attached to the reasons for decision.
4 I then received written submissions from the parties, as well as supplementary oral submissions, concerning the terms of the final orders that should be made.
Draft Order 6
5 As to draft order 6, concerning the taking of accounts in the partnership action, the first defendant submits that the account should only be in respect of the period from 22 December 1997. This submission is made on the basis that the plaintiff had made it clear, both in its pleadings and in the way counsel put his case, that an account was only denied by the first defendant in respect of the period following the ending of the personal relationship of the parties on 22 December 1997.
6 I accept the submission made on behalf of the first defendant. Paragraph 9 of the statement of claim against the first defendant expressly pleads that the first defendant "has failed to account to the Partnership for the income of the Business earned in and from December 1997." Further, in par 3 of the prayer for relief, the plaintiff claims against the first defendant an inquiry into "income, moneys and benefits received and enjoyed solely by the first defendant" which were due to the partnership, as well as an order that the first defendant "account to the Partnership for such income, moneys and benefits."
7 So far as the terms of draft order 6 are concerned, the first defendant also submits that there should only be a single accounting of income and
(Page 4)
- expenses from 22 December 1997. I also accept this submission. The practical position was, especially following 1 April 1997, that the parties operated a single consultancy, whether or not it may strictly be said that commissions and benefits were thereafter received pursuant to one or other of the 1988 limited agency agreement and the 1997 limited agency agreement. Accordingly, there should be an amendment to order 6, expressly providing that the accounting be performed as a single accounting exercise.
8 The first defendant further submits that she alone paid all income tax assessed and payable in respect of the business income during the accounting period and that order 6 should be amended specifically to provide that all income tax paid by her in respect of business income for which there is to be an account, should be treated as a business expense. I consider that, in all the circumstances, the first defendant should be restored to the position, as nearly as possible, that she would have been in had the partnership agreement been met.
9 But for the making of these orders, the first defendant would have been liable for income tax on the taxable income of the business during the accounting period. If the parties had accounted for tax purposes as a partnership, each would have paid income tax on his and her equal share of that taxable income. To the extent that the first defendant has paid income tax on the profits she must now account for, and is unable to obtain a refund of any portion thereof I consider that sum may be considered a business expense and treated so by the Master.
10 The first defendant further submits that, because the Court has found that the first defendant should account for benefits received from the second defendant, "including by way of cars, gifts and trips" (see reasons par [343](g)), it is necessary to distinguish in the final orders between "benefits" which were applied towards earning business income and "benefits" which were purely for personal enjoyment. It is said, by way of example, the benefit of the use of a motor vehicle in respect of which the second defendant paid the leasing fees should not result in any accounting where that benefit was applied in activities directed towards the earning of business income. The position is said to be similar in relation to trips which involved training. Thus, it is submitted that draft order 6 should be amended to provide that, in relation to benefits, only those benefits enjoyed exclusively by the first defendant personally and which were not applied or related to the conduct of the business and the earning of income, should be brought to account.
11 I consider that, in the course of the accounting, the extent to which a benefit has involved the personal enrichment of the first defendant and not
(Page 5)
- been used wholly in the business of the partnership and the earning of business income, should be the subject of inquiry and account. The Master who conducts the taking of the account and the making of this inquiry will necessarily need to bear in mind this distinction. Thus, I think it is appropriate to make it clear in the final orders that the account should only be in respect of those "benefits" which were not wholly applied in the running of the business and the earning of income. The extent of each benefit that is the subject of the accounting will, therefore, need to be assessed by the Master.
Draft Order 7
12 At trial Senior Counsel for the first defendant submitted that the first defendant would be entitled to such an allowance if the Court were to find a partnership and order an account. The plaintiff did not directly address this submission, but in light of the terms of the draft order now seeks to do so.
13 In my reasons for decision published on 8 July 2003, I found that on the taking of the account the first defendant is entitled to an allowance for work and skill. I also suggested that it should be a liberal allowance. The plaintiff questions the extent to which an allowance can be ordered in a partnership action having regard to the terms of s 34 of ThePartnership Act 1895.
14 Section 34(5) of the Act provides that, subject to agreement to the contrary, "every partner may take part in the management of the partnership business, and shall attend diligently to the partnership business, and shall not be entitled to any remuneration for acting in the partnership business."
15 This rule recognises the rule that applied before the Act came into operation. As stated, it applies subject to agreement between partners to the contrary. It also has exceptions which applied both before and after the Act came into operation.
16 In this respect, as noted in Lindley and Banks on Partnership (supra) at [20-46] and [20-47], both prior to and after the enactment of the Partnership Act 1890 (Eng) Lord Lindley accepted there are exceptions to the general rule that a partner in the absence of agreement is not entitled to remuneration for services rendered to the firm. One exception noted is where one partner is in breach of his duty to attend to the partnership business.
(Page 6)
17 In Airey v Borham (1861) 29 Beav 620; 54 ER 768, two partners had agreed to devote their whole time to the partnership business, but later quarrelled, with the result that one of them was left to carry the business on alone. The partnership was ultimately dissolved and an inquiry was directed in order to ascertain what allowance ought to be made to him for so doing. The learned editor of Lindley and Banks observes of this decision that in his opinion "such a claim is still maintainable in an appropriate case".
18 It is also plain that the general rule concerning remuneration does not apply in the case of services rendered by a partner in carrying on a partnership's business following a dissolution: see Lindley and Banks (supra) at [20-48] and [20-49].
19 In this case, as I have accepted in the reasons, the first defendant was largely responsible for the profits of the partnership prior to the ending of the partners' personal relationship on 22 December 1997 (see par [440]). After 22 December 1997 and until 19 April 1999 when the partnership was dissolved, she was solely responsible for the business of the partnership.
20 The evidence shows that the business of the partnership is best performed by an enterprising woman. However, she can be assisted by an able man working in partnership with her. On the evidence the successful partnerships operating this type of business have been "husband and wife" teams.
21 Once the personal relationship of the plaintiff and the first defendant ended in the manner that it did on 22 December 1997 - in acrimonious circumstances - there was virtually no likelihood that the partners could operate the business together. In theory perhaps they could have, but in practice it was most unlikely that they could do so.
22 While it may be accurate to observe the plaintiff was denied his entitlement to participate in the business after 22 December 1997 because of the view the first defendant took of the plaintiff's claim to a partnership, in practical terms once the personal relationship died so did the ability of the plaintiff to attend diligently to the partnership business in accordance with the duty expressed in s 34(5). Put another way, in practical terms, once the personal relationship of the partners ended the only way the business could turn a profit was through the continued endeavours of the first defendant. If she had not been prepared to work the business there would not have been a profit.
(Page 7)
23 Thus in my view, after 22 December 1997, the first defendant was effectively required to operate the business of the partnership as a sole proprietor, whereas previously it had been operated by the plaintiff and the first defendant together. In these usual circumstances, I consider, and considered in my reasons, that the first defendant is entitled to an allowance for the additional work and skill she was obliged to do and exercise in the business as a result of the breakdown of her personal relationship with the plaintiff.
24 It is now for the Master in taking the account to make an assessment of what allowance should be made in this regard. This should not involve a detailed inquiry. The plaintiff has already given evidence concerning the nature and extent of his contribution to the business, as has the first defendant in respect of her contribution. I have accepted in my reasons that the first defendant's contribution was by far the greatest and most significant to the success and profitability of the business. This finding will need to be taken into account when the Master assesses an appropriate allowance.
25 It follows that the award of an allowance is not to be treated by the first defendant as a means of obtaining remuneration for all the time and expense incurred by her in earning the profits of the partnership in the accounting period. It is but a recognition in equity of the additional work and skill she has she has been required to apply in earning the profits of the business during the accounting period. Possibly it may not be a great sum, but that is for the Master to assess.
26 In these circumstances, I consider the award of such an allowance to the first defendant to be open at equity and on the proper construction of s 34(5) of the Act. Accordingly, the provision of such an allowance may be made in conformity with s 6 of the Act.
Costs
27 In respect of costs, the plaintiff and the first defendant agree that costs of the action between the plaintiff and the first defendant should be reserved until the winding-up and taking of accounts in the partnership action have been completed. I accordingly accept that an order in those terms should be made.
28 So far as the action between the plaintiff and the second defendant is concerned, the plaintiff says that the ordinary rule that costs should follow the event should not be applied in this case and, indeed, that either the first defendant or second defendant should be responsible for those costs.
(Page 8)
29 The plaintiff says that the involvement of the second defendant in the proceedings only commenced when the writ was amended in late 1999. In those amended proceedings, the plaintiff alleged in the statement of claim against the second defendant that the 1997 limited agency agreement was concluded in or about April 1997. That allegation was subsequently denied by the second defendant in its defence.
30 The plaintiff says that all other issues in the proceedings against the second defendant "flowed from that denial". It is submitted on behalf of the plaintiff that the second defendant could have admitted the relationship between the parties "and all else could possibly have fallen away". The plaintiff, thus, submits that it was necessary and reasonable for the plaintiff to continue in the manner in which it did against the second defendant.
31 Alternatively, the plaintiff submits that, if the plaintiff is to be held responsible for the costs of the second defendant, the circumstances here are such that a Bullock order should be made, so that the plaintiff should be entitled to recover from the first defendant his costs of the action to be taxed, including the costs incurred against the second defendant. This submission is made, as I understand it, on the basis that it was necessary for the plaintiff in the action against the first defendant to join the second defendant as a proper party to the proceedings in order to have an order made that bound the second defendant and the first defendant in respect of the 1997 limited agency agreement.
32 While the latter proposition is true to an extent, it is also true, as Senior Counsel for the second defendant and the first defendant submits, that the plaintiff's action against the second defendant was never, at any material time, confined to an action for a declaration concerning the 1997 limited agency agreement, but was for a large damages claim for breach of contract, and a claim for equitable compensation in respect of breach of fiduciary duty.
33 I accept the submissions made on behalf of the defendants that it is not appropriate to accede to the plaintiff's submissions concerning costs in the action against the second defendant. The second defendant has successfully defended the plaintiff's substantive action against it and it is entitled to its costs.
34 Because the plaintiff's action against the second defendant goes well beyond that for a declaration, a Bullock order against the first defendant is not appropriate.
(Page 9)
35 However, I accept that, depending upon if and how the costs of the action between the plaintiff and the first defendant are ordered and taxed, it may become appropriate to make orders establishing the basis of taxation of the costs that the plaintiff should pay in respect of his action against the second defendant. The order for costs should make such provision.
Conclusion
36 In those circumstances, I now make final orders in terms of the document entitled "Final Orders" attached to these supplementary reasons. Judgment should be entered in accordance with the terms of these Final Orders.
(Page 10)
IN THE SUPREME COURT OF WESTERN AUSTRALIA
B E T W E E N
TROY WILLIAMS Plaintiff
and
GEORGETTE NICOSKI First Defendant
NUTRIMETICS INTERNATIONAL (AUSTRALIA) PTY LTD Second Defendant
Final Orders
Date of Document: 10 July 2003
(Page 11)
THE COURT:
- 1. declares that the plaintiff and the first defendant were partners in the business of selling products supplied by Nutrimetics to members of the public, recruiting other persons to sell Nutrimetics' products and supervising those persons as and from 5 February 1997 (the partnership) and were entitled to the capital and profits of the business;
2. declares that the partnership was dissolved as and from 19 April 1999;
3. declares that the plaintiff and the first defendant, as independent agents, concluded a limited agency agreement with the second defendant (Nutrimetics) as of 2 April 1997 and that such agreement was in the form and on the terms of the Nutrimetics Form No 90454 '"Limited Agency Agreement" attached to these orders and marked "1997 LAA" (the 1997 limited agency agreement);
4. declares that the 1997 limited agency agreement is partnership property;
5. declares that the assets of the Nutrimetics business operated by the first defendant before she concluded the partnership with the plaintiff, including a limited agency agreement between the first defendant and Nutrimetics in 1988 in the form and on the terms of the Nutrimetics Form No 90610 "Limited Agency Agreement" attached to these orders and marked "1988 LAA" (the 1988 limited agency agreement), are not partnership property;
6. orders that the following accounts or inquiries be taken by a Master of the Court:
(a) an account of all receipts and payments, dealings and transactions of the plaintiff and the first defendant under the 1988 limited agency agreement in respect of the partnership business from 22 December 1997 until 19 April 1999;
(b) an account of all receipts and payments, dealings and transactions of the plaintiff and the first defendant under the 1997 limited agency agreement in respect of the partnership business from 22 December 1997;
(c) an account of all the debts and liabilities of the partnership;
(Page 12)
- (d) an account of all credits or payments that may become payable under the 1997 limited agency agreement;
(e) an inquiry as to what has become of any property of the partnership business;
(f) for the purposes of pars (a) and (b) of this order, the accounts be taken as a single account, whether the receipts and payments or the dealings and transactions of the plaintiff and the first defendant occurred under the 1988 limited agency agreement or under the 1997 limited agency agreement in respect of the partnership business;
(g) in the taking of the account for the purposes of this order, to the extent that the first defendant has paid income tax on the profits the subject of the account, and is unable to obtain any refund of any portion thereof, such income tax shall be considered a business expense;
(h) in the taking of the account for the purpose of this order, where the first defendant has received a benefit or remuneration under the 1988 limited agency agreement or the 1997 limited agency agreement that does not comprise commissions paid as money, such benefit or remuneration, or proportion thereof, that was applied in the running of the business and the earning of income, as assessed by the Master, shall not be brought to account.
7. orders that, in taking the accounts and inquiries directed above, the first defendant to be at liberty to submit any claim as to just allowances which she may be advised ought to be made to them on account of her services in managing, transacting and carrying on the business alone between 22 December 1997 and 19 April 1999 and such allowances, if any, as shall appear to be proper in respect therefor are to be made accordingly;
8. orders that the business of the partnership carried on pursuant to the 1997 limited agency agreement by the plaintiff and the first defendant (with the goodwill, the 1997 limited agency agreement and any effects) be sold as a going concern by private treaty, subject to the written permission of Nutrimetics to the sale of the plaintiff and the first defendant's status under the 1997 limited agency agreement as independent agents for Nutrimetics under the 1997 limited agency agreement;
(Page 13)
- 9. orders that the plaintiff and the first defendant be at liberty to bid for and become the purchaser at the sale of the said business as a going concern;
10. orders that the conduct of the sale of the said business be committed to the solicitors for the first defendant, notwithstanding that both the plaintiff and the first defendant have been given liberty to apply;
11. orders that the money to arise by the sale of the said business as a going concern be lodged in the Court to the credit of this action "Proceeds of Sale of Partnership Assets", subject to further order by a Master;
12. orders that, in the event that Nutrimetics does not consent to the sale of the 1997 limited agency agreement as provided aforesaid, or that the said business of the partnership is not or cannot be sold as a going concern, such other saleable property and effects as are found to belong to the partnership upon the taking of the account and inquiry (apart from the 1997 limited agency agreement), be sold by the solicitors for the first defendant, and the money to arise from such sale of such property and effects be lodged in the Court to the credit of this action "Proceeds of Sale of Property and Effects", subject to further order of the Master;
13. The Master, following satisfaction of these orders and payment of any just debts and making provision for any just liabilities of the partnership that the Master may think necessary, do pay out any balance of moneys to the plaintiff and the first defendant;
14. The plaintiff's action against the first defendant otherwise be dismissed.
15. The costs of the action between the plaintiff and the first defendant be reserved until the winding-up and taking of the accounts of the partnership has been effected in accordance with the above orders.
16. The plaintiff's action against the second defendant otherwise be dismissed.
17. The plaintiff do pay the costs of the second defendant to be taxed, subject however to further orders as to the basis of such taxation.
18. The parties be at liberty to apply.
(Page 14)
- 19. In relation to orders 14 and 16 there be a certificate for second counsel and an allowance for transcript.
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