Williams v Nicoski
[2003] WASC 131
•8 JULY 2003
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: WILLIAMS -v- NICOSKI & ANOR [2003] WASC 131
CORAM: BARKER J
HEARD: 1, 4-8 NOVEMBER 2002
DELIVERED : 8 JULY 2003
FILE NO/S: CIV 1404 of 1999
BETWEEN: TROY WILLIAMS
Plaintiff
AND
GEORGETTE NICOSKI
First DefendantNUTRIMETICS INTERNATIONAL (AUSTRALIA) PTY LTD
Second Defendant
Catchwords:
Partnership - Whether plaintiff and first defendant entered into a partnership at will - Whether property of partnership (if formed) included business operated or rights enjoyed by first defendant under a limited agency agreement made by first defendant with second defendant prior to the formation of partnership - Whether plaintiff and first defendant jointly made a limited agency agreement with second defendant after alleged formation of partnership - Whether property of partnership (if formed) included business operated or rights enjoyed by plaintiff and first defendant jointly under a limited agency agreement with second defendant (if made) - Whether partnership (if formed) was determined or dissolved - Whether partnership at will may be determined or dissolved otherwise than by agreement between the partners or "notice in writing" pursuant to s 37(1) or s 43(c) of The Partnership Act 1895 (WA) - Whether, if no agreement between partners, and notice in writing to determine or dissolve partnership at will is required, such notice in writing must be an "express" notice - Whether letters written by first defendant's solicitors in the course of an exchange of "without prejudice" correspondence with plaintiff's solicitors are admissible in evidence to prove giving of notice in writing of intention to determine or dissolve partnership - Whether, if letters of plaintiff's solicitors are admissible in evidence, such letters gave notice of the intention of first defendant to determine or dissolve partnership at will - Whether, if partnership was not determined or dissolved by letters of first defendant's solicitors (if admissible in evidence), partnership was determined or dissolved by commencement of partnership action by plaintiff in any event - Whether open to the Court, in the circumstances of the case, to decree dissolution of partnership at will under s 46(g) of The Partnership Act on ground that it is "just and equitable" to do so - Whether, if partnership found to exist or to have existed, plaintiff entitled to usual orders for winding up, taking of accounts and sale of goodwill of partnership business - Whether, if partnership to be wound up, first defendant entitled on taking of accounts to an allowance for work and skill
Contract - Action for damages for breach of contract - Whether, if partnership was formed, first defendant breached partnership agreement by excluding plaintiff from management of business - Whether, if first defendant breached partnership agreement by excluding plaintiff from management of business, plaintiff has proved pleaded loss or damage
Contract - Action for damages for breach of contract - Whether plaintiff and first defendant jointly made a limited agency agreement with second defendant - Whether second defendant breached a limited agency agreement with plaintiff and first defendant jointly (if made) by paying commissions and other benefits due under the agreement to first defendant alone and not to plaintiff and first defendant jointly - Whether, if breach of agreement is established, plaintiff has proved pleaded loss or damage
Equity - Action for equitable compensation - Whether second defendant, in the alleged performance of a limited agency agreement with plaintiff and first defendant (if made), owed plaintiff a fiduciary duty not to pay to first defendant alone commissions and other benefits due under the agreement to plaintiff and first defendant jointly
Legislation:
Partnership Act 1890 (Eng), s 26, s 32, s 35
The Partnership Act 1895 (WA), s 6, s 7(1), s 8(3), s 30(1), s 34(1), s 34(5), s 35(1), s 35(2), s 36, s 37, s 40, s 43, s 46(d), s 46(g), s 50, s 51
Result:
Plaintiff's action against first defendant successful in part
Plaintiff's action against second defendant dismissed
Category: A
Representation:
Counsel:
Plaintiff: Mr I A Morison
First Defendant : Mr C L Zelestis QC & Mr M D Howard
Second Defendant : Mr C L Zelestis QC & Mr M D Howard
Solicitors:
Plaintiff: Gibson Lyons
First Defendant : Tottle Christensen
Second Defendant : Tottle Christensen
Case(s) referred to in judgment(s):
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Barnes v Addy (1874) LR 9 Ch App 244
Boardman v Phipps [1967] 2 AC 46
Bruce v Tyley (1916) 21 CLR 277
Cassels v Stewart (1881) 6 App Cas 64
Clay v Clay (2001) 202 CLR 410
Cohen v Cohen (1929) 42 CLR 91
Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423
Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460
Doe v Miles 4 Camp 373
Federal Commissioner of Taxation v Murry (1998) 193 CLR 605
Field v Commissioner for Railways (NSW) (1957) 99 CLR 285
Friend v Young [1897] 2 Ch 421
Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32
Harrington v Lowe (1996) 190 CLR 311
Harvey v Harvey (1970) 120 CLR 529
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
In re C Flower MP & Metropolitan Board of Works (1884) 27 Ch D 592
Kelly v Kelly (1990) 64 ALJR 234
Kurtz and Co v Spence and Sons (1887) 58 LT 438
LAC Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108
Lyon v Tweddell (1881) 17 Ch D 529
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1
Matson v Dennis (1864) 4 De GJ & Sm 345
McIntyre v Gye (1994) 51 FCR 472
Miles v Clark [1953] 1 WLR 537
Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351
Moore v Smith (1851) 14 Beav 393
Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014
O'Brien v Komesaroff (1982) 150 CLR 310
Pearce v Lindsay (1860) 3 De GJ & Sm 139
Permanent Building Society (In Liq) v Wheeler (1992) 10 WAR 109
Phillips v Melville [1921] NZLR 571
Piddocke v Burt [1894] 1 Ch 343
Powell v Brodhurst [1901] 2 Ch 160
Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370
Skinner and Co v Shew and Co [1893] 1 Ch 413
Steeds v Steeds (1889) 22 QBD 537
Syers v Syers (1876) 1 App Cas 174
Taylor v Smith [1926] VLR 100
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414
Toogood v Farrell [1988] 2 EGLR 233
Unilever plc v Proctor and Gamble Co [1999] 1 WLR 1630
Unsworth v Jordan [1896] WN 2(5)
Village/Nine Network Restaurants and Bars Pty Ltd v Mercantile Mutual Custodians Pty Ltd v [2001] 1 Qd R 276
Walters v Bingham [1988] 1 FTLR 260
Case(s) also cited:
Anderson v Densley (1953) 90 CLR 460
Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (No 2) [1991] 2 VR 636
Australian Liquor, Hospitality and Miscellaneous Workers Union v Liquorland (Aust) Pty Ltd [2002] FCA 528
Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384
Chan v Zacharia (1984) 154 CLR 178
Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435
Elliott v Seymour [1999] FCA 976
Fatimi Pty Ltd v Bryant [2002] NSWSC 750
Foster v Commissioner of Stamps [1966] WAR 144
Heath v Samson 14 Beav 441
Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173
Lonrho Plc v Fayed [1992] 1 AC 448
Mackie Pty Ltd v Dalziell Medical Practice Pty Ltd [1989] 2 Qd R 87
McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409
McKernan v Fraser (1931) 46 CLR 343
R v Associated Northern Collieries (1911) 14 CLR 387
Trade Practices Commission v Allied Mills Industries Pty Ltd (1980) 32 ALR 570
Trego v Hunt [1896] AC 7
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1
Wedderburn v Wedderburn (No 4) (1856) 22 Beav 84
BARKER J:
TABLE OF CONTENTS
INTRODUCTION
OUTLINE OF CASE PUT BY MR WILLIAMS AGAINST MS NICOSKI
OUTLINE OF CASE PUT BY MR WILLIAMS AGAINST NUTRIMETICS
THE PARTNERSHIP ACTION
The Partnership Act 1895 (WA)
Two critical issues in the partnership action
Factors to be borne in mind in determining whether a partnership was formed
The events leading up to January 1997
The events of January 1997
The events of February 1997
The events of March 1997
The events of 1 April 1997
The events between April 1997 and 22 December 1997
The end of Mr Williams' and Ms Nicoski's relationship
Conclusion as to question whether there was a partnership
The terms of the partnership
Was the partnership terminated and if so when?
Consequences of termination of the partnership
MR WILLIAMS' CONTRACT CLAIM AGAINST MS NICOSKI
MR WILLIAMS' CONTRACT CLAIM AGAINST NUTRIMETICS
MR WILLIAMS' FIDUCIARY CLAIM AGAINST NUTRIMETICS
ORDERS IN PARTNERSHIP ACTION
ORDER IN ACTION AGAINST NUTRIMETICS
DRAFT ORDERS
1988 LAA
1997 LAA
INTRODUCTION
In August 1996, the plaintiff (Mr Williams) and the first defendant (Ms Nicoski) began living together, as man and wife. On 4 March 1997, they were engaged to be married. On 22 December 1997 they parted and their engagement came to an end.
Central to this action is a claim by Mr Williams that, in the course of their personal relationship as partners, he and Ms Nicoski also entered into a business partnership to carry on a Nutrimetics consultancy that Ms Nicoski had been operating since 1988 pursuant to a limited agency agreement with the second defendant (Nutrimetics). The consultancy was engaged in the business of the sale of "Nutrimetics" health and beauty products, principally to women. Ms Nicoski denies any such business partnership was ever formed.
OUTLINE OF CASE PUT BY MR WILLIAMS AGAINST MS NICOSKI
Put shortly, Mr Williams says he and Ms Nicoski are partners in a Nutrimetics consultancy that Ms Nicoski had begun operating in 1988 under the terms of a limited agency agreement she made with Nutrimetics during that year. He says that the partnership was created by an agreement made orally between him and Ms Nicoski in February 1997 and is evidenced in writing by a limited agency agreement with Nutrimetics that he and Ms Nicoski signed on 1 April 1997, as well as by a letter addressed to Nutrimetics that Ms Nicoski and he also signed on 1 April 1997. He says the partnership is one terminable at will and not constituted by deed, and that it has never been determined or dissolved. He now seeks a decree of the Court under The Partnership 1895 (WA) dissolving the partnership on the basis that it is "just and equitable" to do so.
Mr Williams not only seeks a decree dissolving such partnership and related orders for the winding‑up of the partnership, and the taking of accounts, but also seeks an order for the sale of partnership assets. In that regard, Mr Williams claims that, in respect of the period from February 1997 to 1 April 1997, the partnership assets included the rights of Ms Nicoski under her 1988 limited agency agreement with Nutrimetics; and that, in respect of the period since 1 April 1997, they include his and Ms Nicoski's rights under the limited agency agreement he alleges was made with Nutrimetics in 1997. In the event the Court finds that the 1997 agreement was not made as he alleges, Mr Williams claims that the partnership assets include the rights of Ms Nicoski under her 1988 limited agency agreement.
Ms Nicoski denies that she ever agreed to enter into partnership with Mr Williams in respect of her Nutrimetics consultancy. She denies that she agreed to take Mr Williams in as a partner in early February 1997 in respect of the existing business that she had operated under the limited agency agreement she had made with Nutrimetics in 1988. She also denies that she and Mr Williams signed a limited agency agreement on 1 April 1997.
To the extent that there was any agreement between her and Mr Williams concerning the conduct of her Nutrimetics consultancy, Ms Nicoski says it was an arrangement not intended to have any legal effect and was purely personal in nature.
Ms Nicoski also says that, if a partnership were formed in 1997, it did not include as one of its assets the business she had been operating since 1988, and indeed did not have any assets.
Mr Williams also claims that, since 22 December 1997, when his personal relationship with Ms Nicoski finally ended, he has been excluded from management of the partnership business, contrary to his entitlement under the agreement and ThePartnership Act1895. He claims damages for breach of that term.
Ms Nicoski denies she has excluded Mr Williams from management of the business on the basis that there never has been a partnership. She denies that Mr Williams is entitled to damages for any such breach, in any event.
Ms Nicoski says that, if the Court should find that there was a partnership at any material time between her and Mr Williams, then it was terminated at law, at the latest by 22 January 1998; and there is no occasion for the making of orders for the winding‑up and taking of accounts of the partnership or for the sale of the goodwill of the business.
OUTLINE OF CASE PUT BY MR WILLIAMS AGAINST NUTRIMETICS
Mr Williams also claims that he and Ms Nicoski concluded a limited agency agreement with Nutrimetics on or about 1 April 1997, which agreement has been breached by Nutrimetics in that, ever since he and Ms Nicoski parted, Nutrimetics has paid commissions and provided other benefits arising thereunder directly to Ms Nicoski, and not to him and Ms Nicoski jointly, as required under the agreement.
Mr Williams also claims that Nutrimetics repudiated the agreement.
In the alternative, Mr Williams claims that, at all material times, Nutrimetics owed him a fiduciary duty under that agreement not to pay commissions and other benefits to Ms Nicoski alone, which duty has been breached.
In consequence of these alleged breaches, Mr Williams claims respectively damages and equitable compensation.
Nutrimetics denies that it made a limited agency agreement with the plaintiff and first defendant on or about 1 April 1997.
It also says that, if there were such an agreement, it has not been obliged to pay commissions or provide benefits to Mr Williams under it since the personal relationship of Ms Nicoski and Mr Williams ended in December 1997. It says this is because the term of the agreement pleaded by Mr Williams, namely, that commissions and other benefits would be paid and provided on the provision of joint services by Ms Nicoski and Mr Williams, has not been satisfied by them jointly.
Nutrimetics also denies that it owed any fiduciary obligations to Mr Williams at any material time.
It denies Mr Williams has suffered any pleaded loss, in any event.
THE PARTNERSHIP ACTION
The Partnership Act 1895 (WA)
At the heart of a relationship that bespeaks a business partnership of the type here in dispute is the requirement that the persons concerned carry on business with a view of profit. Indeed, s 7(1) of ThePartnership Act expressly provides:
"(1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit."
By s 6 of the Act, the rules of equity and common law applicable to partnership continue in force in relation to a partnership, except so far as they are "inconsistent with the express provisions of this Act". In this the Act, like similar Acts elsewhere in Australia and New Zealand, follows the model of the Partnership Act 1890 (Eng) drafted by Lord Lindley, often called "Lord Lindley's Act".
In deciding whether or not a partnership does or does not exist in any particular case, The Partnership Act 1895, by s 7(2), directs that:
"(2)… the Court shall have regard to the true contract and intention of the partners as appearing from the whole facts of the case."
The Act, in s 8, sets out some rules which must be regarded in determining whether a partnership does or does not exist. For example, there is the rule expressed in s 8(3) that:
"(3)The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent upon or varying with the profits of a business, does not of itself make him a partner in the business; … "
Section 8(3) then particularises a number of circumstances which do not, of themselves, make a person a partner in a business.
The Act also makes specific provision in respect of partnership property. Section 30(1), for example, provides:
"(1)All property and rights and interests in property originally brought into the partnership stock, or acquired, whether by purchase or otherwise, on account of the firm or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement."
This provision does not, however, assist in determining what property and rights and interests in property were originally brought in and this must be determined by reference to the facts of each case.
It should also be noted that the word "property" as used in s 30(1) is not defined in the Act and so would, according to usual interpretation, include personal and real property; that is to say, "things" and land, amongst other forms of property, as well as "assets" more generally described: "Lindley and Banks on Partnership", 18th ed, 2002, London, Sweet & Maxwell, Ch 18, [18 ‑ 01] ‑ [18 ‑ 23].
The Act also lays down rules governing the interests and duties of partners. For example, rr (1) and (5) of s 34, subject to any agreement between partners to the contrary, provide:
"(1)All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm.
…
(5)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."
No majority of partners can expel a partner unless a power to do so has been conferred by written agreement between the partners: s 35(1). Where such power is conferred, it may be exercised only in good faith with a view to the benefit of the firm and the partner whom it is sought to expel must have an opportunity of being heard: s 35(2). Of course, in a partnership of two, there is no majority capable of expelling a partner and so the question of dissolution of a partnership arises.
By s 36 of the Act, provision is made for the retirement of a partner where the partnership has been entered into for a fixed term.
Section 37 of the Act makes provision, according to the heading to the section, for "retirement from partnership at will" in the following terms:
"(1)Where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice in writing of his intention so to do to all the other partners.
(2)Where the partnership has originally been constituted by a deed, a notice in writing, signed by the partner giving it, shall be sufficient for this purpose."
The Act, by s 43, makes express provision for dissolution of a partnership by expiration of notice:
"Subject to any agreement between the partners, a partnership is dissolved ¾
(a)if entered into for a fixed term, by the expiration of that term;
(b)if entered into for a single adventure or undertaking, by the termination of that adventure or undertaking;
(c)if entered into for an undefined time, by any partner giving notice in writing to the other or others of his intention to dissolve the partnership.
In the last mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is so mentioned, as from the date of the communication of the notice."
While the heading to s 37 suggests the provision relates to "retirements" only and not to dissolution of a partnership, the preferred view is that s 37 and s 43(c) cover the same ground: see "Lindley and Banks on Partnership" (supra) [9‑02] ‑ [9‑03] in respect of the similar provisions of Lord Lindley's Act. .
It will be noticed that both s 37(1) and s 43(c) refer to the giving of notice "in writing". Such notice appears to be additional to that of the common law and does not appear in the equivalent provisions of Lord Lindley's Act or in those of other Australian States. The significance and consequences of this difference are considered further below.
The Court also has the power to decree a dissolution of a partnership. A number of specified circumstances are set out in s 46, including (d) and (g):
"On application by a partner the Court may decree a dissolution of the partnership in any of the following cases: ¾
….
(d)When a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him.
…
(g)Whenever in any case whatever circumstances have arisen which, in the opinion of the Court, render it just and equitable that the partnership be dissolved."
As to what follows the dissolution of a partnership, s 50 of the Act expressly provides that:
"On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively, after deducting what may be due from them as partners to the firm; and for that purpose any partner or his representatives may, on the termination of the partnership, apply to the Court to wind up the business and affairs of the firm."
Section 51 of the Act further provides that:
"On the dissolution of a partnership every partner shall be entitled, as the absence of any agreement to the contrary, to have the goodwill of the business sold for the common benefit of all the partners."
Section 40 of the Act should also be noted. It provides that the partners must account for all benefits derived. Section 40(1) expressly provides that:
"(1)Every partner must account to the firm for any benefit derived by him, without the consent of the other partners, from any transaction concerning the partnership, or from any use by him of the partnership, property, name, or business connection."
Two critical issues in the partnership action
The partnership alleged by Mr Williams in par 2 of the statement of claim is one that is said to arise by virtue of a partnership agreement made between him and Ms Nicoski in January and February 1997, to carry on the business that Ms Nicoski had been operating for some time prior thereto, of selling products supplied by Nutrimetics to members of the public, recruiting other persons to sell Nutrimetics products and supervising these persons, in an equal partnership (the Nutrimetics consultancy).
By the expression "in an equal partnership", I understand the plaintiff to claim that after taking account of proper expenses in operating such a business the plaintiff and the first defendant are entitled to share the net income of the business and other benefits accruing to the partnership in equal shares, as provided for by s 34 rule (1) of the Act.
Mr Williams says that the partnership he alleges is evidenced by a letter of request addressed to Nutrimetics that he and Ms Nicoski signed on 1 April 1997, as well as by a limited agency agreement with Nutrimetics that he and Ms Nicoski also signed on 1 April 1997.
In par 5A of the statement of claim, Mr Williams pleads out the items of "property" that he says constitute partnership property.
In par 5B of the statement of claim Mr Williams pleads that, when he and Ms Nicoski entered into the partnership agreement he alleges, they agreed, either expressly or impliedly, that the Nutrimetics business that Ms Nicoski had been operating prior to that time would be partnership property.
As of January 1997, Ms Nicoski operated a Nutrimetics consultancy pursuant to a limited agency agreement concluded with Nutrimetics and had been doing so since 1988. While neither she nor Nutrimetics are now able to produce a copy of that limited agency agreement, it is common ground that the 1988 limited agency agreement was in the form and terms of Form No 90610 commonly used by Nutrimetics in 1988 (a copy of which form is attached to these reasons and marked "1988 LAA").
By the 1988 limited agency agreement, a "Consultant" is appointed by Nutrimetics as "an independent agent to take (but not accept) orders from customers for the products of Nutri‑Metics". (In this form and in other documents of the second defendant admitted into evidence, the company is described as "Nutri‑Metics". However, because in the title to this action it is styled "Nutrimetics", without the hyphen and uppercase "M", I will so describe it unless quoting documents where the other spelling is used.) By cl A2, a consultant is permitted, but under no obligation, to seek and take from customers purchase orders for products distributed by Nutrimetics at the retail prices referred to in the agreement. If such orders are accepted by Nutrimetics, and the purchase price paid for, Nutrimetics will "allow to Consultant the commissions set forth in the Nutri‑Metics Profit Recognition Plan ('The Plan') as amended from time to time."
By cl A3, the consultant may engage such other persons to perform the services as "he" shall from time to time think fit provided that in selecting such persons "he" shall ensure that they are of character and appearance which will not cause the reputation of Nutrimetics to suffer.
By cl A4, the consultant is entitled to terminate the agreement at any time by written notification to Nutrimetics.
By cl B1 of the 1988 limited agency agreement, the consultant is entitled to seek and obtain, and submit to Nutrimetics, any such purchase orders for the products at the retail price as established by Nutrimetics as quoted on the Retail Price List as revised from time to time, which orders are subject to acceptance by Nutrimetics. This clause expressly provides that, "The Consultant is not authorised to accept any orders on behalf of Nutri‑Metics".
By cl B3, the consultant agrees that "he" will place with Nutrimetics at least one order per month to retain his "active status as a Consultant" and that this agreement "shall terminate automatically upon the expiration of 6 consecutive months during which no orders are placed".
Clause B5 provides that Nutrimetics may, at its option, terminate the agreement for any action by the consultant which, in Nutrimetics' opinion, is contrary to its best interests by delivering or mailing written notice of termination to the consultant.
The 1988 limited agency agreement does not, in terms, prohibit or restrict the assignment, sale or transfer of the consultant's "status" or rights and interests under the agreement to any other person.
Counsel for Ms Nicoski, who are also counsel for Nutrimetics, contend that the 1988 limited agency agreement is not assignable because it is personal to the consultant. Counsel further submit that a purported assignment by a consultant would entitle Nutrimetics to terminate the agency under cl B5.
It is not immediately obvious that Nutrimetics' power of termination under cl B5 would be activated by the act of a consultant assigning his or her rights under the agreement. If there is a power to assign, it may be done lawfully; if there is not, it may not be done. Whether the consultant with whom the agreement was made or a person to whom the agreement is assigned has acted in a manner contrary to the best interests of Nutrimetics would be another issue. The question remains whether there is a power to assign the 1988 limited agency agreement.
There is ample authority for the proposition that a contractual right to personal service is a personal right of an employer and is incapable of being transferred to anyone else. Similarly, it is accepted that rules of law restricting the assignability of contracts are by no means limited to contracts of personal service. In the case of contracts for the sale of goods, for example, (unless the contract expressly or by implication covers the purchaser and his assigns) the seller is entitled to rely on the credit of the purchaser and to refuse to recognise any substitute: see, generally, Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1018 ‑ 1019.
This principle has been applied in a number of cases where the contract in question involves an element of personal skill or an element of personal confidence to which, for the purposes of the contract, a stranger cannot make any pretensions: Tolhurst v Associated Portland Cement Manufacturers(1900) Ltd [1903] AC 414 at 417. Thus, in Bruce v Tyley (1916) 21 CLR 277, it was held that a tender to the military authorities made after the beginning of the First World War for the collection and removal of kitchen refuse from a military camp was not assignable: see Barton J at 284 and Isaacs J at 288.
It is, in my view, far from clear that an agreement such as the 1988 limited agency agreement between a consultant and Nutrimetics so depends on the elements of personal skill and personal confidence that the contract is unassignable. Indeed, it is quite clear that cl A3 of that agreement permits the performance of a consultant's services by other persons, albeit persons who "are of a character and appearance which will not cause the reputation" of Nutrimetics to suffer. The selection of such "persons" appears to be in the sole discretion of the consultant, although a poor choice may possibly entitle Nutrimetics to consider whether the action of the consultant in so doing is contrary to its best interests and so activate the power of termination in cl B5.
But in principle, the fact that the contract provides for the right of a consultant effectively to delegate his or her performance of services to other persons is a reason for suggesting that it is not a contract that must necessarily be performed by the consultant only. Therefore, I incline to the view that there is no general principle of law which would prevent a consultant assigning his or her rights under the 1988 limited agency agreement.
The form and terms of the limited agency agreement commonly utilised by Nutrimetics in its dealings with "Consultants" in 1997, however, are quite different from the form and terms of the 1988 agreement. The form and terms of the 1997 agreement commonly used by Nutrimetics are set out in Form No 90454 (a copy of which is attached to these reasons and marked "1997 LAA").
On its face, there are at least two significant differences in the terms of the 1997 limited agency agreement when compared with the 1988 limited agency agreement. First, by cl 1(f), the agreement provides, in respect of a consultant, that his or her status as an agent for Nutrimetics "is a personal one and I cannot sell or transfer it in any way without prior permission from Nutri‑Metics".
Secondly, by cl 2(a), the consultant agrees that his or her "orders on Nutri‑Metics will be accompanied by a payment for the Recommended Retail Price less the instant Bonus shown in the current Plan".
The 1997 limited agency agreement specifically refers to "the Plan" in cl 4(a), and the consultant acknowledges that "I have read the Plan and agree to be bound by its provisions. I acknowledge that I will be bound by the Company policies issued from time to time and that they will form part of my agreement with Nutri‑Metics." The Plan is also referred to in cl 5(c). But otherwise the Plan is not defined.
It is not in contest that, in 1997, the Plan constituted the "International Business Plan" of Nutrimetics, and that under it there were various status levels which, in ascending order, went from "Associate Consultant" to "Presidential Ambassador". The status levels of "Consultant", "Sales Leader", "Executive Sales Leader" and "Presidential Director" are some of those in between. Under the Plan, promotion from one status level to another is achieved when a certain number of the consultant's downlines - that is to say, other consultants (of whatever status level) introduced by a consultant - achieved certain levels within the Plan. Mr Rodney James Sullivan, the chief financial officer of Nutrimetics since 6 July 1998, gave evidence concerning the operation of the Plan and the financial benefits and incentives that it offers consultants.
It may also be noticed that, by cl 3(c) of the 1997 limited agency agreement, the consultant agrees that he or she may:
" … sell on my own as a 'natural person' or as a partnership. If I wish to form or dissolve a partnership after becoming an agent I must first obtain the written permission of Nutrimetics."
There is no such provision in the 1988 limited agency agreement.
The evidence of Ms Pat Lyons, who worked for Nutrimetics in its Perth office in April 1997 (and whose evidence is referred to further below) discloses that the general practice of Nutrimetics in 1997 was to require a consultant to obtain the written permission of Nutrimetics to change from a sole agency to a partnership, and to require the members of the partnership to sign a current limited agency agreement at the time of so doing.
Thus, the 1997 limited agency agreement expressly deals with the question of assignment of the agreement by a sole consultant, including by the bringing‑in of another person as a partner, something not expressly dealt with by the 1988 limited agency agreement.
The 1997 limited agency agreement expressly provides a consultant with the right to terminate the agency at any time in writing addressed to the head office of the company effective on receipt by the company.
Nutrimetics also has the power under the 1997 limited agency agreement to terminate the consultant's status as an agent if the consultant has taken "any action which in the opinion of Nutrimetics has been contrary to its best interests".
In this case, Mr Williams not only says he and Ms Nicoski agreed to operate her 1988 business in partnership, and share the profits therefrom, but also says they agreed that her rights under the 1988 limited agency agreement (or, put another way, that business) would become an asset of their partnership; in effect, that she agreed to assign to him a half interest in her 1988 limited agency agreement.
Thus, two critical issues arise in the partnership action between Mr Williams and Ms Nicoski:
(1)Did Ms Nicoski and Mr Williams enter into a partnership?
(2)If there were a partnership, did it include, as a partnership asset, the rights under Ms Nicoski's 1988 limited agency agreement?
Factors to be borne in mind in determining whether a partnership was formed
In determining whether there is or was a partnership agreement between Mr Williams and Ms Nicoski, and if so the terms of it are or were, it is necessary to consider what, if anything, the parties expressly agreed, orally or in writing, and, in the event there is no whole express agreement, the whole facts of the case from which an agreement might be inferred: Harvey v Harvey (1970) 120 CLR 529 per Walsh J at 562.
That the parties were involved in a personal relationship at material times and, indeed, on 4 March 1997, engaged to be married, is a factor to be borne in mind when assessing the relevant evidence, as suggested by what McHugh JA states in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 336G. Depending on the circumstances, intending spouses may not have intended to enter into legal relations in respect of a disputed transaction: Cohen v Cohen (1929) 42 CLR 91
However, the fact that persons maintain a personal relationship does not of itself discount the possibility of them having entered into a business partnership. On the one hand, a person in a close personal relationship with another, holding his or her own hopes and expectations, may misconstrue the statements and conduct of the other concerning the extent to which their personal relationship was to be extended as a business relationship. On the other hand, because of their close personal relationship, they may be prepared also to assume a business relationship in circumstances where others, not so personally involved, would not so readily do.
Thus, the injunction of s 7(2) of ThePartnership Act is that, in deciding whether a partnership does or does not exist in a particular case, the Court "shall have regard to the true contract and intention of the parties as appearing from the whole facts of the case".
The events leading up to January 1997
Mr Williams commenced in a position as a senior buyer with the Aherns department store in Perth in July 1991. He had previously graduated with a bachelor's degree in marketing from the South Australian Institute of Technology in 1985, following which he had commenced work in retail merchandising with Grace Brothers in Sydney. He remained with Grace Brothers until he took up the opportunity with Aherns. He remained with Aherns, serving in a number of positions, until he resigned his position on 5 February 1997.
Mr Williams had gained some familiarity with the nature of the Nutrimetics business prior to his making the acquaintance of Ms Nicoski in June 1996. He first attended a Nutrimetics hostess workshop held for his then wife in about 1990 at the Nutrimetics head office in Balmain, Sydney, New South Wales. In 1991, his mother, Ms Vinchey, was working as a customer service officer at the Nutrimetics State office in Victoria Park, Perth, Western Australia. In the five years prior to Mr Williams taking up the Aherns position, he made frequent social visits to Perth to see his mother and visited her at the Nutrimetics Perth office. In the course of so doing, he became friendly with the Nutrimetics centre manager in Perth, Ms Pat Lyon, as well as staff at the Perth office, including Ms Teresa Smith. He accompanied his mother to the Nutrimetics staff Christmas party held in Perth in December 1995.
Mr Williams says that in mid‑1996, Ms Lyon asked him if he would be interested in applying to be the Nutrimetics State Manager for South Australia. He says he declined the offer as he wished to stay in Perth. Given Mr Williams' retail background and his apparent growing familiarity with the nature of the Nutrimetics business, the making of such an approach might not be considered unlikely and his evidence was not contradicted.
In early June 1996, Mr Williams met Ms Nicoski during one of his visits to Nutrimetics' State office in Perth. He also met her mother and another Nutrimetics consultant, Mrs Peggy Lombardi, both of whom were well‑established Nutrimetics consultants and who were attending a Nutrimetics meeting.
Mr Williams and Ms Nicoski thereafter became socially acquainted and learned something of each other's personal and work histories. Mr Williams discovered that Ms Nicoski, like himself, had previously been married. He also learned that since 1991 she had been putting all her efforts into promoting a Nutrimetics consultancy she had established in Queensland and Western Australia. He learned from Ms Nicoski that Ms Nicoski's mother had established a successful Nutrimetics agency in Perth. As a result of her mother's experience, Ms Nicoski had joined Nutrimetics in about 1988 as a means of earning some income and was a "downline" consultant of her mother. She had then signed an agency agreement with Nutrimetics.
Mr Williams seems to have been impressed by what he learned about Nutrimetics, especially as to the income‑earning potential of a successful Nutrimetics consultancy. Ms Nicoski told him that her mother was reputed to be earning over $30,000 per month and had travelled the world attending the annual Nutrimetics international seminar, received a prestige new vehicle every three years, and with her husband had won the Nutrimetics "King and Queen of Seminar" title the previous year to their meeting, and had just qualified for the Nutrimetics property investment or "Home Award" of $120,000 cash.
In August 1996, Mr Williams and Ms Nicoski began living together in a house Mr Williams was then renting in South Perth. He says that Ms Nicoski asked him if she could run her Nutrimetics consultancy from the house and use one of the spare bedrooms as her office. He says he agreed to this.
None of this is contentious from Ms Nicoski's point of view. She says she did, indeed, sign a limited agency agreement with Nutrimetics in May 1988, although a copy of the agreement then signed no longer exists. None of the parties disputes the fact of the signing of the limited agency agreement in 1988.
Ms Nicoski says that when she first became a Nutrimetics consultant, she did so "purely for the kit", to open an account and to purchase Nutrimetics products at a discount price. At that stage, she was at college. Ms Nicoski's mother sponsored her consultancy agreement with Nutrimetics. In March 1991, Ms Nicoski commenced work as a full‑time Nutrimetics consultant under the 1988 agreement and received appropriate training for that purpose. In April 1991, she was appointed a "District Director", the first level of management under the "management plan" that was used by Nutrimetics up until 1994. Between April 1991 and the end of 1992, her main focus was on building her consultancy in Perth. She says that this involved a rigorous personal programme that included conducting at least four or five "shows" a week. She explained that these shows were always held in private homes and were organised at convenient times during the week or weekend. The person holding a show is referred to as the "hostess" and the hostess' responsibility is to invite five or more friends to attend a show. Ms Nicoski also explained the process of organising and running a show and the personal endeavours required on the part of a Nutrimetics consultant.
Under the form of limited agency agreement signed by Ms Nicoski in 1988, a Nutrimetics consultant earns revenue and receives benefits by selling products, but also by introducing new consultants, or "downlines" as they are termed, to Nutrimetics. The consultant becomes the "upline" of that new consultant. The consultant also earns commissions from the sales of a downline of their downline.
In December 1992, with her then husband, Ms Nicoski moved to Queensland to live. In Queensland she set about promoting what she referred to as a "new dimension" to her consultancy. This involved sponsoring new consultants and building a new customer base from shows and mail‑outs. Her mother was apparently willing and able to oversee Ms Nicoski's consultancy in Perth while she concentrated on expanding her consultancy in Queensland.
It seems that, in Queensland, Ms Nicoski was successful in generating business for her Nutrimetics consultancy. One of the consultants she sponsored during that time was Ms Paula Kuhnemann, who became a consultant on 5 April 1995. It seems the Kuhnemann downline prospered in Queensland, especially in the years following 1995. This meant that Ms Nicoski's consultancy (and her uplines, including her mother) also benefited. In November 1995, Ms Nicoski was "promoted" by Nutrimetics to the second level of management under the Nutrimetics management plan, namely, "Sales Director".
Ms Nicoski and her then husband separated during the latter part of 1995, and in December 1995 she returned to live in Western Australia.
Ms Nicoski says that, when she returned to Perth, she concentrated on rebuilding her business in Perth in the same way as she had built it prior to moving to Queensland. She denies that, at that point, her business was "waning", or that she had told Mr Williams it was waning, when she first met him. She says that her promotion to sales director in late 1995 refutes any such suggestion.
It may be said that on the evidence before me it is difficult to make any useful assessment of how financially successful Ms Nicoski's Nutrimetics consultancy was as at, say, the end of June 1996, about the time she met Mr Williams. However, it would seem reasonable to comment that it appears her Nutrimetics consultancy in Perth had been in what might be called caretaker mode during her absence since December 1992 - some three and a half years - but that she was entitled to her own commissions and the upline benefits of the downlines she had established, particularly in Queensland, as at the time of her return to Perth. The evidence of Mr Williams suggests that, about eight months after her return to Perth, Ms Nicoski's consultancy was earning monthly revenue of about $3000.
Ms Nicoski says that Mr Williams did not have any "actual" involvement in her Nutrimetics consultancy during the period between June 1996 and the end of 1996, that is to say, from when they met until the end of the calendar year 1996. Ms Nicoski says that, at her invitation, Mr Williams occasionally attended Nutrimetics' Perth functions that "husbands" were invited to attend, such as cocktail parties. At this time, Mr Williams was working at Aherns. Ms Nicoski says he was unhappy in his employment there and she would attempt to involve him in Nutrimetics' functions because they provided "an atmosphere of positive motivation".
Mr Williams recalls, in particular, attending a Nutrimetics function at El Caballo Blanco, a function centre near Perth, in August 1996, a few weeks after he and Ms Nicoski had commenced living together. Ms Nicoski was invited as a downline of her mother. Mr Williams says that Ms Nicoski conveyed to him her mother's enthusiasm for the two of them to attend the function and the willingness of her mother to pay for their accommodation at El Caballo Blanco.
Mr Williams says that, on the Sunday morning at this function, Ms Nicoski's mother invited Ms Nicoski and him to join her and Mrs Peggy Lombardi for breakfast at the hotel before they returned to Perth. In the course of this breakfast meeting, Mr Williams says that Mrs Lombardi explained how the secret to achieving great success in Nutrimetics was to sponsor a successful downline, as she had Ms Nicoski's mother.
It appears, as a result of attending this function, Mr Williams' interest in the Nutrimetics consultancy of Ms Nicoski grew. He says that he started attending Nutrimetics training sessions every Wednesday evening at the State office in Perth. Ms Nicoski's mother conducted these sessions and they included consultants, directors and leaders in Ms Nicoski's mother's downline.
Mr Williams says that Ms Nicoski's mother asked him to be a guest speaker at weekly training sessions on a number of occasions in late 1996. She told him she believed he had valuable experience and could give her downlines insights into retail marketing in Australia, given his retail management skills.
It might reasonably be observed at this point, in the light of this uncontradicted evidence, that Mr Williams at least believed he was being encouraged to see a future in retailing Nutrimetics products, perhaps with Ms Nicoski. Such a belief, no doubt, would have been fuelled by Mr Williams' attendance at a Nutrimetics conference in Kuala Lumpur, Malaysia, in October 1996 and the circumstances in which that came about.
Mr Williams took a week of annual leave at short notice from Aherns so that he could attend the Nutrimetics Kuala Lumpur conference with Ms Nicoski in October 1996. He says Nutrimetics paid his airfare and accommodation costs to enable him to attend the conference. Ms Nicoski also attended, as did her mother. Mr Williams says he assisted both of them to write their presentation notes and spent some hours researching, writing and reviewing Ms Nicoski's presentation notes with her at their South Perth home prior to their departure. The conference was to be attended by persons of "Executive Sales Leader" level and above. Mr Williams says that Ms Nicoski told him that her mother had "pushed and pulled strings for you to come". He says that Ms Lyon also told him in her office at Nutrimetics' Perth office, that Ms Nicoski's mother had put a great deal of pressure on senior management at Nutrimetics' head office in Sydney to obtain permission for him to attend. Ms Lyon told him that his attendance was approved subject to him being actively involved in the daily activities of the seminar.
Mr Williams says that, at the Kuala Lumpur conference, which was called "Growth through Partnership", he listened to and spoke with such Nutrimetics' luminaries as Bill and Imelda Roche, Nigel Sinclair, John Watt, Roger and Naomi Alberts, Karen and Ron Brady, Mary and Paul Costalos, as well as many other directors from Australia, New Zealand and Malaysia. He says that, at the conference, Ms Nicoski asked him whether he could see a career in Nutrimetics, to which he responded by saying that he could "definitely see a career for us in Nutrimetics together; I'm looking around the room at all these joint agencies and all these partnerships and we could achieve a huge career together."
None of the above evidence, save for the use by Mr Williams of the expression "joint agencies", is contradicted by Ms Nicoski. She says that that expression was not used in the words that Mr Williams spoke to her. She believes he said something like, "husband and wife teams". In other words, the substance of the conversation with her in Kuala Lumpur, and the events that transpired in Kuala Lumpur at the conference, recounted by Mr Williams, are not contradicted by Ms Nicoski.
Following the Kuala Lumpur conference in October 1996, Mr Williams says the question of the two of them, Ms Nicoski and himself, operating jointly as a Nutrimetics consultancy was discussed between them at their South Perth home. He says that, on one occasion, Ms Nicoski said: "I have only just been made a sales director even though I began full‑time in 1991; you and I could achieve what mum has achieved and we could even do more than she can; you with all your experience coupled with me we can catch up to where mum is in a short time and we can go further than that and then some [sic]. Mum has even said to me that in the future she wants to give me the business so it will become our business." Mr Williams says that he responded by saying: "If I am going to join you in Nutrimetics I have to resign and we have to be sure that we can make a go of this if there is going to (be) money in it. I can't do both. I would be automatically sacked by Aherns." Ms Nicoski does not contradict this conversation, save to deny that she had any conversation with Mr Williams as early as October 1996 concerning the prospect of him resigning from Aherns. However, it would appear from the context in which Mr Williams gave this evidence that he was indicating that the conversation took place some time after the Kuala Lumpur conference and not necessarily in October 1996.
Mr Williams further says that, one evening when he returned from work at Aherns to the South Perth home, one of Ms Nicoski's downline consultants was in the course of leaving after a workshop. He asked Ms Nicoski how it had gone, to which she replied: "Great. We can do so well if you joined me … it's getting harder for me, you know, I would love you to join me." He says that he replied, "Yes we can and we will but not this year. I can't leave my commitments at Aherns so close to Christmas trading." In relation to this alleged conversation, Ms Nicoski expressly denies what is attributed to her. She says it does not make sense and it did not happen. Plainly, on Mr Williams' account, the conversation he recounts occurred prior to Christmas trading and so, by inference, must have been in late November or early December 1996. While Ms Nicoski says such a conversation does not make sense and did not happen, why this should be so is not immediately apparent and, for present purposes, it might be said that, given the involvement of the two of them in Nutrimetics' events during the last half of the 1996 calendar year up until about late November or early December, and what had transpired between them to that point, what Mr Williams states was said is not inherently implausible.
Indeed, in late 1996, Mr Williams says, and it is not contradicted by Ms Nicoski, that he accompanied her to Bunbury, south of Perth, to address a group of new Nutrimetics consultants at the Lord Forrest Hotel. Ms Pat Lyon in the Perth office of Nutrimetics gave permission for him to attend the meeting and the Nutrimetics Perth office paid the cost of his and Ms Nicoski's attendance, including overnight accommodation and meals.
In late December 1996, Ms Nicoski became seriously ill. She was hospitalised for some weeks. During that period, she was unable to manage her Nutrimetics consultancy. Mr Williams says, and Ms Nicoski does not contradict him, that while he continued working at Aherns during the hectic Christmas period, he attended every Nutrimetics weekly training session as Ms Nicoski's representative. This enabled him to ensure that all her downlines "remained positive" and were working their businesses.
The weekly training sessions involved a number of Ms Nicoski's mother's senior consultants speaking to all consultants from the stage in the auditorium at the Victoria Park office. Groups of downlines then adjourned to parts of the auditorium or to a private room where their upline would host a meeting. Mr Williams spoke on the stage in place of Ms Nicoski and hosted the meetings with her downlines. He advised the downlines how to order Nutrimetics products and he took their orders. He says in December 1996, he used his own money to pay for Nutrimetics brochures, stock and literature. None of this is contradicted by Ms Nicoski.
Prior to her hospitalisation, Ms Nicoski had entered into an agreement to purchase a home unit in Wembley, Perth. The settlement of this transaction took place during her hospitalisation. Mr Williams did what was necessary, including by way of paying utility costs, agents' settlement fees and adjusted rates from his personal funds, to assist in the completion of the settlement on her behalf. While Ms Nicoski was hospitalised, Mr Williams organised the packing and removal of effects from the South Perth home to the Wembley unit and met the expenses of so doing. This move to Wembley appears to have occurred in late December 1996.
The events of January 1997
On Ms Nicoski's discharge from hospital, she and Mr Williams began living at her Wembley unit. This appears to have happened in early January 1997. Mr Williams says that Ms Nicoski said to him upon her discharge: "I love you, you have done so much for me … I need you to join me in Nutrimetics when can we do this, I don't think I can do this on my own any longer." He says he replied: "I think the time is right." He says she then cried; they embraced and she said something along the lines of, "It has been my dream to work with you."
Ms Nicoski agrees that she then told Mr Williams that she loved him and that she thanked him for looking after her. However, she denies that she said that she needed him to join her in the business and also denies that she said, "I don't think I can do this any longer", or that Mr Williams said, "I think the time is right." She says that they did not embrace and it was never her "dream" to work with him. She says, "I would never have said that."
By contrast, Ms Nicoski says that, at the beginning of 1997, she was healthy again and was motivated to take her business "ahead". She says that the Kuhnemann consultancy in Queensland was then growing rapidly and she, Ms Nicoski, needed to make a "concerted effort" to achieve the next level of management of Executive Sales Director. Because Ms Kuhnemann was doing so well in Queensland, Ms Nicoski says she was anxious to make sure that she, Ms Nicoski, was promoted to this level before Ms Kuhnemann.
Having regard to the events leading up to January 1997 that had occurred between the two at a personal level and in relation to Nutrimetics' activities generally since they met in June 1996, what Mr Williams says passed between him and Ms Nicoski in January is not inherently implausible. Why Ms Nicoski would never have said the things that Mr Williams attributes to her is not immediately apparent having regard to the events involving them personally and in relation to Nutrimetics activities to that point.
Mr Williams says that Ms Nicoski, having told him in January that the time was right for him to join her in Nutrimetics, then made available to him her bank statements and cheque butts and records. This is stated in par 44 of his witness statement that went into evidence, to which he adds:
"I had approximately $22,000 in my personal ANZ Bank account in February 1997 and I expected to receive a tax refund of around $8000 once I submitted my tax return after June 30. At that time Georgette had little personal savings and a $140,000 mortgage. I decided with a revenue of about $3000 initially, which is what she was then earning, we could pay the business and our personal expenses, including the mortgage payment which was about $1100 per month."
Mr Williams' account to this effect, has a certain jumbled nature to it. The purport of his evidence, as I understood it, was that, in around middle to late January or early February 1997, he made an assessment of his and Ms Nicoski's financial circumstances and formed the view that they could together operate Ms Nicoski's existing Nutrimetics consultancy, and, from the revenue earned, meet the business expenses related to it as well as their personal expenses, including the monthly payments due under the mortgage registered against her Wembley unit. I understood Mr Williams to suggest that Ms Nicoski's consultancy business was then earning revenue of about $3000 per month.
Mr Williams was challenged about the accuracy of aspects of this testimony. For example, he was asked how he could have expected, at this time, to receive a tax refund of around $8000 once he had submitted his tax return after June 30, when he had not, in fact, filed a tax return for some years previously. He accepted he had not filed tax returns for some years. His answers to the question did not clearly explain the basis of his belief. Paragraph 44 of Mr Williams' witness statement, as a number of other portions of it, has an air of reconstruction about it.
Less ambiguously, Mr Williams says that, in about mid‑January 1997, he arrived home from work at Aherns and said to Ms Nicoski: "The timing is now perfect. I have made the decision I want to join you as a business partner. It is clear to me where my future lies. Making it even more clear for me is the fact that I am sure that Aherns is going to be sold in the future and there is much more we can gain from working together than if I was to stay with Aherns." He says that Ms Nicoski replied: "When are you going to resign, when are you going to resign?" He says he responded, "Well we have got the sales directors' seminar coming up and I will resign a couple of days before then because I have booked my annual leave and then I will resign and we will hop on the plane and go straight to the sale directors' seminar together as partners and we can announce it to everybody while we are there." He says that Ms Nicoski responded: "This is what I have always dreamed. You and I working together. … What do you think our situation is going to be regarding income? How do you think we are going to go financially, because you leaving Aherns we're not going to have your income?" He says that he said, "Well you know given that I'm going to have about $20,000 in my bank account with more coming we should have enough. I'm going to work out exactly how much we have got. I have no doubt that we will be able to be earning by the end of year what we have been earning separately before we decided to form this partnership." This evidence is contained in par 46 of his witness statement.
In relation to this evidence, Ms Nicoski says a number of things. First, that Mr Williams had told her, for a couple of months prior to this occasion, that he was unhappy with his position at Aherns. In the middle of January he had come home and told her that the managing director of Aherns was going to demote him. Mr Williams said that he had been offered the same money, but for a different job, and that it was effectively a demotion. He was distressed, according to her. Mr Williams, in cross‑examination, effectively conceded he was likely to have been demoted if he had stayed with Aherns.
Next, Ms Nicoski says that she said to Mr Williams words to the effect that, "If you don't want to take the demotion, if it really makes you feel this way, then quit. You've got a university degree, surely you can get another job somewhere else. While you're trying to find a new job, why not help me out with my business." She says that she spoke words to the effect that: "You can help me with deliveries, mail‑outs and other administrative things until you find a new job." She says that she told him she would support him in terms of living expenses. She says he agreed immediately.
Further, Ms Nicoski denies ever saying to Mr Williams words or words to the effect of, "When are you going to resign?" She denies that the particular account given by Mr Williams in par 46 of his witness statement of a discussion in around mid‑January when he arrived home from work at Aherns concerning "The timing is now perfect", and so on, ever took place. She said again that she had never "dreamed" of going into business with him and did not tell him she did so dream. She also denied discussing the formation of a "partnership" or "going into partnership" with Mr Williams.
Finally, in relation to par 44 of Mr Williams' witness statement, Ms Nicoski denies that she made available her bank statement and cheque butts and records following such a meeting or at about that time in January. She also says that Mr Williams did not have $22,000 in his personal ANZ account until 6 February 1997. (This date, it should be noted, is the day after Mr Williams actually resigned his position at Aherns.)
It appears to me that what Mr Williams says in par 44 of his witness statement concerning Ms Nicoski making available her bank statements and cheque butts and records and assessing the state of their joint financial position, including the amount he had in his bank account with the ANZ, constitutes a reconstruction of events. For example, he cannot have been discussing the future with Ms Nicoski in mid‑January 1997 by reference to the actual state of his bank account as of 6 February 1997. However, he may well have had an expectation of receiving a termination payment in this order, at the relevant time. The question is whether he did, in fact, in mid to late January make some assessment, as he claims, of the ability of himself and Ms Nicoski jointly to manage a Nutrimetics consultancy and meet their personal expenses, in the event that he were to resign his position at Aherns.
When pressed in cross‑examination about what he actually said in January 1997 concerning the financial circumstances and future financial obligations of himself and Ms Nicoski, it seems to me that Mr Williams accepted that he did not expressly state the things set out in his witness statement at pars 44 ‑ 46.
Later in his cross‑examination when he was pressed about what he actually said in another conversation in February 1997, recounted at pars 56 ‑ 58 of his statement of evidence, concerning the future tax liability of Ms Nicoski, Mr Williams conceded that, in February 1997, Ms Nicoski did not have a tax bill or a loan. Mr Williams said that, in effect, he meant to say "at that time I had understood that Nicoski was already in the process of getting a loan through her father and her mother through the National Bank, so I'm speaking figuratively." He added that Ms Nicoski's father had already done a rough assessment of her tax liability and it was in the hands of her accountant. Similarly, he understood that she was in the process of getting a loan to cover what she anticipated her tax debt would be.
As a result of his cross‑examination, rather than as a result of the purported verbatim account of discussions that appear in his statement of evidence, I consider Mr Williams' evidence in cross‑examination not to be improbable.
It is, of course, probable that a reasonably prudent person would make a financial assessment of how they and their partner in life would be able to afford business and personal expenses if one of them were to cease their present paid employment and commence working in the business of the other. But such an assessment would not necessarily be dependent on the two of them having made a decision effectively to become business partners in the business. In other words, the broad account given by Mr Williams of making an assessment of his and Ms Nicoski's financial capacities in late January or early February 1997 is as consistent with his evidence, that he and Ms Nicoski were planning on Mr Williams giving up his job at Aherns and jointly with her operating the Nutrimetics consultancy, as it is with Ms Nicoski's account, that Mr Williams was unhappy with his position at Aherns, wished to leave it rather than suffer an effective demotion, and assist her in the operation of her Nutrimetics business for a period while he obtained a new job commensurate with his qualifications and experience.
At this point in the evidence given by Mr Williams and Ms Nicoski, significant differences begin to enter into their respective account of events. Mr Williams' testimony, which in these respects is contained in a written statement of evidence and includes what purport to be verbatim accounts of conversations between them, is that expressions such as "business partner", "partners" and "partnership" were used in their speech. Mr Williams was challenged as to whether these express words or expressions were, in fact, used at this point. He accepted, at least for the most part, that they were not. However, he did not resile from the substance of his evidence that the burden of those discussions concerned an agreement whereby the two of them should commence jointly operating Ms Nicoski's Nutrimetics consultancy.
For my part, I am not satisfied that the parties expressly agreed to constitute a partnership in respect of Ms Nicoski's existing business as a result of anything said in January 1997.
The most that can be said from the evidence relating to this period is that the question of Mr Williams joining Ms Nicoski in the operation of her business was discussed during this period. However, I find that none of the discussions and nothing in their conduct unambiguously suggests that a partnership agreement of the type pleaded was then concluded.
The events of February 1997
Mr Williams says that, as a result of his discussions with Ms Nicoski in around mid‑January, he resigned from Aherns on 5 February 1997 and informed Ms Nicoski of his resignation immediately upon his return to the Wembley unit that evening. He says that he told her, "It's done, I have resigned, I've got my first appointment this afternoon, we are now joint consultants, we have our career in Nutrimetics. What time is Marissa Wylie arriving?" He says that Ms Nicoski said, "She is here in about an hour". He says that they duly met with Ms Wylie and that this was his first meeting with one of his and Ms Nicoski's downlines.
As I have indicated, at this point the accounts given of conversations concerning a partnership in a Nutrimetics consultancy are somewhat in dispute. Ms Nicoski says she and Mr Williams had an understanding to this effect, that should Mr Williams resign his position at Aherns, he could assist her in particular ways in the conduct of her business.
The dispute is whether or not the two of them agreed, at about or in the period leading up to the time of Mr Williams' resignation from Aherns on 5 February 1997, in effect (1) to carry on her Nutrimetics consultancy in common with a view of profit and (2) to treat the partnership as one which included Ms Nicoski's existing business. Mr Williams says that they did and says that they even used the expression "business partners". Ms Nicoski says they did not and it was never her intention that the two of them should operate a "partnership", let alone one that incorporated her existing business.
In respect of Mr Williams' account of what he and she said following Mr Williams' resignation from Aherns, Ms Nicoski denies that Mr Williams said the words "joint consultants", or words to the effect that "we have got our career in Nutrimetics". Indeed, she denies that any such discussion took place. As to Marissa Wylie, Ms Nicoski says that Ms Wylie was one of her consultants and that the appointment (which by implication she accepts had, in fact, been arranged for that day) was an appointment with Ms Nicoski and not an appointment with Ms Nicoski and Mr Williams together.
At this point, I should comment on the extent to which I consider Mr Williams and Ms Nicoski to be reliable witnesses. It is appropriate that I do so because senior counsel for Ms Nicoski challenged Mr Williams' reliability, indeed credibility, in cross‑examination, and because much of the case, especially that put by Mr Williams as to the conclusion of a partnership agreement in January and/or February 1997, depends upon the conversations said to have been held and oral agreements said to have been made by the parties in that period.
As I have already noted, the primary evidence of Mr Williams and Ms Nicoski was contained in statements of evidence filed in accordance with directions made well before the trial. To some extent, the use of such statements as a primary means of conveying alleged verbatim conversations of central importance to the resolution of an action is an unhelpful practice. It may be that, in such cases, it is sufficient for the substance of an alleged conversation to be set out in such a statement, leaving it to the witness to give a viva voce account of what was actually said and agreed. In this case, the Court was largely left to form impressions about the reliability of the written statements of evidence by virtue of what fell out in cross‑examination.
Be that as it may, Ms Nicoski, in cross‑examination, by and large adhered to the written statement of evidence filed by her.
However, Mr Williams, in cross‑examination, departed at times from what he had said in his written statement of evidence. For example, as I have noted already, it became clear in cross‑examination that he had largely reconstructed the events described in par 44 of his statement of evidence. It also became clear, as explained in greater detail below, that his account of the establishment of the "Babylon" account (an account established by Ms Nicoski in January 1997 to make provision for her expected taxation payments) was also reconstructed.
Further, in his written statement of evidence, Mr Williams claimed that, in the course of actual conversations in January and February, expressions such as "partner", "partnership" and the like were used. In cross‑examination he conceded that this was not always so.
I have formed the view that, in many instances, Mr Williams has reconstructed his recollection of particular events and what was actually said by him and Ms Nicoski on particular occasions in January and February 1997. For example, in the account just set out of what Mr Williams says he said on the evening of 5 February 1997, following his resignation from his position at Aherns, I find it difficult to accept that everything he says he said was then stated by him, or, at least, that he stated each of the matters in question all on the one occasion.
These observations make all the more important the consideration by the Court of the whole facts of the case in which the parties were involved.
In that regard, I return to an account of the events as they appear to have occurred in the period following 5 February 1997.
As I have indicated, up until Mr Williams resigned his position at Aherns on 5 February 1997, there is a common thread to the evidence of these parties. For some time past, Mr Williams had been involved, or had involved himself, in Nutrimetics activities and Ms Nicoski's consultancy to such an extent that it might be reasonable to surmise that both he and Ms Nicoski could see an opportunity for the two of them to operate her Nutrimetics consultancy together. There were a number of well promoted examples of husband and wife teams having done just that within the larger Nutrimetics organisation. "Going into partnership" in February 1997 might, in those circumstances, particularly following the hospitalisation of Ms Nicoski and the possibility that Mr Williams might leave his job with Aherns, have been seen by them as a commercial proposition worth considering.
On the other hand, it might also be said that, in circumstances where Ms Nicoski had been ill and Mr Williams dissatisfied with his present employment, an arrangement whereby Mr Williams would leave his employment with Aherns and assist Ms Nicoski in operating and building‑up her Nutrimetics consultancy, pending his securing a job that better suited him, would be a perfectly sensible one for two persons who enjoyed a close personal relationship to make.
In these circumstances, in determining whether a business partnership was formed between Mr Williams and Ms Nicoski, it is important to have regard to the circumstances and events subsequent to 5 February 1997.
On 6 February 1997, the day after Mr Williams resigned from Aherns and the day on which $22,000 was credited to his ANZ bank account, he and Ms Nicoski travelled to Sydney from Perth for a Nutrimetics sales directors' seminar. It is fair to observe that Mr Williams' attendance at this conference with Ms Nicoski must have been in contemplation when he tendered his resignation to Aherns. Indeed, Mr Williams says he made mention of the forthcoming sales directors' seminar in Sydney in his conversation with Ms Nicoski in mid‑January and said he should time his resignation to permit their attendance at the seminar.
While there is no dispute between Mr Williams and Ms Nicoski that the two of them attended the sales directors' seminar in Sydney in February following his resignation from Aherns, there is dispute as to who paid for the airfares and the accommodation to permit them to attend the seminar. He says that, from what he had read in the Nutrimetics literature, he had formed the view that attendance at the seminar was expected by the company. Mr Williams says that he paid for the airfares and the accommodation. However, Ms Nicoski says that the costs were debited to her account with Nutrimetics in February 1997 by the company. That is to say, Nutrimetics paid the expenses and debited her account with the company. Both agree that her mother and father also attended the seminar. Mr Williams says he also paid for the airfares of Ms Nicoski's mother and father. Indeed, Mr Williams' financial records tendered in evidence show that on 31 January 1997 he used his American Express (Amex) credit card to pay Qantas four separate amounts of $502.40 on account of air tickets. Those records also show that the Amex card was used on 10 February 1997 to pay Sheraton on the Park in Sydney (where the seminar was held) a sum of $174.43. Mr Williams acknowledges that Ms Nicoski's parents subsequently reimbursed him for the airfares that he initially paid for them. However, he says he was never reimbursed by Ms Nicoski for the cost of her airfare or the seminar expenses.
Ms Nicoski says that her Nutrimetics commission statement for February 1997 shows that she was credited a sum of $1600 in respect of a sundry item entered as "PART PAY REC'D - SD SEMINAR". The reference to "SD SEMINAR" may be taken to be a reference to "Sales Directors' Seminar". No other evidence was adduced to show exactly what the sales directors' seminar registration or other fees were in respect of which Nutrimetics might have made reimbursement. Nor is there any evidence of any other payment made by Mr Williams or Ms Nicoski for which this may be considered a reimbursement. Working from Mr Williams' expenses in respect of the Sydney conference, or Sydney visit, recorded on his Amex statement, to which I have referred, the total sum is only in the order of $1180, being the cost of the two airfares, plus the Sheraton on the Park expense. No evidence, as I say, makes plain whether there were registration fees, or the like, levied by Nutrimetics in respect of the seminar. One suspects there would have been. In the end, I am unable to resolve that dispute on the evidence. What can be noted is that it was Mr Williams who initially paid for the air tickets for himself and Ms Nicoski and her parents to attend the sales directors' seminar in Sydney. In all of the circumstances, that act, of itself is not an act that necessarily bespeaks the act of a business partner. However, it is an act which may be considered consistent with the act of a business partner, or someone who wishes to enter into a business relationship with another. In so observing, it needs to be borne in mind that the approbation of Ms Nicoski's mother seems, at all material times, to have been important to Mr Williams.
While attending the sales directors' seminar in Sydney, Mr Williams says that he and Ms Nicoski met for coffee with Ms Nicoski's parents at the first floor restaurant of the Sheraton on the Park hotel in Sydney and "spoke detail for over an hour". He says that in Ms Nicoski's presence, her mother said that she was concerned about the sudden drop in income Mr Williams' resignation from Aherns would cause. But she added that she had no doubt that they would be a great success working together and that the two of them had the skills and personal attributes to achieve the highest levels in Nutrimetics. Mr Williams says that he explained to Ms Nicoski's mother that he was confident, following his resignation, that the two of them had sufficient financial security to see them through the latter part of the year; and that he said to her words to the effect that he believed the partnership would grow sufficiently by the end of 1997 to be earning similar income and benefits to those the two of them had been earning separately "prior to the formation of the partnership". Mr Williams says that Ms Nicoski's mother agreed with him and also said that she was planning to leave Nutrimetics within the next five years and it was her wish to assign her business to Ms Nicoski and him. Mr Williams further says, "Georgette and I said to each other words to the effect that we agreed to assist Karen (Ms Nicoski's mother) with running her Nutrimetics business at every opportunity."
Ms Nicoski says she does not recall having coffee with Mr Williams and her parents in the restaurant of the hotel, but does not deny that they did so. She says that, if Mr Williams did say the words he alleges, then she denies that at any stage of the seminar did she ever intend to enter into any agreement and certainly not one "between Williams and me on the one hand and Nutrimetics on the other". Her evidence, in this respect, is in a witness statement intended to be responsive to what Mr Williams stated in pars 49, 50 and 51 of his witness statement, the substance of which is set out above, concerning the discussion over coffee at the Sheraton on the Park hotel in Sydney, and which does not make mention of an alleged agreement involving Nutrimetics. Ms Nicoski's mother was not called to give evidence and there is no evidence to refute what Mr Williams says was discussed over coffee at the Sheraton on the Park hotel. Having regard to the history of events preceding this occasion, dating from June 1996, I find it is probable that Mr Williams did say the things to Ms Nicoski's mother and that Ms Nicoski's mother responded, in the manner he has represented, in the presence of Ms Nicoski while they were in Sydney at the sales directors' seminar in February 1997.
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 5 February 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 2 April 1997;
(c)an account of all the debts and liabilities of the partnership;
(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;
(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;
(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 parties be at liberty to apply.
(15)The plaintiff's action against the first defendant otherwise be dismissed.
(16)The plaintiff's action against the second defendant be dismissed.
1988 LAA
1997 LAA
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: WILLIAMS -v- NICOSKI & ANOR [2003] WASC 131 (S)
CORAM: BARKER J
HEARD: 1, 4-8 NOVEMBER 2002 & 8 JULY 2003
DELIVERED : 8 JULY 2003
SUPPLEMENTARY
DECISION :10 JULY 2003
FILE NO/S: CIV 1404 of 1999
BETWEEN: TROY WILLIAMS
Plaintiff
AND
GEORGETTE NICOSKI
First DefendantNUTRIMETICS 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)
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
BARKER J:
Introduction
On 8 July 2003, I published my reasons for decision in these proceedings.
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.
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.
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
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.
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."
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 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.
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.
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.
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.
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 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
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.
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.
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."
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.
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.
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".
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].
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
IN THE SUPREME COURT OF WESTERN AUSTRALIA
CIV 1404 of 1999
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
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;
(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;
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.
19.In relation to orders 14 and 16 there be a certificate for second counsel and an allowance for transcript.
10
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2