Williams v Nicoski [No 3]
[2008] WASC 46
•8 APRIL 2008
WILLIAMS -v- NICOSKI [No 3] [2008] WASC 46
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WASC 46 | |
| Case No: | CIV:1404/1999 | 25 FEBRUARY 2008 | |
| Coram: | MASTER SANDERSON | 8/04/08 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Amounts approved | ||
| B | |||
| PDF Version |
| Parties: | TROY WILLIAMS GEORGETTE NICOSKI NUTRIMETICS INTERNATIONAL (AUSTRALIA) PTY LTD |
Catchwords: | Taking of accounts Turns on own facts |
Legislation: | Nil |
Case References: | Williams v Nicoski [2003] WASC 131 Williams v Nicoski [2003] WASC 131(S) |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
GEORGETTE NICOSKI
First Defendant
NUTRIMETICS INTERNATIONAL (AUSTRALIA) PTY LTD
Second Defendant
Catchwords:
Taking of accounts - Turns on own facts
Legislation:
Nil
Result:
Amounts approved
(Page 2)
Category: B
Representation:
Counsel:
Plaintiff : Mr T B Lyons
First Defendant : Mr M D Howard
Second Defendant : No appearance
Solicitors:
Plaintiff : Gibson Lyons
First Defendant : Tottle Partners
Second Defendant : No appearance
Case(s) referred to in judgment(s):
Williams v Nicoski [2003] WASC 131
Williams v Nicoski [2003] WASC 131(S)
(Page 3)
1 MASTER SANDERSON: This is what is hoped to be the last instalment of a long running saga. The action was commenced in 1999. It concerned a partnership between the plaintiff and the first defendant. The action was heard by Barker J in November 2002 and July 2003. On 10 July 2003, his Honour made an order for dissolution of the partnership and made certain other orders consequent upon the partnership's dissolution.
2 Barker J made quite detailed directions as to how the accounts were to be taken. Paragraph 6 of the orders is in the following terms:
6. 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 6(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.
3 The first defendant was the accounting party in this matter and she filed two affidavits dealing with the account. The first was sworn 19 November 2004. In large measure, that affidavit was superseded by the second affidavit sworn 19 February 2008. It is upon the later affidavit the first defendant relied and it is to that affidavit which I have had reference in taking the accounts. The plaintiff swore affidavits on 2 June 2006 and on 22 October 2007. In large measure, these two affidavits disputed some of the expenses claimed by the first defendant in her presentation of the accounts. However, they did so in most general terms and neither affidavit is of any assistance in taking the accounts.
4 At the hearing, both the plaintiff and the first defendant were called to give evidence and both were cross-examined. Nothing of significance emerged from either cross-examination. Insofar as it is relevant to these proceedings, I can say that I am satisfied that both the plaintiff and the first defendant were witnesses of truth. Neither said anything during examination in chief or cross-examination which cast doubt on their credibility.
5 Before dealing with the accounts, I should make a number of general observations. First, it is plain that the taking of the account is not to be a highly technical accounting exercise. His Honour made that point during the course of his reasons: see [332] of the judgment (Williams v Nicoski [2003] WASC 131) and [24] of the supplementary reasons (Williams v Nicoski [2003] WASC 131(S)). Moreover, the amounts involved are relatively modest. A broad-brush approach is called for.
6 Second, although it was held that the partnership was formed on 5 February 1997, the account is not to be taken before 22 December 1997. That is the date on which his Honour determined that the relationship between the plaintiff and the first defendant ended. This approach is reflected in orders 6(a), 6(b) and 7.
7 Thirdly, the orders made on 10 July 2003 draw a distinction between the first defendant's business before the partnership (including the 1988 Limited Agency Agreement) which is not partnership property and the business which was operated after the formation of the partnership - the 1997 Limited Agency Agreement - which is partnership property. The
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- consequence of that distinction drawn by the orders made is that the account to be taken contains different periods. Order 6(a) applies from 22 December 1997 (the date of the relationship ending) to 19 April 1999 (the date of the partnership's dissolution), whereas order 6(b) applies between 22 December 1997 (the date of the relationship ending) and the date of the orders made on 10 July 2003. Although order 6(f) refers to the accounts in orders 6(a) and 6(b) 'being taken as a single account', that must be understood as applying only to the period of time which is common to both orders - that is, 22 December 1997 to 19 April 1999. That was certainly the position taken by counsel for the first defendant; there appeared to be no dispute on the part of the plaintiff's counsel that this was the proper approach.
8 (Despite being ordered to do so, no submissions were filed by the plaintiff. It is true that the first defendant's submissions were late and left the plaintiff limited time to respond. But the first defendant was the accounting party and it was open to the plaintiff to file submissions disputing certain amounts. The absence of submissions from the plaintiff increased the difficulty in taking these accounts. An adjournment of the hearing with all the attendant costs would have been in no one's interests.)
9 Appearing as annexure GN4 to the first defendant's affidavit of 19 February 2008 is a spreadsheet. It covers the period December 1997 to April 1999. It shows a net profit for the business of $16,563.70. For each month the income is shown. For instance, for January 1998 the amount of sales is $2,786.10. That is simply the value of the product sold by the partnership during that month. There is an amount of $5,429.15 shown for commission. This is the commission earned by the partnership on sales made by persons introduced to the second defendant by the partnership. This commission is sometimes referred to as 'downlines'. It is discussed at length in his Honour's judgment. The figure is taken from 'commission statements' provided monthly by the second defendant to the partnership. These statements appear as a bundle in annexure GN5. Some arithmetic gymnastics are required to reach the figures found in the spreadsheet, but the figures used by the first defendant for commissions are correct. No suggestion to the contrary was made by counsel for the plaintiff.
10 The total income for the month then is the value of sales plus the commission received. So, for instance, the total income of the partnership for the month of January 1998 was $8,215.25.
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11 From that amount was deducted the expenses of running the partnership. Some of those expenses were uncontroversial. For instance, in January 1998 there is an expense of $157.15 for postage. There is a further expense of $104.03 for printing and stationery. There could be no doubt that these and other like expenses were properly set off against income. But other expenses were not accepted as reasonable by the plaintiff. I will deal with each of these in turn.
12 Appearing as an expense in each month is 'partner's salary'. This is an amount claimed by the first defendant as her entitlement or remuneration for running the partnership. The amount claimed is $2,917 per month. This represents an annual salary of $35,000. There is no doubt that it is a figure which represents the first defendant's conservative estimate of what she believes to be a reasonable remuneration. Her methodology in reaching that figure is set out in par 4(h) of her affidavit. Without repeating what is said in that paragraph, I am satisfied that she used her best endeavours to ascertain what was a reasonable figure. Her points of reference were necessarily limited. The accounts show that for the period in question the turnover for the partnership was $171,441.90. Her salary amounts to $46,543.40. Given she worked in the business full-time, in my view it cannot be said that the amount she had claimed is unreasonable. In fact, I would accept that it is on the conservative side.
13 The plaintiff disputed that the first defendant was entitled to any allowance at all. Clearly, that cannot be accepted - Barker J's reasons anticipate such an allowance being made to the first defendant. No evidence was led by the plaintiff as to what a reasonable remuneration for managing the partnership might be, nor was any alternative basis of calculating that remuneration put forward. The absence of such evidence is telling.
14 Also claimed as an expense is the cost of professional development. Such costs were not incurred in every month. For instance, nothing is claimed for January 1998. However, amounts are claimed for various months - for instance, the claim for April 1998 is $614.15. The total claimed for the relevant period is $7,012.26.
15 At par 4(g) of her affidavit of 19 February 2008, the first defendant says that the professional development expenses were made up of the costs of attending sales seminars, training seminars and for books and tapes she used in training consultants. She kept a note of these expenses at the time and they were included in her tax returns as deductions. They were accepted by the Australian Taxation Office.
(Page 7)
16 In my view, the claim made is for a legitimate business expense. The description of these expenses as being for 'professional development' is apt. Anyone who wishes to succeed in business must necessarily train and develop their skills. I do not accept, as was asserted by the plaintiff, that these were personal expenses. In my view, they were expenses incurred by the first defendant as part of operating the partnership.
17 Also included in the accounts is an amount paid as tax on the profit earned. It is a significant expense at just over $31,500. It is apparent from the first defendant's tax returns, copies of which appear as annexure GN14 to her February affidavit, that the first defendant has brought to account as her income all profits earned by the partnership. She has then paid tax and that is reflected in the accounts. Paragraph 6(g) of his Honour's orders anticipates that this may have been the case. The orders also seem to require the first defendant to now file amended tax returns showing her income as being half of the profits of the business. It would then be for the plaintiff to also file an amended return showing an increase in his income for the relevant period. In par 4(i) of her February affidavit, the first defendant says that she took advice from her accountant which was to the effect that to take this course would be 'a costly exercise'. One can well imagine why. Moreover, if the plaintiff was now to lodge an amended return which showed an increase in his income, he might well be liable for penalties and interest.
18 In my view, it is in no one's interest to make orders which would require the filing of amended tax returns. While I would agree that accepting the methodology used by the first defendant is not strictly in compliance with the wording of his Honour's orders, I am of the view that it picks up, and is consistent with, the broad-brush approach which his Honour intended ought apply. I am satisfied, then, that the claim for taxation expenses ought be allowed.
19 There are a number of other complaints made by the plaintiff. These relate to hostess commission and discounts given. In my view, both are adequately explained by the first defendant and both are legitimately included as expenses of the partnership. The plaintiff failed to offer any convincing argument as to why these amounts should not be allowed and, in my view, they are properly entered as expenses of the partnership.
20 In summary, then, I am satisfied that the net profit for the relevant period is $16,563.70.
(Page 8)
21 Turning then to order 6(b), this deals with sales commission income and cost of goods after the dissolution of the partnership on 19 April 1999. In other words, income that can be traced to the partnership but which was received by the first defendant after the termination of the partnership. This gives rise to two questions. First, how long the trail continues. The first defendant says that it should go until 10 July 2003, the date the orders were pronounced. She has prepared her accounts on that basis. The plaintiff says that it should run up until the date of the taking of the accounts.
22 There is no compelling logical reason as to why one date ought be preferred over another. However, on balance, I am satisfied that the cut-off date should be 10 July 2003. That was the date the relationship between the parties was finally severed and it makes some sort of sense to work from that date.
23 The question then is what amount ought properly be brought to account. In his affidavit of 22 October 2007 at pars 43 to 70, the plaintiff sets out in detail how commission is earned by the partnership from consultants introduced to the second defendant by the partnership. He also sets out the steps he has taken in an attempt to ascertain just what income was earned. The result is annexure TW3 to the plaintiff's affidavit. In her February affidavit, the first defendant says that she has checked the figures in the plaintiff's annexure and accepts they are correct.
24 On behalf of the plaintiff it was submitted that the first defendant's approach was flawed. It was said that the plaintiff's evidence was to the effect that he had done the best he could with limited information. He was not satisfied that the commissions earned from all of the consultants involved had been disclosed. It was his position that the material provided was inadequate, that he could not properly assess what the partnership had earned by way of commissions and the figures proposed by the first defendant ought not be accepted.
25 The first thing to say about the plaintiff's submission is that if he was satisfied that all of the commissions had not been disclosed, it was open to him to subpoena documents from the second defendant and make his own calculations. I put that to counsel for the plaintiff during the course of the hearing and he could offer no explanation as to why a subpoena was not issued. That being so, there is no evidentiary material beyond the speculation contained in the plaintiff's affidavit to suggest that the figures put forward by the first defendant are not accurate. I am satisfied, on balance, that the first defendant's evidence on this point ought be
(Page 9)
- accepted. She reaches a figure of $4,963.34 and that is the amount that will be brought to account.
26 There remains, then, the question of the value of the business. This business cannot be sold without the written permission of the second defendant. It was the position of the second defendant at trial that they would not consent to the sale or assignment of the 1997 Limited Agency Agreement and their position has not changed: see annexure GN7 to the first defendant's February affidavit. There is then no need to take the matter any further. As a matter of practical reality, the business has no value.
27 The accounts prepared by the first defendant show assets of the business at just over $700. That is the written down value of plant and equipment. For the purpose of the account, this figure should be accepted.
28 There remains, then, the question of interest. Given that at the first defendant's urging I accepted that 10 July 2003 ought be the cut-off date for bringing to account income of the partnership, I am also satisfied interest should run on any amount owed to the plaintiff from that date. The first defendant was the accounting party. She bore the primary responsibility for moving this matter along. True it is that there were long periods of time when the plaintiff did nothing or was in default under orders made by the court. Nonetheless, I am satisfied that the proper course is to allow interest from 10 July 2003 until the date when the account is settled.
29 There are outstanding questions of costs both in relation to the taking of the account and the action generally. I will deal with those matters in due course.