Wimpole Properties Pty Ltd v Beloti Pty Ltd (No 4)

[2012] VSC 220

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT

LIST B
No 8333 of 2009

WIMPOLE PROPERTIES PTY LTD (ACN 006 521 875)	Plaintiff
v
BELOTI PTY LTD (ACN 088 218 106) & Ors	Defendants

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	25 May 2012
DATE OF JUDGMENT:	31 May 2012
CASE MAY BE CITED AS:	Wimpole Properties Pty Ltd v Beloti Pty Ltd (No 4)
MEDIUM NEUTRAL CITATION:	[2012] VSC 220

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PARTNERSHIP – Dissolution – Partners’ entitlement to residue – Application of Partnership Act 1958 (Vic) s 48 – Operation of partnership agreement – Protection of fund to allow competing claims to be determined

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr D T Forbes	Andrew Gray & Associates
For the First Defendant	Mr G J Parncutt	Chadwicks The Law Firm
For the National Australia Bank Ltd	Mr C M Archibald	Minter Ellison

HIS HONOUR:

1. By summons filed 21 February 2012 in proceeding 8333 of 2009, Wimpole sought an order vacating paragraph 8 of an order made on 16 December 2010 and paragraph 9 of an order made on 4 February 2011.  The National Australia Bank Ltd was given leave to appear and make submissions.  It was represented by counsel.

1. On 16 December 2010, the court appointed James Patrick Downey receiver of the unsold leases at the Somers Holiday and Caravan Park and the Koonwarra Holiday and Caravan Park and the proceeds of sale of leases at those parks thereafter received by or on behalf of any of the defendants.  The receiver was directed to take possession of and collect all books of account, records and other financial statements held by any of the defendants, or within their control, relating to the marketing and sale of such leases.  He was authorised to take possession of and collect all proceeds from the sale of such leases and pay the same into an account at a bank opened by him for that purpose.  Other directions were made in relation to the sale or proposed sale of leaseholds.  In paragraph 8 of the orders made on 16 December 2010 the court directed,

Out of the net proceeds of sale (after deduction of costs in accordance with these orders), the receiver shall pay interest and fees and so much of the proceeds by way of reduction of principal as the National Australia Bank requires on the following accounts with the National Australia Bank:

(a)     bill facility No 85-732-5429 in the name of Beloti Pty Ltd;  and

(b)bill facility No 16-858-2825 in the names of the plaintiff and the first defendant.

1. The appointment of the receiver was confirmed and his powers extended by a further order made on 4 February 2011, following judgment in a separate trial under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2005, to determine the extent and limits of partnership property.  Paragraph 9 of that order repeated paragraph 8 of the order made on 16 December 2010.

1. Since those orders were made the receiver has undertaken some sales, collected some proceeds and paid a total of $367,099 to the National Australia Bank. 

1. On 24 March 2011, Wimpole repaid the entire balance outstanding on bill facility No 16-858-2825 which had been negotiated with the bank in relation to the purchase of the Koonwarra property.  In addition, Wimpole repaid the amount due under a commercial overdraft facility with the bank.  That left only the Beloti’s facility 85-732-5429 which had been negotiated by Beloti in December 2008.  The facility is secured over the Somer’s land, the assets of Beloti and various other assets of the Simms Corp group of entities. 

1. While the Bank submitted that under the terms of the facility, it was entitled to the whole of the net proceeds of sale of leaseholds, it did not press that claim at this time.  The bank was in no position to press any claim.  It is not a party to this proceeding, it has not commenced a proceeding in which such a claim may properly be agitated, and it has not sought to assert a claim by the appointment of a receiver of the property.  

1. Wimpole contended that the bank had no remaining security interest in the unsold leases.  That may be so, but the bank did not assert its claim on that basis.  Wimpole contended, in effect, that any claim the bank may have to the proceeds of sale, would not crystallise until a final settlement of accounts between the partners has taken place.  Wimpole anticipated that it would be the major beneficiary of the net proceeds, once Beloti’s obligations to account have been assessed by a court. 

1. Wimpole would have the receiver retain the whole of the net proceeds of sale of leases at Somers and Koonwarra, whether sold individually or ‘in one line’, until the final determination of the dispute between the parties.  It is motivated to prevent the application of the fund in reduction of an obligation which it characterises as the sole obligation of Beloti.  Wimpole contended that when Beloti discharged the original facility, following termination of the partnership, Wimpole no longer had any liability to the bank.  By unilaterally renegotiating the facility in late 2008, Beloti crystallised any liability that Wimpole had to Beloti for its share of the purchase price of Somers, and assumed sole responsibility for the new facility. 

1. Wimpole contended that the bank would suffer no prejudice because it had a range of security from other sources.  It also sought to achieve some certainty as a potential bidder for the leases ‘in one line’ to be sold by the receiver.  The price it might be willing to pay may depend upon the extent to which it can prevent the proceeds from being paid to the NAB in discharge of Beloti’s debt. 

1. The essence of Wimpole’s case that the receiver should retain all proceeds from the sale of leaseholds is based on a submission concerning the operation of cl 7 of the partnership agreement following termination of the partnership, s 48 of the Partnership Act 1958 and the decision of the High Court in Rowella Pty Ltd v Abfam Nominees Pty Ltd.[1] It is common ground that the unsold leases are partnership property. Wimpole submitted that following dissolution, partners are first entitled to have their advances and capital repaid and then any remaining residue is distributed according to the profit sharing formula in the partnership agreement. Section 48 of the Partnership Act provides,

   [1](1989) 168 CLR 301.

48       Rule for distribution of assets on final settlement of accounts

In settling accounts between the partners after a dissolution of partnership the following rules shall subject to any agreement be observed—

(a)losses including losses and deficiencies of capital shall be paid first out of profits next out of capital and lastly if necessary by the partners individually in the proportion in which they were entitled to share profits;

(b)the assets of the firm including the sums (if any) contributed by the partners to make up losses or deficiencies of capital shall be applied in the following manner and order—

(i)in paying the debts and liabilities of the firm to persons who are not partners therein;

(ii)in paying to each partner rateably what is due from the firm to him for advances as distinguished from capital;

(iii)in paying to each partner rateably what is due from the firm to him in respect of capital;

(iv)the ultimate residue (if any) shall be divided among the partners in the proportion in which profits are divisible.

1. Wimpole submitted that, notwithstanding cl 7, following dissolution it was not possible to identify an entitlement of any partner until after those steps had been taken and accounts settled.   The bank’s fallback position helped to define the issue.   The bank contended that at the very least its security over the assets of Beloti extended to any profit derived from the sale of leaseholds by the receiver immediately profit had been calculated under cl 7 following a sale.  The bank argued that the unique provisions of the partnership agreement identified separate partnerships in respect of each Project.  Thus, once authorised deductions had been made from the proceeds of sale, the net amount immediately became the property of each partner in their respective proportions.  Beloti’s share of the net proceeds were charged in favour of the bank. 

1. The bank also characterised Wimpole’s application as, in effect, an application for a freezing order in relation to the proceeds to protect the value of any judgment against Beloti.  In some respects that characterisation is apt.

1. It will be observed that the prefatory words in s 48 make the rules set out ‘subject to any agreement’. The provisions of the partnership agreement are set out at length elsewhere.[2]  The agreement is unusual in that it identifies separate Projects, although that term is not defined.  While the agreement does not expressly make provision for the distribution of surplus following dissolution, it seems reasonably clear that each Project is a limited undertaking to subdivide and sell leaseholds on a certain property.  The freehold is held outside of the partnership.  The costs associated with acquisition and subdivision are to be shared according to the ownership entitlement in the freehold.  In the calculation of profit in each project, no account is to be taken of the acquisition and development costs.  That is made plain in cl 7.1(c).  Thus, it was argued, there is no room for the application of the usual rules, because there is only one component to deal with, whether before or after dissolution – net profit on each sale calculated according to cl 7.

   [2]Wimpole Properties Pty Ltd v Beloti Pty Ltd (No 2) [2011] VSC 85.

1. While there is much to be said for the proposition that each Project ought to be viewed separately when calculating the distribution of surplus assets following dissolution, the bank’s approach ignored what had gone before.  The bank in effect wanted to draw a line between the reconciliation of partnership profit distributions from past sales and future sales. 

1. There is a dispute between Wimpole and Beloti about their respective entitlement to profits derived from the sale of leaseholds at Blue Gum, Koonwarra and Somers.  Beloti contends that Wimpole has diverted Beloti’s profit share to itself.  Wimpole, alleges that Beloti is indebted to the partnership and that the partnership is indebted to Wimpole for profit share.  According to Wimpole it is not possible to somehow quarantine the past sales of partnership assets, and the application of the proceeds, from an assessment of entitlements for the purpose of settling accounts between the partners.    Never the less, having regard to the unusual nature of the partnership and its terms, it cannot be said that the position adopted by the bank is not arguable.

1. Beloti adopted the position of the bank, without adding to the argument.  That is not surprising, as Beloti’s liability to the bank is reduced by whatever might be paid to the bank by the receiver. 

1. While Wimpole’s application will succeed, at least for the time being, it is not for the reasons advanced by Wimpole.  It is not appropriate to make the variation sought by Wimpole in order to protect a fund from which a judgment debt might be satisfied.  As for Wimpole’s desire for certainty when making a bid for the unsold leases, it is not possible to achieve that certainty in the absence of  a proceeding brought by the bank or a challenge to a claim by a receiver appointed over Beloti’s assets.       

1. In order to preserve the fund over which there will at least be competing claims by Wimpole and the bank, the course I propose to adopt is to require the receiver to retain the proceeds of sale of the partnership assets pending the settling of accounts     

between the partners in finalisation of the dissolution.  In so doing I have not reached any concluded view about the validity of the bank’s claim to some or all of those funds.  There is presently no occasion for deciding any such question.  Should the bank, or receivers appointed by it, seek to assert a claim to some or all of the proceeds, the validity of that claim may be determined in due course in a proceeding in which the issue properly arises.  In the meantime, the fund should be preserved pending the settlement of accounts.

1. Accordingly, I propose to vary the orders made on 16 December 2010 and 4 February 2011 by requiring the receiver to retain such funds as he derives from the sale of leaseholds at Somers, Koonwarra and Blue Gum subject to further order of the court.  I will reserve to Wimpole, Beloti through its liquidator and the bank the right to apply hereafter on notice to the other parties for a further variation of the directions to the receiver as to the application of any funds held by him from the sale of the leaseholds.

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