Mahasivam v Thuraisingham

[2021] NZHC 3221

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-000794

[2021] NZHC 3221

UNDER

the Partnership Law Act 2019

BETWEEN

SHYAMA MAHASIVAM

Plaintiff

AND

KUMAR THURAISINGHAM

Defendant

Hearing:

17 August 2021

Appearances:

R Parmenter for the Plaintiff

S Khan and M Orange for the Defendant

Judgment:

8 December 2021

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 8 December 2021 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Graham & Co, Auckland R Parmenter, Auckland

MAHASIVAM v THURAISINGHAM [2021] NZHC 3221 [8 December 2021]

Introduction

[1]    Ms Shyama Mahasivam and Mr Kumar Thuraisingham arranged to develop and sell two properties at 24 McKinstry Avenue, Māngere East. The nature of the arrangement is disputed. Ms Mahasivam claims that they were in partnership. She says that, in breach of the partnership, Mr Thuraisingham has failed to supply her with information about the development project. She wants the partnership dissolved. She seeks summary judgment of her claim for an order requiring Mr Thuraisingham to supply her with the information she has requested.

[2]    Mr Thuraisingham opposes the application for summary judgment. He maintains that he and Ms Mahasivam were not in a partnership.

[3]    Ms Mahasivam relies on a written agreement that she and Mr Thuraisingham signed before the project began. The document describes them as equal partners and requires them to provide each other with full information and truthful explanations of all matters relating to  the  partnership.  Further,  Ms  Mahasivam  maintains  that  Mr Thuraisingham is required by s 54 of the Partnership Law Act 2019 to provide her with true accounts and full information of all things affecting the partnership.

[4]    Mr Thuraisingham does not deny that he signed the written agreement, but he says he did not read it before doing so. He contends that the agreement does not reflect the reality of the arrangement he and Ms Mahasivam made.

[5]To decide this application, I need to decide two main issues:

(a)Were Ms Mahasivam and Mr Thuraisingham in a partnership relationship?

(b)Is Mr Thuraisingham obliged to provide the information?

Legal principles concerning summary judgment

[6]    To  order  summary  judgment,  this   Court   needs   to   be   satisfied   that Mr Thuraisingham has no arguable defence to Ms Mahasivam’s claim, meaning that there is no real question to be tried.1

[7]    The principles to be applied in a plaintiff application for summary judgment have been clearly established through decisions of the Court of Appeal in Pemberton v Chappell and Krukziener v Hanover Finance Ltd.2 It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, especially where issues of credibility arise. This does not mean that the Court must accept every factual assertion made in opposition to an application for summary judgment. The Court is entitled to take a robust and realistic approach where the facts require it.

[8]    At the heart of this case is a factual dispute about the nature of the arrangement between Ms Mahasivam and Mr Thuraisingham. I will now describe what each of them say about that arrangement.

The parties’ evidence

Ms Mahasivam’s evidence

[9]    In her  affidavit  in  support  of  the  application  for  summary  judgment,3  Ms Mahasivam deposes that she “went into a Partnership agreement with Kumar Thuraisingham … to develop and dispose of 24 McKinstry Ave, Māngere East, and share the profit and not the loss”. She annexes a written agreement signed by both parties. The written agreement is not dated, but Ms Mahasivam deposes that it was signed in March or April 2019.

[10]   The agreement is based on a boilerplate agreement downloaded from the internet. It is entitled “Partnership Agreement” and provides:4

1      High Court Rules 2016, r 12.2(1).

2      Pemberton v Chappell [1987] 1 NZLR 1 (CA); and Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.

3      Affidavit of Shyama Mahavisam affirmed 30 April 2021.

4      Affidavit of Shyama Mahavisam affirmed 30 April 2021, exhibit A.

PARTIES

1.Kumar Thuraisingham

2.Shyama Ma[h]asivam

BACKGROUND

AThe parties have agreed to carry on business together as partners.

B          The parties intend to carry on their business as an equal partnership. C      The parties wish to record the terms of their partnership in writing. THE PARTIES AGREE

1.To become partners upon the terms set out in this Deed.

The business of the partnership shall be that of Contract to build two new dwellings

2.to be carried out on at 24 Mc[K]instry Street or at such place or places as the partners may from time to time agree upon.

3.The partnership commenced on 5 April 2019 and will continue until terminated by agreement, or in the manner provided by law.

4.The firm name of the partnership will be Kumar Thuraisingham and Shyama Mahasivam insert firm or trading name of partnership.

5.The bankers of the partnership will be the ASB Bank. The accountants of the partnership will be Kumar Thuraisingham and Shyama Mahasivam.

6.Shyama Mahasivam will contribute the sum of $880,000 capital contribution towards the capital of the partnership and Kumar Thuraisingham will contribute further sums or assets as are agreed from time to time.

7.The partners will share the net profits of the business equally and Kumar Thuraisingham will be responsible for any losses.

…

12.      Each partner must:

…

(d) Be just and faithful to the other partner and at all times provide full information and truthful explanations of all matters relating to the affairs of the partnership.

[11]Ms Mahasivam deposes that she paid Mr Thuraisingham a contribution of

$830,000 from 7 April 2019 to 30 September 2019.

[12]   She does not provide any further explanation about the nature of the arrangement.

[13]   Ms Mahasivam deposes that the project duration was to be seven months from 25 March 2019, but that it has not been completed. She now considers that she is at risk of being cheated out of the profits of the venture. She deposes that she has requested updates from Mr Thuraisingham about the state of the project, the amount she paid and the profit she is due. She suspects that Mr Thuraisingham has misused “the partnership property”. She believes he has sold one lot conditionally, rented two other premises, mortgaged all three properties to fund a development by his family, and that he has deliberately made slow progress so he can use the properties as security for his personal developments. She states that once she has the information requested, she will evaluate it and may amend her statement of claim to claim damages for misuse of the partnership property.

Mr Thuraisingham’s evidence

[14]   Mr Thuraisingham  deposes  that  he  entered  into  the  arrangement  with  Ms Mahasivam when he was unable to raise a loan to fund the development because he did not yet own the sections.5 He says that he and Ms Mahasivam verbally agreed that:

(a)she would obtain a loan of $830,000 which she would advance to    Mr Thuraisingham to pay for the subdivision and construction works at 24 McKinstry Avenue;

(b)once the project was completed and the new titles were issued, he would obtain finance from the bank and repay her the $830,000 plus a fixed return of $55,000.

[15]   He agrees that Ms Mahasivam paid the $830,000 between April–September 2019.

5      Affidavit of Kumar Thuraisingham sworn 14 June 2021.

[16]   Mr Thuraisingham says that a few days before Ms Mahasivam’s first payment was due, she brought the written agreement to him to sign. He says that she said the purpose of the written agreement was to formalise what had already been agreed verbally. He deposes that he did not read the agreement. He explains that he has poor reading abilities and struggles to read anything more complex than short emails and text messages. Whenever legal documents are required, he relies on lawyers to read them and advise him.  But in this case, he did not refer the written agreement that  Ms Mahasivam asked him to sign to his lawyers. He did not think it was necessary, given Ms Mahasivam was his friend and he trusted her.

[17]   He states that now that his lawyers have explained what the written agreement says, it is not what he and Ms Mahasivam agreed. He states that he did not agree that he and Ms Mahasivam were entering into a partnership. He states that there was no profit-sharing  aspect   to  their  arrangement.   He  states  that  they  agreed  that    Ms Mahasivam would receive a fixed $55,000 return on her investment once the project was completed – no more, no less.

[18]   Mr Thuraisingham deposes that Ms Mahasivam had no authority over the project. He states that she has no experience in property development. All that she brought to the arrangement was her money.

[19]   Furthermore, they did not open a partnership bank account, register a partnership with the IRD for tax purposes, or obtain a New Zealand business number for any partnership.

[20]   He deposes that a few days before Ms Mahasivam’s first payment, she asked that he pay the interest payments on her borrowing. He agreed to pay this interest and continues to do so.

[21]   He explains  that  whereas  his  original  arrangement  with  the  vendor  of  24 McKinstry Ave was that title to the two subdivided properties would not pass until the subdivision was complete, in October 2020 the situation changed. The vendor was facing financial difficulties, so Mr Thuraisingham purchased the property himself. He

deposes that by this time his financial position was stronger, and he was able to obtain finance from the bank for the purchase.

[22]   Mr  Thuraisingham  annexes   two   emails   from   Ms   Mahasivam   dated   9 August 2020 and 16 February 2020 to his affidavit. In these emails Ms Mahasivam demands immediate repayment of her $830,000 advance, plus $55,000, plus an amount of $9,741.78.

[23]   At the date of his affidavit, sworn on 14 June 2021, Mr Thuraisingham was waiting for s 224(c) certificates for the subdivided sections from Auckland Council.

Ms Mahasivam’s evidence in reply

[24]   In her affidavit in reply,6 Ms Mahasivam deposes that before they signed the partnership agreement, Mr Thuraisingham told her that he would provide her with a development forecast, that they would be equal partners and that he would share the profit 50:50 with her. She denies that they agreed that he would refinance the properties and that he would repay her. She denies that they agreed that she was to be paid $55,000 only. She also rejects the assertion that the basis of their relationship was a friendship. Rather, she deposes he was a tenant in one of her investment properties.

[25]   She deposes that on 28 March 2019, Mr Thuraisingham emailed her a profit forecast, the contents of which she has pasted into her affidavit. The document sets out the sum projected cost of the land and development to be $1.28 million, comprising:

(a)       land – $530,000;

(b)construction – $675,000;

(c)water meter and plinth – $35,000;

(d)interest on borrowings – $40,000.

6      Affidavit of Shyama Mahasivam affirmed 18 June 2021.

[26]   The forecast predicts a sale price of $1.39 million. Therefore, Ms Mahasivam says that the forecasted profit was $110,000. Ms Mahasivam deposes that this explains the reference in her email of $55,000.

[27]   In reply to Mr Thuraisingham’s statement that they never set up a joint account or other features of a partnership, Ms  Mahasivam  describes  a meeting  between  Mr Thuraisingham’s accountant and her lawyer, the purpose of which was to choose the correct structure and set up a joint account.

Were Ms Mahasivam and Mr Thuraisingham in a partnership relationship?

The approach to this question

[28]   The Partnership Law Act 2019 (the Act) applies to every partnership regardless of when it was formed.7 Section 8 of the Act defines a partnership as “the relationship that exists between persons carrying on a business in common with a view to profit”. Absent from this definition are any formal requirements, and so the courts have held that a partnership may arise from an informal oral arrangement just as it may from a formal documented agreement.8 The Court of Appeal in Zheng v Deng went so far as to say that, in determining whether a partnership exists, there is “limited assistance to be had from the authorities, because the analysis is inevitably highly fact-specific”.9 The s 8 definition also indicates that nomenclature, or the label the parties ascribe to their interactions, is unimportant.10 What matters is the nature of the relationship, as exhibited by the facts and circumstances. So, it remains open to a court to determine that no partnership came into existence, even where one is asserted by both parties.11 For example in Clark v Libra Developments Ltd,12 Chambers J was not persuaded by the fact the term “partnership” had been used when referring to the parties’ relationship, observing that neither party was expert on legal matters; and neither was

7      Partnership Law Act 2019, cl 1 of sch 1.

8      Clark v Libra Developments [2007] 2 NZLR 709 (CA) at [155] per Williams and Gendall JJ. Appeal dismissed.

9      Zheng v Deng [2020] NZCA 614 at [92].

10 Ryan v Mason [2011] 2 NZLR 791 (HC) at [39]; Commissioner of Inland Revenue v Williamson (1928) 14 TC 335 (IH) approved in Woodcock v Woodcock [2018] NZHC 470, [2019] NZCCLR 10 at [79]; Patel v Patel [2019] NZHC 2705 at [22]; Clark v Libra, above n 8, at [51].

11 Patel, above n 10; Clark v Libra, above n 8.

12 Clark v Libra, above n 8, at [57].

probably aware of the legal indicia of a partnership or the ramifications of partnership in the Partnership Act 1908.

[29]   It must be emphasised that a partnership in this context is a legal construct. Where certain facts and circumstances coalesce, the relationship is cloaked by the law with this status. As Chambers J has acknowledged, “it is not easy for lawyers and Judges to work out the correct pigeonhole in which to place a particular relationship”,13 but once the law does settle on the correct pigeonhole, implications flow from that. These range, in the instance of partnership, from the joint liability of partners for all debts and obligations of the firm,14 to the firm ownership of land purchased with money belonging to the firm,15 to the duty to prepare financial statements16 and ensure that they are audited.17

[30]   Applying these principles, the fact that Ms Mahasivam and Mr Thuraisingham signed a written agreement declaring themselves to be in partnership is highly relevant, but not decisive. I need to assess all that they said and did in order to objectively determine whether their relationship was one that the law regards as a partnership.

[31]   The Act sets out some matters that must be considered when determining whether a partnership exists.18 Section 12 provides that co-ownership of property does not by itself create a partnership. Despite that, the Court of Appeal in Clark v Libra Developments Ltd stated that a partnership normally connotes joint ownership of partnership assets.19

[32]   Section 13 provides that the sharing of gross returns does not by itself create a partnership.

13     Clark v Libra, above n 8, at [62].

14     Partnership Law Act 2019, s 22.

15     Partnership Law Act 2019, s 39.

16     Partnership Law Act 2019, s 60.

17     Partnership Law Act 2019, s 61.

18     Section 11.

19     Clark v Libra, above n 8, at [60].

[33]   Section 14 states that if a person receives a share of the profits of a business, it is presumed, in the absence of evidence to the contrary, that the person is a partner in the business. However, s 14(2) confirms that the receipt by a person of a share of the profits of the business does not by itself make a person a partner in a business.

[34]   Section 15(1)(d) and (3) provide that a partnership will not necessarily exist where one person advances money to another under a signed written contract where the lender will receive a share of the profits, or a rate of interest that varies with the profits.

My assessment

[35]   Viewing the evidence objectively, and mindful of the limitations of a summary hearing, I find that it is at least reasonably arguable that the parties were not in a partnership relationship. I will set out my reasons.

[36]   The main indicator of a partnership is the written agreement, signed by both parties. It is titled “Partnership Agreement”. The parties record that they have agreed to carry on business together as partners, in an equal partnership. The term “partnership” and “partner” is used repeatedly throughout the document. The contract contains standard provisions indicating a partnership, addressing matters such as the firm name, who the bankers and accountants will be, capital contributions and the sharing of profits, partner remuneration, the keeping of books of account, preparation of financial statements for the partnership including assets and liabilities of the partnership, partner drawings, and so on.

[37]   However, there is reason to be sceptical about this document as an accurate indicator of the arrangement between Ms Mahasivam and Mr Thuraisingham.

[38]   First,  it  is  a  template  agreement,   downloaded   from   the   internet   by Ms Mahasivam.20 Ms Mahasivam is not a lawyer. Neither party obtained legal advice before signing the agreement. It is quite possible that neither party appreciated the legal indicia and consequences of a partnership.

20     Affidavit of Shyama Mahasivam affirmed 18 June 2021.

[39]   Second, and relatedly, the evidence suggests that their involvement with each other did not proceed in the way contemplated by the agreement. Mr Thuraisingham deposes that no books of account were kept, no financial statements prepared, no partnership account opened, and no partnership registered with the IRD nor business number obtained. Notably, Ms Mahasivam does not dispute Mr Thuraisingham’s evidence on this point, other than to say that both parties met with Mr Thuraisingham’s accountant and intended to meet with his lawyer and that they decided to use their existing individual bank accounts due to the small scale of the project.

[40]   Moreover, there is no evidence of Ms Mahasivam being involved in the project beyond advancing the funds at the outset. Again, Ms Mahavisam does not dispute that. I am mindful of the observations of Gwyn J in Patel v Patel:21

The requirement that the business be carried on in common means there must be an element of joint participation, and this may manifest by way of shared rights or obligations.22

[41]   Additionally, when it became necessary to purchase the McKinstry Ave property from the vendor before the project was complete, the alleged partnership did not purchase it. Mr Thuraisingham purchased it alone. There is no evidence that the parties ever discussed co-owning the property. It is possible that Ms Mahasivam was unaware that Mr Thuraisingham had bought the property. Their evidence is silent on this subject.   Either way,  the fact that the subject property was not co-owned by   Ms Mahasivam and Mr Thuraisingham is a further indicator against a partnership.

[42]   In short, there is no evidence that Mr Thuraisingham and Ms Mahasivam “carried on business together as partners” as contemplated by the written agreement. There is simply no evidence of them being involved in a common enterprise that had the character of a partnership.

[43]   There are further discrepancies between the written agreement and what happened. The written agreement requires Ms Mahasivam to make a capital contribution of $880,000. In fact, she advanced $830,000. This difference is not explained in the evidence of either party. In addition, the written agreement does not

21     Patel, above n 10, at [26].

22     Checker Taxicab Co Ltd v Stone [1930] NZLR 169 (SC).

record Mr Thuraisingham’s agreement to pay the interest on her borrowing. These facts point to there being an oral agreement between the parties that added to and/or varied the written agreement.

[44]   Then, in an important respect, the written agreement is inconsistent with the parties being in partnership. At cl 7 there appears to be prepopulated text stating “The partners will share the net profits of the business equally”. Then, these words have been inserted: “and Kumar Thuraisingham will be responsible for any losses”. Typically, a partnership entails partners sharing equally in the capital and profits of the business and contributing equally to the losses.23 Ms Mahasivam’s case might be that the written agreement varied this usual arrangement in terms of sharing losses, which is permitted by the Act.24 But in that case, it is unclear what was to happen if the project did in fact make a loss. Was Mr Thuraisingham to inject capital into the “partnership” to cover any loss pursuant to cl 6 of the agreement? Neither party addresses this scenario in their evidence.

[45]   Finally, and importantly, Ms Mahasivam’s conduct is inconsistent with the parties being in a partnership and bound by the terms of the written agreement. In February and August 2020, she sent emails to Mr Thuraisingham demanding that he repay the $830,000 plus profit of $55,000. As she knew, the project was not yet complete. It would not have been possible at that point in time to determine if the project had made a profit or not. Furthermore, if the arrangement was a partnership, Ms Mahasivam’s capital contribution was capital of the partnership, to be shared equally between the partners.25 This default position was not varied by the written agreement. Thus, her demand for immediate repayment of her capital of $830,000 and profit, before the project was finished and the partnership wound-up, is difficult to reconcile with the notion of a partnership.

[46]   In my assessment, Mr Thuraisingham has a reasonably arguable defence that the arrangement with Ms Mahasivam was not a partnership, despite the written agreement. The true nature of their relationship cannot be resolved in this summary

23     Section 45. See also Patel, above n 10, at [33].

24     Section 35.

25     Section 45.

context where key facts are disputed or not addressed; and their respective credibility cannot be assessed. There needs to be a trial, where Ms Mahasivam can to be asked why, if it was a profit share arrangement, she demanded her capital back, and a profit, before the project had reached its conclusion. The parties need to explain what was intended to happen if the project made a loss. Mr Thuraisingham needs to explain the profit forecast provided to Ms Mahasivam at the beginning of the project. The Court needs to hear evidence on how Ms Mahasivam was involved in the project, if at all; and whether she was aware of Mr Thuraisingham’s acquisition of the property.

Is Mr Thuraisingham obliged to provide the information requested?

[47]   Ms Mahasivam has demanded information from Mr Thuraisingham concerning McKinstry Avenue, including a financial report and copies of financial records, legal documents concerning any sales, leases, mortgages or loan offers, and an explanation of the status of the development. She claims that Mr Thuraisingham is obliged to provide her with the information under s 54 of the Act; and cl 12(d) of the written agreement.

[48]Section 54 of the Act provides that:

Partners must provide true accounts and full information of all things that affect the partnership to any partner or any partner’s legal representatives.

[49]   I have concluded that there is a reasonable defence that there was no partnership in substance between the parties. As a result, there is a reasonable defence that the s 54 duty to provide true accounts and full information, does not apply.

[50]   It follows also that there is a reasonable argument that Mr Thuraisingham is not obliged to provide Ms Mahasivam with the information she has requested under cl 12(d) of the written agreement. Clause 12(d) of the written agreement provides that a partner must be just and faithful “to the other partner” and always “provide full information and truthful explanations of all matters relating to the affairs of the partnership.” If there is no partnership, they are not partners, and there is no information  “relating  to  the  affairs  of  the  partnership”.    At  the  very  least,    Mr Thuraisingham has a reasonable defence to that effect.

[51]   That finding disposes of the application. But I will briefly respond to an objection   Mr   Parmenter   raised   in   reply.   Mr  Parmenter  submitted  that   Mr Thuraisingham was prevented from adducing extrinsic evidence to contradict, vary or add to the written agreement, by the parol evidence rule. I interpreted this submission to respond to a submission made by Mr Khan that the written agreement does not represent the true agreement between the parties, and that the Court needs to consider the oral agreement that Mr Thuraisingham says preceded it.

[52]   This year the Supreme Court brought some clarity to principles of contract interpretation and the admissibility of extrinsic evidence in Bathurst Resources Ltd v L & M Coal Holdings Ltd:26

The parol evidence rule provides that when parties have reduced a contract to writing, extrinsic evidence is inadmissible to add to, vary or contradict the writing… But it is well settled that the parol evidence rule does not govern the admissibility of extrinsic material in relation to contractual interpretation, as the interpretation of a contract does not involve any change to or overruling of the written terms.

[53]    Of course, there are exceptions to the parol evidence rule. These include for evidence of a prior oral agreement which by mistake has not been recorded correctly in the written contract. In that instance, the remedy of rectification may be available. There is also an exception for where the written document was never intended to be the whole contract, in which case evidence of oral terms will be admissible.27

[54]   I do not need to rely on Mr Thuraisingham’s evidence of the alleged oral agreement to conclude that there is as reasonable defence that cl 12(d) does not require Mr Thuraisingham to provide the information requested. That conclusion follows inevitably from the finding that it is arguable the parties were not in a partnership relationship. I do not consider that the parol evidence rule is relevant to that issue, where the Court is determining, as a question of fact and law, whether the relationship has the character of a partnership; rather than determining the legal effect of the written contract the parties entered into.

26     Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85 at [56] (citations omitted).

27     See Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 178.

Result

[55]   I have found that Mr Thuraisingham has a credible defence that the arrangement between the parties was not a partnership. Therefore, I have found that the defendant has a reasonable argument that he is not obliged to provide the information requested under s 54 of the Partnership Law Act 2019, or cl 12(d) of the written agreement between them.

[56]The plaintiff’s application for summary judgment is dismissed.

[57]   Following NZI Bank Ltd v Philpott,28 costs in relation to the summary judgment are reserved.

Associate Judge Gardiner

28     NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).