BETWEEN : BADEN WILLIAM BANT AND REX DONALD BANT (as Executors of the Estate of JOYCE EILEEN BANT)

Partnership - Property held by co-tenants - Whether partnership property

Declaration that the property is partnership property

1 The plaintiffs are the executors of the Estate of Joyce Eileen Bant ("Mrs Bant"). Mrs Bant's son, Mr Baden Bant ("Mr Bant") is one of the executors and in his own right is the first defendant. Mrs Bant's daughter, Mrs Sharon Thompson ("Mrs Thompson"), is the second defendant. At the date of her death on 27 June 1999, Mrs Bant was a member of a partnership known as "Bant and Babel" comprised of herself, Mr Bant, Frank Alfred Max Babel ("Mr Babel") and Eleanor Avis Babel ("Mrs Babel") ("the partnership"). She was also a registered proprietor in common with each of her partners of a quarter share in a property situated at 23 Quarry Street, Fremantle ("the Quarry Street property").

2 In her will dated 23 August 1974, Mrs Bant left her interest in the partnership to Mr Bant and the residue of her estate to her three children in equal shares. By originating summons filed 6 May 2002, the plaintiffs seek a declaration as to whether at the date of her death, Mrs Bant owned the Quarry Street property in her own right or whether it was an asset of the partnership. The answer is important as if the former is true the Quarry Street property will form part of the residual estate, while if the latter is true, it will increase the value of Mrs Bant's share in the partnership, which upon taking final accounts, will pass to Mr Bant.

3 The partnership of Bant and Babel was originally formed by Mrs Bant's husband William Horace Bant ("Mr Bant Snr"), and Mr Babel some time prior to 1965. In a Deed of Indenture dated 28 May 1965 made between Mr Bant Snr, Mrs Bant, Mr Babel and Mrs Babel ("the Indenture"), the partnership business of Bant and Babel was declared to belong to Mr Bant Snr and Mr Babel with the wives having no interest in the partnership. The Indenture provided that although land in Certificate of Title Volume 916 Folio 196 ("the Brixton Street land") was owned by each couple jointly as tenants in common with each other, in consideration for Mr Bant Snr and Mr Babel providing the purchase price for the land, the partnership was granted sole use and occupancy of it at a rent to be agreed, or failing agreement, rent free. The partnership was responsible for the payment of all rates, taxes, insurances and other outgoings and was required to undertake repairs to the land and improvements. However, title to the Brixton Street land was not registered in any of the parties' names until 21 July 1972, (some two years after Mr Bant Snr died) when it was registered in the names of Mr and Mrs Babel as joint tenants of one undivided half share in common with Mrs Bant as to the other undivided share. At the time of entering into the Indenture, Mr Bant Snr and Mrs Bant also owned land in Stirling Highway which was also used for partnership purposes but the Indenture made no mention of it.

4 The primary purpose of the Indenture was to ensure that the Brixton Street land remained beneficially owned by the parties even though the partners provided the funds for its purchase and the partnership was granted sole use and occupancy of it. Its other main purpose was to ensure that the parties did not dispose of their interests in the land other than by the means set out in the Indenture.

5 Mr Bant Snr died on 6 December 1970. As a partnership cannot continue where there is a sole surviving partner, (Hurst v Bryk [1999] Ch 1, 10D (CA)), in the absence of a contractual right for the surviving partner to acquire the share of the deceased partner, the partnership is dissolved and upon taking of final accounts its net assets are distributed to the surviving partner and the estate of the deceased partner. However, there is no evidence before me as to whether this actually occurred, and if it did occur, what assets were treated as partnership property in the winding up process. There is also no evidence of how or by whom the partnership business was conducted between the time the original partnership was wound up and when a new partnership was formed between Mr and Mrs Babel, Mrs Bant and Mr Bant on 1 February 1974.

6 The terms of this new partnership are set out in a Deed of Partnership dated 14 May 1974 ("the Deed"). There is no provision in the Deed relating to the ownership or use of the Brixton Street land, the Stirling Highway land or Lot 4 in Brixton Street which was also registered in the names of Mr and Mrs Babel, Mrs Bant and Mr Bant. The Deed also makes no mention of the Quarry Street property although this is not unusual as the land was not registered in the partner's names until 20 May 1975.

7 Mrs Bant died on 27 June 1999. It is an axiom of partnership law that any change in the membership of a partnership, including the death of one of the members, has the consequence of dissolving the partnership: Partnership Act 1895 (WA) s 44(1), (3). After dissolution, the partnership's affairs are wound up by realising the assets and paying the debts and liabilities of the partnership before distributing the surplus, if any, among the partners according to their rights and interests: Partnership Act s 50. Winding up in this way can be avoided if the parties agree on a sale to one or more of the remaining partners of the shares of the outgoing partner, or if there is a provision in the partnership agreement to that effect. In Rushton (Qld) Pty Ltd & Anor v Rushton (NSW) Pty Ltd & Anor [2002] QCA 210, McPherson JA (with whom the other members of the court agreed) described this "technical or notional dissolution", as "something of a misnomer because it is not the dissolution but, at most, the winding up that is notional. The partnership itself is dissolved as soon as there is a change in membership, but the assets and, as between the partners, responsibility for the liabilities of the partnership are taken over by the remaining partners".

8 The partnership was dissolved upon Mrs Bant's death and although cl 14 of the Deed contained a means for its reconstitution in the sense described by McPherson JA above, specifically by Mr Bant or one or other of the partners electing to purchase Mrs Bant's share, this was never carried into effect. The partners were therefore entitled to receive their due proportion of the surplus remaining after discharging the liabilities: Bakewell v Deputy Federal Commissioner of Taxation [1937] HCA 11; (1937) 58 CLR 743 at 770. The issue for me to determine is whether the Quarry Street property can properly be described as partnership property so that the proceeds of its sale are included in that surplus.

9 The onus of proving that property is partnership property rests with the party making the claim: Harvey v Harvey [1970] HCA 11; (1970) 120 CLR 529 at 549 per Barwick CJ; Miles v Clarke [1953] 1 All ER 779 at 782; Kelly v Kelly (1990) 92 ALR 74 at 78. The fact that property is co-owned by persons as tenants in common, of itself does not create a partnership in respect of the property: Partnership Act 1895 (WA) s 8(1). However, if co-owners use their land or other property for the purpose of carrying on any business, they are partners in the business (Folks v Woolf [1933] VicLawRp 66; [1933] VLR 403) and prima facie also partners in relation to the property so employed (Forster v Hale [1798] EngR 78; (1798) 3 Ves 696; 30 ER 1226) although not necessarily so as regards that property (Ex parte McInnes (1870) 9 SCR (NSW) L 28; Harvey v Harvey at 549; O'Brien v Komesaroff [1982] HCA 33; (1982) 150 CLR 310).

10 Whether property becomes partnership property will be determined by the agreement between the partners as well as their acts and intentions: O'Brien v Komesaroff at 322; Kelly v Kelly at 78. Such a question will not arise if, at the commencement of the partnership, there is an express agreement between the partners regarding the status of the personal property introduced by partners into the partnership: Evans v Guthridge (1864) 1 WW & A'B (E) 119, SC (VIC); Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165; (1959) 77 WN (NSW) 844, SC (NSW). In the absence of express agreement, whether property is partnership property may be implied by conduct or inferred by the court from all available evidence, including the partnership agreement, the conduct of all parties, accounting records and the partners' understanding and knowledge of the requirements of the business: Harvey v Harvey at 553 per Menzies J, at 563 per Walsh J. In determining whether property is that of the partnership, the courts must disregard legal title and not presume any more agreement between the partners regarding property than is absolutely necessary to give efficacy to the business: Miles v Clarke at 540; Kelly v Kelly at 79. Where a partner provides premises for the partnership business to operate from and there is no express agreement as to the status of the premises, factors such as the method of accounting for capital contribution and rent will be indicative of whether or not those premises are partnership property: Harvey v Harvey. Where the capital account of the partnership is credited with the value of the premises, the premises become partnership property in the absence of special agreement, although there has been no change in legal title: Robinson v Ashton (1875) LR 20 Eq 25 at 28 per Jessel MR. Where a partner is credited with regular rent payments this indicates that the property belongs to that partner: Robinson v Ashton.

Is the Quarry Street property "partnership property"?

11 In the present case, there is no evidence of any express agreement between the partners as to the status of the Quarry Street property. In these circumstances, as it is Mr Bant who claims that the property is partnership property, it falls to him to prove that by their conduct, the partners intended that the property be regarded as partnership property. He is assisted in some measure by the fact that it is not in dispute that the partnership used the property for partnership purposes and that it did not pay rent to the co-owners. While in most cases these facts would support the inference that this was so because the property belonged to the partnership, in the present case there is evidence that other properties owned by some or all of the partners were also used by the partnership in the course of its business without the requirement to pay rent, yet it is not contended that those properties belong to the partnership.

12 In these circumstances, how the Quarry Street property was treated in the financial accounts of the partnership takes on great significance. In the partnership's balance sheets dated 30 June 1985 and 30 June 1990, its financial statements for the years ending 30 June 95 and 30 June 1998, and the partnership taxation return for the 1997/98 financial year, the Quarry Street property is shown as a capital asset of the partnership. Further, note 1 to the financial statements for the year ending 30 June 1998 states that "These financial statements are a special purpose financial report prepared in order to satisfy the requirements of the partnership deed to prepare financial accounts."

13 Mr Bant claims that these accounts were never disputed by any of partners and that in any event, cl 13 of the Deed deems them to be binding upon them if they are not disputed within three months of their circulation. The absence of any dispute is evidence, he says, that the accounts were accepted by the partners as being a true and correct reflection of the partnership's assets and liabilities. While Mr Bant has not provided any affidavit evidence from Mrs Babel or Mr Babel's personal representative (Mr Babel since having died) as to how they regarded the Quarry Street property, the fact that the partnership accounts provided to me continued to show the property as a capital asset over an aggregate period of some 13 years, suggests that they concurred with this treatment of the asset. Further, even if one or more of the partners had disagreed with the Quarry Street property being included as a capital asset in the 1985 accounts, that disagreement did not result in a change in the property's status, given that the partnership accounts continued to record it as a capital asset in 1990, 1995 and 1998. I can only infer from this that the partners agreed that this was a true assessment of its status. It is also of some weight that despite the members of the partnership owning other properties in their own right (for example the properties in Brixton Street) and also allowing the partnership to use those properties in the course of its business without paying rent, the Quarry Street property is the only property to be treated as a capital asset in the accounts of the partnership and in fact is the only property mentioned in the partnership accounts at all.

14 Against this evidence, I must balance the fact that Mr Bant has failed to provide additional evidence which one would have reasonably expected him to have provided. Specifically, he has failed to produce any evidence going to:

• the source of the funds used to purchase the property;

• whether the National Australia Bank loan taken out to assist with the purchase was borrowed by the partners in their personal capacities or as partners in the business;

• the source of the funds used to discharge the mortgage in April 2000 after Mrs Bant's death;

• whether the proceeds of the sale of the Quarry Street property were paid into the partnership accounts in accordance with cl 4 of the Deed;

• how the property was treated by the partners for any capital gains tax purpose; and

• whether partnership funds were used to structurally maintain or improve the property.

15 As a partner, Mr Bant would have had full access to all of the financial records of the partnership and so I am aware of no reason why he could not have provided this additional evidence. There is a paucity in the number and detail of the partnership accounts which he has tendered. Given that the partnership was in existence for 25 years and must have prepared accounts and submitted tax returns for all of those years, I would have expected Mr Bant to have produced documents for more than four years. It is also odd that Quarry Street property, despite appearing in the capital accounts of the partnership, was not identified as a partnership asset by Bird Cameron when it valued the business for Mrs Bant's estate in September 1999. Rather, that firm expressed the belief that the property was not owned by the partnership but was owned by "associated persons". Given that the valuers were also the partnership's accountants for many years, this is a perplexing anomaly.

16 However, despite the gaps and anomalies in the evidence, the partnership accounts are the only evidence before me capable of shedding light on the status of the Quarry Street land and, in the absence of any other considerations, I should base my findings upon them. Mrs Thompson complains that, not being a partner, she has been unable to obtain access to the partnership accounts in order to properly present her case. While it is true that Mrs Thompson would not ordinarily have access to the partnership accounts, if she believed that they could assist her case, she could have taken advantage of O 58 r 27 of the Supreme Court Rules and sought an order for their discovery. Alternatively, if she believed that there were important disputes of fact which needed to be resolved, she could have sought an order that the matter proceed as an action. That she did not do either is fatal to any assertion on her part that she was unable to properly put her case before the court due to an inability to access the partnership records.

17 Mrs Thompson also takes issue with Mr Bant's interpretation of the partnership accounts which he has provided. Specifically she relies on the findings of Hodgson J in Mangraviti v Mangraviti, unreported; SCt of New South Wales; 19 November 1992 which were accepted by White J in Clay & Ors v Clay, unreported; SCt of WA; Library No 970185; 28 April 1997 to support her assertion that the content of partnership income tax returns carry very little weight in determining the question of whether there is a partnership in existence among joint tenants. The evidence in that case was that at one time the Income Tax Assessment Act 1936 required owners of jointly owned property to furnish certain information to the Commissioner for taxation purposes. As there was some doubt as to the extent of what was required, the accounting practice of the day [circa 1970] was to submit a partnership tax return even though there was no actual partnership within the meaning of the Partnership Act 1895.

18 The difficulty with this submission is that the decision of White J in that case was based upon evidence before him as to the relevant accounting practice at the time. His Honour was not stating any general proposition of law concerning the effect of partnership tax returns. There is no evidence before me about any relevant accounting practice. Even if it were permissible for me to have regard to evidence tendered in another case, the evidence in Clay v Clay suggests that a different view should be taken of accounts prepared in 1998. The accounts do not advance the proposition that the property was only included in the partnership accounts in order to comply with past provisions of the Income Tax Assessment Act 1936 relating to jointly owned property.

19 Mrs Thompson also relies on s 30(3) of the Partnership Act 1895 for her claim that even if the Quarry Street property was purchased with partnership funds as Mr Bant alleges, that it still belonged to its co-owners in their own right. In order to deal with this submission I will set out s 30(3) in full:

" (3) Where the co-owners of an estate or interest in any land, not being itself partnership property, are partners as to profits made by the use of that land or estate, and purchase other land or estate out of the profits to be used in like manner, the land so purchased belongs to them, in the absence of an agreement to the contrary, not as partners, but as co-owners for the same respective estates and interests as are held by them in the land first mentioned at the date of the purchase."

20 Mrs Thompson submits that if the Quarry Street property was purchased with partnership funds, that those funds were profits generated by the use of the Brixton Street land (and other property owned by some or all of the co-owners of the Brixton Street land) and therefore belonged to Mr and Mrs Babel, Mrs Bant and Mr Bant and not to the partnership.

21 There are several difficulties with this submission. First, the Brixton Street land was acquired by Mr and Mrs Babel, Mr Bant Snr and Mrs Bant at a time when the original partnership of Mr Babel and Mr Bant Snr was in existence. Therefore any property bought with the profits of that partnership by use of the Brixton Street land would by virtue of s 30(3) be the property of Mr and Mrs Babel, Mr Bant Snr and Mrs Bant. As the Quarry Street property was acquired long after the dissolution of the original partnership it cannot be said that it was acquired with profits arising out of that partnership's use of the Brixton Street land. Second, even if the Quarry Street property was purchased with profits generated by the second partnership's use of other land co-owned by the members of that partnership, Mrs Thompson has failed to identify any such land.

22 For the reasons I have discussed, I am satisfied that the partners regarded the Quarry Street property as a partnership asset. As the intention of the partners is the decisive factor in determining whether property is partnership property or is the separate property of the partners (Kelly v Kelly) I find that on the balance of probabilities the Quarry Street property is partnership property and I make a declaration to that effect.