Bonzalie v Cullu

Supreme Court of NSW|2013-09-04|Before: Robb J

Plaintiff's Claim 1By summons filed on 20 March 2012 the plaintiff, Mr Erdal Tontu, who is known as Eddie Bonzalie, seeks a declaration that a partnership between himself and the defendant, Ms Hatice (Helen) Cullu, was terminated on 2 November 2010, and an order that partnership accounts be taken. 2The parties were in some form of personal relationship, until the events of October 2010, which are described below, ended that relationship. The nature of the relationship was not explored in evidence, and neither party suggested that it had a bearing on the proper determination of the issues in the case. 3The plaintiff filed a statement of claim on 19 October 2012. He pleads that at all material times he owned the land at 195 Great Western Highway, Wentworth Falls, in the State of New South Wales (the "property"). He alleges that on 1 March 2010 the plaintiff, as lessor, and the defendant, as lessee, entered into a written lease of the property (the "lease") for a term of five years commencing on 1 April 2010, for a rent of $52,000 per annum payable monthly in advance, and containing a term that the defendant was to insure fittings and fixtures owned by the plaintiff for an agreed value of $124,900. 4The statement of claim contains an allegation that, after 1 March 2010, the defendant represented to the plaintiff that she was in the course of effecting the required insurance, the representation was made in the course of trade or commerce, the plaintiff relied upon the representation and did not procure his own insurance of the fixtures and fittings, and the representation was misleading and deceptive because the defendant did not take any steps to obtain the insurance. 5The plaintiff then alleges that, after 1 March 2010 and prior to 1 April 2010, the plaintiff and the defendant entered into a partnership agreement to operate a pizza shop at the property. The partnership agreement was in writing, and provided that the net income of the business was to be divided equally. The plaintiff acknowledges that the defendant paid $40,000 to acquire equipment and other property to establish the partnership business. The plaintiff claims that the partnership agreement contained a term that, provided that the partnership had not been terminated, and the business possessed equipment capable of being kept by the plaintiff for the continued operation of the business, the defendant could decide to resign from the partnership and call for the plaintiff to repay to her the $40,000, plus interest. 6The statement of claim then alleges that prior to 18 November 2010 the property, including the equipment, was substantially damaged by fire. In fact the fire occurred on 2 November 2010. 7On 18 November 2010, the plaintiff says, the defendant purported to resign from the partnership and called for the payment of the $40,000 plus interest. 8The plaintiff pleads that the partnership between the parties came to an end before the defendant resigned on 18 November 2010, when the fire substantially damaged the premises and equipment used by the partnership business on 2 November 2010. Though it was a term of the partnership agreement that, if the defendant resigned from the partnership, she could call for repayment of the $40,000 that she paid to establish the partnership business, plus interest, that call would only bind the plaintiff if the partnership was still on foot and the equipment was still available to enable the plaintiff to continue the business in his own right. As the equipment was destroyed and the partnership terminated before the defendant purported to resign, the defendant is not entitled, so the plaintiff says, to payment of the $40,000 or interest. The court should therefore declare that the partnership has been terminated and order that partnership accounts be taken. 9In par 11 of his statement of claim the plaintiff says that, if the failure of the defendant to take out the insurance required by the lease does not form part of the taking of an account between the parties, the plaintiff seeks damages under section 236(1) of the Australian Consumer Law in the sum of $103,900. That amount is said to be the difference between the agreed sum to be insured and the amount recovered by the plaintiff on his own insurance. The meaning of the reference to the failure to take out insurance not forming part of the taking of an account is obscure. Its significance will be considered further below. 10Finally, the plaintiff pleads that, to the extent that the defendant's failure to pay rent is not excused or otherwise satisfied by the parties' entry into the partnership, he is entitled to $34,666 for rent from 1 April 2010 to 1 November 2010.

Changes to Plaintiff's Claim 11During the course of the hearing the plaintiff took two steps, which varied the issues raised by his statement of claim. First, the plaintiff formally discontinued the claim made in par 11 of his statement of claim. The defendant did not object to this discontinuance, subject to an order for costs thrown away being made in her favour. Counsel for the plaintiff stated that the reason for the discontinuance was (Tp 2.15), that if the plaintiff succeeded in obtaining an order that an account of the partnership be taken "he will take his chances on any loss of the insured (sic uninsured) things in the account and he does not wish to have an adverse verdict on the misrepresentation claim". The plaintiff did not specifically withdraw any of the allegations of fact made in the balance of his statement of claim concerning the making of the alleged representation by the defendant, the reliance on the representation by the plaintiff, the misleading and deceptive nature of the representation, or the existence of terms of the lease which required the defendant to take out insurance (pars 2 (e), and 3 to 6). 12Secondly, the plaintiff's counsel informed the court that the plaintiff accepted that the parties' entry into the partnership agreement superseded the prior legal relationship between them based upon the execution of the lease by the defendant. The plaintiff accepted that he could not enforce the rent obligation in the lease during the term of the partnership agreement. The plaintiff said during his cross-examination that each partner was obliged to pay the plaintiff 50% of the total rent as a partnership expense. That claim was not pleaded in the statement of claim.

Damages 13The plaintiff claims damages of $138,500 in his statement of claim. That amount is made up by the damages claimed for contravention of the Australian Consumer Law of $103,900, plus the rent claim of $34,666. The effect of the plaintiff's change of position is that he no longer seeks damages for misrepresentation, and he only claims rent for any period when the lease was on foot but the partnership agreement was not in effect.

Defence 14The defendant filed her defence on 13 November 2012. In response to the plaintiff's claim that the parties entered into a lease of the property on 1 March 2010, the defendant alleges that the written lease was not intended to have legal consequences. She alleges that the plaintiff required the defendant to sign the lease to provide evidence to support the plaintiff's banking arrangements, and that the parties agreed that the defendant would not take possession of the property under the lease, or pay rent to the plaintiff, or be bound by any other obligation in the lease. She alleges that she was intimidated by the plaintiff and signed the lease under duress. Finally, she pleads in the alternative that, if the lease was enforceable, it was discharged by agreement when the parties entered into the partnership agreement shortly after 1 March 2010. She claims that the plaintiff did not demand payment of rent until he attempted to terminate the lease on 25 October 2010, and that the plaintiff is now estopped from demanding rent under the lease. 15Further, the defendant pleads that on about 10 October 2010 she was assaulted by the plaintiff and physically driven out of the partnership. The defendant says that she was refused entry to the property by the plaintiff on about 23 October 2010; the plaintiff did not allow the defendant to participate in the partnership business from 10 October 2010 to 18 November 2010; and that on about 25 October 2010 the plaintiff advised the defendant in writing that the lease of the premises was terminated, and her entry upon the property would be a trespass. 16Finally, the defendant repeats the allegations which she had made earlier in proceedings which she commenced against the plaintiff in the Local Court of New South Wales. 17On 28 July 2011 the defendant, as plaintiff, commenced proceedings against the plaintiff, as defendant, in the Local Court of New South Wales case number 2011/243422. She claimed the sum of $40,000, together with interest of $2792.25, in accordance with the partnership agreement for the period 18 November 2010 to 20 July 2011, and continuing at $10.95 per day at 10%. 18On 13 April 2012 Macready AsJ ordered the Local Court proceedings to be transferred to this court.

Defendant's Cross Claim 19By an amended cross claim filed on 21 December 2012 the defendant claims a declaration that the defendant holds a charge over the property to secure the amount of $15,000, plus interest from 8 January 2010. According to the pleading, that entitlement arose out of a written agreement made on about 4 January 2010 under which the defendant agreed to lend the plaintiff $15,000 on the basis of a charge over the property, which the plaintiff agreed could be protected by the defendant lodging a caveat on the plaintiff's title to the property. 20The defendant does not seek any additional orders in her cross claim to enforce the charge.

Execution of the Lease 21At the hearing the plaintiff relied upon affidavits which he affirmed on 27 March 2013 and 7 May 2013. Affidavits affirmed by the defendant on 28 March 2012, 23 April 2012 and 19 August 2013 were read. 22The defendant deals with the circumstances in which she first met the plaintiff and agreed to enter into the partnership and provide funds for that purpose in her 28 March 2012 affidavit. The plaintiff put the lease into evidence and dealt briefly with the circumstances in which the parties entered into the lease in his 27 March 2013 affidavit. 23The defendant gave the following evidence in her 23 April 2013 affidavit concerning the circumstances in which she executed the lease: "4. Around late February 2010, at Mr Bonzalie's house at Wentworth Falls, I recall having a conversation with Mr Bonzalie to the following effect: He said: "I am trying to secure finance under my existing mortgage. Because I have only paid the interest on my mortgage, the bank is requiring more money from me. I need a lease signed to show them that I have financial security. It is only for my records but I need you to sign it." I said: "No, I am not entering a lease. We can go into a 50/50 partnership." He said: "No you f idiot. It's not even going to be registered or stamped. It is only for my records to show the bank so I don't lose the building." I said: "No, I am not going to sign it." 5. Around two days later, still in late February 2010 at Mr Bonzalie's house at Wentworth Falls, Mr Bonzalie gave to me a computer printed lease. It was initialled on every page by Mr Bonzalie and signed by him on the second page. The witness signature of Mr Bonzalie was missing. We then had a conversation to the following effect: He said: "I need you to sign this lease for the bank." I said: "I thought it was a 50/50 partnership. I don't want to pay rent under a lease." He said: "You are not going to pay rent. This lease is just for the bank. Even if you enter into it today, it will be superseded by the partnership agreement that we will enter." I said: "Why don't we just enter the 50/50 partnership agreement." He said: "Listen. You just sign the document. It is not going to hurt you in any way. Don't be a f idiot." When he said those words to me, he was standing in my personal space and yelling. I felt intimidated and helpless. I felt like I needed relief from the situation. He also swore at me in Turkish saying words such as "You slut" and also referred to me as a "c" During this conversation, he also paced around me and slammed the bathroom door. He also slammed the coffee table with a closed fist and said words to the effect, "Listen, I am not charging you rent. I just need the document. It will be of no effect because we are entering into a Partnership agreement." 6. At the time, I felt that my will was overborne and I just signed the document to end the situation as best I could. When I did that, he stood over me and said, "You have to initial every page." 7. When I did that, he said to me, "Just get your daughter to sign here as a witness" and he pointed to the place for a witness to sign on page 2." 24The plaintiff's response to this evidence was confined to par 2 of his 7 May 2013 affidavit. While he denies the defendant's version, the only positive evidence that he gives is to contradict the defendant's evidence concerning the circumstances in which the parties placed their signatures on the lease and the signatures were witnessed. The plaintiff says that initials were put by each party on the document and then later that day or the next day both parties signed the document in the presence of the witnesses while at the defendant's house. 25The plaintiff's counsel at the hearing cross-examined the defendant. The evidence that she gave on this issue was not challenged at all in cross-examination. 26The cross-examination of the defendant was not lengthy, and no real attempt was made by the plaintiff in cross-examination or submissions to challenge her credibility. The court only had a brief opportunity to observe the way the defendant gave her evidence, but that process gave the court no reason to doubt her honesty or the credibility of her evidence. 27The court accepts the evidence given by the defendant as to the circumstances in which she executed the lease.

Charge over Property 28The defendant gives evidence of the circumstances in which the plaintiff granted the charge alleged in her cross claim in her affidavit dated 19 August 2013. She says that on or about 4 January 2010 the plaintiff handed her a document which read: "CAVEAT Land torrens (sic) title 3/559254 Registered proprietor: Eddie Bonzalie Adress (sic): 11/100 Spit Rd Mosman 2088 NSW Caveator: Hatice Cullu Adress (sic): 12/14-16 Queens Rd Brighton Le-Sands 2219 NSW I Eddie Bonzalie at 11/100 Spit Rd Mosman give Gaurantee (sic) of my Property at 195 Great Western Highway Wentworthfalls 2782 for a personeal (sic) loan that Hatice Cullu has withdrawn from ANZ bank and i (sic) guarantee to pay $15,000 back plus interest within the term of her loan and any default late payments included of any such claim by Hattice Cullu. This claim is valid from the date of transfer of the stated amount of money above once cleared into account number BSB 0082112 ACCOUNT NUMBER 529879545 National Australia Bank 04-01-2010 Eddie Bonzalie (Signed)" 29The defendant's evidence is that when the plaintiff gave her the document he said words to the effect: "I swear to you this loan will be paid and if not, here is a caveat and you can sell my building". The defendant says that she transferred the $15,000 to the plaintiff on about 8 January 2010. She demanded repayment of the money when she commenced the Local Court proceedings, as the $15,000 was included in her claim for $40,000. 30The plaintiff did not give any evidence in response to the defendant's evidence on this issue. In his defence to the cross claim he admits the allegations made by the defendant, and says that "in complete answer to the cross claim the parties' rights and liabilities under the loan were discharged by and replaced by the partnership they subsequently entered into". 31The defendant agreed in cross examination that the amount of $15,000 was included in her demand for $40,000. The defendant pleaded the truth of that proposition in her cross claim. 32The document headed "Caveat" has been stamped with payment of duty of five dollars apparently intended to cover the document securing an indebtedness up to $16,000.

Insurance Representation 33The plaintiff's evidence concerning the making of the alleged representation that she had taken out the insurances required by the lease, which was contained in par 6 of his 27 March 2013 affidavit, was rejected on the ground that it was not in proper form. The plaintiff was given leave to give oral evidence on the subject orally in proper form. The plaintiff declined that invitation and instead, as has been noted above, sought leave to discontinue the claim in par 11 of his statement of claim. 34Clause 12.2 of the Lease required the lessee to insure all trade and tenant's fixtures and stock against loss and damage from various perils, including fire. The Lease contained a schedule that itemised the equipment, its value, and the total amount of $124,900 required to be insured. 35The defendant's version of the discussion between the parties concerning obtaining insurance was set out in pars 13 to 18 of her 23 April 2013 affidavit in the following terms: "13. I deny that I had a conversation with Mr Bonzalie in respect of insurance obligations under the said lease. 14. On around 31 March 2010, Mr Bonzalie telephoned me at work and we had a conversation to the following effect: He said: "I want you to call NRMA and talk to them about getting a business insurance for the Pizza Shop. The number is 132818 which is the Katoomba Branch." I wrote that number down and then rang NRMA... 15. That same day, 31 March 2010, I telephoned Mr Bonzalie and said to him words to the effect: I said: "The NRMA has asked a whole lot of questions that I can't answer. They want to know the horsepower or wattage of the machinery such as the oven. They want to know how old the building is and what would be the loss of stock if there was a power outage. They also want a list of electronic equipment. I can't answer these questions for them." He said: "You f idiot, don't worry about it. I will sort it out myself." Those words were yelled to me over the phone and he terminated the call. I did not call any other insurance company and I deny that I said to Mr Bonzalie that I had telephoned GIO or any other insurance company apart from NRMA." 36The plaintiff denied the truth of this evidence in par 8 of his 7 May 2013 affidavit, but he did not give any alternative version of these events. 37Further, the plaintiff did not challenge the version of events given by the defendant during her cross-examination. 38The significance of this evidence, in the light of the plaintiff's discontinuation of the claim in par 11 of his statement of claim, will be considered below.

Partnership Agreement 39The plaintiff says in his 27 March 2013 affidavit that, some time in March 2010, the defendant and he signed a document headed "Binding Partnership Agreement". The defendant says in her 28 March 2012 affidavit that, to the best of her recollection, the agreement was signed on 24 March 2010. 40In her 28 March 2012 affidavit the defendant deals with the partnership agreement in the context of her making a number of payments to the plaintiff. She says that the plaintiff raised the issue in late December 2009, when he said that his current tenants were going to vacate, and he asked the defendant what she thought of becoming a partner in the business. Over the period up to the time when the partnership agreement was prepared, the defendant made payments to the plaintiff of $5000, $15,000, $13,000 and $2000. The $15,000 was borrowed from a bank. The defendant paid a further $ 20,000 to the plaintiff, which she also borrowed from a bank; on the same day that she recalls the partnership agreement was signed. 41The defendant gave the following evidence as to the circumstances in which the partnership agreement was made: "15. Before transferring the money I had a conversation with the plaintiff to the following effect: I said: "I want to sign an agreement which covers me so that I can get my money back if things no longer work out between us or for any reason that I pull out." He said: "Yes that's fine. Whilst you are in the partnership we will split the profits 50/50. But when you decide to leave, you will be paid back your $40,000 plus the interest that you have paid and you will then have no further claim on the business, the whole business will be mine." I said: "OK". 16. I then typed up an agreement and asked the defendant to sign it. A copy of the agreement is annexed hereto and marked "D"." 42The partnership agreement was in the following terms: "Binding Partnership Agreement between Erdal Tontu (Eddie Bonzalie) and Hatice Helen Cullu --------------------------------------------------------------------------------- This is binding agreement between Erdal Tontu (Eddie Bonzalie) and Hatice Helen Cullu to fifty fifty (50/50) partnership for business Pizza Pizza located at 195 Great Western Highway, Wentworthfalls (sic) NSW 2782 which will commence on 01/04/2010. All income of Pizza Pizza at 195 Great Western Highway, Wentworthfalls NSW 2782 will be fifty fifty (50/50) after payments for expenses required to operate business such as eg workers wages/salary, gas, electricity, phone bills and supplies required. Hatice Helen Cullu has paid Erdal Tontu (Eddie Bonzalie) $5000 in cash. Hatice Helen Cullu has transferred $15,000 to Erdal Tontu (Eddie Bonzalie) account on the 08/01/2010. Hatice Helen Cullu has also transferred $20,000 into Erdal Tontu (Eddie Bonzalie) account on the 24/03/2010 which is the final payment for this partnership. A total of $40,000 has been paid to Erdal Tontu (Eddie Bonzalie) from Hatice Helen Cullu which was agreed by both parties that this would be a fifty fifty (50/50) partnership for Pizza Pizza business set up and operation. If at any time Hatice Helen Cullu decides to withdraw from this partnership Erdal Tontu (Eddie Bonzalie) will pay Hatice Helen Cullu $40,000 plus interest of a minimum of 10% to be paid in full within 30 days as Erdal Tontu (Eddie Bonzalie) would keep the equipment to continue operating business. If at any time both parties Erdal Tontu (Eddie Bonzalie) and Hatice Helen Cullu decide to sell the operating business Pizza Pizza at 195 Great Western Highway, Wentworthfalls NSW 2782 the sale dollar amount would be split fifty fifty (50/50) between Erdal Tontu (Eddie Bonzalie) and Hatice Helen Cullu." Both parties signed the document. 43On 2 March 2010 the business name "Pizza Pizza" was registered in the name of the defendant. According to the defendant the partnership began trading on 30 April 2010. 44During the period when the partnership business was operating, the defendant says that the plaintiff only paid her a single amount of $900. The plaintiff did not challenge that evidence. The evidence does not establish whether accurate records of the day-to-day trading of the partnership business were kept, or whether the banking carried out on behalf of the partnership properly reflected the net cash result of all partnership transactions. There was no evidence of what trading records were made or kept by the partnership, or what the banking arrangements were. The court cannot determine whether or not the payment of $900 reflected the amount of the profit generated by the business. (The court notes that the defendant accepted in cross examination that she received about $2400 on 2 December 2010 at the time she closed a bank account into which partnership moneys had been paid). 45On 10 October 2010 the plaintiff assaulted the defendant. The evidence which the defendant gave on this subject was as follows: "22. Up until 30 August 2010, I had received no money from the business at all. Around that time, I had a conversation with the plaintiff to the following effect: I said: "I haven't been paid any money from this business at all. I know this shop is making money." He started screaming at me and said, "You are an idiot, you don't know what you are talking about." I said: "I can't pay for my car rego and insurance." He said: "I will pay that." 23. He then paid me $900 so that I could pay for my car registration and insurance. Other than that $900 I did not receive anything further from the profits of the business. 24. On 10 October 2010, I had a conversation with the plaintiff to the following effect: "I said: I need to start taking money out weekly. I know the business is making money but the money is not going into the business account." He said: "You f bitch." The plaintiff continued to yell at me and called me many swear words. I tried to say, "There is no need for this, just pay me out and I will leave." He said: "I'm going to f you up big time." He then pushed me and I hit the bench. I then received a blow in the face by the plaintiff. I think I may have blacked out from that blow. I was dragged by the hair to the dining area of the house. I then tried to hide behind Ivan's legs. I noticed that my face was covered in blood. I grabbed my phone and bag and I ran out". 25. I drove the car a little bit away from the house, and then I called the police." 46The police charged the plaintiff and he pleaded not guilty. The defendant gave evidence of the assault in Katoomba Local Court, and the plaintiff was found guilty and was given a two-year good behaviour bond. 47The police also sought an Apprehended Domestic Violence Order ("ADVO") against the plaintiff, which was granted. The ADVO included order 13, which contained the following prohibition against the plaintiff in relation to the defendant's attendance at the property to continue the business of the partnership: "Not to enter the premises at which the protected person may work on Saturday or Sunday, if the protected person is in attendance or is expected to be in attendance, at those premises being 195 Great Western Highway, Wentworth Falls". This order contemplates that the plaintiff would operate the partnership business during the working week, but the defendant may do so on weekends. 48The defendant gave evidence in her 28 March 2012 affidavit that, after the assault on 10 October 2010, she did not work at the property. She tried to return to the shop on 16 October 2010, but could not gain entry because she did not have keys. She returned with the police on 23 October 2010 and the police obtained the keys from an employee of the plaintiff, called Ivan. She then attempted to work on 23 October 2010 but was unsuccessful because Ivan refused her entry. 49I infer that Ivan acted on the instructions of the plaintiff, his employer, in preventing the defendant from participating in the partnership business. I find that the totality of the plaintiff's conduct beginning with his assault on the defendant had the effect, which he intended, of completely and permanently preventing her from participating in the partnership business. 50The evidence establishes that the plaintiff registered the business name "Pizza Pizza Wentworth Falls" in his sole name as proprietor, effective from 14 October 2010, and that the new business name was displayed on the property from soon after that date. 51On 25 October 2010 the defendant received a letter from the solicitors for the plaintiff. The letter asserted that the defendant was the lessee of the property under an unregistered lease, and that contrary to the lease no rent had been paid to the plaintiff since the commencement of the lease. The letter claimed that the defendant was in breach of the terms of the lease, and that the failure to pay rent amounted to a repudiation of the lease, which the plaintiff accepted, so that the lease was now at an end. The letter stated that the defendant was no longer permitted to enter the premises, and that any attempt by the defendant to do so would be regarded as a trespass. 52A police report which was tendered into evidence established that at 1:30 AM on 25 October 2010 the plaintiff contacted a police officer at Springwood Police Station, and advised the police that as of Friday he had evicted the defendant from the property for not paying rent, that he had registered a new business name "that came into affect (sic) on Friday the 22/10/2010," and that "he claims that from this time on all goods, stock & cash inside the store belonged to the new company of which he is the sole trader". The police also noted that the plaintiff had stated that he had pulled out of the partnership. 53These events reinforce the finding, based on the physical exclusion of the defendant by the plaintiff, that by no later than 25 October 2010 the plaintiff had unilaterally acted to repudiate and abandon the partnership, in the sense that he would absolutely prevent the defendant participating in any way in the business of the former partnership. 54On 2 November 2010, following a fire alarm that was received by the New South Wales Fire Brigades at 1:17 AM, the property was substantially damaged by fire. The fire apparently destroyed the equipment referred to in the partnership agreement. 55On 18 November 2010 the defendant's solicitor sent a letter to the solicitor for the plaintiff, in which the solicitor said that the unregistered lease referred to in the earlier letter dated 25 October 2010 had been superseded by the partnership agreement. He said that the letter of 25 October 2010 amounted to a repudiation of the partnership agreement, and that the defendant accepted the repudiation. The letter then made a claim under the partnership agreement for the return of the $40,000, plus interest calculated at the agreed rate of 10% per annum. The total amount claimed was $43,030.44. 56It should be recorded for completeness that the defendant gave evidence that she had contributed further money to the partnership in addition to the $40,000, which was her original contribution. Those monies are itemised in Annexure F to the defendant's 28 March 2012 affidavit, and total $19,558. The defendant's counsel said that the defendant did not make a claim for the return of that amount in these proceedings. Accordingly, it is not necessary for the court to consider whether the evidence establishes that the defendant paid that sum to the plaintiff. The defendant accepted that, if the court makes the orders in these proceedings that she has asked the court to make, then there would be no basis for her to seek the return of the additional payments.

Consideration 57Both parties agree that the partnership has been terminated. They are at issue as to when termination occurred, and as to the consequences, including the relief that should be given by the court. 58The plaintiff claims that termination occurred on 2 November 2010 when the fire substantially destroyed the property and equipment, including the equipment purchased with the defendant's original contribution of $40,000 to the partnership funds. On the proper construction of the partnership agreement, so the plaintiff says, the defendant could only resign and claim repayment of the $40,000 and interest if the equipment was still available to enable the plaintiff to carry on the former partnership business on his own account. As the equipment had already been destroyed and the partnership terminated the defendant was not entitled to recover the $40,000. The court should accordingly declare that the partnership was terminated on 2 November 2010, and order that an accounting of the partnership affairs be undertaken, so that the respective rights of the former parties can be determined. The plaintiff apparently believes that, as part of the accounting exercise, he can claim an amount equal to one half of the rent payable under the lease from the defendant, as well as compensation because of her failure to obtain insurance for the equipment, either under clause 12.2 of the lease, or because she represented to the plaintiff that she would do so. 59The defendant's case, on the other hand, is that the partnership came to an end no later than 25 October 2010, and that the conduct of the plaintiff between the date that he assaulted the defendant and his solicitor's 25 October 2010 letter advising the defendant that the plaintiff would treat her entry upon the property as a trespass was nothing less than an "eviction" from the partnership which brought it to an end. She does not accept that under the partnership agreement it was a condition of her right to the return of the $40,000 that the equipment was in good working order at the time of her resignation. When the partnership was terminated, no later than 25 October 2010, the equipment was in good order. Even if the partnership was not terminated until 18 November 2010, the defendant had no obligation to insure the equipment, as the lease was never intended to be effective. Nor did the defendant represent to the plaintiff that she would obtain insurance. In fact, he said he would do so. The plaintiff is entitled to the return of the $40,000 plus interest, and the court should make an appropriate order that effect. She waives all of her other rights to an accounting of the partnership affairs, and to the return of any other monies to which she may be entitled, whether as capital or profit. Moreover, the court should not order that an accounting of the partnership business be undertaken. Given the short period over which the partnership business operated, the relatively small scale of its business operations, and the apparent absence of reliable accounting records, the process of preparing and verifying accounts would incur costs wholly out of proportion to the benefit to the parties.

Issues 60The dispute between the parties calls for the resolution of the following issues: (1)What is the proper construction of the partnership agreement in relation to whether it imposes a condition on the defendant's right to the return of her $40,000 plus interest that the equipment used by the partnership be in good working order to permit its ongoing use by the plaintiff? (2)When did the termination of the partnership occur? (3)Is the defendant entitled to payment of $40,000 plus interest by the plaintiff, and if so, what amount is payable? (4)Was the lease valid, and did it accordingly impose upon the defendant an obligation to arrange for the equipment to be properly insured? This question remains an issue in the proceedings notwithstanding that the plaintiff discontinued the claim in par 11 of his statement of claim, and accepted that the defendant's obligations under the lease were subsumed in the obligations which arose under the partnership agreement. First, the plaintiff appears to believe that the existence of the lease, and the obligations which it imposed on the defendant, are relevant to the rights and obligations of the parties that must be taken into account in the preparation of partnership accounts. That belief makes it necessary for the court to determine whether the lease was validly created. Secondly, counsel for the plaintiff claimed that the defendant is still obliged to pay rent for the month of March 2010, to cover the period before the partnership agreement commenced. The reference to March appears to be an error. The lease was executed on 1 March 2010 but the commencement date was 1 April 2010. The partnership began trading on 30 April 2010. So, if the lease was valid, rent was payable by the defendant for April. (5)Did the plaintiff grant to the defendant a charge over the property to secure repayment of the loan of $15,000, and if so, did the charge cease to exist when the parties entered into the partnership agreement? (6)Is the evidence concerning the making of the insurance representation still material to the issues that remain in the proceedings, and if so, did the defendant falsely represent to the plaintiff that she would cause the equipment to be properly insured? (7)What orders should be made by the court?

Construction of partnership agreement 61The relevant term of the partnership agreement provides: "If at any time [the defendant] decides to withdraw from this partnership [the plaintiff] will pay [the defendant] $40,000 plus interest of a minimum of 10% to be paid in full within 30 days as [the plaintiff] would keep the equipment to continue operating business". 62There is no definition of what is meant by "the equipment" in the balance of the partnership agreement. The expression must mean whatever equipment is in existence and owned and used by the partnership to operate its business at the time of retirement. The parties probably contemplated that "the equipment" would include property purchased with the defendant's initial $40,000 contribution, but it must have been apparent to them that the initial equipment may be replaced or augmented by additional equipment over time. The partnership agreement does not expressly require that all or any particular part of the equipment that has been acquired by the partnership be in existence and in good working order at the time of the defendant's retirement from the partnership. The partnership agreement does not contain an express condition that uses the words alleged in par 7(d) of the statement of claim, to the effect that "the business possessed equipment capable of being kept by the plaintiff for the continued operation of the business..." 63The pleadings and the evidence show that the parties appreciated at the inception of the partnership that insurance of the partnership property was an issue that required attention. It is proper to construe the partnership agreement upon the basis that the parties to it expected that the partnership's equipment would be insured, so that even if it were destroyed by the occurrence of some peril, insurance proceeds would be available to replace the equipment. If that reasoning is correct, then there is no reason to read into the words of the partnership agreement any implied condition that the defendant's right to the return of her initial contribution would only be available if the equipment remained in existence and in good working order. The equipment, as it existed from time to time, might be replaced by the proceeds of its insurance. The apparent intention of the partnership agreement is equally workable whether the plaintiff is left with the equipment or the insurance proceeds. 64It is not necessary to decide whether the discussions between the parties which led to the partnership agreement may properly be taken into account for the purpose of construing the agreement, as only the defendant gave evidence of the discussions, and what was said does not affect the reasoning set out above. 65Accordingly, the apparent fact of the substantial destruction of the equipment by the fire would not disentitle the defendant to repayment of the $40,000 plus interest. Therefore, it does not matter whether the partnership was terminated on 18 November 2010 or 25 October 2010. 66Paragraph 7(d) of the statement of claim also asserts that the defendant's right to repayment of the $40,000 is dependent upon the partnership not having been terminated before the defendant exercised her right to resign. The relevant part of the partnership agreement, which is set out above, uses the words "decides to withdraw from this partnership". The question is whether those words have the effect that the defendant's right arises only in the case of voluntary resignation rather than termination, whether enforced or otherwise. First, if the conclusion is right that the destruction of the equipment by fire is immaterial, then one means by which the partnership was terminated may have been by the defendant's acceptance on 18 November 2010 of the repudiation of the partnership agreement by the plaintiff. The word "withdrawal" must encompass termination by acceptance of the other party's repudiation, no less than a voluntary retirement from the partnership. 67Further, the defendant's right to the return of her initial capital contribution should arise even if the partnership was terminated on or about 25 October 2010 by reason of the conduct of the plaintiff. While the word "withdrawal" does have a connotation of choice by the defendant, the better view is that, for the purposes of the partnership agreement, a withdrawal takes place whenever an event occurs whereby the defendant leaves the partnership. Giving a sensible commercial meaning to the words used in the partnership agreement, the defendant's right to the return of her contribution should not be lost if the plaintiff terminates the partnership before the defendant has an opportunity to withdraw. The situation is likely to be different in a case where a wrongful act by the defendant leads to the termination of the partnership.

Date of termination of partnership 68The next issue is the date when the partnership was terminated. The date will be immaterial if the construction of the partnership agreement that is preferred above is correct. 69The plaintiff's primary case appears to be that the effect of the fire that occurred on 2 November 2010 was so serious that it effectively frustrated the partnership business and brought the partnership to an end. It appears that the consequences of the fire were in fact serious, but it does not follow that the damage would automatically cause the termination of the partnership. Partnership assets may from time to time be damaged by fire, which might damage the partnership business for obvious reasons, but damage can be rectified, and in many such cases the partnership will continue. The issue will depend in each case on how the partners respond to the damage, and whether they agree or effectively treat the partnership as being terminated on the one hand, or alternatively take the damage in their stride and continue with the partnership on the other. 70The plaintiff did not put a case on the evidence before the court that could establish that the consequences of the fire were so serious as to put it beyond practicable bounds for the partners to rebuild and carry on, so that the partnership was in the strict legal sense frustrated by the occurrence of the fire. 71The plaintiff put in final submissions that the partnership came to an end before the defendant's retirement on 18 November 2010 if "as a matter of fact, these people were taking clear and unequivocal steps consistent with the end of a partnership and not with its continuation" (Tp 29.20). This submission in my view properly recognised the reality that the effect of the fire was not in itself sufficient to end the partnership, and that the termination of the partnership would depend upon the "steps" taken by the partners in response to the fire and other issues. 72The parties appear to have approached the issue of termination as if it was brought about by repudiation and acceptance of repudiation, or by abandonment. If that were the correct approach, the applicable legal principles would be as set out in the judgment of McColl JA in Ryder & 1 Ors v Frohlich & 1 Ors [2004] NSWCA 472, with whom Hodgson and Ipp JJA relevantly agreed. Her Honour at [102] - [133] considered the circumstances in which a partnership may be terminated by reason of the repudiation or anticipatory breach of the partnership agreement by one of the partners. 73The conduct of the plaintiff beginning with his assault on the defendant and his prevention of her entering the property to participate in the partnership business, culminating in his solicitor's letter of 25 October 2010, which purported to terminate the lease and threaten the defendant with a claim of trespass if she entered the property, was a repudiation of the partnership agreement by the plaintiff. 74As her Honour made clear at [116], a repudiation or anticipatory breach will be ineffective to terminate a partnership agreement unless it is accepted by the other partner as having that effect. It follows that, if the partnership was not terminated earlier, it was terminated on 18 November 2010, when the defendant's solicitor accepted the defendant's breach as bringing the partnership to an end. 75McColl JA discussed the possibility that a partnership may come to an end by abandonment at [135] - [152]. See also Robert Mark Walker v Rodney Derane Melham [2007] NSWSC 264 per White J. Her Honour said at [135] - [138], omitting some authorities and citations: "[135] Where it is plain from the conduct of the parties to a contract that neither intends that the contract should be further performed the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 434 (per Stephen, Mason and Jacobs JJ, with whom Aickin J agreed); Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144 at 151 - 152 per Isaacs J. The inference of abandonment will be drawn where "an 'inordinate' length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them... What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that... 'the matter is off altogether.'" [136] Whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from an objective assessment of the conduct of the parties... [137] The underlying premise of the abandonment cases is that a period of time elapses during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned. It is clear that the question whether an "inordinate length of time has been allowed to elapse" is relative. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd the High Court was prepared to infer abandonment after a period of less than five months had elapsed during which neither party took any steps to perform the contract. In Fitzgerald v Masters it was held that a contract for the sale of land had not been abandoned even though proceedings for its specific performance were not commenced until 26 years after its execution. [138] In this case where Mr Ryder evinced an immediate intention to abandon his obligation under the partnership by taking the position at Salomons which Mr Frohlich accepted and thereafter assumed all the duties the two men had hitherto performed, I am of the opinion that the partnership arrangement was abandoned on 2 March 2001." 76The conduct of the plaintiff in the period up to 25 October 2010 clearly signifies an abandonment of the partnership by the plaintiff. However, given the shortness of the time between that date and 18 November 2010, it does not appear sufficiently clearly on the evidence that before the latter date the defendant accepted the practical consequences of the plaintiff's unilateral conduct, or acted as if the partnership had come to an end, so that the partnership was abandoned. Between 10 October 2010 and 18 November 2010 the only evidence of the defendant's attitude towards the continuation of the partnership is of her futile efforts to continue with it. 77However, the partnership was clearly a partnership at will, in the sense that it was entered into for an undefined time within the meaning of s 32(c) of the Partnership Act 1892 (NSW). The effect of s 26(1) of that Act is that any partner may determine the partnership at any time on giving notice of the partner's intention to do so to all the other partners. "Notice of termination may even be inferred from the conduct of the parties. What conduct will constitute notice is a question of fact. The test appears to be: 'Is the conduct such that a fair inference can be drawn that the partner does not wish the partnership to continue'?": See Fletcher, The Law of Partnership in Australia, 9 edition (2007), Lawbook Co. at 232. 78If notice of an intention to terminate a partnership at will can be inferred from conduct, then the conduct of the plaintiff over the period between 10 and 25 October 2010 constituted the clearest notice that the plaintiff did not wish the partnership to continue - indeed he would not physically permit it to continue. 79Furthermore, the better view is that the plaintiff's solicitor's 25 October 2010 letter was sufficient by itself to constitute notice of termination of the partnership, in so far as it denied the defendant any right to enter the property in circumstances where, the court infers, it was part of the partnership arrangement that the defendant would regularly participate physically in the conduct of the pizza shop's business, at least for some of the time that the shop was open. 80If that reasoning is correct then the partnership terminated no later than 25 October 2010. 81The plaintiff is therefore obliged to pay to the defendant the amount of $40,000 plus interest at the rate of 10% per annum. As the defendant first demanded repayment of that sum in her solicitor's letter dated 18 November 2010, that is the appropriate date from which interest should run. As three years have elapsed since the obligation arose, the total interest payable is $12,000. The total amount payable is therefore $52,000.

Effectiveness of lease 82Relevant to the issue of whether the lease became binding on the parties, Meagher JA, with whom Sackville and Tobias AJJA agreed, said in Adicho v Dankeith Homes Pty Ltd [2012] NSWCA 316 at [16]: "The requirement that there be an intention to create legal relations is not concerned with the uncommunicated subjective motives or intentions of the parties. The intention it describes is that which "would objectively be conveyed by what was said or done, having regard to the circumstance in which those statements and actions happened": Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at [25]. It is possible that there was no intention to create legal relations, notwithstanding that a transaction takes the form of a legally effective transaction, if the parties' expressed intention is that it should not have its apparent or any legal consequences: see Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449; Equuscorp Pty Ltd Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at [46]. Evidence may be received as to what was said or done to show that what takes the form of a legally effective transaction was not intended to have any legal consequences: Esanda Ltd v Burgess [1984] 2 NSWLR 139 at 145, 146 and 153" 83The court has accepted the evidence given by the defendant as to the circumstances in which the parties executed the lease, and as to what was said by the plaintiff to the effect that the lease would not be legally binding on the defendant. It follows that the lease did not create legal relations between the parties. 84This conclusion is based upon that part of the defendant's evidence that related to her conversations with the plaintiff in which he said that the lease was only going to be for the plaintiff's records and to show the bank, that the defendant would not have to pay rent, and that the lease would be superseded by the partnership agreement. The expressed intention of the parties was that the lease would not be legally effective. 85It is not necessary for the court to decide whether, additionally, the lease would have been invalid because it was procured by duress, or any other equitable principle by which the lease may have been vitiated. If the evidence showed that the parties intended the lease to be legally binding, it is not clear that the plaintiff's conduct was sufficient to vitiate the lease. The parties did not direct detailed submissions to this issue.

Validity of Charge over Property 86The issue is whether the document headed "Caveat" created a charge over the property to secure repayment of the $15,000 to the defendant, not whether any caveat that was lodged against the title to the property is valid. 87The document is not a contract that contains a term that authorises one party to lodge a caveat over the property of another, without identifying the interest of the second party in the property that is intended to be protected, and without expressly creating such an interest under the terms of the contract. The document does not expressly authorise the lodging of a caveat at all. It appears to have been intended, if effective, to vest some right in the defendant. The significance of the use of the word "caveat" seems to be that the word was used under a misapprehension that a caveat is a species of interest in property. Accordingly, the principles discussed by Bryson AJ in Nabeth Taleb v National Australia Bank Ltd [2011] NSWSC 1562, and the authorities that his Honour reviewed, are not directly relevant. However, the general proposition set out by Bryson AJ at [60] that "...the meaning conveyed by a contractual document, including what is conveyed by implication, must be understood by addressing the terms and the whole terms of the document in question..." is true in this case, as it is true in every case which requires the court to construe the intended meaning of a contractual document. 88In the document the plaintiff states that he "give(s) Gaurantee (sic) of my Property... for a personeal (sic) loan". The document was clearly drawn by a layman, apparently the plaintiff. Although conventional legal language is not used, the reference to the plaintiff giving a guarantee of his property in the context can only mean that he intended to charge his property with repayment of the loan. 89The plaintiff apparently did not understand that a caveat is not strictly a document that creates an interest in land, but a document lodged against the title to a property to prevent the registration of dealings that would create rights in the property inconsistent with rights claimed by the caveator arising out of some other transaction. The use of the term "caveat" by the plaintiff in this context, even though a misuse, suggests that the plaintiff thought that "caveat" has a meaning equivalent to "charge". The description by the plaintiff of the defendant as "Caveator" was apparently intended to have an equivalent meaning. 90The question is whether the entry by the defendant into the partnership agreement had the effect that the separate debt of $15,000 owed to her by the plaintiff, which became part of the total $40,000, lost its character as a debt in some manner which had the legal effect that the charge created by the "Caveat" document ceased to have effect. 91The first paragraph of the partnership agreement is a term by which the parties agreed that they would share the net income of the business on a 50/50 basis. It follows that any earlier entitlement that the defendant had to payment of interest by the plaintiff was replaced by a right to share in income, if any was earned. 92The second and third paragraphs relate to the making of the payments by the defendant to the plaintiff, which added up to $40,000. The payment of $20,000 is described as "the final payment for this partnership". Those words suggest that the parties agreed that the earlier payments would be treated as being a capital contribution to the partnership. 93The fourth paragraph refers to the total payment of $40,000 in the context of an agreement that the parties would be in a 50/50 partnership "for Pizza Pizza business set up and operation." The description of the total payment as being for the set up and operation of the partnership business reinforces the conclusion that the parties had agreed to treat the earlier payments as capital. 94It is clear from the fifth paragraph, which deals with withdrawal by the defendant, and the sixth paragraph which deals with the sale of the business, that the defendant would not be entitled to the return of the $40,000 if she did not withdraw from the partnership, but continued to have an entitlement to 50% of the net income. If the partnership business was sold, she was entitled to 50% of the sale proceeds, rather than any return of her investment. 95The fifth paragraph gives the defendant on withdrawal an entitlement to be paid $40,000 "plus interest" by the plaintiff. The use of the term "interest" tends to suggest that the $40,000 was intended to continue to have the character of a loan. On balance, however, in the light of the other provisions of the partnership agreement considered above, the use of the term "interest" is not sufficient to cause all of the defendant's contribution to continue to have the character of loans throughout the currency of the partnership agreement. The use of the term "interest" should be treated as an agreement by the parties that the defendant should be entitled to an amount equivalent to interest on her capital contribution as if she had paid that money to the plaintiff as a loan. In the absence of a withdrawal from the partnership by the defendant, the $40,000 could not properly be characterised as a loan made by the defendant to the plaintiff. 96If that reasoning is correct then the loan of $15,000 lost its character as such at the date of the partnership agreement. Upon withdrawal from the partnership the amount of $40,000 became a debt owed by the plaintiff to the defendant, but that was a new debt that would not have arisen in the absence of the withdrawal. 97If the document called "Caveat" initially created a charge over the property, that charge became ineffective when the defendant agreed to treat the payment as a capital contribution rather than a loan. The charge did not revive to secure $15,000 of the $40,000 indebtedness of the plaintiff to the defendant when the defendant 'withdrew' from the partnership.

Insurance Representation 98The plaintiff, with the consent of the defendant, was given leave to discontinue his claim based upon par 11 of the statement of claim. That was a claim for damages for misleading and deceptive conduct under s 236(1) of the Australian Consumer Law. Consequently, the plaintiff's claim for damages, based upon the defendant's alleged misrepresentation concerning her having insured the equipment, ceased to be an issue in the proceedings. 99The defendant's evidence of her conversation with the plaintiff on that subject was nonetheless read. But the plaintiff did not avail himself of the leave given to give his own evidence of the relevant conversation in proper form. The plaintiff's counsel did not cross examine the defendant on the issue. 100In these circumstances the court should not make any finding on whether or not the representation alleged was made, or express any view on the credibility of the defendant's evidence on the subject. 101It is clear, however, that if the issue of the failure to insure the equipment has any continuing relevance to the proceedings, the finding that the lease was not intended to be binding between the parties has the consequence that the defendant cannot have any liability for failing to comply with clause 12.2 of that document. 102The terms in which par 11 of the statement of claim is cast suggest that the plaintiff understands that his claim for damages for misleading and deceptive conduct may, in some sense which is not explained, remain alive as "part of the taking of any account" between the parties. The plaintiff did not want "an adverse verdict on the misrepresentation claim" on the apparent basis that the claim would thereby be preserved for the stage at which partnership accounts are taken. 103The plaintiff's expectation may be misconceived. It will be convenient to defer further consideration of this question until the subject of the appropriate relief is addressed.

Relief 104It follows from what has been said above that the court will make a declaration that the partnership terminated on 25 October 2010. 105The court will not make a declaration in favour of the defendant that the property is the subject of a charge to secure the payment by the plaintiff of $15,000 of the $40,000 plus interest that the court has found the plaintiff is obliged to pay to the defendant. 106The court will order the plaintiff to pay the defendant $40,000, plus interest of $12,000, which was the claim made by the defendant as plaintiff in the Local Court proceedings. 107The plaintiff is not entitled to an order that the defendant pay any amount of rent to the plaintiff, even for the period 1 April 2010 to 30 April 2010, as the lease was not intended to be binding on the parties. 108It is necessary for the court to consider whether an order should be made for the taking of accounts between the former partners. 109Under s 28 of the Partnership Act 1892 (NSW) the partners in a firm are bound to render true accounts and full information of all things affecting the partnership to each other. The evidence was not specific as to whether or not either partner caused any accounting records to be prepared in the course of the partnership, whether there was any practice of keeping primary accounting records, or whether cash receipts were recorded, or all transactions undertaken through a partnership bank account. Such evidence as there was justifies the court being doubtful about whether proper accounting practices were implemented and records prepared by the partnership. It seems likely that the plaintiff was primarily responsible for the day-to-day operations of the business of the partnership, although that is not entirely clear. 110Section 42 of the Act provides that "in the absence of any agreement to the contrary" where any member of a firm has ceased to be a partner and a continuing partner carries on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner, the outgoing partner is entitled to a share of the profits made since the dissolution as the court may find to be attributable to the use of the partner's share of the partnership assets, or at the option of the partner, to interest at the rate of 6% per annum on the amount of the partner's share of the partnership assets. 111The defendant accepted, as clearly appears from the terms of the partnership agreement, that the agreement was an agreement to the contrary for the purposes of s 42. The defendant does not claim to be entitled to payment of anything following the termination of the partnership other than the $40,000 plus interest provided for in the agreement. Accordingly, no right of either party arises under s 42 which might require the determination of any final partnership accounts. 112Section 44, which sets out a rule for distribution of assets on final settlement of accounts, is also expressed to be "subject to any agreement". It was also the defendant's position that the partnership agreement has the effect of providing for a different distribution of assets than that contained in s 44. According to the defendant, the partnership agreement has a very simple effect. The defendant is entitled to payment of $40,000 plus interest by the plaintiff. The plaintiff is entitled thereafter to use all of the partnership assets to conduct the business solely on his own account. 113The court accepts that the defendant's submission is partially correct. The term of the partnership agreement dealing with the consequences of withdrawal by the defendant does not necessarily deal with all of the accounting issues provided for in ss 26 and 44. It is not clear whether there were partnership losses as at the date of termination, or any undistributed profits, and there is no evidence about the debts and liabilities of the partnership. 114Hypothetically, the plaintiff may have some residual right to the taking of final partnership accounts. However, the evidence that he put before the court is not sufficient to enable the court to determine whether there is any reality in his claim that the taking of accounts would serve some purpose. If it is true that the parties did not prepare reliable accounts during the course of the partnership, and more so if cash transactions were not accurately recorded, and primary accounting records not kept, then the taking of an account may be in relative terms inordinately expensive, because it may be necessary, assuming it is possible, which is doubtful, to attempt to create comprehensive partnership accounts to cover the period of operation of the partnership business, so that there is a valid starting point for the settling of final partnership accounts. 115The court is satisfied that the defendant is entitled to pursue her claim against the plaintiff for payment of the $40,000 plus interest without a partnership account first being settled between the parties. In Zisis v Knighton [2008] NSWCA 42 McColl JA, with whom Hodgson and Tobias JJA relevantly agreed, said at [34]: "[34] The relation between partners is not that of debtor and creditor unless and until the partnership accounts have been finally taken after dissolution and a balance has been ascertained to be owing from one to another. However "[w]here a partner retires, either ad hoc or in accordance with the partnership agreement, and leaves his share in the firm, he no longer has any continuing interest or share in the assets, but is merely a creditor of the firm so that the retiring partner may sue the continuing partners for the value of his share in the assets of the firm or for any sum that the continuing partners agreed to pay the former partner upon his retirement without the necessity, first of all, of taking a general account" Halsbury's Laws of England, 4th ed, vol 35 (at pars [3], [122])." 116Her Honour referred at [39] to the fact that s 44 of the Partnership Act envisages that an agreement may provide for the settling of accounts between partners by agreement otherwise than in accordance with that section. The term of the partnership agreement which provides for the payment of the $40,000 plus interest to the defendant is such a term. That is true whether strictly the defendant withdrew from the partnership, or it was terminated by the conduct of the plaintiff. 117The power of the court that is contained in UCPR r 46.2 and r 46.3 to order that an account be taken is discretionary. It is established by authority that the account cannot be taken until disputed questions of fact are resolved, and accordingly if a former partner in the position of the plaintiff claims that during the partnership another partner breached some duty such as engaging in misleading and deceptive conduct, as the plaintiff apparently still wishes to claim against the defendant, that claim must first be determined at trial, before an account can be taken which includes the defendant's liability to the plaintiff, if that liability is established: see Lang v Simon (1952) 53 SR (NSW) 508 per McLelland J at 513, 514. See also Rapid Metal Developments (Australia) Pty Ltd v Rosato [1971] Qd R 82 at 89, 90; Rockhampton Permanent Building Society v Petersen (1986) 1 Qd R 128 at 130; and Sharpe v Goodhew, Federal Court of Australia, unreported 11 December 1992, per Drummond J. 118It would therefore be inappropriate for the court simply to make an order as requested by the plaintiff for the taking of final accounts of the partnership. The present state of the proceedings is that the plaintiff has discontinued his claim against the defendant for misleading and deceptive conduct in relation to obtaining insurance for the property and the equipment of the partnership contained in it. Consequently, at present there is no such claim against the defendant. It is plain that the plaintiff is not entitled to an order that partnership accounts be taken, on the basis that he will simply introduce his misleading and deceptive conduct claim into the accounting process. First, the plaintiff must recommence proceedings against the defendant for damages for misleading and deceptive conduct. Whether or not the circumstances in which he discontinued his initial claim will affect his right to commence new proceedings is not an issue before the court now. If the plaintiff does commence new proceedings against the defendant, then the court will have to determine that claim in the ordinary way before it orders that partnership accounts be taken on a basis which includes liability of the defendant for misleading and deceptive conduct. 119It remains necessary to consider the plaintiff's entitlement to an order that partnership accounts be taken assuming that the plaintiff decides not to pursue his misleading and deceptive conduct claim against the defendant, or is not permitted to do so. It may be that the plaintiff is entitled to such an order, but he should be required to demonstrate first that there is some residual purpose in the taking of accounts, and that the court would not, by making such an order, make itself a party to an oppressive and pointless exercise. Furthermore, in conformity with the requirements of s 56 of the Civil Procedure Act 2005 (NSW), in the particular circumstances of this case, the court should take appropriate steps to monitor the process of the taking of final accounts if it makes an order that accounts be taken, and should only make an order which details in an appropriate manner how the accounting exercise should be carried out. 120The court will give the plaintiff an opportunity to place before the court in detail the order that he wishes the court to make in relation to the taking of accounts, and to support that draft order with appropriate evidence. It is possible that the court will not be persuaded that there is anything that properly or conveniently remains to be done in relation to the taking of final partnership accounts. As part of this process it will be necessary for the plaintiff, if he still wishes to do so, to commence appropriate proceedings against the defendant to pursue his claim that she engaged in misleading and deceptive conduct. 121As the defendant has substantially succeeded in these proceedings, she should be entitled to an order that the plaintiff pay her costs. That may obviate the necessity for the court to make a separate order that the plaintiff pay the defendant's costs of and thrown away by the plaintiff's discontinuation of his misleading and deceptive conduct claim. It may be wasteful if it becomes necessary for two assessments of costs to be undertaken when one subsumes the other. However, in the present case I propose to make an order for the costs of the discontinuance in favour of the defendant, as ordinarily a party who discontinues a claim and is ordered to pay costs is not permitted to recommence proceedings on the same claim until the party has first paid the costs caused by the discontinuance. If the plaintiff decides not to issue the misleading and deceptive conduct claim further, then the need to deal with the second costs order will fall away. 122I will make orders (1), (2), (9) and (10). I provisionally propose to make orders (3) to (8). I will deliver these reasons for judgment and then stand the matter over for a short time to enable the parties to make submissions as to the precise terms of the orders that should be made in relation to the subject matter of proposed orders (3) to (8). I have decided to take that course because the orders which I will make will not finally determine the dispute between the parties, unless the plaintiff decides that he will not pursue the outstanding matters. The court: (1)Declares that the partnership between the plaintiff and the defendant constituted by the partnership agreement entered into in or about March 2010 was terminated on 25 October 2010. (2)Orders the plaintiff to pay to the defendant the sum of $52,000. (3)If the plaintiff wishes to pursue his claim against the defendant for misleading and deceptive conduct, directs the plaintiff to serve a draft statement of claim on the defendant within 28 days of the delivery of these reasons for judgment. (4)If the plaintiff serves on the defendant a draft statement of claim, and the defendant wishes to oppose the plaintiff filing the draft statement of claim, directs the defendant to serve on the plaintiff within a further 14 days any draft notice of motion opposing the plaintiff filing the draft statement of claim. (5)If the plaintiff wishes to pursue his claim for an order that partnership accounts be taken, directs the plaintiff within 28 days of the delivery of these reasons for judgment to serve on the defendant draft short minutes of order which set out in detail the accounting issues which the plaintiff contends remain outstanding between the plaintiff and the defendant and require determination by having an account taken, together with an affidavit supporting the plaintiff's claim for a further partnership account. (6)Directs the parties to deliver to the Associate to Justice Robb by email copies of each document that they serve on the other party in accordance with directions (3), (4) and (5) on the same day as the document is served. (7)Directs the parties, if they decide not to take any of the steps that they are authorised to take by directions (3), (4) and (5), to advise the Associate to Justice Robb by email before the day by which they are directed to take that step. (8)Stands the proceedings over to [a date to be fixed about two months after the date upon which these reasons for judgment are delivered] before Justice Robb at 9:30 AM. (9)Orders the plaintiff to pay the defendant's costs of the proceedings to date. (10)Orders the plaintiff to pay the defendant's costs of and thrown away by the discontinuance by the plaintiff of his claim against the defendant for misleading and deceptive conduct. 123At the time I deliver these reasons for judgment I will make directions for the parties to bring in short minutes of order to give effect to these reasons.

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Judgment (18 paragraphs)

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Legislation Cited (2)

Cases Cited (13)

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