Citation : PALERMO -v- PALERMO [No 2] [2014] WASC 6

Contract - Various businesses operated by brothers through network of companies and trusts - Whether businesses operated in partnership - Whether inferred agreement that brothers share overall net wealth produced by all entities - Whether inferred agreement precluded as matter of law by company and trust structure

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153

Brooker v Friend & Brooker Pty Ltd [2006] NSWCA 385

Crossman v Taylor (No 3) [2001] FCA 734

Ebrahimi v Westbourne Galleries Ltd (1973) AC 360

Fox v Percy [2003] HCA 22; (2003) 214 CLR 118

Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41

Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11

Meates v Attorney-General [1983] NZLR 308

Morgan v 45 Flers Avenue Pty Ltd (1986) 5 ACLC 222

Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342

Nominal Defendant v Saleh [2011] NSWCA 16

Palermo v Palermo [2013] WASC 412

Palermo v Palermo [No 2] [2014] WASC 6

Pilmer v Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165

Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219

Vogt v Legal Practitioners Complaints Committee [2009] WASCA 202

Vroon BV v Foster's Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32

2 NEWNES JA: This appeal arises out of business activities in which the appellant and the respondent, who are brothers, were involved over a period of some 35 years. Those business activities involved property development, share dealing, corporate consulting, farming and an accounting practice. They led to the creation of a complex and extensive network of companies and trusts, commonly referred to in the litigation as the 'Palermo group' or the 'group entities'. After the appellant and the respondent fell out in 2011, a dispute arose as to the basis upon which the various businesses had been undertaken.

3 The appellant contended that it was to be inferred from their conduct over the years that there was an agreement between them that the businesses were to be conducted on the basis that the appellant and the respondent would share equally in the overall after-tax profit. The respondent denied that was the case and sought declarations to the effect that they were not partners in the businesses.

4 McKechnie J found that the appellant and the respondent were not partners and made the declarations sought by the respondent. His Honour dismissed the appellant's claim, concluding that such an agreement was precluded as a matter of law by the corporate and trust structures the parties had established to operate the businesses.

5 The appellant says that his Honour was in error in finding that the alleged inferred agreement was inconsistent with the corporate and trust structure and that in dismissing the appellant's claim his Honour failed to have regard to substantial evidence which supported the existence of that agreement.

6 It was common ground that if the appeal were upheld there would have to be a new trial.

7 In light of the period of time and the range of activities involved, it is helpful to start with a broad overview.

8 After leaving school, the respondent, who is the elder brother by a little over two years, initially worked at the Commonwealth Bank before leaving to join the Auditor-General's department. At that time he commenced studying for accountancy qualifications and became a member of the Australian Society of Accountants in 1979.

9 The appellant also worked at the Commonwealth Bank after leaving school, at the same time studying for a builder's registration qualification. He obtained that qualification in about 1980. At about the same time he also obtained a real estate agent's licence and a settlement agent's licence.

10 Their business activities, however, had commenced somewhat earlier. In about 1973 or 1974, the appellant and the respondent bought a property in Scarborough, which they subsequently sold at a profit. That led them to purchase other properties, which they also sold at a profit. In each instance, the profit was shared equally between them.

11 In 1976, Palermo Holdings Pty Ltd was incorporated to carry on the property development business. In August 1984, it changed its name to Tomar Holdings Pty Ltd. As Palermo Holdings was generally referred to below as Tomar, I will do likewise. The appellant and the respondent were the directors and shareholders of Tomar, which was appointed trustee of the Palermo Unit Trust. It was also appointed trustee of the respective family trusts of the parties, the A Palermo Family Trust and the J Palermo Family Trust, which held the units in the Palermo Unit Trust in equal shares. It is common ground that all of the business activities of Tomar have been undertaken in its capacity as trustee of the Palermo Unit Trust. In 1982, PAJ Investments Pty Ltd became the trustee of the two family trusts in place of Tomar.

12 The property development business involved acquiring properties, developing them by constructing home units and then selling the completed home units.

13 After the incorporation of Tomar the profits of the property development business were distributed through the Palermo Unit Trust to the A Palermo Family Trust and the J Palermo Family Trust in equal shares.

14 In 1995, the property development activities of Tomar ceased and thereafter properties acquired for the purposes of the property development business were purchased by various companies as trustees of discretionary trusts. The beneficiaries of those discretionary trusts, either directly or through corporate vehicles, were the appellant and the respondent, and members of their respective families.

15 In the meantime, in about 1980, the respondent had commenced an accounting practice under the name J Palermo & Co, and Tomar became the service entity for the practice. The accounting practice assumed considerable significance in the proceedings.

16 There was a dispute between the parties as to when the appellant commenced working in the accounting practice. The appellant said he was performing some contract work for it from its inception, which he says was in or about 1978, and that, in March 1980, at the respondent's insistence, he paid the respondent the sum of $8,000 for a half interest in the practice. The appellant said he made the payment reluctantly because he considered that he already had a half interest in the practice. The appellant said that the accounting practice was carried on for their joint benefit, as demonstrated by the service fees charged to the practice by the service entity (initially Tomar and then Empal Pty Ltd and finally JDP Admin Pty Ltd) and by adjustments made to equalise their drawings from the practice income recorded in general ledgers of the practice and a scrapbook (exhibit A at the trial).

17 The respondent put the appellant's involvement at a later time and on a quite different basis. The respondent said that by the early 1980s he was concentrating on his accounting practice while the appellant ran the property development business. According to the respondent, in the mid-1980s the appellant did not wish to continue with construction work and wanted to concentrate on property dealings, something which would not keep him engaged full-time. The respondent therefore employed the appellant as practice manager of the accounting practice on a salary. In time, the appellant (who was not a qualified accountant) also became engaged in fee-earning, but non-accounting, activities of the practice. The respondent denied that the appellant paid $8,000, or any amount, for an interest in the accounting practice. The respondent maintained that the accounting practice was his alone, and the appellant was simply the practice manager and was never entitled to a share of the profits of the practice. The respondent said the scrapbook simply recorded cash drawings which in the appellant's case were to be reconciled against his earnings as practice manager and as a fee-earner in the practice.

18 In 2000, Tomar ceased to be the service entity for the accounting practice of J Palermo & Co and was replaced by Empal, as trustee of the Empal Trust. The directors of Empal were the appellant and the respondent's son, also named John. Empal also provided secretarial services to public companies in which the respondent was involved.

19 On 4 April 2000, JP Corporate Pty Ltd was established to take over the corporate consulting work that had previously been undertaken as part of the accounting practice of J Palermo & Co. The respondent was the sole director and shareholder of JP Corporate. He contended that it always operated solely for his benefit. The appellant, however, maintained that JP Corporate operated for their joint benefit as evidenced by the managerial and service fees paid by JP Corporate to other group entities, initially Tomar, subsequently Empal and then JDP Admin. The respondent said that no such services were provided and he was unaware of the payment of such fees to those entities.

20 Again in 2000, Monarch Corporation Pty Ltd and a number of other companies were incorporated for the purpose of share-trading. There was a dispute between the parties as to by whom and for whose benefit, as between the appellant and the respondent, those share-trading activities were undertaken. The appellant said that the funds for share-trading were provided by Tomar and the share-trading was carried out principally by the respondent for the ultimate benefit of them both. The respondent denied that.

21 In 2005, part of the accounting practice of J Palermo & Co was sold to a new firm consisting of the respondent and a Duncan Melbin. At about that time, JDP Admin became the service entity for the practice, replacing Empal. Mr Melbin left the practice some months later. In early 2006, part of the practice was sold to Melsom Robson and, on 1 July 2006, the balance of the practice was sold to the respondent's son, John, and an employee of the practice, Davina Ruland. John Palermo (Jnr) and Ms Ruland thereafter practised under the name 'Palermo Chartered Accountants'.

22 There was a dispute between the parties as to the appellant's involvement in those sales and the way in which the proceeds of sale were dealt with. The appellant said that the sales were the result of a joint decision and the proceeds of sale were paid into Tomar with the object that they would be shared equally between the appellant and the respondent. The respondent, on the other hand, contended that the appellant's role was simply as practice manager and that he (the respondent) agreed to the funds being paid to Tomar on the basis that they be credited to his loan account.

23 Also in issue in the proceedings were farming activities conducted under the name of Palermo Farms. In 1992, one of the group entities, CMT Pty Ltd, as trustee of the MM Trust, purchased various farming properties in Pinjarra which it then leased to the respondent. A farming business was conducted on the properties in the respondent's name and rent was paid to CMT. The appellant contended that the farming business was carried on for their joint benefit as a means of reducing the taxation payable by the respondent on his income from the accounting practice, thereby reducing the tax burden on the overall income they shared. The respondent denied that was the case and said the farming business was always his own personal business. In 2010, the farming operations ceased to be carried on in the respondent's name and another group entity, Red Lancer Pty Ltd, as trustee of the Red Trust, undertook the farming operations.

24 In support of his contention of an agreement to share the overall after-tax income from the businesses, the appellant also pointed to superannuation contributions to the Tomar Superannuation Fund which he said were made equally for the appellant and his wife on the one hand, and for the respondent and his wife on the other, although the group entities which made the contributions varied from time to time. The respondent did not deal with this in his evidence.

25 In 2011, the relationship between the appellant and the respondent broke down. That has led to a number of disputes between them concerning the control, management and financial affairs of the various companies in the group. At the heart of much of the controversy is a fundamental difference over the nature of the commercial relationship between them.

26 It is the appellant's position that there was always an agreement between them, to be inferred from the history of their dealings over the years in relation to the accounting practice, the property development business, the corporate consulting business, the share-trading business, and the farming operation, that they would conduct their commercial affairs in their joint interests with the object of generating after-tax wealth which they would share equally. That agreement, the appellant says, gave rise to either a partnership between them in respect of the shareholdings that gave control of the companies and trusts, or alternatively a relationship which gave rise to fiduciary obligations owed by each of them to the other in respect of the management and control of the companies and the exercise of their rights as shareholders. The latter agreement has been conveniently described as an 'overarching agreement', that is to say, an agreement overarching the corporate and trust structure the parties established, and I will adopt that description.

27 At trial, the appellant sought to establish by reference, in particular, to a plethora of company records and financial documents (including the scrapbook which ultimately became exhibit A at the trial) that those various business enterprises had always been undertaken in their joint interest.

28 The respondent denied there was any such partnership or relationship, and said that their past dealings did not reflect any agreement of the nature alleged by the appellant. Accordingly, their respective rights and entitlements in relation to the companies in the Palermo group and the exercise of their rights as shareholders were not confined by any obligations of the nature alleged.

29 The effective catalyst for the litigation appears to have been a letter written by the appellant's solicitors to the respondent's solicitors on 23 April 2013. Suffice it to say that in the letter the appellant's solicitors alleged that in their commercial activities the parties were partners. That relationship, it was said, 'exists outside and beyond the companies through which the Businesses were, and are, conducted'.

30 In a letter dated 14 May 2013, the respondent, by his solicitors, conceded that a partnership existed from about 1972-1973 to 1976 in relation to the development and acquisition of certain properties, but denied that any partnership had existed after the incorporation of Tomar in 1976.

31 On 11 October 2013, proceedings were commenced by the respondent by a notice of originating motion. The respondent sought:

A declaration that [the appellant and the respondent] have not operated in a partnership whether as described in the letter dated 23 April 2013 ... [or] otherwise save for certain acquisition of properties undertaken in their own names up to and about 1976.

32 The respondent subsequently sought additional declarations as follows:

A declaration that there was not a partnership between [the appellant and the respondent] over any part of the accounting practice conducted as 'John Palermo trading as J Palermo & Co', or under any other name or, alternatively, that there was no such partnership since April 2000, or in the further alternative since August 2006.

A declaration that there was not a partnership between [the appellant and the respondent] over the business which was the provision of corporate consulting services performed by the [respondent], or alternatively there was no such partnership since April 2000, when such business began to be conducted by JP Corporate Pty Ltd, or in the further alternative since May 2011.

33 The appellant in turn sought a declaration, relevantly, as follows:

There was an ongoing contractual relationship between [the appellant and the respondent] from before 1976 in terms which amounted to a partnership or relationship giving rise to fiduciary obligations.

The alleged inferred terms of that contract are as follows:

...

They were to conduct the group entities (whether together or by one of them):

(a) with the aim of generating wealth for both of them to be shared equally;

(b) on the basis that the group entities bank borrowings would be obtained through Tomar Holdings Pty Ltd;

(c) on the basis that the group entities would provide the income to service the group entity bank borrowings;

(d) on the basis that distributions of income and profit are made, on a tax effective basis:

(i) across the group entities

(ii) to each of them; and

(iii) their families;

(i) the property development business;

(ii) the accounting practice from ... about 1992 to 2006;

(iii) the corporate secretarial services business with [the respondent];

(iv) the farming business;

(v) the property holding business;

(vi) the settlements agency business;

(vii) the building business;

(f) with [the respondent] to primarily operate:

(i) the corporate consulting business;

(ii) the share trading business;

(iii) the corporate secretarial business with [the appellant];

(iv) the accounting practice to about 1992;

(g) on the basis that income to [the respondent] personally from the group entities and public companies was to be sufficient to qualify him as a sophisticated investor for the purposes of the Corporations Act so that he could take up share placements for the group entities;

(h) on the basis of consultation about important matters and decisions affecting their joint interests;

(i) consistent with the duties owed by a fiduciary, being the:

(i) duty to act honestly in the best interests of them jointly;

(ii) duty to avoid a conflict of interest between their own interests and joint interests; and

(iii) duty not to use their position (as a director, appointor, guardian, shareholder or personal trustee) to:

1. gain a personal benefit: or
2. dishonestly confer a benefit on another or others.

As to the sharing of wealth, they would share equally in the after tax wealth (or liabilities) generated by the group entities.

As to how each of the group entities were to operate:

(a) (i) either or both of them were to be directors (or their nominee);

(ii) only one of them was to be a director in circumstances in which they wanted to:

1. quarantine liability from the other; or
2. avoid disclosure problems for [the respondent] in his capacity as board members of various public companies,

with the director or directors to act consistently with the terms described above;

(b) one of them (or a nominee of them) was to be the appointor, guardian or default appointor or default guardian with the appointor or guardian to act consistently with the terms described above.

34 The proceedings were programmed for hearing on an urgent basis as the respondent was seriously ill and at that time was understood to have only months to live. On 31 October 2013, orders were made that the appellant file and serve any affidavit in opposition to the respondent's application and that the respondent file and serve any affidavits in reply by 2 December 2013. Those orders were based on the trial commencing on either 9 December or 16 December 2013. On 5 November 2013, the trial was set down to commence on 16 December 2013.

35 On 13 November 2013, the appellant applied to have the trial dates vacated on the ground that he had insufficient time to prepare his case for trial. On 14 November 2013, that application was refused by the primary judge who considered that the appellant's difficulties could be alleviated by permitting him to rely at trial on, among others, an affidavit, dated 20 September 2013, in other proceedings, CIV 2110 of 2013 (that affidavit was referred to by the parties as the '2110 affidavit'). His Honour ordered that the appellant have leave to rely on that affidavit, that the appellant file and serve any other affidavit in opposition to the originating summons by 10 December 2013, and that the respondent file and serve any affidavit in reply by 13 December 2013. All deponents were required to be available for cross-examination: Palermo v Palermo [2013] WASC 412.

36 The 2110 affidavit was a very lengthy document. The text of the affidavit itself ran to 758 paragraphs and there were 103 attachments, in all totalling 7,175 pages. As it turned out the appellant did not rely on the 2110 affidavit. On 11 December 2013, the appellant filed a fresh affidavit which incorporated much, but not all, of the material contained in the 2110 affidavit and also included further material not contained in the 2110 affidavit. The appellant's fresh affidavit ran to 327 pages and the attachments took up 8,884 pages, consisting principally of financial documents and tax returns of various corporate entities. The respondent's affidavit in reply, dated 13 December 2013, was 40 pages long and the attachments took up 105 pages. The appellant then filed a responsive affidavit, dated 16 December 2013, which was seven pages long and the attachments ran to 236 pages. Several relatively short affidavits of other witnesses were also filed. To complete the picture of the extent of the affidavit evidence I should mention that the affidavit which the respondent filed with the notice of originating motion was 42 pages long and the attachments took up 1007 pages.

37 In other words, the affidavits of the parties alone which were admitted into evidence at trial ran to a total of 416 pages and the attachments to those affidavits to 9,332 pages. As I will come to, much of the appellant's case turned on the contents of the financial documents of various group entities which were attached to the affidavits.

38 I should also observe that the organisation of the contents of each of the affidavits appears to reflect the speed with which they were obviously prepared, being neither particularly easy to follow nor particularly easy to draw together into a comprehensible narrative of the salient events.

39 I note too in passing that one of the complaints of the respondent on the appeal was that he had been disadvantaged at trial in responding to certain aspects of the appellant's case because it was not until 14 December 2013 that his solicitors were informed that the appellant would not be relying on the 2110 affidavit and at short notice the respondent had to deal with the appellant's somewhat different affidavit of 11 December 2013. As some of the respondent's affidavit of 13 December 2013 had been prepared by reference to the contents of the appellant's 2110 affidavit, at trial the primary judge was provided with a table showing the comparable paragraphs in the appellant's affidavit of 11 December 2013, to the extent there were comparable paragraphs.

40 The matter ultimately came on for hearing before the primary judge on 17 December 2013, the commencement having been delayed by a day to permit what turned out to be an unsuccessful mediation. The hearing occupied five days. At the conclusion of the hearing, his Honour delivered an oral judgment. He found in favour of the respondent and made declarations to the effect of those sought by the respondent; that is, in substance, that the appellant and the respondent had not operated any of the businesses in partnership. The appellant's claim was dismissed. His Honour delivered short ex tempore reasons and said he would deliver written reasons for decision later. The written reasons were delivered on 15 January 2014: Palermo v Palermo [No 2] [2014] WASC 6.

41 Before turning to the evidence, I should comment briefly on the way in which the proceedings were conducted below.

42 The parties elected to proceed to trial without pleadings or anything in the nature of pleadings. No doubt that was done because it was believed it would assist in avoiding delay in getting to trial. In my respectful opinion, however, it was a mistake. It was not a course that should have been followed in this case or, indeed, that should be followed in any case where there are significant factual matters in issue. In a case of any complexity, pleadings cannot be dispensed with without a real risk that the case will run off the rails. What is necessary in the way of pleadings will obviously depend upon the nature of the case. But it is essential that the critical issues of fact and law in dispute are identified with precision, and that the metes and bounds of the relevant evidence are clearly established. That is especially important in cases where, as here, the evidentiary material is substantial and the available trial time relatively short. In my view, it was evident on the appeal that the trial suffered from a lack of the focus which pleadings would have provided.

43 Pleadings may also have focussed attention on the scope of the appropriate relief. As it was, the declarations sought by the appellant were so wide in their terms that their ultimate utility in resolving the disputes between the parties in relation to the various businesses would seem to be somewhat problematic.

44 Regrettably, on the view I have reached the endeavours of the parties to achieve a speedy resolution of the dispute have come undone. I consider the appeal must be allowed and a new trial ordered. I have reached that view for the following reasons.

The evidence at trial The appellant's evidence

45 It is unnecessary for the purpose of this appeal to canvass the appellant's evidence in great detail and we were not asked by either side to do so. It is sufficient to focus on some of the more significant areas of the evidence upon which the appellant based his contention that the overarching agreement was to be inferred.

46 The appellant's fundamental contention as to the overall operation of the various businesses was stated in his affidavit of 11 December 2013, as follows (unless otherwise indicated, the paragraph references below are to the paragraphs in his affidavit):

203.1. all income and profits (except for differentials in the super fund) were pooled (in the sense that the combined income and profits of the group entities were treated by [the respondent] and [the appellant] as our overall income and profits) and then distributed in a way that was most tax effective for our combined activities;

203.2 tax for all of the group entities, [the respondent] and his family and [the appellant] and [his] family has been paid jointly through Tomar (by way of loans) or the accounting practice (by way of debiting the drawings account of the accounting practice); and

203.3. the distribution of income and profits to group entities and [the respondent] and his family and [the appellant] and [his] family were not physically made so those group entities and individuals who were distributed income and profits are recorded as having loan accounts with the entity.

1. Most drawings of a private nature (for instance the living expenses of [the respondent] and his family and [the appellant] and [his] family) were generally taken from the accounting practice joint account. Private adjustments were made by [the respondent] and [the appellant] on an ongoing basis to ensure the drawings were equal. For example, if one of [the respondent] or [the appellant] overdrew a certain amount, the other would simply draw the difference. Evidence of that arrangement can be seen by the yearly drawings and reconciliation summaries (discussed below).

47 The appellant later described the distribution of the overall profits of the group entities as follows:

Each year [the respondent] and I determined how to distribute the overall profits of the group entities and discussed how to minimise the overall tax payable and, in later years, to ensure [the respondent] was kept above the income threshold for a sophisticated investor.

I created worksheets to assist with the calculations.

The worksheets that I prepared identified the income and profits that were required to be distributed.

Based upon the worksheets prepared, [the respondent] and I discussed how to distribute the overall profits at meetings between us each year at the office between Christmas and New Year and in the days after.

The worksheets were updated to incorporate the determinations made by [the respondent] and I [sic] as to how to distribute the overall profits of the group entities.

I still have copies of the worksheets for the 2002 to 2004, 2006, 2008 and 2010 financial years. Attached hereto and marked AP101 are copies of these worksheets.

These worksheets tracked the flow of distributions.

[The respondent's] income had to flow in a particular way, so that it would not be inconsistent with what he had disclosed to the market in relation to the public companies he was involved in.

[The respondent] and I could not distribute certain income (such as corporate secretarial fees earned from public companies which [the respondent] was involved in) to entities that involved [the respondent].

No-one was benefiting more than the other. [The respondent] and I (and John Jnr [the respondent's son] for a number of years) would discuss how to distribute income and make the adjustments so that [the respondent] and I each received income in equal parts [269] - [278].

48 The appellant said that all borrowing to fund their businesses was undertaken through Tomar as trustee for the Palermo Unit Trust. Tomar then lent money to other group entities, with a mark-up on the rate of interest charged by the lender from which Tomar had obtained the funds.

49 The appellant said that both he and the respondent had authority to deal with all of the group accounts, even if only one of them was the sole director of the group company concerned. The appellant said they discussed significant decisions to be made concerning any of the group entities, regardless of which of them was a director of the entity concerned or held shares in it.

50 According to the appellant, the taxable income that was received by group entities was dealt with largely by distributions through various trusts and allocation of expenses in a way that ensured that across the group entities and the parties' respective families, the most effective tax result was achieved.

51 The income or profits of group entities were usually distributed in the following order:

(1) to individuals who were part of their extended family who were on a tax rate equal to or lower than the rate for group companies (usually through the family trusts);

(2) then to group entities that had available tax losses;

(3) and then to companies in the group, which would be liable for tax at the corporate rate.

52 The appellant said that Tomar received income from various sources, the main sources being:

• Property development and property related activities;
• Fees for corporate secretarial services charged to the accounting practice to 2001;
• Fees for providing managerial services to public companies in which the respondent was involved;
• Charging third parties for corporate secretarial and managerial services;
• Interest on term deposits.

53 This income was distributed to their respective family trusts in equal shares.

54 The appellant described in considerable detail what he said was the flow of funds from Tomar to other group entities. It is convenient to take three of the years referred to by the appellant in his evidence. The appellant's evidence in respect of other years follows a similar pattern, although the amounts involved vary.

(a) in the financial year ended 30 June 2002, Tomar made a net profit of $275,896, which (as trustee of the Palermo Unit Trust) it distributed equally to the two family trusts. That profit came from income which included $474,552 in fees for secretarial services provided to the accounting practice and $231,192 in fees for providing managerial services to public companies. The appellant then described in some detail the cascade of the distributions from the respective family trusts to other entities.

(b) in the financial year ended 30 June 2004, Tomar made a net profit of $320,532, which it distributed equally to the two family trusts. That profit came from income which included $913,771 in fees for secretarial services provided to the accounting practice and $56,314 in fees for providing managerial services to public companies. The appellant again described in some detail the cascade of the distributions from the family trusts to other entities.

(c) in the financial year ended 30 June 2007, Tomar made a net profit of $14,660, which it distributed equally to the two family trusts. That profit came from income which included $86,000 in fees for secretarial services provided to the accounting practice and $88,497 in fees for providing managerial services to public companies. The appellant again described in some detail the cascade of the distributions from the family trusts to other entities.

56 The appellant then dealt with the principal business activities of the Palermo group.

57 The appellant said that he joined the accounting practice of J Palermo & Co in or about 1976 and bought into the practice in or about 1980. He said that he ran the accounting practice from approximately 1992 to 2006 and the respondent managed the involvement of the group entities in share trading and with public companies. The appellant said he was involved in all of the managerial decision-making relating to the sale of parts of the accounting practice and ultimately the sale of the whole practice. He rejected a statement in the respondent's affidavit that his involvement was simply as an employee of the practice.

58 The appellant said that, on or about 1 July 2005, he and the respondent sold a third of the practice to a Mr Melbin for the sum of $470,000. The appellant said he negotiated the sale and prepared most of the documents. The proceeds of sale were paid into the accounting practice, which then paid them to Tomar so that the proceeds were shared between the appellant and the respondent. Toward the end of 2005, Mr Melbin left the practice, taking with him the equivalent in clients to the amount he had paid.

59 The appellant said that, in about February 2006, he and the respondent sold part of the practice to Melsom Robson for the sum of $280,000, with $220,000 to be paid on 11 March 2006 and the balance over 12 months. The proceeds of $220,000 were deposited in the accounting practice account and, on about 1 March 2006, the appellant withdrew that amount for his personal use and later made an adjustment with the respondent. The appellant annexed to his affidavit, among other things, copies of the bank statements for that period and an excerpt from the general ledger of the accounting practice.

60 According to the appellant, he and the respondent agreed in the middle of 2006 to sell the balance of the accounting practice to the respondent's son, John, and a long-standing employee of the practice, Ms Ruland, for the sum of $600,000. He says he was fully involved in the negotiations and the preparation of the contracts. The appellant said that John has not paid his half share of the purchase price but that the funds received from Ms Ruland were paid to the accounting practice and then paid into Tomar. He says that, in October 2007, John promised to pay his share within 12 months. However, in about March 2011 the respondent said to him for the first time that the accounting practice was his (the respondent's) and that John would not be paying anything to acquire it.

61 The appellant dealt in some detail with the manner in which he said the profits of the accounting practice were distributed. The appellant said that the accounting practice was always operated in the respondent's name, although he (the appellant) had purchased a half-interest in it in 1980. As the practice was operated in the respondent's name, the profit from it each year was income to the respondent personally. In order to ensure that they shared equally in those profits:

• the respondent was not paid any of the profits;
• both of them paid the tax assessed on the respondent's income in equal shares;
• money received in the accounting practice was dealt with in one of three ways, namely: drawn by both of them and shared equally; paid to Tomar as a loan from both of them with any excess funds invested in term deposits in joint names; or used to buy shares in joint names;
• adjustments for differences in drawings were made in the scrapbook or in some other way.

(b) from 1988, the parties established formal drawings accounts within the accounting practice for each of them and a joint account, each account having a coded number. According to the appellant, the formal drawings accounts within the practice were operated on the basis that:

1. all personal drawings by either party were coded to their respective drawings account and were theirs to keep;
2. if either drew more than the other over a period the difference would be reconciled and a written notation made in the scrapbook, with the difference being carried forward;
3. all drawings of a joint nature were put to the joint drawings account.

62 The appellant said that, from 1980 to 2011, both parties drew from the accounting practice for any day to day expenses they incurred [841]. According to the appellant, he and the respondent were paid a wage by various group entities but for the most part they did not actually receive these wages or the wages were re-banked into Tomar's account (or one of the other 'group entities' accounts) or they were paid to Tomar as secretarial fees. The appellant said, however, that he did receive some of the wages in the early years and those were taken into account in ensuring an equal distribution of all of the money retained by each of them [839] - [840].

63 The appellant's evidence in relation to the scrapbook was as follows. In about 1976 or 1977, he and the respondent commenced using a scrapbook to make adjustments between them for differences in drawings they had taken from the accounting practice. The drawings were to be equalised or the balance carried forward. The accounting practice account was generally the account that the parties used to pay most of their personal and living expenses. The appellant said they would try to draw equally but if drawings were unequal they would be adjusted at some point in the future. Adjustments were made in consideration of all monies received or expenses incurred by either of them, and the appellant describes adjustments in the scrapbook in respect of child endowment, disbursements incurred in relation to a building constructed for the respondent's wife, entertainment, and in lieu of rental on a property owned by a group entity and occupied for a period by the appellant and his family.

64 The appellant said that, from 1992, he and the respondent started using a more systemised approach to the drawings accounts of the practice. If either needed funds, a cheque was drawn to that person on the practice account and the amount was coded to their drawing account. If both needed funds, a cheque was drawn to cash, the cheque was cashed and the cash split equally between them. The amounts would later be coded to their respective drawings accounts. They continued to use the scrapbook but it was reconciled using these accounts. The appellant said there are notations in the handwriting of both of them in the general ledger recording drawings of each and of joint drawings.

65 In his affidavit, the appellant set out a summary of what he said were drawings from the practice for each year between 1982 and 2011. (He said that he could not locate any relevant records prior to 1982). The appellant said that, for a number of those years, the figures for their individual and joint drawings are written in the general ledger of the practice in the handwriting of one or other of them. To the extent the figures may be different, they take into account other adjustments the parties made after the general ledger for that year was finalised.

66 In argument on the appeal we were taken, by way of example, through the affidavit evidence of the appellant in respect of three financial years, the years ended 30 June 1982; 30 June 1999; and 30 June 2002. Having considered the appellant's evidence in respect of the other years, those examples seem to me reasonably representative of the entries over the whole period and will suffice for present purposes.

67 The appellant said that, in the financial year ended 30 June 1982, the accounting practice made a profit of $10,076, as set out in the financial report of the practice, a copy of which he attached to his affidavit. He said he drew a total of $11,450 from the joint account of the practice, the respondent drew $9,548 and the respondent's wife drew $3,263 (a total of $12,811 on the respondent's side). A copy of the trial balance of the practice setting out those figures is attached. The appellant said he also drew some income from three other entities, making his total drawings from the joint account an amount of $14,936. The respondent had other drawings of $750, so that the respondent's total drawings from the joint account were an amount of $13,561, or $1,375 less than the appellant's. Attached to the appellant's affidavit is a note, which he said is in the respondent's handwriting (a point not contested by the respondent at trial), setting out their respective drawings and containing the words '[a]djusted in scrapbook'. The appellant said that at the end of the year an adjustment was made in the respondent's favour so that their drawings were equal. He attached a copy of a page from the scrapbook, which refers to an adjustment of $1,375 in the respondent's favour with the annotation 'from drawings in all accounts'. In cross-examination at trial, the respondent identified his initials in a number of places on that page of the scrapbook (ts 99 - 107, 109 - 120).

68 The appellant said that, in the financial year ended 30 June 1999, the accounting practice made a profit of $390,104. He drew the sum of $46,605 from his coded account, $25,353 was drawn from the respondent's coded account, and $230,471 was drawn from the joint account, as reflected in an attached copy of a page from the general ledger of the practice. The appellant then referred to entries in the scrapbook which are consistent with an adjustment being made to equalise the amount received by each. The respondent has initialled the final adjustment entry.

69 The appellant's affidavit evidence in respect of the financial year ended 30 June 2002 followed a similar form. The appellant said that in that year the accounting practice made a profit of $338,771. He drew the sum of $77,884 from his coded account, $75,209 was drawn from the respondent's coded account, and $569,022 was drawn from the joint account, as reflected in an attached copy of a page from the general ledger of the practice. Again, the appellant then referred to entries in the scrapbook which (subject to what appears to be a minor arithmetical error) appear to be consistent with an adjustment being made to equalise the amount received by each of the appellant and the respondent. The respondent's handwriting appears on that page of the scrapbook.

70 The appellant's evidence in his affidavit in respect of each of the other financial years between 1982 and 2010 is of a similar nature, except that in respect of the financial years 1983 to 1988, 1990, and 2000 the appellant said he could not locate the record of the adjustment. He said the record may have been destroyed, or he and the respondent may not have made a record of it.

71 The appellant was cross-examined about the scrapbook (ts 218 - 219), the cross-examination being primarily directed to establishing that the entries in the scrapbook related simply to day to day drawings of cash, a proposition which the appellant rejected, maintaining that it recorded cash from drawings and adjustments.

72 The appellant also said that substantial fees were rendered to the accounting practice by entities not in the sole control of the respondent. The two examples referred to by the appellant on the appeal will suffice. Other years follow a similar pattern, although the amounts involved vary.

73 According to the profit and loss statement of the accounting practice for the financial year ended 30 June 2005, it rendered fees of $1,538,165.98 and made a net profit of $341,811.64. It paid fees for secretarial services of $462,215.72 to 'T', that is, Tomar, and of $620,657.30 to 'E', that is, Empal. It will be recalled that the directors of Tomar were the appellant and the respondent. The appellant was the sole director and shareholder of Empal.

74 In the financial year ended 30 June 2006, the accounting practice rendered fees of $1,378,688.29 and made a net profit of $409,987.93. It paid fees for secretarial services of $98,815.04 to Tomar, $53,208 to Empal, and $682,897.80 to JDP Admin (which on the respondent's evidence became the service entity in that year). The appellant was the sole director of JDP Admin.

75 I note in passing that according to the respondent 'the service entity generated considerable profits'.

76 According to the appellant, JDP Admin continued to provide consultancy services to the accounting practice after it was acquired by the respondent's son and Ms Ruland in 2006 and there are proceedings in the District Court by JDP Admin for unpaid fees (a matter to which the primary judge referred).

77 The appellant also gave evidence that in the 2004 financial year a debt of $88,810 owed to the accounting practice by a public company, Advantage Communications Ltd, was assigned to Monarch Corporation Pty Ltd, a company of which the appellant was the sole director. The appellant said that he was unaware of any proposal to assign the debt until asked by the respondent to sign a deed of assignment.

78 The appellant dealt in some considerable detail with share-trading by entities in the group in support of his contention that the overarching agreement was to be inferred. The appellant said that, in or about 2000, Monarch Corporation Pty Ltd, Dolphin Technology Pty Ltd, Seablue Investments Pty Ltd and Primelane Pty Ltd were incorporated so that the appellant and the respondent could separately receive share issues and placements by, or provide loans to, public companies that the respondent was involved in without the interests of the appellant and the respondent being aggregated as related parties. Funds to purchase shares or to make loans were generally provided, either directly or indirectly, by Tomar. The appellant said that although in some of the entities either he or the respondent was the sole shareholder and director, both were concerned in the management of all of the entities. According to the appellant, the respondent did most of the share-trading for all of the entities despite the fact that in some of the entities the respondent was neither a shareholder nor a director. The profit from the entities was distributed in the most tax effective way.

79 The appellant gave more detailed evidence in relation to the activities of Monarch, which was the trustee of the Monarch Trust. The appellant was the sole director of the company and his immediate family were the only beneficiaries of the Monarch Trust. According to the appellant, the respondent made the decisions on share-trading undertaken on behalf of Monarch and the appellant signed any necessary documents. He said that the respondent also arranged a substantial amount of share trades between third parties and Monarch and other group entities, many at a large discount to market. The appellant said he effected very little of the share trading. In addition, the appellant said, Monarch made substantial unsecured loans by way of working capital to public companies on which the respondent held positions, on the basis that the appellant and the respondent would benefit from the increase in the share price in the long term.

80 In his affidavit, the appellant set out, year by year between 2002 and 2011, transactions that he said had been entered into by Monarch. By way of example, we were directed by senior counsel for the appellant to the appellant's evidence in relation to transactions in 2006 involving Gladiator Resources Ltd, which owed a total of some $65,000 to JP Corporate, Empal and JDP Admin. The appellant said the debts were consolidated and Monarch took a placement of 1,300,000 Gladiator shares in exchange for the consolidated debt. Documents attached to the appellant's affidavit summarising those transaction are said to have been prepared by the respondent. In the 2004 financial year, a debt of $55,000 owed by Advantage Telecommunications to JP Corporate was assigned to Monarch. According to the appellant, he was unaware of any proposal to assign the debt until asked by the respondent to sign a deed of assignment. The appellant said that many debt conversions took place between Monarch and other group entities on the one hand and public companies in which the respondent was involved on the other.

81 The appellant again dealt in some detail with what he said were arrangements in respect of corporate consulting and secretarial services which reflected the overarching agreement.

82 The appellant said that, from about 1982, the accounting practice, primarily through the respondent, began performing corporate consulting work for public companies and Tomar began providing corporate secretarial services to those public companies. The accounting practice and Tomar charged the public companies for these services. In about 2001, Empal took over the provision of corporate secretarial services from Tomar, and in about 2005, JDP Admin took over from Empal.

83 According to the appellant, in about 2000 the respondent suggested that a company be set up to undertake the corporate consulting work to avoid exposing the accounting practice and the appellant to liability for it. They incorporated JP Corporate on 4 April 2000 for that purpose. The respondent was its sole director and shareholder, although the appellant said he was still involved in JP Corporate.

84 (I should interpose that earlier in his affidavit the appellant had said that JP Corporate was established to prevent Tomar being exposed to any liability arising out of investigations into the alleged receipt of stolen money by Advantage Telecommunications, of which the respondent was a director.)

85 The appellant said the corporate consulting fees, like all of the income generated by the group entities, were split equally between the appellant and the respondent through the group entities. From the income JP Corporate received from corporate consulting, it paid Tomar (later Empal and then JDP Admin) for managerial and secretarial services [1603].

86 The appellant said that, until about 2008 or 2009, the income which Tomar, Empal and JDP Admin received in that way was distributed to the trusts of group entities controlled by the appellant so that the respondent did not have to disclose it under the Australian Stock Exchange listing rules. After about 2008 or 2009, the appellant and respondent, having lost their controlling interests in the public companies due to share dilution, began distributing the income to entities in which they both had an interest. The tax payable on the income by the recipient entity was generally paid out of the joint account in the accounting practice or by loans from Tomar.

87 According to the appellant, the income from the service entities was distributed in different years to different group entities, in a manner calculated to minimise the taxation payable on it. Each year he and the respondent would use worksheets to determine how best to distribute the various profits and losses amongst the group entities. He attached to his affidavit copies of the worksheets for 2006 and 2010, and said the rest appeared to have been lost or destroyed.

88 In his affidavit, the appellant set out, year by year for the period 2001 to 2010, what he said was the way in which fees for corporate consulting were dealt with. A similar process appears to have been followed in each year. Some examples will suffice to demonstrate the effect of that evidence.

89 The appellant said that, in 2001, JP Corporate earned about $196,105 in corporate consulting fees. It paid Tomar about $136,142 for managerial and secretarial services. It also paid the respondent $30,000 in wages (which the appellant said the respondent did not receive in cash) and $30,000 in superannuation. The appellant referred to an annual trial balance of JP Corporate attached to his affidavit which reflected those figures and showed that after some other expenses, JP Corporate made a loss of $768.22 in that year.

90 The appellant's evidence for the financial year ended 30 June 2002 was as follows. In that year, JP Corporate had an income of $260,218.96 in corporate consulting fees and made a profit of $2,137.25, as appeared from its financial report. It paid Tomar $66,678 and Empal $70,000 for secretarial and managerial services. In the same year, Empal also received $482,327.28 in secretarial fees from the accounting practice. Empal's net profit was $198,302. It distributed $185,000 to the Monarch Trust and $13,302 to the appellant's wife, Maria Palermo. The Monarch Trust was solely for the benefit of the appellant.

91 In 2004, the appellant said, JP Corporate earned $204,997 in corporate consulting fees. It paid Tomar and Empal a total of $145,223 for managerial and secretarial services. It also paid the respondent $20,000 in wages (which the appellant said the respondent did not receive in cash) and $3,525 in superannuation. Those figures were contained in the financial report of JP Corporate for the financial year ended 30 June 2004, which was attached to his affidavit. The financial report showed that after other expenses, JP Corporate made a profit of $2,523.79 in that year. The appellant also said that in that year Empal received a total of about $668,258 in secretarial fees, including those received from JP Corporate, and $288,304 in secretarial fees from the accounting practice. Empal's net profit was about $148,326, of which it distributed $118,326 to the Monarch Trust and $30,000 to the JJP Trust. The appellant attached to his affidavit copies of Empal's trial balance and tax return reflecting those figures.

92 For the financial year ended 30 June 2010, the appellant's evidence was that JP Corporate's income was $1,109,729.73 and that it made a profit of $23,749.37, as appeared from its financial report. It paid secretarial fees of $499,493 to JDP Admin. In that year, JDP Admin had a total income of $694,943.10 (including the amount received from JP Corporate) and it made a profit of $183,495.94. It distributed the sum of $183,495.94 to Empal, as appeared from Empal's financial report. Empal's profit was $183,165.99. Empal distributed that amount to the Riverside Trust, a trust for the benefit of the appellant and the respondent.

93 The appellant described farming activities in which he said he was involved with the respondent. The appellant's evidence was that the properties on which the farming operations are conducted were purchased by a group entity, CMT (as trustee of the MM Trust). He said that he and the respondent were the directors and shareholders of CMT. The appellant said the cost of the land was met from joint assets and bank loans. He said that both he and the respondent provided bank guarantees for bank loans.

94 According to the appellant, at the time the first property was acquired by CMT he agreed with the respondent that the farming operations should be conducted in the respondent's name so the respondent could offset the losses against his taxable income (presumably a reference to his income from the accounting practice) in order to reduce their overall tax. The appellant said, however, that he handled all matters to do with the farm and ran the management of the farm. He said the respondent rarely went to the farm, sometimes not doing so for periods of up to six months.

95 The appellant said that in 2007, due to changes in the tax laws, Red Lancer, as trustee for the Red Trust, replaced the appellant as the operator of the farm and thereafter it paid rent to CMT and other group entities to operate the farm. That ceased in 2010 when the appellant refused to co-sign cheques.

96 The appellant said that superannuation contributions were made to the Tomar Superannuation Fund on behalf of the respondent, the respondent's wife Lida, the appellant, and the appellant's wife Maria. The appellant's evidence (which was not contested) was that the source of the contributions varied between entities in the group, but that all of the contributions were equal regardless of their source.

97 He referred by way of example to the financial year ended 30 June 2007, in which employer contributions of $105,000 were made on behalf of each of the respondent, Lida, the appellant, and Maria. The contribution for the respondent came from Pelican Pty Ltd and JP Corporate; for Lida from Tomar; for the appellant from Red Lancer, Tomar and JDP Admin; and for Maria from Tomar and JDP Admin. There were also member contributions of $138,000 on behalf of each of them, paid out of the accounting practice and coded to the joint drawings account.

98 The appellant said the same occurred in 2008 where employer contributions of (or about) $100,000 were made for each person but on that occasion the contribution for the appellant was made by JP Corporate and Red Lancer and for Lida it was made by JDP Admin. The appellant noted that neither Lida nor Maria was a director of JDP Admin or a unit holder in the JDP Admin Trust.

99 As mentioned previously, the respondent swore two affidavits in the proceedings, one dated 10 October 2013 and the other dated 13 December 2013.

100 In his affidavit of 10 October 2013, the respondent described the start of the property development business in the early 1970s, in which they had bought and sold properties at a profit, the profit being shared equally. He said that he incorporated Tomar, as trustee of the Palermo Unit Trust, as a vehicle they could use to conduct the business rather than conduct it in their own names. He said that over the next few years they both worked in the business and the profits were distributed equally to the unit holders of the Palermo Unit Trust.

101 According to the respondent, by the early 1980s the appellant was running the property development business and the respondent was concentrating on the accounting practice, which he had commenced in 1980. The respondent said that in the mid 1980s the appellant told him he (the appellant) did not want to continue in building and construction but wanted to concentrate on property dealing. As that would not keep the appellant engaged full-time, the respondent employed the appellant as the practice manager of the accounting practice, on a salary paid by Tomar as the service entity of the practice.

102 The respondent said that, in about 1995, the appellant suggested that they cease to conduct their property development business in Tomar and instead conduct it in separate entities as trustees of discretionary trusts. According to the respondent, they agreed that the profits of the discretionary trusts would be dealt with in the following way:

(a) where there were corporate entities of which they were each shareholders, the profits could be distributed to those entities where they had tax losses;

(c) where they agreed to distribute the profits to a company which one only of them controlled, an equivalent amount would be distributed to the other.

103 Thereafter a number of properties for the property development business were acquired by different companies and the respondent said he believed all distributions were done in that manner.

104 The respondent said that he had never said to the appellant, or heard the appellant say, that all of the enterprises they are involved in are in a partnership or a joint enterprise on an equal basis. He said the appellant had never paid anything to acquire an interest in the accounting practice.

105 The respondent said that he caused JP Corporate to be incorporated to undertake his corporate consulting work as he was becoming increasingly involved in that work and the accounting practice itself had a number of qualified accountants dealing with the day to day work. He said he did not discuss it with the appellant.

106 According to the respondent, from about 1996 he spoke to the appellant regarding succession planning but they were unable to sort it out. The respondent said that in about 2007, after discussions with the appellant, he caused Control Centre Pty Ltd to be incorporated to be the appointor of all new discretionary trusts in which they were both involved. He said he and the appellant had discussions about using Control Centre as the appointor for all of the trusts in which they were involved. They subsequently had a meeting with a solicitor to obtain advice as to the tax consequences of changing the appointor of the trusts. At that meeting they discussed the preparation of an agreement to govern the relationship between them in relation to their ongoing business affairs. The solicitor suggested that a shareholders' agreement for Control Centre be prepared and he was instructed to prepare such an agreement. A draft was subsequently sent to the respondent who provided a copy to the appellant. He said the appellant scribbled over it and requested certain changes. It is common ground that the agreement was never executed.

107 In the respondent's second affidavit, the affidavit of 13 December 2013, he described as 'untrue' the statement in the appellant's affidavit that since about the 1970s all income and profits of the group entities had been pooled and distributed in a way most tax effective for the parties' combined activities.

108 The respondent said that, in or about 1985, he began using Tomar as a service entity for his accounting practice. That remained the case until about 2000 when Empal was incorporated and became the service entity. The respondent said that after he sold a portion of the accounting practice to Melbin, JDP Admin became the service entity to the accounting practice. The service entity 'generated considerable profits'.

109 According to the respondent, when Tomar was the service entity its profits funded the property development business. With the incorporation of Empal and the use of separate corporate entities for the property development business it was necessary to determine how those entities should be funded. The respondent said that, at about the time Empal was incorporated in 2000 to become the service entity for the accounting practice, he and the appellant agreed that the profit earned by Empal should be distributed to Tomar which would then fund the property development business. The discussion was limited to the property development entities and did not extend to the accounting practice, the farm, JP Corporate, or the share trading entities.

110 The respondent said that Tomar became, in effect, the 'parent' entity of the other property development entities in the sense that it became the means by which property acquisitions could be funded. But he said there were exceptions to the general principle that the service entities' profits would be distributed to Tomar. They were, first, where a jointly owned property development company had eligible tax losses, some of the service entities' profits could be distributed to it to take advantage of those losses; and, secondly, if there was such a company owned by only one or other of them, any service entity profits distributed to it would be matched by an equal distribution to an entity owned by the other. It was also agreed that if another group entity made a profit, the profit could be distributed through the entity's trust to Tomar or used to absorb tax losses of another entity in the group, as in the two exceptions.

111 According to the respondent, the appellant carried out the distributions of the profits of Tomar and the other group entities. The respondent said that he had asked on many occasions since 2003 for financial statements which explained the distributions between the different entities but had not received them. He said that for many years he had presumed that distributions were being made in accordance with his agreement with the appellant but since the falling out with the appellant he had become aware that it is not the case. He mentioned, by way of example, the references in the appellant's affidavit to the 'flow of funds' by way of distributions by Tomar to the family trusts in 2002, 2004 and 2007 (see [55] above) and said he did not understand what was meant by the 'secretarial services' Tomar was said to have provided to the accounting practice or what services Tomar could in fact have provided as it was no longer then the service entity for the accounting practice.

112 The respondent said it was his recollection that prior to 2000 the only access the appellant had to Tomar for funds for his personal use was through his salary and the distribution of trust funds. The respondent said that, in the mid 1980s, shortly after the appellant started working in the accounting practice, the appellant had complained that he was not earning enough to live on. He rejected the respondent's suggestion of a salary increase. At the time, the appellant was being paid a salary for management of the practice and, as a fee earner, he was also paid a salary equal to one third of his billed time. The latter salary was not paid on a regular basis throughout the year. The matter was resolved by allowing him to take money from the practice's general account, on the basis that at the end of the financial year the money he had drawn from the general account would be reconciled against his earnings from his billings. For several years they undertook that annual reconciliation and on several occasions the appellant's drawings exceeded his billings. The appellant then paid the difference direct to the respondent or credited his loan account in Tomar. The respondent said that from about the mid 1990s the annual reconciliation ceased because he was often away and also because the appellant failed to provide his annual billings to the respondent.

113 The respondent said that, in addition to that arrangement, there was an accepted practice between them that should it be necessary for any reason for one of them to withdraw money from the Tomar account (or after 2000 from one of the other group entities) such drawings were to be reflected as a loan by Tomar to that person. Until about 2000, the balance of the Tomar loan accounts to each of them was reviewed by them both but that practice ceased at about that time.

114 In relation to the scrapbook, the respondent said that the scrapbook was used to record all drawings from Tomar, the accounting practice's general account and other group entities. All drawings by the appellant from the accounting practice's general account were to be reconciled against his earnings, and drawings from Tomar and other entities were to be reflected in the Tomar loan accounts.

115 The respondent said that he established JP Corporate to provide high level strategic corporate advice to public companies. The accounting practice was to continue to provide basic administrative and secretarial services to those companies. At all times he has been the only employee of JP Corporate, by which he was paid a salary. He said that the services provided by Empal and JDP Admin to JP Corporate were minor and there has never been any reason for either to charge JP Corporate anything more than a few thousand dollars per year. He said he was unaware of the charges for 'secretarial services' referred to by the appellant and would not have approved them if he had known about them, as no services of the nature claimed were ever provided.

116 From mid-2006, the respondent said, it was agreed that JDP Admin would cover expenses incurred by the respondent in carrying out work for JP Corporate and JDP Admin would then invoice JP Corporate for the same amount. As there was no mark-up, that should have been revenue neutral and in no one year would the expenses have exceeded $50,000. JDP Admin also provided JP Corporate with bookkeeping but the annual amount involved would not have exceeded $5,000.

117 The respondent's affidavit evidence as to the farming operation was again very different to the appellant's evidence. He had set out in his affidavit of 10 October 2013 how he said the farming operation came into being. In that affidavit, he said that, in 1992, he had caused CMT, as trustee of the MM Trust, to purchase a property in Pinjarra for the sum of $480,000. The shareholders and directors of CMT were the appellant and the respondent. The respondent said that he provided a personal guarantee for the loan to purchase the property. He then leased the property from CMT and conducted farming on it. He subsequently caused CMT to acquire further, surrounding properties, in each case providing a personal guarantee for the borrowing by CMT of funds for the purchase. He said that from time to time he asked the appellant to liaise with the farm manager and the appellant was paid for doing so. The respondent described the appellant's direct involvement in the farming operation as 'minimal'. The respondent said that in 2010, for income tax reasons, he decided no longer to be personally involved in the farming business and incorporated Red Lancer, which has since conducted it.

118 In his affidavit of 13 December 2014, the respondent said that the farm's operation, and its profits and losses, were always his alone. The losses were used to reduce his personal income tax, and the profits and losses were never part of a distribution of funds. The respondent said that he paid all the costs of the farming operation, including any wages of the appellant for work done in connection with it. The respondent said that some of the profits of the accounting practice were spent on expenses associated with the farm, as both belonged to him.

119 In relation to the sale of the accounting practice, the respondent said that he alone made the decision to sell part of the accounting practice to Mr Melbin. He said that the appellant was opposed to the sale and tried to persuade him against it. According to the respondent, the appellant's only involvement in the sale was as practice manager. In relation to the proceeds of sale, the respondent said that the appellant told him Tomar needed funds and asked him to pay that money into Tomar. He agreed to do so on the basis that the funds would be credited to his loan account in Tomar. The respondent said that despite requests made of the appellant he has been unable to ascertain whether that was in fact done.

120 The respondent also said that he negotiated the sale to Ms Ruland and his son, and did so on the basis that no payment would be made by his son to acquire a half interest in the practice. He said he told the appellant that at the time, who said he would have done the same thing.

121 The respondent's affidavit evidence in relation to share trading was brief. He said in his affidavit of 13 December 2013, as follows:

I do not propose to respond to the allegations made by [the appellant] in his affidavit ... concerning share trading other than to say that I do not accept that there is an overarching partnership in that regard.

Rather, some corporate entities and their associated trusts were for the benefit of both [the appellant] and I [sic] while some were solely for the benefit of [the appellant] and some for my sole benefit [265] - [266].

122 In cross-examination, the respondent said that he had not conducted share trading through Monarch. He said he had made recommendations but the share trading was undertaken by the appellant (ts 92).

123 In his affidavits, the respondent did not deal with the appellant's evidence in relation to superannuation payments and the question of those payments was not the subject of cross-examination on either side.

124 Affidavits of the respondent's son, John; the appellant's wife; Ms Ruland; and three witnesses as to the appellant's involvement in the farm, were also received in evidence. It is unnecessary to refer to those.

125 Against that background it is convenient to turn to the reasons for decision of the primary judge.

126 The primary judge dealt at the outset with the credibility of the appellant and the respondent. His Honour observed that the respondent's evidence was largely uncontroversial, the key controversies relating to conversations which had occurred many years previously and in respect of which his Honour said he would have been cautious in accepting oral evidence about key matters without assistance from contemporaneous documents [11].

127 However, his Honour considered the appellant to be an unsatisfactory witness whose evidence on crucial points he would not accept without some form of confirmation [13]. He gave several reasons for that finding. They were as follows. First, the appellant had an overt antipathy to the respondent. Secondly, in cross-examination there had been on the appellant's part a pedantry which his Honour concluded went beyond a personal characteristic and amounted to deliberate obstruction calculated to divert the questioner, and, where that failed, evasion and obfuscation. His Honour set out some extracts from the transcript which he said illustrated that. Thirdly, his Honour considered that some of the answers the appellant gave when inconsistencies between his oral evidence and his affidavit were put to him were simply not believable [14] - [34].

128 His Honour concluded that where there was a conflict between the evidence of the appellant and the respondent he preferred the evidence of the respondent [35]. He noted, however, that the bulk of the appellant's evidence was not in material contest [36], and that a lot of the evidence in controversy did not advance either party's overall contention [38].

129 Turning to the substantive issues, the primary judge accepted that the appellant's evidence showed an arrangement over 30 years by which the appellant and the respondent worked together to expand their wealth. His Honour said (at [55] - [56]):

The intention of the [appellant and the respondent] is crucial. Their intention to work together to create wealth for themselves and their families can be accepted. However, the vehicle by which the wealth was to be created and distributed is all important. From 1976 it was not by partnership. The methods used were the antithesis of a partnership. The brothers gave up partnership for directorship. Thereafter their arrangement was governed through the legal structures they had created, not through any overarching contract or relationship as asserted by the [appellant].

This was a deliberate decision. There is no acceptable evidence that [the appellant and the respondent] ever assumed joint liability for all debts and obligations of a partnership after 1976. On the contrary, one of the main purposes for commencing Tomar Pty Ltd and trading thereafter was to limit personal liability.

130 Having discussed the characteristics of a partnership and the change which occurs when partners adopt a corporate vehicle to conduct the former partnership business, the primary judge said there were a series of cases that established that there is no continuing contractual relationship between the partners. His Honour set out (at [71]) the following passage from the judgment of Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd (1973) AC 360:

It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves. To refer, as so many of the cases do, to 'quasi-partnerships' or 'in substance partnerships' may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist: the words 'just and equitable' sum these up in the law of partnership itself. And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure. But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in (379 - 380).

131 His Honour described as apposite the following passage from the judgment of Young J in Morgan v 45 Flers Avenue Pty Ltd (1986) 5 ACLC 222:

Unfortunately it very often happens in cases in this Court that a person has arranged his affairs for commercial or fiscal reasons employing a particular structure, which with respect to creditors and the Government he expects to be recognised as no sham but when it comes to a dispute with his former wife or former business associates it is not in his interest to maintain the structure and he pleads before this Court that one must not look at the structure at all but rather at the 'realistic' or 'practical' effect of what has happened... So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better for worse, for richer or poorer, in commercial sickness or commercial health (224 - 225).

132 The following passage from the judgment of the plurality in Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129, was also relied upon by his Honour (at [73]):

The appellant also submits that equity does not impose fiduciary duties between the parties to a deliberate commercial decision to adopt a commercial structure in which they would owe duties, but to the corporation and as directors. Why, it is asked, should equity intervene in such a fashion when the Company, by which Mr Brooker and Mr Friend carried on the business, failed and, in the result, their personal losses will not be in equal amounts? That submission is to be accepted [86].

133 The primary judge concluded that those authorities indicated there was 'no scope at law' for the inferred contract alleged by the appellant [74].

134 His Honour went on to say that the same point was clearly made in Brooker v Friend & Brooker Pty Ltd [2006] NSWCA 385; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342 and Crossman v Taylor (No 3) [2001] FCA 734. His Honour set out (at [85]), among others, the following passage from Crossman:

The parties chose to conduct their venture through a company and discretionary trust and not through another legal structure such as a partnership. Had they conducted the venture through a partnership they would have owed fiduciary duties to each other. In electing to operate through a company they undertook fiduciary duties to the company but not, on the face of it, fiduciary duties to each other.

It is true that the second defendant was a two-person company and that the genesis of the arrangement was very similar to what one would find in the case of a two-person partnership. It is also true that the categories of fiduciary relationships are not closed: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 ('Hospital Products'). However, those matters having been said, there is nothing by way of an express statement or clear conduct to indicate that the parties intended to create legal obligations over and above the obligations which attended the legal structure they adopted after taking accounting advice [301] - [302].

135 The primary judge considered, however, that in view of the declarations sought by the respondent it was necessary to deal with some of the specific entities, which his Honour did as follows.

136 The primary judge said he was not persuaded that the appellant had paid the respondent $8000 for a half share in the accounting practice [91]. His Honour said there was no documentary evidence that such a payment had been made and the appellant's evidence that he had purchased a half interest in the practice was inconsistent with the proposition that there had been an overall partnership for some years previously [90]. In his Honour's view, it also severely militated against such a purchase that on the appellant's own evidence he did not believe that a non-accountant could be a member of an accounting practice. There was also no evidence that the appellant ever assumed personal liability for the debts of the practice [93].

137 His Honour said that he considered the sale of part of the practice in 2005 and of the whole of the practice in 2006 were also decisive against the existence of any partnership [94] - [95]. He also accepted the evidence of Ms Ruland that from her observation the respondent was the principal of the practice and made all the material decisions and the appellant, acting as the practice manager, was responsible for the day to day management of staff [96]. In addition, his Honour considered that allegations made in pleadings filed by the appellant in District Court proceedings against John Palermo (Jnr) and Ms Ruland in relation to the practice were completely contrary to the appellant's contention of a partnership between the appellant and the respondent between 1980 and 2006 [105].

138 The primary judge found that the appellant was never a partner in the accounting practice [107].

139 This entity was dealt with very briefly in the reasons. After referring to short passages from the affidavits of the respondent and of his son, the primary judge found as follows:

Moneys from JP Corporate were distributed by [the appellant and the respondent] to other corporations and trusts. [The appellant] lacked the specific knowledge to earn income on behalf of JP Corporate. It was a business run entirely by [the respondent]. It was a one director, one shareholder company. There is no basis on the evidence for the existence of a relationship as asserted by [the appellant] [111].

140 This was also dealt with very briefly. The primary judge accepted that the appellant was closely involved in the farming operation but concluded that the appellant simply acted as the respondent's manager generally for both the accounting practice and the farming enterprise [114]. His Honour considered it was decisive against the existence of a partnership that all the losses from the part of the farming enterprise not undertaken by a company were borne by the respondent alone. He regarded as immaterial the explanation given by the appellant that that was in order to reduce the respondent's liability for income tax [113].

141 His Honour noted that each of the parties had become a director of Red Lancer when it took over the farm business but that there was no evidence of the value of the farm business or whether any payment was involved [115].

142 The primary judge noted that the following propositions were agreed by the parties:

(1) Tomar borrowings from at least 1996 were serviced by income from income producing entities or sources of [the respondent] and/or [the appellant], including those entities or sources in [the respondent's] sole control, such as J Palermo & Co and (from 2000) JP Corporate Pty Ltd.

(2) Security was required from various entities or sources and provided by them, regardless of them being an [appellant] entity or a [respondent] entity or both, but not from JP Corporate Pty Ltd.

(2a) Part of the security provided was a guarantee and indemnity from Seashells Resort Proprietary Limited, in its own capacity and in its capacity as trustee of the Radiantnight Trust.

(3) The security was provided for the overall Tomar borrowings.

(4) There were regular reporting requirements to NAB regarding the entities or sources at (1) above.

143 His Honour found that the appellant, the respondent and the respondent's son, John, had access to what his Honour described as the 'Palermo Group's' on-line banking facility, including the Palermo Farm account, JP Corporate and J Palermo & Co and general accounts, and that the various entities operated as a group [118].

144 The primary judge also found that at the time of a refinancing from Westpac to NAB, the appellant and the respondent provided guarantees and indemnities for $1.3 million. His Honour implicitly found that the guarantee provided rights as between the guarantors in the event of a shortfall, which he considered was a further reason why 'an overarching contract with fiduciary obligation should not be imposed' [119].

145 The various deeds of settlement establishing trusts also evidenced, in his Honour's view, the intention of the parties:

to trade exclusively through corporate entities and trusts and not to trade as partners or in a relationship giving rise to fiduciary obligations. The structures they have created preclude the notion that they were carrying on business in common with each other [120].

There is no place for a partnership, contract or relationship which gives rise to fiduciary obligations in circumstances where the parties have quite deliberately chosen to take advantage of tax and corporation laws to effectively manage their incomes by the use of companies and trusts. Most of [the appellant's] evidence I accept but it has the result opposite for which he contends [122].

147 His Honour therefore made the declarations sought by the respondent and dismissed the appellant's claim.

148 The appellant has appealed from that decision. I should note that shortly after filing the appeal notice the respondent filed an application for the appeal to be heard on an urgent basis, but did not subsequently pursue that application, apparently being content for the appeal to proceed in the ordinary way.

149 The grounds of appeal were conveniently summarised by senior counsel for the appellant as follows:

(1) The trial judge erred in law in finding that the case advanced by the appellant was precluded by the corporate structures that had been adopted;

(2) The trial judge erred in law in failing to consider all of the evidence and in providing inadequate reasons; and

(3) The trial judge erred in law in concluding that the evidence of the respondent should be preferred over the evidence of the appellant where there was a conflict without considering whether all of the evidence (particularly the objective evidence in the documents) supported one or the other.

150 It was conceded by senior counsel for the respondent that the primary judge would have been in error if he had found that an overall contractual agreement of the nature alleged by the appellant could not, as a matter of law, exist consistently with the corporate and trust structure the parties had established from 1976 (appeal ts 96, 111 - 112). That concession was properly made. The authorities on which the primary judge relied do not support that proposition and such a conclusion would clearly be erroneous. In view of the respondent's concession, it is unnecessary to canvass the cases relied upon by his Honour in detail. The circumstances of each were quite different to the present case and they can be dealt with relatively briefly.

151 In Ebrahimi v Westbourne, E and N formed a company to take over the business they had run for some years in partnership. E and N became the directors of the company. Shortly afterwards, N's son, G, was made a director. The company was profitable and the profits were distributed as directors' remuneration. After some years, there was a disagreement between E and N. At a general meeting of the company, N and G voted to remove E as a director. E sought, among other things, an order under s 222(f) of the Companies Act 1948 (UK) that the company be wound up on the just and equitable ground as he had been excluded from participating in management of the company. That order was made at first instance but overturned by the Court of Appeal, which held that E had failed to establish that N and G had not exercised their power to remove E bona fide in the best interests of the company.

152 The decision of the Court of Appeal was in turn overturned by the House of Lords. It held that while the just and equitable provision did not entitle a party to disregard the obligation assumed by entering a company, it enabled the court to subject the exercise of legal rights to equitable considerations of a personal character arising between individuals which might make it inequitable to insist on legal rights or to exercise them in a particular way. One of the circumstances in which such equitable considerations may be imposed was where the members of the company are associated on the basis of a personal relationship involving mutual confidence, something which will often be found where a pre-existing partnership has been converted into a limited company.

153 In the passage relied upon by the primary judge, Lord Wilberforce warned against the reference to such companies as 'quasi-partnerships' or ' in substance partnerships' because the use of such expressions was apt to cause confusion, equitable obligations coming into play, not through partnership, but through the just and equitable provision. Nothing, however, said by Lord Wilberforce there or elsewhere in his judgment (or by any of the other Law Lords) is authority for the proposition that an inferred agreement of the nature alleged by the appellant could not, as a matter of law, exist consistently with the corporate and trust structure the parties had established.

154 In Nasser, N was one of three shareholders in three companies established for the purposes of running a pre-cast concrete business. They had not been in business together previously. Several years later N wanted to leave the business and subsequently his relationship with the other two shareholders deteriorated. Eventually, N brought an oppression action seeking that either the other two shareholders buy his shares or the company be wound up. N claimed there was a partnership between them in the business. It was held that N had failed to make out a partnership, but as the relationship between N and the other two shareholders entailed mutual co-operation and a level of trust, they were associated in a form of 'quasi-partnership'. Relief was refused on the oppression ground but an order for winding up was made on the just and equitable ground. There is again nothing in that case which supports the proposition that an inferred agreement of the nature alleged by the appellant could not exist consistently with the corporate and trust structure.

155 In Crossman, not only were the circumstances quite different but, in the passage upon which the primary judge relied it was implicitly accepted by the court that notwithstanding the parties conducted their business through a company, they may owe fiduciary duties to each other if there was an 'express statement or clear conduct to indicate that the parties intended to create legal obligations over and above the obligations which attended the legal structure they adopted'. In the present case, the appellant contended there was such conduct.

156 In Friend v Brooker, Friend and Brooker resigned from their respective employments to establish an engineering and construction business. For that purpose, they incorporated a company, of which they were appointed directors and of which their respective family trusts were equal shareholders. Both individually borrowed money from family and friends which they then lent to the company. The company went into liquidation and was unable to repay money which Brooker had borrowed and lent to the company. Brooker alleged a partnership or joint venture existed between himself and Friend which was distinct from the company and continued after its formation. He sought an order for an account and contribution from Friend. The New South Wales Court of Appeal, by a majority, held that Brooker was entitled to equitable contribution in respect of one outstanding loan. That decision was reversed by the High Court, which concluded that no right of contribution arose. The plurality noted the unchallenged finding of fact of the trial judge that from the time of incorporation of the company the partnership ceased, 'just as the parties intended' [12], [89]. The plurality said:

The appellant also submits that equity does not impose fiduciary duties between the parties to a deliberate commercial decision to adopt a commercial structure in which they would owe duties, but to the corporation and as directors. Why, it is asked, should equity intervene in such a fashion when the Company, by which Mr Brooker and Mr Friend carried on the business, failed and, in the result, their personal losses will not be in equal amounts? That submission is to be accepted [86].

...

[T]he equitable doctrine of contribution should not be extended to outflank the consequences of the selection by the parties of the corporate structure [88].

157 That case is a long way removed from the present case. It is not authority for the proposition that an inferred agreement of the nature alleged by the appellant could not, as a matter of law, exist consistently with the corporate and trust structure the parties had established.

158 Finally, the passage the primary judge relied upon from Morgan v 45 Flers was not, with respect, apposite. In the present case, it was not contended by the appellant that the court should 'not look at the [corporate] structure at all but rather at the 'realistic' or 'practical effect' of what has happened'. The appellant's case did not require that the corporate structure be disregarded. Rather, the appellant asserted an inferred agreement, overarching the corporate and trust entities, under which the affairs of those entities were to be conducted with the object of generating wealth to be shared by them both equally. There is again nothing in Morgan v 45 Flers which supports the conclusion that an inferred agreement of the nature alleged by the appellant could not exist consistently with the corporate and trust structure.

159 It was, in my opinion, clearly open to the parties to agree, as the appellant alleged it was to be inferred that they had agreed, that, as between themselves, the shareholdings in the companies, the beneficial interests in the trusts, and the rights to capital and income (or the burden of losses) of the various entities, under their individual or collective control, were to be dealt with so that the total wealth generated by all of the businesses, to which either or both of them would otherwise be entitled, would be shared equally by the appellant and the respondent; what has conveniently been described by the appellant as an 'overarching agreement'.

160 I should also say that I did not understand the respondent to contend that if the agreement alleged by the appellant was made out it was not capable of giving rise to fiduciary obligations, although the precise nature and scope of those obligations might be another matter. Those matters were not raised on the appeal. It is sufficient for the purposes of the appeal that the appellant's case in that respect is reasonably arguable: see generally Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96 - 97; Pilmer v Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165 [70].

161 While, as I have mentioned, the respondent conceded that the primary judge would have been in error if he had determined the case on the basis that as a matter of law the corporate and trust structure precluded the alleged agreement, it was argued that his Honour had not determined it on that basis but by reference to the intentions of the parties. It was submitted that the corporate and trust structure the parties had established was relevant to the parties' intentions as to the nature of their commercial relationship and his Honour had done no more than treat it in that way.

162 I do not accept that submission. In my respectful opinion, the primary judge fell into the error identified by the appellant. That, I think, clearly emerges on a plain reading of his Honour's reasons. At the expense of some repetition, it is convenient to trace his Honour's reasoning on this point.

163 At the outset of this part of his reasons the primary judge stated that he had attached to his reasons a list of the (numerous) 'Palermo Group' entities:

because it emphasises the flaw in [the appellant's] position, which is that a partnership persists despite all the business activity being conducted through companies and trusts [49].

164 His Honour then went on (at [60] - [68]) to discuss the fundamental characteristics of a partnership. He observed that it was common for partners to incorporate a company to continue the partnership business and for the former partners to become the sole shareholders and directors of the company. His Honour noted that while the former partners might carry on the business in much the same way as they had previously, they were now not partners but shareholders and directors. His Honour referred to the change in the legal relationship which occurred in those circumstances:

As well as the introduction of limited liability as against unlimited liability, the legal relationship between the persons who were formerly partners changed completely. A partnership attracts fiduciary duties of trust, confidence and honesty, in part because the decisions of one partner in dealing with outsiders can have a cataclysmic effect on the assets of other partners due to the unlimited liability each partner assumes.

Once the business of the partnership was taken over and carried on by a company corresponding duties were owed, not to the other party, but to the corporation, particularly by the directors [66] - [67].

165 His Honour commented that a shareholder in a small company who was oppressed by the actions of a majority was not without a remedy, the remedy being an action for oppression or the like [68].

166 Then (at [71] - [85]), significantly, under the heading '[t]here is no continuing contractual relationship outside of the corporation', his Honour said '[t]here are a series of cases that establish there is no continuing contractual relationship.' Having cited the passages referred to earlier from Ebrahimi v Westbourne Galleries, Morgan v 45 Flers Avenue and Friend v Brooker, his Honour concluded:

This brief review of authorities indicates there is no scope at law for the sort of contract which [the appellant] asserts should be inferred [74] (emphasis added).

167 As mentioned above, his Honour went on to say that the same point was made clearly in a number of other cases, referring to, among others, Nasser, Friend v Brooker and Crossman v Taylor (No 3).

168 The primary judge then set out his findings with respect to a number of specific group entities. It is important to note, however, that his Honour did not do so on the basis that those findings were relevant to the determination of the appellant's case. Rather, his Honour considered it was necessary to make those findings 'in view of the declaration sought by [the respondent]' [86].

169 It will be recalled that the respondent sought a declaration that the appellant and the respondent 'have not operated in a partnership' and specific declarations to the effect that there was 'not a partnership' between them over any part of the practice of J Palermo & Co or over the business of providing corporate consulting services. In other words, his Honour clearly considered it necessary to make findings in connection with the activities of the specific entities only for the purpose of determining whether the parties had been in partnership in any one or more of them, not in relation to whether the overarching agreement alleged by the appellant could be inferred from the history of the parties' dealings in relation to those entities.

170 Toward the end of his reasons, the primary judge said:

The structures [the appellant and the respondent] have created preclude the notion that they were carrying on business in common with each other. This is acknowledged by [the appellant's] counsel in closing submissions:

1. The taxable income that was received by the group entities was dealt with largely by distributions through various trusts and allocation of expenses, in a way that ensured that across the group entities and the families of [the respondent and the appellant] the most tax effective result was achieved.
2. That usually meant that income or profits were distributed or otherwise dealt with (usually by the allocation of expenses) in the order that:

44.1. distributions were made to the individuals that were part of the extended families of [the respondent and the appellant] and were on a lower or the same rate of tax as the companies within our group entities;

44.2. distributions were then made to group entities that had available tax losses;

44.3. distributions were then made to the companies within the group entities, which companies would be liable to pay tax at the corporate tax rate.

...

The submissions, [the appellant's] affidavit and Annexure A [the scrapbook], confirm what I have said again and again. There is no place for a partnership, contract or relationship which gives rise to fiduciary obligations in circumstances where the parties have quite deliberately chosen to take advantage of tax and corporation laws to effectively manage their incomes by the use of companies and trusts [120], [122].

171 In his concluding remarks, the primary judge described the case as hinging 'on a narrow legal issue' with facts 'that in broad measure were not in contention'. His Honour said he had made findings on the matters which were in contention and which he regarded as relevant to the 'narrow legal question' [123].

172 In support of his submission that the primary judge had not treated the appellant's case as precluded as a matter of law but by reference to the intentions of the parties, senior counsel for the respondent referred to certain passages in his Honour's ex tempore reasons, with the explanation that those reasons are to be understood to be expressed in a shorthand way (appeal ts 107 - 108).

173 I accept that, as indeed they are stated to be, the ex tempore reasons are in summary form, but I do not discern anything in them which indicates that his Honour considered the intentions of the parties in reaching the conclusion that there was no inferred agreement. I do not understand there to be any difference in substance between the ex tempore reasons and the written reasons his Honour subsequently delivered - as indeed, properly, there could not be: see Vogt v Legal Practitioners Complaints Committee [2009] WASCA 202 [56].

174 Senior counsel also sought to support his submission by reference to the written reasons. He referred, among others, to [55] where his Honour said:

The intention of the brothers is crucial. Their intention to work together to create wealth for themselves and their families can be accepted. However, the vehicle by which the wealth was to be created and distributed is all important. From 1976 it was not by partnership. The methods used were the antithesis of a partnership. The brothers gave up partnership for directorship. Thereafter their arrangement was governed through the legal structures they had created, not through any overarching contract or relationship as asserted by [the appellant].

175 Read in the context of his reasons as a whole, I do not think that passage assists the respondent. It is, on the contrary, consistent with the theme that appears throughout in his Honour's reasons, namely, that the inferred agreement alleged by the appellant was precluded, as a matter of law, by the structure of companies and trusts which the parties had set up to undertake the various business activities.

176 Considerable reliance was also placed on what his Honour said at [77] and [78], in relation to the passage his Honour cited from Nasser. It was submitted that it was evident there that his Honour understood that a contract may exist outside the corporate structure. I do not accept that submission.

177 His Honour's reasons at [77] and [78] must be read in their context. Nasser was said by his Honour (at [75]) to make the same point as Ebrahimi v Westbourne Galleries, Morgan v 45 Flers Avenue and Friend v Brooker, namely that 'there is no scope at law for the sort of contract which [the appellant] asserts should be inferred'. At [77] - [78], his Honour said:

Nassar v Innovated Precasters Group Pty Ltd was a case of oppression within a company (Barrett J):

That, in my view, is a fair reflection of the situation in this case, with 'majority controlled' understood as encompassing the ability of any two of the three to direct a course not favoured by the third. The parties were not partners. Nor were they merely co-shareholders brought together by the circumstance of having happened to buy shares in the same company on the stock exchange. They had elected to associate together through and by means of shareholdings in and directorships of three companies in circumstances where they looked to the companies alone for their financial rewards. And those rewards were to be the consultancy fees paid to the family companies for providing the services of the individuals (akin, in concept, to salaries) and, no doubt, dividends as a normal incident of shareholding (I have referred to the dividends actually paid in July 2007). The parties had not subscribed to any contract among themselves, apart from the contracts inherent in the companies' constitutions. But they were in a situation which, of its very nature and because of the informality that attended the day-to-day relationships, warranted mutual co-operation and a level of trust.

This passage may have direct relevance to the activities of Tomar Pty Ltd but that is not the question I am asked to decide.

178 It is not, with respect, clear to me what his Honour drew from that passage in Nasser, but I think it is clear that it was intended to support his finding that as a matter of law the alleged inferred agreement was precluded by the structure of companies and trusts.

179 Senior counsel for the respondent also referred to further passages in his Honour's judgment at [116] and [120], conceding, however, that it was also possible to read those passages against his submission (appeal ts 116). The concession was properly made. Read in the context of the judgment as a whole, in my view those parts of the judgment are contrary to the respondent's submission.

180 Notwithstanding the valiant attempt by senior counsel for the respondent to persuade us otherwise, it is evident that the narrow legal issue his Honour had in mind as determinative of the case was whether an agreement of the nature alleged by the appellant could co-exist with the structure of companies and trusts which as from 1976 the parties had set up to undertake the various business activities. It is clear that the primary judge decided that issue against the appellant and concluded that as a matter of law the appellant's case must therefore fail. In doing so his Honour was, in my respectful opinion, in error.

182 It was submitted by the appellant that it was evident from his reasons for judgment that the primary judge had simply failed to deal with the appellant's substantive case at trial. Having concluded (wrongly) that any overarching agreement of the kind alleged by the appellant was precluded as a matter of law by the corporate and trust structure the parties had established, his Honour had not turned his mind to the evidence in support of the appellant's case.

183 There was, however, an issue on the appeal as to the precise case the appellant had put at trial. Senior counsel for the appellant submitted that the case at trial was that there had always been an agreement between the appellant and the respondent, to be inferred from their dealings over the years, that they would conduct their commercial activities in their joint interests. Under that agreement, it did not matter who controlled particular entities or where profits were made but each entity was to be managed as tax effectively as possible and adjustments were to be made for amounts received by each party from different entities to ensure that ultimately the overall after-tax profit pool was shared equally. That agreement, which 'overarched' the companies and trusts they had established, gave rise to fiduciary obligations owed by each of them to the other in respect of the management and control of the companies involved in their commercial activities and the exercise of their rights as shareholders.

184 That is to say, the appellant's case, as so described, was put as an inferred agreement of the type described by McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110, 11,117:

[A] contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. The question in this class of case is whether the conduct of the parties, viewed in the light of surrounding circumstances, shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the elements of an express contract. (citations omitted)

185 To a similar effect, in Vroon BV v Foster's Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32, 81, Ormiston J said:

[A]greement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances.

186 In such a case, the 'acid test' is 'whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain': Meates v Attorney-General [1983] NZLR 308, 377, referred to with approval in Vroon. See also Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 [74] - [77].

187 It was submitted on behalf of the appellant that in order properly to determine the appellant's claim it was necessary for the primary judge to consider the evidence of the dealings between the appellant and the respondent over the years. That is to say, it was necessary to consider, among other things, how the distribution of funds of the various entities occurred, the significance of the service company arrangements, the way in which funds were drawn from J Palermo & Co, how the income of JP Corporate was dealt with, how Palermo Farms was established and operated, the way superannuation payments were arranged, the way Tomar operated, and the way in which share-dealings were conducted. It was submitted, in effect, that there was substantial evidence in support of the appellant's case which had not been considered by the primary judge and which arguably was capable of leading to a different result.

188 The respondent, on the other hand, contended that the case as now put on the appeal was not the case advanced by the appellant at trial. It was submitted, in effect, that at trial the appellant's case was that a number of express agreements had been entered into which 'supported and underpinned' the overall inferred agreement, including agreements:

(1) to continue the property development partnership through Tomar following its incorporation;

(2) for the appellant to acquire a half share in the accounting practice of J Palermo & Co and to share in half of the profits of the practice;

(3) to sell parts of the practice of J Palermo & Co;

(4) to establish JP Corporate and to share the corporate consulting fees equally;

(6) to conduct certain joint activities so as to disguise the respondent's interests and avoid his disclosure obligations.

189 The primary judge, it was submitted, had found against the appellant on the facts in respect of each of the alleged agreements and that was determinative of the appellant's case.

190 The respondent further contended that, in any event, the case as now put by the appellant could not succeed in light of the findings made by the primary judge. That was because, first, such an inferred agreement was contrary to express findings of fact made by the primary judge and, secondly, the primary judge had considered whether there was an overarching agreement of the nature alleged and (correctly) found against such an agreement. Reference was made by counsel to his Honour's reasons at [55], [77], [78] and [85].

191 Dealing first with the question of how the appellant's case was put at trial, I do not accept that it depended upon establishing the express agreements referred to by the respondent.

192 The appellant's case was identified by his counsel in the course of both his opening and closing addresses as based on an overarching agreement inferred from the conduct of the appellant and the respondent over the period of their business activities. It was not put as arising from, or dependent upon, any express agreements between them. It is unnecessary to canvass all of the relevant passages in the opening of counsel for the appellant. Some examples will suffice.

193 In his opening address, the appellant's counsel, Mr Holler, said:

Now, when we say 'partnership-like', we are not talking about, with respect, the people in the company-type arrangement that your Honour referred to. When we say 'partnership-like', what we're saying is that, if your Honour finds that the inferred agreement and its inferred terms over the course of 40 years of conduct falls short of the partnership definitions of partnership, in which case the [Partnership] Act would plug any gaps, there is still an arrangement; if it falls short of partnership, there's still a contract that gives rise to fiduciary obligations between the brothers (ts 61).

194 Mr Holler went on to describe the task of the primary judge as being to 'infer over this time period [of some 40 years] what the relationship has been between the parties' (ts 62, 64). He told his Honour that the question was:

So how would a reasonable person, in the shoes of either [the appellant] or [the respondent] having seen how the other acted towards him, what was said, what was not said, what was done over time, whether that amounts to a common enterprise with mutual rights and obligations (ts 64).

[W]hat we're proposing is in written closing submissions ... to develop each of those themes by reference primarily to the documents on the basis that in a case like this, spanning such a large timeframe and involving family members, the primary evidence for your Honour will be the documentary evidence and the inherent commercial probabilities more so than what the individual brothers may say, in now 35, 40 years on. So what we've intended to do in this inferred terms document is work back from the evidence (ts 65).

HOLLER, MR: I might just make the observation that there is a long-standing relationship between two people - they're brothers - they develop this relationship over time in business. There's a central treasury. It's for mutual benefit. There's [sic] tax minimisation objectives across family members. There is a sharing of the wealth and the benefits of the various businesses that either or both are conducting. They, in effect, we say, pooled for mutual benefit. That's perhaps at the highest level of generality that I can put it. So to - some of the arguments are a little bit sterile about was he or wasn't he a partner in the accounting business or was he or wasn't he a partner in the consulting business.

MCKECHNIE J: Well, it comes back to the letter of your instructing solicitors, I suppose.

HOLLER, MR: Well, with respect, we have moved on from that, your Honour. The more important document now is this inferred terms document now. This is a refinement of that letter, having had access to a lot more of the evidence (ts 67).

197 In the course of cross-examination of the respondent, the appellant's counsel was asked by the primary judge to explain why the scrapbook was said by the appellant to be fundamental to his case. The appellant's counsel said:

This is the core record of what the two brothers did in terms of making adjustments from year to year of various drawings and expenditures that were made, and it's the document from which the inference arises that they were in an evolving and continuing partnership or similar relationship over time (ts 108).

So in terms of finding whether there's currently a partnership or something like it, it has got to be inferred from all of the conduct over time (ts 109).

199 In his closing address at trial, counsel for the appellant told his Honour that upon the incorporation of Tomar the property development partnership ceased:

[H]owever, the significance is that the relationship between the brothers continued and evolved from 1976. So [the appellant] is not asserting in a strict legal sense that he's a partner in the business of the accounting practice. What he is asserting is that he had an agreement, which may be a partnership, amount to sharing in the after-tax wealth that was generated through the accounting practice ... there's a distinction between a partnership in the business of the accounting practice, and he was not a named partner on the one hand, and on the other hand being a partner in a different business which is a business of sharing wealth across various endeavours that are carried on by the parties. And this is the situation (ts 308).

So there's this use of various vehicles and pooling of the after tax-income and reinvestment for mutual benefit across the two families. Now, we submit that there's nothing inconsistent in that position in law in characterising that arrangement as either a partnership or a contractual arrangement that's similar to a partnership. That's not locked out simply by the fact that there are companies and trusts involved ... The only way to view that overall relationship between the brothers is that it's a contractual relationship between the brothers. Absent contract, that relationship can't be explained ... So this is consistent with what we say is the pooling of the fruits of the various businesses. The benefits of the various businesses all come back to the same pot: tax paid equally, what's left divided equally (ts 310 - 311).

The next point, on the sharing of wealth, this is something we've touched on already: 'What do we do with the after-tax wealth of the various businesses?' And it's the scrapbook point. 'We each draw from the accounting practice, and we rebank to Tomar any other money that has been paid as wages or salary.' In order to ensure they both share equally in the accounting practice profits, [the respondent] isn't paid the profit. At 166.2 [the respondent] and [the appellant] pay the tax assessed on [the respondent's] income in equal shares. So that's very significant: two brothers, one earning the income, but both paying the tax on it. That's a very clear indication that they treated that income as joint.

And after they've done that then differences in drawings are adjusted in the scrapbook ... So that we would say is very strong, that evidence of the sharing of the income, regardless of where it was derived (ts 323 - 324).

202 The appellant's case was put in a similar way in the written closing submissions. It is unnecessary to go to those submissions.

203 Nor do I think it can be suggested that, at trial, senior counsel for the respondent was under a misapprehension as to the nature of the case the appellant sought to advance. In his opening address, which of course preceded the appellant's opening address, the respondent's counsel was asked by the primary judge over what the partnership asserted by the appellant was said to be. He responded:

Well, I'm not being flippant, but what's essentially put against us is that everything - every company, trust entity - has been, since from before 1976, conducted subject to an overarching agreement and that one can infer the partnership from, presumably, the evidence, and there are certain inferred terms which are put against us (ts 56).

204 On the appeal, senior counsel for the respondent submitted that it was nevertheless apparent from the evidence of the appellant at trial that the appellant had relied for the inferred agreement upon express agreements which the appellant said he had entered into with the respondent. We were taken to various passages in both the affidavit and oral evidence of the appellant which were said to support that proposition. I do not, however, consider that on a fair reading they do.

205 In relation to the property development business, we were referred by senior counsel for the respondent to affidavit evidence of the appellant that at about the time of the incorporation of Tomar, he and the respondent had discussions that they would 'focus on growing [their] joint business ventures', and to the following cross-examination of the appellant:

Now, we can go back to the beginning. When do you say that the agreement was between you and [the respondent] that everything was going to be subject to a contract or a partnership?---We going to the beginning?

Yes?---1974

And in 1974, can you tell us what was said that gave rise to that agreement?---I can't repeat the exact words of what was said in 1974. I can tell you what did happen.

Well, let us just start with the date. Are you clear now that it's 1974?---It was the date that we purchased the property in Scarborough, which was in about 74 (ts 200).

...

Now is it your position that everything that you and the [respondent] have acquired since 1974 is subject to this agreement, I think you assert--- ... If you're referring to everything other than what we individually earned whilst we were still on wages commencing with the property development, then yes, but we both had other jobs at the time (ts 206 - 207).

206 Later, in the course of cross-examination about his evidence that he purchased a half interest in the accounting practice for $8,000 in 1980, the appellant was asked:

Now the buy-in that you assert occurred in May 1980 was contentious, wasn't it?---I would say that, yes.

Because you assert an agreement that predated you buying in in March 1980, don't you?--- ... Yes.

...--- All businesses were combined. All efforts were combined.

...

What I'm asking you is, is it your evidence that you had an agreement with [the respondent] that everything you were doing was going to be done for your joint benefit, firstly, did you have that agreement?---Yes.

Secondly, was that an agreement that you reached before March 1980?--- I would have to say yes (ts 215).

207 In my opinion, there is nothing in that evidence, or any of the other evidence to which reference was made, which assists the respondent's contention that express agreements necessarily underpinned the inferred agreement advanced by the appellant at trial. The appellant's evidence, which in each instance was at a high level of generality, amounted to no more than an assertion of the existence of an agreement that everything was to be for their joint benefit. It was not evidence of any express agreement and it was not inconsistent with the case of an inferred agreement put by the appellant's counsel in his opening and closing addresses.

208 I would also reject the respondent's further contention that the findings of fact made by the primary judge were sufficient to dispose of the appellant's claim. That contention, in part at least, was put on the basis that once it was found there was no agreement to share the earnings of any one of the businesses, the appellant's claim of an overarching agreement covering all of the businesses must fail. Or, as senior counsel for the respondent put it rather more colourfully on the appeal, the appellant's case was that all swans are white, so the presence of a black swan negatives that case (appeal ts 102).

209 In relation to the accounting practice, it was submitted that the appellant's case at trial was that he had purchased a half interest in the practice in 1980. Reference was made to the appellant's affidavit evidence that he 'joined the accounting practice in or about 1976 and bought into the practice in or about 1980'. It was submitted that the appellant's contention at trial that he was entitled to an equal share in the profits made by the accounting practice was based upon his claim that he had purchased a half interest in the practice. That was also the basis upon which he had claimed that he and the respondent (rather than the respondent alone) had agreed to sell parts of the accounting practice, and ultimately the whole practice. The primary judge was not persuaded that any such payment had been made ([91]) and concluded that the appellant was not a partner in the accounting practice [107]. Senior counsel for the respondent submitted that, in that context, the finding that the appellant was never a partner in the practice was a rejection of his claim to an equal share in the profits, however that entitlement was said to arise (appeal ts 121 - 123).

210 I do not accept that submission. When his reasons are read as a whole I consider it to be clear that his Honour simply found that the appellant was not a partner in the practice itself. I do not consider that his Honour's reasons can be read otherwise. It is also important to bear in mind that in this part of his reasons his Honour was not concerned with the appellant's case of an overarching inferred agreement and his findings were not directed to such a case. Rather, his Honour was dealing with the specific declarations sought by the respondent, to the effect that appellant and the respondent had not operated in partnership and that there was not a partnership between them in respect of the accounting practice. Nor do I consider that his Honour's conclusion that he was not persuaded the appellant had ('reluctantly' on the appellant's version) paid the respondent $8,000 'representing a half-share in the partnership' [81] is decisive of the appellant's case of an overarching inferred agreement.

211 The respondent submitted that in their proper context the findings of the primary judge in respect of JP Corporate were also decisive against the appellant's case. That submission was developed as follows. The appellant's evidence - contrary to that of the respondent - was that he and the respondent had agreed to set up JP Corporate. In his evidence, the appellant gave three different reasons for its incorporation: first, because the respondent was concerned about an investigation into a company with which he was associated; secondly, because the corporate consultancy work could expose the accounting practice and the appellant to substantial liability; and thirdly, in order to enable the respondent to avoid disclosure obligations. The appellant was cross-examined at trial at some length about his evidence as to the first explanation, in the course of which it was put to him that his evidence was untrue (ts 232 - 239). It was upon the basis of, among other things, that cross-examination, that his Honour concluded that the appellant was an unsatisfactory witness [14] - [15].

212 Senior counsel for the respondent submitted that the reasons of the primary judge regarding JP Corporate must be read in the context of his Honour's credibility finding. His Honour is to be taken as rejecting the appellant's evidence that JP Corporate was set up by agreement and as accepting the respondent's evidence, which his Honour sets out at [108] of his reasons, to the effect that the respondent set up JP Corporate to undertake the respondent's corporate consultancy work and that he did so without any prior discussion with the appellant. In rejecting the appellant's evidence as to the establishment of JP Corporate, his Honour rejected the basis upon which the appellant contended he was entitled to share in its profits. It was submitted that his Honour's conclusion that 'there is no basis in the evidence for the existence of a relationship as asserted by [the appellant]' was dispositive of the appellant's claim in relation to any share in the profits from JP Corporate and therefore of the appellant's claim to an overarching agreement involving all of the group entities.

213 I do not accept that submission. In my view, it is clear that his Honour had in mind a relationship of partnership of the sort contemplated by the declarations sought by the respondent, not an overarching agreement of the sort contended for by the appellant. It is important to read [111] as a whole. I have set it out earlier but for convenience will repeat it. His Honour said:

Moneys from JP Corporate were distributed by [the respondent and the appellant] to other corporations and trusts. [The appellant] lacked the specific knowledge to earn income on behalf of JP Corporate. It was a business run entirely by [the respondent]. It was a one director, one shareholder company. There is no basis on the evidence for the existence of a relationship as asserted by [the appellant].

214 The reasons his Honour gives at [111] for rejecting such a relationship are not necessarily inconsistent with an overarching agreement. Indeed, the fact, as found by the primary judge, that both the respondent and the appellant distributed money from JP Corporate - money in which the respondent said the appellant had no interest - would, at first blush at least, appear to be consistent with the appellant's case. In any event, I do not consider that his Honour's findings are dispositive of the appellant's case. To determine the appellant's case it was necessary to examine, in particular, the financial documents recording how the funds of JP Corporate were dealt over the years. That was not done. His Honour's conclusion that some of the explanations the appellant gave for the establishment of JP Corporate were an attempt to smear his brother did not overcome the need to undertake that analysis.

215 The respondent did not contend there was evidence by the appellant of an express agreement to share the benefits of the farming business. But it was submitted that the findings of the primary judge that the losses from the farming business were borne by the respondent alone, and that it was not conducted in partnership, were contrary to the appellant's case that the farming losses were for the benefit of them both and that the underlying assets of the farming business were jointly owned. It was therefore determinative of the appellant's claim to an overarching agreement involving all of the group entities.

216 I do not accept that submission. It was not the appellant's case that the farming operation itself was conducted in partnership. The appellant's evidence was that he agreed with the respondent that the farming operation would be conducted in the respondent's name so that the losses could be offset against the respondent's income from other sources, in order to reduce the tax burden on the profits from their business activities as a whole. The findings of the primary judge are not inconsistent with that. His Honour did not resolve the conflict in the evidence as to the object of the farming operation.

217 In my opinion, the respondent's contention that the findings of fact made by the primary judge were sufficient to dispose of the appellant's case of an inferred overarching agreement must be rejected. His Honour considered the evidence relating to the activities and operations of the various entities only for the purpose of determining the question raised by the declarations sought by the respondent, namely, whether specific partnerships existed in relation to the various businesses.

218 I also do not accept the respondent's contention that the primary judge considered and rejected the appellant's case of an overarching agreement. The passages of his Honour's reasons, at [55], [77], [78] and [85], relied upon in support of that submission do not support it. I have previously referred to [55] (at 35), and [77] and [78] (at 47 - 48). It is unnecessary to set out [85] which merely contains a passage from the judgment in Crossman v Taylor.

219 There is nothing, in my view, in any of those parts of his Honour's reasons which supports the respondent's submission. Read in their context, they are simply elements in the process of reasoning which led the primary judge to his conclusion that the inferred agreement alleged by the appellant was precluded as a matter of law by the corporate and trust structures that had been established.

220 As mentioned earlier, it was contended by the appellant that the fact-finding process of the primary judge was fatally flawed because his Honour had failed to have regard to a great deal of evidence which supported the appellant's case and which, if accepted, was capable of leading to a different result. Senior counsel for the appellant did not seek to canvass all of that evidence, given the nature and volume of it, but referred to a number of the principal areas of commercial activity to demonstrate the nature and extent of the evidence.

221 At the forefront of the appellant's case on appeal was what was said to be his Honour's failure to give proper consideration to the scrapbook, exhibit A. At trial, the scrapbook was described as 'a fundamental piece of documentary evidence for the [appellant's case]' (ts 106). Extensive cross-examination of the respondent was devoted to the identification of various places in the scrapbook which the respondent had initialled.

222 On the appeal, senior counsel for the appellant described the scrapbook as the principal documentary evidence at trial of the inferred agreement contended for by the appellant. On the appellant's case, the scrapbook set out how the equalisation of profits had been carried out in respect of the accounting practice (profits to which the respondent had claimed that he alone was entitled) and some other entities, and provided an important context in which to consider the balance of the documents, particularly those relating to JP Corporate, Palermo Farms and Tomar.

223 In relation to the scrapbook, the primary judge said (at [51]):

The scrapbook, Exhibit A, is a record maintained by [the appellant] over many years and a lot of pages are initialled by [the respondent]. It is a reconciliation of cash. It does not record income, profit and loss. It records an adjustment of cash taken from kitty (Tony XXN ts 220). It supports the evidence of [the respondent] in the affidavit of 10 October 2013:

1. When [the appellant] and I were discussing doing property developments under separate entities as trustees of discretionary trusts, we also had a discussion as to how the profits of those discretionary trusts would in the future be distributed. We said to each other and agreed words to the effect that:

31.1 where there were corporate entities of which [the appellant] and I were each the shareholders, the profits could be distributed to those corporate entities where those corporate entities had available tax losses;

31.2 the profits could be distributed to Tomar; or

31.3 where we agreed to distribute the profits to a company where, for example, I was the sole shareholder or my family the sole shareholder, an equivalent amount would also be distributed to [the appellant] or an entity of [the appellant's] nomination.

224 Senior counsel for the appellant submitted that while it was correct that the scrapbook recorded adjustments of cash, his Honour had not gone on to deal with the appellant's evidence that the purpose of the adjustments was to ensure that in the end the net wealth generated by all of the entities in the Palermo group was shared equally between the appellant and the respondent. In addition, his Honour appears to have mistakenly concluded that the scrapbook came about to record adjustments required as a result of the discussion between the parties about carrying out property developments under separate entities as discretionary trusts. There was no evidence to that effect. On the contrary, the respondent's evidence was that those discussions occurred in about 1995, whereas on the appellant's evidence, which was not controverted, the scrapbook went back to 1976/1977. In addition, it was the appellant's evidence that the scrapbook dealt, not with income from the property development business, but with income from other sources, evidence which on their face the entries in the scrapbook supported.

225 The respondent's counsel dealt in some detail with the evidence of the treatment of the income from the accounting practice. He submitted that as the appellant's case was put on appeal there were three elements to it, namely: that drawings were made on an equal basis from the practice; that the drawings were reconciled each year; and that the reconciliations were recorded in the scrapbook. That, it was argued, was contrary to the respondent's evidence. In essence, the respondent denied that the drawings were intended to be equal or that there was a reconciliation of accounts to ensure that occurred. The respondent's evidence was that the scrapbook was used to record all drawings from Tomar, the general account of the practice and other group entities. All drawings by the appellant from the accounting practice's general account were to be reconciled against his earnings, and drawings from Tomar and other entities were to be reflected in the Tomar loan accounts. That evidence was not challenged in cross-examination and it was not put to the respondent that there was a yearly equalisation of income from the accounting practice.

226 It was further submitted by the respondent that the scrapbook was not of itself sufficient to make good the appellant's case. The appellant's evidence was that many of the reconciliations in the scrapbook were derived from trial balances and the general ledgers. The respondent argued that the general ledgers were therefore essential to the appellant's case. While the appellant had produced the relevant extracts from the general ledgers, he had done so as a bundle, without elaboration, and none of them were put to the respondent in cross-examination. In addition, it was submitted, that the reliability and significance of the general ledgers produced by the appellant could not be assessed as there were many annotations in them in undated and unidentified handwriting; in some instances the entries relied upon by the appellant do not appear reconcilable with other entries; in places the general ledgers appear to be incomplete; and there appear to be discrepancies between some of the entries in the general ledgers and the appellant's evidence (a matter which does not appear to have been put to the appellant in cross-examination). It was also submitted on behalf of the respondent that whilst the appellant produced some trial balances, none of them were put to the respondent in cross-examination.

227 The respondent further submitted that in relation to the financial years ended 30 June 1999 and 2002, given by way of example by the appellant on the appeal, on the face of the accounting records there appeared to be some unexplained discrepancies between those documents and the appellant's evidence as to the transactions. In his written submissions on the appeal, the respondent also referred to what he submitted were a number of other discrepancies between the contemporaneous records and the appellant's evidence, and advanced alternative explanations of the documents in respect of a number of the transactions referred to by the appellant in his evidence. (I note in passing that none of those matters were raised in the cross-examination of the appellant.)

228 It was also submitted by senior counsel for the respondent that in dealing with the appellant's evidence in relation to the scrapbook the primary judge was placed in a difficult position. The respondent had not been cross-examined on the basis that the entries in the scrapbook were reconciliations made to equalise earnings and the relevant general ledgers were not put to the respondent. No overall explanation as to how the appellant said the reconciliations in the scrapbook worked or how they related to the general ledgers emerged until the closing address by counsel for the appellant and even then it was less than pellucid.

229 It is, I think, readily apparent that the assistance the primary judge received in enabling him to understand this area of the evidence, and indeed much of the evidence on both sides, was a good deal less than ideal, no doubt as a result of the great time constraints to which both parties were subject. However, in his affidavit evidence the appellant explained the entries in the scrapbook on which he relied by reference to the general ledgers. Had his Honour been unable to understand the evidence it is to be expected that that would have been raised by his Honour at the time. His Honour should, with respect, have dealt with the significance of the scrapbook in his reasons. In fact, his Honour did not refer to the scrapbook at all in his reasons, beyond the brief reference which I have set out above.

230 I should note too that that no complaint was made by the respondent at trial that the interaction between the general ledgers, the drawings accounts and the scrapbook had not been sufficiently explained by the appellant or that the respondent had not been cross-examined on them. No objection was taken to the admission of this part of the appellant's evidence (appeal ts 147). I did not understand it to be contended by the respondent on the appeal that the primary judge should not have received that evidence.

231 I should also observe more generally that the extent of the cross-examination on both sides was very limited and both sides did not cross-examine on a number of material areas of factual controversy, some of which have been referred to above. The absence of cross-examination on many contentious issues was, no doubt, due to the severe time constraints. The major areas of factual contest were, however, sufficiently clear from the affidavits of the parties and in the unusual circumstances of this case I do not consider that in the absence of cross-examination on a particular point it was to be assumed that the evidence of the witness on that issue was accepted: see Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219, 236; Nominal Defendant v Saleh [2011] NSWCA 16 [140].

232 In my opinion, in order properly to determine the appellant's case it was necessary for the primary judge to grapple with the evidence in relation to the scrapbook and the other evidence in relation to the way in which the income and profits of the accounting practice were dealt with. I do not underestimate the difficulties involved in doing so given the way in which the case was conducted on both sides. But it was essential for his Honour to come to grips with that evidence. He did not do so, no doubt because he considered it unnecessary in light of his conclusion on the law.

233 It was also submitted by the appellant that the primary judge failed to consider relevant evidence in relation to the service entities of the accounting practice, Palermo Farms and JP Corporate respectively. On the respondent's evidence, the service entities derived 'considerable profits' from providing services to the accounting practice. It was submitted that it was consistent with the appellant's case that the service entities were being operated in a way which took substantial income out of the accounting practice, Palermo Farms and JP Corporate, and distributed it to the appellant and the respondent equally, and inconsistent with the respondent's contention that the accounting practice, Palermo Farms and JP Corporate were operated for his benefit alone.

234 There were clear conflicts between the evidence of the appellant and the respondent as to the structure, operation and purpose of the service entities, none of which were resolved by the primary judge. The evidence in relation to the service entities was not referred to in the reasons of the primary judge and, it would seem, was not considered by his Honour. Again, that no doubt is because his Honour concluded it was unnecessary to do so in light of his finding on what he regarded as the determinative legal issue.

235 The primary judge considered that the sale of part of the accounting practice to Mr Melbin in July 2005 and subsequently the sale of the whole of the balance of the practice in 2006 to the respondent's son and Ms Ruland, was decisive against there being a partnership between the appellant and the respondent in the accounting practice [94]. I should mention that His Honour did not explain why he thought that was so.

236 In any event, that, with respect, was not the relevant question in respect of the appellant's case. Indeed, in his closing submissions at trial counsel for the appellant had disavowed any contention that the appellant was a partner in the accounting practice itself. The question was whether from the conduct of the parties over the years there was to be inferred an overarching agreement of the nature alleged by the appellant.

237 Both parties gave evidence about the sales. There was a clear conflict in the evidence, relevantly, as to how the proceeds of sale were dealt with. To reiterate its substance, the appellant said that the proceeds of the sale to Mr Melbin were paid into the accounting practice, which then paid it to Tomar so that the proceeds were shared between them. Similarly, in relation to the sale to the respondent's son and Ms Ruland, the appellant said the funds received from Ms Ruland (the respondent's son having failed to pay his share) were paid to the accounting practice and then paid to Tomar.

238 The respondent's evidence, on the other hand, was that the proceeds of sale were not to be shared between them but that the appellant asked him to pay the funds into Tomar as Tomar needed funds and that he agreed to do so on the basis that the funds would be credited to his loan account in Tomar. He said he had been unable to check whether that had in fact been done.

239 That evidence was not referred to by the primary judge and no findings were made which resolved the conflict. It was, however, evidence which was relevant to the question whether there was the overarching agreement contended for by the appellant.

240 The primary judge's finding that the appellant's pleadings in District Court proceedings between JDP Admin as plaintiff and Palermo Group Pty Ltd, John (Jnr) and Ms Ruland as defendants, were 'completely contrary to any notion of a partnership between the appellant and the respondent in the accounting practice for the period of about 1980 and 2006' [105], was once again directed to the question whether the appellant and the respondent were partners in the accounting practice itself. It was not directed to the question of the overarching agreement raised on the appellant's case.

241 The primary judge's discussion of the evidence in relation to the affairs of JP Corporate was very brief. No reference was made to the appellant's extensive evidence as to the way in which the earnings of JP Corporate were dealt with over the years. His Honour simply referred to the respondent's evidence that he caused JP Corporate to be incorporated in or about 2000 to take over his corporate consulting activities and to the evidence of Dean Palermo, the appellant's son, that, among other things, funds were passed by JP Corporate to JDP Admin until October 2011 [110]. And, as mentioned previously, his Honour then concluded as follows:

Moneys from JP Corporate were distributed by [the respondent and the appellant] to other corporations and trusts. [The appellant] lacked the specific knowledge to earn income on behalf of JP Corporate. It was a business run entirely by [the respondent]. It was a one director, one shareholder company. There is no basis on the evidence for the existence of a relationship as asserted by [the appellant] [111].

242 The finding that the appellant lacked the knowledge to earn income on behalf of JP Corporate and that its business was run entirely by the respondent is not, however, inconsistent with the appellant's case of an overarching agreement. Indeed, the finding that moneys earned by JP Corporate were distributed to other entities and trusts, not only by the respondent but also by the appellant, itself calls for some explanation. That was not a matter to which his Honour adverted.

243 The primary judge again dealt with Palermo Farms very briefly in his reasons. He found that the appellant was not a partner in the farm and that he simply acted as the respondent's manager [114]. His Honour concluded that no partnership had existed because:

[a]ll the losses from the part of the farming enterprise not undertaken by a company were borne entirely by [the respondent]. This is decisive against the existence of a partnership. The motive, said by [the appellant] to be reduction of [the respondent's] income tax burden, is immaterial [113].

244 While the finding that the losses from the business were borne by the respondent may be inconsistent with a partnership between the appellant and the respondent in the farming business itself, it is not necessarily inconsistent with the appellant's case that that had been done in order to reduce the overall liability for tax on income which was ultimately to be shared equally.

245 There were, as submitted by the appellant, at least two other features of the farming operation which were relevant to a proper determination of the appellant's case but which were not considered by the primary judge. First, the land upon which the farming operation was conducted was owned by CMT as trustee of the MM Trust, the beneficiaries of which were the appellant and the respondent and their respective families. That was a structure which on its face would appear to be consistent with the appellant's case. Secondly, in 2007 the farming operation was taken over by Red Lancer as trustee for the Red Trust. The directors and shareholders of Red Lancer were the appellant and the respondent. The respondent's explanation that he decided to give up the farming operation in his own name because of 'income tax implications' was not examined by the primary judge although, as the appellant submitted, that did not explain why a business said to be conducted solely for the respondent's benefit came to be jointly owned without apparently any consideration passing to the respondent.

246 Senior counsel for the appellant also submitted, in effect, that the draft shareholder's agreement for Control Centre was, as had been contended by the appellant at trial (trial ts 331), further significant evidence consistent with the appellant's case. That too had not been referred to by the primary judge. The draft shareholder's agreement was put into evidence by the respondent. Counsel referred to the '[o]bjective' at par 2 of the agreement, which was in the following terms:

The objective of the Company is to exercise the power as the Appointor or Guardian of any Trust in the interests of the beneficiaries of the Trust in good faith, so that the families and descendants of [the respondent and the appellant], and their Associates where applicable, may together have the benefit of the Trusts in appropriate proportions, it being intended that the families of [the respondent] and their Associates on the one hand and of [the appellant] and their Associates on the other hand should share those benefits in equal proportions.

247 Although the shareholder agreement was never executed, it was not suggested that that objective did not reflect the parties' instructions and therefore their arrangements.

248 Senior counsel for the appellant further pointed out that the primary judge had not dealt with the appellant's evidence in relation to superannuation contributions made to the Tomar Superannuation Fund on behalf of the respondent, the respondent's wife Lida, the appellant, and the appellant's wife Maria. At trial, it had been submitted on behalf of the appellant that the evidence of those contributions was consistent with the overarching agreement (ts 329). No reason had been given by the respondent why, for instance, JP Corporate, a company which he said operated solely for his benefit, should pay superannuation contributions for the appellant's benefit or why the respondent should not receive a contribution equal to that made for the appellant's benefit from Tomar and JDP Admin, companies which the respondent accepted operated for their joint benefit. Similarly, there was no explanation for the benefits paid to others from the accounting practice if the practice was operated solely for the respondent's benefit. The evidence as to the superannuation payments was again, it was submitted, evidence which on its face supported the appellant's claim but which had not been adverted to by the primary judge.

249 It was submitted by the respondent that the appellant's case that the superannuation payments were consistent with an overarching agreement of the nature alleged should be treated with caution as the appellant's evidence was limited to three financial years, beyond which there was simply a general assertion as to what 'generally happened', and it is not apparent whether JDP Admin recovered the contributions it made from another entity or entities. Those, however, are matters for trial.

250 It was also pointed out on behalf of the appellant that the primary judge had not dealt with the appellant's evidence in relation to share-trading, evidence which it was submitted was consistent with the overarching agreement. On that issue the respondent's counsel acknowledged that the respondent's evidence at trial was 'limited', but submitted that that must be viewed against the background of the large amount of new material the respondent had to deal with in the appellant's affidavit of 11 December 2013 and the difficulties caused by the late notice that the appellant was not relying on the 2110 affidavit. That does not seem to me to be any answer.

251 I would uphold this ground of appeal. Notwithstanding the terms of the ground of appeal, in truth this is not a case of inadequate reasons but rather a case of a failure on the part of the primary judge to consider the substantive merits of the appellant's claim and to make the necessary findings of fact and law. The ground was developed on that basis at the hearing of the appeal. It is evident from his Honour's reasons that, having found (erroneously as it turns out) that any partnership or agreement of the nature alleged by the appellant was precluded as a matter of law, he concluded it was unnecessary to consider the substantive merits of the appellant's claim. To the extent his Honour turned his mind to the evidence before him he did so solely for the purpose of determining whether the respondent was entitled to the declarations it sought; that is, whether the appellant and the respondent had conducted any of the various businesses in partnership. The findings of fact that the primary judge did make were not directed to the case the appellant advanced and, in my opinion, are not determinative of that case. In my view, the conclusion his Honour reached that the appellant had not made out his case was not the only conclusion open on the evidence before him. For the reason I have mentioned, the evidence in relation to that case remained very largely unexplored.

252 It follows that the appeal should be allowed and the orders made by the primary judge set aside. For reasons I will come to, I consider there will have to be a new trial.

253 It will be recalled that the primary judge found the appellant was an unsatisfactory witness whose evidence on 'crucial points' his Honour would not be prepared to accept without some form of confirmation [13]. His Honour concluded that where there was a conflict between the evidence of the respondent and the appellant on a particular issue, his Honour preferred the evidence of the respondent over that of the appellant [35].

254 It was submitted on behalf of the appellant that the primary judge's findings as to credibility were unsafe because they had been made without considering whether the documentary evidence supported the appellant's evidence.

255 I accept that his Honour did not consider whether the documentary evidence supported the appellant's evidence in the context of the appellant's case relating to the alleged overarching agreement. However, in view of the conclusions I have already reached, it is unnecessary to determine this ground. I would observe, however, that the issue of credibility appears to have played little part in the result. That is perhaps not surprising in circumstances where much of the appellant's case relied on financial and other documents, and his Honour concluded that the bulk of the evidence given by the appellant was not in material contest [36], and that 'a lot of the evidence in controversy [did] not advance either party's overall contentions' [38]. In fact, his Honour does not appear to have determined any conflict in the evidence on the ground of credibility, apart from the conflict in relation to the payment by the appellant of $8,000 for an interest in the accounting practice, an issue which I have referred to previously and which is not material to the outcome of the appeal.

256 The respondent applied on the appeal for leave to refer to the 2110 affidavit, which did not go into evidence at trial. In submissions in support of the application, the respondent argued that otherwise this court would be at a disadvantage in evaluating the 'feeling' of the case as run below (referring to Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 [23]), in circumstances where the feeling of the case, and the context in which the trial took place, were important in assessing whether the primary judge sufficiently grappled with the appellant's case. In particular, it was submitted, it was necessary to understand that some of the appellant's case, such as:

• evidence of the link between the general ledgers, the drawings accounts and the scrapbook;
• evidence on a year by year basis of that link; and
• evidence in relation to superannuation and the assignment of debts to Monarch,

was first revealed by the appellant's affidavit of 11 December 2013. Due to late notice that the appellant would not rely on the 2110 affidavit, the respondent's affidavit of 13 December 2013 had been prepared substantially in response to the 2110 affidavit and therefore did not deal with those matters. Nor were those matters adequately explained by the appellant's counsel at trial. The evidence at trial, and the approach the primary judge took to it, had to be understood in that context.

257 I am not persuaded that the interests of justice require that the respondent have leave to rely on the 2110 affidavit on the appeal. I am not satisfied that the 'feeling' of the case cannot sufficiently be evaluated on the basis of the transcript of the trial, the exhibits and the other documents before this court. Moreover, there is nothing to indicate that the way in which the evidence was dealt with at trial caused the primary judge any real difficulties in grappling with the appellant's case. If any such difficulties had occurred it is to be expected they would be referred to in his Honour's reasons. There is nothing of that nature in his Honour's reasons. Rather, as I have said, it is apparent that having concluded that the appellant's claim was precluded as a matter of law by the corporate and trust structure adopted, his Honour did not consider it necessary to have regard to the evidence said to support it.

258 I would add that to the extent the respondent seeks to refer to the 2110 affidavit for the purpose of enabling him to explain gaps or deficiencies in his case at trial, leave must be refused. There is, I think understandably, no notice of contention or cross-appeal to which such explanations would be relevant. At trial, no objection was taken by the respondent to the appellant's affidavit of 11 December 2013 being admitted into evidence and no request was made by the respondent for an adjournment or for more time to respond to it. Given the urgency at the time, it can readily be appreciated why the respondent chose to proceed notwithstanding any difficulties involved. But having taken that course, it is difficult to see how the respondent could now complain about it.

259 In my view, nothing advanced by the respondent in support of the application provides a basis upon which it would be appropriate to grant leave to refer to the 2110 affidavit on the appeal. I would accordingly refuse leave.

260 It was common ground that if the appeal were to be upheld the matter should be remitted for a new trial before a different judge. With great reluctance, I have come to the view that no other course is open. This is not a case where the relevant facts are incontrovertibly established: cf Fox v Percy. There are no findings at all by the primary judge in respect of the principal factual issues on the appellant's case and the evidentiary material is voluminous. Moreover, the necessary process of fact-finding will require findings as to credibility to be made. That is not a task this court can undertake. In the absence of relevant findings of fact, this Court is not in a position to substitute its own view.

261 In the circumstances, there will have to be a new trial. Accordingly, I would set aside the orders made by the primary judge and order a new trial before a different judge.

(2) set aside the orders made by the primary judge;

(3) order a new trial before a different judge; and