Cavasinni v Cavasinni

Barfield v Loughborough (1872) LR 8 Ch App 1 Butcher v Pooler (1882) 24 Ch D 273 Hamer v Giles (1879) 11 Ch D 942 Klaue v Bennett (1989) 62 DLR (4th) 367 Kraft v Kupferwasser (1991) 23 NSWLR 236 CASES CITED : Meekin Enterprises v Gersbach (McLelland CJ in Eq, 6 August 1997, unreported) Newton v Taylor (1874) LR 19 Eq 14 Pit v Cholmondeley (1754) 2 Ves Sen 565; 28 ER 360 Popat v Shonchhatra [1997] 1 WLR 1367 Rowella Pty Ltd v Abfam Nominees Pty Ltd (1989) 168 CLR 301 Watney v Wells (1867) LR 2 Ch App 250 Wood v Scoles (1866) LR 1 Ch App 369

PARTIES : Ferdinando Cavasinni (A) Michael Cavasinni and Francesco Cavasinni (R)

COUNSEL : F P Carnovale (A) D K L Raphael (R)

SOLICITORS : A B Mezzanotte Lawyers (A) Costa & Associates (R)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3225/98 - CAVASINNI v CAVASINNI JUDGMENT 1 HIS HONOUR: On 30 March 2001 I gave reasons for judgment in this matter. I said at [106] that the only order be a reference to the Master to take accounts with Frank Cavasinni being the accounting party. 2 The proceedings concerned a dispute between branches of the Cavasinni family. The head of one family is Mick Cavasinni, Frank is his son and Fred is Mick's brother and Frank's uncle. The three were involved in a partnership which was developing land at Merrylands. 3 Following my judgment, short minutes of order were presented to me on 26 April 2001. These were as follows: "The Court: (1) Orders that the proceedings be referred to the Master, Equity Division, to (a) take account of all the dealings and transactions of the partnership comprising the parties to these proceedings, and of the partners in relation thereto, being a partnership concerning a property development venture at 97-103 Sherwood Road, Merrylands, which partnership was established on about 15 April 1987 and terminated on 1 May 1997; and (b) enquire into the amount (if any) which, upon taking of the accounts, is due by the cross-defendant to the cross-claimants or either of them. (2) Directs that the second cross-claimant be the accounting party in relation to the taking of the said accounts. (3) Grants liberty to each party to apply on 7 days' notice. (4) Orders that costs be reserved." 4 The enquiry took place before Associate Justice McLaughlin on at least 8 days in 2004 and 2005 and there were then written submissions. 5 Fred Cavasinni is dissatisfied with the determination by McLaughlin AsJ and has filed a notice of motion on 24 August 2006 which purports to be an appeal from the Associate Judge's determination. The so-called "appeal" raises six complaints, viz:

A. Should the amount credited to Frank be $440,000 rather than the $485,000 found by the Associate Judge? This issue has now been conceded in favour of Fred.

B. Was the Associate Judge justified in finding that $80,000 was paid by Mick in April 1990?

D. What happened to the proceeds of the sale of the old red house?

E. Is any adjustment, and if so what, to be made on the "balancing exercise"?

F. How should interest on excess money put into the partnership by Frank be dealt with in the accounts? 6 Apart from these six matters, there was the outstanding matter of costs, both the costs left over from March 2001 and also the costs of the enquiry before the Associate Judge. I will call that issue G. 7 The matters were ventilated before me on 27 April 2007, Mr F Carnovale appearing for Fred, and Mr D Raphael appearing for Mick and Frank. 8 Before entering into issues B to G, I need to say something about procedure. 9 An Associate Judge, when asked to conduct an enquiry by a Judge, may do so in a number of different capacities. 10 As a result of the Chancery Commission of 1850, equity procedure was reformed and the tasks performed by the Masters in Chancery were transferred to Clerks within the Judges' chambers. Accordingly, what happened after a decree in a partnership suit was that the Clerks would enquire sitting in the Judges' chambers, hearing evidence if need be, but because they were acting completely as the Judges' delegates, they were bound by what the Judge found. They did not make a decision, but presented a report to the Judge. The Judge could either adopt that report or send the matter back for further enquiry. 11 In due course the Clerks were renamed Masters. 12 The same procedure applied in New South Wales so that it was not possible for the Master on an enquiry to make any different determination on the facts than that made by the Judge. 13 The note in Ritchie's Uniform Civil Procedure NSW, 46.3.10, headed "Accounting after trial" rightly summarises the procedure: "All the affidavits in evidence before the judge may be used at the subsequent accounting or inquiry. The practice is for notice to be given which identifies the parts of the transcript and affidavit material that is to be relied upon. If it is desired to conduct any further cross-examination notice must be given … Exhibits in evidence before the judge that are intended to be used in the taking of accounts are put in evidence again and remarked. Any new evidence to be adduced in the inquiry is taken in the same way as it would be in an ordinary hearing." 14 The change from Master to Associate Judge may affect this procedure as the Associate Judge is now a member of the Court and not to be considered as an assistant or clerk to the judges. However, that question can remain for another day. The present case needs to be considered under the traditional procedure. 15 Between the time of my decision and the time that Associate Justice McLaughlin commenced his enquiry, the matter was mentioned before Acting Justice Burchett and Associate Justice Macready. Although I myself find it extremely difficult to know how this came about, the Associate Judge said at [18] of his judgment of 28 July 2006, [2006] NSWSC 755: "The manner in which the hearing has proceeded rather suggests that the parties no longer require that an account of the nature contemplated by the orders of Mr Justice Young should be taken. The parties would appear to be satisfied if the Court, having conducted the inquiry pursuant to the consent orders of 30 April 2004, were to make a finding of what amount, if any, is owed by the Cross-Defendant to the Cross-Claimants." 16 The orders of 30 April 2004 merely directed the cross-defendant to (1) file all affidavits setting out his surcharges, falsifications and objections and the whole of his evidence by 21 May 2004; and (2) put the matter into the then Masters' call-over list for the purpose of fixing a hearing date for the enquiry "into what amount, if any, is owed by the cross-defendant to the cross-claimants in accordance with the orders of Young CJ in Eq of 26 April 2001." 17 How that order could be construed as converting an enquiry as ordered by me into some new proceeding whereby the court (rather than Master as delegate of the Judge) was to make a finding (other than making a report to the Judge) of what was owed by one party to another, is to me very obscure. Two other strange things happened. The plaintiff (Fred) filed a notice of motion in August 2005 seeking dismissal of the cross-claims of Frank and Mick. The Associate Judge made such an order. It is strange for a substantive order to be made during an enquiry, but I assume it was done with the consent of all the parties. 18 The third peculiarity was that on the enquiry the affidavits that were read before me were, it would seem, treated as being in evidence but only to be taken into account by the Associate Judge if referred to. It would seem to me that both under the general rules of procedure and indeed, the procedure that the Associate Judge (with the apparent consent of the parties) adopted, was that the material which was before me was evidentiary material before the Associate Judge. One matter of significance is that Mick gave evidence before me, but did not give any evidence before the Associate Judge, nor was he cross-examined before him. He was cross-examined before me and he (in common with Frank and Fred) did not give a very credible performance. However, Mick's evidence before me that he was the person who paid the $80,000 in April 1990 does not appear to have been referred to by the learned Associate Judge. Fred's complaint is notwithstanding this, that the Associate Judge found that Mick had actually paid the sum. 19 Where an Associate Judge sits to deal with an enquiry ordered by a Judge, he or she reports to the Judge. 20 As I have said, there are other ways in which an Associate Judge can deal with the matter. Separate issues can be referred to the Associate Judge to make a decision. If that is so, then the Associate Judge is sitting as the Court; he or she has made a decision and Part 49 rule 4 of the Uniform Civil Procedure Rules 2005 gives a right of appeal to a Judge. Part 49 rule 4 only gives a right of appeal from a decision of an Associate Judge. A report to the Judge is not a decision. Indeed, it might also be put that Part 49 rule 1 shows that there is only to be an appeal where the Associate Judge is sitting as the Court. However, that is a little less clear. 21 Accordingly, in my view, the proper function I am performing is to consider whether or not I will adopt the Associate Judge's report rather than whether I am hearing an appeal from him. For all practical purposes it makes no difference. 22 Mr Carnovale for Fred, makes a number of complaints and if one were technical and these complaints were made out, or a sufficient number of them were made out, I would need to send the matter back to the Associate Judge. However, apart from interest and costs, the differences between the parties are only $70,000. Already the case has lasted three days before me on the initial hearing and eight days before the Associate Judge and then a further day before me. The costs have far outstripped the amount in issue. Section 56 of the Civil Procedure Act 2005 compels me to deal with the matter finally if that is at all possible, rather than sending it back to the Associate Judge if I find that there was some error in his approach. 23 One further procedural matter before I deal with what might be called the merits. Although there does not appear to be any mention of this by the learned Associate Judge in his judgment, the parties are agreed on the rules that must be applied in cases where onus of proof proves to be important. That is a very live matter in the instant case because both in my judgment in 2001 and in the Associate Judge's judgment, all witnesses were given a minimum credibility score so that unless there was corroboration, preferably documentary corroboration, the party with the onus failed. 24 Part 46 rule 7 of the Uniform Civil Procedure Rules says: "1. If a party seeks to charge an accounting party with an amount beyond that in respect of which the accounting party by his or her account admits receipt, he or she must give to the accounting party notice of the charge, stating, so far as he or she is able, the amount that he or she seeks to charge, with brief particulars. 2. If a party alleges that any item in the account of an accounting party is erroneous in amount or otherwise, he or she must give to the accounting party notice of the allegation, stating the grounds for alleging the error."

The objection in subrule 1 is usually referred to as a surcharge and that referred to in subrule 2 as a falsification. Both surcharges and falsifications may be based on matters of fact or law. The onus is on the surcharging party to establish the surcharge. However, with a falsification, the onus is on the accounting party. This flows from the old case of Pit v Cholmondeley (1754) 2 Ves Sen 565; 28 ER 360. 25 I now turn to what might be called the merits. I have already dealt with paragraph A, now that it has been conceded, so I proceed to B to G. 26 B. The dispute is over $80,000 paid in April 1990. Fred says that Frank claimed in his accounts that $80,000 had been transferred from Mick to the State Bank account and then transferred to D'Aroma Concrete Pty Ltd on 20 April 1990 to pay bills. The complaint is that although the learned Associate Judge did not accept Frank to any great extent, and although Mick gave no evidence before the Associate Judge, the Associate Judge appears to have accepted that the $80,000 came from Mick. Mr Carnovale says that this was a falsification; the onus was on the accounting party, and there was just no evidence at all on it. 27 This criticism appears to be unanswerable. Indeed, Mr Raphael's only answer to it was that Mick had told the court in his affidavit that he had paid the $80,000 and there was no other evidence. However, the way the parties approached Mick's affidavit was that it was not material that the Associate Judge was to take into account. 28 Accordingly, I find matter B in favour of Fred. 29 C. This matter concerns $14,000. 30 The learned Associate Judge said that in August 1990, a deposit of $14,000 was made to the State Bank as a term deposit in the names of the three partners. By August 1993 it had grown to $17,250. He found that it was likely that the deposit was in the nature of a bond in favour of a local council. The Associate Judge added $14,000 to the cost of the works and then found that the $17,250 had been split three ways so increased each party's contribution by $5,750. 31 Mr Carnovale says that it is an error in the learned Associate Judge's judgment that he did not seek to work out where the $14,000 came from in the first place. He puts that the only place it could have come from is the contributions of the "partners" in D'Aroma Concrete, namely, Fred and Mick and that they should be credited with the $14,000 equally. 32 This appears to be correct. However, the allegation is that the accounts do not show a credit for Fred and Mick for $7,000 each. This is a falsification. The onus is thus on the accounting party. There is nothing in the accounts to show how the partnership contributed the $14,000 bond. The learned Associate Judge, although he referred to the bond, at no time appears to have directed his mind to who provided it. The evidence fairly clearly was that Frank provided a total sum of a defined amount from Barclays Bank and the balance was contributed by Mick and Fred through D'Aroma. Accordingly, the account should have shown that the $14,000 was provided as to $7,000 by each of Fred and Mick. 33 D. The old red house. When the land was subdivided, there was "left over" a small piece of land with the original house erected thereon. This was known in the enquiry as "the old red house". There is no doubt it was sold in August 1991 and that the proceeds of sale in the amount of $110,195, plus the balance of the deposit of $12,900, was received by Frank. 34 Fred says that the net proceeds of the sale of the old red house went not into the costs of development, but into Frank's own private funds. 35 The Associate Judge said at [49] that: "If, as Fred asserts, neither he nor D'Aroma received any part of the proceeds of sale of the old red house, then his contribution … would be reduced by that amount. By the same token, if Fred is correct, Frank's contribution would also be reduced by that amount (as also would Michael's contribution). These two figures would then cancel each other out. I do not understand the nature of Fred's complaint." 36 Mr Carnovale says that the learned Associate Judge fell into error here. However, the accounts do show that the proceeds from the sale of the old red house were treated as having been split three ways and being part of the parties' contribution to capital. In my view the learned Associate Judge correctly so treated it. 37 E. Mr Carnovale put the simple proposition that all the construction costs, apart from the money that Frank had borrowed from Barclays Bank, were paid by D'Aroma. Therefore it was quite a simple exercise to calculate the total cost, to take away the $440,000 borrowed by Frank and put into the cost and the balance was contributed by Mick and Fred equally. I must confess that I cannot see any flaw in this logic. The learned Associate Judge does not seem to have considered it in his judgment. It follows that this "balancing factor" must be applied with respect to the matters that I have considered in B and C above. 38 F. As to interest, I said in my judgment of 2001 at [105]: "Section 24(3) of the Partnership Act 1892 provides that where a person has subscribed more than his fair share of capital he is entitled to interest at the rate of 7% from the date where he subscribes more than the others." 39 That was, of course, quite wrong. However, as is understandable and was appropriate, the learned Associate Judge followed this ruling. 40 Section 24(3) in fact says: "A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of capital which the partner has agreed to subscribe is entitled to interest at the rate of seven per centum per annum from the date of the payment or advances." 41 One must compare and contrast this provision with s 24(4) which says: "A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by the partner." 42 It is clear that the focus of s 24(3) is not one partner paying more capital contribution than the others, but a partner making a loan to the partnership. 43 This is reinforced by s 44, which says that on dissolution the following rules should ordinarily be observed. First, losses and deficiencies of capital shall be paid first out of profits, next out of capital and lastly by the partners individually in the proportion in which they were to share profits. The assets of the firm are to be applied in the following manner: "(1) In paying the debts and liabilities of the firm to persons who are not partners therein. (2) In paying to each partner ratably what is due by the firm to the partner for advances as distinguished from capital. (3) In paying to each partner ratably what is due from the firm to the partner in respect of capital. (4) The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible." 44 Because of my previous ruling, at the commencement of the hearing before me, each party assumed that Frank was entitled to interest on his excess capital. The argument was whether that interest should be paid by the partnership (ie one-third each) or by the partners who had not made a full contribution of capital, ie Mick and Fred. 45 Had the excess of Frank's capital contribution over the capital contribution of the others been an "advance", then it would have ranked as a partnership liability and would have been paid out of the partnership funds before anything was distributed between the partners. As a partnership liability, it effectively would have been paid three ways. Whilst there are some logical problems about this, that is the way in which the authorities would treat such an advance; see particularly the decision of the Court of Appeal in British Columbia in Klaue v Bennett (1989) 62 DLR (4th) 367. 46 Furthermore, interest on any such advance would cease as at the date of dissolution; Klaue's case; Watney v Wells (1867) LR 2 Ch App 250 and see Rowella Pty Ltd v Abfam Nominees Pty Ltd (1989) 168 CLR 301. 47 Mr Carnovale in his written submissions referred to the decision of Lord Selborne LC in Barfield v Loughborough (1872) LR 8 Ch App 1. That again is a decision which affirms that, in taking accounts of a partnership, interest after dissolution will not be allowed to the partners. 48 Mr Raphael relies on Popat v Shonchhatra [1997] 1 WLR 1367, 1374 where the English Court of Appeal said that there was no authority for the proposition that rights under the identical English equivalent to s 24 of our Partnership Act ceased on dissolution. It was true that no such authorities were cited to the court, but they do exist. 49 However, it is unnecessary to pursue this matter as the essential difficulty is that Frank did not make an advance to the firm, he made a payment of capital in excess of what the others put in. This came about by agreement between the parties, the basal agreement being that Frank would put in the moneys borrowed from Barclays Bank, $440,000, and the balance of the construction costs would be contributed by D'Aroma, the corporate vehicle of Mick and Fred. 50 If what I had said in 2001 had been a final judgment and orders had been taken out and there had been no appeal, then I would not be able to do anything about my error. However, where the judgment merely orders accounts and the matter has to come back to me to make a final order, in my view, I am entitled to withdraw previous comments, provided, of course, (as happened in this case) counsel are given sufficient opportunity to address the point. 51 Mr Raphael recognises the difference between an advance and a contribution of capital. He submits: "Once the partnership is dissolved, just as the right to interest by the partnership on advances made by a partner ceases as and from that date, once dissolved the obligation is solely on each of the other partners to pay interest on the money whereby their agreed capital contribution was deficient. It is on this point that the textbook commentaries are silent and there appears to be no case law which deals with the problem. That is to say, there appears to be no case law or commentary which indicates who is to be liable for interest on monies repayable to the party who made an advance over and above his her or its agreed amount of capital contribution." 52 Underhill's Principles of the Law of Partnership, 10th ed, pp 90-1 says: "It is a corollary of the rule as to the equality of profit and loss (notwithstanding inequality in contribution of capital), that, in the absence of agreement to the contrary, no partner is entitled to receive interest on the capital contributed by him." 53 The author refers to s 24(4) of the Partnership Act 1890 (UK) and notes that in many cases it would be quite unreasonable not to include a clause allowing for interest on capital especially in situations where an older partner has subscribed a considerable sum and a younger partner is introduced to the firm with little by way of capital contribution. 54 This general principle seems to me to preclude the argument that Mr Raphael raises that there should be some quantum meruit type adjustment to prevent unjust enrichment by allowing a partner who has subscribed more capital than the others to interest on his capital or that, in equity, such interest should be payable. 55 Indeed, Mr Raphael cited a number of cases where, despite the general rule that interest is not payable unless expressly agreed, equity has allowed interest. The principal authority relied on was Wood v Scoles (1866) LR 1 Ch App 369, but that was a case where the partnership agreement provided for interest on capital and the real dispute was as to the application of that clause. In view of the general principle stated above, one cannot reason by analogy from the other cases cited by Mr Raphael that interest should be payable. 56 There is no doubt that the excess amount paid by Frank was agreed contribution. There is no authority for the proposition that in the absence of agreement between the parties, a person whose agreed capital contribution exceeds that of the others, is to receive interest before or after the date of dissolution, and indeed, cases such as Watney v Wells supra tend the other way. This is in accordance with the usual policy of the law that no interest is to be paid unless there has been agreement, or unless, in equity, it would be unconscionable for someone to retain moneys without having paid interest. Neither of these apply in the present case. 57 Accordingly, no interest is payable to Frank. 58 G. Costs. It is abundantly clear that the normal rule in partnership suits is that each partner is equally liable to pay the costs associated with the proper winding up of the partnership. Accordingly, whilst nowadays the costs of all litigation is technically in the discretion of the court, one starts with the proposition that the costs should be borne by each of the three partners as to one-third of the total. 59 However, the authorities are clear that the general way of exercising the discretion is that the costs of an action for dissolution of partnership are paid out of the asset, unless there is a good reason to the contrary: Hamer v Giles (1879) 11 Ch D 942; Kraft v Kupferwasser (1991) 23 NSWLR 236, 244; Meekin Enterprises v Gersbach (McLelland CJ in Eq, 6 August 1997, unreported). As Powell J further said in Kraft's case at 244: "The costs of taking the accounts directed at the hearing are, although disputed, usually paid out of the partnership assets …".

He cites Newton v Taylor (1874) LR 19 Eq 14 and Butcher v Pooler (1882) 24 Ch D 273, which support the proposition, principally the former. 60 Mr Raphael submitted that a passage from Blackett-Ord on Partnership 2nd ed (Butterworths, London, 2002) p 206, assisted. The passage reads: "The modern practice is to allow the successful party [in a partnership action] his costs against the unsuccessful and where he has been partially successful and partially unsuccessful, then he should be awarded his costs issue by issue.

However, that proposition depends on the current English Civil Procedure Rules to a great extent, and what Blackett-Ord calls "the old rule" is still the law in New South Wales. 61 I am really appalled that a case involving, at the most, $200,000, would take eight days before the Associate Judge. Had the enquiry happened in 2007, s 56 of the Civil Procedure Act would mean that the Judge would need to limit cross examination or cap costs or both to ensure that, proportionately, costs did not exceed what was at stake. 62 However, neither side alleges that any time was wasted during that hearing, or that either side was guilty of prolonging what occurred before the Associate Judge. Accordingly, I must take the eight days before the Associate Judge as necessary for the proper winding up of the partnership. No criticism either can be lodged against any party for the original hearing before me or the "appeal" which took half a day before me recently. 63 However, Hamer v Giles makes it clear that despite the ruling principle, where a partnership action has been rendered necessary by the negligence of other misconduct of a partner, the court will order that partner to pay the costs so far as they have been occasioned by his misconduct. 64 In Hamer v Giles at 945, Jessel MR said: " … where an action for dissolution is rendered necessary by the misconduct of a partner - as, for instance, where a partner whose duty it is to keep the accounts has neglected to do so - the court not only has jurisdiction, but is bound to exercise it, by making that partner pay so much of the costs as are occasioned by his misconduct." 65 Mr Carnovale says that what was mentioned by Jessel MR in Hamer v Giles is exactly what happened in this case. The evidence clearly was that Frank undertook to keep the accounts, that he did not do so and that for this reason, a long enquiry was needed before the Associate Judge. In riposte, Mr Raphael says that as Mick and Fred had neither the training nor the ability to do any paper work and the parties wanted to reduce costs by not having an accountant, Frank volunteered to do the tasks, despite not being a qualified accountant, only a book-keeper in training to become an accountant, and everyone knew that. 66 In my 2001 judgment, I said at [91]: "Fred's principal answer to Frank's claim is that he has never been given a proper accounting, plus he relies on the Limitation Act 1969. However, he also says he is sure he has already paid his one-third share." 67 If that were the real dispute, then when there was an accounting, Fred argued about it for eight days, and although he won some points, he would not have won sufficient to even pay his own costs before the Associate Judge. 68 Again, at the end of my 2001 judgment I indicated that it would seem that the range of what Fred would get on an accounting would be between $150,000 and $200,000, and although I have not done the final figures, it would seem to me that the result was probably less than the lower end of that range. If it were not, it was certainly not more than the top of the range. 69 Mr Raphael says that Frank was cross-examined for four days with relatively small adjustments to the accounts in Fred's favour. However, McLaughlin AsJ said at para 76 of his judgment that the cross-claimants, namely Frank and Michael, had been largely successful. 70 The prima facie rule would mean that each of Frank, Mick and Fred would pay one-third of the total assessed costs. The question that goes through my mind is whether this should be adjusted either against Frank because he did not do as he said he would and keep the accounts or against Fred because he was largely unsuccessful. I diminish the effect of Frank's volunteering to keep the accounts on the basis that everyone knew that he was not a competent accountant and no-one seems to have objected before the dissolution as to the state of the accounts. It would seem that before the development was completed the partners were just trying to find money wherever they could find it, rather than being too careful as to document where each dollar came from. 71 Mick virtually took no part in the eight day hearing before the Associate Judge. One wonders whether it is fair that he should be visited with a third of the costs of that inquiry. However, as against that, he has principally been supporting Frank rather than taking a neutral position. 72 Throughout the whole case, Fred appeared by one counsel and the other counsel represented both Mick and Frank. 73 Bearing all these matters in mind, it seems to me that it would be appropriate to order that Mick and Frank between them pay half the costs of the proceedings and Fred the other half of the costs. 74 I will, at this stage, merely publish these reasons. Counsel and solicitors must adjust the accounts in accordance with these reasons and bring in short minutes as to the final figures as to what is due to whom and payable by whom together with the appropriate order for costs. 75 I will list the matter for mention before me on 3 July 2007 at 9.50 am. However, if my Associate is notified the previous week that the date chosen is unsuitable, another date may be arranged.

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