Gazzana v Santamaria

Supreme Court of NSW|2015-06-30|Before: Ball J, Darke J, Nicholas J, Rein J

Introduction

These proceedings concern the winding up of a partnership carried on by the plaintiff and first defendant. On 17 September 2014, Darke J ordered by consent that a number of questions identified by the parties be determined separately and before any other trial of the proceedings. The questions concern the assets and liabilities of the partnership and whether the partners reached an agreement on their division. It was thought necessary for the court to answer those questions before the matter could be referred to a court appointed accounting expert to inquire and report on the assets and liabilities of the partnership and the amounts received by the partners. This judgment is concerned with the answers to the separate questions.

Background

Before identifying the questions to be answered, something should be said about the history of the matter.
Prior to August 2009, the plaintiff and the second defendant each carried on a business of providing building and construction services including civil works, demolition and excavation works. The first defendant is the sole director of the second defendant and together with his then wife ran the business of the second defendant from their property in Kemps Creek.

The separate questions

Nine separate questions were identified in the orders made by Darke J. It became apparent during the course of the hearing before me that it was not necessary to answer some of the questions, either because they were repetitive or because they were not necessary to answer to resolve the disputes between the parties. The questions that remained to be answered are the following (I have kept the original numbering for ease of reference): 1. Was there an agreement between the first defendant and the plaintiff on or about 14 December 2012 (being the date of the dissolution of the partnership) as to the division of partnership property; and if so, what is the effect, if any, of that agreement on the taking of final accounts of the partnership. 2. What are the assets of the partnership. 3. Was the equipment set out in Schedule A (Schedule A) and Schedule C (Schedule C) to the motion filed 1 April 2014 property of the Partnership? 6. If the equipment set out in Schedules A and C is Partnership Property, is the party who has had possession of the equipment since the dissolution of the partnership liable to account to the partnership for any profits derived from using the equipment pursuant to section 42 of the Partnership Act, pursuant to any undertaking as to damages given to the Court or otherwise? 7. Are the following liabilities of the Partnership: a. The judgment in the Local Court Proceedings between the second defendant and SBC Holdings Pty Ltd; 8. Whether any of the work (jobs) set out in the spread sheet attached to the letter from Russo & Partners of 23 September 2013 jobs did not fall within the terms of the partnership.
Schedule A sets out the property that was at the time of termination of the partnership in the plaintiff's possession. It includes 4 items that the defendants concede belong to the plaintiff. The remaining 5 items are described as follows: a. A Kato 24 tonne HD 900 VII Excavator serial number 9005577W and all associated attachments b. Dynapac Smooth Drum Roller caterpillar engine number 3208; c. T Rex Articulated Dump Truck model 2366 serial number B23972 Engine number 15229207; d. Volvo 50 Ton Model BM540 Dump Truck, manufacture number 318 engine number 1255390 e. Airman 3 tonne excavator serial number pin 878B000282; In addition, it appears that the plaintiff had possession of a S150 Bobcat which was acquired by the partnership in the circumstances described below.
Schedule C sets out the property that was at the time of termination of the partnership in the defendants' possession. The following items appear on the schedule: i. Vermeer Tub grinder ii. Drill from China iii. Yanmar Five tonne excavator iv. Iveco Prime mover v. Semi tipping trailer vi. Bob cat excavator vii. Small remote roller viii. Euclid dump truck ix. 27 Tonne Hitachi Excavator x. Volvo F16 Tip Truck It appears that two items are missing from that schedule. They are a Hot & Cold Pressure Washer and a Toyota Town Ace Van.
I should add that questions 7b and 7c were in the following terms: 7. Are the following liabilities of the Partnership: a. … b. Rent payable, whether pursuant to an agreement or otherwise, to the first defendant for the storage of plant equipment used by the Partnership? c. The costs of waste removal from the first defendant's property, if such waste was generated by the Partnership? Mr Allen, who appeared for the defendants, indicated that the defendants did not require answers to these questions. Although Mr Allen did not specifically say so, that must be on the basis that the defendants no longer claim that the rent or the costs of waste removal were liabilities of the partnership.

The parties

Before answering the separate questions it is necessary to say something about the parties.
The first defendant's native language is Italian. He cannot read or write English. It appears that the affidavits he swore were prepared by his solicitor and read to him in Italian before he signed them. He can understand English and gave his evidence in English. However, it is apparent that his English is limited. He was sometimes difficult to understand and although it was apparent that his English was sufficient to enable him to get by in his daily activities, it was less obvious that his English was sufficiently good to enable him to express himself clearly when dealing with all the issues on which he was cross-examined. These matters need to be borne in mind when evaluating the evidence he gave. Even so, I formed the view that he was not a reliable witness. He has clearly formed a view on the merits of his case and much of his evidence was directed at advocating that view rather than giving an account of what he recalls happened.
On the other hand, I found the plaintiff generally to be a reliable witness. He made it clear that he does not trust the first defendant and his recollection is likely to have been coloured by the animosity each now has towards the other. However, I formed the view that plaintiff was attempting to recall as best he could the events relevant to the dispute. He gave direct answers and, as will become apparent, made significant concessions where it was appropriate to do so.

The Yanmar 5 tonne excavator

One other matter should be mentioned by way of background.
The plaintiff contends that the first defendant breached the undertaking provided to the court on 14 April 2014 by selling a piece of equipment known as a Yanmar 5 tonne excavator (the Excavator).
It is not disputed that the Excavator was one of the pieces of equipment that was the subject of the undertaking given to the court by the first and second defendants on 14 April 2014. The first defendant maintains that he sent the Excavator to Beirne Engineering Pty Limited for repair. The plaintiff contends that the defendants sold the Excavator to that company.
There is no direct evidence that the Excavator was sold. The person who took possession of the Excavator at Beirne Engineering was the son of the principal of the company. He was not available to give evidence. However, Mr Michael Beirne, the principal, gave evidence that on 10 September 2014 the first defendant went to Beirne Engineering's business premises and demanded the return of the Excavator on the basis that he had not been paid the full purchase price. It was on the morning of that day that the matter was before the court and the first defendant had been told by his legal advisers that they had been served with an affidavit from the plaintiff deposing to a conversation with Mr Beirne in which Mr Beirne had said that his company had bought the Excavator.
The plaintiff relies on this evidence as prima facie evidence that the first defendant is guilty of a contempt of court by selling the Excavator in breach of the undertaking given by him. Mr Bolger, who appeared for the plaintiff, submitted that, in those circumstances, the first defendant was not entitled to relief until he purged his contempt, relying on the decision of Young J in Young v Jackman (1986) 7 NSWLR 97. That case concerned an application by a father for review of custody orders in respect of his child after he had taken the child to California in breach those orders. The child's mother sought a stay of the application for review on the basis of the father's contempt. Young J granted that stay.
It is not necessary in this case to consider the precise scope of the rule that the court will not hear a party who is in contempt of court until the contempt is purged. Although in Young v Jackman the father had not been found guilty of contempt, a warrant for his arrest had been issued by the Court of Appeal after it had learned during the hearing of an appeal in respect of the original custody orders of the father's conduct. The warrant was issued on the basis that "[t]he appellant, by taking the child in the way in which he did from the care and custody of the respondent and by absconding has prima facie committed a contumacious contempt of court". Here, however, all that can be said is that there is evidence that the first defendant may have committed a contempt. Moreover, the defendants are not seeking any relief. Rather, the relief is sought by the plaintiff; and what is sought in the present application are answers to questions which will permit that relief to be given. In my opinion, there is no room for the operation of the principles stated by Young J in those circumstances.

Questions 2 and 3

It is convenient to deal with the questions in the following order: 2, 3, 7, 8, 1 and 6.
Questions 2 and 3 can be taken together. They both concern the assets of the partnership. It is accepted that the only real dispute concerns the ownership of the Equipment. There is a question of what income was earned by the partnership, what expenses were incurred and what income has been distributed to the partners. However, the answers to those questions do not raise any questions that cannot be determined by an accounting expert once the ownership of the Equipment is determined.
A complete list of the Equipment is set out in paragraph 12 of the plaintiff's affidavit sworn on 11 December 2014. The S150 Bobcat is item l on that list, the Hot & Cold Pressure Washer is item q and the Toyota Town Ace Van is item s.
The defendants' position is that the Equipment was purchased by the second defendant. Prima facie, then, it belongs to the second defendant. According to the defendants, the plaintiff bears the onus of establishing that the position is otherwise. He has failed to discharge that onus. When giving evidence, the first defendant put the point somewhat differently. His position appeared to be that the plaintiff and first defendant agreed to work on certain jobs together and to split the profits arising from those jobs. The work on those jobs was performed using equipment belonging to the second defendant. Accordingly, the second defendant was entitled to deduct from income earned by the partnership charges for the hire of the equipment to the partnership. It was from the income earned from those charges that the second defendant bought the Equipment.
In evaluating these contentions, it is important to bear in mind Lord Mansfield's dictum that: … all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted. See Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970; referred to with approval in DP v Commonwealth Central Authority [2001] HCA 39; (2001) 206 CLR 401 at [187], Russo v Aiello [2003] HCA 53; (2003) 215 CLR 643 at [11].
By the orders made by consent on 16 September 2013, the court has declared that the plaintiff and the first defendant agreed "to conduct and operate the business through the second defendant". What the emphasised phrase must mean is that the plaintiff and first defendant agreed to appoint the second defendant as the agent of the partnership to conduct and to operate its business. As a result, all income earned by the partnership was paid to the second defendant. That is not disputed.
It is apparent that both the plaintiff and the first or second defendants owned equipment prior to the formation of the partnership that was used to undertake work performed by the partnership. The first defendant sought to suggest that the plaintiff's equipment was of no value and he sought when giving evidence to understate the equipment that the plaintiff owned. There is no evidence that any agreement was reached to the effect that each of the plaintiff and first or second defendants would charge the partnership for use of their equipment. In my opinion, at the time the partnership was established the parties simply agreed to pool their equipment. There is no evidence of precisely what equipment was used on each job. The plaintiff says in his affidavit sworn on 19 February 2013 that "most of the time it was my trucks and my 12 tonne excavator as well as my bobcat that was used for most of the work". The first defendant said in cross-examination "We use all the equipment I have, every job, almost". In the absence of any records, all that can be said is that both the plaintiff's and the defendants' equipment was used in the partnership business.
In addition, there is no evidence that the defendants charged the partnership for the use of their equipment. Nor, apart from submissions in relation to one job that I will come to, is there any evidence that the second defendant had sources of income between August 2009 and December 2012 from which it could have purchased equipment other than partnership business. It was open to the defendants to lead evidence concerning the income of the second defendant and how it derived that income, but they did not do so. The business of the second defendant before the partnership was formed was the same as the partnership business. The natural inference is that the partnership took over the business formally carried on by the second defendant. In the absence of any evidence from the second defendant, the natural inference is that the second defendant had no sources of income other than the income it earned in conducting the partnership business.
It follows that, generally, the Equipment was bought from income earned by the partnership. It, therefore, belonged to the partnership.
Item vi. listed in Schedule C was not actually bought by the second defendant. Rather, it and the S150 Bobcat that is now in the possession of the plaintiff were given to the second defendant as payment for work performed by the partnership. Plainly, that does not change the position. The two pieces of machinery represent income earned by the partnership and were assets belonging to the partnership.
Items i. and ix. listed in Schedule C were leased by the second defendant from Esanda. The first defendant and Marisa Santamaria, the first defendant's then wife, gave guarantees in respect of the second defendant's obligations under the lease and it appears that the first defendant paid approximately $80,000 to pay out the residual on the lease to acquire the equipment following the sale of the property at Kemps Creek. Again, it is to be inferred that during the term of the partnership the lease payments were met by the second defendant out of the income of the partnership. On that basis, the second defendant must have entered into the lease as agent for the partnership and any rights the second defendant had in relation to the relevant items belonged to the partnership. If the equipment now belongs to the second defendant because the second defendant exercised those rights, then, subject to any agreement between the parties, the equipment must be partnership property. However, the plaintiff would have to give credit for any amount paid to acquire the equipment that was not paid out of partnership income.
It follows that questions 2 and 3 should be answered: subject to any agreement between the parties, the assets of the partnership include items a to e listed on Schedule A and the items listed on Schedule C together with items l, q and s referred to in paragraph 12 of the plaintiff's affidavit sworn on 11 December 2014.

Question 7

SBC Holdings Pty Ltd obtained judgment against the second defendant in the Local Court on 31 July 2013 for $79,473.53 plus costs. The plaintiff accepts that the partnership did work for SBC Holdings and that the judgment arises out of that work. It appears that the second defendant commenced proceedings against SBC Holdings claiming amounts due for the work done. SBC Holdings filed a cross-claim in respect of alleged overpayments. Some of the work was performed by the plaintiff and some by the first defendant. The plaintiff provided an affidavit in connection with the proceedings, although he says that the proceedings were commenced without his knowledge. The plaintiff attended the Local Court and commenced giving evidence for the second defendant. It seems the proceedings were adjourned at the end of the first day before the plaintiff's evidence was complete. The following morning the plaintiff attended court, but told the first defendant that he would not give further evidence unless the first defendant agreed that the disputed items listed in Schedule A (and the S150 Bobcat) belonged to the plaintiff. The first defendant refused to give that acknowledgment, the plaintiff refused to give evidence and SBC Holdings obtained judgment on its cross-claim. The defendants say it was able to do so because of the plaintiff's refusal to go back into the witness box.
Although the plaintiff took issue with what happened at the Local Court hearing in his affidavit evidence, he largely accepted in cross-examination the first defendant's account of what happened. Moreover, he frankly conceded that the debt owed by the second defendant was a debt of the partnership. He was right to make that concession. Question 7a. must be answered "yes".

Question 8

The spread sheet referred to in question 8 is a spread sheet prepared by the first defendant with the assistance of his former wife. It purports to list a substantial number of invoices issued by the second defendant and to identify which of those invoices relate to partnership business and which do not.
As I have indicated, the defendants' initial position after accepting that there was some form of partnership was that the partnership related only to the Willoughby project. The evidence is that the developer in respect of that job, PPK Willoughby Pty Limited, paid the second defendant approximately $906,000 for work done on that job. Subsequently, the defendants took the position that a partnership existed in respect of the Willoughby project and five other jobs. During the course of the hearing, the defendants contended that all work done by the second defendant during the term of the partnership was done for the partnership other than work undertaken for a client described on the spread sheet as "Maggiotto Building" at a site described as "Peter Warren Liverpool". It appears that the defendants took that position on the basis that the plaintiff did no work on that site.
Under paragraph 6 of the Consent Orders, the first defendant was required to provide a list of works which he alleged did not fall within the terms of the partnership. The order provides that if there was a dispute about that list "then the first Defendant will bear the onus of proving their exclusion". Mr Allen submitted that that order must be interpreted as imposing the evidential, not the persuasive, burden on the first defendant. I do not accept that submission. The paragraph clearly refers to "the onus of proving". That must mean that the first defendant bears the onus of proof, not the evidential onus. Why the parties would have intended to shift the evidential onus and not the persuasive onus and why they would not have expressly said so if that is what they intended is not clear.
In any event, whether the onus is on the plaintiff or the defendants, I do not accept that the Peter Warren Liverpool job was excluded from the partnership business. The schedule prepared by the first defendant and his former wife is not admissible to prove that it was. Moreover, the schedule is inconsistent. It states that some invoices in respect of that job related to partnership business and others did not. No explanation is given for how that could be the case. If anything, the schedule is an admission that the Peter Warren Liverpool job was part of the partnership business because in the schedule it is accepted that some parts of the work were partnership business and it is difficult to see how some parts could be and other parts not.
It is not clear why a job should be excluded from the partnership business merely because the plaintiff did not work on it. The partnership was not created in respect of each job. Rather, in about August 2009 the plaintiff and the first defendant agreed to pool their resources and carry on business together. If the plaintiff was doing other partnership work when the first defendant was working on the Peter Warren Liverpool job, and I accept that he was, it seems to me that the Peter Warren Liverpool job was a partnership job whether or not the plaintiff worked on it.
In addition, the plaintiff gave evidence that he did do some work on the job and some of his equipment was used on it. I accept that evidence. It is supported by at least one invoice. Consequently, the factual basis for the submission that the job was not a partnership one is not made out.
Question 8 must be answered: all of the jobs identified in the spread sheet fall within the terms of the partnership.

Question 1

It is agreed that the partnership came to an end on 14 December 2012. Prior to that time, tensions had begun to develop between the plaintiff and the first defendant. One source of tension was that the plaintiff continued to work on the Willoughby project, although the first defendant believed that the developer had not paid the second defendant amounts due for work that had been done and was opposed to the partnership doing further work on the project until those amounts were paid. According to the plaintiff's affidavit evidence, in late December 2012, Mr Napoli, who was employed by the developer, told the plaintiff that the developer had terminated the contract it had with the second defendant and that it wanted the plaintiff to continue to work on the job. In circumstances that are not entirely clear, the plaintiff then spoke to the first defendant at the Willoughby project site office. Also present during the discussion was Mr Martin Bonnici who was, at the time, the foreman on the site. Mr Bonnici is on good terms with the plaintiff and they currently work closely together. The plaintiff, for example, gave Mr Bonnici's work address as his own when giving evidence.
There is a dispute concerning the meeting. According to the plaintiff, the first defendant told him that he was not prepared to continue working until the second defendant was paid. The plaintiff said that he wanted to stay. The first defendant replied by suggesting that the plaintiff write down everything they had bought together and they would split it in half. The plaintiff agreed and wrote on a large envelope that he found in the office a list of the equipment. He placed a tick against the equipment that it was agreed he could keep. He accepts now that the list was not complete. According to the plaintiff, they parted on amicable terms. In cross-examination, the plaintiff says he thought that he and the first defendant shook hands after finalising the list. The plaintiff also gave the following evidence concerning what they had agreed: Q. Do you agree or do you disagree with the proposition that at the time you wrote your list down you could have asked Mr Santamaria how much money you were owed by the partnership? A. I saw it as a case of me cutting my losses. That's how I saw it. I didn't want to further antagonise things because I knew it wouldn't be forthcoming. Q. So you wrote on a piece of paper. Is it something that you said to Mr Santamaria that, "If we agree to this, this will be a final resolution of the relationship between us"? A. It was totally understood because his words to me were, "You do your thing; I will do my thing. Let's make a list of what we've got together", right, and he, in fact, wanted me to go first to choose from the items and I said, "No. You go first". … Q. Is it the case that when you sat down with Mr Santamaria that you and he came to an agreement ending the relationship between the two of you? A. That is correct. Q. That was a final conclusive agreement ending the relationship, was it? A. It was ‑ because it was very simple. That is what he requested and it was quite simple. Q. Do you say that Mr Santamaria said to you, "I want an agreement. That will be a final agreement between the two of us"? A. No. He didn't say that, "I want an agreement". What he said to me was, "List the things that we had purchased together. We will sort it out and then we will go our separate ways". Going "our separate ways" means that's the end of all of it.
Following the meeting, the plaintiff continued to work on the site. It was not until February the next year that the first defendant demanded all the Equipment in the plaintiff's possession in what became a very heated exchange between the parties.
Mr Bonnici's evidence was largely consistent with the affidavit evidence given by the plaintiff, although according to him the discussion in December 2012 was heated. The first defendant, on the other hand, denies that the December conversation occurred. He says that the list on the back of the envelope was created during the discussions at the Local Court, when the plaintiff sought agreement on the equipment that each owned as a condition of giving evidence.
I prefer the evidence given by the plaintiff, although I accept Mr Bonnici's evidence that the conversation was more heated than the plaintiff suggests, and I also think it is likely that it was the plaintiff and not the first defendant who raised the question of the division of the equipment. In cross-examination, the plaintiff gave evidence that the conversation occurred in November, not in December. However, I think that evidence is likely to have been mistaken. The defendants accept that the partnership came to an end on 14 December 2012. It was clear that at that time the plaintiff wanted to continue with the Willoughby project and that is in fact what happened. He needed some of the Equipment in order to be able to do so. It is to be expected, then, that he would have raised the question of the division of the Equipment with the first defendant at the time the partnership came to an end, which it is agreed was on 14 December 2012. The plaintiff's evidence, and in particular his affidavit evidence that the conversation occurred in December, is supported by the evidence given by Mr Bonnici. Although Mr Bonnici and the plaintiff are friends, Mr Bonnici came across as a credible witness and I accept his evidence. It is plausible that when they were in the office together, the plaintiff grabbed the nearest thing he could find to write on, which happened to be the envelope - which is what Mr Bonnici said happened. It is much less plausible that the plaintiff took the envelope to the Local Court and wrote on it there. The ticks against various items on the list are consistent with the plaintiff's account of the conversation. The first defendant may well have said that the parties should go their separate ways. That was consistent with the fact that the parties were agreeing to bring the partnership to an end. But I do not think that by saying that the first defendant could be interpreted as saying that the division of the listed equipment resolved all issues relating to the winding up of the partnership. The conversation was a heated one. The parties clearly did not turn their minds to a division of all the Equipment let alone other issues that might arise on dissolution, and I do not think that the words they used mean that they should be treated as having done so.
Even if the conversation deposed to by the plaintiff occurred, the defendants submit that it did not amount to an agreement in relation to a division of the partnership property. They submit that it was merely a negotiation that was not finalised. In support of that submission, they point out that the written part of the agreement was on a scrap of paper and that it was not signed by either party. They also submit that an agreement to be bound was not manifested in any other way. In addition, they point out that the agreement did not deal with all of the Equipment and did not deal with other aspects of the partnership.
In my opinion, the agreement that was reached was an agreement that the partnership should be dissolved and an agreement on the division of the equipment that was on the list made by the plaintiff. I do not accept that the conversation was merely a negotiation that was never completed. The parties agree that the partnership was dissolved. In my opinion, its dissolution came about as the result of an agreement that was reached on 14 December 2012. Moreover, it is hard to make sense of what happened if the parties did not also agree to a division of the equipment on the list. It was important for the equipment to be divided so that each of the plaintiff and the first defendant could get on with their own businesses. On the plaintiff's evidence, which I accept, the parties dealt with all the equipment that they thought belonged to the partnership. It is only after they had done so that the first defendant left the site. It is not disputed that the plaintiff actually kept the equipment that he says it was agreed he would take. The arrangements between the plaintiff and the first defendant were informal. It is not surprising in those circumstances that nothing was signed. Nor is it surprising that a more formal document was not produced.
On the other hand, I do not accept that the agreement that was reached was intended to be a final division of the assets of the partnership that was intended to resolve once and for all the parties' respective rights and liabilities in relation to partnership property. The parties did not deal with all partnership property. Nor did they deal with any liabilities, such as the liabilities under the lease in respect of items i. and ix. listed in Schedule C. No doubt the parties chose to divide the equipment on the list in a way that was roughly equal. But I do not think that by dividing the equipment in that way they were intending to resolve all the rights and liabilities of the parties in relation to partnership property. That could only have occurred if they identified all the partnership property and liabilities and agreed on who was entitled to that property and bear those liabilities, which plainly they did not do.
To put the point another way, on 14 December 2014, the parties agreed on the division of certain assets. However, that agreement could not be interpreted as an agreement on the taking of accounts between them because the agreement did not deal with all of the assets let alone the liabilities in respect of which an account had to be taken. Consequently, in the taking of any accounts of the partnership they must bring to account the value of the assets they obtained as a consequence of the agreement they did reach.
Although the plaintiff and first defendant did not agree on the division of all the Equipment, it is not suggested now that the possession of the Equipment that each has should be disturbed.
It follows that question 1 should be answered: Yes. By the agreement, the plaintiff is entitled to the equipment listed in a to e of Schedule A together with item l referred to in paragraph 12 of the plaintiff's affidavit sworn on 11 December 2014. The first defendant is entitled to the balance of the equipment acquired by the second defendant during the term of the partnership. However, the value of that equipment at the time that it was divided must be brought to account in any final accounting between the parties.

Question 6

Section 42(1) of the Partnership Act 1892 (NSW) provides: Where any member of a firm has died, or otherwise ceased to be a partner, and the surviving and continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner, or the partner's estate, then, in the absence of any agreement to the contrary, the outgoing partner or the partner's estate is entitled, at the option of the partner or the partner's representatives, to such share of the profits made since the dissolution as the Court may find to be attributable to the use of the partner's share of the partnership assets, or to interest at the rate of six per centum per annum on the amount of the partner's share of the partnership assets.
In my opinion, s 42(1) has no application in this case. Neither party continued to carry on the business of the partnership following its dissolution using the assets of the partnership. Rather, what happened was that the plaintiff and first defendant agreed on a division of the assets, with the result that the divided assets belonged to one or other of them. To the extent that either used those assets they did so in connection with a business that they each established after dissolution of the partnership. The fact that the plaintiff, in particular, performed similar work to the work performed by the partnership did not mean that he was continuing to "carry on the business of the firm". Rather, he was doing that work for himself. Moreover, the fact that the plaintiff continued to do work on the Willoughby project did not mean that he was continuing to carry on the business of the firm. The evidence is that PPK Willoughby Pty Limited terminated the contract it had with the second defendant (as agent of the partnership) and entered into a new contract with the plaintiff. Although the work was a continuation of the work performed by the partnership, it was performed by the plaintiff under a new contract. The new contract was not an asset of the partnership and did not constitute a continuation of the business of the partnership.
In support of the contention that the plaintiff carried on the business of the partnership following its dissolution, the defendants relied on Ryder v Frohlich [2004] NSWCA 472. However, that case is not analogous. There, it was held that the plaintiff and defendant established a partnership "a fundamental term of which was that each would contribute equally in terms of time and effort to the establishment of a hedge investment fund referred to as the Coastal Magma Diversified Performance Fund" (at [17] per McColl JA). Initially, the fund was not successful and, as a result, the plaintiff accepted a full time position with another firm. The defendant continued to operate the fund, which became profitable. The Court of Appeal accepted that s 42 applied in those circumstances. However, there is no equivalent of the fund in this case. For the reasons I have given, there were no continuing contracts of the partnership and no equipment of the partnership was used in the business that the plaintiff carried on following dissolution of the partnership.
For similar reasons, the plaintiff is not required to account for any profits he earned pursuant to the undertaking as to damages that he gave.
It was not suggested that the first defendant is in any different position.
It follows that the answer to question 6 is: no.

Orders

The orders of the court are: 1. The separate questions be answered as follows: Question 1: Yes. By the agreement, the plaintiff is entitled to the equipment listed in a to e of Schedule A together with item l referred to in paragraph 12 of the plaintiff's affidavit sworn on 11 December 2014. The first defendant is entitled to the balance of the equipment acquired by the second defendant during the term of the partnership. However, the value of that equipment at the time that it was divided must be brought to account in any final accounting between the parties. Questions 2 and 3: subject to any agreement between the parties, the assets of the partnership include the items a to e listed on Schedule A and the items listed on Schedule C together with items l, q and s referred to in paragraph 12 of the plaintiff's affidavit sworn on 11 December 2014. Question 6: No. Question 7: Yes. Question 8: All of the jobs identified in the spread sheet fall within the terms of the partnership; 1. Stand the matter over before Ball J on 22 July 2015 at 9.30 am for further directions and to deal with any issue in relation to costs of the separate questions.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 July 2015

At a glance

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Judgment (12 paragraphs)

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Cases Cited (6)

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