Pham v Doan [2005] NSWSC 201 | Case summary

Pham v Doan [2005] NSWSC 201 | Case summary | Zoe

[10]

1 These proceedings arise from disputes between Stephen Pham ("the plaintiff") and Peter Doan ("the defendant") about certain pharmacy businesses. The plaintiff was born in 1975 and the defendant in 1955. Both were born in Vietnam and are now resident in Australia. The plaintiff came to Australia as a child with his parents. The defendant was an adult when he arrived in Australia. Shortly after his arrival, the defendant came to know the plaintiff's parents and their children. He married one of the plaintiff's sisters (Thanh) in 1983. A close relationship developed between the defendant and the plaintiff's family. 2 The plaintiff attended the University of Sydney after finishing school. He graduated with a degree in pharmacy and in 1997 became qualified to practise as a pharmacist in New South Wales. As will be seen, the plaintiff in due course became the registered pharmacist at a pharmacy known as Grant's Pharmacy located at 8 Blenheim Road, North Ryde. A post office agency business was operated in conjunction with (and within) Grant's Pharmacy. The freehold of the premises was later acquired. The plaintiff's younger brother, David, in due course also became a qualified pharmacist. Thereafter, a second pharmacy business was acquired. That business operates in premises at South Windsor. The claims and issues 3 The parties' dispute concerns ownership of the two pharmacy businesses (and the associated post office agency) and the North Ryde freehold. By his statement of claim, the plaintiff claims various relief predicated on the proposition that he is the sole owner of the Grant's Pharmacy business, the post office agency business and the North Ryde property. By his defence and a cross claim, the defendant maintains that both the business of Grant's Pharmacy and the pharmacy business at South Windsor (as well as the post office agency within the pharmacy premises) were conducted by the plaintiff and the defendant in partnership until the partnership was dissolved in or about November 2002. He claims declarations to that effect, together with orders for the winding up of the partnership and the taking of accounts. Further, or in the alternative, the defendant seeks an order that he have an equitable charge over the assets of the Grant's Pharmacy business, the associated post office agency, the South Windsor pharmacy business and the North Ryde property. 4 It appears to be common ground that if there ever was a partnership, it was dissolved in November 2002 when the parties had a major disagreement and, in effect, decided that, as they could not resolve matters by agreement, there would have to be litigation. 5 Issues for trial were filed by both parties. They are in similar form. I am content to adopt the statement of issues put forward by the defendant. "1. Does the Defendant hold the property 8 Blenheim Road, North Ryde: a. On trust for a partnership comprising the Defendant and the Plaintiff; b. For his own benefit; or c. On trust for the Plaintiff? 2. Does the Defendant hold the licence for the post office agency conducted at Grant's Pharmacy: a. On trust for a partnership comprising the Defendant and the Plaintiff; b. For his own benefit; or c. On trust for the Plaintiff?

[18]

(7) A person who carries on the business of a pharmacist in a pharmacy by virtue of subsection (6) shall, during the period during which the person so carries on that business, neither enter nor be in any premises in which that business is so carried on unless the person has the consent of the Board to do so and the person complies with any conditions imposed by the Board in relation thereto (which consent and conditions the Board is hereby authorised to give, impose and revoke from time to time)." Undisputed facts 7 After qualifying as a pharmacist in 1997, the plaintiff worked for three years as an employee at a pharmacy in Cabramatta. Mr George Ioannidis, an accountant in private practice, prepared the plaintiff's tax returns while he was so employed. Mr Ioannidis was (and had been for some years) the accountant for the defendant who, with his wife Thanh, operated a garment manufacturing business through a company, Doan Pham Fashion Pty Ltd. The defendant introduced the plaintiff to Mr Ioannidis. There was, within the family, an expectation or desire that the plaintiff would practise as a pharmacist otherwise than as an employee. Mr Ioannidis had another client who was the proprietor of Grant's Pharmacy (and the associated post office agency). It was through Mr Ioannidis that the plaintiff and the defendant became aware in late 1999 that the Grant's Pharmacy business and the post office agency were for sale. 8 It is not disputed that plans to purchase the businesses were pursued by the plaintiff and the defendant together. The plaintiff was only 24 or 25 years old and had no commercial experience. The defendant was in his mid forties and operated a garment manufacturing business in the course of which he had acquired some commercial experience. 9 The Grant's Pharmacy business and the post office agency were purchased in January 2000. The whole of the purchase price of $980,000 was financed by a loan made to the plaintiff by the ANZ Bank against a guarantee provided by the pharmaceutical company, F H Faulding, under arrangements typically made by it to assist pharmacists in acquiring businesses. The ANZ loan was also supported by a guarantee given by the defendant's company Doan Pham Fashion Pty Ltd and a mortgage of the home owned by the defendant and his wife. 10 The plaintiff was the purchaser of the pharmacy business. The defendant became registered with Australia Post as the licensee of the post office agency. The plaintiff's sister Melissa undertook training with Australia Post and was employed in the post office business. The name "Grant's Pharmacy" was registered under the Business Names Act 1962 with both the plaintiff and the defendant recorded as persons carrying on the business. 11 Soon after the purchase of the business was completed, the parties became aware that the premises at 8 Blenheim Road, North Ryde housing Grant's Pharmacy were for sale. The plaintiff and the defendant discussed the possibility of purchasing the property. Contracts for the purchase of the property were exchanged in May 2000. The purchase price was $396,000. The whole of this was borrowed from the National Australia Bank against the security of the property itself and a mortgage over a house owned by the plaintiff's sister Melissa and brother Andrew. The initial deposit of $39,600 was provided out of the Grant's Pharmacy bank account. The purchaser under the contract was the defendant alone. Completion took place on 19 June 2000. 12 In early February 2001, the pharmacy business at South Windsor was purchased. The purchase was made in anticipation of the plaintiff's brother, David, obtaining his pharmacy qualification and with a view to David's working at South Windsor. While studying, David had worked part-time at Grant's Pharmacy. As in the case of Grant's Pharmacy, the plaintiff alone was the purchaser of the South Windsor business. The whole of the purchase moneys were provided by API (Australian Pharmaceutical Industries) against a bill of sale over the assets of Grant's Pharmacy and a mortgage of the home owned by the plaintiff, his brother Andrew and their parents. The purchase was completed on 16 March 2001. The amount paid on settlement was $1,257,067.32. The business name "South Windsor Pharmacy" was subsequently registered in the names of the plaintiff and the defendant. In mid 2001, David, having become a qualified pharmacist, commenced working at the South Windsor Pharmacy. 13 In mid 2002, the property next door to the South Windsor pharmacy became available for sale. On 15 July 2002, the defendant and his wife Thanh (the plaintiff's sister) entered into a contract to purchase that property for $435,000. The necessary funds were provided by the National Australia Bank upon the security of a mortgage of the property itself, a second mortgage of the North Ryde property of which the defendant was registered proprietor and a further mortgage of the property owned by the plaintiff's sister Melissa and brother Andrew. The South Windsor property was sold at a substantial loss in March 2003.

[19]

Questions of initiative 14 There are substantial differences between the plaintiff and the defendant as to who took the initiative towards the various acquisitions. In relation to Grant's Pharmacy, for example, the plaintiff says that Mr Ioannidis informed him, the plaintiff, of its being for sale. The defendant says that the information from Mr Ioannidis was given to him. 15 There are similarly competing claims in relation to the North Ryde property. The plaintiff says that he became aware of its availability for sale direct from the owner, Mr Grant, who, as a former owner of the business, sometimes called in to see staff. The defendant, on the other hand, says that he was informed of the property's availability by Mr Lenguyen from whom the Grant's Pharmacy business had been acquired and that he then telephoned Mr Grant. 16 In relation to the South Windsor pharmacy, it is the plaintiff's evidence that he contacted business brokers who specialise in pharmacies and became aware that the South Windsor business was for sale. The defendant says, by contrast, that he contacted an agent or broker after seeing an advertisement for a pharmacy at Crows Nest and was informed of the availability of the South Windsor pharmacy. 17 I do not need to resolve these particular controversies. But they serve to emphasise an important feature of this case, namely, that each party seeks to present himself as having played a leading role in relevant decision making and negotiation. I am satisfied, however, that the plaintiff played a less prominent role than he seeks to present and that the defendant played an active role. There are three reasons for this. 18 In the first place, the plaintiff was, on his own admission, someone with no commercial experience, whereas the defendant had been in business for a number of years. There can be no doubt, to my mind, that the initial acquisition was discussed at family gatherings at which the plaintiff, the defendant and the plaintiff's parents (among others) were present; and that the plaintiff was encouraged by his parents to take advice from the defendant on the matter. Both the plaintiff and the plaintiff's father sought to downplay the part the defendant played but the defendant's position as a family member with commercial experience who had been of continuing assistance makes it likely that he was influential. 19 Secondly, the plaintiff was at pains to emphasise that, after the purchase of Grant's Pharmacy, he was tied to the premises from 9 am to 6 pm daily without any opportunity to leave even for a short time. For reasons to which I shall come, it suited him to paint that picture and, while it is not a picture I accept, it is clear that his priority was to work hard in the Grant's Pharmacy business, to build it up and to make it successful. He was, on his own account, content to let the defendant look after administrative and financial matters. The defendant, by that time, had a vision of a large family business. At a later stage, he caused to be registered a company called "Doan Pham Health Centre Pty Ltd". His plan for the property adjoining the South Windsor pharmacy was to redevelop it as a medical centre and there is evidence that he pursued that plan with an architect and the local council. These plans and initiatives of the defendant (to which the plaintiff and other family members were not necessarily privy), coupled with the plaintiff's commitment to working hard at Grant's Pharmacy for long hours, make it likely that it was the defendant who had both the time and the inclination to search out further commercial possibilities. I emphasise that the plaintiff says that he was never made aware of the defendant's wider plans. 20 Thirdly, there is some support for the defendant's version of matters in the documentary evidence. Such correspondence and documentation as there is in relation to the purchase of Grant's Pharmacy is in the name of the plaintiff who, of course, was the purchaser on the record and a registered pharmacist. The documents relevant to the purchase of the North Ryde property show involvement by the defendant only - which is not surprising since he was the purchaser on the record. In relation to the purchase of the South Windsor pharmacy, however, where the plaintiff was the purchaser on the record, API (the financier), the solicitors acting on the purchase and Mr Ioannidis all corresponded with the defendant who was given a power of attorney by the plaintiff to sign the contract. The family context 21 The plaintiff acknowledges the important role played by the defendant within the family. I quote from his affidavit of 8 July 2003: "After the marriage [of the defendant and Thanh], the Defendant became a close family member and spent a lot of time at our home. The Defendant had worked for a few years in Australia and his English was better than the English of anyone in my family. Accordingly, he helped my parents and siblings with legal matters, completing forms and other paper work. Because Thanh was the oldest sibling, and Peter was older than any of my siblings and had lived in Australia before us, he adopted an important role in the family. He would assist family members with interpreting English and he was like an Advisor to the family in relation to legal matters and Australian practices and procedures. The Defendant does not have any family of his own in Australia." 22 The defendant was trusted and, in a sense, looked up to by family members. He says that he took a keen interest in the plaintiff's education and paid a university fee at the time he began his pharmacy studies. I have no doubt that this is so. The defendant deposes in his affidavit of 17 September 2003 as follows: "The Plaintiff graduated from University with a Pharmacy degree in or about 1995. At the Plaintiff's graduation I said to him words to the effect: ' You have now graduated and will soon be a qualified pharmacist. Your brother David is also studying to be a pharmacist. My son, James, also wants to be a pharmacist. I want to buy a pharmacy that you can work at and one day we can be in partnership together. I want to ultimately buy a number of pharmacies and then David and my son can work at them when they become pharmacists, and maybe one day have a chain of pharmacies for the family. There will be jobs and security for the whole family.' The Plaintiff said: 'OK, it will be good to build a family business.' After the plaintiff graduated and was doing his practical experience I had a number of conversations with him and said words to the effect: 'After you become a registered pharmacist and get some experience I will become a partner with you to build up the family business for everyone.' The plaintiff said words to the effect: ' OK .'" 23 The plaintiff says that no such conversations took place and that, in any event, the defendant's son was only about ten years old at the time. 24 There is evidence from both the plaintiff and other members of his family (specifically, his brother David, his sister Melissa and his father) to the effect that the defendant actively encouraged the plaintiff to think about purchasing a pharmacy of his own and was generous in offering moral support. None of them, however, recounts any expectation or arrangement that the defendant would be a partner in any such business or have any financial interest in it. The defendant's wife, Thanh, however, gave evidence consistent with that of the defendant. 25 This highlights a particular difficulty with this case. The evidence of the plaintiff's father, Melissa and David, to the extent that it deals with matters about which the plaintiff gave evidence, is, in all material respects consistent with the plaintiff's evidence. I am bound to say, however, that the evidence of the father was unsatisfactory because of a strong tendency to be non-responsive, with many questions being answered simply to the effect that whatever the plaintiff did was the plaintiff's business alone, a line quite inconsistent with the thrust of the evidence from the other family members that matters of business were discussed by the family. Just as the family witnesses on the plaintiff's side supported his version of events, so the evidence of Thanh (wife of the defendant and sister of the plaintiff) is generally consistent with evidence given by the defendant. Yet the evidence of the plaintiff and the evidence of the defendant conflict in virtually all important areas. Because the conflicting evidence of these family members does very little to assist in the resolution of the factual differences, it is necessary to concentrate on contemporary documents and the evidence of non-family witnesses. Documentary evidence relevant to acquisitions 26 The Grant's Pharmacy business was purchased for $980,000, all of which was provided by way of loan by the ANZ Bank. The plaintiff alone was the borrower. F H Faulding guaranteed repayment of the loan. A deed made on 20 January 2000 among the plaintiff, two Faulding companies and Doan Pham Fashion Pty Ltd (the defendant's company) recited that the plaintiff proposed to carry on the business of a retail pharmacist at the Grant's Pharmacy address and that the plaintiff and Doan Pham Fashion Pty Ltd had requested Faulding to guarantee repayment of the ANZ loan. The deed contained a covenant by the plaintiff alone "to conduct business in a competent and professional manner" and a covenant not to sell or agree to sell the business without first offering it to Faulding. The plaintiff also covenanted to give (or to procure to be given) certain specific securities, including "Registered second mortgage and property known as 3 Marina Crescent Cecil Hills", that being the home of the defendant and his wife. Doan Pham Fashion Pty Ltd covenanted to guarantee due and punctual performance by the plaintiff. 27 The following day, 21 January 2000, solicitors purportedly acting for the defendant and his wife wrote to Westpac Banking Corporation seeking that bank's consent to the creation of a second mortgage over their home. After referring to the existing mortgage to the bank, the solicitors said: "Our clients are providing a guarantee to Mr. Steven Pham the brother of Thanh Thi Doan to secure a loan for a pharmacy shop known as Grants Pharmacy. Our clients have executed a 2nd mortgage over the above property in favour of F H Faulding & Co Ltd and Faulding Healthcare Pty Ltd. A copy of the mortgage is enclosed for your information." 28 On the basis of these and other documents, it is clear that the defendant was content for the plaintiff to appear to be the sole beneficial purchaser of the Grant's Pharmacy business and that, so far as Faulding was concerned, he made no attempt to say that the business was to be carried on by the plaintiff and the defendant in partnership. Indeed, there was a very strong reason for the defendant to allow matters to proceed in that way. He was aware (as was the plaintiff) of the prohibition imposed by s.25 of the Pharmacy Act. He knew (as did the plaintiff) that it was unlawful for a person not being a registered pharmacist to have a financial interest in a pharmacy business (except as expressly permitted by that section) and that a partnership could lawfully carry on a pharmacy business only if all the partners were registered pharmacists - although the defendant did say in cross-examination that he thought these restrictions only applied at the time of purchase and that partnership was permissible if arranged in such a way that it did not involve "stamp my name in the pharmacy". 29 The reason why the defendant caused his company to support the Faulding financing arrangement and, with his wife, made the home available as security is not immediately clear. The defendant regarded that as an action consistent with his position as a partner with the plaintiff. The plaintiff, for his part, saw it as consistent with mutual assistance within the family. The plaintiff says that it was his wish that the house already owned by himself, his parents and his brother Andrew should be used as security. The plaintiff's father says he had the same wish. The plaintiff testified that the defendant had said that it would be "too messy" to give security over a property owned by four persons as tenants in common and that this was the reason why the home of himself and his wife should be used as security. The plaintiff also says that he had no hesitation in accepting this offer. The cross-examination of the plaintiff's father contains the following passage: "Q. But did you ask Mr Doan why Mr Doan was putting up his house as security for Stephen's business? A. Yes I did.

[38]

Q. You said to him 'that's okay', didn't you? A. I don't remember what did I tell him." 34 The arrangements for the purchase of the South Windsor pharmacy appear in part from certain documents exhibited to the defendant's first affidavit. It is clear that the defendant had carriage of dealings with the financier, API, even though the plaintiff was the purchaser. It was the defendant who prepared and submitted a statement of the plaintiff's financial position. A letter from the solicitor who acted on the purchase, although headed "Re: Pham Purchase from Shah", is addressed to the defendant and begins, "Thank you for nominating me as your solicitor in this matter". Chemworld wrote to the defendant at the time about signage for the premises. 35 I refer next to tax returns. A number of draft tax returns for the years 2000, 2001 and 2002 are in evidence. Among them are returns for a partnership described as "Peter Doan and Stephen Pham". A tax file number (TFN) for such a partnership was issued by the Australian Taxation Office. Notification of it, dated 28 July 2000, was sent to the plaintiff and the defendant, care of Mr Ioannidis' firm, from which it may be inferred that the relevant application was made by that firm. There is also evidence of the issue of an Australian business number (ABN) in October 2000 to "Peter Doan & Steven Pham", care of the same firm. The relevant business entity is described as "Family Partnership". There is evidence that Mr Ioannidis lodged business activity statements in relation to this TFN and ABN referring to the relevant taxpayer as "Peter Doan and Steven Pham, T/as Grant's Pharmacy". One of the draft partnership tax returns (that for 2002) is endorsed, apparently in Mr Ioannidis' hand, "Not lodged waiting for litigation outcome". 36 The tax documents to which I have referred represent the strongest contemporary documentary evidence of the existence of a partnership between the plaintiff and the defendant. All are attributable to the work of Mr Ioannidis and, no doubt, to instructions and information he was given. It is therefore convenient to review Mr Ioannidis' evidence at this point. Mr Ioannidis' evidence 37 Mr Ioannidis is a key witness. He is not a member of the family. He swore three affidavits. The second (sworn on 16 July 2004) was a revision and amplification of the first. Reliance is placed by the defendant mainly on this second affidavit which was sworn when the proceedings were well advanced. I allowed this course (and a re-opening of cross-examination of some of the plaintiff's witnesses) because it became clear that Mr Ioannidis' earlier affidavits had not concentrated on matters highly material to the case about which he was able to give evidence of value. 38 In his second affidavit, Mr Ioannidis recounts having met with both the plaintiff and the defendant at his office on a number of occasions before the purchase of Grant's Pharmacy. He refers back to the following passage in his second affidavit: "10. Prior to the purchase of Grant's Pharmacy, Stephen Pham and Peter Doan came together to see me about the purchase of the business. During that meeting, Stephen said words to the effect of: ' Peter and I want to buy a pharmacy as a family. Peter is going to be my partner.' I said words to the effect of: ' How are you going to finance it and who's [sic] name will it be in?' Stephen said words to the effect of: ' It's a family business. I will be the pharmacist. Peter will be my partner and he will give the securities and deposits. I want everything to be equal.' I then said words to the effect of: 'Stephen, as you know the Pharmacy Board has certain restrictions as to who you can be partners with. You will need to speak with your solicitors and the bank.' Stephen said words to the effect of: ' Yes. I will do that with Peter.' " 39 The second affidavit also contains a passage as follows: "13. I met with Stephen separately on another occasion prior to the purchase, at my office. Stephen said words to the effect of: ' I have discussed the purchase with my family and with Peter, and we are going to have a look at the books of Grant's pharmacy.' I said words to the effect of: ' Have you discussed and finalized what will be the structure of the pharmacy, do you want a partnership, trust or whatever. It is very important for you to clarify all of this.' Stephen said words to the effect of: 'We are going to go half/half and we will talk to the solicitors for all of the documentation.' I said words to the effect of: 'When you say half/half, does that mean capital and profit sharing?' Stephen said words to the effect of: 'Everything is half/half. Although Peter is putting in the capital and the securities, we are sharing everything half/half.' " 40 Mr Ioannidis annexed to his third affidavit an account dated 29 October 2000 for services rendered, addressed to "Grant's Pharmacy" and including an item "P'ship Agreement - Confrance [sic] and Consulting". 41 Following his initial consultations with the plaintiff and the defendant, Mr Ioannidis referred them to Mr Brkljac, an accountant employed in his practice. He says that he (Mr Ioannidis) "met with Stephen and Peter, both together and separately on a number of occasions". Regarding the plaintiff, Mr Ioannidis deposed: "6. At various times when Stephen wanted to meet with me he would either make an appointment or attend upon my office unannounced. On the occasions when he would make an appointment, he would call either myself or one of my staff to make the appointment. Stephen made it clear to me that it was difficult for him to attend my office, and that arrangements needed to be made when he did so. He said to me on a number of occasions words to the effect of: ' I can't make it any time you want. I need to make arrangements for either a locum or for David to relieve me at the pharmacy. Can I meet you outside hours?' 7. Stephen arranged to meet me either on his way to work in the morning or on his way home from work in the evening. On several occasions he asked to meet with me outside work hours, but I did not agree." 42 Mr Ioannidis also refers to an aspect of the preparation of tax returns for the year ended 30 June 2001: "10. On or about March or April 2002, Mico was preparing the partnership tax returns for the 2001 financial year. He approached me for advice as to how we should claim the interest paid in respect of the Fauldings ANZ loan and the National Australia Bank loan. I was aware, on the documents provided to our office by Stephen and Peter, that the Fauldings ANZ loan was in the name of Stephen Pham, whilst the National Australia Bank loan was in the name of Peter Doan. As the loans were for different amounts, the interest that could be claimed as a tax deduction was different for each. Following Mico's approach to me, I spoke with Stephen on Several occasions regarding preparation of the tax returns and the anticipated tax refund. I crave leave to refer to my earlier affidavit of 16 July 2004, where at paragraphs 29 and 30 I recount those conversations. I then instructed Mico to finalise the tax returns." 43 The conversations thus referred to are: "29. Once this information had been put into the computer, there was a partnership profit. There was a question as to where the interest would be claimed in relation to the ANZ loan in Stephen's name, and the loan for the North Ryde building which was in his name. I telephoned Stephen and said words to the effect of: ' There is a partnership profit. We have to discuss how the bank interest is dealt with. I suggest we prepare the partnership return on the trading, then you claim the interest in your personal tax return relating to the pharmacy, the interest relating to the building can then be claimed on Peter's.' Stephen said: ' Do what you think is right, as long as it's equal.' 30. When the returns were ready to be signed, I telephoned both Peter and Stephen separately. I said to Stephen words to the effect of: ' You need to come in and sign your tax returns. The partnership returns and the individual returns are ready.' Stephen said words to the effect of: ' I am very busy. Can you get Peter to bring the documents for me to sign.' I said: 'Are you sure you want to do that?' He said: 'Just give everything to Peter, I will go through them, sign them and then bring them back.' " 44 I quote from Mr Ioannidis' third affidavit: "19. ... I instructed my employee Mico to prepare the Partnership Financial Accounts for the year ended 30 June 2001 from the information provided by Stephen and Peter. Whilst I did not prepare the Accounts myself, they were done under my supervision. 20. … From the outset I was not provided with complete financial details of the partnership. I was able to identify which partner had made certain drawings and contributions, however not all of them. A 'bucket account' was used to record all capital contributions and drawings of the partners where identification of the partners on the source documents was not possible. Where drawings occurred and the partners were identifiable, I recorded them on the ledger as a sub-account within the capital "bucket account". Detailed information could not be provided by either Stephen or Peter. Had it been provided, it would have been my preference to maintain the records in the manner Sam states is 'normal accounting practice'. I briefed Sam on this matter during our first meeting at my office on 19 May 2003. 21. … Our office prepared balance sheets, profit and loss statements for the partnership, personal tax returns for Stephen and Peter and tax returns for the partnership. We complied with the Australian Taxation Office's rules as to the lodgement of tax returns, but in the absence of the specific information in the capital accounts and drawings noted above in paragraph 20, we did not produce specific notes, accounting policies or full accounting reports. 22. … Both Stephen and Peter had access to the accounting documentation, both were provided with multiple copies of those documents, and both confirmed with me that they had received those documents. Both were provided with three copies of the trial balance and ledger, which includes a profit and loss and balance sheet. There were also three copies of the partnership tax return made, one for each partner and one for our office. I recall that once the accounts were completed I spoke with Stephen via the telephone. I said words to the effect of: 'When are you signing and returning the tax returns to us?' He said words to the effect of: 'I'm very busy, but I will look at them, sign them and return them with Peter.' It is only necessary for one partner to sign the tax returns. Usually the partner who is responsible for the accounting matters of the partnership signs the tax returns." 45 The parts shown as omitted from this account refer to an affidavit of Mr Carmeci, an accountant, who gave evidence for the plaintiff. His evidence went to the quality and reliability of accounting work done by Mr Ioannidis but, because he did not become involved until after the dispute had emerged in 2002, it is of no assistance in relation to the question of the existence of a partnership. 46 Mr Ioannidis gave evidence in his second affidavit about conversations concerning the proposed purchase of the North Ryde property: "15. Sometime after the last conversation [a conversation about the availability of the property], Peter Doan approached me in the office and said words to the effect; ' We want to buy the Grant's building the owner wants $400,000.' I said to Peter: ' How will you finance it?' Peter said: 'We will borrow the money from the bank.'

[44]

'When are you looking at settling the purchase and moving in?' Peter said words to the effect of: 'Towards February.' I said words to the effect of: 'Is David going to be a partner?' Peter said words to the effect of: 'No he is going to be an employee and a licensee.' 23. At the Christmas party, I also said to Stephen words to the effect of: 'How are things going with the pharmacy?' Stephen said words to the effect of: 'Everything is going fine. Peter is looking after all of the administrative, promotional and marketing, and we're doing the pharmacy side of things.' I said words to the effect of: 'That's fine, we need to look at the accounts so we can finalise the business partnership returns and the individual tax returns for you and Peter.' Stephen said words to the effect of: 'I will organize it with Peter and we will get the paperwork together and Peter will come and see you.' 24. In or about either late December 2000 or early January 2001, I met with Peter and Stephen at my office and spoke with them about the purchase of the South Windsor pharmacy. I said words to the effect of: 'As you know, the financial accounts I have are only draft, they are not final. The other issue we have is do we need a new tax file number, and how the purchase is going to work. What structure are we going to use? Do you want me to set up a new partnership or a new company that includes the three of you?' Peter said words to the effect of: 'It will be the same as Grant's.' I said words to the effect of: 'Does that mean it is going to be another partnership? Is David going to be a partner?' Peter said words to the effect of: 'No.' Stephen said words to the effect of: 'Peter and I will be the partners and David will be the employee and licensee.' I said words to the effect of: 'If it's the same as Grant's, then we don't need a new Tax File Number.' " 48 The plaintiff denies that this conversation took place, although he does not dispute that he and Mr Ioannidis were both at the Christmas party. 49 Mr Ioannidis was cross-examined about the conversation he had with the plaintiff and the defendant soon after informing them of the availability of Grant's Pharmacy. He said that, despite having no other pharmacist as a client, he was aware of restrictions upon who could have a financial interest in a pharmacy. The cross-examination continued: "Q. You knew, didn't you, that he [the defendant] could haven't [scil: couldn't have] an interest in that pharmacy? A. That's right. That's why I advised them to go and see a solicitor about the legal structure they wanted, and I gave them another alternative in terms of a company with a service trust, but I left it to them to go to a solicitor to get advice as to what's the best thing for them in that area.

[147]

Q. Thank you? A. All right." 64 Mr Ioannidis also gave evidence about events and meetings after the emergence of disagreements between the parties in about November 2002. He said that the plaintiff and his brother David said on one occasion words to the effect, "We don't want Peter as a partner in the business". It was put to him in cross-examination that this was never said and that what he was told was that the defendant had never been a partner in the business. Mr Ioannidis denied this. 65 Generally speaking, the evidence of the defendant supports the account given by Mr Ioannidis. In the particular ways I have mentioned and more generally, the plaintiff disputes Mr Ioannidis' account. Mr Ioannidis' credibility 66 Mr Ioannidis' credibility was challenged in cross-examination. He agreed that he was on friendly terms with the defendant whom he had first come to know in the course of his professional practice in the early 1990's. He had been on several occasions to social functions at the defendant's home and they had also been together at other social gatherings. He said that they became "regular social acquaintances". Mr Ioannidis is involved in the Amway business and had introduced the defendant to it in a role that involved commissions for Mr Ioannidis on sales made by the defendant. Mr Ioannidis was also instrumental in introducing the defendant to an investment proposal involving subdivision of land in a country town. The defendant invested in the project but has so far received no return and has been out of pocket for some years. When the defendant became short of funds, he approached Mr Ioannidis to see whether he could retrieve some money from the property investment but this was not possible. 67 It was submitted on behalf of the plaintiff that these factors make it dangerous to accept Mr Ioannidis' evidence in favour of the defendant. Reference is also made to what might be regarded as unsatisfactory aspects of Mr Ioannidis' evidence, including references in cross-examination to important matters not included in his affidavits and his inability to deal satisfactorily with the point that he had, in effect, accepted and acted on the proposition that a partnership existed while at the same time knowing that the Pharmacy Act precluded such a partnership; a matter that he was apparently content not to inquire further into after being given some general and unspecific understanding that an unidentified solicitor was looking at it or had looked at it. 68 Mr Ioannidis' evidence was unsatisfactory in the sense that, on occasions, it exhibited lack of clear thinking. This was not helped by his attempting to give answers before questions had been completed. On the whole, however, I find no reason to disbelieve Mr Ioannidis and I do not think that the matters concerning social contacts, the Amway business and the real estate investment to which Mr Ioannidis introduced the defendant should cause me to have any material reservation about his evidence. The plaintiff's visits to Mr Ioannidis' office 69 A particular matter on which evidence of witnesses other than family members is of assistance is the question of the plaintiff's visits to Mr Ioannidis' office. 70 The plaintiff's evidence is that he only went to Mr Ioannidis' office once - on an occasion after the disagreement in 2002 when the parties were exploring the possibility of resolving their differences. The conflict between the evidence of the plaintiff and the evidence of Mr Ioannidis on this matter emerges from the following passage in the plaintiff's cross-examination: "Q. I think you have recently had the opportunity to read an affidavit of George Ioannidis sworn 18 November 2004? A. Yes.

[149]

Q. He has referred to the various times that you would make an appointment to go and see him. To the best of your recollection, how often did you go and see him at his office? A. The only time I seen him at his office was after the dispute in 2002. That was when I managed to get some time off to go and see him regarding paperwork. And that's about it." 71 Evidence on this matter was given by two employees of Mr Ioannidis - the accountant Mr Brkljac previously mentioned and an accounts clerk, Ms Tadros. Mr Brkljac said in his affidavit that he recalled seeing the plaintiff in the office of Ioannidis & Associates on at least five occasions in 2000, 2001 and 2002, that on at least three occasions he attended with the defendant and that on at least two occasions the plaintiff attended alone. Mr Brkljac was challenged in cross-examination as to the quality of his recollections after such a passage of time. He agreed that he could not be precise about dates but said he was "sure" that the plaintiff had been at the office in 2001 and at the beginning of 2002. He knew that one visit was before a telephone conversation in late 2001 because a chair was taken from his office for a meeting the plaintiff attended. 72 Ms Tadros deposed that, in the period 2000 and 2002, she had seen the plaintiff in the office on at least six or seven occasions when he was either seeing Mr Ioannidis or leaving or collecting documents. She said that on some occasions he was alone and on others he attended with the defendant. In cross-examination she agreed that she had no recollection of the number of times she saw the plaintiff or of the dates. But she maintained her assertion that the dates on which she saw him in 2002 were in the middle of the year rather than towards the end. 73 The plaintiff's evidence is, as I have said, that he visited the office only once and that this was towards the end of 2002 after the dispute between the parties had developed. He made much of the fact that his duties at Grant's Pharmacy meant that he, as the only registered pharmacist, had to be there while the shop was open, so that he could not leave during normal business hours unless he arranged a locum. It was conceded that the wages records of the business did not disclose the employment of a locum at any relevant time. 74 The plaintiff sought to confirm this by calling evidence from pharmacy employees who said the plaintiff was always present when the shop was open. But the defendant points to wages records which call this evidence into question. In particular, Ms Carmeci gave evidence that she worked four days per week in the period including September 2000 and that the plaintiff was not absent on any of Monday 18, Tuesday 19, Friday 29 September 2000, whereas the wages records show that, in the period in question, she worked only three days a week (Monday, Wednesday and Thursday), with the result that she cannot speak for Tuesday 19 or Friday 29 September 2000. Similar evidence given by Ms Gourias does not take account of the fact that, according to the wages records, she did not work on 18 or 29 September 2000 and worked only 5.5 hours on 19 September 2000. Ms Calvert's evidence to similar effect is countered by wages records showing that she did not work on 29 September 2000, worked six hours on 18 September 2000 and worked only three hours on 19 September 2000. Ms Warncken's similar evidence must be viewed in the light of wages records showing that she did not work on 18 and 19 September 2000 and worked eight hours on 29 September 2000. Particularly in relation to 19 September 2000 (when Ms Gourias worked for 5.5 hours and Ms Calvert worked for three hours), it is quite possible that the plaintiff left the shop during business hours without any of the employees knowing. 75 On the basis of the evidence I have reviewed under this heading, I conclude that, on the balance of probabilities, the plaintiff did visit Mr Ioannidis' office on one or more occasions before the latter part of 2002 and that Mr Ioannidis' account of the plaintiff's dealings with Mr Ioannidis is to be preferred to that of the plaintiff. Mr Vu's evidence 76 The last of the non-family witnesses to be mentioned is Mr Vu. He met the defendant and his wife in 1988 when he was seventeen years old. A year later, he went to live with them because of family problems. He also got to know the plaintiff and his family and developed a great deal of respect for the plaintiff's father who, upon Mr Vu's marriage in 2000, acted in the place of his own father who had died in the Vietnam war. Mr Vu attended a number of the family gatherings and celebrations. He refers in his affidavit to a dinner at the defendant's house at Christmas 2001 at which "most of the family" was present, including the plaintiff, his parents, his sister Melissa and brothers David and Andrew, the defendant and the defendant's wife. According to Mr Vu, the plaintiff's father said to the defendant on that occasion words in Vietnamese meaning literally, "Eat together - split equal". He was challenged on this in cross-examination but confirmed having heard those words spoken; also that the plaintiff's father had on other family occasions said to the defendant things like: "We build something together and help your brother to succeed in business and we split together." 77 Mr Vu accepted in cross-examination that he was on good terms and friendly with the defendant but said that he occupied an identical position in relation to the plaintiff and his family. He accepted also that the defendant had got him involved in the Amway business but denied that he had agreed to give evidence for the specific purpose of helping the defendant. 78 The plaintiff's father said that there was no dinner at the defendant's home on Christmas Day 2001. That may well be so: I did not understand Mr Vu, when he said, "At Christmas in 2001, a dinner was held at Peter's house", to be necessarily referring to a dinner on 25 December 2001, as distinct from some other day in the Christmas period. The plaintiff's father also denied having spoken to the defendant in Mr Vu's presence the Vietnamese words meaning "Eat together - split equal". It must be said, however, that the father's evidence was generally unhelpful in the way I have already mentioned. Conclusions on existence of partnership 79 For reasons I have stated, the evidence of all family members presents problems and cannot safely be relied upon. The parties' controversy needs to be approached principally by reference to the contemporary documentary evidence and the evidence of non-family witnesses, being Mr Ioannidis, the two other persons from his office, the pharmacy employees and Mr Vu. 80 I am satisfied that that evidence supports the case sought to be made by the defendant, namely, that he and the plaintiff intended to (and did) become partners at the time of the purchase of the Grant's Pharmacy business and the post office agency operated within the pharmacy premises and that that partnership continued up to November 2002 and extended to the acquisition of the North Ryde premises in which Grant's Pharmacy operated and the acquisition of the South Windsor pharmacy operations. I am not satisfied, however, that the acquisition of the adjoining premises at South Windsor (a venture undertaken by the defendant and his wife) was within the scope of the partnership business which was, of its nature, a pharmacy business which did not extend to property dealing or property development proposals unrelated to pharmacy operations. 81 These conclusions with respect to Grant's pharmacy, the post office agency, the North Ryde property and the South Windsor pharmacy are warranted mainly by the evidence of Mr Ioannidis and the evidence and findings as to attendances by the plaintiff at Mr Ioannidis' office, allied with the tax returns and other documents Mr Ioannidis prepared. Those elements of the evidence are consistent with the role played by the defendant, together with the plaintiff, in the various acquisitions, as it emerges from the contemporary documents and the uncontroversial matters. I am satisfied that, despite the plaintiff's denials, he did attend Mr Ioannidis' office and otherwise communicated with Mr Ioannidis as Mr Ioannidis testified; and that Mr Ioannidis' treatment of matters on the basis of the existence of a partnership between the plaintiff and the defendant had its source in instructions to that effect given by both the plaintiff and the defendant. This conclusion is strengthened, although not substantially, by the evidence of Mr Vu of a general view within the family (at least before the differences of late 2002) of equal sharing. Impact of the Pharmacy Act 82 Partnership is, of course, the relationship that subsists between persons carrying on a business in common with a view of profit. This is the definition in s.1 of the Partnership Act 1892. Implicit in my finding as to the existence of a partnership between the plaintiff and the defendant, therefore, is a finding that they carried on the relevant business in common, that each was a party to the carrying on of the business and that each had a financial interest in it. The business was, in my view, a single business centred initially upon Grant's Pharmacy and the post office agency which, over time, expanded to include ownership of the North Ryde property and ownership of the pharmacy operations in the leased premises at South Windsor. 83 Against that background, I return to s.25 of the Pharmacy Act 1964. Section 25(1) imposes a prohibition upon, among others, "[a] person (not being a pharmacist)" and "a body of persons unincorporated". There can be no doubt that a partnership, as such, is within the latter description: so much is recognised by s.25(1A) which creates an exception for "a body of persons unincorporated, being a partnership consisting only of pharmacists" and of a particular description. The prohibition created by s.25(1) is a prohibition upon two things. The first is described by the words "shall not carry on, as owner or otherwise, the business of a pharmacist in a pharmacy". The second is described by the words "otherwise have a pecuniary interest, direct or indirect, in the business of a pharmacist carried on in a pharmacy". 84 In light of my findings, two contraventions of s.25(1) have been committed. First, the "body of persons unincorporated" consisting of the plaintiff and the defendant has contravened the section by carrying on the partnership business. Second, the defendant has, with the knowledge and assistance of the plaintiff, contravened by having, as a partner, an interest in the partnership business. 85 It is submitted on behalf of the plaintiff that if, as I have found, a partnership exists between him and the defendant, the circumstance that the relationship of partnership is contractual in nature means that the contract of partnership is illegal as formed and therefore void. The defendant says that the statute does not show an intention to prohibit partnerships of which persons other than pharmacists are members in such a way as to preclude legal recognition of such partnerships and the rights and obligations arising from them; and that the consequence of contravention is no more than the commission of the offence created by s.25(3) or s.25(4). 86 The submissions refer to the three landmark decisions of the High Court concerning the effects of statutory illegality on contracts: Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410, Nelson v Nelson (1995) 184 CLR 538 and Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215. In the first of these cases, Gibbs ACJ said (at p.413): "There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits." 87 In determining whether a contract offending against a particular statutory provision declaring something to be unlawful comes within one of these classifications, the task of the court is to have regard to "the true effect and meaning of the statute" (St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 at 286) and to "the language used and the scope and purpose of the statute" (Archbolds (Freightage) Ltd v Spanglett Ltd [1961] 1 QB 374 at p.390). 88 In undertaking that task, I begin with a brief account of the origins and history of s.25. Provisions restricting ownership and operation of pharmacies in New South Wales were first enacted by the Pharmacy (Amendment) Act 1940 which amended the Pharmacy Act 1897 by inserting a new s.18A. Sub-section (1) of that section was as follows: "Except as provided in subsection two of this section, no company, and no association of persons incorporated or unincorporated, not being a partnership shall carry on the business of a pharmacist in an open shop." 89 Section 18A(2) went on to exempt companies and associations that were already engaged in the relevant activity, provided that they conformed to certain conditions in so doing. Sections 18A(3) and (4) created offences for contravention. The Act of 1940 did not seek to preclude partnerships between pharmacists and non-pharmacists. That legislative step was taken when the Pharmacy Act 1964 was enacted. The minister's second reading speech on the Bill for that Act said in part (Legislative Assembly Hansard, 4 September 1963, p.4756): "I also pointed out that intending pharmacists are at present required to undertake a three year, full time, degree course in pharmacy at the University of Sydney, and to serve as an assistant for a period of not less than twelve months in the business of a registered pharmacist, before becoming entitled to registration as a pharmacist. These requirements are claimed to have considerably enhanced the status of pharmacists and the Government has agreed to take action under this bill to assist them in confining the conduct of pharmacies to registered pharmacists and also to enable them to become the owners of their own individual businesses."

[151]

The minister also said (ibid p.4763): "The Government is trying to preserve the rights of the individual pharmacist, especially if he has pioneered an area and established a business there. The bill will prevent big firms such as David Jones Limited or Farmers Limited or such developers from going out and setting up a pharmacy alongside him. This can be done under the Act as it is now." "The long-range intention of this bill is to provide for the future ownership of pharmacies to be in the hands of individual pharmacists … " 90 It is thus clear that s.25(1) is a measure about ownership of pharmacies and that the public purpose it was intended to serve is the purpose of ensuring that individual pharmacists are the only persons involved financially in the operation of pharmacies so that non-pharmacists (including companies) should not enjoy the financial benefits of pharmacy operations. Whether these objectives are compatible with the community expectations today is beside the point. Section 25 was amended in 1966, 1969, 1970, 1971, 1974 and 1989. In subsequent years, other provisions of the Act were affected by fifteen amending Acts. Yet s.25 and its basic principles remain in force. It must be presumed that the legislative purpose continues. 91 The matters to which I have referred distinguish this particular legislative provision from those which aim to preclude profit-sharing or partnership in fields of activity in which direct protection of the public from risks to personal welfare is the predominant consideration. The fields of medical practice, dental practice and legal practice are the most obvious examples. The present context is one in which protection of the economic interests of a particular trade, profession or calling is treated as an aspect of the public interest and represents the reason for the preclusive legislation. The public policy is to be understood accordingly. 92 The statutory prohibition is upon the carrying on of pharmacy businesses by non-pharmacists and upon the holding of pecuniary interests in pharmacy businesses by non-pharmacists. The carrying on of a pharmacy business by a partnership (or, as the Act puts it, "a body of persons unincorporated") which includes a non-pharmacist is prohibited. It must follow that the formation of a partnership which is to carry on a pharmacy business and in which a non-pharmacist has a pecuniary interest by reason of being a member of the partnership is something that the Act aims to prevent. The creation of such a partnership is contrary to the perceived public interest in the protection of the economic welfare of pharmacists. 93 Section 25(1) of the Pharmacy Act was considered by the Court of Appeal in Chappuis v Filo (1990) 19 NSWLR 490. Only one member of the court (Kirby P) had occasion to express an opinion about the effect of the section on a contract. His Honour said (at p.502): "It is unthinkable that Parliament should have provided as it did in s 25, have attached to breach of that section penalties and consequences of professional discipline and yet have envisaged that a contract designed to flout the section should be given force and effect by a court of law. I cannot accept that this was Parliament's intention. The result is that in my opinion Parliament intended to invalidate the contracts between the parties here. The consequence of that conclusion is that the losses which flow from the inability to enforce the contracts fall where they lie. Neither party may approach a court to give effect to contracts or, in my view, to any aspect of them. That includes, in my opinion, the provisions in relation to the stock- in-trade and the provisions relating to the executory trader's bills of sale. As these were incidental to (and part and parcel of) the sale of the business of a pharmacist forbidden by the Act, the Court should refrain from enforcing them." 94 The central question in Chappuis v Filo was whether a contravention of s.25(1) occurred where a pharmacist conducting a business consisting, in the usual way, of the dispensing and sale of prescription medicines and the sale of non-prescription items, toiletries, photography requisites and the like entered into two contracts for sale - one being a contract to sell to another pharmacist the segment involving dispensing and sale of prescription medicines and the other being a contract to sell to that other pharmacist and a non-pharmacist together the other segment of the business. The majority (Priestley JA and Handley JA) held that there was no contravention. Kirby P was of the opposite opinion. According to submissions made on behalf of the present defendant, that aspect of Chappuis v Filo warrants a conclusion in this case that if, as I have found, there is illegality by reason of contravention of s.25(1), its effects are confined to the part of the present parties' operations that involves the pharmacy businesses narrowly viewed, so that the illegality does not strike at anything to do with the North Ryde property and the post office agency conducted in the Grant's Pharmacy premises within that property. 95 I do not think that this is so. A finding that s.25(1) does not apply if matters are so structured that the sale of non-prescription items, toiletries and other merchandise is treated as a separate business and, in that form, is subjected to a contract under which a non-pharmacist attains a pecuniary interest says nothing about the application of s.25(1) to a case where there is, in fact, no separation made by the parties and the contract under which the pecuniary interest arises is one relating to a business which involves the dispensing and sale of prescription medicines in retail premises at two locations, the sale of other commodities (including post office services and goods generally sold in chemists' shops in addition to prescription medicines) in those premises and the ownership of the freehold housing one of the shops. The undivided and unallocated collection of assets as a whole (including goodwill), together with the attendant liabilities, must be taken to represent the relevant "business". 96 Section 3 of the Pharmacy Act defines "business of a pharmacist" as follows: " Business of a pharmacist means the business of a chemist, pharmaceutical chemist, pharmaceutist, pharmacist, druggist, homoeopathic chemist, dispensing chemist or dispensing druggist." 97 The definition refers to the essential features that make a particular business a "business of a pharmacist". But as Megarry J observed in Royal Bank of Canada v Inland Revenue Commissioners [1972] Ch 665, "a statement of the essentials of a business does not seem to me, without more, to be exhaustive of all that is ordinary in that business". That was said in the context of a discussion of the meaning of "banking business", the essential features of which are generally said to be the taking of deposits and the making of loans in circumstances having a public element, including, on some views, the payment and collection of cheques. An entity that engages in those activities is said to carry on banking business. But such an entity also employs staff, leases and owns premises, engages in advertising, discounts bills, offers safe custody facilities and does other things. Because of those additions, its business does not cease to be a banking business. 98 The position is the same here. The business centred upon Grant's Pharmacy and the South Windsor pharmacy was a single business in relation to which no attempt at subdivision or dissection was made. It had elements beyond the core elements that made it the "business of a pharmacist" but those additional elements did not somehow cause it to cease being the "business of a pharmacist". 99 I am accordingly of the opinion that the contractual consequences of the operation of s.25(1), in relation to the parties' partnership, must be as described by Kirby P and that this must be so with respect to the whole of the subject matter of their partnership. 100 Chappuis v Filo involved a contract for sale and purchase rather than a partnership agreement. A case that shows the working out of the same principles of statutory illegality in relation to the formation of partnership is Ybasco v Daka [1948] 51 WALR 22. The plaintiff there sought a declaration that he was a partner with the defendants in a pearling business carried on at Broome. The Pearling Act 1912 contained provisions intended to preclude persons other than British subjects from various forms of participation in the pearling industry. Section 33 was to the effect that if an alien not qualified to hold a ship licence held a share or interest in a pearly ship or in the results or proceeds of any pearling in which the ship was used, the ship might be forfeited. An offence was also created. Walker J said of the plaintiff's claim (at p.27): "Obviously, in my opinion, when Parliament passed the Pearling Act, 1912-1935, it intended that, as a matter of public policy, aliens should be absolutely excluded from engaging in the pearling industry except as divers, divers tenders, or pearl dealers. When, therefore, the plaintiff asks the Court to make in his favour a declaratory judgment that during the 1947 pearling season he was a partner with the defendants, and as such had an interest in the pearling ship and in the proceeds of its pearling operations, he asks the Court to declare to be valid a transaction in which he was implicated, but which Parliament intended should, as a matter of public policy, be unlawful."

Pham v Doan

At a glance

Court

Decision date

Before

Source

Judgment (156 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (4)

Cited By (4)