Plaintiffs v Defendants

Plaintiffs v Defendants - [2011] VSC 301 - VSC 2011 case summary — Zoe

[31]

11 In 2003 Mr Samuel Lederberger and Mr Israel Lederberger decided that the latter would sell his share to the former. Mr Samuel Lederberger wanted to protect himself against the debts of the business and sought the advice of Mr Lebovits who had been the accountant of the business during the life of his father and continued to be the accountant of that business until, it seems, recently. Mr Lebovits had been involved with the business affairs of the Lederberger's business and in its structure but was not called to give evidence. Mr Samuel Lederberger said that Mr Lebovits had proposed a partnership structure of which Loaders Traders was to be a bare trustee for the partners. The partnership interests under the proposed structure were to be divided as to one third for the estate of Mr Hirsch Lederberger (as in fact occurred) and two thirds for Saminna Pty Ltd as trustee for the Samuel Lederberger Family Trust. The structure adopted was different in respect of the two thirds share to be held for interests controlled by Mr Samuel Lederberger but no explanation was given for the difference. The tax returns of the partnership identified the partners of the business as, first, the estate of the late Hirsch Lederberger and secondly, Lederberger Investments Pty Ltd. The tax returns for the partnership were prepared by Mr Lebovits and were signed by Mr Samuel Lederberger and by Mr Lebovits. The interests in the partnership were shown in the tax return to be one third and two thirds respectively. The business name shown for the partnership in the tax returns was "Loaders Manufacturers and Traders" with a tax file number of 800 731 622 and a partnership ABN of 15 921 975 885. At no stage has Mr Samuel Lederberger or Mrs Lederberger ever maintained in these proceedings that the partners who claimed and enjoyed the tax deductions were not lawfully entitled to the tax deductions which they claimed and enjoyed through the partnership although the consequence of their positions in this proceeding would appear to be that their claims were not lawful, that they (through their partnership and connected interests) have not paid the proper tax due and that they may each have made false declarations in tax returns.

[39]

17 In my view it is clear that the plaintiffs were contracting with the partners of the partnership who in fact claimed, and obtained the benefit of, the substantial tax deductions secured through participation in the two projects. The application form with the first plaintiff identified Loaders Manufacturers & Traders as the relevant grower. The application asked whether that entity was registered for GST and, in Mr Samuel Lederberger's hand, there was circled the word "yes" in the 2006 application form and the box marked yes was ticked in the 2007 application form that he signed. The partnership was registered for GST whilst Loaders Traders was not. The documents subsequently entered into by Mr May pursuant to the power of attorney to give effect to the applications made by Mr Samuel Lederberger on behalf of a disclosed but unidentified principal described Loaders Manufacturers and Traders as the "grower". A sub-lease was entered into dated 30 June 2006 describing the landholder as WA Blue Gum Limited (the fourth plaintiff) and the grower as "Loaders Manufacturers & Traders" with the company number "VIC 0359052S". A loan agreement was entered into for the 2006 year with Albany Finance Pty Ltd (the third plaintiff) as financier and "Loaders Manufacturers & Traders VIC 0359052S" as grower. A project management contract was entered into for the 2006 year between WA Blue Gum Limited (the fourth plaintiff) and Loaders Manufacturers & Traders VIC 0359052S as the grower. All of these documents permitted the 2006 returns to be prepared (and financial advantage to be obtained) and no complaint was ever made by the defendants until these proceedings. No complaint was made or correction sought by the defendants about the description of the party to participate as grower when the parties entered into the 2007 transactions involving the Mediterranean Olives project. By this stage there could have been no doubt in the minds of the defendants that the parties who had contracted in the 2006 year, who had claimed the tax deductions in that year and who were about to contract for the 2007 year to the same effect had been described as "Loaders Manufacturers & Traders" including the number "VIC 0359052S".

[43]

21 It is common for an agent to act on behalf of an unidentified principal[15] and the undisclosed principal does not avoid liability made on the principal's behalf.[16] Mr Samuel Lederberger did not contend that in completing the application forms for the 2006 and 2007 projects he was purporting to act in his own right and indeed, his evidence and objective circumstances are wholly inconsistent with him intending to contract in his own capacity or to contract on behalf of Loaders Traders acting as bare trustee, because it would not be able to use the benefits of the tax deductions which his own evidence made clear he was keen to secure for the benefit of a taxpayer expected to make taxable profits. The forms he signed were forms identifying a contracting party other than himself and the nature of the contracts, the surrounding circumstances and the objectives to be secured by the contracts make clear that the party for whom he was authorising Mr May to contract was the party that would obtain the benefits of the tax deductions. The only possible evidence in support of the contention now maintained (and inconsistent with his own stated desire to reduce the tax payable by the entity likely to make a profit in the years in question and inconsistent also with the tax returns as lodged) is the number of the Victorian registered business name which, in any event, was held on behalf of the partners. In the circumstances I cannot accept the defendants' contentions that the partners of the partnership were not the contracting parties. The contracts with the plaintiffs set out the partnership by name as the contracting party as grower and the registered Victorian business number was held by a bare trustee for the benefit of the partners who were in fact trading by that name. The contracts with the plaintiffs sought to contract with the party which had been identified in the application forms signed by Mr Samuel Lederberger and they did not identify the party by reference to the Victorian business number, rather the forms signed by Mr Samuel Lederberger identified a party as Loaders Manufacturers & Traders as having an ABN and as being registered for GST (which the partnership was and Loaders Traders was not).

[50]

26 It may readily enough be accepted that the reality of importing, wholesaling and selling camping goods is fundamentally different from the reality of the activities in a business of growing blue gums or olives. However, that kind of broad description of businesses overstates the true situation in this case. The businesses carried on by the partners by participation in the blue gum and olive tree transactions did not involve them in physical activity themselves. Their participation in a business for tax purposes arose by virtue of the legal rights and obligations created through activity carried on by others.[21] The business carried on through the partners' participation in the Blue Gum and Mediterranean Olives projects was through the agency created by the agreements.[22] There was no sense in which the activities of the partners would ordinarily be regarded as themselves being involved in growing trees or olives beyond the legal conclusions flowing for tax purposes from entering into legal relations. Participation in the business of blue gum growing and olive growing from the point of view of the partners (and judged from the point of view of that commercial partnership) was little more than an incident of dealing with its profits and its tax liabilities. Participation in the tax effective scheme was incidental to the partners' business purposes of maximising business profits and participating in legally available products to reduce a tax liability.[23] That, indeed, was the evidence of Mr Lederberger which I set out in paragraph 2 above. The transactions may be seen to flow from, be incidental to, and to form a part of the ordinary activities of the business of, the partnership.[24] The primary activity of the partnership was no doubt that of importing, wholesaling and selling camping goods but its business activities included other activities such as investments and the marshalling of its profits, its cash and its economic resources, and the maximising of its overall returns. There is no meaningful sense in which participation in the tax effective products can be said to be outside the usual way the business of the partners was carried on.

[58]

28 It was contended that the contracts entered into by Mr May pursuant to the power of attorney exceeded his authority because he had not been authorised by the partners to do so. I do not accept that submission because it is clear that Mr Samuel Lederberger had complete authority to act on behalf of the partners and was known to do so. It may, therefore, be unnecessary for me to consider whether either or both of Mrs Lederberger and Lederberger Investments ratified the entry of some party or parties into the agreements pursuant to the power of attorney but, it may be desirable for me to say something on that issue. A conclusion of ratification requires that a principal have ratified the unauthorised act of an agent by language or conduct that is unequivocal.[31] Ratification is "a unilateral act of the will" which may be "expressed in words or implied from or involved in acts" and need not be communicated to the party relying upon it.[32] In this case the evidence all points to ratification of any unauthorised entry into the agreements pursuant to the power of attorney by Lederberger Investments, by Mrs Lederberger and by Mr Samuel Lederberger. Mrs Lederberger left the running of the business to Mr Samuel Lederberger and Lederberger Investments. It was Mr Samuel Lederberger who was the natural person responsible for management of the affairs of the partnership. This fact was known to Mrs Lederberger and was clear from her testimony as well as that of Mr Samuel Lederberger. The tax returns claimed the losses on the investments and secured the benefits which the investments were designed to provide and which were entered into to secure. The tax returns were prepared by the long standing accountant who declared the contents to be true and correct. Mr Samuel Lederberger declared likewise on behalf of the partners of the partnership, Lederberger Investments and on his own behalf. In doing so both the accountant and Mr Samuel Lederberger by express statements and conduct ratified on behalf of the partners the agreements entered into pursuant to the powers of attorney. No amended returns had been filed suggesting that the expenses were not allowable as deductions for the partners as they had been claimed. Mrs Lederberger prepared and signed the 2006 trust tax return further ratifying the contracts from which she obtained financial benefit.

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Cases Cited (26)