Rahman v Ahmed

Supreme Court of NSW|2009-08-31|Before: Slattery J

CITATION : Rahman v Ahmed [2009] NSWSC 1028

DECISION : A declaration that the plaintiff and the defendant carried on the business known as "Bexley Petroleum" as a partnership; a declaration that the partnership was terminated on 7 February 2006; defendant ordered to pay the plaintiff's costs of the proceedings; taking of partnership accounts; and other consequential orders made related to the taking of accounts - submissions ordered about precise form of costs assessment under s 98 (4) Civil Procedure Act 2005.

CATCHWORDS : PARTNERSHIP - dissolution and winding up - declaration partnership terminated - taking of accounts - COSTS - defendant to pay plaintiff's costs - unreasonable conduct by defendant - plaintiff likely to succeed at trial

Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201 Curac v Morey-Hype [2006] NSWSC 1171 Craft v Kupferwasser (1991) 23 NSWLR 236 CASES CITED : Hamer v Giles [1879] 11 Ch D 942 Kardos v Sarbutt No 2 [2006] NSWCA 206 Re: The Minister for Immigration and Ethnic Affairs and the Commonwealth of Australia ex parte Lia Qin (1997) 186 CLR 622 Slim v Kabra [2006] NSWSC 837 Wayne Terry Kerr v JP & M Kerr (Billabidgee) Pty Ltd [2006] NSWSC 1044

PARTIES : Plaintiff: Mojibor Rahman Defendant: Fuad Ahmed

COUNSEL : Plaintiff: Mr A Paterson Defendant: Mr S M Briggs (Solicitor)

SOLICITORS : Plaintiff: Jack Rigg Solicitors Defendant: Kemp Strang

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2695/08 MOJIBOR RAHMAN v FUAD AHMED JUDGMENT 1 HIS HONOUR: Introduction 2 These proceedings concern the existence and dissolution of a partnership between the plaintiff and the defendant in a service station business. They conducted the business under the name "Bexley Petroleum" between August 2002 and February 2006. The service station was located in an address in Bexley, New South Wales, the details of which are available on the court file. Due to the Court's policy of reducing the risk of identity theft these details will not be published in this judgment.

3 The defendant is married to the niece of the plaintiff. Until the present dispute the two parties had a good relationship dating from the time the defendant first migrated to Australia from Bangladesh in the mid 1990s.

4 The plaintiff invested $60,000 in the partnership. He deposited this sum on 12 August 2003 in a business account of Bexley Petroleum. The account details for this account are also available on the court file.

5 From the time of investment of those funds the partnership operated with the defendant as the active partner and the plaintiff the less active partner.

6 Distrust and disputes arose between the plaintiff and the defendant from late 2005, culminating in events on the evening of Monday 6 February 2006 and the morning of Tuesday 7 February 2006. The details of those disputes are not of present importance but they resulted in the defendant excluding the plaintiff from the service station premises that morning. The service station business has not been conducted as a partnership from that time. The defendant has since had control of the service station premises from which he has conducted a business under the name "North Bexley Petroleum".

7 These proceedings were listed today for hearing. The Court was informed late last week that the proceedings had settled in substance but that issues of costs remained. The Court was provided late last week with short minutes of order asking by consent for the making of certain declarations and orders as follows: 1. Declare that between August 2003 and 7 February 2006 the plaintiff and the defendant carried on the business know (sic) as "Bexley Petroleum" as a partnership ("the partnership"). 2. Declare that the partnership was terminated on 7 February 2006. 3. Order a taking of accounts of all sums due as between the defendant and the plaintiff consequent on the termination of the partnership. 4. Adjourn the proceedings to the equity registrars list for directions on 30 September 2009.

8 Where consent orders of this nature are provided to the Court, it would be usual for the Court to make these declarations, if there is sufficient material upon which the declarations could be made. The history set out already in this judgment is based on the affidavit material which suffices for those declarations to be made. The Costs Issues

9 The parties disagree about how the costs of the proceedings should fall. Both parties do agree however that there still needs to be an accounting between them. That is necessary because the partnership records are in a state of disarray, although the partnership had an accountant, a Mr Khan.

10 There is no formal motion before me for costs but the parties have moved orally in terms that are clear. The plaintiff seeks that the defendant pay personally the plaintiff's costs of the proceeding. On the other side, the defendant submits first that the defendant's costs of the proceedings should be paid out of the partnership assets. The defendant also submits in the alternative, that the making of orders for costs in the proceedings should await the determination of the taking of accounts.

11 The costs issues that remain for consideration today are: first, should there be an order for costs made either of the kind sought by the plaintiff or the kind sought by the defendant; and secondly, if so, on what basis should the quantum of any costs so ordered be assessed and what principle of assessment should be applied?

12 The most efficient way of proceeding today is to make a decision about the first issue, namely, whether a costs order should be made against the defendant personally or out of the partnership assets. I have decided to defer the making of a decision about the second issue, to give the parties an opportunity to consider the consequences of my decision in relation to the first issue.

13 I have reached the view in relation to the first issue that a costs order should be made personally against the defendant for reasons to which I will shortly come. However, the parties have not yet been able to put before me material for consideration of the second issue. It is not possible for the Court to determine that issue today. I have made some comments below that should assist the parties in presenting their cases in respect of the second issue.

The Course of Proceedings 14 The course that has brought this matter to Court today results from a dispute that started in the Local Court after the dissolution of the partnership. The plaintiff commenced the proceedings in the Local Court at Waverley on 12 June 2007. Those proceedings were not well constituted. They claimed a sum of money from the defendant. From what can be gleaned from what remains of the Local Court file that has been forwarded to this Court, the proceedings did not disclose a proper cause of action.

15 Despite the inadequacy of the statement of claim a number of procedural steps were taken in the Local Court. A defence was filed on 23 July 2007. A transfer of the proceedings to the Downing Centre took place on 27 July 2007. There were several directions hearings there in the second half of 2007. Directions were given for the plaintiff to file an amended statement of claim. The plaintiff failed to file the foreshadowed amended statement of claim within time. The plaintiff recognised in late 2007 that the Local Court did not have jurisdiction to grant the relief sought in the proceedings. The matter was transferred to this Court in March 2008. The course of these proceedings in the Local Court does the plaintiff no credit. About the time of the transfer the plaintiff changed solicitors. From the time of the transfer to this Court the matter has proceeded with reasonable expedition under the management of the plaintiff's current solicitors.

16 The pleading filed in this Court on the plaintiff's side in its final form is the further amended statement of claim and, on the defendant's side, a defence to that pleading. A cross-claim has been lodged by the defendant, joining the plaintiff as a cross-defendant. The cross-claim alleges that some $127,000 was taken from the business by the plaintiff. It claims that this sum should be returned or otherwise brought to account by the plaintiff.

17 The plaintiff alleges that upon his payment to the defendant of the sum of $60,000, he and the defendant entered into a partnership agreement whereby the plaintiff acquired a one half interest in the service station business. The plaintiff also says that after that sum was paid he and the defendant jointly operated the business in partnership until 7 February 2006. The defence denied that there was a partnership but admitted that the plaintiff paid the sum of $60,000 to the defendant. The defence does not plead the nature of the relationship between the two parties arising out of that admitted investment.

18 The defence also admitted exclusion of the plaintiff from the subject premises. But it claimed that the defendant was entitled to exclude the plaintiff.

Some Procedural Questions in Relation to Costs 19 In relation to the second issue that is not being determined today, I wish to identify some matters that may assist the parties. If a costs order of any kind were to be made I raised with the parties the possibility of a lump sum costs order being made to avoid the need for detailed bills of costs or an assessment. This case may only be worth $60,000, less such moneys as have been retained by the plaintiff at the termination of the partnership. It is highly undesirable that unnecessary lawyer time or Court time be spent in working through the further resolution of these proceedings. I asked the parties to give consideration to putting before me very brief evidence which would be relevant to the question of making a lump sum costs order or any other orders that may be made under s98 (4) of the Civil Procedure Act 2005.

20 The Court is able to split the making of a costs order, from the making of an order about the precise form of costs assessment because of the structure of s98 Civil Procedure Act 2005. Section 98 relevantly provides as follows: "s 98 (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) he court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.

(2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court.

(3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings.

(4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount.

21 Subsections (3) and (4) are important provisions in the logic that allows a costs order to be made but for the precise form of costs assessment and the percentage entitlement to costs to be deferred. Subsection 3 provides that "An order as to costs may be made by the Court at any stage of the proceedings". Before those costs are referred for assessment, subsection 4 independently empowers that "The Court may make an order to the effect that the party to whom the costs are to be paid is entitled to". Specific kinds of costs orders that can be made are then detailed, including costs up to or from a specified stage of the proceedings, a specified proportion of the assessed costs, a specified gross sum instead of assessed costs, or such proportions of the assessed costs as does not exceed a specified amount.

22 When the second issue is being determined it is open to the defendant to submit that certain of the costs incurred by the plaintiff should not be recoverable and that only a specified proportion of the assessed costs may be recoverable. Both sides may yet contend for the precise form of gross sum that might be applicable. 23 Some of the costs issues have been eliminated. The plaintiff has conceded that it would not be appropriate for him to attempt to recover his costs of the proceedings which were incurred prior to the matter being referred to the Supreme Court. That is a proper concession. Quite apart from the plaintiff's conduct of this matter in the Local Court, a plaintiff who wanted an account taken and who anticipated the possibility of a dispute about whether there was a partnership should have commenced these proceedings in the Supreme Court in the first place. The only costs which are in issue are those incurred in this Court. Some costs associated with commencing proceedings were always necessary to achieve the taking of an account. There may well be an argument that the plaintiff should not receive all of its costs in the Supreme Court for that reason.

24 In relation to a lump sum award, if that is what I am ultimately asked to consider on the second issue, some discount from bills of costs may be appropriate in order to make reasonable allowance for what would be likely to be taken off bills of costs in the assessment process.

25 The parties agree about the principles that guide me in the exercise of my costs discretion on the first issue. They disagree about how those principles apply in this case.

26 In undertaking this costs assessment I am mindful of the provisions of ss 57 (1) (d), 60 and 98 Civil Procedure Act 2005. That statutory framework is of importance for my decision to defer the second question issue for consideration.

27 Where the parties have agreed without a contested hearing upon the result of the proceedings but where they cannot agree about the question of costs, the general principles to be applied in considering what costs order should be made are stated in two cases. The first is the classic passage in the decision of McHugh J in the High Court in Re: The Minister for Immigration and Ethnic Affairs and the Commonwealth of Australia ex parte Lia Qin (1997) 186 CLR 622: "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Latoudis v Casey (1990) 170 CLR 534; 97 ALR 45. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. Latoudis (1990) 170 CLR 534 at 543, 566-8; 97 ALR 45. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; 116 ALR 523 at 530. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. 4 In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council ; Ex parte Raysun Pty Ltd [1971] QWN 13, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission Fed C of A, 10 February 1989, unreported, where his Honour ordered the respondent to pay 80% of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.

The critical question in this case then is whether or not the prosecutrix acted reasonably in bringing these proceedings and whether the respondents acted so unreasonably in not informing the prosecutor that an application to review the decision to refuse a visa was being considered that it would be proper for the minister to pay the whole or part of the cost of the proceedings. In determining whether or not the prosecutor acted reasonably, it is necessary to mention some further facts in the matter."

28 The second decision, that of Hill J in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201; (1993) 116 ALR 523 at 530, reduces the applicable principles to the following five propositions: " (1) Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order …

(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

(3) In determining the question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them

(4) In a particular case it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation …

(5) Where the proceedings terminate after interlocutory relief has been granted, the court may take into account the fact that that interlocutory relief has been granted … [Footnotes omitted]".

29 What is then the appropriate form of costs order in relation to the ordinary dissolution of a partnership? The principles in relation to that question are stated in a number of cases and especially by Palmer J in Slim v Kabra [2006] NSWSC 837:

"The usual rule in proceedings for winding or dissolution of a partnership is that the costs of proceedings consequent upon, and necessary for, the dissolution should be paid out of partnership assets unless there is a good reason for making some other order." 30 Palmer J's formulation is derived from the statement of the Master of Rolls in Hamer v Giles [1879] 11 Ch D 942 at 944 - 945: "My opinion is that the rule is not as stated in Seton. It appears to me that where there is no fault on either side, but the partnership accounts have to be taken in this Court, the costs of the action for taking the accounts from the beginning ought to be dealt with as all other costs of necessary administration, that is, they must come out of the partnership assets. Of course, where an action for dissolution is rendered necessary by the misconduct of a partner - as, for instance, where a partner whose duty it is to keep the accounts has neglected to do so - the Court not only has jurisdiction, but is bound to exercise it, by making that partner pay so much of the costs as are occasioned by his misconduct. But in all other cases there is no difference between the costs of the action for taking the accounts prior to the trial and the subsequent costs, and I have always acted on that rule." 31 These principles received recent consideration by Brereton J in Kardos v Sarbutt No 2 [2006] NSWCA 206, when his Honour was sitting in the Court of Appeal (Basten JA and Hunt AJ agreeing): "However, the costs of adjusting property interests consequent upon the failure of a domestic relationship are an incident of the failure of a joint relationship, usually without attributable fault. In this sense, there is an analogy with partnership disputes…The prevailing rule nowadays is that the costs of both parties of an action for dissolution are paid out of the partnership assets, unless there is some good reason to the contrary [ Hamer v Giles (1879) 11 Ch D 942], except where the action is one which in substance is to try some disputed right, in which case the unsuccessful party will be ordered to pay the costs [ Hamer v Giles ; Warner v Smith (1863) 9 Jur (NS) 169]."

32 I have been asked by the parties to apply these authorities in different ways. I now turn to the contentions of the parties. The Parties Contentions

33 The plaintiff by his counsel Mr Paterson contends that Lia Qin makes clear that without a hypothetical hearing a Court is nevertheless able to assess whether or not either the plaintiff or the defendant engaged in unreasonable conduct sufficient for an order for costs to be made.

34 The plaintiff alleged two kinds of unreasonable conduct against the defendant. The first involved alleged delay in the proceedings in the Supreme Court. The plaintiff alleged the defendant delayed in filing a defence, such that a summary judgment application was required to have it filed. Delay in putting on evidence is also alleged.

35 Upon closer examination the delays in question only amounted to slippage of the order of a month to 6 weeks. These delays are not sufficient to characterise the defendant's conduct as unreasonable. This is particularly so where the plaintiff commenced these proceedings in the wrong jurisdiction and then took many months to produce a Local Court amended statement of claim. I do not base the costs orders that I make upon such matters.

36 The other way the plaintiff says the defendant engaged in unreasonable conduct warranting the making of a costs order is that the defendant continued to dispute the existence of a partnership in the course of these proceedings, when it was plainly unreasonable to do so. Alternatively the plaintiff says that the issue of whether or not there was a partnership between the plaintiff and the defendant is one on which the plaintiff would have won in the proceedings if they had been fully contested and brought to judgment.

37 The plaintiff says the defendant unreasonably disputed the plaintiff's allegation in the statement of claim that there was a partnership commencing in August 2003 which existed until February 2006. The plaintiff says that the defendant did this by a series of acts that prolonged the proceedings and occasioned expense to the plaintiffs. These acts were the filing of an affidavit by the defendant, the filing of a defence disputing that issue, the filing of a notice of dispute in response to the plaintiff's notice to admit the facts including the fact of the partnership, resisting a summary judgment application and thereafter continuing to maintain the defence that there was no partnership, until these proceedings were partially resolved by agreement last week. 38 The authorities suggest that the Court can take into account as part of its exercise of discretion the content and nature of the orders which the Court is being asked to make. Because there has been no final hearing, that relevant consideration is not decisive.

39 However it is a matter that can be taken into account. Declarations that there was a partnership and that the partnership has been terminated were agreed to by the defendant. I refer in this connection to Hill J's fifth proposition in ASC v Aust-Home Investments Limited above, where his Honour stated that the Court may take into account in exercising its costs discretion the fact that interlocutory relief has been granted. Here final relief has been granted by consent in the proceedings involving the making of the two declarations. This outcome assists the inference that the defendant's denial of a partnership until last week was unreasonable.

40 The plaintiff also draws on the filed evidence to prove that the defendant's denial of a partnership was unreasonable. The plaintiff points out that in his original affidavit of December 2007 he annexed tax returns for the years ending 30 June 2005 and 30 June 2006 of what he alleged was the partnership between the plaintiff and the defendant. They were unsigned. In response the defendant indicated in paragraph 57 of his affidavit that he had not seen those tax returns until recently and not before reading the plaintiff's affidavit. He explained, that he dealt with the accountant Mr Khan regarding the preparation of the tax returns for the business by telephone. He says that he did not agree to file tax returns for the business disclosing Mr Rahman as his business partner.

41 At almost the same time as that affidavit was put on the defendant filed a list of documents which included two partnership tax returns. They were partnership tax returns apparently signed and lodged by the accountant Mr Khan. It is not disputed that Mr Khan was responsible for undertaking accounting work in respect of the business associated with this service station.

42 Where a professional person such as Mr Khan is discharging duties owed to the revenue authorities by persons including the defendant to make accurate statements about the relationships by means of which those persons earn assessable income, the statements so made are subject to duties of accuracy. It should be inferred from what Mr Khan said to the revenue authorities that a partnership was being conducted between the plaintiff and the defendant. Unless some evidence was available from Mr Khan, explaining why he apparently had made the error that he had, the inference should be drawn. No such evidence is available. The defendant acquiesced in this description of his relationship with the plaintiff as being that of 50 percent partners in the subject business. Even on the defendant's version of events it is difficult to see why he was even speaking by telephone to Mr Khan about tax returns for the business, unless there was a partnership.

43 This is not undertaking a hypothetical trial of the action. It is an analysis of the reasonableness of the defendant's conduct and then, if necessary the probabilities as to the outcome of these proceedings had they been conducted. This is in accordance with the decision of McHugh J in Lia Qin. 44 The plaintiff points to other matters that aid that inference that the defendant's conduct was unreasonable in disputing the partnership. On 5 January this year there was an exchange of particulars between the parties about paragraphs 2, 4, and 5 of the defence filed by the defendant, which paragraphs provide as follows: "2. In answer to paragraph 2 of the Amended Statement of Claim the defendant: (a) repeats paragraph 1 above.

(b) admits that the plaintiff paid the defendant the sum of $60,000.00 in about August 2003; and

(c) otherwise denies paragraph 2 of the Amended Statement of Claim. .... 4. In answer to paragraph 4 of the Amended Statement of Claim the defendant: (a) repeats paragraph 1 above;

(b) says that on and from 8 February 2006 the defendant excluded the plaintiff from the premises known as 307-309 Bexley North in the Sate of New South Wales, as he was entitled to do.

(c) does not admit that there was a disagreement between the parities on or about 7 February 2006; and (d) otherwise denies paragraph 4 of the Amended Statement of Claim. 5. In answer to paragraph 5 of the Amended Statement of Claim, the defendant: (a) repeats paragraph 1 above.

(b) says that prior to 8 February 2006 the plaintiff took in to his possession funds in the sum of $17,243.81; from the service station business trading under the name of Bexley Petroleum (" the Business ")and

45 The plaintiff's requests for particulars in respect of paragraphs 2, 4 and 5 sought details of the actual arrangement pursuant to which the plaintiff and the defendant were involved in the conduct of a business at the subject premises. The answer given was remarkable for its failure to explain what the nature of the relationship was between the two of them, if it was not a partnership. The defendant gave no definite description of the relationship at a time when one was called for.

46 In answer to this, Mr Briggs, for the defendant, says that if one looks at the precise questions in the request for particulars that the defendant was entitled to answer that request in the way that it was answered. He submits that the plaintiff's argument expects too much of the defendant. However the defence itself is not informative about what the defendant said the actual relationship was. The response to the request for particulars does not add much. If, according to the defendants, there were some clear relationship other than partnership between the plaintiff and the defendant in relation to this business, in my opinion it would not have been difficult to explain it. Either the defence or the request for particulars was the time to give that explanation.

47 Later steps in the proceedings also did not assist in revealing what was the real contest between the parties about their relationship in the service station business. An affidavit of the defendant was filed in April this year which also does not throw much light on the precise nature of the relationship.

48 The plaintiff also relies upon the fact that there were documents lodged with the Office of Fair Trading and the Australian Business Register which indicate that a partnership existed. The defendant denies having seen that information at any time before the plaintiff filed his affidavit attaching them. The authorisation for these documents to be lodged on the defendant's behalf is a matter which would have been in dispute had these proceedings been fully contested. It is difficult to draw an inference from them on the costs issues I have to determine.

49 Both parties have put the available evidence before the Court and tendered such materials as they saw fit to permit this costs assessment to be made. In accordance with Lia Qin it is on those materials that the Court now acts but without a hypothetical trial taking place. On these materials I infer that the defendant unreasonably disputed the existence of a partnership and that he would have failed on that issue had the matter gone to trial. It was "almost certain" that the plaintiff would have succeeded on that issue.

50 On behalf of the defendant, Mr Briggs has presented written submissions to which he spoke orally. He has put everything that could reasonably be put for the defendant. I will deal with each of the matters raised by him in turn.

51 First, the defendant submits that as was evident in the unreported decision of Justice Hamilton in Curac v Morey-Hype [2006] NSWSC 1171, the rule has been since at least 1878 when Hamer v Giles (1879) 11 Ch D 942 was decided, that the costs of an action for dissolution of a partnership should be paid out of partnership assets, unless there is good reason to the contrary.

52 Mr Briggs submits that this is a case which falls within the rule in Hamer v Giles. It is an action for dissolution of the partnership. The general rule should be applied here that the parties costs of the action should be paid out of partnership assets. He says that there is no good reason for a contrary position to be taken.

53 The plaintiff took me to a decision of Nicholas J in Wayne Terry Kerr v JP & M Kerr (Billabidgee) Pty Ltd [2006] NSWSC 1044. In Kerr, Nicholas J applied the exception to Hamer v Giles in a case involving the holding of alleged trust property. The proceedings in Kerr were not about the adjustment of property interests but about the determination of a right to a property interest.

54 Mr Briggs has sought to distinguish Kerr's case on the basis that it is not a case about partnerships but about the declaration of an interest in specific property. He also sought to distinguish Kerr on the basis that there the trial had taken place for almost three days before Nicholas J made the decision. Mr Briggs says that Nicholas J was therefore in a position to assess the witnesses in circumstances where they had been cross-examined and concessions made in the course of cross-examination.

55 Neither of the grounds advanced is a basis for distinguishing this case from Kerr. Kerr was dealing with a like situation where there has been a joint enterprise which was the subject of a dispute and where partnership principles based on Hamer v Giles were being drawn on by analogy. The judges in those cases thought that the partnership analogy was appropriate to apply to their situations. Here, where it is a partnership that is in issue, the application of the principle is even more apt. Here, the defendant disputed that there was a partnership. Before the plaintiff could obtain proper administration of the partnership the defendant put him in the position that he had to prove he had an interest in the partnership.

56 It is true, as Mr Briggs said, that Nicholas J was in a better position to assess the possibilities of success after concessions were made in the course of cross-examination on oath before him. However on Lia Qin principles, I am not precluded from drawing inferences about the probabilities of success on the materials that have been put before me. I have drawn those inferences for the reasons stated.

57 Secondly, the defendant submits that it was reasonable for him to defend the claim until the settlement on 25 August 2009. For the reasons which I have already stated I disagree with that contention. However, in support of that contention the defendant adverts to a number of matters which are not the subject of evidence. Mr Briggs says that the defendant was influenced by his precarious financial state and was unable to raise funds necessary for the effective defence of the plaintiff's claim and was therefore minded to make a "commercial" settlement rather than contest these proceedings. There is no evidence before me which would allow me to act upon that submission.

58 Thirdly, Mr Briggs submits as there has been no determination on the merits it is not clear without a full hearing of the matter as to which party would be successful. It is true there has not been a full hearing on the merits. The nature of the hearing which has now taken place is quite permissible within Lia Qin. As Lia Qin itself acknowledges, it is possible for the Court on a hearing such as this to determine, even if both parties have acted reasonably, that one party was almost certain to have succeeded if the matter had been fully tried.

59 I am prepared to order that the defendant pay the plaintiff's costs on the basis that the defendant has behaved unreasonably in continuing to dispute the existence of a partnership. But I am also prepared to infer that it was almost certain that the plaintiff would have succeeded if the matter had been fully tried.

60 This is a case of which Kerr is another illustration, that the general principle in Hamer may be displaced if there is "good reason to the contrary." As Kerr illustrates, good reason may be found when the Court is concerned with an action which is in substance one to try some disputed right. That is what happened in this case.

61 Here, the proceeding is one not just for dissolution of the partnership. This is not just the bringing of an action in the Supreme Court so that the Court's authority can be used to regulate the process of taking accounts under an independent authority. The substance of the action as the affidavit evidence shows, has been a dispute about whether or not there is a partnership in the first place. That disputed right has occupied most of the energy of the lawyers on both sides, both in the affidavits, the pleadings, the notices to dispute facts, the summary judgment application and the preparation for this hearing.

62 Finally, the defendant submits that the Court should decline to make a costs order at this time and should wait until the completion of accounts before making the appropriate costs order, if any. Mr Briggs submits that the financial records of the partnership are scant. As a result, it will be unclear until following the taking of accounts which partner will be required to make further contribution or will be entitled to any part of the capital profits. He says that is the time to make any costs orders.

63 This argument might have merit if the Court were considering making the kind of costs order that Mr Briggs says should be made in favour of the plaintiff, namely, that the plaintiff's costs be paid out of partnership assets. I have rejected the submission that either the plaintiffs or the defendant's costs should be paid out of partnership assets. I will order that the defendant pay the plaintiff's costs of these proceedings.

64 There also may be some advantages if a costs order is made now and crystallised into a sum of money. It may be useful to know what this amount is now before the process of reaching the balance of accounts on a winding up of the partnership takes place. So I also reject that argument advanced on behalf of the defendant. Conclusion and Orders

65 Accordingly, I make declarations one and two set out in the short minutes of order that have been provided to the Court and which will be dated and initialled by me and placed with the Court papers. However I do not make order 4 which proposes the adjournment of proceedings to the equity registrar's list directions on 30 September 2009. I am going to allow the parties to digest my reasons and put submission in relation to what kind of costs assessment order under s 94(4) should be made. However, I have been provided with another set of short minutes in which I have now been asked to make orders.

66 They are orders 5, 6, 7, 8, 9 and 10. I decline to make order 10 because of the double nature of the orders I am about to make. By consent of the parties I make order 5, and I give directions in terms of paragraphs 6, 7, 8, and 9 of those supplementary short minutes.

67 The matter is listed for further hearing on Thursday 1 October 2009 at 9.30am before me. The parties are at liberty to file short written submissions in relation to the final costs orders for which they contend and any other matter necessary to bring the proceedings to finality by 4 pm on Wednesday 30 September 2009. I make order 3 for more abundant caution.

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Judgment (88 paragraphs)

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Cases Cited (9)