227 As noted earlier, the only partnership pleaded in the first set of proceedings (and, despite the pleading in the second set of proceedings, the only partnership seemingly pressed at the hearing - see T 166.10; T 165.15) was a partnership between Ms Salib and Mr Gakas, that being a partnership (according to Ms Salib) whereby they jointly agreed to carry on business through a series of corporate structures (those on Mr Gakas' side already being in existence at the time Ms Salib says he approached her with the proposal of a partnership). Ms Salib's evidence was, however, contradictory in this regard, since she was adamant at the outset of her cross-examination that she owned a portion of Kent Newport itself (through her partnership with Mr Gakas).
228 Mr Simpkins submits that the arrangement was not one of a partnership; rather, it was one whereby, in return for the provision of administrative services in the nature of bookkeeping, Ms Salib was entitled at first to 30% of the net profits and then later to 35% of the net profits of Newport Pacific but had no entitlement to stock or other assets of the company.
Indicia of partnership
229 The definition of partnership in s 1(1) of the Partnership Act 1892 (NSW) is the relation which exists between persons carrying on business in common with a view of profit. Section 2 of the Act sets out various rules to which regard shall be had in determining whether a partnership does or does not exist. Those include the rule that the sharing of gross returns does not of itself create a partnership (2(2)) and that the receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business (2(3)).
230 The intention to make a profit is said to lie "at the very heart" of the partnership relationship, being "the grand characteristic of every partnership, and … the leading feature of nearly every definition of the term" (per Lord Lindley, Mollwo, March & Co v Court of Wards (1872) LR 4 P.C. 419; 17 ER 495, Lindley & Banks on Partnership 18th ed, Sweet & Maxwell, 2002, at [2-07]). That said, the sharing of profits per se does not give rise to a partnership (whether under the Act s 2(3) or at common law - see Lindley LJ (as his Lordship then was) in Badeley v Consolidated Bank (1888) 38 Ch D 238), the sharing of profits is only prima facie evidence of a partnership.
231 At common law, it was the agreement to share profits and losses which was said to be the "characteristic - if not the essence of a partnership contract" Lindley & Banks, at [5-25], citing Lord Lindley's explanation that "…persons engaged in any trade, business, or adventure upon the terms of sharing the profits and losses arising therefrom, are necessarily to some extent partners in that trade, business or adventure". In all cases, however, it is a question of discerning the parties' intentions (In re Young: Ex parte Jones [1896] 2 QB 484).
232 While a profit sharing agreement may point to the existence of a partnership it is not determinative. Mr Simpkins placed reliance in that regard on Wiltshire v Kuenzli (1945) 63 WN (NSW) 47; Television Broadcasters Limited v Ashton's Nominees Pty Limited [No 1] (1979) 22 SASR 552 and noting that whether a partnership exists is a mixed question of fact and law (Momentum Productions Pty Limited v Lewarne [2009] FCAFC 30; (2009) 268 FCR; (2009) 254 ALR 471, at [47]).
233 In determining the characterisation, as a matter of law, of the business relationship between Ms Salib and Mr Gakas between 2000 and 2006 (in the absence of any written agreement defining that relationship), the intention of the parties must be objectively ascertained from their words and conduct. The description that the parties may themselves have placed on their relationship (and even the introduction of Ms Salib to Mr Primerano for example) is not conclusive (Adam v Newbigging (1888) 13 App Cas 308, at 316; Weiner v Harris [1910] 1 KB 285, at 290, Lindley and Banks, at [5-03]). The parties' private intentions are said to be irrelevant in determining this question (Halsbury Laws of Australia, Butterworths, at 305.15). The important question is the substance of the transaction (Canny Gabriel Castle Jackson Advertising Pty Limited v Volume Sales (Finance) (1974) 131 CLR 321, at 327; (1974) 3 ALR 409), having regard to all the circumstances of the relationship.
234 Apart from the "grand characteristic" that there be an enterprise with a view to the sharing of profit (as opposed simply to the sharing of gross returns), various factors have been identified as relevant in cases such as Canny Gabriel Castle v Volume Sales, United Dominion Corporation Limited v Brian [1985] HCA 49; (1985) 157 CLR 1; (1985) 60 ALR 741 and Industrial Equity Limited v Lyons (NSWSC unreported, Cohen J, 15 October 1991). Those factors include how the policy of the business undertaking or commercial enterprise was to be determined; whether there was property held jointly or on trust for the parties; and the contribution made by each of the parties to the responsibility and control of the undertaking. Mr Simpkins submits that, also of relevance, are matters such as the source of funds, control of business and character of the profits received. No one factor is determinative.
235 I consider below the various factors which have been identified by the courts in determining whether, as a matter of law, there is a partnership.
Commercial venture
236 There was clearly a commercial venture in which Kent Newport was engaged. Kent Newport was the entity responsible for the importation and on-sale of the furniture to Harvey Norman and had entered into the financing arrangements (supported by a line of credit arranged through Harvey Norman) for that purpose. While Newport Pacific provided administrative and management services to Kent Newport, in consideration for which Kent Newport transferred to it the whole of its operating profit, there is no suggestion that there was any partnership between those two corporate entities.
237 Both Mr Gakas and Ms Salib played a role in the provision by Newport Pacific of services to Kent Newport. However, Ms Salib was not a director or officer of either company, nor was she a shareholder of either company. The level at which it is said that there was a partnership was between Mr Gakas and Ms Salib. Insofar as Ms Salib says it was agreed between the two of them for the furniture importation business to be conducted through other corporate entities, it is relevant to note that those were entities controlled and operated by Mr Gakas and in the establishment of which she played no part. There seems to have been no commercial impetus for Mr Gakas to offer a partnership in order to secure the services of someone in Ms Salib's position, at least at the outset of the business enterprise, where she was providing no startup capital and had no experience in the furniture industry but was to fulfil a largely administrative role. (While, equally, it might be thought that remuneration based on a percentage of profits would be unusual in such a situation, it might well be that there was perceived to be a business incentive in linking remuneration to profits in the context of a business which was starting up again from a standing base. Certainly, Mr Gakas did not seem to have anticipated that the business would be as successful as it was and may not therefore have anticipated that a profit share would be as lucrative as it was.)
238 The difficulty I have in seeing the business of Kent Newport and/or that of Newport Pacific as part of a joint commercial venture between Ms Salib and Mr Gakas is that Newport Pacific was already an established company (and had carried on business in the importation and wholesale of furniture) for some time prior to the discussions said to have given rise to the partnership and Kent Newport itself seems to have been established (and the financing arrangements agreed) before the time at which Ms Salib says that she had any discussions with Mr Gakas about the alleged partnership or the setting up of the business.
239 On Ms Salib's recollection of the timing of the initial discussions with Mr Gakas (ie late 2000) the arrangements with Harvey Norman had already been put in place by Mr Gakas at that stage (which casts doubt on her version of the conversation as its content is clearly inconsistent with this). Even if her recollection of the timing of the initial discussion was incorrect and the discussion took place in around June 2000, even on her own account it was Mr Gakas who set up the line of credit arrangements with Harvey Norman on his own account (so even if he had initially approached Ms Salib to participate in a joint commercial venture, within a week that need had dissipated and the rationale for a partnership of the kind Ms Salib asserts would seem to have disappeared as well).
240 Thereafter, on both parties' accounts, the arrangements between the two related to the basis on which Ms Salib would provide administrative services to Newport Pacific and the remuneration she would receive for this. Hence it was recognised, quite fairly, by Mr Morahan that there was a possible difficulty for Ms Salib in establishing that the business venture was one to be carried on 'in common' between the two. That said Mr Morahan submits that the facts do establish that there was a single commercial venture in common with a view to profit. He points to Ms Salib's evidence that she was approached by Mr Gakas in relation to her assistance in starting up the business (a matter cast in doubt by the fact that the business was at least in train by the time Ms Salib says she was approached by Mr Gakas) and submits that there is no reason to doubt that Ms Salib offered to put her house up as security for that business. It is said that it is inherently unlikely that the discussions about the setting up of the business were as brief and simple as Mr Gakas' account suggests (and that the speed with which it was agreed that Ms Salib would have a 30% share of net profits is indicative of a partnership).
241 While the evidence of Mr Gakas in this regard could certainly be said to be brief, this would not necessarily be surprising if Mr Gakas (as he says was the case) was simply seeking Ms Salib's assistance in an administrative role (of the kind which she had previously performed for his companies). What does seem to me to be inherently unlikely is the proposition that someone in Ms Salib's position (the sole income earner as she said that she was) would have rushed in to offer (as she says she did) her house (co-owned with her then husband) as security for a business venture of this kind on the basis of so little information as that which Ms Salib says was given to her at the time. Ms Salib's explanation for this seems to be one arrived at with the considerable benefit of hindsight. Even if Ms Salib had been so confident of the success of the proposed business that she was prepared (seemingly without obtaining any professional advice) to offer her house as security for the loan, this does not explain how she could have felt able to do so without seeking her husband's concurrence to the proposal. (The fact that she was the single income earner would not, in the absence of some arrangement, have entitled Ms Salib to commit her husband to a loan security arrangement without his consent, for example.)
242 Mr Simpkins, quite fairly in my view, was critical of Ms Salib's evidence of the initial discussion as having been considerably embellished in the witness box from that which she had given in her first affidavit (and after first having had difficulty recounting the discussion at T 221-223 and T 229.40 - T230.25). So, for example, Mr Simpkins pointed to the evidence given in the witness box by Ms Salib (T 223.39 - 225.5) that the new business would be the 'same set up' as before; that Ms Salib had complained about Mr Gakas' subsequent proposal to take 70% (T 230.44 - T 231.4); that what was discussed was a 2/3:1/3 split not a 70:30 split as Mr Gakas said he had had with his son Darius (T 231.38 - T 232.15; T 232.38-.49; T 232.4 - .35)
243 Most relevantly, it seems to me, is the evidence that Ms Salib gave in the witness box (but not in her affidavit) that there was an express agreement to make up losses (T 94.3 - T 100.45). At T 99.9 - 99.21 Ms Salib said:
He said I will be taking his son's place as part of the partnership setup. So I asked him "does that mean we would share everything, expenses, what have you". He said "yes of course. When you share expenses that means if we do not make any money you will not make any money". I told him, "I'm confident it will work. I have told you I will put my house up and I will mortgage it to do this business." And then I asked him "what are we going to import". He told me he had already been conversing with Harvey Norman, they wanted him to start importing recliners, and that's why he approached me to do it. Even though he had another partner at the time, Tony Atkins, he told me he doesn't want to do business with him. He said "we have worked together before, so I thought I would approach you now that your kids are older you might be able to do it". I said "of course I will".
244 In that regard, one might think that such an important part of any partnership arrangement would have been discussed up front and that if Ms Salib was assuming a liability for 30% of any losses this would have been at the forefront of her mind (not something recalled only much later in the proceedings). In that regard, the evidence given by Ms Salib in relation to the sharing of losses seems largely to reflect a belief on her part that if the business did not make a profit then she would not make any money (which is not the same as a sharing of losses) (see T 94.11/.23 for example). (I note that the draft deed of agreement prepared by Ms Salib's lawyer friend in 2001 made no reference to any sharing of losses.)
245 The business relationship with Harvey Norman was one established and managed by Mr Gakas alone, which ultimately seems to have been a precipitating factor in Ms Salib's decision to leave the business (although it appears that she also had other more personal difficulties in working with Mr Gakas, to which oblique reference was made in his own evidence).
246 I have real doubts as to whether there was a joint commercial venture between Ms Salib and Mr Gakas, as opposed to a commercial venture of Mr Gakas' companies in which Ms Salib was invited to play an administrative or other role. Even had I considered that there was a commercial joint venture in common between the two this would not necessarily have led to a finding of partnership.
247 I note that in UDC v Brian, Mason, Brennan and Deane JJ said (at 10):
The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred . (My emphasis)
248 Therefore, even if there was a joint venture between the parties, the question (as in IEL v Lyons), would be whether the joint venture between the parties in this case is that which would amount in law to a partnership. In IEL v Lyons, Cohen J noted that the phrase "joint venture" (which the parties there had adopted) did not establish any particular form of relationship. In both UDC v Brian and IEL v Lyons it was recognised that there may be a joint venture which does not constitute a partnership.
View of profit
249 Assuming, for present purposes that there was a common enterprise, was it one with a view of profit? Clearly, Ms Salib had an interest in securing a share of the profits of the enterprise. She says she was confident from the start that the business would be a success.
250 However, generally, what is required is more than an agreement to share profits. It is said that it is an agreement to share both profits and losses which is generally of the essence of a partnership contract. Lindley & Banks notes Lord Lindley's explanation for this (at [5-25]):
Whatever difference of opinion there may be as to other matters, persons engaged in any trade, business, or adventure upon the terms of sharing the profit and losses arising therefrom, are necessarily to some extent partners in that trade, business or adventure.
251 Thus it is said that, subject to exceptional cases, persons who agree to share profits and losses will normally find themselves treated as partners (Lindley & Banks, at [5-25]). However, the agreement to share losses must generally extend also to the making good of losses (Lindley & Banks, at [5-27]).
252 It is, of course, not necessary that profits be split 50/50 for there to be a partnership. Therefore the fact that the division of profits was an unequal one would not preclude there being a partnership. However, an arrangement for the receipt of a share of profits will not necessarily be sufficient (see Phillips-Higgins v Harper [1954] 1 QB 411; [1954] 2 All ER 51 in this regard.) Mr Simpkins notes that the payment of a servant or agent of a share of the profits or by way of a share of the profits is one of the exceptions to the prima facie rule regarding the evidence of partnership (Lindley & Banks [5-23]; Halsbury's Laws of Australia, at [305-75] both noting that a worker remunerated by share of profits is not a partner, at least where no partnership is intended).
253 What seems to me to be relevant here is that certain expenses of both parties were excluded from the calculation of profit (in Ms Salib's case she was required to reimburse the company for those expenses having taken a share of gross profit). However, while Ms Salib bore a share of the expenses for the company there is nothing, other than her belated assertion, to suggest that she had any liability for any losses of the business and in that regard (though not necessarily in other matters, such as the lateness of her evidence challenging the receipt documentation) I think it is significant that this evidence emerged only after it must have become apparent to Ms Salib that the sharing of losses was an issue in the proceedings.
Policy of joint venture
254 As to the policy of the joint venture, it is said in Lindley & Banks, at [15-01] that it is inherent in the contract of a partnership that each partner will be remunerated and have the right to participate in the management and administration of the partnership, referring to Hybernia Management & Development Co v Newfoundland Steel Inc (1996) NFLD & PEIR 90, 107 (see also BSP Technical Services Pty Limited v AMEV-UDC Finance Limited (unreported, Hodgson J, 25 March 1985); United Builders Pty Limited v Mutual Acceptance Limited (1980) 144 CLR 673, at 379; (1980) 33 ALR 1; though a right to participate in management can be modified by agreement - s 24(1)(5) of the Act). In Cribb v Korn (1911) 12 CLR 205; [1911] HCA 9, one party's right to direct or control the other was seemingly a relevant factor to take into account.
255 Here, there was evidence as to the respective roles of Ms Salib and Mr Gakas in the business. Significantly, it was Mr Gakas who had sole responsibility and authority (subject to approval from Harvey Norman) for the transfer of funds from Kent Newport to Newport Pacific (and hence was in a position directly to control whether there was in fact any profit available for distribution out of Newport Pacific at any given time.
256 Although it is not inconsistent with the notion of partnership that, just as some partners may have different roles or contributions to make to the partnership, some may have greater responsibility or control over decision making. However, here it is difficult to see Ms Salib as having any decision making role as to matters relating to the underlying commercial venture, let alone the partnership she asserts was in existence with Mr Gakas. Although I do not see this factor as decisive in determining whether there was a partnership (and if so what it comprised), had it been necessary, I would have found that it was Mr Gakas who was the controlling mind, so to speak, of the Newport Pacific business and its commercial venture with Kent Newport and that this was a factor tending against the existence of a partnership between Mr Gakas and Ms Salib.
Property
257 While it is suggested in Lindley & Banks, at [5-32] that it is not necessary that there be joint property for there to be a partnership, the authors nevertheless note that in cases where one person owns property and the other possesses a particular skill and they agree that the latter should have control of the property for their mutual benefit and that they should divide the profits derived from its employment between themselves, it may be no easy task to identify whether or not a partnership has been created. In those cases it is said that "everything will depend on the terms of the parties' agreement and on their underlying intention".
258 That difficulty becomes very evident in this case when the problem is approached from the opposite perspective. If the partnership was, as contended, one between Ms Salib and Mr Gakas, what was the property of the partnership (and what were the assets to which Ms Salib now asserts an entitlement)? The stock was held at all relevant times by Kent Newport and then on-sold by it. Any entitlement to profits out of Kent Newport arose in the form of a claim by Newport Pacific for remuneration for its services (and the arrangement pursuant to which those were provided does not seem to have been reduced to a written agreement). Ms Salib, to all practical intents and purposes, was dependent on Newport Pacific making a claim for remuneration against Kent Newport before there would be any profits in Newport Pacific's hands to which she herself could make any claim. (Therefore, even if there were to be a partnership it is difficult to see that on its dissolution Ms Salib would have anything more than a claim for any profits referable to remuneration earnt but not yet recouped by Newport Pacific.)
Matters relied upon by respective parties