Say-Dee Pty Ltd v Farah Constructions Pty Ltd

Court of Appeal (NSW)|2005-12-21|Before: Palmer J

CITATION: Say-Dee Pty Ltd v Farah Constructions Pty Ltd (No.2) [2005] NSWCA 469

DECISION: (1) ORDER that the appeal be allowed; (2) ORDER that the orders made by Palmer J on 19 August 2004 and 22 November 2004 be set aside; (3) DECLARE that the appellant and the first respondent entered into a partnership (the Partnership) in accordance with an agreement (the Partnership Agreement) for the acquisition, development and resale of No. 11 Deane Street, Burwood (11 Deane Street) as and from 2 April 1998 being the date upon which they contracted by written agreement to purchase that property; (4) DECLARE that the second to sixth respondents hold their respective interests in the properties known as Nos. 13 and 15 Deane Street, Burwood (the Adjoining Properties) upon constructive trust for the Partnership; (5) ORDER that the second to sixth respondents not incur any further liability (except as to interest) to any mortgagee of either or both of the Adjoining Properties beyond that pertaining as at the date of these orders; (6) DECLARE that any liability of the second to sixth respondents to repay any monies borrowed by any of them and secured against either or both of the Adjoining Properties and which have been used otherwise than for the acquisition, maintenance, retention or re-financing of the Adjoining Properties prior to 15 September 2005 shall be the sole responsibility of the borrowing respondent who shall keep the appellant indemnified with respect thereto; (7) ORDER that Brian Silvia and John Melluish, both of Ferrier Hodgson, Chartered Accountants, of Sydney (the Receivers) be appointed as receivers to the properties being Nos. 11, 13 and 15 Deane Street, Burwood (collectively "the Properties") and that legal title to the Properties be vested in them; (8) ORDER that the Receivers have the following powers; (a) to sell the Properties as one lot or in one line unless otherwise advised that they should be sold individually or as two lots in order to maximise the gross sale price of the Properties as a whole; (b) to take possession of, collect and get in the assets (including any book debts) of the Partnership; (c) to take proceedings in any court or other tribunal or forum in the names of the parties and/or the Partnership for the purpose of enforcing payment of the book debts or other rights of action held by them or either of them on behalf of the Partnership with power to institute bankruptcy and winding-up proceedings against debtors and do all things in connection with any bankruptcy or winding up except where the debt is that of the appellant or the first respondent when such proceedings may not be taken until the taking of accounts of the Partnership is complete as hereinafter provided; (d) to employ real estate agents to effect the sale of the Properties and to pay them commission and to outlay all necessary legal fees and disbursements and such other outgoings considered by them to be an essential condition precedent to selling the Properties at auction for the best price obtainable and to fix an appropriate reserve price for the purpose of that sale and, in the event of the Properties not being sold at auction, to sell the same by private treaty. Each of the appellant and the respondents shall have the right to bid at any such auction or to purchase the Properties by private treaty; (e) to engage consultants and to make such applications and to enter into such negotiations with Burwood Municipal Council and such other parties as the Receivers may be advised for the purpose of making and obtaining such development consents and other approvals in relation to the Properties or any of them as are necessary to achieve the maximum price for the Properties on their sale; (f) to appoint solicitors on behalf of the parties to conduct any negotiations in respect of any such applications and draw and settle any documentation in relation thereto and to act on the sale of the Properties; (g) to pay out of the net proceeds of sale of the Properties all such monies as may be required to be paid for the purpose of discharging the present obligations of the Partnership to its various secured and unsecured creditors including any monies owing to the second to sixth respondents to the extent to which they or any of them had funded out of their personal assets the acquisition, retention, maintenance and improvement of the Adjoining Properties or any of them provided however that the obligations of the Partnership to discharge its obligations shall only extend to any costs and expenses reasonably incurred by the third respondent in obtaining Development Consent No. 131/2004 in respect of No. 13 Deane Street, Burwood in the event that the Receivers sell that property as an individual property and are satisfied that the obtaining of that consent has added value thereto for the purpose of its sale; (h) that if so advised to maximise their sale value or if so required by any contract of sale, to take such steps as may be necessary to obtain vacant possession of the Properties or any of them; (i) to invest any money for the time being in their hands on behalf of the Partnership in any mode of investment permitted by law for the investment of trust funds pending the determination of the parties' entitlement to such proceeds; (j) to make interim distributions to the parties; (k) to receive or prepare accounts for the Partnership and the winding up and dissolution thereof including profit and loss statements for the Properties and, if they think fit, to receive and adopt any audited accounts prepared by or on behalf of the respondents or any of them relating to the Properties if independently satisfied that any such accounts constitute a fair and accurate statement of their financial position; (9) ORDER that each party shall within 28 days of the date of these orders deliver up to the Receivers or as they may direct, all assets the subject of the Partnership within their custody, power or possession including all books and records solely relating to any transaction entered into pursuant to the Partnership Agreement or otherwise relating to the Partnership or the Properties together with legible photocopies of all entries relating to any such transaction recorded in any books and records of which such entries only form part; (10) ORDER that upon the sale of the Properties and after the discharge from the net proceeds of their sale of the debts and obligations of the Partnership in accordance with sub-paragraph (g) of Order 8 above, the proceedings be referred to an Associate Judge of the Supreme Court for the taking of accounts of the Partnership between the appellant and the first respondent in order to determine the net profit or loss of the Partnership; (11) ORDER that the Associate Judge to whom this matter is referred shall determine the just allowance, if any, to be made to the second respondent on account of his entrepreneurial skills and efforts in acquiring the Adjoining Properties but, in so determining, the Associate Judge is not to grant a liberal allowance. In determining the amount of any such allowance, the Associate Judge should do so in light of the extent to which the acquisition of the Adjoining Properties has added to the value of 11 Deane Street and in the light of the ultimate net profit which is achieved by the amalgamation of the Properties and their ultimate sale with or without the benefit of any development consent from the Burwood Municipal Council or any such other body empowered to grant such a consent; (12) ORDER that the costs of the referral of the proceedings to the Associate Judge be paid by the first respondent with liberty to that respondent to apply to the Associate Judge for some other or different order depending upon the outcome of his or her inquiry as to the net profit or loss of the Partnership; (13) ORDER that after the determination by the Associate Judge of the net profit or loss generated by the sale of the Properties and the determination by that Judge of the just allowance, if any, to be made to the second respondent on account of his entrepreneurial skills referred to in Order 11 above, the profit or loss of the Partnership be divided between the appellant on the one hand and the first respondent on the other in the following manner; (a) the amount representing the just allowance, if any, determined by the Associate Judge be paid to the second respondent; (b) after deducting that amount, to pay one half of the balance so arrived at to the appellant as its share of the net profit or, if there is a loss, one half of that loss is to be paid by the appellant to the extent necessary to enable the debts of the Partnership to be paid in full; (c) the remaining one half of the said balance be paid to the first respondent as its share of the net profit or, if there is a loss, one half of that loss should be paid by that respondent to the extent necessary to enable the debts of the Partnership to be paid in full; (14) ORDER that the Receivers are entitled to be remunerated so soon as funds are available out of the net proceeds of sale of the Properties in accordance with the scale of fees approved and set by the Insolvents & Practitioners Association Scale of Fees 1997 and, in the absence of such a scale, to such fees as may be agreed and in default of agreement, to a reasonable fee calculated in accordance with the standard charge-out rates of the Receivers and their employees; (15) DECLARE that upon making of the payments referred to in Order 13, the Partnership be thereupon dissolved; (16) LIBERTY to apply to any party in the first instance to Tobias JA in connection with working out of these orders on 48 hours written notice; (17) ORDER that all caveats lodged by or on behalf of any party on the title to the Properties be withdrawn within seven days of the date upon which legal title to the Properties is vested in the Receivers; (18) ORDER that the respondents pay the appellant's costs of the hearing before Palmer J including any reserved costs; (19) ORDER that the respondents pay the appellant's costs of the appeal but to have with respect thereto a certificate under the Suitors' Fund Act 1951, if otherwise qualified; (20) ORDER that Orders 18 and 19 be stayed for 28 days provided that if any of the respondents file an application for special leave to appeal to the High Court of Australia within that period, such stay shall extend without further application to the date of final determination by the High Court of any such application including, if special leave is granted, the determination of any consequent appeal provided that any such application or appeal shall be prosecuted by the appealing respondents with all due expedition, reserving liberty to the appellant to apply to dissolve the said stay on 48 hours written notice; (21) LIBERTY to any party to apply by the filing of a notice of motion supported by such affidavits and submissions as they may be advised to vary Orders 18 and/or 19 to require the costs referred to therein to be paid on an indemnity basis or to be rescinded provided however that any such application must be made within 14 days of the finalisation of the taking of accounts by an Associate Judge pursuant to Order 11 above

Say-Dee Pty Limited PARTIES: Farah Constructions Pty Ltd

A: A Sullivan QC / D Raphael COUNSEL: 1-6R: M Einfeld QC / V Gray

A: Esplins, Solicitors, Sydney SOLICITORS: 1-6R: Strathfield Law, Enfield

LOWER COURT JURISDICTION: Supreme Court - Equity Division

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40780/04

MASON P GILES JA TOBIAS JA

Wednesday 21 December 2005 SAY-DEE PTY LTD v FARAH CONSTRUCTIONS PTY LTD & ORS (NO. 2) Judgment on Orders 1 THE COURT: On 15 September 2005 the Court delivered its substantive judgment in this matter in which it determined that the appeal should be allowed and the orders made by Palmer J on 19 August 2004 and 22 November 2004 be set aside. The parties were directed to bring in draft short minutes of order to reflect the relief referred to in [249], [250] and [257] of the substantive judgment which the Court considered should be granted. 2 The parties prepared short minutes but were unable to agree on all the orders proposed. They were therefore directed to prepare draft short minutes of order setting out where they differed, the orders for which each party contended and the reasons advanced in support thereof. The parties have carried out this exercise and the Court is now in a position to make final orders based on its assessment of the competing versions. 3 The joint draft Short Minutes of Order prepared by the parties contain 22 orders. Of these, 11 are wholly or partially the subject of dispute. We therefore propose to deal shortly with these orders although it should be noted that we have made some amendments to the agreed orders which do not change their substance, but which in our opinion better reflect the Court's intention when indicating the relief to which we considered the appellant was entitled in the substantive judgment. The references that follow are to the paragraphs of the disputed orders in the draft Short Minutes. 4 To understand what follows and, in particular, the terminology adopted in the various declarations and orders, it is convenient to set out what will become Order 3 of the Court's orders, the terms of which were not in dispute: " DECLARE that the appellant and the first respondent entered into a partnership (the Partnership) in accordance with an agreement (the Partnership Agreement) for the acquisition, development and resale of No. 11 Deane Street, Burwood (11 Deane Street) as and from 2 April 1998 being the date upon which they contracted by written agreement to purchase that property." Paragraph 6 5 The appellant seeks the following declaration: "A declaration that the second to sixth respondents hold their respective interests in the properties known as 13 and 15 Deane Street (hereinafter called 'the Adjoining Properties') on constructive trust for the Partnership between the appellant and the first respondent." 6 On the other hand, the second to sixth respondents seek the following declarations in lieu of that sought by the appellant: "A declaration that the second to sixth respondents severally hold their respective interests in the properties known as 13 and 15 Deane Street, Burwood (hereinafter called 'the Adjoining Properties') on constructive trust for the appellant and the first respondent individually under the Partnership Agreement between the appellant and the first respondent for the acquisition and development of 11 Deane Street, Burwood ('the Partnership Agreement'). A declaration that by virtue of the First Respondent and the Appellant contracting to acquire 11 Deane Street in partnership, they stood in a fiduciary position to one another and hold the property at 11 Deane Street Burwood on behalf of the Partnership." 7 The basis upon which the second to sixth respondents advance their version of the declarations is thus a matter of preferred drafting. As to the additional declaration, they submit that the appellant claimed this declaration in its pleaded cross-claim which was the basis of its case upon which it succeeded in the proceedings and should, therefore, be reflected in the formal orders of the Court. 8 We see no necessity to adopt the versions of the declarations sought by the second to sixth respondents and, subject to some minor redrafting, we propose to adopt that of the appellant. Further, we see no necessity for the additional declaration sought by those respondents as it is mere surplusage and is not required to enable the relief in terms of the relief to which the appellant is entitled to be understood. 9 We therefore propose to make the following declaration: " DECLARE that the second to sixth respondents hold their respective interests in the properties known as Nos. 13 and 15 Deane Street, Burwood (the Adjoining Properties) upon constructive trust for the Partnership."

Paragraph 7 10 The appellant seeks the following order: "That the respondents may not incur any liability to the mortgagees of 13 and 15 Deane Street beyond those liabilities pertaining as at the date hereof and interest thereon. To the extent that there is any liability to the mortgagees of 13 or 15 Deane Street, which liability arose out of funding interests of the respondents other than the acquisition and maintenance of 13 and 15 Deane Street, then such liability shall be the responsibility of the respondents solely and they shall be obligated to the partnership to meet such liabilities."

On the other hand, the respondents seek a declaration in the following terms: "A declaration that if there have been any borrowings secured against either of the Adjoining Properties for monies used otherwise than on the acquisition, maintenance, retention or re-financing of the Adjoining Properties, such liability will be the sole liability of the Second to Sixth Respondents." 11 According to the respondents, the difference between the parties is primarily that the respondents wish the Court's orders to make explicit that money secured against Nos. 13 and 15 Deane Street which were expended by the second to sixth respondents on any aspect of the acquisition, maintenance, retention or refinancing of those properties is an obligation automatically and immediately assumed by the Partnership between the appellant and the first respondent. In our opinion, it is appropriate, with amendments, to adopt both versions submitted by the parties with the following result: ORDER that the second to sixth respondents not incur any further liability (except as to interest) to any mortgagee of the Adjoining Properties beyond that pertaining as at the date of these orders. DECLARE that any liability of the second to sixth respondents to repay any monies borrowed by any of them and secured against either or both of the Adjoining Properties and which have been used otherwise than for the acquisition, maintenance, retention or re-financing of the Adjoining Properties prior to 15 September 2005, shall be the sole responsibility of the borrowing respondent who shall keep the appellant indemnified with respect thereto.

Paragraph 8 12 The appellant seeks the following order, which is opposed by the respondents: "That the appellant and the first respondent each make payments for their respective liabilities to the mortgagee of 11 Deane Street so as to remedy the default under that mortgage within fourteen (14) days and to continue to make all their respective repayments under that mortgage as they fall due." 13 The basis of the respondents' opposition to this order is that it was not sought by the appellant in its cross-claim nor litigated at trial and, further, was never part of the case as fought on appeal and, therefore, cannot be included in the orders of the Court. They further submit that if such an order was made and breached, that breach might give rise to liability for contempt of court not only by the first respondent but also, potentially, by its directors. 14 It was further submitted that the Court has no evidence as to the financial position of the first respondent or whether any such court ordered payments could mandate preferential payments to the prejudice of other creditors, the order ought not be made. 15 There was evidence before this Court in the substantive hearing that the mortgage in respect of 11 Deane Street was in default. Given the nature of the general relief to which we consider the appellant is entitled and, in particular, that 11 Deane Street be vested in receivers for the purpose of its sale in conjunction with the Adjoining Properties, it would be unfortunate in the extreme if the mortgage in respect of 11 Deane Street was allowed to continue to be in default in circumstances which may frustrate the implementation of the sale of the Properties in one line as contemplated in the substantive judgment. 16 However, there is substance in the respondents' contentions and, in any event, we doubt that we have the power to make the order sought. If the mortgage continues to be in default to the point where the orderly sale of the Properties by the Receivers is put at risk, it would always be open to the appellant itself to remedy any such default and to obtain reimbursement for any money outlaid in the taking of the accounts of the Partnership.

Paragraph 10(a) 17 Paragraph 10 of the draft Short Minutes provides for the receivers appointed pursuant to paragraph 9 to have a series of powers, some of which are the subject of dispute. The first of those is paragraph 10(a) which empowers the Receivers to sell the Properties as one lot or in one line. The respondents seek to vary that order by empowering the Receivers to sell the Properties individually. This issue also arises with respect to the orders proposed in paragraphs 10(e) and 12 of the draft Short Minutes which empower the Receivers to obtain a development consent from Burwood Council with respect to the Properties if advised that that would increase their value on sale. Although the respondents do not object to the obtaining of such a consent if the Receivers are so advised, they submit that if that advice is not forthcoming and/or the Receivers are advised that in the present state of the market it would be more advisable to sell the properties individually, then they ought to have the flexibility to do so. 18 The appellant opposes that flexibility upon the basis of [249] of the substantive judgment, where the following was said: "Accordingly, receivers should be appointed to obtain a development consent from the Council with respect to the amalgamated site if advised that this would increase its value on sale and it should then be sold in one line." 19 It is clear from the foregoing passage that the Court only intended the Properties to be sold in one line if the Receivers were advised that to do so would maximise their value either with or without a development consent from the Council. A general understanding of the property market would normally lead one to the conclusion that, given the relative narrowness of each of the properties, it is more likely that their value would be enhanced if they are sold in one line or as an amalgamated site. However, ultimately, this must be a matter for the Receivers who are charged with the sale of the Properties in a manner which will achieve the best gross sale price. 20 Accordingly, in our opinion, some flexibility should be written into the orders to ensure that the Receivers have the power to sell the Properties individually if to do so would maximise their gross sale price. In our opinion paragraph 10(a) of the Short Minutes should be in the following terms: "To sell the Properties as one lot or in one line unless otherwise advised that they should be sold individually or as two lots in order to maximise the gross sale price of the Properties as a whole."

Paragraph 10(e) 21 Paragraph 10(e) of the draft Short Minutes is in the following terms: "(e) To employ real estate agents to effect the sale and to pay them commission and to outlay all necessary legal fees and disbursements and such other outgoings considered by them to be an essential condition precedent to selling the properties at auction for the best price obtainable and to fix an appropriate reserve price for the purpose of that sale and, in the event of the property not being sold at auction, for sale by private treaty. Each of the appellant and the respondents to have the right to bid at such auction sale or to buy by private treaty."

The respondents are content with an order in those terms subject to the addition of the following: "and to set off any interest of that party in the net proceeds of sale in diminution of the purchase price." 22 The respondents submit that an order permitting a set off is recognised by s66I(1) of the Conveyancing Act 1919. This is, of course, so but does not advance any justification for its provision. The difficulty with the respondents' proposed amendment is that it is framed too broadly and is unnecessary insofar as other paragraphs such as 10(g) provide for the payment to the respondents of monies owing to them out of the gross proceeds of sale. So far as the first respondent is concerned, the value of its interest in the Partnership will not be determined until an Associate Judge has taken accounts. Accordingly, in our opinion, the addendum to paragraph 10(e) sought by the respondents should be rejected.

Paragraph 10(g) 23 The appellant proposes that the following power be vested in the Receivers: "To pay out of the proceeds of sale and to operate as a first charge on a property after any and all registered mortgages, all such monies as may be required to be paid for the purpose of discharging the present obligations of the partnership to its various secured and unsecured creditors. Indebtedness of either party arising out of that party funding the acquisition of any of 11, 13 or 15 Deane Street, shall for the purposes of this clause be regarded as a present obligation of the partnership and so discharged out of proceeds of sale."

On the other hand, the respondents contend for the following power in lieu of that sought by the appellant: "To pay the joint obligations of the appellant and first respondent arising out of the Partnership Agreement to their various secured and unsecured creditors including forthwith their indebtedness to the Second and Sixth Respondents arising out of the acquisition, retention, development and improvement of the Adjoining Properties including all costs and expenses incurred by Lesmint Pty Ltd in obtaining Development Consent No 131/2004 for 13 Deane Street Burwood." 24 The basis upon which the respondents maintain their version of this power is that as the second to sixth respondents hold their interest in the Adjoining Properties upon constructive trust for the Partnership between the appellant and the first respondent, the appellant, having sought equity must do equity, by immediately paying the second to sixth respondents the appellant's share of the monies invested by those respondents in the acquisition, retention and improvement of those properties. Those monies apparently include the costs and expenses incurred by the third respondent in obtaining a development consent in 2004 from the Council with respect to 13 Deane Street. The respondents further submit that the effect of the appellant's version of paragraph 10(g) would be that the second to sixth respondents who acquired the Adjoining Properties would be required, in effect, to make a loan to the appellant and first respondent on unknown terms for an unknown period of the funds that they originally invested in the acquisition of those properties until such time as they could be repaid on their sale. 25 Although there is no issue that the second to sixth respondents are entitled to be repaid the amount utilised by them out of their personal assets to fund the acquisition of the Adjoining properties, in our view no proper basis exists upon which they should be entitled to repayment of those funds immediately and not be required to wait until the Properties are sold by the receivers. 26 In our view the respondents' contention has no merit. The second to sixth respondents have been held liable to account for any profit or benefit they derived from the acquisition of their respective interests in the Adjoining Properties as a result of the first and second respondents' breach of their fiduciary duties. In these circumstances we see no reason why the appellant should be required to repay any monies owing to the those respondents in respect of the acquisition of the Adjoining Properties merely because they have been declared to hold their interests therein upon constructive trust for the Partnership. 27 At the very least, any obligation to repay those respondents could not extend to the second respondent who himself was in breach of his fiduciary duties; nor should the appellant be required to bear its share of those liabilities without the first respondent being required to do so at the same time. Yet the proposal of the respondents only imposes an immediate obligation for repayment upon the appellant. 28 In our view paragraph 10(g) should be in the following terms: "To pay out of the net proceeds of sale of the Properties all such monies as may be required to be paid for the purpose of discharging the present obligations of the Partnership to its various secured and unsecured creditors including any monies owing to the second to sixth respondents to the extent to which they or any of them have funded out of their personal assets the acquisition, retention, maintenance and improvement of the Adjoining Properties or any of them provided however that the obligations of the partnership to discharge its obligations shall only extend to any costs and expenses reasonably incurred by the third respondent in obtaining Development Consent No. 131/2004 in respect of No 13 Deane Street, Burwood in the event that the receivers sell that property as an individual property and are satisfied that the obtaining of any such consent has added value thereto for the purpose of its sale."

Paragraph 10(h) 29 The appellant contends that this power of the Receivers should be in the following terms: "To take such steps as are necessary to obtain vacant possession of the Properties."

The respondents on the other hand submit that that power should be more flexible: "If so advised to maximise the sale value or if so required by any contract of sale, to take such steps as are necessary to obtain vacant possession of the Properties." 30 In our opinion it is appropriate in the circumstances that the proposal of the respondents be adopted rather than that suggested by the appellant.

Paragraph 10(k) 31 The respondents submit that the following further power should be vested in the Receivers: "(k) To receive or prepare accounts for the said partnership and the winding up and dissolution thereof including profit and loss statements for the Properties or to receive audited reports thereof." 32 The basis for adding this power is that, apparently, the respondents have obtained audited accounts with respect to the Properties for the period of their ownership thereof and see no reason why the Receivers should not be empowered to receive and adopt those accounts. The appellant has no objection to the addition of this power provided it has the opportunity to object to the Receiver adopting the accounts if they do not, in its view, reflect a fair and accurate statement of the financial position with respect to the Properties. 33 In our view it is appropriate to add this power but so as to ensure that the Receivers have a discretion as to whether or not to adopt any audited accounts prepared on behalf of the respondents. We therefore propose the following additional sub-paragraph: "(k) To receive or prepare accounts for the Partnership in the winding up and dissolution thereof including profit and loss statements for the Properties and, if the Receivers think fit, to receive and adopt any audited accounts prepared by or on behalf of the respondents or any of them relating to the Properties if independently satisfied that any such accounts represent a fair and accurate statement of their financial position."

Paragraph 11 34 The appellant submits that the following order should be made, namely, "That each party shall deliver up all partnership assets including any books and records recording any transaction of the partnership in their custody, possession, control or power to the receiver or as he may direct within fourteen (14) days of the making of this order."

On the other hand, the respondents contended for the following alternative order: "Each party shall within 14 days of this order deliver up to the Receivers or as they may direct, all assets subject to the Partnership Agreement within their custody, power or possession including any or legible copies of any books and records recording any transaction entered into pursuant to the Partnership Agreement or otherwise relating to the Partnership or the Properties." 35 The basis of the respondents' alternative order is that transactions relating to the Adjoining Properties have been recorded in the respondents' business books and records which include business interests other than those related to those properties. There is substance in this submission as a consequence whereof the Court will make the following order: "11. ORDER that each party shall within 28 days of the date of these orders deliver up to the Receivers or as they may direct all assets the subject of the Partnership within their custody, power or possession including all books and records solely relating to any transaction entered into pursuant to the Partnership Agreement or otherwise relating to the Partnership or the Properties together with legible photocopies of all entries relating to any such transaction recorded in any books and records of which such entries only form part."

Paragraph 12 36 The appellant proposes the following order: "That the Receivers are to obtain a development consent from Burwood Council or such other Governmental or regulatory body who may grant such a development consent with respect to the amalgamated site comprising 11, 13 and 15 Deane Street if advised that this would increase its value on sale and the amalgamated site should then be sold in one line."

On the other hand, the respondents propose the following alternative order: "If the Receivers be advised that obtaining a development consent from Burwood Council or such other Governmental or regulatory body as may grant such a development consent with respect to the Properties or any part or parts thereof would be likely materially to increase the maximum development potential then the Receivers are empowered to apply for any such development consent and to sell the amalgamated site or any part or parts thereof with the benefit of any such development consent." 37 In our opinion, neither of these orders is appropriate in that each is repetitive of Order 8(e).

Paragraph 13 38 The appellant proposes the following order relating to the referral to an Associate Judge to take account of the Partnership: "Upon the sale of the amalgamated site (constituted by the three properties 11, 13 and 15 Deane Street, Burwood) in one line and after the discharge of the mortgages, if any, upon the properties, order that there be a referral to an Associate Judge for the taking of accounts between the parties in order to determine the net profit generated by the sale."

On the other hand, the respondents propose the following alternative order: "Upon the sale of the Properties and after the discharge of the debts and obligations of the Appellant and the First Respondent arising under the Partnership Agreement, these proceedings be referred to an Associate Judge for the taking of accounts of the Partnership between the Appellant and the First Respondent in order to determine the net profit or loss of the Partnership." 39 Although there is some difference in substance between these two versions, we nevertheless propose to adopt that of the respondents, appropriately amended to read as follows: "ORDER that upon the sale of the Properties and after the discharge from the net proceeds of sale thereof the debts and obligations of the Partnership in accordance with sub-paragraph (g) of Order 8 above, the proceedings be referred to an Associate Judge of the Supreme Court for the taking of accounts of the Partnership between the appellant and the first respondent in order to determine the net profit or loss of the Partnership."

Paragraph 15 40 This paragraph deals with the costs of the referral of the proceedings to an Associate Judge. The appellant seeks an order that those costs be paid by the first respondent whereas the respondents seek an order that those costs be reserved. In our view, the appropriate order is as follows: "ORDER that the costs of the referral of the proceedings to the Associate Judge be paid by the first respondent with liberty to that party to apply to the Associate Judge for some other or different order depending upon the outcome of his or her inquiry as to the net profit or loss of the Partnership."

Paragraph 18 41 The appellant seeks a declaration that the Partnership be dissolved upon the finalisation of the taking of accounts and the distribution of the profits, if any, thereof. On the other hand, the respondents seek a declaration that the Partnership was dissolved on 19 March 2003 being the date upon which the appellant instituted proceedings wherein a declaration was sought that the Partnership had been dissolved. They rely on s32(b) and (c) of the Partnership Act 1992. The appellant contends that the rights and obligations of the Partners should continue until such time as the Partnership is wound up and accounts have been taken. 42 In our opinion s32(b) of the Partnership Act has not been satisfied in that the original Partnership undertaking of the development and resale of 11 Deane Street has not terminated. Nor, in the circumstances, do we consider that any relevant notice has been given pursuant to s32(c). None is referred to in the respondents' submissions. 43 In our opinion an order should be made along the lines of that proposed by the appellant, namely, "ORDER that upon the making of the payments referred to in Order 13, the Partnership be thereupon dissolved."

Paragraph 20 44 The appellant accepts that paragraphs 2 and 4 in the draft Short Minutes pursuant to which the respondents are to pay the appellant's costs of the appeal and the hearing at first instance should be stayed for 28 days. The respondents submit that that stay should be extended automatically in the event that an application for special leave to appeal is filed with the High Court until the date of the final determination of that application and any consequent appeal. 45 Having accepted that the costs order should be stayed for a period to enable an application to be made to the High Court for special leave to appeal, we see no reason why that stay should not be continued in the event that the High Court grants special leave provided that any such application for special leave and consequent appeal is pursued with expedition. Accordingly, liberty to apply should be granted to the appellant to have the stay dissolved if circumstances warrant. Accordingly, we would be prepared to make the following order: "ORDER that Orders 18 and 19 be stayed for 28 days provided that if any of the respondents file an application for special leave to appeal to the High Court of Australia within that period, such stay shall extend without further application to the date of final determination by the High Court of any such application including, if special leave is granted, the determination of any consequent appeal provided that any such application or appeal shall be prosecuted by the appealing respondents with all due expedition, reserving liberty to the appellant to apply to dissolve the said stay on 48 hours written notice."

Paragraph 22 46 The respondent seeks an order that leave be reserved to them to apply to rescind any of the orders for costs proposed to be made in this matter. We have accommodated this request in Order 21.

Application for indemnity costs 47 The appellant seeks an order that the respondents pay its costs of the appeal and of the hearing at first instance on an indemnity basis. Such an application is made on the basis of Calderbank offers made to the respondents to settle the proceedings on terms that are allegedly more favourable to the respondents than the result which the appellant has achieved on the appeal. This application is opposed by the respondents on the basis that, firstly, such an application was not foreshadowed during the course of the hearing of the appeal; secondly, the respondents would wish to file additional evidence and submissions relating to any such application; and thirdly, as no one yet knows the financial outcome of the Proceedings until the properties are sold and accounts are taken, it is conceivable that financial offers previously made by the respondents to the appellant but rejected, may prove more advantageous to the appellant than the ultimate financial result of the orders to be made by the Court on the appeal. 48 The respondents therefore submit that the orders for costs of the appeal and the proceedings at first instance should be made on the ordinary basis in favour of the appellant, but with liberty to any of the parties to make application for those costs to be paid on an indemnity basis or rescinded when the ultimate financial consequences of the Court's orders are known. 49 In our opinion the respondents' submissions have merit and we would decline to make any orders with respect to indemnity costs at this point of time. When the ultimate financial outcome of the proceedings are known, the parties will have liberty to apply upon the filing of evidence and submissions for a variation or rescission of the cost orders that we propose to make. Such liberty to apply will be accommodated in Order 21.

Conclusion 50 In light of the foregoing, the Court makes the following orders and declarations: (1) ORDER that the appeal be allowed. (2) ORDER that the orders made by Palmer J on 19 August 2004 and 22 November 2004 be set aside. (3) DECLARE that the appellant and the first respondent entered into a partnership (the Partnership) in accordance with an agreement (the Partnership Agreement) for the acquisition, development and resale of No. 11 Deane Street, Burwood (11 Deane Street) as and from 2 April 1998 being the date upon which they contracted by written agreement to purchase that property. (4) DECLARE that the second to sixth respondents hold their respective interests in the properties known as Nos. 13 and 15 Deane Street, Burwood (the Adjoining Properties) upon constructive trust for the Partnership. (5) ORDER that the second to sixth respondents not incur any further liability (except as to interest) to any mortgagee of either or both of the Adjoining Properties beyond that pertaining as at the date of these orders. (6) DECLARE that any liability of the second to sixth respondents to repay any monies borrowed by any of them and secured against either or both of the Adjoining Properties and which have been used otherwise than for the acquisition, maintenance, retention or re-financing of the Adjoining Properties prior to 15 September 2005 shall be the sole responsibility of the borrowing respondent who shall keep the appellant indemnified with respect thereto.

(7) ORDER that Brian Silvia and John Melluish, both of Ferrier Hodgson, Chartered Accountants, of Sydney (the Receivers) be appointed as receivers to the properties being Nos. 11, 13 and 15 Deane Street, Burwood (collectively "the Properties") and that legal title to the Properties be vested in them. (8) ORDER that the Receivers have the following powers: (a) to sell the Properties as one lot or in one line unless otherwise advised that they should be sold individually or as two lots in order to maximise the gross sale price of the Properties as a whole; (b) to take possession of, collect and get in the assets (including any book debts) of the Partnership; (c) to take proceedings in any court or other tribunal or forum in the names of the parties and/or the Partnership for the purpose of enforcing payment of the book debts or other rights of action held by them or either of them on behalf of the Partnership with power to institute bankruptcy and winding-up proceedings against debtors and do all things in connection with any bankruptcy or winding up except where the debt is that of the appellant or the first respondent when such proceedings may not be taken until the taking of accounts of the Partnership is complete as hereinafter provided; (d) to employ real estate agents to effect the sale of the Properties and to pay them commission and to outlay all necessary legal fees and disbursements and such other outgoings considered by them to be an essential condition precedent to selling the Properties at auction for the best price obtainable and to fix an appropriate reserve price for the purpose of that sale and, in the event of the Properties not being sold at auction, to sell the same by private treaty. Each of the appellant and the respondents shall have the right to bid at any such auction or to purchase the Properties by private treaty; (e) to engage consultants and to make such applications and to enter into such negotiations with Burwood Municipal Council and such other parties as the Receivers may be advised for the purpose of making and obtaining such development consents and other approvals in relation to the Properties or any of them as are necessary to achieve the maximum price for the Properties on their sale; (f) to appoint solicitors on behalf of the parties to conduct any negotiations in respect of any such applications and draw and settle any documentation in relation thereto and to act on the sale of the Properties; (g) to pay out of the net proceeds of sale of the Properties all such monies as may be required to be paid for the purpose of discharging the present obligations of the Partnership to its various secured and unsecured creditors including any monies owing to the second to sixth respondents to the extent to which they or any of them had funded out of their personal assets the acquisition, retention, maintenance and improvement of the Adjoining Properties or any of them provided however that the obligations of the Partnership to discharge its obligations shall only extend to any costs and expenses reasonably incurred by the third respondent in obtaining Development Consent No. 131/2004 in respect of No. 13 Deane Street, Burwood in the event that the Receivers sell that property as an individual property and are satisfied that the obtaining of that consent has added value thereto for the purpose of its sale; (h) that if so advised to maximise their sale value or if so required by any contract of sale, to take such steps as may be necessary to obtain vacant possession of the Properties or any of them; (i) to invest any money for the time being in their hands on behalf of the Partnership in any mode of investment permitted by law for the investment of trust funds pending the determination of the parties' entitlement to such proceeds; (j) to make interim distributions to the parties; (k) to receive or prepare accounts for the Partnership and the winding up and dissolution thereof including profit and loss statements for the Properties and, if they think fit, to receive and adopt any audited accounts prepared by or on behalf of the respondents or any of them relating to the Properties if independently satisfied that any such accounts constitute a fair and accurate statement of their financial position. (9) ORDER that each party shall within 28 days of the date of these orders deliver up to the Receivers or as they may direct, all assets the subject of the Partnership within their custody, power or possession including all books and records solely relating to any transaction entered into pursuant to the Partnership Agreement or otherwise relating to the Partnership or the Properties together with legible photocopies of all entries relating to any such transaction recorded in any books and records of which such entries only form part. (10) ORDER that upon the sale of the Properties and after the discharge from the net proceeds of their sale of the debts and obligations of the Partnership in accordance with sub-paragraph (g) of Order 8 above, the proceedings be referred to an Associate Judge of the Supreme Court for the taking of accounts of the Partnership between the appellant and the first respondent in order to determine the net profit or loss of the Partnership. (11) ORDER that the Associate Judge to whom this matter is referred shall determine the just allowance, if any, to be made to the second respondent on account of his entrepreneurial skills and efforts in acquiring the Adjoining Properties but, in so determining, the Associate Judge is not to grant a liberal allowance. In determining the amount of any such allowance, the Associate Judge should do so in light of the extent to which the acquisition of the Adjoining Properties has added to the value of 11 Deane Street and in the light of the ultimate net profit which is achieved by the amalgamation of the Properties and their ultimate sale with or without the benefit of any development consent from the Burwood Municipal Council or any such other body empowered to grant such a consent. (12) ORDER that the costs of the referral of the proceedings to the Associate Judge be paid by the first respondent with liberty to that respondent to apply to the Associate Judge for some other or different order depending upon the outcome of his or her inquiry as to the net profit or loss of the Partnership. (13) ORDER that after the determination by the Associate Judge of the net profit or loss generated by the sale of the Properties and the determination by that Judge of the just allowance, if any, to be made to the second respondent on account of his entrepreneurial skills referred to in Order 11 above, the profit or loss of the Partnership be divided between the appellant on the one hand and the first respondent on the other in the following manner:

(a) the amount representing the just allowance, if any, determined by the Associate Judge be paid to the second respondent;

(b) after deducting that amount, to pay one half of the balance so arrived at to the appellant as its share of the net profit or, if there is a loss, one half of that loss is to be paid by the appellant to the extent necessary to enable the debts of the Partnership to be paid in full; (c) the remaining one half of the said balance be paid to the first respondent as its share of the net profit or, if there is a loss, one half of that loss should be paid by that respondent to the extent necessary to enable the debts of the Partnership to be paid in full. (14) ORDER that the Receivers are entitled to be remunerated so soon as funds are available out of the net proceeds of sale of the Properties in accordance with the scale of fees approved and set by the Insolvents & Practitioners Association Scale of Fees 1997 and, in the absence of such a scale, to such fees as may be agreed and in default of agreement, to a reasonable fee calculated in accordance with the standard charge-out rates of the Receivers and their employees. (15) DECLARE that upon making of the payments referred to in Order 13, the Partnership be thereupon dissolved. (16) LIBERTY to apply to any party in the first instance to Tobias JA in connection with working out of these orders on 48 hours written notice. (17) ORDER that all caveats lodged by or on behalf of any party on the title to the Properties be withdrawn within seven days of the date upon which legal title to the Properties is vested in the Receivers. (18) ORDER that the respondents pay the appellant's costs of the hearing before Palmer J including any reserved costs. (19) ORDER that the respondents pay the appellant's costs of the appeal but to have with respect thereto a certificate under the Suitors' Fund Act 1951, if otherwise qualified. (20) ORDER that Orders 18 and 19 be stayed for 28 days provided that if any of the respondents file an application for special leave to appeal to the High Court of Australia within that period, such stay shall extend without further application to the date of final determination by the High Court of any such application including, if special leave is granted, the determination of any consequent appeal provided that any such application or appeal shall be prosecuted by the appealing respondents with all due expedition, reserving liberty to the appellant to apply to dissolve the said stay on 48 hours written notice.

(21) LIBERTY to any party to apply by the filing of a notice of motion supported by such affidavits and submissions as they may be advised to vary Orders 18 and/or 19 to require the costs referred to therein to be paid on an indemnity basis or to be rescinded provided however that any such application must be made within 14 days of the finalisation of the taking of accounts by an Associate Judge pursuant to Order 11 above. **********

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At a glance

Court

Decision date

Before

Source

Judgment (37 paragraphs)

Parties