Sharma v Segal [2020] NSWDC 121 | Case summary

District Court of NSW|2020-03-26|Before: Hammerschlag J

Introduction

These proceedings involve litigation arising from earlier litigation between the same parties. Robert Fripp once said: "Being a professional musician doesn't mean that you spend 12 hours a day playing music. It means you spend up to 12 hours a day taking care of business, dealing with litigation, with the various characters who've stolen your interests, or fending off hostile law suits from former members of the band."
While Mr Fripp was speaking of his time as a member of King Crimson, similar thoughts have probably occurred to some, if not all, of those involved in this litigation.
The plaintiff Dr Sharma and the first defendant Dr Segal are specialist radiologists who were in practice together. In 2017 they were opponents in litigation conducted in the Supreme Court of NSW. That case was heard by Justice Hammerschlag in one day. Dr Sharma lost the case and Dr Segal and Mrs Segal won it - Sharma v Segal and Chen [2017] NSWSC 867. Dr Sharma was later ordered to pay costs to Dr Segal and Ms Segal - Sharma v Segal and Chen [2017] NSWSC 973. Those costs were initially assessed at $465,766.63.
Dr Sharma paid that amount to the defendants. The costs payable by Dr Sharma were later reduced on review to $361,227.16. That figure was later amended to $348,862.36. The difference between the costs as initially assessed and the costs finally determined on review is the amount of $116,904.27. Dr Sharma sues in these proceedings to recover that amount from Dr Segal and Mrs Segal. That claim is defended on the basis of accord and satisfaction.
Dr Segal, but not Mrs Segal, has brought a cross-claim against Dr Sharma arising from the assignment of a debt said to be owing by Dr Sharma to South West Radiology Pty Limited (the second cross-defendant). Dr Sharma has defended that cross-claim.
In between litigating in the Supreme Court and coming to trial in this court, the two doctors have also had a trip to the Local Court, in relation to the costs of the Review ordered by the Reviewers.

Dr Sharma's Case - The Issues

There is no dispute on the facts that Dr Sharma has paid an amount of $116,904.27 to Dr Segal and Mrs Segal, over and above the final amount which he was obliged to pay to them for the costs of the Supreme Court proceedings. Dr Sharma's case is that this amount should have been repaid to him on 17 October 2018. Interest is claimed from this date.
The only issue for determination on Dr Sharma's claim is whether the defendants have a defence of accord and satisfaction.

Dr Sharma's Case - The Evidence

The evidence in support of Dr Sharma's case is to be found in the affidavit of his solicitor Mr Carney dated 30 April 2019 (PX 1) and in the first affidavit of Dr Segal dated 10 June 2019 (DX 1). An affidavit was sworn by Dr Sharma and was included in the Court Book, however that affidavit was not read and did not become evidence in the case.
Mr Carney acted for Dr Sharma in the proceedings in the Supreme Court, which involved three radiologists - Dr Sharma, Dr Segal and Dr Chen. They were the principals of a radiology practice which operated in Campbelltown, Liverpool and Moorebank under the business name South West Radiology. The three radiologists fell out, leading to the Supreme Court proceedings.
As previously recited, on 21 July 2017 the Supreme Court ordered Dr Sharma to pay the costs of the proceedings of Dr Segal and Mrs Segal. On 31 October 2017 Dr Segal and Mrs Segal served an application for assessment of ordered costs on Dr Sharma. On 27 November 2017 the Application for Assessment of Ordered Costs was filed in the Supreme Court and assigned to a costs assessor Mr John Eades.
On 28 February 2018 Mr Eades assessed the costs of Dr Segal and Mrs Segal in the amount of $465,766.63, including interest of $18,781.98. A Certificate of Determination of Costs dated 28 February 2018 was forwarded to the parties on 20 March 2018.
On 29 March 2018 Dr Sharma procured the issue of a bank cheque in the sum of $465,766.63 in favour of Dr Segal and Mrs Segal. He instructed Mr Carney to send the cheque to Clayton Utz, the solicitors for Dr Segal and Mrs Segal.
Mr Carney's covering letter said: "We refer to the Certificate of Determination of Costs dated 20 March 2018 and enclose bank cheque in favour of your clients in the sum of $465,756.63 [sic] in full payment of the amount determined to be due to your clients." [Emphasis added]
On 5 April 2018 Clayton Utz wrote to Mr Eades seeking a review of the amount to be determined in the Certificate as there had been a mathematical error in calculation. On 12 April 2018 Carneys Lawyers wrote to Mr Eades to object to any amendment of the Certificate of Determination. In their letter, Carneys said: "The Cost Respondents have paid the full amount determined to be due in your Certificate of Determination."
On 18 April 2018 Mr Eades sent to the parties a revised Certificate of Determination of Costs in the amount of $499,680.68.
On 24 April 2018 Clayton Utz wrote to Carneys Lawyers advising them inter alia that the cheque had not been banked as it was not in full payment of the amount owing to Dr Segal and Mrs Segal, as it did not include $2,630.83 for interest from 28 February 2018. Clayton Utz said that as a result of the revised Certificate of Determination of Costs, Dr Segal and Mrs Segal would accept a cheque made payable to Clayton Utz Trust Account in the amount of $502,311.52 "in full and final satisfaction" of the amended Certificate.
Dr Sharma did not pay this increased amount. On 11 May 2018 Dr Segal and Mrs Segal opened a joint bank account and deposited the bank cheque for $465,766.63.
On 14 May 2018 Dr Sharma filed an Application for Review of Determination of a Costs Assessor. On 11 September 2018 the Review Panel issued a Certificate of Determination of Review reducing the amount payable by Dr Sharma to $361,277.16.
By letter dated 26 September 2018 Carneys wrote to the Manager, Costs Assessment to advise that there had been an inadvertent error in the calculation of the amount owing by his clients. On 19 October 2018 the Review Panel issued an Amended Certificate of Determination of Review reducing the amount payable by Dr Sharma from $361,277.16 to $348,862.36.
In these proceedings Dr Sharma sues Dr Segal and Mrs Segal for the difference between the amount he paid as determined in the original costs assessment, and the reduced amount found due by the Review Panel.
The defence raised to that claim is essentially a defence of accord and satisfaction. The defendants plead that the amount paid by Dr Sharma "was not the amount of the costs order but was an amount offered by the plaintiff in settlement of his liability to the first and second defendants which offer was accepted".
For the defence of accord and satisfaction to succeed the defendants must establish that there has been a binding agreement to resolve a claim by payment and acceptance of money. The question is whether the parties entered into a binding agreement under which the payee agreed to take the payer's cheque in satisfaction of its existing claim - McDermott v Black [1940] HCA 4; (1940) 63 CLR 161 at 183-184.
Whether an agreement has been entered into is to be objectively assessed. The objective theory of contract requires an external manifestation of assent to an offer. Whether there has been such an assent turns on whether a reasonable bystander would regard the conduct of the offeree as signalling to the offeror that their offer has been accepted - Empirnall Holdings Pty Limited v Machon Paull Partners Pty Limited (1988) 14 NSWLR 523 at 534-5.

Consideration of the accord and satisfaction defence

I make the following findings of fact in relation to the actions of the parties and the defence of accord and satisfaction: 1. On 20 March 2018 the certificate of the assessor determining costs in the amount of $465,766.63 was sent to the parties. 2. This amount was paid in full on 29 March 2018 by way of a bank cheque in favour of the defendants. 3. The covering letter with that bank cheque said that the payment was made "in full payment of the amount determined to be due to your clients". 4. This phrase in the covering letter can only be a reference to the Certificate of Determination of Costs. The bank cheque was for precisely the amount determined by that certificate to be due by Dr Sharma to Dr Segal and Mrs Segal. 5. There is nothing arising from the payment of the amount determined to be due, and the terms of the covering letter, which would suggest either that there was a dispute or negotiations on foot between the parties as to the amount due, or that the amount of the bank cheque was being offered in satisfaction or compromise of such dispute. The language of the covering letter conveys clearly that the amount was being paid under compulsion of a determination made by the costs assessor. 6. The actions of the defendants on 5 April 2018, seeking amendments to the Certificate of Determination, are inconsistent with there being a concluded agreement between the parties, and an accord and satisfaction. 7. The demand made on 24 April 2018 by the defendants' solicitors for an increased amount is also completely inconsistent with the notion that there had already been an accord and satisfaction reached between the parties by payment and acceptance of the bank cheque. 8. When Dr Sharma sought a review of the initial costs assessment, no point was raised by the defendants that there was really nothing to be reviewed because the parties had reached an accord and satisfaction as to the amount due for costs.
I find that the defence of accord and satisfaction raised by the defendants is not made out and Dr Sharma will be entitled to a judgment on his own claim against the defendants as sought, subject to matters arising under the cross-claim which are dealt with below.

Dr Segal's Set-Off and Cross-Claim - The Issue

The issue raised by Dr Sharma in response to the matters pleaded in the Set-Off and Cross-Claim is that he has no liability to Dr Sharma because: 1. Clause 3, of the Deed, including cl 3.9, has no application because the Deed was terminated well before the 2018 financial year. 2. Clause 3.9 did not impose any obligation on Dr Sharma. 3. Accounts for the purpose of cl 3.9 are accounts prepared consistently with the rest of cl 3, including cl 3.8. Accounts so prepared would not show a loss. 4. Accounts for the purpose of cl 3.9 must be accounts prepared and audited consistently with the Trust Deed. The FY2018 accounts are not audited.

15 December 2012 - Trust Deed

On 15 December 2012 a Trust Deed was executed between Yvette Maria Do Rozario, as the Founder, and South West Radiology Pty Limited (SWR), as the Trustee. The name of the trust established was the SWR Holding Unit Trust (SWR Trust). The Trust Deed was executed by Ms Do Rozario as the Founder and was executed for and on behalf of SWR by Dr Segal and Dr Sharma as directors of that company.
The ownership of units in the SWR Trust was set out in a Schedule to the Trust Deed. The registered holders of units were as follows: (1) Melita Segal 960 units (2) Praneal Sharma Pty Limited 960 units (3) Rosalina Chen 480 units

The units were thus owned by the family trusts of Drs Segal, Sharma and Chen in the following proportions: (1) Dr Segal's family trust 40% (2) Dr Sharma's family trust 40% (3) Dr Chen's family trust 20%

To deal with an argument raised by Dr Sharma, I record that cl 21 of the Trust Deed is as follows: "21. STATEMENTS OF ACCOUNT AND AUDIT 21.1 The Trustee shall keep a complete and accurate record of all receipts and expenditures on account of the Trust Fund. 21.2 Promptly after the close of each Accounting Period the Trustee shall prepare a written accounting report (prepared in accordance with normally accepted accounting procedures) for such period consisting of a balance sheet and statement of income and expenditure and a list of assets held at the close of such year and a copy thereof shall be furnished upon request to the Unit Holders. 21.3 The Trustee shall appoint as Auditor [INSERT 7 - KANTILAL RATANSHI GOKANI] or such other Auditor as the Unit Holders may have majority consent to [sic] in writing to examine and ascertain the correctness of the accounts of the Trust Fund."

15 December 2012 - Deed of Variation of Trust

A Deed of Variation of Trust (DX 4) was executed on 15 December 2012. The variations were: 1. The name of the holder of units belonging to the Dr Sharma's family trust was changed from "Praneal Sharma Pty Ltd " to "Praneal Sharma & Associates Pty Ltd "; 2. The name of the holder of units belonging to the Dr Chen's family trust was changed from "Rosalina Chen Trust A/c> " to " Yanyi Pty Ltd Trust A/c> " .

18 April 2013 - Deed Of Agreement Commercial Arrangements

On 18 April 2013 a Deed Of Agreement Commercial Arrangements (Deed) (DX 2, p 182) was executed between "Phillip Segal & Related Entities" and "Praneal Dutt Sharma & Related Entities" and "Greg Chen & Related Entities".
The related entity of Dr Segal was Melita Segal which was referred to in the Deed as "Segal Trust". The related entity of Dr Sharma was Praneal Sharma & Associates Pty Limited which was referred to as "Sharma Trust". The related entity of Dr Chen was Yanyi Pty Limited which was referred to as "Chen Trust".
The Deed was also executed by SWR, referred to in the Trust Deed as the "Company". I will continue to refer to it as SWR. The Deed was also executed by SWR Pty Limited (a different company to SWR) and by Park Central Radiology Pty Limited, known as "PCR".
The recitals to the Deed say that Dr Sharma and Dr Segal had owned and operated radiology clinics for about nine years. PCR leased equipment and ran a radiology business at 4 Hyde Parade, Campbelltown. SWR Pty Limited leased equipment and ran a radiology business located at 51 Goulburn Street, Liverpool. The Segal Group (defined as Dr Segal and Segal Trust) and the Sharma Group (defined as Dr Sharma and Sharma Trust) beneficially equally owned SWR, SWR Pty Limited and PCR. Dr Chen had worked for SWR Pty Limited and PCR for about three years.
In February 2012 Dr Sharma and Dr Segal made an offer to Dr Chen for him to purchase a one-fifth share of the business managed and owned by SWR Pty Limited and PCR. The parties reached an agreement that the SWR Trust (referred to in the Deed as "NewTrust") would be formed and that SWR would be the corporate trustee of NewTrust. The Chen Group was paying $1,000,000 to NewTrust and was to receive one-fifth of all units in NewTrust. NewTrust would have assigned to it all of the assets, rights and benefits associated with SWR Pty Limited and PCR which involved the operation, equipment and goodwill of the radiology clinics at Campbelltown and Liverpool.
The intended ultimate effect was that the $1,000,000 paid by the Chen Group would be distributed to SWR Pty Limited and PCR, so that the Chen Group thereafter owned a one-fifth share in the businesses at both Liverpool and Campbelltown. The purpose of the deed was to detail the agreement reached between the parties. This is the expressed commercial purpose of the Deed, a matter dealt with in more detail below when considering the parties' submissions about construction of the Deed.
Clause 1.1 of the Deed set out the definitions applicable in the Deed. It defined the "Segal Group" to mean Dr Segal and Segal Trust. It defined the "Sharma Group" to mean Dr Sharma and the Sharma Trust.
A number of documents were listed as "Transaction Documents". One of those was the Trust Deed for the SWR Trust.
Clause 1.2.11 provided that: "This Agreement is interdependent and to be signed simultaneously with the Transaction Documents. If necessary, interpretation of this Agreement is to have regard to the commercial arrangements recorded in all the Transaction Documents."
Some of the difficulties in interpreting the Deed arise from cll 1.2.3, 1.2.4 and 1.2.5. Clause 1.2.3 reads: "All references to Dr Segal shall be deemed mutatis mutandis to include a reference to any, some or all of the entities in the Segal Group and Dr Segal shall be deemed to have been given appropriate authority to act on behalf of any, some or all of the entities in the Segal Group as necessary to give effect to this Agreement."
"Mutatis mutandis" is a Latin phrase beloved of lawyers, but in this case not a phrase which adds clarity. It means "by changing those things which need to be changed".
The LexisNexis Concise Australian Legal Dictionary 5th edition defines the phrase as follows: "[W]hen the appropriate changes have been made. Used when applying a principle or rule which needs modification to fit a new set of facts. For example, 'the reasoning given in the counter-claim applies mutatis mutandis to the defence'."
The most detailed consideration of the meaning of the phrase which I have found is the decision of Justice Robb in Jaeger v Bowden (No 2) [2016] NSWSC 897 where his Honour said: "518. The meaning of the expression "mutatis mutandis" in a legal context was considered by Cohen J in Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379, where his Honour said at 382, 383: '... There is very little law as to the extent of the meaning of the phrase "mutatis mutandis". Jowitt's Dictionary of English Law defines the phrase as meaning with the necessary changes in place of detail. Stroud does not deal with the expression, nor is it included in the words and phrases explained in Halsbury's Laws of England. There has been one case in Australia dealing with the use of the phrase in statutory interpretation, Gill v State Planning Authority (1979) 20 SASR 580. There, under a statute relating to the vesting of land for the purpose of a particular undertaking, it was provided that sections of another statute "shall mutatis mutandis be applied to and in relation to the vesting of the land". It was held that the sections specified in the Act were not to be applied without qualification but were to undergo such variations of substance as were implied by the expression mutatis mutandis, which in the circumstances meant with all modification and adaptations necessary to ensure that they, jointly and severally, have effect for the purposes of the Red Cliff Land Vesting Act 1973 (SA) (at 585). This case dealt with the interpretation of a statute and what was contemplated by the legislature. There seems to be no case in Australia which deals with the phrase when it is used in contracts. I have not been able to find any English case but there are two American cases which are of some assistance. The first is Copeland v Eaton (1911) 95 NE 291, a decision of the Supreme Court of Massachusetts. The case concerned an agreement for the licensing of a patent. It was provided that in certain circumstances the provisions of an existing contract in relation to the defining of profits were, under the new situation, to apply mutatis mutandis. It was said that those words meant necessary changes in detail to conform to a single vital alteration. The court considered that it should look at the main purpose of the contract in order to consider the extent to which it was to be changed. This decision was followed in Houseman v Waterhouse (1920) 182 NYS 249 where a partnership agreement provided that where one partner retired the remaining partners would continue and the original agreement would apply to the new partnership mutatis mutandis. The decision in Copeland v Eaton was applied and it was said that the phrase meant that there should be necessary changes in detail to conform to a single vital change. The new firm was to continue under the terms of the articles of the former partnership agreement, with such changes as were necessary because of the change in membership. In cl 4(b) it was specifically provided that when the clauses of the annexed agreement were to be applied mutatis mutandis then certain references in the latter agreement would be translated so as to be applicable to the licence agreement. In my opinion this meant that appropriate changes would be made to the designated clauses to the extent necessary to fit in with the terms of the licence agreement…'
Clause 1.2.4 was in similar terms to clause 1.2.3 but related to Dr Sharma and the Sharma Group. Clause 1.2.5 was in similar terms in relation to Dr Chen and the Chen Group.
Clause 3.1 provided that the Chen Group was to pay to NewTrust the amount of $1,000,000 and in return the Chen Group would receive one-fifth of all units in NewTrust.
Clause 3.2 of the Deed set out the purpose of NewTrust. NewTrust was required to maintain and operate the businesses, maintain the leases of the properties, maintain the equipment and replace it if it became obsolete, and provide preferential access to the facilities for use by Dr Segal, Dr Sharma and Dr Chen. NewTrust was also to seek to profit by running the businesses. Clause 3.2.6 provided that one of the purposes of NewTrust was to: "Seek to profit from the Facilities by the provision of those session times excess to the needs of the individual medical practices of Dr Segal, Dr Sharma and Dr Chen to current and future locums at a cost greater than the [sic] maintaining the Facilities."
The Deed then dealt with "Initial Allocation of Session Times". It said: "3.3 Session times will be allocated according to a roster agreed by each of Dr Segal, Dr Sharma and Dr Chen. 3.4 The allocation of all session times in the roster shall be in proportion to the ownership interests of Dr Segal, Dr Sharma and Dr Chen in NewTrust. 3.5 In the event that there is any dispute about which of Dr Segal, Dr Sharma or Dr Chen is to be responsible for a particular session time, each party shall indicate his preferred times by written submission and conflicting times determined by the toss of a coin."
It is plain that the references to Dr Segal, Dr Sharma and Dr Chen in cll 3.3, 3.4 and 3.5 are references to those doctors personally. Their family trusts, and the trustees of those trusts, were not registered medical practitioners and could not practise as radiologists. Thus the references to the doctors by name in those clauses is a reference to the doctors personally and not to the family trusts.
The Deed Of Arrangement then dealt with "Fee Arrangements". It said: "3.6 Each of Dr Segal, Dr Sharma and Dr Chen agree to work at the Facilities at the same rate for each session time. 3.7 All fees generated by any of Dr Segal, Dr Sharma or Dr Chen shall form part of the income of NewTrust, regardless of which of which [sic] of Dr Segal, Dr Sharma or Dr Chen generated that fee and regardless of whether one of Dr Segal, Dr Sharma or Dr Chen generated more fees per session time or per annum than the others."
Once again it is plain that the references to the doctors by name in cll 3.6 and 3.7 are references to each doctor personally, and have nothing to do with the doctors' family trusts. Only the registered medical practitioners could work during session times in the practice and only the doctors personally could generate fees as radiologists.
It is to be noted that cl 3.6 spoke of the doctors working "at the same rate" for each session time, which carries the notion that the doctors would be paid a set rate for each session worked. This was so because by cl 3.7 the doctors were not to retain the fees charged for each individual service to a patient. Such fees were to be treated as income of NewTrust, not income of the doctors personally.
The Deed then dealt with the following: "Profits Shared Proportionately If NewTrust runs at a Profit". Clause 3.8 said: "Each of Dr Segal, Dr Sharma and Dr Chen agree that if NewTrust runs at a profit, that profit will be retained and distributed by NewTrust as it sees fit. In that instance, each of Dr Segal, Dr Sharma and Dr Chen should enjoy the profit in proportion to their ownership interests in NewTrust."
The Deed Of Arrangement then dealt with the following: "Losses Shared Proportionately if NewTrust runs at a Loss". Clause 3.9 said: "Each of Dr Segal, Dr Sharma and Dr Chen agree that if NewTrust runs at a loss based on its financial accounts for each annual period commencing on 1 July and ending on 30 June, then any shortfall shall be paid for in proportion to each of Dr Segal, Dr Sharma and Dr Chen's ownership interest in NewTrust."
When the opening words of cll 3.8 and 3.9 refer to each of the doctors by name, that is to be understood as a reference to both the doctors themselves and their family trusts, as the doctors and the family trusts are parties to the agreement.
When the closing words of cll 3.8 and 3.9 speak of the "ownership interests in NewTrust", they are not referring to the doctors personally, as those doctors had no ownership interest in NewTrust. Rather, the reference to the doctors by name is a reference to their family trusts, which held all of the "ownership interest" in NewTrust.
One of the matters in dispute between the parties in this case is just how each doctor was to be paid personally for working in the radiology practices. My conclusions on this matter appear below in my discussion of the submissions on the Set-Off and Cross-Claim pleaded by Dr Segal.
Clause 5.11 provided for three kinds of determination of the arrangement between the parties, being a "forced determination", an "agreed determination" and a "discretionary determination". Different consequences arose for each category of determination. The issue decided by Justice Hammerschlag in the Supreme Court required a declaration as to the type of determination had been reached after the continuation of the relationship between the radiologists became untenable. His Honour declared that in the events which had occurred there had been an "agreed determination".
Clause 5.13 dealt with the procedure to be followed where there had been an agreed determination. It said: "5.13 In the event of an agreed determination, the following provisions apply: 5.13.1 The Business will be sold and the proceeds paid to NewTrust; 5.13.2 Final distributions and winding up of NewTrust will be made after receipt of appropriate accounting and legal advice by each of the Segal Group, the Sharma Group and the Chen Group; and 5.13.3 In the event that appropriate accounting and legal advice is not finalised within six months from the later of the sale of the Business or the Property, time to be of the essence in this regard (unless all parties agree in writing for a deferral), parties agree that NewTrust will be liquidated with the accounting and legal consequences flowing therefrom falling as they may."

Relevant later events

It is necessary to summarise the evidence concerning the dealings between the parties after they entered into their arrangements. All of the following comes from documents admitted into evidence.

30 June 2014 - First tax return and financial statements for NewTrust

On 15 June 2015 the first tax return, for FY2014, was lodged by NewTrust (DX 3, p 340). Total business income was $7,783,928 and total expenditure was $7,817,369 which resulted in a loss of $33,441.
The Statement of Assets and Liabilities recorded line items of $419,000 for "Locum fees payable to Dr Segal" and $465,500 payable to Dr Sharma. At the foot of the page appear two signatures which appear to be those of Dr Sharma and Dr Segal. They have signed as trustees. There is a notation: "These accounts are unaudited. Please refer to the compilation report".
The Income and Expenditure Statement is also signed in similar fashion, including the note about the accounts being unaudited. There is a line item for "Locum Costs" of $1,171,409. These two financial statements were lodged as part of the FY2014 tax return of NewTrust. Dr Segal signed the tax return as lodged.
Dr Sharma gave no evidence to dispute the accuracy of these figures, and indeed he signed off on them.

30 June 2015 - Draft financial statement for NewTrust

Dr Segal annexed a draft financial statement for FY2015 to his second affidavit which was sworn on 13 October 2019 (DX 3, p 355). Note 8 to the financial statements records that Expenses include: (1) Locum Radiologist - Dr Sharma $428,091 (2) Locum Radiologist - Dr Segal $683,183

The Profit and Loss Statement shows a loss for FY2015 of $735,844. Add to this the FY2014 loss of $33,012, and the accumulated losses as at 30 June 2015 were $768,856.
Dr Sharma gave no evidence to dispute the accuracy of these figures. In particular he did not dispute that he received locum fees as per the draft financial statements.

16 March 2016 - Dr Sharma's invoices for his locum services

Dr Segal tendered an email from Dr Sharma dated 16 March 2016 which attached copies of Dr Sharma's "locum invoices for October 2015 to February 2016" (DX 6). Each was in the same format. They were tax invoices on the letterhead of Praneal Sharma & Associates Pty Limited. Each invoice was billed to South West Radiology Pty Limited ATF Trustee for SWR Holding Unit Trust. The earlier invoices referred to a daily rate of $2,500 inclusive of GST per day and later invoices referred to a rate of $3,000 inclusive of GST per day. The invoices referred to the services provided as "Locum Radiologist service to South West Radiology - Campbelltown for the month of ". For example, the first tax invoice was dated 27 February 2016 (No. 20160602) and related to the day of Thursday 24 December 2015. It billed for two sessions, at a cost of $2,500. From this I infer that each session was a half day. Later invoices covered different periods. For example, a tax invoice dated 27 February 2016 (No. 20160601) billed for 1, 3, 5, 8, 10, 15, 17, 22, 29 and 31 December 2015, being 19 sessions at $3,000 per day, a total of $28,500.

30 June 2016 - Draft financial statement for NewTrust

Dr Segal annexed a draft financial statement for FY2016 to his second affidavit (DX 3, p 374). Note 8 to the financial statements records that Expenses include: (1) Locum Radiologist - Dr Sharma $296,300 (2) Locum Radiologist - Dr Segal $447,500

The Profit and Loss Statement shows a loss for FY2016 of $557,909. Add to this the FY2015 accumulated losses of $768,856, and the accumulated losses as at 30 June 2016 were $1,326,765.
Dr Sharma gave no evidence to dispute the accuracy of these figures. In particular he did not dispute that he received locum fees as per the draft financial statements.

30 June 2016 - Dr Chen stops working in the practices

Justice Hammerschlag found that by 30 June 2016 the relationship between Dr Chen on the one hand, and Dr Sharma and Dr Segal on the other, had soured. Dr Chen gave notice that he resigned as a director of SWR. From that time Dr Chen ceased to practise medicine in association with Dr Sharma and Dr Segal.

7 April 2017 - Dr Sharma stops working in the practices

Justice Hammerschlag also found that since 7 April 2017 Dr Sharma had not worked at the clinics.

30 June 2017 - draft financial statement for NewTrust

Dr Segal annexed a draft financial statement for FY2017 to his second affidavit (DX 3, p 396). Note 8 to the financial statements records that Expenses include: (1) Locum Radiologist - Dr Sharma $195,000 (2) Locum Radiologist - Dr Segal $393,636

The Profit and Loss Statement shows a loss for FY2017 of $466,043. Add to this the FY2016 accumulated loss of $1,326,765, and the accumulated losses as at 30 June 2017 were $1,792,807. In the four financial years from 2014 to 2017 inclusive, NewTrust had income totalling $30,341,097. This came from the fees billed by the radiologists who worked in the practices, primarily Dr Segal and Dr Sharma.
Dr Sharma gave no evidence to dispute the accuracy of these figures. In particular he did not dispute that he received locum fees as per the draft financial statements. As found by Justice Hammerschlag, Dr Sharma was working at the clinics until 7 April 2017 i.e. for just over nine months of FY2017.

30 June 2017 - The Supreme Court outcome

On 30 June 2017 Justice Hammerschlag declared that there had been an agreed determination within the meaning of the Deed dated 18 April 2013.
On 21 July 2017 Justice Hammerschlag ordered Dr Sharma to pay the costs of the Supreme Court proceedings.

19 June 2018 - Letter of Demand

On 19 June 2018 a letter (PX 5) was sent on the letterhead of "South West Radiology" by "South West Radiology Pty Limited as Trustee for SWR Holding Unit Trust". The letter was signed by Dr Segal and Ms Rozalina Chen as directors of SWR. The letter was addressed to Dr Sharma and to Praneal Sharma & Associates Pty Limited as Trustee for Sharma Family Trust.
The letter referred to the Deed dated 18 April 2013. It noted that the Sharma Family Trust was the holder of 40% of the units in the trust. The letter then said: "As you are aware, the financial accounts of the Trust disclose that the Trust has run at a loss for each of the accounting periods set out in the table below. The amount of the disclosed loss is also set out in the table below. Accounting Period Reported Loss Year ended 30 June 2014 $33,012 Year ended 30 June 2015 $735,844 Year ended 30 June 2016 $557,909 Year ended 30 June 2017 $466,043 Total Losses of the Trust $1,792,807

We enclose a copy of the financial reports for each accounting period described in the table above."

The letter went on to refer to cl 3.9 of the Deed, which dealt with the position where NewTrust had losses. The letter demanded that Dr Sharma and/or the Sharma Trust pay to the Trust a total amount of $717,122.80, being 40% of the total losses of the trust for the years 2014-2017. This claim has never been pursued and it is not the basis for the Set-Off and Cross-Claim pleaded by Dr Segal in these proceedings.

30 June 2018 - Financial Statements of NewTrust for year ended 30 June 2018

The financial statements for the SWR Holding Unit Trust for the year ended 30 June 2018 were tendered (DX 2, p 302). At p 312 of DX 2, Note 8 in the Notes to the Financial Statements dealt with payments made to locum radiologists. In FY2018 Dr Segal was paid $864,503. Dr Chen was paid $52,500. "Other" locums were paid $660,012. Dr Sharma was paid nothing.
The Income Statement shows a loss for FY2018 of $884,778.

7 November 2018 - Letter of Demand

On 7 November 2018 a letter of demand (DX 2, p 323) on the letterhead of SWR was sent to Dr Sharma and the Sharma Trust. It referred to the Deed and to the fact that the Sharma Trust held 40% of the units in the SWR Trust. The letter said that "the financial accounts of the Trust disclose that the Trust has run at a loss for each of the accounting periods set out in the table below". The table referred to only one accounting period - year ended 30 June 2018. The reported loss was said to be $884,778.
It can be seen that this is the same loss recorded as the discrete loss for FY2018 in the 2018 financial statements referred to above. No part of that loss is a loss accumulated from the years 2014-2017, when Dr Sharma was part of the practice.
The letter of demand then referred to cl 3.9 of the Deed and demanded that Dr Sharma and/or the Sharma Trust pay $353,911.20 being 40% of the losses (for FY2018) of the trust.

12 December 2018 - Meeting of Directors of SWR

The Minutes of a meeting of the directors of SWR were tendered (DX 3, p 422). Dr Segal and Ms Chen attended in person. Dr Sharma attended by teleconference. Item 4 in the Minutes is "Dr Segal's purchase of Dr Sharma's debt - follow up". Dr Segal and Ms Chen voted to accept a proposed Deed of Assignment of Debt. Dr Sharma "objected" which I take to mean voted against the motion.

12 December 2018 - Deed of Assignment of Debt

On 12 December 2018 a Deed of Assignment of Debt (Assignment) was entered into between SWR in its capacity as trustee of the SWR Trust and Dr Segal. SWR assigned to Dr Segal all of its legal and beneficial right, title and interest in the sum of $130,000 which was said to be due and owing by Dr Sharma and the Sharma Trust.
The Assignment recorded that the purchase price for that assignment was $130,000 and SWR acknowledged that Dr Segal must pay the purchase price to SWR as consideration for assigning the debt of $130,000 to Dr Segal under the Deed.
Schedule 1 to the Assignment was a Notice To Debtor which referred to the letter of demand dated 7 November 2018 demanding that Dr Sharma and/or the Sharma Trust pay to SWR the sum of $353,911.20 in accordance with cl 3.9 of the Deed. Dr Segal was said to have taken an assignment of $130,000 being part of the total debt of $353,911.20. I infer that this amount was selected so as to wipe out the claim for refund of overpaid costs being made by Dr Sharma.
It is thus clear that when Dr Segal took an assignment of a debt of $130,000, he was taking an assignment of part of a debt said to arise purely from losses suffered by the trust only in FY2018. He was not taking an assignment of part of a debt arising from accumulated losses in the years 2014-2017.
On 12 December 2018 a notice of assignment of debt was sent to Dr Sharma. Interest is claimed by Dr Segal from 13 December 2018.

31 January 2019 - Financial Statements of NewTrust for seven months ended 31 January 2019

The financial statements of SWR Trust for the seven months ended 31 January 2019 were tendered by the defendants (DX 5). Note 8 to the accounts recorded payments to locum radiologists as: (1) Other locums $317,191 (2) Dr Segal $233,114 (3) Dr Chen Nil

Note 13 to those accounts was as follows: "13. Purchase of debt Dr Segal bought $130,000 debt from South West Radiology owed by Dr Sharma. In the financial statements this reduced receivable balance from Sharma Family Trust by $130,000 and reduced Locum Fee payable to Dr Segal by $130,000."

Dr Segal's Set-Off and Cross-Claim: The Pleading

Dr Segal's claim in relation to the assignment to him of part of a debt said to be owed by Dr Sharma to SWR, is pleaded as both a Set-Off in his Amended Defence, and as a Cross-Claim. Both pleadings are in the same terms. Clause 3.9 of the Deed is specifically pleaded. The debt owed by Dr Sharma to SWR is pleaded as follows: "As at 12 December 2018 the plaintiff's liability to Company [i.e. SWR] pursuant to clause 3.9 of the Agreement [i.e. the Deed] was $363,911.20."
Thus Dr Segal is reliant entirely on Dr Sharma having such a liability to SWR, for 40% of the FY2018 losses, in the first place. Justice Hammerschlag found that there was an agreed determination between the doctors. His Honour found that this occurred at the latest by 30 August 2016 - see judgment at [54]. As previously recited, Dr Sharma ceased to work in the clinics by 7 April 2017.

Dr Segal's Set-Off and Cross-Claim: Submissions and Consideration

Summary of Dr Sharma's submissions

Counsel for the defendants submitted (MFI 3, pars 22-25) that as the debt pleaded to be owing by Dr Sharma to NewTrust arises under the Deed, general principles of construction of contracts are applicable. Counsel submitted that: 1. The relevant enquiry as to construction of a written agreement is to be conducted on the footing of what a reasonable businessperson would have understood the written terms to mean in light of the particular language used by the parties, the circumstances addressed by the contract and its commercial purpose: Victoria v Tatts Group Limited [2016] HCA 5; (2016) 90 ALJR 392 at [51]. 2. The task of identifying the legal meaning of the provisions in a commercial agreement requires the identification of the imputed intention of the parties by reference to the text construed in the light of its context and purpose: Cherry v Steele-Park [2017] NSWCA 295 at [46].
Counsel for Dr Sharma made the following submissions (MFI 2, par 37) in relation to the allegation that Dr Sharma owed a debt to SWR: 1. Clause 3, of the Deed, including cl 3.9, has no application because the Deed was terminated well before the 2018 financial year. 2. Clause 3.9 of the Deed did not impose any obligation on Dr Sharma. 3. Accounts for the purpose of cl 3.9 of the Deed are accounts prepared consistently with the rest of cl 3, including cl 3.8. Accounts so prepared would not show a loss. 4. Accounts for the purpose of cl 3.9 of the Deed are accounts prepared and audited consistently with the Trust Deed.

(1) Termination of the Deed

In written submissions (MFI 2, pars 38-54), counsel for Dr Sharma submitted that while the alleged debt was said to arise from a loss made in the 2018 financial year, the Deed "was terminated in 2016", well before the 2018 financial year. However it is not correct to speak of termination of the Deed. Clause 5 of the Deed is headed "Determination of Commercial Arrangements". The various sub-clauses of s 5 of the Deed all spoke in terms of determining (i.e. terminating) the commercial arrangements, rather than determining the Deed.
Justice Hammerschlag found that when the relationship between the parties soured, what occurred was an agreed determination because, pursuant to cl 5.9.5: "Each of Dr Segal, Dr Sharma and Dr Chen agrees that the commercial arrangements ought to be determined and that they no longer wished to work at the Property."
Clause 5.13 of the Deed provided: "In the event of agreed determination, the following provisions apply: 5.13.1 The Business will be sold and the Proceeds paid to NewTrust; 5.13.2 Final distributions and the winding up of NewTrust will be made after receipt of appropriate accounting and legal advice by each of the Segal Group, the Sharma Group and the Chen Group; and 5.13.3 In the event that appropriate accounting and legal advice is not finalised within six months from the later of the sale of the Business or the Property, time to be of the essence in this regard (unless all parties agree in writing to a deferral), parties agree that NewTrust will be liquidated with the accounting and legal consequences flowing therefrom falling as they may."
Counsel for Dr Sharma submitted (MFI 2, par 47) that the consequence of termination of an agreement is usually the discharge of parties in respect of unaccrued obligations. Counsel submitted (MFI 2, par 49) that "clause 3 is clearly intended to apply while the parties continue in business, and not after termination". It was submitted (MFI 2, par 52) that after the agreed determination, a new arrangement was entered into between SWR and one or more of the doctors, for the facilities to be utilised pending disposal of the business under cl 5. It was submitted that any such arrangement was entered into outside the terms of the Deed.
Counsel for Dr Sharma acknowledged (MFI 2, par 53) that under cl 5 of the Deed, the ongoing obligations of the parties were to cooperate in arranging the sale of the business and the distribution of the proceeds. The parties were no longer in business together for any other purpose.
The parties reached an agreed determination, at the latest, by 30 August 2016. Dr Sharma continued to work in the clinics until April 2017. That much was found by Justice Hammerschlag and is binding upon Dr Sharma. Further, the draft FY2017 financial statements record that locum fees were paid to Dr Sharma for part of that year (i.e. 1 July 2016 to April 2017) of $195,000. Dr Sharma does not dispute this.
Thus Dr Sharma saw himself as still entitled to work in the practice after the agreed determination and up to April 2017, and took the financial benefit of locum fees paid for working in the practice. The Deed did not terminate upon the agreed determination being reached. What terminated was the commercial arrangements.
There is nothing in the Deed which says that the arrangement between the parties automatically ceases upon an agreed determination being reached. Since Dr Sharma continued in the practice after that agreed determination, and until April 2017, he must have been continuing in arrangement with Dr Segal either under the Deed itself, or pursuant to some new commercial arrangement. There was no evidence of any new commercial arrangement or even any discussions about entry into one. Both parties continued to operate from the clinics and to charge locum fees to SWR. Both doctors attended and voted at meetings of the directors of SWR.
There was no bright line drawn by Dr Sharma in August 2016 or in April 2017. The radiology practices were still running and all parties to the Deed were bound to cooperate in effecting a sale of the business of SWR. That did not occur until some time later. In the meantime the practices kept running, through the efforts of Dr Segal and other locum radiologists. I infer that there was a benefit to Dr Sharma in the clinics continuing to operate in this way, so that the business of SWR could be sold as a going concern. There was no evidence about the sale price obtained for the business. Presumably the Sharma Trust would have been entitled to 40% of any sale price obtained for the business.
I find that the rights and the obligations of the parties pursuant to the Deed did not terminate upon the agreed determination being made, but were obligations which continued until the business could be sold. This included an obligation on the part of the Sharma Trust to contribute towards 40% of the losses. I find that this was so even in FY2018, because the business of SWR was still being operated with a view to it being sold, as it eventually was.
I am fortified in reaching this view by the fact that nowhere in the Deed is it said that the obligations of the parties, including obligations to make a proportionate contribution to any losses, cease upon an agreed determination being reached. Upon an agreed determination happening, the commercial arrangements between the parties are determined, and pursuant to cl 5.13, the business is to be sold and the proceeds paid to NewTrust.
I reject the first submission made for Dr Sharma in relation to the claim made by Dr Segal.

(2) Clause 3.9 did not impose any obligation on Dr Sharma

Counsel for Dr Sharma submitted (MFI 2, par 61) as follows: "In clause 3.9, and indeed in clause 3.8 the term 'Dr Sharma' must mean Sharma Trust, not Dr Sharma. This is because those provisions are addressed to proportionate ownership interests in NewTrust. It is Sharma Trust (i.e. Praneal Sharma & Associates Pty Ltd, per the first page of the agreement) that owns units in the SWR Holding Unit Trust… Clauses 3.8 and 3.9 stipulate that the profits or shortfalls be distributed according to ownership interests. These provisions engage the unit holders, not the individuals, who have no ownership interests. It follows that there can be no liability of Dr Sharma under clause 3.9 as it imposes no obligations on him personally."
Clause 3.8 of the Deed deals with how any profit made is to be shared. Such profit is to be retained and distributed by NewTrust as it sees fit. Clause 3.8 says that "each of Dr Segal, Dr Sharma and Dr Chen should enjoy the profit in proportion to their ownership interests in NewTrust". It must be recognised that none of the doctors had any personal ownership interests in NewTrust. Rather, the ownership interests were split 40:40:20 between the Segal Trust, the Sharma Trust and the Chen Trust. The doctors personally had no right to a share in the profit. When the opening words of cl 3.8 are "each of Dr Segal, Dr Sharma and Dr Chen agree that if NewTrust runs at a profit…", this can be interpreted in one of two ways. However, both have the same effect. If the reference to the doctors by name in the opening words of cl 3.8 is a reference to both the doctors themselves and their trusts, then those opening words simply record that both the doctors and their trusts agree that their trusts should enjoy the profit in proportion to their ownership interests, and are effectively acknowledging that none of them personally has any right to any profit made. On the other hand, if the reference to the doctors by name in the opening words of cl 3.8 is a reference only to the family trusts of those doctors, then again, the effect of the clause is that only the family trusts enjoy the profits proportionately, and none of the profit can be paid to any of the doctors personally.
In my view the construction of cl 3.9 of the Deed operates in the same way. The reference in the final part of cl 3.9 to a shortfall being paid for in proportion to ownership interests in NewTrust, can only be a reference to the ownership interests of the family trusts in NewTrust, as the doctors personally had no such ownership interests. The opening words of cl 3.9 either record that the three doctors and their three family trusts are agreeing to how a loss will be met, or mean that the family trusts alone are agreeing how a loss will be met.
On either construction, cl 3.8 of the Deed gave Dr Sharma no right to a personal share in the profit in NewTrust and cl 3.9 imposed no obligation on Dr Sharma to fund any loss made by NewTrust.
The Assignment is predicated upon both Dr Sharma personally and the Sharma Trust owing money to SWR, as a proportionate share of the loss made in FY2018. On the construction of cl 3.9 of the Deed referred to above, there was nothing owing personally by Dr Sharma to SWR arising from the fact that NewTrust made a loss in FY2018. Nor, on the construction which I favour, was there any obligation on Dr Sharma personally to pay a proportionate share of any loss of SWR for earlier financial years. That is irrelevant, as the Assignment specifically related to assignment of part of the debt said to have arisen because of a loss incurred solely in FY2018.
Counsel for Dr Segal submitted (MFI 3 par 27b) that each reference to Dr Segal, Dr Sharma and Dr Chen in the Deed should be construed as referring to the doctors personally "and also but not exclusively to their respective Unit Holding entities". This construction ignores the effect of the phrase "mutatis mutandis". I find that the meaning and effect of cll 1.2.32, 1.2.4 and 1.2.5 is that any reference to a doctor by name can result in one of three outcomes, depending upon the meaning and purpose of the particular clause in which it appears. Those three outcomes are: 1. A reference to a doctor by name is a reference only to that doctor personally; 2. A reference to a doctor by name is a reference to that doctor personally and to that doctor's family trust; 3. A reference to a doctor by name is a reference only to that doctor's family trust.
Counsel for Dr Segal submitted (MFI 3, par 27c) as follows: "Applying the definition in clauses 1.2.3, 1.2.4 and 1.2.5, the proper construction of clause 3.9 is that each of Dr Segal, Dr Sharma and Dr Chen and their respective Unit Holding Entities agree that if NewTrust runs at a loss based on its financial accounts for each annual period, then any shortfall shall be paid for by Dr Segal, Dr Sharma and Dr Chen and their respective Unit Holding Entities in proportion to each of Dr Segal, Dr Sharma and Dr Chen's ownership interests and their respective Unit Holding Entities' ownership interests."
That the submission has to be put in this way demonstrates that many words have to be read into cl 3.9 of the Deed for it to work in the way put forward by counsel for Dr Segal. For the reasons set out above, I reject the submission that such words should be read into cl 3.9 or that the clause operates as submitted for Dr Segal.
I accept the second submission made by counsel for Dr Sharma, that since cl 3.9 of the Deed imposes no obligations on him personally, there was no right of recovery by SWR against Dr Sharma, capable of assignment to Dr Segal. The Set-Off and the Cross-Claim fail.

(3) Properly prepared accounts would not show a loss

Counsel for Dr Sharma submitted (MFI 2, par 68) as follows: "Clause 3.7 requires that all fees generated by the doctors 'shall form part of the income of [the trust]' regardless of who generated them and regardless of whether one generated more fees than the others. The intent of this clause would be defeated if any part of those fees was to be paid to the doctors individually by way of remuneration as though they were employees or locums."
The evidence called by Dr Segal establishes that all of the radiologists, including Dr Sharma, billed SWR for locum fees depending on the number of sessions times worked. Dr Sharma billed, and received, hundreds of thousands of dollars over the years in such locum fees. The construction urged upon the court by counsel for Dr Sharma would mean that the doctors would work in the clinics for no remuneration, would permit all of the fees generated by their work to be paid to the trust, and would have no enforceable right to any payment out of the trust. This hardly seems a commercial arrangement.
I have already pointed out that there is nothing prohibiting the charging of locum fees by the doctors to NewTrust. In fact, cl 3.6 of the Deed spoke of each doctor working in the business "at the same rate for each session time". This alone justifies how, in fact, the doctors received their remuneration from NewTrust. On the face of it, none of the doctors were obliged to work at all in the practice. Sessions times were only to be allocated according to a roster agreed by the three doctors - cl 3.3 of the Deed. The allocation of the session times would be in proportion to the ownership interests in NewTrust (i.e. 40:40:20). While session times were allocated in accordance with cl 3.4 of the Deed, there was no obligation on the doctors to take them and to work in the practice.
Contrary to the submission made by counsel for Dr Sharma, there were never to be any "fees generated by any of Dr Segal, Dr Sharma or Dr Chen" paid to those doctors individually by way of remuneration. All such fees were paid to NewTrust and formed part of its income. The Deed is not silent as to whether the three doctors could charge NewTrust for their session times - they were to work "at the same rate". Charging a flat fee for session times did not cut across the intent of cl 3.7, which was that the income generated by working during such sessions times would form part of the income of NewTrust.
By cl 3.7, all of the fees generated by the doctors as radiologists were to form part of the income of NewTrust. This was so regardless of how little or how much work each doctor did and no matter whether one doctor earned most of the fees or none of the fees.
As a matter of commercial sense, these three doctors, who had the potential to earn a very high income, would only have worked in the practice if they were paid for their time in doing so. The three doctors were to be paid "at the same rate" for the session times they worked in the practice and that would be each doctor's personal income. The doctors would not be receiving the actual fees generated by their work, as these formed part of the income of NewTrust. If there was a profit, then it was agreed that the family trusts would enjoy the profit in proportion to their ownership interests in NewTrust. If there was a loss, it was agreed that that loss would be borne by the family trusts in proportion to their ownership interests.
In my view this is the only sensible and commercial meaning of these provisions in the Deed. Things could have been clearer if the Deed provided that the doctors were to be paid for their time in conducting sessions at the practice. It is unlikely in the extreme that each doctor was willing to work in the practice without some form of guaranteed reward, particularly given that any profit made by the practice was not to be distributed to the doctors personally, but to their family trusts.
I do not think that the 2014 tax return or the subsequent yearly draft financial statements of SWR have been prepared contrary to the terms of the Deed. I have already pointed out that Dr Sharma signed off on the 2014 tax return, and took the benefit of payment for session times to the extent of several hundred thousand dollars each year.
I reject the third submission made for Dr Sharma in relation to the claim made by Dr Segal.

(4) Accounts not audited

Counsel for Dr Sharma submitted (MFI 2, par 80) that on the proper construction of cl 3.9 of the Deed, "financial accounts" means accounts prepared in accordance with cl 21 of the Trust Deed. Clause 21.3 of the Trust Deed requires the trustee to appoint an auditor "to examine and ascertain the correctness of the accounts of the Trust Fund".
The FY2018 financial statement is not an audited statement of accounts.
The phrase "financial accounts" in cl 3.9 of the Deed is not a phrase defined in the Deed, or in the Trust Deed. Clause 21 of the Trust Deed refers to "a complete and accurate record" and also refers to a "written accounting report (prepared in accordance with normally accepted accounting procedures)".
Counsel for Dr Sharma submitted (MFI 2, par 91) that the consequence is that there are no "financial accounts" of the trust in respect of the period FY2018. It was submitted that because there are no "financial accounts" which were audited, there was no basis for cl 3.9 of the Deed to operate in respect of FY2018.
Counsel for Dr Segal and Mrs Segal submitted (MFI 3, par 28b) that the proper construction of cl 21.3 of the Trust Deed is to oblige SWR to appoint an auditor as and when required to do so by a majority of unit holders. I reject that submission. The reference in cl 21.3 to the majority of the unit holders consenting in writing, is a reference to consent to some person other than Mr Gokani being appointed as auditor.
Counsel for Dr Segal and Mrs Segal also submitted (MFI 3, par 28b) that no part of cl 21.3 of the Trust Deed qualifies the obligation under cl 21.2 to prepare a written accounting report "prepared in accordance with normally accepted accounting procedures". There was no evidence in the case as to normally accepted accounting procedures, and in particular, there was no evidence that a private trust such as SWR would be required to only prepare and act upon audited accounting reports, as part of any normally accepted accounting procedures. I accept that submission.
There was no evidence that the parties involved in SWR had ever required an auditor to sign off on the financial statements. The 2014 financial statements, which form the basis of the 2014 filed tax return, were prepared by Mr Gokani, a certified practising accountant. Mr Gokani signed off on the Compilation Report, which formed part of the accounts for the year ended 30 June 2014, and the tax return, as an accountant not an auditor. Further, he said in the Compilation Report: "Our procedures use accounting expertise to collect, classify and summarise the financial information which the Directors provided, into a financial report. Our procedures do not include verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed."
The lodging of the tax return, together with the 2014 financial statements, is evidence of the accounting practices which were "normally" used by SWR. These were approved by the directors in 2014, including Dr Sharma. I reject the submission made to Dr Sharma that because the FY2018 accounts are not audited, they are not "financial accounts" within the meaning of cl 3.9 of the Deed
I reject the fourth submission made for Dr Sharma in relation to the claim made by Dr Segal..

Conclusion in relation to the four submissions made by Dr Sharma

I have rejected three of the submissions made on behalf of Dr Sharma. I have accepted one of his submissions, which means that he did not owe any debt to SWR arising out of the losses incurred in FY2018. The only entity associated with Dr Sharma which in theory owed a debt to SWR was the Sharma Trust. It is not a party to these proceedings. The Set-Off and Cross-Claim brought by Dr Segal is pleaded only against Dr Sharma.
Because I have found that Dr Sharma owed no debt to SWR, when Dr Segal purported to purchase part of the debt arising from a 40% share in the FY2018 losses, he may have obtained a right to sue the Sharma Trust for $130,000, but he obtained no right to sue Dr Sharma, as Dr Sharma never owed a debt to SWR arising out of the FY2018 losses.
For those reasons, the Set-Off and the Cross-Claim pleaded by Dr Segal fails. There will be judgment for Dr Sharma on Dr Segal's Cross-Claim.

Conclusions and Orders

Dr Sharma is entitled to judgment against Dr Segal and Mrs Segal for $116,904.27. He claims interest at court rates on this amount from 17 October 2018. The total interest to which he is entitled is $9,335.63. This is calculated as follows: Start Date End Date Days Rate Amount Per Day Total 17/Oct/2018 31/Dec/2018 76 5.5% $17.6157 $1,338.79 01/Jan/2019 30/Jun/2019 181 5.5% $17.6157 $3,188.44 01/Jul/2019 31/Dec/2019 184 5.25% $16.8150 $3,093.96 01/Jan/2020 22/Apr/2020 113 4.75% $15.1720 $1,714.44 Total 554 $9,335.63

The total judgment will therefore be $116,904.27 + $9,335.63 = $126,239.90. Dr Sharma is also entitled to an order for costs.
The Cross-Claim has failed. There will be judgment for Dr Sharma against Dr Segal and an order for costs against Dr Segal. The second cross-defendant SWR took no part in the proceedings and was joined as a matter of formality only, since it was the assignor under the Assignment.
The orders of the court are: 1. Judgment for the plaintiff Praneal Dutt Sharma against the defendants Phillip Segal and Melita Segal for $126,239.90. 2. Order the defendants Phillip Segal and Melita Segal to pay the costs of the plaintiff Praneal Dutt Sharma. 3. Judgment on the Cross-Claim for the first cross-defendant Praneal Dutt Sharma. 4. Order the cross-claimant Phillip Segal to pay the costs of the first cross-defendant Praneal Dutt Sharma. 5. No order in relation to the second cross-defendant South West Radiology Pty Limited.

Amendments 22 April 2020 - Insertion of missing word "in" in par 2 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 April 2020

Red Cliff Land Vesting Act 1973(SA)

Sharma v Segal

At a glance

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Decision date

Before

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Judgment (41 paragraphs)

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Legislation Cited (1)

Cases Cited (10)

Cited By (1)