These proceedings were commenced by summons on 11 October 2022.
The proceedings concern a partnership dispute between five members of the one family and their spouses, although one of the spouses passed away leaving nine partners in total.
The partners are divided into two camps - being the eight plaintiffs (or seven if the now deceased seventh plaintiff is not counted) and the two defendants.
In March 2007, the parties purchased, as tenants in common in equal shares, the property situated at 212 Range Road, Halfway Creek, NSW (the Property). Each of the siblings and their spouses hold a one fifth share of the Property. The Property is located within the mid north coast district of NSW, more specifically positioned to the northern alignment of Range Road, being approximately 48 kilometres north of the district centre of Coffs Harbour and 46 kilometres south-east of Grafton. It is 60.7 hectares in size. It was purchased for $450,000 with funding provided by the ANZ Bank.
It is not necessary to go into the background to the purchase of the Property in any way save as to record that the Property was identified by the first plaintiff and it was intended that the Property would be used to farm blueberries with each partner (or more accurately group of two partners) farming their own sections.
In about April 2007, a Deed of Partnership was entered into between all 10 partners (Partnership Deed).
The Partnership Deed contained the following recitals:
WHEREAS the parties have been interested in purchasing land and conducting a business of banana and berry growing and forestry (herein called "the business'') WHEREAS the parties wish to set up a partnership to conduct that business and for the purposes of giving effect to these said intentions and in consideration of these premises and any other case THIS DEED WITNESSETH as follows:-
Clause 1 defined "the business" as the business of banana and berry growing and forestry known as "Golden Pine Produce" and located at the Property.
Clause 2 recorded that from a date that was left blank, the partners "become and remain (subject nevertheless to the provisions hereinafter contained) partners for the purpose of carrying on the business in accordance with the provisions of the deed" (the Partnership).
Clause 5 dealt with Partnership Assets and provided as follows (Partnership Assets):
PARTNERSHIP ASSETS.
5. (1) The following property shall be the assets of the partnership.
(a) The land at 212 Range Road, Halfway Creek,
(b) The partners' interest in the business.
(c) The goodwill of the business
(d) all motor vehicles, plant, fittings, and stock in or about the place of business and all other physical assets (save so far as they not shall belong to persons other than either of the partners). Which shall be in or upon the place of business or in transit.
(e) All other (if any) the property from time to time used by or enjoyed by the partners or any of them in connection with the carrying on of the business and which shall be paid for or provided out of the partnership moneys or otherwise have accrued for the partnership or shall represent other property formerly constituting assets of the partnership.
(2) The partners shall subject to the provisions and overriding effect of this deed beneficially entitled to the assets of the partnership in equal shares
Clause 6 dealt with Capital of the Partnership as follows:
CAPITAL OF THE PARTNERSHIP.
6.
(1) The partners shall equally contribute to the capital necessary to conduct the existing timber and forestry business, and shall be entitled to the capital in equal shares or in accordance with the further provisions of this deed.
(2) If in so far as it may be a requisite of carrying on the existing timber and forestry business the partners shall contribute such capital to the partnership as may be necessary from time to time.
(3) In respect of the proposed blueberry and horticultural business the parties shall make their own capital contributions and shall be entitled to the profits derived from the area of land allocated to them by the partnership and shall bear the costs of associated with that area and activity.
Clause 10 dealt with "Division of Profits and Losses" and provided, in effect, that the partners shall be entitled to the profits of the partnership in respect of the timber and forestry activities in equal shares and bear any losses in the same proportions, but in respect of the blueberry and horticultural activities, there shall be no division of profits, each partner receiving the profits and bearing the costs of activities conducted on their allocated plots.
Clause 14 dealt with the "Sale of a Share" and provided:
SALE OF A SHARE
14. If the holders of a share or their executors or assigns wish to quit the partnership or sell their share. The first offer to sell shall be made to the holders of the other shares. If that offer is not accepted then the outgoing shareholders shall have recourse to the existing law of New South Wales for a remedy. If a valuation is required then that valuation shall be carried by a properly qualified registered valuer who is independent of the shareholders.
At or about the time the Partnership Deed was executed, the parties divided up the Property into separate plots and wrote down a number for each plot. The numbered papers were put into a bowl for each party to draw a number to see who would get which plot.
In about May 2007, after the allocation of the plots, there were discussions about the day-to-day arrangements involved in the running of the Property. It was agreed that each partner would pay money into the joint ANZ business account each month for payment of the mortgage and the joint expenses such as rates, water and bills, with each partner paying for their own stock and machinery.
There does not appear to be a dispute that, as events transpired, each of the partners have not contributed equally to this account and that there will need to be a taking of accounts on the dissolution of the Partnership.
It appears that disputes arose quite early in the relationship including in relation to who got which plots, excessive use of water by individual partners and the like.
It also appears to be common ground that no business by the name "Golden Pine Produce" ever eventuated. Indeed, there never was a partnership business involving the sale of blueberries in the traditional sense of two or more persons carrying on a business in common with a view to a profit: see s 1(1) of the Partnership Act 1892 (NSW) (Partnership Act). Each of the parties conducted blueberry farming as individual businesses of each couple.
There is little to no evidence that the parties engaged in a timber and forestry business.
It is not necessary to recount in any detail the dealings between the parties over the years. Relations appear to have soured, and two camps have gradually formed as reflected in the constitution of these proceedings.
Various offers have been made over the years for the plaintiffs, or a subset of them, to sell to the defendants or for the plaintiffs to buy out the defendants.
In about February 2020, the Natural Resources Access Regulator NSW (NRAR) carried out an inspection of the dams on the Property. Stop work orders and draft directions were then issued by NRAR to remove certain unlawful water management works (being three dams exceeding the permitted capacity). Following the direction, and the works undertaken to reduce the dam capacity, the plaintiffs gave up farming their portions of the Property. It would appear that the defendants have continued to farm their plot.
The proceedings were commenced by Summons filed 11 October 2022. The plaintiffs sought an order that the Partnership be dissolved, a declaration as to the Partnership Assets, together with the appointment of a receiver to wind up the Partnership and associated orders to facilitate the winding up.
On 22 November 2022, the defendants filed a Cross Summons, seeking orders for the winding up of the Partnership but, more importantly a declaration - properly understood, an order - that the defendants/cross-claimants shall purchase the Property and the Partnership Assets from the plaintiffs/cross-defendants for $1.5 million or such other sum as may be determined by the Court.
The Cross Summons also sought an order that the net proceeds of sale of the Property be divided equally between each of the five groups. Separate orders were also included for the taking of accounts of the Partnership for the purposes of determining what was defined as the Mortgage Shortfall being, in effect, amounts that have not been contributed by certain partners to the joint account for payment of the mortgage. (As set out above, it was not in dispute that some partners had contributed more than others and therefore there needed to be the taking of an account).
On 25 October 2023, an Amended Summons was filed. The principal relief inserted by the Amended Summons was a buyout order whereby the first and second plaintiffs shall purchase the Property and the Partnership Assets for $2 million, or such other sum as may be determined by the Court.
The proceedings were heard by me yesterday - 29 July 2024. Mr B May of counsel appeared for the plaintiffs. Mr Harvinder Singh (also known as Harvey Atwal), the son of the defendants, assisted his parents in the conduct of the hearing pursuant to leave granted by me, over the opposition of the plaintiffs at the commencement of the hearing.
I should also record that late last week, the defendants applied to vacate the hearing date on the basis that they wished to re-engage lawyers to act for them and the lawyers who they had principally used at various times in the past in their dealings with the other partners, including in these proceedings. I refused that application on the basis that, having regard to the history of the matter, the defendants past use of lawyers and the decision not to engage lawyers in recent times, coupled with the issues that now remain for determination, it was not in the interests of justice for there to be any further delay.
At the hearing, Mr Atwal made it clear that the defendants no longer pressed for an order that the plaintiffs sell to them for $1.5 million. Rather, they wanted the Property sold at auction, and the Partnership wound up, with an account being taken of the mortgage shortfall.
I deal below with the various claims for relief advanced by each party. I will then direct the parties to seek to agree short minutes to give effect to these reasons.
The principal issue agitated at the hearing was whether there should be a buyout order as contended for by the plaintiffs.
[2]
The Partnership Assets and Dissolution
There was no dispute that the Partnership should be dissolved pursuant to s 35 of the Partnership Act with effect from the sale of the Property and any Partnership Assets and the taking of account in relation to any mortgage shortfall. A declaration should be made to this effect.
There was also no dispute that the net proceeds at the end of the winding up as adjusted for unequal contributions should be split equally between the five groups of partners.
There was no dispute that the Property was the principal asset of the Partnership, and a declaration should be made to this effect.
There was some dispute at the hearing as to what other assets were Partnership Assets. Prayer 2 of the Amended Summons included a declaration that "all motor vehicles, plant, fittings and stock and all other physical assets in, about, or upon the Property represent property of the Partnership."
The dispute at the hearing concerned whether, for example, fertiliser stored at the Property by the defendants for use by them on their plot growing blueberries was a Partnership Asset.
It is to be observed that the declaration sought by the plaintiffs picks up clause 5(1)(d) of the Partnership Deed. Declaration 1(b) in the Cross Summons is to a similar effect. It thus appears that there is no real dispute between the parties that such a declaration should be made.
I have no difficulty making a declaration in these circumstances but against the possibility that there might be some confusion between the parties as to what the declaration means, I should record that I would not regard such a declaration as capturing assets that are owned by individual partners and used by the partners in the conduct of their own business farming blueberries on their own plots on the Property.
There appears to me to be some tension between reading clause 5(1)(d) of the Partnership Deed as capturing any asset used by any partner at any time on the Property and the other clauses of the Partnership Deed which make it clear that each partner is responsible for, in effect, their own blueberry farming on their own plots, including making their own capital contributions and bearing the costs associated with that activity - see, for example, clauses 6(3) and 10(4) of the Partnership Deed.
This is also against the background of no business ever being conducted by the partnership named "Golden Pine Produce" or indeed any business of farming blueberries in common with a view to profit. To the extent to which clause 5(1)(d) may have been tied to the assets used in such a business it is of no effect, that endeavour having been abandoned by the parties to the extent it was ever envisaged.
If any disputes arise in this regard, there will be liberty to apply, which can be exercised either by any of the partners or the receiver I propose to order to wind up the Partnership.
[3]
Prayer 3 of the Amended Summons - the interest of the late Manjit Kaur Singh
Prayer 3 of the Amended Summons seeks a declaration that "Paramjit Singh holds the interest of the late Manjit Kaur Singh in the Partnership on trust for the persons entitled to the deceased estate."
Manjit Kaur Singh, the seventh plaintiff was a partner but unfortunately, she has passed away. A grant of Letters of Administration was made to her husband Paramjit Singh (the eighth plaintiff) on 23 December 2021.
The declaration seeks to ensure that her share of the partnership is passed to her estate and not her husband, the eighth plaintiff. The position is consistent with what was said by the High Court in Commissioner of State Revenue v Rojoda Pty Ltd (2020) 268 CLR 281 at [29]-[31]. No party contended that the declaration should not be made. To avoid any ambiguity in the future, it should be made.
[4]
Should there be a buyout order?
I turn now to consider the principal issue debated at the hearing - whether the first and second plaintiffs should be permitted to buy the Property for $2 million. The other plaintiffs, of course, supported this relief. The defendants opposed it.
The essence of the contention advanced by the plaintiffs was that selling the Property to the first and second plaintiffs "is the most advantageous outcome for all partners."
The plaintiffs relied on a valuation of the Property - minus the value of the timber contained on it - prepared by Mr Bryan Guest of Acumentis Regional Valuers. Mr Guest inspected the Property on 18 April 2023 and prepared a report valuing the Property as at 18 April 2023 at $1.85 million (Guest Valuation). That figure of $1.85 million was stated to be a "mid point" of two calculations prepared on different bases - namely on an "In Use Basis" ($1.83 million) and a "Piecemeal Basis" ($1.88 million).
A separate report was relied on from Mr Steven Dobbyns - a qualified Forestry Consultant - who inspected the Property in April 2023 and valued the timber crop (Dobbyns Valuation). He expressed the opinion "that the assessed timber crop could yield approximately 8,075m3 and a residual value of approximately $150,086."
He also stated:
This estimate uses the Lump Sum Method and is my considered opinion of the value of the subject timber crop as at the date of estimate. It does not purport to reflect any future trends, changes in value or changes to the property.
The report sets out the basis on which it was prepared, including the fact that 10 plots were sampled, representing 0.66% of the plantation area (see 4.5). This was done due to time and cost considerations and is below the number that would normally apply for a formal valuation of the forest block.
The essential contention of the plaintiffs is that the first and second plaintiffs are prepared to pay the assessed market value of the Property and the timber and that this will occur without the involvement of a receiver or agent to sell the Property - which would otherwise be the most likely outcome. There will thus be a significant saving of money. Reference was made to agent's commission in the order of 2.5% of the sale price.
The plaintiffs also placed reliance on the first plaintiff's long-standing association with the Property - him having located the Property and then inviting the parties to participate, and then carrying out much of the early preparation work at the Property. He is also able to purchase the Property outright and intends to resume farming blueberries on the Property.
Some weight is also placed on the fact that seven of the site owners want to sell to the first and second plaintiffs, with only the defendants being opposed.
There was no dispute as to the relevant legal principles applicable to a buyout order in this context. The authorities were recently summarised by Rees J in Pirrottina v Pirrottina [2024] NSWSC 558 (Pirrottina) at [252]-[257] as follows:
[252] On the dissolution of a partnership, any partner may to apply to the Court to wind up the business and affairs of the partnership, so that the surplus assets may be distributed to the partners after payment of partnership debts: s 39, Partnership Act 1892 (NSW). As a general rule, in the absence of a provision to the contrary in the partnership agreement, partnership property is to be sold on the dissolution of the partnership. However, the Court has a discretion to determine the mode of sale most beneficial to the parties: Lucas v Lucas [1962] Qd R 205 at 209 (per Gibbs J).
[253] Though the precise mode of sale of partnership assets remains a matter for judicial discretion, the "starting point" is that a sale by public auction is the "appropriate order": Lorebray at [106]; Calacoci v Calacoci [2020] NSWSC 476 at [115]. Notwithstanding this, the Court has a discretion to order a different mode of sale where it is necessary to "achieve fairness and justice between the parties": Lorebray at [106]; Syers v Syers (1876) 1 App Cas 174; Lucas v Lucas [1962] Qd R 205. The Court's discretion to make alternative orders is not "constrained to a particular class of case": Calacoci at [115] citing Lucas v Lucas at 209, 212. One such alternative to sale by public auction is a "buy-out" order, by which one partner is authorised to purchase the share of the other partner or partners in the partnership assets. Such orders are not "unusual", where a sale by public auction would prove less advantageous to the partners: The Law of Partnership at 253. There is no limit to the matters the Court may consider when determining whether to make these orders: Roderick I'Anson Banks, Lindley & Banks on Partnership (21st ed, 2022, Thomson Reuters) at 965, [23-326].
[254] The seminal case is Syers v Syers [1876] 1 App Cas 174, where one brother provided funds to the other, to establish a music hall and tavern in Oxford Street, London, in return for a 1/8th share in the profits. On dissolution of the partnership, the Lord Chancellor (Cairns) observed that "the ordinary course would be for the Court to direct the sale of the assets, and if necessary a sale of the concern as a going concern, and to give liberty for proposals to be made by either party to purchase it". However, "Those provisions are moulded in every case by the court to meet the circumstances of the particular case, and it appears to me that looking at the nature of this business, and looking at the very small interest which was taken in it by the respondent, it would certainly not be desirable in this case to have a sale, or to bring these premises to the hammer for the purpose of ascertaining what sum ought to be given for them": at 2131 (Lords Chelmsford, Hatherley and O'Hagan agreeing). An enquiry was ordered to value the 1/8th share in the music hall and tavern sold as a going concern, with the brother who was to continue to operate the business permitted to purchase that share.
[255] As Hoffmann LJ is reported to have observed, reproduced by Neuberger J in Mullins v Laughton [2003] Ch 250 at [110]: (emphasis added)
"It is I think notorious in the Chancery Division that Syers v Syers is an authority which is far more frequently cited by counsel than applied. But the discretion which it gives seems to be a valuable one which I think judges should not hesitate to use when it suits the justice of the case."
[256] Syers v Syers was followed in Lucas v Lucas, which concerned the dissolution of a partnership between a father and son carrying on business as farmers and graziers. After the farm was purchased, a house was built on the farm in which the son and his wife lived for some 12 years. On dissolution of the partnership, the father sought an order for sale of the farm. The son opposed an order for sale as he wished to attempt to purchase the farm. As to whether the son should be permitted the opportunity to buy-out his father's interest in the farm, Gibbs J observed that the facts in Syers were special. At 212 (emphasis added):
"However, it does appear to me that Lord Cairns was stating a general principle, namely that the court has a discretion to determine in any case whether, on the dissolution of a partnership, the ordinary course should be followed, or whether that course should be departed from to meet the circumstances of the particular case. It seems to me that the court's discretion is not only exercisable in facts such as arose in Syers v Syers, but may be exercised in any appropriate case, although it is true that a most important matter for consideration is that the ordinary course is to direct a sale of the assets by auction."
[257] In Lucas, Gibbs J was satisfied that the matter before his Honour was "one of those exceptional cases in which it is proper to depart from the ordinary course" at 212, [21]. Specifically, the partnership was between the father and son, where the son had lived for a number of years on the partnership property. Further, "The property was purchased for the purpose of the members of the family living on it. The valuation of the partnership property has been made, and there is nothing to cast any doubt upon the accuracy of the valuation. Of course, it is possible that on a sale by auction the property would be more than the valuation figure, just as it is equally possible that it would bring less, but nevertheless, a full valuation of the partnership assets has been made": at 212. It also appeared that, on the conclusion of the partnership, a substantial sum was owing to the son. Whilst each of these circumstances individually would not of itself have been sufficient to justify the exercise of the Court's discretion in favour of an order for private sale, when all of the circumstances of the case were taken together "it does seem to me to be proper that I should permit the [son] to purchase the [father's] interest in the partnership property": at [25].
As there set out, the general rule is that partnership property is to be sold on the dissolution of the partnership, but the Court has a discretion to determine the mode of sale most beneficial to the parties. The Court has a discretion to order a different mode of sale than public auction where it is necessary to "achieve fairness and justice between the parties". Buyout orders are not unusual where a sale by public auction would prove less advantageous to the partners.
Having regard to all of the circumstances, I am not satisfied in the exercise of my discretion that I should make a buyout order in the present case.
The fact that the plaintiffs together hold about an 80% interest in the partnership and favour a sale to the first and second plaintiffs is a relevant factor but is not of itself sufficient to command the making of such an order. Whilst each case must of course be considered on its own facts, Lindsay J took a similar approach in this regard in Calacoci v Calacoci [2020] NSWSC 476 at [116].
The fact that the first plaintiff has some association with the Property is, again, relevant, but not determinative. The defendants also have an association with the Property having farmed it for many years.
The circumstances of the present case are quite different to those which existed in Lucas v Lucas [1962] Qd R 205 (Lucas), where Gibbs J determined that a buyout order was appropriate. In Lucas, the partnership was between a father and son carrying on a business as farmers and graziers. A farm was bought by the partnership and a house built on the farm in which the son and his wife lived for some 12 years. In the present case, each partner couple farmed their own plots and the plaintiffs have relatively recently stopped farming.
I am not satisfied that a sale to the first and second plaintiffs for $2 million will be more advantageous to the partners. Whilst a sale at public auction or through the intervention of an agent will incur fees which may be in the order of 2.5% of the sale price, together with the fees charged by a receiver, whether this will mean the partners are worse off depends upon the market value of the Property and the timber on it.
In the present case, I am most concerned that the valuation evidence put forward - in relation to both the valuation of the Property and the timber - is about 15 months old. Whilst it is true that neither Mr Guest nor Mr Dobbyns were required for cross-examination, and the defendants did not advance any expert valuation evidence of their own, I do not regard these matters as requiring me to accept their expert opinions.
They are each expressing their opinions. It is clear that valuation is an art, not a science. The Guest Valuation is, in itself the mid-point of a range, and expressly recognises that the "In Use" market is thinly traded. The Dobbyns' Valuation is expressly stated to be based on a smaller number of plots being sampled than would normally apply for a formal valuation. I have no information as to what has occurred in terms of property or timber prices over the last 15 months. That period is, in my view, significant.
Having regard to these matters I cannot have any real confidence that a sale at $2 million will be more advantageous to all partners. The likely sale costs are not so great as to lead inexorably to the conclusion that the price that the Property will fetch on the open market will be less than $2 million plus the likely sale costs.
The Property is a substantial property that has not been marketed for a number of years. There is some evidence that it is located in something of a horticultural heartland "being within the heart of the mid north coast intensive plant market immediately adjoining the largest blueberry development in NSW" (see p 26 of the Guest Valuation). The first plaintiff also referred in evidence to the Costa Group, being a large corporation which operates a large blueberry farm and processing plant a short distance from the Property, on the same road, who may be interested in purchasing the Property. There is no evidence that the Costa Group has been approached to gauge their interest.
The circumstances of the present case are also quite different to those recently considered by Rees J in Pirrottina, where her Honour ordered that the two partners respectively buyout certain partnership assets in the possession of each partner.
In my view, the appropriate course is for a receiver to be appointed to sell the Property and any Partnership Assets. It is not in dispute that the receiver will be armed with the powers in s 420 of the Corporations Act 2001 (Cth) and will be subject to the duties that apply to receivers. It will be a matter for the receiver to determine the best method of selling the Property and I do not propose to dictate the most appropriate method.
All interested parties - being the first and second plaintiffs and the defendants, if they are so minded - will be free to bid at any auction or express interest to the receiver.
[5]
Orders to wind up the Partnership
Having determined that a buyout order is not appropriate, orders should be made appointing a receiver to sell the Property and any Partnership Assets.
There is no objection to Mr Robert Caldwell of Findex (Aust) Pty Ltd being appointed receiver, he having consented to act. The orders should provide for Mr Caldwell to be appointed receiver and to have the powers set out in ss 420(1) and 420(2)(a) to (m) and (o) to (r) as if references in that section to a corporation were references to the Partnership.
I note that Mr Caldwell has agreed in the first instance to a cap on his fees of $20,000 and the orders should provide for this. If Mr Caldwell's fees exceed this amount, he can apply to the Court for approval. I should also record that I do not regard any fees which may be payable to an agent in relation to the sale of the Property or any Partnership Assets as being included in these fees as they would likely exceed $20,000.
The orders should also provide for the receiver to be appointed a referee to take an account of the mortgage shortfall, and to work out what each partner is entitled to on a winding up, and then to report to the Court.
The parties and the receiver should also have liberty to apply on three days' notice with respect to any further orders or directions that may be required.
Orders 4 to 10 of the Amended Summons will require some amendment to give effect to what I have said above, and I will make directions to seek to have the parties agree orders.
[6]
Costs
The parties asked to be heard on the question of costs after I had determined the substantive issues. I propose to direct that the parties confer in the hope of agreeing an appropriate order as to costs having regard to the well-recognised principles: see Cavasinni v Cavasinni [2007] NSWSC 619 at [58]ff. Failing agreement, I will receive brief submissions and will determine the issue on the papers.
[7]
Orders
I make the following orders:
1. Direct the parties to confer to seek to agree orders for the winding up of the Partnership in accordance with these reasons and to seek to agree an appropriate order as to costs.
2. Direct the parties to provide to the chambers of Pike J by email by no later than 13 August 2024 any agreed orders.
3. Direct each party, to the extent that they are unable to agree orders, to provide to the chambers of Pike J by no later than 13 August 2024, the orders for which they contend together with any submissions in support of these orders, such submissions not to exceed 5 pages, whereupon any disputed issues will be determined on the papers.
[8]
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Decision last updated: 31 July 2024