Slim & Ors v Kabra & Ors

Supreme Court of NSW|2006-08-16|Before: Palmer J

CITATION : Slim & Ors v Kabra & Ors [2006] NSWSC 837

DECISION : Costs of proceedings to be for partnership account, save in one respect.

CATCHWORDS : COSTS - PARTNERSHIP - Dissolution of partnership - dispute as to taking of accounts - whether costs of Referee should be for partnership account - whether usual rule should be followed.

Hamer v Giles (1879) 11 Ch D 942 CASES CITED : Xie v Zhou [2002] NSWSC 1114 "Lindley & Banks on Partnership" (18th Ed) paras 23-120

Ali Slim - First Plaintiff Monique Slim - Second Plaintiff PARTIES : Sunil Ramniwas Kabra - First Defendant Neeta Sunil Kabra - Second Defendant Suresh Kumar Guduguntla - Third Defendant Pyiyadarshini Guduguntla - Fourth Defendant

COUNSEL : J.K. Chippindall - Plaintiff R.E. Steele - Defendant

SOLICITORS : Proctor Phair Lawyers - Plaintiffs Michie, Shehadie & Co - Defendants

1 Both the Plaintiffs and the Defendants have filed Notices of Motion seeking orders for the working out of accounts between them following upon the dissolution of their partnership. 2 The parties were partners in a single venture partnership. The Plaintiffs together constituted a one-third interest in the partnership, the First and Second Defendants together constituted another one-third interest, and the Third and Fourth Defendants together constituted the remaining one-third interest in the partnership. The business of the partnership was the acquisition and commercial utilisation of a property at Villawood called Birmingham Industrial Park. 3 It is clear that shortly after the venture commenced the parties fell into bitter disagreement. The property the subject of the partnership was sold in 2003. Since that time the parties have been in protracted litigation as to the consequences of the dissolution and as to the accounts between them consequent upon the failure of the venture. 4 The Court appointed Mr Rogers, an accountant, as Referee for the purposes of determining a large number of disputed claims as to who had contributed what to the partnership capital. There was no question but that the Plaintiffs had contributed some $277,000, but the Plaintiffs disputed what the Defendants were claiming to be their contributions to the capital of the partnership. 5 A Scott Schedule was prepared by the Plaintiffs listing some twenty-five items of dispute; it is not necessary for purposes of this determination to go through them in detail. It is sufficient to say that, in essence, the Plaintiffs were saying that the claims made by the Defendants for contribution to the capital of the partnership in relation these items should be wholly disallowed, substantially disallowed, or off-set by benefits taken by the Defendants from the partnership and costs which should be accounted against the Defendants in the partnership reckoning. 6 The Referee delivered a number of reports in the course of the reference. The final report is dated 16 April 2004 and has been adopted by the Court. That report is careful and voluminous. The Referee goes through the items put in dispute by the Plaintiffs and arrives at a determination of the respective contributions to capital by each of the partnership interests. 7 It is fair to say, I think, in broad summary, that in many, if not most cases, the Referee allowed the contributions which the Defendants were claiming they had made to the partnership capital, but reduced them in quite a number of instances by what might be described as relatively small amounts in the context of the sums in dispute as a whole. The Referee found that the Plaintiffs had contributed to capital some $277,000 and that the Defendant partners had made contributions respectively between approximately $144,000 and $146,000.

8 The first question for determination is whether the Referee's fees should be paid as an expense of the dissolution of the partnership, that is, by the partners themselves ultimately, or should be paid by the Plaintiffs alone. The Defendants submit that the Plaintiffs alone should pay the costs of the reference. The Plaintiffs submit that the costs of the reference should be a partnership expense. 9 The usual rule in proceedings for winding or dissolution of a partnership is that the costs of proceedings consequent upon, and necessary for, the dissolution should be paid out of partnership assets unless there is a good reason for making some other order. This is established in cases such Hamer v Giles (1879) 11 Ch D 942, Xie v Zhou [2002] NSWSC 1114, and see also "Lindley & Banks on Partnership" (18th Ed) paras 23-120. 10 Mr R. Steele of Counsel, who appears for the Defendants, says that this case is an exception to the general rule because the proceedings were in reality commenced by the Plaintiffs in order to obtain an adjudication on particular disputed claims between the Plaintiffs on the one hand and the Defendants on the other, so that the usual rule in litigation should prevail, that is, the unsuccessful party should pay the successful party's costs. Mr Steele says that the outcome of the reference demonstrates that the Plaintiffs were largely unsuccessful in their claims. 11 I am unable to accept that submission. I bear in mind that in this case the Plaintiffs did not have the control and custody of partnership records; they were in the possession of the Defendants. To a degree, therefore, the Plaintiffs were outsiders as far as the maintenance of records and the accounting of the partnership affairs were concerned. 12 It is clear that there was a dispute between the partners from an early stage of their relationship as to a fundamental aspect of the partnership, that is, the amounts which the partners respectively had contributed to the capital of the venture. This issue went to the very root of the partnership: the rights and obligations of the partners in the venture and their respective interests in the venture's assets rested upon the contributions which the parties had made to the capital of the venture. 13 I do not think that the disputes raised by the Plaintiffs could fairly be categorised as disputes relating to incidental matters concerning the affairs of the partnership or concerning the day-to-day administration of the partnership, nor can they be categorised as isolated disputes not going to the fundamental character and extent of the obligations of the partners amongst themselves. It seems to me that the disputes were fundamental to the dissolution, and to the administration of the dissolution, of the partnership and had to be determined as a necessary part of the accounting between the parties. 14 For those reasons, it seems to me that the dispute between the parties in these proceedings are properly within the normal rule applicable to the costs of dissolution and the taking of accounts in partnership proceedings, so that the fees of the Referee - leaving aside for the moment interest payable to the Referee on his fees - should be a partnership cost for the account of all parties.

15 The next issue that arises is which side of the record should be responsible for the payment of interest on the fees rendered by the Referee. 16 The Referee rendered a number of accounts for his services. They were not disputed by the Defendants. The calculation of the fees, however, was in the first instance disputed by the Plaintiffs. 17 However, as matters turned out, the Plaintiffs did not maintain that opposition and by the time this matter came before McLaughlin AsJ, the Plaintiffs were no longer disputing the calculation of the Referee's fees. What remained in this dispute before McLaughlin AsJ was whether the Referee's fees should be paid by the Plaintiffs, by the Defendants, or from the partnership account. McLaughlin AsJ was of the view that the fees ought to be paid by the partnership and that the Referee was entitled to interest because his fees had been left outstanding for some time. His Honour did not determine who should pay that interest. 18 Shortly after the hearing, as I understand it, the Referee's fees, including interest, were paid in full. It is clear, therefore, that the interest which his Honour found should be paid to the Referee arose from the fact that the Plaintiffs alone had disputed the quantum of those fees and had refused to be responsible for any part of them. 19 Because the Referee's fees attracted interest as a result of the attitude taken by the Plaintiffs alone - an attitude which the Plaintiffs no longer sought to justify - I do not think it is just that that interest should be for the account of the partnership, in accordance with the usual rule to which I have referred. In my opinion, that interest should be for the account of the Plaintiffs. I will so order.

20 It would have emerged from the reasons which I gave in my ruling as to the costs of the reference that I regard the dispute between the parties as having gone to the very core and foundation of their partnership and their respective rights and obligations as partners. The substantial part of that dispute was determined by the Referee pursuant to an order of the Court made in the case management of the proceedings. The ruling that I have given in respect of the costs of the reference is, therefore, in my opinion equally applicable to the determination of the issue as to who should pay for the costs of the proceedings as a whole. 21 In my view, the costs of the proceedings as a whole should be borne according to the usual ruling in such cases, that is, for the account of the partnership.

22 The only remaining question is as to the costs of the two Notices of Motion which I have heard today. 23 I think that the proper order is that the costs of both of those motions be for the account of the partnership in the same way as the costs of the proceedings generally. Both parties have had some measure of success and failure in respect of these two motions. 24 Further, I take into account that the issues debated before me today were narrowed down from the issues which had been previously raised and which came before me on the last occasion. The narrowing down occurred as a result of a helpful and sensible discussion between Counsel and the solicitors for the parties, but the whole process of discussion and the resolution of these matters demonstrates that these motions were inevitably part of proceedings fundamentally concerned with the taking of accounts between the parties. 25 For those reasons, the costs of both of the Notices of Motion will be for the account of the partnership. ~ oOo ~

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