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[2018] VSCA 141
Court of Appeal (Vic)
2018-06-01
Mr P, Cameron J, Santamaria JA, Kyrou JA, Ashley JA
Original judgment source is linked above.
Uren v Uren [2017] VSC 265 (Judd J)
CONTRACT - Partnership - Undocumented partnership agreement between brothers to conduct cattle farm - Respondent worked full-time on farm while applicant worked in finance industry - Respondent contributed all his capital to partnership - Whether partnership agreement included terms for payment to respondent of remuneration and interest on capital - Principles for inferring and implying contractual terms - Quantum of remuneration - Whether interest compound or simple - Appeal dismissed - ss 28, 48 - applied.
STATUTE OF LIMITATIONS - Respondent claimed remuneration from commencement of partnership - Parties agreed to taking of accounts and making of adjustments to entitlements from 1991 - Applicant subsequently pleaded limitation defence for period preceding 6 years before respondent's claim for remuneration - Whether limitation defence waived - Appeal dismissed - Limitation of Actions Act 1958 s 5(1).
1 This application for leave to appeal concerns the entitlement of the respondent ('Noel') to be remunerated for the labour he contributed to a partnership between him and the applicant ('Bruce') and to be paid interest on the capital he advanced to the partnership.
2 Noel and Bruce are brothers. Noel is a farmer and Bruce is a finance broker. They established the partnership in 1974 to conduct a cattle farm known as 'Walkerville' at Tarwin Lower, Gippsland ('Walkerville partnership' or 'Partnership'). Walkerville was comprised of three lots and a Crown allotment. Noel lived on the farm from 1994 and was responsible for its day-to-day operation. Bruce lived and worked in various Victorian cities and was responsible for the finances and accounts of the Partnership.
3 Following a falling out between the parties in 2013, on 10 June 2015 Bruce commenced a proceeding in the Trial Division in which he sought a declaration as to the dissolution of the Partnership with effect from 30 June 2015. He also sought orders for the sale of partnership assets, the application of proceeds of sale and the adjustment of entitlements.
4 The proceeding was settled on 10 August 2015. By terms of settlement signed on that day, the parties agreed to the dissolution of the Partnership and the sale of partnership assets, including Walkerville. The parties also agreed that an accountant, Russell Munday of Munday Wilkinson, be appointed to enquire into and report on their respective entitlements in the Partnership from 1 July 1991. An order made by Cameron J on 18 August 2015 gave effect to the terms of settlement.
5 Mr Munday prepared a draft report dated 29 March 2016 ('Draft Munday Report') and, following further submissions from the parties, a final report dated 18 August 2016 ('Final Munday Report'). The Final Munday Report was largely adopted by the parties, with a number of issues remaining for adjudication by the Court. The parties filed points of claim and defence and counterclaim in relation to the outstanding issues, some of which were ultimately not pressed.
6 The two outstanding issues raised by Noel in his points of claim dated 11 November 2016 that are relevant to this application for leave to appeal were:
(a) whether he was entitled to an adjustment in his favour calculated by reference to unpaid wages as a partnership expense and, if so, in what amount and for what period; and
(b) whether he was entitled to an adjustment in his favour for interest on capital advanced by him to the Partnership and, if so, how much.
7 At trial, Bruce amended his points of defence and counterclaim to allege that, if Noel was entitled to claim remuneration from the Partnership, his claim was barred by s 5(1) of the Limitation of Actions Act 1958 ('LAA') insofar as it concerned wages for work performed prior to 11 November 2010. That date is six years prior to the date of Noel's points of claim.
8 The proceeding was heard by Judd J. On 25 May 2017, he upheld Noel's claims for remuneration and interest[1] and, on 4 and 14 September 2017, he made orders to give effect to his decision.
9 Bruce seeks leave to appeal against the judge's orders. He relies on 16 proposed grounds of appeal which seek to impugn the following aspects of the judge's decision:
(a) that Noel was entitled to be remunerated for his labour;
(b) that Noel's remuneration be calculated on the basis of an annual entitlement of $37,149 for the period from 1 July 1993 until 30 June 2015;
(c) that Noel was entitled to interest on his capital contributions;
(d) that Noel's entitlement to interest be calculated on a compound basis rather than on a simple interest basis; and
(e) that Bruce had waived his right to a defence under s 5 of the LAA in respect of Noel's entitlement to remuneration for the period preceding 11 November 2010.
10 For the reasons that follow, the application for leave to appeal will be granted but the appeal will be dismissed.
Background to Uren family and ownership of farming land
11 Bruce and Noel grew up on their family's cattle farming property, 'Krowera', which comprised about 230 acres in Krowera, Victoria. Krowera was farmed by their father, Norman Uren, and uncle, Jack Uren, under the trading name 'Uren Brothers'. Norman and Jack each owned half of Krowera. They also owned Walkerville, which in 1973 comprised approximately 570 acres. In the mid-1980s, Bruce and Noel purchased 120 acres of neighbouring land, and Walkerville was expanded to 690 acres.
12 Following Norman's death in 1961, Noel left school at the age of about 15 and began to work as a farmhand in Krowera. Bruce, who is three years older than Noel, went to work as a banker. In 1987, Bruce established his own finance broking business which he conducted through his company, Exclusive Finance & Leasing Pty Ltd ('EFL').
13 Noel operated Krowera in partnership with his mother, Ethelwyn. He did not receive remuneration for his labour at Krowera. He was, however, provided with accommodation, meals and some money and was entitled to a share of profits in that partnership.
14 In 1963, Ethelwyn and Jack transferred ownership of Walkerville to Bruce, Noel and their sister, Ruth.
15 As at 1974, Noel held a half share in Krowera following the death of Jack, and Ethelwyn held the other half share.
16 Ruth died in 1973. In 1974, Bruce and Noel acquired her interest in Walkerville and became owners in common, in equal shares, of that property. At that time, they entered into the Partnership by agreeing to conduct a cattle farming business at Walkerville. It was necessary to clear brush and scrub and buy livestock to commence the business. No written partnership agreement was entered into.
17 It is not in dispute that, when the Partnership was formed, Bruce and Noel agreed that:
(a) Noel would work and conduct farming activities at Walkerville;
(b) Bruce would attend to the administrative and financial affairs of the Partnership; and
(c) they would share the profits of the Partnership equally.
18 In about 1988, Noel and Ethelwyn sold 85 acres of Krowera and received about $220,000. At that time, Bruce and Noel had a discussion in relation to the purchase of the property next to Walkerville, called 'King's Park'. Bruce said that if Noel were to contribute his half share of the sale proceeds for the purchase of King's Park, that contribution would attract interest. The proposed purchase of King's Park did not eventuate and instead, with his half share of the sale proceeds, Noel invested in a property at Inverloch. The Inverloch property was sold in September 1991, and the net sale proceeds of $150,000 were invested in the Walkerville partnership.
19 Following Ethelwyn's death in 1991, Bruce held a 25 per cent interest in Krowera and Noel held the remaining 75 per cent interest. Noel continued to live and work at Krowera and to conduct the business of that farm until 1993.
20 In 1993, Krowera was sold for $280,000. Noel contributed his share of the net proceeds to the Walkerville partnership (approximately $204,924.89) and Bruce contributed his share of the net proceeds (approximately $68,308.30).
21 From 1994, Noel started to work on the farming business in Walkerville and to live on the farm. He did not pay for accommodation at Walkerville or for any expenses, including food, power, fuel, rates and insurance. He did not have a family to support and lived frugally.[2] He drew from the Partnership's account only such amounts as were necessary for his basic living expenses. These 'drawings' were debited to his capital account by Bruce or accountants at his direction.[3] Neither Noel nor Bruce was paid any remuneration by the Partnership.
22 After the sale of Krowera in 1993, the only potential source of income for Noel was Walkerville, whereas Bruce earned income as a 'very successful finance broker'.[4]
23 On 30 June 1999, EFL entered into a written loan agreement with Bruce and Noel, as partners of the Walkerville partnership, under div 7A of pt III of the Income Tax Assessment Act 1936 (Cth) ('ITAA'). Under that agreement, EFL was entitled to interest on loans made to the Partnership 'at the benchmark interest rate prescribed by or under Section 109N of the [ITAA]'.
24 The Partnership consistently made losses. It obtained loan finance from Rural Bank, RMBL Investments Ltd ('RMBL') and EFL.
25 In 2001, 2005 and 2007, Bruce completed loan applications to RMBL on behalf of the Partnership in which he falsely stated that Noel had an annual income of between $60,000 and $100,000. Between 2008 and 2012, Bruce caused tax returns to be prepared for Noel which falsely stated that Noel was employed by EFL at an annual salary of $60,000.
26 In 2013, Noel sought advice from his accountant about the Partnership's 2012 tax return. His accountant queried with the Partnership's accountant 'why [Noel's] contributions to the partnership in both cash and labour were not reflected in the partnership accounts'.[5]
27 In that year, there was a breakdown in the relationship between Bruce and Noel. They agreed that the Partnership would need to be dissolved, its assets sold and the proceeds of sale used in the manner prescribed by the Partnership Act 1958.
Trial Division proceeding and agreement for dissolution of Partnership
28 On 10 June 2015, Bruce commenced a proceeding in the Trial Division seeking a declaration as to the dissolution of the Partnership with effect from 30 June 2015 and orders:
(a) that the Partnership assets, including Walkerville, be sold and the net proceeds held on trust for the parties; and
(b) for the taking of accounts of the Partnership from 1 July 2013.
29 On 10 August 2015, following a mediation, the parties signed terms of settlement for the dissolution of the Partnership, the sale of the Partnership's assets and the taking of accounts by Mr Munday. Attached to the terms of settlement were proposed court orders which the parties consented to make 'if necessary'. Paragraph 3 of the terms of settlement stated that the parties 'otherwise reserved their rights'.
30 On 18 August 2015, Cameron J made an order - effectively by consent - to implement the terms of settlement, which were attached to the order. The order declared that the Partnership was dissolved on 30 June 2015 and relevantly provided that:
(a) certain properties and goods of the Partnership, including Walkerville, be sold, and gave directions to facilitate those sales;
(b) the net proceeds of sale be paid into court pending the determination of all disputes between the parties;
(c) Mr Munday be appointed as a receiver of the debts now due and owing and other property and assets of the Partnership;
(d) the following accounts and enquiries be taken and made by Mr Munday:
(i) an account of the Partnership debts and liabilities as at 30 June 2015;
(ii) an account of all receipts, payments, dealings and transactions of Bruce and Noel in respect of the Partnership business -
(iii) an enquiry as to what has become of the property and assets of the Partnership business since 30 June 2015; and
31 Paragraphs (c) and (d) above reflected paras P and Q, respectively, of the proposed consent orders attached to the terms of settlement. It should be noted that para Q, as originally drafted by Bruce, specified the commencement date for the taking of accounts as 1 July 2013 but the parties changed this by hand to 1 July 1991.
32 By 14 January 2016, all of the Partnership assets were sold. The net proceeds of sale of approximately $978,443.04 were paid into Court.
33 The Final Munday Report provided that, after adjustments, the capital account balances for the Partnership as at 30 June 2016 were $1,063,395 for Bruce, (inclusive of amounts owed to EFL), and $291,624 for Noel. The report reserved for further consideration whether there should be further adjustments in favour of Noel in respect of unpaid remuneration for his contribution of labour to the Partnership and unpaid interest for his capital contributions.
34 By summons dated 8 September 2016, Noel sought an interim distribution to him of $200,000 from the moneys paid into Court in order to fund proceedings to pursue the issues of remuneration and interest that were reserved in the Final Munday Report.
35 On 23 September 2016, Bruce filed a summons seeking to have the findings of the Final Munday Report adopted by the Court.
36 On 19 October 2016, Hargrave J made an order which relevantly provided that:
(a) on or before 11 November 2016, Noel file and serve a summons, points of claim, and evidence on affidavit, in support of his claim alleging an agreement between he and Bruce as to his labour, and as to the treatment of his contributions of capital; and
(b) on or before 9 December 2016, Bruce file and serve points of defence, and evidence on affidavit, including a response articulating any adjustment, to any claim made by Noel.
37 Hargrave J published reasons for making this order.[6] He noted that the Final Munday Report 'expressly [left] open the possibility that the court may, upon proper evidence and following legal submissions, determine to make adjustments in [Noel's] favour in respect of the wages issue or the interest issue, or both'.[7] He concluded that, while it would have been preferable for Noel to have adduced evidence as to agreements said to have been made on those issues, he should not be prevented from agitating them before the Court for that reason, or because they had not been raised previously. He observed that, in any event, those issues could not have been agitated before Mr Munday as their outcome would 'depend upon contested evidence which [Mr Munday] did not have the necessary powers to determine'.[8]
38 On 11 November 2016, Noel filed a summons and points of claim, by which he sought adjustments to the quantum of his contributions as determined in the Final Munday Report, based on claims for remuneration and for interest.
39 Noel's points of claim articulated his remuneration claim as follows:
(a) it was an implied, or alternatively an inferred, term of the Partnership agreement entered into in 1974 that, prior to the sharing of the profits of the Partnership, he would receive a reasonable remuneration for his labour between 1974 and 30 June 2015; and
(b) at all material times, a reasonable remuneration for his labour was in the order of $35,000 per annum in current dollar terms.
40 Noel's points of claim articulated his interest claim as follows:
(a) in about 1988, the parties agreed to vary the Partnership agreement to add a term that if Noel contributed capital to the Partnership, it would be treated as a loan attracting reasonable interest; and
(b) reasonable interest is interest calculated on a compound basis at the following rates:
(i) between 1988 and 30 June 1998, approximately 6 to 7 per cent; and
(ii) between 1 July 1998 and 30 June 2015, the benchmark interest rate pursuant to s 109N(2) of the ITAA.
41 On 12 December 2016, Bruce filed his points of defence and counterclaim by which he denied Noel's claims for remuneration and interest. By his counterclaim, Bruce sought a number of adjustments to his contributions, which are not presently relevant.
42 On 16 December 2016, Hargrave J made an order which relevantly provided that the Final Munday Report be adopted by the Court, save for the matters placed in issue by Noel's point of claim and Bruce's point of defence and counterclaim.
43 At trial, Bruce was given leave to file amended points of defence and counterclaim. The amended defence added a defence pursuant to s 5(1) of the LAA, namely, that Noel's claim for remuneration under the Partnership agreement was barred insofar as it related to work performed prior to 11 November 2010.
(a) whether it was a term of the Partnership agreement that Noel was entitled to receive remuneration from the Partnership ('remuneration term') and, if so, the quantum of the remuneration; and
(b) whether the parties orally agreed to add a term to the Partnership agreement that Noel would be paid reasonable interest on his capital contributions ('interest term') and, if so, whether reasonable interest was compound interest.
45 Both Bruce and Noel gave oral evidence and were cross-examined.
46 In cross-examination, Bruce gave the following evidence which is relevant to the remuneration term issue:
And why did EFL provide loans without an interest rate?---Because we had a partnership, and it's my brother and I had cared for my brother a lot and looked after him all his life and to continue on living - allowing him to continue on the farm, I put the money in. I could have invested this money in many, many other things, but I obviously felt committed to my brother, and I had a very big interest in that farm too.
...
And insofar as [EFL] has advanced necessary money to the partnership in your mind that's been precisely equivalent to you advancing it as an individual; that's correct, isn't it?---No, this has been more like a love and affection situation because, as I said, he is my brother and I was trying to keep him in business and I have had numerous conversations over a long, long period of time about the continual losses of this operation.
...
Mr Uren, I want to suggest to you that you have treated your brother outrageously for at least the last 17 years. How do you respond to that?---Totally, totally, totally incorrect. I have fed, looked after my brother. I supplied him with motor vehicles. I bought his car. I paid the payments on the tractor. Every time I went down that farm I took him food. I bought him clothes. I cleaned the house. What more can I do? And I could get plenty of witnesses to that if you need them.
...
Over the last 42 years on which occasions have you had regard to Noel's personal benefit?---I have looked after Noel's personal interest his whole life.
Kindly tell His Honour when you have had regard to his personal interests? ---Every time that he wanted something, whether it's a vehicle or whether it's something, I supplied for him. As I said, I've fed him. I've looked after him. What more can I do? When he wanted a new tractor, I arranged it.[9]
47 Noel gave the following relevant evidence in cross-examination:
[W]hen was the first time that you turned your mind to the question that an agreement had been reached in respect of wages back in 1974 in relation to work on the Walkerville farm in addition to the split of profits? When was the first time it occurred to you?---I can't remember that. ... [M]e and Bruce did have an agreement that I was getting wages there.
When did it first occur to you or you turned your mind to the question that you had a claim for wages pursuant to an agreement?---Well, I don't really understand the time when it might have been, but we did have - look, I used to draw so much out, a little bit out, but I thought the business was, you know, I was getting covered with wages and that's what I thought the agreement we had.
You had an oral agreement?---It was just a normal, what we run on, the talk between him and me. That's how I always worked my business, like on the honesty sort of system, agreement, and I stuck to it. I'd say it wouldn't have been in writing, no. It was an agreement just between the two of us.
When?---Oh, when we started the partnership, probably in the 70s, 80s. I'm only saying that's all it could have been.
...
Just tell us about the agreement you now remember?---No, look, I don't really know - it was only just between me and my brother. But I just took it for granted that he was going to be looking after it down the thing. We run - the system here was run like on the two of us. I might have overlooked that.
...
That's the only arrangement I suggest to you that you had with your brother, that private items could be purchased for money taken from the joint account or the Motorpass fuel card, but those items would be countered against your drawings?---I would have thought all the years I put there working down there, that I would have been getting a wage, something would have been put away for me because I worked many days, a lot of hard work, and I would have thought there would have been something with him or with the accountant, would have taken consideration down the track that I would have to get some other earnings, some other wages or something. ... [T]he point I'm saying is that I would have thought that the wages, I would have been incurring some wages, wouldn't I? ... I come back to the point, I can't add much more to it, it's the same, but I would have thought I would have been perhaps getting account of all my labour and time I've put in the farm over the years.
...
That's the only arrangement you had, wasn't it, in relation to private items? ---I would have thought that all the work I would have been doing, it would have been between the accountant and whoever would have been making some allowances for my wages over the time. So I can't really make any more comment.
I'm just asking you what you agreed to with your brother?---I go back and just say I would have thought that through the accountant and Bruce, knowing that I'm doing all the work, that no-one works for nothing, there would have been an agreement somewhere put in there. I can't add much more to it.[10]
48 The Pastoral Award 2010 was tendered in evidence. Under this award, as at 2015, a Senior Station Hand was entitled to be paid an annual salary of $30,000 plus superannuation, accommodation and meals.
49 A report dated 26 November 2015 prepared by Richard Jackson, an agricultural consultant ('Jackson report'), was also tendered. By reference to the Pastoral Award 2010, he stated that, as at 2015, an annual salary of $37,149 'would appear to be appropriate for a farm worker of Noel Uren's level of experience and standing'.
50 The Final Munday Report was an important exhibit at trial. The parts of the report that are relevant to the proposed grounds of appeal are as follows:
(i) states that Noel lived at Walkerville rent-free, provided services to the Partnership in the form of labour without compensation between 1991 and 30 June 2015 and withdrew funds from the Partnership for his personal use which were debited against his capital;
(ii) refers, with apparent approval, to the Jackson report;
(iii) states that the value of the rent-free accommodation received by Noel would be significantly less than the value of Noel's labour;
(iv) states that Bruce attended to the financial affairs of the Partnership in a casual/part-time capacity and that Noel's net contribution to the Partnership would have exceeded that of Bruce in value; and
(v) calculates an adjustment in favour of Noel for his labour for the financial years 1992 to 2015 as: $480,000 on the basis of an annual wage of $20,000; $600,000 on the basis of an annual wage of $25,000; and $720,000 on the basis of an annual wage of $30,000.
(b) Paragraph 25, which includes tables calculating interest entitlements on the amount of the differential between Noel and Bruce's capital contributions, rather than the actual amounts which each of them contributed.[11] The tables include interest adjustments in favour of Noel calculated on a compound interest basis as well as on a simple interest basis. The compound interest basis would result in an increase in Noel's entitlements in the amount of $376,643 and a corresponding decrease in Bruce's entitlements whereas the adjustment amount on the simple interest basis would be $63,822.
Judge's decision, correspondence with Mr Munday and judge's orders
51 On 25 May 2017, the judge delivered judgment and held that:
(a) it was to be inferred that, by 1993, the parties had agreed to vary the Partnership agreement to add a term that Noel was entitled to be paid remuneration at a reasonable rate, as an expense to the Partnership, or alternatively such a term is to be implied;
(b) in 1993, the Partnership agreement was varied to include a term that Noel was entitled to interest on the capital contributed by him to the Partnership; and
(c) interest on capital is to be calculated on a compound basis.
52 The judge's reasons are discussed in detail below.
53 On 8 June 2017, Noel's solicitor sent a letter to Mr Munday attaching a copy of the judge's reasons for judgment. In relation to the adjustment to be made on account of Noel's remuneration entitlement, the letter stated:
In accordance with the Judgment, adjustment needs to be made as follows:
54 On 14 June 2017, Bruce's solicitor sent a letter to Mr Munday which, in relevant respects, was identical to the letter dated 8 June 2017 from Noel's solicitor.
55 On 29 June 2017, Mr Munday prepared an addendum to the Final Munday Report. The addendum stated that he was 'instructed by the parties to effect ... adjustments' for Noel's unpaid wages in the sum of $37,149 per annum, for the period from 1 July 1993 until 30 June 2015 and for compound interest on the differences from time to time on the parties' capital accounts. He made adjustments totalling $854,427 for Noel's unpaid wages and $753,286 for interest on his capital contribution.
56 On 4 September 2017, the judge made an order which relevantly provided:
(a) there be judgment for Noel on his claims made by points of claim dated 11 November 2016;
(b) save in one respect which is not presently relevant, Bruce's counterclaim is dismissed;
(c) the Court adopts the addendum to the Final Munday Report;
(d) the sum of $980,649.89,[12] be distributed to the parties as follows: $81,701.95 to Bruce and $898,947.95 to Noel;
(e) from the date of the order, the Senior Master cause Noel's share to be accounted for separately to Bruce's share;
(f) from the balance standing to the credit of each party, the Senior Master cause $50,000 to be paid to that party; and
(g) after the payments provided for in (f) above, the Senior Master cause the balance of the moneys standing to the credit of each party, less the sum of $25,000, to be paid to that party.
57 On 14 September 2017, the judge made a ruling on costs and relevantly ordered that:
(a) the order referred to at [56(d)] be vacated;
(b) in respect of the sum of $978,443.04 held in Court,[13] Bruce is entitled to $80,598.52 and Noel is entitled to $897,844.52; and
(c) save in one respect which is not presently relevant, Bruce pay Noel's costs of the proceedings on a standard basis.
58 Before summarising the judge's reasons for making the above orders, we will set out a number of statutory provisions and legal principles that assist in an understanding of those reasons and the proposed grounds of appeal.
Relevant provisions of Partnership Act and Limitation of Actions Act
59 Sections 28 and 48 of the Partnership Act relevantly provide as follows:
28 Rules etc. of partners when not subject to special agreement
The interest of partners in the partnership property and their rights and duties in relation to the partnership shall be determined subject to any agreement express or implied between the partners by the following rules:
(1) All the partners are entitled to share equally in the capital and profits of the business and must contribute equally towards the losses whether of capital or otherwise sustained by the firm.
...
(3) A partner making for the purpose of the partnership any actual payment or advance beyond the amount of capital which he has agreed to subscribe is entitled to interest at the rate of Seven per centum per annum from the date of the payment or advance.
(4) A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by him.
...
(6) No partner shall be entitled to remuneration for acting in the partnership business.
...
48 Rule for distribution of assets on final settlement of accounts
In settling accounts between the partners after a dissolution of partnership the following rules shall subject to any agreement be observed -
(a) losses including losses and deficiencies of capital shall be paid first out of profits next out of capital and lastly if necessary by the partners individually in the proportion in which they were entitled to share profits;
(b) the assets of the firm including the sums (if any) contributed by the partners to make up losses or deficiencies of capital shall be applied in the following manner and order -
(i) in paying the debts and liabilities of the firm to persons who are not partners therein;
(ii) in paying to each partner rateably what is due from the firm to him for advances as distinguished from capital;
(iii) in paying to each partner rateably what is due from the firm to him in respect of capital;
(iv) the ultimate residue (if any) shall be divided among the partners in the proportion in which profits are divisible.
60 Section 5 of the LAA relevantly provides as follows:
(1) The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued -
(a) ... actions founded on simple contract (including contract implied in law) or actions founded on tort ...;
...
...
(2) An action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action.
...
(7) Save as otherwise expressly provided an action shall not be brought to recover any arrears of interest in respect of any sum of money whether payable in respect of a specialty, judgment, legacy, mortgage or otherwise, or any damages in respect of such arrears, after the expiration of six years after they became due.
...
Principles relating to inferred and implied contractual terms
61 In Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd,[14] this Court summarised the principles relating to inferred contractual terms as follows:
It has been observed that the line between inference and implication will not always be easy to draw. However, the distinction between the two processes is set out in Deane J's judgment in Hawkins v Clayton. After concluding that a contract existed between a testatrix and her solicitors in relation to the preparation, execution and safe custody of her will, Deane J considered what the terms of that contract were. He observed that the contractual terms upon which the will remained in the safe custody of the solicitors were left 'largely unarticulated by the parties'. In those circumstances, he identified two 'stages', which he said may well overlap, for the ascertainment of the relevant terms. The first stage was described as 'essentially one of inference of actual intention', and entailed an inquiry as to 'what, if any, are the terms which can properly be inferred from all the circumstances as having been included in the contract as a matter of actual intention of the parties'. The second stage was described as 'one of imputation' and entailed an inquiry as to 'what, if any, are the terms which are, in all the circumstances, implied in the contract as a matter of presumed or imputed intention'.
In Byrne v Australian Airlines Ltd, Brennan CJ, Dawson and Toohey JJ drew a similar distinction between the inference of contractual terms and their implication in circumstances where there was no formal contract between the parties. They relevantly stated:
In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention.
McHugh and Gummow J similarly stated that, where a contract was not in writing and was oral or partly oral, or it appeared that the parties had not reduced their agreement to a complete written form, courts should exercise caution and avoid an automatic or rigid application of the conditions in the BP Test. They then relevantly stated:
In such situations, the first task is to consider the evidence and find the relevant express terms. Some terms may be inferred from the evidence of a course of dealing between the parties. It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied.
Similarly, in Breen v Williams, Dawson and Toohey JJ stated that where there was no formal agreement, the actual terms of the contract would have to be inferred before any question of implication could arise.
In Kitching v Phillips, ... Murphy JA, with whom Pullin and Newnes JJA agreed, cited Hawkins, Byrne and Breen and stated that inferred terms of the kind referred to by Deane J in Hawkins would typically arise where there was no formal written agreement between the parties.[15]
62 These principles were also discussed in Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd.[16] In that case, the Court noted that, as the process of inferring a term of a contract is informed by the parties' communications and course of dealing, evidence of their pre-contractual conduct is admissible on the question of whether a particular term is to be inferred.[17]
63 In relation to implied terms, it suffices for us to refer to the 'BP Test' which was explained in Grocon as follows:
A term implied into a contract is one which it is presumed that the parties would have agreed upon had they turned their minds to it ... Thus, implication of a term is designed to give effect to the parties' presumed intention ...
A contractual term implied as a matter of fact is specific to the contract in question, and derives from the court's view of the intention of the parties. The conditions for implying a term in fact into a contract were set out by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings, and adopted by Mason J in Codelfa ('BP Test'). Those conditions are as follows:
(a) the term must be reasonable and equitable;
(b) the term must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(c) the term must be so obvious that 'it goes without saying';
(d) the term must be capable of clear expression; and
(e) the term must not contradict any express term of the contract.[18]
Judge's decision and proposed grounds of appeal
64 As we have already stated, Bruce relies on 16 proposed grounds of appeal to impugn the judge's decision. The proposed grounds which, for simplicity, we will refer to as 'grounds of appeal' or 'grounds', raise the following issues:
(a) Whether the judge erred in finding that Noel was entitled to remuneration for his labour (grounds 1-10).
(b) Whether the judge erred in relation to the quantum of Noel's remuneration entitlement (grounds 12-13).
(c) Whether the judge erred in finding that Noel was entitled to interest and that such interest be calculated on a compound basis (grounds 14-16).
(d) Whether the judge erred in finding that Bruce waived his right to rely on the defence in s 5(1) of the LAA in relation to Noel's claim for remuneration for the period preceding 11 November 2010 (ground 11).
65 We will discuss the above issues in turn. For each issue, we will set out the relevant parts of the judge's reasons, the pertinent grounds of appeal, the parties' submissions and our conclusions.
Noel's entitlement to remuneration for his labour
66 Before considering whether the Partnership agreement included a remuneration term, either as an inferred term or an implied term, the judge referred to the principles summarised at [61]-[63] above. He noted that an inferred term reflects the actual agreement of the parties whereas an implied term is one that is imputed to them by the Court. He also observed that, before consideration could be given to whether a term is to be implied, it is necessary for the Court to determine the actual terms agreed by the parties, either expressly or by way of inference.
67 The judge said that this case did not involve a formal contract which would, in effect, be altered by the Court implying an additional term.[19] He went on to say:
There was no formal partnership agreement. The existence of a partnership agreement was to be inferred from the conduct of the brothers in their working relationship. The parties had probably never turned their minds to the need for legal definition to their relationship, save for the assumption that they were 'in partnership'.
...
Before considering Noel's contention for an implied term, there is an anterior question. What were the actual terms of the business relationship between the two brothers? Accepting the existence of a partnership, did it include, as a term, an entitlement to remuneration that was sufficiently defined to displace the operation of s 28(6) of the Partnership Act and corresponding obligations as fiduciaries?
It is true that an arrangement under which one partner is to be responsible for the conduct of a partnership business will not, of itself, import an agreement to remunerate a partner as an expense of the partnership. While Noel did not rely upon that fact alone, it is a relevant factor and, in context, may become evidence supporting such a term.[20]
68 The judge made the following factual findings that were relevant to the remuneration issue:
Noel relied upon the imbalance in the contribution of labour made by the brothers. I am satisfied that Noel did the vast majority of the manual work required to clear Walkerville. He operated the farming business. He devoted his full time and attention to the Walkerville farming activity after the sale of Krowera in 1993. During the period 1974 to 2015, Bruce was a full-time employee of a bank until he commenced his finance broking business. He was not dependent on farming for his livelihood. On the contrary, the farm presented him with an opportunity to reduce his tax liability by diverting income into the unprofitable enterprise.
While it is true that Bruce made a contribution by 'doing the paperwork', I do not regard his contribution as comparable with, or in any way equivalent to, the full-time contribution of labour made by Noel after 1993. There are also other important contextual factors, such as differing capital contributions, the sources of funds for capital contributions, and the willingness of Bruce to introduce EFL as a financier and beneficiary of tax contrivances. Bruce always assumed that Noel was the farmer and would undertake the farming activity. There was no suggestion that Bruce would ever assume such responsibility.
...
The relationship between the brothers involved striking inequality from the outset, not confined to be unequal contributions of labour and capital. Noel was dependant on Bruce for his material needs, and Bruce assumed the responsibility of providing for Noel's needs. It is this dependency and assumption of responsibility which, together with the other contextual features, defines the terms of the business relationship.
...
Noel's case for remuneration did not depend on an express oral agreement, or any particular conversation. He was unsophisticated in financial terms. His education had been interrupted by his father's death ...
[Noel's evidence is] consistent with assumptions he made rather than agreements made with his brother. He was dependent upon Bruce to look after his financial position, and Bruce was well aware of Noel's dependency.
...
During the years between 1974 and the sale of Krowera, Noel operated Krowera in partnership with his mother until her death. He lived in Krowera.
After Ethelwyn died, and Noel moved to Walkerville, the farming activity at Walkerville became the sole focus of Noel's life and work. He managed and operated the farm. By that time, Bruce had left the employ of a bank and had established himself as a successful finance broker, eventually trading through EFL. Save for the fact that his company was established in 1987, the evidence of Bruce's transition from bank accountant to finance broker was limited. In 2001, Bruce represented to RMBL that his income was $250,000. In 2005, he represented that it was $500,000.
An aspect of the relationship between the brothers, not fully explored during the trial, was the obvious imbalance between their education and worldly sophistication. Bruce presented as an astute businessman. He held himself out as Noel's guardian ...
...
By his answers [in cross-examination], Bruce acknowledged his responsibility for Noel's material needs. He understood that Noel was dependent on him. Noel's evidence also demonstrated a dependency on Bruce for financial advice and guidance. Noel believed Bruce would look after his interests.
The inequality was evident in the way Bruce managed Noel's financial affairs. Unfortunately, Bruce manipulated Noel's position to his own financial advantage. This factor added a layer of complexity to the relationship, and the analysis required to ascertain the actual terms of the partnership, and whether a remuneration term might be implied for the benefit of Noel. It might be argued that had Bruce turned his mind to the question of Noel's remuneration in 1974, or in 1993 after Krowera had been sold, he would not have agreed to such a term, or accepted that it was necessary.
While remaining sceptical about Bruce's motivations in his dealings with his brother, and dismayed by the extent to which he used the partnership for his own personal gain as a tax minimisation opportunity, I accept that [Bruce] was deeply conscious of his responsibility to care for the material needs and security of Noel. He knew that Noel was at a disadvantage, depending on him for guidance and protection.[21]
69 Against those factual findings, the judge gave the following reasons for his decision that, by 1993, Bruce and Noel had agreed to amend the Partnership agreement to add a remuneration term:
Walkerville was always an unprofitable farming enterprise. Bruce said so. After their mother had died, and Krowera [was] sold, Noel put the whole of his capital into Walkerville and made it his life's work. To expect Noel to invest everything he had in Walkerville, and work for the partnership in a full-time capacity, depleting his capital with every drawing, would have been manifestly unreasonable, even unconscionable. Once Noel became dependent on Walkerville, and moved onto the property, the reasonable bystander, acquainted with the surrounding circumstances known to the parties, would have concluded that Noel would be remunerated at a reasonable rate of pay, as an expense to the partnership. I am persuaded that had Bruce turned his mind to the question of remuneration in 1993, he too would have reached the same conclusion. He would have wanted to protect the interests of his dependant brother, by ensuring that he was rewarded for his hard work on the farm, protecting his capital from rapid depletion if his basic living costs were to be treated as drawings against his capital alone.
The terms of an implied partnership may, of course, vary as time passes, just as the scope and extent of fiduciary obligations may vary depending on the circumstances. While the conduct of the brothers, to be assessed against commonly understood background circumstances, may not support an inference that their partnership agreement included the remuneration term while Noel was working Krowera, I am persuaded that such a term would have been reasonably inferred from their conduct and surrounding circumstances by 1993. Thus, it may seem somewhat artificial to approach the question of Noel's entitlement to remuneration as requiring the implication of a term ...
Furthermore, in the present case, with its very unusual features, the distinction between 'actual terms' and an implied term seems immaterial. Whatever approach is taken, it leads to the same conclusion. Applying the objective theory of contract to ascertain the 'actual terms of the contract', before there is any occasion to consider implied terms, leads to the conclusion that the brothers agreed that provision would be made for Noel's remuneration, as an expense to the partnership, by 1993.
An inquiry into the 'presumed or imputed intention', to assess whether the remuneration term should be implied into an existing agreement, leads to the same outcome. To ask whether such a term was necessary for the reasonable operation of the partnership in 1993, or was it a term which the parties must obviously have intended at that time, having regard to all the circumstances, compels the conclusion that a durable partnership between the brothers on reasonable terms depended on Noel receiving a reasonable income that would not have the effect of depleting his capital account, to the benefit of Bruce. While fairness will not ordinarily be a relevant consideration when assessing presumed or imputed [intention], Bruce made it a consideration that was necessary for the reasonable operation of the partnership. He did so by his assumption of responsibility, recognising Noel's dependence on him for material needs, and future security.
If approached from the perspective of an objective observer, or the 'officious bystander', such a person would have considered it manifestly unfair if Noel's reward for his labour was to be paid out of his capital. Bruce knew that the farming operation was a loss making enterprise. I am persuaded that, once Krowera had been sold, had the brothers turned their minds to the question of whether Noel should be paid a living wage for his full-time work, as an expense to the Walkerville partnership, they would have responded, 'of course'. After all, Bruce would have been driven by his responsibility for the wellbeing of his dependant, anxious to protect his interests, which included his capital.
If, as I have found, a variation to the commercial relationship between the brothers took place around 1993, following the sale of Krowera, there is no need to consider the implication of the remuneration term. I have also found that the remuneration term ought to be implied, if not already a term of the partnership. Accordingly, it was unnecessary to rely upon subsequent conduct. In any event, I am not persuaded that any of the subsequent conduct relied upon by Noel is probative of the remuneration term sought to be implied. Such conduct involved fabrications by Bruce in loan applications, and tax avoidance contrivances. They do not assist Noel's case.[22]
70 In the context of his discussion of the inequality between the parties in relation to the Partnership, the judge observed that it was 'not a conventional partnership'. He relevantly stated:
Bruce resisted the implication of the remuneration term by contending that the brothers had agreed to work towards a common objective which did not require the implication of such a term in order to give efficacy to their agreement. That, and other submissions, were based upon an assumption of a conventional business partnership. This was not a conventional partnership.[23]
72 The judge also rejected a submission by Bruce that subsequent conduct by Noel, namely Noel's failure to seek wages for 40 years, militated against the implication of a remuneration term.[26] He said:
When speaking of performance, as a factor bearing upon the implication of a term, the nature of the contract, and the term sought to be implied, necessarily inform the analysis. The arrangements between the brothers was informal. It was a familial relationship. Their business relationship arose out of inheritances, finding expression in the common ownership of Walkerville. Thus, to ask whether 'the contract has been performed without adhering to, or without inconsistency with, the claimed term, without complaint or commercial difficulty', is to assume terms of an existing contract which do not include a remuneration term.[27]
73 Grounds 1-10 seek to impugn the judge's findings in relation to Noel's entitlement to remuneration. Those grounds are in the following terms:
a term must be so obvious that it goes without saying; and
in respect of the claimed:
c implied remuneration term; and
d implied compound interest term.
74 Bruce submitted that it was not open to the judge to find that he had assumed responsibility for Noel, which was critical to the inference of the remuneration term. He submitted that this finding arose from Noel's evidence of his subjective assumption that Bruce would look after him, and the judge taking Bruce's evidence that is set out at [46] above out of context and interpreting it as an acknowledgement of responsibility. Accordingly, Bruce argued, it was not open to the judge to find an intention on his part in 1993 for a remuneration term to be included in the Partnership agreement because, although Noel may have had that intention, he did not.
75 Further, Bruce contended that it was never put to him in cross-examination that he intended there to be a remuneration term and there was therefore no foundation upon which the judge could conclude that if he had turned his mind to remuneration in 1993, 'he too would have reached the same conclusion', namely that Noel should be remunerated for his labour.[28]
76 Bruce submitted that the judge's assessment of the actual intention of the parties ignored that a remuneration term would require Bruce to pay half of Noel's wages, irrespective of the success of Walkerville. He argued that Noel's evidence that there was an agreement that he was entitled to a wage in the 1970s or 1980s and that he could not recall when he turned his mind to the question of a remuneration agreement was inconsistent with the inference of such a term by 1993.
77 Bruce contended that, although Noel had pleaded in his points of claim that a remuneration term was implied in 1974, as he did not plead that there was an agreed variation to the Partnership agreement by 1993, it was not open to the judge to find that the Partnership agreement was varied by 1993. According to Bruce, the correct inference on the evidence was that the parties had expected that Walkerville would be profitable, and it was for that reason that Noel had invested all of his capital in Walkerville and worked at the farm full-time.
78 Bruce submitted that the judge also erred in finding that, in the alternative, there was an implied remuneration term. He contended that the remuneration term did not satisfy the first condition of the BP Test, namely, that any implied term be reasonable and equitable, arguing that it would be unreasonable and inequitable to imply a term that would entitle Noel to receive remuneration at the expense of the Partnership and ultimately, him (Bruce).
79 Bruce argued that the judge had also failed to apply the second and third conditions of the BP Test, as he did not consider whether a term entitling Noel to remuneration was 'so obvious that it goes without saying' or 'necessary for reasonable and effective operation of the Partnership agreement'.[29] He submitted that, in relation to those conditions, the judge had also failed to have regard to the following relevant matters:
(a) from 1974 until 1993, Noel had conducted a partnership for profit on Krowera and lived on that property;
(b) Noel had not received a salary from his partnership with Ethelwyn, despite farming Krowera in partnership with her;
(c) from about 1994, Noel lived at the Walkerville property rent-free, and took personal drawings from the Partnership for his living expenses;
(d) Noel first claimed the existence of a remuneration term some 40 years after the date he alleged the remuneration term arose. In particular, Bruce emphasised that the issue of remuneration arose only on 10 September 2015, as a result of questions that Mr Munday circulated to the parties; and
(e) the fact that, during the Partnership, Bruce and Noel separated personal expenses and business expenses for accounting purposes, and Noel's personal expenses were allocated to his drawings.
80 Bruce further argued that, without the remuneration term, the Partnership agreement would have been effective and simply comprised a conventional farming partnership. Further, so it was said, the Partnership Act had built-in adjustments for unequal contributions by parties and therefore a remuneration term was not necessary. According to Bruce, on a proper application of the BP Test, it was not open to the judge to imply such a term into the Partnership agreement.
81 Bruce contended that the judge erred, in reaching his conclusion that a remuneration term could be implied, by finding at para 49 of his reasons that whether 'the contract has been performed without adhering to, or without inconsistency with, the claimed term, without complaint or commercial difficulty' was an irrelevant consideration due to the informal, familial nature of the Partnership agreement. He submitted that that question was relevant to determining whether a remuneration term could be implied to displace the rule in s 28(6) of the Partnership Act.
82 According to Bruce, as a consequence of there being no express or implied remuneration term in the Partnership agreement, s 28(6) of the Partnership Act operated to prevent Noel from receiving remuneration for acting in the Partnership. He argued that the judge's failure to apply that provision constituted an error at law. He further argued that s 28(6) reflected a partner's fiduciary duty to the partnership to manage its affairs to the best of his or her ability without being paid for fulfilling that duty, and that the judge had failed to have regard to 'established authority and accounting practices that remuneration [is] not awarded to partners as one cannot be an employee and partner at the same time'.
83 Bruce submitted that the judge's finding in para 44 of his reasons, that the Partnership was not a 'conventional partnership', which underpinned his conclusion that a remuneration term could be implied, was erroneous. He contended that the Partnership was conventional and that the judge had incorrectly construed his 'paternal instinct' to assist Noel with material needs as an assumption of responsibility. Further, he contended that a feeling of responsibility is not inconsistent with a conventional partnership. Accordingly, so it was said, the judge's application of the BP Test and finding of an implied remuneration term was based on incorrect findings of fact.
84 In addition to incorrect findings of fact about the nature of the relationship, Bruce submitted that the judge failed to have regard to certain conduct of the parties subsequent to the formation of the Partnership agreement that was inconsistent with the implication of a remuneration term. He contended that the judge erred in not having regard to Noel's failure to seek remuneration for approximately 40 years, and signing of tax returns which did not set out a wage payable to him, as factors that militated against the implication of a remuneration term.
85 Noel submitted that the judge had not implied a remuneration term into the Partnership agreement, but had inferred that, by 1993, such a term existed as a result of the parties' conduct and surrounding circumstances. He contended that the judge's approach of considering it unnecessary to rely on an implied term once an inferred term was found, was consistent with the doctrine of inferred and implied terms. It was said that, under that doctrine, inference is looked to first to identify the terms of an agreement, before the implication of any term is considered. According to Noel, many of Bruce's grounds of appeal and submissions alleging that the judge erred in implying a remuneration term were misconceived.
86 Noel contended that, even if the judge had erred in inferring the existence of a remuneration term, he had nevertheless correctly applied the BP Test to imply one. He argued that the following findings by the judge represented a correct application of the BP Test. First, at para 62 of his reasons, by finding that it would have been 'manifestly unreasonable, even unconscionable' to expect Noel to invest all his assets, work full-time for the Partnership and deplete his capital. Secondly, at para 65 of his reasons, by finding that the durability of the partnership depended on Noel receiving a reasonable income and that Bruce had made fairness 'necessary for the reasonable operation of the partnership' by assuming responsibility for Noel's material needs and security. Thirdly, at para 66 of his reasons, by finding that an 'officious bystander' would have considered it manifestly unfair if Noel were paid for his labour out of his own capital. Accordingly, so it was said, the judge was correct in his conclusion that, in the alternative to an inferred remuneration term, a remuneration term ought be implied.
87 Noel submitted that the judge had not misapplied s 28(6) of the Partnership Act, because he had found that the Partnership agreement had been varied to include the remuneration term. He contended that variation displaced the prohibition on partners receiving remuneration contained in s 28(6).
88 Noel argued that the judge had not erred in his factual findings, or failed to consider relevant matters. Specifically, he contended that: the judge's findings regarding the 'unconventional' nature of the Partnership and Bruce's assumption of responsibility for him were reasonably open on the evidence. Regarding the relationship of dependency with Bruce, Noel emphasised parts of Bruce's evidence which is set out at [46] above and his own evidence which is set out at [47] above. He also referred to the following statement in his affidavit dated 11 November 2016: 'Every year, Bruce gave instruction to the accountant to prepare those [tax] returns. I never saw them before they were filed'. In cross-examination, Noel clarified that he had signed tax returns but was not given an opportunity to read them when he was asked to sign them by Bruce.
89 Noel submitted that the judge had considered his failure to claim wages and had found that it was explicable by his assumption that wages were being put aside for him. He argued that Bruce's evidence of his intention that no remuneration term be included was irrelevant[30] and that each of the matters set out at [79] above had been traversed, directly or indirectly, by the judge.
90 Noel contended that it was open on his points of claim - which were not a formal pleading - for the judge to infer or imply a remuneration term from 1993. He argued that, as his claim for wages in his points of claim was not restricted to 1974 and his evidence dealt with the events of 1993, the judge was not restricted to the circumstances in 1974. According to Noel, as Bruce also led evidence about what had occurred in 1993, no unfairness to him arose as a result of the judge's finding that it was a term of the Partnership agreement from 1993 that Noel was entitled to receive reasonable remuneration for his labour.
91 Grounds 1, 6, 9 and 10 and some of Bruce's submissions on those grounds are based on the erroneous premise that the judge made a primary finding that the remuneration term is to be implied into the Partnership agreement. It is readily apparent from paras 53, 62-64 and 67 of the judge's reasons[31] that the judge inferred that, by 1993, the Partnership agreement had been amended to include an additional term that Noel would be remunerated at a reasonable rate for his labour as an expense to the Partnership. That term is an inferred term, reflecting the actual intention of the parties, rather than an implied term based on an imputed intention.
92 The authorities referred to at [61] above make it clear that a court must determine the terms of a contract to which the parties actually agreed, whether expressly or by way of inference, before considering whether any additional terms are to be implied. Self-evidently, if a court finds by way of inference that the parties agreed to a particular remuneration term, it cannot determine that the same term was also an implied term of the contract. There is simply no need for an implied term which duplicates an inferred term.
93 The paragraphs of the judge's reasons to which we have referred indicate that the judge was aware of these principles. It is true that he considered the question of an implied remuneration term and concluded that such a term ought be implied. However, he made it clear that such a term ought be implied 'if not already a term of the partnership'.[32] As the judge found that a remuneration term was already a term of the Partnership agreement by way of inference, it must follow that there was no place in that agreement for an implied term. The judge's observations about an implied term were not necessary for his decision.
94 As will become apparent, we have concluded that the judge was correct in inferring a remuneration term. Accordingly, any error in the judge's analysis concerning an implied term cannot affect the correctness of his decision. That is not to say that we are satisfied that the judge's analysis concerning an implied remuneration term, proceeding as it did only on the hypothetical basis that such a term could not be inferred, was erroneous.
95 The judge set out the BP Test and correctly applied the third condition dealing with 'obviousness'.[33] Although the judge did not, in terms, refer to the first condition that the term must be reasonable and equitable, his observation that a remuneration term was fair and necessary for the reasonable operation of the Partnership,[34] in substance, constitutes a finding that this condition was satisfied. For the reasons set out below in relation to the inferred remuneration term, the judge's finding was correct.
96 Likewise, although the judge did not, in terms, refer to the third condition that the term was necessary to give business efficacy to the Partnership agreement, his finding that 'a durable partnership between the brothers on reasonable terms depended on Noel receiving a reasonable income'[35] was to the effect that this condition was met. Once again, we consider that the judge was correct. We reject Bruce's submission that a remuneration term was not necessary because the Partnership Act contained built-in adjustments for unequal contributions. In the absence of a remuneration term, Noel would receive no favourable adjustment to account for his disproportionately greater contribution of labour.
97 We accept that the judge did not refer to the fourth condition regarding clear expression or the fifth condition regarding lack of inconsistency with any express term. However, this does not mean that the judge failed to consider these conditions. In Narni Pty Ltd v National Australia Bank Ltd,[36] Tadgell JA stated that the five conditions in the BP Test, 'although evidently expressed to operate cumulatively, may nevertheless overlap; and in some cases ... a more simplified approach may be appropriate and permissible'.[37] Further, as this Court said in Grocon, '[t]here are examples in the case law of the global application of the conditions in the BP Test to a particular case'.[38]
98 In the present case, it is implicit in the judge's finding that a remuneration term is to be implied in the Partnership agreement - if it did not already contain an express remuneration term - that the judge was satisfied that the fourth and fifth conditions were met.
99 The fact that the judge was able to specify the remuneration term as one requiring that Noel 'be remunerated at a reasonable rate of pay, as an expense to the partnership'[39] from 1993 confirms that the judge considered that the term was capable of clear expression. Further, the fact that the judge concluded that a remuneration term is to be implied only if it could not be inferred as an actual term of the Partnership agreement meant that his analysis proceeded on the basis that there would be no express term dealing with remuneration with which such an implied term could be inconsistent.
100 We now turn to consider the judge's reasons for inferring that, from 1993, the Partnership agreement included a remuneration term. The judge inferred that term from the following circumstances:
(a) After Krowera was sold in 1993, Noel contributed the whole of his capital to the Walkerville Partnership, worked full-time on the farm and depended on it for his livelihood. The drawings he made for living expenses depleted his capital. On the other hand, Bruce advanced a lesser amount of capital and contributed less time to the farm (either in performing manual work or in looking after the Partnership's finances) due to his full-time work in the finance industry. That full-time work provided Bruce with significant income, independent of the farm, which enabled him to support himself and his family without depleting his capital in the Partnership.[40]
(c) The different sources of the funds for the capital contributions Noel and Bruce made to the Partnership.[43]
(d) There was an imbalance in Noel and Bruce's levels of education and worldly sophistication. Noel's education had been interrupted and he was unsophisticated in financial terms. Bruce presented as an astute businessman.[44]
(e) Noel depended on Bruce for his material needs. Bruce understood this dependence and assumed the responsibility for providing for Noel's needs. He held himself out as Noel's guardian. He knew that Noel was at a disadvantage and depended on him for guidance and protection.[45]
101 The judge concluded that it was to be objectively inferred on the basis of the parties' conduct and the surrounding circumstances known to both of them that, by 1993, they had agreed to add to the Partnership agreement a term that Noel would be remunerated at a reasonable rate of pay, as an expense to the Partnership.[46] In our opinion, the matters to which the judge referred constituted sufficient contextual circumstances to justify that conclusion.
102 Noel's willingness to contribute all of his capital and labour, and to devote his life to the loss-making Walkerville farm after the sale of Krowera in 1993, and Bruce's willingness, as Noel's self-appointed guardian, to embrace this state of affairs only make objective commercial sense if Noel is entitled to reasonable remuneration for his labour. The absence of such an entitlement would, in the circumstances, constitute a grave exploitation of Noel's commercial naivety and loyalty to Walkerville, which would be inconsistent with Bruce's knowledge that Noel depended on him for protection and his assumption of responsibility to provide such protection. It follows that, in these circumstances, the inference that the parties agreed to the remuneration term found by the judge was irresistible.
103 Our conclusion that the judge was correct to infer the remuneration term is based on the evidence of the circumstances that existed at and before 1993 and the then conduct of the parties. We have relied on the parties' conduct in and before 1993 and the prevailing context at that time - including the relationship that then existed between the parties - rather than on the parties' subjective, uncommunicated intentions.[47] We have also relied on Bruce's evidence about his long-standing desire to protect Noel's interests[48] insofar as that evidence constituted an admission against interest. We have not otherwise relied on the parties' evidence about their beliefs and intentions in 1993 or preceding years, as it tended to be self-serving.
104 We reject Bruce's submission that the judge took his evidence out of context. As appears from [46] above, Bruce repeatedly stated, in emphatic terms, that he had looked after Noel all his life. That evidence amply supported the judge's finding that Bruce knew that Noel was at a disadvantage and needed looking after and that he had assumed the responsibility for Noel's material needs.
105 In the light of the fact that we did not rely on the parties' evidence about their subjective intentions, except insofar as it constituted an admission against interest, the confusing nature of Noel's evidence about the existence of an agreement for the payment of remuneration does not affect our conclusion. That is also the position in relation to the absence of direct cross-examination of Bruce about whether he subjectively intended in 1993 that the Partnership agreement be varied to add a remuneration term. That is because evidence that Bruce did not have such a subjective intention would not be relevant to the judge's task of objectively determining whether a remuneration term should be inferred.
106 It follows from the above discussion that ground 1, insofar as it concerns the implied remuneration term, and grounds 5-8 cannot be made out.[49]
107 In relation to ground 6, we note that Noel's points of claim asserted the existence of the remuneration term as an inferred term and an implied term in the alternative.[50] The points of claim did not specify when the remuneration term took effect. Accordingly, it was open to the judge to conclude that it took effect from 1993. Even if, on their proper construction, the points of claim allege that the term was part of the Partnership agreement from the formation of the Partnership in 1974, that would not have precluded a finding that the term took effect in 1993. The points of claim and the points of defence and counterclaim were very brief and relatively informal documents rather than detailed formal pleadings. Further, as submitted by Noel, much of the parties' evidence focused on what occurred in 1993. The judge's finding fell comfortably within the case that was advanced by Noel.[51]
108 Ground 2 does not assist Bruce. It is not clear what the judge meant when he said in para 44 of his reasons that the Partnership was not a 'conventional partnership' and therefore any assumptions applicable to such a partnership did not apply.[52] As we have concluded that the judge correctly found by way of inference that the parties agreed to vary the Partnership agreement to add the remuneration term, any error in his analysis regarding a 'conventional partnership' cannot affect the correctness of his decision.
109 Our conclusion that the judge was correct in inferring that the parties agreed to vary the Partnership agreement to add the remuneration term also means that ground 3 cannot be made out. This is because the 'rule' in section 28(6) of the Partnership Act that '[n]o partner shall be entitled to remuneration for acting in the partnership business' is 'subject to any agreement express or implied between the partners'. The inferred term is an actual term of the Partnership which has the effect of displacing that rule.
110 Ground 4 must be rejected. The fact that the parties conducted the affairs of the Partnership without the payment of remuneration to Noel and that he did not complain prior to 2013[53] was a relevant consideration in determining whether the remuneration term should be inferred or implied.[54] However, those circumstances were not determinative and had to be taken into account in the context of all the other relevant circumstances. The judge's statement at para 49 of his reasons, which is the subject of ground 4, merely reflects this proposition.
111 The judge's conclusion that it can be inferred that the parties agreed to vary the Partnership agreement to add the remuneration term was based on a consideration of the circumstances which we have summarised at [100] above. We have found that this conclusion was correct. The fact that the Partnership was conducted for many years without reference to the remuneration term, considered in isolation, suggests that the parties did not agree to that term. However, it would be erroneous to consider this fact in isolation. Rather, it must be viewed in the context of all the other relevant circumstances. When it is so viewed, it is insufficient to overcome the strong inference that the parties had agreed to the remuneration term.
112 In relation to ground 9, the judge was correct to find that Bruce had assumed responsibility for Noel's material needs and future security. The impugned finding was open on the basis of the matters set out at [100(a)-(e)] above. As at 1993, Noel did not have a family of his own, both his parents had passed away and his only surviving sibling was his older brother Bruce. The impugned finding was fortified by Bruce's evidence which is set out at [46] above, being evidence th[55] was against interest.55 The impugned finding was one of the circumstances which supported the drawing of the inference that, by 1993, the parties had varied the Partnership agreement to add the remuneration term. For the reasons set out at [91] above, ground 9 is incorrect insofar as it states that the judge found that the remuneration term was an implied term rather than an inferred term.
113 Finally, we turn to ground 10. This alleges that, in para 67 of his reasons, the judge erred in 'failing to have regard to subsequent conduct relied upon by Bruce Uren to negate the implication of the remuneration term whether at the date of the Partnership Agreement or at any subsequent date'.[56] However, in para 67, the judge rejected a submission by Noel - and not Bruce - that certain post-contractual conduct supported the implication of a remuneration term. He was right to disregard that conduct for the reasons that he gave.
114 As appears from [72] above, the judge also rejected a submission by Bruce that post-contractual conduct by Noel militated against the implication of a remuneration term. The conduct upon which Bruce relied was Noel's failure to seek wages for 40 years and his signing of tax returns which did not disclose a wage payable to him. Post-contractual conduct may be admissible on the question whether it should be inferred that an informal contract contains a part[57]ular term.57 In some circumstances, it has been said by some authorities that it may also be admissible on the question whether a particular term should be implied into[58] contract.58 In the present case, however, the probative value of the conduct upon which Bruce relied was insufficient to outweigh the probative value of the combined effect of the circumstances supporting the existence of the remuneration term. Moreover, Noel's evidence provided an explanation in relation to the tax returns, namely, that Bruce did not give him adequate time to read the tax returns that were prepared for him before he was required to sign them.
Judge's decision on quantum of Noel's remuneration
115 Although the judge referred to the evidence relating to the quantum of Noel's remuneration entitlements, including calculations in the Final Munday Report, he did not determine the quantum. He relevantly stated:
The parties did not agree on the appropriate wage, in the event that the remuneration term was to be implied. They did, however, agree to the tender into evidence of the Pastoral Award 2010, under which a Senior Station Hand would receive, as at 2015, $30,000 plus superannuation, accommodation and meals. Mr Munday accepted that for the 2015 year an annual salary of $37,149 would have been reasonable. I was not assisted by calculations to reflect adjustments made on the basis of award rates over the preceding years. Having regard to the way in which this part of the case was presented by the parties, I am left with a rather crude mechanism for the assessment of the value of any entitlement to wages. As the award wage represents a wage in addition to the value of accommodation calculated by Mr Munday, no deduction should be made for the value of accommodation.
A report prepared by Richard Jackson, an agricultural consultant, calculated an entitlement to wages, insofar as they were due, by multiplying the current award wage by the number of years. Of course, in prior years, the award wages would have been lower. On the other hand, if wages were payable, unpaid wages would attract interest. It was perhaps for this reason that Mr Munday (and Mr Jackson) were content to multiply a fixed sum by the number of years. Thus, if a wage was payable in and after 1993, the amount due would be 22 x $37,149 = $817,278.
...
In the absence of agreement between the parties on the necessary adjustment to the loan balances ascertained by Mr Munday, I propose to refer the calculation of the adjustments to Mr Munday. I will hear the parties on further directions and costs. [59]
Grounds of appeal on quantum of Noel's remuneration
116 Grounds 12-13 deal with the issue of the quantum of Noel's remuneration. They are in the following terms:
Parties' submissions on quantum of Noel's remuneration
117 Bruce submitted that the judge failed to properly consider evidence, tendered by agreement, that the Pastoral Award 2010 rate for a senior station hand employed with keep ranged from $18,054.92 per annum in 1998, to $30,037 per annum in 2014. He contended that the judge erred by preferring Mr Munday's assertion that in 2015, $37,149 was a reasonable annual salary and that he then fell into further error by applying the 'crude mechanism' of multiplying that rate for every year Noel worked at Walkerville since 1993 (22 years), to reach a total amount owing of $817,278.
118 Bruce argued that the judge, when he referred the calculation of Noel's remuneration and interest back to Mr Munday, could not have intended for Mr Munday to have employed the mechanism of multiplying $37,149 per annum by 22 years because there was evidence before the judge that would have produced a fairer result. Accordingly, so it was said, the calculation of Noel's remuneration should be remitted to Mr Munday or the parties' solicitors for re-calculation. To the extent that the parties had consented to the calculation of remuneration being based on an annual salary of $37,149 multiplied by 22 years, Bruce argued that the consent arose by common error which was then reflected in the judge's final order dated 4 September 2017.
119 Noel submitted that the judge's reasons did not determine that his remuneration should be fixed at $37,149 per annum. According to Noel, by their solicitors' letters of 8 and 14 June 2017, he and Bruce had asked Mr Munday to calculate Noel's wage in the addendum to the Final Munday Report by the method of multiplying an annual salary of $37,149 by 22 years. He argued that the judge had relied upon that calculation in his order dated 4 September 2017 and that Bruce could not now resile from his consent to that method of calculation. He contended that, before the order was made, the parties had ample opportunity to be heard on the terms of the order and Bruce at no stage submitted that the order should not give effect to Mr Munday's calculation of the quantum of Noel's remuneration.
120 Noel argued that, in any event, the figure of $37,149 per annum was a conservative one in the light of his responsibilities on Walkerville, the judge's ruling that no deductions should be made for his accommodation, and the unchallenged evidence in the Jackson report that $37,149 was an appropriate award rate for a farmhand.
121 The judge did not determine the quantum of Noel's remuneration. Rather, the judge made observations on the limited evidence adduced by the parties on that issue, including the Pastoral Award 2010 and the Jackson report. He stated that both Mr Munday and Mr Jackson had been content to multiply a fixed sum by a number of years, noting that, although the award rate would have been lower prior to 2015, Noel would have earned interest on the lower wages in earlier years.
122 The judge decided to leave it to the parties to agree on the quantum of Noel's remuneration and specified that failing agreement, Mr Munday would undertake the task.[60]
123 It is evident from the letter dated 8 June 2017, from Noel's solicitor to Mr Munday, and the letter dated 14 June 2017, from Bruce's solicitor to Mr Munday,[61] that the solicitors had formed the view that an entitlement by Noel to be paid wages in the sum of $37,149 per annum for the period from 1 July 1993 until 30 June 2015 would be '[i]n accordance with' the judge's reasons for judgment. The letters to Mr Munday were relevantly identical. It is not clear whether this was because Bruce's solicitor unilaterally replicated the earlier letter from Noel's solicitor or whether the parties expressly agreed to send identical letters to Mr Munday.
124 Whatever the explanation for the identical letters, it is clear that the parties decided to give effect to the judge's decision that Noel was entitled to remuneration and that they did so by accepting as appropriate an annual wage of $37,149 for the period from 1 July 1993 until 30 June 2015. The appropriateness of such a wage was supported by the evidence before the judge and the judge's observations in relation to that evidence.
125 We reject Bruce's submission that the letters to Mr Munday were based on the mistaken view that the judge had determined that Noel was entitled to an annual wage of $37,149 for the period from 1 July 1993 until 30 June 2015. The letters do not state, in terms, that the judge had determined that such an annual wage must be paid. Rather, the letters state that such a wage is '[i]n accordance with the Judgment', meaning that such a wage is consistent with the reasons for judgment. The references in the letters to paras 32-36 and 64 of the reasons for judgment merely identify the paragraphs of the reasons with which such a wage is consistent.
126 Having elected to implement the judge's decision concerning Noel's entitlement to remuneration, by adopting an annual wage of $37,149 for the period from 1 July 1993 until 30 June 2015 on the basis that such a wage is consistent with that decision, it is not open to Bruce now to complain about the quantum of the wage. In any event, it has not been demonstrated that the judge made any error.
127 It follows that grounds 12 and 13 must be rejected.
Noel's entitlement to compound interest on capital contributions
128 The judge decided that the Partnership agreement included a term that each of the partners had an entitlement to be paid interest on their capital contributions. The judge's reasons were as follows:
I do not accept that Noel's evidence [that he and Bruce had agreed that any capital contributed to purchase King's Park would attract interest[62]] goes so far as to establish an oral agreement with Bruce that all contributions of capital would carry interest. Nevertheless, it is evidence of an occasion on which the topic arose and some agreement was reached in advance of a transaction that did not eventuate. The significance of the conversation, which I accept took place, was emphasised by the 1999 Division 7A agreement, as an example of another circumstance in which the parties turned their mind to the payment of interest. Those events suggest a willingness to acknowledge that, of course, interest is payable on capital contributions.
The inequity in the brothers' relationship, reflected in Noel's dependency on Bruce, and Bruce's acknowledgement of Noel's dependency, with the corresponding duty of support, is also a relevant contextual factor. Following the sale of Krowera, Noel's capital contribution to the partnership far exceeded that of Bruce. Moreover, Noel contributed all he had. When, in 1999, Bruce was confronted by the prospect that advances made through EFL might, in the absence of a loan agreement, be treated as if a dividend, he readily obtained the consent of Noel to a loan agreement. Thus, when a question of interest on capital arose, and the brothers turned their minds to the question, they agreed that interest would be paid. Had Noel raised the question of interest on his capital following the sale of Krowera, Bruce would probably have responded that, of course, he should be paid interest, and structured their affairs accordingly.
Having concluded that it was a term of the informal partnership agreement, from 1993, that interest would be paid on capital contributions by the partners, there remained a question as to how interest was to be calculated, and at what rate. Mr Munday provided assistance in that regard by calculating capital account balances for the period 1994 to 2016 in paragraph 25 of his report. I adopt his calculation as a suitable basis upon which to apply a rate of interest. The capital account balances do not include the advances made by EFL. Interest payable to EFL was dealt with separately. The Division 7A interest rate applied to the EFL advances is, in my view, an appropriate rate to apply to the account balances as between the partners from 1999. Because no such rate was applicable prior to 1999, Mr Munday applied the 1999 rate back to 1994. When compared with the term deposit and cash management rates applicable at the time, derived from data supplied by the Reserve Bank of Australia, the rate applied by the Australian Taxation Office was only marginally higher than the term deposit rate and substantially higher than the cash management rate. Because the rate applied by the Australian Taxation Office was the 'agreed' rate under the 1999 Division 7A agreement between EFL, Bruce and Noel, it is an appropriate rate to be applied and, in my opinion, a fair rate in all the circumstances.[63]
129 The judge decided that the basis upon which interest was to be paid was compound interest, rather than simple interest, for the following reasons:
The next question is whether interest ought to be compounded on the average opening and closing capital account differential in a given year, or calculated on a simple interest basis on the capital account differential. As Mr Munday noted at paragraph 25.10, any adjustment to compensate for interest on the capital account balances would be in addition to other adjustments made to the accounts in his report. If interest is to be calculated on a compounding basis, it would result in a debit to the capital account of Bruce in the sum of $376,643 and a corresponding increase in the capital account of Noel. If interest is to be calculated on a simple basis, it would result in a decrease in the capital account of Bruce in the sum of $63,822 and a corresponding increase in the capital account of Noel in the same amount. As I understand the calculation made by Mr Munday in paragraph 25.9 of his report, interest was compounded annually. I see no reason why interest, if it was due and not paid, should not be compounded at least annually. Accordingly, I accept his calculation such that an adjustment must be made by decreasing the capital account of Bruce by $376,643 with a corresponding increase in the capital account of Noel.[64]
130 Grounds 14-16 relate to the issue of interest. They are in the following terms:
131 Ground 1 also applies to the issue of compound interest. It is set out at [73] above.
132 Bruce submitted that the judge erred in implying into the Partnership agreement a term that compound interest was payable on Noel's capital contributions for, in effect, the same reasons that he erred in implying a remuneration term. They were said to be: the finding of a relationship of inequality between the parties; Bruce's acknowledgment of Noel's dependency; Bruce's duty of support; Noel's capital contributions far exceeding Bruce's; and the fact that Noel had contributed all of his assets to the Partnership. Bruce contended that these matters caused the judge to incorrectly apply the BP Test and that the following matters meant that the implied interest term was neither so obvious that it went without saying, nor necessary for reasonable and effective operation of the Partnership agreement:
(a) no interest was paid on capital advances in or prior to 1988;
(b) no interest was paid on capital advances after 1988;
(c) the written loan agreement entered into in 1999 by the parties and EFL was in respect of interest on loans from EFL to the parties, and did not relate to interest on capital contributions;
(d) Noel did not claim the existence of an agreement for interest on capital contributions until after the Final Monday Report was delivered on 18 August 2016; and
(e) section 28(3) of the Partnership Act provides that a partner who contributes more capital than other partners is entitled to interest.
133 According to Bruce, as there was no implied term for payment of compound interest on capital contributions, it followed that the judge had failed to correctly apply s 28(4) of the Partnership Act, which provides that a partner is not entitled to interest on capital contributions in the absence of an agreement to the contrary.
134 Bruce submitted that the judge was incorrect to find that a discussion alleged to have occurred between the parties in 1988 amounted to them turning their minds to the payment of interest. He contended that the judge fell into error because, in addition to no interest being payable to EFL for capital contributions, interest payable to EFL on loans was at a rate determined by the Australian Tax Office. Bruce also argued that he had not agreed that contributions would attract interest and noted that the 1999 EFL loan agreement was entered into six years after the judge found that the interest term was added to the Partnership agreement.
135 Bruce submitted that, relying on the mistaken finding that the parties had turned their minds to interest on capital contributions, the judge had also erred by implying that interest was payable to Noel on a compound basis. He contended that error arose in the judge's statement that he could 'see no reason why interest, if it was due and not paid, should not be compounded at least annually'. Bruce argued that the judge erred in treating the capital contributions as if they were loans due for repayment and, that being so, the judge should have considered simple interest of approximately seven per cent, which was calculated in the Final Munday Report, to be appropriate.
136 In his written submissions, Noel contended that, contrary to Bruce's grounds 1 and 14, the judge had correctly applied the BP Test to the implication of an interest term on capital contributions and found that such a term was obvious and necessary. In his oral submissions, Noel contended that the judge had correctly inferred that the parties had agreed to the interest term.[65]
137 Noel contended that the judge correctly had regard to the 1999 loan agreement with EFL to confirm his view that, had the parties considered the question of interest in 1993, they would have agreed that it was payable.
138 Noel submitted that, having found that the Partnership agreement included the interest term, the judge properly applied s 28(4) of the Partnership Act, which had no effect because that provision was displaced by the interest term.
139 Regarding the basis for calculating interest, Noel submitted that in para 74 of his reasons, the judge had specifically considered simple interest. He contended that the judge was correct to find that the implied term required payment of compound interest rather than simple interest, because compound interest is the usual price of obtaining money, Noel could have obtained compound interest if he had invested his capital elsewhere, and the Partnership would have been required to pay compound interest on other sources of finance.
140 Noel argued that it would be harsh and unexpected if the interest term implied by the judge allowed for simple interest only, in circumstances where Noel invested his assets from Krowera and Inverloch into Walkerville, where they remained embedded for 23 years.
141 The judge considered three separate questions in relation to interest on Noel's capital contributions. First, was it a term of the Partnership agreement that interest was payable on capital contributed by the partners? Secondly, if interest was payable, what annual rate applied? Thirdly, if interest was payable, was it payable on a compound basis or a simple interest basis? The judge answered the first question in the affirmative, adopted the interest rates in the Final Munday Report and held that interest was payable on a compound basis. Bruce seeks to impugn the judge's answers to the first and third questions only.
142 In comparison to the remuneration term, it is less clear whether the interest term, which the judge found formed part of the Partnership by 1993, was an inferred term or an implied term. In our opinion, the better view is that in paras 71-73 of his reasons[66] the judge found, by way of inference, rather than implication, that the parties had agreed by 1993 to amend the Partnership agreement to add a term that interest would be paid on the capital contributions of the partners. However, it is not necessary for us to reach a final view on this issue. This is because even if the correct interpretation of the judge's reasons is that he found that the Partnership agreement included an interest term by 1993 by way of implication, rather than inference, such a conclusion was open on the evidence.
143 The basis upon which the judge concluded that the interest term formed part of the Partnership agreement by 1993 is compendiously set out in para 72 of his reasons. There is some overlap between that basis and the basis upon which the judge inferred the remuneration term. The judge relied on: the inequality in the parties' capital contributions; the fact that Noel had contributed all of his capital; Noel's dependency on Bruce; Bruce's acknowledgement of Noel's dependency; and Bruce's assumption of a duty to support Noel. The judge also relied on the parties' agreement in 1988 that interest would be paid on capital contributed by Noel to purchase King's Park, which purchase did not eventuate,[67] and the fact that when the issue of payment of interest on EFL's advances arose in 1999, the parties readily agreed that interest should be paid.[68]
144 In our opinion, the matters upon which the judge relied were sufficient to justify an inference that the interest term formed part of the Partnership agreement by 1993. In the alternative, those matters were also sufficient to justify the implication of an interest term. As Walkerville was a loss-making farming business, it would have made no commercial sense for Noel to invest all his capital in the business without receiving any interest, particularly as his capital was being depleted constantly by his personal expenses which were treated as drawings against his capital. On the two occasions when the payment of interest on capital arose, the parties agreed that it would be paid. Further, interest was paid on all other sources of capital, namely, loans from financiers.
145 Contrary to Bruce's submission, s 28(3) of the Partnership Act does not provide that a partner who contributes more capital than other partners is entitled to interest. As appears from [59] above, that section provides for the payment of interest to a partner for moneys advanced 'beyond the amount of capital which he has agreed to subscribe'.
146 The interest term which the judge found formed part of the Partnership agreement by 1993 did not include an interest rate or a basis for its calculation. Implicitly, the judge held that the interest rates that would apply from time to time would be reasonable and that the basis for calculation of interest would also be reasonable.
147 As we have already stated, Bruce did not challenge the judge's adoption of the rates of interest set out in the Final Munday Report. As for the judge's finding that interest should be calculated on a compound basis, we reject Bruce's submissions that that finding was erroneous.
148 In the light of the lengthy period over which interest on Noel's capital was to be paid and the opportunity cost to him involved in not being able to deploy that capital in alternative, income producing activities, payment of simple interest would not have provided a fair return on the capital. Further, any alternative sources of capital on commercial terms would have incurred compound interest rather than simple interest. Accordingly, the judge was right to prefer compound interest over simple interest. He was also right to prefer interest compounding at annual intervals rather than at any other interval.
149 Ground 14 and ground 1, insofar as the latter relates to the interest term, are based on the premise that the judge found that the source of Noel's entitlement to be paid interest on his capital contributions was an implied term of the Partnership agreement. As we have already stated, the better view is that the judge concluded that the Partnership agreement included the interest term by way of inference from circumstances, rather than by implication. If that view is correct, grounds 1 and 14 cannot be made out because they proceed on a premise that is wrong. However, even if the premise is correct, those grounds must be rejected because a conclusion that it is an implied term of the Partnership agreement that Noel is entitled to be paid interest on his capital contributions was well open to the judge.
150 Ground 15 must be rejected. Paragraph 74 of the judge's reasons makes it clear that he had regard to the calculations of simple interest in the Final Munday Report as well as the calculations of compound interest. Having considered both calculations, the judge preferred the compound interest calculations.
151 Although the judge did not expressly state why he '[saw] no reason why interest, if it was due and not paid, should not be compounded at least annually',[69] it is implicit from that paragraph and the judge's reasons as a whole that he concluded that the most appropriate way to compensate Noel for his capital contribution over and above the capital contribution of Bruce was payment of interest on an annual compounding basis. As we have already stated, there was no error in this conclusion. Accordingly, we reject ground 16.
Principles relating to waiver of a limitation defence
152 The principles relating to waiver were considered by the High Court in Commonwealth v Verwayen,[70] in the context of whether a defendant's conduct in litigation could give rise to a waiver of a limitation defence.
153 Mason CJ stated that, '[a]ccording to its strict legal connotation, waiver is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right'.[71] He went on to say that 'the better view is that, apart from estoppel and new agreement, abandonment of a right occurs only where the person waiving the right is entitled to alternative rights inconsistent with one another', and that '[t]his category of waiver is an example of the doctrine of election'.[72]
A failure to plead the Statute of Limitations does not, without more, establish a waiver of the statute. Subject to the Rules of Court, a pleading is always capable of amendment, at least until judgment is pronounced. It is no more than a party's definition of the issues which that party intends to litigate ... In the present case, however, there was much more than a failure to plead the Limitation Act. By the clearest communication and by its conduct, the Commonwealth declared its intention to abandon the defence ...
[A] right is waived only when the time comes for its exercise and the party for whose sole benefit it has been introduced knowingly abstains from exercising it.[73]
155 Dawson J said that '[w]hen the term "waiver" is not being used to describe election or estoppel it may be used loosely to indicate non-insistence upon a right either by choice or by default'.[74]
156 Toohey J quoted with qualified approval the following statement from Halsbury's Laws of England:[75]
Waiver is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted, and is either express or implied from conduct. It may sometimes resemble a form of election, and sometimes be based on ordinary principles of estoppel, although, unlike estoppel, waiver must always be an intentional act with knowledge.[76]
157 Toohey J went on to say that, in the context of the case before him, waiver 'may be found in the deliberate act of a defendant not to rely upon a defence available to him'.[77] He emphasised that the conduct from which waiver may be inferred must be deliberate, and that detriment is not an essential attribute of waiver. He said that, within the adjudicative process, 'it is enough that a defendant "renounces" a defence which is available to him and which is there for his benefit'.[78]
[A] party to litigation will be held to a position previously taken (that position having been intentionally taken with knowledge) if, as a result of that earlier position, the relationship of the parties has changed ... By analogy with the general law of estoppel, one may treat the doctrine as operating by reference to an assumption that a particular relationship has been constituted, which assumption has been occasioned by the deliberate failure to take an available point when it comes to notice. But the doctrine does not require proof that detriment will be suffered. Rather, to continue the analogy, it presumes that putting the parties back in some earlier relationship is, itself, a detriment.[79]
159 In Agricultural and Rural Finance Pty Ltd v Gardiner,[80] Gummow, Hayne and Kiefel JJ stated:
In this Court an intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right has been described as the 'waiver' of that right. But ... many such cases are applications of the doctrine of election between inconsistent rights.[81]
160 The judge decided that the limitation defence did not apply for the following reasons:
The terms of settlement between Bruce and Noel, attached to the order of Cameron J made 18 August 2015, expressed an intention that Mr Munday would conduct a full review of all receipts, payments, dealings and transactions of the brothers in respect of the partnership business from 1991. Having undertaken the inquiry, he would make the necessary adjustments in the partnership accounts. Thus, the parties expressly agreed to extend the period for the inquiry, and for consequential adjustments, beyond the period of six years prior to the commencement of the inquiry, or the commencement of the proceeding in which the inquiry was ordered. The parties did not distinguish between particular types of transactions or dealings. Noel has been found to be entitled to reasonable remuneration, as an expense to the partnership. Quite plainly, Mr Munday considered an inquiry into that matter to fall within the scope of his mandate. Noel's claimed entitlement arose out of dealings and transactions between the partners.
Accordingly, I find that, having expressly agreed to the scope of the inquiry, there is no occasion for one or other of the partners to now complain that the dealing, transaction or corresponding liability arose earlier than six years prior to the commencement of the proceeding or Noel's points of claim. By their agreement they may be taken to have expressly waived any right to limit the scope of the inquiry, including by raising a defence under the [LAA].[82]
161 Ground 11 seeks to impugn the judge's decision that Bruce waived his right to rely on the limitation defence in s 5(1) of the LAA. It is in the following terms:
Parties' submissions on waiver of limitation defence
162 Bruce submitted that the judge erred in finding that, by consenting to the order made by Cameron J on 18 August 2015, he had waived his right to rely on a limitation defence in respect of Noel's contractual claim for remuneration. He contended that was so because Noel had not raised the remuneration claim until 19 October 2016. It followed, so he said, that no waiver of a limitation defence to a remuneration claim could arise from his consent to the order because, when Cameron J referred the taking of accounts to Mr Munday on 18 August 2015, no notice of such a claim had been provided. Thus, he argued, in August 2015, he could not have made a deliberate and intentional election, with full knowledge of his legal options, to waive that defence.[83]
163 According to Bruce, the absence of a claim for wages when he consented to the order of Cameron J dated 18 August 2015 meant that he was not making a choice between the alternative courses of taking or not taking the limitation defence, nor was he making any express or implied promise to Noel not to take that defence. He emphasised that whether Noel was entitled to wages was a legal issue which Hargrave J held could not be determined by Mr Munday upon the taking of accounts and therefore the proper time for him to make an election whether to rely on a limitation defence was when Noel served his points of claim.
164 Bruce submitted that it was decisive that there was an express reservation of rights in the terms of settlement dated 10 August 2015,[84] which precluded a finding that he had waived his right to rely on a limitation defence.
165 Noel submitted that the judge was correct to find that Bruce, by consenting to orders that provided for a taking of accounts going back to 1991, had elected not to take the limitation defence and thereby waived his right to that defence. This was said to be because it was inevitable that wages would be one of the matters that Mr Munday would have to consider in taking the accounts of the Partnership, subject to the legal issues which required judicial determination.
166 Noel contended that Bruce was aware that he had the right to rely on a limitation defence as he was legally represented, and that it was irrelevant whether Bruce knew the extent of the wages claim that Noel would make in the course of the taking of accounts. In any event, Noel argued that he had given Bruce notice of a prospective claim for wages in 2013 when he raised questions about wages for his labour not being reflected in the Partnership's accounts.
167 In our opinion, the judge did not err in deciding that, in relation to Noel's claim for remuneration under the Partnership agreement, Bruce had waived his right to rely on a limitation defence for the period preceding 11 November 2010.
168 On 10 August 2015, the parties settled the proceeding on the basis that Mr Munday would undertake 'an account of all receipts, payments, dealings and transactions of the [parties] in respect of the partnership business ... from 01/07/1991 ...'[85] The task assigned to Mr Munday necessarily included a review of the income and expenses of the Partnership and the respective rights and obligations of the partners in relation to income and expense items since 1 July 1991. As the payment of wages is a typical partnership expense, the parties can be taken to have been aware that one of the issues that Mr Munday would examine was their respective entitlements to remuneration from 1 July 1991.
169 Bruce was legally represented at least from the time he commenced this proceeding on 10 June 2015. Accordingly, he can be taken to know that he had a right under s 5(1) of the LAA to resist any claim by Noel under the Partnership agreement that related to a period that was earlier than six years from the time the claim was made. Despite his knowledge of that right and his awareness that the matters that Mr Munday would be examining for the purpose of taking the accounts of the Partnership was any entitlement by Noel to remuneration, Bruce failed to invoke that right at the time the terms of settlement were signed on 10 August 2015 or at the time Cameron J made her order on 18 August 2015.
170 Indeed, and importantly, Bruce agreed to extend the commencement date for the taking of accounts from 1 July 2013 (which appeared in para Q of the terms of settlement as drafted by him) to 1 July 1991.[86] He could have retained the original date but chose to amend it. Having made the choice to authorise the taking of accounts from 1 July 1991, it would be inconsistent with that chosen position for Bruce to subsequently assert that one aspect of the taking of those accounts, namely remuneration payable to Noel, had to be confined to the period after 11 November 2010. In these circumstances, Bruce made a deliberate, intentional and fully informed election to waive the limitation defence in s 5(1) of the LAA in relation to any remuneration to which Noel was found to be entitled after 1 July 1991.
171 This conclusion is fortified by the fact that, in 2013, Noel's accountant raised a query with the Partnership's accountant as to why Noel's contributions of cash and labour to the Partnership were not reflected in the Partnership's accounts.[87] This query gave notice to Bruce, prior to the signing of the terms of settlement on 10 August 2015 and the making of Cameron J's order on 18 August 2015, that the taking of accounts by Mr Munday would involve consideration of whether adjustments should be made to the accounts to reflect any entitlement Noel may have to the payment of remuneration.
172 In the circumstances that we have outlined, the appropriate time for Bruce to exercise his right to invoke the defence under s 5(1) of the LAA was prior to the signing of the terms of settlement on 10 August 2015 and the making of Cameron J's order of 18 August 2015. His failure to do so at that time constituted a waiver of that right.
173 We reject Bruce's submission that, as Mr Munday did not have power to determine legal issues upon which Noel's claim for remuneration depended, the appropriate time for him to exercise his right to invoke the limitation defence was after Noel had served his points of claim.
174 In accordance with the principles summarised at [152]-[159] above, the time at which a legal right is waived is when the holder of that right, with knowledge of the available legal options, makes a deliberate and intentional election to adopt a course which involves, in law, foregoing that right. In the present case, that occurred when Cameron J made her order dated 18 August 2015 appointing Mr Munday to take the accounts of the Partnership in accordance with the signed terms of settlement which had been amended to allow the taking of accounts from 1 July 1991. It was that order which set in train a legal process which necessarily involved consideration of any entitlement by Noel to remuneration from 1 July 1991 and which culminated in such an entitlement being reflected in the final orders the Court made in September 2017.
175 It follows that the fact that Noel's entitlement to remuneration could not be legally resolved by Mr Munday, but was contingent on the Court making findings in support of that entitlement, cannot have the effect that waiver of the limitation defence in s 5(1) of the LAA could not occur until either Noel made a formal claim for remuneration or the Court resolved the issue of his entitlement to remuneration.
176 Bruce agreed to the inclusion in the terms of settlement of provisions for the appointment of Mr Munday to take the accounts of the Partnership from 1 July 1991 in the knowledge that there was a prospect that Noel would claim remuneration. In these circumstances, the reservation of rights in para 3 of the terms of settlement cannot enable Bruce to plead a limitation defence in respect of any claim by Noel for remuneration from 1 July 1991, as this would give para 3 an operation which would be inconsistent with the other provisions of the terms of settlement. However, para 3 would have enabled Bruce to rely on a limitation defence for any claim for remuneration that Bruce may have made for any period preceding 1 July 1991.
177 As some of Bruce's grounds of appeal are arguable, leave to appeal will be granted. However, as we have not upheld any of those grounds, the appeal will be dismissed.
[1] Uren v Uren [2017] VSC 265 ('Reasons').
[5] Noel's affidavit dated 9 June 2015 [32].
[6] Uren v Uren (Unreported, Supreme Court of Victoria, Hargrave J, 19 October 2016) ('Hargrave J reasons').
[9] Transcript of Proceedings (15 March 2017) 140-2, 153.
[10] Transcript of Proceedings (14 March 2017) 82-85, 88-90.
[11] Under this methodology, if Noel contributed $100 and Bruce contributed $60, Noel would be entitled to interest on $40 and Bruce would not be entitled to any interest.
[12] The amount then thought to be held in Court.
[13] Being the correct amount held in Court as at 4 September 2017.
[14] [2015] VSCA 190 ('Grocon').
[15] Grocon [2015] VSCA 190 [176]-[180] (citations omitted).
[16] [2015] VSCA 286 ('Regreen').
[17] Regreen [2015] VSCA 286 [74].
[18] Grocon [2015] VSCA 190 [137]-[138] (citations omitted).
[20] Reasons [41], [53]-[54] (citations omitted).
[21] Reasons [42]-[43], [45], [51]-[52], [55]-[57], [59]-[61] (citations omitted).
[22] Reasons [62]-[67] (citations omitted).
[30] Noel referred to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40]; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97, 326, 11, 117; Grocon [2015] VSCA 190 [176]-[180]; Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141 [73].
[36] [2001] VSCA 31 ('Narni').
[37] Narni [2001] VSCA 31 [16].
[38] Grocon [2015] VSCA 190 [147]-[148]. In Grocon, the Court referred to OneSteel Manufacturing Pty Ltd v United KG Pty Ltd [2006] SASC 119; (2006) 94 SASR 376, 392 [38] and Specialist Diagnostic Services Pty Ltd v Healthscope Ltd [2012] VSCA 175; (2012) 305 ALR 569, 587 [90]-[91].
[43] Reasons [43]. See [68] above. As appears from [18], [20] and [23] above, the ultimate source of all of the capital Noel contributed to the Partnership was the proceeds of sale of his interest in the family farm, Krowera, whereas in addition to his much smaller share of the proceeds of the sale of Krowera, Bruce contributed some capital through EFL on commercial terms.
[47] Vlahos Pty Ltd v Vlahos [2017] VSCA 166 [60].
[49] Senior counsel for Bruce elected not to orally address the Court on proposed grounds 7 and 8.
[51] Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279, 286-7.
[54] Council of the City of Sydney v Goldspar Australia Pty Ltd [2006] FCA 472; (2006) 230 ALR 437, 497-8 [164].
[57] Regreen [2015] VSCA 286 [134].
[58] Regreen [2015] VSCA 286 [135]-[140].
[70] (1990) 170 CLR 394 ('Verwayen').
[71] Verwayen (1990) 170 CLR 394, 406.
[72] Verwayen (1990) 170 CLR 394, 406-7.
[73] Verwayen (1990) 170 CLR 394, 426-7.
[74] Verwayen (1990) 170 CLR 394, 457.
[75] Butterworths, Halsbury's Laws of England, 4th ed, vol 16 (at 1976) 7 Equitable Defences, '2 Release and Waiver' [1471].
[76] Verwayen (1990) 170 CLR 394, 472.
[77] Verwayen (1990) 170 CLR 394, 473.
[78] Verwayen (1990) 170 CLR 394, 473.
[79] Verwayen (1990) 170 CLR 394, 484-5.
[80] [2008] HCA 57; (2008) 238 CLR 570 ('Gardiner').
[81] Gardiner [2008] HCA 57; (2008) 238 CLR 570, 588 [56] (citations omitted).
[83] Bruce referred to Verwayn (1990) 170 CLR 394, 426-7, 471-2.
Uren
Uren [2018] VSCA 141
(2004) 219 CLR 165
(2006) 94 SASR 376
(2012) 305 ALR 569
(1990) 169 CLR 279
(1990) 170 CLR 394
(2008) 238 CLR 570
(2006) 230 ALR 437