Xie v Zhou

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3926/02 YUE MING XIE v WEN CHAO ZHOU JUDGMENT 1 HIS HONOUR: The background of this matter is that the plaintiff and the defendant pursuant to an arrangement made about September or October 2001 operated together a shoe shop known as Joe's Shoe Warehouse at Corrimal. The plaintiff alleges that this arrangement constituted a partnership. About April 2002 the defendant indicated that he would like to take over the plaintiff's share of the business. At the beginning of July 2002 he opened up another shop at Warrawong. About 2 July 2002 he removed 80 or 90 per cent of the shoes supplied by the plaintiff from the shop at Corrimal. Solicitors' correspondence ensued in which the plaintiff clearly claimed that the arrangement was a partnership. The defendant was tardy in answering this correspondence. On 7 August 2002 the plaintiff took out a summons claiming a dissolution of the partnership and the appointment of a receiver to wind up its affairs. 2 By this time Mr Jarrett, solicitor, who has appeared today for the defendant, was in the matter. There were various efforts made for the parties to be got together to negotiate the matter out, but this did not occur until the morning of the day fixed for the hearing of the summons, 20 August 2002, when, indeed, the matter was resolved by agreement. Up to that point of time there had been no concession by the defendant that a partnership existed and the plaintiff had to prepare for hearing on that basis. On that morning there was agreement that there be a declaration that the partnership was dissolved on 1 July 2002, that it be wound up under the direction of this Court and that a receiver be appointed to wind the partnership up. Mr Jarrett says that that concession was made with the intention of providing a quick and cheap mechanism for the financial affairs between the parties, whatever their nature, to be regulated, rather than to the intent that there be an admission that the relationship was in fact one of partnership. He tells me from the bar table, and I am inclined to accept, particularly as it seems a probable version, that he had difficulties in dealing with the matter, obtaining instructions and getting the defendant to understand the legal framework in which the matter was set. Despite my acceptance of that, the situation really was precipitated by the defendant peremptorily removing the shoes from the premises where the business, in which the plaintiff and defendant were both interested in some way, was being conducted and that avowedly without the consent or forewarning of the plaintiff. In those circumstances it is natural that the plaintiff felt obliged to take swift steps to bring the matter to Court and to have a receiver appointed. Whilst one is not without sympathy for the difficulties that Mr Jarrett faced, the simple fact is that the plaintiff faced a situation where she had to prepare for a contested hearing on the question of whether or not a partnership existed. 3 The fact that this matter was put in contest changes the incidence of the usual rule as to costs in partnership winding up proceedings. Ms Hogan-Doran, in a useful written submission, has referred to the decision of Jessel M R in Hamer v Giles (1879) 11 Ch D 942 and to Lindley and Banks on Partnership (17th ed, 1995) 23-117. I refer also to Queensland Trustees Ltd v Fairchurch [1964] Qd R 153 and Bluth v Einfeld NSWSC Young J unreported 26 November 1991. The costs are usually ordered out of the partnership assets or, where no body of partnership assets is available, to be borne equally among the partners. This is on the basis that the intervention of the Court must be obtained to facilitate the winding up for the benefit of all partners. But this is a case where the plaintiff quite reasonably prepared for a contested hearing and, whilst there is no question of any great blame on the defendant, much less his solicitor, for the course that events took, it is, in my view, appropriate that the plaintiff have the costs of the proceedings up and including 20 August 2002. 4 The second question that arises is the question of the receiver's costs. Since the appointment of the receiver the course of agreement which was sensibly commenced on 20 August 2002 has been pursued and a deed has been executed between the parties which settles the accounts of the partnership. This is sensible and to be commended. It means, however, that there will not be a pool of moneys in the receiver's hands to meet the costs of the receivership. It flows from what I have said that in the ordinary course the partners would be ordered to bear the costs of the receivership equally. 5 This is the regime that will be adopted, and by consent, save that the plaintiff asserts that there are two instances in which the defendant should bear the whole of the costs. The total costs of the receivership will be approximately $13,000 to $15,000. The first of the two instances is an item of $1,200 for time said to have been wasted by the receiver when he was excluded from premises controlled by the defendant upon attending to take possession of stock. There is also GST payable upon that sum. In addition a claim is made for $773 for additional insurance costs. This arises from the fact that the receiver insured goods that were no longer in the premises in which the common business was conducted. However, the insurance regime prior to their removal is not shown by the evidence. In relation to the insurance claim the matter is not sufficiently clear on the evidence for me to treat that other than as part of the general receivership costs. As to the $1,200 for the time said to have been wasted, on the one hand there is some force in what Ms Hogan-Doran has said about the fact that the receiver was kept waiting. On the other hand, bearing in mind the need to take possession of the goods quickly, combined with some difficulty of communication in the short time frame involved and the comparatively small amount of the item, the conclusion I have come to is that neither should I make a special provision for the sum of $1,200 plus GST that is involved in this item. 6 I add here, and should have said earlier, that the reason that these matters come to be dealt with by me, rather than by Windeyer J who dealt with the matter on 20 August, is that through some accident there is a contradiction in his Honour's orders. By order 6 it was provided that the receiver and manager be paid out of the partnership assets, but by order 8 it was ordered that costs including the receiver's costs be reserved. The necessity for me to deal today with the costs of the proceedings arises from that reservation of the costs. But the degree of conflict between orders 6 and 8 as to the receiver's costs needs to be resolved. Also, these orders also need adjustment by reason of the fact that, through the sensible settlement reached by the parties, there are not going to be partnership funds in the receiver's hands from which his costs may be paid. I think that the best way of dealing with this, and the parties agree to this course, is for me simply to revoke Windeyer J's orders 6 and 8 and to make substantive costs orders. 7 In my view, bearing in mind the that receiver is not to have a fund in his hands, but should be protected as to his costs, it is my view that each of the parties should pay 50 per cent of his costs and the order that I shall make will be made to that intent. However, to cover the situation if one of the parties defaults in that obligation I shall order the payment of the costs generally against both the plaintiff and the defendant, but I shall order that the receiver not recover more than 50 per cent of the costs from one of the partners without the further leave of the Court. If that is applied for, the question as to what should happen in the face of a default on one part or the other can then come back to Court if that is necessary. 8 In my view, the plaintiff has been substantially successful on this motion, the argument on which has taken only an hour or two. The appropriate order for the costs of the motion is that the defendant pay the plaintiff's costs of this motion. 9 The settlement between the parties has removed the necessity for further action on the part of the receiver and the receiver will be discharged. 10 The orders of the Court will therefore be:

(1) I revoke orders 6 and 8 made by the Court on 20 August 2002. (2) I order that the defendant pay the plaintiff's costs of the proceedings up to and including 20 August 2002. (3) I order that the defendant pay the plaintiff's costs of the plaintiff's motion filed 18 November 2002. (4) I order that the plaintiff and the defendant bear the receiver's costs but the receiver should not enforce payment of more than 50 per cent of his costs against either the plaintiff or the defendant without the leave of the Court. (5) I discharge the receiver.

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