Supreme Court New South Wales Medium Neutral Citation: Rosenbaum v Baidarman (No 3) [2022] NSWSC 775 Hearing dates: On the papers Date of orders: 14 June 2022 Decision date: 14 June 2022 Jurisdiction: Equity Before: Williams J Decision: See paragraph [22] Catchwords: COSTS – winding up of partnership – where no partnership assets – where partners are equally responsible for the failure to keep proper accounts and records during the partnership – where defendant ought to be entitled to costs in respect of plaintiff's abandoned claim – mixed outcome of proceedings – where referee appointed pursuant to r 20.14 of the Uniform Civil Procedure Rules 2005 (NSW) to take account of the partnership – adoption of referee's report – where inconsistency in court orders as to whether a certain item should be allowed – where referee's report proposed two scenarios, one in which the item was allowed and one in which the item was disallowed – question of which scenario in report should be adopted – no question of principle Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW), rr 20.14, 20.24, 36.17, 36.4 Cases Cited: Rosenbaum v Baidarman (No. 2) [2021] NSWSC 574 Category: Costs Parties: Eduard Rosenbaum (First Plaintiff / First Cross-defendant) Ironwell Pty Ltd (Second Plaintiff / Second Cross-defendant) Alla Rosenbaum (Third Cross-defendant) Tanya Rosenbaum (Fourth Cross-defendant) Jacob Baidarman (Defendant / Cross-claimant) Ella Baidarman (Fifth Cross-defendant) Dabjade Pty Ltd (Sixth Cross-defendant) Excelsea Pty Ltd (Seventh Cross-defendant) Representation: Counsel: P Wiggins (Plaintiffs / First to Fourth Cross-defendants) D Smallbone (Defendant / Cross-claimant) Solicitors: Wright Law (Plaintiffs / First to Fourth Cross-Cross-defendants) DCE Lawyers (Defendant / Cross-claimant) Submitting appearance filed for the Fifth and Sixth Cross-defendants Seventh Cross-defendant joined to proceedings by order made by consent after conclusion of the hearing File Number(s): 2012/301100 Publication restriction: N/A Judgment Introduction 1. I published reasons for judgment in these proceedings on 21 May 2021: Rosenbaum v Baidarman (No. 2) [2021] NSWSC 574 (the principal reasons). 2. These reasons concern the adoption of the report of a referee appointed pursuant to rule 20.14 of the Uniform Civil Procedure Rules 2005 (NSW) and the costs of the proceedings. 3. These reasons assume familiarity with the principal reasons and use the same defined terms as in the principal reasons. Referee's report 1. The parties took some time to formulate orders giving effect to the principal reasons, and orders were made on 28 October 2021. 2. Those orders included an order referring to Ms Suelen McCallum for enquiry and report the taking of an account of the partnership that had been conducted by Mr Rosenbaum (the first plaintiff) and Mr Baidarman (the defendant) and numerous directions concerning the matters to be allowed and disallowed on the taking of that account. Many of the matters to be allowed and disallowed were identified by item numbers that had been assigned to them in an earlier report prepared by a different referee as part of the very long history of these proceedings that was explained in the principal reasons. 3. Regrettably, there was an accidental inconsistency between orders 5 and 6 made on 28 October 2021 concerning how item 65 of Schedule MFI-1 to that earlier referee's report was to be dealt with in the taking of the account by Ms McCallum. 4. Item 65 concerns a sum of $11,972 that the earlier referee found had been paid in September 1993 by Ironwell for interest on a commercial bill facility. 5. Order 5 made on 28 October 2021 provided that Mr Rosenbaum's claim to have contributed that amount to the partnership be dismissed and disallowed on the account to be taken by Ms McCallum. 6. Order 6 made on 28 October 2021 provided that Mr Rosenbaum be credited with that amount of $11,972 as a contribution paid by him to the partnership on the taking of the account by Ms McCallum. 7. Ms McCallum's report dated 30 April 2022 has been provided to the Court and to the parties. Ms McCallum presented two alternative accounts: Scenario 1, which disallows Mr Rosenbaum's claim to have contributed $11,972 to the partnership in September 1993 in accordance with order 5 and Scenario 2, which allows that claim in accordance with order 6. 8. The parties ask the Court to adopt Ms McCallum's report, but Mr Rosenbaum contends that Scenario 1 within the report should be adopted, whereas Mr Baidarman contends that Scenario 2 should be adopted and an order should be made under the slip rule discharging order 6 made on 28 October 2021. 9. Having considered both parties' submissions and revisited the relevant parts of the earlier referee's report and the principal reasons, I have determined that Mr Baidarman's position is correct. 10. The genesis of order 6 made on 28 October 2021 is my misunderstanding recorded in the principal reasons at [137] that the first referee had found that Mr Rosenbaum had made the contribution of $11,972 and that orders made by the Court on 10 September 2018 adopting the first referee's report had the effect of adopting that particular finding. 11. As counsel for Mr Baidarman submitted, the first referee found that the payment of $11,972 was made by Ironwell, but made no finding as to whether the funds from which Ironwell made that payment were funds held by Ironwell on behalf of or for the benefit of the partnership. That issue was left to be determined by the Court. At [362] of the principal reasons, I held that all of Ironwell's funds were held for the partnership during the period from September 1992 and October 1993. Accordingly, the payment of $11,972 made by Ironwell in September 1993 was made from partnership funds and should not be treated as a contribution paid by Mr Rosenbaum to the partnership. 12. For those reasons, there will be an order adopting Ms McCallum's report (excluding Scenario 1) and an order under the slip rule setting aside order 6 made on 28 October 2021. It is common ground between the parties that, if Scenario 2 applies, the amount of the judgment to be entered against Mr Rosenbaum in favour of Mr Baidarman is $505,329.87. 13. Ms Callum's interest calculations are for the period up to 31 March 2022, and it is common ground that the judgment should be ordered to take effect from that date pursuant to r 36.4(3) of the Uniform Civil Procedure Rules 2005 (NSW). Costs 1. Having considered the parties' written submissions in relation to costs, I have determined that there should be an order that each party should pay its own costs of the proceedings, save for the costs of Mr Rosenbaum's claim against Mr Baidarman for $1,428,000 that was pleaded in paragraphs 132-138 of the Further Amended Statement of Claim filed on 1 March 2019. That claim was abandoned on the fourth day of the hearing, as reflected in the Further Amended Statement of Claim filed on 10 June 2020. Mr Baidarman's costs of defending that claim are to be paid by Mr Rosenbaum. 2. The principal reasons for my determination may be summarised as follows. 3. Although the usual costs order in proceedings for winding up or dissolution of a partnership is that the costs be paid out of the partnership assets, there are good reasons for departing from that usual position in this case. First, there are no partnership assets. Second, contrary to Mr Baidarman's submissions, this was not a case where the circumstances necessitating the proceedings were caused entirely by one partner. Both partners are equally responsible for the failure to keep proper accounts and records during the partnership. Each partner fought hard in these proceedings to deploy the deficient records to his best advantage. Each partner had a mixed measure of success and failure on the issues fought, as set out in the principal reasons. Both partners maintained unreasonable positions about certain issues which they ultimately had to acknowledge as untenable and abandon part-way through the hearing. In Mr Rosenbaum's case, this included the contention that superannuation funds held by trustee companies on trust for named beneficiaries were in fact assets of the partnership. In Mr Baidarman's case, he deferred until closing submissions acknowledgement that credit should be given to Mr Rosenbaum for payments totalling almost $500,000 that were made to Mr Baidarman in late 2008 and early 2009, funded by withdrawals from Mr Rosenbaum's superannuation account, to give effect to their 2006 Reconciliation exercise described in the principal reasons. 4. In the case of the claims relating to the Omega Trust and the IPD Trust, neither party succeeded in obtaining the substance of the relief for which they contended, as explained in the principal reasons at [81]-[104]. 5. The judgment that is to be entered in favour of Mr Baidarman as a consequence of the adoption of Ms McCallum's report is not, in truth, one event but rather the reflection of the Court's determination of each of the numerous issues raised by the parties in these proceedings. Each of those issues was separable from the others because each related to a separate transaction or series of transactions or a separate issue concerning the two trusts. As I have said, the parties have all had mixed measures of success and failure. Conclusion and orders 1. For the foregoing reasons, the orders of the Court are as follows: 1. Order pursuant to r 36.17 of the Uniform Civil Procedure Rules 2005 (NSW) that order 6 made on 28 October 2021 be set aside. 2. Order pursuant to r 20.24 of the Uniform Civil Procedure Rules 2005 (NSW) that the report of Ms Suelen McCallum dated 30 April 2022 be adopted, except insofar as calculations set out in the report relate to "MFI-1 Scenario 1" as defined in paragraph 4.10.1 of the report. 3. Judgment for the defendant against the first plaintiff in the sum of $505,329.87, such judgment to take effect from 31 March 2022. 4. Order that the first plaintiff pay the defendant's costs of and incidental to the claim pleaded in paragraphs 132-138 of the Further Amended Statement of Claim filed on 1 March 2019 on the ordinary basis in an amount to be agreed or assessed. 5. With the exception of the defendant's costs that are the subject of order 4 above, order that each party pay its own costs of the proceedings, including the references. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 June 2022