HOWELL v FINE REAL ESTATE NETWORK PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MASON P, SHELLER JA and FITZGERALD AJA 2 December 1998, 16 December 1998 [1998] NSWCA 109 PARTNERSHIP dispute — no grounds for interference with trial judge's acceptance of findings of referee despite disparity between schedule of reference and referee's report — grounds for interference in relation to trial judge's characterisation of interest on a non-partnership loan as a "partnership expense" — as insufficiently supported by the evidence — consequent adjustment of the amount for which appellant/cross-respondent liable. Mason P I agree with Fitzgerald AJA. Sheller JA I agree with Fitzgerald AJA. Fitzgerald AJA This proceeding involves an appeal and cross-appeal from orders made in the Equity Division on Friday 30 August 1996 in a proceeding in which the first respondent/cross-appellant is the plaintiff and a cross-defendant, the appellant is the defendant/cross-claimant, and the other two respondents are also cross-defendants. Those orders were as follows: "1. The Court adopts the report of the referee dated 6 March 1996 subject to the variations referred to in the reasons for judgment delivered on 19 August 1996 and 30 August 1996. 2. The Court orders the [appellant] to the pay to the [the first respondent/cross-appellant] the sum (including interest to date) of $445,395. 3. The Court orders that the cross-claim be dismissed. 4. The Court orders that the [appellant] pay the [the first respondent/cross-appellant] and the [second and third respondents] their costs of the proceedings (including the costs of the reference)." In this Court, the appellant seeks orders that the judgment of 30 August 1996 and the consequential orders for costs be set aside, that there be a verdict in his favour "... in a sum to be ascertained by a fresh accounting", and that the respondents be ordered to pay his costs, including his costs of the appeal. The first respondent/cross-appellant also requests that the judgment of 30 August 1996 be set aside, but in lieu it seeks an order that the appellant pay it the sum of $560,138 together with "... interest at the Supreme Court rate on the sum of $560,138 from 24 November 1994 to 30 August 1996", with further orders that he pay its costs "before the learned Referee and the Court on an indemnity basis", and its costs of the appeal. The appellant is Mr Paul Roch Howell, the first respondent/cross-appellant is Fine Real Estate Network Pty Ltd, and the second and third respondents are Mr Mervyn Keith Fine and Mrs Patricia Joan Fine, who at material times were directors and shareholders of that company Mr Howell and Mr Fine were friends, and, for a brief but active period, Mr Howell and Fine Real Estate were partners in a business of purchasing and reselling real estate. The partnership provided for Mr Howell and Fine Real Estate to be jointly entitled to profits and jointly liable for losses, and that Fine Real Estate's premises, facilities and bank account would 2 UNREPORTED JUDGMENTS be used for the partnership. Little or no records were kept. In substance, all that was required to resolve the parties' disputes was an accounting in respect of the comparatively few partnership transactions. The partnership terminated acrimoniously on 24 November 1994, leading to litigation, in which the issues were referred to a referee for inquiry and report. Hearings before the referee, which occupied 11 or 12 days in early 1996, were followed by motions by Fine Real Estate and Mr Howell in the Equity Division. Fine Real Estate sought an order that the referee's report be substantially adopted, with consequential and ancillary orders, while Mr Howell opposed the adoption of the report and sought a money judgment in his favour, also with consequential and ancillary orders. Those proceedings were heard over two days in April 1996, leading to a provisional judgment on 19 August that year, with further hearings on 23 and 28 August. As stated, the orders from which this appeal and cross-appeal are brought were made on 30 August. The grounds of appeal set out in Mr Howell's notice of appeal are as follows: "1. His Honour erred when he adopted the referee's findings that the nett proceeds from the sale of Unit 40A/40 Military Road, Bondi was partnership property. 2. His Honour erred in not reducing the Appellant's drawings against his profit entitlement by the amount of interest and commission paid by the Appellant for his purchase and resale respectively of the property know as 40A/40 Military Road, Bondi. 3. His Honour erred when he adopted the referee's findings that the nett proceeds from the sale of Unit 4/40 Military Road, Bondi was partnership property. 4. His Honour erred when he adopted the referee's findings that the nett proceeds from the sale of property known as 25-27 Curlewis Street, Bondi was partnership property. 5. His Honour erred when he adopted the referee's findings that the nett proceeds from the of property known as 29-31 Curlewis Street, Bondi was partnership property. 6. His Honour erred in not reducing the primary liability of the Appellant by the amount of the deposit paid by the partnership for the purchase of the properties known as 25-27 and 29-31 Curlewis Street, Bondi. 7. His Honour erred in finding the Appellant accountable for the sum of $40,750.00 in relation to the onsale of 31 Curlewis Street, Bondi. 8. His Honour erred when he adopted the referee's findings that the nett proceeds from the sale of Unit 3/165 Glenayre Avenue, Bondi was partnership property. 9. His Honour erred when he adopted the referee's findings that the proceeds from the onsale of the properties known as Units 8, 9 and 10/342 Bourke Street, Darlinghurst were an excess to the Appellant over his profit entitlement. 10. His Honour erred in substantially adopting the approach of the referee and the findings that the latter made in relation to the authenticity of the renovation expenses claimed by the respondent. 11. His Honour erred in adopting the referee's preference of the evidence derived from Mervyn Fine to those assessments made of the renovation works on the partnership properties by Mr Robert Winter, a qualified architect. 12. His Honour erred in adopting the referee's findings in relation to the authenticity of written notations by Mervyn Fine on his personal VisaCard statements as evidencing partnership disbursements paid by him. URJ HOWELL v FINE REAL ESTATE NETWORK PTY LTD (Fitzgerald AJA) 3 13. His Honour erred when he adopted the referee's findings that the Appellant had made an untrue representation to the Westpac Banking Corporation in respect, of his acquisition of the property known as 40A Military Road, Bondi. 14. His Honour erred when he adopted the referee's findings that the Appellant was guilty of making inconsistencies which characterised him as dishonest in respect of what the Appellant asserted in relation to the property known as 98 Spit Road, Mosman in and Affidavit sworn 10 April 995 and what he said in his sworn evidence before the referee. 15. His Honour erred in not admitting into evidence in its entirety the Affidavit of John Emmanuel Rose sworn 23 August 1996. 16. His Honour erred in adopting the referee's finding that a partnership existed only between the Appellant and the First respondent."! When the appeal and cross-appeal came on for hearing, Mr Howell sought leave to amend his notice of appeal to add the following nine grounds: "17. The trial judge erred in adopting as appropriate a method of accounting as between the partners where no account was taken of the drawings of Mr Fine, no allowance was to be made for the proceeds of sale of the three properties which remained as a partnership asset and no account was taken of the amounts received by the Plaintiff. 18. The trial judge was in erred (sic) in failing to admit the whole of the Affidavit of John Rose sworn 23 August, 1996. 19. The trial judge misapprehended the transaction concerning Curlewis Street or alternatively failed to appreciate that the referee had failed to apprehend the transaction. 20. The trial judge should have acceded to submissions made by the Appellant that the transaction concerning the proper basis for accounting for the proceeds of Curlewis Street. 21. The trial judge was in error in failing to make any allowance of additional expenses necessarily incurred in and about the sales of the Curlewis Street properties such as interest on borrowings and legal fees. 22. The trial judge was in error in failing to make an allowance for the entire stamp duty payable on Curlewis Street and not an allowance of 50%. 23. The trial judge erred in adopting the referee report that the property (sic) remedy was a judgement (sic) for the Plaintiff against the Defendant and not an order that the Defendant account to the partnership for money received. 24. The trial judge should have inferred that the Appellant paid or caused to be paid legal fees on the purchases and resales at the scale fee rates on the two purchases and subsequent on sales of land at Curlewis Street. 25. The trial judge erred in not finding that the Appellant should receive credit of allowance from the nett proceeds of the Curlewis Street venture for the risks undertaken by the Appellant and efforts expended in carrying out the venture and in not finding that the proceeds should be apportioned in accordance with their respective contributions." The Court reserved its decision on Mr Howell's application for leave to amend, which Fine Real Estate opposed, and proceeded with the hearing. Mr Howell was permitted to present his full argument, which did not extend to all grounds or proposed grounds of appeal. Further, much of what was contained in Mr Howell's written outline of submissions was not relied on. 1. Not dealt with in the appellant's written submissions. 4 UNREPORTED JUDGMENTS The grounds of appeal set out in Fine Real Estate's notice of cross-appeal are as follows: "1. His Honour erred in holding that the interest paid by the Defendant or a loan taken out by the Defendant in the sum of $130,000 to purchase the, property known as 40A Military Road, Bondi as a private home was an expense of "the partnership". 2. His Honour erred in holding that the commission paid by the Defendant upon sale of the property known as 40A Military Road, Bondi was an expense of the partnership. 3. His Honour erred in accepting the finding of the learned Referee that the contingent liability arising from the Fire Order issues in respect to the partnership property known as 342 Bourke Street, Darlinghurst should be assessed at one half of the $100,000 (ie $50,000.00). 4. His Honour erred in holding that the Defendant's contingent liability in respect of the Fire Order issued in respect of partnership property 342 Bourke Street, Darlinghurst should be reduced by the sum of $25,000.00 such reduction reflecting the "personal liability" of the Defendant. 5. His Honour erred in holding that the learned Referee had discouraged Counsel for the Defendant from cross-examining Mr Fine on behalf of the Plaintiff on the entires appearing on the cheque butts of the Plaintiffs account with Westpac Banking Corporation being payments made by the plaintiffs from that account on behalf of the "partnership". 6. His Honour erred in holding that the sum of $32,000.00 representing various amounts appearing on the cheque butts of the Plaintiff's account with Westpac Banking Corporation and paid on behalf of the partnership were not "partnership expenses". 7. His Honour erred in failing to adopt the findings of the Referee that the entries appearing on the cheque butts of the account of the Plaintiff with Westpac Banking Corporation were expenses of "the partnership". 8. His Honour erred in refusing leave to the Plaintiff to place before the Court further submissions in respect of the alleged payments of interest in respect of a loan from Mercantile Mutual to Plaza Blind Pty Ltd being expenses of "the partnership". 9. His Honour erred in permitting the Defendant to file the affidavit of J Rose dated 23 August 1996 and to make further submissions following the Judgment given on 23 August 1996. 10. His Honour erred in holding that the sum of $37,997.00 being the interest paid to Mercantile Mutual was a "partnership expense". 11. His Honour erred in holding that the legal expenses incurred by the partnership in the sum of $8,626.00 should be reduced by half (ie $4,313.00). 12. His Honour erred in holding that the Defendant's drawings from the "partnership" should be reduced by the sum of $7,000.00 representing payments to Kentish & Coote. 13. That his Honour erred in failing to hold that the Defendant's liability to the Plaintiff, as found by the Referee in the sum of $596,224.00 should be reduced by the following: i stamp duty - Curlewis Street $28,339.00 ii price adjustment - Glenayr Ave $5,000.00 iii Amber Tiles $4,671.00 URJ HOWELL v FINE REAL ESTATE NETWORK PTY LTD (Fitzgerald AJA) 5 $38,010.00 14. His Honour erred in failing to allow interest for the sum of $38,010.00 from the date of 24 November 1994 to 30 August 1996. 15. His Honour erred in failing to order the Defendant to pay the Plaintiff's costs on an indemnity basis." Again Fine Real Estate did not address argument to a number of its grounds of appeal. Because the parties' disputes are indelibly stamped with confusion, it is necessary to record some background information. The matters referred to the referee for inquiry and report were stated in a schedule to the order of reference in the following terms: "1. The assets and liabilities of the partnership; 2. The respective interest and entitlements of the plaintiff and the defendant in the nett assets of the partnership having regard to the terms of the partnership; 3. The moneys received by: (i) the plaintiff (ii) the defendant (iii) Mervyn Fine (iv) Patricia Fine or paid or applied to their benefit on the benefit if (sic) any members of their families or any company in which they, or any of then, have a shareholding interest in public office; 4. Any partnership property having been sold at an undervalue to any of the plaintiff, defendant, Mervyn Fine or Patricia Fine or to any member of their families or any company in which they or any of them, have shareholding interest or public office. 5. The whole of the proceedings." One of the points Mr Howell now seeks to raise by leave, although not taken before the trial judge or included in his grounds of appeal, is that the referee did not strictly comply with the schedule. Instead, he concluded his report in the following terms: "Notwithstanding the many and varied claims for relief in the original statement of claim, this reference has been conducted by both parties on the basis that the real issue was to be determined by the award of a sum of money. My opinion is that the plaintiff is entitled to an award in the sum of $598,148. While it may be argued that interest on money taken should be included from the date of the taking, I am of the view that the proper order is that interest on the amount of the verdict should be paid from 25.11.94 at the appropriate rate. It follows from my findings that there should be a verdict for the cross-defendants on the cross-claim. Nothing has appeared in the evidence that would justly a departure from the usual course as to costs, that they should follow the event." Had the disparity between the schedule and the referee's report been raised before the trial judge, his Honour could have adopted the report, and, if he considered it appropriate, varied the order of reference.? If, as Mr Howell now wishes to argue, further findings were considered necessary or desirable, his Honour could have decided those matters himself,3 or required explanation by 2. Supreme Court Rules, Pt72 r10 (see also r9). 3. Supreme Court Rules, Pt72 r13(1)(d). 6 UNREPORTED JUDGMENTS way of further report from the referee+ or remitted all or part of the reports to the referee for further consideration.' In these circumstances, especially taking into account the referee's explanation, quoted above, for the course which he adopted, any lack of conformity between the report and the matters referred cannot of itself provide a sufficient justification for this Court's interference with the trial judge's orders. It is necessary at this point to say something more of the background. Prior to the commencement of the hearing before the referee, Fine Real Estate had obtained a report dated 1 November 1995 from W & D Partners, chartered accountants. The author of the report was Mr J Murray B Bus M Tax ACA. The report did not set out to constitute a set of partnership accounts, but to establish the nett profit or loss of the partnership, to allocate that equally between the partners, "... to compare Mr Howell's profit entitlements as per our calculations, with the actual amount of cash, property and other drawings that Mr Paul Howell has received during the period 1st March, 1993 to date", and "... then... calculate the extent to which his drawings exceed his profit entitlement'".¢ The report went on "4.18 Where Mr Paul Howell's drawings exceed his profit entitlement then the residual balance will represent an amount owing by Mr Paul Howell to Fine Real Estate Network Pty Ltd and conversely where the total drawings are less than his profit entitlement, then the residual balance will represent and amount owing by Fine Real Estate Network Pty Ltd to Mr Howell." Mr Murray's conclusion was as follows: "12. CONCLUSION 12. Based on our review and the schedules prepared, it is in our opinion that the amount determined in s10 of this report of $629,021.95 is the amount owing by Mr Paul Howell to Fine Real Estate Network Pty Ltd being the excess of drawings taken by Mr Paul Howell over and above his respective partnership profit entitlement." The W & D Partner's report dated 1 November 1995 was used as a starting point in the proceeding before the referee, as is illustrated by the following passage from the referee's report, which appears immediately before the final section of his report quoted above. "Conclusion To quantify the financial impact of the foregoing findings and opinion the method employed by Mr Murray as indicated in annexure | to his report which is annexed hereto, is followed, with the ensuing result:- Gross profit on partnership properties $1,629,144 Less Administrative expenses $150,288 Less interest $244,201 Less outstanding liabilities $ 86,951 $ 481,440 Net profit of partnership $1,147,704 Half share of defendant $ 573,852 The following amounts in the nature of drawings or acquisitions of property by Mr Howell] must be brought to account:- 4. Supreme Court Rules, Pt72 rl 3(1)(b). 5. Supreme Court Rules, Pt72 rl 3(1)(c). 6. See W & D Partners report dated 1 November 1995, para4.13-para4.17. URJ HOWELL v FINE REAL ESTATE NETWORK PTY LTD (Fitzgerald AJA) 7 Unit 10/342 Bourke Street $182,000) Unit 4 Military Road $ 80,000) Unit 40A Military Road $185,000) Property cash taken ) Curiewis Street and Glenayr Avenue $366,000) Drawings including cash taken ) $1,172,000 98 Spit Road and units 8 ) and 9 Bourke Street $357,076) Excess over profit entitlement received by defendant $598,148" In addition to one major error which is discussed below, the methodology adopted had significant limitations. The lack of records and accurate information left open the possibility of mistakes, which might have been reduced if Fine Real Estate's "drawings or acquisitions of property" had also been scrutinised. However, Mr Howell, Mr Fine and Mr Murray all gave evidence, and, save in one respect, the methodology adopted by Mr Murray and the referee to find which partner was obliged to account to the other and for how much was not intrinsically flawed. Provided one error of approach was remedied and the course adopted was applied to accurate information, it had the potential to produce the correct conclusion. The approaches followed by Mr Murray and the referee left out of account partnership expenses paid by Mr Howell. However, that was corrected by the trial judge. The orthodox approach would have been to deduct those expenses from the gross profit of the partnership to calculate its nett profit, or perhaps, to reduce the amount found to have been received by Mr Howell to nett receipts, after deduction of partnership expenses which he had paid. In either event, the amount for which Mr Howell was indebted to Fine Real Estate would have been reduced by half of his total expenditure on behalf of the partnership. The course in fact followed by the trial judge was to use the approach adopted by Mr Murray and the referee, and then to deduct half of the amount which Mr Howell had expended on behalf of the partnership. The result was the same. Questions of general methodology aside, Mr Howell's oral argument in this Court commenced with an attack on the referee's and trial judge's findings with respect to a transaction which involved the purchase of four units at 25-27 Curlewis Street, Bondi, and two adjoining properties at 29 and 31 Curlewis Street. The four units at 25-27 Curlewis Street were purchased in the name of a company, Magney Lodge Pty Ltd, which the partners had caused to be incorporated. The purchases were entered into shortly before the partnership was terminated and were completed by Mr Howell, who resold some of the properties prior to settlement of the partnership's contracts of purchase, and borrowed in connection with his settlement of the partnership's other contracts of purchase. One of the resales involved, as part consideration, acceptance of a transfer of another property, Unit 3/165 Glenayr Avenue, Bondi. In due course, all the properties were resold and, overall, the transaction was profitable. Mr Howell's original position was that he was not obliged to account for the profit on this transaction, but that issue was correctly decided against him. His argument in this Court primarily concerned expenses which he claimed to have 8 UNREPORTED JUDGMENTS incurred in respect of the transaction, and, which, he submitted, have not been fully taken into account. For this purpose, he sought to rely on parts of an affidavit sworn by his solicitor, Mr John Rose, on 23 August 1996, which the trial judge refused to accept. It is desirable to interpose some further detail concerning the course of proceedings. In the course of a lengthy cross-examination before the referee, Mr Howell was questioned about his responses to notices to produce. He swore that he had produced documents in relation to the sale of Units 2 and 4 at 25-27 Curlewis Street, and that he did not "presently" retain in his possession any other documents relating to the Curlewis Street and Glenayr Avenue properties or a number of other transactions which were referred to. The cross-examination proceeded: Q. "You have taken no steps to re-acquire them from wherever they might be for the purpose of these proceedings, have you?" A. "That's correct." Q. "You are prepared to let this proceeding go on without the assistance of those documents, correct?" A. "Correct." Q. "Because you prefer to have your case run on the basis that they are not produced than that they are produced, correct?" A. "That is incorrect." Q. "Why haven't you gone to get them?" A. "T have other things to do. I have a business to run, and things like that..." The referee formed a very adverse view of Mr Howell's credibility, and was generally unwilling to believe his evidence unless it was corroborated. The absence of documents or other evidence supporting Mr Howell's claims concerning his payments and receipts with respect to the Curlewis Street and Glenayr Avenue properties obviously influenced the referee's findings adversely to Mr Howell. Notwithstanding those findings and the referee's attitude to his credit as a witness, Mr Howell initially made no attempt to provide the trial judge with additional documents or information concerning the Curlewis Street and Glenayr Avenue properties. The provisional judgment which his Honour delivered on 19 August that year concluded: "T propose to relist the matter in a day or two to receive any submissions that may be forthcoming on the two matters on which I have invited further submissions (the interest component of the $10,089.50 loan repayments in connection with unit 40A, and the stamp duty on the purchases of the Curlewis Street properties), and also to be informed as to what, if any, moneys have been paid to the plaintiff out of moneys held in trust accounts by agreement or Court order pending the outcome of these proceedings. Subject to any such submissions, and the deduction of any such payments to the plaintiff, the plaintiff will be entitled to an order against the defendant for payment of the sum of $598,148.00 as determined by the referee, less amounts of the order of $148,000.00, leaving an ultimate liability of the defendant of approximately $450,000.00 plus interest." As noted earlier, the matter came on again before the trial judge on 23 August, and was further heard on 28 August. On 23 August, Mr Howell attempted to rely on the affidavit sworn that day by his solicitor, who annexed documents containing additional information relating to the Curlewis Street and Glenayr Avenue properties. The parts of Mr Rose's affidavit which were objected to, URJ HOWELL v FINE REAL ESTATE NETWORK PTY LTD (Fitzgerald AJA) 9 which include the presently material paragraphs and annexures, could only be used with the trial judge's leave," which was refused. His Honour referred to the "public and private interests in the finality of litigation considered in the light of the very extensive hearing before the referee in January 1996 and the hearing before me in April 1996, and the opportunities which each party had to bring forward such evidence and make such submissions as they desired on those occasions". The appellant submitted to this Court that his Honour's refusal to accept the additional evidence was erroneous. It was asserted that such evidence was "incontrovertible", and that justice would be best served by its reception. I do not agree. I find the trial judge's opinion compelling, and consider that it would be entirely wrong for this Court to interfere with his Honour's discretion. Further, this Court's endorsement of Mr Howell's approach would diminish the efficacy of the provisions for inquiries and reports by referees, and would conflict with the principles which this Court has consistently affirmed concerning the proper judicial role when parties contest whether a referee's report should be adopted. Those comments apply with even greater force to Mr Howell's next point, which was that an allowance should have been made in his favour for the work which he carried out in relation to the completion of the acquisition and resales of the Curlewis Street and Glenayr Avenue properties. Neither the referee nor the trial judge was asked to make provision for that allowance, and I cannot perceive any justification for allowing the point to be raised now. Were it necessary to consider the matter further, an issue might arise concerning whether Mr Howell's conduct was such as to disentitle him to any allowance. It is convenient to deal at this point with one of Fine Real Estate's arguments concerning why it claims to be entitled to be paid more by Mr Howell; namely that the trial judge erred in treating interest paid by Mr Howell under a mortgage of another partnership property' as paid on behalf of the partnership, in circumstances in which Mr Howell resided in the property while it was owned by the partnership and received the proceeds when it was sold. The issue was not raised before the referee, but was considered by the trial judge. Especially in the confused context of the parties' claims and counter-claims and the basic approach adopted as a result of Fine Real Estate's reliance on Mr Murray's report which concentrated on actual receipts and expenditures, his Honour's conclusion does not involve appealable error. As part of its argument on this aspect of the case, Fine Real Estate asserted that the trial judge had incorrectly debited it with all, and not merely half of the interest and commission on resale paid by Mr Howell in respect of the property at 40A/40 Military Road, Bondi8. A perusal of his Honour's reasons for judgment reveals that this assertion is factually incorrect. Mr Howell's remaining points were those attempted to be raised by the proposed new ground 17 which he sought to add to his notice of appeal. There are different issues involved in the proposed ground 17. One relates to partnership properties' held by Fine Real Estate which remained unsold at all material times. The other relates to alleged failures by the referee and trial judge to take into account proceeds of sale of 7. Supreme Court Rules, Pt72 r13(1)(d) and r13(2). 8. 40A/40 Military Road, Bondi. 10 UNREPORTED JUDGMENTS partnership properties received by Fine Real Estate and drawings which Mr Fine made from the partnership. In each instance, the arguments were based on misconception. In Mr Murray's report and thereafter, the retained properties were treated as "notionally sold" to Fine Real Estate at their respective values, which were nominated by Mr Howell. The "notional profit", based on the difference between the total purchase price of the properties and their values, was included in the "gross profit on partnership properties" which formed the foundation of the referee's calculation, which was adjusted and, after adjustment, adopted by the trial judge®. It is again convenient to interpose one of Fine Real Estate's arguments concerning why it claims to be entitled to be paid more by Mr Howell, which is based on a similar misconception. Shortly stated, Fine Real Estate's proposition was that it had made payments towards the purchase price of one or more properties and Mr Howell had received the proceeds on sale. Hence, it was argued, the payment which he is obliged to make to Fine Real Estate should be increased by the amount of the payments of purchase price paid by Fine Real Estate in respect of those properties, or at least half of that amount. Once again, this misunderstands Mr Murray's approach, as carried forward by the referee and the trial judge. The "gross profit on partnership properties" referred to by the referee is based on the premise that all partnership properties have been sold or "notionally sold" and the purchase price deducted. Although there is an implicit assumption that the partnership paid the purchase prices of its properties, it is immaterial who paid the purchase prices in whole or in part. The "nett profit of the partnership" is calculated by deducting partnership expenses other than the purchase prices of the properties, which have already been brought to account in determining the "gross profit on partnership properties". If Fine Real Estate's position was then determined by reference to what it had personally expended and received or retained, its contributions to purchase prices would be relevant. As earlier indicated, such an exercise would have been useful, and might have increased the accuracy of the accounting. But the approach adopted by Mr Murray and promoted by Fine Real Estate was to ascertain its position by subtraction of Mr Howell's receipts from his partnership entitlement or vice versa. There was no room for the introduction of payments of purchase price paid by Fine Real Estate into such a calculation. Plainly, Mr Howell's proposition that "no account was taken of the amounts received by [Fine Real Estate]" similarly lacks validity. The exercise undertaken to resolve which partner owed what amount to the other no more required that account be taken of proceeds of sale received by Fine Real Estate than it required that regard be had to payments of purchase price made by Fine Real Estate. The last of Mr Howell's contentions can conveniently be considered in conjunction with the principal basis of Fine Real Estate's cross-appeal, which is the subject of its grounds 5, 6 and 7. According to Mr Howell, in determining the partnership expenses to deduct from the "gross profit of partnership", "no account was taken of the drawings of Mr Fine"; ie, drawings by Mr Fine personally were erroneously treated as partnership expenses. That is factually incorrect, as is demonstrated by consideration of Fine Real Estate's proposition that the trial judge erred in increasing the amount deducted by the referee as personal expenditures by Mr 9. Two shops at Bondi, and No4A Underwood Street. URJ HOWELL v FINE REAL ESTATE NETWORK PTY LTD (Fitzgerald AJA) 11 Fine by himself deciding which cheques drawn on Fine Real Estate's account were applied to partnership purposes and which to Mr Fine's personal use. The material section of the trial judge's reasons! was as follows: "\.. The principal difficulty which proof of the plaintiffs case faced in relation to this expenditure was that in many instances the only available records of expenditure consisted of cheque butts prepared by or under the direction of Mr Fine, critical details on which were frequently filled in by Mr Fine many months after the cheques were drawn, in reliance on his memory. Subject to one qualification, I am of opinion that the Court should accept the approach adopted by the referee and the findings he recorded on these matters. I think that the referee was justified in preferring the evidence derived from Mr Fine, unsatisfactory as it was in some respects, to that of Mr Winter (based on information from the defendant) and of the defendant himself, as to the value of the renovations, having regard to the adverse views which the referee formed of the defendant's credibility. The qualification arises from the circumstance that the referee firmly discouraged counsel for the defendant from prolonging his cross-examination of Mr Fine on the cheque butts in question (see in particular transcript p233-p234). Among other things the referee said to counsel for the defendant: " You, have, I think, as at present advised, you have demonstrated that if I placed full reliance on these figures, I would be in error." During the hearing before me counsel for the defendant provided me with a document entitled "Schedule A" containing a list of cheque butts (all of which were included in exhibit 15 before the referee) to which he wished to draw particular attention as containing notations which had been obviously altered since being originally filled in, and thus attracted special consideration. The same document had formed part of the defendant's written submissions to the referee. In view of the referee's discouragement of further cross-examination of Mr Fine and his statement as above quoted, I have thought it proper to examine for myself such of the cheque butts listed in Schedule A as have been taken into account in Mr Murray's report (exhibit M1) and consequently adopted by the referee as partnership expenditure by the plaintiff on renovations to the various properties. Having carried out that examination I have decided that in respect of the following amounts the evidence is insufficiently reliable to justify their inclusion: Accordingly if these amounts are excluded as partnership expenditure, it follows that the amount of the defendant's liability to the plaintiff should be reduced by half their total, namely $34,125.90." Fine Real Estate's argument was that the trial judge had exaggerated both the extent to which the referee had discouraged cross-examination of Mr Fine on the cheque butts referred to and the significance of the referee's comments, unfavourable to Mr Fine and favourable to Mr Howell, in the course of that cross-examination. Further, according to Fine Real Estate, the referee who had seen the witnesses had an advantage over the trial judge, who should have deferred to the referee's opinion. The latter proposition unduly limits the discretion of a judge who is considering whether a referee's report should be adopted, or should be rejected. That aside, it is unnecessary to describe in detail the progress of the material portion of the proceedings before the referee. The passages to which this Court's attention was drawn leave me comfortably 10. Delivered on 19 August 1996. 12 UNREPORTED JUDGMENTS satisfied that his Honour was entitled to proceed as he did, and that the course which he followed did not involve appealable error. Fine Real Estate's final argument related to the interest paid on a loan of $230,000 by Mercantile Mutual to Plaza Blinds Pty Ltd. The trial judge concluded that interest of approximately $37,997.00 paid on that non-partnership loan had been paid by Fine Real Estate and "treated in Mr Murray's report as a partnership expense". According to Fine Real Estate, there was no evidence to support those findings, and the evidence was to the contrary. The evidence referred to by his Honour as the basis for this part of his decision seems to me insufficient to justify his conclusion and, in my opinion, the consequential adjustment he made to the amount for which Mr Howell is liable according to the referee's report cannot be sustained. There should be a readjustment in favour of Fine Real Estate of $18,998.00. Subject to that variation of O2 of the judgment under appeal, both appeals and cross-appeal should be dismissed. The orders I propose are: 1. Appeal dismissed with costs. 2. Cross-appeal allowed in part, but generally dismissed with costs. 3. Orders made below varied only to the extent that the amount stated in O2 be increased to $464,393.00. Appeal dismissed. Counsel for the appellant: B A J Coles QC/D P Robinson Solicitors for the appellant: Dennis & Co Counsel for the respondent: J S Drummond Solicitors for the respondent: Nash O'Neil Tomko