New South Wales Supreme Court CITATION : Milne v Benjafield [2002] NSWSC 1126 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1712/99 HEARING DATE(S) : 22 November 2002 JUDGMENT DATE : 22 November 2002 David Keith Gordon Milne (Plaintiff) Peter Vivian Benjafield (First Defendant) PARTIES : Benlaw Pty Limited (Second Defendant) Colin David Mitty (Third Defendant) Franola Pty Limited (Fourth Defendant) JUDGMENT OF : Campbell J COUNSEL : P Brereton SC; A Vincent (Plaintiff) I G Harrison SC (First Defendant) SOLICITORS : David Milne & Associates (Plaintiff) Hunt & Hunt (First Defendant) CATCHWORDS : PARTNERSHIP - dissolution and winding up - report by Court referee - whether appropriate to adopt - PROCEDURE - Supreme Court procedure - reference of questions under Part 42 Supreme Court Rules - report dealing with matters not referred to referee - no adoption of report CASES CITED : Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60 DECISION : Report not adopted IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J FRIDAY 22 NOVEMBER 2002 1712/99 DAVID KEITH GORDON MILNE v PETER VIVIAN BENJAFIELD & ORS JUDGMENT 1 HIS HONOUR: This unfortunate case arises from the dissolution of a partnership between two solicitors. The partnership was, it is common ground, dissolved on 30 November 1998. 2 On 23 March 1999, Justice Hamilton made an order appointing a receiver of the partnership practice. The same day his Honour made orders declaring that the partnership was dissolved on 30 November 1998 and various orders for the conduct of the receivership. His Honour noted various undertakings that the parties gave. There was no order for any general inquiry at that stage. 3 On 13 August 1999 Hodgson C J in Eq made a further set of orders. He appointed the accountant who had been acting as receiver of the partnership business to also act as a receiver and manager of a company which was trustee of a unit trust, which had acted in connection with the partnership business. He made orders requiring the parties to provide the court with a list of deeds and documents stored by clients with the partnership and a full and complete list of plant and equipment, office furniture and stationery equipment used by the partnership. 4 He directed each of the parties to provide the court with a full and complete list of all library items used in the conduct of the partnership business. He gave directions for each of the parties to provide a list of any assets of the partnership, or of the service trust that had ceased to be in the possession, custody and control of either of the parties. He also referred to the man who had been acting as receiver of the partnership, for inquiry and report, certain matters identified in the schedule. 5 They were: File Management of the Partnership: (a) s at 30 November 1998, what files were the subject of the partnership known as Benjafield Milne ("the Partnership") such that the enquiry should extend to all files and documents in respect of legal services provided by either of the partners whether or not purportedly on behalf of the Partnership known as Benjafield Milne ("the Partnership") or entered into the partnership computer system, which were either not closed, boxed, archived on 30 November 1998, or else closed, boxed or archived after 9 September 1998? (b) As at 30 November 1998, what were the unpaid costs rendered and work in progress ("the value") of each of the files of the Partnership referred to in paragraph (a) such that the enquiry should extend to all amounts which could reasonably have been charged for legal services relating to the files under (a) whether or not these amounts were invoiced or intended to be invoiced? (c) As at 30 November 1998 what was the total value of the files of the Partnership in paragraph (a)? (d) As at the time of preparation of the report, who has custody, control and/or possession of the files of the Partnership referred to in paragraph (a)? (e) As at 30 November 1998, what were the liabilities of each of the files of the Partnership referred to in paragraph (a)? (f) As at 30 November 1998, what was the total liability of the files of the partnership referred to in paragraph (a)? (g) During the period beginning 30 November 1998 until the preparation of the report, who, if anyone, has paid all or part of the liabilities referred to in paragraphs (e) and (f)? (h) If moneys have been paid as referred to in paragraph (g): (i) who has made these payments; and (ii) how much has been paid by the relevant party? 6 By order 20 his Honour made orders conferring powers for the conduct of the reference. One of those was, "The referee consider and implement such manner of conducting proceedings under the reference as will, without undue formality or delay, enable a just determination of the entitlements of each partner to be made, including, if the referee thinks fit [there then followed a variety of means by which the referee might inform himself]" 7 After some further interlocutory processes in this Court, the referee had referred to him a further question, on 16 March 2000. 8 On 16 September 2002 the referee delivered his report. Part of the reason for the delay appears to have been that a cost assessor, who had been engaged to value files, had difficulty in carrying out the job and ultimately did not provide a final report. 9 The motion which is before the court today is a motion by one of the partners, to adopt that report in whole, and for orders which have the effect of disposing of the balance of the proceedings in accordance with the findings in that report. The other partner opposes the adoption of the report. 10 The basis on which the adoption of the report is opposed is that it is alleged that the referee has gone outside his powers in making the findings he has made. This is said to involve two vices. The first is a vice of jurisdiction in that the jurisdiction of the referee is confined to what has been referred to him. The second is that an excess of jurisdiction brings with it a denial of natural justice. 11 It is submitted that the parties need to know what it is that the referee is considering so that they can put on evidence and submissions which are directed to the questions which the referee is considering, and that when a referee goes wider than the jurisdiction which has been actually conferred on him, there is necessarily a failure to accord natural justice concerning that area of his inquiry which is in excess of jurisdiction. 12 Pt 72 rule 2 of the Supreme Court Rules enables the court to make orders for reference to a referee for inquiry and report of the whole of the proceedings, or any question or questions arising in the proceedings. The respondent to the motion submits that the reference to this referee was of the latter kind of limited questions arising. 13 That this is so is apparent not only from the terms of the order which Hodgson CJ in Eq, made on 13 September 2002, but also from the fact that the judge's notes show that his Honour declined to order a reference of certain topics which were identified in the notice of motion which was before him, which were topics relating to the general financial position of the partnership. 14 The report of the referee reveals that it has not been possible to carry out some of the tasks which the court asked him to carry out. The referee reported that the accounting records of the partnership were not reliable, so far as the debtors of the partnership were concerned. He also reported that while there was a computerised record which showed the value of work in progress, those computerised records were not properly maintained and both partners recognised the inaccuracies of those records. 15 Hence the referee adopted the approach of valuing work in progress, debtors and disbursements as at 30 November 1998 by looking at the amounts which were actually collected. He was able to give a complete account of which moneys had been collected, and by whom, relating to work which had been performed by the firm prior to the date of dissolution. He recognised that there may be some slow payers and estimated that the amount involved in such slow payers would be less than $20,000 and, given the time which had elapsed since the dissolution of the partnership, the likelihood of further recoveries from those payers appeared minimal. He did not, however, value the work in progress on a file-by-file basis. 16 The report of the referee proceeded, it seems to me, under a fundamental mistake about just which questions had been referred to him. The opening paragraph states that the orders of Hodgson CJ in Eq appointing him as a referee direct that: "The referee consider and implement such manner of conducting proceedings under the reference as will, without undue formality or delay, enable a just determination of the entitlement of each partner." 17 There is no recognition in the report that this direction was an ancillary direction, concerning the way in which the reference was to be conducted, and not a definition of the scope of the enquiry. The report nowhere sets out, or attempts to answer, the questions which were referred for report. 18 The referee's report proceeded to analyse each of the assets and liabilities of the partnership, and also of the trust which was associated with the partnership, and to arrive at a net balance payable by one partner to the other. In the course of so doing, he considered, not only the debtors and work in progress of the partnership, but also considered what the position was concerning plant and equipment and library assets. 19 Both counsel before me today agree that the expression, "Liability of the files of the partnership" and cognate expressions contained in the schedule to Justice Hodgson's order of 13 August 1999, should be construed as referring to the liabilities which the partnership had relating to an individual file, that is, relating to disbursements connected with a file, such as fees for counsel, expert witnesses, and the like. The inquiry in which the referee engaged concerning liabilities went much wider than that. It did not proceed on a file-by-file basis, but rather dealt with liabilities of the partnership as a whole. The referee inquired into liabilities not connected with individual files – into the way in which the liabilities of the partnership to its bankers were discharged, the way in which the liability of the partnership to a company called Andretti Pty Ltd was discharged, and the way in which other liabilities of the partnership were discharged. 20 Further, the report proceeded on the basis that the partners were entitled to a distribution of the assets of the partnership on a fifty-fifty basis. There was a finding by the referee that one of the partners did not have a claim for his fees in recovering debts of the partnership. This finding is one which involved rejecting a contention of that partner that there had been an agreement reached, which got to the stage of being written down in a draft deed which never came to be executed, whereby the partner who collected the fees would be entitled to charge for his time at the rate of $50 per hour. 21 The report also considered various adjustments which should be made between the partners. One such adjustment related to some prepaid business expenses, from which the partner who remained in the partnership premises, obtained some benefit. The referee dealt with a question about how the goodwill of the partnership should be valued and dealt with. There was a question which the referee decided, relating to whether there had been excess drawings by partners over a period of years, and whether there was an obligation for bringing to account those excess drawings. There was a question decided by the referee about whether one of the partners had breached his fiduciary duty by engaging in directorships for doing work on personal matters and not bringing to account the benefits derived from that type of work. There was a question about whether one of the partners had been running a legal practice on the side, and not bringing the proceeds of that legal practice to account. 22 All of the matters which the referee considered were ones which would be necessary to consider to be able to have a final accounting of the affairs of the partnership. 23 However, from a comparison of the list of matters which I have just given, which the referee actually considered, and of the questions which were referred to him, one can see that it was a very particular and discrete segment of the affairs of the partnership that he was asked to report on. He has, it seems to me, significantly exceeded the jurisdiction which was conferred on him. Further, he has not answered the questions which were actually referred to him. In the circumstances there is no question of adopting the entirety of his report. 24 A question remains of whether any portion of the report should be adopted. The outline I gave earlier of the methodology which the referee adopted shows that he formed the view that the particular questions which were asked of him simply could not be answered. I have given consideration to whether there would be any utility in trying to segregate out the portions of his report which came to that conclusion, and have decided that there would be no utility in doing it, at least for the purpose of formally adopting those parts. 25 The parties are in a position where they know, as a result of the inquiry, carried out by the man who is probably best acquainted of anyone in the world with the financial affairs of this partnership, that the questions which the court asked the referee to embark on in August 1999 are not ones which can be usefully answered. This piece of information will be as well able to guide the future conduct of this litigation if the report is not adopted as if some portion of it were adopted. 26 Mr Harrison SC urged on me that it is a very serious thing to not accept a report of a referee. He referred me to the remarks of Cole J in Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60 at 67, to the effect that, in deciding whether to adopt a report, the court will have regard to the utility of a process of relitigating an issue determined by the referee in circumstances where parties have had an opportunity to place before the referee such matters as they desire and that the court will also have regard to costs. Cole J said: "If the report shows a thorough analytical and scientific approach to the assessment of the subject matter of the inquiry, the court will have a dispossession towards an acceptance of the report for to do otherwise would be to negate the purpose of facility of referring complex technical issues to independent experts for inquiry and report." 27 I fully accept those remarks of Justice Cole, but they cannot apply to a situation like the present where there has been a serious excess of jurisdiction on the part of the referee. 28 As Mr Brereton SC, for the respondent, pointed out, it is not as though all the work which the referee has done and which is contained in the report will be wasted if the report is not adopted. The report contains his findings about numerous matters which will be relevant to an ultimate winding up of the affairs of this partnership and in the capacity of a witness, much of that material might ultimately be used by the parties. 29 However, it will be used by the parties in a context where the questions about on what basis the assets and liabilities of the partner are to be divided up is expressly addressed and debated. 30 The notice of motion is dismissed, with costs. ********** Last Modified: 12/03/2002 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.