Say-Dee Pty Ltd v Farah Constructions Pty Ltd (No.2) [2005] NSWCA 469

New South Wales Court of Appeal

CITATION: Say-Dee Pty Ltd v Farah Constructions Pty Ltd (No.2) [2005] NSWCA 469

HEARING DATE(S): On the papers

JUDGMENT DATE: 21 December 2005

JUDGMENT OF: The Court

DECISION: (1) ORDER that the appeal be allowed; (2) ORDER that the orders made by Palmer J on 19 August 2004 and 22 November 2004 be set aside; (3) DECLARE that the appellant and the first respondent entered into a partnership (the Partnership) in accordance with an agreement (the Partnership Agreement) for the acquisition, development and resale of No. 11 Deane Street, Burwood (11 Deane Street) as and from 2 April 1998 being the date upon which they contracted by written agreement to purchase that property; (4) DECLARE that the second to sixth respondents hold their respective interests in the properties known as Nos. 13 and 15 Deane Street, Burwood (the Adjoining Properties) upon constructive trust for the Partnership; (5) ORDER that the second to sixth respondents not incur any further liability (except as to interest) to any mortgagee of either or both of the Adjoining Properties beyond that pertaining as at the date of these orders; (6) DECLARE that any liability of the second to sixth respondents to repay any monies borrowed by any of them and secured against either or both of the Adjoining Properties and which have been used otherwise than for the acquisition, maintenance, retention or re-financing of the Adjoining Properties prior to 15 September 2005 shall be the sole responsibility of the borrowing respondent who shall keep the appellant indemnified with respect thereto; (7) ORDER that Brian Silvia and John Melluish, both of Ferrier Hodgson, Chartered Accountants, of Sydney (the Receivers) be appointed as receivers to the properties being Nos. 11, 13 and 15 Deane Street, Burwood (collectively "the Properties") and that legal title to the Properties be vested in them; (8) ORDER that the Receivers have the following powers; (a) to sell the Properties as one lot or in one line unless otherwise advised that they should be sold individually or as two lots in order to maximise the gross sale price of the Properties as a whole; (b) to take possession of, collect and get in the assets (including any book debts) of the Partnership; (c) to take proceedings in any court or other tribunal or forum in the names of the parties and/or the Partnership for the purpose of enforcing payment of the book debts or other rights of action held by them or either of them on behalf of the Partnership with power to institute bankruptcy and winding-up proceedings against debtors and do all things in connection with any bankruptcy or winding up except where the debt is that of the appellant or the first respondent when such proceedings may not be taken until the taking of accounts of the Partnership is complete as hereinafter provided; (d) to employ real estate agents to effect the sale of the Properties and to pay them commission and to outlay all necessary legal fees and disbursements and such other outgoings considered by them to be an essential condition precedent to selling the Properties at auction for the best price obtainable and to fix an appropriate reserve price for the purpose of that sale and, in the event of the Properties not being sold at auction, to sell the same by private treaty. Each of the appellant and the respondents shall have the right to bid at any such auction or to purchase the Properties by private treaty; (e) to engage consultants and to make such applications and to enter into such negotiations with Burwood Municipal Council and such other parties as the Receivers may be advised for the purpose of making and obtaining such development consents and other approvals in relation to the Properties or any of them as are necessary to achieve the maximum price for the Properties on their sale; (f) to appoint solicitors on behalf of the parties to conduct any negotiations in respect of any such applications and draw and settle any documentation in relation thereto and to act on the sale of the Properties; (g) to pay out of the net proceeds of sale of the Properties all such monies as may be required to be paid for the purpose of discharging the present obligations of the Partnership to its various secured and unsecured creditors including any monies owing to the second to sixth respondents to the extent to which they or any of them had funded out of their personal assets the acquisition, retention, maintenance and improvement of the Adjoining Properties or any of them provided however that the obligations of the Partnership to discharge its obligations shall only extend to any costs and expenses reasonably incurred by the third respondent in obtaining Development Consent No. 131/2004 in respect of No. 13 Deane Street, Burwood in the event that the Receivers sell that property as an individual property and are satisfied that the obtaining of that consent has added value thereto for the purpose of its sale; (h) that if so advised to maximise their sale value or if so required by any contract of sale, to take such steps as may be necessary to obtain vacant possession of the Properties or any of them; (i) to invest any money for the time being in their hands on behalf of the Partnership in any mode of investment permitted by law for the investment of trust funds pending the determination of the parties' entitlement to such proceeds; (j) to make interim distributions to the parties; (k) to receive or prepare accounts for the Partnership and the winding up and dissolution thereof including profit and loss statements for the Properties and, if they think fit, to receive and adopt any audited accounts prepared by or on behalf of the respondents or any of them relating to the Properties if independently satisfied that any such accounts constitute a fair and accurate statement of their financial position; (9) ORDER that each party shall within 28 days of the date of these orders deliver up to the Receivers or as they may direct, all assets the subject of the Partnership within their custody, power or possession including all books and records solely relating to any transaction entered into pursuant to the Partnership Agreement or otherwise relating to the Partnership or the Properties together with legible photocopies of all entries relating to any such transaction recorded in any books and records of which such entries only form part; (10) ORDER that upon the sale of the Properties and after the discharge from the net proceeds of their sale of the debts and obligations of the Partnership in accordance with sub-paragraph (g) of Order 8 above, the proceedings be referred to an Associate Judge of the Supreme Court for the taking of accounts of the Partnership between the appellant and the first respondent in order to determine the net profit or loss of the Partnership; (11) ORDER that the Associate Judge to whom this matter is referred shall determine the just allowance, if any, to be made to the second respondent on account of his entrepreneurial skills and efforts in acquiring the Adjoining Properties but, in so determining, the Associate Judge is not to grant a liberal allowance. In determining the amount of any such allowance, the Associate Judge should do so in light of the extent to which the acquisition of the Adjoining Properties has added to the value of 11 Deane Street and in the light of the ultimate net profit which is achieved by the amalgamation of the Properties and their ultimate sale with or without the benefit of any development consent from the Burwood Municipal Council or any such other body empowered to grant such a consent; (12) ORDER that the costs of the referral of the proceedings to the Associate Judge be paid by the first respondent with liberty to that respondent to apply to the Associate Judge for some other or different order depending upon the outcome of his or her inquiry as to the net profit or loss of the Partnership; (13) ORDER that after the determination by the Associate Judge of the net profit or loss generated by the sale of the Properties and the determination by that Judge of the just allowance, if any, to be made to the second respondent on account of his entrepreneurial skills referred to in Order 11 above, the profit or loss of the Partnership be divided between the appellant on the one hand and the first respondent on the other in the following manner; (a) the amount representing the just allowance, if any, determined by the Associate Judge be paid to the second respondent; (b) after deducting that amount, to pay one half of the balance so arrived at to the appellant as its share of the net profit or, if there is a loss, one half of that loss is to be paid by the appellant to the extent necessary to enable the debts of the Partnership to be paid in full; (c) the remaining one half of the said balance be paid to the first respondent as its share of the net profit or, if there is a loss, one half of that loss should be paid by that respondent to the extent necessary to enable the debts of the Partnership to be paid in full; (14) ORDER that the Receivers are entitled to be remunerated so soon as funds are available out of the net proceeds of sale of the Properties in accordance with the scale of fees approved and set by the Insolvents & Practitioners Association Scale of Fees 1997 and, in the absence of such a scale, to such fees as may be agreed and in default of agreement, to a reasonable fee calculated in accordance with the standard charge-out rates of the Receivers and their employees; (15) DECLARE that upon making of the payments referred to in Order 13, the Partnership be thereupon dissolved; (16) LIBERTY to apply to any party in the first instance to Tobias JA in connection with working out of these orders on 48 hours written notice; (17) ORDER that all caveats lodged by or on behalf of any party on the title to the Properties be withdrawn within seven days of the date upon which legal title to the Properties is vested in the Receivers; (18) ORDER that the respondents pay the appellant's costs of the hearing before Palmer J including any reserved costs; (19) ORDER that the respondents pay the appellant's costs of the appeal but to have with respect thereto a certificate under the Suitors' Fund Act 1951, if otherwise qualified; (20) ORDER that Orders 18 and 19 be stayed for 28 days provided that if any of the respondents file an application for special leave to appeal to the High Court of Australia within that period, such stay shall extend without further application to the date of final determination by the High Court of any such application including, if special leave is granted, the determination of any consequent appeal provided that any such application or appeal shall be prosecuted by the appealing respondents with all due expedition, reserving liberty to the appellant to apply to dissolve the said stay on 48 hours written notice; (21) LIBERTY to any party to apply by the filing of a notice of motion supported by such affidavits and submissions as they may be advised to vary Orders 18 and/or 19 to require the costs referred to therein to be paid on an indemnity basis or to be rescinded provided however that any such application must be made within 14 days of the finalisation of the taking of accounts by an Associate Judge pursuant to Order 11 above