New South Wales Supreme Court CITATION : Interior Marble Pty Ltd v Mondo Stone Pty Ltd [2004] NSWSC 918 HEARING DATE(S) : 23 September 2004 JUDGMENT DATE : 6 October 2004 JURISDICTION: Equity Division JUDGMENT OF : Windeyer J at 1 DECISION : Notice of motion dismissed. No order as to costs and direction that no costs of the motion should be paid out of the assets of the partnership. CATCHWORDS : PRACTICE AND PROCEDURE - partnership proceedings concluded by final orders - application by receiver and manager of partnership by motion in those proceedings for directions and extension of powers - motion dismissed as incompetent - PARTNERSHIP - application by receiver for advice and for directions - whether application by receiver appropriate CASES CITED : Kraft v Kupferwasser (1991) 23 NSWLR 236 Interior Marble Pty Limited (ACN 062 695 916) (First Plaintiff) PARTIES : The Stone Group Pty Limited (ACN 099 479 777) (Second Plaintiff) Mondo Stone Pty Limited (ACN 064 012 040) (Defendant) FILE NUMBER(S) : SC 5647 of 2003 Mr G Lucarelli (Applicant on notice of motion - mentions for Second and Third Respondents) COUNSEL : Mr R Ward (First Respondent on notice of motion) Mr M W Sneddon (Fourth Respondent on notice of motion) Cutler Hughes and Harris (Applicant on notice of motion) SOLICITORS : Bartier Perry (First Respondent on notice of motion) Gye Associate Lawyers (Fourth Respondent on notice of motion) 5 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J WEDNESDAY 6 OCTOBER 2004. 5647/03 INTERIOR MARBLE PTY LTD & ANOR V MONDO STONE PTY LIMITED JUDGMENT 1 By orders made on 10 November 2003, pursuant to a summons filed that day Mr C T Wykes was appointed receiver and manager of the partnership business of The Stone Group Australia conducted by the plaintiffs and the defendant, which partnership it was agreed, was dissolved on 20 October 2003. 2 Paragraphs 2 and 3 of the orders were as follows: 2. Order that the receiver be empowered: 2.1 to collect, get in and receive the debts now due and outstanding and other assets, property or effects belonging to the partnership business; 2.2 to manage the partnership business and to pay and discharge all expenses properly incurred in respect of such management; and 2.3 to carry on the partnership business to the extent necessary to complete contracts entered into by the partnership business as at 20 October 2003 and to be given the powers in relation to the partnership business as are given to a receiver pursuant to the provisions of section 420(2)(a)-(w) inclusive of the Corporations Act 2001; 2.4 to employ such person or persons to manage the partnership business if he sees fit on such terms and conditions as he sees fit; and 2.5 to sell or otherwise dispose of the stock and other assets of the partnership business by public auction, private sale or by tender for cash or on credit. 3. That, for the purpose of winding up the partnership business, the plaintiffs and the defendant deliver to the receiver all assets, property, books, papers, computer records and other effects in their possession belonging to the partnership business within 4 days of the date of this order. 3 The receiver has realized assets to the value of about $196,000. He has not paid creditors at dissolution date. He has paid expenses in connection with his management. He states that the partners, or some of them, have paid some partnership creditors at date of dissolution to enable supplies to be maintained and contracts completed. After expenses of the receiver there is an estimated deficiency for creditors at date of dissolution of $92,249.34. 4 It will be noticed that the orders gave no power to the receiver to discharge liabilities at dissolution date. 5 The receiver now seeks orders that he be empowered: A. To compromise debts in cases where he considers it uncommercial to pursue the debtor; B. To abandon stock plant and equipment where it is not commercial to realize the items; C. That he retire as receiver and manager after distributing the assets in priority commencing with receivership expenses and followed by receiver's remuneration, taxation liabilities, reimbursement to partners of amounts contributed or paid by partners to discharge partnership debts incurred before dissolution and finally to pay the balance pro rata to the partners. 6 In the alternative by amended notice of motion filed on 23 September 2004, the receiver as applicant seeks orders: A. That the partners contribute funds to the receiver to enable him to discharge the partnership debts; B. That the partners put the receiver into funds on account of his remuneration and disbursements and to pay all pre-receivership partnership creditors in full; C. That he be given power to prepare final partnership accounts, determine claims against the partnership, pay all admitted creditors in full and otherwise wind up the partnership. There are other directions which are sought mostly of a procedural nature. 7 There are many difficulties with this matter. Lawyers involved in partnership litigation should read and digest the decision of Powell J in Kraft v Kupferwasser (1991) 23 NSWLR 236 and in particular the first paragraph. 8 The first difficulty is that final orders on the summons have been made. The matter appears to have been commenced and concluded on the same day. While the summons sought an order for accounts, no order was made. There was no reservation of further consideration nor liberty to apply. In any event the latter would not have been of assistance. It follows from this that there are no extant proceedings in which the motion can be brought. 9 While this is an end of the matter there are other problems. First, the applicant on the motion is the receiver and manager. As explained by Powell J at p244 in Kraft this is usually not appropriate. The second problem is that no power is given to the receiver by the present order to discharge the liabilities of the partnership. Clearly, it was a necessary power and should have been included. All the appropriate precedent books say so. In addition, there was no provision for the taking of accounts, although this was sought in the summons. Once again, as explained by Powell J, it is not the task of the receiver to take the accounts although he is of course liable to account for his management. 10 There are other problems. In his affidavit of 1 July 2004 Mr Wykes said that he is aware that the plaintiff partners have paid out partnership debts to preserve commercial relationships and to enable completion of partnership contracts. He has given no details of these payments and it seems that he has no details of them. 11 The first scheme of distribution proposed by the notice of motion is to refund such payments in priority to any general creditor of the partnership, without there being any obligation by order for the partners expected to receive the payment, to contribute to the expected deficiency in the partnership assets. I can see no basis for such an order, which is likely to be to the detriment of partnership creditors entitled in law to payment in priority to refund of advances made by partners to the partnership. In saying that, I do not suggest that this entitlement applies to debts to partners incurred by the receiver and manager during the management, but it is not suggested the receiver made those payments. Nor, it seems, is it suggested they were made with his consent. 12 It is not necessary to go into other matters. Proceedings brought to an end by final order cannot be revived by motion. Presumably new proceedings will have to be brought for the purpose, inter alia, of giving power to the receiver to discharge partnership liabilities and for the taking of accounts reserving further consideration, so that matters arising on the certificate and any question of priority for advances to fund the business in receivership can be considered. On any basis this does not seem to be one of the rare cases where advance distribution could be ordered prior to accounts, nor is it a case where the receivership should be terminated as suggested, so as to restore funds to the partners, leaving creditors to pursue them direct. 13 The notice of motion should be dismissed. There should be no order as costs with a direction that no costs of the motion should be paid out of the assets of the partnership. ********** Last Modified: 10/07/2004 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.