Reported Decision : 63 NSWLR 370 New South Wales Supreme Court CITATION : Pham v Doan [2005] NSWSC 601 HEARING DATE(S) : 08/04/05, 13/05/05 Written submissions: 22/04/05, 11/05/05 JUDGMENT DATE : 24 June 2005 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : Judgment for defendant on plaintiff's claims. Judgment for plaintiff/cross-defendant on the cross-claim. No order as to costs. CATCHWORDS : CONTRACTS - illegal and void contracts - whether resulting trust may be recognised where illegal partnership provides part of purchase moneys and of partnership property Calverley v Green (1984) 155 CLR 242 CASES CITED : Little v Little (1988) 15 NSWLR 43 Pham v Doan [2005] NSWSC 201 Stephem Pham - Plaintiff PARTIES : Peter Doan - Defendant FILE NUMBER(S) : SC 2753/03 Mr G.P. McNally - Plaintiff COUNSEL : Mr P.B. Walsh - Defendant Matthews Dooley & Gibson - Plaintiff SOLICITORS : Champion Legal - Defendant LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J FRIDAY, 24 JUNE 2005 2753/03 - STEPHEN PHAM v PETER DOAN JUDGMENT 1 For reasons published on 16 March 2005 (see Pham v Doan [2005] NSWSC 201), I concluded that (a) the plaintiff and the defendant had entered into a partnership which extended to and embraced the Grant's Pharmacy business at North Ryde, the freehold premises in which that business was conducted, the associated and conjoined post office agency in those premises and the business of the South Windsor Pharmacy; (b) the partnership property did not include a building at South Windsor adjacent to the South Windsor Pharmacy; (c) the creation of the partnership and the carrying on of the partnership business were prohibited by the Pharmacy Act 1964 because one of the partners (being the defendant) was not a registered pharmacist; (d) the creation of the partnership was accordingly illegal; and (e) because of the prohibitory impact of the Pharmacy Act on the parties' agreement to form the partnership and the consequent illegality, the court would not grant any relief which recognises or flows in any way from the existence of the partnership. 2 I subsequently heard argument on the question of the orders that should be made to dispose of the proceedings. Written submissions were filed on 22 April 2005, 11 May 2005 and these were supplemented by oral submissions made on 13 May 2005. 3 The plaintiff says that, despite the Pharmacy Act prohibitions, he should be recognised as having an interest in the North Ryde property. The registered proprietor of that property is the defendant but, the plaintiff says, the money for the purchase of it came from the pharmacy operations. At paragraph [102] of my earlier judgment, I held that the North Ryde property was held by the defendant on trust for a partnership comprising the plaintiff and the defendant but at paragraph [103] I said that the court would not grant any relief which recognises or flows in any way from the existence of that partnership. 4 The plaintiff says that recognition of such an interest of his in the property will not entail reliance upon or giving effect to anything proscribed by the Pharmacy Act. The vice to which the statute is directed, it is said, is the holding of an interest in a pharmacy business by a non-pharmacist and it is in no way inconsistent with that to recognise the interest of the plaintiff (a recognised pharmacist) in the building. The plaintiff also argues that the acquisition of the building, which occurred after the acquisition of the Grant's Pharmacy operations, was merely incidental to the illegality. 5 For the reason stated at paragraph [103] of the earlier judgment, the court cannot recognise an interest of the plaintiff in the North Ryde building based on the contention that it was partnership property. It is submitted, however, that an interest of the plaintiff should be recognised in a different way, that is, by reference to a resulting trust – although servicing of the very substantial loan out of the proceeds of conducting the pharmacy business would, of course, not be relevant to measuring the extent of the plaintiff's interest under any such resulting trust (since the borrowed moneys would be seen as contributed by the defendant who borrowed them) and regard would be had only to so much of the purchase moneys actually paid out of the pharmacy funds without resort to borrowing: see Calverley v Green (1984) 155 CLR 242 per Mason and Brennan JJ at pp.257-8. 6 On the evidence, the deposit under the purchase contract, as well as stamp duty and legal fees, were paid from the partnership assets. But on the plaintiff's own evidence, the purchase price was $400,000 and the mortgage loan from the National Australia Bank was also $400,000. Mr Ionnidis gave evidence (referred to at paragraph [46] of the judgment) of the parties' assent to an arrangement under which the partnership was to pay rent to the defendant, thus obtaining a tax deduction, while the defendant would meet the mortgage payments and claim them as a tax deduction, at the same time returning the rent as income. There is no room here for an inference that the partnership contributed to the defraying of the mortgage payments: it paid rent to the defendant and he paid the mortgage instalments. 7 Because the bank loan was equal to the purchase price, I proceed on the basis that the initial provision of the deposit out of pharmacy funds represented a temporary advance only and that the items that were, in a permanent sense, met out of partnership funds were the stamp duty, legal fees and other incidental expenses of acquisition. These do not qualify for consideration as part of the purchase moneys for the purposes of the rules with respect to resulting trusts: Little v Little (1988) 15 NSWLR 43. 8 There is accordingly no room for a finding of resulting trust of the kind for which the plaintiff contends in relation to the North Ryde property. And this is so apart altogether from the impact of the Pharmacy Act. 9 The plaintiff next says that he should be regarded as having had an interest in the property at South Windsor and that an accounting should be ordered in respect of that property. The price of the South Windsor property was $435,000. A deposit of $21,750 was provided for in the contract. A loan of $400,000 was obtained by the defendant and his wife (the purchasers) from the National Australia Bank. The defendant acknowledges that the deposit was paid from Grant's Pharmacy funds, that is, partnership assets. He says that the stamp duty, legal costs and balance of purchase moneys came, as to part, from a loan of $20,000 he and his wife obtained from friends and, as to the remainder, from Grant's Pharmacy funds. It is thus clear that, leaving aside the loan proceeds and the expenses of acquisition which, for reasons already expressed, cannot be taken into account in determining contributions to purchase moneys relevant to any resulting trust, some small part of the purchase moneys was provided from the partnership assets. It is therefore necessary to address, in relation to the South Windsor property, the question whether principles of illegality allow a resulting trust in favour of the plaintiff to be recognised. 10 The resulting trust would be a resulting trust in favour of the partners on the footing that money that was part of the partnership property was applied towards the purchase. That, of course, entails recognition of partnership property and hence recognition of the existence of the partnership. Because of my conclusion that the creation of the partnership was illegal, with the result that the court will not grant any relief which recognises or flows from its existence, it is not open to me to regard the money in question as money in which the plaintiff and the defendant, as partners, had interests. The resulting trust for which the plaintiff contends therefore cannot be recognised. 11 In saying this, I do not lose sight of the submission made by Mr McNally for the plaintiff to the effect that the plaintiff is, as it were, innocent of the illegality in that the aim of the statute is to preclude participation by non-pharmacists in pharmacy businesses. But my finding was that the contract of partnership was illegal as formed, given the statutory prohibition upon carrying on of a pharmacy business by a partnership that includes a non-pharmacist and the reality that the carrying on of business is of the essence of partnership. It is true that the defendant contravened the Act by having a pecuniary interest, as a partner, in the relevant pharmacy business. But that does not detract from the point that the plaintiff and the defendant together contravened by forming and conducting a partnership that was engaged in pharmacy business. 12 In the result, therefore, there will be no recognition of any resulting trust in relation to either the North Ryde property or the South Windsor property. 13 The appropriate outcome of the proceedings is accordingly: 1. Judgment for the defendant on the plaintiff's claim. 2. Judgment for the plaintiff/cross-defendant on the cross-claim. 14 It remains to consider the question of costs on which I have also received submissions. It is submitted by Mr Walsh on behalf of the defendant that, in the eventuality I have now stated, the plaintiff should pay the defendant's costs because the defendant succeeded on the central issue as to the existence of a partnership and lost only on the related issue of illegality. Mr McNally submitted on behalf of the plaintiff that, if the outcome were that which has now emerged, the court should not make a costs order recognising the defendant's success in the matter of establishing the existence of a partnership since to do so would be an indirect recognition of something the statute does not allow to be recognised. 15 I do not think that the analysis put forward by Mr McNally necessarily holds good when the issue at hand is as to the exercise of the court's discretion as to costs. But I do think that the result for which Mr McNally contends (that is, that there be no order as to the costs of the proceedings) is the appropriate one. The plaintiff succeeded on the illegality issue. The defendant succeeded on the substantive issue. The defendant was successful in resisting the plaintiff's claims and the plaintiff was successful in resisting the defendant's cross-claim. Each would therefore have an expectation of a costs order on the general principle that costs follow the event. The appropriate way of achieving that result here is to allow costs to lie where they have fallen. 16 I make no order as to the costs of the proceedings, to the intent that each party should bear his own costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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