George v Staunton; George Pty Limited v Staunton [2007] NSWSC 1037

New South Wales Supreme Court

CITATION : George v Staunton; George Pty Limited v Staunton [2007] NSWSC 1037

HEARING DATE(S) : 13/09/2007

JUDGMENT DATE : 18 September 2007

JUDGMENT OF : Associate Justice Malpass

DECISION : I set aside the judgment and order made in Plaint Number 2 of 2006 and order that the proceedings be dismissed. The Summons brought by PJ George Pty Limited is dismissed and that company is to pay the costs of the Summons. I reserve the questions of the costs of the appeal brought by Mr George and the costs of Plaint Number 2 of 2006.

CATCHWORDS : Parties sue in Local Court alleging breaches of partnership agreement - no taking of account - no causes of action - no jurisdiction - misdirection and other errors in point of law (including failure to give sufficient reasons)

CASES CITED : Stevens v McNally [1997] NSWSC BC9708074

Alfred Cecil George (Pl) PARTIES : Patrick Joseph Staunton (Def) AC & PJ George Pty Limited (Pl) Patrick Joseph Staunton (Def)

FILE NUMBER(S) : SC 12105/07; 12106/07

COUNSEL : Mr G. Colman (Pl) Mr J. A. Trebeck (Def)

SOLICITORS : Gordon Garling Moffitt (Pl) Garden & Montgomerie (Def)

LOWER COURT JURISDICTION : Local Court

LOWER COURT FILE NUMBER(S) : 2/2006; 83/2006

LOWER COURT JUDICIAL OFFICER : P Moon LCM

LOWER COURT DATE OF DECISION : 03/04/2007

- 10 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

ASSOCIATE JUSTICE MALPASS

18 SEPTEMBER 2007

12105/2007; 12106/07 Alfred Cecil George v Patrick Joseph Staunton; AC & PJ George Pty Limited v Patrick Joseph Staunton

JUDGMENT 1 HIS HONOUR: In November 2004, a partnership came into being to conduct a business under the name of Boorowa Motor Repairs. One partner was Mr Staunton (Staunton). The other partner was either Mr George (George) or P J George Pty Ltd (the company). The agreement was orally made. The role of Mr Staunton was to perform the mechanical work. The role of the other partner was to attend to the paperwork and bookwork for the business. Plant and equipment was purchased by Staunton and the company from a third party, for use in the business. It then had a value in the order of $29,000.00. 2 The partners came into disagreement and the partnership was terminated in June 2005. The business had been conducted from premises known as Lot 2/139 Long Street Boorowa. Following the termination, Staunton continued to conduct the business from those premises (inter alia, using the plant and equipment). 3 Staunton commenced proceedings in the Local Court against George (Plaint Number 2 of 2006). The company responded by bringing proceedings against Staunton (Plaint Number 83 of 2006). Both proceedings were heard together. The hearing took over three days. It was heard by Moon LCM. Considerable evidence was adduced (including affidavits and other documentation, oral evidence and there was cross-examination). 4 A short judgment in respect of both matters was delivered on 3 April 2007. The Magistrate found in favour of Staunton against George in the sum of $20,000.00 plus costs. He found in favour of Staunton against the company (dismissing the proceedings and ordering the company to pay costs). 5 Both George and the company have appealed to this Court. The original Summonses were filed on 26 April 2007. The appeals were heard on 13 September 2007. On that day an Amended Summons was filed in Court, which raised a jurisdictional question. 6 At the time of the commencement of both proceedings, there had been no taking of partnership accounts. Despite this, the parties launched into litigation, pleading causes of action founded on breach of the partnership agreement. The relief sought included damages and alleged entitlements consequent to the termination thereof. 7 The Statement of Claim relied on by Staunton against George contained, inter alia, the following:- "7. It was an implied term of the partnership agreement that the Defendant would collate and record all relevant financial records of the business and make those records available to the Plaintiff at all reasonable times. 8. The defendant breached the partnership agreement between he and the plaintiff by refusing and/or failing to keep all relevant financial records and by failing to make those financial records available to the Plaintiff. 11. The Plaintiff has suffered loss and damage and continues to suffer further loss ands damage, including the inability to prepare and lodge Business Activity Statements as required. 12. The Plaintiff claims the sum of $20,000.00 particulars whereof will be supplied when the relevant financial records have been examined by the Plaintiff's Accountant." 8 The Statement of Claim brought by the company against Staunton contained, inter alia, the following:- "8. It was a further term of the partnership agreement that the defendant would carry out all mechanical repairs and would invoice customers in the name of BMR. The plaintiff was to permit ordering of spare parts through accounts it had with various suppliers, and was to deposit into the partnership bank account any payments received by the defendant on behalf of BMR and which were passed to it by the defendant. The plaintiff would effect payment of the defendant's percentage to him, and payment for parts ordered, out of payments received. 9. The defendant, in breach of the partnership agreement, failed to (a) account to the plaintiff for all mechanical work he apparently carried out on behalf of BMR; (b) raise invoices in the name of BMR for all mechanical work he carried out on behalf of BMR; and (c) account to the plaintiff for all monies and other payments he received for work done by BMR 20. The Plaintiff accepted the severance of the partnership with effect from 25 June 2005, and the Defendant thereupon paid the rent on his own behalf for the leased workshop from that date until sometime in August 2005. The defendant has thereafter failed to pay the rent on the premises, and the agent is now pursuing the plaintiff for the arrears. 21. The plaintiff has suffered loss and damage and continues to suffer loss and damage, as a result of the defendant's breeches (sic) of contract and failure to account upon dissolution of the partnership. (a) $28,000.00 Capital introduced to the business. (b) Income from the business from November 2004 to June 2005. (c) Costs of and incidental to the defendant's breach of partnership obligations to landlord and trade creditors. TBA (d) Interest. (e) Costs of and incidental to this proceeding." 9 During the hearing, the amount sought to be recovered by Staunton against George came to be formulated as a claim for wages. Submissions made to the Court on his behalf put the claim as follows:- "Amendment of Pleadings 18. At the commencement of the evidence by Mr Patrick Staunton , he sought leave, and was granted leave, to amend paragraph 38 of his statement of 6th June 2006 by conceding the fact that during the relevant period, he had been paid drawings of $2,048.75. A schedule detailing those payments was tendered. Mr Staunton, in his claim, is seeking the payment to him of $20,000.00 particulars whereof are as follows; 31 weeks @ 30 hours / week @ $30.00/hr $27,900.00 LESS: Paid to him by way of drawings $2,048.75 $25,851.25 LESS: Abandonment of claim in excess of $20,000.00 $5,851.25 NET CLAIM $20,000.00" 10 The reason for abandonment of part of the claim remains somewhat of a mystery. The jurisdiction had by the Local Court was then $60,000.00. It has been suggested that maybe some misconception arose by reason of the District Court having a jurisdiction in relation to the recovery of the unliquidated balance of a partnership account to a limit of $20,000.00. In his judgment the Magistrate observed that Staunton had "also abandoned the sum of $5,851.25 to bring his actions before this Court". This observation suggests that the Magistrate may have been labouring under a misconception that this abandonment gave the Court jurisdiction in respect of Staunton's claim. 11 In Stevens v McNally (unreported) 31 October 1997 NSWSC BC9708074, Young J (as he then was) said [at p2]:- "Section 44 of the Partnership Act, 1892 specifies that in settling accounts between partners following a dissolution, "the ultimate residue" shall be divided amongst the partners. Until there are final accounts, there can be no determination of the ultimate residue. Thus, it has been held that until final accounts, a partner's right "is merely to have the assets...collected applied in discharging the liabilities of the partnership firm and to receive his share of any surplus there may be when the liquidation has been completed...there can be no relationship of debtor and creditor between partners unless and until the accounts have been finally taken and a balance has been ascertained to be due from each one to the others" (per Eve, J Public Trustee v Elder [1926] Ch 266, 272). … The rule about not being able to claim as a debt the unliquidated balance of a partnership account has been affected by legislation,. Under s 44 (1)(c) of the District Court Act, 1973, a person may sue in the District Court to recover the unliquidated balance of a partnership account." 12 After the completion of the evidence, the Magistrate received detailed written submissions from the parties. Whilst the submissions raised matters of partnership, it seems to me to be the better view that no question of jurisdiction was thereby raised (to the effect that the Local Court did not have jurisdiction to take partnership accounts). 13 The submissions made on behalf of the company contained, inter alia, the following:- "28. With all of the assets of the partnership wrongfully converted by Staunton to his own personal use for profit the Company is entitled to an action in assumpsit against Stanton personally as clearly there is nothing left in the partnership for it to recover against." 14 Whilst the purport of this submission may be somewhat unclear, an action in conversion was not open on the pleadings and the Magistrate appears to have dealt with the claim on the basis that it involved alleged breaches of agreement only. 15 In his judgment, the Magistrate made the following observations concerning the evidence given by George [at p3]:- "I must say that I found Mr George to be a very unsatisfactory witness. He was vague, he was evasive and argumentative whilst being cross-examined by Mr Casey. It was apparent from his evidence that the company AC & PJ George Pty Limited was being used by Mr George for his own for some of those purposes (sic) and he was attempting to hide behind the corporate veil of that company for some of those purposes." 16 The judgment also contained the following [at pp3-4]:- "In the company's claim Mr George gave evidence that Patrick Staunton failed to account for all the mechanical work that he did. He claimed that Mr Staunton failed to raise invoices for works that he did, he failed to account for monies or other payments he received on behalf of the business. Mr George was unable to satisfy me of those allegations. In his statement of claim he made allegations against Mr Staunton but failed to produce evidence to support or prove them. I found that on the evidence of Mr Staunton I accepted Mr Staunton's evidence where it conflicted with Mr George but I reject the evidence or the version of the evidence given by Mr George. I find after hearing all of the evidence that I am satisfied on the balance of probabilities of the following: 1. That the business of Boorowa Motor repairs was conducted by the partnership between Patrick Joseph Staunton and Alfred Cecil George; 2. That the business operated from November 2004 until 11 June 2005 from premises at Lot 2 /139 Long Street Boorowa. 3. That the Defendant Alfred Cecil George did not carry out his role in the partnership in that he did not prepare and make available to Mr Staunton the relevant financial records of the partnership on the request of Mr or Mrs Staunton. In relation to Plaint Number 83 of 2006 I find that I am not satisfied that the plaintiff AC & PJ George Pty Limited has established its claim and I don't accept the evidence of Mr Alfred Cecil George." 17 The appeals saw the ventilation of three areas. Firstly, there were questions of partnership. Secondly, there was a question of sufficiency of reasons. Thirdly, there was the jurisdictional question. 18 One defence raised by George was that it was the company that had entered into the partnership with Staunton. By implication, it seems that the Magistrate found that the partnership was made between Staunton and George (this seems to follow by reason of his acceptance of the evidence given by Staunton and his upholding of Staunton's claim against George). 19 On this issue, not only did he have before him oral evidence but also considerable documentation (including the agreement for the purchase of plant and equipment and the lease for the business premises). This material threw up a conflict. The task of the Magistrate was to identify and evaluate relevant evidence (including the documentation), make the necessary findings and provide reasons therefore. In my view, the contents of his judgment reveal very little as to how he addressed that task and certainly do not disclose sufficiently the reasons that led him to his implicit decision. 20 He appears to have found in favour of Staunton on the breach of partnership allegations made by him and rejected the breach allegations made by the company. In so doing, he misdirected himself in a number of respects. 21 He appears not to have appreciated that neither of the actions was maintainable by reason of there not having been a taking of accounts. In finding in favour of Staunton against George, he failed to appreciate that he was awarding, in effect, a claim for wages by one partner against the other. How he came to that result is unclear. There is no exposure of what led him to allow the wages claim as damages for the breaches found by him. Perhaps he proceeded on an erroneous assumption that the wages claim equated to damages for those breaches of agreement. Leaving aside questions of error, I do not consider that he has sufficiently disclosed whatever reasoning process led him to that result. 22 The evidence was that under the partnership agreement Staunton was entitled to a labour claim at the rate of $25.00 per hour (not $30.00 per hour) out of any profits, with any remaining amount of profit being divided between the partners on a 50/50 basis. The Magistrate came to the decision of allowing the sum of $20,000.00 (at the rate of $30.00 per hour) even though the evidence that had been adduced by Staunton showed that no profit had been made in the order of $20,000.00 (a profit and loss statement prepared for him for taxation purposes showed a profit of $3,485.45 for the year ended 30 June 2005 and that Staunton has already received a drawing in the sum of $2,048.75, which exceeded his entitlement to a half share of the profit). 23 Both George and the company claim to have an appeal as of right. The onus borne by each of them is to demonstrate that there has been error in point of law that justifies the disturbing of the decisions of the Magistrate. Even without addressing the jurisdictional question, it seems to me that George has demonstrated an entitlement to have the decision made against him set aside. 24 There is no dispute that the Local Court does not have jurisdiction in respect of the taking of partnership accounts. There has been argument as to whether or not this jurisdictional question should now be allowed to be ventilated in the appeals by reason of the failure to litigate it in the Court below. In the circumstances of this case, it is unnecessary to pursue that argument for the purpose of the appeal. However, the question of jurisdiction is otherwise relevant. The lack of jurisdiction provides a further reason for concluding that it would be futile to refer either matter back to the Local Court. 25 I set aside the judgment and order made in Plaint Number 2 of 2006 and order that the proceedings be dismissed. I do not disturb what was done by the Magistrate in respect of Plaint Number 83 of 2006. Accordingly, the Summons brought by PJ George Pty Limited is dismissed with costs. 26 I reserve the questions of the costs of the appeal brought by Mr George and the costs of Plaint Number 2 of 2006. 27 The exhibits may be returned. **********