Ostrovsky v Burton [2007] NSWSC 1183

New South Wales Supreme Court

CITATION : Ostrovsky v Burton [2007] NSWSC 1183 This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S) : 3 & 29 August 2007

JUDGMENT DATE : 29 August 2007

JURISDICTION : Equity

JUDGMENT OF : Hamilton J

DECISION : That a partnership existed and ought be wound up.

CATCHWORDS : PARTNERSHIP [1] – Generally – What constitutes partnership – Particular relationships and associations – Whether the relationship of co owners of property was in this case that of partners or of co owners only.

LEGISLATION CITED : Supreme Court Rules 1970 Schedule D Part 3 cl (4)(b) Uniform Civil Procedure Rules 2005 r 46.3

CASES CITED : Meehan v Glazier Holdings Pty Ltd [2002] NSWCA 22

PARTIES : Alex Ostrovsky (P) Lindsay Keith Burton (D)

FILE NUMBER(S) : SC 4359/98

COUNSEL : N Obrart (P) No appearance (D)

SOLICITORS : Comino Prassas (P) No appearance (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

HAMILTON J

WEDNESDAY, 29 AUGUST 2007

4359/98 ALEX OSTROVSKY v LINDSAY KEITH BURTON JUDGMENT 1 HIS HONOUR: This is an ex parte hearing of a suit seeking relief by way of orders to wind up a partnership and in relation to assets of the partnership. 2 The evidence establishes that in November 1990 the plaintiff and the defendant acquired a rural property in Queensland and thereafter made that property available for use by a horse breeding partnership among parties associated with the parties to these proceedings. 3 At first blush it may be thought that there is some doubt as to whether the parties' relationship concerning the property was a partnership or was simply that of co-owners of the property. However, there is little doubt that from early days the relationship was referred to between the parties as "the property partnership" (as opposed to "the horse breeding partnership"). More importantly, the relationship appears to have been treated from its inception for taxation purposes as a partnership relationship. Partnership income tax returns were lodged with the Commissioner of Taxation over the years and the results of the partnership accounts were then incorporated into the individuals', certainly into the plaintiff's, own taxation returns, in the way in which partnership results are normally included in the income tax returns of the partners. In these circumstances, it seems to me that it is established that the relationship concerning the property was one of partnership. 4 In the short minutes of order originally furnished to me by Ms Obrart, of counsel for the plaintiff, a declaration was sought that the defendant is liable to the plaintiff for 50 per cent of the market value of the property. That is not an appropriate order, bearing in mind that the property was partnership property. 5 In the late 1990s the relationship between the parties broke down and communication between them ceased. 6 There was some suggestion at some stage that the partnership should be taken to have been dissolved at the time communication between the plaintiff and the defendant broke down. That, however, is not an event which terminates partnerships. The partnership was a partnership in equal shares and at will. The plaintiff sought its dissolution in proceedings 3378/99 in this Division of this Court, which proceedings were subsequently consolidated with these proceedings. In my view the partnership was dissolved upon the commencement of proceedings 3378/99 on 28 July 1999. 7 Although the property was acquired as partnership property, title was taken in the name of the defendant only. After the dissolution of the partnership the defendant, without reference to the plaintiff, wrongfully sold the property and received the proceeds of sale to his own use. No accounting was made to the partnership or the plaintiff for those proceeds, although they were obviously, on the findings I have made, partnership property. 8 The property was sold to Construction Industry Advisory Service Pty Ltd and there is evidence from the director of that company that he considers that the property was sold to that company at an undervalue, the price being $295,000 and the real value of the property in his estimation, even allowing for it being in a run down condition, being some $350,000. 9 I therefore propose to declare that from 30 November 1990 the plaintiff and the defendant carried on in partnership the business of owning a property and making the same available to the horse breeding partnership; that the partnership was a partnership in equal shares; that the property purchased for the partnership was an asset of the partnership; and that the partnership was dissolved on 28 July 1999. I propose to order that the partnership be wound up under the direction of the Court and that Garry Williams, Chartered Accountant, who has consented to the appointment, be appointed the receiver and manager of the partnership. I propose to make the usual orders that an account be taken of all the dealings and transactions of the partnership and of the partners in relation to it (I shall insert the words "by an Associate Judge" in order 8) and that an inquiry be held as to what the assets of the partnership consist of and the respective interests of the partners in them. 10 Whilst I cannot make an order as sought for the payment of 50 per cent of the proceeds of the sale of the property by the defendant to the plaintiff, I think it appropriate to make an order under r 46.3 of the Uniform Civil Procedure Rules 2005 for the holding of an inquiry by an Associate Judge as to the consideration received by the defendant on the transfer by the defendant of the property and whether that consideration was equivalent to the market value of the property. Whilst I do not think that any head of power other than r 46.3 is necessary to justify the making of that order, it could equally be made under Schedule D Part 3 cl (4)(b) of the Supreme Court Rules 1970. 11 I do not think this is a matter sufficiently simple for an order to be made at this stage simply for payment of a sum appearing from the results of the accounts and inquiries by the defendant to the plaintiff. I think it appropriate instead to adjourn the proceedings for further consideration when the results of those accounts and inquiries are known. The modern practice in this regard is referred to in the judgment of the Court of Appeal in Meehan v Glazier Holdings Pty Ltd [2002] NSWCA 22 at [31]. 12 The plaintiff should have his costs of the proceedings to date. 13 I make orders in terms of the short minutes of orders which have been prepared and which I shall initial and place with the papers.