Obol Pty Ltd & Anor v Gregory Fisk [2007] NSWSC 912

New South Wales Supreme Court

CITATION : Obol Pty Ltd & Anor v Gregory Fisk [2007] NSWSC 912

HEARING DATE(S) : 15 & 16 August 2007

JUDGMENT DATE : 24 August 2007

JURISDICTION : Equity Division

JUDGMENT OF : Brereton J

DECISION : Surcharge not established. Falsification established. Interest to run from date of dissolution.

CATCHWORDS : PARTNERSHIP – dissolution and winding up – accounts – surcharges – falsifications – interest

LEGISLATION CITED : (NSW) Partnership Act 1892 ss 24, 39, 44

Obol Pty Ltd (first plaintiff) PARTIES : Philip Gely (second plaintiff) Gregory Fisk (defendant)

FILE NUMBER(S) : SC 4120/06; 6173/06; 6177/06

COUNSEL : Mr Baran (plaintiffs) Mr Sandroussi (sol) (defendant)

SOLICITORS : Lloyd Lancaster Lawyers (plaintiffs) Mr Sandroussi (defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BRERETON J

Friday, 24 August 2007

4120/06 Obol Pty Ltd & Anor v Fisk 6173/06 Obol Pty Ltd & Anor v Fisk 6177/06 Obol Pty Ltd & Anor v Fisk JUDGMENT 1 HIS HONOUR: The second plaintiff Phillip Gely is a director of and shareholder in the first plaintiff Obol Pty Ltd. In or about September 1997, Obol and the defendant Gregory Fisk became partners in a project for the acquisition, development, subdivision and sale of land at 131 Castle Hill Road, West Pennant Hills. Mr Fisk was to arrange external funding and manage the project, while Obol would provide the funds and equity (to the extent that they were not borrowed), and that the profits were to be shared equally. Mr Gely says that the parties then contemplated that Obol would be required to provide about $150,000; Mr Fisk disputes this and says that there was no limit. The subdivision has now been completed and the lots sold, and the partnership was dissolved in December 2002, but the partners are unable to agree on the settlement of accounts between them. Obol contends, but Mr Fisk disputes, that Mr Fisk is liable to contribute to losses incurred in the partnership, which have been funded by Obol, and commenced proceedings 4120/06 claiming a declaration that the partnership had been dissolved, and an order for the taking of accounts. 2 In addition, Mr Gely advanced two sums, one of $20,000 and another of $40,000, to Mr Fisk, upon terms that they were repayable, if not earlier, out of Mr Fisk's share of the proceeds of the development. The advances have not been repaid, save as to $2,000, and Mr Fisk has received no proceeds from the development, it not having been profitable. Obol and Mr Gely commenced two proceedings in the Local Court for recovery of the two advances. One of the defences raised by Mr Fisk was to the effect that the loans were not repayable until the partnership accounts were settled. On 19 September 2006, in the partnership proceedings, this court ordered that the Local Court proceedings be transferred to this court and heard together with the partnership proceedings. The transferred proceedings are proceedings 6173/06 and 6177/06. 3 The proceedings have had a chequered procedural history, in the Local Court and in this court. However, on 24 July 2007 I made orders, which were not opposed, declaring that in or about September 1997 Obol and Mr Fisk became partners in the West Pennant Hills project, and that the partnership was dissolved in December 2002, and directing that an account be taken and inquiry held as to what were the assets and liabilities of the partnership and the interests of the parties in them. As, at that stage, the plaintiffs had served a statement of accounts prepared by Obol's accountant in respect of the partnership, and given the amounts in dispute and the delays which had already been occasioned, and in the light of representations that Mr Fisk intended to file an accountant's report, it seemed likely that the accountants might be able to refine the issues in dispute on the accounts, without invoking the full formal procedure for filing of accounts and then responding with objections, surcharges and falsifications, and so I directed that until further order the inquiry proceed before me. Although ultimately Mr Fisk did not serve any accountant's report, it has proved possible, using Obol's accounts as a starting point, to identify the matters in dispute in a manner that permits the taking of accounts to be disposed of without more formal process. On the taking of accounts, the issues are: · The treatment of the transfer from the partnership to Obol of Lot 13, which Obol received in specie at a value of $500,000, subject to a mortgage to Perpetual securing $500,000. Mr Fisk contends that Obol should be charged with its receipt at $720,000, not $500,000; · The treatment of the cost of roadworks, a portion of which Mr Fisk contends has wrongly been charged to the partnership when it ought to have been borne by Obol alone; · Some other issues, raised in the evidence and cross-examination but which were not pursued in submissions; · From what date interest should be payable if it is found that Mr Fisk is liable to Obol for any amount. 4 In respect of the advances, liability to repay them is not disputed. The only issue is when they became repayable, which informs the decision as to when interest on them should commence to run. The Accounts 5 The accounts, prepared by Obol's accountant Mr Burke, as at 30 June 2001, contain a balance sheet as follows: PARTNERSHIP FUNDS Partners' Capital Accounts PARTNER NO. 1 501/02 share of loss ($68,118) PARTNER NUMBER 2 502/02 share of loss ($68,119) TOTAL PARTNERSHIP FUNDS ($136,237) Represented by: INVESTMENTS 672 Funds to Castlereagh $98,930 TOTAL ASSETS $98,930 CURRENT LIABILITIES 680 Bank overdraft 21 Beneficiary loans 870/01 Obol Pty Ltd $736,017 870/03 Proceeds from sales $500,871 TOTAL LIABILITIES $235,167 Excess of liabilities over assets ($136,237) 6 The profit and loss statement is as follows: INCOME Profit on rental operations $33,855 Gross loss from trading ($162,232) Net Income ($128,377) EXPENDITURE 300 Accountancy Fees $3,800 302 Advertising $2,418 309 Bank Charges $1,642 Total Expenditure $7,860 Operating Loss Before Income Tax ($136,267) 7 It emerged in the cross-examination of Mr Burke that the whole of that loss had been claimed by the P&M Gely Superannuation Fund (of which Obol is the trustee) in its 2002 income tax return, on the basis that the superannuation fund had funded the loss. Although that is inconsistent with Obol being entitled to recover half of the loss from Mr Fisk, Mr Burke explained that this was done in circumstances where it was thought unlikely that Mr Fisk would be compelled to contribute, and would have to be revised if he were required to contribute. Ultimately, these internal arrangements do not affect Obol's rights against Mr Fisk. Treatment of transfer of Lot 13 8 It is common ground that early in the project (although there is dispute as to the precise circumstances), it was agreed that Obol would retain one of the four proposed sub-divided lots, namely Lot 13, on which there already stood a house.