New South Wales Supreme Court CITATION : Miro Bezjak v James Smith [2007] NSWSC 979 HEARING DATE(S) : 27 August 2007 JUDGMENT DATE : 27 August 2007 JURISDICTION : Equity Division JUDGMENT OF : McDougall J at 1 DECISION : See Para [23] of judgment CATCHWORDS : PARTNERSHIP – Account – Rights of partners proved by signed partnership returns and business activity statements – Order for taking of account – No question of principle. PARTIES : Miro Bezjak (Plaintiff) James Smith (Defendant) FILE NUMBER(S) : SC 6989/04 COUNSEL : R P Freeman (Plaintiff) R W Killalea (Defendant) SOLICITORS : Scarfone & Co Solicitors (Plaintiff) Mendika Law Pty Ltd (Defendant) - 7 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION McDOUGALL J 27 August 2007 (ex tempore – revised 27 August 2007) 6989/04 MIRO BEZJAK v JAMES SMITH JUDGMENT 1 HIS HONOUR: It is now accepted that for a period of time the plaintiff and defendant were partners in a minibus shuttle business known as Celtic Airport Transfer Services. The Hibernian aspect of that name derives from the fact that it had originally been registered by the defendant for his use as a sole trader, and reflects his background. 2 There was a dispute as to the commencing date of the partnership. That dispute has been narrowed. The plaintiff contends that the agreement to enter into partnership was made in February 2003 but that it was in effect conditional upon the partnership's obtaining a contract to provide transfer service for staff of Korean Airlines. The plaintiff says (and it is common ground) that this contract was obtained in April 2003. The defendant's case is that the partnership commenced in April 2003. 3 I am not sure that anything turns on resolution of the precise date of commencement. In circumstances where, on any view, the parties were to work as partners once the Korean Airlines contract was obtained, the better view is that the accounting (which regrettably may be necessary) will take into account income earned and expenses incurred from that date, but that it should also take into account any income earned and expenses incurred before that date but after the agreement to enter into the partnership was made, if any such income or expenses can be proved and if they can be shown to be referable to the conduct of the partnership business, rather than to the parties continuing conduct of their individual businesses before the Korean Airlines contract commenced. 4 It is common ground I think that the partnership was dissolved on about 14 May 2004. 5 There was some dispute as to the nature of the partnership. The plaintiff contends that they were to be equal "equity" partners. The defendant contends that in effect the plaintiff was to be a salaried partner, receiving such income as was referable to his exertions. 6 Partnership returns (including an income tax return for the year ended 30 June 2003 and business activity statements for various quarters thereafter) signed by the defendant in effect as the public officer of the partnership demonstrate that the parties were to be equal partners as to income (in each case the income is brought to account for their respective benefits in equal shares) and as to capital. Further, it is clear from the depreciation schedules that the assets brought by the parties into the partnership were to be held in the proportions to which they were entitled to partnership income: 50 percent each. Thus, the returns having been prepared and signed by the defendant, there is no continuing ground for the dispute to which I have referred. Indeed, at the hearing, Mr Killalea of counsel for the defendant accepted that this must be so. 7 The result is that if accounts are required to be taken, they will identify the assets, liabilities, income and expenditure of the partnership and will allocate those matters 50/50 to each party. 8 The next matter in dispute before me related to a contract obtained for the carriage of patrons of the Georges River Sailing Club. The plaintiff contended that this contract was obtained for the partnership and that the revenues derived should be accounted for within the partnership. The defendant said that it was his own contract and that he was entitled to retain the revenues. 9 It is common ground that the defendant was unable to provide services for some period of time under the Georges River Sailing Club contract. There is a dispute as to whether the plaintiff himself did so. There is no doubt that casual drivers were employed to provide those services. There is no doubt that the defendant caused the expenses incurred in employing those casual drivers, and all other expenses relating to the performance of work for Georges River Sailing Club, to be charged to the partnership. Again, that position is reflected in the various accounting documents to which I have referred. 10 In those circumstances, it seems to me to be beyond argument that, the accounting documents prepared for and signed by the defendant not having been challenged, the income referable to that contract must also be brought to account as partnership income. 11 In this context it is worth noting that the defendant was given a notice to produce requiring production of, among other things, all documents relating to the Georges River Sailing Club business venture. Those documents would have included the necessary tax invoices from time to time rendered. The defendant did not do so. The reason given from the Bar table was that there were no hard copy documents in existence, and the defendant had not checked his computer to see whether he held soft copy documents. 12 In circumstances where the defendant had the means of proof, but did not avail himself of them, and a fortiori where the defendant was asked to produce the relevant documents but did not do so, I think that the position that in any event is made clear by the matters to which I have referred, in relation to this contract, is incontrovertible. 13 As I have said, I conclude that the income from this particular contract should be brought to account as partnership income. 14 The defendant had filed a cross-claim in which he raised a number of claims for relief. One of these related to the sale of a minibus. The plaintiff accepts that the minibus in question was sold, and that he retained the proceeds of sale (some $7,000.00). He says that he did so because it was in effect the only way that he had of getting any money out of the partnership. What is now common ground is that if accounts need to be taken the proceeds of sale of that minibus are to be brought to account as a partnership asset. 15 The defendant raised other assertions, including a claim for compensation or damages and the return of certain documents, in his cross-claim. They are not pressed. 16 Each of the plaintiff (by the statement of claim) and the defendant (by the cross-claim) sought the taking of accounts. They continue to press for that relief. It is appropriate that accounts be taken if the parties cannot resolve matters between them. They will be taken on the basis of the various findings that I have made as to the nature of the partnership and the entitlements of the parties. 17 However, the amount at stake is, in absolute terms, small. It is said to be of the order of $100,000.00 to $150,000.00. It is clear that the costs involved in the taking of accounts will be substantial. Either as a result of concession or as a result of findings that I have made, the issues of principle has been resolved. It is also accepted that (for example) the defendant banked the proceeds of the Georges River Sailing Club contract to his personal account, and it follows from what I have said that those receipts will have to be brought to account. 18 In those circumstances, I would have thought that the application of a little commonsense might lead to a situation where the parties do not need to take accounts. 19 In my view, these proceedings cry out for mediation. All that is left is the question of who owes what to whom. That can be resolved - at substantial expense - on the taking of accounts. But it may be resolved by consensus. In seeking to reach consensus, the parties may take into consideration (by way of example) the ability of one or the other to make any payment that may be necessitated upon the taking of accounts. The Court, in taking the accounts, does not do this. It simply finds the respective entitlements of the parties, and leaves them to be enforced according to law. 20 In the circumstances, although (it being the common position of the parties) I will order that the matter be referred to an Associate Justice for the taking of accounts, I will order that nothing, with one exception to which I shall turn, be done in pursuance of that order until the parties have attended mediation before a Registrar of the Court. 21 That leaves the question of costs. As the matter has unfolded today (aided by a directions hearing last week) the real remaining issues in dispute are who owes what to whom. I suspect that in reality that was always the case. However, the determination of that through the taking of accounts could not proceed straight away because there were questions raised as to the basis on which accounts should be taken. In substance, the plaintiff has succeeded in having those questions resolved in his favour. In some cases the success has followed by concession. In other cases it has followed from findings that I have made. 22 In those circumstances, I think, notwithstanding that the defendant has always accepted that there should be an account, I think that the plaintiff should have his costs of the proceedings to date. 23 I make the following orders: 1. Order that it be referred to an Associate Justice of the Court to take accounts in accordance with paragraph 11 of the statement of claim filed on 24 December 2004. 2. Order that the cross-claim be dismissed. 3. Order that the taking of accounts be stayed until the parties have attended mediation before a Registrar of the Court. 4. Direct the parties to attend upon the registry with a view to obtaining a date for mediation as quickly as that can be done, having regard to the existing commitments of the Registrars. 5. Reserve liberty to apply on 14 days notice. 6. Notwithstanding the stay of order one, stand the matter over to 26 September 2007 before the Registrar for return of subpoenas and notices to produce and give either party leave to issue or serve subpoenas or notices to produce returnable for that date. 7. Order the defendant to pay the plaintiff's costs of the proceedings to date; and otherwise make no order as to costs of the cross-claim. ********** 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. 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