New South Wales Supreme Court CITATION : Goodridge v Barwick [2007] NSWSC 994 HEARING DATE(S) : 31 August 2007 JUDGMENT DATE : 6 September 2007 JURISDICTION : Common Law Division JUDGMENT OF : Associate Justice Harrison DECISION : (1) The plaintiff's notice of motion filed 20 August 2007 is dismissed; (2) The plaintiff is to pay the defendant's costs as agreed or assessed. CATCHWORDS : Strike out defence, summary judgment - money due LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) rr 13.1, 13.4, 14.28 CASES CITED : General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 PARTIES : Ross Ian Goodridge - Plaintiff Adrian Garfield Barwick - Defendant FILE NUMBER(S) : SC 11029/2007 COUNSEL : Mr N Cotman SC - Plaintiff Mr S Philips - Defendant SOLICITORS : McCabe Terrill Lawyers - Plaintiff Somerville & Co - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ASSOCIATE JUSTICE HARRISON THURSDAY, 6 SEPTEMBER 2007 11029/2007 - ROSS IAN GOODRIDGE v ADRIAN GARFIELD BARWICK JUDGMENT (Strike out defence, summary judgment - money due) 1 HER HONOUR: By notice of motion filed 20 August 2007, the plaintiff seeks firstly, an order for judgment pursuant to Part 13.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); and secondly, in the alternative, an order pursuant to Part 35.1 and/or Part 42.20 and/or Part 13.4 of the UCPR that the defence be struck out and judgment be entered for the plaintiff. 2 On 7 August 2007, the plaintiff filed an amended statement of claim. Time for filing a defence to the amended statement of claim would have expired on 21 August 2007. Nevertheless, the plaintiff elected to file a notice of motion seeking summary judgment before the time for filing a defence had expired. The Court does not condone this behaviour. 3 Mr Goodridge is a practising barrister. He relied on his affidavit dated 11 June 2007. Mr Barwick is a practising solicitor. He relied on his affidavit sworn 23 July 2007. 4 On 12 September 2001, Mr Goodridge and Mr Barwick entered into a Heads of Agreement. It relevantly provided: "1. Ross Ian Goodridge ("RG") and Adrian Garfield Barwick ("AGB") are desirous of setting out by way of Heads of Agreement their intention to join as shareholders and form ultimately an incorporated law firm. 2. RB and AGB are hereinafter referred to as "the original shareholders". 3. The name of the law firm is yet to be agreed upon. The current working name is "Employment Lawyers". 4. The management of Employment Lawyers shall be vested in the Board of Directors. 5. The directors of Employment Lawyers shall be the original shareholders and such further or other directors invited to join the board pursuant to the Articles of Association of the company. 6. AGB is to be employed as the first solicitor of Employment Lawyers and as the employed solicitor shall be entitled to draw a salary in addition to any dividend he may otherwise be entitled. 7. AGB commits himself to use his best and full-time endeavours as an employed solicitor for the benefit of Employment Lawyers. 8. As an employed solicitor, AGB shall be entitled a salary payable by Employment Lawyers at the rate of $2,000 per week. … 14. The shareholders will be liable for all debts in the ratio of their shareholding." 5 It seems that Mr Goodridge's shareholding was 80% and Mr Barwick's was 20%. They were good friends. Mr Goodridge provided funds to set up and run the business. That much, I think, is common ground. The pleadings 6 Mr Goodridge pleads that between 12 September 2001 and 18 December 2003, he paid an amount of approximately $766,050 to Mr Barwick to fund the business pursuant to the terms of the Heads of Agreement. 7 Between 12 September 2001 and October 2004, it is pleaded that Mr Barwick failed or refused to implement the full terms of the Heads of Agreement and in particular, the incorporation of the legal practice referred to in the Heads of Agreement. 8 Essentially, Mr Goodridge pleads that there was a further agreement entered into on 24 October 2004 and Mr Barwick has failed to honour this agreement. 9 On and before 24 October 2004, Mr Goodridge says that he complained to Mr Barwick as to and in respect of the non-implementation of the Heads of Agreement and matters relating to the business (the dispute). On or about 24 October 2004, Mr Goodridge pleads that he and Mr Barwick agreed to resolve the dispute by an agreement which was partly oral and partly in writing, whereby Mr Goodridge agreed to give up all interest in the business or its assets and income and rights under the Heads of Agreement in consideration of Mr Barwick paying to him the amount previously paid by Mr Goodridge to Mr Barwick under the Heads of Agreement, which amount was to be determined by Mr Barwick from his records, together with interest on those moneys from 1 July 2002, calculated at Supreme Court rates. 10 According to Mr Goodridge, particulars of the agreement are set out in an email from Mr Goodridge to Mr Barwick dated 22 October, an email from Mr Barwick to Mr Goodridge dated 24 October 2004 and a telephone conversation between Mr Goodridge and Mr Barwick on about 24 October 2004. 11 On 28 October 2004, it is pleaded that pursuant to the Debt Agreement, the amount to be paid by Mr Barwick to Mr Goodridge was determined by Mr Barwick to be $766,050, which he communicated to Mr Goodridge. Mr Goodridge pleads that there are emails dated 23, 24 and 28 October 2004 as to the amount [paras 2-6 S/C] 12 In response, Mr Barwick in his defence admits the Heads of Agreement. He admits that he received an email from Mr Goodridge on about 22 October 2004, that he sent an email to Mr Goodridge on about 24 October, but otherwise denies the matter alleged in paragraph [5] of the statement of claim. 13 In answer to paragraph [6] Mr Barwick admits that he received an email from Mr Goodridge on about 22 October 2004, that he sent an email to Mr Goodridge on about 24 October 2004. Mr Barwick admitted that on about 28 October 2004 he sent an email to Mr Goodridge which attached a schedule of payments received by him from Mr Goodridge totally $766,050 for Mr Goodridge to check over. Mr Barwick otherwise denies the matters alleged in paragraph [6]. (Def [5]-[6]) 14 In general answer to the allegations contained in the statement of claim, Mr Barwick denies that he is in debt to Mr Goodridge as alleged in the statement of claim, or at all. He refers to the Heads of Agreement and says that any moneys paid by Mr Goodridge to, or on behalf of, him (Mr Barwick) were pursuant to the agreement; and any moneys so paid were paid by way of a capital contribution to the establishment of the business referred to in the agreement, and did not constitute a loan by the plaintiff to the defendant (Def [12]). 15 Further, Mr Barwick pleads that at all material times since September 2001, Mr Goodridge represented, and it was a common assumption of the parties, that Mr Goodridge would invest in Mr Barwick's legal practice with returns of such investments to be paid out of any profits from the practice (representation). Mr Barwick says that at all material times he relied upon the representation and as a consequence of the representation he has changed his position and suffered and continues to suffer detriment. Upon the premise, Mr Goodridge is estopped from denying that any payments made by him constituted an investment; and asserting that such payments were made pursuant to any loan agreement. The evidence 16 It is necessary to examine the emails referred to above and some communications between the parties, particularly in October 2004. 17 In February 2004, relations between them stated to sour. Mr Goodridge deposed that he had a conversation with Mr Barwick as follows: Mr Goodridge: "Adrian, are you ever going to go ahead with the incorporation?" Mr Barwick: "Look, originally we talked about $100,000 to $200,000, it's become a lot more than that. That causes me some concern. If you don't incorporate then, that may, by default, makes us in some sort of partnership it wouldn't be ethical for a Barrister and Solicitor to be in a partnership in a Solicitor's practice, however, if you're not going to incorporate I suppose we have become a partnership by default at least for tax purposes. Even if this isn't correct the structure will need to be changed so that I can claim as a tax deduction the money that I've put in. I'll speak to my accountant and see if an how I can claim 80% of the losses as a tax deduction." Mr Barwick: "Yes, I see the ethical problem, I will also talk to my accountant to see what can be done. Possibly our accountants should speak to each other and sort it out." Mr Goodridge: "That sounds like a good idea. Also can you get to me up to date financial information so my accountant can get the full picture." 18 On 22 October 2004, Mr Goodridge wrote: "Dear Adrian, As you are aware I have advanced to you a very substantial sum of money. Initially we discussed advances of $100,000 possibly $200,000. At that time we entered into arrangements that envisaged the use of the incorporation provisions for law firms. Those arrangement envisaged a trust arrangement between us if the incorporation should not take place. Because of my deep friendship for you this was done with little formality. Your requests for funds far exceeded our initial discussions and we again discussed the matter near the beginning of the 2003 tax year. At that stage during the discussions your advised that the firm was operating as "Adrian Barwick trading as Employment Lawyers", you had no current plans to apply for incorporation, and you hand, up to date, claimed all losses as tax losses accruing to you personally and all GST refunds had accrued to you personally. The effect of this was that you had treated my contributions as a personal loan to yourself thus depriving me of any right to tax deductions. Further during the above discussion I advised that the arrangement between us would have to alter as I would need to claim a tax deduction on my revenue account in respect of any further funds advanced. I understood you agreed to this. I thereafter provided more funds. We agreed that our accounts would meet to formalise the new arrangement in a tax effective way to me plus we would need to document the shift that had occurred from out original arrangements. My accountant advises me that he has written to you and rung you and has received no co-operation from you or your accountant. In deed my accountant understands from a comment made by you that you have continued to claim all losses as a personal loss, all GST receipts have been taken up by you and you have treated all further monies received from me as a capital receipt of a personal loan. Because of the above, and the consequential need to pay much more tax than our agreement contemplated, I need to now request you repay all monies advanced to you by me. I am of the view that it would also be appropriate that interest run on those funds from at least the beginning of the 2003 tax year. Your thoughts on this? If you need time to repay this can be discussed." 19 On Mr Goodridge's version at [23] a telephone conversation took place as follows: Mr Goodridge: :I've received your email. In the last paragraph of your email you said "let's put the repayment arrangement in place. Is that what you want to do?" Mr Barwick: "Yes, I've spoken to my accountant and it is the simplest and most agreeable way to untangle the circumstances as I have already claimed the tax deductions and the GST credits personally and the idea of a partnership was not possible according to my accountant. I will repay all of the monies together with interest, at the Supreme Court rate, from the beginning of the 2003 tax year i.e. 1 July 2002. You will need to agree to give up all claims to ownership, assets, tax losses, GST credits or any other proprietary rights or any other wights or obligations from inception that you may have had in respect of Employment lawyers. Mr Goodridge: "Agreed. Can you let me know what your records record as the total of funds advanced?" Mr Barwick: "Sure" 20 Mr Barwick denies that this conversation took place. 21 On 24 October 2004, Mr Barwick relevantly emailed: "…In short, I am prepared to discuss repayment of the monies you have invested into Employment Lawyers. This was not obviously our original intention, but if this is you (sic) preferred option now, then I do respect that and am therefore prepared to work towards that end. I think your proposal that interest run from the beginning of the 2003 tax year is fair, and yes, I will need to have time to pay the money back. I think we should work out the total of the monies in advanced, the dates on which they were advanced and an appropriate interest rate. In terms of repayments, I will need time to repay but I am hopeful that growth in the business will allow me to pay the money back at a faster rate over time. Looking at the Heads of Agreement we signed, I see there was really no machinery provided for all of this so we shall have to work it out. Ross, as we are hopefully going to be able to pursue the repayment option, it seems to me that there is only limited utility in my responding to some of the other things stated by you in your email. However, I feel constrained to tell you that I do not recall us having any discussion at the beginning of the 2003 tax year along the lines particularised by you in the second paragraph of your email. That would of course put the conversation in say July 2002, when the business had been trading for slightly more than seven months. At that time, and as envisaged by the Heads of Agreement, the business was a sole proprietorship and there was no way that the GST refunds could be in anyone else's name other than my own. However, even if the practice had been incorporated then, or at any later time, that surely still would not have permitted you to claim the losses: rather, your advances would have become a shareholding in the incorporated entity and obviously a shareholder cannot claim company losses as a tax deduction. Your accountant Roger Marchant admitted this to me in our phone conversation on 8 September 2004. The relevant conversation which I do recall is one which occurred on 2 February 2004, I remember this very clearly because we had just inspected the Bent Street premises together and were walking up Bridge Street to meet with AMP. During the conversation, you suggested we file a partnership return for 2003 although you acknowledge that barristers and solicitors cannot be in a partnership together. You stated that you need this to occur so as to avail yourself of the losses from the business in 2003 because otherwise you would be facing a significant tax bill. It was not a long conversation and no detail was discussed as to how the arrangement would be made legally compliant. I remember feeling unsettled by this conversation but it was subsequently not raised again until your accountant rang me on 8 September 2004. In the meantime, I had obtained advice from my own accountants that the arrangement would be susceptible because, amongst other things, the business had very clearly traded in 2003 as a sole proprietorship with an ABN in my name only. I therefore lodged my return for 2003 as a sole trader…." 22 On 28 October 2004, Mr Barwick provided to Mr Goodridge a schedule of payments, which amounted to $766,050. Summary judgment and strike out defence 23 Rule 13.1(1) of the Uniform Civil Procedure Rules (UCPR) provides: 13.1(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and (b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed, the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires." 24 Rule 13.4(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) provides that the court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are if the proceedings are frivolous or vexatious, or no reasonable cause of action is disclosed, or the proceedings are an abuse of the process of the court. 25 Rule 14.28(1) of the UCPR provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court. 26 Rule 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under sub-rule (1). 27 In the well known passage in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Barwick CJ at 129 stated: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense.'" 28 The defendant alleges that the plaintiff made certain representations and is estopped from departing from them. If the defendant is successful on the estoppel issue, the Heads of Agreement signed by the parties on 12 September 2001 together with some oral agreement (not the purported October 2004 variation), is the operative agreement. There is evidence that the law firm has not made a profit. If the plaintiff was entitled to an 80% share of the profits, there may not be any moneys owing to the plaintiff. While there is a clause in the Heads of Agreement that the shareholders will be liable for all debts in the ratio of their shareholding (Clause k) there is no written clause in that agreement. So far as whether there were representations made, this will depend on the evidence given at trial and findings made by the trial judge as to the credit of the parties. Even on Mr Goodridge's own case, the October 2004 variation depends in part on his version of an oral conversation. This oral conversation is denied by Mr Barwick. It is my view that the defendant's case is not hopeless and should be permitted to go to trial. The notice of motion is dismissed. 29 Costs are discretionary. Costs normally follow the event. The plaintiff is to pay the defendant's costs as agreed or assessed. The Court orders: (1) The plaintiff's notice of motion filed 20 August 2007 is dismissed. (2) The plaintiff is to pay the defendant's costs as agreed or assessed. ********** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.