Supreme Court New South Wales Medium Neutral Citation: Byrne v Byrne [2011] NSWSC 1437 Hearing dates: 23 November 2011 Decision date: 25 November 2011 Jurisdiction: Equity Division - Corporations List Before: Barrett J Decision: Declarations and orders as in paragraph 29 Catchwords: PARTNERSHIP - dissolution and winding up - where partnership dissolved but business not yet wound up - application by three partners for appointment of receiver - opposed by remaining partner on basis that status quo should prevail pending determination of principal partnership proceedings and related company oppression proceedings - where referee already appointed by consent to determine partnership assets, liabilities, profits and losses - applicants seek expansion of referee's reference to include account and inquiry into partners' interests - whether receiver should also be referee Legislation Cited: Uniform Civil Procedure Rules 2005, Division 3 of Part 20 Cases Cited: Daniels v Smith [2006] NSWSC 1424 Fitz-Gibbon v Khoury (NSWSC, Powell J, unreported, 1 March 1985) Re Allco Securities Pty Ltd [2011] NSWSC 1113 Tate v Barry (1928) 28 SR (NSW) 380 Category: Interlocutory applications Parties: Ian Allan Byrne - Plaintiff Representation: D F Robinson SC/S B Loughnan - Plaintiff T W Marskell - Defendants Commins Hendriks Pty Ltd - Plaintiff Skinner & Associates - Defendants File Number(s): 2011/00204675 Judgment 1Allan Byrne and Frances Byrne are husband and wife. They are both aged 88 and are in poor health. Allan has had major heart surgery in very recent times. 2Allan and Frances have two sons, Ian and Stuart. 3The four family members were for many years associated together in a farming and grazing business. The business was carried on by the four individuals in partnership on land owned by two companies in which all of them have shareholding interests. 4It is common ground that the partnership has been dissolved and that the date of dissolution was 31 January 2011. 5It is the contention of Ian that he was unfairly excluded from the family business. He commenced proceedings in September 2011 seeking relief under s 233 of the Corporations Act 2001 (Cth) in respect of the two companies on the grounds of oppression or like conduct. He seeks, as principal relief in relation to each company, an order that the other members buy his shares for their market value (without discount for the fact that the shares are a minority holding) or, in the alternative, an order that the company be wound up. In relation to the partnership, Ian seeks, among other relief, an order that the partnership business be wound up under the direction of the court and an order for the appointment of a receiver and manager. 6The parties have made significant headway in finding a solution of their own to the problems that confront them. There is a general consensus that Allan, Frances and Stuart will buy out Ian. The parties find mutually acceptable an external valuation of Ian's shareholdings in the two companies by Mr Willis - apart from the aspect of the valuer's conclusion that applies a 55% discount for the fact that the shareholdings are minority shareholdings. Ian does not accept that aspect. 7As far as the partnership is concerned, the parties consented to the making of certain orders by which Mr Chamberlain, an accountant in practice in Wagga Wagga, was appointed a referee to enquire and report to the court on, first, the value of the assets and liabilities of the partnership (to the extent not agreed by the parties) as at the date of the report and as at 31 January 2011 and, second, the profits or losses since 31 January 2011 but before final settlement of accounts attributable to the use of the partnership assets. 8The substantive proceedings have not been fixed for hearing but, on 23 November 2011, I heard an application by which Allan, Frances and Stuart seek, in essence, an order for the immediate appointment of Mr Chamberlain as receiver of the partnership (with ancillary orders) and a variation of the existing reference to Mr Chamberlain so that his task becomes to make an inquiry and take an account as to all the dealings of the partners and the partnership, the assets and liabilities of the partnership and the respective interests of the parties in the partnership assets. 9To the extent that this interlocutory application envisages the appointment of a receiver to wind up the partnership, it accords with Ian's principal claim in the substantive proceedings. Ian, however, does not consent to such an appointment at this time, taking the view that the present regime should be left as it is pending trial. 10The reasons for the application of Allan, Frances and Stuart may be stated briefly. Until a short time ago, Allan had been able to play an active role in the day-to-day activities of the business. His health problems mean that he is no longer able to do so. This is accepted on both sides. Frances too is not well. That leaves Stuart to carry on the business alone (Ian having departed and, on his version of events, having been forced out). Stuart needs help. He can get it only by hiring workmen. Based on his experience of the parties' agreed method of paying expenses, he considers that this will be at best cumbersome and at worst unworkable. A receiver with full power over the assets - and therefore the means of hiring and paying workmen - should therefore be appointed. 11The parties have had in place an interim regime for the payment of operating expenses. If a bill is received at the property, an appropriate cheque is drawn and signed by Allan, Frances and Stuart. That cheque, with the bill, is sent to their solicitors, and those solicitors send the bill and cheque on to Ian's solicitors for signing by Ian. If Ian receives a bill, the reverse process, through solicitors, is adopted. If Stuart, who is actively engaged on the property, wishes to undertake some expenditure, the proposal is communicated by one firm of solicitors to the other with an explanation and Ian's approval is sought. 12Some examples of correspondence between the solicitors are in evidence. One illustrates the system. On 15 November 2011, the solicitors for Allan, Frances and Stuart wrote to Ian's solicitors as follows: "We are instructed that Can Am MotorBike is out of action. The only dealer who repairs these bikes is in Wagga Wagga. Stuart Byrne wishes to book the bike in and take it to Wagga Wagga and hopefully have it repaired on the spot. Stuart will need to pay for the bike repairs when it is fixed so he can bring the bike home with him and save a further trip to Wagga Wagga. Stuart will pay for the repairs with his own money and will expect to be reimbursed by AJ Byrne & Co. The bike is needed for the day to day work on the farm Please confirm that your client agrees to this proposal. The Honda 4 wheeler will also need to be put in for repair to Blacklocks. We note that this situation is one which would have been alleviated by our proposal of a separate working account." 13The reply of the following day was: "This and other future transactions still need to be addressed. As we have indicated our client is not comfortable authorising expenditure without full disclosure as to how much is being spent and why it is necessary. With respect to the motorbikes our client ask [sic] that he be provided either with a quote for the expected costs of repairs or alternative [sic] the repairers can contact him on his mobile on the da7y so he can confirm his agreement with the costs. With respect to other future expenditure we refer you to our letters of 14 November 2011, 3 November 2011 and 1 November 2011 and the suggested process. The process would be much easier if our client was given full disclosure in advance of being asked to make a decision." 14In the communication just quoted, there was a separate section as follows: "We are instructed that the generator was taken to McFarlane Generators in Melbourne for repairs under warranty. This was initially refused and our client was trying to negotiate a resolution. As far as our client is aware the generator remains in Melbourne awaiting warranty repairs. He has not had further correspondence from McFarlane Generators. He assumed that any correspondence was sent to Mirridong and collected by your clients and the matter had been dealt with by them. Regardless, McFarlane Generators should be pursued. Will your clients attend to this?" 15Ian's opposition to the appointment of a receiver at this point rests on four main grounds: first, that the parties have an agreement in principle that Ian's interest in the partnership will be bought out by the other three so that there is no need for a receiver; second, that the present system is satisfactory; third, that the assets are not in jeopardy (nor is there any uncertainty as to what the assets are); and, fourth, that a receivership will only add expense. In Ian's view, it is appropriate to leave Stuart with the day-to-day conduct of the property - in the context of existing arrangements for payment of expenses - until the substantive proceedings are determined. 16The agreement in principle as to buy-out of Ian's share should not stand in the way of the grant of the interlocutory relief Allan, Frances and Stuart seek if it is otherwise appropriate to grant that relief. It has not been suggested that there is some binding contract that is breached by the application for that relief; nor is it said that Ian has acted on the faith of some representations so as to have the benefit of an estoppel. 17In Tate v Barry (1928) 28 SR (NSW) 380, Long Innes J said (at 383); "It must now, I think, be regarded as settled that in a suit instituted in Equity for the winding up of a partnership already dissolved, or for the dissolution of an admitted partnership in which it is clear that dissolution will be granted at the hearing, the plaintiff is entitled as a general rule, and practically as a matter of course, to the appointment of an interim receiver: Baxter v West (28 LJCh 169)." 18In Daniels v Smith [2006] NSWSC 1424, Brereton J, after referring to the statement of Long Innes J, said (at [8] - [9]): "[8] In Cuming v Hennessy [2005] NSWSC 1219 (28 November 2005) Young CJ in Eq described to [sic] the substantial cost of installing a receiver in a partnership with only modest assets and to the development of the law since 1928. His Honour referred to Davey v Donnelly (NSWSC, unreported, 16 May 1991 - BC9101992), in which McLelland J, as he then was, having acknowledged the rule that where there were proceedings for the winding up of a partnership, the existence and dissolution of which were not in contest, the plaintiff was entitled to have an interim receiver appointed almost as a matter of course - the rationale being that no partner had any greater right than the others to wind up the partnership affairs to the exclusion of the others - added that the court had an over-riding discretion in the matter, and for substantial cause shown would refuse, or limit the terms of, the appointment of a receiver. [9] Young CJ in Eq, in Cuming v Hennessy , also referred to Rowlands v MacDonald [2002] NSWSC 282, in which, after referring to Tate v Barry , Barrett J observed that though the case was one in which the conditions for the application of the general principles were satisfied, the remedy remained discretionary, and that, in the words of Powell J in Fitz-Gibbon v Khoury (NSWSC, unreported, 1 March 1985), the court must pay attention to the surrounding circumstances: 'This general rule notwithstanding, it is equally well established that it is not inevitable that, in any such case, an interim receiver and manager will be appointed, and that the Court retains a residual discretion as to whether any appointment should be made; one of the bases upon which, in an appropriate case, an appointment will be refused, is that the consequences of such an appointment will be 'ruinous' (see, for example, Walters v Taylor (1807)15 Ves 16; 33 ER 658; Tate v Barry (1928) 28 SR (NSW) 380; Sobel v Boston [1975] 2 All ER 282).'" 19I must consider, therefore, the whole of the surrounding circumstances. 20It was put on behalf of Ian that costs will be great if a receiver takes charge of the winding up. But the present system entails costs. When even the apparently simple matter of repairs to a motor cycle involves communication by Stuart with his solicitors, the preparation and sending of a letter or email by those solicitors to Ian's solicitors, an approach by Ian's solicitors to him for instructions, the giving of such instructions by Ian, the preparation and sending of a letter or email by Ian's solicitors to Stuart's solicitors and relaying of the result to Stuart by his solicitors - followed, according to one possible outcome indicated by the correspondence, by Stuart's taking the motor cycle to the repairer and obtaining a quote which would then have to be passed along the same chain of communication - one can see that significant cost will build up over a short time. There is also pronounced inefficiency. 21The "ruinous" inquiry referred to in the extract from Fitz-Gibbon v Khoury (NSWSC, Powell J, unreported, 1 March 1985) quoted in the passage at paragraph [18] above does not, in this case, involve anything beyond direct costs. And having regard to the costs involved in present arrangements, I do not think that the matter of cost will cause the appointment of an interim receiver to be ruinous. 22There is also, of course, the significant point that Ian himself, in his statement of claim, seeks the appointment of a receiver. He does not, in principle, oppose the making of a declaration that the partnership has been dissolved as from 31 January 2011, an order that the business be wound up, a declaration as to the capital shares of the partners and an order appointing a receiver - although his position is that these are premature. 23In the whole of the circumstances, it is appropriate and desirable that an interim receiver be appointed. The appointment of Mr Chamberlain sought by Allan, Frances and Stuart will be made. Because he is an official liquidator, there is no need for him to give security. 24It remains to consider the question of expansion of the reference to Mr Chamberlain as a referee so that he is required to make an inquiry and take an account of the kind that would traditionally have been undertaken by a master. 25Such an inquiry and account will in due course be needed. The question is whether the task is one that may appropriately be committed to a referee. 26A receiver, as receiver, should not determine parties' rights and entitlements in respect of property the receiver takes in charge by order of the court: Re Allco Securities Pty Ltd [2011] NSWSC 1113 at [13]. But a referee appointed under Division 3 of Part 20 of the Uniform Civil Procedure Rules 2005 may do so on the basis, of course, that the findings and report of the referee do not affect rights except to the extent that they are subsequently adopted by the court; so that the ultimate decision remains a decision of the court. 27Considerations of efficiency may warrant the appointment of a receiver to be a referee for such purposes. I quote again from the judgment of Brereton J in Daniels v Smith (above) at [14]: "Prima facie, there is much to be said for the view that it is preferable that the taking of those accounts be referred to the receiver - not only because it saves the resources of the court, but because despite the costs of a receiver, it is still likely to be less expensive a course than the taking of accounts before an Associate Judge." 28Given the existing reference, the point Mr Chamberlain has reached with it (he expects to complete the assignment in January) and the fact that the further tasks are compatible with and, in substance, an extension of the work already under way, it is desirable that the matter of an inquiry and account be undertaken by Mr Chamberlain as referee. A report by him as referee should greatly assist the court in the ultimate determination of the parties' rights. 29The following declarations and orders are made: 1. Declare that the partnership between the Plaintiff and the Fourth, Fifth and Sixth Defendants known as "AJ Byrne & Co" (" the Partnership" ) was dissolved on 31 January 2011. 2. Order that the Partnership business be wound up under the direction of this court. 3. Declare that on the winding up of the Partnership the Plaintiff is entitled to share in its capital and assets as to 30.89%, the Sixth Defendant is entitled to its capital and assets as to 30.89%, the Fourth Defendant is entitled to its capital and assets as to 19.11% and the Fifth Defendant is entitled to its capital and assets as to 19.11%. 4. Declare that it was a term of the Partnership that the Plaintiff and the Fourth, Fifth and Sixth Defendants would share the profits and bear the expenses of the Partnership in equal shares. 5. Order that Christopher Mel Chamberlain of Suite 103, 1st Floor, Wollundry Chambers, Johnston Street, Wagga Wagga be appointed receiver and manager of the Partnership without security (" the Receiver" ). 6. Order that the Receiver be empowered to: (a) take possession of, collect and get in and realise the assets of the Partnership; (b) have power to carry on the said Partnership business and be given the powers in relation to the said business as are given to a liquidator pursuant to the provisions of s 477 of the Corporations Act 2001 (Cth); (c) to employ such person or persons to manage the said Partnership business and at such salary as the Receiver considers appropriate; (d) invest the proceeds of the sale of the Partnership business in any mode of investment permitted by law for the investment of trust funds pending the determination of the parties' entitlement to such proceeds. 7. Order pursuant to Rule 20.22 of the Uniform Civil Procedure Rules 2005 that the Schedule to Order for Reference made on 26 September 2011 be expanded by adding the following: "An account be taken and an inquiry be held before the Referee as to: (a) all the dealings and transactions of the Partnership and of the said partners or any of them in relation to the Partnership; (b) the assets and liabilities of the Partnership; and (c) the respective interests of the partners in the Partnership assets." 9. Order that the Receiver pass his accounts at the termination of the receivership. 10. Direct that the receiver be at liberty to apply for the fixing of his remuneration and for payment of it out of the partnership property. 11. Order that the Plaintiff, Fourth, Fifth and Sixth Defendants be at liberty to purchase from the Receiver any Partnership asset. 12. Order that the Plaintiff pay the costs of the Fourth, Fifth and Sixth Defendants of the notice of motion. 30I have not made the order with respect to Mr Chamberlain's remuneration sought in the amended notice of motion (that is, that he be allowed to charge on the basis of "the cost of the time actually spent"). The desirable course is that, as contemplated by order 10, his remuneration be fixed by the court either at the end of the assignment or at reasonable intervals, with the court then able to see the amounts claimed. ********** 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. Decision last updated: 25 November 2011