Supreme Court New South Wales Medium Neutral Citation: Daoud v Boutros [2013] NSWSC 687 Hearing dates: 29, 30 April, 1, 2 May 2013 Decision date: 03 June 2013 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraphs [76], [99] and [100]. Catchwords: CONTRACTS - oral agreement - evidence relevant to whether parties entered into an oral agreement - identification of terms of oral agreement. EVIDENCE - credibility of witnesses - importance of contemporaneous material - Jones v Dunkel inferences. PARTNERSHIP - formation - whether the parties were in partnership - distinction between partnership and joint venture. Legislation Cited: Contracts Review Act 1980 Partnership Act 1892 Partnership Act 1890 (UK) Cases Cited: Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504 ARM Constructions Pty Ltd v Federal Commissioner of Taxation (1987) 87 ATC 4790 Blatch v Archer (1774) 1 Cowp 63 Bova v Avati [2009] NSWSC 921 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Fox v Percy (2003) 214 CLR 118 Gibson Motor Sport Merchandise Pty Ltd and Ors v Robert James Forbes and Ors [2005] FCA 749 Ho v Powell (2001) 51 NSWLR 572 Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 Jones v Dunkel (1959) 101 CLR 298 Khan v Miah [1998] 1 WLR 477 Khan v Miah [2000] 1 WLR 2123 Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 Onassis v Vergottis [1968] 2 Lloyds Rep 403 R v Navarolli [2010] 1 Qd R 27 Reliance Financial Services (NSW) Pty Ltd v Abdallah [2013] NSWCA 125 Ryledar Pty Ltd v Euphoric Pty Ltd (2007) NSWLR 603 State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Thompson v White (2006) 13 BPR 24,537 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Wetton (as liquidator of the Mumtaz Properties) v Ahmed and Others [2011] EWCA Civ 610 Whywait Pty Ltd v Davidson [1997] 1 Qd R 225 Texts Cited: Bingham, The Judge as Juror: The Judicial Determination of Factual Issues, published in The Business of Judging, (2000) Oxford University Press J D Heydon, Cross on Evidence, 9th ed (2013) LexisNexis Butterworths Category: Principal judgment Parties: George Robert Daoud (Plaintiff) Chalita Boutros (Defendant) Representation: Counsel: J S Mendel (Plaintiff) D A Allen (Defendant) Solicitors: Dib Lawyers (Plaintiff) Russo & Partners Solicitors (Defendant) File Number(s): 2010/114163 Judgment Proceedings 1The plaintiff, Robert George Daoud (Mr Daoud), filed a statement of claim on 16 August 2011 seeking from the defendant, Chalita Boutros (Mr Boutros), repayment of a loan he allegedly advanced to Mr Boutros, plus interest. Mr Boutros filed a defence and a cross-claim on 2 November 2011 denying liability and seeking accounts to be taken of a partnership he alleges existed between himself and Mr Daoud. Mr Daoud filed a defence to Mr Boutros' cross-claim on 8 June 2012, denying the existence of a partnership, thereby seeking to remove the foundation of Mr Boutros' cross-claim. Factual background 2As at February 2007, the land at 78-80 Cosgrove Road, Strathfield, New South Wales (the Property, being Auto-Consul 7863-192 and Folio Identifier 129/45694278-90, consisting of nine lots namely lots 30-37 and lot 129) was owned by Mr and Mrs Boutros. The parties agree that in February 2007 Mr Daoud lent to Mr Boutros $250,000, secured by an unregistered second mortgage over the Property. The parties give different accounts as to what took place after this. Mr Daoud's case 3Mr Daoud says that on 15 February 2007, he, Mr Boutros and Antoinette Boutros (Mrs Boutros) entered into a written loan and mortgage agreement pursuant to which Mr Daoud lent to Mr and Mrs Boutros $250,000 to be repaid with interest on demand. The loan was secured by a second unregistered mortgage over the Property. The mortgage, though unregistered, was protected by the registration of a consensual caveat on the Property's title, executed by Mr Boutros on 16 February 2007. The first registered mortgage on the Property's title was in favour of Arab Bank Limited, securing a loan it had previously advanced to Mr Boutros. 4On 15 February 2008, the loan from Arab Bank Limited fell due. By that time, Mr Boutros owed Mr Daoud more than $400,000. From about February to June 2008, Mr Boutros proposed to Mr Daoud refinancing arrangements, but Mr Daoud did not accept these proposals. In mid-2008, Arab Bank Limited advertised the Property for auction without providing notice to Mr Daoud. However, Mr Daoud discovered from discussions with Mr Boutros that the Property was advertised for auction. After having discussions with Arab Bank Limited, Mr Daoud advised Mr Boutros that he had agreed with Arab Bank Limited that lots 30, 31, 32, 33 and 129 would be sold to Red Ventures Pty Ltd, a company owned and controlled by Mr Daoud, and that Mr Daoud would refinance the February 2007 loan, with the remaining lots (namely 34, 35, 36 and 37) to be provided as security. 5Accordingly, on 27 August 2008, Mr Boutros entered into contracts for the sale to Red Ventures Pty Ltd of lots 30-33 for $1,208,990 and of lot 129 for $166,010. Mr Daoud indicated he would be prepared to refinance the February 2007 loan on terms that Mrs Boutros would be released from liability under that loan, and that the debt owing by Mr Boutros would only be $400,000, repayable by 31 May 2009, with interest charged on the amount owing from time to time at 15% per annum payable monthly (though provision was made for a discounted rate of interest at 13% in the event that interest was paid early). 6In November 2008, Mr Daoud instructed his solicitors to draft loan documentation giving effect to this agreement, and mortgage documentation securing the loan by a mortgage over lots 34, 35, 36 and 37. On 1 December 2008 a number of things took place: (1)Mr Boutros signed the relevant documents relating to the 2008 loan and mortgage agreement (including the loan agreement and mortgage deed); (2)a caveat was executed by both Mr Daoud and Mr Boutros to protect Mr Daoud's unregistered mortgage over lots 34-37; (3)settlement for the sale of lots 30-33 and 129 took place; and (4)a first mortgage was granted over lots 34-37 to Arab Bank Limited. 7On 25 May 2009, the caveat executed on 1 December 2008 was lodged over lots 34-37 to protect Mr Daoud's unregistered second-ranking mortgage. 8On 11 December 2009, Mr Daoud demanded repayment of the loan. The loan was not repaid, and on 7 May 2010 Mr Daoud commenced proceedings against Mr Boutros. 9On 3 August 2010 Arab Bank Limited obtained an order for possession of lots 34-37. However, on 12 November 2010, before Arab Bank Limited was able to sell the lots, Mr Boutros refinanced the loan with Nationwide Capital Pty Ltd, discharging the mortgage to Arab Bank Limited. 10Mr Boutros defaulted under the new loan from Nationwide Capital Pty Ltd and lots 34-37 which secured that loan were sold. Mr Daoud purchased these lots also. The proceeds of the sale were insufficient to cover the total debt owing to Nationwide Capital Pty Ltd (which was secured by a first ranking mortgage), and therefore Mr Daoud still seeks repayment of the entire amount of his loan to Mr Boutros under the 2008 loan and mortgage agreement, plus interest. Mr Boutros' case 11Mr Boutros accepts that in February 2007 Mr Daoud lent to him $250,000. The Property had development approval from the relevant local Council for the construction and operation of a waste recycling facility, which would require the use of all of the lots on the Property. 12Mr Boutros says that as he did not have the capital needed to construct the waste recycling facility, and in order to reduce his indebtedness to Mr Daoud under the February 2007 loan, he suggested to Mr Daoud, in June 2008, that they go into business together, by having Mr Daoud purchase some of the lots on the Property. Mr Boutros provided for Mr Daoud's consideration a copy of the Council's development approval for the construction of the waste facility on the Property. 13In the negotiations that followed through to late August 2008, Mr Daoud and Mr Boutros met on site, they discussed establishing the facility together, they erected a sign on the Property which read "Strathfield Waste Recycling Centre", they discussed at a meeting with a Mr Warren Lowndes the purchase of machinery (in particular they were looking to purchase a trommel and mulcher), they attended a Pickles Auction at which Mr Daoud purchased a shredder, and discussed the need to construct a shed at the rear of the Property. Mr Boutros also says that in a conversation in August 2008, he and Mr Daoud agreed to pursue the waste recycling business together. 14In furtherance of their alleged agreement to run the business together, and also in order to reduce Mr Boutros' indebtedness to Mr Daoud, Mr Boutros entered into contracts to sell to Mr Daoud's company (i.e. Red Ventures Pty Ltd) lots 30-33 and 129 at a discounted value. Mr Boutros said he would discharge the remainder of his indebtedness to Mr Daoud by performing work on the Property. Settlement of the sale of lots 30-33 and 129 was scheduled to occur on 22 September 2008, but was delayed because Mr Daoud had trouble raising finance to complete his purchase (a letter of offer of finance only being obtained on 1 December 2008, which was the eventual date of settlement). 15Mr Boutros says that in late November 2008 Mr Daoud said he needed Mr Boutros to sign a loan agreement (showing that Mr Boutros owed money to Mr Daoud) which Mr Daoud would then show to his bank, in order to obtain finance to complete his purchase of lots 30-33 and 129. Mr Boutros alleges he agreed to Mr Daoud's proposal, on the condition that Mr Boutros would in fact no longer owe anything to Mr Daoud. Mr Daoud allegedly agreed to Mr Boutros' proposal. 16The date on which the loan documents were executed is not clear. The documents bear inconsistent dates of 4 November 2008 and 1 December 2008. Mr Boutros also says that on 1 December 2008 Mr Daoud called him and said he needed to change the sale price on the face of the contracts for lots 30-33. Mr Boutros agreed to the reduction (of $125,000) to the price, and the parties agreed that this sum would be accounted for during the course of their partnership. Mr Boutros used the entirety of the proceeds, which he received from Mr Daoud on the settlement of the sale of lots 30-33 and 129 on 1 December 2008, to pay off creditors (mainly Challenger). 17After the settlement had taken place, Mr Boutros commenced or continued to develop the Property in accordance with the Council's requirements. This work on the Property included the construction/demolition of sheds, the laying of a concrete apron, the erection of a fence around the Property, the construction of retention tanks and drainage pits, the removal of asbestos, and the on-site supervision (together with Mr Daoud) of various other works performed by contractors. 18Mr Boutros was eager to commence operating the business and was unhappy with what he thought was a delay in commencement of operation caused by Mr Daoud. Mr Boutros therefore erected a fence separating his lots from Mr Daoud's lots (and in either mid-2009 or early 2010 Mr Boutros commenced business on the lots which he owned, contrary to Council requirements). In mid-2009 the relationship between Mr Boutros and Mr Daoud was strained, and it worsened in November 2009. At some point, Mr Daoud also erected a fence dividing his lots from Mr Boutros' lots (it is not clear whether Mr Daoud erected his fence before or after Mr Boutros had erected his own fence). 19At some stage, probably in late 2009, Mr Daoud and Mr Boutros met with Mr Daoud's bank manager, who recommended that the business be conducted through a corporate vehicle. On 27 January 2010, Strathfield Waste Recycling Centre Pty Ltd was incorporated and registered. The shareholders were Mr Daoud (26%), Mr Daoud's brother namely Elias Daoud (25%) and Mr Boutros (49%). 20Mr Boutros says that, at some stage, probably around this time (or just before the incorporation of Strathfield Waste Recycling Centre Pty Ltd), a document entitled "memorandum of understanding" was produced. According to Mr Boutros, Mr Daoud typed up the document on a computer in Mr Boutros' presence, printed it, and gave it to Mr Boutros who took it away, and some weeks later signed it, placed on it the date which he thought he received it, and stored it. This document, which Mr Boutros says he re-discovered only three weeks before the trial, is in the following terms (the Memorandum of Understanding): [Dated by Mr Boutros 8 December 2009] Memorandum of Understanding 1. Chalita Boutros is the owner of lots located at.............Robert Daoud through his company Red .............. is the owner of lots located at .............., hereinafter collectively called Cosgrove Road. 2. Boutros and Daoud agree that they wish to enter into an agreement to operate the Waste Transfer Station at Cosgrove Road, hereinafter referred to as "the business". 3. Boutros and Daoud will form a company with 2 directors and 2 shareholders with Boutros being a director and shareholder of 1 share and Daoud being a director and holder of the other share, hereinafter referred to as "the company". 4. The company will lease from Boutros and Daoud the whole of Cosgrove Road for a consideration of the Development Application approval granted by Strathfield Council and issued to Boutros. 5. The parties shall obtain funding from a mutually agreed lending institution to pay for the cost of all equipment and expenses to operate the business and to provide working capital to the the business as required from time to time. 6. Both Boutros and Daoud agree that they will allow the registration of a mortgage by any lending institution to secure the borrowings for the business. 7. The arties agree that should either party be required to discharge other liabilities on the other individual properties, to allow the registration of the mortgage for the business then the total value of that party's liability shall form part of the borrowings by the company, and the property of the liable party shall be primarily liable for the discharge of that debt. 8. Each party shall be entitled to have a representatative on Cosgrove Road at all times and to oversee the operation. 9. The [arties agree to enter into a Shareholders' Agreement in respect of the shares in the Company. 10. The parties will, on a monthly basis, hold a company meeting 11. Boutros and Daoud will appoint managers to operate the site. 12. All profit is to be split; 50% to Boutros and 50% to Daoud, each paying their owing amounts to money that is overdue until all payments are complete. 13. The trumoll or any machinery will also be split; 50% to Boutros and 50% to Daoud. Boutros will pay the deposit first for the trumoll. 14. Boutros will allow Daoud to run the operation and the yard. 15. Boutros and Daoud to be the sole people to sign for releases and purchases of any goods. 16. Boutros should be willing to contribute more work to the bay of the trummoll. [Signed by Mr Boutros] 21It is not controversial that by mid to late 2010 the relationship between the parties had ended. Mr Boutros eventually encountered financial difficulties which resulted in the sale of the remaining lots he owned. Mr Daoud purchased these lots. The parties accept that Strathfield Waste Recycling Centre Pty Ltd never actually traded and was ultimately deregistered on 17 June 2012. The Property is presently leased out by Mr Daoud to a lessee who conducts a waste recycling facility on it. The issues 22Mr Daoud seeks repayment from Mr Boutros of the sum of $400,000 plus interest, pursuant to loan and mortgage documents dated 1 December 2008. 23Mr Boutros says he signed these documents at the request of Mr Daoud, on the basis that the documents would only be utilised to enable Mr Daoud to obtain finance to complete his purchase of lots 30-33 and 129 and that there would really be no debt owing. Mr Boutros also says that any indebtedness was repaid by the reduction in purchase price of lots 30-33 and 129, and by the work which he performed on the Property for the partnership. 24The substantive contention between the parties therefore comes down to two main legal issues. The first issue is whether there was, as Mr Boutros alleges, an oral agreement under which either: (1)Mr Boutros' indebtedness to Mr Daoud for the principal sum of $250,000 (provided to Mr Boutros on 15 February 2007) plus interest would be extinguished if Mr Boutros signed the loan and mortgage documents dated 1 December 2008; or (2)Mr Boutros' indebtedness to Mr Daoud would satisfied by the reduction of $125,000 in the price of lots 30-33 and by the work that Mr Boutros would perform on Property on account of the partnership. 25The second issue is whether the relationship between the parties was one of partnership. If so, Mr Boutros asserts that accounts should be taken. Credit issues 26There are two observations I wish to make in relation to the evidence. Having heard and seen Mr Daoud and Mr Boutros, both give remarkably divergent views of what took place between them. I would be cautious before accepting very much of the oral testimony of either of them. In these circumstances, in accordance with the authorities I have referred to below, the contemporaneous material should be afforded greater and indeed I consider determinative weight. 27Whilst a trial judge is entitled to make observations relating to the demeanour of certain witnesses, that process is a notoriously crude and inaccurate methodology. Its defects have been exposed on numerous occasions in recent years. I am of course mindful of the comments of Gleeson CJ, Gummow and Kirby JJ in Fox v Percy (2003) 214 CLR 118, when they remarked (at [30]-[31]): [30] It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court. However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly form the appearance of witnesses. Thus, in 1924 Atkin LJ observed in Societe d Avances Commerciales (Societe Anonyme Egyptienne) v Merchants Marine Insurance Co (The "Palitana"): "... I think that an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour." [31] Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility. 28Statements to similar effect are to be found in many English decisions such as the dissenting speech of Lord Pearce in the House of Lords in Onassis v Vergottis [1968] 2 Lloyds Rep 403 at 431: One thing is clear, not so much as a rule of law but rather as a working rule of common sense. A trial Judge has, except on rare occasions, a very great advantage over an appellate Court; evidence of a witness heard and seen has a very great advantage over a transcript of that evidence... ... "Credibility" involves wider problems than mere "demeanour" which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person, telling something less than the truth on this issue, or, though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so, has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by overmuch discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. 29Discussions along similar lines may be found in Grace Shipping v Sharp & Co (1987) 1 Lloyds Law Rep at 207 at 215 - 216 per Lord Gough, in a recent statement of Lady Justice Arden in Wetton (as liquidator of the Mumtaz Properties) v Ahmed and Others [2011] EWCA Civ 610 at [11], [12] and [14] and in the extra-judicial writing of the late Lord Bingham in The Judge as Juror: The Judicial Determination of Factual Issues, published in The Business of Judging, (2000) Oxford University Press. 30The second observation in relation to credit is that, in considering the evidence, counsel for Mr Boutros in particular invited me to draw a number of inferences of the type referred to in Jones v Dunkel (1959) 101 CLR 298. This is said to be based on Mr Daoud's incomplete narrative of the course of events that took place between himself and Mr Boutros in relation to the development of the Property. In his evidence in chief, Mr Daoud presents his case as one of simple debt recovery. In his affidavit material filed in response to Mr Boutros' evidence, Mr Daoud is, in relation to a number of assertions made by Mr Boutros, either silent or in denial of the accuracy of Mr Boutros' evidence without providing any alternative version of events. 31The rule in Jones v Dunkel is a particular application of the general principle in the law of evidence that "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted" (Blatch v Archer (1774) 1 Cowp 63 at 65 per Lord Mansfield). The statement of the rule in J D Heydon, Cross on Evidence, 9th ed (2013) LexisNexis Butterworths (at [1215]) was approved in R v Navarolli [2010] 1 Qd R 27 by Muir JA at [2]: [2] What is known as the Rule in Jones v Dunkel is summarised in Cross on Evidence Australian edition as follows: First, that unexplained failure by a party to give evidence, to call witnesses, or to tender documents or other evidence or produce particular material to an expert witness may (not must) in appropriate circumstances lead to an inference that the uncalled evidence or missing material would not have assisted that party's case. 32It has also been established that a belief by the defendant that the plaintiff's evidence is insufficient is not a satisfactory explanation for the defendant's failure to give evidence (Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504 at [662]-[664] per Giles JA with whom Mason P and Beazley JA agreed). 33In Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Handley JA added (at 418): There appears to be no Australian authority which extends the principles of Jones v Dunkel to a case where a party fails to ask questions of a witness in chief. However I can see no reason why those principles should not apply when a party by failing to examine a witness in chief on some topic, indicates "as the most natural inference that the party fears to do so". This fear is then "some evidence" that such examination in chief "would have exposed facts unfavourable to the party": see Jones v Dunkel (at 320-321) per Windeyer J. Moreover in Ex parte Harper; Re Rosenfield [1964-5] NSWR 58 at 62, Asprey J, citing Marks v Thompson 1 NYS 2d 215 (1937) at 218, held that inferences could not be drawn in favour of a party that called a witness who could have given direct evidence when that party refrained from asking the crucial questions. 34The rule can operate against parties not bearing the burden of proof and parties which do bear it as well (Ho v Powell (2001) 51 NSWLR 572 at [16] per Hodgson JA). I bear these principles in mind when considering the evidence. Consideration of the evidence The February 2007 loan and mortgage transaction 35Mr Daoud has sworn three affidavits for the purpose of these proceedings. They are dated 7 May 2010, 17 February 2011 and 16 October 2012 respectively. Annexed to his affidavit dated 17 February 2011 is a mortgage form, dated 15 February 2007, signed by Mr and Mrs Boutros and Mr Daoud, and signed by witnesses. Mr Daoud is named as the mortgagor, and Mr and Mrs Boutros are named as mortgagees. The mortgage form is expressed to be lodged by a firm named Alexanders Lawyers (then acting for Mr Daoud), and is said to incorporate certain terms attached to it. The mortgaged property is "Auto Consul 7863-192". The mortgage terms attached to the form specify, among other things, that Mr and Mrs Boutros are indebted to Mr Daoud in the sum of $250,000 (clause 1.1), repayable on demand (clause 1.2). 36Behind the mortgage terms is a loan agreement, also dated 15 February 2007, which, consistent with the mortgage agreement, specifies Mr Daoud as the lender, Mr and Mrs Boutros as the borrowers, the principal sum as $250,000, and security as being an unregistered second mortgage and a registered caveat over "78-90 [sic] Cosgrove Road, Strathfield NSW 2136 in Auto Consul 7863-192". The repayment date is left blank (Item 2 in the Schedule), and clause 19 of the loan agreement provides that in the event of inconsistency between the provisions of the loan agreement and those of any loan security (which is defined to effectively include the mortgage agreement), the provisions of the loan agreement prevail. The loan agreement is signed by Mr Daoud, Mr and Mrs Boutros, and is also signed by witnesses. 37An undated document headed "Irrevocable Authority & Direction to Pay" signed by Mr and Mrs Boutros, purports to authorise and direct Mr Daoud to pay certain amounts of the $250,000 to Alexanders Lawyers, the Office of State Revenue and other fees, and to provide the remainder (namely $245,320) to Mr and Mrs Boutros. 38The documents show that Mr Daoud provided to Mr (and Mrs) Boutros a loan of $250,000 around mid February 2007. 39During the hearing, counsel for Mr Boutros handed up a stamped caveat form dated 16 February 2007, which is expressed to have been lodged by Alexanders Lawyers, to protect the interests of Mr Daoud under an unregistered second mortgage securing a loan of $250,000 dated 15 February 2007. The caveat form is signed by Mr Daoud and Mr and Mrs Boutros. 40Mr Boutros accepts that in February 2007 Mr Daoud lent to him the sum of $240,000 to $250,000. This is consistent with the contemporaneous material. The sale of lots 30-33 and 129 to Mr Daoud 41During the course of the hearing, counsel for Mr Boutros produced the originally signed contract for the sale of lots 30-33 (two counter-parts) and the originally signed contract for the sale of lot 129 (two counter-parts). In relation to lots 30-33, Mr and Mrs Boutros are named as the vendors, and Red Ventures Pty Ltd (as trustee for the Red Unit Trust) is named as the purchaser, and each counter-part is dated 27 August 2008. On the counter-part signed by Mr Boutros, the price was initially written in typescript as $1,333,990, but was subsequently altered by handwriting to read $1,208,990. The Office of State Revenue stamped this counter-part on 1 December 2008, and noted the alteration to the price. A stamped transfer form dated 16 April 2009 in relation to lots 30-33 was annexed to Mr Daoud's affidavit of 17 February 2011, naming Mrs Boutros as transferor and Red Ventures Pty Ltd as transferee. The form was signed by Mr Daoud and Mrs Boutros, and was witnessed. 42In relation to lot 129, the counter parts to the contract for sale are also dated 27 August 2008 and identify Mr and Mrs Boutros as the vendors, Red Ventures Pty Ltd as the purchaser, and specify a sale price of $166,010. The counter-part signed by Mr and Mrs Boutros initially identified the land being sold as "Lot 129 Plan DP 456942 as to 50% only", but was subsequently altered to read only "Lot 129 Plan DP 456942". The Office of State Revenue stamped this counter-part and noted the alteration to the precise interest being sold. The corresponding transfer form, which is attached to Mr Daoud's affidavit of 17 February 2011, was stamped by the Office of State Revenue on 1 December 2008, is dated 16 April 2009 and also bears a handwritten alteration to indicate that, consistent with Mr and Mrs Boutros' counter-part of the contract for sale, Red Ventures Pty Ltd acquired from Mr and Mrs Boutros the "WHOLE" of lot 129 and not just 50% of it. 43The settlement date is specified in the contracts for sale as the forty second day after the date of the contract (and should on that basis have taken place during October 2011). However, a letter dated 7 November 2008 from Russo and Partners (solicitors acting for Mr and Mrs Boutros) to Alexanders Lawyers (Mr Daoud's solicitors) indicates that settlement was anticipated to take place on 11 November 2008, and requests Mr Daoud's solicitors to remove a caveat lodged by Mr Daoud in anticipation of settlement. 44A further letter from Russo and Partners to Mr Daoud dated 14 November 2008, indicates that Mr Daoud was having trouble procuring finance from his bank for the settlement. It appears that the bank from which Mr Daoud was seeking financial accommodation was not prepared to provide finance for Mr Daoud's purchase from Mr and Mrs Boutros until Mr Daoud had completed the sale of other developments in Campsie which Mr Daoud was engaged in. The letter also indicates that Mr Boutros was pressing for settlement to take place in order to use the funds to discharge a debt he owed to Challenger, which was the subject of court proceedings. 45A letter dated 17 November 2008 from Alexanders Lawyers to Russo and Partners confirms that Mr Daoud was having difficulty procuring finance to complete his purchase of lots 30-33 and 129, as his bank required that he settle the sale of other properties (in Campsie) which he owned. 46On 21 November 2008, Mr Boutros' solicitors issued to Mr Daoud's solicitors notices to complete in respect of lots 30-33 and 129. 47A document dated 1 December 2008, entitled "Customer Interview Record - Letter of Offer" from NAB indicates that on 1 December 2008 a letter of offer was handed to Red Ventures Pty Ltd (as trustee for the Red Unit Trust). The letter of offer from NAB is dated 1 December 2008 and provides a facility limit of $1 million. Settlement of the contracts for the sale of lots 30-33 and 129 took place on the same day, namely 1 December 2008. The December 2008 loan and mortgage transaction 48It also appears to be accepted by the parties that by 1 December 2008 Mr Boutros' indebtedness had increased to about $435,013.70 or some amount above $400,000, on account of accrued interest on the loan of February 2007. 49Attached to Mr Daoud's affidavit dated 7 May 2010 are a number of documents signed by Mr Boutros in connection with a transaction which Mr Daoud says took place in late 2008. It is necessary to describe the relevant terms of the key documents in some detail. 50A mortgage form dated 1 December 2008, signed by Mr Boutros and Mr Daoud, specifies the mortgagor as Mr Boutros, the mortgagee as Mr Daoud, and the mortgaged property as "Folio Identifier 34/11432 & 35/11432 & 36/11432 & 36/11432 & 37/11432 & 129/456942 (share)". The mortgage form provides that it was lodged by Alexanders Lawyers and is expressed to include the provisions set out in a mortgage agreement annexed to the form. The mortgage terms annexed to the form specify indebtedness by Mr Boutros to Mr Daoud for the sum of $400,000 (clause 2), repayable by 31 May 2009 (clause 3). There is also an associated loan agreement naming Mr Daoud as the lender, Mr Boutros as the borrower, the principal sum as $400,000, the repayment date as "6 months from the date of this agreement" and the security as an "[u]nregistered second mortgage & registered caveat over 78-90 [sic] Cosgrove Road, Strathfield NSW 2136 in Lot 34, 35, 36, 36 [sic] in DP 11432 & 50% share in lot 129 DP 456942". 51Alexanders Lawyers, on behalf of Mr Daoud, lodged a caveat form against the title of lots 34-37 of the Property. The caveat form itself is undated, but is expressed to protect the interests of Mr Daoud created by an "unregistered second mortgage of $400,000" which is dated 1 December 2008. The caveat is signed only by Mr Daoud. 52In a further document, signed by Mr Boutros, witnessed on 4 November 2008, and entitled "Declaration by Borrower", Mr Boutros declares: I, Chalita Boutros (declarant) ... DO SOLMENLY AND SINCERELY DECLARE 1. I am the borrower named in certain loan and security documents in favour of Robert Daoud (lender) relating to property located at 78-80 Cosgrove Road, Strathfield NSW 2136 in Lots 34, 35, 36, 37 in DP 11432 & 50% of Lot 129 in DP456942. 2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1. 3. After receiving that advice I have freely and voluntarily signed the following documents: a. Loan Agreement/Caveat/Mortgage b. Memorandum Q860000 c. Declaration by Borrower (Schedule 1 to the Solicitors Rules) d. Acknowledgement of Legal Advice by Proposed Borrower (Schedule 4 Part 1 to the Solicitors Rules) e. Direction, Authority to Complete & Undertaking f. Consumer Credit Code Declaration g. Declaration regarding security property AND I MAKE THIS SOLEMN DECLARATION conscientiously believing the contents to be true and by virtue of the Oaths Act 1900. [Original formatting] 53In a document entitled "Declaration of Purposes for which Credit is Provided", directed to Mr Daoud, signed by Mr Boutros and witnessed on 4 November 2008, Mr Boutros declared: Regarding the credit of a mortgage for Four Hundred Thousand Dollars ($400,000) to be provided to us, to be secured by a second mortgage and caveat over 78-80 Cosgrove Road, Strathfield NSW 2133 in Lots 34, 35, 36, 37 in DP 11432 & 50% of Lot 129 in DP456942. I declare that the credit to be provided to me by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes). ... AND I MAKE this solemn declaration conscientiously believing the same to be true pursuant to the Oaths Act, 1900. [Original formatting] 54Mr Boutros also signed and had witnessed a document, dated 4 November 2008, entitled "Acknowledgement", which provided: I Chalita Boutros being the proposed Mortgagor in relation to a second mortgage/caveat to be given to Robert Daoud of 54-56 Broughton Road, Strathfield over the property at 78-90 [sic] Cosgrove Road, Strathfield South do hereby ACKNOWLEDGE AND WARRANT that I have received the Mortgage Schedule Form and Memoranda which together constitute the mortgage, and ancillary documents and have read and understood the contents of the same. The Mortgage and ancillary documents have been fully explained to me by my solicitor, who is witness to this Acknowledgement prior to me signing same and true purport, nature and effect of the mortgage documents and my obligations thereunder. [Original formatting] 55In a document entitled "Statutory Declaration by Borrower regarding the Introduction of the Loan", which is signed by Mr Boutros, witnessed, and dated 4 November 2008, Mr Boutros declares: I, Chalita Boutros of 192 Burwood Road, Croydon Park, DO SOLEMNLY AND SINCERELY DECLARE AS FOLLOWS: 1. I am the Mortgagor named in the Mortgage and other loan and security documents in favour of Robert Daoud relating to the property located at 78-90 [sic] Cosgrove Road, Strathfield NSW 2136. 2. Alexanders Lawyers, the lawyers for Robert Daoud did not introduce me nor did Alexanders Lawyers take any part in the negotiation of the terms of the mortgage. AND I MAKE THIS SOLEMN DECLARATION conscientiously believing the contents to be true by virtue of the Oaths Act 1900. [Original formatting] 56In a document entitled "Loan Repayment and Ability Declaration", which is signed by Mr Boutros, witnessed, and dated 4 November 2008, Mr Boutros declares: I certify, warrant and represent to you that: 1. I Chalita Boutros understand that I have applied for an interest only loan of $400,000 (Four Hundred Thousand Dollars) through Robert Daoud... ... 6. I acknowledge that you recommend that I take independent legal and financial advice in regard to this loan. ... [Original formatting] 57An unsigned single-page document entitled "Epitome of Mortgage" is expressed to be "issued to Chalita Boutros on the 01/12/2008", and specifies Mr Boutros as mortgagor, Mr Daoud as mortgagee, the Property as security, the principal as $400,000, the term of the loan as six months, and the priority of the security as "Second", with "Perpetual Trustee Company Limited" having a "First Encumbrance". 58A document entitled "Irrevocable Authority & Direction to Pay", dated 1 December 2008, signed by Mr Boutros, and witnessed, authorised and directed Mr Daoud to pay to Mr Boutros the sum of $394,864 (the balance of the $400,000 being directed to the payment of legal fees and other transaction costs). 59Mr Boutros also signed and had witnessed a document entitled "Receipt", addressed to Mr Daoud and Alexanders Lawyers, which provided: RE: DAOUD ADVANCE TO CHALITA BOUTROS We Chalita Boutros & Antionette Boutros hereby confirm that on the 01/12/2008 I received from Robert Daoud the amount of $400,000. 60Each of the documents which were signed by Mr Boutros in connection with this loan and mortgage transaction, was witnessed by a Mr Andrew Touma, a pharmacist, who is a Justice of the Peace, and a friend of Mr Boutros. Mr Touma was not called as a witness in these proceedings. The Memorandum of Understanding in late 2009 61I have already indicated that at some point, probably in late 2009, the Memorandum of Understanding previously referred to was brought into existence. In cross-examination, Mr Daoud denied having any involvement in the production of the document. When Mr Boutros was cross-examined about the circumstances in which the Memorandum of Understanding was produced, he said (at T171.10-T171.26): Mr Boutros: ...I was pushing him because I spend a lot of money in Cosgrove Road, I was pushing him to come to some arrangement or some sort of writing. He was busy in I don't know whatever but I want to shortcut, that he done it in his computer, in his room. He was starting typing and I can't write what he write, you know, he write all that and after that he establish the company. If he doesn't - if he doesn't done it why he establish the company? ... Mr Mendel: ... there has never been a written shareholders' agreement, has there? Mr Boutros: I don't recall it. I recall we agreed and we start and he done this letter. 62Having considered the evidence, including the language of the document and Mr Boutros' limited proficiency in the English language, I am satisfied that the document could not have been produced by Mr Boutros, and was likely to have been produced by Mr Daoud, in the circumstances alleged by Mr Boutros. I reject Mr Daoud's evidence to the contrary. Indeed, in cross-examination, Mr Daoud initially volunteered that there was some "memorandum of understanding": Mr Allen: You agree that the business venture that you and Mr Boutros discussed was the establishment of a waste transfer station on the property? Mr Daoud: In a memorandum of understanding, yes. 63The Memorandum of Understanding appears to have been forgotten by the parties until only weeks before the hearing before me, when Mr Boutros says he discovered it while preparing for these proceedings. Legal principles and discussion Was there was an oral agreement for forgiveness of debt? 64The principles relevant to identifying the scope of evidence admissible for the purpose of determining whether there was an oral agreement in the terms alleged by Mr Boutros, have been summarised by Campbell JA (with whom Allsop P and Basten JA relevantly agreed) in Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 (at [90], selected passages only, citations omitted): [90] The principles that are applicable in deciding whether an agreement that parties have entered is one that is wholly in writing, or partly written and partly oral, include the following: (1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties... (2) It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing... Conversely, it is open to a party to prove that the parties have orally agreed that a document should contain the whole of the terms agreed between them.... (3) The parol evidence rule applies only to contracts that are wholly in writing, and thus has no scope to operate until it has first been ascertained that the contract is wholly in writing... (4) Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact... (5) In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are ... If it is possible to make a finding about what were the words the parties said to each other, the meaning of those words is ascertained in the light of the surrounding circumstances... If it is not possible to make a finding about the particular words that were used (as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the surrounding circumstances can be looked at to find what in substance the parties agreed... (6) A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where there is a contract wholly in writing and an oral collateral contract... 65In the earlier case of Ryledar Pty Ltd v Euphoric Pty Ltd (2007) NSWLR 603, Campbell JA (with whom Mason P and Tobias JA agreed) described the type of intention relevant to contract formation in the following terms (at [262]-[266], selected passages, citations omitted): [262] For the purpose of deciding whether a contract has been entered ... the common intention that the court seeks to ascertain is what is sometimes called the "objective intention" of the parties. That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had, concerning the subject matter of the alleged contract... [263] There is also authoritative recognition that a factor to be taken into account in deciding whether a contract has been entered and if so what are its terms is "the purpose and object of the transaction"... ... [266] There are some statements to the effect that there can be some exceptional cases where the subjective intention of the parties can be taken into account in deciding whether a contract has been entered or not, in situations where the parties were playacting, or "joking, or doing or saying anything that was intended to be taken other than at face value"... 66In the circumstances of this case, where what is alleged is an oral agreement, I do not consider that the restrictions imposed by the parol evidence rule apply, at least until it is determined that the terms in writing in the loan and mortgage documents dated late 2008 record the whole of the parties' agreement (State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191 per McHugh JA with whom Kirby P and Glass JA agreed). 67I also note (merely to exclude it) that the oral agreement alleged by Mr Boutros cannot be argued to amount to a collateral contract, because its alleged terms (of forgiveness of debt) are inconsistent with the terms of the main contract dated 1 December 2008 (expressly purporting to give rise to a debt) (Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133). 68As already noted, Mr Boutros alleges that Mr Daoud said he needed Mr Boutros to sign the December 2008 loan and mortgage documents in order to show the documents to the bank so Mr Daoud could obtain finance to complete the purchase of lots 30-33 and 129, and that if Mr Boutros so signed the necessary documents, Mr Boutros would in reality no longer owe any money to Mr Daoud. Mr Boutros also says that Mr Daoud instructed him to reduce the sale price of lots 30-33 as recorded on the face of the contract for sale, to assist Mr Daoud to obtain finance. Mr Daoud denies any such oral agreement, and he explains the alteration to the price of lots 30-33 on the face of the contract by saying he simply changed his mind about the price as a result of financial difficulties arising from the global financial crisis at the time, and therefore re-negotiated the contract. 69In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 (at 176-178) the High Court was at pains to indicate the importance of affixing of a signature to a document. The court remarked that, consistent with the objective approach to contracts, it is a matter of some significance when a person places a signature on a document, and in the absence of fraud or some other special circumstance, a person cannot escape the consequence of signing a document. The court went on to observe that unless a person was prepared to take the chance of being bound by the document, whatever it might be, it was for the person to protect himself by abstaining from signing the document, until he was satisfied with it. 70The different dates recorded on the documents in relation to the 2008 loan and mortgage transaction indicate that Mr Boutros had the documents in his possession for some weeks prior to 1 December 2008, when they became binding. Mr Boutros therefore had plenty of time to read the documents. Mr Boutros "was not rushed or tricked into signing the document", nor did Mr Daoud "set out to conceal from [Mr Boutros] the terms and conditions on the document[s], or...encourage [Mr Boutros] not to read them" (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd at [39]). Some of the documents signed by Mr Boutros contain only a single paragraph in which it is made abundantly plain that Mr Boutros was acknowledging his indebtedness of $400,000 to Mr Daoud. The 2008 loan and mortgage documents were also in very similar form to those which Mr Boutros had signed in February 2007. 71No case of mistake or non est factum is advanced. Nor is there any allegation that Mr Daoud acted unconscionably or that relief should be granted to Mr Boutros pursuant to the Contracts Review Act 1980 or other legislation of that nature. Counsel for Mr Boutros contends that, despite the indebtedness plainly recorded in the documentary material, there was an oral agreement to the contrary effect that there would really be no indebtedness by Mr Boutros to Mr Daoud. He relies on a number of inferences to support this assertion, including the fact that Mr Daoud already had a loan agreement in place since February 2007 secured by an unregistered mortgage over the Property (and therefore further loan and mortgage documentation was unnecessary), that there was some delay by Mr Daoud in demanding interest and principal payments under the 2008 documents, that the caveat protecting Mr Daoud's interest under the 2008 documents was lodged some months after the documents were signed, and that Mr Daoud was having trouble raising finance to complete his purchase of lots 30-33 and 129 (and therefore this documentation would help him to persuade the bank to provide finance). 72To arrive at the conclusion sought by the defendant, it would be necessary to find that the numerous 2008 loan and mortgage documents were in fact a sham and brought into existence to induce the bank to lend money to Mr Daoud on a false premise. In my view the evidence falls far short of establishing the existence of an oral agreement that Mr Daoud would forgive Mr Boutros' indebtedness. There is no cogent evidence in any of the contemporaneous material supporting Mr Boutros' assertion. There is no bank record indicating that the bank's willingness to extend finance to Mr Daoud would be affected by the production of documents evidencing that Mr Boutros owed money to Mr Daoud. In fact, the bank records before me only show that Mr Daoud's difficulty in obtaining finance was due to his inability to settle the sale of properties he had developed in Campsie. Nor is there any room for the subjective intention of the parties, as there is no evidence that this is a "[situation] where the parties were playacting, or 'joking, or doing or saying anything that was intended to be taken other than at face value'" (Ryledar Pty Ltd v Euphoric Pty Ltd at [266]). 73The evidence establishes that from mid to late 2008 the parties had significantly altered their positions. Mr Boutros was in dire financial circumstances (as Challenger had commenced proceedings against him) and he was therefore urgently in need of funds. One way of obtaining those funds was to sell lots 30-33 and 129 of the Property as soon as possible. However, Mr Boutros wanted to sell to someone who would cooperate in establishing a waste facility, and Mr Daoud presented himself as such a buyer. Mr Daoud entered into contracts to purchase from Mr Boutros lots 30-33 and 129 of the Property. Mr Daoud expressed serious interest in the construction and proposed operation of the waste facility. Mr Daoud was having trouble selling another property (or other properties) which he owned, and this resulted in a delay in obtaining finance from NAB, which in turn delayed the settlement of lots 30-33 and 129. This was obviously highly inconvenient to Mr Boutros, who needed to proceed to settlement to obtain funds to pay a creditor. 74In my view, the evidence does not establish that there was an oral agreement that Mr Boutros' debt to Mr Daoud would be forgiven. Such an oral agreement would be contrary to the suite of contemporaneous documentation in evidence. Even the Memorandum of Understanding, which was clearly a document not created for the purpose of being shown to a third party but was for the parties' own records, and which I accept was produced by Mr Daoud at the insistence of Mr Boutros, contained no reference to the position contended for by Mr Boutros. In the circumstances I have outlined, and in particular having regard to the multitude of contemporaneous material in support of Mr Daoud's position, the better view is that the 2008 loan and mortgage documents were a re-financing, or simply a re-statement, of the previous loan, capitalising the interest which had by then accrued. In arriving at that conclusion, I have had regard to the Court of Appeal's description of the approach taken by Black J (who was upheld on the appeal) when faced with a somewhat similar question, namely whether certain loan agreements were intended to be operative in accordance with their terms (Reliance Financial Services (NSW) Pty Ltd v Abdallah [2013] NSWCA 125 per Bathurst CJ at [40], with whom Beazley P and Macfarlan JA agreed): [40] The primary judge in considering ... whether the Loan Agreements were operative in accordance with their terms, had regard to what was said in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 and Ho v Powell (2001) 51 NSWLR 572 as to the need for reasonable satisfaction not to be produced by inexact proofs, indefinite testimony or indirect inferences: see also Evidence Act 1995 s 140; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449. 75I am also satisfied that the circumstances establish that Mr Daoud appreciated Mr Boutros' immediate need for funds, that Mr Boutros knew that Mr Daoud might be assisted in obtaining finance if there was a price reduction to lots 30-33, and that Mr Daoud was therefore able to negotiate a lower sale price for lots 30-33. Mr Boutros was in no position to negotiate. I therefore accept Mr Daoud's evidence that the alteration to the price of lots 30-33 resulted from a re-negotiation of the price, and did not constitute a part-payment of the debt owing to Mr Daoud. 76For the reasons I have given above, I am of the view that there was no agreement to reduce Mr Boutros' indebtedness to Mr Daoud. The 2008 loan and mortgage documents should be given effect in accordance with their terms. Was there a partnership? 77Turning then to the second legal issue, it is necessary to set out the principles relevant to identifying whether and when a partnership comes into existence. The Partnership Act 1892 defines a partnership in s 1 as follows: 1 Definition of partnership (1) Partnership is the relation which exists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership. (2) But the relation between members of any company or association which is: (a) incorporated under the Corporations Act 2001 of the Commonwealth, or (b) Formed or incorporated by or in pursuance of any other Act of Parliament or Letters Patent or Royal Charter, is not a Partnership within the meaning of this Act. 78The Act also lists a number of "rules" to have regard to when determining whether a partnership does or does not exist: 2 Rules for determining existence of partnership In determining whether a partnership does or does not exist, regard shall be had to the following rules: (1) Joint tenancy, tenancy in common, joint property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof. (2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived. (3) The receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business, but the receipt of such a share, or of a payment contingent on, or varying with the profits of a business does not of itself make the person a partner in the business; and in particular: (a) The receipt by a person of a debt or other liquidated demand by instalments or otherwise out of the accruing profits of a business does not of itself make the person a partner in the business or liable as such: (b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such: (c) A person being the widow, widower or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such: (d) The advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person, that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing and signed by or on behalf of all the parties thereto: (e) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by the person of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such. 79The question of whether a "business" has commenced is fundamental to the existence of a partnership. Perhaps the leading case on identifying whether and when a partnership comes into existence is the House of Lords decision in Khan v Miah [2000] 1 WLR 2123. The statutory definition of "partnership" in United Kingdom (under the Partnership Act 1890 (UK)) which was considered in Khan v Miah is materially identical to the definition in the Partnership Act in New South Wales. In Khan v Miah, the parties had proposed to open an Indian restaurant. To that end, they opened a bank account, acquired premises in the third defendant's name and laid out money in converting the premises from a showroom to a restaurant, purchasing furniture and equipment, and advertising. They also entered into a contract for laundry. The Court of Appeal, by majority, held that, although the parties had agreed to carry on a restaurant business, as they had not been trading as a restaurant when the relationship was terminated, they had not become partners in a restaurant business by the date when the relationship broke down (Khan v Miah [1998] 1 WLR 477). The House of Lords upheld an appeal from that conclusion and Lord Millett (with whom the other Law Lords agreed) observed (at 2127-2128): I think that the majority of the Court of Appeal were guilty of nominalism. They thought that it was necessary, not merely to identify the joint venture into which the parties had agreed to enter, but to give it a particular description, and then to decide whether the parties had commenced to carry on a business of that description. They described the restaurant, meaning the preparation and serving of meals to customers, and asked themselves whether the restaurant had commenced trading by the relevant date. But this was an impossibly narrow view of the enterprise on which the parties agreed to embark. They did not intend to become partners in an existing business. They did not agree merely to take over and run a restaurant. They agreed to find suitable premises, fit them out as a restaurant and run the restaurant once they had set it up. The acquisition, conversion and fitting out of the premises and the purchase of furniture and equipment were all part of the joint venture, were undertaken with a view of ultimate profit and formed part of the business which the parties agreed to carry on in partnership together. There is no rule of law that the parties to a joint venture do not become partners until actual trading commences. The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it. Any commercial activity which is capable of being carried on by an individual is capable of being carried on in partnership. Many businesses require a great deal of expenditure to be incurred before trading commences. Films, for example, are commonly (for tax reasons) produced by limited partnerships. The making of a film is a business activity, at least if it is genuinely conducted with a view of profit. But the film rights have to be bought, the script commissioned, locations found, the director, actors and cameramen engaged, and the studio hired, long before the cameras start to roll. The work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customers walk through the door. Such work is undertaken with a view of profit, and may be undertaken as well by partners as by a sole trader. ... The question in the present case is not whether the parties "had so far advanced towards the establishment of a restaurant as properly to be described as having entered upon the trade of running a restaurant," for it does not matter how the enterprise should properly be described. The question is whether they had actually embarked upon the venture on which they had agreed... The question is not whether the restaurant had commenced trading, but whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. Once the judge found that the assets had been acquired, the liabilities incurred and the expenditure laid out in the course of the joint venture and with the authority of all parties, the conclusion inevitably followed. 80There is also recognised in law a distinction, which is sometimes difficult to draw, between a partnership and a joint venture. It has been observed in a number of cases, including United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 that the term "joint venture" does not have a settled common law meaning. Mason, Brennan and Deane JJ said (at 10): The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may, on occasion, be blurred. Thus, where one party contributes only money or other property, it may sometimes be difficult to determine whether a relationship is a joint venture in which both parties are entitled to a share of profits or a simple contract of loan or a lease under which the interest or rent payable to the party providing the money or property is determined by reference to the profits made by the other. 81I note in passing that it is important to accurately characterise the relationship between the parties, because different remedies may flow depending on the legal nature of their relationship. A commonly stated distinction between a partnership and joint venture is that partners share profits arising from what is usually a business activity involving some continuity, whereas joint venture participants share product from what is usually but not always a single project or undertaking. 82In United Dominions Corporation Ltd v Brian Pty Ltd (at 15-16) Dawson J (agreeing with the majority) observed: Perhaps in this country, the important distinction between a partnership and a joint venture is, for practical purposes, the distinction between an association of persons who engage in a common undertaking for profit and an association of those who do so in order to generate a product to be shared among the participants. Enterprises of the latter kind are common enough in the exploration for and exploitation of mineral resources and the feature which is most likely to distinguish them from partnerships is the sharing of product rather than profit. 83The profits/product distinction appears to have been picked up in subsequent cases (see for example ARM Constructions Pty Ltd v Federal Commissioner of Taxation (1987) 87 ATC 4790 at 4805 per Yeldham J). 84In Gibson Motor Sport Merchandise Pty Ltd and Ors v Robert James Forbes and Ors [2005] FCA 749, Crennan J discussed the term "joint venture" in some detail and noted (at [78]-[80], selected passages, some citations omitted): [78] Distinctions which can be made between a joint venture and a partnership are not always simple or without controversy. The term 'joint venture' has conventionally and commonly been used to refer to an association for the purposes of a single undertaking rather than for the continuous 'carrying on (of a) business' characterising a partnership... [79] While joint venture agreements are generally governed by the principles applicable to contract and property, equity, through the mechanism of a constructive trust, may be called in aid in circumstances of incomplete agreement: Muschinski v Dodds (1985) 160 CLR 583 at 618, or called in aid because of a breach of a fiduciary duty: Ravinder Rohini Pty Ltd v Krizaic (1991) 30 FCR 300. Agreed contractual duties of joint venturers are not necessarily or routinely subject to any implied duty to act in good faith: Noranda Australia Ltd v Lachlan Resources N .L. (1988) 14 NSWLR 1; Australian Oil and Gas Corporation Ltd v Bridge Oil Ltd (1995) 14 AMPLA Bull 60 at 70; Kelly v C .A. & L. Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248 at 258. See also the observations of Ormiston J in Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 at 96-97. [80] Recognisable and common characteristics of joint ventures include: 1. Participants hold proprietary interests in the assets of the joint undertaking, often, but not necessarily, as tenants-in-common... 2. Participants exercise joint control of the undertaking. 3. Participants contribute to the joint undertaking, not necessarily equally; such contributions may be disparate... 4. Participants in the joint undertaking enjoy rights and assume obligations, which are often several, and calculated by reference to ownership of shares and/or contributions made. 5. Participants have a joint (or community of) interest in the performance of the undertaking's purpose... 6. Participants associate in the undertaking for mutual commercial gain which can be mutual profits. 85In Thompson v White (2006) 13 BPR 24,537, Tobias JA (with whom Ipp and McColl JJA agreed) reviewed the relevant authorities and said (at [94]): [94] What the foregoing establishes is that although the term "joint venture" has no settled common law meaning, it is conventionally and commonly used to refer to an association between persons for the purpose of a single undertaking for mutual commercial gain. Furthermore, the common characteristics of joint ventures identified by Crennan J cannot be said to be either severally or jointly both necessary and sufficient to constitute a joint venture agreement, it being a question of fact whether any particular undertaking constitutes a joint undertaking for mutual commercial gain. 86It has also been recognised that a joint venture does not ordinarily exhibit the same element of mutual confidence as would be present in a partnership relationship (Whywait Pty Ltd v Davidson [1997] 1 Qd R 225 at 231 per Macrossan CJ, Pincus and McPherson JJA). 87The involvement of some continuity of business activity in a relationship of partnership would appear to be consistent with the statutory requirement of "carrying on a business" (see s 1 in the Partnership Act). In Australia, however, that may not be the position. In United Dominions Corporation Ltd v Brian Pty Ltd, Dawson J said (at 15, some citations omitted): Although in this country a partnership is defined in the Partnership Acts as the relation which subsists or exists between persons carrying on a business in common with a view of profit, the requirement that a business should be carried on provides no clear means of distinguishing a joint venture from a partnership. There may be a partnership for a single adventure or undertaking, for the Acts provide that, subject to any agreement between the partners, a partnership, if entered into for a single adventure or undertaking, is dissolved by the termination of that adventure or undertaking: see, eg, Partnership Act 1892 (NSW), s 32(b). A single adventure under our law may or may not, depending upon its scope, amount to the carrying on of a business... Whilst the phrase "carrying on a business" contains an element of continuity or repetition in contrast with an isolated transaction which is not to be repeated, the decision of this court in Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321, suggests that the emphasis which will be placed upon continuity may not be heavy. 88In determining the legal characterisation of the relationship of the parties the intention of the parties must be objectively ascertained from their words and conduct, and the description that the parties themselves have placed on their relationship is relevant but not conclusive (Bova v Avati [2009] NSWSC 921 at [181] per Ward J). Discussion 89It is not necessary for me to make a finding as to whether or not the parties had commenced a joint venture. Mr Boutros has not pleaded the existence of a joint venture in the alternative to partnership (nor for that matter has he pleaded quantum meruit, estoppel or a simple contract of some sort between himself and Mr Daoud). Given the pleadings, I only need to determine whether the parties were in partnership. However, because of the similarity and sometimes overlap between concepts of partnership and joint ventures, I have simply noted that there does exist a possible alternative characterisation of the parties' relationship. 90During the hearing, Council notices of determination of development applications were produced, indicating that the terms of the development approval required the entire Property (i.e. all nine lots) to be used for the waste transfer station. Mr Daoud accepted this (T 16.05). During cross-examination, Mr Daoud also accepted that he had several conversations with Mr Boutros about establishing the facility together (T 39.20), that at the completion of development he and Mr Boutros would run the business or lease it out as a prospective waste management facility (T 43.30), that he was going to ensure that the entire site complied with the Council's development approval (T 22.20), that in order to complete construction in accordance with the development approval he had to be in business with Mr Boutros (T 16.10), that the development approval required heavy traffic to enter via Mr Daoud's lots and exit via Mr Boutros' lots (T 23.10), that the basis for Mr Daoud's purchase of lots 30-33 and 129 was that he and Mr Boutros would develop the facility together (T 43.10), and that both he and Mr Boutros would in the long-term share in the profits generated by the facility (T 40.50-41.05). It is also not in dispute that there were works performed, including the installation of a retention tank and some plumbing, which traversed both the lots owned by Mr Boutros and the lots owned by Mr Daoud (T 22.05-22.10). 91Counsel for Mr Daoud observed that there was no joint bank account, that there was no procedure regarding mutual or separate obligations during the construction process, that there were no invoices rendered to the partnership name, that there were no business activity statements, and that there were no partnership tax returns. Mr Daoud had issued a notice to produce requesting these documents, but none was produced. Counsel for Mr Daoud also observed that Mr Boutros, in either March or November of 2008, without the consent of Mr Daoud, attempted to lease to some third party the lots which he owned. The relevant lease document was produced in court. It was fully executed, but it is not clear whether the tenancy ever actually commenced. Mr Boutros was cross-examined about the circumstances in which the lease was executed (T 123.30): Mr Mendel: ... as of November 2008 you were proposing to lease your property to Dong Joo Jang, weren't you? Mr Boutros: I was going to do what is potential for me, I wanted to do it. Mr Mendel: So whatever was good for you were going to do it? Mr Boutros: Exactly. 92Mr Boutros also admitted that in early 2009 he commenced, contrary to Council requirements, to operate a recycling business from the lots which he owned (T 119.45). During the hearing, counsel for Mr Daoud tendered an affidavit which Mr Boutros had sworn in earlier proceedings in the Federal Magistrates Court on 24 November 2010. The affidavit was prepared by Mr Boutros to oppose an application for petition brought by Santa Sabina College Ltd. In his affidavit, Mr Boutros said he was operating a recycling business at 78-80 Cosgrove Road in his own name with a turnover of $50,000 per week, involving five full-time and other part-time employees. Counsel for Mr Daoud submits that both Mr Boutros' attempt to independently lease his own lots and his subsequent commencement of his own business in early 2009 is completely antithetical to the existence of a partnership relationship. 93As to the Memorandum of Understanding, I do not consider it to lend much support (if any) to the defendant's argument for the existence of a partnership. Its language is forward looking, and there is no mention of a partnership having existed in the past or being formed in the future (though that is not conclusive). The Memorandum of Understanding also suggested that the parties intended that, when the time would come to operate or lease the waste recycling facility to a third party, they might not use a partnership business structure. Rather, the Memorandum of Understanding indicates that, in accordance with advice received from Mr Daoud's banker, the parties proposed to use a corporate structure to conduct the business, with each having an equity interest in that corporate vehicle, and having obligations to each other as specified in a proposed shareholders' agreement. 94In the exhibit to one of his affidavits, Mr Boutros attached a number of tax invoices and work dockets said to substantiate the expenses he incurred in performing work on the Property in order to establish the waste recycling facility. The purpose of including these invoices in evidence was to show that the parties were incurring expenses together, and also to show that Mr Boutros had incurred expenses (in partnership) of which account should be taken. Mr Boutros was cross-examined at some length about the work to which these invoices related. It emerged that a number of the invoices were, in truth, completely unrelated to any work performed on the Property (they related to other developments which Mr Boutros was engaged in). There were however a few invoices which indicated that Mr Boutros had incurred expenditure in relation to the waste facility. Mr Boutros asserted he had further invoices which were destroyed in a fire in late 2009 or early 2010. 95The final item of evidence is a document (which appears to be dated 10 September 2009) annexed to Mr Daoud's affidavit of 16 October 2012. The document is entitled "D&C Waste Transfor [sic] Station ... Start Up Cost and Running for the 3 Month". It contains a table, setting out a proposed fifty/fifty split of contributions for the purchase of various items of equipment and for meeting various expenses, in respect of the waste facility. The document is, however, forward looking in contemplation of the operation of the facility. 96Having regard to the evidence and the relevant principles, I have formed the view that there was no partnership between the parties. There are numerous material factual distinctions between the case of Khan v Miah and the present one. In Khan v Miah the parties had opened a partnership bank account, arranged for a credit facility from the bank, entered into contracts for construction/refurbishment, entered into contracts for the purchase of equipment, agreed on the division of their tasks, and in engaging in all these activities, they actually "held themselves out as partners" (Khan v Miah [2000] 1 WLR 2123 at 2125-2126). Further, and importantly, the circumstances which led the parties in the present case to become involved in the waste facility are quite different to those which led to the partnership in Khan v Miah. In Khan v Miah, the parties had together and consensually found suitable premises. In the present case, Mr Boutros had already received approval for the construction and operation of a waste facility on the Property. Mr Daoud's involvement through his acquisition of lots 30-33 and 129 arose as a result of Mr Boutros' need to obtain funds to remedy defaults of his obligations to creditors. There is no evidence suggesting that apart from Mr Boutros' constrained financial situation Mr Boutros and Mr Daoud would otherwise have engaged in any form of joint enterprise. In that sense, Mr Daoud's involvement was not so much a product of negotiation between the parties, but was "forced" upon Mr Boutros, who had "lost" lots 30-33 and 129 to Mr Daoud by default. That view is corroborated by the reduction in the price of lots 30-33, which I have found was the result of Mr Daoud taking advantage of Mr Boutros' straitened financial circumstances. 97Even if I am wrong about the absence of a partnership, there is no satisfactory evidentiary basis from which Mr Boutros' contribution can be ascertained. I have already noted the unreliability of the invoices annexed to Mr Boutros' affidavit. In Khan v Miah the bank account records indicated with clarity the parties' respective financial contributions. I do not make a finding that there was no business relationship between Mr Daoud and Mr Boutros - there clearly was some kind of joint enterprise in relation to the establishment and future operation of a waste facility on the Property, and Mr Boutros and Mr Daoud had both clearly expended efforts to that end. In Khan v Miah the House of Lords alluded to "the distinction between a contemplated partnership or an agreement to become partners and the partnership itself" (at 2126). 98However, even if some alternative business arrangement was pleaded, and even if I had found that there was such an arrangement or a joint venture or some alternative business relationship under which a remedial constructive trust could be ordered in favour of Mr Boutros, I would have serious reservations about granting such a remedy. My reservations arise from Mr Boutros' sworn admission that he generated significant income from independently conducting a waste recycling business on his own lots from early 2009 to late 2010. Mr Boutros' expenditure and efforts were therefore ultimately used to enable him to conduct his own business and generate significant income. 99In any event, for my reasons above, I am of the view that there was no partnership between the parties. Conclusion 100I invite the parties to prepare short minutes giving effect to my reasons. I will hear the parties on costs. ********** 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: 03 June 2013