Supreme Court New South Wales Medium Neutral Citation: Abignano Nominees Pty Ltd v Sheripeter Pty Ltd [2016] NSWSC 1378 Hearing dates: 5-7 September 2016 Decision date: 30 September 2016 Jurisdiction: Equity Before: White J Decision: Plaintiff to bring in short minutes of order in accordance with reasons. Catchwords: PARTNERSHIP — Taking of account — Plaintiff and defendant entered into an oral partnership agreement for the acquisition and development of a property — Partners agreed to contribute equally to the costs of the purchase and development of the property — Partners agreed that they would be entitled to share in the profits equally — Partners entered into a partition agreement — Partners dispute how the costs, expenses and profits of the partnership should be accounted for and divided between the parties on the final accounting — Whether payments made during the course of the partnership constituted advances or contributions of capital — Payments better characterised as advances not contributions to capital — Whether the values of distributed units should be determined according to their true market value or the values assigned in the partition agreement — Written partition agreement not intended by the parties to be a complete record of their agreement — Parties agreed orally that the values of the units would be reassessed on a final accounting —Oral agreement not inconsistent with the terms of the written agreement —Values of the distributed units to be determined according to their true market value — Whether the account should recognise a liability of the partnership to the defendant's building company in respect of a margin on construction costs — The partners agreed that the builder would not be entitled to a margin on construction costs — No liability should be included on the taking of the account for a liability to pay a margin to the builder — Whether an adjustment is required in respect of the refund received by the defendant for GST paid by the partnership —Tax treatment of units distributed to individual partners does not affect an assessment of whether profits have been distributed equally — No adjustment to be made on the taking of accounts in respect of the GST issue identified by the plaintiff Legislation Cited: Partnership Act 1892 (NSW) Duties Act 1997 (NSW) A New Tax System (Goods and Services Tax) Act 1999 (Cth) Cases Cited: Maybury v Atlantic Union Co Ltd (1953) 89 CLR 507 Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 B & R Stevens Transport Pty Ltd v Burkitt [2016] NSWCA 259 Texts Cited: K L Fletcher, The Law of Partnership in Australia, (9th ed 2007, LawBook Co) R, l'Anson Banks, Lindley and Banks on Partnership, (19th ed 2010, Thomson Reuters) Category: Principal judgment Parties: Abignano Nominees Pty Ltd (Plaintiff) Sheripeter Pty Ltd (Defendant) Representation: Counsel: S A Wells (Plaintiff) R Weaver (Defendant) Solicitors: Macpherson & Kelley Lawyers (Plaintiff) W H Parsons & Associates Solicitors (Defendant) File Number(s): 2015/109138 Judgment 1. HIS HONOUR: This is a partnership dispute. The plaintiff, Abignano Nominees Pty Ltd ("Abignano Nominees") and the defendant, Sheripeter Pty Ltd ("Sheripeter") entered into a partnership agreement on or about 29 January 2010 for the acquisition and development of a property situated at the corner of Mona Vale Road and Pittwater Road, Mona Vale. The agreement was oral. It arose from discussions between Mr Biagio Abignano on behalf of Abignano Nominees and Mr Paul Peterkin on behalf of Sheripeter. It is common ground that the parties agreed to contribute equally to the cost of the purchase of the property and that they did so. It is also common ground that the parties agreed to bear the expenses of the development equally and agreed that they would be entitled to the profits equally. It is common ground that the partnership was confined to the development of the Mona Vale site. The plaintiff alleges that the property development was completed in about November 2012. This is not common ground in that the defendant asserts that by November 2012 not all of the lots reserved for sale had been sold. The plaintiff contends that the partnership was dissolved in about November 2012. The defendant denies that the partnership was dissolved at that date, but admits that it has been dissolved. It is common ground that an account should be taken. 2. In its statement of claim Abignano Nominees alleged that a dispute had arisen between the parties in respect of the costs, expenses and profits of the partnership and how the proceeds of the business undertaking of the partnership in respect of the Mona Vale property should be accounted for and divided between the parties. It did not identify particular issues in relation to that dispute. In its defence Sheripeter stated that to its knowledge the matters in dispute were: Whether the parties were entitled to interest on what it called their capital contributions (referred to in the statement of claim as the "funding"); and as to the effect of a partition agreement entered into between the parties on 17 September 2012. 1. It is common ground that a company known as Logic Design and Build Pty Ltd ("Logic"), a related company of Sheripeter, acted as the licensed builder on the construction of the development. Abignano Nominees contends that it has received insufficient information to allow it to determine whether moneys paid from the partnership account to that company were proper expenses. It complains that it has insufficient information to determine whether other payments made to or at the direction of Sheripeter were proper partnership expenses or distributions of profit and has inadequate information to determine whether moneys treated as having been paid in by Sheripeter were advances or capital contributions or reimbursement of expenses paid by the partnership for those parties. It is common ground that a referee should be appointed to take an account. 2. The parties initially identified the following issues as appropriate for determination by the Court: whether the parties are entitled to interest on their loan accounts or capital contributions, and, if so, on what payments interest is payable and what is the amount of such interest? the effect of the Partition Agreement entered into between the parties dated 17 September 2012 and performance thereof on the respective interests of the parties. In particular, whether the values assigned to various lots for the purposes of the Partition Agreement are to be taken as the values of those properties on a final accounting between the partners, or whether an adjustment ought to be made in the final accounting to take account of the true market value of the properties in determining an equal division of profits; the treatment of GST by Sheripeter in respect of the transfer of the commercial lots to it under the Partition Agreement. 1. A further issue identified in submissions is whether, on a final accounting, the partnership should recognise a liability to Logic for a 7.5 per cent margin over the cost of construction, or Sheripeter should be entitled to a credit of 3.75 per cent of construction costs. 2. Abignano Nominees and Sheripeter acquired the Mona Vale site on 12 February 2010. It is common ground that the purchase price was contributed by the parties equally. Contributions to the purchase price were clearly capital contributions, and unless there was an agreement between the parties to the contrary, no interest would be payable on those contributions before profits were ascertained (Partnership Act 1892 (NSW), s 24(1)(4)). 3. Bookkeeping for the partnership was undertaken by Mr Peterkin and his father, Mr Ray Peterkin, who was an accountant, together with a Ms Jane Hellyar who was employed by the partnership as a bookkeeper. 4. Development approval was obtained in January 2011. Construction work started in mid-February 2011. Mr Abignano's father provided short-term finance totalling $950,000 in order that construction could proceed before a bank loan was obtained. It was common ground that the partners agreed that the loan from Mr Abignano's father should bear interest at 7.5 per cent per annum, that the loan was repaid within a couple of months of its being advanced, but that no interest was paid on the loan. This transaction is not relevant to the question whether interest was payable on advances made by the partners, either as capital contributions or otherwise. Contrary to a suggestion made in cross-examination of Mr Abignano, on the taking of accounts it will be necessary for there to be a determination of the liabilities of the partners which will include their liability to pay the agreed interest to Mr Abignano senior. 5. Construction work was completed in November 2012. The sale of the last unit was completed on 19 July 2013. Although various financial records were referred to in the evidence, the parties were agreed that it was unnecessary and inappropriate on the present hearing to attempt to embark upon an account. 6. The development consisted of three commercial lots and 16 residential lots (units). Abignano Nominees and Sheripeter were initially registered as the co-owners of all of the lots in the development. They agreed that there should be a partition of units between them. 7. The parties agreed that Sheripeter would take the three commercial lots and two residential lots, and Abignano Nominees would take six residential lots. They entered into an agreement, called the Partition Agreement dated 17 September 2012 pursuant to which they executed and registered transfers of those lots to Sheripeter and Abignano Nominees individually as agreed. A valuation was obtained of the lots to be transferred that was expressed to be made for stamp duty purposes only. The valuation was provided by a Mr Hepworth. Duty was payable under s 30 of the Duties Act 1997 (NSW) on the difference between the values of the lots to be transferred to Sheripeter on the one hand and Abignano Nominees on the other. The valuer valued the three commercial and two residential lots to be acquired by Sheripeter at $3,275,000 and the six residential lots to be acquired by Abignano Nominees at $3,290,000; a difference of $15,000. The Partition Agreement provided that Abignano Nominees would pay Sheripeter $7,500 "by way of an equality of partition". 8. Abignano Nominees contends that because the valuations were expressed to be made for the purposes of stamp duty only, because the values of the commercial units were, it says, too low, and because, it says, Mr Peterkin agreed that there would be an ultimate adjustment of values on a final accounting, on a final accounting the value of the units distributed in specie should be determined not on the basis of the valuation prepared by Mr Hepworth, but according to the "true" value of the units. The plaintiff accepted that the valuation should be made as at the date the units were transferred, that is, 17 September 2012. 9. It is not disputed that clause 2 of the Partition Agreement was based upon there being a difference in the valuations of the six residential units to be transferred to Abignano Nominees on the one hand as against the two residential and three commercial units to be transferred to Sheripeter on the other hand of $15,000. Under the valuation the six residential units that were transferred to Abignano Nominees were valued at $3,290,000. The three commercial units and two residential units that were transferred to Sheripeter were valued at $3,275,000. Sheripeter contends that by the Partition Agreement the parties accepted the distribution of eight residential units and three commercial units as provided for in the agreement as an in specie distribution of the assets of the partnership on the basis that the assets distributed to Abignano Nominees were worth $15,000 more than those distributed to Sheripeter such that it is required to pay a sum of $7,500 "by way of an equality of partition". 10. The issue in relation to GST arises because Sheripeter took an in specie distribution of three commercial units and two residential units, whereas Abignano Nominees took an in specie distribution of six residential units. The transfer of all units by the partnership was a taxable supply. GST was payable on the supply. The supply of the residential units was a taxable supply because the units were "new residential premises" within the meaning of s 40-75 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act"). Because the partnership was the supplier of the units to the individual partners the partnership was liable for GST on the supply. In the case of the commercial units, Sheripeter made a "creditable acquisition" within the meaning of s 11-5 of the GST Act and was entitled to an input tax credit being an amount equal to the GST payable on the supply of the units acquired (ss 11-20 and 11-25). This meant that Sheripeter was entitled to set off the input tax credit against any other GST payable by it or receive a refund. It received a refund. It will be liable to pay GST on its supply of the commercial premises. 11. The parties agreed that the margin scheme would apply to the supply of the eight residential units to the individual partners. This reduced the amount of GST payable by the partnership. The position appears to have been taken that sales of the residential units by Abignano Nominees, or by Sheripeter, would not be taxable supplies, but would be input taxed as being the supply of residential premises that were not new residential premises. Section 40-65 of the GST Act provides that a sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. Because an input taxed supply is not a taxable supply, no GST is payable on the sale of the residential premises, but the individual partners did not make a creditable acquisition, for which they are entitled to an input tax credit, from the acquisition of the residential units from the partnership. Abignano Nominees points to the difference in its position in that it has not obtained a refund of the GST paid by the partnership on the transfer of the residential units to it, whereas Sheripeter has obtained a refund in respect of the GST paid by the partnership on the transfer of the commercial units. Abignano Nominees contends that Sheripeter should be required to account for half of the benefit of the refund of the GST that was paid by the partnership. 12. There is a dispute as to whether Mr Peterkin and Mr Abignano agreed that Mr Peterkin's company, Logic, would charge a margin of 15 per cent of construction costs. Mr Peterkin says he agreed to split that margin equally between Logic and the partnership. Mr Abignano denies there was any agreement entitling Mr Peterkin, through Logic or otherwise, to charge a margin over actual construction costs. 13. I will deal first with the question of interest on advances. Interest on advances 1. Section 24(1) of the Partnership Act provides: "24 Rules as to the interests and duty of partners other than partners in incorporated limited partnership subject to special agreement (1) The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement expressed or implied between the partners, by the following rules: (1) All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm. … (3) A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of capital which the partner has agreed to subscribe is entitled to interest at the rate of seven per centum per annum from the date of the payment or advances. (4) A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by the partner. …" 1. Abignano Nominees contends that there was a contrary agreement, namely, that any contributions made by either party towards the cost of developing the site, whether characterised as advances or contributions to capital, should attract interest at the same rate as was payable on any borrowing made by a partner in order to fund such a payment. Mr Abignano deposed that he had a conversation with Mr Peterkin at about the time the property was purchased to the following effect: "Me: So we will share the profits equally just as we share the costs equally. If I make a dollar, you make a dollar; if it costs me a dollar, it will cost you a dollar. Mr Peterkin: Of course, it can't work any other way. Me: So I will charge the same interest rate as I am being charged on the funds I loan the partnership. Mr Peterkin: Yes, its obvious." 1. Mr Peterkin denied this conversation. What Mr Abignano deposed to was not obvious. If profits were to be shared equally it would not follow that Mr Abignano would charge the same interest rate as he was being charged on funds he lent to the partnership, unless Sheripeter could charge interest at the same rate as was charged by Abignano Nominees, whether moneys it advanced were borrowed at the same rate or came from funds that had not been borrowed. 2. Mr Abignano deposed that between February 2011 when construction work started but before construction finance had been obtained from the ANZ Bank, he had a conversation with Mr Peterkin to the following effect: "Me: 'We're each going to have to put in money to start building. I have a facility against my home that I can borrow against until we can get bank funding, my father might also be able to help out. I can draw down on that but will have to charge interest at the rate I have to pay on the borrowings.' Mr Peterkin: 'Good'." 1. Again, this conversation was denied. 2. The notion that one partner could charge interest at the rate that it was paying on funds borrowed in order to contribute to the partnership's expenses was inconsistent with the premise of the partnership that the partners would contribute equally to losses and would equally share profits. 3. I do not accept the plaintiff's contention that there was an agreement to the effect deposed to. 4. On 16 January 2012 Mr Abignano sent Mr Peterkin a schedule of payments that Abignano Nominees or an associated company had made on behalf of the partnership and said that the only thing missing from the schedule was interest he had been paying that he would need to calculate; noting that the statements covered additional expenses that were not associated with the Mona Vale development. 5. On 8 November 2012 Mr Abignano sent Mr Peterkin a schedule of payments and receipts made by or on behalf of Abignano Nominees that incorporated a calculation of interest at rates ranging from 6.49 per cent to 7.67 percent. His schedule provided for the interest on outstanding balances from time to time to compound monthly. 6. Mr Peterkin did not respond to these emails. He did not expressly reject the idea of the inclusion of interest, but nor did he accept it. Interest was not included in the financial statements for the partnership prepared by a bookkeeper, Ms Hellyar and Mr Peterkin's father, Mr Ray Peterkin. 7. Because the agreement in relation to the charging of interest for which Abignano contents would contradict the principle of equality upon which the partnership was formed, I think it unlikely that Mr Peterkin would have agreed to the matter proposed by Mr Abignano. 8. The question of whether either Abignano Nominees or Sheripeter is entitled to interest on contributions made by them or by companies associated with them on the direction of Mr Abignano or Mr Peterkin depends upon whether payments made were contributions to capital which do not attract interest (s 24(1)(4)) or were advances that do attract simple interest at the statutory rate of seven per cent per annum from the dates of the payments or advances until repayment (s 24(1)(3)). 9. Section 24(1)(3) applies not only to a case in which a partner makes a payment or advance into a partnership account, but to a case where the partner incurs expenditure on the partnership's behalf for which he is entitled to be indemnified (other than as a contribution to capital). (Fletcher, The Law of Partnership in Australia, 9th ed at p 103). Section 24(1)(3) has been said to be applicable "where a partner advances money to the firm over and above his capital contribution" (Lindley and Banks on Partnership, 19th ed [20-36]). 10. The costs of acquiring the Mona Vale property were met by the partners in equal proportion. 11. The question of what payments were made for the benefit of the partnership by each of the partners, or by companies associated with them at their direction, and at what times moneys advanced or paid were repaid to the partners, or to associated companies at their direction, are matters to be determined on the final accounting. But it appears from schedules tendered by both Abignano Nominees and Sheripeter that the payments they claim to have made beyond payments for the purchase of the property were incurred in payment of day-to-day expenses on the construction of the project. Thus the schedule produced by Sheripeter that is headed "Logic Design and Build Trust" has a long list of purchases of building items or hardware items or hire from Kennards Hire or payments for petrol or diesel, payment of compulsory third party insurance and similar matters in varying amounts; some below $10 or $20. Similarly, the schedule produced by Abignano Nominees identifies numerous items of different amounts said to have been incurred in connection with the development. 12. Mr Weaver who appeared for Sheripeter submitted that because the partnership was for a single purpose of developing the block at Mona Vale, the moneys contributed for that purpose by the partners should be characterised as the injection of necessary capital in order to build the asset of the partnership. He said that on his instructions the costs of construction were treated in the partnership's tax returns as capital expenditure. However, that is not apparent from the partnership returns and would seem inconsistent with principle. The land was acquired for a profit-making purpose. Moneys derived from the sale of the units would, one would have thought, be on revenue account and the costs of construction would, prima facie, also be on revenue account and be deductible. The partnership's tax returns were evidently prepared on this basis. They declared income being sales less deductions that were principally the costs of sales. It appears from the financial statements that the costs of sales were calculated in each financial year by adding "opening finished goods" and "purchases" and deducting "closing finished goods". This treats the units that were sold as trading stock. 13. In any event, whether the partnership's expenditure is properly characterised as being on revenue or capital account, does not answer the question whether the expenses paid by the partners were contributions to capital or were advances. The partners' bookkeeper, Ms Hellyar, sent an email to Mr Abignano copied to Mr Peterkin on 4 February 2013 saying: "I worked with Ray [Peterkin] last week to put together your loan. Ray spoke to Sid [Edwards] and Sid agreed that we need to put all receipts together … Can you please drop me legible copies of all credit card purchases made on behalf of SPAN [the partnership] i.e. full copies of statements blanking out personal purchases. Sid agrees that it is to use [sic] these in place of 100's of tiny faded receipts. Also I don't have copies of any original 2010 consultant invoices paid. I will put together all invoices that originally came to Logic/Fortius/SPAN that you paid but I need copies of anything that would have gone direct to you." 1. The heading of the email was "Invoices for your loan". It seems that at this time the partners' bookkeeper considered that the payments made by the partners were loans, that is advances, to the partnership, not contributions to capital. 2. Mr Peterkin said that moneys that were put in by him and Mr Abignano were going in as further capital, but there was no evidence of any express agreement to that effect. He said that that is how the partners' contributions were reflected in the final accounts. Mr Abignano did not sign the final accounts. 3. Both partners were active partners. Had the parties considered that they were contributing capital, then it would be expected that they would have made equal contributions of capital so as to preserve their entitlement to an equality of profits. They did not do so. It is not possible for me to say on the materials adduced who paid what expenses and who received what reimbursements either directly or by payment to an associated company on the direction of a partner. But as a matter of principle, as the payments were unequal, and the time between expenses being paid and a partner being reimbursed, varied, as a matter of ordinary business practice, one would expect the outstanding balances from time to time to attract interest so that the partner who was out of pocket for longer, or for a greater amount, was compensated. That is to say, to treat such payments as advances on which interest is payable in accordance with s 24(1)(3) before the ascertainment of profits is consistent with the parties' intentions that they be treated equally. 4. For these reasons on the taking of the account a referee should allow the parties interest at seven per cent per annum on the outstanding advances from time to time before the calculation of profit or loss. 5. As noted above, the interest payable is simple interest, not compound interest (Lindley and Banks on Partnership at [20-36]). The current statutory rate is seven per cent. Partition Agreement: Finality of Valuations 1. As noted above, the parties entered into the Partition Agreement that was signed by Mr Abignano on 17 September 2012, having been signed earlier by Mr Peterkin. The agreement identified the particular lots each partner was to receive as an in specie distribution of partnership assets. Clause 2 provided that Abignano Nominees would pay Sheripeter $7,500 "by way of an equality of partition". It is undisputed that the calculation of that figure was based on the values attributed to the units to be distributed to the partners as set out in Mr Hepworth's valuation. Abignano Nominees contends, and Sheripeter denies, that the Partition Agreement was not the final word on the subject and that it was the intention and agreement of both parties that there would be a reassessment of the values of the units distributed in specie as part of a final accounting. That submission requires both a finding as to whether there was an agreement in substance as Mr Abignano has deposed to and, if so, whether any such agreement was nonetheless inconsistent with the parties' written contract. There is no application to rectify or to rescind the Partition Agreement. 2. The relevant principle can be taken from Maybury v Atlantic Union Co Ltd (1953) 89 CLR 507 at 516-517 where Dixon CJ, Fullagar and Taylor JJ said: "The plea … alleges a collateral agreement made in consideration of the making of a main agreement. It sets forth a term, introduced by way of collateral agreement, which seeks to control the action of the plaintiff respondent under the main agreement. A collateral agreement made in consideration of a main agreement cannot effectively subsist unless it is consistent with the main agreement. Once an agreement is made in writing it is treated, unless the parties are shown otherwise to intend, as the full expression of their obligations. If it is established that the writing was intended to contain only part of a fuller agreement it may be otherwise. That, however, is not the present case. But it may be established that an entirely separate agreement was made by the parties. One of them may give a collateral promise in consideration of the other entering into the principal agreement. But if such a collateral agreement is to have effect as a contract it must be consistent with the provisions of the main agreement, the making of which by the other party provides the consideration. If the promise sought to modify, control or restrict the principal agreement it would detract from the very consideration which is alleged to support the promise." 1. Sheripeter says that the Partition Agreement is to be treated as the full expression of the parties' obligations and it is not shown that the parties had a different intention or that it was intended to contain only part of a fuller agreement. 2. For the reasons which follow I have concluded that Messrs Peterkin and Abignano did agree that the values upon which the Partition Agreement were based would be reconsidered as part of the final accounting to achieve an equal distribution from the project. The parties knew that the valuation provided by Mr Hepworth could not be relied upon for that purpose. Mr Peterkin's subsequent conduct makes it clear, notwithstanding his denials, that he did not regard the Partition Agreement as constituting the final word on the subject. 3. At about the time Mr Peterkin and Mr Abignano were negotiating for the purchase of the Mona Vale site they met with Mr Steven Elias who is both a solicitor and chartered accountant, and who acted for Mr Peterkin. They discussed the most suitable structure from the point of view of tax and stamp duty efficiencies for the purpose of the partnership. At some point Mr Peterkin and Mr Abignano agreed that they should partition a number of the lots, in the belief that there would be a substantial saving in stamp duty. Eventually they settled on the lots each of them would acquire. Mr Elias recommended the name of the valuer that could be used to assist with the valuation that the Office of State Revenue required. 4. The Office of State Revenue has published a revenue ruling (No. DUT012), the effect of which is that where evidence of the value of land is required, a valuation made more than three months before the date of the transaction will be accepted if it is accompanied by a statutory declaration stating that no improvements have been effected (amongst other things) between the date of the valuation and the date of the dutiable transaction (para 11). The Office of State Revenue requires that the valuation be declared by a "competent valuer", who includes a registered real estate valuer, whose valuation is a comprehensive valuation of the property in its present condition indicating that an inspection of the property has been undertaken (para 13). Brief market appraisals, estimates of value or other statements that do not indicate a full inspection of the property has been undertaken are said not to be acceptable (para 13). 5. On the basis of Mr Elias' recommendation Mr Peterkin retained Mr Rhyan Hepworth of PForm Property Group Pty Ltd to carry out the valuation of the units proposed to be the subject of the Partition Agreement. On 25 June 2012 Ms Hellyar instructed him to provide an "opinion of valuation for some of the units at 1731 Pittwater Road, Mona Vale. The purpose of these is to create the deed of partition". It had been agreed between Mr Peterkin and Mr Abignano that Sheripeter would acquire three commercial units and two residential units and that Abignano Nominees would acquire six residential units. 6. Mr Hepworth made a file note of a conversation with Mr Peterkin on 27 July 2012 in which he recorded that: "I clearly outlined to [Peterkin] that the Valuation was only to be used for stamp duty purposes. Not for the purpose of agreeing prices between parties to the partition deed. [Peterkin] confirmed that the prices they adopt for settling were not relying on the valuation but other research [sic]." He gave oral evidence to the same effect. 1. Mr Peterkin deposed that he never had a conversation with Mr Hepworth where Mr Hepworth said the valuation was for stamp duty purposes only. I do not accept that denial. Mr Hepworth forwarded the valuation to Mr Peterkin on 29 July 2012 under cover of an email that stated, "Please find attached a copy of the valuation report prepared for the purpose of determining stamp duty. Invoice also attached." The invoice was for the sum of $880. This was a modest charge indeed for a valuation of three commercial and eight residential units. 2. The valuation described the development as a new multi-level residential building with commercial units on the ground level. 3. Under the heading "Valuation Summary" Mr Hepworth stated that his instructions were to assess the allocation of current market value of the various units for stamp duty purposes only and for no other purpose. He stated that the valuation could be relied upon by the party to whom it was addressed for stamp duty purposes only. The valuations were expressed to be of the current market value of the units, being the estimated amount for which the units would exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing with the parties each acting knowledgably, prudently and without compulsion. The valuation date was 1 July 2012. In his oral evidence Mr Hepworth said that he made only a kerbside inspection. That limitation was not disclosed in the text of the report. It should have been, particularly as the valuation was said to be made for stamp duty purposes and one would expect a valuer to know of the Office of State Revenue's requirements in this regard. 4. The three commercial lots were given as lots numbers 1, 2 and 3 and the eight residential lots were numbered 5, 7, 8, 9, 12, 14, 15 and 16. Lot 1 had an area of 160m², lot 2 126m², and lot 3 153m². In relation to those lots Mr Hepworth recorded the following: "Commercial units located on ground floor: Lot 1 – 160 sqm on ground level and 65 sqm on basement car park. We have been advised the property is leased to Northern Dental Group Pty Ltd for a term of 5 years. Rental is $75,000 pa net reviewed greater of 4% or CPI each year. Lot 2 – 126 sqm on ground level and 43 sqm on basement car park. Currently vacant. Lot 3 – 153 sqm on the ground level with corner location and 61 sqm on the basement. Leased to Jonathan Pretty for Homewares showroom space for a term of 3 years + 2 x 3yr options. The rental is $85,000 pa gross, reviewed annually to CPI." 1. Under the heading "Valuation Rationale" Mr Hepworth stated the following and described the following values for the subject units: In assessing the Current Market Value we have had regard to, amongst other things, the nature and location of the property and analysis of sale transactions of residential & commercial units. From this research it is concluded that new 1 bedroom units generally achieve $450,000 to $525,000. New two bedroom units achieve $575,000 to $700,000 depending on size, quality, views and amenity. Commercial/Retail units generally reflect initial yields ranging from 7% to 9%. Larger commercial units achieve capital value rates from $3,500 per sqm. Smaller units with retail exposure may achieve up to $6,000 per sqm. The values ascribed to the subject units are as follows: Lot Type Value $/sqm 1 Commercial $ 865,000 $ 5,406 2 Commercial $ 625,000 $ 4,960 3 Commercial $ 815,000 $ 5,327 5 2 bed $ 670,000 $ 7,128 7 1 bed $ 475,000 $ 8,190 8 1 bed $ 475,000 $ 8,051 9 1 bed $ 495,000 $ 8,115 12 2 bed $ 670,000 $ 7,128 14 1 bed $ 485,000 $ 8,362 15 1 bed $ 495,000 $ 8,390 16 1 bed $ 495,000 $ 8,115 Total $6,565,000 1. Mr Peterkin emphasised that the valuation of the commercial units was based on the adoption of a dollar value per square metre rather than on a yield basis. Presumably the valuation was based on an analysis of comparable commercial sales with the prices calculated on a per square metre basis. Unit 2 had not been let. Expressed on a yield basis and applying a figure later provided by Mr Peterkin of rental less outgoings of $72,230 for unit 1 and $76,195 for unit 3, the values adopted by Mr Hepworth for units 1 and 3 imply yields of 8.67 per cent and 9.4 per cent respectively; that is, towards the top or beyond the range of yields indicated in the report. Of course, the higher the yield the lower the capital value. 2. Mr Hepworth gave evidence that Mr Peterkin had suggested that he could provide figures to Mr Hepworth that had been agreed for each unit. He said the reason for that was purely for his own interest in knowing the approximate value of the property to be valued and whether it was in the hundreds of thousands or millions. 3. Prior to organising the valuation Mr Peterkin and Mr Abignano had discussed values for the units that each proposed to keep under the Partition Agreement. By that time four residential units had been sold off the plan. Mr Abignano said that because of the sales of residential units they were familiar with values for the residential units and a question was in regards to the value for the commercial suites. He gave evidence of having had a conversation with Mr Peterkin to the following effect: "Mr Peterkin: We can value the commercial suites using rental yield. Me: That's the easiest but also the fairest way. Mr Peterkin: What yield are you thinking? Me: Probably around 7% net. Mr Peterkin: Let's say 7% - 7.5% Me: I'm looking around for my father at the moment, and nothing is 7.5%. Mr Peterkin: It will be around 7%." 1. A copy of Mr Hepworth's valuation was emailed to Mr Abignano by Ms Hellyar on 30 July 2012. 2. On 22 August 2012 Mr Abignano sent an email to Mr Peterkin listing 13 units (the three commercial units, the eight residential units the subject of the valuation and Partition Agreement, and unit 6, another residential unit) and invited him to fill in the values. Mr Abignano said "I'd like to get these values agreed today if possible." There was no response from Mr Peterkin. On 30 August 2012 Mr Abignano sent an email to Mr Peterkin setting out his proposal for values for each of the commercial suites and all 16 of the residential units, leaving a column for Mr Peterkin to fill in his view of what values should be provided in respect of all of the units. Relevantly to the values that had been set out in Mr Hepworth's valuation Mr Abignano's suggested figures were as follows: Lot No. Type Hepworth Value Abignano Value Commercial 1 $865,000 $1,066,000 Commercial 2 $625,000 $825,000 Commercial 3 $815,000 $1,000,000 Unit 5 2 bed $670,000 $650,000 Unit 7 1 bed $475,000 $480,000 Unit 8 1 bed $475,000 $470,000 Unit 9 1 bed $495,000 $485,000 Unit 12 2 bed $670,000 $660,000 Unit 14 1 bed $485,000 $485,000 Unit 15 1 bed $495,000 $490,000 Unit 16 1 bed $495,000 $490,000 1. Mr Abignano deposed that at a meeting with Mr Peterkin and Mr Elias he expressed concern about Mr Hepworth's valuation. He recalled Mr Elias saying words to the effect that "it is common for valuers conducting valuations for partition purposes to value at the lower end of the market range." He deposed that the meeting at the offices of Mr Elias took place before a draft of the Partition Agreement was prepared, and that there was a conversation where Mr Peterkin said that the reason the valuations were low was because they were prepared for stamp duty purposes. Mr Abignano deposed that he said to Mr Peterkin "there's going to have to be an adjustment (between us) because they're worth more than that", and Mr Peterkin said "yes, but we can adjust that later when we fix up everything else." According to Mr Abignano he said "As long as we're clear on that", and Mr Peterkin said "Of course, don't worry, as if I'm not going to adjust it." Mr Peterkin denied there was any such conversation. 2. A solicitor at Mona Vale who had acted for the partners in preparing contracts for sale of four residential lots, a Mr Brook Worthington, was retained to draft the partition agreement. The agreement is dated 17 September 2012. It was made between Abignano Nominees and Sheripeter and provided as follows: "RECITALS: A. The parties are registered as proprietors as tenants in common in equal shares of the properties in Schedule 1 hereto. B. The parties have agreed to partition the property in the manner set out below. THE PARTIES AGREE: 1. AGREEMENT FOR PARTITION____________________________ Each party will acquire the sole ownership of the following properties:- (a) Abignano – the properties listed in Schedule 2; (b) Sheripeter – the properties listed in Schedule 3. 2. PAYMENTS FOR EQUALITY________________________________ Abignano will pay Sheripeter by way of an equality of partition the sum of $7,500.00. 3. TITLES ACCEPTED________________________________________ Each party will accept the title of the other without requiring any abstract or making any requisition, objection or claim for compensation. 4. COMPLETION AND ASSURANCES_________________________ (a) The partition will be completed as soon as practical; and (b) The parties (and any other necessary parties) will execute all transfers and assurances, and do whatever else is necessary to carry the partition into effect. Any disputes concerning the form of the transfers or assurances, or concerning the acts to be done, will be determined by Brook Worthington, Solicitors ('the Solicitor'):- 5. MARGIN SCHEME________________________________________ In relation to any transfers resulting from this Agreement to Partition, the parties agree that the margin scheme shall apply to the following properties:- (a) All the properties listed in Schedule 2; and (b) To the following properties listed in Schedule 3: (i) Lot 7 in Strata Plan 86771 being Folio Identifier 7/SP86771; and (ii) Lot 16 in Strata Plan 86771 being Folio Identifier 16/SP86771. Reference to 'margin scheme' in this clause is a reference to the margin scheme pursuant to Section 195.1 and Division 75 of A NEW TAX SYSTEM (GOODS AND SERVICES TAX) ACT 1999. 6. CUSTODY OF TITLE DOCUMENTS_________________________ Where title documents relate to land to be taken by different parties, the Solicitor will determine which party is to have custody of those documents. The party will give to the other or others an acknowledgment of right to production and an undertaking for safe custody. 7. COSTS___________________________________________________ All costs of all parties relating to this agreement and the partition to be made under it will be borne by the parties in equal shares. 8. STAMP DUTY______________________________________________ Each party shall be responsible for all or any stamp duty payable in respect of the transfer to the other party. 9. CONDITION_____________________________________________ This Agreement is subject to the obtaining of any necessary approvals. SCHEDULE 1 Lot 5 in Strata Plan 86771 being Folio Identifier 5/SP86771 Lot 7 in Strata Plan 86771 being Folio Identifier 7/SP86771 Lot 8 in Strata Plan 86771 being Folio Identifier 8/SP86771 Lot 9 in Strata Plan 86771 being Folio Identifier 9/SP86771 Lot 12 in Strata Plan 86771 being Folio Identifier 12/SP86771 Lot 14 in Strata Plan 86771 being Folio Identifier 14/SP86771 Lot 15 in Strata Plan 86771 being Folio Identifier 15/SP86771 Lot 16 in Strata Plan 86771 being Folio Identifier 16/SP86771 Lot 1 in Strata Plan 86771 being Folio Identifier 1/SP86772 Lot 2 in Strata Plan 86771 being Folio Identifier 2/SP86772 Lot 3 in Strata Plan 86771 being Folio Identifier 3/SP86772 SCHEDULE 2 Lot 5 in Strata Plan 86771 being Folio Identifier 5/SP86771 Lot 8 in Strata Plan 86771 being Folio Identifier 8/SP86771 Lot 9 in Strata Plan 86771 being Folio Identifier 9/SP86771 Lot 12 in Strata Plan 86771 being Folio Identifier 12/SP86771 Lot 14 in Strata Plan 86771 being Folio Identifier 14/SP86771 Lot 15 in Strata Plan 86771 being Folio Identifier 15/SP86771 SCHEDULE 3 Lot 7 in Strata Plan 86771 being Folio Identifier 7/SP86771 Lot 16 in Strata Plan 86771 being Folio Identifier 16/SP86771 Lot 1 in Strata Plan 86771 being Folio Identifier 1/SP86772 Lot 2 in Strata Plan 86771 being Folio Identifier 2/SP86772 Lot 3 in Strata Plan 86771 being Folio Identifier 3/SP86772" 1. Stamp duty was payable pursuant to s 30 of the Duties Act on the dutiable amount of $7,500. 2. Mr Elias recalled a meeting that he said took place later in 2012 in about October or November, at which issues about the partition were discussed. He gave the following evidence: "Q. What were those issues in relation to the partition? A. Biagio was not happy with the - with the fact that the - the values in the - adopted for the partition - in the valuation that was adopted for the partition were the values that were struck to finalise the partnership accounts, and also, in relation to the GST issues that flowed from the partition. Q. What did he say that leads you to give evidence that he wasn't happy with the values adopted in the partition agreement? A. Clearly, he - he - he was of the view that the - the free market value of the properties that were subject to the valuation were higher than what was stated in the valuation. Q. Was there any response from Mr Peterkin to that? A. Mr Peterkin, at the time, I don't recall if he made a particular response. He probably did. I know that I made a response. Q. And what was that? A. My response was that it was standard practice for valuers when they were engaged to provide valuations for stamp duty purposes, to adopt values at the lower end of the market range. Q. What happened next? A. That didn't appease Mr Abignano at all, so the - that was starting to get a bit heated, he felt like he'd been tricked and my recollection is that to appease the situation Paul said that if there were any differences in market value, that he would square them up with Biagio in the future." In cross-examination Mr Elias said that Mr Abignano thought that the commercial units were undervalued. 1. I accept Mr Abignano's evidence and Mr Elias' evidence that at a meeting with Mr Peterkin, Mr Peterkin did say in substance that the values in the PForm valuation that were used for the purpose of preparation of the Partition Agreement would be adjusted if there were any differences in market value, and I accept that he said that there could be such adjustments later "when we fix up everything else", meaning when there was a final accounting for the partnership venture. What is unclear is whether that discussion took place at a meeting before the Partition Agreement was signed as Mr Abignano deposed or after, as Mr Elias recalled. Mr Elias did not produce any note of the meeting which might have provided a date. I think it more probable that Mr Peterkin gave his assurance before the Partition Agreement was signed and if the only occasion on which he gave the assurance was at the meeting attended by Mr Elias (and that was the only occasion that Mr Abignano identified as the occasion on which the assurance was given), then I think it more probable that the meeting took place before Mr Abignano signed the Partition Agreement. That is because Mr Abignano had already set out his view about the valuations and I do not think he would have signed the Partition Agreement but for Mr Peterkin's assurance. 2. There was a dispute as to whether the Partition Agreement was signed by Mr Abignano on site in the presence of Mr Peterkin and Mr Ray Peterkin, or whether it was signed in Mr Worthington's office. Mr Abignano said it was signed on site. Mr Worthington said it was signed in his office. Nothing turns on the question except insofar as it affects Mr Abignano's credit. I prefer Mr Worthington's evidence and thus I conclude that Mr Abignano was mistaken in his recollection on this detail. That does not materially affect my assessment of his credit on this issue. 3. A matter of particular significance in resolving the factual question as to what was discussed between Mr Peterkin and Mr Abignano is an email sent by Mr Peterkin to Mr Abignano on 1 March 2013. The text of the email simply read "Unit split Mal" ("Mal" being Mr Abignano's nickname). There was an attachment to the email that stated as follows: Units PP BA Received SPAN Received 1 2 $750,000 3 4 $737,500 5 $650,000 6 $650,000 7 $485,000 8 $485,000 9 $510,000 10 $600,000 11 $600,000 12 $652,000 13 $665,000 14 $495,000 15 $510,000 16 $510,000 @8% @7.75% 17 $902,873 $932,000 18 $624,994 $645,000 19 $952,443 _________ $983,000 $4,140,310 $3,952,000 _______ _______ $188,310 $268,000 Commercial Outgoings Areas Rents Total Outgoings Council Water Land tax Body Corp 443 $10,751.00 161 $81,000 $8,770 $1,014 $700 $3,907 $3,149 127 $57,290 $7,290 $989 $700 $3,082 $2,519 155 $85,000 $8,805 $1,014 $700 $3,762 $3,329 1. The following things may be noted about the schedule. First, the four units under the column "SPAN" had been sold by the partners under contracts that had been completed in July and August 2012. ("SPAN" is the name of the partnership.) The unit prices were those recorded in the transfers. That is to say, unit 2 was sold for $750,000, unit 4 was sold for $737,500, unit 10 was sold for $600,000 and unit 11 was sold for $600,000. 2. Secondly, the units listed under the column "BA Received" included the six units that were transferred to Abignano Nominees pursuant to the Partition Agreement (units 5, 8, 9, 12, 14 and 15), and also an additional unit, unit 6. It in fact had been transferred by the partners to third parties on 15 June 2012 (for $650,000 as shown). 3. Thirdly, none of the values attributed to the remaining five residential units that were transferred to Abignano Nominees pursuant to the Partition Agreement and are recorded under the column "BA Received" matched the values given to those units in Mr Hepworth's valuation. Unit 8 was sold by Abignano Nominees on 15 November 2012 for $485,000. Unit 12 was sold on 11 October 2012 for $652,000. Those were the prices used in Mr Peterkin's schedule. 4. Under the column "PP Received" Mr Peterkin listed not only lots 7 and 16, but also lot 13. His column attributed different values to lots 7 and 16, that had been the subject of the Partition Agreement and Mr Hepworth's valuation, from the values contained in the valuation. 5. It was common ground that the units identified as units 17, 18 and 19 were the three commercial lots described as lots 1, 2 and 3 in the valuation. Again, the values put on those units under the column "PP Received" were different from those in the valuation. The values in that column were based on a yield of eight per cent. The effect of the schedule was to show that with the different values attributed to the residential lots, on the assumption of the distribution of lot 6 to Abignano Nominees and lot 13 to Sheripeter and valuing the commercial units based on a yield of eight per cent there would be a difference of $188,310 between the value of the units received by Sheripeter and those received by Abignano Nominees. If the commercial units were valued applying a yield of 7.75 per cent, this difference would increase to $268,000. 6. On its face this email corroborates Mr Abignano's evidence that he and Mr Peterkin had agreed that the values adopted for the purposes of the Partition Agreement would not be determinative of their right to share equally in the net profits and assets of the partnership, and that for the latter purpose, the values would have to be reassessed if not agreed. 7. Mr Peterkin's attempts to explain the email were damaging to his credit. Initially, at least as I understood his evidence (and part of it was obscure, and I think deliberately so in an attempt to obfuscate) Mr Peterkin said that the email was prepared using an existing Excel spreadsheet for the purpose of trying to obtain better terms of a loan from the National Australia Bank in connection with a development that he and Mr Abignano were involved in called Pasadena. He said that he was endeavouring to tell the bank (that is, the National Australia Bank) that lots shown on the schedule were of greater value than shown on the PForm valuation in order to obtain finance. He gave the following evidence: "Q. In an endeavour to obtain to finance from the NAB Bank, you were prepared to put forward values which were higher than the values in the Pform valuation. Correct? A. Yes." 1. This question put by Mr Wells, who appeared for Abignano Nominees, to Mr Peterkin was an attempt to summarise the effect of his previous evidence. Mr Peterkin agreed with that summary. 2. Mr Peterkin accepted that the commercial lots had not been provided as security for the Pasadena loan from the National Australia Bank and he said they had not been offered as security for the Pasadena loan. 3. Mr Abignano gave evidence in reply that demonstrated that Mr Peterkin's attempt to explain the email was false. Mr Abignano exhibited documents that clearly demonstrate that the loan from the National Australia Bank was obtained on 17 December 2012, that is, more than two months before the email. No security was offered to the National Australia Bank over the commercial lots. A company called Altius Pty Ltd ("Altius") was formed to carry out the Pasadena development. Altius lodged a development application with the Pittwater Council on 5 February 2013. As at 1 March 2013 no development consent had been obtained. The development application was refused by the council in October 2013 and a subsequent appeal to the Land and Environment Court was dismissed. No application was made for construction finance at the relevant time. None was in contemplation. Mr Abignano explained in cross-examination that the bank would require pre-sales before providing construction finance. It was only in August 2014 that he and Mr Peterkin looked to refinance the Altius facility with the National Australia Bank to reduce the interest they were paying. That evidence was corroborated by email exchanges in August and September 2014 when there was correspondence with Swina Hardiman of the National Australia Bank in relation to the interest rate that that bank was charging. Initially in his cross-examination Mr Peterkin had said that the reason he sent his email of 1 March 2013 to Mr Abignano was: "because he – his contact and his banker was at NAB and I was trying to work between – my side was ANZ, they were my bankers, and it was a document for a lady called Sweena [Swina] Harman." 1. However, the documents show that such negotiations to attempt to obtain better terms for a loan only took place 18 months after the email. 2. After Mr Abignano had given evidence in reply, I gave leave to Sheripeter to call further evidence from Mr Peterkin. He gave further oral evidence, the substance of which was that in about late February or March 2013 he was in discussions with the ANZ Bank with a view to that bank's refinancing the NAB loan and providing construction finance, and the figures in the email sent to Mr Abignano were figures that had been prepared for the purpose of their being sent to the ANZ Bank in early 2013 to demonstrate the success of the Mona Vale development as part of a pitch for favourable financing terms for the Pasadena development. Although offered the opportunity to do so, Sheripeter did not produce any such figures as may have been supplied to the ANZ Bank and did not lead any evidence from the ANZ Bank. This explanation was inconsistent with the explanation Mr Peterkin originally gave. It was unsupported by any contemporaneous record. It was also inconsistent with the terms of the email itself. The email simply said "Unit split Mal [Mr Abignano]". That shows that the purpose of the email had nothing to do with obtaining better terms for finance for the Pasadena development, but everything to do with the "Unit Split" in the Mona Vale development. 3. The schedule attached to the email referred to the four units that had already been sold by the SPAN partnership in July and August 2012 as well as to other units that had been sold by Abignano Nominees prior to February 2013. This was inconsistent with one of the explanations provided by Mr Peterkin for the email, that it related to an endeavour to obtain better finance from the National Australia Bank. 4. In my view Mr Peterkin was dissembling when attempting to explain the email. His attempted explanation of it adversely affects his credit. 5. I find it disturbing that Mr Hepworth should have stated that his valuation was for stamp duty purposes only and was not to be used for the purposes of the parties' agreeing to prices for the purposes of the partition deed. Clause 2 of the Partition Agreement that provided for Abignano Nominees to pay Sheripeter $7,500 "by way of an equality of partition" was based upon the values contained in Mr Hepworth's valuation. He knew that his valuation was required for the purposes of a partition agreement. Under s 30 of the Duties Act the stamp duty payable depended upon the unencumbered values of the properties in question. If the valuations were done competently and thoroughly there would be no reason why they should not have been fit for adoption by the parties on a final basis. There are many areas where it is expected that a professional owes a higher obligation than simply to advance the interests of a client. In this area, the Office of State Revenue relies upon valuers to act with integrity. If the valuation were not adequate for the purposes of the parties' agreeing on prices on which they would agree to a partition of the units, it was not adequate for stamp duty purposes. Regrettably, the parties, and Mr Hepworth, proceeded otherwise. 6. The question remains whether Abignano Nominees can rely upon the acknowledgment by Mr Peterkin that the values of the units that were the subject of the Partition Agreement would be reconsidered on a final accounting in the face of the Partition Agreement that provided in clause 2 that Abignano Nominees would pay $7,500 to Sheripeter by way of an "equality of partition". As noted above, there is contradictory evidence as to whether the agreement was made before the Partition Agreement was entered into or after, but I think it more likely that it was made before. If that is so, the question is whether, in the absence of any claim for rectification or rescission of the Partition Agreement, Abignano Nominees can rely upon a collateral agreement that the valuations would be reconsidered for the purposes of determining an equality of a share of profits when there is a final accounting. Mr Weaver submitted that such a collateral agreement would be inconsistent with the written agreement that requires Abignano Nominees to pay Sheripeter $7,500 by way of an "equality of partition". He submitted that the alleged collateral agreement could not be relied on as it was inconsistent with the main written agreement (Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133). 7. I am satisfied that the parties did not intend the written Partition Agreement to be a complete record of their agreement. There is no term of the Partition Agreement to that effect. In fact, Sheripeter pleads that the Partition Agreement was entered into by way of performance of what it alleges was a "Distribution Agreement" being an agreement by which the two partners agreed to make a partial distribution of partnership assets in specie by way of partition. The Distribution Agreement was alleged to be partly oral and partly in writing and partly inferred from conduct. Although Sheripeter does not plead that it was a term of the oral Distribution Agreement that the values of the units transferred pursuant to the partnership agreement would be reassessed on a final accounting to ensure an equal distribution of assets, its pleading recognises that the Partition Agreement was not a complete record of the parties' agreement. 8. The oral agreement that I have found was made was not a collateral agreement in the sense that it was entered into in consideration of the parties' entering into the Partition Agreement. Nonetheless it cannot be relied upon by Abignano Nominees if it is inconsistent with the written Partition Agreement in the absence of a claim for rectification of the latter (Hoyt's Pty Ltd v Spencer at 139, 144, 147; B & R Stevens Transport Pty Ltd v Burkitt [2016] NSWCA 259 at [33]-[38]). 9. I do not think there is an inconsistency between the two agreements that precludes Abignano Nominees from relying upon the oral agreement. The parties agreed that in the first instance and for the purposes of calculating the stamp duty that would be payable on the difference between the values of the properties to be transferred to each of them, they would adopt the values in Mr Hepworth's valuation and hence agreed that Abignano Nominees would acknowledge a liability to Sheripeter of $7,500. (That sum has not been paid.) They also agreed that on a final accounting and to ensure an equality of division of partnership assets the values of the units transferred to each of them would be reassessed, if not agreed, by a valuation proper for that purpose, which Mr Hepworth's valuation was not, and a compensating adjustment would be made if the difference in values was not the same difference as in Mr Hepworth's valuations. This was a further agreement but not an inconsistent agreement. The Partition Agreement was to take effect in accordance with its terms, but would not finally determine the issue. 10. If the agreement were not made before or contemporaneously with the entry into the Partition Agreement, but later in 2012 as Mr Elias' evidence would suggest, it would also be binding. In that event, the parties agreed to vary the Partition Agreement. There was consideration for the variation. It is not known who would be favoured by a reassessment of values. It may be that the outcome will be the same, it may be that Abignano Nominees may have to pay more than $7,500 as an equalising payment; it may be that it has to pay less; or Sheripeter may have to make an equalising payment. 11. It was common ground that if Abignano Nominees succeeded on this issue there would have to be a valuation of all of the units that were subject of the Partition Agreement, that is, the eight residential units as well as the three commercial units, and it was common ground that the valuation would need to be struck as at 17 September 2012, being the date on which transfers of the units as tenants in common to the individual partners were executed. 12. My prima facie view is that in determining this aspect of the required accounting for the winding-up of the partnership's affairs a single expert should be appointed, but I will hear the parties' submissions on this question. GST 1. Abignano Nominees' complaint is that GST totalling $209,545 was paid by the partnership on the transfer of the three commercial units to Sheripeter. Sheripeter or a company on its direction advanced the funds to the partnership to enable it to pay the GST. GST was payable on the partition because the supply of the commercial units by the partnership to Sheripeter was a taxable supply. In the partnership records the payment made by Sheripeter or on its direction was recorded as a loan, but Sheripeter has received a full refund. Abignano Nominees contends that to permit Sheripeter to contend that the partnership owes it $209,545 without making any adjustment to take into account that it has received a full refund would permit a double recovery at Abignano Nominees' expense in respect of half of that amount. 2. I do not agree. Sheripeter was entitled to an input tax credit in respect of the GST paid by the partnership because it acquired the commercial units which were a creditable acquisition within the meaning of s 11-5 of the GST Act. Abignano Nominees and Sheripeter would not have been entitled to an input tax credit in respect of the GST paid by the partnership on the partition of the residential units because their acquisition of those units was not for a creditable purpose to the extent that the acquisition related to the making of supplies that would be input taxed (s 11-15). A supply of residential premises to be used predominantly for residential accommodation by way of sale or long-term lease is input taxed (s 40-65 and 40-70). In any event, because the parties agreed that the margin scheme should apply to the supply of the residential units by the partnership to the individual partners, the individual partners were not entitled to an input tax credit on the acquisition of those units (s 75-20). Sheripeter's entitlement to an input tax credit and hence its receipt of a refund arises from the parties' decision that Sheripeter would acquire the commercial units. The tax treatment of the units distributed to the individual partners after that distribution does not affect an assessment of whether profits have been distributed equally. In the same way, there could be no adjustment if capital values or rental returns varied between the commercial and residential units after distribution. Abignano Nominees is not entitled to any adjustment on the taking of accounts in relation to the GST issue it identified. Margin 1. Sheripeter submitted that on the taking of the account Mr Peterkin's company Logic was entitled to a 15 per cent margin which it had agreed to split equally with the partners so that it was entitled to a margin of 7.5 per cent of the cost of construction. It has not hitherto charged that amount. 2. Mr Peterkin gave evidence that before building work commenced he and Mr Abignano had a discussion in which he said words to the effect "Logic will do the building work. It usually charges 15 per cent" and Mr Abignano said that that was fine. He deposed that costs plus 15 per cent was the standard margin applied by Logic generally, including for projects on which Mr Abignano was involved. He deposed that when Logic had been the builder for any projects he and Mr Abignano had done together, Logic had always been provided with services from other companies that Mr Peterkin owned, controlled and managed that both provided labour. He said that the bank, however, regarded him as an owner-builder and would not allow the borrowed moneys to be used to pay a margin. He said that no margin had in fact been charged by Logic. 3. In his oral evidence Mr Peterkin said that on previous developments where Logic had been the builder on the project and had charged costs plus a 15 per cent margin, the margin had been split equally between himself and Mr Abignano. His contention was that on the Mona Vale development he agreed with Mr Abignano that Logic would charge a 15 per cent margin that it would split between itself and the partnership, thus halving the margin to 7.5 per cent. This was different from the claim made in his affidavit as to the margin that Logic was entitled to charge. 4. Mr Weaver for Sheripeter submitted that it would not make sense for Logic to have undertaken the responsibilities of a builder on the project without any profit margin. To do so would be to provide Mr Abignano with an unfair advantage. Whilst it was accepted that Mr Abignano regularly attended the site, Mr Peterkin as Logic's licensee, was the builder. If the partnership had been required to engage an independent builder it would have had to have paid a 15 per cent margin, but as it stood, Logic was prepared to accept a 7.5 per cent margin. 5. The question is not what arrangement for remuneration for Logic would be fair. The question is what arrangement was actually made. Logic did not charge a margin during the time it carried out the construction work. Whether the partnership is indebted to Logic to pay a 15 per cent margin as Mr Peterkin suggests in his affidavit, or a 7.5 per cent margin as he suggested in his oral evidence, depends upon what agreement he, as director of Logic, made with Mr Abignano. Mr Abignano denied the conversation to which Mr Peterkin deposed in his affidavit. Mr Abignano deposed that at a meeting held with Mr Elias, that he thought took place at about the time the Mona Vale property was purchased, Mr Elias asked whether it was intended that Logic would be the builder and if so, whether Logic intended to charge a margin. He said that Mr Peterkin said that Logic would be the builder and would not charge any margin. He said that Mr Elias asked him whether he would be charging the partnership for the time he spent and he said he would not, and that the same question was asked of Mr Peterkin who said he would not charge for his time. 6. I accept Mr Abignano's denial that there was any agreement that entitled Logic to charge a margin. That is so for four reasons. First, I do not consider that Mr Peterkin is a reliable witness. I think Mr Abignano is more credible. Secondly, Mr Peterkin's version is not corroborated. Mr Peterkin said that Logic did not charge a margin, although he said that this was because the bank would not allow construction funding to be applied in payment of a margin. Whilst that explains why the construction funding could not have been used to pay a margin to Logic, it does not explain why Logic did not make a claim on the partners for a margin to be satisfied out of the partners' own funds. Thirdly, according to Mr Peterkin, the arrangement made was not the same as had applied on different developments where, according to Mr Peterkin, Logic charged a 15 per cent margin, but then remitted half of the margin to Mr Abignano. Logic is Mr Peterkin's company. In calculating profits available for distribution, the effect of such an arrangement would be the same as no margin being charged, except that what would otherwise be a profit distributable to Sheripeter would instead be received by Logic as its 7.5 per cent margin. Fourthly, Mr Abignano's evidence that Mr Peterkin said he would not charge a margin was corroborated by evidence given by Mr Elias which I accept. Mr Elias said: "Q. If I were to tell you that there's evidence given that construction commenced in about February 2011, would that help you recall when in 2011 you had the meeting? A. It would have been after that time because the topic of the meeting concerned some of the issues around construction. Q. What were those issues? A. Well, the two issues that were explored, from memory, were the issue of charging a margin on the building costs and the issue of accounting for the partnership. … Q. Who was in attendance at this meeting? A. It would have been myself, Biagio and Paul. Q. What was discussed in relation to the issue you referred to as charging margin? A. There was a bit of differing views there between the two gentlemen. Paul made it very clear that he was entitled to be charging a margin and Biagio made it very clear that that was never his understanding of their agreement, one of the issues being that, from memory, I don't believe their partnership agreement was a formal agreement. I don't think it was documented. Q. Was the difference that those two gentlemen had in relation to the entitlement to charge a margin something that was resolved or further discussed? A. I believe it was resolved because I clearly recall Paul waiving his right to charge the margin. … A. The reason I recall it, cause I remember making the comment that that was an extremely generous offer and quite unusual, to tell the truth. Paul is known for being quite careful with his financial affairs, so I remember making the comment that it was very generous under the circumstances." 1. For these reasons I reject Sheripeter's contention that on the taking of the account the partnership liabilities should include a liability to pay a margin to Logic. Conclusion 1. For these reasons I conclude that the parties are entitled to simple interest of seven per cent on advances made by them or by other parties on their direction, and that their payments of expenses incurred in connection with the building works, marketing and sales and associated matters are to be treated as advances and not capital contributions. On the evidence adduced before me the only capital contributions were the payments made for purchase of the property. The referee should proceed accordingly. 2. I also conclude that on the final accounting the values of the units distributed in specie should be determined according to the market value as at 17 September 2012 and that the valuations used for the purposes of the Partition Agreement are not determinative of that question. The cross-claim should be dismissed. 3. Three is to be no adjustment for the fact that Sheripeter has received a refund of the GST paid by the partnership on the supply of the commercial units to Sheripeter. 4. Sheripeter is not entitled to a credit of 3.75 per cent on construction costs and the account should not recognise a liability of the partnership to Logic for a margin on construction costs. 5. There is no dispute that the partnership has dissolved. Abignano Nominees pleaded that the partnership was a partnership at will. I do not accept that that is so. It was a partnership for the particular venture, but as that venture has been completed the partnership has been dissolved. It was dissolved when the sale of the last unit was completed. It is common ground that orders should be made for the taking of an account. 6. I direct the plaintiff to bring in short minutes of order in relation to the taking of the account in accordance with these reasons. The proceedings should be referred to a referee for the purposes of taking the account in accordance with these reasons. As indicated above, I will hear from the parties as to whether a single expert should be appointed to value the assets that were transferred to the individual partners on 17 September 2012 and otherwise in relation to any procedural directions that might be required to facilitate the obtaining of market values of the residential and commercial units as at that date, or the preparation of an account. I will also 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: 30 September 2016