Supreme Court New South Wales Medium Neutral Citation: Hungerford v Richardson [2018] NSWSC 1543 Hearing dates: 6 August 2018 Date of orders: 16 October 2018 Decision date: 16 October 2018 Jurisdiction: Equity Before: Ward CJ in Eq Decision: (1) Certify that the amount payable by the first defendant to the plaintiff upon dissolution of their partnership was $704,263.91. (2) Give judgment that the first defendant pay the plaintiff the sum of $704,263.91. (3) Order that the costs of the taking of accounts and the hearing before Ward CJ in Eq be borne by the parties as to 40% by the plaintiff and as to 60% by the first defendant (and in the first instance out of any remaining partnership assets). Catchwords: PARTNERSHIPS AND JOINT VENTURES – dissolution and winding up – taking of accounts – surcharges Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Limitation Act 1969 (NSW), s 14 Partnership Act 1890, 53 & 54 Vict, c 39, s 44 Partnership Act 1892 (NSW), ss 20(1), 24(1), 44 Property, Stock and Business Agents Act 2002 (NSW) Uniform Civil Procedure Rules 2005 (NSW), rr 42.1, 46.7, 46.8 Cases Cited: Behm v Bartels (1988) 14 NSWLR 432 Brown v De Tastet (1821) Jac 284; 37 ER 858 Cavasinni v Cavasinni [2007] NSWSC 619 Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36 Eastlake v Eastlake [2015] NSWSC 1772 Gray v BNY Trust Company of Australia Ltd [2009] NSWSC 789 Hamer v Giles; Giles v Hamer (1879) 11 Ch D 942 Hungerford (by his tutor Ahadizadeh) v Richardson [2017] NSWSC 297 Hurst v Bryk [2002] 1 AC 185 James v Greenwood (1871) 2 AJR 14 Obol Pty Ltd v Gregory Fisk [2007] NSWSC 912 Pit v Cholmondeley (1754) 2 Ves Sen 565; 28 ER 360 Queensland Trustees Ltd v Fawckner [1964] Qd R 153 Texts Cited: Fletcher, The Law of Partnership in Australia (Lawbook Co, 9th edn, 2007) I'Anson Banks (ed), Lindley & Banks on Partnership (Thomson Reuters, 20th edn, 2017) Nevill & Ashe, Equity Proceedings with Precedents (NSW) (Butterworths, 1981) Ritchie's Uniform Civil Procedure NSW Category: Principal judgment Parties: Adrian Derek Hungerford by his tutor Kambiz Ahadizadeh (Plaintiff) Deborah Anne Richardson (First Defendant) Endjade Pty Ltd (Second Defendant) Graeme Robert McDougall (Third Defendant) Representation: Counsel: G R Waugh SC (Plaintiff) D A Richardson (Self-represented) Solicitors: Fordham Lawyers (Plaintiff) File Number(s): 2015/00319124 Publication restriction: Nil Judgment 1. HER HONOUR: In this matter, Lindsay J made orders on 31 March 2017 including for the winding up of a partnership between the plaintiff (Mr Adrian Hungerford), who is represented by his tutor (Mr Kambiz Ahadizadeh), and the first defendant (Ms Deborah Richardson) and, relevantly, for the taking of accounts on the winding up of the partnership. The matter came before me for hearing on 6 August 2018 for the taking of those final accounts. The partnership in question related to the operation of a real estate agency. Mr Ahadizadeh had been appointed, on 18 February 2013, as manager of his estate pursuant to a financial management order made by the then Guardianship Tribunal. 2. At the hearing before me, the first defendant did not have legal representation, although solicitors had been acting for her up until relatively shortly before the hearing. Although she had filed affidavits on which she relied in relation to the taking of accounts, her position (quite candidly) was that she did not want to waste the Court's time; that she left it to the Court to decide; and that whatever decision was made was immaterial as "there is no money" (see T 14.26ff). Background 1. The background to the taking of accounts can best be summarised by reference to the findings made by Lindsay J in the principal proceedings (Hungerford (by his tutor Ahadizadeh) v Richardson [2017] NSWSC 297). Those proceedings were commenced by statement of claim filed on 30 October 2015. An amended statement of claim was filed on 11 November 2015. The defendants filed a defence to the amended statement of claim on 14 January 2016 and the matter was heard by Lindsay J over 3 days commencing on 13 March 2017. 2. His Honour noted (at [1]) that the two former partners agreed upon the existence and duration of their partnership, and upon a need for partnership accounts to be taken under the supervision of the Court, but they disagreed as to the character of the business of the partnership and the ownership of property used by the partnership in the course of its business. There was no written partnership agreement, his Honour noting (at [2]) that the agreement to establish the partnership was entirely oral, "confirmed in large measure by a course of dealing characterised by a consistent division of profits during the currency of the partnership" but "arguably silent about the division of property upon dissolution of the partnership". 3. Lindsay J (at [4]) identified the core question for determination as being whether, at the time of dissolution of the partnership (which his Honour declared was on the completion of the sale of the real estate business on 20 October 2011 – see order 1 of the orders made on 31 March 2017), the rent roll of the real estate business operated from premises in Kirribilli, between early 2001 and October 2011 or thereabouts, under the trading name "Deborah Richardson Real Estate", was beneficially owned by the plaintiff and first defendant as partners (as the plaintiff contended) or by the second defendant (the corporate vehicle of the first defendant), (as the defendants contended). The second defendant (Endjade Pty Ltd) was the holder of the licence under the Property, Stock and Business Agents Act 2002 (NSW) pursuant to which the defendants contended that the real estate business was then conducted. 4. At [5], his Honour noted his understanding that there was no dispute between the parties as to their respective shares of partnership property and income (both profits and losses on the income account and property on the capital account to be shared 40% as to the plaintiff and 60% as to the first defendant); rather, what was at issue was "whether the rent roll is presently to be brought to account as part of the property of the partnership, divisible in those shares [i.e., 40/60], or retained by the first defendant without division". 5. His Honour concluded (at [77]) that the rent roll was property of the partnership and that it was to be accounted for as such in the process of taking accounts of the partnership. His Honour made a declaration accordingly (see order 6 made on 31 March 2017), in the following terms: 6. DECLARE that the rent roll the subject of the contract for sale of business dated 15 August 2011 made between the second defendant as vendor and Burling Realty Commercial Residential Sales Pty Limited as purchaser ("the rent roll"), and the proceeds of sale of the rent roll, comprised property of the partnership between the plaintiff and the first defendant, to which partnership the defendants are liable to account for same. 1. At [20], Lindsay J noted that, whatever the correct characterisation of the partnership business, it was agreed that the plaintiff (an accountant by profession) was a "silent partner", whose contribution was financial, and that the contribution of the first defendant (through the second defendant, of which she is and was at all material times the sole shareholder and director) was the provision of the requisite licences and the day-to-day management of the business. 2. His Honour found (at [80]) that when the first defendant sold the rent roll and appropriated the proceeds of sale for the personal benefit of herself and the third defendant (Mr Graeme McDougall), without the fully informed consent of the plaintiff or other authority, she not only caused the partnership to be dissolved by termination of the partnership venture but she also acted in breach of fiduciary obligations she continued to owe to the plaintiff as her former partner, pending winding-up of the partnership; and that a constructive trust attached to her receipt and application of the proceeds of sale, in aid of her obligation to account to the plaintiff (citing Chan v Zacharia (1984) 154 CLR 178 at 199, 204-205; [1984] HCA 36). 3. Lindsay J held that certain land at Broke (which had been acquired in the names of the first and third defendants) was held on trust for the partners pending the taking of accounts (having been acquired with partnership property – see [84] – in breach of the first defendant's fiduciary obligations to the plaintiff and in circumstances where the third defendant could not be characterised as, and did not claim to be, a bona fide purchaser for value without notice of the plaintiff's equitable interest) (see at [81]). 4. His Honour ordered that accounts be taken in the winding-up of the partnership (order 3 made on 31 March 2017) but reserved for consideration, pending the conduct of a mediation, all questions relating to the conduct of the process of taking accounts (order 4 made on 31 March 2017). It appears that such a mediation took place in or about September 2017. I infer that it was unsuccessful in resolving the dispute. 5. On 9 October 2017, Lindsay J, among other orders, made by consent orders reflecting that the parties had agreed that the Financial Statements for the year ended 30 June 2012 in respect of the partnership prepared by Mr Bruno Ivan, Chartered Accountant, were to form the basis for the taking of accounts in the winding-up of the partnership; and that those Financial Statements (a copy of which were annexure B to an affidavit dated 25 September 2017 of Mr Ahadizadeh) (CB 104) were prepared by Mr Ivan based on records retained by him and provided to him by the first defendant. His Honour granted the plaintiff leave to proceed under the judgment of the Court that accounts be taken in the winding up of the partnership between the plaintiff and the first defendant, being the partnership referred to in the Court's declaration made on 31 March 2017. 6. His Honour ordered that the said Financial Statements form the basis for the taking of accounts in the winding up of the partnership; and made directions for the service by the plaintiff and the first defendant on each other of a schedule of their surcharges, falsifications and objections to the Financial Statements, with brief particulars thereof, by no later than 6 November 2017 and for each to reply to the other party's schedule by no later than 27 November 2017. Evidence on the taking of the partnership accounts 1. In accordance with Lindsay J's directions, schedules of surcharges (the plaintiff's at CB 21-23; the first defendant's at CB 186-190) and affidavits in support thereof were exchanged by the parties. The plaintiff filed three affidavits sworn by Kambiz Ahadizadeh (affidavits dated 5 February 2018, 6 February 2018 and 5 March 2018, respectively). The first defendant filed three affidavits, two affidavits sworn by her (on 20 February 2018 and 6 March 2018, respectively) and one affidavit sworn 20 February 2018 by the third defendant, Mr McDougall. There was no objection by the first defendant to any of the plaintiff's affidavit evidence. There were some objections to the evidence sought to be relied upon by the first defendant, on which I made rulings at the commencement of the hearing as recorded in the transcript. 2. A combined schedule was filed (headed "Statement of Particulars") on 12 March 2018, combining into one document the surcharges claimed by each of the respective parties (there being no falsifications raised by either side). In these reasons, reference will be made to the claimed surcharges by reference to the item numbers in that combined schedule. The Financial Statements for the year ended 30 June 2012, on which the taking of accounts is to be based, are at CB 107-119. Applicable principles 1. The method of taking a partnership account under a judgment in the usual form is summarised in Lindley & Banks on Partnership (Thomson Reuters, 20th edn, 2017) at [23-125] (Lindley & Banks) as follows: (1) Ascertain how the firm stands as regards non-partners. (2) Ascertain what each partner is entitled to charge in account with his co-partners; remembering, in the words of Lord Hardwicke, that 'each is entitled to be allowed as against the other, everything he has advanced or brought in as a partnership transaction, and to charge the other in the account with what that other has not brought in, or has taken out more than he ought.' (3) Apportion between the partners all profits to be divided or losses to be made good; and ascertain what, if anything, each partner must pay to the others in order that all cross-claims may be settled. [Footnotes omitted.] 1. It is necessary to identify and distinguish between partnership property (partnership property being defined, in the context of an unincorporated partnership, in s 20(1) of the Partnership Act 1892 (NSW)) and separate property of the partners; between joint debts and separate debts; and between those profits and losses which are to be credited or debited to all the partners and those which are only to be credited or debited to one or more of them to the exclusion of the others (see Lindley & Banks at [23-125]). As to joint debts, the Partnership Act s 5(1) sets out the circumstances in which the actions of a partner will bind the partnership (or, put another way, the actions of a partner which will result in the accrual of partnership debt, as opposed to separate debt). 2. It is recognised that where detailed accounts have been prepared by competent accountants they would normally form the basis for any further accounts and enquiries (Hurst v Bryk [2002] 1 AC 185 at 192 per Lord Millett; Obol Pty Ltd v Gregory Fisk [2007] NSWSC 912 at [3] where Brereton J, as his Honour then was, adopted this approach and used accounts prepared by an accountant as a starting point in taking the accounts). In the present case, as already noted, orders were made by Lindsay J as to the use of the Financial Statements prepared by Mr Ivan as the basis for the taking of the accounts. 3. On being presented with accounts (regardless of whether they are accounts provided by an accountant or an accounting party), any partner has the right to surcharge or falsify those accounts (Uniform Civil Procedure Rules 2005 (NSW) r 46.7 (UCPR)); Cavasinni v Cavasinni [2007] NSWSC 619 at [24] per Young CJ in Eq, as his Honour then was; Eastlake v Eastlake [2015] NSWSC 1772 at [49] (Young AJA). Rule 46.7 provides as follows: 46.7 Account: notice of charge or error (1) If a party seeks to charge an accounting party with an amount beyond that in respect of which the accounting party by his or her account admits receipt, he or she must give to the accounting party notice of the charge, stating, so far as he or she is able, the amount that he or she seeks to charge, with brief particulars. (2) If a party alleges that any item in the account of an accounting party is erroneous in amount or otherwise, he or she must give to the accounting party notice of the allegation, stating the grounds for alleging the error. 1. The practice is to call the charge referred to in r 46.7(1) a surcharge and that referred to in r 46.7(2) a falsification (Ritchie's Uniform Civil Procedure NSW at [r 46.7]). A surcharge is a statement that there is an omission in the account for which credit ought to be given to a party. A falsification (of which as already noted there are none in the present case) alleges that a charge has been wrongly inserted, such as an allegation that a sum said to have been paid was either not paid, or improperly paid. Both surcharges and falsifications may be based on matters of fact or law (Pit v Cholmondeley (1754) 2 Ves Sen 565; 28 ER 360; Cavasinni v Cavasinni at [24] per Young CJ in Eq; Eastlake v Eastlake at [49] per Young AJA; Ritchie's Uniform Civil Procedure NSW at [r 46.7]). Unlike the position with respect to a falsification (where the onus is on the accounting party), the party who claims a surcharge has the onus of proving it (see the authorities cited above). 2. No form of notice of a surcharge or falsification is prescribed in the Rules. However, there is an appropriate form in Precedent 3(11) in Nevill & Ashe, Equity Proceedings with Precedents (NSW) (Butterworths, 1981) (Nevill & Ashe); and see Gray v BNY Trust Company of Australia Ltd [2009] NSWSC 789 at [14]-[15] per Bergin CJ in Eq; Ritchie's Uniform Civil Procedure NSW at [r 46.7]. 3. Where a surcharge (or falsification) is claimed, and cannot be agreed upon between the parties, the validity of the challenge will be determined by the Court, having regard to the evidence. It is relevant to note in this context s 24(1), Rule (2) of the Partnership Act, which provides for indemnification of "every partner in respect of payments made and personal liabilities incurred by the partner: (a) In the ordinary and proper conduct of the business of the firm [i.e., partnership], or, (b) In or about anything necessarily done for the preservation of the business or property of the firm". Section 24(2) gives rise to the right of each partner to claim from one another an indemnity for the other partner's share of debts that they have paid in relation to the partnership's affairs. 4. In taking an account, all "just allowances" are to be made (UCPR r 46.8). The circumstances of each case will determine the nature of just allowances (see Brown v De Tastet (1821) Jac 284 at 294; 37 ER 858; Ritchie's Uniform Civil Procedure NSW at [r 46.8]). The editors of Lindley & Banks note (at [23-126]) that just allowances will be made in taking the account even where the order is silent on the point, noting that Lord Lindley pointed out that: … when a partnership account is ordered, it is not usual for the Court to determine beforehand what are, and what are not, just allowances. That is determined on taking the account; and, if necessary, the order will direct the [Master] to state the facts and reasons upon which he shall adjudge any allowances to be just allowances. [Footnotes omitted.] 1. The editors go on to say that: In order to identify what allowances ought to be made, regard must be had to the terms of the partnership agreement and the principles noticed earlier in this work. Thus, the court cannot, under the guise of a just allowance, award remuneration to a partner, when he has no right thereto under the Partnership Act 1890. However, in Barber v Rasco International Ltd [[2012] EWHC 269 (QB)], a payment of a "management allowance" prior to dissolution was, in principle, accepted, but only within the parameters contemplated by the partnership agreement. Nor can a party bring in a substantive claim which falls outside the scope of the account which has been ordered, merely by seeking to treat it as a just allowance. Interestingly, in Emerson v Estate of Emerson [[2004] 1 BCLC 575 (CA)], an allowance was made in respect of a loss incurred by the surviving partner in carrying on the business following the death of his partner. The court's attitude towards the availability and/or the amount of the allowance may, however, change if the partner seeking it has acted in breach of his fiduciary duties. [Footnotes omitted.] 1. Taking the account will ordinarily result in an order from the Court that one or more of the partners will pay whatever is due from them to the other partners. 2. In the absence of a written partnership agreement, s 44 of the Partnership Act, which sets out the rules that govern the final settlement of partnership accounts, will apply. In Hurst v Bryk, Lord Millett observed (at 198), of the cognate provision in the English legislation (Partnership Act 1890, 53 & 54 Vict c 39, s 44), that it "is designed to ensure that, as between the partners themselves, any surplus is shared and any deficit is ultimately borne by the partners in the appropriate proportions". If a partner is obliged to pay more than his or her proper share of the firm's liabilities, s 44 entitles him or her to be reimbursed the excess. 3. Section 44 provides: 44 Rule for distribution of assets on final settlement of accounts In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed: (a) Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits. (b) The assets of the firm, including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order: 1 In paying the debts and liabilities of the firm to persons who are not partners therein. 2 In paying to each partner ratably what is due by the firm to the partner for advances as distinguished from capital. 3 In paying to each partner ratably what is due from the firm to the partner in respect of capital. 4 The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible. Starting point – the Financial Statements 1. The Financial Statements for the year ended 30 June 2012 (CB 107-119), which are the starting point for the present exercise, record the proprietors' funds as being as follows: A D Hungerford (the plaintiff), in a positive amount – $845,596.35; D A Richardson (the first defendant), in a negative amount – $(785,402.46). The components leading to those figures are set out in the Partners' Profit Distribution Summary (CB 114). Those components include the proceeds of the sale of the rent roll (attributing to the plaintiff a 40% share in the sum of $762,398.38 and to the first defendant a 60% share in the sum of $1,143,597.57). 2. Thus, on the Financial Statements prepared by Mr Ivan, as at 30 June 2012 the plaintiff had a positive share of proprietors' funds in the amount of $845,596.35, while the first defendant's share was in the negative in the amount of $785,402.46. The plaintiff points out that this can be described in a number of ways: adopting the terminology of s 44 of the Partnership Act, that the plaintiff had effectively advanced $845,596.35 to the partnership while the first defendant had a deficiency of capital in the sum of $785,402.46; paraphrasing Brereton J in Obol Pty Ltd v Gregory Fisk (at [34]), that the first defendant is a debtor to the partnership in the sum of $785,402.46; or, in the language of Lindley & Banks, that the first defendant has taken out more from the partnership than she ought. 3. The plaintiff submits therefore that the starting point is that the first defendant should make good her deficiency of capital by paying $785,402.46, which would bring her share of proprietors' funds back to zero; and that that sum should be paid to him, which would reduce the amount due to him for advances to the partnership by the equivalent amount. In other words, it is said that, if no other adjustments were made to the accounts, the result would be that the Court would certify that the amount payable by the first defendant to the plaintiff upon the dissolution of their partnership was $785,402.46 and give judgment in favour of the first defendant in that amount (see Obol Pty Ltd v Gregory Fisk at [48]; c.f., Nevill & Ashe at p 232). Plaintiff's Claimed Surcharges Item 1 1. The first of the surcharges claimed by the plaintiff relates to a claimed capital contribution to the partnership from the plaintiff's share of the proceeds of sale of a property in North Sydney. The amount claimed is $82,588.97. 2. In the combined schedule (which incorporates the first defendant's schedule prepared at a time when she did have legal representation), the first defendant's response to this is to say that this is not part of the partnership accounts or the judgment obtained against the defendants. It is said that if this is a deemed partnership asset (which is denied), that amount does not take into account sales, legal costs, commission, mortgage payments, council rates, levy payment, and capital expenditure paid by the first defendant in excess of $140,000. 3. It was accepted by both sides that the property in question was one that was owned by the plaintiff and the first defendant as a private investment and not as part of the partnership (see T 20.3; T 21.31-34; and the affidavit of Ms Richardson sworn 6 March 2018 at [4]-[5]). In evidence there was the coversheet of a standard form contract for the sale of that property to a third party for the sum of $535,000. The vendor's agent is shown as "Deborah Richardson Real Estate" (the real estate agency that the first defendant was operating, through the second defendant, for the benefit of the partnership). 4. Mr Ahadizadeh's evidence (in his affidavit of 5 February 2018) is that the property was purchased on 28 June 2001 for $181,020 with funds provided by the plaintiff and a mortgage provider (see [1]). Mr Ahadizadeh deposes that the property was rented through the business of the partnership, with the income from the rental applied to mortgage repayments and other expenses. Annexed to his affidavit is a personal tax return of the plaintiff for the year ending 30 June 2011, which records rental income received in respect of the property over that year as $9026 and total expenses (including interest on loan/s) as $16,630 (CB 14). 5. An adjustment sheet prepared for settlement on 4 August 2011 (CB 18) lists the amount due on settlement (taking into account, among other things a deposit of $53,500) as being $482,489.52; and the cheque details include, after cheques payable to entities such as the Council, Owners Corporation, Sydney Water, the vendor's solicitors and two Perpetual Trustee entities (presumably, mortgagees), a bank cheque in favour of "Deborah Richardson Real Estate Trust Account" for $111,677.94. Taking into account the deposit, the total proceeds of sale were thus $165,177.94. 6. The amount claimed in the combined schedule is $82,588.97 (that is, a half share of the total proceeds of sale). Counsel for the plaintiff submits that the plaintiff is entitled to the whole of that amount or, alternatively, 60% of that amount. Although it is accepted that this was a private investment and not partnership property, the claim is made on the basis that the proceeds of sale were paid into the trust account of the real estate agency and either became partnership property or were used separately by the first defendant (T 20.37). 7. If the plaintiff's half share of the proceeds of sale of the property was taken to have been used in the partnership business to pay the debts of the partnership (though the actual use of the funds is not clear), the plaintiff says that at the very least, since his share in the partnership was 40%, then if he is taken as having paid partnership debts of which the first defendant should have paid 60%, he would be entitled to recover 60% of that amount from her. However, the plaintiff's primary submission is that the whole of his half share of the proceeds of sale of the property was advanced by him to the partnership and he is entitled to a credit for that advance in full. 8. Reliance is placed by the plaintiff on an email dated 8 September 2017 from the accountant who prepared the Financial Statements (Mr Bruno Ivan) to the plaintiff's instructing solicitor (CB 19), in which Mr Ivan confirmed the total proceeds of sale. In that email, Mr Ivan referred to the first defendant having "confirmed that she used the monies for personal and partnership expenses". Mr Ivan was unable to confirm what happened to the funds that went to the trust account or to the first defendant from the sale; said he was not able to find any agents' costs related to the sale "that Deborah may have been entitled to"; and said that he was waiting for supporting documentation to confirm the claim that the first defendant paid for property costs for the North Sydney property "from her own resources". He stated that he was "unsure that Mr Hungerford's share of $82,588.97 for the proceeds is a true reflection of the amount to be recovered". 9. The first defendant's position in relation to this item (see her affidavit sworn 6 March 2018 at [4]-[5]) was that this property "did not form part of the partnership accounts and was not at any time partnership property" and that the property was owned by the plaintiff and her as tenants in common in equal shares and was bought as a private investment. The first defendant (who as noted above) did have the benefit of legal advice at the time her affidavits were prepared – her solicitors only ceasing to act around 10 days or so before the hearing of the matter by me), does not in her 6 March 2018 affidavit (which she expressly states is in response to the affidavits of Mr Ahadizadeh sworn 5 and 6 February 2018) put in issue what Mr Ivan had said in his September 2017 email as to her having confirmed that the proceeds were used to pay personal and partnership expenses. 10. The net proceeds of sale in respect of this North Sydney property have not been separately accounted for as part of the partnership assets in the Financial Statements. 11. The most that can be taken from the evidence is that a payment of $111,677.94 was paid into the real estate trust account (and by inference, that the deposit was also paid into that trust account). If the plaintiff and the first defendant owned the property (as the first defendant deposes) as tenants in common in equal shares, then absent any other arrangement one would assume that the net proceeds of sale would be payable 50/50. 12. In oral submissions, the first defendant's response to this claimed surcharge was as follows (T 23.16ff): FIRST DEFENDANT: Mr Hungerford was entitled to 50 per cent of the balance of the sale proceeds after my contributions over the length of ownership of the unit was taken into account. It was the understanding between us that I would rent the unit out, the income would come in, and whatever shortfall there was between rental income and outgoings, and any capital expenditure I made on that unit, would be taken into account when it was sold. For instance, I had the unit repainted. I had a new kitchen put in. I had the floorboards polished. I put a new hot water system in. I paid the mortgage top‑up when there was not enough rent. I paid council rates, water rates and levies when there was not enough rent to cover them, on top of the mortgage payments. So, there has to be an accounting, to take into account all of those bills that I paid. Mr Hungerford is entitled to 50 per cent of the sale proceeds less my contributions. [my emphasis] 1. There was no evidence as to the amounts that the first defendant says that she personally spent on that property. The first defendant explained this by reference to the fact that this was not partnership property and "was nothing to do with the taking of partnership accounts" (T 23.33). 2. The first defendant accepted that there was only one trust account that she operated, saying that this was Endjade's trust account and that the proceeds of sale went into that account (Endjade Pty Ltd trading as Deborah Richardson Real Estate). She accepted that the Endjade trust account was the account through which partnership moneys were deposited and disbursed. However, her position was that this trust account was not a partnership account as such; rather, she said that partnership funds were held in a partnership bank account in the names of "D A Richardson and A D Hungerford", which was a general account from which the day‑to‑day running expenses were paid (T 23-24). 3. In response to this, the plaintiff pointed to the findings of Lindsay J that Endjade Pty Ltd was the corporate vehicle through which the partnership operated and that the licensed real estate agency business was operated on behalf of the partnership through that entity; and to his Honour's reference to the business records in evidence (see his Honour's judgment at [36]ff), noting that the contract of sale in respect of the rent roll was entered into by Endjade Pty Ltd as vendor (at [21]). The plaintiff submits that the second defendant was the corporate vehicle which operated the trust account for the real estate agency business and hence that the proceeds of sale went through its accounts. 4. I accept that the evidence (in particular the settlement adjustment sheet) supports the plaintiff's assertion that the net proceeds of sale were paid by a cheque drawn in favour of the plaintiff and the first defendant and deposited into the trust account of the real estate agency business. The first defendant does not dispute this. 5. On the basis that the net proceeds of sale were paid into the trust account that was operated for the partnership business, and in the absence of anything to show that these funds were (or were properly to be) accounted for as the personal assets of either the plaintiff or the first defendant, I consider that the net proceeds of sale should properly be treated as a notional contribution by each of the plaintiff and the first defendant to the partnership assets of their respective half share of those net proceeds – i.e., a contribution by each of them in the sum of $82,588.97. In other words, the positive contribution to proprietors' funds would be increased in the plaintiff's case by that amount and the negative contribution to proprietors' funds in the first defendant's case would be reduced by that amount. 6. It is impossible, in the absence of any evidence, to make any allowance for amounts that the first defendant says she personally expended over the years in relation to what both sides accept was a private investment. However, as noted, the partnership accounts should treat her half share of the net proceeds as a notional contribution by her to the partnership (thus reducing the negative balance shown in the accounts as her share of the proprietors' funds). 7. Thus the claimed surcharge in item 1 of the plaintiff's surcharges has been established in the amount of $82,588.97 (but an appropriate credit must also be made in respect of the notional contribution by the first defendant). Item 2 1. The second claimed surcharge by the plaintiff is an amount in respect of expenses of the partnership said to have been paid for with the plaintiff's personal NAB credit card. Although in the plaintiff's schedule (and the combined schedule) the amount claimed was $11,000, this was corrected in oral submissions. What the plaintiff in fact claims is 60% of the amounts he personally paid in relation to the expenses of the partnership (i.e., $6,600). 2. This claim is dealt with in Mr Ahadizadeh's first affidavit of 5 February 2018 from [11]ff. In summary, on 11 June 2013, the plaintiff received a demand from Recoveries Corporation Pty Ltd acting on behalf of the National Australia Bank for repayment of a credit card debt in the amount of $17,187.45 (see CB 24). Annexed to Mr Ahadizadeh's affidavit (from CB 25ff) are copies of bank statements showing transactions charged to the credit card. 3. Mr Ahadizadeh deposes (at [13]) to his understanding that this credit card was used by both the plaintiff and the first defendant for the payment of business and personal expenses noting that the credit card statement (covering a period when the plaintiff was hospitalised) records various transactions; and deposes at [14] to his understanding that expenses charged to the credit card were treated as partnership expenses and paid for by the partnership. 4. Mr Ahadizadeh deposes that the total amount owing on this credit card was settled by the plaintiff with the issuing bank for $11,000 and paid out by the plaintiff from his personal funds (referring to a letter from Recoveries Corporation confirming settlement of the debt for that amount – CB 51). 5. The first defendant did not challenge Mr Ahadizadeh's understanding that the credit card was used by both the plaintiff and herself. Her response, as noted on the combined schedule, was that the credit card debt was settled for $7,000 (which is inconsistent with the documentary evidence) and that: In any event, the Plaintiff used his credit card for his own personal use. This included the purchase of wine at Royal Yacht Squadron, food and dinners etc. The amount claimed does not represent expenses of the partnership actually paid by the Plaintiff. 1. In the course of argument, the first defendant accepted that expenses incurred on the credit card when the plaintiff was in hospital must have been expenses that were charged to the card by her own use of the credit card (T 27.4-7). As to her statement that the debt on the credit card was settled for $7,000, this was simply an assertion. The first defendant appeared ultimately to accept that $11,000 was "probably what it was settled for" (T 27.21). The first defendant accepted that the credit card was used both for personal expenses and for partnership expenses and did not suggest that she had made any attempt to go through the credit card statements in order to ascertain which amounts she asserted were referable to the plaintiff's personal use. 2. I find that this claimed surcharge has been established in the amount of $6,600, being 60% of $11,000. Item 3 1. The third amount claimed by the plaintiff as a surcharge related to partnership tax liabilities to the Australian Tax Office (ATO) (for GST and PAYG withholding tax) which it is said were met by the plaintiff from a personal income tax refund due to him which was retained and applied to those liabilities by the ATO (see CB 52-55). 2. Mr Ahadizadeh deposed in his 5 February 2018 affidavit (at [17]) to notification that the plaintiff had received from the ATO on 10 May 2017 as to the application of an amount (said by Mr Ahadizadeh to be $9,225.00 but in oral submissions – by reference to the evidence at CB 55 – to be $9,262.03). Mr Ahadizadeh has deposed that the tax refund to which the plaintiff was entitled was due solely to his personal business activities, unrelated to the partnership business (see [19]-[20]). 3. There appears to be no dispute but that the sum of $9,262.03 was applied as a credit offset by the ATO to the "integrated client account" (which I infer relates to the partnership account, having regard to the communication received by the parties from Mr Ivan - see CB 56-57). 4. Insofar as the plaintiff's personal tax refund was offset against a partnership liability (for which he would have borne 40%), he would be entitled to a credit for 60% of the amount i.e., $5,557.22. 5. Mr Ivan appears not to have included that in the accounting exercise he carried out on the basis that the first defendant had contributed "at least her share to the debt" and hence he considered that this would have cancelled out the claim. An email from Mr Ivan dated 8 September 2017 (CB 56) stated that the plaintiff's refund was $9,262.03 and the first defendant's refunds totalled $16,767, which he said "represents around $1,200 more than her share". 6. The first defendant's position was that she has paid and continues to make tax payments to the ATO from tax taken from the defendants' PAYG and earnings and that tax refunds are due to her and not the plaintiff. In oral argument, the first defendant said "Yes. The Tax Office has hit me as well for personal tax refunds to me, and will continue, as I'm working a PAYG job as well. So, yes" (T 28.16-17). 7. In circumstances where Mr Ivan has, in his email correspondence, confirmed that the amount of the claimed offset was applied to the partnership debts, the plaintiff should have credit for 60% of that amount ($5,557.22) but, consistently with that, the first defendant should in turn have credit for 40% of the amounts offset from her personal tax refunds to the partnership debts (i.e., 40% of the $16,767 figure that Mr Ivan confirmed in his email). This is the finding I make in relation to item 6 of the first defendant's claimed surcharges, to which I will come in due course. Item 3 of plaintiff's claimed surcharge is thus established in the amount of $5,557.22. Item 4 1. Item 4 of the plaintiff's claimed surcharges was not pressed. Item 5 1. The final item claimed by the plaintiff by way of surcharge relates to a claim for his share of the retained profits of the partnership for the years 2011 and 2012 in an amount of $102,776.28 (see Mr Ahadizadeh's affidavit of 5 February 2018 at [30]-[33]). 2. The first defendant resists this on the basis that there was no profit of the partnership for those years – rather, she says, there were losses in these years; that the plaintiff should share in the losses of the partnership in those years; that she provided additional payments to support the partnership in these years and one half of the amount of those should be reimbursed to her by the plaintiff; and that, in the event that there was a profit, which is denied, such profit must be offset by expenses of the partnership incurred and paid by her in these years. 3. There was some debate as to the basis on which retained profits were dealt with in the Financial Statements. The plaintiff's share of retained profits for the 2011 financial year (shown in the Financial Statements as $80,966.86) (see CB 114), after taking into account an opening balance in the negative of $(20,988.43) and drawings of $(2,908.13), left a closing balance of $57,070.30 (which then became the opening balance for 2012). 4. Another email from Mr Ivan's to the plaintiff's solicitor also dated 8 September 2017 (CB 102) included the statement that: The accounts show that [the plaintiff] may have been entitled to a $102,000+ profit distribution over that 18 month period in addition to the Rent Roll sale proceeds which in light of the ATO debts and the business's cashflows shortfalls [sic] does not make sense. That being said that remains the facts as they are presented. 1. It was not clear to me from whence that $102,000+ figure was derived – though I suspect it is from the share of profit figures (at CB 114), adding together the sums $80,966.86 and $21,809.43 for the years 2011 and 2012 respectively. However, that does not take into account that the first of those two figures is subsumed in the calculation that leads to the opening balance (on CB 114) of $57,070.30 and, in any event, it was ultimately accepted that the amount shown as profit distribution or share of profits for the 2012 year ($21,809.42) is part of the total contribution of $845,596.35 against which the claim for $785,402.46 (the starting point for this whole exercise) is made. 2. Relevantly, it seems reasonably clear, based on the Financial Statements, that the opening balance carried into the 2012 accounts (of $57,070.30), forms part of the total of $845,596.35 shown as the plaintiff's share of proprietors' funds. It was not clear to me the basis on which it was suggested that – on top of having an adjustment to reflect the difference in contributions by the partners to the partnership (the claimed starting point for that being $785,402.46) – there should be a further adjustment to give credit to the plaintiff of an amount of $102,776.28 for retained profits. As I understand it, Counsel for the plaintiff accepted this ("[w]e are stuck with the figure of 785" - see T 31.6) and hence the claimed item 5 seemed ultimately not to be pressed. (Were I to be wrong in that understanding, such that the claim is still pressed, I would disallow it.) 3. I therefore do not allow any amount for the claimed item 5 surcharge. First defendant's claimed surcharges 1. The first defendant made a number of claimed surcharges in the schedule annexed to her affidavit of 20 February 2018. Item 1 1. The first claimed surcharge was an amount of $10,800 claimed as 40% of the accounting expenses of the partnership (being a sum of $27,000 payable to Mr Ivan). 2. The objection raised to that claim by the plaintiff is that the work that Mr Ivan has performed included the preparation of the accounts and tax returns for Endjade Pty Ltd; and that any amount in respect of that work was not part of the preparation of the partnership accounts. Further, objection was raised to the amount claimed in the absence of an itemised account detailing the work Mr Ivan performed for the partnership. 3. The first defendant informed me that she had not received an itemised account from Mr Ivan (T 31.36). The amount of $10,800 was said to be drawn from the tax invoices included at CB 191-193. Those invoices were: an invoice as at 17 January 2018 in the sum of $15,908.50 which, according to the narrative, includes preparation and lodgement of the 2011 and 2012 partnership returns and appears to be apportioned as to 50% to the plaintiff care of his solicitor and 50% to the first defendant (CB 191); an account as at 17 January 2018 addressed to the first defendant/Endjade Pty Ltd in the sum of $10,186 which, according to the narrative, relates to preparation and lodgement of company income tax return and BAS/financial statements and again appears to be apportioned as to 50% each – (CB 192); and a third account as at the same date in the sum of $1,986 (again addressed to the first defendant/Endjade) and which on the narrative related to the preparation and lodgement of company documents – but which has no apportionment – (CB 193). 4. The first defendant explained the claim on the basis that there were two accounts from Mr Ivan and the claim was 40% of those (referring to the first two invoices referred to above). (No claim is made in relation to the invoice at CB 193.) The first defendant says that the first two accounts were for the preparation of accounts associated with the present proceedings and submitted that, since Lindsay J had ascertained that the rent roll was partnership property, "any accounting to do with figures to bring to this Court case and to do with the sale of rent roll … should be paid by partnership as it owned the rent roll" (T 32.17ff). 5. With an air of resignation, the first defendant informed me (at T 32.48-50) that: If the plaintiff is not happy with that, then it's fine. It doesn't matter to me either way. I will pay the bills. I'll make sure that Mr Ivan is paid. Whether I paid it all or 60 percent, I just work a bit longer. 1. Certainly, on the face of the tax invoices it would appear that some instructions were received by Mr Ivan from the plaintiff's solicitor, since he is named on the account. Insofar as these were invoices for the preparation of the Financial Statements on the basis of which these accounts were to be taken, it would seem to me that there is some merit in there being an apportionment of the costs between the parties though that probably only relates to the invoice (at CB 192). 2. The plaintiff's position was that his attitude would be different had the bills been paid already by the first defendant, but there was no evidence that this was the case; and there was no evidence that the proceeds of sale of the rent roll was still available from which the money could be taken to pay Mr Ivan. It was submitted that the first defendant was asking for a credit for payment of a bill that is yet to be paid (inconsistently with s 24(1) r (2) of the Partnership Act – see [22] above). 3. Ultimately, the plaintiff's instructing solicitor confirmed that there was an agreement with Mr Ivan that the instructing solicitor would be responsible for 40% of the cost of the preparation of the partnership accounts. I have no reason to believe that the instructing solicitor will not honour that agreement and that in my opinion disposes of the claimed first item of surcharge. (The costs of the taking of accounts, insofar as they encompass the costs of preparation of Financial Statements would encompass this in any event.) Item 2 1. The second item claimed by way of surcharge by the first defendant is a claim for $450,000 for wages said not to have been paid to the third defendant, Mr McDougall, from 2002 to 2011 as an employee of the partnership. 2. That claim is resisted on a number of bases: that there is no evidence or any other matters raised before the Court or in the pleadings to this effect and the claim is disputed; that, in the alternative, even on the assumption that wages are owed to Mr McDougall (which is disputed), there can be no basis to claim them by the first defendant on the third defendant's behalf; and, as a further alternative, that there would be limitations defences to be taken into consideration in relation to any such claim. 3. Asked as to whether there was any evidence that Mr McDougall was an employee of the partnership, there was the following submission by the first defendant (T 34.27-31): He wasn't an employee because he wasn't being paid. [a non-sequitur] He held a certificate of registration under the license [sic] of Enjade Pty Limited. There's a lot of correspondence under the letterhead of Enjade Pty Limited trading as Deborah Richardson Real Estate with his name on it and he was acting as maintenance manager during that time. 1. When I observed that there was no real evidence of any arrangement pursuant to which the partnership had a liability to pay any amount to Mr McDougall, the first defendant simply said (T 34.37): May be Derek and I had a lot of hand shake agreements and I went along with that. Again, it doesn't worry me. We're passed [sic] this now. 1. As to this item, the plaintiff emphasises a number of matters. 2. First, that the first defendant is not entitled to credit as against the plaintiff, her former partner, on the taking of partnership accounts unless the amount has been paid by her – and there is no evidence that this amount has been paid. Reference is made in that regard to s 24(1), rule (2) of the Partnership Act (see at [22] above). 3. Second, that the claim is in substance the claim by the third defendant against the partners for wages or on a quantum meruit and falls outside the taking of accounts - it not being appropriate to deal with a substantive claim in the taking of accounts; in other words this is not a "just allowance" as between partners (see the observations set out earlier as to just allowances). 4. Third, that this is not a debt or liability that has been established, even on Mr McDougall's own evidence. In his affidavit of 20 February 2018, what Mr McDougall deposes (at [9]) is that "I intend on making claim against the partners of the partnership of $450,000 for my deferred salary". The plaintiff says that there is no doubt that such a claim will be disputed from the plaintiff's point of view, and in any event it is not even a claim that has been made, simply an intention to bring a claim. It is submitted that the appropriate course, if Mr McDougall wishes to bring that claim, is for him to do so in separate proceedings, noting that one thing that will no doubt be raised in defence of the claim will be a limitation defence, which to the extent it represents a claim for quantum meruit, will be governed by s 14 of the Limitation Act 1969 (NSW), and hence will have a six year limitation period. 5. It is pointed out that even if the claim could be brought, and an adjustment made in these proceedings, it could only be an adjustment against the plaintiff for 40% (noting that 40% of $450,000 is $180,000). 6. Finally, the plaintiff notes that even if the claim could be made it tends to contradict the findings made by Lindsay J in his Honour's first judgment as to the conversations that were in issue about the rent roll being part of the first defendant's retirement (see at [47]), in which his Honour extracted the critical conversations on which the defendants relied (and which his Honour did not accept). The plaintiff notes that (at [73]) his Honour did not accept the first defendant's evidence as to the seminal conversations (including that the rent roll was to be hers in her retirement). It is submitted that the evidence now put forward by the first and third defendants, Ms Richardson and Mr McDougall, as to the $450,000 is based on that very proposition and that, if not squarely contradicted by the findings already made by Lindsay J, it would certainly be affected by it. 7. In the absence of any evidence as to specific employment arrangements having been entered into, and accepting as having force the various objections raised by the plaintiff to this claim, I disallow this claimed surcharge. The first defendant has not discharged the onus of proving her claim in relation to this amount. Item 3 1. Item 3 of the claimed surcharges is a claim for $138,600 for the value of the initial rent roll brought into the business by the first defendant through Endjade Pty Ltd trading as Deborah Richardson Real Estate for five years prior to the partnership commencement. 2. In oral submissions, the first defendant said (T 34.43ff): The plaintiff asserted that I brought no business into the new business which is not correct. He's making that assertation and there's no proof that I didn't. I have proof in terms of profit and loss statements of Enjade. The proceedings start with their partnership where I was earning money from a rent roll which I brought into the partnership. That hasn't been taken into account. 1. Reliance was placed on profit and loss statements for Endjade (at CB 195, 196 and 197). The first defendant informed me that she had started her original real estate business in 1990 and sold it in about 1995; that she kept a certain proportion of that original business and then started Endjade and built on that rent roll through 1996, 1997, 1998 and 1999 (referring to CB 194). It was submitted that this showed growth income due to a growth in a rent roll which the first defendant then brought with her when she started the partnership with the plaintiff in 2001. 2. The figure of $138,600 was based on a calculation of earnings by dollar per income of management fees, but the first defendant accepted that she did not know the value of the rent roll at the relevant time. 3. The plaintiff referred to what was said by Lindsay J (at [38] of his reasons) as to the fact that the rent roll was not recorded on the available balance sheets of the company as an asset. It was submitted that there was no evidence that any properties that may have been brought into the partnership remained within the partnership and produced an income for the partnership and, in the alternative, that since the amount claimed is for the value of the initial rent roll five years prior to the partnership commencement it is irrelevant. 4. The difficulty with this claim is that there is insufficient evidence for me to be able to quantify the value brought into the partnership by the first defendant, even accepting that the first defendant, through the second defendant, was operating a rent roll at the time the partnership commenced and made a contribution in that regard. The plaintiff points to Lindsay J's finding that the rent roll that was effectively built up during the time the partnership was partnership property but even to the extent that there was a base rent roll brought into the partnership I cannot put a value on it. The onus being on the first defendant to establish the claimed surcharge, I am not persuaded that she has discharged that onus and I disallow this claim. Item 4 1. The fourth claimed surcharge is for an amount of $40,000, identified as the payment of overdrafts personally by the first defendant on behalf of the partnership to run the real estate business: an overdraft of $30,000 in the name of Endjade that it is said was used to run the partnership; and a $10,000 overdraft said to have been paid out by the first defendant. Reference to those accounts appears in an email (at CB 198) from NAB to Mr McDougall and Ms Richardson on 24 July 2012 as to the payment of certain settlement proceeds in relation to a property in Port Macquarie. 2. The plaintiff notes that there is not a specific reference to this item in the partnership accounts and submits that the accounts were prepared by a professional with intimate familiarity as to the sources of finance of the partnership. It is submitted that any and all legitimate claims of credit by the first defendant have been taken into consideration by the accountant in the course of preparing the accounts of the partnership. 3. The first defendant maintains that both the Endjade account and the partnership accounts operated by way of overdraft. She maintains that Endjade was the licensed entity through which the partnership ran the business and was the owner of the rent roll. She says that when the partnership needed surplus funds the bank would not lend to the partnership because it had no assets but would lend to Endjade (because Endjade had the ownership of the rent roll) and that the $30,000 overdraft was obtained on the basis that Endjade owned the rent roll and was used to supply funds to the partnership to pay partnership bills. The first defendant said that (T 37.34ff): I'm not an accountant. You must understand I suppose that with the way Derek and I set things up, it was very fluid so where ever money could be obtained to pay bills, it was obtained. The bank couldn't lend to the partnership, it would lend to Enjade so Enjade borrowed the money. That money was used from that account to pay partnership debt or partnership accounts. When the rent roll was sold, the bank required repayment of both those overdrafts. There was no money to do it from the partnership so we liquidated the property, and paid them out. 1. Counsel for the plaintiff, quite fairly, accepted that the e‑mail correspondence at CB 198 suggested that there was, at least, an overdraft on a joint partnership account (of $10,000) that was paid out (by the proceeds of sale of a property at Port Macquarie) and accepted that if the partnership account was running on an overdraft basis and had been paid out that would have to be taken into account. On that basis, I allow the claimed surcharge and make an adjustment in the first defendant's favour for 40% of the claimed $10,000 (i.e. $4,000). 2. As to the claimed Endjade overdraft of $30,000, the difficulty I have is that there is insufficient evidence to persuade me that this overdraft was applied to expenses of the partnership. The first defendant has not discharged her onus in that regard. I do not allow the claimed surcharge in relation to that part of item 4. Item 5 1. As to item 5, this is a claim for a credit card debt incurred by the first defendant and said to be for partnership expenses and business to be divided between the partners. The claimed surcharge is $36,609. 2. The plaintiff takes similar issue with this claim as he did in relation to item 4 (see [99] above), submitting that the accountant prepared the accounts and it can be assumed that all legitimate claims have been included in them. 3. The difficulty with this claimed surcharge is that the debt is one that was apparently incurred or paid in July 2014 (see CB 200), whereas the partnership was dissolved in about 2011. Taken to that difficulty, the first defendant's position was that it was a credit card that was issued to Endjade, which was again used to run the real estate business and that (T 39.10ff): You can decide what you want to do with it. I'm really just trying to say that it's ‑ there has been an attempt to make it look like I didn't pay for anything, that Derek paid for everything, I'm just trying to bring to the Court's attention that I in fact did pay for quite a lot of things, so. 1. I am certainly prepared to accept that the first defendant paid some of the expenses during the course of the partnership but they cannot be quantified and, in any event, this claim relates to expenses incurred after the dissolution of the partnership. The claimed surcharge has not been established. I do not allow this claim. Item 6 1. The final amount claimed by way of surcharge relates to amounts that are said to have been payments made by the first defendant to the ATO in her personal capacity or tax credits due to the first defendant in her personal capacity but applied or set off by the ATO against partnership liabilities. The amount claimed is $16,767. 2. The response to this by the plaintiff in the combined schedule is to the effect that there is no evidence to show that such amounts were applied to the debts of the partnership. 3. The first defendant bases this claim in reliance on advice received from Mr Ivan (in the 8 September 2017 email communication which appears at CB 56 and is referred to at [61] above). She maintains that Mr Ivan told her that that amount of $16,767 was offset against the partnership's tax liability, and that any refunds that were due to her in the future would also be used for the same purpose until the debt was cleared. There is a document (at CB 203) in evidence, printed from an ATO tax agent portal which does indicate that a credit of the first defendant (in the sum of $16,767) was applied to offset other liabilities, although this seems to have been offset against a PAYE account in the first defendant's name trading as James Milson Real Estate (not the trading name for the business operated by the partnership). 4. Similarly, there is a document (at CB 202; printed as at 25 May 2017 by reference to the footer) that suggests that there have been "credit offsets to integrated client account", though it is not clear to what integrated client account reference is there being made. It is perhaps of relevance to note here that the accountant recorded on this document, as representing the first defendant, is Mr Ivan. 5. The first defendant did not know the current extent of the partnership's tax liability (though she thought it was around $60,000 at the time the rent roll was sold); and she noted the possibility that penalties would be imposed. She said that this surcharge item was to show that she was paying some of the debts of the partnership. 6. As at 30 June 2012, the Financial Statements record current tax liabilities of $217,983 (CB 112) for GST clearing, payroll deductions and PAYG withholding clearing. (By reference to the document at CB 52, there is evidence that the ATO had initially considered debts of the partnership uneconomical to pursue but later, vis-à-vis the plaintiff at least, had considered the recovery of them now to be viable and had "re-raised" the debt which supports the inference that the first defendant's offset tax credits may well have related to partnership liabilities). 7. Albeit not by any means complete, the documents referred to, together with Mr Ivan's email of 8 September 2017 (CB 56), provide evidence from which I would infer that at least some tax credits available to the first defendant have been offset against the partnership liabilities. Mr Ivan quantified those at $16,767. Therefore, I allow the claim for $16,767 i.e., an adjustment to give the first defendant credit for 40%, the plaintiff's share, of that amount (as indicated earlier when considering the corresponding surcharge claimed by the plaintiff). Conclusion 1. For the reasons set out above, I have concluded that adjustments should be made in favour of the plaintiff in relation to items 1, 2 and 3 of the surcharges claimed by him (though not in the precise amounts claimed) and adjustments should be made in favour of the first defendant in relation to items 4 and 6 of the surcharges claimed by her (though again not in the precise amounts claimed). 2. That has the ultimate result that, when the notional contribution to the partnership from the sale of their private investment property is added to (or in the case of the first defendant credited against) the respective shares of the proprietors' funds as shown in the Financial Statements prepared by Mr Ivan, the plaintiff's contribution was a positive $928,185.32 (i.e., $845,596.35 + $82,588.97) and the first defendant's share was a negative $(702,813.49) (i.e., $785,402.46 - $82,588.97). The plaintiff is therefore a creditor of the partnership to the extent of $928,185.32 and the first defendant is a debtor of the partnership to the extent of $702,813.49. On that basis, the first defendant ought to pay the plaintiff the sum of $702,813.49, subject to the following. 3. The plaintiff should reimburse the first defendant 40% of the claimed surcharge items I have found in her favour (i.e., 40% of $16,767 plus 40% of $10,000), that is, the amount of $10,706.80. The first defendant for her part should reimburse the plaintiff for 60% of the claimed surcharge items I have found in his favour (60% of $11,000 plus 60% of $9262.03), that is, $12,157.22. Those amounts should be set-off against each other, so that the first defendant should reimburse the plaintiff in the amount of $1,450.42. That amount should therefore be added to the figure referred to at [115] above. 4. I note that the first defendant has indicated an inability to pay any such amount and has said that the bank is in possession of the property at Broke (as mortgagee). That is unfortunate for all concerned if (as I have no reason to doubt) that be the case but that does not mean that the taking of partnership accounting should not be completed, as ordered by Lindsay J. 5. At the time of the hearing it was suggested that orders might need to be made in relation to a caveat over the property at Broke. If that is the case I will make directions for submissions on that issue to be dealt with on the papers. Costs 1. Costs of taking an account are in the discretion of the Court, which discretion must of course be exercised in light of the particular circumstances of each case. 2. Where an account is sought without dissolution, costs are likely to follow the event in the usual way (Civil Procedure Act 2005 (NSW) s 98; UCPR r 42.1; Lindley & Banks at [23-121]). However, where an account is sought subsequent to a partnership dissolution, the general position is that, given that the proceedings are part of the necessary costs of administration, the costs must come out of the partnership assets unless there is good reason for making some other order (see Hamer v Giles; Giles v Hamer (1879) 11 Ch D 942; Queensland Trustees Ltd v Fawckner [1964] Qd R 153; Behm v Bartels (1988) 14 NSWLR 432 at 10 (per Young J, as his Honour then was) (the discussion of costs is not in the reported version); Lindley & Banks at [23-121]). This is based on the assumption, as Thomas J observed in Smith v Smith [1987] 2 Qd R 807 at 810, that: [A] proceeding for an account is a special kind of proceeding in that it presupposes a right to have the account taken for the very purpose of ascertaining what is the position between the parties. 1. The general rule will apply in the absence of special circumstances and the partnership assets will bear the costs. As Young J put it in Behm v Bartels (at 12 of the unreported judgment): The general rule remains that the taking of accounts at the end of a partnership at the cost of the partnership is a normal part of the parcel of rights and obligations one assumes when entering into partnership and that unless there are some very special contrary circumstances, the partnership assets bear the costs. 1. Negligence, unreasonable claims, undue delay or misconduct of a party on the taking of accounts, affecting the Court's inquiry, are examples of what may constitute special circumstances (see Behm v Bartels). 2. In the context of a partnership account action, Fletcher observes, in The Law of Partnership in Australia (Lawbook Co, 9th edn, 2007) (at [10-90]) (Fletcher), that the costs of an account action between partners will generally depend on the outcome; namely that, if anything is found to be due to the plaintiff, costs will be awarded against the defendant and, conversely, is nothing is found to be due to the plaintiff she or he will have to bear the costs. However, if the conduct of the defendant has occasioned the taking of the accounts, that person may be ordered to pay the costs (even if there is no balance found due to the plaintiff) (see James v Greenwood (1871) 2 AJR 14; Fletcher at [10-90]). 3. In the present case, the costs of the proceedings before Lindsay J were dealt with by his Honour (see order 10 of the orders made by his Honour on 31 March 2017), so the only remaining issue in relation to costs is as to how the costs of the actual taking of the accounts and of the hearing before me should be borne. There has been mixed success on the claimed surcharges by both sides and it cannot be said that the stance adopted by the first defendant in challenging those of the surcharges claimed by the plaintiff on which she has succeeded (or partly succeeded) was unreasonable or that her conduct in the hearing before me was unreasonable. In the circumstances, I consider that the appropriate order is that the costs of the taking of the accounts and the hearing before me should be borne by the plaintiff and the first defendant proportionate to their interest in the partnership (and in the first instance out of the partnership assets, if any can be found). Orders 1. I make the following orders: 1. Certify that the amount payable by the first defendant to the plaintiff upon dissolution of their partnership was $704,263.91. 2. Give judgment that the first defendant pay the plaintiff the sum of $704,263.91. 3. Order that the costs of the taking of accounts and the hearing before Ward CJ in Eq be borne by the parties as to 40% by the plaintiff and as to 60% by the first defendant (and in the first instance out of any remaining partnership assets). ********** 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: 16 October 2018