Supreme Court New South Wales Medium Neutral Citation: Calacoci v Calacoci [2020] NSWSC 476 Hearing dates: 14 and 15 November 2019 Decision date: 08 May 2020 Jurisdiction: Equity Before: Lindsay J Decision: (1) A determination made as to the shares in which partnership property held by partners upon dissolution of their partnership. (2) A determination made as to the mode of sale of the partnership's principal asset. (3) Parties to be allowed an opportunity to make submissions about the form of orders to be made, and costs, in the context of steps taken by them for a consensual winding up of the partnership business. Catchwords: PARTNERSHIPS AND JOINT VENTURES — Partnerships — Terms of partnership agreement — Partnership agreement not in writing – Dissolution of partnership – Winding up partnership business – Sale of partnership assets – Entitlements to capital and profits. Legislation Cited: Conveyancing Act 1919 NSW Partnership Act 1892 NSW Cases Cited: Hungerford (by his tutor Ahadizadeh) v Richardson [2017] NSWSC 297 Jane v Bob Jane Corporation Pty Ltd [2013] VSC 406 Lucas v Lucas [1962] Qd R 205 Syers v Syers (1876) 1 App Cas 174 Sze Tu v Lowe [2014] NSWCA 462 Texts Cited: Lindley and Banks on Partnership (Sweet & Maxwell, 20th ed, 2017), paragraphs [23-110] and [23-113]; Category: Principal judgment Parties: First Plaintiff: Antonio Isidoro ("Anthony") Calacoci Second Plaintiff: Rossano Vincenzo ("Ross") Calacoci Third Plaintiff: Ivana Rosita Calacoci First Defendant: Guiseppe ("John Joseph") Calacoci Second Defendant: Vincenzina ("Winnie") Calacoci Representation: Counsel: Plaintiffs: MJ Dawson and DF Elliott Defendants: S Balafoutis SC and C Ernst Solicitors: Plaintiffs: Diamond Conway Lawyers Defendants: HPL Lawyers File Number(s): 2019/00149639 Judgment INTRODUCTION 1. The parties to these proceedings (three plaintiffs and two defendants) carried on business, in a partnership (known as "The Calacoci Partnership") without the benefit of a written partnership agreement, between 1996 and 2019. 2. The partners are members of the one extended family. The three plaintiffs (respectively, Anthony, Ross and Ivana) and the first defendant (John) are siblings. The second defendant (Winnie) is the wife of John. John is the eldest of the siblings. 3. The partnership was established with the guidance, and assistance, of the siblings' parents, in whose family business each of the four children (now mature adults) worked from an early age. In social terms, the older generation helped the younger generation to establish themselves, as partners, in a common business enterprise on the basis that each of the four branches of the family had an equal share in the enterprise. 4. Throughout the term of the partnership, all partners routinely deferred to John's management of the partnership business. He was routinely paid a monthly management fee in addition to drawings (supervised by him) each partner was paid on a monthly basis. 5. Those drawings were written up by John in his cash book in equal amounts for each of the plaintiffs and himself (representing himself and Winnie), together with his monthly management fee. Winnie played no active role in any part of the partnership business. 6. The business of the partnership was that of a landlord of three clusters of rental properties. 7. The most significant of those properties was described in the evidence as "the Manly shops" (Lots 1-7 in Strata Plan 58837); the partnership's formation coincided with the parties' acquisition of those shops, and those seven shops remain the principal asset of the partnership. 8. The lesser properties were respectively described in the evidence as "the Manly units" (a residential duplex property comprising Lots 1-2 in Strata Plan 13982) and "the Mosman units" (a residential property comprising Lots 1-5 in Strata Plan 56343). Each of these properties was bought and sold during the term of the partnership. 9. Throughout the term of the partnership, the parties rarely met formally. 10. The personal relationships between them appear to have deteriorated between 2013 and 2017. The contemporaneous evidence of a rare partnership meeting held on 23 May 2013 records that at least one of the partners (the identity of whom is not now remembered) wanted the seven Manly shops to be partitioned, not held as partnership property. By 2017, Anthony and John were exchanging acrimonious emails, and Anthony (with the support of Ross and Ivana) appears to have been intent upon wrestling management of the partnership business from John. 11. Until the parties progressed to open warfare in about 2017 (within a year or so after all external partnership debt was paid off), all receipts and expenditure relating to the partnership business passed through the one (partnership) bank account conducted with the Westpac Bank. 12. The major source of income for the partnership was always, and remains, rents received from the Manly shops. Those rents have provided a regular source of income for the partners, as drawings (routinely distributed by John) have been divided between the partners in proportion to their respective legal interests in ownership of the Manly shops: a one quarter (25%) share for each of the plaintiffs, with the remaining one quarter (25%) share shared by the defendants. 13. The partnership was dissolved, by a written notice served by the defendants, on 26 April 2019. The fact of dissolution on that date is accepted by all parties. 14. The parties are presently co-operating in the process of winding up the partnership business (and preparing partnership accounts) without the intervention of a receiver and manager. 15. There are two impediments to this process that require a determination of the Court. 16. The major problem, in terms of commercial significance, is the question of by what means and upon what terms, should there be a disposition of the Manly shops. 17. A formal valuation of the shops valued them on 26 March 2019 at $12.8 million if sold individually and at $12 million if sold in one line. 18. The parties have been unable to agree upon any form of sale or partition of the shops. The plaintiffs want to "buy out" the defendants' share of the shops without exposure to risks of a public auction or the costs and taxation implications of a sale by auction. The defendants contend that the shops should be sold by auction, reserving to all parties a right to bid at any auction. 19. The second impediment to an orderly winding up of the partnership business focusses on the fact that title to the Manly units and the Mosman units was acquired by the partners in proportions different from the proportions in which title to the Manly shops was acquired. THE PROBLEM OF PARTNERSHIP SHARES The Competing Narratives in Context 1. Title to the Manly shops has always been held on the basis of four tenants in common (speaking broadly, representing the four branches of the Calacoci family), with the defendants holding their (that is, John's) one quarter share as joint tenants. Title to each of the Manly units and the Mosman units was acquired by each party taking, as a legal interest, a one fifth share as a tenant in common, meaning that the defendants jointly acquired a 40% interest in the partnership's ownership interest in each property. 2. Inconsistencies in the way revenue (including proceeds of sale) from the Manly units and the Mosman units has been treated in records of the partnership, and differences in the partners' expectations about beneficial entitlements to those properties, have led to confrontation. 3. Broadly speaking, the plaintiffs contend that the partnership accountant (Mr David Hayes) was correct in his preparation of partnership financial statements which treated the partners' shares of capital and income uniformly in accordance with the four way division reflected in the title to the Manly shops. The defendants, for their part, contend that those partnership accounts should be adjusted so as to give effect to the five way division reflected in the title to the Manly units and the Mosman units. 4. Although John distributed the proceeds of sale of the Manly units, and the proceeds of sale of the Mosman units, on the basis of the five way division reflected on the title to those properties (and the plaintiffs accepted those distributions without overt protest to John), the accountant prepared the partnership's financial statements on the basis of the four way division of entitlements, treating the larger distributions of sale proceeds to the defendants as drawings rather than as an expression of a larger entitlement to capital. 5. John's distributions were treated as drawings in the financial statements of the partnership and debited to each partner's loan account. This had the effect of recognising a uniform entitlement to income and capital (without regard to the state of the legal title to different parcels of land) commensurate with arrangements for the Manly shops which generally governed the conduct of partnership business. 6. There is no dispute between the parties that the partners' shares of income derived from, and their shares of capital embodied in, the Manly shops, reflect the four way division of ownership of the Manly shops. Their dispute is as to whether there should be an adjustment of treatment of the proceeds of sale of the Manly units and the Mosman units. 7. A resolution of this problem focusses attention on the absence of a written partnership agreement, the embrace of informality in the way the partnership business was conducted, and, possibly, inattention to detail on the part of everybody, including the partnership's accountant (Mr Hayes) and the solicitor (Mr Peter O'Neill) who acted for the partners on their acquisition of the Manly units and the Mosman units. 8. Everybody within the Calacoci family (Anthony, Ross, Ivana and Winnie) left management of the partnership business and, incidentally, a fair proportion of their personal affairs, to John. He was the person through whom the partners routinely dealt with their solicitor and their accountant. 9. At the times John instructed the solicitor on the purchase of the Manly units and the Mosman units, he did not seek, and nobody was given or received, advice about the partnership implications of a purchase of property otherwise than in the same proportions which governed ownership of the Manly shops; the solicitor limited any advice he gave to the parties upon their acquisition of the Manly units and the Mosman units to the terms of the particular contracts of purchase they were called upon to execute, without advice about partnership implications. 10. John did not seek, or obtain, from his siblings their consent to an arrangement (for which he now contends) that he and Winnie, together, be entitled to a larger than equal share of beneficial ownership of the Manly units and the Mosman units notwithstanding that the partnership's acquisition, and management, of those properties would be, as it was, funded through resources of the partnership (the one partnership bank account through which rents were received and expenses were paid) to which the partners were equally entitled. 11. When John instructed the partnership accountant upon sale of the Manly units and, subsequently, the Mosman units he advised the accountant of his division of the sale proceeds; but he appears not to have brought home to the accountant the fact that those distributions reflected a different pattern of land ownership for the Manly units and the Mosman units compared to the Manly shops or that he regarded that different pattern as effecting a change in the parties' respective shares to partnership capital. 12. Although John signed off on the partnership's annual financial statements prepared by the accountant (against his interests and those of his wife, as he and his wife now assert them), he claims to have signed them without inquiry. 13. In the absence of a written partnership agreement, the terms of the partners' agreement have to be inferred from their conduct; what they said; what they did; and the course of their dealings generally, together with such assistance as may be afforded by the Partnership Act 1892 NSW: Sze Tu v Lowe [2014] NSWCA 462 at [128]-[132]; Partnership Act 1892, sections 19, 21, 24. 14. The defendants rely particularly on section 24(1)(i) of that Act, which provides that "[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 [rule]: All the partners are entitled to share equally in capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm." 15. The defendants contend that, in dealing with the proceeds of sale of the Manly units and the Mosman units, they should be treated as individual partners, not as a single unit. 16. The plaintiffs rely particularly on section 21 of the Act. It provides that "[unless] the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm." 17. They rely on the fact that, in large measure (if not fully so), partnership funds (principally derived from Manly shop rentals) funded the purchase, and ongoing expenses, of the Manly units and the Mosman units. 18. They also disclaim any knowledge that those two properties were purchased otherwise than in the same proportions as they hold an ownership interest in the Manly shops. Their failure to interrogate the purchase contracts they signed and the distribution letters they received from John upon the sale of the Manly units and the Mosman units is on a par with John's failure to interrogate the financial statements he signed. The Partnership Properties 1. The Manly Shops. The Manly shops were acquired as a company title property in 1996 and converted to strata title in 1998. They continue to be held as partnership property. 2. On the title to the Manly shops, the parties are registered as proprietors in the following proportions: 1. joint tenants as between themselves, the defendants hold a one quarter (25%) share as tenants in common; and 2. each of the three plaintiffs holds a one quarter (25%) share as a tenant in common. 1. The Manly Units. The Manly units were acquired on or about 29 June 2001 and sold on or about 12 November 2012. 2. On the title to the Manly units, all five parties were registered as proprietors, each with an equal (20%) share as a tenant in common. 3. The Mosman Units. The Mosman units were acquired by the Calacoci partnership, in partnership with their solicitor (Mr O'Neill), on or about 31 January 2003. 4. There was no written partnership agreement for this partnership, known as "The O'Neill & Calacoci Partnership". 5. The purchase price paid upon acquisition of the Mosman units was largely funded by a loan from the Westpac Bank, although each of Mr O'Neill and the Calacoci partnership made a relatively small contribution to the purchase price. 6. The Mosman units generally operated at a loss, requiring each of Mr O'Neill (on the one part) and the Calacoci partnership (on the other part) to make contributions to make ends meet. The contributions made by the Calacoci partnership were made out of that partnership's bank account. The effect of that was that the losses of the Calacoci partnership were, at least in the first instance, borne by the partners in the proportions represented by the title to the Manly shops rather than in the proportions represented by their title to the Mosman units. 7. The partners in the Calacoci partnership (the parties to these proceedings) sold their interest in the Mosman units to a company associated with Mr O'Neill on or about 2 July 2009. 8. During the period the Calacoci partnership held an interest in the Mosman units, the title to the units was registered in the following proportions: 1. Mr O'Neill held a 6/12 (50%) share as a tenant in common. 2. joint tenants as between themselves, the defendants held a 3/12 (25%) share as a tenant in common. 3. each of the three plaintiffs held a 1/12 (81/3%) share as a tenant in common. Distributions of Sale Proceeds 1. When the Mosman units were sold in 2009, and when the Manly units were sold in 2012, the net proceeds of sale received by the Calacoci partnership were distributed, by John, in accordance with the proportions in which the parties held legal title to the property the subject of the sale: 1. upon the sale of the Mosman units, the defendants jointly received 25% of the net proceeds of sale and each plaintiff received 81/3% of the net proceeds. 2. on the sale of the Manly units, the defendants jointly received 40% of the net proceeds of sale and each plaintiff received 20% of the net proceeds. 1. On completion of the sale of the Mosman units in 2009 John delivered to each of his siblings a document (on the letterhead of the Calacoci partnership) described in the evidence of a "distribution letter". It was headed "Sale of Mosman". It recorded that the O'Neill & Calacoci partnership had repaid the Calacoci partnership the sum of $223,500.00 referable to loans made by the Calacoci partnership to the O'Neill & Calacoci partnership. It also recorded that the Calacoci partnership had made a profit of $1 million on the sale and, under the heading "Money Split", it divided that $1 million in the sum of $500,000 for the defendants and $500,000 for the plaintiffs. It then, against each partner's share (treating John and Winnie as a single entity), made adjustments (including provision for any "tax owed", "money owed to partnership" and "super contribution"), culminating in amounts paid to the partners by cheque. 2. Anthony's evidence is that his receipt of this distribution statement alerted him, he says for the first time, that the siblings' respective interests in the Mosman units and the Manly shops were not equal. The evidence of Ross and Ivana is that they simply banked their cheques without noticing any discrepancies because it was their practice simply to rely upon whatever had been done by John without further inquiry. 3. Shortly after completion of the sale of the Manly units in 2012 John entered into correspondence with the partnership accountant about the amount of money to be withheld from distribution to the partners as provision for the payment of tax consequent upon the sale of the units. 4. On or about 15 November 2012 he prepared a draft of a distribution statement which provided for $450,000 to be withheld as provision for tax. 5. After further contact between them, the accountant advised John (by a letter dated 21 November 2012) that a lesser amount of provision for tax was required. 6. Consequent upon that advice, John prepared a revised form of distribution statement (bearing the settlement date 12 November 2012), which accompanied cheques he delivered to his siblings. 7. Each of the draft distribution statement, the accountant's advice letter and the revised distribution statement was based upon a division of the proceeds of sale of the Manly units which accorded a 20% share to each of Anthony, Ross and Ivana and a 40% share to John and Winnie together. 8. Both the draft and the revised form of the distribution statement recorded (near the top of the statement) the sale price of the Manly units together with the following entry or the like: "Share of Sale: John & Winnie 40%, Ivan, Anthony & Ross - 20% each". 1. The draft of the distribution statement recorded amounts for distribution under the heading "Money to be divided". 2. The revised form of distribution statement referred to "Money to be split" and "Money distribution". 3. These expressions are consistent with either an entitlement to capital or differential drawings. 4. In the vernacular used by the parties in their evidence and submissions, these distributions were made in accordance with the parties' "legal interest" in the properties sold, not their "partnership interest". Discrepancies in Accounting Records relating to Sale Proceeds 1. When John instructed the partnership accountant to prepare financial statements and (I assume) tax returns following upon sales of the Mosman units and the Manly units he appears to have followed a customary pattern of delivering his primary records (a diary serving as a cash book and bank statements) to the accountant and to have abided the accountant's preparation of the financial statements and tax returns without further ado. 2. The Partnership Financial Statements. The partnership's annual financial statements (prepared by the partnership's accountant and adopted by John as correct) uniformly recorded the partners' shares in terms that reflect the state of the title to the Manly shops. 3. Following the sale of the Mosman units on or about 2 July 2009, the accountant prepared the balance sheet for the Calacoci partnership as at 30 June 2010 on the basis that "Partnership Funds", in substance, recorded that each of Anthony, Ross and Ivana individually had introduced $250,000 capital to the partnership and each of John and Winnie had introduced $125,000 capital. 4. The profit on sale of the Manly units (on or about 12 November 2012) is recorded in the income statement of the Calacoci partnership for the year ended 30 June 2013. It was reflected in the notes to the financial statements for the year ended 30 June 2013 (relating to "Partners' Funds") on the basis of a 25% share to each of Anthony, Ross and Ivana and a 12.5% share to each of John and Winnie. 5. Partnership Tax Returns. On their face, there is an inconsistency between the financial statements prepared on behalf of the partnership (on the one hand) and (on the other hand) tax returns prepared on behalf of the Calacoci partnership and the O'Neill & Calacoci partnership, with tax returns (all prepared by Mr Hayes) reflecting the state of the title to the Manly units and the Mosman units: 1. A working sheet of the accountant and the parties' respective tax returns for the year ended 30 June 2013 record entries for the parties' shares of the capital gain upon sale of the Manly units by reference to a 20% share for each of Anthony, Ross and Ivana and a 40% share for John and Winnie jointly. 2. A notice of assessment issued on 21 January 2008 for land tax payable by Ivana for the 2008 tax year records her ownership of the three partnership properties in terms of her legal interest on the title of each property. 3. The partnership tax returns for the O'Neill & Calacoci Partnership (relating to the Mosman units) for the year ended 30 June in each of 2007, 2008 and 2009 records that (as between the parties to these proceedings) losses were shared in accordance with the title to the Mosman units. 1. No party has sought to explain differences between these tax records and the partnership's financial statements by reference to tax legislation. The Partnership's Annual Financial Statements 1. In the absence of a written partnership agreement, and without an explicit, timely warning by John as to a variation of property entitlements for the Manly units and Mosman units, the accountant proceeded in the preparation of financial statements on the uniform understanding that the partners' respective shares of both income and capital were those established upon the partnership's acquisition of the Manly shops. 2. John each year routinely signed on behalf of the partners a formal declaration that the financial statements prepared by the accountant fairly presented the partnership's financial position at the end of the financial year and its performance for the year ended on that date. That is the general effect of his affidavit evidence. 3. The documentary evidence specifically includes such a declaration (dated 13 September 2013) made by John in support of the financial statements for the year ended 30 June 2013. It also includes, for the financial statements for the year ended 30 June 2014, a declaration dated 7 October 2014 signed by all five partners personally, as well as a similar declaration (dated 18 August 2015) signed by all five partners for the financial statements for the year ended 30 June 2015. 4. What then is to be made of the fact that, in organising for the purchase and sale of each of the Manly units and the Mosman units, John proceeded on the basis that he and his wife were jointly to have a larger share of property ownership than his siblings? John's Disclosures. 1. John's justification for him and his wife receiving a larger share of the title to the Manly units and the Mosman units is, he says, that he was responsible for identifying opportunities for profit on behalf of the partnership, and that it was an act of generosity on his part that he included his siblings in what turned out to be profitable ventures. 2. He says that he disclosed that reasoning to each of his siblings, although Anthony denies that and Ross and Ivana have no recall of any disclosure. Anthony's rationalisation is that John needed to bring his siblings into these investments because he needed funds generated by the Manly shops to support them. 3. John says that he explained the variation in property interests to his siblings at the times of purchase of the properties (in 2001 and 2003); orally, not in writing. They either deny that (in the case of Anthony) or (in the case of Ross and Ivana) profess to have no such recollection. Winnie's evidence corroborates that of John insofar as she attributes to both John and Mr O'Neill statements to her to the effect that the Manly units and the Mosman units were to be purchased in "five equal shares". 4. The principal conflict in the evidence is between John (who confidently asserts that he explained to his siblings his purpose in arranging for the Manly units and the Mosman units to be purchased in differential shares) and Anthony (who stridently denies John's version of events). 5. The evidence of Ross, Ivana and Winnie adds little to a resolution of the evidentiary conflict between John and Anthony. Ross and Ivana signed contracts for the purchase of the Manly units and the Mosman units, and received and banked John's distributions of sale proceeds, without reflection. Winnie's evidence is, essentially, that she was not involved directly with the purchase, sale or management of any partnership property but simply gave John authority to act on her behalf. 6. Although Winnie deposes to conversations with John and Mr O'Neill at the time of purchase of each of the Manly shops, the Manly units and the Mosman units, she deposes to no conversations with any of the plaintiffs. Her evidence about what Mr O'Neill said to her is cryptic and, in the context of the parties' dispute and the evidence of Mr O'Neill himself, ambiguous. 7. Mr O'Neill's evidence rises no higher than that he offered each party an explanation of the property interest to be acquired on completion of the particular contract the subject of execution. Winnie has him speak in terms of the five parties to these proceedings being "equal shareholders". 8. I accept that, at the time John arranged for the purchase of the Manly units and at the time he arranged for the purchase of the Mosman units, it was his subjective intention that he and his wife together have a larger ownership share to the properties purchased than the plaintiffs. However, I am not satisfied that he conveyed that intention to the plaintiffs, that he explained his intention to acquire a greater share of the units using partnership funds to which he and Winnie had no more than a one quarter share or that he obtained their assent, let alone a fully informed assent, to such an arrangement. It is more likely that, on John's instructions, Mr O'Neill signed the plaintiffs up without any detailed explanation or formality. That is the way John did business. 9. John was accustomed to management of the partnership business without seeking or obtaining critical comment from any partner, and to dealing with Mr O'Neill and the partnership accountant exclusively. 10. The fact that, some time after the purchase of the Manly units and the Mosman units Anthony became a real estate agent does not justify a retrospective attribution to him of expertise in property dealings. At the time the Manly units and the Mosman units were purchased, Anthony was very much like Ross and Ivana in that he was reliant upon John. All three of them, like John, had worked for and with their parents in one of the Manly shops but, unlike John, they were without substantial commercial experience. They were unsophisticated in business. Mr O'Neill's Advices 1. Mr O'Neill acted as solicitor for the plaintiffs and the defendants upon the acquisition of each of the Manly shops, the Manly units and the Mosman units. He had a close working relationship with the Calacoci family characterised by informality on both sides. They worked in close proximity and their paths often crossed in the community in which they worked. 2. Although Mr O'Neill attended upon each of the parties when they signed contracts for the purchase of the Manly units and the Mosman units, he generally dealt with and took his instructions from John. 3. He has no contemporaneous records relating to, or independent recollection of, any legal advice he may have given to the parties at or before the time contracts were exchanged for the purchase of the Manly units and the Mosman units. 4. His evidence is to the effect that, based upon his usual practice, he would have explained to each party the interest he or she was acquiring as disclosed in the contract of purchase presented for execution. 5. The plaintiffs either deny (in the case of Anthony), or do not recall (in the case of Ross and Ivana), receiving advice from Mr O'Neill. Their evidence is that they were simply directed to sign the purchase contracts, and they did so, trusting in what John and Mr O'Neill arranged. 6. There is no suggestion in the evidence that Mr O'Neill was asked to provide, or that he did provide, advice to the parties as to the terms, or operation, of the Calacoci partnership in the context of the parties' acquisition or sale of the Manly units or the Mosman units. 7. It may be accepted that, contrary to the recollection of Anthony, Mr O'Neill did give each of the plaintiffs formal advice about the property interests they respectively acquired under the contracts for their purchase of the Manly units and the Mosman units. 8. Equally, however, the evidence is that any such advice was limited in its scope to what was required to secure each party's execution of a purchase contract, and it did not extend to advice about the terms or operation of the Calacoci partnership. 9. On his own evidence, Mr O'Neill did not bring home to the plaintiffs that there may have been implications for their partnership with the defendants in the purchase of property on terms as to shares different from the terms upon which the Manly shops were held and they were accustomed to receive monthly drawings. Consideration 1. It is common ground between the parties that there was a partnership and that the Manly units and the Mosman units were partnership property. There is no need to invoke section 21 of the Partnership Act to reach that conclusion. The essential task of the Court is to determine, objectively, the terms of any agreement between the parties as to their respective entitlements to capital represented by the Manly units and the Mosman units, having regard to the state of the legal title to those units in the context of the parties' conduct of the partnership business generally. 2. The focus for attention is not limited to the state of the legal title, but is directed to the state of beneficial entitlements to partnership property, recognising that, within a partnership, there can be variations in entitlements to income and capital depending upon agreement between the partners; that is to say, their intention objectively ascertained. 3. The Calacoci partnership had its origins in the family business conducted by the parents of the plaintiffs and the first defendant. Each of the children worked in the family business and looked to their parents for guidance in the acquisition of the Manly shops. The shops were acquired on terms which provided for each of the four children to have an equal share, with John's share divided equally between himself and his wife. 4. In determining the terms of the parties' partnership agreement as to their respective entitlements to the capital represented by the proceeds of sale of the Manly units and the Mosman units, account needs to be taken of the facts that: 1. each of the plaintiffs signed a contract for the purchase of the Manly units and a contract for the purchase of the Mosman units recording ownership interests different from those recorded on the title to the Manly shops; 2. each of them, without overt complaint to John, received distributions of sale proceeds calculated by reference to the ownership shares recorded on the title to the Manly units and the title to the Mosman units respectively; and 3. the tax treatment of their liability for capital gains upon sale of the units (and, apparently, their liability for land tax) reflected the ownership proportions referred to on the title to the units, not the proportions recorded on the title to the Manly shops. 1. Against that are the following facts: 1. Financial dealings relating to the acquisition and management of the Manly units and the Mosman units were, by design, channelled through the one partnership bank account, albeit that the managing agents of the Manly units paid net rentals into the partnership bank account after meeting routine expenses from rents received; 2. Throughout the whole of the term of the partnership the partners' regular drawings from the partnership bank account, organised by John, reflected the ownership shares on the title to the Manly shops, treating John as representing himself and Winnie with a joint entitlement to a one quarter share; 3. The work done by John in management of the partnership business was, with the agreement of all partners, the subject of remuneration in the form of a monthly management fee in addition to the drawings he received on behalf of himself and his wife; 4. On my findings, at the time of purchase of each of the Manly units and the Mosman units there was no agreement between the partners for a variation of their respective shares to partnership property, of which those units were part; and 5. Successive annual financial statements of the partnership (including statements post-dating the sale of both the Manly units and the Mosman units) bore a declaration as to correctness made by or on behalf of all partners which reflected the ownership shares as recorded on the title to the Manly shops. 1. I find as a fact that, by implication arising from the whole of their dealings, viewed objectively, the agreement between the partners was always that the partners be beneficially entitled to a share in the income and capital of the partnership (without distinction between the Manly shops, the Manly units and the Mosman units) in the following shares: 1. each of the plaintiffs is entitled to a 25% share. 2. each of the defendants is entitled to a 12.5%. 1. Objectively, the understanding of the parties at the times of acquisition of the units was: (a) that the Manly units and the Mosman units would be acquired, and managed, using funds of the Calacoci partnership to which they were entitled in these shares; and (b) that the properties, so acquired and managed, would belong to the partners beneficially in the same shares, not to some other form of partnership in different shares. 2. John's subjective intention (that he and Winnie be entitled to a greater ownership share of the Manly units and the Mosman units whilst funding the acquisition and management of the units via the Calacoci partnership bank account) was not communicated to the plaintiffs when the units were acquired and, accordingly, cannot, objectively, provide a basis upon which the partnership agreement can be found to have been varied. 3. Legal title to the units was to be acquired for the purposes of the partnership, subject to the equitable obligations of partners as between themselves: Hungerford (by his tutor Ahadizadeh) v Richardson [2017] NSWSC 297 at [58]-[64]. 4. The Manly units and the Mosman units were in fact acquired, and managed, as an integral part of the Calacoci partnership using funds of the partnership reflecting the partnership shares established upon acquisition of the Manly shops. The parties did not receive income, or bear losses, associated with the Manly units or the Mosman units in shares reflecting the legal title to those properties, but in shares reflecting the title to the Manly shops. 5. The parties' common adoption of annual financial statements for the partnership, prepared after the purchase and sale of the Manly units and the Mosman units, on the basis of the partnership shares to income and capital established upon acquisition of the Manly shops, represents an agreement in the character of a settled account: Lindley and Banks on Partnership (Sweet & Maxwell, 20th ed, 2017), paragraph [23-110]; Jane v Bob Jane Corporation Pty Ltd [2013] VSC 406 at [82]. Although the Court may permit a settled account to be opened where it is shown to have been erroneous to a considerable extent (Lindley and Banks on Partnership, paragraph [23-113]; Jane v Bob Jane Corporation Pty Ltd at [123]), I am not satisfied that any such error has been here established. 6. Whether any (and, if so, what) adjustments can or need to be made arising from the lodgement of tax returns reflecting different proportions of land ownership was not the subject of debate in these proceedings. THE PROBLEM OF HOW TO DISPOSE OF THE MANLY SHOPS 1. In commercial terms, the most significant of the two questions stated by the parties for the Court's determination is the second: by what means, and on what terms, should the Manly shops be sold in the winding up of the Calacoci partnership? 2. With a 75% "legal" interest in the Manly shops, and an undisputed 75% interest in the partnership capital as represented by the Manly shops, the plaintiffs apply to the Court for orders designed to grant to them an opportunity to acquire the defendants' (25%) interest without exposure to an auction. 3. Their application is made on two bases: 1. First, they claim a "right of pre-emption" grounded upon the provisions of a written agreement dated 29 October 1996 executed by the parties shortly after they had (by a written agreement dated 1 August 1996) contracted to purchase the shareholding of the company which then owned the Manly shops. 2. Secondly, they seek (by reference to Syers v Syers (1876) 1 App Cas 174 at 183-184, 191 and 193) an order that they be permitted to purchase the defendants' interest in the partnership at a valuation to be made by a Court appointed expert. 1. Given that the partnership has been without external debt since about 2016, this boils down pretty much to an order that, subject to the formal processes of accounting, they be permitted to purchase the defendants' interest in the Manly shops without submitting to an auction. 2. The "right of pre-emption" upon which the plaintiffs rely is expressed in the agreement dated 29 October 1996 in the following terms: "NOW THIS DEED WITNESSETH: 1. That upon any of the parties desiring to transfer his or her interest or sell his or her interest in their shares [in the company that then had title to the Manly shops] that party or parties shall first offer the share or shares to the remaining shareholders and not to any individual shareholder. 2. The value of the shares shall be determined by obtaining three valuations if the parties cannot agree to a value and the average price of those three valuations shall be the sale price." 1. In terms, upon a proper construction of the agreement, any such right of pre-emption as the parties possessed in 1996 cannot be said to have survived conversion of the Manly units from company title to strata title in 1998. The parties have long not held shares the subject of the pre-emptive right that pre-dated the conversion to strata title. The subject matter of the 1996 agreement does not extend to the property once held by the company, now held by the shareholders directly as co-owners of real estate. 2. The plaintiffs nevertheless contend that the spirit of their historical right of pre-emption should inform the Court's discretionary decision (referable to Syers v Syers) about dispensing with any requirement for an auction sale. 3. That contention is reinforced by reference to the contemporaneous record of the rare formal meeting of the Calacoci partnership held on 23 May 2012. That record suggests that the parties considered a buy-out arrangement. The agenda for the meeting had an item of business recorded as follows: "Division of ownership of the seven shops – ie, I want to own my own shop/shops". A letter dated the same day as the meeting, addressed by the partnership accountant to John and his siblings, recorded as one of the items of business arising from the meeting the following: "Anthony, should he wish to sell his share, he will obtain a valuation at his cost. Should any Partners wish to sell they can obtain their own valuation at their own costs. Should anyone want to purchase Anthony's share or any other Partner's share then the purchase price will be added cost of the valuation obtained by that Partner." 4. Although no buy-out arrangement emerged from this meeting, the plaintiffs argue that the fact that such an arrangement was contemplated by the parties confirms that an order made by the Court to the same effect could operate fairly and would be consistent with the intention of the parties. 5. The plaintiffs reinforce that submission by characterising the defendants' notice of dissolution of the partnership as a notice of an intention to sell their interest in the Manly shops, which in terms it was not. 6. The defendants hotly deny any intention to sell their interest in the shops to the plaintiffs, strongly reserving such rights as they may have to insist upon the shops being sold by auction with each party entitled to bid at the auction. 7. During the hearing of the proceedings I invited the parties to engage in a private bidding arrangement to ascertain who was prepared to acquire the Manly shops at the highest valuation. Nothing came of that invitation. 8. It remains open to the parties to agree upon terms for one or more of them to acquire one or more of the Manly shops. 9. Although the ordinary course for the Court, upon dissolution of a partnership, is to order that partnership assets be sold by auction, the Court's discretion to order otherwise is not constrained to a particular class of case: Lucas v Lucas [1962] Qd R 205 at 209 and 212. 10. The fact that the plaintiffs, together, hold a majority (75%) interest in the shops is a factor to be taken into account in favour of an order for a private sale; but it is not of itself sufficient to command the making of such an order. 11. Nor is the fact that a private sale might incidentally be commercially more advantageous for the plaintiffs because it may lend itself, better than does a sale by auction, to minimisation of costs of sale, stamp duty, capital gains tax and the like. 12. Neither does the plaintiffs' desire to keep the shops "in the family" carry much weight against the defendants, members of the same family. Having managed the shops for many years, John has no less a connection with them than his siblings. Sentiment aside, the shops represent a financial investment and nothing else. 13. As Gibbs J recorded in Lucas v Lucas, at 209, "the Court, in ordering a sale, has a discretion in the exercise of which it will determine the mode of sale most beneficial to the parties". 14. In my opinion, in default of any agreement between the parties, the mode of sale most beneficial to the parties as a whole is a sale by public auction, reserving to each party liberty to bid at the auction. 15. In my opinion, the interests of justice in the present case favour a scheme of orders designed, in default of agreement between the parties, to have the Manly shops sold by auction on those terms. Such a scheme of orders would, perhaps, be best effected through the appointment of a receiver and manager authorised to act independently of the parties. However, all parties have resisted such an appointment in the past and, that being so, I propose to allow them an opportunity to reflect on these reasons for judgment before making final orders in disposition of the proceedings. 16. I am presently minded to order that the costs of the proceedings be paid out of partnership property or (perhaps, more appropriately) be borne by the parties without the benefit of a costs order. CONCLUSION 1. Having determined the questions stated for the Court's consideration, I propose to allow the parties an opportunity to consider how, now, to proceed (including an opportunity to make submissions about the form of orders to be made and costs). 2. In default of any agreement between the parties as to how to proceed, after allowing them that opportunity I propose to make orders to the following effect: 1. DECLARE that the partnership between the plaintiffs and the defendants, styled "The Calacoci Partnership", was dissolved on 26 April 2019. 2. ORDER that the partnership be wound up under the direction of the Court. 3. DECLARE that the parties, as partners in the partnership, are entitled to share in the capital and profits of the business of the partnership (including the proceeds of sale of the Manly shops, the Manly units and the Mosman units) in the following shares: 1. each of the plaintiffs is entitled to a 25% share. 2. each of the defendants is entitled to a 12.5% share. 1. ORDER that the solicitor for the plaintiffs and the solicitor for the defendants (subject to their consenting to such an appointment), or their respective nominees, be appointed jointly as trustees for sale of the Manly shops pursuant to section 66G of the Conveyancing Act 1919 NSW, with ancillary orders, including an order that each party be at liberty to bid at any auction for the sale of the shops. 2. RESERVE to all parties liberty to apply for the appointment of a receiver and manager of the partnership and for directions, generally, in the winding up of the partnership. 3. ORDER that the amended summons filed on 24 September 2019 otherwise be dismissed. 4. ORDER that the statement of cross claim filed on 28 August 2019 otherwise be dismissed. 5. ORDER that each party pay or bear his or her own costs of the proceedings. ********** 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: 08 May 2020