JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE FULL COURT (WA)
CITATION : WHEATLEY -v- BOWER & ORS [2001] WASCA 293
CORAM : MALCOLM CJ
HEARD : 9 MARCH 2001
DELIVERED : 24 SEPTEMBER 2001
FILE NO/S : FUL 204 of 1999
BETWEEN : BRIAN PHILIP WHEATLEY
Appellant (Plaintiff)
AND
RONALD WILLIAM BOWER
CONAL PATRICK O'TOOLE
PATRICK DAVID MOSTYN HUGHES
MERVYN ROTHSTEIN
First Respondents (First Defendants)
VALMA SYLVIA CEARNS AS EXECUTRIX OF THE ESTATE OF IAN ELDRED CEARNS (DEC)
CEDRIC DAVID WILLIAMSON
STEPHEN OWEN-CONWAY
JOHN SWIFT
VALMA SYLVIA CEARNS
STEPHEN DEXTER CROOKS
RICHARD JAMES LARRY McCORMACK
RAOUL RUDOLPH CYWICKI
GUY SHENTON FRENCH
JOHN GERARD DEARN
CRAIG ANTHONY MASAREI
Second Respondents (Second Defendants)
(Page 2)
Catchwords:
Termination of partnership - Law firm - Whether a taking of accounts should have been ordered - Whether entitled to summary judgment - Whether partner entitled to relief of money sums from death of partner - Whether good will write offs correctly accounted for - Whether fee adjustments correctly provided for - Whether insurance proceeds from death of a partner could not fall within the assets of the partnership - Whether partnerships were entitled to discount work in progress upon the retirement of a partner - Whether costs of the appeal be taxed as between solicitor and client
Legislation:
Limitation Act 1935 (WA)
Supreme Court Act 1935
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant (Plaintiff) : Mr E M Heenan QC
First Respondents (First Defendants) : Mr M J McCusker QC & Mr P G Donovan
Second Respondents (Second
Defendants) : Mr M J McCusker QC & Mr P G Donovan
Tenth-named Second Respondent : No appearance
(Page 3)
Case(s) referred to in judgment(s):
Australian Guarantee Ltd v De Jager [1984] VR 483
Binney v Mutrie (1886) 12 App Cas 160
Carr v Finance Corporation of Australia Ltd [No 1] (1981) 147 CLR 246
Carroll v Azolia Pty Ltd, unreported; SCt of WA; Library No 980004; 19 January 1998
Collins v Westralian Sands Ltd (1993) 9 WAR 56
Fancourt & Anor v Mercantile Credits Ltd (1983) 154 CLR 87
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Garwood v Garwood (1911) 105 LT 231
Gething v Keighley (1878) 9 Ch 547
Giles v Randall [1915] 1 KB 290
Hurst v Bryk [1999] Ch 1
Knox v Gye (1872) 42 Law Journal Ch 234
Levi v Stirling Brass Founders Pty Ltd (1997) 36 ATR 290
Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109
Oldaker v Lavender (1833) 6 Sim 239
Packer v Meagher [1984] 3 NSWLR 486
Phillips-Higgins v Harper [1954] 1 QB 411
Re Barber; Ex parte Barber (1870) 5 Ch App 687
Re Bond Corporation Holdings Ltd (1990) 1 WAR 465
Re Malley SM; Ex parte Gardner [2001] WASCA 83
Sim v Sim (1861) 11 I Ch R 310
Smith v Knarston [1872] VR 174
Spencer v Wenlock (1922) 25 WALR 114
Taylor v Southwood [1861] 1 WN (E) 29
Tito v Waddell (No 2) [1977] Ch 106
Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2) (1997) 18 WAR 190
Webster v Lampard (1993) 177 CLR 598
Williamson v Barbour (1877) 9 Ch D 529
(Page 4)
Case(s) also cited:
Anfrank Nominees Pty Ltd v Connell (1991) 6 WAR 271
Belmont Finance Corp Ltd v Williams Furniture Ltd [1979] 1 Ch 250
Cargill v Bower (1878) 10 Ch D 502
Clements v Bowes (1853) 1 Drew 684
Cruickshank v Sutherland (1922) 92 LJ Ch 136
Hampton Goldmining Areas Ltd v Metals Exploration Ltd (1995) 17 WAR 30
Hunter v Belcher (1863) 9 LT 501; (1864) 2 De GJ & S 194
In Re Gyhon (1885) 29 Ch D 834
Irvine v Young (1823) 1 Sim & St 333
Long v Yonge (1830) 2 Sim 369
Rawson v Hobbs (1961) 107 CLR 466
Stobbart v Mocnaj and Ors [1999] WASC 252
TM Burke Estates Pty Ltd v PJ Constructions (Vic) Pty Ltd (In Liq) [1991] 1 VR 610
Wicks v Bennett (1921) 30 CLR 80
(Page 5)
1 MALCOLM CJ: This is an appeal against a judgment of Master Sanderson dated 2 December 1999 by which the learned Master ordered that:
(1) the appellant have leave to apply for summary judgment pursuant to O 14 of the Rules of the Supreme Court 1971;
(2) the appellant's application for summary judgment dated 25 August 1999 be dismissed;
(3) the respondents (save for the respondent John Gerard Dearn) have leave to apply for summary judgment pursuant to O 16 of the Rules;
(4) judgment be entered for all of the respondents (save for Mr Dearn) dismissing the appellant's claim against those respondents; and
(5) the appellant pay the costs of the respondents in the action (save for Mr Dearn) including the costs of the appellant's application for summary judgment and the respondents' application for summary judgment, and all reserved costs, with a certificate for senior counsel.
2 By this appeal the appellant seeks an order that the orders of the learned Master be set aside and, in lieu thereof, there be judgment for the appellant in the action; the respondents' (save for Mr Dearn) application for summary judgment be dismissed; and that the respondents pay the appellant's costs in the action, including the costs of the appellant's application for summary judgment, the respondents' application for summary judgment, and all reserved costs.
3 The respondents (other than Mr Dearn) have cross-appealed pursuant to O 63 r 9(1) of the Rules seeking a variation of the costs orders so that the costs of the proceedings below be taxed as between solicitor and client.
Grounds of Appeal
4 There were some 12 grounds of appeal. Ground 1 was that the learned Master erred in finding that the appellant was seeking relief for money sums set out in par 14 of his affidavit sworn 4 February 1999, when the application for summary judgment was limited to seeking orders for the taking of accounts and expressly not seeking orders for money sums. Ground 2 reflected a similar point and also asserted that orders should have been made for an account.
(Page 6)
5 At the outset of the hearing of the appeal, counsel for the appellant acknowledged that no appeal lies from an order of a Judge or Master giving unconditional leave to defend an action by virtue of s 60(1)(b) of the Supreme Court Act 1935. The result was that grounds 1(a), (b) and (c) of the grounds of appeal were not pursued. In the result, therefore, the appeal is only concerned with the challenge to the summary judgment entered for the respondents.
6 It is contended that the finding made by the learned Master was inconsistent with his "finding" in par [3] of his reasons to the effect that the appellant was seeking relief only by the way of taking of accounts. Thirdly, it is contended that the appellant's affidavit sworn 4 February 1999 was filed for the express purpose of obtaining leave from the Court to amend the writ.
7 The appellant contends that the learned Master should have ordered a taking of accounts as sought by him and on that basis should have granted his application for summary judgment.
8 These last two points are covered by grounds 2 and 3 of the grounds of appeal.
9 Ground 4 of the grounds of appeal contends that the learned Master erred in finding that upon the termination of each of the partnerships accounts were prepared and that the appellant approved of them.
10 Grounds 5 and 6 assert that there was no basis for the conclusion by the learned Master that the appellant was entitled to a share of the "retirement penalties" when certain partners resigned. Ground 6 contends that this finding regarding such penalties was inconsistent with the terms of the partnership agreement and his finding that the partnership agreement was confused as to what was meant by "current account".
11 Grounds 7 and 8 contend that the learned Master erred in finding that the insurance proceeds from a policy of insurance paid to Corser Nominees Ltd ("Corser Nominees") did not fall within the assets of the partnership and contend that the evidence was that Corser Nominees was set up or used to administer the affairs and assets of the partnerships.
12 Grounds 9 and 10 contend that the learned Master erred in finding that the partnerships were entitled to "discount" work in progress upon the retirement of a partner, when such discounting was expressly prohibited by the terms of the partnership agreement.
(Page 7)
13 Finally, grounds 11 and 12 contend that the learned Master failed to apply the correct test, or alternatively applied an incorrect test, in determining the respondents' application for summary judgment and should have dismissed their application.
14 It is trite law that summary judgment should not be entered where there is any real dispute of law or fact. A defendant to litigation is prima facie entitled to a trial of an action against him on the merits. It follows that summary judgment should not be granted unless it is clear that there is no real question to be tried: Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109 at 110 - 111 per Brinsden J; Fancourt & Anor v Mercantile Credits Ltd (1983) 154 CLR 87; and Webster v Lampard (1993) 177 CLR 598.
Cross-Appeal and Notice of Contention
15 The respondents (save for Mr Dearn) have cross-appealed against the order for costs made by the learned Master on the grounds that an indemnity costs order ought to have been made against the appellant because he is a legal practitioner and, properly advised, should have known that he had no chance of success in the action and, consequently:
"… the action can be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of known facts or the clearly established law."
16 The respondents (save for Mr Dearn) also gave a notice of contention pursuant to O 63 r 9(2) of the Rules contending that the decision below should be affirmed on a further ground, not relied upon by the court below, that any causes of action against the respondents, Owen-Conway, Swift, Williamson, Crooks, McCormack, French and the Estate of the late Ian Cearns are statute-barred pursuant to s 38(1) of the Limitation Act 1935 (WA).
Background
17 The appellant was at all material times a partner in a firm of solicitors known as Corser & Corser. He was the plaintiff in an action against his former partners. The first respondents were the persons who were partners in the firm at the date of the appellant's retirement from the partnership on 15 January 1993. The proceedings by the appellant were brought as a result of a dispute about the amount of money that was payable by the continuing partners to the appellant upon his retirement.
(Page 8)
The second respondents are former partners of the firm who were in partnership with the appellant at one time or another after he joined the firm, but who had retired from the firm prior to the commencement of the action. Nothing turns on this because the evidence was that there was no dissolution or winding up of the affairs of the firm upon the retirement of a partner. The business continued on the basis that, upon the retirement of a partner, there was a payment of a sum of money to him or her to be calculated in accordance with an agreed formula.
18 Upon the appellant's retirement from the firm, a dispute arose concerning three issues. The first has been referred to in the litigation as the "retirement penalties issue", which is whether or not certain entitlements in respect of goodwill were payable in the event of the retirement of certain partners. The second issue has been referred to as the "fee adjustment issue" which is whether or not certain adjustments were to be made in respect of the amount or value of work in progress upon the retirement of a partner. The third has been referred to as the "insurance proceeds issue", which concerns the entitlement of a retiring partner in respect of a life insurance policy and a disability policy concerning a deceased partner, the late Mr Ian Cearns, and whether or not the proceeds of such policies were distributable among the other partners.
19 The appellant claims that the amounts due to him upon his retirement have been incorrectly calculated. He claims that he is entitled to a greater sum than that which was calculated as being due to him. These proceedings were commenced by a writ issued on 23 December 1998. The appellant claimed an order for the winding up of the seven successive partnerships by which the firm was constituted from the time he joined the firm until his retirement from it. In addition, he claimed an order for the taking of the accounts of each of the partnerships including an account of the appellant's partnership as it was constituted at the date of his retirement.
20 The statement of claim pleaded seven successive partnerships, the last being that from which the appellant retired. As we were told by counsel for the appellant, a formal order for winding up, the appointment of a receiver and a sale of assets had never been contemplated by the appellant. The sole purpose of the proceedings was to determine the amount properly due and payable to the appellant by the continuing partners upon his retirement, with or without interest. It was contended that this would involve the taking of accounts or re-opening of accounts which had been taken.
(Page 9)
21 In this context, one of the major issues decided against the appellant by the learned Master, which led to summary judgment dismissing the action, was that there was no basis for re-opening the accounts in relation to the first six of the seven partnerships. So far as the seventh partnership was concerned, the learned Master concluded that, while it was plainly arguable that the accounts of that partnership were not "settled accounts", the grounds on which the appellant sought to dispute those accounts were without merit and the respondents had a good defence to the appellant's claims in respect of each of them. Consequently, the appellant's application for summary judgment was dismissed and the respondents' cross-application for summary judgment succeeded.
22 The grounds also contend that the learned Master erred in finding that upon the termination of each of the partnerships, accounts were prepared and that the appellant approved these accounts. In this respect, the appellant relies on par 2 of his affidavit sworn 25 August 1999 in which he affirmed the truth of the allegations made in the statement of claim including an allegation that upon the dissolution of each of the partnerships, the respondents "wrongfully neglected or refused to wind up the affairs" of the partnerships "or to undertake the taking of accounts thereof". The appellant also says that by par 13 of his affidavit sworn 4 February 1999, he expressly put the respondents on notice that they were in breach of the partnership agreements by failing to take accounts for the dissolved partnerships and failed to properly account for goodwill, fee adjustments and insurance proceeds.
23 The appellant also contends that the learned Master was in error in finding that there was no basis for the appellant's claim that he was entitled to a share of the "retirement penalties", when certain partners resigned and that his finding was inconsistent with the terms of the partnership agreement and the learned Master's own finding that the partnership agreement was confused as to what is meant by "current account". It was also contended that the learned Master erred in finding that the insurance proceeds from a policy of insurance paid to Corser Nominees could not fall within the assets of the partnership although Corser Nominees was set up or used to administer the affairs and assets of the partnership.
24 Finally, it was contended that the learned Master erred in finding that the partnerships were entitled to "discount" work in progress upon the retirement of a partner because, in particular, discounting was expressly prohibited by the terms of the partnership agreement.
(Page 10)
Decision of the Master
25 It was the fact that the only relief claimed on the appellant's application for summary judgment was an order for taking accounts in respect of each of the seven partnerships. The learned Master noted there was only one difference in relation to the various claims. During the course of each of the partnerships a policy of insurance was taken out over the life of each partner for the benefit of the partnership. The sixth partnership terminated on 30 June 1992 when the late Mr Cearns retired. The seventh partnership then took over the insurance policies on the lives of the partners in the sixth partnership. It seems, however, that a policy was maintained on the life of Mr Cearns, although he had retired from the partnership. Upon his death a payment was made under the policy. The appellant contended that the proceeds of that policy were to be taken into account in relation to the seventh partnership.
The Partnership Agreement
26 The terms of the partnership agreement in respect of each of the partnerships were basically the same, namely:
1. Goodwill was fixed at $25,000 per partner.
2. The financial arrangements of the partnership could only be varied by a unanimous resolution of all partners.
3. If a retiring partner engaged in private practice as a solicitor within two years from the date of his retirement from the partnership, he was not entitled to obtain any payment for goodwill.
4. Upon retirement a retiring partner was to be paid his share and his interest in the partnership together with interest.
27 In the case of the first four partnerships, insofar as they were evidenced in writing, the writing was constituted by minutes of a partners' meeting dated 24 June 1986. The learned Master found that these minutes were adopted by the subsequent partnerships and provided the written part of each of those four partnership agreements. In the minutes of the partners' meeting held on 24 June 1986 four relevant terms appear, namely:
1. Goodwill was fixed at $25,000 per partner.
2. The financial arrangements of the partnership could only be varied by a unanimous resolution of all partners.
(Page 11)
3. If a retiring partner engaged in private practice as a solicitor within two years from the date of his retirement from the partnership, he was not entitled to retain any payment for goodwill.
4. Upon retirement, a retiring partner was to be paid his share and interest in the partnership together with interest.
28 Under the heading "General Business" in the minutes of the same meeting, there appear the following items:
"(a) …
(b) At retirement, the value standing to the credit of the partner's current account less goodwill (hereinafter referred to as the 'net tangible assets') will be the amount to be paid by the firm to a retiring partner. The net tangible assets will not be discounted upon the occasion of a partner's retirement.
(c) The net tangible assets are to be paid to a retiring partner by equal monthly instalments over a period of 2 years with no interest attached thereto.
(d) Goodwill is to be fixed at $25,000 per partner.
(e) Upon the retirement of a partner goodwill is to be held by the remaining partners as trustees for sale to any incoming partner.
(f) Any incoming partner must purchase any goodwill held by the firm as trustees for sale by payment of the sum of $25,000.
(g) If the firm is not holding any retired partners' goodwill for sale at the relevant time, any incoming partner will pay a goodwill payment to the firm in the sum of $25,000 for the existing partner's use beneficially.
(h) When the firm receives a goodwill payment from an incoming partner upon the occasion of a sale by the firm as trustees of the retired partner's goodwill, the firm will forthwith make payment to the retired partner of the sum of $25,000.
(i) If there is no incoming partner within a period of 2 years from the date of a retirement of a partner, goodwill will
(Page 12)
be paid out to the retired partner in the sum of $25,000 at the expiration of 2 years from the date of the retirement without the accrual of interest in respect thereof.
(j) If the retired partner engages in private practice either on his own account or as a member of a firm in his capacity as a solicitor in the Perth metropolitan region during the period of 2 years from the date of his retirement from the firm, any goodwill payment made to him upon the occasion of his retirement or thereafter will be refunded to the firm.
(k) …
(l) The partners agree that the financial arrangements set out in (a) to (k) above and any resolution to remove a partner or to dissolve the partnership can only be varied by a unanimous resolution of all partners at a meeting at which all members of the partnership are in attendance either personally or by their proxy.
…"
29 The learned Master noted that the term "the partner's current account" was not actually defined by the partnership agreement. Under cl (b) the partner's current account less goodwill is defined as "net tangible assets".
30 The appellant pleaded in his statement of claim that upon retirement a retiring partner was to be paid his share and interest in the first partnership together with interest. As the learned Master noted in his reasons for judgment, it is not immediately apparent how that obligation arises. What appears to be required is that the retiring partner will be paid his share in the net tangible assets of the partnership as defined.
31 A number of variations were made to the terms of the partnership by resolutions adopted at a meeting of partners on 17 May 1989. These variations applied to the fifth, sixth and seventh partnerships. Clause 8(i) of the resolutions was as follows:
"At retirement or resignation, the amount standing to the credit of the partner's Current Account less goodwill (hereinafter referred to as the 'net tangible assets') will be the amount to be paid by the firm to a retiring or resigning partner."
(Page 13)
32 While this clause reflects what was in the 1986 minutes, there is no undertaking in this later formulation of the agreement that the amount of the net tangible assets will not be discounted on the occasion of the retirement of a partner. In this context, the learned Master noted that:
"In any event there is really no dispute between the parties as to the nature of the various partnership agreements and their terms and conditions."
The Appellant's Claims
33 The appellant set out his claim in par 14 of his affidavit sworn 4 February 1999 as follows:
"14. By letters dated 22 and 24 March 1998 the plaintiff requested payment of the sum of $214,373.24 in relation to the matters referred to in paragraph 13 above. The sum of $214,373.24 is calculated as follows :
14.1 Capital and Current
Account as per Final
Accounts 31 December
1992. Annexed hereto
and marked 'A' is a
calculation showing the
figure for my capital
and current account $101,160.00
14.2 Add share Darreh Unit
Trust $5,419.00
- Trust Capital 20.00
- Darreh Pty Ltd
shares 30.00
- Corser Nominees Ltd
shares 30.00
- Income 483.00 5,982.00
14.3 Add share of Retirement
penalties enforced. Annexed
hereto and marked "B"
is a calculation of
retirement penalties
McCormack 3,125.00
(Page 14)
French 3,125.00
Ian Cearns 3,125.00 9,028.00
14.4 Add share of Retirement
penalties not enforced
contrary to agreement
Swift 1/10 $25,000.00 2,500.00
Crooks 1/8 $25,000.00 3,125.00 5,625.00
14.5 Add share of Retirement
penalty (when enforced)
Dearn 1/8 $25,000.00 3,125.00
14.6 Add adjustment to Ian
Cearns current account for
retirement penalties
McCormack $3,125.00
French $3,125.00
Swift $2,500.00
Crooks $3,125.00 11,875.00
for discount work in
progress at 30/6/92
$711,738.00 - 1/10th 71,174.00
83,049.00
1/9th share thereof 9,228.00
14.7 Add share in proceeds
MLC Policies. I Cearns
capital and current account
as per final accounts 127,713.00
1/9th share thereof 14,190.00
14.8 Add share loss to
partnership revenue
suffered as a result of the
death of the late Ian
Cearns 15,000.00
Less included in Profits
to 31 December 1992 1,892.00
13,108.00
1/9th share thereof 1,456.00
(Page 15)
14.9 Add share of discount of
work in progress at 31
December 1992
$175,086.00
1/9th share thereof 19,454.00
Sub total items 14.1 to 14.9 169,248.00
Add interest adjustment
from 1 January 1993 to
1 January 1998 @ 10%
($16,924.80 x 5) 84,624.00
Sub total 253,872.00
Less payments made $39,498.76
TOTAL $214,373.24"
34 As to these claims, the learned Master said in pars [13] - [15] of his reasons:
"This is a summary judgment application. In my view, it is at least arguable that equitable jurisdiction to order the taking of accounts does not arise in this case. If such jurisdiction does arise then it may not be exercised, at the discretion of the court. Once again that seems to me to be an arguable position. That being the case, the plaintiff's application for summary judgment must be dismissed.
Turning then to the defendants' application for summary judgment, it would seem that the only claim that the plaintiff could possibly have is against the members of the seventh partnership. These were Valma Cearns, Bower, Cywicki, O'Toole, Hughes, Masarei and Dearn. That in turn means that no claim would lie against Valma Cearns in her capacity as executrix of the estate of Ian Cearns, Williamson, Owen-Conway, Swift, Crooks, McCormack or French. What is more, in relation to each of these individuals, it is said that accounts were prepared at the termination of the partnerships in which they were involved and that these accounts were approved by the plaintiff. The plaintiff does not dispute that this is the case. In the circumstances, each of the defendants maintains a
(Page 16)
defence of settled accounts: see Anglo-American Asphalt Co v Crowley Russell & Co [1945] 2 All ER 324. In my view, in the absence of any evidence from the plaintiff challenging the accounts of the various partnerships at any time since the accounts were prepared provides each of the defendants (other than those who were in the seventh partnership) with a good defence to this claim. It must be remembered that this is a summary judgment application. Having raised the defence of settled accounts, it was for the plaintiff to produce some evidence that the accounts were challenged or that there had been no settled account agreed. In the absence of such evidence, the defendants' position must be accepted.
In relation to the seventh partnership, the position is somewhat different. The accounts were challenged by the plaintiff even if it was done in a rather pre-emptory fashion: see Annexure 'A' to the plaintiff's affidavit of 8 November 1999. It is at least arguable that the accounts were never accepted by the plaintiff and that the defence of settled account would not lie. However, the defendants say, independent of any defence of settled account, that the plaintiff simply has no claim against them on the best view of his case as he puts it before the court."
The Issues in the Appeal
35 The appellant challenges the finding by the learned Master that the accounts for the first six partnerships were settled accounts in that they had been approved by the partners and, in particular, the appellant.
36 So far as the first to the sixth partnerships are concerned, it was contended on behalf of the appellant that the finding by the learned Master was contrary to the affidavit evidence of the appellant in his affidavit sworn 8 November 1999 in reply to an affidavit by Mr Bower sworn 11 October 1999.
37 As to the seventh partnership, the learned Master noted that the accounts of this partnership were challenged in the manner set out in a letter from the appellant to the firm dated 19 November 1993. The appellant said that he disputed the goodwill write-offs, the provisions for fee adjustment, the payment of the proceeds of the life insurance policy in respect of the death of Mr Cearns, and the amount payable in respect of his share in the tangible and intangible assets of the partnership, including his share in work in progress.
(Page 17)
38 The appellant's claims were held by the learned Master to be able to be broken down into three separate areas. These were the "retirement penalties" issue, the MLC Insurance policy issues arising out of the death of Mr Cearns; and a claim on the retirement of Mr Cearns; and the appellant's claim for a discount for the work in progress which applied upon the retirement of Mr Cearns from the partnership. The issues each related to the account of the successive partnerships of which the appellant was a member.
The Settled Accounts
39 The amount, if any, found due to a plaintiff in an action for an account is enforceable as a judgment debt: Cairns, Australian Civil Procedure, 4th ed, 1996 at 731. It is a defence to a claim for an amount that the parties have already settled accounts between them: Hurst v Bryk [1999] Ch 1 at 16 - 17 per Peter Gibson LJ. As far as the first six partnerships were concerned, there were settled accounts agreed between the appellant and the relevant respondents.
40 In his affidavit sworn 11 October 1999 Mr Bower says that he became a partner in the firm as it was then constituted on 1 July 1985. He remained a partner until the dissolution of Corser & Corser on 31 January 1999. Mr Bower says that between 1987 and 1993 the partnership conducting its accounting affairs in accordance with a Lotus computerised accounting package. The package had the capacity to produce a number of monthly reports. These were presented in a printed form to partners' meetings on a monthly basis and discussed. At such meetings there was a regular agenda item for the discussion of reports of billings for the month, work in progress fluctuations in partners' capital and current accounts, the partnership balance sheet and a profit and loss statement, together with a trial balance. In particular, Mr Bower says in par 11 of his affidavit that:
"I recall that [the appellant] attended partners' meetings on a regular basis between 1986 and 1992. To the best of my knowledge and belief [the appellant] never challenged the accuracy of anything contained in any of the balance sheets or financial records, including his current or capital account."
In particular, Mr Bower says in par 15 of his affidavit:
"Formal accounts were prepared for the partnership at the expiration of each financial year and upon the entry or exit of individual partners. When formal accounts were prepared the
(Page 18)
financial controller at Corser & Corser would provide the primary documentation to the Corser & Corser external accountants, A K Graham & Co, for that firm of accountants to prepare formal accounts. Those accounts were provided to all of the partners prior to execution and partners were entitled to question or object to those accounts at subsequent partners' meetings. In due course the accounts were then signed by the partner authorised to execute the accounts, usually the managing partner."
In particular, Mr Bower also says in par 16 of the same affidavit:
"To the best of my knowledge and belief the [appellant] never raised any objections in relation to any item in or aspect to the accounts during the period that he was a partner between 1987 and 1992."
41 As indicated above, the appellant objected to the accounts of the partnership for the six months to 31 December 1992. This was his first objection.
42 On this evidence, I consider that it was open to the learned Master to conclude that the accounts of the first six partnerships were settled accounts. The partner who retired from the firm at the termination of one or other of these partnerships did so on the basis that their interest in the partnership was vested in the remaining partners. This approach was adopted as and when changes in the constitution of the membership of the partnerships were required without it being necessary for there to be a winding up for the purposes of the implementation of the arrangements. For these reasons, ground 4 of the grounds of appeal must fail. It is apparent from the evidence that the partners who retired from the firm, including the appellant, transferred their share in the partnership to the remaining members. This is supported by the evidence of Mr Owen-Conway who retired from the firm on 30 June 1987. At that time a deed of release dated 30 June 1987 was executed between the continuing partners, Mr Owen-Conway and Westminster Finance Australia Ltd.
43 The affidavits of Mr French, Mr McCormack, Mr Williamson, Mr Crooks and Mr Swift are all to the same effect. The payments were evidenced by specific or tacit agreements of the partners after consideration at partnership meetings where one of their number was appropriately authorised to sign the accounts.
(Page 19)
Payments to the Appellant
44 The respondents claim that, as at 31 December 1992, the appellant was entitled to a payment of $101,160 in respect of the amount in his current account of the partnership and that this amount was paid in full in 1993, either directly or by way of a reduction of the amount owed by the appellant to Natwest Australia Bank Ltd, as set out in a letter to the appellant from the firm dated 5 August 1994. The appellant's claim that there was an amount owing by various Corser & Corser related entities as at 31 December 1992 in an amount of $5,892 was likewise paid to him or on his behalf.
45 According to Mr Bower, the total amount paid to the appellant or paid on his behalf in 1993 was $114,010.14 made up as follows:
Natwest Australia Bank Ltd on behalf of appellant $67,745.27
Appellant's share of payments made in respect of
professional indemnity claims against the partnership 6,766.11
Payment made directly to the appellant 39,498.76
Total $114,010.14
46 Mr Bower says that, based on the facts set out in his affidavit, the total amount due to the appellant on his retirement from the seventh partnership was:
Balance of current account $101,060.40
Undistributed income from the Darreh Unit Trust 6,008.74
Capital account Corser & Corser 100.00
Accrued interest on capital account 6,841.00
Total $114,010.14
47 The only qualification made in relation to the above is that, in the letter from the firm to the appellant dated 5 August 1994, there was a typographical error with respect to the appellant's proportion of the professional indemnity insurance payment made with respect to what was described as the "Mallesons/Skipwirth matter". The letter records that the payment was $4,810.49. In fact, the appellant's share was $4,819.49 which was the amount in fact paid.
48 The remaining matters in dispute were identified by the learned Master in par [16] of his judgment as follows:
(Page 20)
"The plaintiff's claim can be broken down into three separate areas. Under par 14.1 (which I have quoted above) the accounts of 31 December 1992 showed the plaintiff's current account standing at $101,160. It is common ground between the parties that this is the figure put forward by the defendants on the plaintiff's retirement from the partnership. The plaintiff then seeks a further $5,982 being his share of entitlements in relation to the Darreh Unit Trust. In fact, he was credited with the sum of $6,008.74 in relation to the Darreh Unit Trust. This appears from a letter from Messrs Corser & Corser to the plaintiff dated 5 August 1994 and appearing as Annexure 'M' to the affidavit of Ronald William Bower, sworn 11 October 1999. There does not appear to be any dispute about the credit given by the defendants to the plaintiff and this aspect of the plaintiff's claim can be put to one side."
49 I note that in relation to the financial statements of the partnership to 31 December 1992 the appellant maintained that the respondents had failed to correctly account for "goodwill write-offs", incorrectly provided for fee adjustments and failed to correctly account for insurance proceeds on the death and disability of Mr Cearns. The appellant also claimed that he was entitled to be paid a share of the retirement penalties payable by Messrs McCormack, French and Cearns each of $3,125 making a total of $9,028. In addition, he claimed a share of retirement penalties payable by Messrs Swift and Crooks, which had not been enforced, contrary to the partnership agreement made up as follows:
Swift - one-tenth of $25,000 $2,500
Crooks - one-eighth of $25,000 3,125
Total $5,625
50 Finally, the appellant claimed a share of the retirement penalty (when enforced) payable by Mr Dearn, being one-eighth of $25,000, namely $3,125. The total of these retirement penalty amounts is $17,778.
Retirement Penalties
51 The appellant contended that the financial statements provided by the firm did not bring to account the appellant's share of the "goodwill" of the firm represented by "the retirement penalties" for Messrs McCormack, French, Dearn and Cearns and the retirement penalties for Messrs Swift and Crooks that were not, but ought to have been, enforced.
(Page 21)
52 The learned Master dealt with these claims as follows:
"Points 14.3, 14.4, 14.5 and 14.6 (in part) relate to the so-called 'retirement penalties'. In my view, this claim proceeds on a complete misunderstanding of the way in which the partners agreed to treat goodwill. Goodwill in any business fluctuates from time to time and can, in reality, only ever be determined when a willing buyer and a willing seller reach agreement as to how much the buyer is to pay for goodwill upon the purchase of a business. Until such an agreement is struck, partners can value the goodwill and they can adjust it up or down but it remains nothing more than an estimate of what goodwill may fetch when and if the business is sold. It is clear that in the various partnerships, the subject of this action, the partners did not want to be bedevilled by arguments about goodwill whenever the partnership came to an end as the consequence of the retirement of a partner. So they agreed that the value of the goodwill for an incoming partner and an outgoing partner was $25,000. They added certain riders so that in certain circumstances an outgoing partner did not receive payment for his goodwill. The value placed upon an outgoing partner's entitlement to payment for goodwill bore no relationship to what the goodwill might actually have been worth. It was not intended to do so. What the partners did was simply introduce a mechanism to facilitate an orderly entry and exist of partners. The net result might in the end be that, if all the partners on a particular date resolved to dissolve the partnership entirely and sell the business as a going concern, the return to each of them representing goodwill might be well above or well below the $25,000 which was the notional value of their partnership. None of that affects the arrangements which were in place on the departure of the plaintiff from the seventh partnership. In my view, there is no basis for saying that the plaintiff is entitled to a share of 'retirement penalties' when certain partners resigned. What the plaintiff was entitled to receive was an amount of $25,000 being the agreed value of his goodwill. He was then entitled to receive the net tangible assets which amounted to the current account, less goodwill. If any retirement penalties were to be facted [sic factored] into the overall net position of the partnership they would have to be regarded as part of the goodwill. It is difficult to see how they could be treated otherwise. That being so there is no provision
(Page 22)
in the partnership agreement for the plaintiff to seek any amount in relation to these retirement penalties on his retirement from the partnership."
53 It was submitted on behalf of the appellant that this issue involved disputed questions of fact and the proper construction of the terms of the partnership agreement, which ought not to have been decided summarily.
54 As recorded in the minutes of the meeting of partners on 24 June 1986, the partners agreed that:
"(a) 3 months notice of retirement from the partnership must be given.
(b) At retirement, the value standing to the credit of the partner's current account less goodwill (hereinafter referred to as the 'net tangible assets') will be the amount to be paid by the firm to a retiring partner. The net tangible assets will not be discounted upon the occasion of a partner's retirement."
55 The appellant's contention was that the financial statements of the firm provided to him showed that, as at 31 December 1992, there had been a discount of work in progress of $175,086, the appellant's share of which was calculated at $19,454. This, so it was argued, was an admission that work in progress had been discounted with the consequence that, at least prima facie, there had been a breach of the partnership agreement.
56 The respondents' answer to this contention was that it was agreed between the partners, as evidenced by the minutes of partners' meeting on 24 June 1986 and 17 May 1989, that the entitlement of a retiring partner in respect of his or her share of goodwill was to be a payment of $25,000 which would be reflected in the partner's current account. The partner would be entitled to be paid that amount, unless he or she was disentitled to that payment by reason of the "penalty" provision that applied to retiring partners, who went into private practice in competition with the firm. A retiring partner was also entitled to be paid the non-goodwill portion of his or her current account.
57 The total value of the goodwill was referred to in the balance sheet of the partnership as an asset. This reflected the combination of the individual partners' entitlements to be paid $25,000 each on retirement, plus whatever amount of goodwill was in the firm's "goodwill suspense
(Page 23)
account". The portion of the firm's total goodwill held in suspense continued to be treated in that way until a new partner purchased a share of the goodwill for $25,000 or, alternatively, until the total value of the goodwill in the balance sheet was written down by the agreement of the partners from time to time.
58 As appears from Mr Bower's affidavit of 11 October 1999, adjustments were made to the total goodwill by writing down the total between 1987 and 1993, as the total number of partners in the firm was reduced. In particular, when Messrs McCormack and Crooks retired on 30 June 1988, the goodwill was reduced by $50,000 from $300,000 to $250,000. This remained the figure in the accounts to 30 June 1989.
59 Mr Bower's evidence was that, to the best of his knowledge and belief, all partners who joined the partnership between 1987 and 1992 paid $25,000 each for goodwill and any partner, who did not suffer a retirement penalty, was also paid out goodwill fixed at $25,000 on retirement. It was contended that this agreement overrode any current account recording the value of individual shares of goodwill caused by there being fewer partners due to retirements. In this respect, there is no evidence that the agreement regarding goodwill, previously referred to, was varied, so that a retiring partner was entitled to receive in excess of $25,000 in respect of goodwill upon retirement.
60 It was for this reason that, in the management reports to the partners, there was created a suspense account for this excess goodwill. Mr Bower says that when the number of partners fell below the level necessary to enable the total of the then shares in goodwill of $25,000 each to total $250,000, the partners kept the excess, in effect, as a reserve so as to be able to charge a new partner $25,000 for goodwill. When such a charge was made, it was dealt with by an adjustment to the suspense account, so that the share of each partner in the goodwill in their respective current accounts was maintained at $25,000.
61 The evidence of Mr Bower was also that the treatment of goodwill in the accounts of the partnership was maintained on the basis described, whether a retiring partner was paid out his or her share of goodwill upon retirement, or a retirement "penalty" was imposed because the retiring partner had forfeited his or her entitlement to receive payment on account of goodwill. Mr Bower says that the appellant never raised any objection to the accounting treatment of goodwill in the manner described.
(Page 24)
62 In the accounts as at 31 December 1992 the statement of partners' equity reflects that the partners' current accounts were reduced by $2,777.77 or $2,777.78 each on account of "Goodwill written off". Mr Bower explained that this was an accounting entry to reflect the fact that Mr Cearns had retired from the partnership as at 30 June 1992 and his share of the goodwill was deducted from the total value of the firm's goodwill, as recorded in the balance sheet. As Mr Cearns had become an employed consultant to the firm upon his retirement, he was not liable to a retirement penalty. Hence, the reduction of the total goodwill went from $250,000 as at 30 June 1992 to $225,000 as at 31 December 1992.
63 The explanation for this is that, at the time of Mr Cearns' retirement on 30 June 1992, there were 10 partners in the firm. As his goodwill was not held in "suspense" after he retired, the firm's goodwill had to be reduced to $225,000 to reflect the fact that there were nine partners each having a share of goodwill having an agreed value of $25,000. As the reduction in the total value of the firm's goodwill took place in the financial period after he had retired, the devaluation of goodwill necessitated a reduction in each of the remaining partners' share of goodwill by $2,777.77 or $2,777.78 on a pro rata basis.
64 In my opinion, it is apparent from the minutes of the meeting of partners of the firm held on 9 May 1989 that the appellant knew of the existence of the goodwill suspense account. The position was that, upon the retirement of Mr Cearns, he was entitled to a payment of goodwill because he became an employee of the firm. The goodwill was to be paid to Mr Cearns on the receipt by the firm of payment of $25,000 for goodwill from an incoming partner or, if there was no such partner within a year of the date of his retirement, Mr Cearns or his estate were entitled to be paid the $25,000 by the firm.
65 The effect of Mr Cearns' retirement as a partner on 30 June 1992 was to terminate the sixth partnership. As has been seen, he was employed as a consultant until he died on 14 November 1992. In par 37A of the statement of claim the appellant alleges that when the sixth partnership was terminated, there was a wrongful neglect or refusal to wind up the affairs of the partnership or to take an account of the affairs of the partnership.
66 As previously described, accounts to 30 June 1992 were prepared in the usual way, provided to each of the partners and duly signed by a partner with the authority of the other partners. Each partner was given a
(Page 25)
copy of the accounts. The appellant did not object to these accounts prior to his departure from the firm on 15 January 1993.
67 The appellant pleaded in par 42 of his statement of claim that the seventh partnership was terminated when in late 1992 Mr Dearn left the partnership suddenly due to ill-health. On 15 January 1993 the appellant retired from the firm. For accounting purposes, it was agreed by all of the partners that accounts in relation to the appellant's retirement should be taken on the basis that he had retired from the partnership on 31 December 1992.
68 The appellant alleges in par 43 of his statement of claim that there was a wrongful neglect or refusal to wind up the affairs of the seventh partnership or take accounts. In fact, accounts of the partnership were prepared in the usual way and provided to all partners. The appellant disputed these accounts on substantially the same grounds as set out in par 14 of his affidavit to which reference has already been made.
69 So far as "retirement penalties" were concerned, it was a matter for the partners to decide whether, in any particular circumstances, they would or would not enforce the payment of the so-called "retirement" penalties. The partners were entitled to decide these matters by majority vote at a meeting. They decided not to enforce the relevant penalties in the particular cases. The appellant has no basis to complain of their decision, including the decision in respect of Mr Dearn. On his retirement, as the learned Master found, the appellant was entitled to be paid the amount of his goodwill, namely, $25,000, which he was paid.
The MLC Insurance Policy
70 The appellant contends that the Declaration of Trust relied upon by the respondents does not support the assertions of Mr Bower or the findings of the learned Master. According to Mr Bower in pars 38.3 and 38.4 of his affidavit sworn on 11 October 1999:
"38.3 As to the claim in paragraph 14.7, in 1988 the partners in the third partnership agreed to insure the lives of all of the partners and nominated employees so to enable a number of matters to occur if a partner or a nominated employee should die during the time that they were a partner or employee of Corser & Corser. The benefits of the insurance policy would be as follows:
(Page 26)
(i) in the case of the death of partners, the insurance monies would enable the partnership to pay to the deceased's partner's estate the amount of that partner's current account immediately and thereby benefit the estate by way of an immediate cash payment but on the other hand not interrupt the Corser & Corser cash flow;
(ii) the policy would facilitate the ability to pay monies to Corser & Corser to off-set any loss of profit caused by the death of a partner or nominated employee;
(iii) if the amount of the policy exceeded the amount of, in the case of a deceased partner, the partners' current account and any loss of profits caused by the death of the partner or employee there would be an additional payment made to the deceased partner or employee's estate.
(Page 27)
(iii) to pay the balance of the said monies at the absolute discretion of the Company to any one or more of the dependents of the Deceased (being the widow, widower, any child of the Deceased or any other person whom the Company might in its absolute discretion determine to be dependent either wholly or in part on the Deceased) provided that if there is no such dependent or if the Company does not exercise its discretion as aforesaid then the balance shall be paid to the legal personal representative of the Deceased.' "
71 In my opinion, the reference in the second line of sub-par (1) to "the partnership" is a reference to the partnership as constituted by the surviving partners.
72 By a Declaration of Trust dated 27 January 1988, the resolution of the partners was put into effect. The policy was taken out on "the lives of the partners for the time being and nominated employees ('the Members') of the firm" for:
"… the general purpose of providing cover for the following:-
(a) Partners
(i) The estates of deceased partners;
(ii) Payment by the Firm of the balances of deceased partners' current account; and
(iii) Revenue loss suffered by the Firm.
(b) Employees
73 The company then declared that it shall hold all money received in respect of the policy "as a consequence of the death of a Member ('the Deceased')" upon the following trusts:
"(i) (where the Deceased is a partner of the Firm) to pay to the Firm a sum equal to the balance at the date of death of the Deceased of his or her current account with the Firm;
(Page 28)
(ii) to pay to the Firm a sum equal to the amount of any revenue loss suffered by the Firm as a result of the death of the Deceased provided that the said sum shall be limited to the amount of either six (6) month's drawings (in the event of the death of a partner) or 6 month's salary (in the event of the death of an employee);
(iii) to pay the balance of the said monies at the absolute discretion of the Company to any one or more of the dependants of the Deceased (being the widow, widower and any child of the Deceased or any other person whom the Company may in its absolute discretion determine to be dependant either wholly or in part on the Deceased) provided that if there is no such dependant or if the Company does not exercise its discretion as aforesaid then the said balance shall be paid to the legal personal representative of the Deceased."
74 The appellant claims that he is entitled to a share of the late Mr Cearns' current account as at 30 June 1992 said to be worth $127,713. It was contended on behalf of the appellant that the Trust Deed, perhaps through error or omission, made no declaration of the trust upon which the proceeds of the life policy on the life of an employee of the firm were to be held. This is significant because, as Mr Bower says in par 35.3 of his affidavit, when Mr Cearns retired from the partnership by reason of ill-health on 30 June 1992, no retirement penalty was imposed, as he was then employed by the firm as a consultant until his death in November 1992 and was not practising in competition with the firm. Mr Bower also says that, when Mr Cearns became gravely ill, all the partners, except the appellant, wished Mr Cearns to remain at Corser & Corser as a partner. However, due to the appellant's objection, Mr Cearns was not able to remain as a partner after 30 June 1992. However, all of the partners of the sixth partnership, including the appellant, agreed that Mr Cearns be employed as a consultant after 30 June 1992. Mr Cearns was so employed and paid a salary.
75 It follows that when Mr Cearns died on 14 November 1992, he was a person covered by the MLC Life policy in his capacity as an employee. This does not appear to be contested. In my opinion, the terms of the declaration of trust only entitled the firm to be paid the balance of a partner's current account if the deceased was then a partner of the firm. As Mr Cearns was not a partner of the firm at the time of his death, this provision did not apply. Consequently, the firm was not entitled to the
(Page 29)
proceeds of the policy which would otherwise have been available to pay out Mr Cearns' current account. The only entitlement of the firm under the declaration of trust was a sum equal to the amount of any revenue loss suffered by the firm as a result of Mr Cearns' death up to a maximum equivalent to six months' salary. At the time of his death, the total salary package that he was paid was approximately $30,000 per annum. Accordingly, the maximum payable to the firm by way of revenue loss would have been approximately $15,000. However, as a consequence of his grave ill-health prior to his death and the subsequent winding down of his affairs, Mr Bower deposes that it was very difficult for the firm to demonstrate any great loss of income as a result of his death. In the result Corser Nominees, the firm and Mrs Cearns, as executrix of Mr Cearns' estate, agreed on a figure of $8,630 as reflecting the amount of revenue loss suffered by Corser & Corser as a result of Mr Cearns' death. The balance of the proceeds of the policy were paid into Mr Cearns' estate.
76 The decision to pay out the proceeds of the policy to Mr Cearns' estate was one taken by Corser Nominees. The directors of the company at the time were Mr Bower, Mr Hughes, Mrs Cearns and Mr Cywicki. Mrs Cearns did not participate in the discussion or decision relating to the payment by reason of conflict of interest. The total amount payable under the policy was $200,000. Of this, an amount of $8,630 was paid to the firm to reflect the loss of income sustained by the firm for a six month period caused by Mr Cearns' death.
77 The appellant claimed a sum of $14,190 being a one-ninth share of the capital and current accounts of Mr Cearns totalling $127,713 in the Corser & Corser accounts. This claim is made under the policy. However, there was no payment to which the firm was entitled under the policy with respect to Mr Cearns' capital and current accounts.
78 The claim made by the appellant is for the sum of $1,456 being a one-ninth share of $15,000 claimed as being the loss of income to the firm suffered as a result of Mr Cearns' death. This is apparently the amount that the appellant considers should have been paid under the policy. However, the only amount received for loss of revenue in the relevant period was the agreed sum of $8,630 which was payable as a result of a decision by the directors of Corser Nominees.
79 The arrangements made with respect to the insurance policy were agreed to by all of the partners in the seventh partnership save for the appellant. Ultimately, the proceeds of the policy were paid to Mr Cearns' estate in or about October 1993. Prior to the payment being made, the
(Page 30)
appellant was informed. He objected to the distribution and threatened to seek an injunction to restrain the payment. The partners of the firm, as it was constituted in 1993, undertook to pay to the appellant whatever amount was eventually found to be owing to the appellant in respect of this issue. The appellant refused to accept this undertaking and maintained his threat to apply for an injunction. According to Mr Bower, ultimately the then partners in the firm considered it would be unconscionable not to pay the amount due to Mr Cearns' estate. Consequently, notwithstanding the appellant's objections, the proceeds of the policy, less the sum of $8,630, were paid to the estate in or about October 1993.
80 The payment was reflected in the accounts of the seventh partnership as at 31 December 1992 by reference to the proportion that the period from the date of Mr Cearns' death on 21 November 1992 to 31 December 1992 bore to a period of six months. This equated to 40 days out of a total period of 182.5 days. When this proportion was applied to the sum of $8,630, an amount of $1,892 was credited to the profits of the firm to 31 December 1992.
81 In my opinion, the learned Master was correct in his conclusion that the appellant's claim in relation to the insurance proceeds was "fundamentally flawed".
82 It was submitted on behalf of the appellant that, because the deed made no declaration of how the beneficial interest in the proceeds of the life policy on the life of an employee of the firm were to be held, the probabilities were that the proceeds of the policy on his life were held absolutely by the company. From that position it was submitted that a further inference was available that the company held the proceeds on a resulting trust for members of the firm. It was further submitted that this aspect was not considered by the learned Master. These submissions overlook the fact that the policy was taken out in the case of employees to compensate the firm for revenue loss suffered by the firm and otherwise for the purpose of providing insurance cover for "the estates of the deceased employees". Both partners and nominated employees were "Members", that is to say, persons upon whose lives policies of insurance were taken out. It followed that Corser Nominees held the proceeds of insurance on the death of Mr Cearns to pay to the firm a sum equal to the amount of the revenue loss suffered by the firm as a result of Mr Cearns' death limited to the amount of six months' salary in the event of the death of an employee. The balance of the proceeds of the insurance was to be paid to any one or more of the dependants of the deceased, including the
(Page 31)
widow or, at the discretion of the company, to pay the balance to the legal personal representative of the deceased. That is what was done in this case.
83 In my opinion, the appellant was not entitled to any interest in the proceeds of insurance, except to the extent that they included within the agreed amount paid to the firm, an amount covering loss of revenue suffered by the firm in the period 21 November to 31 December 1992, as to which there is no evidence. In my opinion, it has not been demonstrated that the learned Master was in error in any relevant respect in relation to this claim.
84 The final sum of $1,892 credited to the profits of the firm to 31 December 1992, being the agreed deemed date of the appellant's retirement, was calculated by multiplying the sum of $8,630 by the proportion that the period from the date of Mr Cearns' death on 21 November 1992 to 31 December 1992 bore to the period of six months. In my opinion, it has not been demonstrated that what happened as a result of Mr Cearns' death resulted in the appellant being deprived of any money or benefit to which he was otherwise entitled.
Discount for Work in Progress on Retirement of Mr Cearns
85 As to this matter, the appellant claimed the sum of $19,454 with respect to a one-ninth share of a discount of work in progress as at 31 December 1992 totalling $175,086. The claim was in addition to the claim for an adjustment to Mr Cearns' current account with respect to the latter's share of the discount of work in progress as at 30 June 1992 of $711,738. It was claimed that Mr Cearns' one-tenth share of that discount of work in progress as at 30 June 1992 was $71,174. The appellant did not make any direct personal claim with respect to his own current account regarding the discount of work in progress as at 30 June 1992. As to the claim in respect of Mr Cearns, the learned Master expressed his conclusion shortly as follows:
"Finally, there is the plaintiff's claim for the discount for the work in progress which was applied on the retirement of Ian Cearns from the partnership and on the retirement of the plaintiff from the partnership. The way this 'discount' is explained by Bower, is as follows. As is the case with most legal firms, work in progress is recorded by entry onto a computer. The result is that from time to time when asked to do so the computer will provide a report on the value of the work
(Page 32)
in progress. That computer generated value for work in progress may or may not be accurate. There may be some files where the value of the work in progress could not in practice be recovered. To obtain a realistic value for the work in progress some discount could, and generally probably should, be applied. That is not to say that the actual value of the work in progress is discounted. Rather it is to more accurately assess the real or actual value of the work in progress. It is clear that that has been what has been done when each of the partnerships terminated. In my view it is consistent with the terms of the partnership agreement, as reflected in the minutes of May 1989 and it is an entirely reasonable approach to putting a realistic value on the net tangible assets. For his part, the plaintiff has raised no issue that the "discount" applied is unreasonable or unwarranted and there is no basis set out for his claim."
86 Grounds 9 and 10 of the grounds of appeal contend that the learned Master erred in finding that the partnerships were entitled to "discount" work in progress upon the retirement of a partner and that such discounting was expressly prohibited by the terms of the partnership agreement. In this context, the appellant relied upon the terms of the partnership agreement as evidenced in the minutes of the meeting of partners on 24 June 1986 under the heading "Partnership Exit" which is followed by:
"(a) 3 months notice of retirement from the partnership must be given.
(b) At retirement, the value standing to the credit of the partner's current account less goodwill (hereinafter referred to as the 'new tangible assets') will be the amount to be paid by the firm to a retiring partner. The net tangible assets will not be discounted upon the occasion of a partner's retirement."
87 It was contended on behalf of the appellant that the financial statements of the firm provided to the appellant showed that, as at 31 December 1992, there had been a discount of work in progress of $175,086, the appellant's share of which was calculated at $19,454. It was argued that this was, prima facie, a breach of the partnership agreement. In this respect, it was contended that there was an admission that the current accounts were so discounted in the affidavit of Mr Bower sworn 11 October 1999, par 39.
(Page 33)
88 This claim is in addition to that relating to an adjustment of Mr Cearns' current account regarding the latter's share of a discount of work in progress as at 30 June 1992 of $711,738. Mr Cearns' one-tenth share of that discount of work in progress at 30 June 1992 was claimed as being $71,174. The appellant did not make any direct personal claim with respect to his own current account with respect to work in progress discounted as at 30 June 1992.
89 Mr Bower says that work in progress was recorded in the current assets portion of the partnership balance sheets prepared as part of the partnership accounts. For example, the balance sheet as at 30 June 1991 recorded work in progress as a current asset valued at $968,068.01. The balance sheet for the firm as at 30 June 1992 records work in progress as a current asset worth $711,738.46. The balance sheet as at 31 December 1992, the agreed deemed date of the appellant's retirement, recorded the value of work in progress as being $743,131.38.
90 In par 39.2 of his affidavit, Mr Bower says:
"The partners of Corser & Corser would from time to time analyse the details of the work in progress that was recorded on the firm's computer database so as to discount that work in progress to the extent that it comprised work that was expected could not be billed to clients. Upon the conducting of this exercise work in progress recorded in the firm's assets would be discounted and this would be reflected in the formal accounts prepared for the partnership. This process was conducted by the Corser & Corser partners by mutual agreement and I cannot recall the [appellant], whilst he was a partner at Corser & Corser, ever objecting to that process. Once work in progress was discounted in the partnership's accounts it consequently caused a reduction in the value of all of the individual partners' current accounts. Again, I cannot recall the [appellant] ever objecting to this process while he was a partner at Corser & Corser. Any discounting of the value of work in progress at 30 June 1992 and 31 December 1992 took place in accordance with the usual practice of Corser & Corser in reviewing the work in progress and merely amounted to an adjustment of the value of the work in progress appearing in the accounts of the partnership so that the value ascribed to work in progress in the accounts reflected the true and correct value of the work in progress. I believe that the amounts recorded in the Corser & Corser accounts at 30 June 1992 and 31 December 1993 as
(Page 34)
being the value of the work in progress reflect the true and correct value of that work in progress."
91 In my opinion, the learned Master was entitled to accept the evidence of Mr Bower. In my opinion, the learned Master was also entitled to conclude that the procedure which was followed did not have the result that the appellant's current account was discounted "upon the occasion of a partner's retirement". What happened was that there was a determination of the actual value of the work in progress. This was what was done when each of the successive partnerships terminated and, in my opinion, was consistent with the terms of the partnership agreement. There was nothing in the materials before the learned Master which contradicted the evidence of Mr Bower in relation to this matter.
92 Work in progress was recorded by the firm by entry onto a computer. From time to time the partners analysed the details of the work in progress that was recorded, so as to discount the value of work in progress to the extent that it comprised work that was expected could not be billed to clients. This resulted in a reduction of the amount recorded for work in progress. This did not involve the value of the work in progress being discounted. Rather, it was an attempt by the partners to assess the real value of the work in progress. This was what was done when each of the partnerships was dissolved and was consistent with the terms of the partnership agreement.
93 In my opinion, the learned Master rightly upheld the submissions of the respondents and this ground of appeal necessarily fails.
Cross-Appeal: Indemnity Costs
94 By their notice of cross-appeal dated 1 February 2000 the respondents contend that an indemnity costs order should have been made against the appellant on the hearing of his application for summary judgment and the respondents' (save for Mr Dearn) application for summary judgment because:
"1. The appellant, who is a legal practitioner, properly advised should have known that he had no chance of success in the action and, consequently,
2. the action can be presumed to have been commenced or continued for some ulterior motive or because of some
(Page 35)
wilful disregard of known facts or the clearly established law."
95 Leave was granted to the respondents to cross-appeal and the time for filing the cross-appeal and a notice of contention was extended by an order of the Master dated 29 January 2001.
96 An order for costs on an indemnity basis or costs as between solicitor and client will be ordered against an unsuccessful plaintiff who has proceeded against a defendant with what has been called "high-handed presumption": Australian Guarantee Ltd v De Jager [1984] VR 483 at 502. Such an order will also be made where the court's process has been used for an ulterior purpose: Packer v Meagher [1984] 3 NSWLR 486 at 500.
97 If it appears that an action has been commenced or continued in circumstances where the plaintiff, properly advised, should have known that he or she had no chance of success, the inference may be drawn that the plaintiff commenced or continued the action for some ulterior motive, or because of some wilful disregard of known facts or the established law. In such circumstances the court is entitled to consider whether an award of costs to be taxed as between solicitor and client or on an indemnity basis should be made: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; and Carroll v Azolia Pty Ltd, unreported; SCt of WA; Library No 980004; 19 January 1998. It was contended by the relevant respondents that, while the relief sought in the appellant's statement of claim centred around the taking of accounts for the partnerships, the appellant's object was to claim an increased entitlement on his retirement from the seventh partnership. As the learned Master concluded:
"On that basis it is difficult to see how the [appellant] could succeed on his application for accounts to be taken in relation to the first six partnerships."
Consequently, the learned Master concluded that no claim would lie against Mrs Cearns in her capacity as the executrix of the estate of Mr Cearns, or as against Messrs Williamson, Owen-Conway, Swift, Crooks, McCormack or French. Further, the appellant's claim against the balance of the respondents, namely Messrs Bower, Cywicki, O'Toole, Hughes, Masarei and Mrs Cearns was found by the learned Master to be so devoid of merit as to satisfy him that all of the respondents had a good defence to the appellant's claim and that the appellant had no arguable
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case. In these circumstances, it was submitted that the action was one commenced or continued by the appellant in circumstances where, properly advised, he should have known, particularly as he was himself a legal practitioner, that he had no chance of success. It was contended that the action should be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of known facts, or the clearly established law. It was also submitted that the appellant proceeded against the respondents with "a high-handed presumption".
98 In the case of Mr Owen-Conway QC, the writ was issued out of this Court on 23 December 1998 and a copy of the writ was sent by post to Mr Owen-Conway under cover of a letter dated 24 December 1998. There was no prior notice of the claim and Mr Owen-Conway had not seen the correspondence referred to in the indorsement of claim. The firm of Corser & Corser did not and had never acted on behalf of Mr Owen-Conway, who had retired as a partner on 30 June 1987. It follows that any claim brought against Mr Owen-Conway arising out of his dealings with the appellant would have had to relate to conduct prior to 30 June 1987.
99 Upon Mr Owen-Conway's retirement from the partnership, he was relieved of his obligations under the partners' financial arrangements with National Westminster Finance Australia Ltd, in consideration of his assigning his entire interest in the partnership to the continuing partners of the firm, including the appellant. This transaction is evidenced by a Deed dated 30 June 1987 executed by all of the continuing partners and Mr Owen-Conway. Nothing was pleaded in the proceedings with respect to any liability which Mr Owen-Conway could owe to the appellant and there is no relevant allegation made against him in the proceedings. Any conduct which could conceivably amount to a breach of contract by him or a breach of any duty owed to the appellant would have become time-barred by 30 June 1993 at the latest. In a letter to the appellant's solicitors dated 4 January 1999, Mr Owen-Conway's solicitors referred to the letter to their client dated 24 December 1998 and the enclosed writ. It was pointed out that there had been no prior notice given to Mr Owen-Conway of the claim and that he had not seen the letters dated 22 and 24 March 1998 referred to in the indorsement of claim. It was pointed out that Corser & Corser did not act and had never acted on behalf of Mr Owen-Conway. The appellant and Mr Owen-Conway were partners between mid-1987 and 30 June 1987 when Mr Owen-Conway retired. The letter stated:
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"Any claim brought against Mr Owen-Conway arising out of his dealings with [the appellant] during the time they were both partners of Corser & Corser would have to relate to conduct during that twelve month period. Whilst our client is not aware of any conduct that could conceivably amount to a breach of contract by him or a breach of any duty owed to [the appellant], any action arising against our client would have become time barred by 30 June 1993 at the latest."
The letter also says:
"The alternative relief sought from our client in the indorsement of claim for an account is also without any conceivable merit. In circumstances where Mr Owen-Conway retired from the Corser & Corser partnership on 30 June 1987 and Mr Wheatley remained a partner until, as we understand it, in or about late 1992, Mr Owen-Conway clearly has no capacity to provide your client with any account.
The indorsement of claim on the writ of summons is clearly deficient and fails in any way to illuminate the nature of the claim being made against him. The indorsement itself contains to [sic] no reference to any cause of action and fails to comply with the requirements of Order 6 rule 1 of the Rules of the Supreme Court 1971. The writ is therefore open to be struck out.
Further, in circumstances where the indorsement of claim fails to disclose any cause of action and is vexatious and an abuse of process, the indorsement is open to be struck out pursuant to the provisions of Order 20 rule 19(1) of the Rules of the Supreme Court.
Mr Owen-Conway is most aggrieved that an ex-partner and fellow practitioner has chosen some 8½ years after Mr Owen-Conway retired from the Corser & Corser partnership to commence a Supreme Court action without any prior complaint or notice of any proceedings, in circumstances in which on its face any claim is patently defective and time barred. Further, the indorsement of claim contained on the writ fails to identify any claim in any coherent manner. There is patently no basis for any claim to be brought by Mr Wheatley against Mr Owen-Conway, a senior member of the Perth legal profession. It is noted that the first our client learned of this
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matter was when a copy of the writ was sent to him on Christmas Eve.
Given the above circumstances, our client demands that the writ against him be withdrawn and discontinued immediately. Further, our client demands that immediate notice of the abandonment of the action against him be provided to the appropriate credit reference agencies.
Our client reserves the right to refer to this letter with respect to the issue of costs and gives notice that costs will be sought on an indemnity basis."
100 So far as Mr Cywicki is concerned, the solicitors for the respondents wrote to the solicitors for the appellant by letter dated 4 January 1999 advising that they acted for Mr Cywicki and said:
"Our client has handed to us a copy of your letter to him dated 24 December 1998, together with the enclosed writ of summons issued on 23 December 1998.
We note that the writ of summons includes an indorsement of claim. However, the indorsement fails to include a statement of the nature of the claim made against our client and, indeed, fails to identify any cause of action whatsoever.
The writ that has been issued against our client is clearly deficient and is liable to be struck out pursuant to Order 6 rule 1 and Order 20 rule 19 of the Rules of the Supreme Court 1971.
Our client demands that the action that has been brought against him be discontinued immediately and that notice of this discontinuance be provided to the appropriate credit references agencies immediately. Please take notice that our client reserves the right to refer to this letter on the issue of costs and proposes seeking costs on an indemnity basis."
101 By a letter dated 7 January 1999 the respondents' solicitors indicated that they acted for Mr Crooks, who was also a defendant. Mr Crooks' position was similar to that of Mr Owen-Conway. Mr Crooks retired as a partner from the firm in mid-1988, after having been made a partner approximately two years earlier. Consequently, any claim brought against him arising out of his dealings with the appellant during the time they were both partners would have to relate to conduct during the two year
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period 1986-1988. Consequently, any proceedings in relation to any alleged breach of contract by him or any duty owed to the appellant would have become statute-barred by about mid-1994 at the latest. Similar points are made with respect to Mr Crooks' position as were made in relation to Mr Owen-Conway. Again, there was a demand that the writ be withdrawn and discontinued and notice of abandonment of the action be provided to the appropriate credit agencies.
102 The response to this correspondence from the appellant's solicitors was to acknowledge receipt of the communications to which I have referred and to say:
"Please advise whether you will accept service on behalf of Messrs Cywicki, Owen-Conway and Crooks by no later than 18 January 1999.
We do not agree with your contention that the indorsement of claim on the writ of summons does not comply with Order 6 rule 1 or that it would be struck out pursuant to Order 20 rule 19(1).
We also understand that your clients were partners at the time the plaintiff's cause of action accrued. Further, it is a matter of defence if your clients contend that they were not partners at the material time and that the plaintiff's action is time-barred.
A statement of claim is currently being settled and will be filed and served in due course avoiding the cost of pointless challenge to the indorsement of claim.
The plaintiff is also most aggrieved that he has been compelled to commence legal proceedings in view of the conduct of Corser & Corser."
103 In their reply dated 14 January 1999 the solicitors for Messrs Owen-Conway, Crooks and Cywicki noted that they were also instructed by Messrs Williamson, McCormack and French. They went on to say:
"The positions of Messrs Williamson, McCormack and French in this matter are similar to those of Messrs Owen-Conway and Crooks and we refer generally to our facsimiles of 4 January and 7 January 1999. In particular, Messrs Williamson, McCormack and French have no knowledge of the basis of any claim brought by the plaintiff. Mr Williamson retired as a
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partner from Corser & Corser partnership in or about mid-1988, Mr McCormack retired from the partnership on or about 30 June 1988 and Mr French retired from the partnership on or about 30 June 1990. As with Messrs Owen-Conway and Crooks, whilst Messrs Williamson, McCormack and French are not aware of any conduct that could conceivably amount to a breach of contract by them or a breach of any duty owed to the plaintiff, any action arising against our clients was clearly time-barred at the date that the writ of summons was issued.
The indorsement of claim on the writ of summons refers to a written agreement dated 17 May 1989. Neither Messrs Williamson nor McCormack were a party to any such written agreement. We reiterate that both Messrs Williamson and McCormack had left the Corser & Corser partnership by that time.
The alternative relief sought from Messrs Williamson, McCormack and French in the indorsement of claim for an account is also without any conceivable merit. In circumstances where Messrs Williamson, McCormack and French had all retired from the Corser & Corser partnership well before Mr Wheatley retired as a partner in late 1992, they clearly have no capacity to provide your client with any account.
We reiterate that the indorsement of claim is clearly deficient and is liable to be struck out pursuant to Order 6 rule 1 and Order 20 rule 19(1) of the Rules of the Supreme Court, 1971. In the above circumstances, Messrs Williamson, McCormack and French join with our other clients in making demand that the writ against them be withdrawn and discontinued immediately. Further, they demand that immediate notice of the abandonment of the action against them be provided to the appropriate credit reference agencies. They reserve the right to refer to this letter with respect to the issue of costs and give notice that costs will be sought against the plaintiff on an indemnity basis.
In the light of your letter of 11 January 1999 and your rejection of the demands earlier made by our clients, we have been instructed to make immediate application to have the proceedings against our clients dismissed. We shall be filing and serving a chamber summons later today."
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104 The first defendants named in the action were Messrs Bower, O'Toole, Hughes and Rothstein, who were the partners as of the date of the issue of the writ and the former partners, namely, Mrs Cearns as executrix of the estate of the late Mr Cearns, and Messrs Williamson, Owen-Conway, Swift, Mrs Cearns, Messrs Crooks, McCormack, Cywicki, French, Dearn and Masarei were named as second defendants. By a chamber summons issued on 25 August 1999 the plaintiff sought leave to bring an application for an order that the appellant have summary judgment in the terms of the prayer for relief contained in the writ of summons as amended. There was a counter-application by Messrs Williamson, Owen-Conway, McCormack, Swift and Crooks for summary judgment dated 23 September 1999 pursuant to O 16. This application was subsequently amended and became an application for summary judgment by all the respondents (save for Mr Dearn).
105 When the learned Master granted the respondents (save for Mr Dearn) summary judgment and costs, he did not make any order for indemnity costs. It was submitted that there was nothing to indicate that the learned Master erred in the exercise of his discretion with respect to costs, especially when the respondents failed to respond to the initial letters of demand on behalf of the appellant. It was submitted, however, that there was no difference between fees to be allowed as between party and party and fees as between solicitor and client. Order 66 r 11(3) of the Rules provides that:
"Subject to the provisions of the Legal Practitioners Act 1893, permitting a solicitor to make a written agreement as to costs with his client, and to the provisions of these Rules, the fees allowed under any relevant scale shall apply both as between party and party, and solicitor and client …"
106 An order may be made that costs be paid by one party to the other on a solicitor and client basis: Giles v Randall [1915] 1 KB 290 at 295. It is said that such an order may be made against an unsuccessful plaintiff who has proceeded against a defendant with "high-handed presumption": Australian Guarantee Corporation Ltd v De Jager, supra. Such an order may also be made where the court's process has been used for an ulterior purpose: Packer v Meagher, supra, at 500. There is also a discretion to order costs on an indemnity basis. If costs to be taxed are awarded on an indemnity basis against a party, that party will pay all costs incurred by the opponent, except insofar as they are of an unreasonable amount or have been unreasonably incurred. The object of such an order is that, subject to those qualifications, the relevant party is to be completely
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indemnified for his or her costs: Re Bond Corporation Holdings Ltd (1990) 1 WAR 465 at 479. An order for the payment of costs on an indemnity basis will only be made in exceptional circumstances: Re Malley SM; Ex parte Gardner [2001] WASCA 83 at [2]. Seaman, Civil Procedure in Western Australia: Supreme Court at par 66.1.16 at 12,694 suggests that the significance of such an order may not be as great in the Supreme Court as it may in some other jurisdictions and says:
"Indemnity is the basis of such an order so the receiving party cannot recover from the paying party costs which he or she has no legal liability to pay his or her solicitor. In the absence of an agreement pursuant to s 59 of the Legal Practitioners Act 1893, in general he or she cannot recover a sum greater than his or her solicitor is allowed to charge, and it may be that, generally, costs claimed in excess of the scale may be held to be unreasonable in amount or unreasonably incurred. Furthermore, with limited exceptions, there should be no difference between items allowed under a party and party bill of costs and a solicitor and client bill of costs: see r 11(2) and s 58ZB of the [Supreme Court Act] and Stobbart v Mocnaj [1999] WASC 252 at [6], [8], [14]."
107 It is also noted in Seaman, op cit, at par 66.1.16D that the traditional requirement of honesty and candour on the part of lawyers, and their modern duty to reduce unnecessary issues, are inimical to the practice of denying or putting parties to proof of facts which, according to the instructions in the lawyer's possession, should be admitted, and the creation of false issues for tactical reasons is a ground for making special costs orders: see, for example, Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2) (1997) 18 WAR 190 at 193, 194. [See also Collins v Westralian Sands Ltd (1993) 9 WAR 56 at 64.] In my opinion, given the appellant's conduct and what must only be presumed to be a conscious decision to ignore the material put before his solicitors by the solicitors for the respondents whom I have mentioned, I consider it appropriate that the costs of the respondents on behalf of whom such letters were written should be ordered to be paid on an indemnity basis and the cross-appeal should succeed to that extent.
Notice of Contention
108 By a notice of contention pursuant to O 63 r 9(2) of the Rules, the respondents (save for Mr Dearn) contend that the decision of the learned
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Master should be affirmed on a further ground not relied upon by the court below, namely:
"Any causes of action that the appellant has against the respondents Owen-Conway, Swift, Williamson, Crooks, McCormack, French and the estate of Ian Cearns are statute-barred in that:
1. The appellant's substantive claim is one for debts contended by him to be owed to him as a partner of the seven partnerships pleaded in the statement of claim.
2. Section 38(1) of the Limitation Act 1935 (WA) bars the right to an account and the claiming of a debt in contract after a lapse of six years.
3. The appellant did not issue his writ until 23 December 1998 but has pleaded that the dates upon which the first six of the seven partnerships referred to in the statement of claim terminated (and therefore the date upon which the causes of action for an account and any debts with respect to those partnerships arose) were all on or before 30 June 1992.
4. The respondents, Owen-Conway, Swift, Williamson, Crooks, McCormack, French and the estate of Ian Cearns, were never partners in the seventh partnership and had all retired as partners from one of the earlier partnerships on or before 30 June 1992. In particular, Owen-Conway retired on 30 June 1987; Swift retired on 30 October 1987; Williamson, Crooks and McCormack retired on 30 June 1988; French retired on 30 June 1990 and Ian Cearns retired on 30 June 1992."
109 As pleaded, the appellant's claim arose out of seven different partnerships pleaded in the statement of claim which terminated on various dates between 30 June 1987 and 15 January 1993. The appellant pleaded that there had been a neglect or refusal to wind up the affairs and prepare final accounts with respect to each of those partnerships. The prayer for relief in the statement of claim sought orders for the winding up of the affairs of the partnerships, the taking of accounts of each of them together with interest, and such further or other relief as may seem fit. This presumably included payment to the appellant of any sums found to be due and owing to the appellant.
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110 By s 56 of the Partnership Act 1895 (WA), notwithstanding the fiduciary relationship between partners, any amount found to be owing to a retired partner is to be treated as a simple contract debt: Higgins & Fletcher, The Law of Partnership in Australia and New Zealand (7th Ed, 1996) at 248; and see Knox v Gye (1872) 42 Law Journal Ch 234 at 237 - 238 per Lord Westbury.
111 It is clear from the appellant's own evidence, being the affidavits sworn by him on 4 February 1999 and 25 August 1999, that the essence of his claim is for the amount of debts, which he says are owed to him by his former fellow partners as a partner in one or other of the seven partnerships pleaded in the statement of claim. Section 38(1) of the Limitation Act bars the right to an account and to instituting proceedings in respect of a debt in contract after a lapse of six years from when the cause of action arose: Phillips-Higgins v Harper [1954] 1 QB 411 at 418 - 419 per Pearson J. By s 38(1)(c) of the Act an action to recover a contract debt is required to be commenced within six years of the cause of action arising.
112 Where law and equity give concurrent remedies of the same kind, for example, where the plaintiff seeks an account, equity will apply the statute of limitations by analogy: Levi v Stirling Brass Founders Pty Ltd (1997) 36 ATR 290 at 296 - 297; Knox v Gye, supra, at 238 - 239 per Lord Westbury and at 242 - 243 per Lord Hatherley. The appellant pleaded in his statement of claim the dates upon which the seven partnerships terminated and, consequently, the date upon which the causes of action for an account and any debts owed arose were as follows:
(1) 30 June 1987 (par 6 of the statement of claim);
(2) 30 October 1987 (par 12 of the statement of claim);
(3) 30 June 1988 (par 18 of the statement of claim);
(4) 30 June 1989 (par 24 of the statement of claim);
(5) 30 June 1990 (par 30 of the statement of claim); and
(6) 30 June 1992 (par 36 of the statement of claim).
The appellant did not issue his writ until 23 December 1998. As a consequence, the causes of action against the defendants Owen-Conway, who retired on 30 June 1987, Swift, who retired on 30 October 1987, Williamson, Crooks and McCormack, who each retired on 30 June 1988, French, who retired on 30 June 1990 and the estate of Mr Cearns, who retired on 30 June 1992, are each of them clearly statute-barred. In my opinion, each of those claims must fail and the respondents to whom I
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have referred are entitled to have the decision of the learned Master affirmed on this ground also.
Submissions Subsequent to the Hearing
113 The hearing of the appeal concluded on 9 March 2001. Under cover of a letter to the Court dated 23 March 2001, the solicitors for the appellant enclosed further submissions in order to clarify an issue which arose during the course of the hearing of the appeal. In such circumstances, leave of the court is necessary: Carr v Finance Corporation of Australia Ltd [No 1] (1981) 147 CLR 246 at 257 - 258 per Mason J. It was indicated that the appellant was content for the application for leave and, if leave was granted, the submission, to be dealt with entirely on written materials.
114 The submission was that, during the appeal, counsel for the appellant had submitted that where there have been settled accounts between partners and it was subsequently discovered that there were substantial errors in the accounts as settled, the whole of the account may be re-opened and a fresh account ordered to be taken, without regard to the operation of statutory periods of limitation. Counsel for the respondents submitted that the authorities cited for this proposition in Higgins & Fletcher, The Law of Partnership (7th Ed) at 248 n237, did not support the contention. It has been submitted on behalf of the appellant that the basis for the contention is more fully explained by Higgins & Fletcher, ibid, at 318 (see now Higgins & Fletcher, The Law of Partnership (8th Ed, 2001) at 319; and Williamson v Barbour (1877) 9 Ch D 529. In that case Jessel MR said at 533:
"… I have one other observation to make, which is that, where you shew a single fraudulent entry in the case of persons occupying the position of principal and agent, or trustee and cestui que trust, the Court has actually opened an account extending over a greater number of years and closed for a much longer period than the account I have before me; I mean in the case of Allfrey v Allfrey, before Lord Cottenham (1 Mac&G 87). We therefore have this sort of guide without laying down any general rule, because every case must depend on its own circumstances, that where the accounts have been shown to be erroneous to a considerable extent, both in amount and in number of items, or where fiduciary relations exist and a less considerable number of errors are shown, or where the fiduciary relation exists and one or more fraudulent omissions or
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insertions in the account are shown, the Court opens the account and does not merely surcharge and falsify.
The effect of course is very different. Where you open the account, the account is taken from the beginning, and in those cases where, as in this case, the books are lost for a certain period, the Court does not now do what it formerly did, namely, insert special directions in the judgment which were necessary to protect the person accounting who, in the ordinary course of business, as has happened in this case, destroyed his books."
115 In my opinion, the accounts in this case were not shown to be erroneous to a considerable or any extent and, although the parties were in fiduciary relations, it was not shown that there were any fraudulent omissions or insertions in the accounts, so as to justify the re-opening of any of the accounts, or to depart from the maxim that so far as limitation periods are concerned, equity follows the law.
116 As between partners, a settled account, namely one that is agreed between the parties, as in this case, is a good defence to an action for an account, although in special circumstances the court may re-open the accounts or give liberty to surcharge and falsify. A single important error is sufficient, if fraudulent, to justify an order to open the whole account. If it is not fraudulent the proper order is to give liberty to surcharge and falsify: Gething v Keighley (1878) 9 Ch 547 at 550. Accounts will be re-opened on the ground of fraud in spite of the existence of a stringent agreement against re-opening: Oldaker v Lavender (1833) 6 Sim 239; Sim v Sim (1861) 11 I Ch R 310 at 321. The mere fact that the claimant has already had an account rendered to him will not preclude him, in the absence of acquiescence, from having an account taken by the court once fraud has been established.
117 Accounts during the currency of a partnership must be taken according to the uniform practice of the firm: Binney v Mutrie (1886) 12 App Cas 160; and see Re Barber; Ex parte Barber (1870) 5 Ch App 687; and Garwood v Garwood (1911) 105 LT 231.
118 In Williamson v Barbour, Jessel MR did not refer to any particular limitation period but only to "the practice of the Court of Chancery". It was submitted that the case was not authority for the proposition in Higgins & Fletcher, op cit, at 318 that where accounts have been settled, they may be re-opened and taken without regard to statutory periods of limitation, if it can be shown that there have been a number of mistakes.
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Lindley on Partnerships (17th Ed) at 613 notes that prior to 1876, equitable suits for an account were not caught by any statutes of limitation and while the Court of Chancery frequently applied them by analogy if pleaded, it more frequently ignored them.
119 In the next case cited in footnote 161 in Higgins & Fletcher, op cit, Phillips-Higgins v Harper [1954] 1 QB 411, Pearson J held that a claim for an account was statute-barred, despite the claim by the plaintiff that her acceptance of sums paid to her under a service agreement, was the result of a mistake as to her correct entitlement. The claim did not arise out of a partnership, as here, but the observations of Pearson J at 418 - 419 regarding the application of the Limitation Act apply equally to the claim in this case. They support the respondents' notice of contention.
120 Reference was also made to Smith v Knarston [1872] VR 174 in which a claim to re-open a settled partnership account was dismissed. No reference was made to any limitation statute. In Spencer v Wenlock (1922) 25 WALR 114 the Full Court held that any claim for an account was statute-barred: see per McMillan CJ at 117. Counsel for the respondents rightly submitted that this case provided no support for the appellant's proposition. The last case cited in Higgins & Fletcher is Taylor v Southwood [1861] 1 WN (E) 29 which concerned the dissolution of a partnership. As in Smith v Knarston, supra, the claim to re-open the accounts was dismissed without reference to the limitation statutes.
121 It was further submitted on behalf of the respondents that, even if it were correct that a settled account could be re-opened without regard to the operation of statutory periods of limitation where there were substantial errors in the settled accounts, the fact remains that the appellant has failed to demonstrate any substantial errors in the settled accounts for each of the successive partnerships. In this particular case there is no significant factual issue whether there were "substantial errors" in the settled accounts. Even if there were, the Limitation Act constitutes a bar to the accounts being re-opened.
122 Submissions in reply to the submission of the respondents were filed on behalf of the appellant on 9 April 2001. In that submission it was contended on behalf of the appellant that when considering the limitation period for an "action of account" in the context of s 38(1)(c)(ii) and (iii) of the Limitation Act, it is necessary to maintain the distinction between the common law action of account and the equitable remedy of account. It is true that in modern times it is the latter which is important because the former is virtually obsolete. The authority relied upon for this proposition
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was Tito v Waddell (No 2) [1977] Ch 106 at 250 per Megarry VC. His Lordship there said:
"The law of limitation in relation to actions for an account seems to be in a curious state. An action for an account lay at common law, and section 3 of the Limitation Act 1623 laid down a six years' period of limitation for 'actions of account.' However, the procedure in Chancery, and in particular the machinery for taking accounts, was so superior that by the 18th century the common law action for an account had come to be superseded by equitable proceedings for an account. Bills in Chancery for an account did not directly fall within the term 'actions of account' in section 3 of the Act of 1623, and so any application of the six years' period to them had to be by way of analogy.
In that state of affairs the Limitation Act 1939 came into force. Section 2(2) provided that 'an action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action.' If that had stood alone, the matter would have been simple. There would have been nothing to prevent the six years' period from applying both to an equitable action for an account (for by section 31(1) 'action' has a very wide meaning) and also, if anyone sought to revive it, to a common law claim. However, there is also section 2(7) of the Act:
'This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except insofar as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment repealed by this Act has heretofore been applied.'
If the effect of section 2(7) is that an equitable claim for an account, being a 'claim … for other equitable relief,' is excluded from section 2(2), the result is that section 2(2) is left to apply the six years' period only to the obsolete common law claim for an account. However, it may then be said that the second limb of subsection (7) allows the six years' period of subsection (2) to be applied by analogy to equitable claims for an account; for prior to the Limitation Act 1939 this is what equity did: see, eg, Knox v Gye [1872] LR 5 HL 656, 674, per Lord Westbury. On
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that footing, Parliament's scheme for dealing with equitable claims for an account seems to be first, to appear by subsection (2) to subject to them to the express six years' period; then to appear to exclude them from that period by the first limb of subsection (7); and finally, by the second limb of subsection (7) to subject them to a six years' period by analogy, despite their exclusion from the express six years' period.
This tortuous scheme of indirection is one that I should be reluctant to attribute to Parliament. After all, subsection (2) is a subsection which deals solely and expressly with actions for an account. If the intention was to make it apply to both legal and equitable actions for an account, it would have been simple enough to say so, with perhaps the addition of a few words to subsection (7) to make the word 'equitable' in subsection (2) prevail over it.
My reluctance to attribute to Parliament an intention to legislate expressly for the obsolete and only circuitously for the effective is increased by the way in which the court dealt with section 2(7) in Poole Corporation v Moody [1945] KB 350. There, in relation to a power of sale, the subsection was treated by the Court of Appeal solely as a provision which excluded the operation of section 2 in claims for equitable relief, without any mention of the possibility of it applying the section by analogy. The omission is pointed: indeed, the quotation of section 2(7) that is set out in the footnote on p351 gives only the first half of the subsection and omits altogether the second half, which deals with application by analogy. This is done despite the mention in argument on p353 of equitable applications of the statute and by analogy in the same breath as a reference to subsection (7). I may add that I do not see any grounds for escape by saying that 'other equitable relief' does not include an equitable action for an account.
I find this matter indeed puzzling. My difficulty is increased by the consideration that if, as I have held, no six years' period applies to the claim for equitable compensation, and there is no plea of laches which bars the claim, there may be items of claim beyond the six years which are not barred but to which the six years' period for an account would apply. However, I think the answer may be along the following lines. Insofar as the claim to an account is ancillary to the claim for equitable
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compensation, the application of the Act and the doctrine of laches to the ancillary claim ought to be the same as its application to the substantive claim. Thus, it seems clear that where a claim against a person in a fiduciary position is not barred by lapse of time, he must account without limited time: see Halsbury's Laws of England, 3rd ed, vol 24 (1958), p282. If, contrary to what I have held, there is a time limit in the present case, I would hold that neither directly or by analogy does section 2 of the Act of 1939 impose any time limit on the claim to an account that is not imposed on the substantive claim for equitable compensation.
The upshot is that if the plaintiff's claim were otherwise valid, I would hold that it is not barred by any statutory period of limitation, either directly or by analogy. Though, subject to the equitable doctrine of laches, it is not barred by laches either, since laches has not been pleaded."
123 It is suggested in Meagher, Gummow & Lehane (3rd Ed) that in Western Australia, all actions of account, at law or in equity and based on either legal or equitable liability to account, are barred six years after the accrual of a cause of action. It is said that this follows not only from the statutory provisions themselves, but also from the statutory definition of "action" contained in the Act. The definition in s 3 of the Limitation Act is as follows:
" 'Action' means a civil proceeding commenced, in the Supreme Court by writ or in such other manner as may be prescribed by Rules of Court, or in a Local Court or other inferior court in the manner prescribed by or under the Act conferring jurisdiction on such court."
It follows that the complexities involved in applying the English statutes of limitation to actions of account do not apply.
124 For these reasons, I am of the opinion that, irrespective of the merits, the appellant's action was statute-barred in any event as against the respondents who retired from the partnership prior to 24 December 1992, being the first day of the limitation period of six years which expired on 24 December 1998, the day on which the writ was issued.
125 For these reasons, I would dismiss the appeal.
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126 KENNEDY J: I have had the benefit of reading in draft the reasons published by the Chief Justice. I am in agreement with those reasons and would accordingly dismiss this appeal.
127 WALLWORK J: I agree with the reasons for judgment of the Chief Justice and with his conclusions. There is nothing I wish to add.