Georgiadis v Du [2019] VCC 1911 (22 November 2019)

GENERAL LIST

CI-17-02188

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REASONS FOR JUDGMENT

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Subject: TRUSTS – PARTNERSHIP – EQUITABLE COMPENSATION

Catchwords: limitations of actions – whether claim statute barred – limitation period relating to trust property – defences – laches and acquiescence – whether disadvantage or prejudice was caused by the plaintiffs’ delay – delay of 8 years in bringing claim – business partnership – warehouse – shop

Judgment: For the plaintiff.

HIS HONOUR:

1 The parties in this matter were equal partners in a successful business, however they were determined to dissolve the partnership or to provide for one partner to buy out the other. An arbitral Award provided that the outgoing partner’s share of the business would be held by the continuing partner on trust pending the completion of the sale of the share of a jointly owned factory, and the business assets. The continuing partner completed the purchase of the half share of the factory but failed to complete the accounting and payment for the balance of the outgoing partner’s interest in the business.

2 The continuing partner continued to trade the business and not account to the outgoing partner. After the expiry of the usual six-year limitation period the outgoing partner sought to recover from the continuing partner the value of his share of the assets of the business as at the date of dissolution. The continuing partner denied the existence of any trust relationship or obligation to account. The continuing partner also raised jurisdictional and limitation of actions defences, as well as the equitable defence of laches. The continuing partner also challenged the quantum of the claim by the outgoing partner.

3 For the following reasons I dismiss the defences raised by the defendant, and substantially uphold the quantum of damages claimed by the plaintiff.

Fact-finding and legal principles to be applied

4 In reaching the conclusions below, given the time that has elapsed since the relevant events, comments in a recent case before the Court of Appeal are apposite. In that case the Court reproduced without criticism, the approach to fact finding undertaken by the trial judge who at first instance approached the matter in the following general terms:

‘Having regard to the lengthy period which has elapsed since the occurrence of so many of the events in question. The only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In this context, the subjective interpretation the parties placed on the meaning, significance and effect of the objective evidence must be approached with caution.’

5 The parties in this case were proceeding without lawyers and entered a number of informally drafted agreements that sought to wind up the affairs of their partnership. In interpreting these commercial contracts, the following approach to construction is relevant:

‘This Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of the parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context [and] the market in which the parties are operating. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties … intended to procedure a commercial result. A commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.’

Undisputed Background

6 Until May 2009, the plaintiff (“Paul”) and the defendant (“David”) conducted a successful partnership business trading under the name “The Diggers Rest Furniture Company”. The business involved the importing of timber components, as well as the manufacture and sale of household furniture. The partners jointly owned a factory in Vermont and leased retail premises in Nunawading. In 2008, they decided to place the business on the market and retained a business broker (Macquarie) to advertise the business.

7 In February 2009 the parties executed an agreement to dissolve the partnership. This agreement did not specify a particular date for the dissolution. There were provisions made for the valuation of the freehold of the factory, as well as of business goodwill and chattels to be undertaken by Macquarie. There were also provisions for the parties to reach a further signed agreement as to how to dissolve the partnership. In the event that agreement was not reached an independent mediator was to be appointed and the parties agreed to accept the ruling.

8 Matters proceeded unresolved, and on 5 May 2009, the parties reached a further written agreement that provided an agreed method as to the valuation of the assets of the partnership. On 14 May 2009, in the context of discussions between the parties that involved options as to whether one would buy out the other, or the business would be divided with one party taking the freehold and the other the retail, or surrendering the retail lease and liquidating the business, Paul produced a document reflecting that agreement which was handed to David, although not signed by him. The agreement however was referred to in the subsequent arbitration submission.

9 On 23rd May the parties executed an arbitration agreement which identified the matters in dispute as:

1 Dissolution of partnership;

2 Total cessation of trading altogether;

3 Division of all assets – agreed (or determined) basis;

4 Further decisions as required to support/complete the three earlier agreements.

On 23 May 2009 Mr Kenfield issued an Award (‘the Award’), signed by the parties that provided:

“After discussion, David Offered to buy Paul’s entire interest in the partnership on the following basis:

David’s Offer (Option 1)

Take over all of Paul’s interest in the partnership:

50% value of the factory 1 Azalea (agreed) $321,500

50% value of: stock, cash & debtors, other assets, liabilities (to be valued per agreement 5 May 2009) (approx.) $110,000

Paul to retain the Econovan registered in his name.

“Due to the parties’ fears that in the current economic circumstances it could be difficult to realise fair value for the business, or its assets, this was to be an absolute last resort.”

“I find [the parties] dysfunctional as a partnership and unable to continue working together constructively into the future.”

“I order David to buy Paul’s interest in the business pursuant to [David’s Offer], plus an uplift of $50,000 in respect of business goodwill.

I order:

a) Valuation of the assets, per [the 5 May 2009 Agreement] by 30 May 2009.

b) David is to pay a deposit of $5,000 to Paul on the day to confirm the deal.

c) David is to formalise this offer by arranging for payment in full within 30 days and actual payment by 30 June 2009.

d) In the event David cannot obtain finance within 30 days, unless Paul agrees to an extension of time, Paul is ordered to commence an orderly realisation of all business assets, with a full accounting to David. The net proceeds of realisation to be shared equally between David and Paul, after deduction of any reasonable and necessary expenses.

e) The partnership is terminated, by Order and agreement, as of 5.00pm on 23 May 2009. All liabilities incurred to date of separation are to be shared equally. From 5.01pm on 23 May 2009 all partnership interests and activities will be operated by David as trustee for Paul’s interest in 50% of the old partnership, until full payment has been made for said interest.

f) Upon payment being received, Paul will transfer his interest in [the Factory] to David, or his nominee. Until that time, the partners will continue as joint owners of the property.

g) The costs of doing whatever needs to be done to effect the foregoing measures will fall where they are incurred, and both parties are ordered to ensure that they do not unfairly prejudice, or threaten, or encumber the interest of the other through these or associated actions.”

10 On the day of the arbitration David handed Paul $5000 in accordance with paragraph (b).

11 The meaning and effect of the emphasised paragraph (e), and the non-implementation of the whole of the Award, was at the heart of the proceeding.

Subsequent Events

12 On the 24 May 2009, Paul attended the factory and the retail premises and made a video recording of the stock and equipment at each of the premises. In the same week Paul also attended the retail premises and the factory and conducted his own stocktake at each site. He later handed the stocktake lists to David. There was some dispute as to whether it was David who asked an employee of the business, Mr Santamaria, to commence the stocktake, or whether it was in fact Paul who had done so. Paul denied that he had done so and when he arrived at the showroom, Mr Santamaria had already commenced the stock take. He then completed the stocktake. In relation to the factory, David gave evidence that he asked Marco to commence listing the assets and equipment. Paul gave evidence that when he arrived at the factory he had a discussion with Marco and was given some lists that included items in Chinese characters. He was unable to utilise those lists and went ahead and completed his own listing of all the materials and equipment.

13 Nothing turns on these differences but, overall, in relation to the undertaking of the stocktake, I prefer the evidence of Paul as it is supported by the extensive lists of the items in both of the premises that were entered into evidence.

14 Paul gave evidence that in the week after the Award, he was at the showroom and had a meeting with David at which they discussed, and amicably resolved between the two of them, the allocation of an amount of cash belonging to the business held by Paul.

15 Also relevant is that Paul also gave evidence that notwithstanding that he retained keys to the premises of the business, it was made clear to him that he was not welcome at the premises after the dissolution of the partnership.

The Award was only partly implemented, yet the business continued.

16 An essential feature of the proceeding is that notwithstanding the making of the Award on 23rd May, and the payment of $5000 cash by David to Paul on that date, only that part of the Award relating to the purchase of the half share of the factory was subsequently implemented. Thus, some months after the 23rd May, Paul was paid $321,500, that being the previously agreed value for his half share of the factory, with the certificate of title issuing on 26 March 2010.

17 Meanwhile, after 23rd May, the defendant continued to operate the business, having changed the business name registration into his own name, and lodged a partnership return for the 2009 financial year. There were subsequently personal tax returns from the 2010 financial year. Moreover, on the evidence the retail part of the business was wound up upon the expiration of the lease in 2013, and the manufacturing activities in 2017, although some equipment remains in the factory.

18 Paul’s solicitors made a demand upon David on the 4th of May 2010 for the $50,000 goodwill that was due on 30 June 2009:

“You cannot now resile from that Award. One element of the arbitration Award was that you were to buy our clients interest in the business AND pay him an amount of $50,000 in respect of business goodwill. There is no provision for any assessment or revaluation of the goodwill as the arbitrator has determined its value and ordered you to pay our client $50,000 on account of it…”

“…there has still not been a valuation of the remaining assets because you have failed to cooperate with our client in undertaking the valuation”

19 David responded to the letter of 4 May 2010 on the 11th of May by stating that:

“Secondly… the sum of $50,000 for the goodwill of the business cannot be concluded. Until Mr Paul Georgiadis provides and supplies all evidence and documentation of cash flow, goodwill, the amount that Paul holds has to be worked out.

Thirdly, the Arbitration Award has to be executed in full. Goodwill is just part of the order.”

20 At some undetermined date, the plaintiff’s solicitors referred the matter back to the arbitrator. In an undated and unsigned document entitled ‘Correction to the Arbitration Award’ (Correction), Mr Krenfield found that:

“David and Paul have complied with some of the orders made under the Award. Specifically, David has purchased Paul’s interest in the [Factory]. Further, David has paid Paul the amount of $5,000 as confirmation of the dissolution terms as I ordered in the Award.”

“I have been informed by Lord Commercial Lawyers, the solicitors for Paul, that save for the transfer of title on [the Factory], there has been no valuation of assets, realization of assets, payment on account of Paul’s share of the assets or payment of the goodwill as contemplated by my orders in the Award.”

“It seems that the language used in the Award lacked sufficient clarity and certainty to allow for the Award to be effectively enforced in Court. I have reviewed the Award and make the following orders to correct the Award and remove any ambiguity.

I order that:

1. The Partnership was dissolved on 23 May 2009.

2. David holds all assets of the Partnership as existed as at 23 May 2009 on trust for Paulo’s 50% interest in the Partnership assets as at 23 May 2009.

3. David is to pay Paul $50,000 no later than 31 August 2010 on account of Paul’s share of the goodwill of the Partnership.

4. An independent valuer be appointed jointly by Paul and David, no later than 31 August 2010, to value the remaining assets of the Partnership, including stock, cash and debtors and other assets.

5. David is to pay Paul 50% of the valuation within 14 days after receiving a copy of the valuation.

6. In the event that David and Paul cannot agree on an independent valuer then Paul appoint a Receiver to the Partnership, no later than 14 September 2010.

7. The Receiver, so appointed, is to realize all of the remaining assets of the Partnership and distribute the net proceeds, after payment of the Receiver’s expenses, equally to each of Paul and David.

Apart from the inclusion of new deadlines for the performance of the orders these orders reflect the spirit and intent of the Award and are made solely for the purpose of correcting errors in the Award and removing ambiguity to allow for enforcement of the Award.”

21 Although the plaintiff pleaded reliance on the corrected Award, by final addresses, it was common ground that save that the defendant said it was relevant to his defence of laches, neither party relied on the corrected Award.

22 Notwithstanding the making of the corrected Award, no further action was taken by either party to comply with either the original Award all the corrected Award, and in particular no receiver was appointed, nor were the assets valued.

23 The plaintiff issued these proceedings on 16 May 2017, nearly 8 years after the dissolution of the partnership, and well outside the usual six-year limitation period for contractual claims and for enforcement of an Award.

The plaintiff’s case as pleaded and prosecuted

24 By final addresses the plaintiff had refined his case such that he pleaded that pursuant to the Award the defendant held from 23 May 2009 his 50% share of the business assets (as at that date) on trust for him. The defendant had failed to account to the plaintiff for the assets of the business as at 23 May 2009. The plaintiff sought equitable damages in the sum of $226,479.61 as his remedy. The plaintiff did not seek to rely on the correction to the Award, nor seek any contractual remedies, sum certain, an account, or an enforcement of the Award. The plaintiff in seeking an equitable remedy was prepared to deduct his share of partnership liabilities as at 23 May 2009.

Defences raised by the defendant

25 The defendant by his defence and in closing submissions raised a number of jurisdictional defences as well as challenging the quantum of the plaintiff’s claim. In closing submissions the defendant first submitted that the parties’ rights were governed by the Partnership Act 1958 (the Act). The next jurisdictional defence was that the plaintiff was seeking to enforce an Award under the Commercial Arbitration Act 1984 , and had failed to use the appropriate summary procedure under the Rules. The plaintiff was therefore precluded from bringing this proceeding in this Court, and was in any event statute barred.

26 Alternatively, the defendant’s position was that no formal trust was established by the Award, and that at its highest, the interest created by the Award was one of security or as a custodian and that the obligation has ended long ago due to the failure of the plaintiff to comply with the Award or the Correction.

27 The defendant also argues that in so far as the plaintiff is seeking to enforce the Award, or to seek an account of profits or damages for conversion of the assets of the business, then those claims were contractual in nature and were statute barred. Further, the claim for damages for breach of trust was also statute barred.

28 Finally, the defendant sought to invoke the equitable defence of laches, due to the unconscionable delay and prejudice by the plaintiff.

29 The defendant’s response to the quantum of the claims by the plaintiff was to assert that the amounts claimed had been wrongly itemised such that the claim sought involved a claim for assets that were excessive and/or non-existent.

30 It is convenient to first consider whether the plaintiff has succeeded in his liability case against the defendant.

Contested factual issues relating to liability

31 There were no real contested issues of fact to be determined in relation to the plaintiff’s case on liability. The plaintiff’s case had an elegant simplicity. It was that, under the express terms of paragraph (e) of the Award, the parties had agreed that David held the outgoing partner’s 50 per cent interest in the business on trust until settlement. The trust was admitted on the pleadings.

32 While the Award also provided for David to pay 50 per cent of the agreed value of the business under the formula set out in the 5 May agreement, the trust established and imposed on the defendant for the plaintiff’s 50 per cent interest of the business remained, notwithstanding the failure of the parties to cooperate with each other to complete the stocktake in accordance with the 5 May agreement.

33 In accordance with the pleadings, and in his closing address, counsel for the defendant made a number of submissions in response. First, he submitted that the plaintiff was seeking to enforce the Award. It was submitted that the Award did not, in truth, establish a trust, or impose trustee-like duties, at all. Rather, the Award established David as a custodian or fiduciary for the purpose of the Award. Further, on a construction of the Award as a whole, once the 50 per cent interest in the factory had been paid for and transmitted from Paul to David, the Award had ceased. The defendant had no further obligation to the plaintiff.

34 Next, it was submitted that the provisions of the Partnership Act should apply and the plaintiff’s claim under that Act was statute barred.

Consideration

35 In his closing submissions the defendant submitted that under Partnership Act the partnership was dissolved on 13 February 2009 and thereafter there were discussions entered into with respect to winding up of the affairs of the partnership. He then sought to invoke sections 43, 46, 47 and 48 of the Partnership Act which sets out what were to be the arrangements upon the winding up of a partnership. These include that the outgoing partner is entitled to apply to the court to wind up the business. Moreover, where there is no final settlement, the outgoing partner is entitled to a share of the profits at his option and to a division of the assets after payment of liabilities.

36 He submitted that the dissolution of the partnership was confirmed on 23 May 2009 by the Award and the parties agreed by the arbitration to wind up the partnership. Thus the causes of action under the Act accrued on either 13th February 2009 or 23 May 2009 and were statute barred by 23 May 2015, and in any event merged into the Award.

37 The Award, a submitted, wound up the affairs of the partnership in a manner consistent with the Partnership Act .

Partnership Act inapplicable

38 First, the Partnership Act in section 4 saves the rules of equity and common-law except insofar as they are inconsistent with the express provisions. On the express provisions of the February 2009 agreement there was no agreement at that point to dissolve the partnership. The Award made on 23 May 2009, expressly confirms the dissolution of the partnership as at that date. In section 36, which deals with dissolution of partnerships, it is expressed to be ‘subject to any agreement between the partners’. In section 46 which deals with the profits after dissolution this is expressed to be subject to ‘any agreement to the contrary.’

39 Similarly the rule for distribution of assets in section 48 is expressed to be “subject to any agreement”. I am satisfied that these provisions allow the parties to address issues arising out of the dissolution of a partnership, and thus the Court must look to the terms for the Award for each parties rights and obligations. On that basis I do not accept the defendant’s submission that the claim by the plaintiff is a claim under the Partnership Act and therefore constitutes a money claim that is statute barred.

Is this enforcement of the Award?

40 The defendant argued that the plaintiff’s claim was enforcement of the Award and thus barred by section 5 (1) (c) of the Limitations of Actions Act 1958 (LAA). In response the plaintiff referred to Tridon Australia v ACD Tridon  where the Court noted that enforcement was different from restatement of the effect of the Award in the form of a judgment. It is a summary procedure under section 33 of the Commercial Arbitration Act. It is also held to be discretionary. Further, here, the plaintiff is not seeking to directly in force the Award. He is not seeking the $50,000 of goodwill set out in the Award. Rather his argument is that by the admitted provision of para (e) of the Award, a trust is established for the plaintiff’s 50per cent of the business. The plaintiff’s argument is that the defendant has breached this trust by continuing to trade the business and not account to the plaintiff for the assets that constituted the trust when it was established.

41 I agree that the plaintiff is not seeking to enforce the Award as such. It would be very difficult to enforce all the elements of the Award in any event as they would not meet the requirements of certainty articulated in Gingis v Mount Scopus Memorial College.

42 The two aspects of the Award left to be enforced after the settlement of the property, were the claim for $50,000 goodwill uplift, and the trust established by para (e). I accept the plaintiff’s submission that the elements of the amended statement of claim he has pressed do not amount to a statute barred attempt to enforce the Award. The trust was, as argued by the plaintiff, established by the Award but I am satisfied this proceeding as such does not seek to enforce it. For these reasons I do not accept the defendant’s argument that the plaintiff’s claim is statute barred under section 5 (1)(c) of the LAA.

Was there a trust created and what was its nature?

43 The core of the plaintiff’s case was that his claim was not statute barred because it came within the terms of section 21(1)(b) of the LAA which provides:

21 Limitation of actions in respect of trust property

(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.

44 The plaintiff’s case required him to establish that there was a trust created prior to alleged breach of trust, rather than a remedial trust imposed as a remedy.

45 In support of the plaintiff’s submissions that a trust relationship was established by para (e) of the Award, he relied on the authority in Hospital Products:

‘The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions “for”, “on behalf of” and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.’

46 The plaintiff also relied on the following from Grizonic v Suttor

‘Upon dissolution, the partner’s right and duty is to wind up the partnership’s affairs, and the surviving (or continuing) partners are entitled and obliged not only to complete all unfinished operations to fulfil contracts still in force, but also to realise the partnership property, and for that purpose to carry on the partnership business in the meantime. Although Bourne concerned the powers and duties of a surviving partner after death of the other, there is no apparent distinction, for the purposes of s 38, between that situation and the position of a partner in whose hands the business is left following dissolution inter vivos. One reason for the continuing authority of a surviving or continuing partner is to avoid the necessity for an application in every case for the appointment of a receiver. The underlying rationale is that someone must carry on the business pending winding up to preserve its value for the benefit of both parties, that the partner who does so is acting in the interests of both in preserving the business and its value, so that the other partner is bound by the acts of the continuing partner for that purpose.’ (Emphasis supplied)

47 In Re Bourne Romer LJ said:

‘It is to be borne in mind that the real interest of the partnership in real estate is of a personal character, because wherever the legal estate may be, whether it is in the partners jointly or in one partner or in a stranger it does not matter, the beneficial interest in the real estate belong to the partnership, with an implied trust for sale for the purpose of realising the assets and for the purpose of giving to the two partners their interests when the partnership is wound up and an account taken. ‘ (Emphasis supplied)

48 The comments in both cases support the proposition that the continuing partner is holding the relevant share of partnership assets on trust for the exiting partner, which is exactly what para (e) of the Award specified.

49 In support of his specifically pleaded action seeking to recover trust assets the plaintiff also relied on Re Pleash as follows:

‘Under the general law, a breach of trust consists in nothing more nor less than an act by the trustee in contravention of the duties imposed upon him or her by the trust, or an act done in excess of his [or her] powers. It may be deliberate or inadvertent; it may consist of an actual misappropriation or misapplication of the trust property or merely of an investment or other dealing which is outside the trustees’ powers.’

50 Both parties sought to have the reasoning in Nolan v Nolan applied on the applicability of limitation periods as follows:

In his judgment, which expounds the critical differences in lucid and forceful terms which it is impossible to emulate, Millett, L.J. sought to emphasise the following matters which are essential to an understanding of s.21 and the liability of trustees. In dealing with the history of limitation periods in equity, his Lordship noted that originally there were no such prescribed periods, in that a trustee from the outset always acquired property or title on behalf of another and so was thought always to remain accountable for any breach of duty affecting the property so held, at least until the trusteeship duties were discharged. When Chancery judges sought to enforce common law rights, however, they began to apply the statutory limitation periods by analogy, so that the plaintiff might gain no advantage by suing in equity and thus avoiding the statute. A considerable number of statutory amendments in the late nineteenth and early twentieth century saw specific limits being imposed on suits in equity, but those, such as s.21, directed to breaches of duty by trustees must be understood as intended to apply to trusts properly so described and, by extension, to constructive trusts properly so described.

Consequently, it may be added, the words of s.21(1)(b) look to a claim by a “beneficiary under a trust”, i.e. a pre-existing trust, and to the recovery of “trust property”, i.e. that which is already subjected to a trust, from a person who is already a trustee. In the case of conversion the trust property must have been “previously received by the trustee” and [scil. hereafter] converted to his use” – language clearly not apt to describe the recovery of property which a party may have later to disgorge or deal with as a “trustee” by virtue only of some fraud or other breach of duty.”

51 In Re Pollock (which is cited in Nolan) Gillard J stated:

‘On proof of facts to constitute the circumstances set out in s 21 (1) [of the LAA], no period of limitation is to apply to a claim by a beneficiary under a trust.’

52 The defendant, for his part, sought to argue that the trust created here was not an institutional, but a remedial, constructive trust. The difference has been discussed as follows:

‘A good part of the case concerns the distinction between an institutional constructive trustee or a remedial constructive trustee, which is conceptually part of the analysis. The first situation covers those cases where a defendant, though not expressly appointed as trustee, assumes the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust. The second situation covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction and is equity’s technique to require someone to hold on trust property which in all conscience belongs to another. In that sense the person committing the wrong is accountable in equity, or liable to account as constructive trustee. The significance of that distinction is that a breach of constructive trust case may have no time limits. But a case of wrongdoing with a claim for the imposition of a remedial constructive trust is different and although it is equitable in context, courts of equity may be called upon to apply a statute of limitation directly or by analogy according to an analysis of the nature of the wrongdoing.’

53 Here, applying the above authorities, I am satisfied that, as argued by the plaintiff, the defendant was a true trustee and thus the cause of action comes directly within s 21(1)(b) of the LAA. If I am wrong about that, the plaintiff was in the category of an institutional constructive trustee. The trustee assumed the duties by the lawful consensual and contractual transaction of his assent to the Award. The trust and its corresponding obligation or duty was created, as required by Feglin ‘independent[ly] of and preceded by the breach of trust.’ It was not a case where the plaintiff was seeking a remedy by the Court construing a trust relationship after a breach had occurred. The trust was established by the Award.

Consideration of the defendant’s characterisation arguments

54 Any consideration of the Award and, by giving it a businesslike interpretation, indicates that there are independent obligations created by that instrument. They include the transfer of a 50per cent share of the factory. The provision establishing that the defendant is to hold the business for the benefit of the plaintiff can be construed as independent of the obligations in relation to the factory.

55 It follows from this that is difficult to see why the failure of the parties to achieve the settlement by 30 June 2009 has any impact on the establishment of the trust. It was common ground that the defendant continued to trade the business. Notwithstanding the further corrected Award, which neither party sought to rely on, that position remained unchanged until 2013. The defendant argued that somehow or other any trust that was created was exhausted in September 2010.

56 The difficulty with the defendant’s submission is that the defendant has, by his pleading, admitted the Award and thus the establishment of the trust under paragraph [e] of the Award, as well as by paragraph 5 of the defence dated 29 May 2019. This was a classic trust where the legal ownership of the 50 per cent share was held by David for the benefit of Paul.

57 While the defendant could be described as a custodian, he was also a trustee. It is a mischaracterisation of his role to suggest that it is a relationship established for a purpose or to provide security, namely to effect the transfer of the half share of the factory. It is also an incorrect characterisation to assert, as submitted, that upon the payment of the factory, the Award was spent. On any view, the plaintiff’s half share of the business at that stage remained with the defendant who was in a classic fiduciary relationship with the plaintiff. The plaintiff was in a vulnerable position vis a vis the defendant who had by his assent to the Award agreed to hold his share of the business on trust for him until full payment.

58 Contrary to the argument by the defendant, the mere fact that the defendant complied with part of the Award by paying for the transfer, at the agreed price, of the half share of the factory, cannot be seen as somehow fully satisfying his obligations under the Award, or otherwise exhausting the Award. After all, even if it could be said that it was for the plaintiff, in the event of the failure of the defendant to pay for the plaintiff’s half share of the business, to seek the appointment of a receiver and to realise the assets of the business, those assets remained at all times in the hands of the defendant, in circumstances where the plaintiff gave unchallenged evidence that he was not welcome on the premises.

Conclusion: defendant was a true trustee

59 As articulated by the plaintiff in final address, the true nature of the plaintiff’s cause of action was a claim by a beneficiary against a trustee. While other contractual remedies were pleaded but abandoned, the remedy ultimately sought was a claim for equitable damages consequent upon the breach of trust by the defendant as a trustee.

60 This is important as it was made clear in the analysis in Nolan that such claims come within s 21(1)(b) of the LAA. This provision means that the plaintiff is not facing a limitation defence.

Is the claim barred by laches?

61 The defendant submitted that the claim of the plaintiff is time barred to the extent that the action is for equitable relief by the doctrine of laches. Counsel referred to the following explication of the doctrine:

The elements of the defence of laches are: (i) knowledge of the wrong; (ii) delay; and (iii) unconscionable prejudice caused to the opponent by the delay.

The key element is whether, in all the circumstances, “it would be practically unjust to give a remedy” (per Lord Selborne LC in The Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221 at 239-240). Normally, that means that the defendant must show both delay and detriment suffered by the delay, Fisher v Brooker [2009] UKHL 41; [2009] 1 WLR 1764 at 1781 [64] per Lord Neuberger with whom Lord Hope, Lord Walker, Baroness Hale and Lord Mance agreed.

It is sometimes said that the essential nature of the defence is that the claim of the plaintiff is released in equity. This is often, but not always the case. Sometimes laches operates as an estoppel, see Fisher v Brooker and Ashburner’s Principles of Equity 2 ed (Butterworth & Co, London, 1933) at 520. The result of a successful plea of laches is that the plaintiff’s equitable claim is dismissed.

62 The defendant submitted that the plaintiff was aware of the claim in 2009 and failed to act on the claim until 2017 when he issued the proceedings. He submitted that there had been no explanation provided for this delay and that this delay was significantly prejudicial to the defendant. Counsel referred to the maxim that ‘equity assists the diligent and not the tardy’ in submitting that this forms the basis of the laches principle. Counsel further submitted that the actions by the plaintiff constituted ‘complete and utter gross laches as well as acquiescence in any conduct that’s complained of by the plaintiff against the defendant.’ The defendant remains running the business while it was submitted that the plaintiff acted in breach of the Award and did not act to sell up or appoint a receiver.

63 Counsel submitted that the plaintiff erroneously characterises the defendant simply conducting the business as conversion, while also submitting that this action by the plaintiff constitutes acquiescence. Counsel submitted that the Award at (e) states ‘upon payment being received’ that is where the plaintiff transfers his interest in the property to the defendant. Until that payment the parties continue to act as joint owners of the property. It was submitted that there was acquiescence in allowing the defendant to run the business for ten months as well as a discharge of the Award by the payment for half the factory. It was submitted that plaintiff never made a request for a return of the partnership assets or their value, rather the plaintiff acquiesced and allows the situation to continue unabated for seven years. This acquiescence it was put, creates at equity the defence of laches.

64 The letter of 4 May 2010 demonstrates that the plaintiff has full knowledge of the facts and full knowledge of the law. Counsel submitted that it was the plaintiff who controlled the process. The plaintiff knew that there was the Award and elected not to enforce it. The defendant put that the plaintiff has brought about the state of affairs where the defendant is left holding the assets and the associated costs. Moreover, the defendant submits that a letter sent to the solicitors for the plaintiff on 11 May 2010, was met with ‘complete and utter silence’ from the plaintiff.

Acquiescence

65 Counsel submitted that the correction of the Award clarified the enforceability of the Award and sought to ensure that it was fully enforceable. The defendant puts that the Correction sets out for the plaintiff a clear method for resolution of the issue first through attempting a joint valuation. If the parties are unable to agree, then the plaintiff is ordered and required to seek to resolve the matter by appointing a receiver.

66 The defendant asserts that there had been no communication, the assets were not valued and the plaintiff did not approach the defendant. The defendant after three years closed down the retail premises because it is not profitable, he had to realise the stock or repatriate the stock to the factory. There was no action taken by the plaintiff. The defendant submits this is evidence that the plaintiff continued to acquiesce in the situation. The defendant further submitted that this goes to laches as the plaintiff is seeking a remedy in equity however the plaintiff positively created a situation which the plaintiff has the immediate remedy to seek a receiver and has not done so.

67 Counsel submitted that detriment is not fundamental to laches and that it can be ‘established by the acquiescence itself.’ The defendant put that where there is a high and continuous level of acquiescence on the part of the plaintiff in complete disregard for the plaintiff’s obligations under the Award ‘then that acquiescence itself creates a laches that extinguishes the plaintiff’s claim”.

Detriment or prejudice to the defendant

68 The defendant, referring to Orr v Ford and Hourigan v Trustee Executors and Agency, submitted that even if it is accepted that there is an express trust, it is extinguished by laches: namely the plaintiff’s continual acquiescence in the state of affairs. It was put that the detriment suffered is fundamental even though it was submitted by the defendant that detriment need not be established. The position is that ten years after the arbitration, there is no ability to look at the assets in the arbitration. The plaintiff has not acted on his earlier threat to sue. The defendant continued to hold the assets at cost to him for a prolonged period of time which is not submitted to be taken into account. The retail premises has been closed and there has been an effective cessation of the wholesale business.

69 The defendant put to the Court that acquiescence in this context refers to the refraining from exercising or enforcing a right which the plaintiff is entitled and knows thereby accepting the contrary asserted right by the defendant. Counsel put that the defences of laches and acquiescence ‘occurs when a person who is entitled to some equitable relief under some existing state of affairs, and who is aware of his rights does nothing to enforce them.’ Thereby there is assent to the continuation of the state of affairs. It was the submission of the defendant that laches clearly applies to extinguish any equitable remedy that may be sought.

The plaintiff’s response

70 With regard to delay, the plaintiff submitted that ‘there needs to be knowledge of the wrong and then there needs to be delay from the knowledge.’ In this matter the defendant took on the partnership assets and held them on trust, the plaintiff was not aware that they were converted to own use straight away. The plaintiff put that the idea that acquiescence would by itself enliven a defence is in error and that the doctrine of laches requires prejudice as a result of the delay.

71 The plaintiff put that the LAA and laches are defences, they do not invalidate the Award or any contract, or any claim that someone has.

72 The plaintiff in responding to the defendant’s submission that the plaintiff could have gone to court to appoint a receiver on the correction, put that the defendant has submitted that the correction was a ‘second bite of the cherry’ and therefore is relevant for the purposes of laches. The plaintiff has put that the correction cannot be held to be void and unenforceable yet also relevant for the purpose of laches. The plaintiff put to the Court a further issue namely that ‘equitable remedies are determined at the time of breach, opposite to common law damages.’

73 The plaintiff in his oral submissions referred to Professor Dal Pont, in submitting that the common law largely does not permit the availability of the defence of laches where a trustee converts trust property to their own use, ‘although notes that the reticence is less compelling in cases within a purely commercial setting,’ with High Court authority noting that only ‘gross laches’ can defeat a claim from a party seeking to enforce an express trust. The Court was referred to the case of Sze Tu v Lowe concerning what constitutes a lack of laches as well as each of the respective elements, it is submitted that the onus is on the defendant in each of the elements. In Crawley v Short the court noted that the elements of the defence were knowledge, delay, and ‘unconscionable prejudice caused to the opponent by the delay.’ The question is whether ‘it would be practically unjust to give a remedy.’

The need for prejudice

74 The plaintiff seeks to rebut the proposition that there was prejudice to the defendant by reference to the video of the stocktake taken at the time. It was put that this rebuts that there was prejudice that goes to laches because it was not known what stock and equipment there was. It was put that there was not enough prejudice as the video footage taken the day after was unchallenged. Further, the plaintiff gave evidence as to how the lists were compiled and cross-referenced the video to items on the lists.

75 The plaintiff submitted that the Court should be reticent to apply laches where a trustee has taken the asset but recognised that in a commercial setting ‘reticence might not be applied.’ It was further put that there was no set definition of what constitutes gross laches, save to say that it is particularly egregious delay.

76 The plaintiff submitted that in the present case the fact that the stocktake is video recorded and that the prices are to be determined from a set position in time, which is agreed between the parties, means that the delay would need to be a very great delay, greater than what has occurred in order to be egregious, due to the lack of prejudice in knowing what was there at that period of time.

Consideration

77 It was common ground that there was some delay on behalf of the plaintiff. Whether the delay could be described as “gross” is a qualitative judgment upon which reasonable minds might differ. It could be described as a category of indeterminate reference.

78 The plaintiff’s explanation as to why he did not take action was rather thin although he did give evidence that he had been told he was not welcome, and indeed threatened, at the premises. He said he struggled and had difficulty dealing with the matter. In considering the response of the plaintiff, the fact that the delay followed the breakdown of a long business relationship where the plaintiff indicated also that he had been let down by his solicitors, provide some material for a lenient approach to the plaintiff’s conduct. Further, under cross-examination the plaintiff indicated that he had been reluctant to go down the route of a liquidation of the business as this would have devalued the assets and so he effectively wanted to pursue the steps in the Award. He also indicated that the defendant had had difficulty in raising the money to purchase the half share of the factory. As he saw the Award, he gave an explanation as to why there was no follow-up to the 2010 letter. The balance of the goodwill had not been paid, and moving to a liquidation would have created a loss and made things complicated.

79 From the authorities, however, it appears that for laches to be successfully raised as a defence to an equitable claim there must be some prejudice shown. Here, I am satisfied that the defendant has not suffered any real prejudice by the delay by the plaintiff in bringing this action. I have earlier referred to the stocktake. I am satisfied to accept the plaintiff’s evidence that he provided his lists to the defendant. Thus the defendant had a contemporaneous list of the business assets at the time he became a trustee of the plaintiff’s share. Further he remained in full control of the business, including its records, and continued to trade the business. He was in a position to verify the plaintiff’s lists of assets even though the parties took no action to advance the stocktake or the balance of the Award.

80 It cannot be said that the plaintiff has sat by to see how successful the business may have been before proceeding to take action, as is referred to in some of the old cases involving mining ventures. Rather the defendant has enjoyed the fruits of the entire business to the detriment of the plaintiff. The parties had previously been in partnership and the defendant continued the business, but in his own name.

81 Next the defendant has had the benefit of the use of the business assets over the period until the business was ultimately wound up. It was not suggested that any third party had suffered detriment by reason of the delay. Further, the plaintiff is seeking as his remedy, the value of the assets as at the time of the creation of the trust, by reference to the stocktake taken at the time and as to prices that were being used at the time. The defendant is not being prejudiced by this method of valuation. He is not being asked to disgorge his profits. He had previously agreed to this method of valuation. It is not “practically unjust” to give the plaintiff the remedy of compensation that he seeks based on the value of the assets as recorded at the time of the dissolution.

82 In those circumstances, unlike other cases where laches has been successfully invoked, here the lack of prejudice, and my conclusion that there is no injustice in providing a remedy to the plaintiff is such that I am not satisfied that this provides a successful defence to the plaintiff’s claim.

Conclusion: defendant’s defences not accepted

83 For the above reasons, I do not accept that the plaintiff’s claim for equitable damages fails, or is statute barred. Further, I do not accept that his equitable claim is defeated by the equitable doctrine of laches. I now turn to consider the issue of the quantum of the plaintiff’s claim.

The quantum of the plaintiff’s claim: disputed matters

84 The matters to be determined, in the event that the defendant’s jurisdictional and limitation offences failed, were narrowed in the course of final addresses, such that it is unnecessary to refer to much of the evidence on the quantum of the claim as issues fell away.

85 Under the plaintiff’s final claim in the proceeding, the original amount of goodwill of $100,000 fixed under the Award was not claimed. Further, the plaintiff in seeking equitable damages conceded that he was required to give equity, and thus to accept his share of the partnership liabilities as at the dissolution date.

86 This narrowing of the issues makes it unnecessary to consider the evidence as to how the amount specified in the Award for the: “50% value of: stock, cash & debtors, other assets, liabilities (to be valued per agreement 5 May 2009) (approx.) $110,000” was calculated.

87 The plaintiff gave evidence that the amounts being discussed during the arbitration stemmed from discussions with the business broker who has made suggestions as to how to present the business for sale, and in particular to have a high goodwill estimate. This resulted in the arbitrator reducing the estimate for the goodwill to $100,000. Similarly, in relation to the amount of stock being referred to, the defendant gave evidence that that was his offer for the business during the arbitration. The plaintiff also gave evidence that the amount for stock in the taxation returns was not truly a reflection of the amount of stock actually held by the business.

88 These matters were ultimately not now in issue: in essence the plaintiff sought equitable damages based on the value of the assets of the partnership as at 23 May 2009 in a document titled Schedule A calculated in accordance with the method for taking a stocktake agreed on 5 May 2009, and deducting agreed liabilities.

89 The stocktake was undertaken by reference to a number of different categories and the plaintiff’s claim, as opened, was narrowed by closing address as can be seen from the table below adapted from the plaintiff’s final submissions. Thus it can be seen that only items A, B, D, E and K remained in dispute in the event that the defendant was unsuccessful in his defences. In essence, to narrow the matters in dispute, the plaintiff in final address, in relation to a number of the items, accepted the defendant’s account or valuation from his evidence such that by closing address the disputed items were summarised as follows:

SUMMARY OF VALUE OF PARTNERSHIP ASSETS AS AT 23 MAY 2009

VALUED PURSUANT TO 5 MAY 2009 AGREEMENT

Note: David’s assessment at CB195: $106,701 less $12,446 (being half of $24,892) = $94,255

Disputed issues regarding stocktake methodology

90 Before considering the individual categories of dispute is necessary to note the conflicting evidence regarding the stocktake undertaken pursuant to the 5 May 2009 agreement, bearing in mind the obligation of the Court to seek to give a businesslike and commercial result, particularly where the parties were effectively in an equal bargaining position and reached a signed agreement that they confirmed in the Award a couple of weeks later. In considering this the argument by the defendant that the plaintiff should have called expert evidence to value the business or the stock falls away. The parties had reached an agreement as to how to value the assets and it was the duty of the Court to seek to give effect to it, in circumstances where any expert seeking to proffer an opinion would be seeking to usurp what the parties had agreed.

91 The plaintiff’s case was that the stocktake was prepared in accordance with the agreement of 5 May 2009. That agreement addressed all the assets of the business including the factory, the vehicles and the equipment. The latter were to be valued at 50% of the value paid “if it still works”, otherwise if not agreed the average of the value given by both partners. The plaintiff gave evidence that he envisaged that the parties would tour the factory and reach an agreement on equipment that way.

92 In relation to the “stock valuation,” it set out the method of valuation. The valuation was be undertaken of the various assets of the business in both locations by reference to the categories of finished goods, raw goods, semi made, and seconds finished, dead stock, and materials. At that stage the business was manufacturing furniture to be sold in the showroom, and also bringing in other goods from suppliers that could be sold without further work. It also addressed other suppliers, being goods brought in, material, and dead ie non-moving, material. It also addressed the division of other assets including the business name, the vans, customer records, warranties, intellectual property, the bank account and deposits held, receivables as well as outstanding claims. It was signed by the defendant and is recorded in the arbitration agreement. I am satisfied that the defendant agreed to be bound by the methodology in this 5 May document, and the duty of the Court is to give it a businesslike operation.

93 In considering that methodology, the plaintiff gave evidence that when the method was agreed it was uncertain as to the future of the business, and in particular whether the business would be sold as a whole, or whether one party would buy out the other party, or whether one party would take the retail business and the other the factory.

94 In relation to stock, the methodology was to work back from the retail prices by deducting the GST, and then applying a percentage of that price (60%) as the wholesale price, 10% off for raw materials, and 20% for semi-made, and 20% for “seconds finished” stock. In relation to “dead stock” the parties were to take the average of each parties’ estimate.

95 For goods from other suppliers, the value was to be 60% of the retail price after deducting GST. For materials it was to be the purchase price, and for dead materials it was to be agreement or the average of each parties’ estimate.

96 Turning to the taking of the stocktake, as I have already noted above there was conflict as to who actually commenced the stocktake after the Award. As I have noted it makes little difference. In so far as there was any conflict between the evidence of the plaintiff and the defendant on the actual taking of the stocktake I prefer the evidence of the plaintiff. That the defendant would seek to organise the stocktake is consistent with the Award that he was to purchase the business within a limited time and thus it was in his interest to get the stocktake moving. On the other hand, it is consistent with the interest of the plaintiff to ensure that the actual stocktake was of integrity as he was to receive a half share, thus the video.

97 In relation to the actual compilation of the stocktake items, the plaintiff’s evidence was that after the making of the Award, on the following day, namely the Sunday, he attended at both the showroom and the factory and videoed the contents. During the trial, the plaintiff also marked on that part of the stocktake list that he had received from Mr Santamaria, those entries that he had made subsequently. On the Monday he attended and found that Mr Santamaria had commenced a stocktake at the showroom. He was handed pages 1 – 6 (CB 45 – 50). On some of the items Mr Santamaria had put prices in from the retail price list. Subsequently the plaintiff completed those prices from either the sticker price or from pricelists held by the business. The plaintiff marked on that document the entries that he had made.

98 The plaintiff subsequently completed a further list which listed other assets that had not been included by Mr Santamaria in his stocktake. The plaintiff gave evidence that he also prepared a further list of items which were items at the showroom. In addition he prepared a more extensive list of items which were items including the machinery at the factory. This was prepared in the balance of the week after the Award. In relation to CB 66 – 105 the plaintiff gave evidence that the dark entries were made during that period but the lighter entries were made in about 2015.

99 To assist in linking the stocktake records to the video of the plaintiff marked as an aide memoir CB 45 – 105 with the times from the video, as well as a separate document which was a list of assets, exhibit B, containing similar times linked to the video. Also relevant is the plaintiff’s evidence in relation to him completing the prices to be attached to the individual stock items by supplementing those prices that had been inserted by Mr Santamaria.

100 In evidence was a ledger of machinery and equipment that the plaintiff said was kept of equipment that had been purchased for the business. That ledger was accessed for the prices identified in that document. Further, the plaintiff gave evidence that upon completing the stocktake he photocopied the relevant book and highlighted those items in the handwritten lists that were still being used. In his evidence the defendant claimed that he had handed lists to the plaintiff but he had never received any feedback. This assertion had not been put to the plaintiff.

Assessment as to stocktake methodology

101 The plaintiff was strongly pressed in cross-examination as to his compilation of the stocktake in accordance with the 5 May method. His evidence carried a cogency given the position the parties were in during May 2009. When the agreement was made it was not clear what was going to happen to the business and so the 5 May agreement did not advantage either party. Following the Award it was in the interest of the plaintiff to have a stocktake that had integrity. Thus his action of videoing the showroom and the factory would support the veracity of the contemporaneous document. In relation to the categorisation of stock in the showroom, it is also relevant that the plaintiff was in charge, so was in a position to use his familiarity with the stock to properly categorise it into the three exhaustive categories in the document: finished goods, raw goods, and equipment. In those circumstances it is likely that the plaintiff would generate lists that he could defend as consistent with the agreement rather than seek to take advantage of the defendant. Also relevant in relation to the contest over the values attributed to items in the showroom is that the defendant admitted that he did not attend there to do a stocktake.

Disputed items in plaintiff’s claim

102 The plaintiff in his closing written submission, and briefly in his oral submissions, addressed each of the various items in dispute at CB 195. In closing address, counsel for the defendant did not specifically address the itemised differences in the claims. Rather he referred the Court to the matters raised in the defendant’s evidence and cross-examination and in the supporting documents tendered. The plaintiff was the cross-examined as to his categorisation of goods as either finished goods, or goods which were brought in from other suppliers effectively by similar treatment to goods manufactured in the factory, and goods purchased in to be retailed in that form. It was put that the stocktake method of a reduction from retail price was inappropriate as a method to value the goods because it would fail to capture the value added by the factory. The plaintiff disputed this and maintained that the agreement had been discussed between the parties. I accept the plaintiff’s evidence on this point. The evidence of the defendant had all the appearance of construction of a method of valuation that would have the effect of reducing the value that would have been arrived at under the 5 May agreement.

103 The defendant in his evidence after a weekend break tendered conflicting calculations of the various categories sought by the plaintiff (CB 195 – 213), and this led to a narrowing of the matters in dispute in Annexure A above that led to the plaintiff accepting in his final submissions some of the competing values namely items C, F, G, H, and I, claimed by the defendant, but maintaining his position on a number of disputed amounts that will now be discussed.

Item A- finished goods Nunawading

104 At CB 196 the defendant set out his dispute with the plaintiff as to the plaintiff’s claim that the value of the finished goods at the showroom was $486,210. The plaintiff conceded two items worth a total of $2000 but disputed the defendant’s deletion of all Oregon goods. The defendant also sought a reduction of the amount of finished goods of 25% for dead stock. He also sought a further reduction of 20% for second hand goods. My findings on these matters:

Metal legs/Oregon: $1000 disputed item

105 An element of this disputed item is a reference in the 5 May agreement that read “metal legs/Oregon $1000”. It was the plaintiff’s evidence that this referred to a price to be placed on some crates of metal legs located in the factory that were used in making Oregon furniture.

106 The defendant’s account was that this was a global sum for both the metal legs and any Oregon furniture and timber, given that this line was no longer popular, and that in effect the Oregon furniture was dead stock. In cross-examination, the plaintiff resisted any challenge to his account of the reference in the 5 May agreement.

107 The defendant, on the other hand in his evidence maintained that this indeed was the agreement, particularly as Oregon was at that stage no longer a popular line of furniture. He maintained that there was nothing inconsistent with Mr Santamaria listing Oregon items in the showroom stocktake as he was just told to list everything in the premises.

108 The video undertaken shows both Oregon furniture items and, according to the plaintiff, also the crates of metal legs. At CB50, which was part of the list of items prepared by Mr Santamaria, there are a large number of Oregon furniture items listed that are part of the plaintiff’s claim. Some of these items are listed as having significant values such as a set of chairs ($2800), buffet ($1899), TV unit ($1799), and mirrors ($250, $380). These values indicated that it is unlikely that the plaintiff, who was in charge of the showroom but who conceded that Oregon was less popular, would be prepared to value all the Oregon timber items and the metal legs for a lump sum of a mere $1000.

109 Given that the plaintiff subsequently allowed the inclusion a number of items of Oregon furniture in the lists that were prepared in the stocktake, and which he said he gave to the defendant, this supports his account that the $1000 figure was referable only to the crates of metal legs, which he listed at CB95, in an entry made at the time, as part of material in the factory, and not to all the Oregon timber or furniture and the crates of metal legs, that were recorded in the stocktake.

110 For these reasons, and having regard to my earlier reservations of the defendant’s memory of disputed events, and also taking into account the inconsistencies in the defendant’s evidence raised by the plaintiff set out in Annexure C of the closing submission, I prefer and accept the plaintiff’s account on this issue.

Dead stock

111 Before turning to the issue of “dead stock,” I must note that, under cross-examination, the plaintiff was challenged as to the way that he had categorised the various items. It was effectively put to him that in relation to goods purchased from China ready for sale, the business had no further work to be done on those items. It was put that it was inappropriate for one partner to sell to the other such goods at the wholesale price being 60% of the retail price, rather than at the actual cost that the goods had been purchased ready to sell. The plaintiff refuted this, asserting that that was the method agreed upon. His position was that the agreed method was effectively a “swings and roundabouts” such that particular values calculated under the formula might yield a higher amount in some cases than the retail margin, but a lower amount in others.

112 A further disputed element by the defendant in his calculations at CB196 was that of the finished goods in the showroom. He asserted that there should be a reduction of 25% to reflect the amount of dead, that ie non-moving, stock. His annotation stated “(should be more than 25% when shop closed).” He gave evidence that the figure was from “trading standards” and that it applied in 2009, and that it was higher in 2013 when the store was closed.

113 It was put to the plaintiff that there were goods in the showroom that had been there for some time and may have been damaged or would have to have been heavily discounted to sell. The plaintiff refuted this arguing that he was in charge of the showroom, and items were there to show to people so that they can order an actual item that would be manufactured. He disputed that it would have been necessary for both parties to have gone through the showroom looking at each item to place it into an appropriate category.

114 In his evidence in chief the plaintiff accepted that there may be stock that was not moving but did not quantify the amount that may have been in the showroom.

Assessment: “dead stock” – allowance made

115 The plaintiff did not include any items categorised as “dead stock” in his stocktake. The matter was not fully explored in cross-examination, although clearly the parties in their 5 May agreement provided for a category of “dead stock” and “dead material” that would be valued by “to take average of each partners estimate”.

116 Due to the fact that after the Award there was no action by both parties to advance the stocktake, which would have necessarily included a consideration of all the stock of the business, the issue of a value, if appropriate, of “dead stock” remains undetermined.

117 The defendant’s evidence as to the actions he took to liquidate the outstanding stock when the lease expired provides some evidence that at least at that stage in 2013, there was some ‘dead stock’ in the business. Some of the goods were placed with another retailer, some were lost, and some ultimately were returned to the defendant. This provides some support that there were, at least at that stage, some slow-moving goods. The plaintiff also accepted in his evidence that Oregon items were less popular than previously.

118 The plaintiff did not get an opportunity to refute the defendant’s estimates of “dead stock” that he produced after he decided to grapple with the items listed in the plaintiff’s stocktake. Also of note is that the stocktake had been commenced by Mr Santamaria. The plaintiff continued with the document that he had commenced to prepare. There was no evidence that the plaintiff had subsequently gone through the showroom and identified items that were properly to be categorised as “dead stock”.

119 There is an element of prejudice to the defendant in the implementation of the 5 May agreement given that “dead stock/dead material” were to be the dealt with by taking the average of each partner’s estimate. As no party took any action to progress the Award such a reckoning never occurred.

120 Due to the failure of the defendant’s counsel to put the defendant’s estimate of dead stock to the plaintiff in cross-examination the plaintiff has not had the opportunity to respond to the defendant’s estimate that 25% of the finished goods should be categorised as dead stock. The plaintiff’s concession in evidence in chief that there would be dead stock, combined with the defendant’s assertion as to his estimate of dead stock, leads the Court to the conclusion that, in providing an equitable remedy to the plaintiff some allowance for dead stock ought be made. Applying a fair and reasonble approach I propose to split the difference between the plaintiff who allowed for none, and the defendant’s 25% and assume that 12 ½% of the finished goods were dead stock and to reduce the plaintiff’s claim for that category by that amount.

Second hand goods

121 The defendant in his response to the plaintiff’s calculations at CB 196, applied a reduction of 20% to the amount of finished goods as “second hand good” on the basis that the stock could have been damaged. The plaintiff had been cross-examined about the possibility of damage to goods on the showroom floor, and noted that he was in charge of the showroom and that he resisted the proposition that such goods could not be sold as a finished product. He noted it still has value and “somebody can still purchase it.” He denied that it would need to be heavily discounted. The defendant reduced the amount of finished goods by 20% on the basis that it was second hand stock. The plaintiff’s evidence stated that all the goods were finished products. The defendant in his evidence conceded that he had not inspected the stock in order to determine if there was damage so as to warrant it being classified as “seconds finished” as a category provided in the 5 May agreement.

122 In contrast to the position in relation to dead stock just discussed, here, in the absence of either party actually determining whether any of the items listed as finished goods in the showroom were to be described as “seconds” there is no basis to apply a blanket reduction of 20% as sought by the defendant. For these reasons I do not accept the defendant’s claimed reduction of 20%.

Item B – Raw goods Nunawading: The red gum slabs – raw goods or materials?

123 Another matter in dispute was the plaintiff’s valuation of some large red gum slabs that were in the warehouse section of the Nunawading showroom. The plaintiff’s position was that they were properly valued as finished goods, sold in that state, and valued according to their retail price. The defendant’s position was that they were raw material and valued at cost. He annexed a supplier invoice for some slabs.I accept the plaintiff’s position on this dispute. They were in the retail section of the business and the plaintiff gave cogent evidence that these large slabs could be sold as is, and thus they were properly categorised by the plaintiff.

Item D – finished goods factory

124 The plaintiff accepted that the “Gretch order” should be deducted and that the items were components and thus should be reduced by 20%.

Item E raw goods factory

125 This was another example of a dispute between the parties as to the interpretation of the 5 May agreement. The plaintiff’s position was that this category involved goods that had either been imported from China already manufactured and waiting for further treatment such as sanding. The defendants account was that these were to be treated as materials. As the plaintiff submitted the items in this category are different from straight materials such as lengths of timber. As the plaintiff submitted the description given by him was not challenged in cross-examination. The defendant accepted in his own evidence that items of furniture were brought in and classified as raw goods. As submitted by the plaintiff the quantities were available to be checked in the video and the stocktake and I have already found that I accept the veracity of the plaintiff’s stocktake. Consistent with that conclusion, and with my acceptance of his evidence over conflicting evidence of the defendant in relation to the interpretation of the 5 May agreement, I accept the plaintiff’s claim in relation to this category being item E.

Item K Bank Accounts and showroom bond

Plaintiff’s evidence as to meeting to settle cash balance

126 The issue raised by the defendant, was that the plaintiff, in any claim for half of the business assets, had to account for any outstanding cash he held for the partnership as at 23 May 2009. In reaching a conclusion on the conflicting claims, similar principles to those discussed above in relation to the likely veracity of the stocktake apply.

127 At the beginning of the trial the defendant indicated that he did not press any set-off. Notwithstanding this, the defendant raised in cross-examination of the plaintiff that in his claimed division of the monies in the bank accounts, the plaintiff had failed to account for cash he held.

128 In the correspondence passing between the parties after the settlement of the half share of the factory, the defendant in his letter of 11 May 2010 (CB44) accused the plaintiff of failing to account for a large amount of cash that (“may exceed $50,000”) he held on account to the business. At one stage in the proceeding, the plaintiff had been accused of fraud, but that pleading had been abandoned. In the course of explaining his claim for half the monies in the bank accounts, the plaintiff gave evidence that in the second week after the Award the two met in the showroom and discussed the outstanding cash. They referred to the ledger. As the business did not have a safe, the plaintiff had been holding for safekeeping $3-4,000 in cash from payments made by customers. They went through the cash and divided it equally. It was put by the defendant’s counsel that the plaintiff had made up this evidence. He denied it.

129 On this issue I accept the evidence of the plaintiff. The plaintiff was in charge of the showroom operations and thus more likely to be in receipt of customer monies. Given that the business did not have any overdraft facilities, and had operated successfully as an equal partnership for some years with mutual trust, with the parties drawing equal shares, up until relations started to break down in 2009, it is inherently likely that the parties may have had cash holdings that needed to be settled. As the plaintiff was to be exiting the business and undertaking the stocktake for that very purpose in accordance with the 5 May agreement, then there is a ring of truth about evidence that, in the course of the days immediately after the Award, he would seek to settle the cash holdings so that the forthcoming settlement would go smoothly.

130 In reaching this conclusion on this point, I also take into account my assessment that the plaintiff has a much better memory of events some ten years ago, and his evidence generally is supported by the documents produced. While there is no document on this point, it appears that the issue of outstanding cash was first raised in the letters exchanged between the parties during 2010 when the defendant was in breach of the Award in that he was taking no action to account to the plaintiff for his share of the goodwill of the business, albeit that both parties had failed to undertake the stocktake to value the business assets.

Showroom bond

131 The other item in dispute in relation to cash at dissolution was an amount of $6800 bond on the leased showroom. When the lease was surrendered in 2013 the defendant, instead of making good the premises, chose to forfeit the bond.

132 The plaintiff argued that he was entitled to his half share in the bond as it was an asset of the business at the date of dissolution, and he could not be responsible for the later decision to forego it when there is no evidence of the profitability of the business under the sole management of the defendant.

133 I accept the plaintiff’s submissions. The bond was an asset of the business at dissolution and what happened to it after the defendant took total control of the operations of the business including the showroom until the retail section was closed is not a matter that the defendant should not account to the plaintiff for. The plaintiff is entitled to a 50% share of the lease bond.

Liabilities

134 The matter in dispute here related to whether the plaintiff had properly allowed for partnership liabilities at dissolution. The plaintiff accepts that the defendant had not sought to set off any debts of the partnership from which he could claim contribution from the plaintiff. The plaintiff recognised, however, that he was required to accept his share of the liabilities as at the dissolution. The evidence was that as at 30 June 2009 from the taxation return (CB 16), the partnership had liabilities of a $24,892. Under cross-examination the defendant conceded that the liabilities as at 23rd May would be “not much different”.

135 In his final accounting in Annexure A the plaintiff allowed for a deduction of $24,892.

Conclusion

136 Following the above findings the plaintiff’s Annexure A can be adapted as follows and I will enter judgement for the sum of $210,057.57:

Interest

137 The plaintiff in final address accepted that in circumstances where there had been delay in bringing the proceeding it was appropriate that interest under the Supreme Court Act 1986 run from the date of the issue of the proceedings. I invite the parties to make the appropriate calculation.

Judgment

138 I will hear the parties as to appropriate orders to give effect to this judgment.