Morgan v Kontoleon & Anor[2011] QCA 276

COURT OF APPEAL

WHITE JA

Appeal No 8465 of 2011

SC No 7122 of 2011

LINDA JOAN MORGANAppellant

v

ANNETTE KONTOLEON Respondent

and

J & A KONTOLEON PTY LTDSecond Respondent

BRISBANE 

DATE 10/10/2011

JUDGMENT

WHITE JA:  A declaration was made in the Trial Division on the 26th of August 2011 that the partnership, Glitz Designz: The House of Class, between J & J Kontoleon Pty Ltd as trustees for the J & A Trust and Linda Joanne Morgan as trustee for the Saratoga Trust, was dissolved on 20 July 2011.

The Court made consequential orders about the winding-up of the partnership under the direction of the Court.  To that end, Jason Bettles, an accountant, with Worralls Insolvency and Forensic Accountants at Robina was appointed receiver of the partnership to collect, get in and receive the debts due and accruing, and other assets, property and effects belonging to the partnership.

The parties were required to deliver to the receiver "all the stock, stock-in-trade and assets of the partnership" and other property of the partnership to the receiver.

The applicant, Linda Joanne Morgan, had applied to the Court for a stay of enforcement of all orders made on the 25th of August 2011 until the determination of her appeal.  I infer that that also includes the declaration made.

A subsidiary order is also sought that the accountant be directed to maintain safely all documents received by him pursuant to those orders.  It is convenient to refer to the applicant by her own name, and the respondent as Ms Kontoleon, as the issues are really between those two women, whatever vehicles may have been employed.

Ms Morgan appeared in the Applications jurisdiction on the 25th of August, assisted by Mr R Ross, who was given permission to speak on her behalf by the primary Judge.

I declined to give leave for him to do so on this application.  Section 209 of the Supreme Court Act 1995 requires "special leave" for a person not a lawyer to appear for another.  Ms Morgan said she feels very emotional about these issues and it would be more efficient if Mr Ross spoke for her.  I was not persuaded that that was sufficient special reason and declined leave.  I should say that Ms Morgan managed very well herself on this application.  She was assisted by Mr Ross as her Mackenzie friend.

The subject matter of the partnership was a business selling evening dresses, or perhaps more correctly, wedding and other formal dresses, together with shoes, jewellery and accessories.

Ms Kontoleon filed an application seeking the orders which were eventually made.  She was represented below and on this application by Mr Davies of counsel.

Ms Morgan and Ms Kontoleon filed affidavits setting out in detail their respective accounts of the formation, progress and eventual breakdown of their business relationship.  It is plain from those affidavits that each has a quite different understanding about those matters.  It would have been impossible for those differences to have been resolved in the Applications jurisdiction.  Indeed, no attempt was made to do so.

The application proceeded on the basis that the parties recorded the business relationship between them by means of a partnership and management deed.  In the case of Ms Kontoleon, this was via the company J & J Kontoleon Pty Ltd and Ms Morgan was trustee for the Saratoga Trust.  The manager of the business was a company, Glitz Designz: the House of Class Pty Ltd, of which both Ms Morgan and Ms Kontoleon were directors.

The deed provides for “key persons” in the partnership.  They were Ms Kontoleon and Ms Morgan.  The partnership management deed was dated the 22nd of July 2010; the partnership commenced on the 23rd of July 2010.  It commenced to trade from leased premises, from, as I understand the material, about the end of 2010.  Tension arose between Ms Kontoleon and Ms Morgan.  It seems to be uncontentious that Ms Morgan had a large stock of formal wear prior to the partnership relationship commencing, but had not traded from retail premises for some years. 

After the women met, the material suggests, they agreed that Ms Morgan would supply her stock and expertise and work full-time in the business and Ms Kontoleon, who had business and marketing skills, would, together, operate a successful business from the rented premises.  They were equal partners, with Ms Kontoleon, on the material, investing some $150,000 to $200,000 in it.

Clause 11 provided a mechanism should a key person wish to retire from the partnership.  Ms Kontoleon gave notice of intention to retire from the partnership by a letter dated 20 July 2011, effective immediately.  In it Ms Morgan, as the remaining partner, was called upon to make an election as required under the deed should there be a retirement of a key person.  The election was for the remaining partner to elect to wind up the partnership, or to purchase the retiring partner's share of the partnership.  The deed provided a mechanism by which the value was to be determined.  Ms Morgan, as the remaining partner, did not make any election.  She did, however, issue some 14 notices of breach pursuant to clause 8 on the 5th of August 2011.

The primary Judge found that even if they were effective, their consequence was merely to trigger a deemed retirement so that clause 9.5 which deals with the mechanism upon retirement of a key person would be triggered.

His Honour concluded that it was appropriate to appoint a receiver to the partnership property because the affidavit material revealed significant and intractable differences between the parties.

The appointment of an accountant or receiver was contemplated by the deed in the event of dissolution.  No other dispute resolution proposal was made to his Honour.  The dispute resolution process in the deed had, it seems, been resorted to at least in part, without success.

Ms Morgan's grounds of appeal are numerous and argumentative.  She alleges that she was tricked by Ms Kontoleon and her solicitor into executing an amended partnership agreement, that there never was any entity called the Saratoga Trust, and, notwithstanding her stance below, that there never was a partnership.

These assertions are based on material said to have come to light after the primary hearing.  Today, Ms Morgan sought to file an affidavit with documentary exhibits which, with commentary, might have demonstrated her contention that Ms Kontoleon has not dealt honestly with her.

I declined to allow the affidavit to be relied on as it did not appear to be relevant to this application.

Even if there were problems about the enforceability of the partnership deed, the affidavit material clearly demonstrates that Ms Kontoleon and Ms Morgan, in some capacity, carried on a business in common with a view to profit, and that much is conceded by Ms Morgan.  As such, their relationship fell within the definition of a partnership in s 5 of the Partnership Act 1891.  It is also abundantly clear that the relationship of mutual trust and confidence of each partner in the skill, knowledge and integrity of the other partner is now absent and was absent at the time of the hearing below.

The stock is in Ms Morgan's custody.  She is fearful that that stock, representing her life's work, as she describes it, will be sold at fire sale prices by Mr Bettles and its best price could be achieved on a customer by customer basis.

Ms Morgan has said from the Bar table that she also has some business records.  Ms Kontoleon would appear to hold, if she has not given them to Mr Bettles, other books and accounts of the partnership.  Ms Morgan contends that if the receiver proceeds to dispose of the assets of the partnership in the manner feared, she faces financial and reputational ruin.

The orders made below were consistent with the proper construction of the deed, but, even if it be accepted that the deed was inoperative to constitute a partnership, those orders were entirely orthodox on the break-up of a partnership governed by the Partnership Act.

The approach to the granting of the stay is not in dispute between the parties.  Ms Morgan accepts that she bears the onus of showing that the orders made below ought not to be carried into effect until the appeal has been heard and determined.

In Cook’s Construction Pty Ltd v Stork Food Systems (Australasia) Pty Ltd [2008] 2 Qd R 453, Justice Keane said "It will not be appropriate to grant a stay unless a sufficient basis is shown to outweigh the considerations that judgments of the Trial Division should not be treated as merely provisional and that a successful party in litigation is entitled to the fruits of its judgment.  Generally speaking, Courts should not be disposed to delay the enforcement of Court orders.  The fundamental justification for staying judicial orders pending appeal is to ensure that the orders which might ultimately be made by the Courts are fully effective: the power to grant a stay should not be exercised merely because immediate compliance with orders of the Court is inconvenient to the party which has been unsuccessful in the litigation."

His Honour continued, "In cases where this Court is able to come to a preliminary assessment of the strength of the appellant's case, the prospect of success on appeal may weigh significantly in the balance of relevant considerations.  The prospect of success would obviously tend to favour the refusal of a stay if the prospects of the appeal can be seen to be very poor.  That is because if there is obviously little prospect of ultimate reversal of existing orders, the concern to ensure that the existing orders can be overturned without residual injustice to have less claim on the discretion than might otherwise be the case."

As has already been mentioned, the hearing below was conducted on the basis that there was a partnership between the parties which was governed by the deed.  Ms Morgan understood that she was in a business partnership relationship with Ms Kontoleon, and, whether or not that relationship was governed by the deed or the provisions of the Partnership Act, dissolution must be conducted in an orderly manner.

Ms Morgan has foreshadowed proceedings against Ms Kontoleon.  I would urge her to endeavour to obtain some legal assistance to do so if that is her intention.  [I pause to mention that there is an organisation, Ms Morgan, called QPILCH which has an office here in the Court building across the quadrangle.  Somebody in the Registry could direct you to that organisation which provides pro bono assistance for people in civil cases.]

No matter how well meaning Mr Ross is, he is not legally trained, and these proceedings would be complicated and difficult to plead adequately to reflect Ms Morgan's concerns.

To accede to the applicant's application today would, in effect, be to pre-judge the contentious matters between the parties, by permitting her to retain possession of the assets of the partnership, most of which appears to be the stock-in-trade.

Ms Morgan's concern, no doubt not unfounded, that the value of the clothes will not be realised in a receiver's sale could be communicated to Mr Bettles's office with sensible suggestions about storage and how the best return to the partnership may be achieved within an acceptable timetable, but that is a matter for the Receiver.

On the question of the documents, Mr Bettles has been appointed by the Court, he is obliged to preserve the records of the partnership.  For that reason, there is no need for a special order to that effect.

I am not persuaded that the prospects of success on the appeal from the declaration dissolving the partnership and appointing a receiver are anything other than poor.  Nothing has been advanced which would otherwise suggest that the discretion to order a stay ought to be enlivened, and accordingly, the onus has not been discharged.

Mr Davies further seeks to have the notice of appeal struck out on the grounds that it does not apply with the Rules of Court and contains scandalous and vexatious references.  It does fail to supply with Rule 747(1)(b) of the Uniform Civil Procedure Rules, in that it does not briefly and specifically set out the grounds of appeal.  It contains argumentative and some scandalous allegations and even though latitude is given to self-represented litigants, the notice of appeal ought to be amended to comply with the Rules.

I would not, however, accede to Mr Davies' application to strike it out.

I note that each deponent has accused the other of lack of good faith and of dishonesty.

These are the orders which I make this morning on this application:

1.The application for stay is refused.

2.The applicant, who is the appellant, have leave to amend her notice of appeal as she may be advised, but so that it conforms with the requirements of Rule 747(1)(b) of the Uniform Civil Procedure Rules.

Those are my orders.  Do you have any other applications?

...

WHITE JA:  The respondent has sought the costs of the stay application.

It is not an application that had many prospects of success.  Perhaps that was due to the fact that Ms Morgan did not have legal assistance to advise her wisely about that course.

The stay application has been refused, and in those circumstances, there appears to be no good reason why costs should not follow the event, and accordingly, I order that the applicant pay the respondent's costs of and incidental to the application to be assessed on the standard basis.