Herrod v Johnston[2013] QCA 184

SUPREME COURT OF QUEENSLAND

[1] THE COURT: Introduction On 18 December 2012, this Court allowed the appellants’ appeal in this matter.  No costs order was made.

[2] The solicitors for the respondents wrote to the Registrar on 19 December 2012 enclosing written submissions seeking amendment of the order made on 18 December 2012 pursuant to r 667(1), r 667(2)(d) or r 388 of the Uniform Civil Procedure Rules (the UCPR).  The contention was that, as the Court had reduced the value of the partnership interest of the deceased by $128,217 at the date of death to take into account a debt owed to the deceased of $62,000 and the partners’ current accounts totalling $66,217 (of which $7,906 was the deceased partner’s share), each respondent’s share of the residue should have been increased by one third of $69,906 ($23,302).  For convenience the $62,000 and the $7,906 will be referred to as the partnership debts.

[3] It was submitted that as the Court’s intention was that the judgment sum be the aggregate of each respondent’s one ninth share of the value of the partnership (that is, one third of the deceased’s one third interest in the partnership) and each respondent’s one third share of the residue, the award of principal in favour of each respondent should have been $168,531.21.  Further submissions were made in relation to the calculation of interest.

[4] The solicitors for the appellants wrote to the Registrar on 21 December 2012 complaining about the unilateral provision of submissions by the respondents.  They intimated that leave to “reopen the case” would be opposed.  They stated that they would not provide a submission to the Court unless authorised by the Court to do so.  However, a written submission on costs, dated 21 December 2012, accompanied the letter.  Those submissions sought an order that the respondents pay the costs of the appeal to be assessed.  The parties were advised that the Court would entertain submissions on costs and in respect of the respondents’ application under r 667(1), r 667(2)(d) and/or r 388 of the UCPR.  Directions were made concerning further written submissions.

The appellants’ submission on the judgment sum

[5] The appellants submitted that the respondents’ claim that the partnership debt fell into residue was inconsistent with the respondents’ position on the appeal.  The appellants, in their primary outline of argument on the appeal, submitted that the partnership debt was to be paid to the widow under the will.  The respondents, although submitting that the appellants’ submissions as to the two sums contained a number of incorrect statements, did not contend that the appellants erred in claiming that the partnership debts were to be paid to the widow under the will.

[6] The Court made no error as the matter now sought to be agitated was not in issue.

[7] The contention that the partnership debts “should have fallen into the residue of the estate” is controversial and “clearly erroneous”.  The will, by clause 3(a), required the executors of the deceased’s estate:

“To pay to my lawful wife … all ready monies and cash investments owned by me as at the date of my death together with all monies paid to my estate by the partnership … in repayment of any debt owed to me by that partnership as at the date of my death; …”

[8] The respondents’ submission also mistakes the position as to the time over which interest should be allowed.  The effect of this Court’s order is that the judgment below was varied by substituting an amount calculated in accordance with a formula (the correctness of which was not disputed before this Court) applied to the reduced value of each respondent’s share.  It is irrelevant that a greater period had elapsed by the time of the judgment of this Court, as the order dates back to the order of the primary judge.

[9] The parties entered into a deed, which dealt with the position of the parties in relation to execution of the judgment at first instance.  The respondents did not repay the excess amount they received under the judgment despite having agreed to do so within 14 days of the publication of the Court’s decision.  If the respondents do not consent to an order for repayment, in the event their application fails, an order should be made for such repayment.  The amount owing as at 10 April 2013 was $42,078.91.

The respondents’ further submissions in relation to the judgment sum

[10] The respondents’ submissions were to the following effect.  The position now adopted by the respondents was not contrary to their argument on appeal.  The passages in the appellants’ outline of argument on appeal, on which they now rely, concerned claims about the respondents’ evidence at first instance.  In paragraph 80 it was asserted:

“His Honour’s findings in this respect were not sustainable on the evidence.  Leah and Harella gave evidence confirming that the debt of $62,000.00 remained owing by the Partnership to the deceased … More fundamentally, however, the position put forward in the evidence for the Respondents was to accept that the debt did exist but to argue why it should not be deducted from the value of the Partnership, notwithstanding it was to be paid to the Widow under the will.”

[11] Paragraphs 86 and 87 of the appellants’ outline stated:

“86.In this case the variability of drawings against profits has been reflected by the Partnership loan account.  In addition to the amount of $62,000.00 which was separately recorded, the deceased was owed $7,906 which made the total loan from him to the Partnership $69,960 (sic) at the date of death, 14 February 1999.

87.Under the will that was to be paid to the deceased’s widow.  In terms of the value of a one third share in the Partnership the loan accounts were required to be taken into account because they represented amounts owed by the Partnership to the individual partners.  The various financial statements dating from the earliest statement confirm the reliability of those loan accounts.  It is submitted that His Honour was in error in failing to deduct those amounts against the value of the Partnership.”

[12] There was no finding by this Court that the partnership debts were “debts owing to the deceased” within the meaning of cl 3(a) of the will and:

1. There is no evidential basis for the submission that the partnership debts were “owed to [the deceased] as at the date of [his] death”.  Although the partnership debts were liabilities of the partnership as at the date of the deceased’s death, no finding was made and none could have been made that the liabilities were owed, in that they were payable, to the deceased as at that date.

2. The partnership was not wound up on the death of the deceased.  The appellants transferred the deceased’s share to themselves as from 18 October 1999 and thereafter carried on the partnership business in their own names.  No reconciliation of accounts was undertaken.

3. The partnership agreement makes no mention of payment of liabilities to the estate of the deceased on the death of a partner.  Where there has been no winding up in accordance with the partnership agreement, it cannot be concluded that any liability which may have accrued was payable as at the date of his death.

4. Where the deceased has included in the partnership agreement a mechanism by which his partners may purchase his share without the partnership being wound up and accounts taken, his subsequent use in his will of the words “debt owed to me by that partnership” should not be held to include amounts which are not in fact then payable.

5. There is no evidence of any demand for payment or payment of the sums in question.

6. The appellants are seeking to take advantage of their unlawful conduct.

[13] As for the orders sought for payment by the respondents, the respondents submit that it is inappropriate to make any order prior to the further determination of this Court particularly as the precise terms of the proposed order have not been formulated.

Consideration of the judgment sum issue

[14] Irrespective of whether the partnership debts can be said to be debts owed by the partnership to the deceased as at the date of his death, they were not “monies paid to [the deceased’s] estate by the partnership”.  There was no payment, no demand for payment and no contemplation of payment by the executor and executrix.  On the face of it, there is a very strong argument that the interests of the respondents in the residuary estate should be calculated by reference to the extent to which the value of the residuary estate was increased by the partnership debts.

[15] There is a real question, however, about whether this issue was litigated.  The appellants contended in paragraph 80 of their outline of argument on appeal that the position taken by the respondents in evidence at first instance was that the amount of their debts should not be deducted from the value of the partnership “notwithstanding it was to be paid to the Widow under the will”.  A surer guide to the case presented by the respondents at first instance would have been the content of their pleadings and closing submissions of counsel.

[16] However, paragraph 87 of the appellants’ outline of argument expressly asserted that the $7,906 was to be paid to the deceased’s widow and it was implicit that the $62,000 was to be treated the same way.  These assertions met with no direct, or even indirect, response in the respondents’ submissions, which were concerned with contesting the existence of any debts.

[17] Both at first instance and on appeal, the respondents’ entitlements were determined by reference to their respective interests in the partnership and in the residuary estate.

[18] However, there was no argument at first instance or on appeal that the quantum of the respondents’ respective interests in the residuary estate was to be measured by reference, inter alia, to the partnership debts.  When this Court determined the value of the respondents’ partnership interests and their interests in the residue, it did so on the basis of the issues raised by the parties.  It is thus not the case that the Court’s order did not relevantly “reflect the court’s intention at the time the order was made”[1]  or resulted from “an accidental slip or omission”.[2]

[19] There are other considerations.  Although the appellants’ arguments for excluding the partnership debts appear unmeritorious, the issue was not explored or debated on the trial.  To deal with the matter now would risk the making of a decision on an insecure evidentiary foundation and, as Gleeson CJ, Gummow, Hayne and Heydon JJ said in D’Orta-Ekenaike v Victoria Legal Aid:[3]

“A central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances…

The principal qualification to the general principle that controversies, once quelled, may not be reopened is provided by the appellate system.  But even there, the importance of finality pervades the law.”

[20] For these reasons, the application to vary the orders made on 18 December 2012 should be dismissed.

Costs of the appeal

[21] The appellants’ submissions were to the following effect.  The costs of the appeal should be paid by the respondents as the appellants had:

“… ‘an appreciable measure of success in the appeal’; on 16 July 2012, after service of their outline on appeal, the appellants offered to settle these proceedings by paying to the respondents their costs of the action and the appeal (to the date of acceptance of the offer), and $600,000, with no order as to costs for the costs of the appeal; and on 27 July 2012 they paid to the respondents $600,000.”

[22] As a general rule costs follow the event.  The making of the offer was the only practical way for the dispute to be compromised.  The offer was a genuine offer to compromise the appeal.  It flagged the erroneous approach below to partnership liabilities and interests and was open for 14 days.  Acceptance of the offer would have put the respondents in a significantly better position on both appeals.

[23] There are no significant countervailing discretionary considerations.

Consideration of the costs issue

[24] Costs of a proceeding are at the discretion of the Court.[4]  The discretion is unfettered but must be exercised without caprice and by having regard only to relevant considerations.[5]

[25] Although costs normally follow the event, in this case, because of the range of issues raised by the appellants and ventilated on the appeal, it is appropriate to look at the appellants’ success on those issues as well as their overall success in monetary terms.  The appellants succeeded on only two grounds out of the eight raised on the appeal and then only in part.  They failed in their attempt to have the award of compound interest set aside.  The award was reduced to five per cent but that was not a matter raised (at least not clearly) at first instance and was raised only tangentially in the appellants’ outline of argument on appeal.  As the respondents pointed out, the matters on which the appellants succeeded on the appeal occupied only a small part of their written submissions and only less than three pages of the 40 pages of this Court’s reasons.

[26] The offer made by the appellants exceeded the amount originally ordered to be paid by only $38,934.  The interest calculated on the original award of damages up to the date of these reasons would have been less than what was due to the respondents.  Consequently, it was not objectively unreasonable for the respondents to reject the appellants’ settlement offer.

[27] The payment of $600,000, on which the appellants rely, has no particular relevance for present purposes.  The payment was made in order to avoid execution of the judgment at first instance and to obviate the need for an application by the appellants for a stay of the judgment.  The payment was “provisional … on account of the parties’ liabilities as finally determined” and any difference on appeal was subject to repayment with interest at 6.5 per cent per annum.

[28] For the above reasons, the Court is not disposed to make an order as to the costs of the appeal.  As the parties’ respective applications have not succeeded it is appropriate that there be no order as to costs.  It is ordered that the respondents’ application for variation of the orders of 18 December 2012 and the appellants’ application for a costs order be refused.