DISTRICT COURT OF QUEENSLAND

1. [1]
   The plaintiff and the defendant formerly carried on in partnership a practice as solicitors in Cairns. It is now common ground that, as a result of events that happened in March 1998, the defendant exercised an option given by the written partnership agreement to purchase the plaintiff’s share in the partnership. The partnership agreement provided a basis upon which the purchase price was to be calculated. Unfortunately there has been a good deal of dispute between the parties as to the outcome when that provision is applied.

2. [2]
   By clause 18.1 of the deed of partnership, the amount payable was “a price equivalent to six months net profit of the practice determined by averaging the practice net monthly profit over the previous 12 months.” That suggests an assumption that a practice net monthly profit would be routinely calculated, but that did not happen^[1], and it was necessary for the accountant to prepare a special set of accounts covering the 12 month period to the exercise of the option, which the parties agreed was the relevant “previous 12 months”, in order to determine a net profit of the practice for that period, half of which would then be the amount payable.^[2]   

3. [3]
   There was at one time a dispute as to the formula to be used to determine the net profit, but on 12 December 2001 I determined by way of answer to a preliminary question that the amount payable was to be determined in accordance with the formula in paragraph 9 of the amended defence, including work in progress and speculative matters, appropriately valued. Unfortunately that did not resolve all the matters in issue, and there was subsequently a trial extending over four days, after the conclusion of which I received lengthy written submissions which are chiefly notable for the very substantial difference in the outcome said to be produced by evidence which was in many respects undisputed. Only one accountant gave evidence, and, although there was some attack on some aspects of his calculations, there was no expert evidence to criticise either the approach he adopted or the detail of his workings. Nevertheless, the submission on behalf of the plaintiff is that the application of the formula produces an entitlement to be paid $249,182, whereas the effect of the defendant’s submissions was that the amount payable was minus $10,225.50.

4. [4]
   The formula in paragraph 9 of the amended defence referred to earlier was in the following terms:

“Pursuant to the option the amount payable by the defendant to the plaintiff was equal to half of:

TR – TO + A – A(1) + B(1) – B + C -  C(1), where:

1. (a)
   TR = total receipts for 12 months up to 4 March 1998;

2. (b)
   TO = total outgoings for 12 months up to 4 March 1998;

3. (c)
   A = work in progress as at 4 March 1998;

4. (d)
   A(1) = work in progress as at 4 March 1997;

5. (e)
   B(1) = amount owed to creditors as at 4 March 1997;

6. (f)
   B = amount owed to creditors as at 4 March 1998;

7. (g)
   C = amount owed by debtors as at 4 March 1998;

8. (h)
   C(1) = amount owed by debtors as at 4 March 1997.”

Unfortunately there was no agreement in relation to any of these figures, so it is necessary for me to make findings about each of them.

Background^[3]

5. [5]
   The plaintiff has been a solicitor since 1979 and has practised in various firms, alone or in partnership since then: p.179. The defendant was admitted as a barrister in New South Wales in 1995, and was subsequently admitted in Queensland where he became entitled to practice as a solicitor in his own name in November 1995: p.203. In June 1995 there was a limited partnership between the parties (Exhibit 25) under which the defendant was entitled to be paid a salary:  p.114. After the defendant obtained a practising certificate, there was a new partnership agreement drawn up (Exhibit 26) which commenced on 1 January 1996:  p.64, p.203.

6. [6]
   The firm had a general practice, with the defendant doing more litigation and the plaintiff more commercial work, conveyancing and crime: p.187. The division was not rigid however; for example, the plaintiff was also involved in some litigation.

7. [7]
   The deed of partnership Exhibit 26 contemplated that there would be an arrangement with a service company for the provision of all administrative services for the practice:  clause 6.3. Shares in the service company were to be owned equally by the parties, and they were to be its directors. It was to own the capital items and stock in trade and the partnership name, to employ all staff “including the practitioners”, provide all the facilities required for the practice of law, and provide all the insurances. The practice was to pay fees to the company equivalent to the cost to the service company plus ten percent, invoiced monthly in advance:  clause 6.5. Clause 9.2 provided that each partner “shall be entitled to a half share of the profits as well as salary from the service company.”  Clause 9.3 provided:  “Each partner shall only be entitled to a salary from the service company for those periods when he is actually engaged in the direct business of the practice, save periods of leave, and others normally contemplated within the usual operation of the business.”

8. [8]
   There was for a time a service company operated by the parties, although it is not clear from the evidence before me that it ever operated in the way contemplated by the partnership deed.^[4]  The service company continued to be used at least for some purposes up until 30 June 1997 (p.97, p.116), but thereafter the partnership was operated without reference to it. Nevertheless it was submitted on behalf of the defendant that, when determining the “net profit of the practice” for the purposes of clause 18.1 of the deed, it was necessary to treat, as an expense of the partnership to be deducted from income before assessment of profit, an amount paid to each partner by way of “salary”.

9. [9]
   There was evidence from each of the parties that the arrangement was that each of them would be paid a “salary”, in a particular amount.^[5]  It was also common ground however that in practice only the first couple of payments were made from the service company, the rest coming from the general account of the partnership.^[6]

10. [10]
    It was submitted that the deed provided in several places that the partners were to devote themselves entirely to the practice, which is true although clause 10.2 did contemplate the possibility (which did not eventuate) of the plaintiff being elected to political office. It was submitted that this meant that, if the plaintiff was elected to parliament, he could have remained a partner and he would have been entitled to a distribution of profits, but not entitled to continue to be paid a salary, because of the terms of clause 9.3. This provided a justification for the distinction between salary and share of profits. Salary was to be paid like any other expense from the service company, as appeared from clauses 6.3 and 9.2.

11. [11]
    The defendant submitted therefore that the amount of “salary” should be treated as an expense for the purposes of determining net profit under the deed, in view of the system contemplated by the partnership deed, and as implemented by the partners, and that the fact that the salary had been paid from the general account rather than through the service company did not alter the situation. In my opinion however that is not the appropriate interpretation of the deed. I reject that argument for two reasons in particular.

12. [12]
    The first of these is that, if the “net profit of the practice” in clause 18.1 is given the same meaning as the expression “the net profits of the partnership” in clause 9.1, and in particular if it is interpreted as a figure which is arrived at after deducting expenses which include salaries paid to the partners, this would give a highly artificial and indeed arbitrary basis for assessing the amount payable under clause 18.1. In circumstances where the partners are to be paid a salary and then share equally in a “net profit” subsequently determined, the size of the net profit will depend entirely upon the extent to which the partners choose to distribute the “net profit of the practice” by way of salary to themselves, rather than by way of a share of the profit.

13. [13]
    Assume that the practice generated a surplus after paying all expenses other than any remunerative payment to the partners of $240,000. If the partners chose to pay themselves salaries of $1,000 per week, each would receive in the year $52,000 by way of salary and $68,000 by way of distribution of profit. If they chose to pay themselves salaries of $2,000 per week, each would receive in the year $104,000 by way of salary, and $16,000 by way of distribution of profit. Yet the value of the partnership in terms of the total income generated to the partners would be just the same, because their total income from the partnership would be the same. It would in my opinion be an absurd interpretation of the partnership deed to interpret it in such a way that the amount payable under clause 18.1 would be $68,000 if the partners chose to pay themselves $1,000 per week salary, but $16,000 if the partners chose to pay themselves $2,000 per week salary. There is no logical reason why the amount payable under clause 18.1 should differ in those two situations, and in my opinion such an interpretation of the deed would be capricious and absurd.

14. [14]
    Although this deed as a whole is not well drafted, a matter I discussed in my earlier reasons, as it happens there is a difference in expression between the term “net profits of the partnership” in clause 9.1 and the term “net profit of the practice” in clause 18.1. In my opinion the latter term is concerned with the situation viewed independently of the arrangements contemplated by clause 6 of the deed, and was intended to reflect the capacity of the practice to generate profits which could then be dealt with, in that way or in some other way, as the partners chose.

15. [15]
    The other reason why I would reject this argument is because, whatever the deed may have said, the clear evidence is that the partnership in fact did not operate on the basis contemplated by clause 6.3. There is no evidence of any contract of employment between either of the parties and the service company. The evidence was that, apart from a couple of payments, such amount as they received thereafter came from the general account. The payments received by the partners from the general account in this way were accounted as drawings in the records of the partnership:  Exhibit 7. The service company was not used anyway after the end of June 1997. Even if all payments by the partnership to the service company under clause 6.5 were on the true construction of the deed to be taken into account when determining the “net profit of the practice” for the purposes of clause 18.1, there was simply no evidence that there were any such payments in respect of the amounts paid by way of “salary”. There were in practice simply regular payments to the parties in anticipation of the profit distribution. There is in my opinion no justification for me to treat those payments as being anything other than part of a distribution of profit between the parties.

The parties’ wives

16. [16]
    The matter was complicated by some dispute between the parties as to the arrangements made in relation to each of their wives. The plaintiff said that his wife worked regularly every day in the practice up until it was dissolved, and was paid for this the sum of $500 per week.^[7]  She was working as an immigration agent, in respect of which the defendant said that there was some specific arrangement for her to take a share (one third) of the income generated specifically by this (p.239), but according to the plaintiff she spent most of her time doing general office administration:  p.118. Indeed he claimed that she did most of it, although the defendant disputed this. There was also some difference between the parties as to the position of the defendant’s wife. The plaintiff said that she did not work in the practice at all (p.111) and did not assist with office administration (p.119), being employed full time as a schoolteacher. The defendant on the other hand claimed that she did as much work as the plaintiff’s wife (p.207), which he asserted was not a great deal (p.240), by way of office administration.

17. [17]
    The defendant asserted that the regular payment of $500 per week to the plaintiff’s wife was in substance a form of income splitting, and at one point the plaintiff did appear to agree that at an earlier stage it had been agreed that each of the wives would take $500, essentially as an income splitting exercise, but he claimed that had stopped because in fact his wife was working in the practice whereas the defendant’s wife was not: p.182.

18. [18]
    During the relevant period, although the plaintiff and his wife were receiving regular weekly payments, the payments to the defendant were reduced in September 1997, he said because of cash flow considerations: p.206. This evidence was not easy to follow, but reference to the general ledger (Exhibit 7) indicates that two regular payments to the defendant totalling $1,500 per week (sometimes paid on the same day and sometimes on separate days) were reduced on about 15 September 1997 to payments of $500 per week, although there appear to be three extra payments of $1,000 per week in late December 1997 or early January 1998.

19. [19]
    It was accepted that the plaintiff’s wife stopped work in the practice once the option was exercised (p.65), but the regular payments to her of $500 continued, something which provides some support for the theory that these were essentially income splitting payments, although it may well be that the defendant’s desire at the time not to rock the boat would have extended to maintaining these payments even if they had been properly treated as wages. Ultimately it is not necessary for me to resolve this, since it was agreed during the trial between the parties (p.191) that the payments to the plaintiff’s wife prior to 4 March 1998 were to be treated as wages for work done by her, and the payments after that date to her were to be treated as drawings by the plaintiff. That was consistent with the plaintiff’s position, although I note that this characterisation has the practical effect of minimising the amount payable by the defendant under clause 18.1, so there could well have been some tactical advantage to the defendant in such an agreement even if it did not reflect the true situation at the time. For that reason I do not treat the defendant’s agreement on this point as being of any particular wider significance.

Post-option payments to the plaintiff

20. [20]
    After the partnership came to be terminated, the regular payments continued to the plaintiff and his wife, until about 21 April 1998. The basis of this was also controversial. The plaintiff said that he was doing his normal work during this period (p.64) and that the defendant knew of the payments but did not object:  p.178. The defendant said that after 4 March he did not want the plaintiff there but that he refused to go until he had been paid out (p.230), and that most of the time during that period the plaintiff was engaged in electioneering rather than working for the practice:  p.226. The defendant went through the work diary of the plaintiff (Exhibit 33) and gave evidence directed to showing that the plaintiff was not doing anything very constructive from the point of view of the practice during this period, but his explanation for continuing the payments of $1,000 (p.229-230) does not indicate other than that these were payments he was content to continue to make to the plaintiff on the basis of such work as the plaintiff was then doing.

21. [21]
    Once the defendant had exercised the option to buy out the plaintiff from the partnership, the defendant was in control of the situation, and it was a matter for the defendant to decide what he would pay the plaintiff for any continuing work that the plaintiff did for him. From then on the payments were under the control of the defendant, and to the extent that he chose to make them they were voluntary payments in consideration for whatever the plaintiff was doing at that time.^[8]  In my opinion the payments of $1,000 per week to the plaintiff after the option was exercised are not payments properly taken into account one way or the other;  they were simply what the defendant in fact paid the plaintiff for whatever the plaintiff did for him during that period. In these circumstances it is unnecessary for me to resolve the conflict as to the extent to which the plaintiff was actually doing remunerative work for the firm during that period.

22. [22]
    My impression overall however was that the defendant was anxious to minimise the extent to which the plaintiff was engaged in such work during that period and exaggerate the extent to which the plaintiff was otherwise engaged, in particular on electioneering, although I think it would be unrealistic to expect that the plaintiff would have continued to put in his normal effort to the practice at that time. For reasons given elsewhere I am wary about the evidence of both parties, but taking those matters into account I will make a precautionary finding that after the exercise of the option until the plaintiff ceased work he did the equivalent of two thirds of his normal work for the practice.

Findings as to credibility

23. [23]
    I should say something about the credibility of the witnesses. The plaintiff gave his evidence in a straightforward and very open and frank manner, although it was apparent at times that his evidence was not necessarily particularly reliable. He conceded that he was facing difficulties because he did not have available all of the material he sought to conduct the litigation, and he felt somewhat frustrated at the time the matter was taking, and it was apparent on occasions that his recollection of matters of detail was faulty. Indeed, he sometimes corrected himself about such matters. He was willing at times to make concessions, sometimes when they were not justified. For example, he stated he had received a payment from the general account of $7,063.73 on 18 March 1998 (p.151) when in fact the payment to him on that day was only $1,000, a matter that was later helpfully pointed out by counsel for the defendant:  p.297. He also stated that another payment had been made to him, which I am very doubtful of as I cannot find any record of it in the partnership material. He withdrew a claim that he had paid $550 to the defendant from a fee paid to him directly by a client after 4 March 1998 (p.168) although receipt 56720 in Exhibit 37 shows that he did make the payment, so his initial recollection had been correct. Overall I thought the plaintiff was essentially honest and straightforward but not necessarily reliable.

24. [24]
    The defendant struck me as considerably more astute, but also as someone who was being careful to advance his case as much as possible, and at times to be willing to say whatever was necessary in order to assist his case or to damage that of the plaintiff. For example, for a number of files he gave the same figure for the value of work in progress in March 1997 and in March 1998. I examined two of these files myself^[9] and found that his evidence on this was quite wrong. In another matter^[10] where fees of $14,000 were received the defendant’s estimate for work in progress as at 4 March 1998 was $4,000, although the action (which had commenced in December 1997) was settled in May 1998 and the defendant eventually conceded under cross-examination that the bulk of the $14,000 had been earned by March 1998:  p.375. He said that a matter of Blanch^[11] was settled at a conference in December 1999 (p.203) but it is apparent from the trust account records Exhibit 4 that the matter had settled by 9 April 1999, because of the money paid into the trust account on that date. The defendant also said that after March 1998 there were numerous interlocutory applications (p.283) but a copy of the court file (Exhibit 52 shows that there were only two summonses filed in this period, on which only two court appearances are recorded. In relation to another file I looked at, the defendant said that very little work had been done prior to March 1998.^[12]  It was apparent from my examination of the correspondence file in relation to that matter that this evidence was not correct, although it was difficult for me to value just from the correspondence file the work that had been done in that period.

25. [25]
    But the most unsatisfactory aspect of the defendant’s evidence was his evidence about the accounts sent out by the firm prior to 4 March 1998 which were unpaid as at that date. He produced a bundle of copy fee notes Exhibit 30 with a face value of about $108,000, disregarding part payments already made, half of which was one fee note for $54,600 sent out in February 1998 and paid on 20 March 1998. He also produced a list of these fees which he said had been written off, which totalled just under $41,000:  Exhibit 31. Apart from the one large payment, 45 of the accounts outstanding in Exhibit 30 had been written off compared with only nine which had not. By way of comparison, 12 months earlier 28 out of 106 accounts outstanding had been written off. On the basis of the material available to me it was apparent that the 1998 lists were quite unsatisfactory. There were accounts shown as unpaid as at 4 March 1998, and written off, which had in fact been paid prior to that date,^[13] and two accounts shown separately as written off when one superseded the earlier one, and when at least some payment was made and probably all of the account was later paid.^[14]  I also identified other accounts which must have been outstanding then and paid subsequently which ought to have been included in this list but were not.^[15]  I cannot accept that there were only ten accounts outstanding as at 4 March 1998 which were subsequently paid. This demonstrated that the defendant has not been frank in relation to the financial position of the practice, and has not properly disclosed relevant material.

26. [26]
    There had been considerable disputes between the parties prior to the trial about disclosure, and to some extent this issue surfaced further during the trial.^[16]  Unfortunately the plaintiff had concentrated his efforts on seeking disclosure of the files in relation to the work in progress, with a view to having them valued by a costs assessor. That would in the circumstances have been a most inefficient way to conduct the dispute. In the end some files were produced, and I looked at a number of them myself, and made up my own mind about the value of the work in progress:  the results of my examination of the files, and my analysis of the evidence leading to findings as to work in progress is set out in Appendix A. Although I only examined a limited number of files, it was sufficient to demonstrate that the plaintiff’s estimates (produced without access to the files) were not particularly reliable, and some of his estimates of the value of work in progress as at March 1998 were unduly optimistic, but the defendant’s estimates (produced with the files available, along with all the other records of the partnership) were also frequently unreliable, and in particular showed that he had not been frank about the amount of work done during the relevant period. Ultimately my distinct impression was that, insofar as the plaintiff was unreliable, was largely due to failing memory (and lack of access to records) whereas the unreliability of the defendant involved an attempt to manipulate the figures so as to produce a favourable outcome from the calculations being undertaken.

27. [27]
    Generally speaking therefore I am wary about the evidence of both of the parties, although for different reasons. The plaintiff might be innocently mistaken about something, and I had the distinct impression that I could not necessarily rely on everything the defendant was telling me. Wherever possible I prefer to rely on such independent and apparently objective material as is available, but unfortunately there are some conflicts of evidence which come down to word against word. In those circumstances I sometimes rely on the inherent probabilities of the matter, and where that has been the case I have indicated that in the course of these reasons. As a last resort, if it is necessary to do so in order to resolve conflicts in the evidence, I prefer the evidence of the plaintiff to the evidence of the defendant.

28. [28]
    Mr Paul O'Connor, an accountant, also gave evidence. He was the accountant for the partnership having been appointed to that position by the partnership deed: Exhibit 26 clause 8. He was the plaintiff’s accountant prior to the partnership, and the defendant claimed that he was close to the plaintiff and hostile towards him:  p.237. Mr O'Connor said that he was no longer the plaintiff’s accountant:  p.26. My impression of Mr O'Connor in the witness box was a very favourable one. I thought that his evidence was reliable, impressive and generally helpful, and it did seem to me that he was trying to give accurate and appropriate evidence, and was frank about the basis upon which he was giving such evidence as he gave.

29. [29]
    He was cross-examined about some aspects of the accounts, as to whether various expenses had been properly taken into account, but this was generally either without effect or at most showed that there had been some expenses placed in the wrong category, something which had no effect on the overall figures. At the end of the day, the defendant only alleged that there was one error in the expenses calculated by Mr O'Connor, that there were seven payments towards indemnity insurance each of $1,715.71 made from the partnership bank account, but only six of them had been listed in the appropriate heading of the general ledger: Exhibit 7. I deal with this below at [55], but at best it is not much of a justification for criticism of the reliability of the accounts. A more serious matter was the allegation that he had billed the partnership for accounting work which was properly personal work for the plaintiff. After investigation during the trial, Mr O'Connor dealt with this issue finally at p.386 in a way which I accept.^[17]

30. [30]
    Overall I was impressed by Mr O'Connor, and generally accept his evidence. I note that the defendant did not call any expert accounting evidence to dispute anything that Mr O'Connor put forward, although the defendant was entitled to, and did, argue about the treatment of some of the matters taken into account by Mr O'Connor in arriving at some of his figures.^[18]  Bearing in mind the somewhat artificial exercise that is being engaged in, it is unsurprising that there are some difference between what I am doing and what is ordinarily done in the course of preparing proper accounts for a business, and of course Mr O'Connor was labouring under the very substantial difficulty imposed by the fact that, because of the terms of clause 18.1, it was necessary to attempt to reconstruct accounts for the partnership for an artificial period of 12 months.^[19]  The ordinary accounts of the partnership were of course kept by reference to a financial year, as is common, indeed almost universal, for such businesses.

Gross revenue – basis of calculation

31. [31]
    In theory this ought to be very easy to ascertain, but in practice the matter is complicated by the fact that the accounts of the partnership were prepared on an accruals basis, so that, in order to determine the actual amount received during the period, it is necessary to make adjustments for the amount owing by clients at the beginning and end of the period. Because these accounts were prepared on an accruals basis, the amounts shown in the accounts as “fees received” does not correspond to actual receipts: see p.12, p.18. The fees arrived at by Mr O'Connor on an accruals basis in the calculation he prepared in 1999, part of Exhibit 1, shows a figure for “fees received” of $591,515, which represents all the cash received for professional fees plus the debtors at the end of the period, minus the debtors at the beginning of the period:  p.12. The figures he used for the debtors at those two dates were figures supplied by the defendant (p.15), and were $115,024.65 at the end of the period, and $69,657.50 for the beginning of the period:  p.18, and see Exhibit 41.

32. [32]
    However, in arriving at the figure for debtors at the beginning for the period Mr O'Connor had adjusted the figure given to him by the defendant to disregard fee notes issued in relation to the matters of Bellino. In his oral evidence Mr O'Connor said that there had been some inaccuracy in making that adjustment, and if that adjustment was made properly the appropriate figure for fees owed to the partnership at the beginning of the period was $63,808.75: p.18. That produced an adjustment in the figure for “fees received” so that it became $597,292: p.19.

33. [33]
    In theory accrual accounts are kept by recording all of the bills sent at the time when they are sent. But in practice, as is apparent from Exhibits 7 and 8, these accounts were kept by recording the amount actually received, and then adjusting that amount for the bills sent and outstanding at the beginning and the end of the period. Hence Mr O'Connor’s evidence about adding and subtracting these amounts. In order to obtain the amount actually received, it is necessary to know only the final figure produced by Mr O'Connor, and the amounts he added and subtracted by way of bills outstanding and unpaid at the beginning and end of the period in order to achieve that amount. Because of this, it does not matter what amounts are included in one or other of these figures added and subtracted, as long as the amounts are known; adjusting the figures for debtors at the beginning and end of the period will adjust the amount of “fees received” accounted on an accruals basis, but will not alter payments made accounted on a cash basis.

34. [34]
    It also follows that it is unnecessary in the accounts to include any amounts specifically to reflect fees written off. Fees written off will not of course appear as a deposit in the bank statement, or a debit on the bank statement. Fees written off during the year will not be included in the debtors at the end of the year, and will therefore be deducted automatically when the calculation referred to earlier is performed, in order to convert the accounts from a cash to an accruals basis. Accounts rendered but unpaid and written off during the accounting period will simply not appear in the accounts at all, and fees outstanding at the beginning of the period but written off during the period will be automatically deducted when all of the debtors at the beginning of the period are deducted, as part of the conversion to the accruals basis of accounting.

35. [35]
    When determining the cash payments actually received therefore what it is necessary to know are the amounts taken into account by Mr O'Connor by way of debtors outstanding at the beginning and end of the period. In theory the calculation should produce exactly the same result whether one uses a “debtors at the commencement of the period” figure including the Bellino files or whether one does not, because the change in the debtors at the commencement of the period figure will be reflected in an equivalent change in the “fees received” figure in Mr O'Connor’s accounts. But it is better to use the accounts put forward by Mr O'Connor, subject to the adjustments that he made. The real issue in relation to the Bellino files arises in determining how work in relation to those matters should be valued, either as work-in-progress or as a debtor, at the beginning of the period. I will deal with that separately.

Bellino files

36. [36]
    This raises the issue of how the bills sent on the Bellino files should be treated. The accounts were prepared on the basis that the debtors figures were taken at face value unless amounts had actually been written off as bad debts: p.37-8. The plaintiff however submitted that the Bellino accounts should be treated as a different way, because they were accounts which were rendered in relation to what was really a speculative matter, in circumstances where the client decided to change solicitors. The firm, and specifically the plaintiff, acted for Mr Bellino in litigation against the ABC, which involved a trial in Cairns, an appeal to the Court of Appeal of Queensland^[20], and a further appeal to the High Court of Australia^[21], where Mr Bellino was successful. There was to be a retrial (in which ultimately Mr Bellino was unsuccessful^[22]) but before this occurred the client withdrew his instructions.

37. [37]
    The plaintiff said that this matter was speculative (p.169) and was the subject of a deed with the client: Exhibit 17, p.152. When the other solicitors took over he prepared some bills in order to protect his lien;^[23]  apparently when the new solicitors asked for the file he refused to hand it over because of the lien, and the new solicitors then asked for bills to be provided:  p.177. He subsequently commenced proceedings in an attempt to recover these costs, which progressed to an application for summary judgment in connection with which he swore an affidavit:  Exhibit 19, p.158. The client however put in an affidavit, and the application was not pursued. In view of the terms of recital 2 of the deed Exhibit 17, that is unsurprising.

38. [38]
    The bills in relation to Bellino had been sent out prior to 4 March 1997. The defendant said that these were formally written off in June 1997 (p.218), so that in accordance with Mr O'Connor’s ordinary practice these would have been treated as debtors as at the beginning of the period. Nevertheless the plaintiff submitted that that was inappropriate, because although these bills had been sent the fees were clearly not recoverable;  these bills had not been sent in the ordinary course of business. As I shall show below, what matters is only what these accounts were worth by March 1997, which was, clearly, nothing.

Gross revenue - finding

39. [39]
    The figure in the account for “fees received” does not reflect amounts actually paid: as I have indicated, it is a figure which takes into account the change between fees billed but unpaid at the beginning and end of the period. In order to determine the amount actually paid during the period, it is necessary to reverse those two adjustments. This involves adding in the debtors as at 5 March 1997, and subtracting the debtors as at 5 March 1998. This produces a figure of $546,076.^[24]  This is essentially the calculation put forward in written submissions on behalf of the defendant, except that there the initial figure was $591,515 instead of the adjusted figure of $597,292 (p.19), although the adjusted figure for the debtors at the beginning of the period has been used (and is then added on).

40. [40]
    This approach was criticised on behalf of the plaintiff (submissions para 35) on the basis that this involved calculating on an accruals basis rather than a cash basis, which is not in accordance with the formula. Although I agree that the formula in the defence requires that “TR” be calculated on a cash basis, because a change in the value of the work billed (and indeed work in progress) is taken into account separately, Mr O'Connor’s figure was determined on an accruals basis (p.12) and therefore had to be adjusted back to a cash figure. The plaintiff’s submission that total receipts is to be determined on a cash basis is correct, and for that reason the methodology of the defendant is appropriate.

41. [41]
    This is a calculated figure based on Mr O'Connor’s accounts, rather than one derived by my adding up all the money actually paid to the firm during the relevant period. It ought to be possible to check it, by adding up all the money paid into the firm’s bank account during the relevant period, but there would be difficulties. The firm of course maintained two accounts, a general account and a trust account, and some outlays were paid from the trust account. Outlays are listed separately in Mr O'Connor’s accounts, and I do not know whether these include outlays paid from the trust account. It may be necessary in order to get a comparable figure to add all of the fees deposited to the general account, including from the trust account, and add to it outlays paid directly from trust. In addition there may well be deposits in the general account which are not fees.

42. [42]
    Although I have available bank statements for the general account, I do not have bank statements for the trust account. I have copies of some trust account records, but they are not complete. I also have the receipt books for the partnership, but again it is not clear that receipts from these books were always issued when payments were made from the trust account (although they often were). Short of an attempt to reconstruct completely the receipts for the partnership, there is really no practicable alternative to reliance on the figures put forward by Mr O'Connor. I should say that both parties appear to support that approach; the defendant’s submissions supported a figure for total receipts based on Mr O'Connor’s evidence^[25], and the plaintiff’s submissions sought acceptance of his figures as set out in annexure “POC5” which is part of Exhibit 1, subject to minor corrections referred to earlier. Such checking as I have been able to undertake myself in relation to the amount of receipts does not suggest that there is any substantial discrepancy in these figures, and in the circumstances therefore I am prepared to proceed on the basis that Mr O'Connor’s figures for total receipts, appropriately adjusted, should be relied upon.

43. [43]
    There was a further adjustment referred to by Mr O'Connor. He said at p.31 that he had since ascertained that there needed to be an adjustment to the figures used to derive the account POC5 as part of Exhibit 1. An amount of $3,900 had been included among the debtors as at 4 March 1998, when that amount in fact was a creditor at that time. Accordingly the figure of $115,024.65 had to be reduced by $3,900. Since that figure is subtracted in order to produce the actual payments, the same result is achieved, as in the submissions on behalf of the defendant, if the former figure is subtracted and the figure of $3,900 is then added on.

44. [44]
    For reasons explored in more detail when dealing with the outgoings of the firm during the relevant period, it appears to me that there have been some errors in deleting entries around the end of the period in order to adjust what apparently began as a general ledger as at the end of March 1998 so that it became accurate at the relevant period, that is after 3 March 1998. The last two deposits shown on the bank statement prior to that date, a deposit on 27 February 1998 of $131.20 (p.216 of Exhibit 2) and a deposit of $2,203.95 on 2 March 1998 (p.217 of Exhibit 2) have not been included among the fees received in Exhibit 7.^[26]  The former may be found on p.23 of the audit trail Exhibit 8 with code 1144, but there is apparently a cancelling entry on p.35, and that code is then reused for a different transaction which appears on p.30 of Exhibit 7. The deposit of $131.20 as code 1144 does not appear in Exhibit 7 with the other deposits. It is apparent from the receipts that the deposit on 27 February reflected practice income.^[27]  The deposit on 2 March was given code 1145 on p.23 of Exhibit 8, but on p.29 there was apparently a reversing entry, and another transaction was given code 1145 which appears in Exhibit 7 on p.18. This deposit corresponds to the total of four receipts in Exhibit 37 all dated 2 March 1998.^[28]

45. [45]
    These discrepancies were not raised during the trial, and are not mentioned in the submissions, but having discovered them it does appear to me clear that these deposits should be included with the income during the relevant period. I am prepared to make the adjustment by increasing that income by the sum of these two deposits, $2,335.15. I should say that I have checked the deposits on pp.148 and 149 of the bank statement at the other end of the relevant period and they do all appear to have been taken into account in Exhibit 7 (they appear on pp.29-30 of Exhibit 8). I have also checked all the dates under the code 1.237 – fees received in Exhibit 7, and they all fall within the relevant period apart from balancing entries at the end, so it does not appear that any fees not actually received during that period have been counted. I therefore find that the appropriate figure for total receipts (“TR”) in the formula is $552,311.^[29]

Total outgoings

46. [46]
    The outgoings appear in two categories in the profit and loss account prepared by Mr O'Connor which is Exhibit POC5 to the affidavit of Mr O'Connor which became Exhibit 1 (“the account”):  the outlays involved in earning income, and the expenses of the practice.^[30]  The former were deducted from the income, by being shown as negative figures in the income section of the account (p.15), and the figure for total income was then derived by also adding the other form of income during the year, a CES subsidy of $1,000. In the context of the exercise that I am undertaking, it would be the logical to treat this subsidy as diminishing to that extent the amount paid by way of wages, that being its function and purpose. It is necessary to take it into account in some way, and that seems to me to be the most logical way to do it.

47. [47]
    The expenditure involved in earning income was classified under six headings, client outlays, immigration outlays, litigation costs, conveyancing outlays, estate outlays, and family court outlays. There is no argument about the quantification of these amounts, and as identified in the account they total $125,474.

48. [48]
    The expenses shown in the account total $200,642, although there are a number of adjustments which need to be made to that figure:

1. (a)
   the “non operating expenses” of Keyman Insurance should I think be added;  these are treated separately in the accounts, but I think they amount to expenses of the partnership (p.121) and the premium should be added, an amount of $1,024;

2. (b)
   the effect of the CES subsidy of $1,000 was to reduce the wages figure by that amount, so the figure of $1,000 for this subsidy should be deducted;

3. (c)
   consistent with the agreement that the payments of $500 per week to Ms Shipway should be treated as wages rather than as a distribution to the plaintiff, these payments need to be added as an expense. They total $15,500, and represent additional expense:  see p.191, and 31 payments in Exhibit 7 under the heading “Code 1.600 drawings”.

49. [49]
    One of the expenses listed in the account was a figure of $74,877 shown as “administration charges”. Note 4 indicates that this reflects the amount actually paid to the service entity during the relevant period, but as the service entity only operated until 30 June 1997, it reflects payments to that entity during the period from 4 March 1997 until that date:  p.40, p.90. That was the period when there was a separate service company which was paying expenses, and was supposed to be generating a profit, although there was no evidence that that actually occurred.^[31]  There was no clear evidence as to what expenses of the partnership were being paid through the service entity during this period, but whatever expenses they were they were expenses which were paid directly by the partnership after 1 July 1997.

50. [50]
    Note 4 to the account refers to the fact that the amount so paid during this period was disproportionate to the total amount paid during the whole of the 1996-7 financial year, an amount of $158,600. In the note Mr O'Connor suggested that there was a strong argument to reduce the administration fee to such fraction of this amount as corresponded to the relevant part of the year, an amount which he calculated as $51,708. This was an issue not touched on in the evidence, and there is no evidence to the contrary, and the plaintiff submitted that such an adjustment should be made when determining the expenses. This issue does not appear to have been addressed on behalf of the defendant, although the figure contended for by the defendant assumed that this adjustment was not made.

51. [51]
    If the amount paid to the service entity during this period was disproportionately large, that could be partly because the expenses of the partnership happened to be more substantial during that period than in the balance of the year, in which case presumably there was a corresponding reduction in the expenses during the period from 1 July 1997 to 4 March 1998, or because there was in effect some additional expenditure in order to clear the debts of the service entity before it ceased to function. If for example the service entity normally owed $30,000, one would expect to find such an amount owing both at the beginning and at the end of the relevant period, but in circumstances where the service company ceased to function during this period, presumably its debts were paid when it did so. If that were the case, the amount paid by the service entity represents the debts it owed at the beginning of the period plus the additional debts it incurred prior to its ceasing to function.

52. [52]
    According to the defendant the amount owed to creditors as at 4 March 1997 was $10,292.21, not counting money owed to barristers:  p.224. It appears that the money owed to barristers was at this time treated as being owed by the firm, and the debts to barristers were not all paid up prior to the service company ceasing to function. Accordingly the explanation for the disproportionate payment to the service company may be in part that it was necessary to clear this amount of $10,292.21, as well as cover the debts incurred by the company before it ceased to function, and there was obviously some disproportionality in those debts.^[32]  That however is not a reason for adjusting the amount of the payment in the accounts. Although the accounts were prepared on an accruals basis, I am concerned with the actual amount paid by way of outgoings, for reasons which correspond to those justifying the focus on the amount actually paid by way of income during the relevant period. The amounts owing to creditors at the beginning and end of the period are dealt with separately in the calculation;  any difference in these amounts is taken into account in this way.

53. [53]
    Say the amount owing to creditors was the same at the beginning and end of the period, but three months into the period all creditors had been paid so the amount owing to creditors was nil. That would mean that during the first three months the amount actually paid would be the amount incurred during that period plus the amount owing to creditors at the beginning, a disproportionately large sum. On the other hand, the amount actually paid out during the balance of the period would be the amount incurred during that period less the amount owing to creditors at the end of it, a disproportionately small amount. In that situation any overpayment in the earlier period is balanced by a corresponding “underpayment” in the later period, and accordingly what matters for the purpose of this calculation is the amount actually paid, not a proportionate share of the total expense during a twelve month period. Accordingly I will not make the adjustment sought on behalf of the plaintiff in this respect.

54. [54]
    It was submitted on behalf of the defendant that the figure of $3,900 referred to on p.31 in the evidence of Mr O'Connor should be deducted from the expenses. As I understood his evidence on that page however it was that an amount of $3,900 which had been treated by him as a debtor when determining the amount of debtors at the end of the period, was an amount which represented a creditor, so that it had to be deducted from the amount of debtors at that time, and presumably added to the list of creditors at that time. But it would not have been an outgoing during the period just because it was added to the list of creditors, so that should not involve adjusting this figure.

55. [55]
    It was also submitted on behalf of the defendant that there had been a payment towards a premium for indemnity insurance which had not been taken into account by Mr O'Connor. Exhibit 7 recorded six payments each of $1,715.71 from 8 September 1997 to 2 February 1998, and the bank statement in Exhibit 2 shows on p.217 a similar payment on 2 March 1998 which is shown in the statement in the same way as the payment on 2 February 1998, both being made by direct debit from the account. The payment on 2 March 1998 does appear in the audit trail Exhibit 8, as entry 1146 on p.23^[33], although it appears again on p.29 with the prefix D, which I suspect means that it has been for some reason deleted. Entry 1146 does not appear anywhere in Exhibit 7, so it does not appear to have been treated as an outlay in the accounts prepared by Mr O'Connor.^[34]  Perhaps the explanation is that, as part of the process of adjusting the accounts from a financial year to the odd period necessary for this exercise, this payment was mistakenly deleted along with other payments which occurred after 4 March 1998. There are on pp.27-29 of Exhibit 7 a large number of entries dated March 1998 all of which have the prefix D.

56. [56]
    In view of this discrepancy, I have examined more closely the exhibits to determine whether there have been any other mistakes made in adjusting what was apparently a general ledger as at the end of March 1998 in order to exclude transactions on and after 4 March 1998. I discovered in this process that two deposits made prior to that date had been left out;  although they appear in the audit trail Exhibit 8 at entries 1144 and 1145, they were apparently subsequently reversed and other transactions were given those numbers. I have already dealt with these deposits in relation to total revenue:  [44]. I have checked again all of the entries for debits on pp.216 and 217 of the bank statements Exhibit 2 to see whether they have been properly included or excluded as appropriate. This check revealed that it was not only the direct debit of $1,715.71 on 2 March 1998 which had not been picked up, but all of the debits to the bank account on and after 26 February 1998 had been excluded. (I noticed that there is a line drawn on p.216 of the bank statements Exhibit 2 at this point). All of these entries were included on p.15 of the audit trail Exhibit 8, but were subsequently apparently reversed by other entries on later pages, or in the case of the last three payments have D prefix entries, which suggest they have been deleted. The entry numbers for the ones that have been reversed have been allocated to other transactions and it is the other transactions, not these payments, which appear in Exhibit 7.

57. [57]
    Reference to cheque butts in Exhibit 15 shows that the relevant entries are:

Cheque 500711 drawn 18.02.98 to “Births Deaths & Marriages” for $21, cleared 26.02.98:  Exhibit 2 p.216. In Exhibit 8 as entry 713 under code 1.242 (estate outlays) on p.15, but not appearing under that code in Exhibit 7, having been apparently reversed by another entry on p.36 of Exhibit 8.

Cheque 500712 drawn 18.02.98 to “Australian Industrial Relations Commission” for $50, cleared 27.02.98. In Exhibit 8 as entry 714 on p.15 under code 1.240 (litigation costs) but not appearing under that code in Exhibit 7, having been apparently reversed by another entry on p.34 of Exhibit 8.

Cheque 500725 drawn 22.02.98 to “Dr Shepherd report” for $60, cleared 02.03.98:  Exhibit 2 p.217. In Exhibit 8 as entry 727 on p.15 under code 1.240 (litigation costs) but not appearing under that heading in Exhibit 7, having been apparently reversed by another entry on p.30 of Exhibit 8, where that entry number is then successively applied to two other transactions.

Cheque 500730 drawn 26.02.98 to “Office of State Revenue” for $94, cleared 03.03.98. In Exhibit 8 as entry 731 on p.15 under code 1.241 (conveyancing outlays) but not appearing under that heading in Exhibit 7, having been apparently deleted by an entry on p.27 of Exhibit 8 with a prefix D.

Cheque 500731 drawn 26.02.98 to “CCC – Yates” for $110, cleared 27.02.98:  Exhibit 2 p.216. In Exhibit 8 as entry 732 on p.15 under the code 1.241 (conveyancing outlays) but not appearing under that heading in Exhibit 7, having been apparently reversed by an entry on p.33 of Exhibit 8, with a different transaction being given entry A732, which in turn appears on p.14 of Exhibit 7.

Cheque 500732 drawn 27.02.98 for “Wages” for $1,101, cleared 27.02.98. In Exhibit 8 as entry 733 on p.15 under code 1.488 (wages) but not appearing under that heading in Exhibit 7, having been apparently reversed by another entry on p.32 of Exhibit 8, where a different transaction is given entry number A733, which transaction appears on p.26 of Exhibit 7.

Cheque 500733 drawn 27.02.98 to “MPSP”^[35] for $1,000, cleared 02.03.98:  Exhibit 2 p.217. In Exhibit 8 as entry 734 on p.15 under the code 1.240 (litigation costs) but not appearing under that heading in Exhibit 7, the entry having been apparently deleted on p.29 of Exhibit 8 where it appears again with the prefix D.

Cheque 500734 drawn 02.03.98 to “Clerk of the Court – writ” for $169, cleared 03.03.98. In Exhibit 8 as entry 735 on p.15 under the code 1.240 (litigation costs) but not appearing under that heading in Exhibit 7, having been apparently deleted by a further entry on p.27 of Exhibit 8 with the prefix D.

58. [58]
    It is not apparent to me why all of these transactions are not properly included in Exhibit 7, and hence in the accounts based on it. It seems to follow from the evidence that if they were not included in Exhibit 7, they were not included in the accounts prepared by Mr O'Connor and hence not included in Exhibit POC5 to Exhibit 1:  p.256. It seems to me that all of these amounts should have been treated as outlays of the practice during the relevant period, and therefore (like the amount of $1,715.71 identified by the defendant) should all be added to the outlays determined by Mr O'Connor.^[36]  They total $2,605, plus the insurance payment of $1,715.71.

59. [59]
    There were however further difficulties with the process of getting the cut off date correct in the accounts. In Exhibit 7 under code 1.240 litigation costs there are entries 763 and 801, both dated after 3 March 1998. The former relates to cheque 500761, drawn 10 March 1998 to the Magistrates Court at Mareeba for filing fees in the sum of $139. There is no obvious reason why this should be treated as an expense incurred by the partnership prior to 4 March 1998. The second is for cheque 500794 drawn 26 March 1998 to Mr Rangiah of counsel, although for $1,700^[37] whereas the entry on p.10 of Exhibit 7 (and on p.17 of Exhibit 8 under entry 801) is the sum of $1,000. Whatever the explanation for this discrepancy, there does not seem to be any good reason for treating this payment as being an outlay. It may be that this reflects payment of a debt or at least an obligation which was in existence prior to 4 March 1998, but if so it should be dealt with in another way. In my opinion both of these payments totalling $1,139 should be deducted from the list of outlays.

60. [60]
    There is a similar late outlay under the heading 1.241 conveyancing outlays in Exhibit 7:  cheque 500790. It was according to the cheque butt in Exhibit 15 drawn on 23.03.98 to Department of Titles in the sum of $87. The cheque butt has “canc” written on it, and I have not been able to find it among the cheques cleared in Exhibit 2. Nevertheless it is listed as entry 795 on p.13 of Exhibit 7, having appeared on p.16 of Exhibit 8. There does not seem to be any good reason why this should be treated as an outlay of the partnership during the relevant (or perhaps any) period, and I will deduct this amount of $87 from the outlays.

61. [61]
    In Exhibit 7 under the code 1.363 computer costs there is reference as entry 785 to cheque 500782. This was drawn on 19.03.98 to Cairns Chamber of Commerce “re:  renewal” in the sum of $90, and appears to have been cleared on 2 April 1998:  p.223 of Exhibit 2. Again it is not obvious that this should be treated as an outlay of the partnership during the relevant period and I will deduct this amount of $90.

62. [62]
    There is also a question about what to do with cheques which were dated (on the basis of Exhibit 15) on or before 3 March 1998 but were cleared subsequently. It appears from Exhibits 15 and 2 that there are six of these:  cheques 500643 (22.01.98 - $150);  500735 (02.03.98 - $25);  500736 (02.03.98 - $89);  500737 (02.03.98 - $55.55);  500738 (03.03.98 - $100);  500739 (03.03.98 - $138.26). All of these have been included in Exhibit 8, and all of them have been apparently reversed by entries with the prefix D on pp. 27 or 28. None of them appear in Exhibit 7, so presumably they were not taken into account when preparing the profit and loss account in Exhibit 1.

63. [63]
    On the other hand, there appear to be seven cheques drawn prior to 4 March 1997 but cleared subsequently, all of which are included in Exhibit 7, and therefore apparently were treated as outlays during the relevant period. These were cheques 002318 (undated but drawn on 11 or 12.02.97 - $43) appearing as entry 1308 on p.10 of Exhibit 7;  002340 (27.02.97 - $26.50) appearing as entry 1295 on p.10 of Exhibit 7;  002342 (03.03.97 - $72) appearing as entry 1250 on p.14 of Exhibit 7;  002344 (03.03.97 - $86) appearing as entry 1229 on p.14 of Exhibit 7;  002343 (03.03.97 - $79.35) appearing as entry 1224 on p.14 of Exhibit 7;  002338 (27.02.97 - $2) appearing as entry 1212 on p.10 of Exhibit 7;  and 002345 (originally dated 04.03.97, but altered to 03.03.97 - $3,000) appearing as entry 1197 on p.30 of Exhibit 7. What is important here is that the same approach has been adopted consistently at the beginning and the end of the period, and, although it may be that there are different ways in which such cheques could be treated, since they have been treated in the same way there is in my opinion no reason to depart from the treatment adopted by Mr O'Connor. I will therefore not make any adjustment in respect of any of these cheques.

64. [64]
    There were a number of cheques in respect of telephone expenses which have been incorrectly coded as postage expenses: these are dealt with in the cross-examination of Mr O'Connor at pp.47-49. Since the expenses were taken into account somewhere and moving them from one coding to another in Exhibit 7 will not affect the total of the outlays shown in the accounts in Exhibit 1, these discrepancies can be disregarded.

65. [65]
    The defendant submitted that I should treat as outgoings salaries paid to each of the parties during the period. For reasons given earlier, I do not consider that that is the correct approach in the determination of this matter, and I will not make any adjustment to the outgoings in this respect.

66. [66]
    Mr O'Connor conceded in cross-examination that accounting expenses had been understated by $3,000: p.45, and see p.42. Accordingly the outlays should be increased by $3,000 on this basis.

67. [67]
    Neither party submitted that I should make any other adjustments to the accounts prepared by Mr O'Connor in calculating the outgoings. There are no others that have occurred to me as appropriate in the light of my consideration of the evidence. It follows that the figure in the formula for total outgoings will be $347,645.^[38]

Creditors – March 1997

68. [68]
    At the beginning of the trial Mr O'Connor said that at that stage he had not seen anything to determine what this amount was: p.25. The defendant said that during the trial he had gone back through the accounts for 1997 and that according to his calculations the amount owing due and unpaid as at 4 March 1997 was $10,292.21:  p.224. This was owing from the service company, but no doubt there was an obligation on the partnership to indemnify the service company in respect of such creditors (p.58), so for the purpose of this exercise it is appropriate to treat them as creditors of the partnership. Apart from this he said there was money owing to three barristers, $900 to Mr Panayi, $3,000 to Mr McCreanor and at least $2,000^[39] to Mr Sumner-Potts, in the sense that they had rendered fee notes in these amounts which had not been paid, but the defendant maintained that these were not payable until money was available to pay:  p.225.

69. [69]
    The question of counsels’ fees is complicated by the fact that Mr Sumner-Potts was the principal counsel used by the firm during this period, and his fees were sometimes paid in round figures which did not correspond to any particular outstanding fee note,^[40] with the result that it was difficult to determine with any degree of precision just what fees had been paid and what had not, and what amount was outstanding. That is complicated by the fact that the defendant said (p.233) there were some fee notes rendered by him in matters which were said to have been speculative, and some which he regarded as “non speculative”.

70. [70]
    All I know about the amount which had been charged by Mr Sumner-Potts at any relevant time is that as at 4 March 1998 it totalled $37,772^[41] of which $6,000 was said to be for continuing matters so that payment was not yet due:  p.224;  that between 1 January 1996 and 4 March 1997 he sent in fee notes said to be “due” by 4 March 1997 of $30,800 (Exhibit 34, and see p.233) and a further $3,400 which were not yet due (Exhibit 35);  and that between 19 January 1996 and 4 March 1998 he was paid $24,550:  Exhibit 36. Even assuming that there had been no fee notes sent in and not paid as at 1 January 1996, this suggests fees “due” as at 4 March 1997 of $6,250.^[42]  But the evidence of the defendant at p.231 implied that there were fees outstanding to Mr Sumner-Potts as at 1 January 1996, and however that was to be treated as between the parties, there is the difficulty that I have because I do not know if they are included in the $37,772 in Exhibit 32.

71. [71]
    If counsel’s fees are to be taken into account, what is relevant is the change in the amount owing to counsel. I can work that out only if I know the fees outstanding at the beginning and end of the period, calculated on the same basis. If, as I suspect, the figure in Exhibit 32 is the balance of a running account from before 1 January 1996, it was not comparable with the balance of a notional running account commencing on that day. It will be too high, by the amount outstanding on 1 January 1996. It follows that the figure of $37,772 is not comparable with the figure of $9,650 (or $6,600).

72. [72]
    It is interesting that the defendant carefully calculated and proved the increase in fees of Mr Sumner-Potts from 1 January 1996 to 4 March 1997, which produces a small balance, but not the increase from 4 March 1997 to 4 March 1998, which is what is really relevant. I suspect that this is an exercise in trying to manipulate the figures. On the available evidence I cannot make a meaningful finding about counsel’s fees, because I do not have relevant or sufficient information about fees charged by Mr Sumner-Potts, and payments to him.

73. [73]
    It is difficult to know how the question of fees “owing” to counsel should be treated. Traditionally counsel’s fees had been treated as not being a debt at law, so that counsel could not sue for unpaid fees^[43], although I am not aware of any modern Australian authority which confirms this rule.^[44]  In practice it is not uncommon for solicitors to take the approach that counsel’s fees will only ever be paid out of money made available for that purpose, either by the client or from the proceeds of a proceeding. It appears from the plaintiff’s evidence at p.134 and the defendant’s evidence at pp.224-5 that that was the general practice of the firm.^[45]  This is confirmed by an examination of the evidence as to payment of counsel. I looked through one of the blocks of cheque butts in Exhibit 37:  cheque 002401, 24 October 1997 to 002600, 14 January 1998. I could identify five cheques to counsel, of which three were to Mr Sumner-Potts. I could not identify the matters in respect of which these payments were made, if they were made in respect of particular matters. Two (002511 and 002524) were marked “MT Trust” but were cleared to the general account (see Exhibit 2, pp.196, 198);  this may mean that funds were in trust to cover these payments. There were however two cheques to other counsel:  cheque 002410 to Mr Reithmuller for $315 in a particular matter, where a payment had been received from the other side of $5,090.10 for costs four days earlier:  Exhibit 37 receipt 30433, and cheque 002531 to Mr P Panayi for $1,500 in a particular matter, where a payment had been received from the client of $1,500 eighteen days earlier:  Exhibit 37 receipt 30484.

74. [74]
    It is possible, but rare, for a barrister to insist on payment by an unpaid solicitor, and occasionally to secure payment with the assistance of the Bar Association, but there is nothing to suggest that this ever occurred with this firm in this period. In these circumstances it seems to me that counsel’s fees, where a fee note has been sent in but where it has not been paid, should be disregarded, that is not treated as creditors either at the beginning or at the end of the period.

75. [75]
    The object of this exercise is to determine the profit of the partnership during the relevant period. If money which the partners are going to have to pay themselves has increased or decreased during that period, it would be artificial to determine profit without taking into account this increase or decrease, but in circumstances where for all practical purposes counsel’s fees are not going to be paid by the solicitors personally, but only by the clients, it does not seem to me to be artificial to disregard any differences in the levels of fees in respect of which counsel have sent fee notes but which have not yet been paid. Rather the reverse.

76. [76]
    There is also the issue of when these fees become payable. For the purposes of this exercise, only creditors whose debts are payable should be taken into account. I am not willing to accept the defendant’s evidence to the effect that most of the $37,770 was “due” at 4 March 1998. The evidence of payment that I have identified supports the plaintiff’s approach, that fees were not treated as payable only when funds were available to pay them, but that they were then promptly paid. In such circumstances, there should be no significant amount payable to counsel at any time, although there may well be substantial amounts of fees charged and unpaid.

77. [77]
    Because of this consideration, and the lack of proper evidence about counsel’s fees, I cannot make any meaningful finding as to the amount to include in the list of creditors at any time anyway, even if I thought it appropriate to do so. Indeed, the only basis on which I could make even a precautionary finding would be to assume that that part of the “creditors” as at 30 June 1997 in Exhibit 38 which I cannot otherwise account for (see [168]) represented Mr Sumner-Potts’ fees, which would put them at $15,677,^[46] and apply a presumption of continuance to find that they were the same as at 4 March 1997, in the absence of evidence to the contrary. On that basis fees charged^[47] by counsel were $19,577 as at 4 March 1997, $17,777 as at 1 July 1997 and $44,872 as at 4 March 1998.

78. [78]
    I am wary about the defendant’s figure for creditors, mainly because it is so much smaller than the corresponding figure 12 months later.^[48]  However, I have neither the means to confirm (or dispute) it, nor any basis within the evidence to determine some alternative figure. The plaintiff could not say what the creditors would have been then (p.130) although there would have been some:  p.131. In the circumstances therefore I will accept that the appropriate figure to allow here is $10,292.

Creditors – March 1998

79. [79]
    The defendant produced what he said was a list of creditors as at 4 March 1998:  Exhibit 32, p.292. When this was put to the plaintiff he disputed the amounts of the bank overdraft and the loan, on the basis that these were not trade creditors, and counsel for the defendant said that these items were not pressed:  p.128. He also disputed the amount said to be owing to Yellow Pages, on the basis that this was for an entry not due to be published until some time after the end of the partnership (p.127) and the payment to the Office of State Revenue because this was stamp duty paid on the transfer of the interest of the business:  p.129. Otherwise he accepted the list of creditors:  p.129. The two bank amounts total $36,449.89. I agree with the plaintiff’s attitude in relation to the Yellow Pages account^[49], and in relation to the stamp duty on the transfer of the interest in the business. Regardless of who has to pay this, which depends on the terms of the relevant legislation, it is in my opinion not something which ought to be taken into account as a creditor of the business for the purpose of determining the net profit of the business for the purposes of the application of this formula. The obligation did not arise during the relevant period. These two amounts total $5,293. There are also a number of amounts included in this list which represent counsel’s fees. The amounts included as owing to Mr Sumner-Potts, Mr McCreanor, Mr Dorney, and Mr Rangiah total $44,872. For the reasons given above ([73-77]), counsels’ fees in my opinion should be disregarded in relation to creditors at the end of the period as well. If these three amounts are deducted from the amount shown as creditors in Exhibit 32, the balance is $22,643.11.^[50]

80. [80]
    Mr O'Connor in Exhibit 1 produced a figure for creditors at the end of the period of $61,838.28 (p.25), which also took into account the fees “owing” to counsel. The difference is $5,676.83. To some extent that discrepancy was explained in cross-examination at p.56, and it appeared that Mr O'Connor essentially resiled from his earlier figure and was prepared to accept the figures in the list which became Exhibit 32^[51] subject to adjustment for the bank loans and the Yellow Pages amount.

81. [81]
    In the light of the adjustments referred to earlier, I find that the appropriate amount to take into account as creditors at the end of the period is $22,643.

Debtors - general

82. [82]
    The remaining issues concern legal work which had been done by the firm but not paid for as at the relevant dates. This may be divided into two categories: work which had been billed but the bills were not paid, and work which had been done but not billed. The issue of the recoverability of what might be described as uncompleted legal work is a complicated one.^[52]  Given the nature of the exercise currently being undertaken however, in my opinion it is not necessary to attempt to determine in respect of each file what amount was payable as against the client at the relevant dates. The ultimate object is to determine the net profit of the firm, and it is appropriate to take into account changes in value of work done but not paid for at each end of the period, whether or not that work has been billed, and whether or not that work is technically billable. Apart from anything else, there are various steps which may have to be completed before a client can be successfully sued for legal work, and commonly they are not completed in practice, just as, commonly, clients are not actually sued. For this exercise therefore it is appropriate to disregard the question of what amount is recoverable from the client at the relevant time, and look at the true issue of the value of the work to the firm. That means that where legal work has spanned a particular relevant date, it is appropriate (and more convenient) simply to apportion the total value of the legal work to that which was done before and after the relevant dates.

83. [83]
    The next issue to be determined is how that legal work is to be valued. The approach adopted in Browell v Goodyear [2000] TLR 735 referred to in my reasons for the decision on the preliminary question was that the assessment of value can be undertaken with the benefit of hindsight, and that would be consistent with the general approach when valuing things or assessing damages, where full advantage is taken of everything which is actually known up to the date of trial. In these circumstances, it is in my opinion appropriate to assess the value of the work not paid for taking into account whether or not it was ultimately paid for, and the amount ultimately paid.^[53]

84. [84]
    That may well mean that some work is more remunerative than other work for the same amount of effort, and that in respect of some matters the effort, perhaps large amounts of effort, is ultimately unremunerative. That is not an uncommon feature of legal practice, as I understand it. It follows that in my opinion it is appropriate to treat as having no value work which ultimately was not paid for. Bearing in mind the time which had elapsed since these events, as at the date of the trial, it is probably sufficient in most cases to say that if the work has not been paid for it never will be paid for, although there may be some exceptions in particular cases where a matter is still continuing. In those cases it may be necessary to make an individual assessment of the prospects of payment ultimately being achieved.

85. [85]
    In theory, in assessing value, some adjustment should be made for any delay in obtaining payment. In economic terms a bill paid after two years is less valuable than a bill paid after two months, at least if interest is not paid in the former case, as is ordinarily the situation with legal bills. In practice taking that feature into account would produce additional complications, which could well be substantial. Neither of the parties submitted that I should approach the matter on that basis, and I will not do so. For practical purposes therefore work not in fact paid for can be said to fall into three categories: work which was ultimately paid for, where it will be valued at what was ultimately paid, if necessary making an apportionment in respect of the work before and after relevant periods; work which was ultimately not paid for, which should be valued at nothing unless there is some good reason to think that some payment will ultimately be made; and work where the outcome remains uncertain, which will have to be assessed on a case by case basis.

86. [86]
    There was evidence that in June 1997 the partners wrote off a number of fees, including the fees for the Bellino matters.^[54]  It does not appear that any of the fees so written off were ultimately paid, so work in that category should be treated as having no value. That in my opinion is the appropriate way to deal with the dispute in relation to the Bellino accounts. Given the events that have happened, the work done in those matters, however substantial it was, ultimately came to be of no value to the firm, and therefore when determining the value of work done but not paid for it should be assigned a value of nil. It follows therefore that it should not be taken into account at face value when assessing the debtors of the firm as at the beginning of the period. The same would apply to any other bills outstanding at that time which were ultimately written off or not in fact paid,^[55] unless there is some good reason to think that in the particular case there is still some prospect of payment being made.

87. [87]
    When determining the debtors at the beginning and end of the period, it is therefore appropriate to make an adjustment to the nominal or face value figures referred to in the evidence. It is clear that in general no such adjustment was made in the figures produced at the trial for debtors at the beginning and end of the period, except for the deduction in relation to debtors at the beginning and end of the period of the Bellino matters in the calculations put forward on behalf of the plaintiff.^[56]

Debtors – March 1997

88. [88]
    This reflects work which had been done for which accounts had been sent, but which had not been paid for, as at 4 March 1997. The plaintiff appeared to rely on the evidence of Mr O'Connor at p.18 that the debtors at the beginning of the period, after deducting the Bellino matters, came to $63,808.75. However he had not deducted accounts which had been written off, or had otherwise not been paid. The defendant’s evidence was that the accounts unpaid at the beginning of the period were those listed in Exhibit 29:  p.217. This exhibit is a bundle of fee notes^[57], which total $75,163.95. The defendant in the witness box identified a number of these matters as ones which had been written off, either in June 1997 or subsequently:  pp.217-222. The bills identified by the defendant in the witness box from Exhibit 29 total $18,142.20, if one disregards the matters of Palmer, Duncan, Bunn, and McIvor, and if one corrects what appears to be an error in the transcript to show the amount for Alyanak as $50.

89. [89]
    Apart from the matters listed by the defendant however the fee note for the matter of Goriss is marked “w/o,” and there are three examples of fee notes with lines through them, which is similar to the line used when the note was written off, and notwithstanding the defendant’s evidence at p.219 I think these should be treated as written off as well. They are Craig $85, Matters $1,097.45, Palmer $350 and PST Investments Pty Ltd $1,885.45. On the other hand, there are a large number of files which have neither a “paid” stamp on them nor are marked as written off, and in the circumstances I will assume that all of them were paid except for the account of $140 for McDonells, which is dated 4 November 1997 and should not be in Exhibit 29.

90. [90]
    However, there are annotations on some of the fee notes which indicate that some of the payments were made prior to 4 March 1997. This usually applies to part payment, and the ones I have identified are Da Costa $80, Davies M (re Asram Pty Ltd) $220;  Davies M (re Keytang Pty Ltd) $615;  Giddens $100;  Hastwell $100;  Mills $50;  Mullum Hand Prints re Nooravi $2,000;  Peretz $1,400;  Reddicliffe $1,500 and Shuttleworth $180. It also appears that in some matters apart from those referred to by the defendant, only a partial payment was made, or at least that is all that is noted on the copy account. These are Chapron Pty Ltd, apparently $1,200 paid from an account of $3,100,  and Purcell where $485 is shown as paid out of $530. I propose to make adjustments to these, and treat as written off (or as unpaid) $350 for Duncan, $6,578 for H Parry (see p.221), $205 for Peretz (on the basis that the payments of $450 and $875 were made notwithstanding p.219) and $200 for Shuttleworth, on the basis of the payment details noted in Appendix D.

91. [91]
    Late in the trial Mr O'Connor prepared a list of debtors as at 4 March 1997 which became Exhibit 63. This was said to be based on information provided by the defendant, and unsurprisingly is largely consistent with Exhibit 29. In some cases the amount shown as outstanding is different from the full amount shown in Exhibit 29, but sometimes that is consistent with notes on the copy fee notes about part payment. Some of these reduced amounts are consistent with, and tend to confirm, the conclusions I otherwise arrived at. Where there is some inconsistency between this material, and the material in Exhibit 29 and the evidence of the defendant, that may be because the material has been refined further by the defendant before it was presented at the trial, or it may be because there have been some matters overlooked. It is also possible that there are compilation errors in Exhibit 63. For example, I think the reference to $25 for Wolfinden should be a reference to $625;  it is unlikely that $600 of this, but not the balance, would have been paid by 4 March 1997. It does seem that the fee note for McDonnells of 4 November 1997 of $140 has been included in this list by mistake, but that there was one for 16 September 1996 for $154 which has been omitted.^[58]  The only other discrepancy is a fee for Woodward for $1,000 on 12 February 1997, which is not in Exhibit 29. Evidently either its inclusion in Exhibit 63 or its omission from Exhibit 29 is an error, but I cannot determine which, so I will assume that Exhibit 29 is accurate and not count it as part of the debtors as at that date. If all these adjustments are made, that produces a total properly written off of $23,792.90.^[59]  As well, the payments identified as prior to 4 March 1997 of $7,210 should be deducted from the total.

92. [92]
    Apart from these adjustments, in the course of my examination of the evidence while working through the material relevant to assessing the value of work in progress it emerged that there were two other accounts which should have been included on this list. There was an account of 13 February 1997 to Mr Frank Farrugia, a copy of which is in Exhibit 9, for $2,637. There are a number of specific payments mentioned on the account, all but one of which are dated after March 1997;  the exception is a payment for $400, but there are no receipts in Exhibit 37 for this payment between 13 February and 4 March 1997, so all of the payments were made after that date. A later account to him on 24 June 1998 shows an amount of $2,437 had been received by then, but the copy indicates that there were a number of further payments during March 1998 and that all of the fees charged in February 1997 (and indeed in June 1998) were ultimately paid. Accordingly the amount of $2,637 should be added to the debtors as at March 1997. Apart from this, for reasons given in Appendix C to this judgment there was an amount of $1,150 paid by Julie Nofz in relation to some family law matter after March 1997 which evidently related to some account sent by the firm prior to that date. I do not have either the amount of the account or the date, but all of these payments are receipted in Exhibit 37 and accordingly this sum should also be treated as a debtor as at March 1997. The additional accounts total $3,787 and should be added on.

93. [93]
    When all this has been taken into account, the result comes to $47,948 which was apparently the amount which was actually paid at some time after 4 March 1997 in respect of fee notes outstanding at that time.

94. [94]
    I should say I am wary about this figure, because some of the fee notes marked as paid in Exhibit 30 seem to be quite old, and usually a date of payment is recorded only when a part payment has been made. Indeed, one of the things that strikes me as odd about Exhibit 29 is that the fee notes in question seem to be spread over the whole period from January 1996 to March 1997, without the sort of bunching towards the end of that period that I would have expected. From January and February 1996 there are 15 fee notes, compared with 27 from January and February 1997, which shows some increase but not as much as I would have expected. However, short of going right through all the receipt books there is not much I can do to check when payments were made for these accounts. On the basis of Exhibit 29 and the defendant’s evidence (or at least so much of it as I am prepared to act on) therefore and subject to the adjustments identified, the value of the accounts outstanding as at 4 March 1997 was $47,948.

Debtors – March 1998

95. [95]
    The defendant’s evidence was that the fees billed but not paid as at 4 March 1998 were those contained in Exhibit 30, of which those listed in Exhibit 31 had been subsequently written off. There was also a list of debtors unpaid as at this date produced by Mr O'Connor, Exhibit 64, which is very similar to the fee notes in Exhibit 30, in terms of names, dates and generally amounts. The differences are that Exhibit 64 includes a matter of Naeve where the fee note was dated 5 March 1998 and is therefore too late (this is properly included in the work-in-progress), and a few matters where the amount identified in Exhibit 64 as unpaid is inconsistent with various notes on the copy fee note in Exhibit 30. According to Exhibit 30 the amount unpaid at 4 March 1998 was, in the matter of Geerlings, $1,501 rather than $1,751;  in the matter of Holmes $3,200 rather than $2,900;  in the matter of Petersen $1,220 rather than $132.50;  in the matter of Russell $4,900 rather than $3,060. The copy account for Reynolds ($1,132.95) was apparently just a quote (p.275, Exhibit 64, Exhibit 30) so this amount should be disregarded. Subject to that, these exhibits indicate a nominal figure (or face value) for debtors unpaid as at 4 March 1998 of $108,869.20.

96. [96]
    Mr O'Connor calculated an amount of $18,602.65 as write-offs: Exhibit 64. On the other hand, the defendant relied on a list (Exhibit 31), where the write-offs totalled $40,986. This however is a very unsatisfactory document. Perhaps the least significant of its failings are a couple of mechanical errors:  an account of $140 for McDonnells appears twice in Exhibit 31, although there is only one such account in Exhibit 30, and the account for Pearce is shown as $1,000 in Exhibit 31, but as $100 in Exhibits 30 and 64.

97. [97]
    The other thing that struck me immediately about this list was its extent. Some of the single entries cover a number of matters which are listed separately on Exhibit 64:  the matter of Dunn covers two files, the matter of Parry apparently six files, and the matter of Mullum apparently three out of four. Disregarding this feature, Exhibit 31 claims that 45 of the debtors listed in Exhibit 64 are write-offs, compared with only ten which are not, a surprisingly large proportion of bad debts. It is a very much higher proportion than the write-offs within Exhibit 29 (28 out of 106).

98. [98]
    There are some discrepancies between the amount said to be written off and the entries or notes on the pages in Exhibit 30. In Exhibit 30 there are four fee notes to Mullum Hand Prints:  the one of 13 August 1997 is marked “paid 5 May 1998”;  one of 23 September 1997 had $400 paid on 9 February 1998 and the balance of $110.60 paid 5 May 1998, a second of the same date had $39.40 from $425 paid on 5 May 1998 and a fourth dated 5 February 1998 was for only $200.^[60]  Hence the amount not shown as paid on these fee notes was $585.60, but there are two entries for Mullum in Exhibit 31, one for $585 and one for $200.

99. [99]
    Exhibit 31 contains two entries for Petersen, one for $132 and one for $133. There was a fee note of 22 July 1997 to Petersen for $825, of which $712.50 had been paid before 4 March 1998, leaving a balance of $112.50. There was another fee note to her on 2 December 1997 of $1,220, which has a note saying $1,087.50 was paid on 14 April 1998:  Exhibit 30. However a receipt in Exhibit 37, dated 14 April 1998 (receipt 56697) is for $1,200, and if $1,087.50 was applied to the 2 December 1997 fee note (as the note on it states) it follows that the balance outstanding of $112.50 for the earlier fee note was then paid. That would leave a balance of $132.50, the amount shown in Exhibit 64. However, Exhibit 5 shows numerous later invoices and payments, and after a payment of $10,208 on 2 July 2001 for various matters, a nil balance, which suggests that this too was in time paid.

100. [100]
     There are also some other inconsistencies with other material before me. Within Exhibit 37 there is a receipt 30529 dated 12 December 1997 from Peak Hill Pty Ltd for $2,550, referring to “Alldrill and Markhert”. That corresponds to the Peak Hill fee notes of 23 May 1997 re Markert $1,150 and 16 September 1997 “re Alldrill Pty Ltd” for $1,400. There do not appear to be any entries in Exhibit 2 which suggest that this payment was subsequently reversed, and I accept that both of these accounts have in fact been paid, on 12 December 1997. They therefore were not properly included in Exhibit 30 (or for that matter Exhibit 64) at all, and should not have been included in Exhibit 31.

101. [101]
     Exhibit 31 has $2,000 being written off in the matter of Hodgson. There was a fee note for $4,800 on 3 March 1998, of which $2,800 was paid on 31 March 1998:  Exhibit 30 and see receipt 56681 in Exhibit 37. However Exhibit 4 shows that $2,000 was paid from the trust account on 6 October 1998, at which time counsel was also paid $2,000. Exhibit 50 does not suggest there were two Hodgson files, and accordingly I accept that this sum of $2,000 was paid in October 1998, and it ought not to have been included in Exhibit 31.^[61]

102. [102]
     The position in relation to the various matters of Parry is certainly very difficult, and not made any easier by the number of different matters.^[62]  The copy fee note  (for $15,000) dated 23 January 1997 which is part of Exhibit 29 shows payments of $1,400 on 3 April 1997, $181 on 4 July 1997, $1,000 on a date not specified but presumably between the previous payment and 14 October 1997 when a further $855 was paid,^[63] $2,486 on or about 29 October 1997,^[64] $1,500 on 25 November 1997^[65] and $1,000 on 23 January 1998, leaving $6,578 owing. Exhibit 5 suggests that the payment of $1,000 was made on 1 August 1997, and also refers to the payment on 23 January 1998, and reveals that there was another account for $823.95 dated 24 February 1998 which was paid on 2 March 1998.^[66]  An entry in the second part of Exhibit 5 indicates that there was a payment on 7 May 2002 of $3,608.95, although it does not indicate to what it is attributable. Indeed, it may be a payment in respect of a different file, because there is a separate sheet for “Parry, Heather” which simply shows two more fee notes, 23 March 1989 for $177 and 8 April 1989 for $85.45, neither of which had been paid, and a separate page for Cairns Management Accountants with another 15 invoices listed. Exhibit 4 shows a payment from the trust account of $2,667.75 on 15 June 1999, but that is in relation to file 298052 re Silforma, which would not be relevant to any of these fee notes. Ultimately it does not appear that any other money was paid in relation to these matters.

103. [103]
     There was a payment of $30 on 6 March 1998 (receipt 56648) by “Mr M Singh – immigration”. This may be a reference to the extra $30 remaining owing by “Mr M Sing” in Exhibit 64, although the fee note in Exhibit 30 says that the account was “re AMP Insurance,” so it may not.

104. [104]
     With regard to the two Langley fee notes which are included in Exhibit 31 separately, examination of the copy fee note of 13 June 1997 shows that it had picked up the earlier fee note, so both should not be included. The situation with the Langley matters is complicated, but there was a matter of Langley v Zurich, file 1095299, which did ultimately result in a substantial settlement paid on 30 March 1998, with an additional payment on 2 April 1998 and a further sum on 21 April 1998, as appears from the trust account in Exhibit 4. A number of outlays were paid on 2 and 3 April 1998 from the trust account, and on 3 April 1998 an amount of $3,069.95 was paid to general account said in the trust account to be “for family law”. This produced receipt 56688, but there is no reference to a family law file in Exhibit 15, or Exhibit 49, or Exhibit 29, except that in Exhibit 49 and 50 the defendant claimed that the family law matter was “an additional 1997 debtor,” and in Exhibit 50 made a similar claim for the conveyancing file. There were no fee notes for Langley in Exhibit 29.

105. [105]
     Exhibit 49 refers to the file of Langley v Cominos, file 1096502, and says that $650 was received in the Zurich settlement. This would correspond to the additional charge in the 13 June 1997 fee note. In Exhibit 5 the Langley page shows a credit memo on 30 June 1998 in respect of an amount corresponding to the sum of the two fee notes in Exhibit 31, then shows a fee note of 24 April 1998 being paid on 17 April, and a fee note on 14 May 1998 for $350 being paid on 18 May 1998. Receipt 56745 in Exhibit 37 shows payment of $350 on 18 May 1998 from Dale Martin with the note “Langley Holdings”. Presumably this is the payment in file 0298096. Exhibit 4 shows two payments of $10,000 to the general account for fees and outlays re Zurich, one on 17 April 1998 and one on 21 April 1998, but Exhibit 37 includes a receipt for the former (56702) but not the latter. Exhibit 2 does not appear to record the latter payment either. In Exhibits 49 and 50 the defendant said that $24,980 was received, which includes both payments and two subsequent payments, $1,460.70 on 26 May 1998 and $450 on 6 July 1998. There is a receipt for the former (56749), but the receipt book does not go up to 6 July 1998.

106. [106]
     I do not accept that the family law matter dated from prior to 4 March 1997. I think it ought to be regarded as a fee note which should have been included in Exhibit 30 and was not. I think it likely that the opportunity was taken when there was money in trust in 1998 to clear the $450 debt owing from April 1997, and probably, as the defendant said in Exhibit 49, the balance of $650 was paid out of the Zurich settlement as well. It would be surprising if it was not. It follows that neither of the Langley accounts should have been included in Exhibit 31.

107. [107]
     I find it curious that there are so few payments in the receipt book Exhibit 37 between 5 March 1998 and the end of the book (3 July 1998) which are identifiably in respect of accounts unpaid as at 4 March 1998, that is included in Exhibit 30. There are payments by G Russell in receipts 56657, 56699, 56725, and 56758, payment by C Hodgson in 56681, by R Petersen in 56697, by Mullum Hand Prints in 56726, and by Mrs Shuttleworth in 56789. If the receipt “M Singh $30” is the balance of $30 owing on the fee note of 23 December 1997 in the name of “Sing”, receipt 56648 should be added to this list but even so there are only nine out of a total of 158 receipts written during this period. Indeed there are only two or three of these receipts during the first month after 4 March 1998. That seems a surprisingly small number, and accordingly I have looked at those receipts in a little more detail.

108. [108]
     The first two 56643 and 56644 involve payments on 5 March 1998 of $823.95 and $926 from two different companies associated apparently with Mark Crompton. One said to be for “purchase” and one for “litigation.”  I have not been able to locate any of these names in either Exhibit 50 or Exhibit 30, but it seems improbable that all of this work was done on 4 and 5 March 1998. Receipt 56645 apparently relates to a payment by Mr Syme. The file is referred to in Exhibit 48 (by the plaintiff, who does not attribute any payment to it) but the defendant in Exhibit 50 refers to a payment of $35 received on 12 February 1998 (receipt 56607) but not this payment. On the following day there was a receipt for photocopying which might have been for work just done, and a receipt for Legal Aid for $348 in a matter of Laird, which is referred to in Exhibit 50 but only in relation to a payment made on 19 February 1998. I think it unlikely that Legal Aid would be making a payment unless a fee note had been sent in some time earlier.

109. [109]
     Receipt 56649 refers to Mr Alford who is mentioned in Exhibit 50. However, Exhibit 5 gives a date for payment which is correct and suggests that this was on an account of 16 January 1998, so this should have been in Exhibit 30. On 9 March there was payment from Stein of $139 for outlays, a small amount admittedly but not referred to by the defendant in Exhibit 50. Exhibit 5 shows that this payment was on an account dated 26 February, but this may not be reliable (see [111]) so I will leave this to work in progress. On 11 March there was a payment of $1,000 by Purnell re immigration. A file in this name appears in Exhibit 50 but without attributing any value and without referring to this payment. Since the immigration work was presumably undertaken by Ms Shipway, and the evidence was that she stopped work when the partnership was dissolved, I think it likely that this payment relates to work which had been done before 4 March 1998, and was probably the subject of an account preceding that date. On the same day receipt 56652 refers to a payment of $180 by Tony Jenkins which may have been for work done after 4 March. Receipt 56653 refers to $2,000 from “Jim O'Shea” for “fees and outlays – picking up a file.”  This is not referred to in any of the exhibits. Receipt 56654 is for $120 from Les Hastwell, “doctor’s report – personal injuries”. The name and file number appear in Exhibit 50, but there is no reference to this payment. Exhibit 5 shows that it was in response to an account dated 9 March 1998. There was then a receipt for an agency matter, and receipt 56656 was for a matter of Warren Curtis. The receipt says “immigration” but Exhibit 50 attributes this payment to file 198025, “police charges”.

110. [110]
     Receipt 56657 was for the payment of $2,000 by G Russell referred to earlier. The next five receipts are for payments for work which might well have been done after 3 March 1998. Receipt 56663 is a payment of $100 on a file opened in February 1998 referred to in Exhibit 50, although this particular payment is not listed there.^[67]  The position is the same with the following receipt (D Hulme - $137). The next receipt looks like a payment for post partnership work, while the following receipt is a small payment ($32.40) for a file where Exhibit 50 says nothing was received. Exhibit 5 shows that the account was dated 13 June 1997, so it should have been in Exhibit 30. Receipt 56667 is another Legal Aid payment, $368.85 concerning “Joo – police charges” which does not appear in either Exhibit 30 or Exhibit 50. It is I suppose possible that this is for post-partnership work. The next three receipts are apparently for post-partnership work, while receipt 56671 is a payment on 20 March 1998 on a file mentioned in Exhibit 50, which says that the payment on this day was $50, while the receipt is for $240. Exhibit 5 shows that the account was dated 1 March 1998, so it should have been in Exhibit 30.

111. [111]
     There is another Legal Aid payment, of $350, in receipt 56672 which is not mentioned in the material. The following receipt is for payment of photocopying fees, and receipt 56674 refers to a payment from the trust account in the matter of Stein for $2,850. Reference to Exhibit 4 indicates that this payment was made in relation to file 0597254 from settlement moneys received on 19 March 1998. Exhibit 50 does not refer to this payment, although it refers to a payment in August 2001 in respect of two other Stein matters where the files were opened in February 1998. File 0597254 is referred to in Exhibit 50, with the notation “debtor”. I prefer to rely on Exhibits 4 and 37;  Exhibit 4 is the trust account records, which are supposed to be audited and the keeping of which is a serious matter. Exhibit 5 shows the date^[68] of the account as 7 March 1998 but the copy fee note shows that it was 26 February 1998. This should be added to the list of debtors.

112. [112]
     Receipt 56675 (27 March 1998) is for $400 from Fahlstrom “fees – re police charges”. This name appears in Exhibit 50 but in relation to another matter, and this may well relate to post partnership work. Receipt 56676 is for $75 from V King concerning “account”. There is no such account in Exhibit 30, and Exhibit 50 refers to a matter of King, file 0198044, with the note “received nothing”. An account might well have been sent after 3 March 1998, but I think it unlikely that this refers to a different file begun after that date. The next three receipts may well be for post partnership work. Receipt 56680 (31 March 1998) is a payment which is referred to in Exhibit 50 in relation to a file 0298094 where the defendant says nothing was done prior to 4 March 1998. Receipt 56681 is the part payment by Mr Hodgson of the account in Exhibit 30 for $4,800. Receipt 56682 of 31 March 1998 is a payment of $814.90 from P R Nicholson Pty Ltd re conveyancing. Exhibit 5, the printout from the computerised fee records, mentions a matter of Nicholson where the payment was made on 31 March 1998, and the invoice is shown as dated 30 March 1998. The amount is shown in this document as “0.00”, but presumably this is a reference to this fee. It was not included in Exhibit 50;  there is a Nicholson referred to in Exhibit 49, file number 0996451, where it is said that nothing was paid, although that was said to be concerning “personal injuries” so it may well be a different file. On the other hand, the reference to conveyancing in the receipt might be an error. There are some other references in receipts which are difficult to reconcile with other evidence.

113. [113]
     Receipt 56683 records receipt of $176 from Legal Aid re Radford – family law. Exhibit 50 mentions a file of Radford concerning “affairs”, 0298092, but does not refer to any payment although there is a comment “nil owing”. The next two matters are apparently post partnership work, while receipt 56686 refers to a payment of $100 from E Pszkit “re personal injuries” which appears to relate to file 1296619, where substantial fees were received in May 1999. They are referred to in Exhibit 50, though not this particular payment.

114. [114]
     There are two receipts for payments on 3 April 1998. The first is from K Doyle and I Nilsson for $350 re conveyancing, receipt 56687;  this matter is referred to in Exhibit 50, file number 0298089, whether the payment is acknowledged but there is the statement that nothing was done prior to 4 March 1998. The second receipt, 56688, is a payment from the trust account in relation to Langley re Zurich, $3,069.95, to which I have already referred.

115. [115]
     Overall during this month there were 46 receipts written, which may be compared with 56 during the period 4 March to 4 April 1997. Only three (at most) of these were for payments of accounts included in Exhibit 30;  during the corresponding period one year earlier, 18 of the receipts were written for payments of accounts in Exhibit 29 (in whole or in part). Eight of the receipts during the period in 1998 were for payments referred to in Exhibit 50, and there were perhaps another eight which I suspect should have been, as they appeared to be payments made in relation to matters which were work in progress as at 4 March 1998. By way of comparison, there were about 19 receipts in the period in 1997 which appeared to relate to work in progress referred to in Exhibit 49, although they did not always correspond to what was said in that exhibit. So the pattern in 1998 strikes me as odd, and significantly different from the pattern in 1997.

116. [116]
     It is not just that there are so few payments during this period which the defendant says are related to accounts sent out prior to 4 March 1998;  the number is much lower than in the corresponding period twelve months earlier. It is I think less helpful to look at the dollar values, because it is apparent that the pattern was that the practice generated a relatively large number of small payments, some payments over $1,000, and a small number of much higher payments, so that the cash flow pattern was irregular and lumpy. Almost half of the debtors as at 3 March 1998 disclosed by the defendant come from one fee note, 16 February 1998, to Mr Morgan in relation to Masterwood Pty Ltd, for $54,600, and the defendant acknowledges that that was paid (although not during the first month). There were no large cheques during the first month after the partnership was dissolved, whereas in the corresponding period in the previous year there was one payment (from the trust account) of $39,317:  receipt 211930, which as at 4 March 1997 was a work in progress (Smith).

117. [117]
     It is I suppose possible that to some extent what happened after 4 March 1998 was a product of the dissolution of the partnership. There would have been some people who were attending specifically because of the plaintiff, and perhaps some of them just did not pay fees which otherwise would have been paid promptly. But it is difficult to believe that this is the explanation for so few payments during this period^[69] from accounts sent out. As I have indicated, there were various payments during that period where it appears that the matter ought to have been included either in Exhibit 30 or in Exhibit 50.

118. [118]
     To some extent the explanation may be that the fees have been treated as being written off and included in Exhibit 31 where in fact they were ultimately paid. I have already referred to a small number of instances of this, but the receipts do not suggest that there were during this period very many of the accounts listed in Exhibit 31 that were actually paid. So that cannot be the sole reason for the disparity. There are some other features about the write-offs which I find curious. In Exhibit 31, $80 is written off in a matter of Bryce, and that is consistent with a credit memo appearing in the fee records which are part of Exhibit 5. However later in 1998 the same client paid substantial amounts, $814.90 on 19 June 1998, $5,467 on 24 September 1998, and $7,844.30 on 30 September 1998. It is difficult to understand why the fee of $80 was not caught up at this time.

119. [119]
     Overall the position in relation to debtors as at March 1998 is quite unsatisfactory, and I strongly suspect that there were a number of debtors that have just not been disclosed by the defendant. I have been able to identify some extra payments which have been made in relation to work done during the partnership period, but I only have available receipts up until 3 July 1998, and unless there is some information linking a particular payment in a particular receipt to a file which was in existence before the partnership was dissolved it is difficult to be definite about whether additional amounts should be added to the list of debtors, or indeed to the list of the files in respect of which work in progress was ultimately paid for. There is however no clear evidence upon which I could calculate an amount which ought to be taken into account to cover those matters which are just not revealed in the material before me. Nevertheless, I think that on the whole some allowance should be made for them. I do not think it should be any great amount;  I doubt whether the plaintiff would have overlooked the existence of some substantial file, but there may well be a number of relatively small files which the plaintiff has not identified and which have not been referred to by the defendant, but which when taken together would have produced some significant additional income.^[70]

120. [120]
     The plaintiff did say that he had not been able to identify all of the files which would have been in existence at the time, particularly at the end of the period, though no doubt he was able to identify sooner or later all of the substantial ones. My concern is whether I am justified in adding in any particular amount to cover what appears to me to be a real deficiency in the evidence. This is separate from adjusting the calculations where there is other evidence to indicate that various payments have been made which ought to have been taken into account but which were not. Because the material that I have is by no means comprehensive, I am confident that there are other payments in the same category which just have not been revealed by the evidence before me. The difficulty that I face however is that there is no particular basis upon which I could assess the value of these files, other than perhaps on the assumption that they were all relatively small matters, so that any allowance for them should also be fairly modest.

121. [121]
     As a result of my examination of the evidence, it appears to me that some adjustments need to be made for the figures for the face value of debtors as at 4 March 1998, and the amount of the fees properly written off. As to the former, deductions need to be made for the two Peak Hill accounts ($1,150 on 23 May 1997 and $1,400 on 16 September 1997) both of which had been paid before 4 March 1998, and the earlier Langley account of $450, which amount was picked up in the later one of $1,120. The list should have included the other fee note for Langley ($3,069.95), and accounts for Stein of $2,850 a copy of which is in Exhibit 9, Alford ($903 – receipt 56649), Amies ($240 – receipt 36671), Cairns Jet Centre ($32.40 – receipt 56666) and Syme ($35 – receipt 56645) all referred to in Exhibit 5. In addition I think it more likely than not that the amounts referred to in receipts 56643 ($823.95), 56644 ($926), 56647 ($348) and 56651 ($1,000) discussed earlier should be included in the list, on the basis that I am satisfied that it is more likely than not that accounts for these payments had been issued prior to 4 March 1998. I strongly suspect that there are a number of other payments referred to in the receipts discussed earlier which ought to be included either in debtors or in work in progress as at 4 March 1998, but in the absence of evidence that accounts have been raised prior to 4 March 1998 I have taken these payments into account in relation to work in progress. With these adjustments, the face value figure therefore becomes $115,284.50.^[71]

122. [122]
     I have been able to establish that, of the write-offs listed by the defendant in Exhibit 31, a total of $7,875 should not have been included in that list, either because of mechanical error or because of payments in fact subsequently made.^[72]  This reduces the value of the write-offs to $33,111. The main difference between this figure and the figure given by Mr O'Connor in Exhibit 64 appears to be that Mr O'Connor has not written off any of the Parry matters. I have my doubts about whether these matters are properly write-offs, but in the absence of some evidence to indicate either a later payment or some contra arrangements, I am not persuaded to reject the defendant’s assertion in relation to these fees. This leaves a value for debtors as at 4 March 1998 of $82,173.

123. [123]
     The remaining issue then is whether I should increase this figure by some amount because of the concerns expressed earlier, as to whether this material really did reflect all of the debtors as at 4 March 1998 who had subsequently paid. I am concerned that there are likely to be other accounts which had been sent out and have just not been disclosed. Although I have looked at the receipts that I have for the period after 4 March 1998, these only go up to 3 July 1998:  Exhibit 37. Although I am suspicious about some of these payments, many of them may well relate to work done after 4 March.^[73]  On the other hand, there are likely to be later payments which I am not able to identify. The difficulty here however is that I have no evidentiary basis to attribute any particular value to “undisclosed” debtors, except for a suspicion that the amount concerned will not be very large, as mentioned earlier. Although the value of debtors in March 1998 after deducting the value of account apparently not paid is substantially greater than the value of debtors in March 1997 after making a similar deduction, this is largely because of one matter, Masterwood ($54,600) most of which was for work in progress prior to March 1997. There is no equivalent large payment in Exhibit 29. In all the circumstances, I will allow $10,000 for undisclosed debtors.^[74]  Accordingly I find that the debtors at the end of the period amount to $92,173.

Work in progress

124. [124]
     Apart from files which have been billed, there was work in progress which had not been billed as at the relevant dates. Both parties produced lists of such files, which I suspect were not complete, and indeed the material provided by each party to some extent evolved as the action went on. The defendant produced detailed lists of such files when giving evidence at the trial;^[75]  the plaintiff had produced schedules earlier which went though various editions. Each party prepared separate lists in relation to the position as at 1997 and as at 1998, but it is helpful to look at the estimates in relation to a particular file as at both dates (where applicable) because sometimes this throws some light on the reliability of the estimates. I have therefore had prepared a schedule which incorporates all of the files which appear on either of the 1997 lists or on either of the 1998 lists,^[76] all listed alphabetically, with different file numbers where the material suggests that there are multiple files:  Appendix B. It is sometimes difficult to reconcile the different lists, and there may be some discrepancies in this schedule. The amount shown as the plaintiff’s estimate of value as at March 1997 was based on Exhibit 47, the defendant’s estimate of value as at March 1997 was based on Exhibit 49, the plaintiff’s estimate of value as at March 1998 was based on Exhibit 48, and the defendant’s estimate of value as at March 1998 was based on Exhibit 50. The “invoice” column is based on Exhibit 9, and the “amount paid” is what I have found to be paid on the basis of all available evidence, although not all payments are listed,^[77] and sometimes for convenience payments have been combined.

125. [125]
     It has sometimes been difficult to determine just what the amount paid has been. Where possible I have relied on trust account records or receipts^[78] where they can be identified, but I have not been through all the receipts, and it is sometimes difficult to identify from a receipt the particular file in relation to which the payment was made, when there are multiple files with the same client. There are also occasions where it is difficult to identify the client. The receipts seem to contain a minimum of information. I have also regarded the trust account records as accurate, because trust accounts are usually taken quite seriously by solicitors, and they have to be specially audited. I also have the printouts from the computerised account records in Exhibit 5, although the evidence suggests that the first part of these records was not very reliable,^[79] and there are some discrepancies and difficulties with them as well. One of the difficulties is that it appears that those records have been set up not to refer to the amounts of fees charged after 4 March 1998, which are shown as “0.00”. This makes it more difficult to use these to identify the amounts of payments which would be helpful in valuing work in progress. Sometimes the gaps can be filled from the trust account records (or the receipt books) but not always. Generally, but not always, where there are references in the trust account records Exhibit 4 and in Exhibit 5 to the same payment they correspond, although there were sometimes differences in the dates.

126. [126]
     Apart from those records, sometimes the plaintiff has said that a particular amount was paid, and sometimes the defendant has said that a particular amount was paid (usually in Exhibits 49 and 50). I have already identified a number of discrepancies in relation to this material, but in the absence of any other material I sometimes have to rely on it. Copy fee notes often record the fact of payment, and sometimes the dates and amounts of part payments, noted on them, and where I have been able to trace receipts these notes are generally consistent with them. The amounts shown as paid in the schedule are therefore drawn from a variety of sources, and represent my findings on the subject unless otherwise indicated.

127. [127]
     There is no independent evidence as to the value of any of the files, although on the last day of the trial I spent part of the time looking at a number of files myself, either files suggested by the plaintiff’s counsel or files which I nominated myself. The result of my examination of these files is set out in Appendix A to these reasons. I have identified each file by name and file number,^[80] and in the first paragraph under that heading I have set out in summary what I observed during my examination of the file. In some cases there was a bill of costs in taxable form on the file, presumably party and party costs (p.321) prepared to be provided to the other side. These are useful because they give a running total of the value of the work (on a party and party basis as assessed by whoever prepared the bill) as at any particular date, and I have extracted totals as at the relevant dates.

128. [128]
     There is a complication however with these bills. There is usually included in such a bill an item towards the end of the bill which in a sense covers a good deal of general work throughout the course of the action. In a Supreme Court bill it is referred to as general care and consideration. In a District Court bill an amount is commonly claimed under item 27, which includes all attendances on and correspondence with the party and the party’s witnesses, and all necessary perusal of work in connection with the preparation for hearing, in a particular maximum amount, although there is some discretion to allow a higher amount in special circumstances. This item is often in itself a significant part of a District Court bill, and to some extent it covers work throughout the course of the action, although it is usually claimed towards the end of the bill. Some adjustment needs to be made in apportioning the bill on a time basis for these features, which I have attempted.

129. [129]
     In addition there were sometimes interlocutory applications or other matters which were not included in the particular bill; on occasions I found separate bills for them, but sometimes it was necessary simply to make some further allowance. It also seemed to me that the amount in fact charged by the firm to the client was above, sometimes substantially above, the amount included in the party and party bills. None of the bills appear to have been taxed, and there was nothing on the files to indicate the results of taxation, but I will assume that the bills as prepared broadly reflected the work that could be charged for on a solicitor and client basis. In theory therefore these bills ought to be a reasonably precise way of apportioning the value of the file, but because of these complications it will not necessarily be as precise as that in practice.

130. [130]
     The other method of apportioning work between different time periods is much more rough and ready; it is just a matter of estimating what proportion of the correspondence file falls on either side of the relevant date or dates. This has to be adjusted if a matter went to trial; the lead up to a trial produces a lot of paper for a correspondence file, but a trial itself does not, although it takes a lot of time.

131. [131]
     In relation to outlays, these fall into two categories: those that are paid by the firm and then recovered from the client either during the course of the proceeding or at the end when there is money available, and those paid out of money provided for the purpose, either by the client in the course of the proceeding (sometimes at the beginning), or from money obtained following a settlement or trial. Sometimes clients will pay into trust some money to cover outlays, and if this money is used it does not reflect an expense to the partnership, nor does it reflect a debt the client owes the partnership as a result. It is obvious from examination of the trust account records Exhibit 4 that it was common enough for outlays to be paid out of money paid into the trust account after settlement or trial, particularly counsel’s fees but also sometimes other outlays. On the other hand there would have been some payments which had to be made as the action proceeded. Filing fees have to be paid when documents are filed, and commonly medical reports have to be paid for before they will be handed over by doctors, and there may well be other outlays which fall into this category. Counsel’s fees may even be paid as the action progresses, although my distinct impression is that that was not the practice with this firm, and that fees to counsel were ordinarily not paid by the firm itself.

132. [132]
     Outlays which the firm has paid itself and for which it is entitled to be reimbursed by the client represent an asset of the business, and ought to be taken into account as such in the same way as work in progress.^[81]  On the other hand, outlays which are paid out of the trust account, either from money put into trust by the client or from the proceeds of the settlement or judgment, do not represent assets of the firm. Sometimes it is possible to tell from the trust account records what the outlays were which were paid from trust, and they can be deducted from the proceeds before determining the amount which reflects the value ultimately realised in relation to the file. Otherwise in general my approach has been to treat counsel’s fees as not being an asset in this sense, but other outlays as if they were, that is as if they had been actually paid by the firm. No doubt there will be exceptions to both of these generalisations, but they will tend to cancel out. The effect of this is that, when valuing work in progress by reference to what was later paid, I have deducted amounts paid to counsel, but not deducted other outlays.

In the second paragraph under each heading I have then sought to relate what I found on my examination of the file to the other evidence, the estimates of the parties and the amount ultimately received in relation to the matter. I then set out the reasons which have led me in relation to the particular file to make my finding as to the value of the work in progress as at the date or dates that are relevant in the case of the file. Those findings are, in relation to the files current in March 1997:

In relation to the files current in 1998:

133. [133]
     A number of the files I examined were ones for which the estimates of the parties as at March 1997 were the same. That concurrence of estimates was more common in 1997 than 1998. The main concern I have is that this may have occurred because the plaintiff’s estimates were too high for 1997. In respect of two of the files that I examined I was satisfied that I should find the work in progress at a value which was less than that common estimate, notwithstanding some reluctance to depart from what was superficially an agreed estimate. I have given reasons for departing from these estimates where I have done so. It might be worth noting that, in those matters where the 1997 estimates differed, the plaintiff’s estimates came to $20,000, the defendant’s to $63,000, and my findings came to $34,300.

134. [134]
     It will be apparent that in relation to the 1997 figures in general my findings are closer to the plaintiff’s estimates than the defendant’s estimates, but in relation to the 1998 figures in general my findings are closer to the defendant’s figures than the plaintiff’s. There seemed to be for some of the 1998 files estimates on the part of the plaintiff which were quite unrealistic, possibly because of some misunderstanding as to what amount was ultimately realised on the file. Sometimes it seemed that almost all of the fees ultimately realised were being attributed to the twelve month period in issue. On the other hand there were two files that I examined where the defendant had given the same estimate in Exhibits 49 and 50, saying that in effect no work had been done during the relevant period.^[82]  The examination of these files revealed that this was not correct, in the case of one of them to quite a significant extent, and this is one of the matters which I think reflects adversely on the defendant’s credit. It is of course possible that no work could be done on a file during this period, but because of this I became reluctant to accept the defendant’s assertion that the same thing had happened with a number of other files. Apart from this, when I was choosing files I was trying to choose files which were substantial, where there was a significant difference between the estimates of the parties (particularly in 1998) and where if possible the file extended from before March 1997 until after March 1998. Although I examined only a relatively small number of files, the proportion of the value in dispute represented by these files was much greater. The plaintiff’s estimates of value of the files that I looked at that were current in March 1998 was five-twelfths of the total of the plaintiff’s estimates of values of files current at that time given in Exhibit 48.

135. [135]
     The findings made in Appendix A have also been incorporated in the schedule Appendix B. Those findings are shown in bold. The other findings set out in Appendix B were made without the benefit of an examination of the files myself, and are based on the amounts which I have been able to work out as the amounts paid, the estimates of the parties, how reliable the parties’ estimates proved to be in relation to the matters which I did examine in detail, and any other relevant material, such as Exhibits 4, 5 and 9. I have considered each of them individually, and there has been no rigid formula or percentage method applied, although where there was a difference and there was no other way to resolve it I have tried to follow the same broad pattern thrown up by the distribution of the totals in relation to the files that I have examined. I have also been reluctant to depart from the same estimate given by both parties, unless there was some particular reason for doing so (as was sometimes the case). My reasons for my findings for some of these files are set out in Appendix C to these reasons. I do not propose to give anything further by way of reasons for the findings in relation to each of the other matters.

136. [136]
     Adding up the findings in the schedule Appendix B, it follows that my finding as to the value of the work in progress as at 4 March 1997 is $321,830 and the total value of the work in progress as at 4 March 1998 is $362,677.50.

137. [137]
     There are however some additional matters not mentioned in the plaintiff’s schedules or disclosed in the defendant’s schedules, the existence of which has been revealed by other evidence. There was a fee note of 20 April 1998 which produced a payment of $529 on 23 April 1998 from the trust account in relation to “David Harris – property damage”:  see [146]. There is a file for Harris in the schedule, but it is for a personal injuries matter, and no reference is made to this payment. I will attribute $400 of this to work in progress as at 4 March 1998. Exhibit 21 also refers to a payment of $300 from Hart not referred to in the schedules, which ought to have been included in Exhibit 50 or Exhibit 30:  [146]. I will add that sum also to work in progress as at 4 March 1998. With these two additions the value of work in progress as at 4 March 1998 becomes $363,377.50.

Summary

138. [138]
     The various values of the items and the formula are therefore as follows:

Total receipts TR = $552,311

Total outlays O = $347,645

Creditors March 1997 B(1) = $ 10,292

Creditors March 1998 B = $ 22,643

Debtors March 1997 C(1) = $ 47,948

Debtors March 1998 C = $ 92,173

Work in progress March 1997 A(1) = $321,830

Work in progress March 1998 A = $363,377

Applying the formula:  TR – TO + A – A(1) + B(1) – B + C – C(1) = $278,087.

That produces a figure for twelve months net profit. The figure for six months net profit referred to in clause 18.1 of the deed of partnership is therefore half this amount, $139,043.50. Prima facie therefore that is the amount payable by the defendant to the plaintiff.^[83]

139. [139]
     There were however a number of items raised by the defendant by way of set-off or counter-claim.

Set-off and counter-claim

140. [140]
     There were a number of matters raised by the defendant which would tend to reduce any amount payable under the formula. Indeed the defendant counter-claims against the plaintiff in respect of these items insofar as they exceed the amount owing under the formula.^[84]  The matters raised this way by the defendant are:

1. (a)
   receipt by the plaintiff of partnership income;

2. (b)
   conversion by the plaintiff of partnership chattels;

3. (c)
   discrepancy in drawings on account of his share in the profits;

4. (d)
   moneys paid to or for the benefit of the plaintiff after termination of the partnership.

Fees received by the plaintiff

141. [141]
     The defendant’s claim here fell into two categories: the defendant alleged that fees in the matter of Sexton ($25,000) and Churchill ($1,100) were received by the plaintiff, and that in addition the defendant had paid the plaintiff various amounts as a share of fees received by the firm after the termination of the partnership. Apparently at this time the defendant was under the impression that the plaintiff was still entitled to receive half of the payments which had been outstanding prior to termination of the partnership. In my opinion the effect of clause 18 was that, as a result of the exercise of the option, the defendant purchased the partnership including the benefit of unpaid accounts, so that the defendant was solely entitled to any fees received by the partnership thereafter. By the time of the trial it was common ground that that was the situation. Accordingly the defendant submitted that he was entitled to credit for the amount paid by the firm to the plaintiff on this basis. Exhibit 21 includes a letter from the firm to the plaintiff of 12 May 1998 enclosing a cheque in the amount of $1,938.50 for Masterwood v FNQEB, and a letter of 19 June 1998 enclosing a cheque in the sum of $6,352.68, in respect of the matters of McDonald, Neave, Russell, Harris, Hart, Mills, and Mullum transfer.

142. [142]
     The plaintiff accepted that he received $25,000 in relation to the Sexton matter, which he said he took as part payment of the purchase price, and which he had always acknowledged had to be brought to account: p.66. Exhibit 4 shows a payment from the trust account in the Sexton matter of $25,000 on 20 April 1998 which was not paid into the firm’s general account but which matches a deposit of $25,000 on 20 April 1998 to the plaintiff’s personal account:  Exhibit 16.

143. [143]
     With regard to the matter of Churchill, it was put to the plaintiff in cross-examination that he had received this directly and he agreed but said that he had paid $550 (half of what he received) to the defendant: p.168. However after being shown an affidavit he had sworn previously he conceded that he may have been thinking of another matter where he had sent a cheque. The effect of his evidence at p.168 appears to amount to an admission that he received $1,100 in the matter of Churchill, and that he had not paid any of it to the defendant. Exhibit 5 records a memo having been sent to Churchill on 1 April 1998, but not the amount. It also records a fee note of $50 on 16 January 1998, which was said to have been paid on 3 March 1998, and that matches receipt 56641 of that date. There is however within Exhibit 9 a copy of a fee note to him of 2 April 1998, for $1,500, which has a paid stamp on it for $550. Unfortunately the date of payment is not included in the document in Exhibit 9, but Exhibit 37 includes receipt 56720 dated 30 April 1998 showing $550 “fees and outlays – Churchill” received from the plaintiff. That I think provides support for the plaintiff’s initial response that he had paid the defendant $550 in respect of the amount he received directly. I therefore find that the plaintiff has to account to the defendant only in respect of $550 in relation to the matter of Churchill. If this amount is brought to account, that means that the defendant should be treated, for the purposes of assessing the value of work in progress, as having received the full amount of $1,500 in respect of the fee note of 2 April 1998:  there is a separate paid stamp on the copy in Exhibit 9, which suggests that the balance was paid to the defendant at some stage. The defendant’s statement in Exhibit 50 that “the plaintiff received payment of $1,500 after 4 March 1998”, is not accepted.

144. [144]
     The plaintiff accepted that he was paid the amounts of $1,938.50 and $6,352.65 referred to in Exhibit 21:  pp.167-8. Whether these payments are treated as payments in advance on account of the amount payable under clause 18, or in some other way, at this stage they are appropriately treated as moneys payable by the plaintiff to the defendant. In relation to the matter of McDonald, Exhibit 4, shows payments of $1,917.48 to the plaintiff on 19 June 1998, and $2,850.47 to the firm on 4 June 1998, confirmed by Exhibit 37, receipt 56763. Exhibit 4 says that the amount received on 4 June 1998 was $3,835, a figure arrived at by deducting the “fee for attending to taxation” referred to in the letter of 19 June 1998 from the amount actually received. In relation to the matter of Neave, Exhibit 4 confirms the payments referred to in Exhibit 21;  again a “fee for attending taxation” has been deducted before the payment was divided. However it appears that the total amount received in relation to costs in this matter was $7,960.85 received into the trust account in relation to party and party costs on 3 June 1998,^[85] and a further $8,000 which was paid from the settlement funds received into the trust account on 21 April 1998. According to the card for this payment in Exhibit 4, it was divided $4,000 to the firm^[86] (ie the defendant) and $4,000 to the plaintiff. Although the defendant’s submissions do not specifically ask that the plaintiff account for this amount, given that the other payment was divided in relation to Neave and bearing in mind that I have generally approached the trust account records on the basis that they are accurate, I think it is only fair to treat this further payment in relation to Neave as a payment to the plaintiff for which the plaintiff must now account.^[87]  It follows however that the total amount received, for the purposes of valuing work in progress, comes to $15,960.85, which is the amount disclosed by the defendant in Exhibit 50.

145. [145]
     The letter in Exhibit 21 refers to a payment of $500 from Gail Russell. Exhibit 37 reveals that after the termination of the partnership she paid $2,000 on 16 March (receipt 56657), $200 on 15 April (receipt 56699), $200 on 5 May (receipt 56725) and $300 on 2 June (receipt 56758). This is covered by Exhibit 30 rather than Exhibit 50. It is not clear why the letter of 19 June 1998 refers only to $500, unless the earlier payments of $2,200 had already been divided, and there is no evidence of that. The payment received from David Harris matches a payment in Exhibit 5 on 22 April 1998, which was in response to a fee note in that amount dated 20 April 1998. According to receipt 56710 in Exhibit 37 dated 23 April 1998, $529 was received that day from the trust account for “David Harris – property damage F&O”. Exhibit 50 does not refer to this payment. It also does not mention the matter of Hart, nor does Exhibit 5 or Exhibit 4, or Exhibit 30. However the payment of $300 is referred to in Exhibit 37, receipt 56766 of 4 June 1998 “police charges account settlement”. Given that this fee was referred to in the letter of 19 June 1998, presumably this payment was in respect of work which ought to have been included in Exhibit 50 or in Exhibit 30.^[88]

146. [146]
     The matter of Mills is presumably a reference to the $50 received on 18 May 1998, receipt 56743, in the name “Mill Corporation”, which is one of the payments identified in Exhibit 30. The fee note was directed to “Darren Mill, Mill Partners” and was for $50, and marked “paid 18.05.98”. The reference of Mullum transfer is apparently a reference to the amount paid on 5 May 1998 which was applied to the fee note of 2 September 1997 re transfer, as appears on the notation on the copy fee note in Exhibit 30. However, it was part of a sum of $600 paid that day by Mullum Hand Prints in respect of “various matters” according to receipt 56726. It is not clear why it was not the sum of $600 which was divided, since all of it appears to have been applied to various fee notes included in Exhibit 30.

147. [147]
     It follows that the defendant is entitled to credit in relation to these payments in the sum of $37,841.18.^[89]

Chattels

148. [148]
     The defendant said that when the plaintiff left the partnership he took with him his desk and chair, bookcases including one large one, a rug, a dictaphone and a guillotine: p.223. He claimed that these were among the property in which he obtained a half share when he bought into the partnership previously. The plaintiff asserted and I accept that there was no inventory prepared at that time: p.167. Mr O'Connor produced a balance sheet for the business as at 30 June 1997 (Exhibit 62) which included $20,278 for “office equipment”, but there was no information provided by him as to what items were included in this. The plaintiff said that he took personal items, and indeed that the rug belonged to his wife:  p.166. He maintained, and I think that it is plausible, that the only items that one could characterise as belonging to the practice were the dictaphone and the guillotine:  p.166. Whether or not a desk or a chair for a partner could be seen as part of the practice is something upon which minds might well differ. Some lawyers regard such furniture as simply part of the business;  others see it as something personal, that they might take from room to room or from building to building with them.

149. [149]
     Ultimately I am not persuaded that any of the items other than the dictaphone and the guillotine were part of the business that the defendant bought a share in. The defendant carries the onus in relation to these matters and has not discharged it, except in respect of the dictaphone and the guillotine which the plaintiff at p.166 in effect conceded to be things belonging to the practice. In relation to them, there was evidence from the defendant that he replaced the dictaphone for $650 (p.223) but no evidence as to what the dictaphone that the plaintiff removed was actually worth, and no evidence at all about the value of the guillotine. I do not even know what sort of dictaphone it was, and suspect that there is not much market for a second-hand dictaphone. In the circumstances I will allow a nominal sum of $50 in respect of these items, but otherwise this claim fails.

Disparity in drawings

150. [150]
     In my opinion the effect of clause 18 of the deed is that, when the defendant exercised the option to purchase the plaintiff’s interest in the partnership in accordance with that clause, he in effect took over the whole partnership, and so came to be in the position the partners previously occupied. Although as against third parties who were owed money this arrangement would not have the effect of discharging the liability of the plaintiff, as between the plaintiff and the defendant it became the responsibility of the defendant to discharge debts of the partnership, just as it was the defendant who became entitled to money owing to the partnership, along with all other assets of the partnership. In my opinion the same follows in relation to debts as between the partnership and the individual partners, except that, so far as money owing as between the partnership and the defendant is concerned, any such debt would have disappeared because it would have been owed by the defendant to himself. But insofar as, at the time when the option was exercised, the partnership owed money to the plaintiff or the plaintiff owed money to the partnership, that debt in my opinion remained, except that the defendant was substituted for the partnership. If, therefore, at that time the plaintiff owed money to the partnership, in my opinion the defendant is now entitled to recover that money from the plaintiff, and therefore is entitled to credit for any such amount in this action. It is therefore necessary to determine what amount was owed and which way, as at that date.

151. [151]
     The accounts of the partnership show what may be conveniently referred to as loan accounts, in relation to money lent by the partners to the partnership, or by the partnership to the partners. Since the capital of the partnership was nil,^[90] any working capital had to be provided either by the partners lending money to the partnership, or by money borrowed. Hence the money borrowed from the ANZ Bank was properly regarded by the parties (ultimately) as borrowed on capital account, and therefore not relevant in assessing the net profit of the partnership.

152. [152]
     Apart from any money which may have been lent to the partnership by one or other of the partners at any time, ordinarily the partnership operated on the basis that the partners would draw against income. Each year when the partnership income was determined, each partner was entitled to a half share of it, and that amount once determined was credited to that partner’s loan account. In theory the partners could have waited until this money was available before taking any of it, but that would have left the partners without any regular income during the year, and in practice what is ordinarily done in such situations, and was apparently done here, was that the partners drew against the income during the year, on the basis that at the end of the financial year the amount of the drawings against income would be more or less cancelled out by the share of income once it was calculated.

153. [153]
     It does not necessarily follow however that partnership income is something which is only earned once a year, at the end of the financial year. I do not think that it is the correct construction of clause 18 that, if the option happens to be exercised at any time other than at the end of a financial year, the partner exercising the option becomes entitled to keep, along with the other assets of the partnership, the whole of the net profit earned by the partnership since the beginning of the current financial year. Rather in my opinion the correct construction of the clause is that the current financial period comes to an end when the option is exercised, but the partners remain entitled to their shares of the profit which has been earned during the current financial year up to the time when the option was exercised. Relevantly that means that the plaintiff is entitled to one half of the profit earned by the firm from 1 July 1997 to 3 March 1998, although there has to be set off against this sum whatever amount was drawn by him in that period against his share of the profits of the business.

154. [154]
     The plaintiff submitted that I could not take into account only the imbalance or difference in drawings, but had to take into account also the whole of the capital account. That appears to proceed from a misunderstanding, which was evident to some extent during the trial, as to why I was seeking a capital account from Mr O'Connor. That was not because of any intention to conduct a notional winding up of the partnership; it was merely because the capital account, that is to say a balance sheet, is the place which will reveal the amount of the drawings of each of the partners, relevantly the plaintiff, during the period. That is relevant, for the reasons I have explained earlier, but it does not follow that there should be some sort of notional distribution between the parties of the whole of the capital assets of the partnership. The whole point of clause 18 is to prevent that occurring;  the plaintiff’s interest in the capital of the partnership was sold to the defendant under that clause. All that remains is to determine whether there are any accrued debts of the plaintiff to the partnership, or the partnership to the plaintiff, which survived the exercise of the option.

155. [155]
     It is relevant to look at aspects of the capital account to determine that, but it does not follow that there has to be some sort of notional capital distribution as on a winding up. I am not concerned with the nature of the obligations of the parties as between themselves during the partnership, except in the sense that the exercise of the option did not result in any outstanding obligations between “the partnership” and the plaintiff disappearing. I do not accept the approach contended for on behalf of the plaintiff in relation to this aspect of the matter, and generally accept the approach adopted in the submissions on behalf of the defendant, although some specific submissions have been rejected, and some of the figures put forward on behalf of the defendant are not the appropriate figures.

156. [156]
     I should say that I do not accept the submission, on behalf of the plaintiff, that the only matter remaining for consideration is the determination of the amount payable under clause 18.1 of the deed, whether as a result of my decision on the preliminary question or otherwise. All I was deciding in relation to the preliminary question was how the amount payable under that clause was to be decided;  I certainly did not decide that that was the only issue, or that the amount payable under that clause was the only amount recoverable as between the parties. Insofar as the plaintiff submits that otherwise any discrepancy in payments should lie where they fall, I reject that submission for the reasons set out earlier.

157. [157]
     It is only necessary to have regard to the position from 1 July 1997, because there is evidence which I accept that there was a reconciliation of the drawings to the end of the financial year in that year between the parties.^[91]  The defendant said that this resulted in a payment to him of $21,000. Mr O'Connor said he was not aware of this (p.89), but did confirm that there was an amount of about $23,000 paid as superannuation in relation to the defendant’s wife at about this time, so it is quite possible that this was the form in which the payment of the balance was made. In any case, subject to what follows I am prepared to proceed on the basis that I only need to look at the situation from 1 July 1997.

158. [158]
     Mr O'Connor’s accounts do show an opening balance for the plaintiff’s loan account of minus $20,766. It seems to follow from his figures that by 30 June 1997 the plaintiff had drawn this amount in excess of his share of the profits earned by the partnership up to that time. I have been concerned as to whether I should take this figure into account, bearing in mind the defendant’s evidence to the effect that there was a financial reconciliation between the partners in June 1997:  p.208. This was something Mr O'Connor did not know about (p.89) and it may mean that everything prior to 1 July 1997 ought to be disregarded. There is also the consideration that I have determined profit, and hence entitlement to drawings, on a different basis from Mr O'Connor, and it may well be that, had the net profit in the previous financial year been calculated in the way I have calculated net profit there would not have been any such deficiency. However, I cannot recalculate the partnership accounts from its inception, and unless an exercise like that is undertaken inevitably there will be a difference between a set of accounts prepared taking into account work in progress and a set of accounts which does not. Both parties appear in their submissions to have proceeded on the basis that this figure is the starting point, and therefore, notwithstanding my doubts about the correctness in principle of taking this figure into account, I will do so. The defendant said that the imbalance was dealt with by an extra payment being made to him of about this amount, but doing that would not affect the question of whether or not the plaintiff’s drawings were ahead of his entitlement, as against the partnership. In all the circumstances, I will take this figure into account. In effect it is to be subtracted from the plaintiff’s share of the net profit, along with the plaintiff’s drawings.

159. [159]
     There are two components to the calculation: the share of profits generated by the operation of the firm from then until 3 March 1998, and the drawings obtained by the plaintiff during that period.

Share of net profit

160. [160]
     The first issue which arises is how the net profit should be determined. Mr O'Connor prepared a set of accounts, Exhibit 38 which included a profit and loss account for the period 1 July 1997 to 4 March 1998, but it was prepared in the same way as his accounts have previously been prepared, and for example did not take into account changes in the work in progress:  see note 5. The accounts are also somewhat artificial in that no reference has been made to sundry debtors and sundry creditors as at 4 March 1998:  note 4. This is a different issue, but in relation to the question of work in progress, it is by no means clear why the calculation of net profit for this purpose should be on any different basis from the calculation of net profit for the purposes of applying the formula in clause 18 of the deed.

161. [161]
     The fact that in the past net profit has been calculated in a way which satisfied the tax office is not conclusive on this point, any more than it is conclusive of the issue for the purposes of clause 18 of the deed. No doubt it could have been submitted that the “net profit” for the purposes of clause 18 ought to be determined in the way in which net profit was ordinarily determined by the partnership for tax purposes, but neither party submitted that that was the correct interpretation, and the expert evidence before me on the basis of which I answered the preliminary question was to the effect that changes in work in progress ought to be taken into account.

162. [162]
     Where the partnership is an ongoing one, the fact that the partners do not take into account changes in work in progress will over time even out, but where the partnership has come to an end in this way in my opinion the only fair way to determine this issue between the parties is to adopt a “correct” determination of net profit. Unless that is done, to the extent that the value of work in progress did increase during this period, the defendant would receive the whole benefit of that.

163. [163]
     It is not an answer to say that, because the change in the work in progress was taken into account in determining the net profit for the purposes of clause 18 of the deed, this is part of what the defendant is paying for when he makes the payment under clause 18. What the defendant is paying for is the plaintiff’s share in the assets of the partnership as at the date of the exercise of the option, which include the debtors, the total amount of the work in progress as at that date, the physical assets of the partnership, and any goodwill associated with the partnership business as such, although he also becomes responsible for discharging the liabilities of the partnership. But I do not think that he also obtained the plaintiff’s share of the net profit of the partnership during the current financial year, so the plaintiff remains entitled to receive one half of the net profits of the partnership during that period, properly determined. In my opinion there is no reason why that should not be determined in the same way as net profit was determined for the purposes of clause 18 of the deed, although of course the period is different because now I am only concerned with the period from 1 July 1997 to 3 March 1998.

164. [164]
     Exhibit 38 has a figure for “fees received” of $284,388, but it appears to follow that that figure has been derived making allowance for debtors as at 30 June 1997, in the sum of $75,851, but making no allowance for debtors as at 4 March 1998. To obtain the actual cash received by the partnership therefore it is necessary to add back on this figure, for reasons explained earlier in relation to the similar exercise when determining TR for the purposes of the formula. Accordingly the figure for the cash received given by Mr O'Connor is $360,239.^[92]  It is not necessary to make any of the adjustments which were made to Mr O'Connor’s figures in determining the TR figure earlier;  they have been already taken into account:  Exhibit 39.

165. [165]
     The outgoings are again shown in the two categories referred to earlier. Expenditure in earning income, the figures set out in brackets under the “income” heading in the account, total $88,835. The expenses figure given by Mr O'Connor is $112,331. A comparison with the figures given in the profit and loss account POC5 in Exhibit 1 produces only one significant discrepancy:  the figure for insurance has gone from $10,354 to minus $2,923. A comparison of Exhibit 39 with Exhibit 7 reveals however that the same payments were covered on both occasions, but a journal entry which was apparently part of the process of adjusting for the unusual time period when Exhibit 7 was prepared has appeared again in Exhibit 39. The amount actually paid for insurance listed in Exhibit 39 during the period is $10,354, the same as in Exhibit 1. Accordingly the expenses figure needs to be increased by $13,277.

166. [166]
     For reasons given earlier, the adjustments in paragraph [48] still need to be made. The adjustment of $1,715.71 paid on 2 March 1998 has not been picked up, so for reasons given in [55] that amount needs to be added also. Five of the cheques referred to in [57] were taken into account at this time, but cheques 500730, 500733 and 500734 were still deleted for some reason, so the expenses need to be increased by $1,263 to allow for this. In addition the payments made too late to be relevant but still included in the accounts referred to in [59], [60] and [61] all appear again in Exhibit 39, so a deduction needs to be made of $1,316 to allow for this. The understating of accounting expenses is repeated in these accounts, so the expenses should be increased by $3,000 for this reason. Making all these adjustments, the figure for expenses comes to $130,271, and if the expenses of earning income of $88,835 are added the total outgoings figure for the period becomes $219,106.

167. [167]
     Creditors at the beginning of the period are shown as $19,947: Exhibit 38. According to note 7, creditors of the service company of $10,688.50 were outstanding at that time, and apparently that amount is not included in the figure for the partnership. The company accounts Exhibit 43 have attached a list of creditors which is divided into company creditors and partnership creditors, but the latter total only $4,270, and include counsel’s fees. In the light of this, it is not altogether clear where the figure of $19,947 comes from and how it is made up. It almost certainly includes counsel’s fees, which for reasons given earlier I am not treating as creditors, but I do not know what amount is included for counsel’s fees. The list in Exhibit 43 includes $2,100 worth of counsel’s fees, but does not include anything for fees owing to Mr Sumner-Potts, no doubt because of the unusual arrangement between the firm and him, referred to earlier.

168. [168]
     This is an unsatisfactory situation, and there is no proper solution to it on the evidence available. In the circumstances however I think that the figures in Exhibit 43 probably provide a better guide to the true level of creditors apart from counsel. The creditors of the company should be treated as creditors of the partnership, for reasons given earlier, so the creditors consist of $10,668 plus the other creditors of the partnership, $2,170. I am concerned however that there may be some additional creditors, and that the figure in Exhibit 38 may not consist mostly of barristers’ fees. For that reason I will round the figure for creditors up to $15,000. Creditors as at the end of the period remains $22,643, as found earlier.

169. [169]
     The next difficulty is determining the value of debtors as at the beginning of the period. Mr O'Connor has given in Exhibit 38 a figure of $75,851, but again I do not know how this is made up. Presumably it excludes the fees which he had been told had been written off before 30 June 1997. It obviously excludes the Bellino fees, but I do not know what else is excluded. Presumably it is all the fees outstanding as at 30 June 1997 apart from those which had actually been written off by the partnership, so on the approach that I have adopted it is going to be too high, because it will include accounts which had not then been written off but which were ultimately not paid.

170. [170]
     One guide to this amount may be to look at the list of debtors unpaid as at 4 March 1998, to see which fee notes had been sent out between March and June 1997 which were ultimately written off or unpaid. It is unlikely that what would then have been relatively recent fee notes would have been written off in June 1997. Exhibit 30 lists only four fee notes in this category, Parry (8 May 1997 - $2,300), Holmes (15 May 1997- $3,200), Mayne (15 May 1997 - $500) and Samson (15 June 1997 - $200), although the earlier Parry fee note of 23 January 1997 on which an amount of $6,578 was ultimately unpaid would I think have probably not been written off in June 1997. If that amount is also taken into account, it means that a deduction of $12,778 should be made. That produces a figure of $63,073.

171. [171]
     When assessing the debtors as at March 1997 I referred to a number of files which had not been mentioned as written off by the defendant but where it appears that ultimately less than the full amount of the account was paid: [90]. Presumably these accounts were not written off prior to 30 June 1997, and so were included at face value in the figure given by Mr O'Connor in Exhibit 38, but the same sort of deduction should be made from the value of the debtors as at the beginning of the financial year as was made when determining the value of the debtors as at March 1997. Accordingly I propose to deduct, on the basis that these amounts were ultimately not paid, $1,900 for Chapron Pty Ltd, $45 for Purcell, $350 for Duncan, $205 for Peretz and $200 for Shuttleworth, as I did earlier. These amounts total $2,700, and deducting them as well the figure for debtors at the beginning of the period becomes $60,373. I suspect that this figure is still a bit high, but without more information as to how the figure for debtors in Exhibit 38 is arrived at, this is the best I can do. The figure for debtors as at March 1998 will remain $92,173.

172. [172]
     The final issue is work in progress. No attempt was made by either party to value the work in progress as at the beginning of the financial year. From the findings I made earlier, the work in progress increased in value between 4 March 1997 and 4 March 1998 by $41,547.50. Since slightly over two thirds of this period was during the 1997-98 financial year, I propose to distribute the value of the increase in work in progress between the financial years on a time basis. This is the simplest way to do it, and so far as I can see the only practical way for me to do it at this stage. It may be wrong, but it is the outcome which is most likely to be correct, and the fairest figure to adopt as between the parties. I therefore find that the increase in value of work in progress between 1 June 1997 and 4 March 1998 was $27,700.

173. [173]
     The result of the application of the formula TR - TO + A - A(1) + B(1) – B + C – C(1) therefore equals $192,990.

174. [174]
     Apart from adjustments which I have made to Mr O'Connor’s figures by way of correcting errors referred to earlier, there are three reasons why it is appropriate to use this figure rather than the figure of $82,920 produced by Exhibit 38. The first is, as Mr O'Connor himself pointed out,^[93] the debtors and creditors had been taken into account by him at the beginning of the period but not at the end of the period, and some amount had to be taken into account for debtors and creditors for the account to operate properly. Mr O'Connor did not take any particular figure into account because as he said he was leaving it for me to make the findings as to what the appropriate figures were. The second difficulty is that I have calculated the various figures, in particular the debtors and creditors, in a different way from the way Mr O'Connor calculated them. He took counsel’s fees into account among creditors, and calculated debtors at face value unless he had been told that the particular accounts had been actually written off. I have not adopted either of those approaches, and it would be clearly inappropriate to assess debtors and creditors at one end of the period on one basis and at the other end of the period on the other basis. The third reason why the figure requires adjusting is because I have taken into account the change in the value of work in progress;  Mr O'Connor has not.^[94]

175. [175]
     The overall result is to produce a figure which is much more comparable with the figure found earlier for the purposes of assessing the net profit for the 12 month period to be used for the determination of the amount payable under clause 18.1. One would expect that the net profit of the partnership during the period from 1 July 1997 to 3 March 1998 would be about two thirds of the net profit for the 12 months ending on 3 March 1998;  there is no particular reason to think that the firm was dramatically more or less profitable before and after 30 June 1997. A net profit figure which was dramatically different from this would therefore be suspect. The figure that I have now found is essentially consistent with my earlier finding.

176. [176]
     It follows that the plaintiff’s half share of this net profit came to $96,495.

Plaintiff’s drawings

177. [177]
     According to Exhibit 38 Mr O'Connor identified drawings totalling $80,823 on the part of the plaintiff up to 4 March 1998. The particular payments which go to make this up are set out in detail under the heading “1.600 drawings” in Exhibit 39. They include a number of regular payments of $1,000 apparently made by direct debit from the firm’s bank account to the plaintiff’s bank account. There are 34 of these shown in Exhibit 39 between 9 July 1997 and 20 February 1998. That corresponds to the number of entries for $1,000 marked “periodic transfer from Thompson M-Gen to M Thompson ACA” in the plaintiff’s bank statements Exhibit 16.

178. [178]
     There were also 31 periodic payments of $500 marked C Shipway. These were the payments referred to in [48](c) which had been treated by Mr O'Connor as drawings by the plaintiff (p.86) and which in accordance with the agreement between the parties are properly treated as an expense. Accordingly the total of these payments, $15,500, has to be deducted from the amount of drawings by the plaintiff. Apart from this there are periodic payments referred to under that heading in Exhibit 39 to MBF, three payments of $102.10 and five payments of $110.60, in total $859.30. The only other periodic payment referred to under that heading is one on 7 November 1997 of $500 marked WR (entry 982) which appears to be a coding error because presumably this is a payment to the defendant. His drawings are under the heading “2.600 drawings”, and there were regular payments of $500 per week from September to December 1997, although there is a gap in Exhibit 39 of two weeks between the payment on 31 October and 14 November. Accordingly the figure for the plaintiff’s drawings should be reduced by $500 to correct this coding error. (I did not find any debits to the plaintiff incorrectly coded under 2.600 drawings.)

179. [179]
     The balance of the payments under this heading appear to be cheques drawn by the plaintiff between July 1997 and February 1998 on the partnership account. I take it that the plaintiff does not dispute the amounts listed in this way in Exhibit 39, which appear to correspond to the separate document of such drawings Exhibit 12 produced by Mr O'Connor at p.85, so I will treat all of these as properly attributed to drawings. There was a list prepared by the defendant, said to be cheques drawn by the plaintiff on the account between 1 July 1997 and 4 March 1998, in Exhibit 44. There is considerable overlap between that list and the list in Exhibit 12;  there are nine entries in Exhibit 12 which do not appear on that list, so far as I can see, and 16 entries in Exhibit 44 which do not appear in Exhibit 12.

180. [180]
     A reference to Exhibit 8 shows that cheque 50329 was treated as a drawing by the plaintiff (entry 1521) but was dated 27 June 1997 and therefore excluded from this period:  p.266. It was cleared through the bank on 27 June 1997:  Exhibit 2 p.164. It was certainly received by the plaintiff:  it appears on p.39 of Exhibit 16, as a deposit on 27 June 1997, but it should not be treated as a cheque within the relevant period. Cheque 50330 was written 30 June 1997, apparently to Diana Crooke for something to do with painting.^[95]  There was another cheque the following day, 500336, for $50 also concerned with painting which is in Exhibit 12, and so I think cheque 500230 should have been included as well and I will add it to the list.

181. [181]
     Cheque 002405 was apparently a donation to a political party, and is included in Exhibit 39 under the heading 1.326 donations:  entry 138. Because of the plaintiff’s particular association with the party, I think it is reasonable to treat this as a drawing by the plaintiff also. Cheque 002476 is marked in Exhibit 15 “Australia Post re MT” but has been included in Exhibit 39 under the heading 1.410 postage (entry 206). I am not persuaded that this was not properly a practice expense. Cheque 002416 is marked “Australia Post – Newsletter” and is entered under the postage heading as entry 149:  Exhibit 39. Again I am not persuaded that this was not a proper practice expense. Cheque 002487 has a blank butt (Exhibit 15) and has been coded under litigation expenses (entry 216:  Exhibit 39). I have no way of knowing whether or not that is correct, and will not add it to the list of the plaintiff’s drawings. Cheque 002526 was payable to “The OK Printing Company” for $500:  Exhibit 15. It was coded under the heading 1.412 printing and stationery, entry 256, and there is no reason to doubt the appropriateness of that.

182. [182]
     Cheque butt 002537 is blank: Exhibit 15. It was also for $500, and was treated as litigation costs under heading 240 and again there is no reason to doubt this coding. Cheque 002483 is another payment of $25, to the political party, which was coded under the heading donations;  that I think should also be treated as a drawing by the plaintiff. Cheque 002595 was for $100 “Qantas Club”:  Exhibit 15. This was treated as a practice expense under the heading 1.463 subscriptions, entry 322, and I suppose it should be treated as a practice expense. I dare say there are plenty of businesses which pay for some of their employees to have access to the facilities offered by this airline in this way. Cheque 002596 has on the butt “Powkeelia Pty Ltd re feedback”:  Exhibit 15. It has been coded as a litigation expense entry 323 (Exhibit 39) although I must say I find this a little puzzling. However in all the circumstances I am not persuaded that this was not a proper practice expense. Cheque 500624 was paid to “Blue Star” according to the butt:  Exhibit 15. Although that is somewhat cryptic, it was coded as a litigation expense (entry 628 in Exhibit 39) and I am not persuaded that that was not appropriate.

183. [183]
     Cheque 500630 payable to “United Services” for $1,007.05 was coded as travelling expense: entry 634 in Exhibit 39. It is plausible that a solicitor might have to travel from time to time in connection with the practice, and there is no particular reason to think that this was not a proper practice expense. Cheque 500659 is another example of a blank butt (Exhibit 15) but again there is no particular reason to think that it should be on that account treated as a drawing by the plaintiff. Cheque 500689 is marked “Palkarra (Tropic Office)” which means nothing to me but has been coded under printing and stationery:  entry 692 in Exhibit 39. This is shown as a figure of $6,000 in Exhibit 44, which would appear to be an error. Cheque 500684 is for $6,000, but was apparently for the defendant’s superannuation payments:  p.267. Cheque 500491 was for an amount of $100, according to the butt, but $200 was cleared, (Exhibit 2), the defendant said that the plaintiff received half of this, and $100 is included as entry 492 in Exhibit 39, so this amount has already been taken into account:  p.267.

184. [184]
     The plaintiff was cross-examined about some deposits to his account, and conceded that a deposit of $2,100 on 16 September 1997, which appears on p.43 of Exhibit 16, should be treated as a drawing:  p.149. There is no equivalent payment of this amount listed in Exhibit 2 on this date, although there is a debit of $8,400 marked “detailed advised separately”, which makes me wonder whether there is more to this than meets the eye. However, since the plaintiff has admitted receiving this and it is not included in the drawings in Exhibit 12 or Exhibit 39, I will add this to the list.

185. [185]
     The plaintiff when going through his bank statements identified a payment of $1,812.15 on 13 November 1997 (p.47 Exhibit 16) as something received from the partnership account. However, there is no equivalent debit shown in Exhibit 2 at around that time. There was the regular periodic payment of $1,000 made on that day, but that appears separately on the same day in Exhibit 16. The large payment shown on 11 November 1997 was for rent:  cheque 002452 in Exhibit 15. I suppose it is possible that the payment might have been made directly from the trust account, but otherwise I cannot see how this amount came to be paid by the partnership. The plaintiff immediately thereafter identified the sum of $7,063.73 on 18 March 1998, on p.52 of Exhibit 16, as also paid by the partnership. That is shown as a “deposit” on that day, but subsequently counsel for the defendant conceded (p.297) that this was a mistake. Again there is no debit shown in the partnership account statements Exhibit 2 on or around 24 February in anything like $7,063.73, and it seems clear that wherever this money came from it did not come from the partnership general account. It seems to follow that it was properly conceded that the plaintiff’s acceptance that the figure of $7,063.73 should be treated as a drawing was an error, and it seems to me that the earlier statement, that the sum of $1,812.15 on 13 November 1997 was a drawing, was also an error. It does not appear in Exhibit 12 or as a drawing in Exhibit 39, and I will not add it to the list.

186. [186]
     Overall therefore it appears that the figure for the plaintiff’s drawings in Exhibit 38 needs to be adjusted by deducting the amounts of $15,500 and $500 and adding the amounts of $2,100 and $236. That gives a balance of $67,159.

Post partnership “drawings”

187. [187]
     There were however other payments made on or after 4 March 1998. The payments of $1,000 per week to the plaintiff continued, but for reasons given earlier in my opinion the plaintiff is not required to refund these. However the payments to his wife of $500 per week also continued, and it was part of the agreement that these payments would be treated as drawings on the part of the plaintiff, so these should be brought to account. There were eight of these payments, on 5, 9, 13, 20 and 27 March 1998, and 3, 14 and 17 April, totalling $8,000.

188. [188]
     Apart from this, the defendant said that payments were made by the plaintiff from the partnership account totalling $17,345.40 for which credit should be given: Exhibit 20. Under cross-examination the plaintiff conceded that all of these except the first two were properly treated as drawings by him:  pp.164-5. The first was a payment for a newspaper account at Machans Beach Store, $70.40, which he said was a subscription to a newspaper which he would pick up on the way to work and use as the paper for the use of the practice:  p.163. However, Exhibit 7 includes under the plaintiff’s drawings payments to “Machans St” on 18 December 1997 and 11 July 1997 (entries 281 and 355) so it appears that similar payments in the past have been treated as drawings of the plaintiff. I accept this payment should be treated in the same way.

189. [189]
     The second cheque of 9 March 1998 has on the butt “BRW media re shares Myles” and the plaintiff accepted that this was for a subscription to a business magazine which he said was put in the practice waiting room, and the subscription was simply renewed:  pp.163-4. He said that the magazines were delivered to the practice. The defendant however said that the copies sent pursuant to the subscription were not delivered to the practice:  p.224. He regarded it as a payment on behalf of the plaintiff personally. The only clue to resolving this conflict in the documents is that the cheque butt does have the word “Myles” written on it, and an examination of the original cheque butt in Exhibit 15 suggests that that was written on at the same time as the other entries on the butt. That word also appears on butt 500755 which I have just found should be treated as a drawing, 500754 which is for a parking ticket which is not claimed by the defendant as a drawing, 500762 (where it might have identified which particular mobile was being paid for), and 500780 (another parking ticket). With some hesitation, I accept that this was a personal subscription so that this should also be treated as a drawing by the plaintiff. Accordingly the amount of these cheques, which I total as $17,346.20, should be added to the plaintiff’s drawings. Accordingly the total of the plaintiff’s drawings during and after the period of the partnership but from 1 July 1997 come to $92,505.

Conclusion

190. [190]
     It follows that the plaintiff has drawn from the partnership less than his share of the net profits of the partnership until the option was exercised. The surplus, $3,990, is therefore recoverable by the plaintiff from the defendant. This should be subtracted from the other amounts properly set off, the amount for fees received by the plaintiff of $37,841 and damages for conversion in the sum of $50, so that the total of the set off is $33,901.

191. [191]
     If the amount payable pursuant to clause 18, $139,043, is reduced by this amount, the balance payable and recoverable in the action by the plaintiff is $105,142. The partnership agreement does not specify a rate of interest, but it does provide (somewhat optimistically) that the amount payable under clause 18 is payable within 30 days of the exercise of the option. The plaintiff is therefore entitled to interest pursuant to s 47 of the Supreme Court Act 1995 for five years and 19 weeks. It is my usual practice to allow eight percent interest in commercial matters, and interest at that rate for that period comes to $45,130. There will therefore be judgment that the defendant pay the plaintiff the sum of $150,272. I will circulate these reasons and invite submissions as to costs;  the parties may also draw to my attention any computation errors, or make any submissions they wish to advance in relation to anything which was not raised at the trial.