Exit Distraction Free Reading Mode
- Unreported Judgment
- Comino v Cominos[2010] QDC 156
- Add to List
Comino v Cominos[2010] QDC 156
Comino v Cominos[2010] QDC 156
DISTRICT COURT OF QUEENSLAND
CITATION: | Comino v Cominos & Anor [2010] QDC 156 |
PARTIES: | ARTHUR STEPHEN COMINO Plaintiff AND EVANGELOS SOTIRIOS COMINOS First Defendant AND STEPHEN COMINO Second Defendant |
FILE NO/S: | BD719/05 |
DIVISION: | |
PROCEEDING: | Trial |
ORIGINATING COURT: | District Court, Brisbane |
DELIVERED ON: | 22 April 2010 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 7 April 2010 |
JUDGE: | McGill DCJ |
ORDER: | Judgment that the first defendant and the second defendant pay the plaintiff $147,635 including $55,941 for interest up to judgment. |
CATCHWORDS: | PARTNERSHIP – Agreement for partnership – plaintiff made “salaried partner” – effect of agreement – plaintiff entitled to recover unpaid salary from partners. WORDS AND PHRASES – “salaried partner”. Partnership Act 1891 ss 5(1), 6(1), 12(1). Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216 – cited. BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 – applied. Callinan v Bovorina [1977] Qd R 366 – applied. Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 – considered. Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 – cited. Darter Pty Ltd v Malloy [1993] 2 Qd R 615 – cited. Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2002] QCA 380 - cited. FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 – cited. L. Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 – cited. M. Young Legal Associates Ltd v Zahid [2006] 1 WLR 2562 – considered. Marsh v Stacey (1963) 107 SJ 512 – distinguished. Memec Plc v Commissioners of Inland Revenue [1998] EWCA Civ 941 – considered. Nationwide Building Society v Lewis [1997] 1 WLR 1181 – cited. Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 – cited. S.J. Mackie Pty Ltd v Dalziell Medical Practice Pty Ltd [1989] 2 Qd R 87 – cited. Stekel v Ellice [1973] 1 WLR 191 – applied. United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 – cited. Whywait Pty Ltd v Davison [1997] 1 Qd R 225 – cited. |
COUNSEL: | P. Larkin for the plaintiff P.J. Mullins (Solicitor) for the first defendant The second defendant appeared in person |
SOLICITORS: | Byrne Legal Group for the plaintiff Mullins Lawyers for the first defendant The second defendant was not represented |
- [1]By this action the plaintiff claims unpaid remuneration under what he alleges was a contract of employment between himself on the one part and the defendants as employers, who were then solicitors practicing in the firm Stephen Comino and Cominos. The second defendant, who is the father of the plaintiff, has never defended the action, appeared in person at the trial, and did not oppose the relief sought, or in any way seek to resist the plaintiff’s claim. The first defendant filed a notice of intention to defend and has filed various defences at different times, but ultimately did not take part in the trial.
- [2]The matter was listed for trial before me commencing 19 April 2010, by the Chief Judge who asked me to case manage the matter. Subsequently an application was made returnable before me on 7 April by the plaintiff seeking leave to file an amended reply. On that day, however, the plaintiff did not pursue that application, but the solicitor for the first defendant appeared and advised that his client no longer wished to defend the proceedings, though he had no instructions to make any admissions or consent to any particular relief in favour of the plaintiff. Counsel for the plaintiff asked me to direct that the trial proceed forthwith.
- [3]It seems to me in principle that under the rules when a matter has been allocated a trial date it remains open for a judge of the court to vacate that trial date or to adjourn the trial, and therefore it remains open for a judge to vacate the trial date and then fix another trial date, which may be earlier. It would be necessary of course to ensure that there was no breach of the rules of natural justice, but the first defendant’s solicitor did not oppose my making such an order, and the second defendant supported the order, so I vacated the trial date which had earlier been fixed and directed that the matter be heard forthwith. When the matter was then called on as a trial before me, the solicitor for the first defendant did not appear at the trial, although he remained in the courtroom for a short time just to see what happened. Accordingly the matter proceeded against the first defendant under r 476(1) and against the second defendant in the ordinary way, though he did not take any active part in resisting the relief sought.
- [4]The pleadings on which the matter went to trial were an amended statement of claim filed 6 September 2007, a third further amended defence of the first defendant filed 25 March 2009, and an amended reply filed 9 April 2009. The plaintiff gave evidence and verified an affidavit which was admitted into evidence under s 92 of the Evidence Act, subject to a long list of omissions of matters where I considered that there was inadmissible hearsay, or the content of certain paragraphs or parts of paragraphs were in the form of conclusions or argumentative material, rather than statements of fact. Ultimately counsel for the plaintiff did not press any part of the affidavit which I had suggested was not strictly admissible, and in the circumstances I do not think it is necessary to set out in detail those parts of the affidavit which were not relied on or which I have ruled inadmissible. They would be identified from a transcript of the trial.
- [5]Exhibited to the plaintiff’s affidavit were a large number of documents. Some of these were documents the plaintiff could prove himself, but in any event all of the documents exhibited were the subject of a notice to admit documents dated 10 July 2009 served on the first defendant to which he did not respond. In these circumstances, the documents (if otherwise admissible in evidence) do not require further proof: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2002] QCA 380. Such of the documents as I have relied on in these reasons have therefore been properly proved.
Background
- [6]The plaintiff is a solicitor who graduated in law in 1980.[1] He worked from 1977 until 1981 as an articled clerk with the firm King and Company, which had 10 partners including the defendants. In 1981 he travelled to Greece where he undertook university studies, returning in September 1987. He began work as an employed solicitor employed by the defendants, who were then in partnership under the name Stephen Comino and Cominos, on 21 September 1987.[2] The plaintiff said that in June 1989 he was offered a position of “salaried partner” on certain express terms in the course of conversations with each of the defendants, and that he accepted that position in those terms, which took effect as from 1 July 1989. The first defendant admitted that the plaintiff became a “salaried partner” as from 1 July 1989, but pleaded that the effect of this was that the plaintiff became a member of the partnership including the defendants and one other person who was also described as a salaried partner. The substantial issue between the plaintiff and the first defendant is as to the effect of the agreement under which the plaintiff became a “salaried partner”.
The agreement
- [7]The plaintiff’s evidence in relation to this was that his father said that the defendants wanted him to become a salaried partner of the firm. He asked what that meant and he was told words to the effect:
“You will be a partner getting a salary. You will be paid monthly not weekly. You won’t be responsible for any of the liabilities of the firm. We are.”[3]
- [8]It was explained that this would start from the beginning of the next financial year. He said there was subsequently a conversation with the first defendant in which the first defendant said words to the effect:
“Your father and I would like you to become a salaried partner. It would be good for the clients to know that their matters are being dealt with by a partner rather than an employed solicitor. It gives them more confidence in the firm. Your name will go on the letterhead. You won’t be responsible for the liabilities of the firm. Your father and I are responsible for the debts of the firm.”[4]
- [9]The plaintiff said that he subsequently accepted the offer orally. There was no documentation recording the terms of the agreement between the parties. The salary paid to the plaintiff was not the subject of specific agreement; it was simply determined by the defendants. It was more than the plaintiff had been paid as an employed solicitor, and the plaintiff said he was happy with it. I accept this evidence, which of course was undisputed and uncontradicted.
Admissions
- [10]There were also a number of matters relied on by the plaintiff as amounting to admissions or implied admissions that he was not a member of the partnership. On 9 June 1999 the first defendant in the course of a telephone conversation with a representative of the Commonwealth Bank said among other things: “They are not actually equity partners at this stage”, referring to the plaintiff and another person who was a “salaried partner”.[5] On 10 June 1999 the first defendant in a letter to the Commonwealth Bank said among other things “Arthur [ie the plaintiff] and Barbara have confirmed that even though they are not full equity partners of the firm … .”[6] In a letter dated 6 March 2002 to the Commonwealth Bank the first defendant referred to the defendants as principals and sole equity partners of the firm and said of the plaintiff and the other person: “the important thing for the bank to recognise is that neither of those two persons is an equity partner of Stephen Comino and Cominos. They are both salaried partners.”[7]
- [11]In the letter dated 26 April 2005 to the solicitors for the second defendant the first defendant said that the net assets of the firm would be divided between the defendants as they were the owner of those assets, and proposed that the firm’s liabilities be paid from the sale of certain property owned by the interests of the defendants.[8] The letter spoke about partnership matters as though they were to be resolved between the defendants, and made no reference to any obligation on the part of the plaintiff (or the other person) to contribute to any shortfall in the partnership liabilities. In a letter dated 27 May 2005 to the Queensland Law Society the first defendant proposed that particular debts of the firm which had by then been dissolved be paid by “the proprietors of the old firm Stephen Comino and Cominos, namely the writer and Stephen Comino … .”[9] This evidence amounts to admissions by the first defendant that there was no agreement for the plaintiff to be a partner in the firm in the true sense, and that there was no agreement with him under which he was liable to contribute to the debts of the partnership.[10] This evidence supports my acceptance of the evidence of the plaintiff.
Subsequent conduct
- [12]The plaintiff gave evidence that after the agreement he in fact took no part in the management and control of the business of the firm.[11] The plaintiff said that he had no authority to draw cheques from the partnership account in his own favour, or to direct the accountant or the bookkeeper to draw a cheque in his own favour in payment of his salary, or in payment of a salary of any other partner, and never attempted to do so. He never negotiated with the firm’s bankers in relation to the firm’s financial position, he gave no instructions to the firm’s accountants in relation to the firm’s accounts, and he was not responsible for determining the amount of the fees paid by the firm to a service company which operated as trustee for interests associated with the first defendant and the second defendant.[12] He had no discussions with the defendants as to the amount of their remuneration, or as to the distribution of the profits of the firm. He was not involved in any decision to hire or fire staff and he had limited access to the computer, consistent with the access appropriate for an employee but not the access appropriate for a person sharing in the control of the business.
- [13]The subsequent behaviour of the parties purportedly pursuant to the agreement is not something to which regard can be had in interpreting the contract. That is clearly established in the case of a written contract: L. Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348; FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 at [104].[13] On the other hand, it is permissible to look at subsequent conduct in order to determine whether a contract exists, that is to say, whether agreement has been reached: Darter Pty Ltd v Malloy [1993] 2 Qd R 615 at 619; Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216 at 237. Where specific terms of the agreement between the parties are not proved but are a matter of inference, regard may be had to the subsequent acts and conduct of the parties: S.J. Mackie Pty Ltd v Dalziell Medical Practice Pty Ltd [1989] 2 Qd R 87 at 92. But if the parties have agreed in specific terms which have been proved, it does not seem to me that there is room to infer terms on this basis. The position may be different in relation to the question of whether a term should be implied into a contract, since the subsequent behaviour of the parties under the contract may provide evidence supporting a favourable conclusion in relation to one or more of the conditions for the implication of a term referred to earlier. But I do not think that the present issue is to be resolved on that basis. Accordingly I do not consider that this evidence can be taken into account on the question of the construction of the oral agreement, although it does support the evidence of the plaintiff as to the existence of the contract.
- [14]There is one subsequent matter, however, to which reference I think should be made. On 4 May 2005 the Supreme Court declared that the partnership of Stephen Comino and Cominos was dissolved on 3 May 2005 and ordered that its affairs be wound up.[14] That order was made in a proceeding where the second defendant was the applicant and the first defendant was the respondent. The plaintiff was not a party to that proceeding, as one would have expected if he were a true partner in the firm. Whether or not the making of that order gives rise to any issue estoppel, a point the plaintiff did not press, I think it is conclusive as to the fact of the dissolution of the partnership on 3 May 2005, a matter which does not seem to be directly admitted by the first defendant on the pleadings.
Findings as to express terms
- [15]The plaintiff alleged that the offer made to him by the defendants contained the express terms set out in paragraph 5 of the statement of claim. That the plaintiff would commence as a salaried partner from 1 July 1989 was admitted by the first defendant: defence para 4(a). That the plaintiff would be paid a monthly salary was denied by the first defendant; I find that that was an express term of the offer made to the plaintiff on the basis of the evidence of the plaintiff referred to earlier. That the plaintiff would not be responsible for the liabilities of the firm and that the defendants would be so liable was also denied by the first defendant: defence para 4(d). On the basis of the evidence of the plaintiff referred to earlier I find that the offer did contain the express terms that the plaintiff would not be responsible for any of the liabilities of the firm and the defendants would be responsible for all the liabilities of the firm. It was admitted that the title of the plaintiff’s position would be “salaried partner” and that the plaintiff’s name would appear on the letterhead of the firm: defence para 4(e, f).
Discussion
- [16]A partnership is simply the relation which subsists between persons carrying on a business in common with a view to profit.[15] Ordinarily partners have a right to a share in the profits of a business[16] and all of the partners are liable for the debts of the partnership in respect of which they have rights of contribution inter se.[17] Ordinarily as well a partner will own a share in the assets of the partnership and it is admitted by the first defendant that at all material times the defendants owned the firm in equal shares: defence para 1.2. Subject to the terms of any particular agreement, partners are entitled to share in the management and control of the partnership business. All of this really follows from the concept that they are carrying on business in common.
- [17]In Memec Plc v Commissioners of Inland Revenue [1998] EWCA Civ 941 Peter Gibson LJ said:
“The relevant characteristics of an ordinary English partnership are these:
- (1)the partnership is not a legal entity;
- (2)the partners carry on the business of the partnership in common with a view to profit;
- (3)each does so both as principal and as agent for each other, binding the firm and his partners in all matters within his authority;
- (4)every partner is liable jointly with the other partners for all debts and obligations of the firm; and
- (5)the partners own the business, having a beneficial interest, in the form of an undivided share, in the partnership assets including any profits of the business.”[18]
- [18]I should say, in view of the use of the word “relevant”, that the case involved a question of the application of complicated provisions of double taxation conventions and related legislation, and the function of his Honour’s analysis was to determine whether a form of partnership known under German law but not known under English law had the characteristics of an English partnership which produced a particular result, “transparency” for the purposes of the double taxation conventions and statutes. One of the issues which arises is whether the characteristics are all necessary characteristics for the existence of a partnership; that the last is not an essential characteristic of a partnership was determined by the Court of Appeal in M. Young Legal Associates Ltd v Zahid [2006] 1 WLR 2562.
- [19]It follows that, apart from the statutory definition, there is no specific touchstone as to the existence of a partnership; rather, the situation is always one of the appropriate conclusion in the light of the indications derived from the true contract and intention of the parties as appearing from the whole facts of the case.[19] That approach was applied by the High Court in Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321.[20] The court held that an agreement between a financier and a concert promoter in relation to the public performance of two singers was a partnership. The court in a joint judgment at pp 326-7 said:
“Our conclusion that the joint venture was a partnership … rests upon the following considerations:
- The parties became joint venturers in a commercial enterprise with a view to profit.
- Profits were to be shared … .
- The policy of the joint venture was a matter for joint agreement and it was provided that differences relating to the affairs of the joint venture should be settled by arbitration … .
- An assignment of a half interest in the contract for the appearances of [the singers] was attempted, although, we would have thought, unsuccessfully.
- The parties were concerned with the financial stability of one another in a way which is common with partners.
…
In short, it seems to us that the contract exhibited all the indicia of a partnership except that it did not describe the parties as partners and did not provide expressly for the sharing of losses, although we venture to think that it did so impliedly. These considerations on the one side are, in our opinion, outweighed by the considerations upon the other side to which we have already referred.
The nature of a partner’s interest in the partnership property has often been explained. The partner’s share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realisation of assets and the payment of debts and liabilities. However, it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a ‘beneficial interest’, notwithstanding its peculiar character. The assets of a partnership, individually and collectively, are described as partnership property … . This description acknowledges that they belong to the partnership, that is, to the members of the partnership.”[21]
- [20]In M. Young Legal Associates Ltd v Zahid (supra) there was an agreement for a solicitor to be a “partner” of another solicitor under which the solicitor was entitled to be paid a particular amount annually, had no share of the partnership assets or profits, and was not entitled to any share in the management of the firm. Nevertheless, the agreement was held to give rise to a true partnership, specifically because the purpose of the agreement was to satisfy a requirement under the Solicitors’ Practice Rules which would only be satisfied if the parties had entered into something which really was a partnership.[22] That was also a case of an oral agreement. Wilson LJ, who delivered the principal judgment, said at 2566 that “a person’s entitlement to an interest in a firm’s capital and his dominant role in its management may each be a strong indication of his status as a partner in it” but found that they were not a necessary requirement for the existence of a partnership. After rejecting the proposition that a right to receive a share of the profits was a necessary prerequisite for a person to be a partner, his Lordship said at p 2574:
“Nevertheless the absence of a direct link between the level of payments and the profits of the firm is in most cases a strongly negative pointer towards the crucial conclusion as to whether the recipient is among those who are carrying on its business. But the conclusion must be informed by reference to all the features of the agreement. Thus, for example, provision or otherwise for a contribution on his part to the working capital of the firm will be relevant. And it will be important to discern whether, expressly or impliedly, the agreement provides not only that acts within his authority should bind the acknowledged partners but also that their such acts should bind him; for such is provided by s 5 of the Act to be a necessary incident of partnership but would, of course, be inconsistent with his status as an employee.”
- [21]This last point was also mentioned in the concurring judgment of Hughes LJ at p 2576:
“On principle it seems to me that if there is an essential element of partnership it is the carrying on of business in common, that is to say in such manner as to make each the agent of the other for all acts done in the course of the business. Having thus constituted themselves, the partners are free under the Act to arrange for the remuneration of themselves in any manner they choose, including by agreement that one or more shall receive specific sums, or that one or more receive nothing, in either case irrespective of profits.”
- [22]I do not consider that anything necessarily follows from the use of the term “salaried partner”; what effect appointment to such a position has depends on the whole of the terms of the agreement between the parties under which a person is appointed to that position: Stekel v Ellice [1973] 1 WLR 191 at 198-200; Nationwide Building Society v Lewis [1997] 1 WLR 1181 at 1183;[23] M. Young Legal Associates Ltd v Zahid [2006] 1 WLR 2562 at 2573-4.
- [23]It was at one time thought that a person in the position of “salaried partner” would ordinarily be a true partner. In Pollock’s Digest of the Law of Partnership (15th ed.) published in 1952[24] it was said at p 11:
“On the other hand, it is thought that a salaried partner is a true partner notwithstanding that he is paid a fixed salary irrespective of profits and that as between himself and his co-partner he is not liable for the partnership debts.”
- [24]In M. Young Legal Associates (supra) Wilson LJ at p 2571 quoted this passage and added:
“Whether the authority cited for that proposition truly supported it is a hare which I will not attempt to chase.”
- [25]
“The phrase ‘salaried partner’ should be avoided because it has no single meaning and its use creates confusion … The expression ‘salaried partner’ is used loosely to describe a person who is less than a full profit sharing or equity partner because he is one or other of the following:
- (a)an employee who is not a partner but who is described as a partner to enhance his own status or that of the firm ...
- (b)a true partner who receives all or most of his remuneration in the form of a salary rather than a simple share of profits.
Whether he is a true partner will be decided according to whether his agreement with the firm leans … towards an agreement for partnership rather than an employment agreement, and whether his relationship with the firm satisfies the other requirements of a partnership … The mere fact that he is called an ‘equity’ partner or ‘salaried’ partner is not of itself decisive, although the usual modern meaning of the latter term is in the first of the two senses given above.”
- [26]The ordinary features of a partnership may be modified by the terms of the agreement between the partners, with one exception, that there is no mechanism for the partners to contract out of the statutory provision that all partners are liable for the debts of the firm, though they can provide a right of indemnity. In these circumstances, that it was an express term of the agreement between the plaintiff and the defendants that the plaintiff not be liable for the debts of the firm suggests that he was not a true partner.
- [27]The plaintiff did not have a share in the profits, and even if he could be said to have been paid a fixed sum by way of salary out of the profits of the company, that does not in itself make the plaintiff a partner.[26] This raises another issue raised in the pleading, whether the effect of the agreement was that the plaintiff was to be paid the amount of his salary, or whether the effect of the agreement was that the plaintiff was to be paid the “salary” as drawings if there was sufficient money available to make such a payment at any given time: defence para 4(c)(ii).
- [28]I find that the true effect of the contract between the plaintiff and the defendants proved by the evidence of the plaintiff was that the plaintiff was not a partner in the true sense. This follows from a number of considerations. The agreement made no provision for him to acquire, either by purchase or gift, a share in the assets of the partnership. The agreement expressly provided that he was not responsible for the liabilities of the firm, whereas a true partner would have been. He did not receive a share of the profits of the firm, but received what was described as a salary. Although he became an agent of the defendants, there is no basis for an inference that the defendants were to become his agents. That the effect of the agreement was that the plaintiff would have been held out to clients of the firm, and indeed anyone who dealt with the firm, as a partner is not I think conclusive to the contrary.
- [29]The ordinary effect of an agreement to pay a salary is that the plaintiff will be paid a particular amount for his services, rather than that the plaintiff will be paid a particular amount if there is money available to pay him. On the evidence that I accept there was no express limitation of the kind contemplated in paragraph 4(2)(c)(ii) of the defence. Such a limitation would not ordinarily be implied simply from the use of the term “salary”, and there was nothing else in the terms of the oral agreement or the surrounding circumstances that would provide a basis of the implication of that term. None of the BP Refinery conditions,[27] except perhaps No. 4, is satisfied here.
- [30]In my opinion in the circumstances the relationship between the plaintiff and the defendants was that of employee and employer, although I suspect that strictly speaking it is not necessary to decide that question. The crucial issue is whether the true position is that the defendants had agreed to pay the plaintiff’s salary in the amount determined by them from time to time, or whether the plaintiff simply had a right to share in the profits of the firm in the amount of the monthly salary if and when there was money available for that purpose. I have no hesitation on the evidence before me in concluding that the former was the case. The latter strikes me as an artificial situation, and one which is quite unsupported by the express oral terms of the agreement between the parties,[28] indeed inconsistent with the ordinary meaning of the word “salary”.
- [31]I note that in Stekel (supra) the dichotomy envisaged by Megarry J was between the contract of master and servant where the servant was held out as being a partner and a full partnership under which all the partners save one take a share of the profits with that one “being paid a fixed salary not dependent on profits”. Even on that interpretation of the partnership agreement, the partner being paid the fixed salary would be entitled to be paid that salary regardless of the state of the profits of the business. But it is unnecessary to explore that consideration, in circumstances where I have found that the plaintiff was not a true partner.
Implied terms
- [32]It was also alleged in paragraph 6 that the agreement between the plaintiff and the defendants contained a number of implied terms. Most of these are denied: defence para 5. Whether a term is to be implied into a contract depends on the application of the rules laid down by the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26:
“For a term to be implied, the following conditions (which may overlap) must be satisfied:
- it must be reasonable and equitable;
- it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
- it must be so obvious that ‘it goes without saying’;
- it must be capable of clear expression;
- it must not contradict any express term of the contract.”
- [33]The first term which was in issue was whether the plaintiff was subject to the direction and control of the defendants. That in turn depends on the true effect of what was agreed, in particular whether it made the plaintiff a partner in the true sense, or whether he was in substance an employee, or at any rate not a member of the partnership constituted by the defendants. There was nothing agreed between the parties at the time as to what control or what share of the control and management of the business the plaintiff would have; there was neither an express statement that he was entitled to share in the control and management, nor an express statement to the contrary. The plaintiff in his affidavit sets out a large number of matters in respect of which he did not enjoy a share of the control and management of the business comparable with that of the defendants. This is evidence as to the way in which the parties behaved pursuant to the agreement.
- [34]In my opinion the issue is not really whether a term is to be implied, but as to the true effect of the agreement. If the effect of the agreement was that the plaintiff became a partner in the ordinary sense, then such a term would not be implied, as that would be contrary to the ordinary nature of a partnership. If on the other hand the plaintiff was not to be a partner in the ordinary sense the management and control of the business would remain with the defendants, and hence the plaintiff would be subject to their direction and control. The issue therefore depends on the effect of what was actually agreed between the parties at the time, not on whether a term is to be implied into the agreement.
- [35]Having arrived at the conclusion that the plaintiff was not a partner in the ordinary sense, it follows that it is appropriate, applying the test referred to earlier, to conclude that the agreement contained the implied terms that the plaintiff was subject to the direction and control of the defendants, that the plaintiff was accountable to the defendants in respect of every act of the plaintiff concerning the firm, that the plaintiff was not entitled to any share of the profits of the firm, that the monthly salary of the plaintiff would be as determined by the defendants and payable monthly in arrears, that the plaintiff was entitled to represent the firm and clients of the firm and to bind the firm,[29] and that the defendants would indemnify the plaintiff in respect of any liabilities of the firm.[30] I also find that the defendants were jointly liable for the payment of the salary of the plaintiff, although this follows from the fact that the plaintiff entered into a contract with the defendants as partners: Partnership Act 1891 s 12. There is no basis in the circumstances for implying an additional term, that the defendants are also liable severally. To that extent, paragraph 6(11) of the statement of claim is not made out.
- [36]I do not think it is appropriate to imply a term that the only remuneration of the plaintiff was the monthly salary as agreed from time to time plus any bonuses allowed by the defendants as alleged in paragraph 6(5); it was an express term that the plaintiff would be paid a monthly salary, and it is not necessary to have a term implied that the defendants could agree to pay the plaintiff bonuses. They were at liberty to do that anyway if they wanted to. I do not find that there was an implied term that the defendants were responsible for all the liabilities of the firm, because that was an express term. In the same way I am not prepared to find that it was an implied term that the plaintiff would not be responsible for any losses of the firm, because that was unnecessary; the true position was simply that there was no express or implied term that he was responsible for, or liable to contribute to, any losses of the firm.
Salary unpaid
- [37]The plaintiff does not complain of any failure to pay the amount payable by way of salary as determined from time to time prior to the 1999-2000 financial year. The plaintiff’s position is that his salary became $48,000 per annum as from 1 July 1994, and was not thereafter increased. In response to this the first defendant’s allegation was that the partners of the firm determined that as from 1 July 1994 the plaintiff’s allowable drawings would be no more than $48,000 per annum: defence para 7. The plaintiff’s evidence was that the defendants determined that his salary would be $48,000 per annum as from 1 July 1994.[31] There is no dispute that he was in fact paid at that rate thereafter.[32] In the light of the findings I have made, I find that that was the salary fixed by the defendants as from that time, and that it was a salary rather than a limit on the amount that could be drawn subject to funds being available. There is no suggestion that there was ever any decision to reduce or indeed vary in any way the salary thereafter.
- [38]During the 1999-2000 year the plaintiff was paid only $34,000: Exhibits 21 and 22, which show that by mid 1999 at least payments were not being made regularly, and only one payment of $4,000 was made during that financial year. There was accordingly a shortfall of $14,000 in that financial year. For the following financial year, Exhibits 23 and 24 show that the payments made totalled $39,700, a shortfall of $8,300; again only one payment of $4,000 was made. In the financial year 2001-2002, Exhibits 25 and 26 show that the payment made totalled $35,500, leaving a shortfall of $12,500 for that financial year. Again only one payment of $4,000 was made. For the 2002‑2003 financial year, Exhibits 27 and 28 show that the payments made totalled $27,000, a shortfall of $21,000 for the financial year; again one payment of $4,000 was made, but I note that during March and May 2003 no payments at all were made.[33]
- [39]For the 2003‑2004 financial year, Exhibit 30[34] shows total payments to the applicant of $35,200 during the year, but in July 2004 a further payment was made to him of $17,698.84. This amount was made up by $12,800 in respect of his salary for the previous financial year, and an amount of $4,898.84 which the plaintiff said the defendants agreed to pay him in the following circumstances:[35] the plaintiff was the executor of a will in respect of which he obtained an amount of commission. He agreed to give the commission to the firm because of the financial difficulties it was then facing, on terms that the firm paid the amount of the tax which he had to pay, since he was declaring the income from the commission. The tax payable by him on that commission was $4,898.84, and that amount was reimbursed as part of the payment on 21 July 2004. Accordingly he does not claim any shortfall of salary in respect of the 2003-4 financial year.
- [40]In respect of the 2004‑5 financial year, the partnership continued only until 3 May 2005, and therefore his employment and entitlement to salary also only continued until then. The plaintiff’s calculation of his entitlement is 10 months at $4,000 per month plus three days of the $4,000 for the 31 days of May, $386.80. I actually get $387.10, but I will call it $387. Exhibits 32 and 33 show that only five payments totalling $8,450 were made during this financial year, leaving a total shortfall for the financial year of $31,937.
- [41]The plaintiff also gave evidence that the defendants determined to pay him a bonus of $3,957 for the financial year 2002‑3. The plaintiff said he declared that in his income tax return and paid tax on it, though in fact it was never paid by the defendants. Although there was no documentary evidence supporting the existence of this bonus, in paragraph 8 of the defence the first defendant “admits that in or about May 2004 the partners of the firm determined to pay the plaintiff the sum of $3,957 in respect of the year ended 30 June 2003 in addition to his fixed draw entitlement of $48,000 for that year.” The first defendant’s position is therefore not to dispute the agreement that this money be paid, but to maintain his position that the defendants were not the only partners in the firm, and that what was being paid was not salary. In the circumstances therefore I accept that the plaintiff was entitled to be paid this additional sum of $3,957 in the 2003‑4 financial year. The total amount payable therefore by way of unpaid salary, including the amount of this bonus, comes to $91,694. The plaintiff is entitled to judgment for that amount against the first and second defendants.
Interest
- [42]The plaintiff also claims interest pursuant to s 47 of the Supreme Court Act 1995. Under that section the judge has a discretion whether to award interest, and the amount on which interest is awarded, the rate of interest in the period for which interest is awarded are also all subject to discretion. The underlying purpose of such a power is that the defendant has kept the plaintiff out of money which ought to have been paid to him and had the use of it himself and so should compensate the plaintiff accordingly: Callinan v Bovorina [1977] Qd R 366 at 369. The plaintiff has calculated interest at the rates allowed from time to time in respect of default judgments under Practice Directions made by the Chief Judge. These varied between 9% and 10.5% during the period; for most of the period it was 9%, and since 2007 the rate has been 10%, despite the interest rate fluctuations during that period. My impression is that the default rates stipulated in the Practice Directions are not necessarily kept carefully in line with prevailing commercial rates.
- [43]One can do detailed accounting exercises by reference to Reserve Bank interest rates (which also do not necessarily reflect the fluctuations of commercial interest rates), but I note that in Callinan the Full Court said at p 377: “A robust rather than a refined approach is the norm.” Ordinarily interest should be allowed for the whole of the period since the cause of action arose. There have been no issues raised as to whether there was any unreasonable delay by the plaintiff in pursuing the action. In all the circumstances I allow interest at 9% per annum on the amount of each annual shortfall from the end of the financial year in which the shortfall arose until about the date of judgment: I shall round off the last period to 0.7 of a year. Accordingly I calculate interest as follows:
Financial Year | Amount | Period | Interest |
1999-2000 | $14,000 | 9.7 years | $12,222 |
2000-2001 | $8,300 | 8.7 years | $6,499 |
2001-2002 | $12,500 | 7.7 years | $8,662 |
2002-2003 | $24,957 | 6.7 years | $15,049 |
2004-2005 | $31,937 | 4.7 years | $13,509 |
TOTAL | $55,941 |
- [44]There will therefore be judgment that the first and second defendants pay the plaintiff $147,635, which includes $55,941 by way of interest. I will hear submissions in relation to the question of costs, but unless some other order is appropriate, the first defendant should pay the plaintiff’s costs of and incidental to the proceeding to be assessed. No order for costs was sought against the second defendant, and he has taken no steps to defend the claim.
Footnotes
[1]Save where otherwise stated, the facts come from the plaintiff’s affidavit.
[2]Statement of claim para 3; defence para 2.
[3]Affidavit of the plaintiff Exhibit 1 para 25.
[4]Ibid para 31.
[5]Affidavit of the plaintiff Exhibit 3 p 5, a transcript of the conversation prepared by the first defendant’s secretary.
[6]Ibid Exhibit 4.
[7]Ibid Exhibit 9.
[8]Ibid Exhibit 15.
[9]Ibid Exhibit 17.
[10]Whether there was a partnership is a mixed question of fact and law: Keith Spicer Ltd v Mansell [1970] 1 WLR 333 at 335. There is some controversy about whether there can be an admission of such a matter: Dovuro Pty Ltd v Wilkins (2003) 77 ALJR 1706 at 1719. An admission as to the existence and terms of an agreement is admissible, and in this case the admission, so far as it involved the application of a legal standard, was by a solicitor.
[11]Plaintiff’s affidavit paras 96-119.
[12]Something which would clearly impact on the amount of the profits of the firm each year.
[13] See also Cheshire and Fifoot’s Law of Contract (9th Aust Ed 2008) para 10.16; (1993) 67 ALJ 864. In the circumstances, I do not consider that Geddes v Wallace (1820) 2 Bligh 270, 4 ER 328 remains good law in this respect.
[14]Exhibit 1 to the affidavit of the plaintiff.
[15]Partnership Act 1891 s 5(1).
[16]Partnership Act 1891 s 6(1)(c).
[17]Partnership Act 1891 s 12(1).
[18]References to the Partnership Act 1890 (Eng) and MacKinlay v Arthur Young and Co [1990] 2 AC 239 at 249 omitted.
[19]Lindley On Partnership 15th Ed 1984 p 73, citing Cox v Hickman (1860) 8 HLC 268, 11 ER 431.
[20]And by the Court of Appeal in Whywait Pty Ltd v Davison [1997] 1 Qd R 225 at 231.
[21]This approach is endorsed in the joint judgment of the majority in United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 11.
[22]It was noted that there was no suggestion or evidence that the agreement was a sham.
[23]This was a decision on three preliminary issues, on one of which the judge’s decision was reversed by the Court of Appeal: [1998] Ch 482. That, however, did not affect this point.
[24]Edited by Professor Gower.
[25]Blackett-Ord, Partnership (2nd ed. 2002) para 11.15, also quoted by Wilson LJ who described it as an excellent book.
[26]Partnership Act 1891 s 6(1)(c)(i).
[27]Quoted para [32] infra.
[28]Contrast Marsh v Stacey (1963) 107 SJ 512, which turned on the specific terms of the partnership deed which made the salary a first charge on the profits.
[29]This is admitted on the pleadings: defence para 5.7.
[30]These are the allegations in the statement of claim para 6(1), (2), (3), (4), (6), (7) and (9).
[31]Affidavit para 49.
[32]He was paid $4,000 in each of the first five months of 1995: Exhibit 19. There were later documents which speak of the plaintiff’s entitlement to receive $4,000 per month: Affidavit Exhibits 36, 37.
[33]The amounts paid, as summarised above, were the subject of deemed admissions by way of a Notice to Admit Facts: Exhibits 34, 35. The same applies to the payments in the 2003‑4, 2004‑5 years.
[34]Exhibit 29 is a copy of Exhibit 27, presumably a collating error.
[35]Affidavit of plaintiff paragraphs 142-146.