John William Hogan v Michael Miras [1999] ACTSC 19 (12 March 1999)

Last Updated: 17 June 1999

John William Hogan v Michael Miras [1999] ACTSC 19 (12 March 1999)

CATCHWORDS

PARTNERSHIP - obligation to contribute to partnership capital - purchase by partnership of property and payment of deposit by one partner - whether other partner's obligation to pay one half of deposit was postponed to date of settlement of purchase - question of fact as to terms of agreement.

Partnership Act 1963, s 40(1)(d)

Law of Property (Miscellaneous Provisions) Act 1958, s 4

State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) [1999] HCA 3; (1999) 73 ALJR 306 at [63] applied

ON APPEAL FROM THE MASTER

No SCA 73 of 1998

Coram: Miles CJ, Gallop and Higgins JJ

Supreme Court of the ACT

Date: 12 March 1999

IN THE SUPREME COURT OF THE )

) No SCA 73 of 1998

AUSTRALIAN CAPITAL TERRITORY )

ON APPEAL FROM THE MASTER

BETWEEN: JOHN WILLIAM HOGAN

Appellant

AND: MICHAEL MIRAS

Respondent

ORDER

Judge Making Order: Miles CJ, Gallop and Higgins JJ

Where Made: Canberra

Date of Order: 12 March 1999

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

2. The appellant's notice of motion of 13 November 1998 be dismissed with costs.

3. The respondent's notice of motion lodged in court on 16 November 1998 be dismissed, no order as to costs.

IN THE SUPREME COURT OF THE )

) No SCA 73 of 1998

AUSTRALIAN CAPITAL TERRITORY )

ON APPEAL FROM THE MASTER

BETWEEN: JOHN WILLIAM HOGAN

Appellant

AND: MICHAEL MIRAS

Respondent

Coram: Miles CJ, Gallop and Higgins JJ

Place: Canberra

Date: 12 March 1999

REASONS FOR JUDGMENT

THE COURT:

1. This is an appeal from a decision of the Master, expressed as a declaration, that a partnership between the appellant and respondent be dissolved. The Master's decision was given on 29 July 1998. The Master exercised the jurisdiction of the Court pursuant to an order of Crispin J on 17 July 1998.

2. It was common ground that the parties had by oral agreement made in Canberra entered into a partnership on 28 May 1998. The object of the partnership was the purchase and development of land at Polo Flat, near Cooma, New South Wales. In pursuance of that object the parties made a successful bid at an auction for the sale of the property on 30 May 1998. The deposit of $30,200, being one-tenth of the purchase price, was paid by the respondent who wrote a cheque for that amount on the fall of the hammer. A dispute arose about whether the appellant should contribute one-half of the deposit by paying it to the respondent when requested or whether the appellant's liability to contribute to the deposit should await settlement of the purchase. On 6 June 1998 the respondent proposed that a company be incorporated to proceed with the purchase in substitution for the parties, with the shareholding in the company issued in the proportion of the capital contribution of the parties at that stage (the appellant having contributed $4,014.86). The appellant rejected that proposal. There followed a number of meetings and discussions between the parties, but that remained the situation at the commencement of litigation and at the time of the hearing before the Master.

3. The Master found as a matter of fact that the respondent made repeated demands upon the appellant to contribute one-half of the deposit, those demands culminating in a meeting on 5 July 1998 at which the appellant indicated his unwillingness to pay at that stage.

4. The Master concluded that the partnership agreement required the parties to contribute equally to the cost of the purchase, including the deposit, and that the "continual failure" of the respondent to supply his share of the deposit funds after repeated requests was a breach of a partner's obligation of good faith. The Master considered that the breach entitled the respondent to a dissolution of the partnership in order to complete the purchase of the property in his own name and thereby avoid liability to the vendor for breach of the contract of sale. In addition to ordering or declaring that the partnership be resolved, the Master made a number of consequential orders, including orders directed to the rescission of the contract for purchase of the land.

5. The appellant sought to obtain leave to call further evidence at the appeal, but the application was rejected.

6. There were numerous grounds of appeal. Those that were pursued appear to be essentially as follows:

* The Master erred in fact in finding that it was a term of the partnership agreement that the parties contribute equally to the expenses of the purchase, including the deposit due on the fall of the hammer.

* The Master should have found, as a matter of mixed fact and law, that the conduct of the respondent, and not that of the appellant, was a repudiation of the partnership agreement disentitling the respondent to the relief sought. That disentitling conduct consisted of the repeated demands by the respondent that the appellant contribute what he was not bound to contribute at the time of the demands.

7. The difficulty faced by the appellant on matters of fact is that the Master's findings depended at least in part on the credit of witnesses, and, in accordance with well-established authority, that a court of appeal will not disturb those findings unless there is some demonstrable error on a matter not affected by credit or there was "too fragile a base" to support a finding that a witness be accepted or not: see State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) [1999] HCA 3; (1999) 73 ALJR 306 at [63].

8. Although the evidence was presented in the first instance on affidavit, further evidence-in-chief was adduced before the Master by and on behalf of both parties and both the appellant and the respondent were cross-examined at length. A Mr Vong, an accountant, who was present at the time of some of the conversations between the parties, furnished an affidavit in the respondent's case and was cross-examined. Other persons, namely the respondent's wife and a Mr Delly, his brother-in-law, also swore affidavits in the respondent's case. The respondent's wife was not cross-examined.

9. In seeking to set aside the Master's factual findings, the appellant's counsel submitted that error is shown by certain remarks in the Master's reasons. The first is that the Master said that in relation to the terms of the initial agreement "... the type of arrangement which Mr Hogan says was the agreement, where one party would agree to take all of the capital risk up to settlement, would require some external corroboration".

10. It is submitted that the statement reflected a mistake of law, namely the proposition that corroboration in the legal sense was needed to prove an arrangement of the type alleged. The proposition, as a matter of law, is clearly incorrect, but it is also clear that all that the Master was saying was that, as a tribunal of fact, he would have difficulty in accepting the appellant's account of the substance of the conversations unless supported by some other evidence. The use of the term "corroboration" is perhaps unfortunate, but in context it does not reflect an error of law. As an approach to factual allegations, which to the fact finder appeared on the face of it inherently incredible, it was not unreasonable.

11. It is next submitted that the Master was wrong in his remark that, as Mrs Miras was not called for cross-examination, he "must take this to acknowledge that her statement can be taken to be true and stands uncontradicted" and "must find that her version of events supports her husband's version" (emphasis added). Again, the remark is, on the face of it, clouded with error of law, because it is not the law that in every case, regardless of circumstances, the sworn evidence of a witness, whether oral or on affidavit, must be accepted merely by reason of absence of cross-examination. In the context of the present case, what the Master should be taken to mean is that, in all the circumstances, he felt compelled to accept the affidavit of Mrs Miras. The affidavit itself was simply to the effect that she was present at a meeting on 5 July 1998 when the respondent said to the appellant "Bring the rest of the money and we sit down and talk". Mr Delly's affidavit gave a similar account which cross-examination served only to confirm. Mrs Miras was at court for the hearing. There was no explanation for the absence of cross-examination of her by counsel for the appellant. In the circumstances it was reasonable for the Master to infer that cross-examination would have been at least ineffective. It is difficult to understand how the Master could have rejected what Mrs Miras said. In other words, the Master was compelled to accept it in all the circumstances, including the absence of cross-examination, but not only by reason of that circumstance.

12. The next submission is that the Master incorrectly applied a principle that time was "of the essence" in relation to the appellant's obligation to contribute his half of the deposit. During the course of the Master's reasons, the following passages appear:

[39]

"I am satisfied that the partnership agreement to purchase and develop the property required the parties to contribute equally to the purchase expenses, which included the deposit due on the fall of the hammer. ..."

[41]

"In the circumstances of the present case the failure of the defendant to honour his obligation to contribute his half of the deposit must amount to a significant breach of the fiduciary obligation, notwithstanding its legal effect as a breach of contract. As the relief sought by both parties in this matter involves a question of equity, it seems that it is unnecessary to analyse what effect his conduct has as a matter of contract law, although as I have found the term of the agreement to be that the partners would contribute equally to the deposit, which falls due on the fall of the hammer, this would seem to be an agreement the performance of which on time is reasonably to be implied, and so failure to produce the deposit share could amount as a question of contract law to a breach of an essential term and so repudiation by Mr Hogan: (Cheshire & Fifoot's Law of Contract, seventh Australian edition, 21.1.)."

[42]

"Failure to contribute to the venture by way of contributing the full share of the deposit amounts in my view to a breach of the fiduciary relationship sufficient to justify a declaration that the partnership be dissolved. This is so both as a matter of law (eg. Cutts v Holland [1965] Tas SR 69) and by operation of the Partnership Act 1963. Section 40(1)(d) of that Act provides that the court may order that a partnership be dissolved where:

'... a partner in a firm -

(i) wilfully or persistently commits a breach of the partnership agreement; or

(ii) otherwise so conducts himself in matters relating to the business of the firm that is (sic) not reasonably practicable for the other partners to carry on the business in partnership with him'.

..."

[43]

"I am satisfied that the defendant's conduct fits this criteria. I do not find the contrary argument, that excuses the defendant's failure to commit his required funds on the basis that the provision requiring equal contributions is not one where time is of the essence of the agreement, and says that the plaintiff's conduct in seeking to form a new arrangement with the defendant which reflects the reality of their respective capital contributions is itself a breach of the partnership agreement which would justify dissolution, convincing."

13. If the Master had held that the appellant was obliged, as a matter of contract, to contribute his half of the deposit forthwith upon the respondent signing the cheque and handing it over on the successful bid at the auction, that would, I think, have been an error. Likewise, it would have been an error if the Master had held that the breach of fiduciary duty had occurred at that moment. Further, it is true that as a matter of law the use of the term "of the essence" might be misleading. Certainly that term in the context of the Master's reasons did not mean, as it was submitted, that the Master thought that the obligation to contribute one half of the deposit arose "on the fall of the hammer". The use of the latter phrase was clearly intended by the Master to show that the time for paying the deposit to the vendor was on the fall of the hammer at a time when the appellant was not in funds, and that unless the respondent paid there and then on behalf of both parties, they would not acquire any interest in the property.

14. The case for the appellant before the Master does not appear to have been conducted on the basis that there was a stipulation as to time in the partnership agreement and that the stipulation was enforceable only if unequivocally agreed or necessarily implied (see Law of Property (Miscellaneous Provisions) Act 1958, s 4). The appellant's case was that his contribution to the deposit was by agreement not to fall due until the settlement of the purchase, which was fixed by the terms of the contract for sale 93 days after 30 May 1998. Hence the above passages in the reasons for judgment are to be read as the expression of a finding that the appellant had an obligation in law enforceable on demand by the respondent and persistently dishonoured by the appellant, despite the repeated demands made by the respondent. The Master said that by 5 July 1998 that persistent refusal on the part of the appellant to meet his obligation had become a breach of the fiduciary obligation and sufficient to constitute breach of s 40(1)(d) of the Partnership Act 1963. The ultimate findings of the Master are perfectly open, if not inevitable, on the previous findings of fact already referred to.

15. The appeal should be dismissed with costs. The appellant's notice of motion of 13 November 1998 should be dismissed with costs. The respondent's notice of motion lodged in court on 16 November 1998 (seeking leave to file evidence in reply to any fresh evidence permitted to be adduced by the appellant) should be dismissed, no order as to costs.

I certify that the preceding fifteen (15) paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Date: 12 March 1999

Counsel for the appellant: R G Thomas

Solicitors for the appellant: Bernard Collaery & Associates

Counsel for the respondent: E J Godtschalk

Solicitors for the respondent: Les Klekner

Date of hearing: 17 November 1998

Date of judgment: 12 March 1999