Costs of Winding Up Partnership Decided by NSW Supreme Court

In proceedings for the winding up of a partnership, the court ruled that the costs should be paid out of the partnership's assets unless there is a good reason to the contrary. The ruling was based on established principles dating back to the 19th century and recent precedents.

New South Wales Supreme Court

CITATION : [NAME] v [NAME] [2006] NSWSC 1171

HEARING DATE(S) : 6 October 2006

JUDGMENT DATE : 6 October 2006

JURISDICTION : Equity

JUDGMENT OF : [NAME]

DECISION : That the costs of all parties be paid out of the [NAME] assets.

CATCHWORDS : [NAME] [35] – Dissolution and winding up – By the court – Other matters – Costs – General rule.

LEGISLATION CITED : Uniform Civil Procedure Rules 2005 Part 13

Hamer v Giles (1879) 11 ChD 942 CASES CITED : Kraft v Kupferwasser (1991) 23 NSWLR 236 [NAME] v Bilioara P/L [2001] NTSC 3 [NAME] v [NAME] 6 August 1997 unreported

[NAME] (P1) [NAME] (P2) PARTIES : [NAME] (P3) [NAME] (P4) [NAME] (D)

FILE NUMBER(S) : SC 5353/04

COUNSEL : [redacted] [NAME] (D)

SOLICITORS : [redacted] [NAME] (D)

IN THE SUPREME COURT OF NEW SOUTH WALES [NAME], 6 OCTOBER 2006

5353/04 [NAME] & [NAME] v [NAME] 1 HIS HONOUR: This judgment concerns the costs of proceedings for the winding up of a failed [NAME]. The proceedings were commenced by summons filed on 1 October 2004. Today the substantive proceedings will be resolved by the making in little altered form of the orders sought by the prayers of the summons. These orders will declare the [NAME] dissolved as of the filing of the summons and provide for the winding up of the [NAME], the appointment of a receiver, the taking of accounts and the disposal of the property. 2 Obviously, some two years have passed since the summons was filed and one might wonder at first blush why it has taken so long for the winding up order to be made when obviously the [NAME] was at an end and its winding up was necessary. The answer to this is shown in the evidentiary material on costs that has been laid before me. It is essentially that there were protracted negotiations between the plaintiffs on the one hand and the defendant on the other as to the settlement of the [NAME] accounts and the disposal of its property, both before the filing of the summons and effectively ever since that time. Those negotiations did not comprehend whether or not the [NAME] was at an end or ought be brought to an end, but dealt with numerous items relating to the accounts of the [NAME] and what ought be allowed in favour of the various parties upon the settlement of those accounts. 3 What is significant for the costs argument that has taken place today is that at no time did the defendant suggest that there would be any opposition, come the disposal of these proceedings, to orders such as were sought in the summons and will be made today. Indeed, it was the defendant who suggested in September 2004 that one side or the other ought commence proceedings, obviously to provide a framework for the matter to be brought to a head. The defendant also made it plain in a letter of 8 September 2006 that he did not oppose the making of these final orders. But more important than either of those matters is the fact that he never raised any objection or opposition to the making of the orders. Apart from the question of costs, the only evidence he brought forward was as to various disputed items of the accounts, substantially in answer to affidavits of the plaintiffs, which were of the same nature. 4 The general rule as to the costs of proceedings for the winding up of partnerships is not in doubt. Powell J laid down a definitive position in this Court in Kraft v Kupferwasser (1991) 23 NSWLR 236, based upon established principle in the English courts going back into the 19th century. The situation was confirmed by [NAME] in Eq in [NAME] v [NAME] 6 August 1997 unreported. A useful review of the authorities is contained in the judgment of Thomas J in the Supreme Court of the Northern Territory in [NAME] v Bilioara P/L [2001] NTSC 3. 5 The principle simply, as stated by Powell J, is that the rule is "to pay the costs of an action for dissolution out of the [NAME] assets unless there is good reason to the contrary". The basis for this as illustrated by Jessel MR in Hamer v Giles (1879) 11 ChD 942 is that these costs should be treated as part of the "necessary administration" of the [NAME]. If, of course, some substantive dispute between the parties is also determined in the winding up proceedings, then the situation changes and there is a reversion to the ordinary rules as to costs: see, for example, the actual situation in [NAME]. 6 There has been great controversy and negotiation between these parties as to the settlement of accounts between them. It is unfortunate that the negotiations have been so protracted, not only because of the costs that have no doubt been incurred in them, but also because the real estate market has gone down and the value of the principal asset of the [NAME] has diminished between 2003 and now. However, the negotiation and controversy was about the settlement of the accounts, not whether or not the [NAME] should be wound up. That was a subject matter which was never sought to be nor fit to be determined upon the hearing of these proceedings, but would rather require to be determined, if curial determination be necessary, in the taking of the accounts that will be ordered in today's orders, but which one hopes will never have to be carried out. One trusts that settlement will be able at last to be reached without further expenditure of costs. 7 [NAME], of counsel for the plaintiffs, has put all she can to support not the ordinary order, but an order that the costs be paid out of the defendant's share of the [NAME] assets. She has submitted that the long delays and consequent expenditure of costs lie in reality at the defendant's rather than the plaintiffs' door. However, as I have already indicated, this negotiation and argument has not been as to the subject matter of these proceedings, but as to the question of the accounts, which is a different subject matter. In the end, the plaintiffs pressed for the suit to be brought on for hearing and that has occurred, leading to today's orders. It is said that the defendant at callover resisted the fixing of the matter for trial, but that resistance was unsuccessful. Really there were various avenues by which the plaintiffs, had they chosen, could have caused this matter to be brought to finality earlier. There could have been an earlier placement in the one day matters list; there could have been an application for summary disposal under Part 13 of the Uniform Civil Procedure Rules 2005. Hard as she has pressed the matter by way of evidence and submissions, I am unable to accede to [NAME]'s submission that there is anything to take this case out of the ordinary costs rule as to [NAME] winding up proceedings. 8 [NAME], of counsel for the defendant, has contended for the ordinary order in all regards except one. She has said that the only matter that has in reality been contested today is the question of costs and on the question of costs the defendant has been successful. In those circumstances, she says that the defendant should have against the plaintiffs the costs of today. However, it is also only because of the matter being brought on for hearing today that final orders have been made in the proceedings, so that it is not correct to say that costs is the only matter dealt with today. I recognise that there is some force in the submission that [NAME] has put, but I do not propose to accede to that either, or to diverge from simply ordering that the costs of all parties to the proceedings be paid out of the [NAME] assets. 9 Exhibits to be returned. **********

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