CONNELL v DFC of T
Judges:Franklyn J
Owen J
Parker J
Court:
Full Court of the Supreme Court of Western Australia
Franklyn J
The appellants appeal against a decision of a Judge of this Court given upon an interpleader between the appellant and the respondent whereby His Honour found that, by reason of the terms of a settlement deed (hereafter referred to as ``the Main Deed''), undated but stamped 29 March 1994, made between the appellant of the one part and Valgas Pty Ltd (``Valgas'') of the other part, moneys payable pursuant to the Main Deed by Valgas to the appellants in settlement of Supreme Court action 1184/1191 were payable to the respondent. The interpleader proceedings were commenced following service by the respondent on Valgas of notices under s 218 of the Income Tax Assessment Act 1936 (Clth) dated 10 March 1994, in respect of Mr Connell and Mrs Connell respectively, claiming payment of the settlement moneys, they to be applied in reduction of income tax due by each of them respectively to the respondent. The proceedings were instituted by Valgas before another Judge of the Court who, on 31 March 1994, ordered inter alia , payment of the settlement moneys into Court, the release of Valgas from the respective claims of the appellant and the respondent in respect thereof and that there be a trial of the issues:
``(a) whether the said money is payable to the first defendants [ the appellants] under the deed of 11 March 1994 or the second defendant [the respondent] under the notices issued under the Income Tax Assessment Act 1936 s 218;
(b) as to in what capacity did the first defendants enter into the deed of 11 March
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1994, including whether the deed requires rectification consequentially upon the finding in respect of that issue.''
``The facts giving rise to the dispute'' were set out by the trial Judge as follows:
``By a transfer of mortgage charge dated 29 March 1985 Mr and Mrs Connell `trading as LR Connell & Partners' acquired the estate and interest in a mortgage registered over land owned by Valgas and in respect of which Valgas was the mortgagee. By statement of claim dated 3 March 1992 LR Connell & Partners brought proceedings against Valgas for various relief in connection with that mortgage. LR Connell & Partners was described in the statement of claim as `a partnership of which Lawrence Robert Connell and Elizabeth Joan Connell are and were at all material times the partners'.
In the early hours of the morning of 10 March 1994 that action between the partnership constituted by Mr and Mrs Connell and Valgas was settled by an exchange of facsimiles between the parties' respective solicitors. The initiating facsimile set out an offer, which was accepted by a subsequent facsimile. It was a term of the offer that:
`Acceptance of this offer shall constitute a binding agreement, however Valgas and LRC (LR Connell & Partners) shall execute a deed in the terms of this agreement or in such other terms as they may agree upon by 10 am on 11 March 1994.'
I shall refer to the settlement agreement constituted by the exchange of facsimiles as `the Facsimile Agreement'.
As contemplated by the Facsimile Agreement, a more formal deed of settlement was entered into. That deed (the Main Deed) was entered into between Valgas and `the party named and described in the schedule as ``the Connells'' (called ``the Connells'')'. According to the schedule concerned the Connells were described as `Lawrence Robert Connell and Elizabeth Joan Connell both of 43 Irvine Street, Peppermint Grove in the State'. The Main Deed defined `the Connells' as follows:
- (1) In this Deed... (unless such an interpretation is excluded by or contrary to the context):
- (a) The following terms are defined:
- ` ``The Connells'' includes each of the parties so described above and their and each of their personal representatives transferees and assigns.'
Clause 2 of the Main Deed provided that:
`Subject to the terms of this deed, Valgas shall pay to the Connells the Settlement Sum in full and final satisfaction of the Connells' claims in the Action and in full and final satisfaction of all actions, suits, causes of action, claims and demands whatsoever which the Connells now have or at any time hereafter may have or but for this Deed could or might have had against Valgas...'
The settlement sum under the Main Deed included an amount of $55,000 which had been paid into court and a sum of $500,000 to be paid on or before 31 March 1994. I shall refer to these amounts as `the settlement sum'. Clause l(e) of the Main Deed provided that:
`If two or more persons by this Deed undertake an obligation they shall be liable jointly and severally.'
Clause 10(c) provided that, in certain circumstances, should there be any default by the Connells then:
`The Connells shall pay to Valgas all costs, expenses, interest and damages suffered by Valgas as a consequence of or arising out of (certain delay as defined).'
Clause 16 provided that the Main Deed `replaces the (Facsimile Agreement)':
At about the time the Main Deed was executed, the Deputy Commissioner caused to be served on Valgas two identical notices under s 218 of the Income Tax Assessment Act 1936 (C'lth) (the Act). By that section the Commissioner of Taxation may give written notice to require `any person by whom any money is due or accruing or may become due to a taxpayer' to pay to the
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Commissioner all or so much of that `money' as is sufficient to pay tax due by a taxpayer. The notices were given by the Deputy Commissioner acting as delegate to the Commissioner.One notice was in respect of Mr Connell and he was therein referred to as `the taxpayer'. The other notice was in respect of Mrs Connell who was also referred to as `the taxpayer'. Each notice asserted that Valgas was a person:
`i. by whom any money is due or accruing or may become due to;
ii. who holds or may subsequently hold money for or on account of;
iii. who holds or may subsequently hold money for or on account of some other person for payment to;
... (the taxpayer).'
According to each notice more than $103M was due by each taxpayer in respect of tax. Each notice required Valgas to pay to the Commissioner so much of `that money' (being money referred to in paras i, ii and iii of each notice) as was sufficient to pay the amount said to be owing in respect of tax `or the whole of the money if it is equal to or less than that amount'.
Valgas thereupon brought an application for interpleader proceedings before Murray J, on the basis that it was uncertain as to whether the settlement sum was `money' of the kind referred to in the s 218 notices. Murray J, in consequence, made the order, as to the hearing of the matter, to which I have referred.
On 21 April 1994, after that order was made, the parties to the Main Deed entered into a supplemental deed (the Supplemental Deed). The Supplemental Deed recorded by preamble (c) that:
`At all times it was the intention and desire of the parties that the expression ``the Connells'' where used in the Main Deed should mean Lawrence Robert Connell and Elizabeth Joan Connell in their capacity as the partners in the firm ``LR Connell & Partners''; the plaintiffs in the action (ie the action commenced by the statement of claim to which I have referred).'
By the Supplemental Deed the parties further agreed that:
`... all references in the Main Deed to ``the Connells'' are to be interpreted and construed as a reference to Lawrence Robert Connell and Elizabeth Joan Connell trading as LR Connell & Partners and to this end the Main Deed is ``amended''...'
Various provisions followed making it plain that the parties to the Main Deed were not Mr and Mrs Connell as individuals but Mr and Mrs Connell trading as LR Connell & Partners, ie the partnership that had initially commenced action against Valgas. A further clause of the Supplemental Deed provided:
`This deed is intended to have effect from the date of the Main Deed and is ``supplemental'' to the Main Deed.'
It was accepted by Mr O'Connor QC, senior counsel for Mr and Mrs Connell, that if they are jointly and severally entitled to payment of the settlement sum, then each is a `taxpayer' and the s 218 notices were effective to require Valgas to pay the settlement sum to the Deputy Commissioner. In other words, on that basis the Deputy Commissioner succeeds in these proceedings. Mr Le Miere QC, senior counsel for the Deputy Commissioner, accepted, in turn, that if the settlement sum was owing by Valgas to the partnership of Mr and Mrs Connell, known as LR Connell & Partners, then they were not taxpayers and the s 218 notices were not effective to require Valgas to pay the settlement sum to the Deputy Commissioner, and Valgas was obliged to pay that sum to the partnership. On that basis Mr and Mrs Connell succeed. There was no consensus between counsel as to what the legal consequences would be should it be held that the settlement sum was not payable by Valgas to the partnership, but that it was payable to Mr and Mrs Connell jointly; in view, however, of the conclusion to which I have come, that question falls away.
I have no doubt (and I did not understand Mr Le Miere to contend to the contrary) that under the Facsimile Agreement, the settlement sum was owing by Valgas to the partnership and not to Mr and Mrs Connell, jointly and severally. It is plain from the
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very words of the initiating facsimile, read with the statement of claim, that Valgas undertook to pay the sum in question to LR Connell & Partners.''
The nature of a partner's interest in partnership property was explained by the High Court in
Canny Gabrielle Castle Jackson Advertising
v
Volume Sales (Finance) Pty Ltd
(1974) 131 CLR 321
at 327-328
as follows:
``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 realization 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 ( Partnership Act, 1892 , as amended (NSW), s 20). This description acknowledges that they belong to the partnership, that is, to the members of the partnership.
In
In re Fuller's Conract ( [1933] Ch 652 , at p 656) , Luxmore J (as he then was) said:`... as between the partners, the partnership property must be dealt with in a particular way, but so far as all the rest of the world is concerned, there is no limitation on the interests of the partners; the partners have the beneficial interest in the partnership assets, which are held together as an undivided whole, but they respectively have undivided interests in them.'''
Section 30 of the Partnership Act 1895 (WA) is in similar terms to s 20 of the New South Wales Act.
As to the effect of a s 218 notice I agree with the conclusions of Bryson J in
DFC of T
v
Westpac Savings Bank Ltd
&
Ors
87 ATC 4346
;
(1987) 72 ALR 634
which, at ATC 4349; ALR 638
, are as follows:
``It was not suggested that any interpretation provision requiring references to a taxpayer or words generally in the singular to include the plural had any operation. In my view it was appropriate that no such contention was made, as the references to a taxpayer throughout the subsection and indeed throughout sec 218 show that what is referred to is a single person, individual or incorporated, who is under a liability to pay tax; in the nature of things such liability is personal and several to each taxpayer.''
See also the references by Bryson J at ATC p 4349-4350; ALR p 638-639 to the judgment of Slesser LJ delivered in
Hirschorn
v
Evans
[1938] 2 KB 801
and to the comments by the New South Wales Court of Appeal in
DJ Colburt
&
Sons Pty Ltd
v
Ansen; Commercial Banking Co of Sydney Ltd (Garnishee)
(1966) 85 WN (NSW) (Pt 1) 64
.
There is no dispute that the Main Deed is directed to settlement of the partnership action and so to the payment by Valgas of the debt owed to the partnership for which it was jointly liable to both members of the partnership and to the receipt of which they, as partners were jointly entitled unless otherwise agreed.
The learned trial Judge concluded that the definition of the term ``the Connells'' in clause 1(a) of the Main Deed ``indicated a clear intent that Mr and Mrs Connell were contracting severally''. He found that ``clause 1(e) (read with cl 10(c)) is consistent only with such an intent''. He pointed out that clause 16 of the Main Deed provided for it to replace the Facsimile Agreement. He concluded that ``on its face, the Main Deed indicates an intention by the parties that the settlement sum be paid by Valgas, not to the partnership, LR Connell & Partners, but to Mr and Mrs Connell jointly and severally''. Having so found, His Honour identified the critical question for resolution of the issue before him as: ``What was the true intention of the parties at the time the Main Deed was entered into and did it contain an error?'' He rejected the appellants' contention that, if the Main Deed in fact reflected that they were entitled to the settlement sum jointly and severally, it was in error, that error being established by the evidence. He consequently rejected their submission that the settlement sum was payable to them as partners in the firm of LR Connell and Partners. He held that, notwithstanding that the Facsimile Agreement provided for payment of the settlement sum to the partnership, there was nothing inherently improbable in the parties to that agreement thereafter deliberately deciding the settlement sum should no longer be paid by Valgas to the
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partnership, but to the appellants jointly and severally. He found the onus to be on the appellants to establish the error, that to do so they had relied upon the Supplemental Agreement and the oral testimony of Mrs Connell, and that that evidence did not establish the same.I turn now to the provisions relied on by His Honour for his conclusion that the Main Deed indicated an intention that the settlement sum be paid to Mr and Mrs Connell jointly and severally and not to the partnership.
Clause 1(a) relevantly provides:
``(1) In this Deed the headings to clauses are not to affect its construction and (unless such an interpretation is excluded by or contrary to the context):
- (a) The following terms are defined:
- ...
- `the Connells' includes each of the parties so described above and their and each of their personal representatives transferees and assigns;''
The reference to the ``parties so described above'' can only be a reference to the description of the parties to the Main Deed which, relevantly, is as follows:
``The party named and described in the Schedule as `the Connells' (called `the Connells').''
The Schedule to the Main Deed relevantly provides:
```The Connells'
Lawrence Robert Connell and Elizabeth Joan Connell both of 43 Irvine Street, Peppermint Grove in the State.''
It is that description of ``the Connells'' to which clause 1(a), in my opinion, refers.
Clause 1(e) provides:
``(e) If two or more persons by this Deed undertake an obligation they shall be liable jointly and severally.''
Clause 10(c) provides:
``(c) The Connells shall pay to Valgas all costs, expenses, interests and damages suffered by Valgas as a consequence of or arising out of the delay of the First Event.''
Clause 16 provides:
``(16) This Deed replaces the agreement made the 10 March 1994 between the parties hereto and evidenced by a letter dated 10 March 1994 from Macdonald Rudder to Jackson McDonald and a letter from Jackson McDonald to Macdonald Rudder of the same date.''
With respect I do not draw the same inferences as His Honour from those provisions of the Main Deed.
I agree with appellants' counsel that in construing the Main Deed the Court is entitled to have regard to the matrix of circumstances known to the parties at the time the document was executed including the antecedent securities and the litigation. (
Codelfa Construction Pty Ltd
v
State Railway Authority of NSW
(1982) 149 CLR 337
.)
That being so I turn now to what in my view are the relevant provisions of the Main Deed, having regard to such matrix of circumstances. By clause 1(a) it defines ``the Mortgages'' as being registered mortgage C279379 and the unregistered mortgage upon each of which the partnership sued in the action. It separately defines these mortgages in terms which refer to their earlier transfer and assignment to ``the Connells'', which can only be a reference to the partnership. In providing for settlement it provides in clause 2 that ``Valgas shall pay to the Connells the settlement sum in full and final satisfaction of the Connells' claims in the action...''. It clearly there again refers to the claims of the partnership and settlement of those claims. By clause 3 it provides for the partners to consent to specific orders in respect of the partnership action against Valgas including payment of $55,000, part of the settlement sum, into Court by Valgas. By clause 4 it provides for payment of a further part of the settlement sum on or before 31 March 1994 in exchange for the title deed to the land mortgaged to the partnership, the discharge of the encumbrances and withdrawal of caveats lodged by ``the Connells and Rothwells and, without limitation, mortgage C279379 and caveat D122052'', those all being securities for moneys due to the partnership the subject of the action. It follows in my opinion that that reference to ``the Connells'' can only be a reference to the partnership. By clause 5 it provides that, upon payment of such moneys, Valgas shall ``execute in favour of the Connells and deliver a registerable mortgage over the land in standard form to be prepared by Connells' solicitors''. It is not in dispute that such
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mortgage is to secure inter alia the remaining balance of the settlement sum due to the partnership by Valgas in the terms of the Main Deed. Consequently the reference to the mortgage being in favour of ``the Connells'', in my opinion, can reasonably only be read as reference to a mortgage in favour of the partnership. By clause 6 the Main Deed provides that if payment is not made on or before 7 April 1994 of the moneys then due, then ``the Connells may by notice in writing to Valgas determine clauses 2 and 4 of this deed''. That determination relates to the provisions providing for settlement of the partnership action against Valgas, and consequently, in my opinion, requires the notice to be given by the partnership. Clause 7 also provides for determination of clauses 2 and 4 and, again, in my view, can only be referring to the rights of the partnership. Clause 8 provides for an increase in the amount of the settlement sum ``payable in full and final satisfaction of Connells claims in the action'' in the event of notice being given by the Connells under clause 6 determining clauses 2 and 4 of the Main Deed. Clause 9 is similar in its content. In my opinion the reference in clauses 8 and 9 to ``the Connells'' and/or ``Connells'' can only be construed as a reference to them as the partnership. Clause 10 deals with the failure of Valgas to pay that part of the settlement sum due on or before 31 March 1994 through default by ``the Connells'', including ``their failure to discharge the said encumbrances over the Land, the delivering up the duplicate certificate of title for the land or the said Bills of Exchange...''. These references to specific failures are clear references to the obligations of ``the Connells'' as the partnership, it being the holder of the mortgages and Bills of Exchange the subject of the partnership action. Subsequently herein I comment specifically on clause 10(c). Clause 11 refers to the possible inability of ``the Connells'' to remove the caveat lodged over the land by Rothwells. It thereby refers to a condition to be complied with by the partnership under clause 4(b) in exchange for the part settlement sum payable on 31 March 1994, the interest of Rothwells having been assigned to ``the Connells'' the partnership, and being part of the subject matter of the partnership action. Clause 12 also refers to default by ``the Connells'' and provides that in such case clauses 8 and 9 no longer apply. Clauses 8 and 9 I have already found can only refer to the rights of the partnership. There are numerous other provisions of the deed but, save for those referred to by His Honour in the passage from his reasons set out above and to which I next refer, they do not bear upon the issue.The definition of ``the Connells'' in clause 1(a) of the Main Deed is not exclusive. Its effect is to include within the term, thereby expanding its normal meaning (unless such an interpretation is excluded by or contrary to the context), Lawrence Robert Connell (Mr Connell) and Elizabeth Joan Connell (Mrs Connell) and each of their personal representatives, transferees and assigns. Pursuant to s 16 of the Partnership Act 1895 (WA) , the estate of a deceased partner is, in any event, severally liable for debts and obligations of the partnership subject to prior payment of his separate debts. For the reasons earlier set out, I am of the view that the context in which the term ``the Connells'' and the term ``Connells'' is used throughout the Main Deed in providing for settlement and the conditions of settlement, requires it to be construed as a reference to the partnership. The wording of the definition does not lead to the inference that the term should be construed generally as a reference to the individual partners in their personal and several capacities. Specifically, and for the reasons set out earlier, that construction cannot be applied reasonably to the provisions for settlement of the partnership action and for payment of the settlement sum to ``the Connells''.
There are, however, provisions in the deed referring to ``the Connells'' which do not necessarily require the term to be construed as a reference to the partnership. Clause 1(e) of the Main Deed (relied on by His Honour) is such a provision and it is to such a provision, in my opinion, that the expanded definition of ``the Connells'' applies. The function of clause 1(e) is limited to ensuring that obligations undertaken pursuant to the Main Deed by more than one person shall be joint and several. A partnership is comprised of more than one person. There is no reason, in my view, why a partnership cannot contractually agree with a third person to whom it has an obligation that individual partners will be severally liable for the partnership obligation for which the partners would otherwise be only jointly liable. Such a provision provides the person entitled to the
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benefit of the obligation with additional security for its fulfilment. It does not, however, reduce the obligations of the partners or the partnership nor deprive it of any benefits or entitlements under the contract and, in my opinion, is not inconsistent with the existence of a partnership.Clause 10(c) provides for such an obligation in the events there provided for arising out of the default of ``the Connells''. It creates an obligation to pay the costs, expenses, interest and damages suffered by Valgas in the circumstances there specified. It is clear, in my view, for the reasons earlier given, that the default there provided for is a default by ``the Connells'' as the partnership. It is concerned with failure to deal with the securities held by the partnership in accordance with the terms of the Main Deed on payment of that portion of the settlement sum payable pursuant to clause 4 of that Deed. It is the partnership that is entitled to the possession and benefit of those securities and the partnership that will, in such case, be in default. Furthermore, it is the partnership that is entitled to the settlement sum in that it is payable in ``full and final satisfaction of the Connells' claims in the action''. That the Connells as partners should jointly and severally covenant to pay the costs, expenses etc suffered by Valgas as a consequence of the default of the partnership as in clause 10(c) contemplated, does not, in my view, lead to the inference that the Main Deed was intended to provide for payment of the settlement sum to them severally. There is a distinction between undertaking an obligation which either or both of the partners might be called upon to perform for the purposes of the settlement on the one hand and the partnership's right to receive the moneys as agreed by the Facsimile Agreement, and as expressed again in clear terms by clause 2 of the Main Deed on the other. The former, considered on its own or with all or any of the other clauses relied on by His Honour, does not, in my opinion, lead to the inference that the settlement moneys are to be received by the parties jointly and severally. Clause 10(c) speaks only of obligations. It has no applicability to rights, benefits or entitlements resulting from the contractual arrangements. Indeed, that express provision was made for joint and several liability in respect of obligations undertaken by more than one party suggests strongly, in my view, so far as ``the Connells'' are concerned, that the provision was inserted to provide for joint and several liability for what would otherwise be the performance of the joint partnership obligation. The clause can have no application to Valgas. It is clearly appropriate that it apply to the Flavelles, the guarantors of the obligations of Valgas under the Main Deed to pay the settlement sum. That sum is payable in respect of the action and so to the partnership, so far as Valgas is concerned. Settlement of the partnership action being the overall purpose of the Main Deed, there is no reason, in my view, to construe obligations undertaken by the Connells as anything other than partnership obligations or to construe the contract as having been entered into by the Connells in their respective personal capacities and not as partners in the partnership.
It is helpful to identify what are the obligations of ``the Connells'' for the purposes of clause 1(e). They would appear to be only those imposed by clause 3, (ie to consent to orders in the partnership action) and clause 10(c) to which I have already referred. The consent required under clause 3 must necessarily, in my opinion, be a partnership consent. The application of clause 1(e) would seem to do no more than give Valgas a right to insist, should it be necessary, that each partner separately gives his or her consent. In my view, that does not on its own, or with any other provision of the deed, lead to the inference that the Main Deed was entered into by the individual partners in their personal capacities, or that the intention of the parties in executing the same was that the settlement sum is to be paid to them in their personal capacities or jointly and severally.
As to His Honour's reliance on clause 16, it is significant, in my opinion, that it was a term of the Facsimile Agreement that acceptance of the settlement offer ``shall constitute a binding agreement, however Valgas and LRC (LR Connell and Partners) shall execute a deed in the terms of this agreement or in such other terms as they may agree upon by 10.00 am on 11 March 1994''. It is clear therefrom that there was to be a subsequent Deed in terms of the Facsimile Agreement or on such other terms as Valgas and the partnership might agree, which would replace the Facsimile Agreement. That subsequent Deed was to be entered into by Valgas and LR Connell and Partners. A perusal of the facsimiles constituting the Facsimile
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Agreement makes clear that the Main Deed, generally speaking, in its essential terms, confirms the Facsimile Agreement. There are, of course, some significant variations which quite clearly have been the result of negotiations. His Honour found that, ``as contemplated by the Facsimile Agreement, a more formal deed of settlement was entered into''. That deed (``the Main Deed'') was in fact entered into between Valgas and ``the party named and described in the Schedule as `the Connells' (called `the Connells')''. It is significant in my view that by the time the Main Deed was entered into, the settlement had been agreed by virtue of the Facsimile Agreement and, pursuant to it, the settlement moneys were payable to the partnership. It was there expressly agreed that what became the Main Deed be entered into by the partnership. So far as that Deed imposes obligations on the appellants, they are obligations attached to settlement of the partnership action and can only be construed, in my opinion, as obligations of the partnership. They can only be carried out by the partnership as they involve partnership assets (the cause of action, the partnership securities for the debt). It seems to me that in coming to the conclusion that the intention of the parties as revealed by the Main Deed was that the settlement moneys be paid, not to the partnership but to Mr and Mrs Connell jointly and severally, His Honour gave insufficient consideration to the fact that the Facsimile Agreement provided for the new agreement to be executed by Valgas and LR Connell and Partners. It is not in dispute that, in so far as ``timing'' is concerned, the Main Deed was entered into pursuant to the terms of the facsimile provision. In my opinion, that leads to the inference that the Main Deed is indeed the deed there provided for and is one which, in the absence of unequivocal indications to the contrary, should be construed as having been entered into by the partnership with the intention that the settlement moneys be paid to the partnership. Clause 16 in my opinion could not, of itself, lead to any contrary inference. It seems to me that in construing the Main Deed His Honour had insufficient regard to the matrix of circumstances in which it was entered into.It is also significant, as His Honour found, that ``the settlement sum'' included $55,000 paid into Court in the action. In my opinion the inference is inescapable that those moneys were to be paid to the plaintiffs in the action, that is the partnership. That gives rise to the further inference that the parties intended the remainder of the settlement sum to be also paid to the partnership. His Honour appears however to have given no consideration to the inferences to be drawn from the payment into Court. Nor does His Honour refer to and, it would seem, gave no consideration to Mrs Connell's uncontested sworn testimony that the partners had not made any resolution as to how to deal with the settlement moneys from ``the Valgas action'' other than to allow them to be dealt with as an ordinary item of partnership property. That evidence, in my view, carries the clear inference that the appellants at all times considered the settlement sum to be partnership property and had not made any decision that it should be otherwise dealt with, whether by the Main Deed or otherwise.
In my opinion, for the reasons given, on the proper construction of the Main Deed the settlement moneys were payable to the Connells and receivable by them as the partnership and not in their separate and individual capacities and His Honour erred in construing it as he did. There was, in truth, no need for them to enter into the Supplemental Deed. That they did so following receipt of the Notices served by the Commission, in my opinion, leads only to the inference that having notice of his (incorrect) construction of the Main Deed they acted out of an abundance of caution to put its correct construction beyond doubt.
In so far as the Supplemental Deed is concerned His Honour accepted that, as between the parties to it, it effectively rectified the Main Deed. He pointed out however that it did not bind the respondent and speculated that it may have been entered into to effect, not a rectification, but a variation of the Main Deed as from its commencement date. It must be borne in mind that the signatories to the Supplemental Deed were not only the Connells but also Valgas and Mr and Mrs Flavelle. The preamble to the Supplemental Deed as executed states ``At all times it was the intention and desire of the parties that the expression `the Connells' where used in the Main Deed should mean Lawrence Robert Connell and Elizabeth Joan Connell in their capacity as the partners in the firm `LR Connell & Partners'; the plaintiffs in the Action''. In my opinion, having regard to
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the content of the Facsimile Agreement and to the provisions of the Main Deed and to the absence of any evidence to suggest that the preamble to the Supplemental Deed was untrue, there was no reason, having regard to the documentary evidence, to draw any inference other than that the Supplemental Deed was, in truth, a rectification effected to put beyond doubt that the Main Deed was entered into pursuant to the provisions of the Facsimile Agreement and to replace the same in effecting the settlement between Valgas on the one hand and the partnership on the other.In my opinion assuming (but rejecting) the correctness of His Honour's construction of the Main Deed, it was wrong, in my opinion, in the absence of strong and cogent evidence to the contrary, to approach the construction of the Supplemental Deed or the effect to be given to it on the basis that it was or might be a sham. To do so is to commence the process of construction by assuming, without evidence, the possibility of fraud, not only on the part of the Connells, but also by Valgas and the Flavelles. It seems apparent from His Honour's reasons that that assumption arose out of the mere fact of the Supplemental Deed having been entered into after receipt by the Connells of the respondent's notices. In my opinion, that is not evidence sufficiently cogent to give rise to the assumption. An innocent explanation, that of rectifiable error, is at least equally open. Absent His Honour's assumption of the possibility of fraud and having regard to the evidence before him, the fact that Mr Connell did not give evidence to assert positively that there was no fraud in the content of the Supplemental Deed is insufficient, in my opinion, to lead to the conclusion that the appellants had not proven on the balance of probabilities that the Supplemental Deed was not a true rectification of the Main Deed (were it the case that it required rectification).
I am further of the view that His Honour erred in imposing on the Appellants the onus of proof of rectification which exists when parties to an agreement are in dispute as to whether or not the agreement sought to be rectified is in fact in error. In the present case there is no such dispute and that is made clear by the Supplemental Deed. It seems to me that the facts were such that, all parties to the Main Deed having entered into the Supplemental Deed and recognised and agreed that the Main Deed was in error, it was not for the appellants to prove the rectification to be not a sham but for the respondent to prove that the Supplemental Deed was a fraud.
As to the testimony of Mrs Connell, His Honour concluded that it revealed that she did not turn her mind to the question whether or not it was the partnership that was settling, but ``took it for granted that it was LR Connell and Partners and left it to Mr Connell to agree the terms of settlement''. He held that her evidence did not touch on the question whether the Main Deed was in error in reflecting the appellants to be jointly and severally entitled to the settlement sum. He concluded there to be an inference, ``readily open'' from the words used in the Main Deed, that Mr Connell ``consciously and deliberately decided to provide therein that the settlement sum should be payable to him and his wife jointly and severally''. As to that inference being readily open, it would seem that His Honour was referring to the definition of ``the Connells'' and to clauses 1(e), 10(c) and 16 as giving rise thereto. With respect, for the reasons already given, I do not find myself able to draw the same inference from any or all of those provisions or any other provisions of the Main Deed or the evidence available to His Honour. There was no evidence in my opinion, capable of giving rise to that inference. It was no more than a conjectural possibility.
Mrs Connell's evidence in chief was by way of swearing to the truth of her affidavit of 5 April 1994 that she was a partner in equal shares with her husband in the partnership of LR Connell and Partners and, relevantly, that the partners had not ``made any resolution as to how to deal between themselves with the settlement moneys from the Valgas action other than to allow them to be dealt with as an ordinary item of partnership property to be dealt with in accordance with the Partnership Act 1895 ''. This statement was not contested in any way in cross-examination. It was relevant to His Honour's consideration, but apparently not taken into account by him. In cross-examination her evidence relevantly was that she was aware that settlement of the action against Valgas had been effected the day prior to that on which Mr Connell produced to her the Main Deed for execution and that such settlement had been effected on instructions given by Mr Connell to the partnership solicitors. The settlement to
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which she was there referring was clearly that the subject of the Facsimile Agreement found by His Honour to be a settlement with the partnership. She signed the Main Deed at her husband's request, he having informed her that it was ``the deed to cover the Valgas settlement''. She testified that the settlement required moneys to be paid by Valgas to the partnership. She was not consulted about the terms of settlement in general terms, but knew it was to be ``LR Connell and Partners that were settling''. Asked if she ``actually'' turned her mind to whether it was the partnership, she replied that she was aware that it was the partnership. Asked the same question again she replied that she ``took it for granted it was LR Connell and Partners. No I didn't turn my mind to it, I guess, no''. It is clear from the cross- examination which, at that point, was directed to 9 March and the early part of 10 March, that Mrs Connell was there referring to the settlement the subject of the Facsimile Agreement. Asked whether she turned her mind to the question when she signed the Main Deed on 11 March, she replied that she took it for granted that it would be the partnership. It was then put to her that she took it for granted but didn't actually think about it. To this she replied, ``I guess not''. In re-examination she said that she had always known that ``Valgas was held by LR Connell and Partners so I had taken it for granted that the documents would be in LR Connell and Partners' name''.His Honour concluded that whilst Mrs Connell took it for granted that under the settlement agreement the settlement sum would be payable to the partnership, she did not apply her mind to that issue and left it to Mr Connell to agree the terms of settlement. He was of the view that it was unlikely that she read the Main Deed and, if she did, then she did so only cursorily. He found that she accepted that Mr Connell had the authority to come to the appropriate agreement with Valgas. With due respect I have difficulty with His Honour's reasoning in relation to Mrs Connell's evidence and his conclusion that it did not touch on the issue of the claimed error in the Main Deed. The reasoning, in my view, overlooks that the settlement of the action effected on the morning of 10 March 1994 was, to her knowledge, to be between Valgas and the partnership and result in payment to the partnership of the settlement moneys. That she did not further turn her mind to the issue because she was aware that the settlement was with the partnership and had always known that ``Valgas was held by the partnership'', does not, in my view, lead to the conclusion that she did not care whether or not the settlement was with the partnership or that she was consenting to the settlement moneys being paid otherwise than to the partnership. The action against Valgas the subject of the settlement was instituted by her and her husband as partners in the partnership and was settled expressly, as is demonstrated by the Facsimile Agreement and His Honour's finding in respect of it, between Valgas and the partnership. Consequently the settlement moneys at that point were to be paid to the partnership. In my opinion, with the awareness she had of the securities held by the partnership and of the partnership action, it was not necessary that Mrs Connell turn her mind further to the details of the settlement. Her evidence as to her understanding that the settlement was between Valgas and the partnership, both in respect of payment and the Main Deed, was clearly relevant, in my opinion, to the issue of the claimed error. In my view, the settlement having been effected by the Facsimile Agreement subject to the deed to be subsequently executed by Valgas and the partnership, no inference adverse to the appellants' case could properly be drawn from the fact that Mrs Connell took it for granted that the Main Deed was entered into by the partnership. Indeed viewed with the Facsimile Agreement her evidence supports the claimed error. Again, in my opinion, it was not necessary, having regard to her knowledge of settlement of the action, that she turn her mind further to details of the settlement or the terms of the agreement. That she did not do so is consistent with the partnership intention expressed in the Facsimile Agreement that the Main Deed be entered into by or on behalf of the partnership. All of those matters in my opinion go directly to the issue of the ``error''. That Mr Connell did not give evidence does not detract from the relevance of her evidence and, in the absence of other evidence, the onus of proof being on the respondent, does not lead to the conclusion that Mr Connell decided to provide therein that the settlement sum should be paid to him and his wife jointly and severally and that the rectification effected by the Supplemental Deed is more probably than not a
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sham, or that the probability that it was a true rectification was not made out.In my opinion, for the reasons given, on the proper construction of the Main Deed, the settlement sum there provided for is payable to the Connells in their capacity of partners in the partnership of LR Connell & Partners and the learned trial Judge was in error in construing it as he did. In my opinion the Supplemental Deed was unnecessary as the Main Deed did not require rectification and the proper inference is that it was entered into out of caution when the respondent's construction of the Main Deed became apparent. I am further of the opinion that, even were the learned trial Judge correct in his construction of the Main Deed (and as is evident that is not my view), the evidence was such as to demonstrate that the provisions of the Main Deed which led His Honour to that construction reflected an error which was rectified by the Supplemental Deed and the evidence was such as to establish that error. Consequently I would uphold the appeal, set aside the findings and judgments of the learned trial Judge as set out in the Notice of Appeal, make orders or declarations in the term of those sought in such Notice, and would invite counsel to make submissions as to the terms of those orders and any other orders that might be seen to be necessary or desirable.
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