The Supreme Court of WA has held that 2 brothers, who conducted an accounting practice and other businesses, were not in partnership.
The 2 brothers had spent some 30 years in business together including an accounting practice, property development, share dealing, corporate consulting and farming. Over that time, they had used various structures such as companies, discretionary trusts and unit trusts. Their relationship deteriorated and culminated in the present court case over whether they were in partnership in those years – one brother (referred to by the Court as Tony, who was an accountant and tax agent) said yes, the other (referred to by the Court as John, who was not an accountant) said no. The Court had to decide, as an issue of legal status, whether or not the brothers had been in partnership since 1976.
According to the Court, Tony’s counsel acknowledged that the taxable income that was received by the group entities was dealt with largely by distributions through various trusts and allocation of expenses, in a way that ensured that across the group entities and the families of John and Tony the most tax effective result was achieved.
The Court said thousands of documents were filed, but none of them was a partnership agreement between the 2 brothers. It said the sale of the accounting practice, or part of it at various times, was decisive against there being any partnership between the brothers as to the accounting practice. The Court said the various deeds of settlement establishing trusts presented in evidence provided further proof of the brothers’ intentions to trade exclusively through corporate entities and discretionary and unit trusts and not to trade as partners or in a relationship giving rise to fiduciary obligations. In the Court’s view, the submissions, affidavits and evidence presented confirmed there was no place for a partnership, contract or relationship which gave rise to fiduciary obligations “in circumstances where the parties have quite deliberately chosen to take advantage of tax and corporation laws to effectively manage their incomes by the use of companies and trusts”.
The Court said “Tony would like to ignore the complex legal structures set up in order to limit liability, minimise the tax burden and overcome any regulatory problems. This cannot be done. From 1976 the brothers intended to trade in a way antithetical to any partnership. John’s declaration must succeed and Tony’s alternative must fail.” The Court therefore held that the brothers had not been in partnership.
(Palermo v Palermo [No 2] [2014] WASC 6, Supreme Court of WA, McKechnie J, 15 January 2014).
[LTN 13, 21/1/14]