These proceedings concern a partnership between the plaintiff, the first defendant and the second defendant, who are pharmacists.
The partnership began in about February 2000 when the plaintiff, who had previously operated two pharmacies in the Randwick area as a sole trader, sold a one-third interest in one of those pharmacies to each of the defendants. The pharmacy in question was known as "Royal Randwick Pharmacy" ("RRP").
The partnership was the subject of a deed executed by the parties and styled "Partnership Deed". The Deed permitted the plaintiff to continue to operate the other pharmacy on her own account, and that other pharmacy is of no further relevance for these proceedings.
Since the partnership began, by arrangement between the parties, the management of the business has been carried out by the defendants. The plaintiff worked initially in the dispensing area on weekends, but it is not clear from the evidence whether she still does so.
By agreement between the parties, the RRP business was subsequently sold. Three pharmacies were then acquired at the Macquarie Shopping Centre, North Ryde, and operated under the auspices of the partnership.
The plaintiff has a significant amount of money tied up in the partnership in the form of loans, and has also granted security over her property for partnership liabilities. I assume that the defendants are in a similar position. For two years or so there have been negotiations between the parties for the sale or incorporation of the partnership business and the winding up of the partnership, but these did not result in any agreement.
The Partnership Deed provides (cl 21) for a "pre-emption" procedure whereby a partner might offer to sell his or her interest in the partnership to the other partners (at a price to be determined by agreement or alternatively by valuation) and, if the offer is not accepted, the partner might then sell to a third party. The Deed also contains a provision (cl 27) for the dissolution of the partnership, involving the sale of the partnership assets and the discharge of the partnership liabilities.
The plaintiff wishes to extricate herself from the partnership, but without invoking the "pre-emption" procedure. In October 2016, the plaintiff served a "notice of determination" purporting to terminate the partnership pursuant to the Partnership Act 1892 (NSW).
The present proceedings were commenced in December 2016. The plaintiff seeks a declaration that the partnership was validly terminated by service of the plaintiff's notice of termination of October 2016, and further orders, purportedly by way of specific performance, for the dissolution of the partnership pursuant to cl 27. Alternatively, the plaintiff seeks orders that the partnership be wound up by the Court on the just and equitable ground.
[2]
Issues for decision
The proceedings came before me for hearing on 30 May 2017. The defendants contended (albeit that this had not been put on their behalf in prior written submissions) that the notice was ineffective. The defendants' position was that although as a matter of principle they did not oppose the plaintiff withdrawing from the partnership business, she should do so by following, at least in the first instance, the cl 21 procedure. Alternatively, if the partnership was to be wound up on the just and equitable ground, orders should be made to allow the defendants to purchase the plaintiff's interest in the partnership at valuation rather than conducting a public sale.
The first critical issue between the parties is, therefore, the validity of the notice. If the plaintiff succeeds on this issue, it will be unnecessary to consider winding up on the just and equitable ground. I therefore decided to deal with this issue separately. If the plaintiff fails on the issue, it will be open to her to press on, if she is so advised, with an application to dissolve the partnership under the just and equitable ground.
[3]
Partnership Deed provisions
Clause 3.1 of the Partnership Deed provides:
Partnership to Carry on the Business
The Partners shall complete the purchase of the Business and carry on the Business at the Premises as Partners until the Partnership is determined as provided by this deed, except as otherwise unanimously agreed by the Partners.
The "Business" is defined as:
… a pharmacy business located at shop 26, 73 Belmore Road, Randwick, New South Wales, known as the Randwick Village Pharmacy, and having registered business name number L7173041 (the "Business").
The "Premises" are defined as:
… shop 26 at the Royal Randwick Shopping Centre at 73 Belmore Road, Randwick, New South Wales or such other place or places as the Partners may from time to time unanimously agree are the Premises for the purposes of this deed;
The proceedings have been conducted before me on the basis that the "Business" now consists of the three pharmacies at the Macquarie Centre. This is consistent with the Deed, in that the definition of "Business" is "a pharmacy business" located at the former location, but the definition of "Premises" contemplates that the location could be moved. In any event, it is clear that all parties have agreed, even if implicitly, to the expansion of the Business to the current three outlets and for the Partnership Deed to continue to apply on that basis: Partnership Act 1892 (NSW), s 19.
I have already referred to cl 27 which deals with the winding up of the Business. That clause begins:
WINDING UP OF PARTNERSHIP BUSINESS
Where pursuant to the provisions of this deed the Partnership is to be dissolved, a general account shall be taken of the assets and liabilities of the Partnership and the assets shall be realised as soon is [sic] conveniently possible and the net proceeds after the discharge of all the liabilities of the Partnership and the payment of expenses of the winding up shall be applied in the following order of priority:
The Deed provides for a number of circumstances in which the interests of a particular partner, or the partnership itself, may be terminated. I have already referred to the "pre-emption" procedure in cl 21. That clause begins:
PRE-EMPTION PROCEDURE
A Partner (the "Transferring Partner") may Transfer or procure the Transfer of the whole or any part of the Partner's Partnership Interest (the "Transferring Interest") in accordance with the following procedure:
Clause 25 provides:
EXPULSION OF A PARTNER
If any Partner (the "Offending Partner"):
(a) commits a breach of any of the provisions of clauses 14, 15 and 16 which the other Partners reasonably:
(i) decide is not capable of remedy; or
(ii) decide is capable of remedy but is not remedied within 10 Business days after the Offending Partner is served with notice to remedy the same;
(b) is convicted of any criminal offence punishable by imprisonment; or
(c) ceases to be a duly qualified pharmacist for any reason;
then the other Partners may within 3 months after becoming aware of the above subject to resolving to expel the Offending Partner from the Partnership by notice in writing to the Offending Partner expel the Offending Partner and determine the Partnership as regards the Offending Partner. A decision under paragraph (a) or a resolution to expel the Offending Partner must be passed by all of the other Partners.
Clause 23 provides:
CERTAIN EVENTS
(a) If any of the following events (an "Event") occurs prior to the dissolution of the Partnership in accordance with clause 28:
(i) the death of a Partner;
(ii) the bankruptcy or liquidation of a Partner;
(iii) the expulsion of a Partner from the Partnership pursuant to clause 27; or
(iv) a Partner becoming permanently mentally incapacitated.
then the other Partners not affected by that event (the "Surviving Partners") shall be entitled to dissolve the Partnership in accordance with the provisions of clause 27 provided that within 3 months after the occurrence of the Event a resolution to that effect (a "Dissolution Resolution") has been passed by the Surviving Partners. …
(b) In the event that no Dissolution resolution has been passed by the Surviving partners within the period prescribed by paragraph (a) then, upon the expiration of that period, the Surviving Partners shall be obliged to purchase and the Affected Partner shall be obliged to sell the Partnership Interest of the Affected Partner in equal proportions and upon the terms set out in clause 21.
Reference to expulsion "pursuant to clause 27" in sub-cl (a)(iii) is clearly a mistake and should be read as a reference to cl 25. The reference to dissolution "in accordance with clause 28" in the chapeau to sub-cl (a) is more troublesome. The reference to cl 28 itself is clearly wrong, as that clause deals with income tax depreciation. Counsel for the defendants contended that the reference should be to cl 27, but that is rather redundant given that cl 27 is referred to later in sub-cl (a). Counsel for the plaintiff suggested that the words should be ignored. On balance, I agree with counsel for the defendants, because elsewhere in the Deed dissolution is always referred to as dissolution under the Deed rather than at large.
Clauses 2.1 and 2.2 dealt with the creation and commencement of the partnership. Clause 2.3 provides:
Termination
Unless otherwise unanimously agreed by the Partners, the Partnership shall terminate:
(a) on the date that the Partnership is determined as provided by this deed;
(b) for a Partner, when it ceases to hold a Partnership Interest, except as otherwise provided in this deed.
Clause 2.3 recognises a distinction between the "termination" of the partnership so far as one partner is concerned (sub-cl (b)) and termination of the whole partnership (sub-cl (a)). In a multi-party partnership such as this one, termination as regards one partner brings the partnership to an end in the sense that the business ceases to be operated by a partnership consisting of the former partners, but the partnership continues in the sense that the continuing partners remain partners in the business and remain bound to each other to continue the operation of the business in partnership in accordance with the terms of the partnership agreement. On the other hand, the termination of the partnership as a whole terminates the relationship of partner between all of the partners and results in the cessation of the partnership business except to the extent necessary to sell the partnership assets and otherwise wind up the partnership's affairs.
Clause 20 provides:
DURATION OF PARTNERSHIP
(a) The Partnership shall continue until dissolved in accordance with the provisions of this deed.
(b) The death retirement bankruptcy or expulsion of a Partner shall not, unless the other Partners so determine, dissolve the Partnership as to and between the other Partners
Clause 20 uses the term "dissolve" instead of "terminate" as in cl 2.3, but the meaning seems to be the same. Clause 20(a) must, I think, be understood as referring to the dissolution of the partnership as a whole. It follows that it effectively operates as a restatement of cl 2.3(a).
Clause 20(b) apparently only makes explicit what is already implicit in cl 23, namely that bankruptcy, expulsion etc does not effect an automatic dissolution of the whole partnership and the partnership remains on foot among the continuing partners, who may elect either to buy out the interest in question or to dissolve the partnership.
There is a puzzle created by the use of the word "retirement" in cl 20(b). The Deed nowhere provides in its terms for the "retirement" of a partner. Counsel for the plaintiff pointed out that the other events referred to (death, bankruptcy or expulsion) are the events referred to in cl 23(a)(i), (ii) and (iii) and accordingly suggested that the word "retirement" in cl 20(b) should be read as a reference to a partner becoming permanently mentally incapacitated which is the event referred to in cl 23(a)(iv). Counsel for the defendants suggested "retirement" is used in a more general sense but the submission was not developed in great detail. On balance, I do not think I need to resolve the issue. No-one suggests that the clause creates some free-standing right of "retirement".
[4]
Legislative context
The notice served on behalf of the plaintiff purported to terminate the partnership pursuant to s 26 of the Partnership Act 1892 (NSW). At the hearing, the plaintiff also sought to rely on s 32.
Section 26 provides as follows:
Retirement from partnership at will
(1) Where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice of the partner's intention so to do to all the other partners.
(2) Where the partnership has originally been constituted by deed, a notice signed by the partner giving it, shall be sufficient for this purpose.
(3) This section does not apply to or in respect of a limited partnership or incorporated limited partnership.
Section 32 provides:
Dissolution by expiration or otherwise
Subject to any agreement between the partners, a partnership is dissolved:
(a) If entered into for a fixed term, by the expiration of that term:
(b) If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking:
(c) If entered into for an undefined time, by any partner giving notice to the other or others of the partner's intention to dissolve the partnership.
In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is mentioned, as from the date of the communication of the notice.
The apparent overlap with s 32(c) raises the question of what purpose s 26 was intended to have. The heading to s 26 refers to the "retirement" of a partner and although the heading is not part of the text of the Act, recourse may be had to it for the purpose of interpretation of the Act: Interpretation Act 1987 (NSW), s 34(1)(b).
"Retirement" is referred to in a number of other places in the Act. Section 17 relevantly provides (emphasis added):
Liabilities of incoming and outgoing partners
(1) A person who is admitted as a partner into an existing firm … does not by that admission alone become liable for anything done before the person became a partner.
…
(3) A partner who retires from a firm … does not by that retirement alone cease to be liable for partnership debts and obligations incurred before the partner's retirement.
…
(5) A retiring partner in a firm … may be discharged from any existing liabilities by an agreement to that effect between the partner and the members of the firm as newly constituted and the creditors, and this agreement may be either expressed or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted.
Section 37 provides (emphasis added):
Right of partners to notify dissolution
On the dissolution of a partnership or retirement of a partner any partner may publicly notify the same, and may require the other partner or partners to concur for that purpose in all necessary and proper acts, if any, which cannot be done without the partner's or their concurrence.
Sections 42 and 43 apply where a member of the firm has "died, or otherwise ceased to be a partner, and the surviving and continuing partners carry on the business of the firm … without any final settlement of accounts as between the firm and the outgoing partner, or the partner's estate". In such a situation the estate or the outgoing partner is entitled to a share fixed by the Court of the profits made since "the dissolution", but not where the partnership agreement has provided for the exercise of an option to purchase the interest of the deceased or outgoing partner. Although the text speaks of an "outgoing" partner, the heading to s 43 refers to a retiring or deceased partner.
The term "retirement" naturally describes a situation in which one partner ceases to be a member of the firm but the partnership business is carried on by the remaining members of the firm, with or without the introduction of a replacement partner. This is clearly the sense in which it is used in s 17 which refers to the continuing partners as "members of the firm as newly constituted". The meaning appears to be the same in s 37 (where it is used in apposition to "dissolution") and the heading to s 43.
Further textual clues are provided by the fact that s 26 appears in Pt 3 of the Act, which deals with relations between partners, and does so alongside s 25 which deals with the "expulsion" of partners, another circumstance in which one partner ceases to be a member of the firm but the business may be carried on by the other partners.
Part 3 also contains s 31, which deals with the rights of an assignee in the case of an assignment by any partner of the partner's share in the partnership. This is another circumstance where an individual partner's interest has to be considered on its own and independently of the relationship between the other partners. Subsection (2) expressly refers to a "dissolution of the partnership, whether as respect [sic] all the partners, or as respects the assigning partner".
Section 32, on the other hand, is found in Pt 4 of the Act which deals with "dissolution".
Many of the provisions of Pt 4 which speak of dissolution clearly refer to dissolution of the partnership as between all partners: s 33 (dissolution by bankruptcy, death or charge); s 34 (dissolution by illegality); s 35 (dissolution by the Court); s 37 (notification of dissolution: quoted at [32] above) and ss 38 and 39 (which deal with winding up).
However, it is not as simple as saying that the term "dissolution" is exclusively used to mean the termination of the whole partnership.
Section 42 (quoted in part at [33] above) in speaking of "the dissolution" appears to be speaking of the dissolution of the partnership relationship as regards the outgoing partner only. Section 31 (quoted in part at [36] above) refers to dissolution in both senses.
Both ss 26 and 32, as well as the other sections to which I have referred, are taken from the Partnership Act 1890 (UK). That Act had a tortuous passage to the statute book. I received supplementary submissions from counsel for both parties which addressed the background to, and construction of, the relevant provisions, and I also undertook some further research into the legislative history for myself.
The move to codify partnership law was promoted by the Associated Chambers of Commerce who retained the then Mr Frederick Pollock, of counsel, to draft the initial Bill, which was introduced into Parliament in 1879. At that stage, Pollock had already published a text book on partnership law in the form of a digest, which summarised the law in a series of articles and propositions. The second edition of his work, published in 1880, included as an appendix the then form of the Bill, being his initial Bill as amended in Committee.
The Bill encountered resistance in Parliament. In the course of a debate in 1882, opponents taunted the Government that the Bill had been introduced by the President of the Board of Trade, rather than by the Solicitor-General or the Attorney-General, suggesting that it had been drafted by business interests rather than expert lawyers. The Government responded that the then Lord Justice Lindley had provided some comments on the Bill but the then Mr Davey QC (later Lord Davey) retorted that the Master of the Rolls (then Sir George Jessel) thought it "a thoroughly bad Bill, one of the worst of the proposed Codes": House of Commons Debate (21 July 1882) vol 272 cols 1324-31.
Further versions of the Bill, with revisions, were introduced in 1882, 1883, 1884 and 1889 before the Bill was finally passed in its 1890 form: Sir Nathaniel Lindley, A Treatise on the Law of Partnership (6th ed, 1893, Sweet and Maxwell) at 1.
Section 26 of the current NSW Act may be traced back to s 44 of the Partnership Bill 1880 (UK), in the appendix to Pollock's 1880 work: Sir Frederick Pollock, A Digest of the Law of Partnership (2nd ed, 1880, Stevens and Sons) at 143. The section is titled "Retirement from partnership at will" and a reference to article 42 of his digest is provided. The section appeared as follows (emphasis added):
44. Where no fixed term has been agreed upon for the duration of the partnership, any partner may retire from it at any time upon giving express notice of his intention so to do to all the other partners.
Where the partnership has originally been constituted by deed, a notice in writing, and signed by the partner giving it, shall be sufficient for this purpose.
Article 42 of the digest, also titled "Retirement from partnership at will", provided (at 66):
42. Where no fixed term has been agreed upon for the duration of the partnership, any partner may retire from it at any time upon giving express notice of his intention so to do to all the other partners.
Where the partnership was originally constituted by deed, it is doubtful whether the notice must be under seal.
The 1884 edition of Pollock's work contained as an appendix the Partnerships Bill 1883 (UK). Section 44 had become s 45, but was still titled "Retirement from partnership at will". The language of the section was identical to the previous s 44 in all respects save one: the words "retire from it" now read "determine the partnership": Sir Frederick Pollock, A Digest of the Law of Partnership (3rd ed, 1884, Stevens and Sons) at 145. Although no reference to an article of his digest was provided, article 42 was in the same terms as in Pollock's 1880 work.
Although I have not researched the minutes of Committee meetings between 1880 and 1883 to determine the reasoning behind this amendment, it may be that the amendment's goal was to align it with the provision dealing with the continuation of a partnership beyond its fixed term, now s 27 of the NSW Act. This provision appeared as s 45 in the 1880 Bill and as s 46 in the 1883 Bill in identical terms, immediately after the provision dealing with retirement from a partnership at will. It provided (emphasis added):
45. Where a partnership entered into for a fixed term is continued after the term has expired, and without any express new agreement, the rights and duties of the partners shall remain the same as they were at the expiration of the term, so far as consistent with the right of any partner to determine the partnership at will…
In Pollock's digest, he provided the following examples of the operation of this provision (Pollock, 1880, at 67; Pollock, 1884, at 68-9; emphasis added):
4. Partnership articles provide that a partner wishing to retire shall give notice of his intention a certain time beforehand. If the partnership is continued beyond the original term, this provision does not hold good, as not being consistent with a partnership at will: Featherstonhaugh v. Fenwick (1810), 17 Ves. at p. 307.
5. A. and B. enter into partnership for seven years, under articles which empower either partner, if the other neglects the business, to dissolve the partnership by notice, and purchase his share at a valuation. They continue in partnership after the seven years. This power of dissolution on special terms can no longer be exercised, as either party may now dissolve the partnership at will: Clark v. Leach (1862), 32 Beav. 14; 1 D. J. S. 409; see the M.R.'s judgment, 32 Beav. 21.
Although the provision did not change in the 1883 Bill, apart from its numbering, by 1890 the language had been amended, such that the emphasised clause now read "so far as is consistent with the incidents of a partnership at will": Partnership Act 1890 (UK), s 27. This is the form of the current s 27. The result is that the relationship between ss 26 and 27 is now less obvious than it was at the initial stage of the drafting process.
[5]
Prior authority
In the English case of Moss v Elphick, the plaintiff agreed to pay £250 to become a partner with the defendant in a tobacconist business. The partnership agreement stated (cl 4) that the partnership "shall be terminated by mutual arrangement only". The plaintiff purported to terminate the partnership by notice under s 26. The case came on appeal from a County Court to a Divisional Court consisting of Darling J and Pickford J ([1910] 1 KB 465). Darling J considered that the partnership was one for "no fixed term" within the meaning of s 26 (at 467-8). But his Lordship reasoned that the situation was also covered by s 32(c) and that s 32 had the effect that the agreement could not be terminated otherwise than by mutual arrangement. Pickford J agreed and said (at 468-9):
Where there are two sections dealing with the same subject-matter, one section being unqualified and the other containing a qualification, effect must be given to the section containing the qualification.
A further appeal was taken to the Court of Appeal ([1910] 1 KB 846) which was dismissed. The appellant argued that the approach of the Divisional Court resulted in an impermissible overlap between s 26 and s 32. Vaughan Williams LJ said (at 848):
I am of opinion that, although as a general rule the presumption would be against such an overlapping of provisions in a statute, in this case it is impossible to come to the conclusion that it was intended by the Act to forbid persons entering into partnership from making such a stipulation as that contained in clause 4 of the agreement in this case.
Fletcher Moulton LJ reached the same conclusion by different reasoning. He said (at 848-9):
I do not think that it was intended by the Partnership Act, 1890, to limit the power of persons to enter into an agreement of partnership upon such terms with regard to the duration of the partnership as they might think fit. The Act was intended to deal partly with matters of procedure, and partly with the implications which arise from the relation of partners as regards the ordinary incidents of partnership business. That view appears to me to be supported by the language of ss. 32 and 33 of the Act, which shews that the incidents therein stated to attach to partnership are to be "subject to any agreement between the partners," which I understand to mean any specific agreement as to the matters mentioned in those sections contained in the partnership agreement. The only difficulty arises from the terms of s. 26, sub-s. 1, which provides that, "where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time by giving notice of his intention so to do to all the other partners." It is argued that this provision refers to all cases in which a definite period of time has not been fixed by the agreement of partnership for the duration of the partnership. That does not appear to me to be the true meaning of the sub-section. I think that it refers only to cases where the partnership agreement is silent as to the duration of the partnership; that it is not meant to nullify any provision which the parties have chosen to make as to the duration of the partnership, but only to take effect where they have made no such provision at all.
Farwell LJ said (at 849-50):
In my opinion s. 26, sub-s. 1, applies to partnerships at will only. …It is impossible in this case to say that by the terms of the partnership agreement the partnership was "at will," because that means that it is determinable at the will of either of the parties: here it is expressly provided that it shall be determined only by the mutual consent of both parties. I am of opinion that this case does not come within s. 26, sub-s. 1, as being a case in which no fixed term has been agreed upon for the duration of the partnership. The effect of the agreement is that the partnership is to endure for the joint lives of the partners. If it were so expressed, it would be unnecessary to add the words "unless it be determined by mutual agreement." Here the parties have not said that the partnership is to be for their joint lives, but have said that it is to be determinable "by mutual arrangement only," but the effect is the same. Either the case does not come within s. 26, sub-s. 1, or, if it does, I think that the words "subject to any agreement between the partners" in s. 32 produce the same result.
In the Scottish case of Maillie v Swanney 2000 SLT 464, the parties were solicitors who were members of a firm constituted by a written contract of partnership. Clause 10 provided for an insolvent partner to cease to be a partner and to be excluded from the business. Clause 11 provided for the expulsion of a partner for fundamental breach of a contract. Clause 12 provided for retirement upon notice being given. Each clause provided that the event in question would not terminate the partnership. Clause 13 provided for death or incapacity to be dealt with as retirement. Clause 14 provided that the partners might terminate the partnership by mutual agreement. Clause 15 provided that where clauses 11, 12, or 13 applied the remaining partners had an option to discontinue the business, in which event, or if there were a mutually agreed termination under clause 14, the whole assets of the partnership were to be sold. The pursuer gave notice purporting to terminate the partnership under the UK Act.
Lord Penrose referred to the interaction between ss 26 and 32. He said (at 468-9):
Section 26 applies where "no fixed term has been agreed upon for the duration of the partnership". Section 32 (a) applies where the partnership was "entered into for a fixed term" and that term has expired. One would incline to the view that the use of the expression "fixed term" in these two provisions was significant. One might incline to think of the provisions as counterparts one of the other. Where there is not a "fixed term", any partner may "determine" the partnership under s 26. Where there is a "fixed term", the expiry of that term dissolves the firm, subject to agreement, without notice. The same notion of "fixed term" appears to be common to the two provisions. In any event, it would appear to be clear that when s 32 (c) uses the expression "entered into for an undefined term", there has been a deliberate selection of a different criterion for dissolution than that identified by reference to a "fixed term". It is not necessary for present purposes to reach a concluded view on the scope and application of s 26. On one view, it may reflect a deliberate departure from a much older common law principle, discussed by Bell [Commentaries on the Law of Scotland] at ii, 521 and reflected in the opinion of the Master of the Rolls in Featherstonhaugh v Fenwick at p 119, that after the expiry of a fixed term any partner might dissolve the firm as a partnership at will, subject to notice. On the other hand, s 26 may deal with the alternative view of the common law that any partner may fairly, and at a period not prejudicial to the others, terminate his own concern in the partnership: Bell, ibid. In any event it appears to me to be distinguished in its context and treatment from the provisions relating to dissolution.
Lord Penrose ultimately dealt with the issue by reference to s 32. His reasoning and conclusion were as follows (at 470):
In my opinion, the scheme of this contract was clearly drawn (a) to define the duration of the partnership as that period during which two or more individuals, whether members of the original firm or individuals assumed into the partnership as envisaged in the contract, carried on the business without exercise of the powers referred to in cll 14 and 15, and (b) to prevent any individual partner from bringing about the termination of the firm without the agreement of the others.
…
To return to the terms of s 32 (c), and its application in this case, the contract as modified, in my opinion, contained an intelligible framework of provisions defining the duration of the partnership in the events which have happened to date. If the pursuer had retired as the defenders contend, it would have been too late for him to have served notice of dissolution if otherwise competent. Assuming that he had not retired, in my opinion, s 32 (c) did not apply. The notice given by the pursuer was not a notice to which the section applied. It did not dissolve the partnership. The notice was one which the pursuer was not entitled to serve, having regard to the positive provisions of the agreement. It is unnecessary to express a view whether Moss v Elphick is good law in Scotland. One would incline to the view that the decision should be followed in an appropriate case. It has stood the test of time in England, and has been applied there. In my view the result I have arrived at in this case is consistent with that decision and those that have followed it. But apart from providing material for comparison it is unnecessary to rely on the decision in resolving the questions which have to be answered in this case on the language of the deeds executed by the parties.
[6]
Validity of purported termination
It is convenient to deal first with s 32. The plaintiff's contention is that she was entitled to terminate under sub-paragraph (c). This gave rise to two questions: first, whether the partnership was one "entered into for an undefined time"; and second, whether the Partnership Deed contained any agreement between the partners to the contrary.
In my opinion, each of sub-paragraphs (a), (b) and (c) must be construed on the basis that they do not overlap with each other. A partnership can only be dissolved once and, accordingly, if one sub-paragraph applies the others cannot. It follows that an "undefined time" in sub-paragraph (c) must be different from both "a fixed term" and also the period of a "single adventure or undertaking".
The terms of the Partnership Deed make it clear there was no specific period of time over which the partnership was to continue. At the same time, they make it clear that the partnership was to continue, subject to specific exceptions, for the duration of the Business.
Counsel for the plaintiff argued that the operation of the three pharmacies was not a "single adventure or undertaking", relying on ACE Project Group Pty Ltd v Ginger Development Enterprises Pty Ltd [2006] NSWSC 962. In that case Lloyd AJ said at [9]:
Although the agreement was to carry out two nominated residential development projects, it was open-ended as to time. It was thus either a partnership at will or a partnership for an unidentified time. Dissolution of such a partnership can occur on the giving notice to the other members of the partnership: Partnership Act, ss 26 and 32.
However this decision predated the Court of Appeal decision in Sze Tu v Lowe (2014) 89 NSWLR 317. In that case, a partnership firm conducted retail businesses at two different locations, one being a grocery business ("WYT") and the other being a butchery ("YS"). YS was sold in 1986 and WYT was closed in 1989. The Court of Appeal held that the partnership was for a "single adventure or undertaking". Gleeson JA, who gave the judgment of the Court, said:
[290] Whether two businesses can meet the description of a "single adventure or undertaking" must be addressed by reference to the whole of the circumstances of the case. The mere circumstance that the partnership in the present case operated two businesses at different premises is not determinative. A single venture or undertaking may have more than one outlet or place of business, as cl 2 of the Agreement contemplated for WYT. Nor does the existence of separate product lines - grocery items and butchery - preclude there being a single venture. The description of the partnership for the purpose of obtaining sales tax exemptions as "manufacturers and wholesale merchants" is not inconsistent with there being a single venture, being that of merchants buying and selling goods, including items produced by the butchery business.
[291] If the better view is, as I think it is, that the two businesses here comprised a single venture, no difficulty arises with identifying a single date on which the venture was terminated. If one part of the business or outlet ceased before the other, the relevant date of termination of the venture would be the cessation of business of the latter part. The position is no different than if WYT had carried on business at more than one place of business (as contemplated by cl 2 of the Agreement). In that circumstance the mere closure of one place of business would not have had the effect of terminating the venture. Rather, the venture would terminate upon the closure of the last place of business.
In my opinion, the facts of this case lead to the same conclusion. The Business was in its inception a pharmacy business operating from one retail outlet. That Business has continued but has transferred and expanded to three other locations. It is still recognisably the same business. Although it has a number of registered business names, it trades under a single Australian Business Number.
In my view, the Business, albeit conducted at multiple locations, which differ from the location where it was originally conducted, remains a "single adventure or undertaking". Accordingly, in my view, sub-paragraph (b) applies and sub-paragraph (c) cannot apply.
If I am wrong about this, I think that the Partnership Deed excludes termination by notice under s 32(c). Clause 3.1 (quoted at [12] above) provides for the parties to carry on the Business "until the Partnership is determined as provided by this deed". The partnership can only be determined in defined circumstances, and the Deed confers no right on the partners to terminate it unilaterally. The only unilateral step a partner can take which may result in termination is to invoke the "pre-emption" procedure. This is quite inconsistent with termination merely on notice. The circumstances are relevantly the same as they were in Maillie v Swanney.
I conclude, therefore, that the plaintiff had no right to dissolve the partnership under s 32(c).
As to s 26, the first question is whether it applies at all. On the reasoning of Darling J in Moss v Elphick, the present case would be one of a partnership which was for "no fixed term" because there was no specified date on which the partnership was to terminate. Lord Penrose in Maillie v Swanney was inclined to the same view. However, the reasoning of Fletcher Moulton LJ in Moss v Elphick is to the contrary: in his Lordship's view, a partnership for "no fixed term" means a partnership at will and does not include a partnership which is not terminable at will, even if the partnership has no definite date of conclusion. Another way of expressing the same idea is to say, as Farwell LJ said, that s 26(1) applies only to a partnership at will. This view is supported by the heading and, apparently, the antecedents, to s 26.
Such reasoning amounts to saying that "no fixed term" in s 26(1) means something different from the opposite of "fixed term" in s 32(a). Although statutes are usually construed so that the same term is given the same meaning throughout the statute, that is only a presumption. The lack of consistency in terminology in the Act (no doubt resulting, at least in part, from its difficult and lengthy passage to the statute book) gives the presumption less force in this case. In any event, the presumption must give way if it produces a result which is otherwise inconsistent with the language and purpose of the relevant provisions. In my view, this is such a case. In s 32(a), the phrase "fixed term" is used in contradistinction not only to "undefined time" in sub-paragraph (c) but also to the period of "a single adventure or undertaking" in sub-paragraph (b). The same tripartite division does not occur in s 26. I think this provides a sufficient basis for concluding that the phrase "no fixed term" in s 26 is not exactly the opposite of "fixed term" in s 32(a). Section 26, therefore, did not apply in the present case because the partnership was not one for "no fixed term".
If I am wrong in this view, then I would still conclude, in accordance with the result in Moss v Elphick, that s 26 did not permit termination in the present circumstances. Whether this is put on the basis of an implicit limitation arising from cl 32(c) (in accordance with the reasoning of Darling J and of Pickford J) or some implicit limitation in s 26 (as Vaughan Williams LJ appeared to suggest) does not matter.
In Maillie v Swanney, Lord Penrose suggested (quoted at [56]) that s 26 may be confined to the termination of a single partner's interest in a partnership, rather than dissolution of that partnership as a whole.
The learned author of Lindley & Banks on Partnership (19th ed, 2010, Thomson Reuters) said of this at [9-03] fn (7):
It should be noted that the court did appear to view with some sympathy the proposition that s.26(1) does not provide for the general dissolution of a partnership but only a determination as regards the "retiring" partner: ibid. p. 469B (per Lord Penrose). Such an interpretation is, in the current editor's view, wholly unwarranted, whether in terms of the 1890 Act or the preceding law.
I think that the vehemence with which this opinion is expressed is somewhat surprising. The lack of consistency in the use of the terms "dissolution" and "termination" is far from satisfactory, but the structure and terminology used in the Act and the antecedents to the Act to which I have referred at [45] to [50] above do, in my view, suggest that the purpose of s 26 may simply have been to provide for the termination of the membership of the partnership by the partner giving notice, which would not necessarily, at least in a multi-party partnership, bring the partnership wholly to an end. Even so, such an interpretation would not be particularly satisfactory. It would leave unclear how the section operates in the case of a two person partnership. It would also leave unclear how, in the absence of agreement, the retiring partner is to realise any value that his or her interest in the partnership may have where no full dissolution takes place.
There is no need to consider this question further for present purposes. Even if s 26(1) is so confined, it would still be necessary to consider whether, in the present case, it could be invoked by the plaintiff to terminate her interest in the partnership without the consent of the defendants and without following cl 21. That would give rise to the same questions about the scope of s 26 that I have addressed above.
There have been a number of decisions at first instance where s 26 has been referred to as creating a statutory right of termination. Examples are: Williams v Nicoski [2003] WASC 131; Giltej Applications Pty Ltd v Rosaria Grace Moschella [2005] NSWSC 599.
However, in none of these cases does it appear that the question was argued or the relevant authorities referred to. In my opinion, the analysis of the statutory language, its antecedents, and the course of authority show that the circumstances in which s 26 can be invoked are limited.
It follows, in my view, that s 26 does not assist the plaintiff in this case.
[7]
Conclusion and orders
I have concluded that the plaintiff's "notice of determination" was ineffective to result in the termination of the partnership. It follows that the plaintiff's claim, to the extent based on the notice of determination, must be dismissed.
This leaves the plaintiff's application to have the partnership wound up on the just and equitable ground. Although the plaintiff is free to proceed with that aspect of the application, given the findings which I have made she will have to overcome the argument that before it can be said to be just and equitable to wind the partnership up, the "pre-emption" procedure in cl 21 should at least be tried. It may be that the plaintiff would be better served by not pressing that aspect of her claim in these proceedings. Should the "pre-emption" procedure not work, it would then be open to the plaintiff to bring fresh proceedings for the purpose of seeking an order for winding up of the partnership on the just and equitable ground. I will give the plaintiff an opportunity to consider her position in this regard in the light of my judgment. I will also defer dealing with costs until the plaintiff has decided what course to take.
The orders of the Court are:
Order that the Summons insofar as it concerns prayers for relief 1, 3 and 4 be dismissed.
Stand the proceedings over for mention on a date to be fixed by arrangement with my Associate, such date to be no later than four weeks from today.
Costs reserved.
[8]
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Decision last updated: 02 August 2017