Fisher, Kelly, Fisher, Racegale Pty Ltd & Waltint Pty Ltd v GRC Services Pty Ltd, Eichberger, Anese & Haliday [1997] QSC 215

· On or about 24 November 1992 the remaining partners gave notice in writing of their agreement to such retirement;

· The remaining partners owed fiduciary duties to the retiring partners which they breached by-

(a) failing to cause a correct figure for goodwill to be included in the balance sheet of the partnership as at 30 June 1993;

(b) failing to call a meeting of partners for the purposes of making an evaluation of good will of the partnership in accordance with the deed;

(c) unjustifiably writing-off goodwill or recording goodwill at an inappropriate level;

(d) causing incorrect debits to be made in the current account of each of the retiring partners;

(e) failing to pay the retiring partners their just entitlements under the deed.

I will now deal in turn with each of the separate issues for determination on this trial.

On 2 October 1997 I ordered that there be a separate trial of a number of issues of law in this action. They were questions of construction of the deed, and a question of whether provisions of the deed were void as unlawful restraints of trade.

A. Are cl.31 and/or 32 of the deed or any part thereof void as an unlawful restraint of trade. If so, is or are such void part or parts severable?

(a) clauses 32(b) and 32(c) were void as an unlawful restraints of trade; or alternatively

(b) clauses 31 and 32 are void because cl.32(b) and/or 32(c) are void and are not severable without the whole of cll.31 and 32 being required to be severed also.

The provisions of the deed relevant to the determination of this question are as follows-

(a) in the notice of retirement given pursuant to clause 29 the partner giving such notice (hereinafter called ´the retiring partner') specifies that he will not following such retirement practice or act as a Patent or Trademark Attorney; or

(b) in the notice of retirement given pursuant to clause 29 the partner giving such notice (hereinafter called ´the retiring partner') specifies that he will following such retirement practice or act as a Patent or Trademark Attorney and if the remaining partners agree within the said period of three (3) months to the retirement of the relevant partner in such manner;

and upon such retirement becoming effective the retiring partner agrees to sell and the remaining partners agree to purchase in such proportion as is agreed between the remaining partners unanimously and in the absence of such unanimous agreement in the proportions that the remaining partners are for the time being entitled to share in the goodwill of the partnership all the right title and interest of the retiring partner in and to the whole of the assets of the partnership as at the date of such retirement for the sum determined in accordance with clause 23 (the retiring partner's entitlement being the same as if that partner were a deceased partner and the balance sheet referred to in clause 23 being that prepared as at the date of retirement of the retiring partner) to be paid to the retiring partner by the remaining partners in the manner specified in clause 27 PROVIDED HOWEVER that if subsequent to his retirement the retiring partner is to act for any client of the partnership pursuant to clause 32(c), the sum so determined shall be reduced by an amount equal to one-half of the gross charges of the partnership to that client in the period of twelve (12) months preceding the date of retirement.

32.(a) Upon retirement of a partner as provided in clause 31(b) in the case where the retiring partner has indicated in the notice of retirement that he will practice or act as a Patent or Trademark Attorney the remaining partners shall determine the following matters, namely:

(i) which clients, if any, and which Australian and overseas associate firms, if any, shall receive written notification of the retirement of the retiring partner on partnership letterhead;

(ii) which clients, if any, and which Australian and overseas associate firms, if any, shall receive written notification of the retirement of the retiring partner other than on partnership letterhead;

(iii) the contents of all or any such notification and the signatory or signatories of such notification;

(iv) any other matter or thing of and incidental to (i) and (ii) above and the determination of the foregoing matters shall be made in the manner specified in clause 13 hereof.

(b) The retiring partner shall not directly or indirectly approach or solicit any client of the partnership.

(c) If consequent upon notification pursuant to paragraph (a) of this clause and within one (1) month of the date of retirement, any client of the firm advises the partnership in writing that the client wishes the retiring partner to continue to act for that client, then the retiring partner may do so but not otherwise.

(d) As a condition precedent to any retiring partner acting or continuing to act in any matter for any client of the partnership such retiring partner shall pay or cause to be paid to the remaining partners the amount of all costs and outlays due or owed by such client to the partnership for work done by the partnership up to that time or pursuant to any account rendered by the partnership up to that time."

The applicants' argument may be summarised as follows-

· Clause 33(iii) contains a restraint against a retiring partner being concerned or interested in the business of patent attorney for two years within a radius of half of a kilometre from the location of any office of the partnership.

· Clause 32 provides the remaining partners with a discretion to prevent retiring partners from acting for any client of the partnership indefinitely. The remaining partners can produce this result by declining to give written notification of retirement of the retiring partners under cl.32(a)(i).

· The non-solicitation restraint in cl.32(b) operates indefinitely.

· The remaining partners will have paid to the retiring partners half the gross charges of the partnership to clients of the partnership for the twelve months prior to retirement. That is an inadequate consideration to justify "a lifetime ban on acting for each client whether or not the matter was related . . . to the work previously done" for the partnership. The restraints are against the interests of the clients.

· For the foregoing reasons the restraints are too broad to protect the interests of the defendants.

Mr North, who appeared for the defendants, submitted that the restraint on solicitation in cl.32(b) cannot be an invalid restraint of trade as it does not prohibit the plaintiffs from engaging in conduct which would have been lawful in the absence of the prohibition contained in the clause. I accept that, at least as a general proposition, there will not be a restraint of trade unless the provision under consideration involves the covenantor in the relinquishment or diminution of some right or freedom which the covenantor would have enjoyed were it not for the provision. In Esso Petroleum Co Ltd v. Harper's Garage (Stourport) Ltd [1967] UKHL 1; (1968) AC 269 Lord Reid said at 298-

"Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had."

That concept is implicit in the following passage from the judgment of Gibbs J. (as he then was), in Amoco Australia Pty Ltd v. Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1974-5) 133 CLR 288 at 315-

"The test to be applied in determining the validity of a restraint of trade was stated by Lord MacNaughten in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565, in a passage that has been cited with approval in many cases . . Lord MacNaughten said:

´All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.'"

Mr North submits that in the absence of the prohibition on solicitation in cl.32(b), the consequence of the agreement by the plaintiffs to sell their respective shares of the goodwill of the partnership arising as a result of their notices of intention to retire pursuant to cl.29 of the deed was to create an implied obligation on the part of the plaintiff vendors not to solicit the clients of the partnership. He relied on Labouchere v. Dawson (1872) L.R. 13 Eq. 322. The case is authority for his proposition. It was approved of in Trego v. Hunt (1896) A.C. 7. In that case Lord Herschell, after an extensive review of the earlier authorities, said at 20-

"I think it must be treated as settled that whenever the goodwill of a business is sold the vendor does not, by reason only of that sale, come under a restriction not to carry on a competing business."

He went on to express the view that a vendor or former partner could "appeal(s) generally for custom" and act for former customers of the firm who ". . .of their own accord transfer(ed) their custom to him" but that such a partner could not "specifically and directly appeal(s) to those who were customers of the previous firm". Lord Davy expressed agreement with Lord Herschell's reasons. The remaining member of the court, Lord MacNaughten, expressed views which were generally similar to those of Lord Herschell. Such restriction on solicitation appears to be based on the principle against derogation from a grant. See Trego v. Hunt per Lord MacNaughten at p.25, per Lord Herschell at p.21; Curl Brothers Limited v. Webster (1904) 1 Ch. 685 at 687 and Labouchere v. Dawson at 325. In Curl Brothers Limited v. Webster, Farwell J. held that the prohibition against vendors of a business from soliciting customers applied where such customers, although remaining customers of the old firm, have, in fact, dealt with the new firm so that they have become also customers of the new firm. He said at 688-

"The customers of the old business remain such although they have also dealt with the vendor in his new business: the rule prohibits the solicitation of the customers of the old business; and such customers do not lose that character because they also deal with the new business."

Trego v. Hunt has long been regarded as containing an authorative statement of principle. See eg. 35 Halsbury's Laws of England, 4th ed., para.200; Lindley on Partnership, 14th ed., p.223; Taylor v. Rotowax Trading Ltd [1987] UKPC 9; (1988) 1 NZLR 674; Veitch v. Graff (1954) NZLR 588; Lloyds Ships Holdings Pty Ltd v. Davross Pty Ltd [1987] FCA 70; (1987) 17 FCR 505; Cooper v. Frost [1937] NZGazLawRp 132; (1937) NZLR 1071 and Castlemaine Tooheys Ltd v. Carleton and United Breweries Ltd (1987) 10 NSWLR 468 (CA).

The prohibition in cl.32(b) is against directly or indirectly approaching or soliciting. It seems to me that the word "approach" adds little if anything to "solicit". For the reasons expressed above I reject the plaintiffs' arguments as to the invalidity of cl.32(b).

I now turn to consider the attack on cl.32(c). The clause gives rise to some difficulties of construction. It was implicit in the parties' submissions that the clause imposed an absolute restraint on a retiring partner's acting for "clients of the firm" or, at least, continuing to so act in the absence of an advice by a client in writing within the time stipulated in the clause that the client wished the retiring partner to continue to act. One possible construction of the clause is that it operates only where notification is given to a customer by the remaining partners under cl.32(a). The sub-clause is introduced by the words "If consequent upon notification pursuant to para.(a) of this clause and within one month of the date of retirement, any client of the firm advises the partnership in writing that the client wishes the retiring partner to continue to act . ." (emphasis supplied). If the provision has the construction assumed by the parties it gives rise to the result that remaining partners can prohibit retiring partners from continuing to act for a client simply by adopting the expedient of refraining to give notice to the client under cl.32. There are other unsatisfactory aspects of cl.32. For example, there is no mechanism for drawing to the attention of clients the time limit imposed by cl.32(c) or, for that matter, the restriction on the retiring partner's freedom of action imposed by that clause. Another matter which tends to support the conclusion that the restraint operates only in the event that notification is given is that the language of the clause seems a little inappropriate for the role of imposing a general prohibition on a retiring partner's continuing to act for existing clients of the firm. A more obvious way of imposing such a general prohibition would be for the clause to state directly that a retiring partner may not continue to act for clients of the firm unless certain specified conditions were fulfilled. Sub-clause (c) provides that where notice is given under sub-cl.(a) and where consequent upon such notice by the partners a client gives notice-

". . . that the client wishes the retiring partner to continue to act for that client, then the retiring partner may do so but not otherwise."

What the retiring partner may do is "continue to act for that client". Arguably "that client" is a client who has received notification from the partners pursuant to para.(a) and who has given written advice of a desire that the retiring partner continue to act. The prohibition thus has the flavour of a restraint against continuing to act for clients who, having had an opportunity to give notice, have failed to do so.

However, in view of the approach of the parties and having regard to my conclusion that the restraint imposed by sub-cl.(c) is not an invalid restraint of trade, it is unnecessary for me to finally decide the construction point and it is undesirable that I do so in the absence of submissions by the parties.

In my view the reference to "client of the firm" in cl.32(c) means a person who is a client at the date of retirement; cf. Trego v. Hunt at 29. Clause 31 contemplates that where notice is given under cl.32(a) and a client gives written notice that it wishes the retiring partner to continue to act for it then the price payable for the retiring partner's share in the partnership is to be reduced "by an amount equal to one half of the gross charges of the partnership to that client in the period of twelve months preceding the date of retirement". The value the deed places on the goodwill attributable to a particular client's business would thus appear rather low in comparison with the permanent loss by the retiring partner of the right to act for that client, if the retiring partners were permanently prevented from acting for such a client. By adopting the expedient of not giving notice under cl.32(a) the remaining partners could avoid having to pay any such sum and, presumably, could have the prospect of retaining the revenue from all clients indefinitely. However, Mr North submitted (as an alternative or fall back position) that the words "continue to act for that client" in cl.32(c) carry with them the implication that the reference is to the retiring partner's continuing to act for a client for whom the retiring partner himself was doing work on behalf of the partnership at the relevant time. He points to the language of sub-cl.(d) which seemingly distinguishes between "acting" and "continuing to act". It commences-

"As a condition precedent to any retiring partner acting or continuing to act in any matter for any client of the partnership . .".

The submission attributes a considerable degree of precision to the language of the deed but I have concluded that it ought be accepted.

The proviso to cl.31 uses the language ". . if subsequent to his retirement, the retiring partner is to act for any client . .". The amount to be paid in such event is determined by reference, not to the fees rendered or to be rendered in respect of any particular matter, but by reference to gross charges of the partnership to that client. The language of the proviso does not assist the task of construction as the acting for a client to which it refers is expressed to be "pursuant to clause 32(c)."

The contrary view is that the expression "continue to act" is a reference to a retiring partner's acting in any matter for a person in circumstances in which that person was a client of the firm at the date of retirement of the retiring partner. In those circumstances one may think it not inappropriate to speak of a retiring partner's "continuing to act" for a client of the firm even though the retiring partner did not personally do work for that client at the date of his retirement. c.f. Bridge v. Deacons (infra).

To my mind it is of particular significance that the next sub-clause, sub-clause (d), draws a distinction between "acting" and "continuing to act". The construction advanced by the defendant is assisted also by the fact that at the time of entering into the deed the parties were unlikely to have had an expectation that clients of the firm for whom a retiring partner was not acting at the date of retirement would express a desire that such retiring partner commence to act for them after retirement.

Mr North further submitted that a retiring partner only "continues to act" for a client if the retiring partner performs work for that client with respect to the matter for which he had engaged the partnership on the date of retirement. I do not accept that submission. To my mind the expression "continues to act" describes a state of affairs and does not refer to any matter of matters in particular. Whether a retiring partner "continues to act" for a client of the firm in any given case will involve, essentially, a determination of whether the retiring partner is, in fact, acting for the client in circumstances in which the patent attorney/client relationship can be said to have continued in existence. It is not necessary or appropriate for me to attempt to define the facts which might constitute a "continuing to act".

In Bridge v. Deacons (1984) 1 A.C. 705 the Judicial Committee of the Privy Council expressed the view that-

"The proper approach is that adopted by Lord Reid in the Esso Petroleum case [1967] UKHL 1; (1968) A.C. 269, where he said at p.301:

´I think it better to ascertain what were the legitimate interests of the appellants which they were entitled to protect and then to see whether these restraints were more than adequate for that purpose.'"

Gibbs J. in Geraghty v. Minter (1979) 142 CLR 177 at 184 formulated the following rather similar test-

"It is well settled that a restraint will not be enforceable, unless it affords not more than adequate protection to the interests of the covenantor in respect of which he is entitled to be protected. . . The questions that arise in the present case are whether the respondents had an interest that they were entitled to protect and, if so, whether the restriction imposed by clause 21 exceeded what was reasonably necessary to protect that interest."

In the case of the deed, to adopt language used in Bridge v. Deacons, the restrictions imposed on the retiring partners, as vendors of goodwill, are "fairly and property ancillary to the sale". They do not prevent a retiring partner from acting for any client of the firm indefinitely or even for a stipulated term of years. They prevent the retiring partner from "continuing to act". Once there is a break in continuity of the patent attorney/client relationship a retiring partner may re-commence acting for a client for whom he was acting at the time of leaving the partnership. The remaining partners derive some protection of their goodwill but not a great deal.

As was acknowledged in Geraghty v. Minter at 198 and Bridge v. Deacons at 716, it is relevant to reasonableness that the restriction is applicable to all parties and that none could tell, at the date of the deed, when the restraint might come to be applied in practice and to whom.

It is interesting to note that in Bridge v. Deacons (where a restraint against acting for five years for any client of a firm of solicitors and for any person who had been a client during a period of three years immediately before the covenantor's ceasing to be a partner in the firm was upheld) the appellant submitted that a more limited restraint along the lines of that now under consideration would have been more appropriate.

Accordingly, I conclude that there is no invalid restraint of trade as alleged.

B. On a proper construction of cl.23(a) of the deed, is the amount in each of the first and second plaintiffs' capital accounts in the balance sheet in the books of the partnership to be calculated on the basis of a figure for goodwill:

(a) as resolved by the continuing partners at the meeting held on 19th November 1993; or

(b) as previously resolved upon by the partners.

The real issue between the parties here is whether the goodwill figure to be used for calculation of the payments to the retiring partners is that appearing in the last balance sheet prepared prior to the date of retirement, as the applicants contend, or the last valuation determined by the partners prior to preparation of the balance sheet of the partnership prepared as at the date of retirement, as the respondents contend.

"15.(a) On the Thirteenth day of June, 1988 and on the Thirtieth day of June in every succeeding year during the continuance of the partnership an account shall be taken of all the assets and liabilities of the partnership for the time being and a balance sheet and profit and loss account shall be prepared. A copy of the balance sheet shall be furnished to all partners who shall be bound thereby unless some manifest error shall be found within three (3) months in which case such error shall be rectified.

(b) Immediately after the preparation of the said balance sheet and profit and loss account:

(i) All necessary adjustments shall be made so that the net profit (if any) shall be divided among the partners in accordance with the provisions of clause 9 of this agreement.

(ii) A valuation of each partner's share in the goodwill of the business shall be determined by the partners and this valuation shall remain current and binding upon the partners until a fresh valuation is taken by the partners immediately after receipt by them of the balance sheet and profit and loss account in the next succeeding year of the partnership, unless a notice requiring a valuation by the firm's accountants is received by the partners in the manner set out in sub-clause (iii) hereof.

(iii) Notwithstanding the provisions of sub-clause (ii) hereof any partner may require the valuation of each partner's share in the goodwill of the business to be ascertained by the accountants for the time being engaged by the firm by notice in writing given to the other partners within three (3) months of the receipt by the partners of the balance sheets and profit and loss accounts in any year. Any such valuation shall be accepted by the partners in substitution for the valuation reached pursuant to sub-clause (ii) hereof and shall be valid and binding on the partners until a valuation is determined in the next succeeding year."

"23.(a) The sum to be paid by the surviving partners to the estate of the deceased partner shall be the amount of the deceased partner's capital account in the books of the partnership at the date of death of the deceased partner as shown by the balance sheet of the partnership prepared by the accountants for the time being of the partnership as at such date upon the same basis as the balance sheet normally prepared by the partnership accountants pursuant to clause 15(a) hereof but complying with paragraph (b) of this clause; and in addition there shall be paid the amount of the current account of the deceased partner as shown in the balance sheet prepared pursuant to this paragraph provided that if such current account shows moneys owing by the deceased partner to the partnership the same shall be deducted from the moneys to which the estate of the deceased partner is otherwise entitled or shall be paid by his estate to the surviving partners.

(b) The balance sheet prepared by the accountants for the time being of the partnership pursuant to paragraph (a) of this clause shall include goodwill in the amount of the last valuation thereof pursuant to paragraphs (b)(ii) or (iii) of clause 15."

26. Each partner shall retire from the business of the partnership as of the 30th June next occurring after the partner (hereinafter called ´the retiring partner') reaches the age of 65 years, and upon such retirement becoming effective the retiring partner agrees to sell and the remaining partners agree to purchase in such proportions as are agreed between the remaining partners unanimously and in the absence of such unanimous agreement in the proportions that the remaining partners are for the time being entitled to share in the goodwill of the partnership all the right title and interest of the retiring partner in and to the whole of the assets of the partnership for the sum determined in accordance with clause 23 hereof (the retiring partner's entitlement being the same as if that partner were a deceased partner and the balance sheet referred to in clause 23 being that prepared as at the date of retirement of the retiring partner."

It is common ground that the retiring partners gave notice pursuant to cl.29. It is also common ground that, consequent upon the giving of the retirement notice, the retirement of the retiring partners became effective and they agreed to sell their respective interests in the goodwill and assets of the partnership "as at the date of such retirement for the sum determined in accordance with clause 23" (cl.31(b)).

"The retiring partner's entitlement being the same as if that partner were a deceased partner and the balance sheet referred to in clause 23 being that prepared as at the date of retirement of the retiring partner."

It is helpful to summarise the provisions of cl.23. Its relevant components, adapting them as required by cl.31, are-

· The amount payable to the retiring partner is the amount of the retiring partner's capital at the date of retirement as shown by the partnership balance sheet prepared by the partnership accountants as at the date of retirement.

· The balance sheet must be prepared upon the same basis as the year end balance sheet normally prepared by the partnership account save for the matter next mentioned.

· The goodwill to be included in the balance sheet includes "goodwill in the amount of the last valuation thereof pursuant to paragraphs (b)(ii) or (iii) of cl.15" (cl.23(b)).

· Clause 15(b)(ii) requires that there be a valuation of "each partner's share in the goodwill of the business . . . determined by the partners" (immediately after the preparation of the normal year end) balance sheet and profit and loss account. The valuation so prepared "shall remain current and binding upon the partners until a fresh valuation is taken by the partners immediately after receipt by them of the balance sheet and profit and loss account in the next succeeding year . .".

· An exception to the obligation in cl.15(b)(ii) is to be found where a partner requires "the valuation of each partner's share in the goodwill of the business to be ascertained by the accountants . . . by notice in writing given to the other partners within three months of the receipt by the partners of the balance sheets and profit and loss accounts in any year. That exception is not relevant for present purposes.

Part of the difference in viewpoint between the parties arises from the fact that the notices of intention to retire were expressed to be effective "as of June 30th, 1993" and the retirements took effect on that date. If, for example, they had taken effect as of 31 May 1993 it would have been tolerably plain that "the last valuation (of goodwill) pursuant to paragraph (b)(ii) . . . of clause 15" would have been that which followed the preparation of the accounts for the year ended 30 June 1992.

There was no expectation by the draftsman of cl.23 that a deceased partner's death would be likely to take place on the last day of a financial year. For that reason the clause seeks to freeze matters at the date of death. As part of that process it looks to a time before the date of death for the valuation of goodwill to be used in the balance sheet. The clause contemplates the use of an existing valuation of goodwill rather than preparation of a fresh one.

If a partner died on 30 June in any year, the balance sheet required for the purposes of cl.23(a) would be the normal year end balance sheet prepared pursuant to cl.15(a) but with the exception stated by cl.23(a). Clause 23(a) requires compliance with cl.23(b). The latter provision requires the goodwill figure to be inserted in such a balance sheet to be "in the amount of the last valuation". That those words refer to a valuation which precedes both the date of death and the balance sheet prepared after death appears from the wording of cl.15(b). Clause 15(b) requires the valuation of each partner's share in the goodwill to be determined by the partners "immediately after the preparation of the (end of year) balance sheet and profit and loss account." The wording of cll.15(a) and (b) do not suggest to me the expectation that the valuation of goodwill would take place on the last day of a financial year. Indeed it is perhaps questionable whether that could take place as the valuation is to follow both the preparation of the balance sheet and profit and loss account for the preceding year. Clause 15(b) is worded prospectively. It looks for something to be done in the future. Clause 23(b), in referring to "the last valuation thereof pursuant to paragraphs (b)(ii) or (iii) of clause 15" refers to something already in existence at the date of death.

Mr Bell Q.C. drew attention to the fact that cl.15(b)(ii) contemplates that each valuation of partners' shares in goodwill will be "determined by the partners". I consider there to be some force in his submission that the provisions under consideration are not intended to operate in such a way as to permit the remaining partners to determine goodwill attributable to the retiring partner's shares.

For the above reasons, I am of the view that the words "the last valuation thereof" in cl.23(b) refer to a valuation which preceded the date of death and, consequently, the date of the balance sheet to be prepared to establish the sum to be paid to the deceased partner.

The way in which the deed gives effect to the rights of retiring partners is simply to apply cl.23 to the circumstances of retirement. It thus tends to follow that, in the circumstances of retirement, "the last valuation (of goodwill) . . . pursuant to paragraphs (b)(ii) . . . of clause 15" means the last valuation prepared prior to the date of retirement and not the last valuation prepared prior to the preparation of the balance sheet as of the retirement date.

C. On the proper construction of the deed do the terms "client", "client of the firm" or "client of the partnership" include a client of an overseas associate of the partnership and/or an overseas associate of the partnership and/or a client of an Australian associate firm of the partnership and/or an Australian associate firm of the partnership?

The parties' argument focussed on the meaning of the words "clients", "client of the firm", "client of the partnership" on the one hand and "Australian and overseas associate firms" on the other, where those words and phrases are used in cl.32. Clause 32 is quoted above. Similar terminology is to be found in other clauses of the agreement.

Clause 21, which deals with the consequences of dissolution of the partnership by notice pursuant to cl.19 uses generally similar language and has a similar format to cl.32.

"No partner retiring pursuant to clause 26 hereof shall after the date of retirement act, without the written consent of the remaining partners, for any party which was a client of the partnership or a client of an overseas associate of the partnership at the date of retirement."

One of the remaining partners Mr Anese, deposes to the fact that the firm receives instructions from local or foreign firms of lawyers and patent attorneys who are acting for clients of their own. He further swears that-

"The term ´associate' is used by patent attorneys generally to refer to a person, usually a firm of lawyers or patent attorneys, with whom a patent attorney deals concerning intellectual property matters;

A significant portion of the work of the firm has always consisted of attending to the filing, prosecution and maintenance of applications and registrations on behalf of overseas proprietors.

Where instructions are received from an overseas associate concerning an Australian application or registration there is normally no direct contact between the firm and the client of the overseas associate.

Where the firm acts for an ´associate' in doing work on the instructions of the associate for a client of the associate it is invariable or virtually invariable practice for the firm's account to be rendered to the associate."

In DTR Nominees Pty Ltd v. Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429 Stephen, Jacobs and Mason JJ. in a joint judgment said-

"A court may admit evidence of surrounding circumstances in the form of ´mutually known facts' ´again to identify the meaning of a descriptive term' and it may admit evidence of the ´genesis' and objectively to ´aim' of a transaction to show that the attribution of a strict legal meaning would ´make the transaction futile'."

The above evidence meets such a description. In Codelfa Construction Pty Ltd v. State Rail Authority of NSW (1982) 149 CLR 337 Mason J. said at 352-

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract where it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed."

Mr North submits that the word "clients" and the description "Australian and overseas associate firms" should not be seen to be mutually exclusive. He points out that, in an obvious sense, "Australian and overseas associate firms" are clients of the firm. I accept that proposition. The question though is whether cl.32, and the other provisions to which I have referred, distinguish between "clients" on the one hand and "associate firms" on the other. In my opinion does cl.32 so distinguish. If Mr North's submission is correct, the inclusion of "Australian and overseas associate firms" in cll.32(a)(i) and (ii) is tautologous. I find it difficult to accept that although there is a differentiation between "associate firms" and "clients" when used in the two places in cl.32(a) where reference is made to "clients", the word "client" in sub-cll.(b), (c) and (d) of the same clause is intended to encompass "associate firms". Clause 28 further assists the plaintiff's argument by drawing a distinction between "overseas associates of the partnership" and "a client of an overseas associate of the partnership".

Having regard to the role to be served by cl.32(c), I see no reason why any ambiguity should be resolved in a way which expands the scope of the restraint of trade.

(1) Clause 32(c) of the deed of partnership dated 1 July 1987 entered into between the first and second plaintiffs, the second defendant and Thomas Gipps Ahearn, on its true construction and assuming it operates in the absence of notification pursuant to para.(a) of cl.32 prevents a retiring partner from continuing to act for a client of the partnership for whom such retiring partner was himself (and not merely by virtue of the fact that he was a partner in the said partnership) acting prior to the time of his retirement.

(2) That cl.32(b) of the said deed does not contain an invalid restraint of trade.

(3) That cl.32(c) of the said deed does not contain an invalid restraint of trade.

(4) That on a proper instruction of cl.23(a) of the said deed the amount in each of the first and second plaintiffs' capital accounts in the balance sheet in the books of the partnership is to be calculated using the goodwill figure appearing in the last balance sheet of the partnership prepared prior to the date of retirement of the plaintiffs.

(5) On the proper construction of the said deed any of the expressions "clients", "client of the firm", "client of the partnership" do not include reference to any of "Australian associate firms" and overseas associate firms" or clients of any such Australian associate firms or overseas associate firms.

I will hear further submissions on the form and content of the declarations and on costs.