Giltej Applications Pty Ltd v Rosaria Grace Moschella

Supreme Court of NSW|2005-06-14|Before: White J

Giltej Applications Pty Ltd v Rosaria Grace Moschella [2005] NSWSC 599 CITATION : This decision has been amended. Please see the end of the judgment for a list of the amendments.

DECISION : 1. Make orders in accordance with paras 1 and 2 of the amended summons; 2. Order that the cross-claim be dismissed; 3. Refuse the application for indemnity costs; 4. Order that the defendant pay the plaintiff's costs of the proceedings, including the cross-claim; 5. Exhibits may be returned after 28 days; 6. Reserve the matter for further consideration; 7. Grant liberty to either party to apply on 14 days' notice.

CATCHWORDS : CONTRACTS - Construction of clause in partnership agreement - Whether a notice of intention to retire effective at a future specified date is revocable - Whether further act needed to consummate retirement - Whether notice to retire amounts to waiver of right to dissolve a partnership at will under s 26 of the Partnership Act - Whether partner retired "during the continuation of the partnership" where there are only two partners - Meaning of "share of business" - Held that valuing "share of business" subsumes the taking of a general account - Held that notice to retire is irrevocable notwithstanding the future date at which retirement takes effect.

Taupo Totara Timber Co v Rowe [1978] AC 537 Jones v Lloyd (1874) LR18Eq 265 Warder v Stillwell (1857) 26 LJR (NS) Eq 373 Toogood v Farrell [1988] 2 EGLR 233 CASES CITED : Birrell v Australian National Airlines Commission (1984) 5 FCR 447 State of New South Wales v Paige (2002) 60 NSWLR 371 Verwayen v The Commonwealth (1990) 170 CLR 394 Lindley & Banks on Partnership, 18 ed Calderbank v Calderbank [1975] 3 All ER 333

Giltej Applications Pty Ltd PARTIES : v Rosaria Grace Moschella

Plaintiff: M A Pembroke SC & L Menzies COUNSEL : Defendant: M B Duncan

Plaintiff: Digby Law SOLICITORS : Defendant: Bryan Killalea - Solicitor

8 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2061/05 GILTEJ APPLICATIONS PTY LTD v ROSARIA GRACE MOSCHELLA JUDGMENT 1 HIS HONOUR: On 30 January 2004 the plaintiff and the defendant entered into a partnership agreement for the carrying on of a business of owning premises at 22 Allen Street, Pyrmont, New South Wales and of providing accommodation in those premises. The parties were the registered proprietors of the property as tenants in common in equal shares. 2 On 14 January 2004, they purchased the accommodation business formerly carried on by Opal Resorts Pty Ltd from the premises. The partnership agreement is in writing. The deed defines the expression "Business" as meaning the business of owning the premises and providing accommodation carried on by the partners pursuant to the deed under certain names. It provides that the partnership shall be carried on at the premises; the capital of that partnership is to be contributed by the partners equally and the partners are entitled to the profits equally and are required to bear any losses in equal shares. All expenses incurred in carrying on the partnership are to be charged against and borne by the partners equally and the partners are entitled to make drawings in such amounts as may be agreed upon between them on account of their shares in the profits. 3 Clause 1(g) defines the expression "Partner" to mean each of the parties to the deed together with each other person who is hereinafter admitted as a member of the partnership. The expression "Partners" means all of them. 4 In clause 16, the partnership deed deals with the circumstances in which a partner may be expelled. It provides that on any of five named events constituting, it appears, a default, the other partner may, by notice in writing served upon the defaulting partner, terminate the partnership so far as the defaulting partner is concerned and expel the defaulting partner, whereupon the partnership will immediately terminate without prejudice to the remedies of the other partner for any antecedent breach. 5 Clauses 17 and 18 are critical to the issues in these proceedings. Those clauses provide as follows: " 17. RETIREMENT OF A PARTNER A Partner may on giving to the other Partner at least 13 weeks previous notice in writing of her intention to do so, retire from the Partnership. 18. PAYMENTS TO OUTGOING PARTNERS 18.1 Upon any Partner dying, retiring or being expelled during the continuation of the Partnership ( Outgoing Partner ) the other Partner ( Continuing Partner ) shall have the right to purchase the Outgoing Partner's share in the Business in accordance with the provisions of this Section. The Outgoing Partner must dispose of the Business and not components of the Business. 18.2 The purchase price payable by the Continuing Partner for the Outgoing Partner's Share of the Business will be the fair value of the Outgoing Partner's Share certified as being a fair value in the absence of agreement by the President for the time being of the Australian Institute of Valuers on the application of either Partner or their personal representative, such application to be made within one calendar month of the date of death/expulsion/retirement as the case may be. 18.3 The purchase price will be paid by the Continuing Partner to the Outgoing Partner within two calendar months of the date of the agreement or receipt by the Continuing Partner of the certificate referred to in 18.2 above. 18.4 If there is no agreement of (sic) if no application for a certificate is made as detailed in clause 18.2 above or if, following the receipt of such a certificate, the Continuing Partner fails to make payment as detailed in clause 18.3 above, then upon the expiry of the period referred to in clause 18.2 or 18.3 (as the case may be) this Partnership will terminate immediately whereupon the provisions of clause 20 below will apply. 18.5 The Outgoing Partner or her personal representative shall sign all such documents and do all such acts as the Continuing Partners may reasonably require in connection with the Outgoing Partner ceasing to be a member of the Partnership. 18.6 The Continuing Partner shall sign all such documents and do all such acts as the Outgoing Partner may reasonably require in connection with the Outgoing Partner ceasing to be a member of the Partnership. " 6 Clause 20 is headed: "Winding up of the Partnership". It provides that where the partnership is terminated, a general account is to be taken of the assets and liabilities of the partnership and the assets are to be realised and sold. It then provides for the settling of accounts between the partners. 7 On 7 December 2004 Mr Deane, solicitor, sent a letter to the plaintiff on behalf of the defendant. It is admitted on the pleadings that by that letter, which was received by the plaintiff on 21 December 2004, the defendant, by her then solicitors, gave notice to the plaintiff, pursuant to clause 17 of the deed, of her intention to retire from the partnership created by the deed. The letter stated, amongst other things: " Pursuant to clause 17 of the abovementioned agreement, we hereby give you notice with effect from today's date of Grace Moschella's intention to retire from the partnership created by the above agreement. Clause 17 requires at least 13 weeks previous notice in writing, and consequently we calculate the date of her retirement from the partnership to be 8th March 2005. Clause 18 of the partnership agreement deals with payments to outgoing partners. The clause requires that upon any partner retiring from the partnership, then the other partner - you - will have the right to purchase the retiring Partner's share in the business in accordance with the provisions of clause 18. Ms Moschella is obliged to dispose of her entire interest in the business and all components of it. " 8 On 23 December 2004 the plaintiff's solicitor, Mr Carr, responded to Mr Deane. He advised that the letter of 7 December 2004 had been received by the plaintiff on 21 December 2004 and said that, accordingly, he had advised his client that "Your client's notice of intention of resignation from the partnership is at 21 December 2004 and any relevant time period should commence as at this date". 9 The letter contained an offer for a price at which the plaintiff would be prepared to acquire the defendant's "gross interest in the partnership". He said that, "my analysis is that the partnership is terminated as at 22 March 2005". 10 On 24 December 2004 Mr Deane advised that he agreed that the notice was effective from 21 December and that the relevant time period commenced from that date. The parties were not agreed upon what price would be a fair value for the acquisition of the defendant's interest in the partnership. They both concurred in an application being made to the President of the Australian Institute of Valuers for the determination of such a fair value. 11 On 24 December Mr Deane suggested that the application be made during the first week of January. On 10 January 2005 Mr Deane recorded that the parties had agreed that the time-frame for making the application should be on or before 20 January, being 30 days from the receipt, by the plaintiff, of the defendant's notice of 21 December. Such an application was made by the plaintiff's solicitor on 13 January 2005. 12 On 18 January 2005 Mr Deane, on behalf of the defendant, wrote to Mr Carr as follows: " Re Partnership Agreement dated 30 January 2004 between Grace Moschella and Giltej Applications Pty Ltd:

We refer to the above and in particular our client's notice of intention to retire. We now write to advise that our client formally revokes her notice which was served on your client under cover of a letter from ourselves dated 7 December 2004."

13 On the same day Mr Deane wrote another letter to Mr Carr asserting that the reference to the Institute of Valuers should be withdrawn and asserting that that reference was, in any event, premature. 14 These proceedings were commenced on 23 March 2005. The plaintiff claims a declaration that the defendant's purported revocation of her notice of retirement from the partnership, given by letter dated 18 January, has no force or effect. The plaintiff also claims an order that the defendant specifically perform and carry into effect the terms of the partnership deed in relation to the determination of a fair value of her interest and the purchase of that interest by the plaintiff. 15 On 19 April 2005, the solicitors then acting for the plaintiff made a further request to the chairperson of the Australian Institute of Valuers requesting a determination of the fair value of the defendant's share of the business pursuant to clause 18.2 of the partnership deed. If the defendant's notice of intention to retire is irrevocable, and if no further act was required on her part for her to retire, then it is clear, on any view, that the application had been made to the President, for the time being, of the Australian Institute of Valuers within one calendar month of the date of the defendant's retirement in accordance with clause 18.2. 16 On 29 April 2005, the defendant filed a cross-claim. By that cross-claim she seeks, amongst other things, a declaration that the partnership is dissolved as from the date of the filing of the statement of claim and an order that the partnership business be wound up under the direction of the Court. She also seeks an order for the appointment of a receiver and manager of the partnership business. The statement of claim was filed on 22 April 2005. 17 The issues are whether the defendant has retired from the partnership in accordance with clause 17, and whether the plaintiff is entitled to purchase her share of the Business at a price which, in the absence of agreement, is certified by the President of the Institute of Valuers to be a fair value. For her part, the defendant contends that the partnership was dissolved on the filing of the statement of claim on 22 April or, it was put in submissions, alternatively, on the filing of the cross-claim on 29 April, and that the partnership assets should be sold in accordance with the provisions for the winding up of the partnership in clause 20 of the partnership deed, with either partner having a right to purchase the assets at auction. 18 It was submitted for the defendant that the notice provided for by clause 17 is only a notice of a partner's present intention to retire, which is inherently capable of being changed. It was submitted that there would be no retirement until the defendant took a further step to give effect to that intention. It was put that the giving of a notice of intention to retire was a condition precedent to a partner having a right to elect to retire. 19 It was also submitted that the letter of 7 December 2004 did not give unequivocal notice of the defendant's intention to retire after 13 weeks from the giving of the notice. It was also submitted that in any event clause 18 could not be invoked in this case because the rights under clause 18 arise only upon a partner dying, retiring or being expelled during the continuation of the partnership. Where there are only two partners, the partnership would terminate immediately upon one partner's death, expulsion or retirement. Hence, in the present case, it could not be said that the defendant retired during the continuation of the partnership. 20 It was also submitted that no order for specific performance of the agreement in clause 18 should be made because such an order would be futile. 21 The question of whether the notice of intention to retire could be revoked and the question of whether a further act was required on the part of the defendant after giving notice of intention to retire, in order to make her retirement effective, are related. If something more was required to be done by the defendant in order to retire, after having given 13 weeks' notice of her intention to retire, then clearly she could revoke the notice. 22 The defendant pointed to the use of the permissive word "may" in clause 17. Thus it was submitted that even though notice was given, the defendant could, but was not bound, to retire. However, in my view, clause 17 should be read in the sense that a partner may retire from the partnership by giving at least 13 weeks' previous notice in writing of her intention so to do. 23 In Taupo Totara Timber Co Ltd v Rowe [1978] AC 537, Lord Wilberforce, in delivering the advice of the Board, considered a clause in a service agreement which included the phrase, "to resign his office upon giving to the company not less than three months' notice in writing of his desire to do so". His Lordship noted that there is respectable support in books of precedents for reading the word "on" as meaning "by". That, in my view, is how clause 17 should be read. It does not mean that retirement takes effect immediately on the giving of notice, but it does mean, in my view, that retirement takes effect on the expiry of the period of notice stated in it, that period having to be at least 13 weeks. 24 No useful purpose would be served, in my view, in requiring a partner to give both a notice of intention to retire and a notice of retirement. The purpose of giving at least 13 weeks' notice of intention to retire could be set at nought if the partner were free not to act in accordance with the notice given. 25 If, as I consider to be the case, no further act is required on the part of the retiring partner, other than giving notice of intention to retire, then, in my view, it is not open to the defendant to revoke the notice. This follows as a matter of principle and is supported by a line of authority to which senior counsel for the plaintiff referred. 26 In Jones v Lloyd (1874) LR18Eq 265, the Articles of Partnership provided that either partner should be at liberty to determine the partnership at the end of the first seven years of the term, on giving previous notice to the other partner of his intention to do so. The partnership term commenced in April 1867 and on 17 September 1873 the defendant gave written notice of his intention to dissolve the partnership on 31 March 1874, when the first seven years of the term would expire. On 28 March 1874 the defendant served a notice withdrawing the earlier notice of 17 September. 27 Sir George Jessel, M.R. said (at 271): "Then comes the question, whether on the 28th of March the service of the notice of the Defendant's determination to withdraw the former notice could alter the position of the parties? I am clear that it could not. In the first place it is perfectly well settled that, the first notice being served, if a valid notice, took effect, whether the Plaintiff was sane or insane. That has been decided a great many times. Mellersh v Keen (1) was, I think, the last case. Therefore, the first notice would be perfectly valid, though the Plaintiff was insane at the time. But how could the second notice be good for anything? If the first notice put an end to the partnership, it altered the position of the parties; and how could a man without the consent of the other party say, I will become a partner again? It is totally impossible that, after a notice of that kind has been given, one party alone could withdraw it without the consent of the other and enter into a partnership again. In my opinion, there is no such power of withdrawal as is claimed by the Defendant; and if the first notice were valid, that notice remains unaffected by the attempt to withdraw it. "

28 The same conclusion had earlier been reached in Warder v Stilwell (1857) 26 LJR (NS) Eq 373, although there was the added circumstance that after the giving of a notice of intention to retire, the continuing partner became obliged to purchase the share of the retiring partner. Here the plaintiff had the right, but not the obligation, to purchase the defendant's share at a value as might be agreed or, failing agreement, a fair value as determined by the President of the Institute of Valuers. 29 In Toogood v Farrell [1988] 2 EGLR 233, the partnership agreement provided that: "A partner may retire from the partnership on the expiry of not less than six months notice given in writing to each of the other partners". The Court of Appeal held that once notice was given, the partner giving the notice was bound by it, unless the parties subsequently agreed otherwise (See per Nicholls LJ at 238 and per Kerr LJ at 240). 30 The position is the same where an employee gives notice of resignation of his employment - Birrell v Australian National Airlines Commission (1984) 5 FCR 447 at 457. In State of New South Wales v Paige (2002) 60 NSWLR 371, Spigelman CJ at 407-408 [277] said: " Subject to any contractual or statutory provision to the contrary, the act of resignation from employment, or from membership of an organisation, is a unilateral act that takes effect in accordance with its terms and does not depend upon acceptance by the person or body to whom the resignation is directed. This common law principle is a reflection of the significance the common law has always attached to personal autonomy. Where this principle applies, unilateral withdrawal of a resignation or notice of termination is not possible. " 31 The reasons the defendant is bound by the notice are, first, that in the light of this line of authority, clause 17 should be construed so that the exercise of the right under that clause is irrevocable. Alternatively, the defendant, being faced with inconsistent rights, namely, the right to retire with the consequences provided for by clause 18, or to remain in partnership, or to give notice of dissolution of a partnership at will, is bound by her election to retire. She thus waives what would otherwise be her right to dissolve the partnership at will (Verwayen v The Commonwealth (1990) 170 CLR 394 at 406-407). It was common ground that the partnership agreement was not for a fixed term and hence could be terminated at any time by either of the partners in accordance with s 26 of the Partnership Act. That, however, is not the course which the defendant took. 32 The next question is whether clause 18 is, in any event, inapplicable because the defendant did not retire "during the continuation of the partnership". It could be objected that whenever a partner dies, retires or is expelled, the partnership comes to an end and hence, on the defendant's construction of the clause, it would be entirely otiose. 33 In response to this, counsel for the defendant submitted that clause 18 could operate in a case where there were more than two partners. He pointed to the provisions of clause 1(g) which contemplated that new partners might be admitted. Even in the case of three or more partners, the retirement, death or expulsion of one partner would bring about a dissolution of the partnership, but it was submitted that such a dissolution would only be a dissolution in the technical sense. (See Lindley & Banks on Partnership - 18 Ed; paragraph 24-02 and paragraph 24-13). 34 However, I do not consider that that riposte detracts from the force of the objection that the defendant's construction of clause 18.1 would render the clause otiose in the primary context in which the clause was intended to operate. Although the admission of new partners was allowed for, the partnership agreement was made between the plaintiff and the defendant and it must have been intended that clause 18 would have work to do whilst they remained the only partners. 35 In any event, it seems to me that the draftsman of clause 18 contemplated that the partnership would be taken to continue, notwithstanding the death, retirement or expulsion of a partnership, for the limited purposes of that clause. Hence clause 18.4 provides that it is only upon the expiry of a period referred to in clause 18.2 or 18.3 that the partnership would terminate. Clearly the draftsman contemplated that clause 18 would continue to operate following the death, retirement or expulsion of either partner. 36 For these reasons I consider that the defendant is bound by the notice of 7 December, that she is not entitled to revoke that notice, that the partnership came to an end on her retirement on 22 March 2005, but that the plaintiff has the right, in accordance with clause 18, to purchase the defendant's share in the Business, as defined, at the fair value as may be certified by the President, for the time being, of the Australian Institute of Valuers. 37 It was submitted that the plaintiff should, nonetheless, be refused relief by way of a specific performance of the parties' agreement in clause 18, on the ground that because the plaintiff is not bound to purchase at the price so certified by the President of the Institute, the relief would be futile. It is enough to say that the relief is not futile as the plaintiff may elect to do so. 38 For these reasons I am of the view that the plaintiff is entitled to the relief sought in paragraphs 1 and 2 of the amended summons. 39 The question which then arises is whether the defendant is entitled to any of the relief sought in the cross-claim. Some part of that relief is a corollary of her defence to the plaintiff's claim and falls with the failure of that defence. However, she submits that she is in any event entitled to the taking of accounts in accordance with clause 20 of the partnership deed. The plaintiff's response to that, is that what is to be valued under clause 18 is her "Share" of the Business. The plaintiff says that that necessarily involves determining what is due to her after taking into account both the assets and the liabilities of the partnership and the parties' contributions and drawings. The word "Share" is not defined, nor is the expression "Share of the Business". 40 I consider the plaintiff's interpretation to be the preferable one. A partner's share of the land and business means what is due to her out of the land and business. Business includes not only the goodwill of the business, but all of the assets employed in it or associated with it. What is due to the defendant from the land and business can only be struck after taking into account the partnership's liabilities and the partners' contributions and drawings. 41 I agree that clause 18 operates in such a way that all of the accounting which would otherwise be required under clause 20 will be subsumed in the determination of what is the fair value of the defendant's Share of the Business. Accordingly, I refuse any of the relief in the cross-claim. 42 For these reasons I make orders in accordance with paragraphs 1 and 2 of the amended summons. I order that the cross-claim be dismissed.

[Counsel addressed on costs.] 43 The plaintiff will be entitled to an order for the payment of its costs of the proceedings, including the cross-claim. But the plaintiff also seeks an order that its costs from either the 1st or the 8th of June 2005 be paid on an indemnity basis. In support of this submission it relies upon a letter expressed to be a letter sent in accordance with the principle in Calderbank v Calderbank (1975) 3 All ER 333, which is dated 1 June 2005. The letter was sent to the defendant's solicitor. In it the plaintiff offers to settle the proceedings on a basis which includes the following: "(a) your client will forthwith retire from the partnership. ... (d) in addition to the payment by our client under clause 18.3 of the deed, our client at the time of that payment pay to your client the sum of $5,000; (e) the statement of claim and cross-claim will be dismissed with no order as to costs."

44 It is said that this offer proposed a substantial compromise of the proceedings and, had it been accepted, the defendant would have been materially better off, than she is under the orders which I have made. If paragraph (a) of the letter is left out of account, I think that is probably so. The difficulty with paragraph (a) is that if the offer had been accepted, the effect would have been that instead of the partnership being taken to have come to an end on 22 March, it would have been taken to have terminated forthwith upon the acceptance of the offer. The offer was open for acceptance for a period of 7 days. 45 Notwithstanding that there is some evidence that up to 31 December 2004 the partnership was profitable, I do not think it is established that, if the defendant had accepted the offer in its entirety, so that she was taken to have retired from the partnership forthwith after acceptance of the offer, she would necessarily be better off than she is as a result of the orders I have made. 46 For these reasons I refuse the application for indemnity costs. I order that the defendant pay the plaintiff's costs of the proceedings, including the cross-claim. 47 The exhibits may be returned after 28 days.

On 16 June 2005, his Honour added the following paragraph: 48 The orders made on 14 June 2005 did not include an order reserving the matter for further consideration. That is a usual and desirable order to accommodate matters which may arise in relation to the working out of an order for specific performance. I also reserve the matter for further consideration and grant liberty to either party to apply on 14 days' notice in writing.

04/07/2005 - Orders 1 & 2 were omitted from the original coversheet; date error in para 26. - Paragraph(s) 26

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Judgment (17 paragraphs)

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