John Burke Mulford v AW Butterell and Others as Partners of Grant Thornton Chartered Accountants

Industrial Relations Commission (NSW)|2001-06-18|Before: Robert J, Schmidt J

Industrial Relations Commission of New South Wales in Court Session

CITATION : John Burke Mulford v AW Butterell and Others as Partners of Grant Thornton Chartered Accountants [2001] NSWIRComm 137 APPLICANT: John Burke Mulford

APPLICANT: Mr S Smith of counsel SOLICITORS: Maclarens Solicitors LEGAL REPRESENTATIVES: RESPONDENTS: Mr S Thompson, solicitor SOLICITORS: Sparke Helmore Solicitors

JUDGMENT: - 27 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Schmidt J

Matter Number IRC 4339 of 1999 JOHN BURKE MULFORD v ARTHUR WILLIAM BUTTERELL & ORS AS PARTNERS OF GRANT THORNTON CHARTERED ACCOUNTANTS Application under s106 of the Industrial Relations Act 1996 JUDGMENT

1 This is an application brought under s106 of the Industrial Relations Act 1996 ('the Act') by Mr John Mulford against his former partners in the accounting firm Grant Thornton. One of the issues in the proceedings is whether, in truth, the applicant was a partner in the firm at the time the parties' relationship came to an end. The applicant asserts that he was then an employee. 2 On the last day of the hearing, 6 April, the parties were unable to conclude their submissions and a short programme was fixed for the filing of written submissions. Despite this, the respondents' submissions were filed on 26 April and the applicant's submissions in reply not until 4 June 2001. 3 The orders sought in the initiating summons were: '1. An order varying the Contract of employment ab initio between the applicant and the respondent by including the following terms: "The respondent shall be bound to treat the applicant fairly and shall not provide conditions of employment and employment standards that are harsh, unjust or unreasonable. Furthermore for the purpose of this term employment standards shall include but not be limited to the regular and consistent payment to the applicant of his salary package and other forms of remuneration as agreed from time to time between the applicant and the respondent. A duty by the respondent not to breach its obligations under the Contract of Employment by withholding payment of the applicant's salary package and other forms of remuneration unjustly or unreasonable."

A declaration and/or finding that the respondent treated the applicant in a manner in breach of the term incorporated into the Contract of Employment by Order No 1 above.

An order and/or finding that the essential breach by the respondent by its failure to pay salary package to the applicant represented a complete repudiation of the Contract of Employment and allowed the applicant to accept such repudiation.

An order for the payment of money to the applicant by the respondent arising out of the breach of the term of the Contract of Employment incorporated into the said contract by Order No 1 above. Such payment to be in the sum of $57,487.29 as set out in Annexure "A" hereto.

Further, or in the alternative, an order varying the Contract of Employment ab initio between the applicant and the respondent to include the following term: "The respondent represents to the applicant that it shall pay to the applicant such compensatory amount to represent the equivalent of 12 months full salary package where the applicant otherwise accepts any full repudiator breach by the respondent in relation to its obligations under the Contract of Employment with the applicant."

An order for the payment of money to the applicant arising out of a finding that the respondent breached the incorporated term in Order No 5 above, such payment to be in the sum of $63,462.71 as set out in Annexure "B" hereto.

An order in relation to the payment of money abovementioned together with interest at Supreme Court rates on money awarded by the Commission.

An order that the respondent pay the applicant's costs of and costs incidental to this application. Such further or other order or award as the nature of the case may require and the Commission deems appropriate.'

4 The money sum claimed as finally formulated was UNPAID SALARY May 1998 $5,000.00 June 1998 $9,583.33

UNPAID HOLIDAY PAY 72 days @$442.31 per day $31,846.32

UNPAID PRO RATA LONG SERVICE LEAVE Long service leave period 55.8 days @ $442.31 per day $24,680.90 $71,910.55

PAYMENT IN LIEU OF NOTICE $62,462.71 $133,573.26 INTEREST 1 July 1998 - 31 august 1998 62 days 133,573.26 @ 10% = $2,268.92

1 September 1998 - 24 July 2000 692 days 133,573.26 @ 9.5% and continuing at a rate of $34.77 per day = $25,324.00 $161,166.18

5 Evidence was called from the applicant and from the respondents Robert John Butterell; Richard Nevin Moffitt, and Graham Watman, all chartered accountants. 6 The claim arose out of the termination of the relationship in May 1998, after the applicant took the view that the agreement between them had been repudiated by the respondents. He accepted that repudiation, advising that 'As of Monday 25 May 1998 I am accepting those breaches of my contract with the firm and therefore leaving.' 7 The applicant had been an equity partner of the firm since 1976, having then purchased a 5% equity in the business. Before that event he had been employed by the firm since 1964, initially as a junior and then as an accountant, until he became qualified as a chartered accountant in 1976. Upon taking up his partnership, the applicant was paid out his long service leave entitlements and thereafter participated in the partnership profits, as to a 5% share. 8 In 1988, the partnership merged with another partnership and the applicant continued as an equity partner in the merged practice. The partnership deed for the new partnership was later signed by the partners, including the applicant, in December 1989. It was this agreement, which arose for consideration in these proceedings. 9 Both before and after the 1988 merger, service companies were operated by the partners to provide various services to the partnership which gave rise to various payments to the partners, as employees of those companies. The applicant participated in these arrangements. After 1988 various trust arrangements were also involved. The details of all of those arrangements were not in evidence. However, it was common ground that the applicant and his wife received payments from these various entities, both while he remained an equity partner of the firm and afterwards, in accordance with the applicant's directions. 10 The partnership accounting year was from 1 April to 31 March. It was common ground that in the 1990/91 year, the partnership encountered financial difficulties. The partnership's executive committee and the partners themselves had various meetings and discussions about these difficulties. 11 In the course of these discussions the applicant offered to resign from the partnership, on his evidence, having regard to the loss of some of his clients, his health and his willingness to do so for the benefit of the firm. The other partners did not wish for him to leave and the discussions turned to the possibility of the applicant becoming a salaried or 'B' partner, rather than an equity partner. Provision for such an arrangement was made in the partnership agreement. 12 Agreement as to such a change in status was reached, with the applicant to be paid an annual salary of $110,000. Repayment of his capital account was arranged (and later repaid) and the continuation of his participation in the trust arrangements, so as to enable income to be paid to his wife, was confirmed. There were discussions as to his voting rights and the indemnities to be provided to him by the salaried partners. There was no discussion as to the applicant becoming an employee of the firm. In February 1991, the applicant received a letter signed by Mr Butterell, then chairman of the partners, to the following effect: ' Variation to Partnership Arrangements

I refer to our recent discussion where you agreed to convert from "A" Partner status to "B" Partner status in accordance with our Partnership Agreement dated 21 December 1989. Under the Partnership Agreement, "B" Partners shall mean "those persons who are from time to time Partners but who are not obliged to contribute to or entitled to participate in the capital of the Partnership". The Agreement further provides that "B" Partners will not participate in the profits of the Partnership but shall be entitled to a salary. We have agreed that your salary for the year ending 31st March 1991 will be $110,000 and for the year ending 31st March 1992 will be $110,000 and thereafter reviewed annually. As at 31st March 1991 your capital account and W.I.P. entitlements as at 31st March 1990, will be transferred to a non-interest bearing loan account. Your current account will be subject to interest, in accordance with the Partnership agreement. It is mutually agreed that the repayment of your loan accounts will commence 1st April 1992 and will be paid by 24 equal monthly instalments commencing 1st April 1992. The conditions of your employment are stated in the Partnership Agreement and in the Regulations to the Partnership Agreement. You will be entitled to five weeks annual leave but not entitled to sabbatical leave. Would you kindly sign the enclosed copy of this letter to signify your agreement and its contents.'

13 It was the reference in this letter to 'the conditions of your employment', upon which the applicant relied to found the claim that in reality, as a B partner he was an employee, rather than a partner of the A partners, the respondents in these proceedings. Reliance was also placed upon various provisions of the partnership deed as well as the control, which it was asserted that the A partners exercised over the applicant. 14 The evidence of the applicant was that the above letter also reflected an agreement to backdate the change in his status to April 1990. It was the evidence of Mr Moffitt, that there was no such agreement. Rather, what had then been agreed was that an amount of $110,000 would be paid to the applicant, so as to reflect the applicant's entitlement to a profit share as an equity partner for the 1990/91 year, which was to conclude on 31 March. Salary at that level would then continue, as outlined. This was intended to finalise the payment due to the applicant as an equity partner, rather than the applicant having to wait some further months while the partnership accounts were finalised and decisions made in relation to the firm's profit pool, before the applicant's actual entitlement to a share of the profits as an equity partner for that year was able to be determined. 15 On the evidence this arrangement operated to the applicant's benefit in the longterm. For some periods, if not all of the ensuing years, the payments received by the applicant were greater than what the individual respondents received. Each year the applicant received a break up of the way in which his salary had been paid as between trust distributions to his wife, his payments from the service company and the balance as a partnership distribution. 16 Prior to the change in status the applicant had received his profit drawings as an equity partner on a monthly basis, described within the partnership as 'the applicant's comfort level'. This 'comfort level' included the distribution of income to his wife under the arrangements earlier mentioned. The partnership operated loan accounts for partners. While the applicant was an equity partner, adjustments were made annually to his loan account, once his annual entitlement to a profit share had been determined. This system operated for all the equity partners. After his change in status, the applicant continued to receive regular monthly payments and distributions of income from the trust to the applicant's wife continued, in accordance with his directions. A loan account was also operated for the applicant. Repayment of these loans by the applicant later gave rise to difficulties between the parties. This was because the applicant was then in receipt of a fixed annual salary paid regularly over the course of a year. Thus the opportunity to make annual adjustments in respect of the loan account once profit shares were finalised no longer arose in his case. I will deal further with this below. 17 After the change in status, the applicant remained on the letterhead of the firm as a partner and thereafter continued to service clients and supervise staff in a similar way to that which had occurred while he was an equity partner. He continued taking leave of 5 weeks per annum as before. He also remained a signatory on the firm's bank accounts and attended partners' meetings where general partnership business was dealt with. He did not attend meetings of the equity partners. As had been agreed, he was indemnified by the equity partners in respect of any claims made against the firm. 18 In 1997, a difficulty arose in relation to a former client of the firm, Westmex, which had gone into liquidation. A claim had been made against the firm and the settlement of the claim was being discussed. Mr Butterell had been delegated responsibility for dealing with this matter. The partners had to meet that part of the claim, which exceeded the firm's insurance cover. The claim related to events which had occurred while the applicant was an equity partner and there was no dispute in these proceedings that he was obliged to share in the burden of these payments, along with all those who had been equity partners at the relevant time, some of whom had since retired. 19 What was disagreed between the applicant and the respondents was the way in which the applicant's share of the settlement amount was to be met. The applicant was in a financial position where he could ill afford to make the payments. There was an urgent need for them to be made however, given the way in which the settlement discussions had progressed. The applicant, like other former equity partners, was asked to pay of his share of the settlement, the equity partners not wanting to bear the burden of this payment for the applicant and other former partners. Other former equity partners met their share of the payment. The applicant did not. Eventually the respondents made the payment on his behalf, in order to ensure that the settlement was not jeopardised. The firm also made the payments for the equity partners, charging each partner's share to their loan accounts, for adjustment when profits were determined later. In the circumstances the applicant's loan account was also charged with the payment, which the respondents had made for him. 20 This payment followed a difficult period. It involved attempts by Mr Butterell to have the applicant pay his share of what was owed and his resistance to those endeavours, he taking the view that the payment should be made by the firm on his behalf, in the same way as for equity partners. The end result was that the firm met his liability and the sum was charged to his loan account, which then stood at in excess of $15,000. There then followed attempts by Mr Butterell to have the applicant make arrangements for repayment of his loan account; complaints by the applicant about the level of his remuneration as a salaried partner and the failure of the equity partners to review such payments, as had been agreed in 1991; and the alleged unilateral and unauthorised deduction of two sums, totalling $2,500, from the payment to the applicant of his usual monthly 'comfort level' payments. This deduction was arranged by Mr Butterell and the two sums were applied to reduce the applicant's loan account. 21 The applicant protested and alleged that this involved a breach of his agreement by the respondents. Eventually, in November 1997, an agreement was reached between the applicant and Mr Green, who had been delegated the responsibility of negotiating with the applicant over these matters by the other equity partners. That agreement provided: 'Further to our discussion I have pleasure in advising you of a $5,000 increase in your salary from $110,000 as per annum to $115,000 per annum effective from 1 December, 1997. It is understood that the additional amount per pay will be deducted from you automatically in repayment of your debt to the firm. I again thank you for explaining the position so frankly and honestly and wish you continued enjoyment as a Partner and look forward to seeing you regularly at Partners meetings and functions.' 22 On the evidence, this agreement was implemented by the respondents in the terms suggested. Namely, the applicant's monthly payments were increased to reflect an annual sum of $115,000. The monthly increase, some $416, was not paid to the applicant, but was rather applied in repayment of his loan account. On his evidence, this was not what the applicant had understood was to happen. He had anticipated that the $5,000 would be paid in a lump sum, once per year, not direct to him, but applied to reduce his loan account. In this way, the applicant would be in no worse financial position, vis a vis his usual monthly payments, compared to what he was receiving before the increase in his annual salary. The applicant needed to maintain this level of monthly income, in order to meet his financial commitments. The way in which the increase was in fact paid, however, also left him in the same position - his monthly payments continued unaffected by the repayment of the loan on a monthly basis. The payments being made on that basis were not apparent to him, but were recorded in the firm's accounts. 23 These discussions and arrangements between the parties took place at a time when the firm was also facing cashflow problems, which were discussed by the partners in their partner meetings. Various steps, which were proposed to deal with those problems, were also discussed. 24 In April and May 1998, despite the November 1997 agreement, the applicant was not paid the full amount of his normal monthly payments. The applicant's protests about this led to new proposals from the respondents as to the repayment of his outstanding loan accounts. The upshot of these difficulties between the parties was the termination of the parties' relationship in May, as earlier outlined. There were then discussions in June as to the possibility of its continuation, an approach which the applicant rejected. An arrangement was then sought to be made by the respondents for the applicant to spend the month of June collecting outstanding fees from clients for whom he had performed work and an agreement as to clients of the partnership, who might go with the applicant when he left. While the applicant spent some time in June chasing the firm's debtors, no agreement was reached in relation to clients or indeed, repayment of the amount of the applicant's outstanding loan account. 25 On 1 July 1998, the applicant began practising on his own account, working for a number of the firm's former clients, some of whom still owed the firm money for work which the applicant had performed for them while a B partner of the firm. 26 As noted at the outset, the applicant's case involved not only a claim that there were payments outstanding to him from May and June 1998 and that he should have received notice of the termination of his agreement with the respondents, but also that he was in fact not a partner of the firm after April 1991, but rather an employee. Claims for payment of long service leave and annual leave were also pressed, irrespective of whether or not it was accepted that the applicant was an employee. 27 The case for the respondents was that the applicant was at all relevant times a partner in the firm; that the respondents had not repudiated the agreement, but that rather the applicant had resigned, without complying with the partnership notice provisions; that the contract was not unfair and that no payments were outstanding in respect of any of the claims advanced.

Consideration 28 It is sensible in this case to deal first with the claim that the applicant was in truth an employee of the partnership and not a salaried partner, from Apri1 1990 to the end of June 1998, when the relationship came to an end. This depends, in part, upon an agreement alleged by the applicant and denied by the respondents, that there was an agreed backdating of the employment relationship to 1990. 29 The claim was advanced in a variety of ways. Firstly, by reference to the letter of February 1991 earlier quoted; by reference to the provisions of the Partnership Act 1892; by a particular construction advanced as to the partnership agreement and having regard to the control which it was argued that the respondents had exercised over the applicant. None of these arguments had any persuasive force, particularly when consideration was given to the evidence as to the conduct of the parties, both before and after the applicant's status changed. 30 The applicant claimed that the commencement of the employment had been backdated to April 1990, by agreement of the parties made in February 1991. It is convenient to deal with this at the outset. I found the applicant's evidence as to this matter entirely unconvincing and cannot accept his version of the events in question. 31 The starting point for a consideration of the conflicting evidence about what was agreed is, of course, the letter relied upon. In its terms it does not expressly provide for the retrospective creation of an employment relationship. The use of the description of the payments to be made to the applicant for the 1990/91 and later financial years as 'salary' is not of itself evidence of an intention to create an employment relationship, particularly having in mind the descriptions used in this partnership of payments made to partners. I will return to this point below. 32 While the letter was unfortunately expressed by reference to 'the conditions of your employment', in reality that was but a reflection of the terminology used inappropriately in the regulations to the partnership agreement in respect of partner's entitlements, which I will also deal with further. The letter expressly referred to the applicant taking up B partnership as provided in the partnership deed. That deed makes it plain that B partners were in partnership with the A partners and were not their employees. 33 Any 'backdating' of an employment relationship would have carried with it a number of obvious difficulties, not only from the respondents' perspective, but also from that of the applicant himself. Given that at the time all of the parties were chartered accountants in active practice as equity partners of the firm and that in the case of the applicant, for example, had been in such practice for many years, it is difficult to conceive that they would not have been conscious of these problems. 34 That it would have been possible for the parties to make an agreement which retrospectively altered the nature of their relationship from that of partnership to that of employment, must be doubtful. How could such an agreement have been effective? It could certainly not have affected the applicant's past dealings with the clients of the firm and other third parties. How could the parties have complied with the various obligations which fell upon them in relation to such an employment? For example, not only would such an arrangement have affected the applicant's statutory and contractual obligations and entitlements for the period in question, it would have immediately put the remaining partners, as his then employers, in breach of their obligations to make PAYE deductions from the applicant's monthly payments. 35 That no arrangement was made to address problems of that kind, at the time, also tells against any agreement to a backdating of an employment relationship. To the contrary, PAYE deductions were never made from the payments made to the applicant, either before or after February 1991. This, of course, is a factor which also tells against the conclusion that the parties ever intended to enter into an employment relationship with each other. 36 I do not find the applicant's evidence as to the backdating of this agreement credible and prefer the evidence of Mr Moffitt on the point. In coming to that conclusion, I have noted the circumstances in which Mr Moffitt's evidence about this matter came to be given, but also that he was not cross examined as to the truth of the evidence which he gave about this matter. He gave evidence that the reference in the letter to the fixing of a salary for 1990/1991, was to settle this matter between the parties, prior to the applicant entering into B partnership. In the absence of that agreement the applicant would have had to wait for some months for final figures to be settled. That evidence was entirely plausible and I prefer it. 37 In rejecting the applicant's version of events, as to the backdating of an employment relationship, I have also taken into account the conclusions which I have otherwise reached as to the claim that the applicant was an employee of the firm, in testing the view which I reached about this matter. 38 I turn then to the arguments that there was here, in truth, an employment relationship created when the applicant became a B partner. While reliance was placed upon certain of the provisions of the Partnership Act to support this claim, the submissions made were advanced without proper regard to the definition of 'partnership' in s1(1) of that Act. It is to simple effect, providing that "Partnership is the relation which exists between persons carrying on a business in common with a view of profit." 39 This definition contemplates that a business be carried on, that it be carried on by persons in common and that there must be a view to profit. The evidence demonstrated that the arrangement between the parties here in question satisfied these tests, both while the applicant was an equity partner and later when he became a B partner. Indeed, the evidence only allows for the conclusion that the applicant intended to remain a partner of the firm, when he took up a B partnership. The evidence of the parties' conduct thereafter was inconsistent with an intention that an employment relationship was to be created. That as a chartered accountant, the applicant was well familiar with the difference between these two legal concepts cannot be doubted. Indeed, his evidence in cross examination was that in 1991, given the then structure of the firm, he would not have been interested in taking a position in any of the categories of employees of the firm. He was only interested in B partnership. 40 In the submissions advanced for the applicant, substantial reliance was placed upon s9 and s24 of the Partnership Act, without proper regard however to the provisions of s19. They provide: Liability of partner 9. Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while the partner is a partner; and after the partner's death the partner's estate is also severally liable in a due course of administration for such debts and obligations so far as they remain unsatisfied, but subject to the prior payment of the partner's separate debts. Rules as to the interests and duty of partners subject to special agreement 24. The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement expressed or implied between the partners, by the following rules: (1) All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm. (2) The firm must indemnify every partner in respect of payment made and personal liabilities incurred by the partner. (a) In the ordinary and proper conduct of the business of the firm; or (b) In or about anything necessarily done for the preservation of the business or property of the firm. (3) A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of capital which the partner has agreed to subscribe is entitled to interest at the rate of seven per centum per annum from the date of the payment or advances. (4) A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by the partner. (5) Every partner may take part in the management of the partnership business. (6) No partner shall be entitled to remuneration for acting in the partnership business. (7) No person may be introduced as a partner without the consent of all existing partners. (8) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of partners, but no change may be made in the nature of the partnership business without the consent of all existing partners. (9) The partnership books are to be kept at the place of business of the partnership (or the principal place, if there is more than one), and every partner may, when the partner thinks fit, have access to and inspect and copy any of them.

The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either expressed or inferred from a course of dealing.

41 When these provisions are read together, it becomes apparent that, contrary to the submissions advanced for the applicant, the Partnership Act does not impose a restriction upon partners so that they are unable to agree with each other, as here, that some partners will be liable to meet the debts and liabilities of the firm and will in that respect indemnify other partners, who, it has been agreed, will be relieved of that obligation. The decision of Cox v Hickman [1860] VIII HLC 267, relied upon for the applicant, is not a proper basis for the contrary conclusion. 42 That case concerned two persons trading together, who had entered into a deed with certain of their creditors, as to the continued trading of the business with the support of those creditors. The question was whether a partnership existed as a result between the traders and their creditors. The case emphasises that partners must bear the liabilities of the business, but was concerned with whether it had been intended by the parties that the creditors would do so. The case was not concerned with persons intending to become partners with each other, who had consciously made arrangements, as between themselves, as to how the liabilities of the business were to be met. 43 While such an agreement will obviously be unknown to third parties and will not be binding upon them, it will be binding as between the partners who have made such an agreement. So much is plain from the provisions of s19 of the Partnership Act, which permits partners to agree with each other that their mutual rights and duties, including those specified in s9 and s24, may be varied. 44 Here, the partnership agreement established a particular regime of mutual rights and obligations as between the A and B partners, including in relation to the liabilities of the firm. Section 19 of the Partnership Act makes it plain that they were so entitled to agree. The Act leaves the partners free to agree with each other about such matters, as they see fit, subject only to considerations such as illegality. Nothing of that kind was suggested here. 45 It was also submitted that the fact that the applicant was paid money, described as a 'salary,' indicated that he did not share in the profits of the firm, (one of the tests of partnership referred to in s2 of the Partnership Act). The evidence as to the arrangements made for the payment of such 'salary' while the applicant was a B partner, demonstrated that the agreed amount was paid at the applicant's direction, in part to him and in part to his wife in the way earlier described. As I earlier found, this arrangement was entirely inconsistent with the existence of an employment relationship. The mere fact that the applicant was a salaried partner and received payments described as a 'salary', does not of itself throw any doubt on the existence of a partnership between the parties. 46 The law has long recognised that partners are free to agree with each other that a partner might be paid a salary, rather than a fixed percentage of profit. Here, given the terms of the partnership deed, particularly in clause 4, the view long taken in decisions such as that of the Privy Council in Watson v Haggitt [1928] AC 127, that such a salary is in truth a share of the profits, must be accepted. Here, indeed the agreement expressly made provision for payment of the B partner salaries out of the profits of the firm, before the distribution of the remaining profits to the equity partners, (see cl 4). This was not an unimportant right, particularly given that for some time the salary received by the applicant exceeded the share of profits which the respondents received out of the partnership business. 47 Other evidence which the applicant himself advanced in his own case, demonstrated that the respondents understood the applicant to be a partner of the firm, receiving his 'salary' as a share of the profits. The applicant gave no evidence that he ever disagreed with that understanding or communicated any disagreement with it to the respondents. In 1996, for example, in the context of a consideration by the partners of proposed new partnership regulations, the proposed schedule 3 dealt with salaried partners in this way: '1. The fixed profit shares of the Salaried Partners are $120,000 per annum.

The fixed profit share of each Salaried Partner will be an expense of the Partnership.' 48 There was no evidence that the applicant disagreed with this formulation. On the evidence it accorded with the respondents' understanding of the applicant's position and was consistent with the provisions of the deed and the parties' conduct, which was on the basis that the applicant was a partner and not an employee of the firm. 49 It has also long been recognised that partners are able to agree with each other as to how the business of their firm is to be managed. Active participation in the management of the business is not essential, in order for a partnership to come into existence. Indeed, partnerships where one partner provides capital, but plays no active role in the partnership business, have long been well known. See, for example, Kelly v Tucker (1907) 5 CLR 1. 50 Here there was an executive committee which handled the day to day running of the business, in conjunction with a managing partner. The applicant attended partners' meetings, other than those meetings of equity partners alone. There was no evidence that employees of the partnership attended those meetings, at which the business of the firm was discussed. On the evidence it cannot, however, be doubted that while a B partner, the applicant took an active role in the management and control of the firm's business, even though he did not attend meetings of equity partners. This evidence also included his participation in the operation of its banking accounts, to which he remained a signatory until the relationship came to an end. 51 In my view the argument that, while the agreement between the parties was labelled a partnership, it was in reality an employment relationship, is nothing but an attempt at a subsequent rationalisation or reconstruction of events, which do not properly permit of such a label. 52 The applicant was a chartered accountant who had been a partner of this firm since 1976, when in 1991, he agreed to cease being an equity partner and to become a salaried partner, in accordance with the partnership agreement. Such partners were respectively referred to as A and B partners in the deed. 53 That the deed could have been better drafted, is undoubted. What is also undoubted, however, is that the applicant well understood what he was about in 1991, when he agreed to the change in status. 54 The applicant's case involved a significant attack on the partnership deed. It cannot be overlooked, however, that the applicant was one of the partners who, after a considerable period of time, in 1989 entered into the very agreement about which complaint was made in these proceedings. At that time the applicant was an A partner and there were no B partners, although provision for them was made. There was nothing in the evidence from which it could be concluded that the applicant, as opposed to the other partners of the firm, at that time had been forced into this agreement. Nor was there any evidence which would properly lead to the conclusion that he was suffering from any disadvantage which led him to agree to it, contrary to his own interests. There was also no evidence of coercion or disadvantage at the time the applicant agreed with the respondents to a change in his status to that of B partnership, to the contrary, the change operated to his considerable benefit. 55 As a B partner the applicant thereafter participated in the affairs of the partnership as if he were a salaried partner and not an employee of the firm. He received a written indemnity from the equity partners in relation to the debts and liabilities of the firm, an indemnity entirely unnecessary if he had in truth become an employee. He attended partners' meetings; he was a signatory to the partnership accounts; he attended to clients as if he were a partner and charged them accordingly; he supervised staff as a partner; he was treated as a partner for sick leave purposes; he and the firm represented to the world that he was a partner of the firm, the internal change not being one in any way made apparent to the outside world; he was remunerated as if he were a partner, not only receiving monthly comfort level payments from the firm, but also distributing profits to his wife via the vehicle of the company and trust earlier referred to, in accordance with his own preference. The applicant also had the benefit of the resulting tax treatment. Employees of the firm were not entitled to participate in such arrangements. 56 Indeed, one of the issues of contention between he and the other partners in 1997 was that an error had been made in the partnership accounts, which in his opinion increased the tax payments which fell to be made by his wife. He took the view that this error had contributed to his inability to meet his share of the Westmex liability. It is impossible to understand how such a situation could have arisen, if either the applicant was, or understood himself to be, an employee of the firm at the time. 57 These matters must all be weighed against the use of words in the deed and regulations, particularly the latter, which might have been capable of referring to employment, rather than partnership in the case of B partners. In my view, that there might have been inadequate drafting of these documents by reference made both to concepts of employment and partnership, as if they were interchangeable, which they are not, is not a proper basis for a conclusion that the applicant was not in truth in partnership with the respondents. 58 The recitals to the partnership deed make plain that the partners had agreed with each other to continue their partnership on the terms provided for in the deed, when it was adopted. A and B partners and partner were respectively defined as: '"A" Partners shall mean those persons who shall be or shall become "A" Partners pursuant to the provisions of this Deed. "B" Partners shall mean those persons who are from time to time partners but who are not obliged to contribute to or not entitled to participate in the capital of the Partnership. "Partner" shall include each party to this deed and any person subsequently admitted to the Partnership, their and each of their respective executors administrators and assigns.'

59 The deed makes various provisions as to A partners, B partners and to partners generally. There is nothing in the deed which would properly lead to the conclusion that contrary to its apparent intent, B partners were to be the employees of the A partners, rather than their partners. Conversely, many of the provisions confirm that the intent. For example, clause 2.5 provides: '2.5 Each partner shall at all times during his membership of the Firm diligently and faithfully employ himself therein and carry on the same for the greatest advantage of the Firm.'

60 Provision was made for the accounts of the firm, how profits were to be distributed to A partners and losses to be born by them; how B partners were to be paid out of profits of the firm before any distributions were made to A partners; how the partnership could be wound up and its goodwill dealt with; how new partners might be admitted and existing partners might leave the partnership, whether by retirement or expulsion; the insurance to be carried by the partnership and the indemnities to be provided by the A partners to the B partners. 61 There were also regulations, which were referred to in the deed, but which may not be given effect as if they overrode the provisions of the deed itself. Those regulations were entitled 'Regulations to the Partnership Agreement' and in Part 6 'Partner Employment Conditions', dealt with various topics including annual leave, sabbatical leave, long service leave and superannuation - for both A and B partners. That part commenced with the introduction that: 'The terms Partner Employment Conditions are used for convenience with the fact that the 'A partners are not employees of this Partnership being recognised.'

62 In the applicant's case, it was suggested that the obvious inference to be drawn from these words was that the B partners were employees of the partnership. That was the most telling of the arguments relied upon for the applicant in relation to this claim. I have concluded that it cannot, however, lead to the result that the drafting of the regulations necessitates a reading of the deed, inconsistent with its plain provisions. 63 The regulations then deal with annual leave for partners, without distinguishing between the entitlements A and B partners, each of whom are entitled to 5 weeks' leave, an entitlement other employees of the firm did not enjoy. This was subject, however, to the rider that if not taken within six months of falling due, they were forfeited, unless exemption was granted by the executive committee. 64 Provision was made for sabbatical leave and long service leave. In respect of the latter, it was said: '"A" Partners are not entitled to long service leave, however, they are entitled to sabbatical leave. Any "A" Partner shall reimburse the firm for any long service leave paid to that "A" Partner from Thomson Douglass Butterell Services Pty.' 65 The proper implication was that B partners were entitled to long service leave payments and without any reimbursement from 'Thomson Douglass Butterell Services Proprietary'. 66 Superannuation was dealt with expressly by reference to A and not B partners, as were other matters such as motor vehicle expenses. The evidence, nevertheless, made it clear that as a B partner, the applicant's motor vehicle expenses were also born by the partnership. Indeed, changes to the firm's practices in relation to such expenses, was another matter of complaint by the applicant while he was a B partner. Other benefits did not distinguish between A and B partners, such as car parking costs. 67 There were plainly deficiencies in the drafting of the regulations. In my view, the use of words such as 'salary' and 'employment' in those regulations, cannot deflect from the real intent of the deed, as confirmed by the conduct of the parties. The evidence only leaves available the conclusion that in reality, the applicant was not an employee of the respondents, that he never so understood his relationship with them and that the parties always acted as if they were in partnership with each other, rather than being together involved in an employment relationship. Indeed, the applicant's conduct in relation to the termination of the relationship, amply demonstrated that this position persisted, right up to the end. 68 While submissions were advanced as to the control exercised over the applicant by the respondents, the evidence as to control was, in reality, all one way. While the applicant, like other partners, had budgets to meet and expectations as to the hours he would work in the partnership business, it was plain that he was not the subject of control akin to that exercised in respect of employees. Partners agreeing with each other to subject themselves to the administrative arrangements which they put in place for the running of their business, does not, in my view, equate to a surrendering of control, in the way in which that concept is understood in an employment relationship. Indeed, on the evidence, the applicant like other partners, controlled the work of the employees of the firm. 69 There was no evidence that the applicant was ever under any misapprehension or confusion as to his status, not even when bringing the relationship to an end. Indeed, the applicant's conduct in relation to the clients of the firm - or those for whom he acted and who followed him after his departure - clearly demonstrated that he had no understanding that he owed the respondents the duties of an employee in relation to such clients. That he was an employee of the respondents is a conclusion simply not open on the evidence. 70 Not only can I find in these matters no basis for a conclusion that the applicant was an employee of the respondents, I can also find no basis in any of these matters for any finding of unfairness, as required by s106 of the Act. The case was not, however, advanced on an all or nothing basis. I turn then to the other aspects of the claims advanced. 71 As to those matters, there can be no doubt on the evidence that the applicant was not well treated by the partnership in relation to his share of the Westmex liability. The irony is that it seems that a difference over the repayment of a sum of about $11,000 in respect of that liability, not only led to the parties' relationship coming to an end after very many years, but also this hotly contested litigation, which has undoubtedly involved the parties in much more than that sum, even if the costs of the litigation alone were considered. 72 The evidence disclosed that the applicant had to bear some of the responsibility for that difficulty, given his own refusal to respond to requests for contribution to the sum owing in respect of Westmex. While there were questions raised as to whether there had been adequate communication with the applicant about this matter, in my view the proper conclusion on the evidence was that the applicant did not respond adequately to requests made to him and indeed, simply took the view that the firm should fund this liability for him, as it did for the equity partners. 73 Mr Butterell's response to the applicant's refusal to come to grips with the need to repay this sum was undoubtedly high handed, but what is of importance to the matters which here require consideration is that the difficulty was eventually ironed out between the parties in their discussions in November 1997. The applicant's payments were increased from $110,000 to $115,000 per year and an agreed method of repayments of the outstanding loan arrived at. The agreement was implemented; repayments began and steps were taken to ensure that the applicant was no worse off in relation to the monetary payments which he required, given his difficult financial and personal circumstances, as had been agreed. 74 The evidence does not, however, leave room for any doubt that the respondents later reneged on that agreement. In November 1997, Mr Martin Green, then the managing partner, informed the applicant that his salary had been increased from $110,000 to $115,000 effective from 1 December 1997 and that: 'It is understood that the additional amount per pay will be deducted from you automatically in repayment of your debt to the firm. I again thank you for explaining the position so frankly and honestly and wish you continued enjoyment as a Partner and look forward to seeing you regularly at Partners meetings and functions.'

75 The plain inference from this advice was that the respondents accepted the frank explanation the applicant had given them as to his health, personal and financial problems and his concern that his remuneration level had not increased since he took up his salaried partnership. An agreement was thus reached as to the repayment of the applicant's share of the Westmex debt. The result of this agreement was that over time - a little more than 2 years - the debt would have been extinguished. The firm's accounts confirmed that the repayments had in fact so been applied. That this occurred in a way different to the applicant's expectations makes no difference to what here arises for consideration. 76 In April 1998, Mr Watman became managing partner. There were then cashflow problems facing the partnership and equity partners were not receiving their regular comfort level payments. The applicant usually received a payment in the order of $9,000 at the beginning of the month. That this position might have been regarded as operating unfairly between the applicant and the respondents could well be understood. There was, however, no evidence that the respondents took such a view or that any such views were ever raised or discussed with the applicant. 77 On 1 April, without prior notice, he did not receive his usual payment, but rather the sum of $2,883.00. That this would give rise to a complaint is hardly surprising. After the applicant complained vociferously, a further amount, but not the full amount, was paid to him. At the beginning of May another short payment was made to him. The respondents at that stage can have been under no misapprehension that the applicant disagreed with their right to so reduce his payments, as he had made his position perfectly clear. On the evidence of both the applicant and Mr Watman, the discussions between them were of the most serious kind. The respondents' response could hardly be described as having been either fair or adequate, in those circumstances. 78 The applicant was made a written proposal on 15 May, described as 'fair to you and also acceptable to the firm'. It provided: 'Salary for two months at rate of $115,000pa = $19,166.67 Less paid during April and May to date =$ 9,883.00 Amount to be paid = $ 9,283.67

In the months from June onwards you will be paid the regular monthly salary of $9,583.33 (providing partner performance standards are met) minus $700.00 being repayment of your loan account. If you wish to pay any amounts regularly into superannuation then this will also be deducted from your gross amount of $9,583.33. This arrangement will be for the nine months until March 1999 when the final repayment of $575.63 will be made instead of $700.00.'

79 This was soon varied to provide: 'It is proposed that before 31 May 1998 you will be paid the sum of $4,283.67 (to be broken up into superannuation or drawings as you advise) and you will be credited with $5,000.00 against your loan account which at 31 March 1998 stood at $11,875.63 owing to the firm. This means that you will effectively be given $9,283.67 between now and 31 May and this represents the balance owing on your profit allocation for the two months of April and May as follows: Profit allocation for two months at rate of $115,000pa = $19,166.67 Less paid during April and May to date = $ 9,883.00 Amount to be paid = $ 9,283.67

In the months from June onwards you will be entitled to your profit allocation amount of $9,583.33 (subject to previously advised performance measures being met and cash resources being available) minus $700.00 being repayment of your loan account. If you wish to pay any amounts regularly into superannuation then this will also be deducted from your gross allocation amount of $9,583.33. This arrangement will be for the nine months until March 1999 when the final repayment of $575.63 will be made instead of $700.00 .'

80 One of the important differences between these two proposals was that the first introduced a requirement that 'partner standards' had to be met, in order for regular payments to be made. There was no evidence that the applicant had not met such standards, which were apparently unilaterally introduced by Mr Watman at a partners' meeting in March. The second letter maintained this requirement and also introduced the rider that 'cash resources must be available'. How these requirements comfortably met the requirement under the deed, that payments to B partners had priority over payments of drawings to A partners, is difficult to see. In any event, they were arrangements which the applicant did not agree with, understandably, given the problems which the partnership had already accepted as existing the previous November. He communicated that disagreement to the respondents. 81 Both proposals were in conflict with the arrangement made with the applicant by Mr Green on behalf of the partnership, which had been implemented. The applicant treated the respondents as having repudiated his contract, he accepted the repudiation and the relationship came to an end on 25 May. 82 That decision was made in a context where Mr Watman had also asserted to the applicant in their discussions, that under the deed the respondents had no obligation to ensure that he received his usual monthly comfort level payments, so long as he received an annual salary of $115,000. Having in mind the November agreement, the provisions of the deed, the payments then being made to A partners, as well as the way in which the parties had always conducted themselves in relation to the question of such monthly payments to the applicant, the accuracy of this view of the contractual arrangements between the parties cannot be accepted. Even if it were correct, having in mind what had been agreed the previous November, the contract so understood, would plainly have operated unfairly as between the parties. 83 In the event, the difference of opinion between the parties was such that the applicant accepted the respondents' repudiation of his contract and the relationship came to an end. 84 The respondents' argument that at most, their approach involved a breach of the parties' agreement and not a repudiation, must be rejected, on the approach discussed by the High Court in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1977) 138 CLR 423 at 432. Here, it cannot be doubted that the respondents persisted with their view that they were entitled to make deductions from the applicant's payments and to make payments to him, when they chose over the course of a year, in the face of the applicant's insistence that the November agreement be adhered to. In the circumstances of this case, this was no mere breach, but a clear indication that the respondents were repudiating the agreement between them. 85 The applicant's claim as to the final period of the relationship was that he worked in May and June for the firm, but was not paid what was owed to him, namely the sum of $5,000 for May and $9,583.33 for June. The respondents' position was that the applicant was owed nothing for May, in fact he still owed the firm some $8,081.55 in relation to the Westmex liability and that the sum of $9,583.33 outstanding for June had been offered to him, but refused. 86 The applicant also sought payment in respect of notice for a period of 12 months from the termination of the relationship. The respondents denied any relevant unfairness or that such a period of notice would cure any unfairness if found. 87 In my view, the proper conclusion in all of these circumstances, is that the agreement between the parties was unfair, as that term is to be understood pursuant to s105 of the Act. Justice requires that the unfairness be remedied and that the respondents be required to pay a monetary amount to the applicant in respect thereto. I am satisfied that the claim that the unfairness should be cured by reference to notice has been made out. An adjustment must also be made as to the sums which the parties respectively owed to each other on termination of the relationship. I have come to these views for a number of reasons. 88 The applicant had been a partner of the firm since 1976. For a period of some 8 years, while he was a B partner, in accordance with the practice which had also applied while the applicant was an equity partner of the firm, the applicant received regular monthly payments from the firm. In 1997, those payments were unilaterally reduced by the respondents by the deductions made in respect of the Westmex liability. The applicant then protested in the strongest terms, informing the respondents that he regarded what had occurred as a breach of the agreement between them, which would bring their relationship to an end. 89 As a result, an agreement was reached about the repayment of what was then left outstanding, so that the outstanding Westmex sum was to be repaid over two years. That agreement was reached by the respondents plainly accepting the views advanced by the applicant that after some 6 years, his salary should be increased. They also accepted that his financial and personal position was such that his regular monthly payments should not be disturbed, but his Westmex repayments funded out of the agreed increase. 90 Mr Watman gave evidence as to how, in those circumstances, the respondents came to depart from that agreed arrangement, some short time later. His evidence was unconvincing. His answers in cross examination made it apparent that he was one of the members of the executive committee who, in 1997, had delegated to Mr Green the task of reaching an agreement with the applicant. He was plainly aware of the arrangement then entered. The firm's accounts show that it was implemented. There was no evidence from which it could properly be inferred that it was not. 91 Mr Watman's evidence as to how, in those circumstances, the unilateral deductions from the applicant's payments in April and May 1998 came about, were inconsistent and unconvincing. On the one hand, his affidavit evidence was that the deductions were not a 'withholding', such as that which he had introduced for the A partners, in order to address a cashflow problem, but reflected the fact that B partners had no guarantee as to the timing of payments to be made to them. In cross examination, Mr Watman suggested quite a different explanation, namely that the reduced payment to the applicant had been a part of measures introduced to increase the profitability of the practice, which had been adopted by consensus of the partners at a meeting which the applicant had attended and had participated in. These discussions had included payments to non-equity partners. When pressed, he conceded, however, that the applicant had not authorised any deductions from his payments and that 'the process of authorisation had not been as good as it might be.' He, nevertheless, suggested that at the meeting the partners, including the applicant, had adopted a new regime for payment of minimum drawings, which he described as a 'penal policy' to manage the firm's work in progress and debtors. None of these matters were addressed in Mr Watman's affidavit evidence. The applicant's evidence was that he had not agreed to any deductions being made from his payments and that they had not been discussed with him. I prefer the applicant's evidence on this point, which was consistent with the protests which he made about the matter at the time. 92 Most tellingly, Mr Watman's explanations in cross examination were also quite inconsistent with the correspondence from the firm's financial controller to the applicant earlier quoted, in relation to deductions from his payments. These letters were couched in the language of a proposal for repayment of what was outstanding on the applicant's loan account, rather than any step taken in relation to the management of work in progress, debtors or cashflow difficulties. Mr Watman's explanation of his involvement, or lack of involvement, with this correspondence was also less than convincing. 93 The reality was that the respondents had already reached an agreement with the applicant about the Westmex repayments. As a member of the executive at the time, that agreement was within Mr Watman's knowledge. I do not accept that he could have had any misunderstanding as to this, even from what he had been told by the firm's financial controller - after all, the firm's accounts reflected that this agreement had been implemented. The evidence suggested that Mr Watman, on behalf of the respondents, later simply ignored that agreement, acted without giving any consideration as to how it had been implemented and sought unilaterally to impose different terms, in circumstances where the respondents were not only aware of the problems which the applicant was facing, but had already accepted their validity and had agreed that they should be taken into account in the arrangements made between the parties. 94 In his evidence, Mr Watman also persisted with the view which he had advanced to the applicant in their discussions at the time, namely that the applicant had no entitlement to any regular payments from the firm, but only a right to an annual payment of $115,000. On his approach, it was a matter of discretion entirely in the hands of the equity partners, as to when and how much the applicant was paid during the course of a year. 95 Given that the applicant was no longer an equity partner of the firm and not participating in a share of its profits and losses, this view, if correct, which I think it was not, plainly made the contract between the parties both harsh and unfair. Those matters need to be addressed by appropriate order. In coming to this conclusion, I expressly reject the submission for the respondents that 'a partnership should have a higher threshold of unfairness compared to an employment relationship'. Section 106 draws no such distinction. It is concerned with particular types of contracts and arrangements. Once such a contract is found unfair, the discretion given the Court by the legislature arises for exercise in the particular circumstances of the case brought. While the nature of the relationship is plainly a relevant consideration, any approach which involved the use of a 'higher threshold of unfairness' in the case of a partnership, would be an error in the exercise of the jurisdiction. 96 The upshot of these difficulties was, of course, that the relationship came to an end. Given the applicant's personal circumstances and the November 1997 agreement, a view by the respondents that it was a matter only for them how often and how much the applicant was paid over the course of a year, so long as the whole sum due was paid by the end of the year, was plainly an untenable basis upon which the relationship could continue. It follows that the applicant's case, that the relationship had come to an end as the result of the respondents' conduct, must be accepted. Indeed, having regard to the applicant's earlier communications, it might be thought that the respondents' approach was adopted with that very end result in mind. That possibility is all the more likely, given that no provision was made in the partnership agreement for the termination of a B partner's membership of the firm, by the giving of any period of notice, a matter of which Mr Watman was undoubtedly aware as managing partner. In these circumstances, that the respondents were entitled to so conduct themselves, so as to bring the relationship to an end, without any notice, cannot be accepted. Nor can the submission advanced for the respondents that the applicant's acceptance of the respondents' repudiation amounted to a retirement from the firm, trigging the retirement provisions of the partnership deed. The notion that the respondents' repudiation could trigger the restraint provisions of this deed, as if the applicant were a retiring partner, is extraordinary. Were it correct, it would be another element of relevant unfairness, which would call for redress in these proceedings. 97 The conduct of the respondents after the applicant had treated their conduct as a repudiation of the agreement between them throws further light on what they were about. On the evidence, for the first two weeks of June there was little contact between the parties. Two of the respondents then contacted the applicant with a view to having him remain with the partnership and when that could not be agreed, wanting him to chase outstanding debtors. That was agreed and in the final two weeks of June the applicant performed this work, it having been agreed that he would be paid for the month of June. His efforts were not entirely successful and the respondents later wrote off some of the debts in question. 98 There was also discussion as to the clients for whom the applicant had been acting, some of whom became clients of the applicant in his new practice. The partnership deed dealt with the topic of retiring partners not pursuing clients of the firm for a period of 5 years. That the applicant was not such a 'retiring' partner and that the deed did not preclude the applicant working for clients who wished to retain him as their accountant, was plainly recognised by the respondents in the approach which they took in June 1998. They wrote to the applicant with a proposal as to an agreed transfer of certain clients, the making of certain payments to him and various other matters. The applicant rejected what was proposed, one of the suggested terms being a release of any claims which the applicant had against the respondents. 99 It follows that while, on the evidence, it cannot be concluded that the applicant acted in breach of any obligation which he had to the respondents in working for clients who had formerly been clients of the partnership, it is appropriate that regard should be had to the earnings which such work generated, in the making of money orders in favour of the applicant. Indeed, the applicant accepted this in the orders which were advanced. 100 The quantification of the money relief must be approached with all of these circumstances in mind. The applicant sought a notice period of 12 months. The partnership deed made various provisions as to how a partner might leave the partnership. They included upon retirement or, if certain events occurred, such as bankruptcy, assigning an interest in the partnership or committing an act which would cause a court to order the termination of the partnership, a partner could be expelled, by special resolution of the A partners. In the case of B partners, upon such a resolution being adopted, the B partner would receive 30 days' notice of the expulsion. 101 There were no circumstances which would here have given rise to any right in the A partners to expel the applicant. The partnership deed made no other provision for the termination of the partnership of a B partner by the giving of notice. It follows that a proper notice period must be assessed, having in mind that it was not a right which the respondents enjoyed. That is a factor which, to my mind, would not operate so as to reduce any period of notice which was otherwise appropriate, in the circumstances which here arise for consideration, but is a very significant factor in fixing an appropriate period of notice. 102 The applicant had been a partner of the firm since 1976, a B partner since 1991. The partnership came to an end as the result of the actions of the respondents. They reneged on the agreement as to the repayment of the Westmex debt and adopted the view that they were entitled to determine how much and when the applicant was paid over the course of year. I have found that this view was neither fair nor open. 103 The evidence demonstrated a substantial change of attitude to the applicant between November 1997 and April 1998. That the respondents were entitled to alter their views about agreements which they made in the light of a changing business environment, is undoubted. That such alterations, if pursued unilaterally, and/or unfairly, might be the subject of challenge in proceedings such as these, was also a factor of business life which the respondents were undoubtedly faced with. Section 106 and its predecessors have, after all, been a feature of the laws of this State for over half a century. 104 The respondents' actions have been challenged and found unfair, even though it was plain on the evidence that a move to B partnership had served the applicant well, given the economic circumstances the partnership faced from time to time, from which he was sheltered. 105 The upshot of all of these matters is that I have been persuaded that in the circumstances of this case, having in mind the longstanding relationship between the parties, the nature of the business they had in common, the provisions of the deed and the circumstances in which the relationship was brought to an end, including the parties' respective conduct, which I have outlined, a notice period of 12 months was appropriate to redress the unfairness found. 106 The respondents' arguments that such notice should be assessed at between 6 weeks and 3 months cannot be accepted as adequate in all of these circumstances. It was also argued that 12 months' notice would be excessive, having regard to the applicant's ability to set up his own practice as an accountant. These arguments, however, take no account of the fact that the respondents had no right to act as they did and that the intention of a notice provision is precisely that - to require the giving of notice, during which time the applicant would have continued as a B partner of the firm, in the ordinary way. 107 Had such a right existed in the A partners and had they wished to make a payment to the applicant in lieu of giving such notice, they would not have been entitled to any discount in the payment they were required to make to the applicant, on account of the applicant's ability to practice elsewhere as an accountant. Here the applicant set up his own business in competition with the respondents, they having breached the terms of the partnership agreement and having conducted themselves most unfairly towards him. In the monetary relief which the applicant sought, proper account was taken of the earnings generated from former clients of the firm in the applicant's new practice. I am satisfied that this approach properly takes into account the applicant's ability to generate income on his own account outside the partnership. 108 Various other factors were relied upon by the respondents in arguing that a short period of notice would be fair. This included the fixed income which the applicant enjoyed as a B partner, greater than that earned by A partners. This factor was entirely unpersuasive I must say, in relation to the fixing of any period of notice, particularly when account was taken of the fact that only in November 1997 the respondents agreed to increase the applicant's salary by $5,000 per annum and made an arrangement for the repayment of the Westmex liability. Undoubtedly they had a proper reason for this. It cannot be used now in order to reduce what is just in the circumstances of this case, in order to remedy the unfairness of their later conduct towards the applicant. 109 As to the suggestion that some account should be taken of the fact that the applicant had not repaid his loan account when the relationship came to an end, I observe that the submission did the respondents no favour. After all, they have not paid the applicant what was owing to him in respect of the final two months of this relationship, which was an amount greater than that outstanding on the loan account. 110 I conclude that the money order to be made should reflect a salary of $115,000 and should have deducted from it the applicant's earnings in his new practice, as put in the applicant's case. To this sum should be added the amounts outstanding to the applicant for May and June 1998, less what was outstanding in the loan account. 111 In adopting this approach I reject the approach suggested for the respondents, which involved an attempt to establish the applicant's true 'disposable income' while a B partner and in practice on his own account. The approach was artificial in the context of an assessment of a money sum in respect of notice and potentially had the result of discounting the amount to be awarded by reference to the Westmex liability, in effect, twice. The evidence was also, for example, that the applicant's wife worked for him in his new practice providing secretarial services. It would plainly be inappropriate to treat payments made to her for the performance of that work, as if they were of the same character as the income distributed to her while the applicant was a B partner, when she performed no such work. I also reject the suggested treatment of debtors. 112 As to the claim for annual leave, I do not take the view that the aspect of the partnership agreement which provides that annual leave which is not taken within 6 months of falling due should be forfeited, should be ignored, nor can it be concluded that such a provision operated unfairly between the parties. True it is that the entitlement was different to that which applied to the partnerships' employees under the Annual Holidays Act 1944. Regard must also be had, however, to the fact that the amount of such leave was also more generous than that which employers received. The Partnership Act permits partners so to agree as between themselves. I thus cannot conclude that there was any basis in the evidence for the view that the partnership regulations operated unfairly in this respect, but I do take the view that account should also be taken of how the partners operated this entitlement in practice. 113 The regulations permitted the executive committee to permit annual leave to be accrued for longer periods than 6 months. The evidence of the applicant's entitlements was that the respondents' record showed that at the date of termination he was entitled to 44 days leave. The termination deprived him of the opportunity to take such leave. It is appropriate that the monetary order made should reflect this. 114 Given that the applicant went into practice on his own account thereafter, acting for former clients of the firm, I do not take the view that any monetary order should reflect entitlements to leave that would have accrued had notice been worked out. In some cases concerning termination of employment, the view has been taken that it is appropriate to take account of such entitlements accruing during notice periods, as if notice had been worked. In the circumstances of this partnership and the respective conduct of the parties, especially that of the applicant establishing a business in competition with that of the respondents and acting for former clients of the firm, after the termination of the relationship, I take the view that it would not be just to take such an approach in this case. 115 As to the long service leave claim, I note that the proper inference from the regulations was, as earlier noted, that the sabbatical provision which applied to A partners did not apply to B partners. Long service leave, on the other hand, in respect of which there was a repayment arrangement for A partners, had no such requirement for B partners. It follows that it was intended that B partners should have the benefit of long service leave and that the money order made in favour of the applicant should, as a matter of fairness, include a payment in respect of long service leave for the period 1 April 1991 to the termination of the relationship. Having in mind the reference in the regulations to the long service leave entitlements which the A partners would receive in respect of the named corporate entity, it is appropriate that the money order reflect this approach - namely that long service leave entitlements should be calculated on the same basis as that which applies to employees under the Long Service Leave Act 1955. That sum should be calculated upon the date of termination of the parties' relationship, for the same reasons as given in relation to the annual leave claim. 116 As to interest, I take the view that in this matter interest should run from the date of the commencement of the proceedings. The awarding of interest was discussed in Abboud v The State of New South Wales (Department of School Education) (No.2) [2000] NSWIRComm 110. In the circumstances of this case, the proper approach to interest in my view is that it should flow from the date of application and no earlier, on the basis discussed in Abboud.

Order 117 For all of these reasons, I propose to make orders to the above effect as to monetary compensation. I also propose to vary the agreement between the parties ab initio, to provide for regular payments to the applicant, in accordance with his directions and to require the respondents to give the applicant notice of termination of 12 months. 118 The usual order as to costs would be that the respondents bear the applicant's costs, as agreed or assessed. If the parties are unable to agree on the question of costs, they have liberty to apply within 21 days of the date of this judgment, as to that matter. 119 The applicant is directed to file the orders reflecting this decision within that time. ------------------------

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