The relevance of bargains freely made to the issue of unfairness of notice
16According to the appellant, the test for bargains freely made lies at the heart of this appeal. Moreover, it was contended by the appellant that Boland J, having identified the test, erroneously applied it by treating it as being determinative of whether the contract was unfair within the meaning of s 106 of the Act, or in the alternative, as outweighing any other consideration relating to the fairness of the contract.
17The submission, as we apprehended it, was directed to Boland J's assessment of the Notice provision in clause 2.4 of the Deed and whether that provision was unfair. In the judgment Boland J considered the circumstances in which the appellant had signed the Deed by first setting out the approach he proposed to take:
[62] In resisting the claim, the respondents relied on the proposition that Mr Kennedy agreed to join the new firm as a fixed draw partner and signed the Deed with his 'eyes open'. As it was said in A & M Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1 at 14 per Perrignon and Dey JJ in relation to the predecessor of s 106 (s 88F of the Industrial Arbitration Act 1940), a much more searching examination of the circumstances is required than that. I propose to carry out the necessary examination. However, this is not a case of oppressive exploitation or one where there was unequal bargaining power and what the applicant may not avoid is that:
(a) the MOU was negotiated by senior lawyers after a proper due diligence process;
(b) the Deed applicable to Mr Kennedy was negotiated by Mr Richard Gration, a partner with E&E, who had Mr Kennedy's authority to do so;
(c) Mr Kennedy was an experienced solicitor, with training and experience in employment law, including unfair contracts;
(d) it was always open to the applicant to decline to join the merged firm.
18According to the appellant, the above passage extracted from the judgment reflected the correct test but Boland J failed to apply it.
19Boland J's findings on the issue are recorded in the following relevant passages of the judgment:
[71] Initially I had formed the tentative view that Mr Kennedy's situation was akin to that of an employee, and in some respects it is. From that perspective, it could appear to be unfair that a person who had spent 36 years with a firm received only one month's notice of termination of his contract shortly after there had occurred what might be regarded as a transmission of the firm's business to another firm.
[72] However, even if that were an acceptable premise for considering the fairness of the notice period (there is a respectable argument that a partner in a law firm is more akin to a self-employed person), what may not be overlooked is that Mr Kennedy was an experienced lawyer well versed in employment law, who voluntarily agreed to take up the position of a fixed draw partner with one of the conditions, which was well known and understood by him and which he chose not to re-negotiate, being one month's notice of termination if the period of continuous service with the new firm was less than three years. There was no evidence that Mr Kennedy was led to believe that his years of service with E&E would be deemed to be years of service with HWL, for the purpose of calculating his notice entitlement. Indeed, he chose not to ask the negotiating committee to negotiate a notice period which would, in his view, recognise his years of service with E&E.
[73] It was contended that not to give full weight to Mr Kennedy's service with E&E would fail to give appropriate recognition to the fact that Mr Kennedy relied on the representations that HWL's acquisition of E&E was a merger. It was submitted Mr Kennedy had been taken in by this misrepresentation. He was led by it to believe that HWLE would carry on, and give effect to, the values of fairness and integrity that had characterised E&E, where it had not been his experience that partners were discarded without the benefit of any procedural fairness.
[74] Putting aside the question of procedural fairness, which I shall deal with later, even if E&E had survived and Mr Kennedy had remained with that firm, his notice of termination would have been subject to the provisions of the E&E Partnership Deed, which provided:
A Partner will cease to be a Partner if a resolution that the relevant Partner resign is passed by Special Majority, on the day three months following the date of that resolution (provided that the relevant Partner has had 14 days written notice of the proposed resolution (and the basis) for it and is provided with an opportunity prior to the passing of the resolution to convince partners not to support the resolution).
[75] It was submitted for the applicant that Mulford v Butterell [2001] NSWIRComm 137 at [105] was a useful analogy. There it was held by Schmidt J in relation to a former partner of an accounting firm:
[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.
[76] Even if the Court were to find procedural unfairness in relation to the termination of Mr Kennedy's contract, the difficulty in accepting that 12 months' notice was appropriate is that the maximum Mr Kennedy would have received under the E&E Partnership Deed was three months. On any view of it, the applicant could not be entitled to be put in a better position than he would have been in had the E&E provisions regarding termination been incorporated in his individual Deed.
[77] In any event, Mr Kennedy made his decision to become a fixed draw partner of HWLE against the background that there was considerable doubt E&E would survive and he did so with the full knowledge and understanding of a solicitor versed in employment law as to what the new arrangement meant for him in terms of the amount of notice he would receive if his contract was to be terminated. If the Court were to accept that Mr Kennedy was entitled to have his years of service with E&E counted for the purpose of calculating his notice entitlement it would have the potential to seriously undermine the principle that the Court should not use its extensive discretion to interfere with bargains freely made by a person who was under no constraint or inequality, or whose labour was not being oppressively exploited: see Stevenson v Barham (1977) 136 CLR 190 at 192 per Barwick CJ.
...
[106] Subjectively, one might be tempted to conclude that a person who has served a firm for 36 years and for a period of that, at the highest level, is entitled to more that one month's notice that his contract will be terminated and that to provide for only one month's notice is patently unfair. Subjectivity though, is not the test. One is required to consider the facts objectively and apply the law.
[107] In doing so, the Court is required to have regard to all the circumstances, including the conduct of the applicant. In this case, the particularly unusual feature is that the applicant was a lawyer of very considerable experience who practised in the field of employment law and had experience in the unfair contracts jurisdiction. He was exceptionally well placed to know and understand the terms of any contract under which he was to provide his services, to avoid any exploitation or disadvantageous arrangement that he may have been asked to accept, and to defend any unfair or wrong criticism of his performance.
[108] At the time of the merger, the applicant's practice was not strong and his firm was struggling to survive. Negotiations between E&E and HWL occurred involving senior lawyers, due diligence was carried out and the applicant was satisfied the merger should occur. The applicant had access to all relevant documentation regarding the merger. The applicant raised no objections to the MOU or the Addendum MOU. The applicant allowed a partner of E&E to negotiate his individual Deed of Agreement. The applicant raised no objection to the terms of the Deed and signed it. The applicant was well aware of the notice provisions in the Deed. The proposition that the Addendum MOU provided a guarantee of tenure until 30 June 2009 and took precedence over the notice provisions of the Deed is untenable for the reasons I have given.
20This brings us to a consideration of what is the "correct test" for the proper application of bargains freely made in unfair contract cases under the Act. There are numerous authorities on the issue, a number of which were brought to our attention by the appellant. It is only necessary for present purposes to refer to a few of these authorities.
21In Terzian v Gattelari [1972] AR (NSW) 591 Shepherd J found that the contract there under consideration was unfair in accordance with s 88F of the Industrial Arbitration Act 1940 (the 1940 Act), a predecessor provision to s 106. In a passage to which the appellant in these proceedings directed our attention, Shepherd J said (at p 599):
The second argument put forward on behalf of Mr Gattellari was based upon the fact that Miss Terzian at the time she signed the agreement was fully aware of its contents and had been independently advised about it. The exercise of jurisdiction under the section does not depend on there having been misrepresentations, innocent or fraudulent, or misapprehension on the part of an applicant as to the nature of his rights and obligations under a contract. The Commission is concerned with the objective question of whether or not the contract or arrangement in question is, inter alia , unfair. If it is, it matters not that the applicant ought to have realised that it was unfair when he entered into it. In considering this argument I have taken into account dicta in cases dealing with contracts in unreasonable restraint of trade where it is said that parties bargaining on equal terms are usually the best judges of what is and what is not reasonable for the protection of their mutual interests. See Esso Petroleum v Harper's Garage (supra) at p.300 per Lord Reid. I do not come to the question of whether considerations such as his Lordship mentioned can have any bearing on cases to be decided under s 88F of the Industrial Arbitration Act . In my opinion the parties were not of equal bargaining strength and the principle, if applicable generally in this jurisdiction, is not one to be applied in this case. Finally, in relation to this argument I should say that although Miss Terzian had had properly explained to her the terms and conditions of the written agreement into which she entered, she was not to know precisely the extent to which or the circumstances under which Mr Gattellari acted as an agent or manager in the theatrical industry and he does seem to me to have, to an extent, misled her in promising her that he would act as her personal manager.
22A & M Thompson Pty Ltd and Others v Total Australia Ltd (1980) 2 NSWLR 1 considered what was a fair period of notice in accordance with s 88F of the 1940 Act. In an important passage, the majority (Perrignon and Dey JJ) said at [69]:
It has been said that fairness is determined by the commonsense approach of a juryman, and that it is a moral and not a legal issue ( Davies' case (5b)). Whether this be so or not, it does seem that, in distinguishing between what is fair and what is not fair, the judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. In doing so, he would always have to bear in mind the conduct of the parties, their capability to appreciate the bargain which they had made and their comparative bargaining positions when entering into the contract or arrangement.
23Perrignon and Day JJ also referred to earlier cases decided under s 88F in which instances of fraud and misrepresentation had featured on the issue of unfairness of a contract, observing that the absence of those features was no decisive answer to the question of unfairness. The majority also observed that the fact that the applicants, Mr and Mrs Thompson, "had their eyes open" when they entered into the subject licence agreement was insufficient to dispose of the issue, emphasising that, "s 88F envisages a much more searching examination of the circumstances" (at [70]). The majority added (at [71]):
... In a proper case, in which fraud is not present and in which the complaining party fully understood the bargain, an order may be made based on unfairness. For there may be present elements such as those mentioned by Lord Denning MR in certain of the cases cited. One looks to see whether there were genuine negotiations between the parties prior to the contract; whether it can be said that the contract was "moulded" by negotiation; or whether, on the other hand, it was the case of the imposition of a "standard form" upon a party, who had no choice but to "take it or leave it".
24The majority found that the Thompsons were confronted with a "take it or leave it" situation with regard to their contract, that the bargaining positions of the parties could not be regarded as equal, and, in fact, they had no bargaining capacity at all: at [77]-[79].
25In Port Macquarie Golf Club Limited v Stead & Another (1996) 64 IR 53, Mr Stead was a professional golfer who commenced work for the appellant as a golf professional serving club members and members of the public. A written agreement made on 29 January 1975 (the first agreement) which regulated the relationship of the parties, expressly provided that it, "shall be determined forthwith ... by either party hereto giving to the other three calendar months' notice of determination in writing expiring at any time". A second agreement made on 29 November 1988 was in substantially similar terms.
26Sometime after the second agreement was entered into the appellant presented to Mr Stead a draft replacement agreement which provided for termination by notice in writing by either party in certain specified circumstances or, "by two months' prior notice in writing". At this time, Mr Stead had been the resident professional golfer at the appellant's Club for 25 years. He sought legal advice in relation to the draft agreement and a meeting took place between the Club and Mr Stead. Minutes of the meeting recorded that, "with an exception of an increase in Mr Stead's remuneration and a reduction in the storage fees to be charged for Mr Stead's motorised buggies, no material changes were sought by Mr Stead". Mr Stead was asked during the meeting whether he wished to raise any other matters about the new contract. He replied, "No, I'm happy". After the meeting, the appellant advised Mr Stead of its desire to finalise the new agreement. This was followed by a letter to the appellant from Mr Stead's legal advisers who proposed various changes to the draft agreement. The appellant, while acknowledging its receipt of the letter, did not engage in further communications with Mr Stead until it gave him three months' notice of termination of the contract in accordance with the provisions of the second agreement.
27The principal challenge on appeal was to the primary judge's findings on the unfairness of the notice provision. It was contended on behalf of the appellant that Mr Stead was the cause of his own misfortune in losing the contract, when the appellant had exercised the three months' notice provision because he had full knowledge of the consequences of failing to reach a new agreement when the contract was being reviewed.
28In rejecting these submissions, the Full Court said (at [63]):
... We are of the view that the appellant's approach is far too limited and simplistic as to the proper determination of whether the provision concerned in the 1988 contract was fair at the relevant time, that is, at the time a new contract was being negotiated. In other words, the approach took no account of the total circumstances of the contractual relationship as it had developed over very many years, whereas his Honour expressly did so. And, most importantly to us, it disregarded the relative bargaining positions of the parties during the negotiations for a new contract when, by its letter dated 4 June 1992, the appellant advised the first respondent ''that in the event of the above Agreement not being concluded by the above date, to be evidenced by execution by both parties thereto, the Club shall act further in the matter as it may be advised''.
29Cahill Dep CJ at first instance had determined a fair notice period to be nine months and varied the contract accordingly. The Full Court found no error in the approach, although it expressed concern at Mr Stead's conduct during the negotiations for a new contract in circumstances where he had full knowledge of the consequences of failing to reach agreement on the new contract (that is, that his contract would be terminated unless agreement was reached in the terms proposed by the appellant). The Full Court's concern was directed to the discretion to vary the contract, not to the finding of unfairness at first instance. This was said to be because, given the extensive discretions allowed to the Court, the Court should not interfere, "with bargains freely made nor where there was no restraint or inequality nor oppressive exploitation: Stevenson v Barham at 192".
30The Full Court found, effectively, that Mr Stead was not in a position of equal bargaining capacity at the time he entered into negotiations with the appellant with regard to the draft proposed agreement, accordingly, the discretion to vary the contract had been properly exercised. In this regard, the Full Court said that Mr Stead had been placed in a "take it or leave it" situation and that he must be regarded as having "minimal bargaining capacity in the formulation of a new contract": (at p 73).
31All of these cases, in contrast to the circumstances before Boland J, proceeded upon the basis that the applicants had been placed in positions of unequal bargaining power in relation to their impugned contracts. Of course it does not follow from this observation that in circumstances where the contract under consideration has been freely entered in a position of equal bargaining capacity that a court is precluded from finding unfairness, by reference to that contract. As the cases demonstrate all relevant circumstances must be considered and taken into account.
32One authority to which our attention was directed by the appellant in which unfairness was found in circumstances where the contract was freely entered into is All-Fect Distributors Ltd v Stewart [2007] NSWIRComm 24; (2007) 160 IR 90. In that authority, the respondent (the applicant below) had entered into an agreement which provided remuneration substantially below what would have been payable under an applicable award. The issue under consideration was whether that circumstance rendered the contract unfair when other circumstances established on the evidence, that the contract had been freely entered into by the parties.
33On appeal, the majority, Walton J, Vice-President, and Staff J, approached the issue by considering whether the respondent had been under, "'no restraint or inequality', his 'labour was not being oppressively exploited' or operating under no other circumstance as would have rendered the bargain unfair for the purposes of the Act" (at [30]). At first instance, Boland J had found that despite the fact that the respondent had freely entered into the contracts it was nevertheless a "very one-sided bargain". On appeal, the majority found no error in the primary judge's conclusion (at [32]):
In our view, his Honour's finding lead to the conclusion that the respondent's labour was "oppressively exploited". The appellants received the respondent's customer base in the Eastern Suburbs at a minimal cost. The hours worked by the respondent meant that he did not have time to undertake business outside of those worked for the appellants. In addition, the respondent received less remuneration than he would have received had he been employed as a sales representative and less than what he would have received as an employee under the Award. Hence, despite a finding of a freely made bargain between the parties, it was open to the Court in this case to exercise its discretion to interfere with this bargain upon determining that it was unfair.
34In the judgment, the majority set out twelve tests formulated by the Full Court in Stead . Most of the tests are relevant to the present appeal on the issue of unfairness of the contract and accordingly we propose to apply them. They are, relevantly:
...
2. In determining whether a finding of unfairness or otherwise under the section has been established, the general principle is that an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge; in deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusions of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it: Warren v Coombes (1978) 142 CLR 531 at 551.
...
4. In addressing error, an appellate court should not interfere with the trial judge's conclusions on facts unless it is of the opinion that they were not reasonably open (or were clearly wrong) on the evidence: Victorian Stevedoring and General Contracting Co Pty Ltd v Dignan (1931) 46 CLR 73 at 107; Clarke & Walker Pty Ltd v Secretary of the Department of Industrial Relations (1985) 3 NSWLR 685 at 690-692; 14 IR 269 at 273-274: Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178ff; Hussmann Australia Pty Ltd v Walker (1993) 48 IR 396 at 406; Walker v Industrial Court of New South Wales (1994) 53 IR 121 at 129; and Haynes at 154.
5. The nature and degree of the unfairness within the purview of s 275, as a matter of law, relates to ordinary standards of fairness by directing attention to the particular circumstances of the individual contract or arrangement concerned; whether or not a contract or arrangement is unfair is a matter to be decided upon examination of the facts of each particular case: Incitec Ltd v Barry (1992) 45 IR 148 at 154; and Baker at 270.
6. Unfairness may arise either from the terms of the contract or arrangement itself, the surrounding circumstances and/or from the manner of performance or operation of the contract or arrangement: Barry v Incitec Ltd (1991) 45 IR 143 at 146; Incitec Ltd v Industrial Court of New South Wales (1992) 45 IR 155 at 157-158; and Baker at 270-271.
7. The test of unfairness involves the commonsense approach characteristic of the ordinary juryman by applying standards providing a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement, bearing in mind the conduct of the parties, their capability to appreciate the bargain they had made and their comparative bargaining positions when entering into the contract or arrangement: Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 at 374; A & M Thompson Pty Ltd v Total Australia Ltd [1980] 2 NSWLR 1 at 13; and Baker at 271-272.
8. If a contract or arrangement be found to relevantly offend one or more of the grounds, such as it being unfair, contained in s 275(1) then the next question involves the exercise of a discretion, to be performed judicially, as to whether the contract or arrangement should be avoided or varied: Hodges at 63; Autobake at 20; and Baker at 267.
9. If it be decided to avoid or vary the contract or arrangement under s 275(1) then a further discretion arises as to whether an order should be made under s 275(3) for the payment of money in connection with the contract or arrangement declared void or varied: Hodges at 63; Autobake at 20; and Baker at 267.
10. The proper approach as to the discretionary aspects requires an appellate court not to reverse a decision of the trial judge on a matter involving the exercise of discretion unless it reaches a clear conclusion that the members of the appellate court would have taken a view different from that of the trial judge if they had been in his place and that the trial judge had failed properly to exercise the discretion committed to him: House v The King (1936) 55 CLR 499 at 504-505; Mace v Murray (1955) 92 CLR 370 at 378; Wilson v Gozney [1978] AR (NSW) 134 at 150; Baker at 267; and Haynes at 154.
11. The discretions allowed by s 275 to the Court are extensive and the Court should not interfere with bargains freely made by a person who was under no restraint or inequality, or whose labour was not being oppressively exploited: Stevenson v Barham (1977) 136 CLR 190 at 192; and Baker at 276.
35What these tests demonstrate (in combination with the authorities which we have considered above), is that consideration of whether a contract has been freely entered into is applicable at all stages of the inquiry, that is, when examining whether the contract is unfair, and if so, whether to exercise any of the discretions available to the Court to void or vary the contract and whether orders should be made by way of monetary relief in connection with the contract.
36The appellant sought to place considerable emphasis in submissions made orally during the hearing of the appeal, that although the factors such as his legal experience, his deliberate choice not to negotiate a longer period of notice, and his capacity to understand the terms and conditions of his contract were relevant considerations, they were not the only factors that Boland J was required to take into account in assessing whether a one-month period of notice was unfair. According to the appellant, Boland J was also required to consider, but did not, other relevant factors such as his age, professional standing, seniority, and length of service.
37We find ourselves unable to agree with these submissions. First, Boland J sought to make it clear at the commencement of his consideration that he proposed to conduct a searching examination of all the relevant circumstances. His Honour was aware that, consistent with the orthodox approach set out in the authorities, the respondents' proposition that the appellant had agreed to join the firm and sign the Deed with his "eyes open" was just one of many considerations which he was obliged to take into account. Secondly, his Honour expressly referred to the appellant's contention that one-month's notice was unfair when regard was had to his length of service with E&E. (The appellant had only been a partner at HWLE for some four months before his expulsion from the partnership.) We have earlier set out his Honour's remarks in relation to the appellant's length of service at E&E. Those remarks illustrate that his Honour considered that factor. He expressed his tentative view that if the appellant's status were akin to that of an employee it "could appear to be unfair that a person who had spent 36 years with a firm received only one month's notice of termination of his contract". His Honour weighed the factor against the appellant's considerable experience as a lawyer, his capacity to fully understand the notice provision, the fact that he signed the Deed under no constraints and the fact that he deliberately chose not to negotiate a further period of notice. In addition, his Honour referred to the absence of evidence, which might have provided a basis for the appellant's belief that his years of service with E&E would be deemed to be years of service with HWL for the purpose of calculating his notice entitlement. Thirdly, in passages earlier extracted, his Honour returned to the issue of the appellant's length of service, as well as his professional standing and seniority, remarking that on a subjective level he "might be tempted to conclude" that the appellant was entitled to more than one month's notice. Having made those observations, his Honour repeated his earlier comments that, "[s]ubjectivity is not the test. One is required to consider the facts objectively and apply the law. In doing so, the Court is required to have regard to all the circumstances, including the conduct of the applicant".
38In our view, this is precisely what his Honour did. In this regard, his Honour followed the approach set out in A & M Thompson which we have extracted above and which his Honour specifically referred to at the commencement of his consideration. What is clear from his Honour's consideration of the issue of unfairness of the notice period is that he did not confine his consideration to factors relevant to the "eyes wide open" test (those factors set out by his Honour in the judgment at [72]). As his Honour sought to point out on more than one occasion, all relevant factors including the appellant's seniority, his length of service, and professional standing were considered in striking an appropriate balance with the competing factors. The fact that the appellant freely entered into the contract, as his Honour's reasons demonstrate, was neither determinative of the issue under consideration, nor did it outweigh other factors such that those other factors were given no weight, as was suggested by the appellant.
39Before leaving this issue we note that the cases to which our attention was directed by the appellant which considered the relevance of bargains freely made all concerned applicants who were employees. There was no suggestion that the approach taken in those cases could not be appropriately applied to a partner.
40This brings us to another issue raised by the appellant with regard to the precise nature of the contractual relationship between the appellant and the respondents.
41It was contended that the appellant's position was materially indistinguishable from that of an employee, because he had no right to share in the profits of the firm above his entitlement to a fixed draw, he had no liability for debts incurred by the firm, and he had no right to participate in the management of the firm. According to the appellant, he was in a similar position to the applicant in John Burke Mulford v AW Butterell and Others as Partners of Grant Thornton Chartered Accountants [2001] NSWIRComm 137.
42In Mulford , an issue arose as to whether the applicant was an employee of the partnership, or a salaried (fixed draw) partner. The partnership arrangement in Mulford comprised "A" partners and "B" partners. A partners were equity partners, and B partners were salaried partners. This arrangement was reflected in the terms of the Partnership Deed to which all partners had agreed. The applicant was a B partner and received an annual salary of $110,000, which was paid through the mechanism of a trust, with trust distributions made to his wife.
43In examining the issue, Schmidt J considered relevant provisions of the Partnership Act 1892. Her Honour found that the applicant was a partner not an employee. Those findings are set out below:
[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.
44The facts which underpinned her Honour's conclusion that the applicant was a partner are analogous to the facts in this matter. The appellant was a fixed draw, or salaried, partner, who, by arrangement with the partnership had his salary paid into the Kennedy Trust. Under Clause 2.2 of the Deed, that salary was referred to as, "the share of HWL profit distributed to the Kennedy Trust as a Fixed Draw Partner". Clause 2.3 of the Deed provided that, "the share of profit distributed to the Kennedy Trust will be paid on a fortnightly basis". Clause 3.2(b) of the Addendum MOU also referred to "Fixed Profit Partners' profit entitlements". Clause 14.1 of the HWL Partnership Deed provided:
Share of Profits
Any Fixed Draw Partner who is appointed and accepts appointment as a Fixed Draw Partner may be named as partner in all statutory records. Fixed Draw Partners shall received a share of profits as determined by the Executive consistent with any contract entered into by such Fixed Draw Partner.
45The language of these documents is "inconsistent with the existence of an employment relationship", and the fact that the appellant was paid a "salary" does not facilitate a conclusion that the appellant was an employee. As Schmidt J observed in Mulford (at [46]) partners are free to agree, in accordance with the Partnership Act , that some may be paid a "salary" while others receive a fixed percentage of profit. The language of the documents, moreover, tends to confirm that the appellant's "salary" was more accurately characterised as a share of the profits.
46The appellant also contended on appeal that Boland J erroneously took into account the E&E Partnership Deed in his consideration of whether the period of notice provided in Clause 2.4 of the Deed was unfair. In our view, the contention was misplaced. At first instance, the appellant claimed that 12 months' notice was appropriate. A reading of his Honour's reasons on this particular aspect reveals that the observations about the E&E Partnership Deed were made on an assumed basis, namely, that even if procedural unfairness were found, the maximum to which the appellant would have been entitled was three months' notice.
47It was also contended that Boland J failed to give proper weight to the appellant's combined "employment" with E&E and HWLE in assessing the notice claim. On this issue, Boland J observed:
[15] In relation to the notice provisions in the Deed, notice of termination was based on the 'period of continuous service with HWL'. In other words, 'years of service' as a partner with E&E were not to be 'carried over/forward' into the new firm, such that those years of service would be counted either for notice of termination purposes or for the calculation of any other entitlements on termination other than as specified.
48In our view, Boland J's interpretation of Clause 2.4 of the Deed was correct. The clause reveals a clear contractual intention between the parties that the appellant's earlier tenure with E&E would not be taken into account for the purposes of calculating notice under the Deed. These considerations are readily distinguishable from those encountered by Walton J, Vice-President, in Ross v GN Comtext (Australia) Pty Limited [2000] NSWIRComm 133; (2000) 107 IR 1, a case relied upon by the appellant in support of the contention. In that case, the applicant had relocated from the United Kingdom in order to work in Australia for a related corporation. After several months in Australia the applicant's employment was terminated on the ground of redundancy. His contract provided for one month's pay in lieu of notice. Walton J found that the period of notice was inadequate. In doing so, his Honour took into account a number of features which included that the applicant had been employed by the Comtext Group for almost eight years and the respondent corporation was part of that group. Other factors taken into account by his Honour were that he had been employed within the corporate group in different countries in circumstances where employees were compelled or encouraged to relocate to new countries. His Honour also found that the applicant, upon his arrival in Australia, had been permitted by the respondent to form an expectation that his employment would continue for some period.
49In contrast, the appellant in these proceedings had been a partner in E&E, an unrelated entity, prior to becoming a partner in HWLE. In addition, the terms of the Deed provided that his prior years of service at E&E would not be taken into account in calculating his period of notice.
50The appellant also sought to rely on the majority judgment (Wright J, President, and Walton J, Vice-President) in Powerlan Ltd & Anor v Squires [2006] NSWIRComm 390; (2006) 158 IR 299 in support of the contention that his entire period of service in E&E and HWLE should have been taken into account and that Boland J's failure to do so meant that proper recognition was not given to the fact that the appellant relied upon the representation that HWL's acquisition of E&E was a merger.
51Powerla n is also distinguishable, in our view. At first instance, the primary judge had found the contract, a business sales agreement, unfair and assessed the appropriate amount of redundancy on the basis of the respondent's prior service with Powerlan and his prior service with Centrelink. Powerlan had contended that it was not appropriate to take the respondent's prior service with Centrelink into account given the clear terms of the business sales agreement under which Powerlan had purchased the Centrelink business. The majority observed (at [22]) that, although the business sales agreement was inconclusive as to whether the prior service with Centrelink ought to be disregarded in calculating redundancy pay, there was nothing in the Agreement which excluded the payment of redundancy. The present proceedings in contrast, concerned a provision in clear terms that the appellant's earlier tenure with E&E would not be taken into account when assessing a period of notice.
52There appeared to be no dispute that the "merger" between the two firms was more in the nature of an acquisition. We do not see this feature, however, as progressing the appellant's case. Boland J found that the appellant could not have misunderstood the true contractual intention of the parties in relation to Clause 2.4 of the Deed. For reasons which we have already set out it is our view that his Honour's finding, and the reasons based on that finding, do not disclose an error.