Equal partners, the City restaurant and franchising
40 The first question that arises on the agreement pleaded in par 3 of the statement of claim concerns the relationship between the terms alleged in sub‑pars (a) and (b). The former claims that the parties would be equal partners in any venture of opening further steak restaurants under the Squires Loft name through licence or franchise arrangements. The latter contends that Harold and Saul would operate the first licensed restaurant to be located in the City. That restaurant would have a kitchen in which the sauces would be made for use in Harold and Saul's City restaurant and Lionel and Joel's South Yarra restaurant and any future licensed or franchised restaurants. The terms do not sit happily together. A restaurant falling within the pleaded description "the Applicants' Squires Loft restaurant in the City" cannot be the first of the licensed restaurants referred to in (a). The parties are not alleged to be equal partners in that. According to sub‑par (b) the City restaurant is Harold and Saul's and the South Yarra restaurant is Lionel and Joel's. As Lionel and Joel point out, if the parties were equal partners in the City restaurant, they (Lionel and Joel) would be entitled to half its profits. See also par 29 of the cross‑claim. Obviously Harold and Saul did not embrace this view of their pleading.
41 This is not a mere pleading point. Saul's evidence purports to verify sub‑pars (a) and (b). In his first affidavit, which was adopted by Harold, Saul deposed that the parties would be partners in the business of opening further restaurants under the Squires Loft name through licensing or franchising arrangements. He does not say equal partners, though in the absence of any indication to the contrary, the partnership shares would be taken to be equal: Partnership Act 1958 (Vict), s 28(1). In any event, in other parts of his evidence he asserts the partners' equality. Saul goes on to say that the City restaurant would be operated by a company to be set up by him and Harold, which would own and operate the business, be responsible for all costs and expenses and receive all the profits. Plainly a restaurant owned by a company controlled by Harold and Saul, and from which they received all the profits, is not one in respect of which they are equal partners with Lionel and Joel, any more than they are equal partners with Lionel and Joel in the South Yarra restaurant.
42 Despite the parties' divergent evidence on many points, two things were not in dispute. One was that the City restaurant was, through their company, Harold and Saul's. The other was that the South Yarra restaurant was, through their company, Lionel and Joel's.
43 Saul's subsequent evidence that the City restaurant would be "in effect the second licensed restaurant, with South Yarra being the first", cannot be accepted. Whatever be the position with the former, there is no support in the evidence for the view that the South Yarra restaurant was licensed as opposed to owned by Lionel and Joel through their company.
44 For the avoidance of doubt I note that when the parties spoke of a restaurant being "licensed" in the context of "licensed or franchised" they meant licensed as opposed to franchised, and not licensed to serve liquor.
45 A great deal of time was taken in the cross‑examination of Lionel and Joel in seeking to establish that in the discussions leading up to and on 19 January 1997 the parties agreed that they would franchise the Squires Loft concept. Lionel and Joel denied that any such agreement was made. More importantly, Harold's evidence does not support it. Speaking of the period May/June 1997, he said he didn't quite understand the concept of franchising. He knew that Joel wasn't keen about it. Harold's own concern was to get the City restaurant up and going. He and Joel did not support franchising "at this time".
46 Given that Harold did not support franchising in May/June 1997, it is highly unlikely that he would on 19 June 1997 have entered into an agreement to expand the Squires Loft concept through franchising. That is the more so when, as he said, he knew that Joel was not keen about it. As I have said, Lionel and Joel denied that there was any such agreement. In the circumstances I am not satisfied that there was any such agreement.
47 Further, certain parts of the taped meeting of 25 June 2001 are inconsistent with an agreement having been reached in June 1997 to implement the franchise concept. Thus Lionel says "Let's just say we're talking about are we going to franchise".
48 The applicants sought to derive assistance from what was said at the 25 June 2001 meeting. They say the transcript shows that Lionel and Joel accepted that they had been in an equal partnership, presumably since June 1997. On a fair reading, the transcript does not support this submission. The passages relied on are set out in Saul's first affidavit. The context in which these passages occur is Lionel's concern that in the parties' dealings to date they have not had a mechanism for resolving deadlocks. He said:
"But it's time to be able to format a decision making program. So, what I'm proposing is this between the four of us we saying we're holding a partnership that is going to be an equal one. So within the frame of that there should be each member having a vote of their own. So everyone gets a vote on every issue, okay?
Once those votes are cast if there's a deadlock I believe I'm going to get the overriding vote, so the fifth vote will come to me okay?
…
So that's my proposal."
The emphasis is mine.
49 The St Kilda restaurant closed about a month before the 25 June 2001 meeting. Harold and Saul had the City restaurant. Lionel and Joel had the South Yarra restaurant. With the St Kilda restaurant gone there was no business or venture subsisting between the parties that could be described as a partnership. What Lionel was proposing was a structure that could be put in place "going forward", to use his expression. It was, as he twice said, a proposal. More importantly, one element of the proposal was that there would be a partnership that was "going to be an equal one". His was not simply a proposal that an existing equal partnership contain a deadlock‑breaking mechanism. The whole proposal was entirely futuristic. Lionel later reinforced this by saying "I've said quite clearly so has Joel that there will be a four way partnership of what we are talking about here".
50 Joel was cross examined about the taped conversation. He was taken to the passage set out above, and it was put to him that Lionel was saying "there is a partnership between the four of you". Joel's response was that Lionel was just putting forward a proposal as to what could happen in the future.
51 It is of course for me, and not for a witness, to determine whether the conversation supports the view that the alleged partnership agreement was made. I share Joel's view. In my opinion a dispassionate observer reading the transcript of the conversation in the context of the events that had happened could not find in the discussions it records an acknowledgment by Lionel and Joel that there was at that time a subsisting equal partnership in existence, let alone an agreement of the type alleged to have been made in June 1997.
52 In support of their claim that par 3(a) of the statement of claim was sustained by the evidence, the applicants relied on Lionel's acceptance that Harold and Saul would be given the opportunity of being involved in any future Squires Loft venture that he and Joel might contemplate. Joel's evidence was to much the same effect - that if the "right opportunity" arose, they would be given the chance to be involved. Lionel in fact offered Harold the opportunity to be involved in the Embers restaurant, though that was not truly a Squires Loft venture, but Harold declined. In my view this evidence does not assist the applicants to establish that at the 19 June 1997 meeting the parties in fact agreed to be equal partners in any future venture of opening steak restaurants under the Squires Loft name through licence or franchise arrangements. As put by Joel, whose evidence I accept, if the right opportunity arose, it would be discussed with Harold and Saul. Neither Lionel nor Joel was speaking in terms of an existing obligation to include Harold and Saul. Until relations broke down the parties were involved in common aspects of the City and South Yarra restaurants, and Lionel and Joel were saying no more than that they would talk to Harold and Saul about any future opportunity. Obviously, for the parties to proceed together in some new venture would depend upon them all agreeing as to the basis of their respective participations.
53 The applicants attached much importance to the evidence of Eric Morgen. He said his understanding of what he was told by Saul, possibly in Lionel's presence, was that the four of them were "partners in a company called Squires Loft Pty Ltd that operated from 12 Goldie Place". His 29 May 2001 presentation to the parties was headed "The Partners Squires Loft Pty Ltd" and was addressed "Dear Saul, Lionel, Harold & Joel". This is said to provide compelling evidence that all four considered themselves part of a partnership group.
54 Lionel accepted that either he or Saul said the parties were all four partners in the business, though it would have been more accurate to say there were two partners in the City restaurant and two in the South Yarra restaurant. In any event, he said "we all four were partners in the business".
55 As Lionel acknowledged, it would have been more accurate for the parties to have been described as two partners in the City restaurant and two in the South Yarra restaurant. However it was not inaccurate to describe them, in a loose sense, as partners in the business. As Lionel said, they were in a sense partners. There were aspects of the two restaurants that were conducted in common: the sauces, joint promotion, common meat supplier of specified cuts of meat for example. All four did work together. Having regard to this, there was nothing inappropriate in Saul or perhaps Lionel describing the parties as partners. There was certainly no occasion at either meeting with Mr Morgen for the parties to engage in an argument about their status as a group. They were there to hear about franchising.
56 In his written and oral evidence Mr Morgen described the parties as partners in Squires Loft Pty Ltd. His presentation was so headed. Whatever they were, the parties were not partners in Lionel and Joel's company, in which they had no interest at all. But again there was no occasion at the second meeting to tell Mr Morgen that he did not understand the difference between a partnership and a company structure, a matter that was entirely peripheral to franchising.
57 I do not agree that Mr Morgen's evidence provided significant support for the applicants' contention that the parties were then equal partners let alone equal partners in any venture of opening further steak restaurants under the Squires Loft name through licence or franchise arrangements in terms of par 3(a) of the statement of claim. Apart from any other difficulties, the point of the meeting with Mr Morgen, more than four years after an agreement in those terms was alleged to have been made, was to find out more about franchising so the parties could decide whether to go down that path, not to explore with him the detail of their complicated business relationship.
58 The applicants contended that the fact that in various documents the parties referred to the City and South Yarra restaurants as parts of the "Squires Loft Group" supported the allegation in par 3(b) of the statement of claim. Both Lionel and Joel said this was a marketing tool to promote both restaurants. The fact is, as Joel pointed out in this connection, that while the two restaurants (and later St Kilda) co‑operated in certain respects, the ownership structure of each was different. The City restaurant belonged to Harold and Saul through their company. It was neither licensed nor franchised. The South Yarra restaurant was owned by Lionel and Joel through their company. It too was neither licensed nor franchised. St Kilda was a joint venture. When established it had two additional investors, who were not otherwise involved with the parties. It was not a partnership, and it was not licensed or franchised. I do not consider that the promotional reference to the Squires Loft Group points to an agreement in terms of in par 3(b) that the City restaurant was a licensed restaurant of the variety contemplated by sub‑par (a) or that its centralised kitchen would service any future licensed or franchised restaurants.
59 Nor do I accept that it was agreed at the 19 June 1997 meeting that the City restaurant would be the "flagship" restaurant. The South Yarra restaurant was first in time. It was an established institution. Its concept was to be used in the City restaurant. The City restaurant might not be a success. It was, as the parties acknowledged, in an out of the way location. In order to attract custom Harold and Saul, or their employees, had to distribute steak portions in a nearby busy thoroughfare. In those circumstances, the probabilities are strongly against the yet to be established City restaurant being identified as the flagship. I accept Lionel's evidence that, though 'flagship' was part of his vocabulary, he did not use it in connection with the establishment of the City restaurant.
60 The applicants have not persuaded me that on or about 19 June 1997 an agreement was made in terms of par 3(a) of the statement of claim, or that the City restaurant would be "the first licensed Squires Loft restaurant" and the flagship restaurant. To the extent that the other terms in par 3 are predicated on sub‑par (a) - "through licence or franchise arrangements" - they have not been established.