Quinn Chi On v Karen Gore

Heads of Agreement - 18 August 2011

1. The plaintiff, the defendant and Mr To executed a document entitled "Heads of Agreement" on 18 August 2011 which included the following: Whereas the partners are in dispute concerning various aspects of the operation of their partnership relating to the Illawong Pharmacy and have today agreed to resolve all differences between them on the following basis: 1. Quinn is to buy and Sunny is to sell, Sunny's one third share in the partnership effective 31 August for a price of $1,550,000 plus GST payable on that date or at some earlier or later time as may be agreed between them. 2. Although this agreement is to be contractually binding on execution by each of the partners, they agree to enter into a deed that more fully reflects their agreement: such deed being in accordance with such standard form of agreement for the transfer of partnership shares as is customarily employed in the transfer of shares in a pharmacy partnership.
2. The partners also released each other under the 2006 Partnership Agreement in respect of all claims, including in respect of the plaintiff opening the pharmacy in Menai. Their agreement was conditional upon ANZ discharging Mr To from liability under the loan.

Option Agreement - 18 August 2011

1. Also on 18 August 2011 the plaintiff and the defendant executed the Option Agreement which was in the following terms: OPTION AGREEMENT This Agreement made on 18 August 2011 is between: 1. Quin Chi On of [address] ("Quinn"); and, 2. Karen Belinda Gore of [address] ("Karen") Who agree as follows: In consideration of Karen and Quinn each entering into the agreement dated today, a copy of which is annexed hereto and marked with the letter A, Quinn grants to Karen an Option to purchase a one sixth share of the partnership known as the Illawong Pharmacy partnership for a price of $750,000 plus GST. The aforesaid Option shall be capable of being exercised in writing to Quinn at the above address before 31 December 2012.
2. The annexure to the Option Agreement was a copy of the Heads of Agreement executed on 18 August 2011.

Deed of Dissolution - 2 September 2011

1. On 2 September 2011 the plaintiff, the defendant and Mr To executed a Deed of Dissolution and Agreement pursuant to which their partnership was dissolved as from 21 September 2011 at which time Mr To would transfer his one-third interest to the plaintiff for $1.55 million less the sum of $300,000 (Mr To's liability under the loan) and less the costs of novation in respect of the ANZ loan and the partnership's accountant's costs (clauses 2(a), (b); 4(a)). Completion was conditional upon ANZ discharging Mr To and the lessor consenting to the transfer of the lease to the plaintiff and the defendant (clause 4(j)(1)).

2011 Partnership Agreement - 2 September 2011

1. On 2 September 2011 the plaintiff and the defendant executed another Partnership Agreement (the 2011 Partnership Agreement), the Recitals to which were as follows: A. Quinn and Karen ("Partners") are Pharmacists. B. Until the date of this Deed the Partners have conducted the Business with a third party Sunny Sung Duong To ("Sunny") and from 21 September 2011 Sunny has ceased to operate the Business. C. The Partners have agreed to enter into a professional partnership for the continued operation of the Business and wish to set out the terms of their agreement in writing.
2. The 2011 Partnership Agreement included the following definition (clause 1(i)): "the Option" means the option granted by Quinn to Karen to purchase a further one sixth interest in the Business dated 18 August 2011.
3. The only other section of the 2011 Partnership Agreement that referred to the Option was as follows: 16 Retirement from Partnership 16.1 Either Partner may retire from the Partnership by giving the other Partner not less than three (3) months written notice of the Partner's intention to do so. 16.2 If a Partner ("Retiring Partner") gives notice in accordance with subclause 1 the remaining Partner ("Remaining Partner") has the right to purchase the interest of the Retiring Partner in the Partnership. 16.3 The right to purchase the interest in the Partnership of the Retiring Partner is subject to: (a) Clause 19; (b) It being exercised in writing and delivered to the Retiring Partner; (c) It being exercised within 3 months of receipt of written notice from the Retiring Partner. 16.4 Unless (a) the Option is exercised; or (b) the right to purchase is exercised in accordance (sic) subclause 16.3; The Partnership will be dissolved at the end of the three (3) month period referred to in clause 16.1.
4. Clause 19 of the 2011 Partnership Agreement fixed the mechanism for the valuation of the interests in the partnership.

Events leading up to the exercise of the Option

1. On 4 October 2011 the plaintiff's sister, Ms Be Be Poon, wrote to the defendant in the following terms: Quinn confirmed with me that you wish to purchase another 1/6 share in the pharmacy. Would u kindly advise if: 1. You have an independent lawyer. 2. U have finance n with whom. 3. Any requirements to the change in the partnership agreement. Pls hold off on the stationary purchase As I need to check if the "approval number will change".
2. On 4 October 2011 the defendant advised Ms Poon of the identity of her lawyer and that her financing was with the Commonwealth Bank of Australia (CBA). The defendant also advised that she would speak to her lawyer to see whether there should be any changes to the 2011 Partnership Agreement.
3. The defendant claimed that in mid-October 2011 she had a conversation with the plaintiff in which he advised her that he wanted to wait until 2012 before they looked at making any changes "to the ownership of the partnership". The defendant claimed that the plaintiff informed her that he was very busy with his new pharmacy in Menai and did not have any time to deal with the changes at this stage.
4. On 3 May 2012 Ms Poon wrote to the defendant in terms that included the following: Quinn has advised me that you are ready to proceed with increasing your share in the pharmacy to 50%. In our previous conversations you mentioned that you intended to have at (sic) the partnership agreement re-looked at. I suggest that you and Quinn meet up to discuss the "finer" points of what you both would like to include in the partnership agreement. Once that has been agreed up (sic) then I suggest you provide the details to your solicitor so that it can be drafted accordingly. Alternatively you may ask your solicitor for a draft copy of their partnership agreement and that could be another starting point for your discussion with Quinn. Kindly advise if you have a settlement date in mind.
5. On 16 May 2012 Ms Poon wrote to the defendant in relation to the CBA's review of the "buy/sell agreement". She asked the defendant to confirm that the value of the Pharmacy was $3 million; the current share was 66.66 per cent to the plaintiff and 33.33 per cent to the defendant; and the loan was at $1.9 million. On the same day the defendant responded to Ms Poon advising that the loan was $1.976 million as at 1 May 2012 and was to be "shared 50/50 once I purchase the remaining share which I'm hoping to do in July". The defendant also advised Ms Poon that she still needed to "talk over" the 2011 Partnership Agreement with the plaintiff when she was to see him the following Friday.
6. On 17 May 2012 Ms Poon wrote to CBA advising that the plaintiff and the defendant were "in the process of arranging for their partnership to be changed to a 50% share each ownership" and that it "may take a couple of months to finalise".

Exercise of the Option - November 2012

1. On 6 November 2012 the defendant wrote to the plaintiff by email in terms that included the following: I have sent the attached letter about exercising my option to your address as per the agreement. I know you have a lot of things happening at the moment but it would be nice to try and get the partnership agreement started before the year is over if we can organise it.
2. The copy of the letter dated 3 November 2012 attached to the email was in the following terms: Please be advised that this is written confirmation that I am exercising my option to purchase a one sixth share of Illawong Pharmacy as per the option agreement signed on the 18th August 2011.

Events following the exercise of the Option

1. On 7 November 2012 the plaintiff wrote by email to the defendant suggesting that they meet to talk about the new Partnership Agreement later that week. That email included a number of points for discussion. On 8 November 2012 the defendant responded advising that she would go over all of the points raised by the plaintiff in his email which seemed "pretty straight forward". It appears that no meeting eventuated at this time. However the defendant claimed that she had a conversation with the plaintiff in late November 2012 when she again asked him when they could complete the Option and when she could move to a 50 per cent share of the partnership. The defendant claimed that the plaintiff said that he wanted to wait until the new year because he was busy dealing with various issues with his new pharmacy at Menai.
2. The defendant claimed that between March and May 2013 she had about three conversations with the plaintiff in which she asked him to finalise the Option because it was causing a lot of pressure on her and her family and she wanted to complete it before the end of the financial year. The plaintiff once again indicated that he was very busy at that time.
3. On 25 April 2013 the plaintiff wrote to the defendant suggesting that they meet the following week to "discuss the transfer of the partnership". By this time Mr Neil Featherstone, of Pinn Deavin Accountants/Valuers, had become involved in the discussions between the plaintiff and the defendant to the extent that he had completed draft reports for the new partnership.
4. On 7 August 2013 the plaintiff wrote to the defendant referring to the history of the purchase of Mr To's share and the fact that he had paid an extra $50,000 bringing the purchase price from $1.5 million to $1.55 million. The plaintiff claimed that at the mediation on 18 August 2011 they "privately agreed" that the defendant would "pay ½ of what I ended up paying" Mr To. The plaintiff also claimed that in respect of the extra $50,000 that he paid at settlement "I recall you had verbally agreed to contribute your share's worth". That email included the following: Scenario 1: KG buys 1/6 share Hence for you to gain the 1/6 share you will need to pay $750,000.00 and I suggest the $116,970 be reimbursed to me through the profits from the pharmacy account. Scenario 2: KG buys the other 50% after scenario 1 If the pharmacy valuation is at 2.15miL (as per James Prineas), KG will have to pay 50% (1.075miL) Keeping in mind the current loan against Illawong is approx 2miL (900,000.00 + 1.1miL) So QO and KG owes 1miL each to ANZ. Hence for KG to acquire 100% it will cost $1,075,000.00 + $750,000 = $1,825,000.00.
5. On 7 August 2013 the defendant responded in terms that included the following: Thanks for doing this, I wanted to ask a question about scenario 1, (just about the amount not the Stamp duty part). With the $750000plusGst , (sic) I understood that I had to pay $50000 & the remainder would be included in the loan which would bring it up to the loan being 50:50. Is this correct? I really want to talk this over with my family this week.
6. On 9 August 2013 Mr Featherstone wrote to the plaintiff with a copy to the defendant in terms that included the following: 2. What is the proposed date for the move from KG owning a third, to a half? Do we base the deal as having been implemented on say 1/7/13? Or a future date? This may effect the numbers.
7. The plaintiff responded on 12 August 2013 advising that he would like to make "the date of KG going from third to half from 1st September 2013".
8. On 16 August 2013 Mr Featherstone wrote to the plaintiff and the defendant enclosing a "mock-up" of how the capital payout from the defendant to the plaintiff would look based on the position as at September 2011 when Mr To was paid out. That mock-up included a requirement for the defendant to pay the plaintiff $124,485 "to become 50% owner". Mr Featherstone also explained that once the parties agreed upon "the restructure to 50% each" they could determine the value of a "complete buyout" by the defendant.
9. Mr Featherstone advised the plaintiff and the defendant on 20 August 2013 that after further adjustments in relation to the original bank loan the defendant had to pay $108,485 to the plaintiff "to become 50% owner". The defendant advised the plaintiff that she was "happy with this calculation" and asked him to advise what he needed in order to "value the remaining half".
10. On 30 August 2013 Mr Featherstone wrote to the parties in terms that included the following: The critical path of selling the second 50% to Karen (ie stage 2) is described in the last page of the attachment. I have explained that the value of the pharmacy excludes the working capital or finance debt, & the payments from Karen to Quinn need to be made accordingly.
11. Mr Featherstone advised that the defendant would have to pay $1.3 million to the plaintiff for the 50 per cent share with the plaintiff paying out in full 50 per cent of the ANZ loan and the defendant refinancing her additional 50 per cent using the Pharmacy as security subject to a bank valuation.
12. On 9 September 2013 the defendant wrote to the plaintiff in terms that included the following: I wanted to see if you had looked at the valuation Neil sent through last week? … If you would prefer to just have the 50% partnership at this point, I would like to move to the 50% per cent ownership. Would it be possible to use the existing partnership contract for now and just adjust the percentages?
13. On 9 September 2013 the plaintiff responded to the defendant in terms that included the following: I have been thinking for a while and yes I would like to sit and discuss with you the transfer of 1/6 to you as of September 1st 2013 to make your share 50%.
14. On 30 September 2013 the defendant forwarded a valuation of the Pharmacy to the plaintiff advising that she had also forwarded it to her bank. That communication included the following: At this point even though I haven't heard from the bank it looks as if the amount I will be able to borrow against the business is not the best. I would like to try and purchase Illawong and would appreciate your thoughts after looking at the valuation.
15. The defendant claimed that she had a conversation with the plaintiff on 7 October 2013 when he asked her whether she still wished to purchase the whole Pharmacy. The defendant claimed she advised the plaintiff that she did not wish to do so and just wanted to exercise the Option and purchase the one-sixth share to "make it a 50/50 split". The defendant claimed that the plaintiff responded that he would "have to think about what I want to do".
16. On 21 October 2013 the defendant wrote to the plaintiff and Mr Featherstone advising that ANZ had assumed that the "partnership was 50:50 already" and that no change was needed on the current loan because they were both individually liable.
17. On 8 November 2013 the defendant wrote to the Pharmacy Council in the following terms: PARTNERSHIP ADJUSTMENT Dear Sir/Madam Please be advised that Illawong Pharmacy (approval number 14449L) has changed from a 33.3/66.7 partnership split to a 50/50 partnership between Karen Belinda Gore and Quinn Chi On. The partners are still the same and the ownership structure remains the same as before.
18. On 10 January 2014 the defendant wrote to Mr Featherstone in terms that included the following: Quinn and I are ready to complete the transfer of the partnership to 50:50. I have already completed the paperwork with medicare and pharmacy council. I have spoken to Quinn about revising the amount that you calculated to take into account the extra interest and principal I have been paying since Sunny left. He was OK for you to do this and then we will look at it before agreeing on an amount.
19. On 13 January 2014 the plaintiff wrote to Mr Featherstone in terms that included the following: I have spoken to Anique (from your office) this morning regarding a letter I need for OSR to let them know of the change in partnership from 66.67% to 50% ownership as this affects my payroll tax. OSR has advised me that I need to provide them a letter from my accountant of the change of percentage of ownership. Karen has notified Medicare and Pharmacy Council. Karen has provided a letter to Pharmacy Council of the changes. Please advise on what our next step is and allocate a date of when this change can officially be determined.
20. On 24 January 2014 Mr Featherstone advised the parties that if they treated the change as having occurred on 1 July 2013 they would need to ensure that the "internal paperwork" reflected that date and that this would be the date of "disposal" in respect of Capital Gains Tax issues.
21. In a further communication on 31 January 2014 Mr Featherstone advised the parties that he had analysed the loan statements for the period September 2011 to June 2013 in relation to the restructure to "50/50". Mr Featherstone asked the parties to confirm how they wanted the interest and principal that had been paid to be taken into account because there were different methodologies in relation to such accounting. That communication also included the following: This also relates to the timing of when (notionally at least) you want the partnership to have been operating beneficially on an equal basis rather than 1/3 to 2/3. As we discussed about 6 months ago, part of the process in the configuration should include measuring the bank balance, loans, debtors, creditors & stock at the time of change & then allowing for the balances at the time in one "settlement" calculation. We can be very meticulous & analyse everything to small amounts, or at the other extreme we could make reasonable estimates (and thus simplify the process for you now).
22. On 7 February 2014 the plaintiff wrote to Mr Featherstone asking him for a convenient time at which he and the defendant could meet with him to discuss the "partnership matter".
23. It was about this time that the plaintiff met Frank Sirianni, the principal of Medici Capital, a pharmacy valuation and consultancy provider specialising in pharmacy management. Mr Sirianni met with the plaintiff in early May 2014 after providing a series of questions referred to as "partnership facilitation questions".
24. The plaintiff and the defendant met on 15 May 2014 when it was agreed that the defendant was to contact Ms Kate O'Sullivan, a lawyer, or Mr Featherstone "to start the partnership agreement ASAP".
25. The plaintiff and the defendant met Mr Sirianni on 18 June 2014. Minutes of that meeting noted that the defendant was "OK" for the plaintiff to maintain two-thirds profit share until the new Partnership Agreement "is set for 50/50".
26. On 3 September 2014 Mr Sirianni noted that both the plaintiff and the defendant were "frustrated by progress to date". In fact the defendant claimed that she had a conversation with the plaintiff in September 2014 in which she informed him that the delay in completing the Option was upsetting her and putting financial strain on her. She suggested to the plaintiff that she should have become an equal partner by that time and in response the plaintiff said once again that he was very busy with his pharmacy at Menai and did not have the time to discuss it.

Draft Deed of Sale of Partnership Interest - 1 October 2014

1. On 1 October 2014 the defendant wrote to the plaintiff and Mr Featherstone in the following terms: Please find attached the sale agreement. Please let me know if you have any issues with it. The completion date has been left with just October and can be filled in on completion. I am ready to settle as soon as possible.
2. The draft Deed of Sale of Partnership Interest (the Deed of Sale) that was enclosed with that email was between the plaintiff, as the "Selling Partner", and the defendant, as the "Incoming Partner" and included the following: C. The Incoming Partner is desirous of purchasing a further 1/6th interest in the Business and the Selling Partner has agreed to sell to the Incoming Partner the equivalent of such 1/6th share of the Business with effect from 1st July, 2014 upon the terms set forth in this Deed. NOW THIS DEED WITNESSES 1 (a) The Selling Partner as beneficial owner hereby assigns, transfers and releases unto the Incoming Partner to vest in her a further 1/6th interest in the Business including goodwill, plant, furniture and fittings for the consideration of $808,485.00 inclusive of stock which has an agreed value of $200,000.00. (b) The parties agree that no deposit monies are required to be paid upon exchange. (c) The Purchase price is to be paid as follows: (i) As to $108,485.00 paid to the Selling Partner on the date of Completion. (ii) By execution of mortgage documents in favour of ANZ bank whereby both partners have equal liability for all outstanding monies over the Business. (d) Completion of this Deed shall take place on October 2014 ('the Completion Date") subject to all preconditions being satisfied.
3. On 8 October 2014 Mr Featherstone wrote to the plaintiff enclosing the "calculations for the cost base for the 1/6th share". That email included the following: So theoretically it means you have transferred the 1/6th share to Karen for exactly the same value you paid for it, & thus implying you should have zero CGT liability.
4. On 9 October 2014 the plaintiff chased Mr Sirianni for some documents that he had apparently promised to send to the plaintiff and the defendant including the 2011 Partnership Agreement.

Defendant signs Deed of Sale

1. On 9 October 2014 the defendant wrote to the plaintiff in the following terms: Thank you for chasing Frank up. We will still need his work to be checked by lawyers. I want to settle the sale part on Monday 13th October whether or not Frank has sent us anything. We can then continue to work through the partnership contract with Frank or a lawyer. I have already sent my signed copy to Kate for exchange.
2. On 10 October 2014 the defendant wrote to Mr Sirianni and the plaintiff in respect of materials that Mr Sirianni had sent through to them in terms that included the following: The sale contract is ready and I want to exchange next week (I have suggested Monday 13th Oct) since the last agreed date was 1st July 2014 and there have been many dates preceding that. I am not prepared to wait for any more time.
3. On 12 October 2014 the plaintiff wrote to the defendant in the following terms: As discussed, you will engage your lawyer to draft a partnership agreement based on the notes from Frank Siriani (sic) that we have both agreed on. We can use the Illawong pharmacy account to pay for this service. Once the draft has been done you will forward me a copy and we will independently use our own lawyers to run through it and pay of (sic) the services ourselves for any further amendments. If all is OK we can then sign the Deed from Kate. Please let me know if you are agreeable to this.
4. On 12 October 2014 the plaintiff wrote to Ms O'Sullivan with a copy to the defendant in the following terms: I have spoken to Karen and I will sign the Sale of Partnership Agreement once we finalised (sic) the Partnership agreement.
5. On 20 October 2014 the defendant wrote to the plaintiff in terms that included the following: I would like to wrap up the process of buying the 1/6th share from you as soon as we can, so I suggest that the partnership agreement can be prepared at the same time as the sale is finalised, rather than waiting on the partnership agreement and then finish the sale. We have everything agreed for the sale, and an existing partnership agreement, and I think this is the quickest and easiest way forward.

Plaintiff refuses to sell without new Partnership Agreement

1. On 22 October 2014 the plaintiff wrote by email to the defendant in terms that included the following: Once the partnership agreement is finalised by your lawyer and we both agree on the terms we can then proceed to finish the sale. The sale process is very quick once the partnership agreement is in place.
2. On 23 October 2014 the defendant wrote to the plaintiff in the following terms: My lawyer is working on the partnership agreement now and the first draft will be available in the coming days, so timing should not be an issue. However technically the exercise of option and sale is not conditional on the new partnership document being agreed on and finalised. It is obvious that the partnership needs a new agreement to supersede the existing 2011 agreement but the sale and agreement can progress side by side, not one after the other. My concern is not the time that the sale will take but when the sale will take place. I would like a concrete day for settlement agreed on as I do not want to keep working towards a date that never eventuates.
3. The defendant claimed that she had a conversation with the plaintiff on 24 October 2014 in the following terms: Defendant: I really want to set a date for the settlement of my purchase. I don't agree that it needs to be delayed for the new partnership agreement. Plaintiff: It won't take much longer. It will happen by the end of November, as soon as the new partnership agreement is complete. I am not prepared to do the transfer until there is a new partnership agreement though.
4. On 24 October 2014 the plaintiff wrote to the defendant in the following terms: To clarify a few concerns with our conversation today. 1. I've also tried to come to finalised (sic) the partnership and have never attempted to stall the process. There was a time I gave you the opportunity to buy the whole pharmacy and you took time to work out your finances before decling (sic) the purchase.
5. A draft Partnership Agreement was prepared by Roone Richardson Lawyers, solicitors then acting for the defendant. That Agreement included the following: The Partners are already in a partnership in respect of the Business. This deed shall commence operation on the date of completion of the purchase of 1/6 of the Business by Karen from Quinn, and from that date all previous partnership agreements and arrangements shall cease to apply.
6. On 13 November 2014 the defendant wrote to the plaintiff in the following terms: The partnership sale should be finally nearing completion and it is reasonable to finalise the 13/14 financials and the sale together. The partnership agreement is also well on its way so hopefully we can have all outstanding issues completed together soon.
7. The parties met on 18 November 2014 to discuss matters generally and in particular amendments to the proposed Partnership Agreement. The Minutes of that meeting include the following: Karen stated that she was happy to have Quinn as a partner and that she had supported him against Sunny. The only matter that was upsetting her was the delay in effecting the agreement to be equal partners.

Proposed sale of whole Pharmacy

1. In her affidavit (affirmed on 26 May 2016) the defendant claimed that on 26 November 2014 she received a telephone call from the plaintiff in which he asked her to meet with him the following day to talk to her about "selling you all of the Illawong Pharmacy" (at [27]). The parties met at a café in Illawong on 27 November 2014. The defendant claimed that the following conversation took place (at [28]): Plaintiff: I was thinking that because of some other opportunities that have come up in building (sic) I might need some money. Because of this I thought I would make this offer for you to buy the pharmacy. Defendant: You have caught me a little by surprise. I am hypothetically interested. I would need to know a timeframe and a price. Plaintiff: I knew you would ask that. For a timeframe, if you are going to do it, it would be as quick as possible. I have thought about a price. I thought about what, if this happened in reverse, I would be prepared to pay you. If we put it on the open market we are going to get a very high price, regardless of what the valuation is, because there is a shortage of Pharmacies. If I was going to buy the pharmacy from you I would pay $2.8 million but if you put it to the Bank for a valuation I reckon it will come out (sic) about $2.4 million, because everything is being decreased. $2.8 million would be my price. That's inclusive of everything. If this is to happen I'd like it to happen quickly, not this year, but early next year, hopefully early January. This is all hypothetical and it is not to say that I am unhappy with the partnership. I'm just asking you because of a potential opportunity that I will need funding for. Do you have a price in mind? Defendant: Not really, I looked at what Neil had said last time and he said around $2.7 million. I need to get in contact with the bank. Plaintiff: What do you think of that price? Are you interested? Defendant: I am interested. I think I was looking at about that price. I'm not sure. I'll have to think about it. Plaintiff: I think that if we put it on the market we'd get at least three million dollars. I'm not going to be over the top, I'm just going to be reasonable. I'm not Sunny, who wanted $4.5 million. The reason I want to be reasonable is that it is a two way street and that in 10 years, when you sell, you're going to be reasonable to me. Defendant: Now that I have a figure I will sit down with the bank.
2. The defendant's affidavit evidence in relation to this conversation and the meeting included the following (at [29]): During the above meeting no mention was made of the option agreement which I had previously attempted to exercise. At no point did the Plaintiff suggest that the amount I should pay for the whole pharmacy would be affected by my attempted exercise of the option agreement or that the option agreement should be used to ascertain the value of the pharmacy. I accepted at that point that the option was rejected and I didn't press it further.
3. On 27 November 2014 the plaintiff wrote to the defendant in the following terms: As discussed about the hypothetical sale of Illawong Pharmacy to you, can you please give me a definite answer before Wednesday 10th December. Do you still want me to continue with the partnership agreement while you decide ? (sic)
4. On 28 November 2014 the defendant responded to the plaintiff in the following terms: I have put a lot of thought into this and am interested in purchasing Illawong. I am meeting with the relevant people over the next week. Could you please forward me a proposal for the bottom line of how much I will have to pay. Do you think Neil could work out the payout figures based on your request of $2.8 million as the value of the business. Please hold off on the partnership agreement until after the 10th Dec.

Defendant agrees to buy Pharmacy

1. On 8 December 2014 the defendant wrote to the plaintiff in the following terms: In regards to the offer to buy your share of Illawong Pharmacy I wish to do so. As mentioned the bank I have met with would like a letter informing them of the requested amount for your 2/3 share and of the intention to sell. Can you please forward this and I will then engage the valuer.
2. On 8 December 2014 the plaintiff wrote to the defendant attaching the letter as requested and advising that he was in the process of getting his lawyer to draw up a formal letter for the proposed sale to her. The attached letter was in the following terms and dated 8 December 2014: To whom it may concern I am proposing to sell my 2/3 share of Illawong Pharmacy to Karen Gore. If you have any questions please do not hesitate to contact me.
3. On 12 December 2014 the plaintiff's solicitors wrote to the defendant referring to the negotiations for the potential sale of "2/3 share of Illawong Pharmacy Business". That letter included the following: The Proposed Vendor wishes to make a non-binding offer to sell 2/3 share of the Illawong Pharmacy business to the Proposed Purchaser on the following conditions that: (a) this letter of non-binding offer to sell 2/3 share of the Illawong Pharmacy business shall not create a binding relationship between the parties; (b) the parties agree that there is no binding relationship between the parties until contracts for sale are exchanged and each party shall only rely upon and be bound solely on the terms of the contract for sale of the Pharmacy business and associated deeds to the contract of sale such as restraint of trade, indemnities, covenants, right of first refusal; (c) this said non-binding offer can be varied, amended, or withdrawn at any time by the Proposed Vendor and the Proposed Purchaser shall not make any claim for compensation, costs, damages or cause of action; and (d) the said non-binding offer is made subject to the Proposed Purchaser agreeing to the following conditions to be included in the draft contract of sale: (i) that the sale price of the pharmacy is at the agreed value of $2.8 million including fixtures and stock where the stock is valued at $170,000 at from the date of exchange of contracts and remains at that level throughout the contract period until the settlement date. … 2. The sale price of $2.8 million is considered to be at the conservative market value level.
4. On 27 January 2015 the defendant's then solicitors wrote to the plaintiff's solicitors responding relevantly as follows (emphasis added): Our client comments on the terms as set out in your letter and proposes the following amendments, which we set out following the number in your letter: (a) a binding relationship between the parties in respect of the sale of 2/3 of the pharmacy shall only arise upon the exchange of contracts, and all correspondence between the parties prior to exchange in relation to the sale shall be of a non-binding nature. (b) agreed, subject to the acknowledgement of the existing exercised option for our client to purchase a 1/6 share of the business from your client for a consideration of $808,485.00, to be paid by a cash payment of $108,485.00 and the balance by the recognition of the liability our client has already accepted in relation to ANZ debt secured over the business. (c) agreed. (d) the contract will need to incorporate certain conditions.
5. On 2 February 2015 the plaintiff wrote to Mr Featherstone and the defendant suggesting a meeting to discuss a number of matters including: the amount that the defendant needed to pay the plaintiff to acquire the one-sixth share; and the sale of the plaintiff's 50 per cent share to the defendant.
6. On 6 February 2015 Mr Featherstone wrote to the parties enclosing his calculations regarding "the buy-out calculations". That document included two stages: the first stage was the transfer of the one-sixth share; the second stage was the transfer of the remaining 50 per cent share. There were further negotiations and discussions between the parties and Mr Featherstone in relation to the figures and the receipt of the valuation.

Pharmacy sale goes off

1. On 21 April 2015 the defendant wrote to the plaintiff in the following terms: Over the past 6 weeks since receiving the pharmacy valuation I have spoken to people who are regularly involved in buying pharmacies, accountants, financial brokers and ANZ. They have all told me that in the current market and with future forecasting that $2.8 million for Illawong is too much. ANZ have said that they would not be able to novate the current loan as it is not within the accepted LVR. The valuation from Vincents came in at $2.23mill which is similar to last one by Mark Williams and all advisors I have spoken to have said that your price of $2.8mil makes no business sense. In regards to my finances there are no problems however it would be a bad business decision to pay so much over the valuation with simplified price disclosure and the possibility of deregulation becoming closer to reality. Your desired price of $2.8mil was presented and while we only had 10 days to show interest, proper due diligence was not obtainable until the valuation and banking discussions were finalised. I would still very much like to purchase Illawong but as per the terms outlined in our current partnership agreement. Understandably you may need time to think about this. Please let me know how you wish to move forward by the end of this month.
2. On 21 April 2015 the plaintiff responded to the defendant in terms that included the following: I would like to remind (sic) that back in November or early December 2014 I made an offer to buy your share in Illawong pharmacy from you proportionate to a market value of $2.8M for the entire pharmacy. You made a counter offer to buy my share based on the same market value. I agreed. … I strongly believe if we were to put the pharmacy in the open market we will get over $3M. Since you believe Illawong pharmacy is worth $2.23M, then I am sure that you will be able to work out that if I offer to buy your share proportionate to the $2.8M value you will stand to make a profit. I therefore renew my offer to buy your share of Illawong Pharmacy from you proportional to $2.8M. Kindly confirm your acceptance of my offer which is open till 5.00 p.m. on Monday, 27 April 2015.
3. The defendant replied on 27 April 2015 thanking the plaintiff for his email and advising that she would "respond in due course". However there was no further dealing between the plaintiff and the defendant in respect of this offer.

Lawyers are instructed

1. On 27 May 2015 the defendant's new solicitors, Sewell & Kettle Lawyers, wrote to the plaintiff referring to a loan from the partnership to him and demanding that it be repaid into the partnership account within 14 days from the date of the letter. That letter enclosed a letter written on the same day to Mr Featherstone by the defendant's solicitors setting out the history leading up to the loan with a request that the partnership's financial statements be rectified to reflect the existence of the loan. One of the matters raised by the solicitors in the letter to Mr Featherstone was the entry into the Heads of Agreement on 18 August 2011.
2. The plaintiff's solicitors responded on 4 June 2015 referring to the background to the execution of the Heads of Agreement. That letter included the following: (c) It is noteworthy that under clause 1 of the Heads of Agreement Quinn is to buy and Sunny is to sell Sunny's one third share in the partnership for a price of $1,550,000.00 plus GST so that the option price should have been $775,000.00 as your client has subsequently acknowledged. … (h) Prior to and subsequent to exercise of the option there have been protracted discussions between our respective clients about your client's purchase of the additional one sixth share in the partnership and also about her possibly buying out our client's share or him buying out her share. (i) For whatever reason, your client has been unable or unwilling to complete the purchase from our client of a one sixth share in the partnership. Further, our respective clients have not been able to reach agreement on a price for which your client will buy out our client's share or our client will buy out your client's share in the partnership. … 4. Future of the partnership (a) Our client now requires your client to complete the purchase of a one sixth share in the partnership for $775,000.00 by 30 June 2015. (b) Failing agreement in relation to the foregoing, our client will issue and serve a notice of dissolution of partnership and the pharmacy will then be listed for sale in accordance with clause 20.1 of the Partnership Agreement for the best price reasonably obtainable.
3. On 20 July 2015 the defendant's solicitors wrote to the plaintiff's solicitors in terms that included the following: ● My client acknowledges that over the course of 2012-2015 there have been frequent discussions regarding the purchase of a further one sixth share in the Partnership from your client. My client also acknowledges the email and supporting letter dated 6 November 2012 that you attached to your letter. ● However, the attempts by my client to purchase a further one sixth share were frustrated by your client and the following material events: ◦ Email from my client to your client dated 11 February 2014 setting out calculations for the proposed settlement of both purchase of the one sixth share and matter of the Separate Debt. ◦ Minutes of meeting dated 15 May 2014 (prepared by your client) regarding ongoing discussions as to the price of the purchase of the share; and ◦ Minutes of meeting dated 18 June 2014 (prepared by your client) containing description of the discussion: "KG is OK for QO to maintain 2/3 share until the new partnership agreement is set for 50/50". … These documents demonstrate that the parties acknowledged that the Option Agreement, although it has persuasive effect, was superseded by arrangements after its date and the creation of the Partnership. The parties were unable to agree to a binding legal arrangement due to the intransigence of Sunny at the mediation and the Dissolution Agreement had the legal effect of releasing our clients from the Option Agreement. This could have been remedied by the Partnership Agreement, however, as your client asserted that the Option Agreement was unenforceable he is now estopped from seeking to rely upon it. Further, there is a good argument that the Option Agreement was waived by mutual agreement, if, to any extent, it remains enforceable.
4. The solicitors continued their communications and the parties also commenced the process of referring their dispute to arbitration. However, the parties reached an impasse and proceedings were commenced.

Proceedings commenced

1. These proceedings were commenced by the filing of a Statement of Claim on 7 March 2016. The plaintiff's claim for relief included an order dissolving the partnership with consequential orders for the taking of accounts. The plaintiff also sought a declaration that the defendant had validly exercised the Option and an order that the defendant pay him $750,000 (later amended to $775,000) plus interest.
2. On 16 May 2016 the parties reached an agreement that the only issues to be determined by the Court are whether the defendant validly exercised the Option and whether the plaintiff is entitled to an order that the defendant pay him $775,000 plus interest. The parties also agreed that upon the determination of these issues the partnership is to be dissolved in accordance with clause 20 of the 2011 Partnership Agreement, with the respective shares of the partners being assessed in accordance with the Court's determination and the partnership assets being sold in a manner agreed between the parties.
3. The proceedings were heard on 2 June 2016 when Mr IR Pike SC appeared for the plaintiff and Mr JA Rose, of counsel, appeared for the defendant.
4. The plaintiff was granted leave to file an Amended Statement of Claim in Court in paragraph 2 of which he seeks an order that the defendant "specifically perform the Option and pay" him "$775,000 (plus interest) pursuant to the Option".
5. The plaintiff relied upon his affidavits sworn on 23 May 2016 and 31 May 2016. The defendant relied upon her affidavits affirmed on 3 April 2016, 1 May 2016, 26 May 2016 and 29 May 2016.

Issues for Determination

1. There is no issue that the defendant exercised the Option in accordance with the provisions of the Option Agreement by sending her letter of 3 November 2012 to the plaintiff at the address prescribed. However the defendant opposes the making of the declaration and order on three bases. The first is the contention that the Pharmacy partnership was dissolved on 21 September 2011, frustrating the performance of the Option Agreement and making it unenforceable from that date. The second is the contention that the plaintiff's conduct between 6 November 2012 and 4 June 2015 amounted to a repudiation of the Option Agreement, which it is alleged the defendant accepted. The third is the contention that the Option Agreement was abandoned by the parties between 6 November 2012 and 4 June 2015. The defendant abandoned her claim of laches at the beginning of the hearing.
2. There is a further issue in respect of the Option amount. Although the Option Agreement refers to an amount of $750,000, the plaintiff contends that the defendant agreed on 18 August 2011 that if she exercised the Option she would pay half of the additional $50,000 (over the offered price of $1.5 million) that the plaintiff paid to purchase Mr To's share. Accordingly the plaintiff seeks the additional amount of $25,000. The defendant denies that this oral agreement was made on 18 August 2011.

Frustration

1. The concept of frustration was defined by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729 (applied in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337) as follows: [F]rustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.
2. As was noted by JW Carter, Contract Law in Australia (LexisNexis Butterworths, 6th ed, 2013) the relevant event (the "frustrating" event) must have severe consequences; it is a "radical" not a mere change in circumstance to that which the parties anticipated in their contract at the time they reached their agreement (at [33-02]).
3. The defendant submitted that the radical change occurred when the three partners executed the Deed of Dissolution on 2 September 2011. The defendant contended that the Option Agreement was to purchase a one-sixth share in the partnership that was dissolved by that Deed. In this regard the defendant submitted that by the use of the words "one sixth share of the partnership known as the Illawong Pharmacy partnership" in the Option Agreement the parties intended to refer to the partnership established between the plaintiff, the defendant and Mr To. It was submitted that the change in the subject matter of that partnership after the execution of the Deed of Dissolution amounted to a situation that was fundamentally or radically different to the situation contemplated by the Option Agreement, thus frustrating it. It was also submitted that the contracted method of performance, namely the transfer of an interest in a particular partnership, ceased to be possible when the partnership between the three partners was dissolved. It was also contended that the foundation of the contract disappeared when that partnership was dissolved.
4. The Heads of Agreement executed on 18 August 2011 noted that the partners had resolved all their differences "concerning various aspects of the operation of their partnership relating to the Illawong pharmacy". The Heads of Agreement also provided that Mr To's share "in the partnership" would be sold "effective 31 August 2011".
5. The 2011 Partnership Agreement between the plaintiff and the defendant was executed on 2 September 2011. The Deed of Dissolution was also executed on 2 September 2011 and provided for a "Completion Date" of 21 September 2011 (rather than 31 August 2011 as provided in the Heads of Agreement dated 18 August 2011). At the time of the dissolution of the partnership between the plaintiff, the defendant and Mr To, the plaintiff and the defendant had been operating the Pharmacy business in accordance with the 2011 Partnership Agreement since 2 September 2011.
6. The Option Agreement is a contract that must be viewed in light of the surrounding commercial circumstances. Its object was to enable the defendant to become an equal partner with the plaintiff in circumstances where the outgoing partner, Mr To, refused to treat with the defendant and would only sell his one-third share in the partnership to the plaintiff. The fact that the formality of the dissolution of that partnership did not occur until 21 September 2011 does not affect the Option Agreement between the plaintiff and the defendant. It related to the partnership between them, not the partnership between them and Mr To that was to be dissolved.
7. Notwithstanding that the parties referred to the partnership in their various Agreements as "Illawong Pharmacy"; "the Illawong Pharmacy Partnership"; "the Illawong Partnership"; and "the Partnership", I am satisfied that the intention of the parties in entering into the Option Agreement was to sell a one-sixth share of the partnership that was then proposed between the plaintiff and the defendant in the Illawong Pharmacy and not a one-sixth share of a partnership between the plaintiff, the defendant and Mr To.
8. The performance of the Option Agreement was not frustrated by the dissolution of the partnership between the plaintiff, the defendant and Mr To.

Repudiation

1. Conduct that evinces an intention to no longer be bound by a contract or to fulfil a contract only in a manner substantially inconsistent with a party's obligations and not otherwise amounts to repudiation of that contract. In such circumstances the other party is entitled to accept the repudiation and be discharged from further performance under the contract and to sue for damages: Shevill v Builders Licensing Board (1982) 149 CLR 620 per Gibbs CJ at 625-626. Repudiation of a contract is a serious matter not to be lightly found or inferred: Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd Receiver & Manager Appointed (formerly CEL Home Video Pty Ltd) (1997) 42 NSWLR 462 citing Lord Wright's statement in Ross T Smyth & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60 at 71-72.
2. The defendant relied on three aspects of the plaintiff's conduct as evincing an intention to no longer be bound by the terms of the Option Agreement or to fulfil it only in a manner substantially inconsistent with his obligations under the Option Agreement and not otherwise. The first is the plaintiff's conduct in demanding that the defendant pay half of the additional $50,000 that he paid to Mr To (increasing the purchase price from $1.5 million to $1.55 million) over and above the amount of $750,000 recorded in the Option Agreement (the additional $25,000 Conduct). The second is the plaintiff's demand for the defendant to pay a proportion of the Stamp Duty that he paid on the purchase of Mr To's share in the partnership (the Stamp Duty Conduct). The third is the plaintiff's refusal to complete the sale of the one-sixth share in the partnership pursuant to the exercise of the Option unless and until the new Partnership Agreement was finalised. The defendant claimed that she accepted the plaintiff's repudiation of the Option Agreement by her solicitor's letter dated 20 July 2015 bringing it to an end from that date.

The additional $25,000 Conduct

1. The plaintiff claimed that the defendant agreed with him during the mediation on 18 August 2011 that if she exercised the Option it would be "fair" for her to pay half of the additional amount of $50,000 that had to be paid to Mr To over the offered price of $1.5 million to buy him out. The defendant denied that such an agreement was made.
2. The plaintiff was cross-examined about his claim in his affidavit that such a conversation occurred. He gave the following evidence (tr 15-16): Q. In your first affidavit at paragraph 18, which is on page 5, you give evidence as regards a conversation. Do you see that? A. Yes. Q. It is fair to say that the only evidence that you have of that conversation is your recollection of it happening, is it not? A. Yes. Q. You took no notes of the conversation at the time? A. No. Q. And you made no other record of it at that time? A. No. … Q. The first time you mentioned it was two years later? A. About Paul Bolster's -- Q. No, about the 25,000 conversation? A. Yes.
3. The reference to "two years later" was a reference to the email the plaintiff wrote to the defendant on 7 August 2013 in which he claimed that he recalled that the defendant had "verbally agreed to contribute your share's worth" (see [26] above). The plaintiff was cross-examined further as follows (tr 16): Q. And would you agree with me that firstly, today your memory of what happened at the mediation is not as good as your memory would have been on the day or the day after? A. Correct. Q. And equally you would agree with me that your memory of it two years later, ie, in August 2013, also would not have been as good as it was on the day of the discussion or the day after? A. Yes. Q. Do you also agree with me that if someone made a note of the discussion that took place, either on the day or the day after, it is likely to be more accurate than your memory of what happened two years later? A. Correct. Q. I put to you that the conversation did not take place, the conversation set out in paragraph 18 of your affidavit. It didn't happen, did it? A. It is hard to say but I think it may have. Q. It may have happened? A. Yes. Q. But you are not sure sitting there now, are you? A. Well, we were to talk about did she, did I pay the extra $50,000, would Karen be willing to take half of it. I would definitely say yes, I remember that clearly.
4. The plaintiff was referred to the written report of what occurred at the mediation which included the following: Ultimately Sunny rejected $1.5 million and came back with $1.55 million which Quinn accepted. You will note that the option was executed at the earlier stated price, Karen not being prepared to go higher than $750,000 for the one-sixth share.
5. The plaintiff was further cross-examined as follows (tr 18-20): Q. Looking at the next sentence however, Mr Bolster says that the option was executed at the earlier stated price, Karen not being prepared to go higher than 750,000 for the one-sixth share? A. Correct. Q. That's what happened, is it not? A. Yes. Q. You asked her to go higher than 750 and she said no? A. That's right. Q. So there was no agreement between you on that day about her paying an extra 25,000 for the option? A. So what happened was, it went up to 1.5 -- … Q. The option agreement that Mr Bolster prepared contained a price for the exercise of the option of 750,000, didn't it? A. Correct. Q. That was your deal with Ms Gore? A. Up to that point, yes. Q. Up to that point? A. Yes. Q. Are you suggesting that you had another agreement with Ms Gore? A. Yes. Q. And that is the conversation you set out in paragraph 18 of your affidavit, is that correct? A. Yes. Q. In your affidavit I think it is fair to say that you say that the conversation occurred before the document was prepared, the option agreement was prepared? A. I can't remember exact timing but, I can't remember, like we said it before Paul Bolster wrote the agreement or after, but we did have a discussion about I was willing to pay that extra $50,000. And at that point Karen says, "I will contribute half of that, just to be fair". And I said "Thank you, that will be great".
6. The defendant responded to the plaintiff's email of 7 August 2013; an email in which he had claimed that he recalled that she had verbally agreed to contribute her "share's worth" of the additional amount (see [26] above). In that response the defendant claimed that she understood that she had to pay $50,000 and the remainder would be included in the loan which would bring it up to being 50/50. That reference to $50,000 is to the cash component of the proposed transaction and not the additional $50,000 that the plaintiff had to pay to Mr To. However the defendant did not deny that she had verbally agreed to pay "her share's worth" as the plaintiff claimed.
7. The plaintiff's answer at the beginning of his cross-examination when he was challenged about whether the conversation on 18 August 2011 occurred was very tentative. His evidence was that it was "hard to say" whether the conversation had happened, but he thought "it may have" occurred. However as his evidence continued he became firmer in his recollection of the conversation.
8. The defendant accepted in her evidence in cross-examination that in 2013 Mr Featherstone was working out the net figure that she would have to pay to give effect to increasing her share in the partnership to bring it up to 50 per cent (tr 53). The defendant also accepted that Mr Featherstone's calculations proceeded on the basis that she would be paying $124,485 based on the purchase price of $1.55 million paid to Mr To (tr 54). She gave the following evidence (tr 55): Q. As you understood it at the time what was being sought to be done was to work out what you have to pay for a half share in, what you have to pay in cash to go up to 50 per cent, correct? A. Yes. Q. And that calculation, as you understood it at the time, proceeded on the basis that you were required to pay half of the 1.55 million, that's correct, isn't it? That is as you understood it at the time, Ms Gore? A. In, at 2013? Q. Yes? A. Yes. Q. And as you understood it at the time you were being required to pay in effect $775,000, that's correct, isn't it? A. Yes. Q. You didn't in any way, shape or form indicate any disagreement as at August 2013 with having to pay in effect the 775, did you? A. I did send an email, I think in August 2013, saying that my understanding was I had to pay $50,000 and that was it and the 700 came from the extra debt of 1.1 plus 300 of Sunny's.
9. The defendant was then taken through the correspondence to which she had referred and the calculations that Mr Featherstone had performed after the defendant had raised a question in relation to an extra bank bill (tr 55). She was then cross-examined further as follows (tr 55-56): Q. And the net figure that he arrived at in effect-put it this way, the cash component was $108,485, that's correct, isn't it? A. Yes Q. You agreed with this calculation, didn't you? A. Yes, because I was frustrated. Q. You agreed with the calculation? A. Yes. Q. And you accept, don't you, that implicit in the calculation at 226 [of the Court Book] is that you are paying one half of the 1.55 million … fee, that's correct, isn't it? A. It is. Q. That is because you had a discussion, I want to suggest to you, on 18 August 2011 with my client where you agreed that you would pay 25,000 of the extra 50,000 that Mr On had to pay Mr To to buy him out, that's correct, isn't it? A. No, it's not. Q. If you could go please to 228? A. Yep. Q. Do you have that? A. Yes. Q. Quinn and I are happy with this calculation? A. Yes. Q. So you had looked at it and you were satisfied that it was correct? A. I was happy because it had been a long time. I was frustrated and I was paying interest on his debt. Q. You don't say that in this email do you? A. I was trying not to be confrontational.
10. The factors pointing to the parties having reached an agreement that the defendant would pay an additional $25,000 if she exercised the Option to purchase the one-sixth share from the plaintiff are: (1) the defendant did not expressly reject the suggestion made by the plaintiff in his email of 7 August 2013 that he recalled that she had verbally agreed to do so; (2) her understanding that the figures upon which Mr Featherstone proceeded included the additional amount that was paid to Mr To over and above the figure that she and the plaintiff had agreed of $1.5 million; (3) her lack of objection to such figures being included in the calculations; (4) her evidence that she understood in August 2013 that she was required to pay "in effect" $775,000 (tr 55); and (5) the plaintiff's affidavit evidence that the conversation occurred.
11. The factors pointing against such an agreement having been reached are: (1) the reference in the mediation report to the defendant's unwillingness to go above $750,000 for the purchase price of the one-sixth share in the Option Agreement; (2) the defendant's denial of the conversation; (3) the claim in the plaintiff's solicitors' letter of 4 June 2015 that the defendant had "subsequently acknowledged" that the "option price should have been $775,000" and the absence of any reference to the conversation of 18 August 2011 in that letter; and (4) the plaintiff's tentative evidence when first asked about the conversation in cross-examination.
12. The question of whether the agreement was reached on 18 August 2011 falls away on the repudiation issue by reason of the later correspondence between the parties, the defendant's acceptance in her evidence that she understood that the figures were based on the additional amount and her evidence that she agreed to pay the additional amount. I am not satisfied that the plaintiff's suggestion in his email of 7 August 2013 that he recalled that the defendant had "verbally agreed to contribute" this amount was repudiatory conduct. However even if the plaintiff's request for the additional $25,000 evinced an intention not to be bound by the Option Agreement the defendant accepted that she would pay it in the circumstances then under discussion, namely the two stage process of buying the one-sixth share and then the remaining 50 per cent share in the Pharmacy.
13. I am not satisfied that the defendant has established that the plaintiff repudiated the Option Agreement by the additional $25,000 Conduct.

The Stamp Duty Conduct

1. The defendant's claim in respect of the plaintiff's demand to pay a half share of the Stamp Duty was also the subject of cross-examination in relation to Mr Featherstone's calculations. Her evidence included the following (tr 59): Q. As you understood this calculation, you are being asked to pay half of the stamp duty figure paid by Mr On in relation to the one-third interest. So you were being asked to pay half of 66,970? A. Yes, I was. Q. And you agreed with that, didn't you? A. Yes, I did.
2. At a later point in her cross-examination the defendant gave the following evidence in respect of the $108,485 cash component that was referred to in the draft Deed of Sale for the one-sixth share in the partnership (tr 63-64): Q. You will agree that it was the same figure that had been calculated by Mr Featherstone back in August 2013 that we looked at earlier? A. Yes. Q. And it included - I think you have agreed, that figure had embedded in it you paying one half of the $1.55 million figure? A. It did. Q. And it had you paying one half of the stamp duty? A. It did. Q. That is what you agreed with at August 2013, correct? A. I did. Q. You also agreed as at 4 October 2014, correct isn't it? HER HONOUR Q. That's the date of the agreement. A. Okay, yes.
3. The parties were continuing to negotiate various alternatives. One alternative was for the defendant to purchase the one-sixth share in the partnership so that she and the plaintiff would operate the partnership on an equal basis. Another alternative was that the defendant would proceed in two stages: the first stage was to purchase the one-sixth share from the plaintiff to bring her share up to fifty per cent of the partnership; the second stage was to purchase the remaining fifty per cent from the plaintiff to become the outright owner of the Pharmacy. There were obviously other discussions which included the plaintiff offering to buy the defendant's share in the partnership.
4. I am not satisfied that the plaintiff's request for the defendant to pay fifty per cent of the stamp duty evinced an intention to no longer be bound by the terms of the Option Agreement. The figures that were calculated were in the confines of the alternatives referred to above and in any event the defendant candidly admitted in cross-examination that she agreed to pay this amount.
5. I am not satisfied that the defendant has established that the plaintiff repudiated the Option Agreement by the Stamp Duty Conduct.

Refusal to complete without new Partnership Agreement

1. The plaintiff was cross-examined in relation to the draft Deed of Sale proposed in early October 2014 which included the consideration of $808,485. He agreed that that figure was much higher than the claim that he now makes for $775,000 and certainly higher than the figure in the Option Agreement of $750,000 (tr 31). He gave the following evidence in cross-examination (tr 32-37): Q. When you got this agreement you didn't sign it, did you? A. Not immediately, no. Q. Not at all? A. Not at all, yeah. Q. You certainly have not sent a copy of that agreement back to her at any stage? A. No. Q. This agreement was sent to you on 1 October 2014 if you go to page 358? A. Yes. Q. On 9 October Ms Gore said to you that she wanted to settle the sale whether or not Frank had sent anything? A. Yes. Q. And that was a reference to Mr Sirianni? A. Correct. Q. Mr Sirianni was preparing documents to assist in some changes to the partnership agreement? A. Correct. Q. And Karen didn't want to wait for those documents to be finalised before she, before you settled on the sale of the sixth interest? A. Correct. Q. She had signed by then at that stage a counterpart copy of that deed? A. Yes. Q. And she told you that she provided it to the solicitor? A. Kate, yes. Q. But you didn't provide any counterpart to her, did you? A. No. Q. In fact you said on 12 October that you wanted to wait until the changes to the partnership were okay? A. Correct. Q. And it was only until those changes were okay that you would sign the document transferring the interest and send it back to Kate? A. Yeah. I preferred the agreement and the contract to be done together, yes. Q. Until the second one was done, that is until the changes in partnership agreement were agreed, you weren't going to be transferring the one-sixth interest, were you? A. At that point, no. Q. In taking that position, was there any part of the option agreement that [you] were relying on? A. No. Q. That was a decision that you had taken for yourself? A. No, it was always agreed that we had to do the partnership agreement and Karen did raise it in 2011, 2012, 2013, where she would like to have the partnership agreement so we worked on it. Q. That wasn't a precondition to completing the option? A. It was never a precondition, it was something we were working towards. Q. You were saying in October 2014 you wouldn't transfer the interest until that was settled? A. Because I would prefer having it done together. HER HONOUR Q. Do you agree that is correct? A. Yes. ROSE … Q. On 20 October Karen had said to you, Ms Gore had said to you that she still wanted to proceed with buying the one-sixth interest as soon as you can? A. Yes. Q. And she suggested that partnership agreement can be prepared at the same time? A. Yes. Q. That the sale is finalised? A. Yes. Q. Rather than waiting on the partnership agreement and then finishing the sale after that is done. She said that to you? A. Yes. Q. And you disagreed with that? A. Yes. Q. In fact, even on 22 October you were saying that once the partnership agreement was finalised and you both agree on the terms, then you can finish the sale. Didn't you? A. Yes. Q. At that point again you still had no intention to transfer the one-sixth interest without the partnership agreement being changed? A. Yes. Q. On 24 October 2014 you had a telephone conversation with Ms Gore? A. Yes. Q. And during that conversation she said to you that she really wanted to set a date for settlement of her purchase? A. Yes. Q. And she said that she didn't agree that it needed to be delayed for the new partnership agreement? A. Yes. Q. And you said to her that you are not prepared to do the transfer until there is a new partnership agreement? A. No. HER HONOUR Q. Is that what you said or not? A. Not to those words. ROSE Q. In words to that effect, you said that you would not finish the transfer until there was a new partnership agreement in place? A. Not in those words, no. Q. What words do you say you used? A. I would have said "The partnership agreement is coming. We have spent so much time with Frank Sirianni it could have been about five or six months, all we had to do was -- HER HONOUR Q. You are being asked what you said. A. I said, "All we had to do was put those notes from Frank Sirianni into the partnership, then we can sign the two together at the same time - because we had spent so many months -- Q. Did you say this to her? A. Yes, I did. I said, "We spent so much time doing it, do it together. So much chopping and changing over the two years, I wanted to stay as partners, it is good to have a partnership agreement in place, then we can have a smooth partnership moving forward". ROSE … Q. Well no partnership agreement had been changed up to today's date? A. No. Q. And, in fact, no agreement has been reached between you and Karen about changing the terms of the partnership? A. It was always in discussion, that is why we had Frank, yes. Q. Until those discussions were finalised, you were not prepared to transfer the one-sixth share of the option, under the option, were you? A. I was always willing to transfer the one-sixth, I just wanted to do it together so we can have a better relationship, so we can have a better understanding of each other's job descriptions. Q. But the option agreement didn't provide for that, did it? A. This one would have, yes. HER HONOUR Q. The option agreement did not? A. Oh, the option, no. ROSE Q. That was a decision you were making for yourself? HER HONOUR Q. Do you agree with that? A. Yes.
2. The plaintiff refused to complete the sale of the one-sixth share in accordance with the Option Agreement and imposed a condition that he would not complete the sale unless and until the new Partnership Agreement was finalised. I am of the view that such conduct evinced an intention not to be bound by the Option Agreement. However the defendant continued to treat with the plaintiff in respect of the purchase of the one-sixth share and then the purchase of his remaining fifty per cent share. It is not clear why the defendant allowed the matter to drag on in the way that it did. It is clear that it was frustrating for her but the fact of the matter is she exercised an Option and allowed the process to continue as it did without seeking some form of enforcement of her entitlement under the Option Agreement. At the time the plaintiff imposed the condition on completion, the defendant did not claim that his conduct was a repudiation of the Option Agreement. Indeed the defendant subsequently imposed a condition that the completion occur at the time of the finalisation of the 2013/2014 "financials".
3. The defendant's affidavit evidence was that after the conversation on 27 November 2014 she regarded the Option as being "rejected" and that she did not press it further (see [66] above). The difficulty for the defendant's claim in this regard is that two months later, on 27 January 2015, her solicitors wrote to the plaintiff's solicitors accepting that the parties would not have a binding contractual relationship in respect of the purchase of the Pharmacy until they signed a contract, but requiring an acknowledgement that there was the "existing exercised option".
4. Although the defendant claimed in these proceedings that she had accepted the plaintiff's repudiation of the Option Agreement in her solicitors' letter dated 20 July 2015, its contents do not support this claim. There are numerous claims made in that letter including that the defendant was estopped from seeking to rely upon the Option Agreement and that the Option Agreement had been waived by mutual agreement. However there was no claim that the plaintiff's conduct amounted to a repudiation of the Option Agreement or that such repudiation was accepted.
5. When the plaintiff improperly imposed a condition on the completion of the sale of his one-sixth share in the partnership, the defendant was entitled to treat such conduct as a repudiation of the Option Agreement. The defendant did not do so and I am satisfied that she elected to continue the process accepting the plaintiff's condition.
6. In any event, on 4 June 2015 the plaintiff, through his solicitors' letter of that date, resiled from his previous demand that the new Partnership Agreement be finalised before completion of the sale of his one-sixth share in the partnership. In that letter the plaintiff's solicitors requested the completion of the sale by 30 June 2015.
7. The defendant's claim that she accepted the plaintiff's repudiation of the Option Agreement fails.

Abandonment

1. In support of the defendant's contention that the parties abandoned the Option Agreement, reliance was placed upon the following passage of Isaac J's judgment in Summers v Commonwealth (1918) 25 CLR 144 at 151-152: Whatever the terms of a contract may be, it is possible for the parties so to conduct themselves as mutually to abandon or abrogate it. A position not altogether dissimilar arose in the case of De Soysa v De Pless Pol. There, neither party had repudiated or refused to perform the contract, nothing in the nature of rescission had occurred, but, said Lord Atkinson for the Privy Council [(1912) AC at 202]: - "one party to a contract is not bound to give to the other unlimited time after a day named to do that which the other has contracted to do. There must be some point of time at which delay or neglect amounts to refusal. … In truth, the projects seem to have been to a great extent, if not altogether, abandoned by all the parties concerned". In my opinion, that is the legal position here. Informally, but effectively, the parties have so acted in relation to each other as to abandon or abrogate the contract.
2. The defendant also relied upon the following passage of Finkelstein J's judgment in CGM Investments Pty Ltd v Chelliah [2003] FCA 79; 196 ALR 548 at [18]: In my view, the authorities to which I have referred establish not only that an agreement can be abandoned by conduct, but also that the question whether an agreement has been abandoned does not require one to examine whether the parties actually had the intention of abandoning the agreement; only whether their conduct, when objectively viewed, manifests that intention.
3. Although that judgment was reversed on appeal, this statement of principle was not criticised: Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279.
4. The defendant submitted that viewed objectively the parties' conduct in the period between 6 November 2012 and 4 June 2015 manifested an intention to abandon the Option Agreement. It was submitted that the proposed sale of the two-thirds interest in the partnership business to the defendant was inconsistent with a sale of a one-sixth interest in the partnership under the Option Agreement.
5. The plaintiff was cross-examined about the proposed sale of the Pharmacy to the defendant based on the $2.8 million price. It was suggested to the plaintiff in cross-examination that in this proposed process the defendant was not required to first purchase the one-sixth share to bring her to an equal share of the partnership before the apportionment of the parties' respective interests on the basis of a figure of $2.8 million. The plaintiff gave the following evidence in cross-examination in relation to this aspect of the matter (tr 40-42): Q. That is the price that you were offering to sell your remaining interest in the partnership to Ms Gore for, at that time? A. Yes, but it doesn't really take into consideration the option one-sixth and 50 per cent. HER HONOUR Q. I beg your pardon? A. That was an error in terms of - Q. You say it was an error? A. Yes. ROSE Q. But nevertheless it was an error that was communicated to Ms Gore? A. Yes. Q. On several occasions, at least three? A. I believe so, yes. Q. That you were offering to sell your two thirds interest to her for $2.8 million? A. Yes, apportioned, based on 2.8 million. Q. For 2.8? A. Yes, after the one-sixth option but that was never mentioned in there. … Q. At that time you still had with you a copy of a deed of transfer of partnership interest for a one-sixth interest for a price of 808,000 and something? A. Yes. … Q. You didn't sign that document? A. To say I transferred one-sixth no. Q. You didn't say to her or her solicitor that you were ready to transfer the one-sixth? A. No. Q. For 750,000 or 775,000 or any price? A. No I didn't, no. Q. The whole thing had been subsumed by these negotiations to sell your remaining interest in the partnership? A. Yes.
6. The defendant submitted that the Option Agreement was abandoned when it was subsumed into the discussions about the purchase of the whole Pharmacy for $2.8 million. The reference to the "whole thing" in the last question and answer in the evidence extracted above is a reference to the fact that the plaintiff did not expressly advise the defendant that she had to complete the first stage to which Mr Featherstone had referred in his calculations. However Mr Featherstone's correspondence made it very clear that this was a two stage process. The first stage was that in which the plaintiff sold his one-sixth share to the defendant pursuant to the exercise of the Option. The second stage was the process of selling fifty per cent of the Pharmacy once the parties were equal partners in the Pharmacy.
7. As I have said above, the defendant made it very clear through her solicitors' letter of 27 January 2015 that whilst negotiations continued for the sale of the whole Pharmacy and the parties would not be bound until a contract for that sale was executed, it was necessary to acknowledge the "existing exercised option".
8. The defendant has not established that the parties abandoned the Option Agreement.

Other matters

1. I should return to the question of the defendant's obligation to pay to the plaintiff an amount of either $750,000 or $775,000. As I said earlier there are a number of factors in support of and against a finding that the parties reached an agreement on 18 August 2011. I did not decide that question earlier because the defendant's concession in relation to her willingness to pay that extra amount during the course of later negotiations meant that her repudiation claim failed. However it is appropriate now to consider whether that agreement was reached for the purpose of deciding the amount to which the plaintiff is entitled in respect of the defendant becoming a fifty per cent shareholder in the partnership. That will affect the process of the dissolution of the partnership and the taking of accounts.
2. The mediation report is powerful evidence in favour of the defendant's denial that she reached such an agreement at that meeting. I take into account the plaintiff's claims in his email of 7 August 2013 and the plaintiff's response. However the plaintiff's tentative evidence in cross-examination that it was "hard to say" whether the conversation had happened, but he thought "it may have" occurred, combined with the absence of any mention of such agreement in his solicitors' letter of 4 June 2015 (and only a reference to it being "subsequently acknowledged" that the fee should have been $775,000) leads me to conclude that, on balance, I prefer the defendant's evidence. I am satisfied that the parties did not reach such an agreement on 18 August 2011.
3. The defendant was willing to proceed with the negotiations for the purchase of the whole Pharmacy in a two-stage process on the basis of Mr Featherstone's calculations which were based on the higher purchase price of $1.55 million. The circumstances are now very different. The parties have asked the Court to determine whether the exercise of the Option was valid in circumstances where the partnership is to be dissolved immediately after the relevant declaration is made.
4. The plaintiff's case as pleaded was that the defendant reached an agreement with him to pay the additional $25,000 at the meeting on 18 August 2011 (paragraph 7A of the Amended Statement of Claim filed in Court on 2 June 2016). It is on that basis that the plaintiff claimed that he was entitled to $775,000 rather than $750,000. I am not satisfied that the plaintiff has proved that such an agreement was reached as pleaded. The Option fee as agreed to by the parties was $750,000.
5. The plaintiff also seeks an award of interest on the Option fee from the expiration of the time that he stipulated for the completion of the sale, 30 June 2015. The plaintiff delayed the completion of the sale for years. When the defendant produced a signed Deed of Sale in October 2014, the plaintiff imposed a condition on the completion of the sale that delayed the process even further and then moved into negotiations for the sale of the whole Pharmacy. The defendant waited for the plaintiff to comply with his obligations under the Option Agreement with extraordinary tolerance. It is an unimpressive claim for interest in circumstances where, after abandoning his demand for a new Partnership Agreement, the plaintiff demanded the completion of the sale within three weeks in June 2015. The parties were then in dispute and planned to proceed to arbitration before coming to Court. The whole process in the Court has been concluded in four months. I am not satisfied that an award of interest should be made in these circumstances.
6. There was also evidence that the defendant was paying part of the interest on the loan that the plaintiff obtained from the partnership to purchase Mr To's share. However that is a matter that should be brought to account in the process of the distribution of the assets of the partnership.

Specific performance

1. The plaintiff's claim for specific performance was first introduced at the hearing when he was granted leave to file the Amended Statement of Claim in Court. Prior to that amendment the only relevant order sought was that the defendant pay to the plaintiff $750,000.
2. The defendant submitted that the plaintiff's claim for specific performance is wanting because there is no claim that he is ready, willing and able to perform his obligations under the Option Agreement by transferring the subject property (the one-sixth share in the partnership) to her. It is true that there is no such claim in the pleading. However the plaintiff gave some very general affidavit evidence (admitted over objection) that he is "ready, willing and able to complete the exercise of the defendant's Option". There was no evidence as to the steps the plaintiff was willing and ready to take to cause the transfer of the one-sixth interest in the partnership to the plaintiff. The plaintiff's evidence in this regard included a claim that he "never suggested that the completion of a new Partnership Agreement was a pre-condition for the completion of the exercise of the option by the Defendant" (affidavit 31 May 2016; par 20). This claim is unsustainable having regard to the plaintiff's email of 22 October 2014, his evidence in cross-examination extracted earlier (tr 32-37) and the defendant's evidence, which I accept, that on 24 October 2014 the plaintiff informed her that he was "not prepared to do the transfer until there is a new partnership agreement".
3. The defendant also submitted that there is no utility in making a specific performance order in circumstances where the parties have agreed to dissolve the partnership immediately consequent upon the outcome of this aspect of the proceedings.
4. The real purpose in having the Court determine the question as to whether the defendant had validly exercised the Option was to enable the parties to have certainty about their respective shareholding and to then effect the appropriate distribution to the partners on the dissolution of the partnership. The Option to purchase the plaintiff's one-sixth interest in the partnership had to be (and was) exercised before 31 December 2012. Once the Option was exercised it was necessary to do some act or take some steps to cause the plaintiff's one-sixth interest in the partnership to be transferred to the defendant. As part of that process the defendant signed the Deed of Sale in October 2014 for the further one-sixth "interest in the Business including goodwill, plant furniture and fittings" that required her to pay only $108,485 of the total consideration of $808,485, with the balance being brought to account in a transaction which involved a mortgage in favour of ANZ so that "both partners have equal liability for all outstanding monies over the Business".
5. The plaintiff now seeks an order that the defendant "specifically perform the Option and pay" him "$775,000 (plus interest) pursuant to the Option". The plaintiff has not proposed the steps that should be taken to cause the transfer of the one-sixth interest, nor has he suggested that he would sign any particular Deed of Sale.
6. It is important to enable the parties to conclude their relationship by the dissolution of the partnership as agreed. If the order for specific performance sought by the plaintiff were to be made there would have to be some form of Deed or Agreement entered into by the parties, obviously different from the terms of the Deed of Sale that the defendant signed in October 2014 for the payment of a different amount and the execution of a mortgage. At this stage when the parties' relationship has become dysfunctional and they are on the verge of the dissolution of their partnership it would not be efficacious or fair for the Court to impose an order that they enter into a mortgage so that they "have equal liability for all outstanding monies over the Business". The most appropriate course in the circumstances is to make the declaration but to refuse the order for specific performance as sought in the Amended Statement of Claim. This will enable the parties to proceed with certainty as to their respective equal entitlements in the partnership bringing to account the various amounts owed by each (including $1.1 million by the plaintiff and $750,000 by the defendant) when the assets are distributed.

Conclusion

1. I make the following declaration and orders:
2. The defendant validly exercised the Option pursuant to the Option Agreement dated 18 August 2011 to purchase the plaintiff's one-sixth share in the partnership operating the Illawong Pharmacy for the agreed price of $750,000.
3. The plaintiff's application for the order in paragraph 2 of the Amended Statement of Claim is dismissed.
4. If the parties are unable to agree on a costs order they may file submissions with my Associate by no later than 28 July 2016. The issue of costs will be dealt with on the papers unless the parties seek to have the matter relisted for argument prior to 28 July 2016.

Amendments 11 July 2016 - typopgraphical error within quote DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 July 2016