HEARD & ANOR v. KELL & ORS [2001] NSWSC 455

New South Wales Supreme Court

CITATION : HEARD & ANOR v. KELL & ORS [2001] NSWSC 455 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1325/01 HEARING DATE(S) : 23.05.01 JUDGMENT DATE : 5 June 2001

PARTIES : Malcolm John Heard and John Erin McEwan - Plaintiffs Peter George Kell, Roger John Downs, David Wilfrid, Burrows, Paul Alexander Kean, David Laurence Potts, Peter Chodat and Paul Dante Magagnino - Defendants JUDGMENT OF : Bryson J at 1

COUNSEL : P.J. McEwen S.C. & P.A. Fury - Plaintiffs J.S. Wheelhouse - Defendants SOLICITORS : Heard McEwan Lawyers Kells The Lawyers CATCHWORDS : PARTNERSHIP - dissolution - written agreement for dissolution provided for split advertisement in priority position in Yellow Pages to which the old partnership was entitled under practices of publisher - agreement "Subject to Yellow Pages approval" split advertisement published in 2000 YP and publisher's approval withheld for 2001 YP - on the construction of the dissolution agreement, the majority were entitled to the priority and the minority were not entitled to share in the absence of publisher's approval - decision on terms of dissolution agreement. CASES CITED : _ DECISION : Give judgment for the defendants with costs.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BRYSON J.

TUESDAY 5 JUNE 2001

1325/01 MALCOLM HEARD & ANOR v. PETER GEORGE KELL & ORS

JUDGMENT 1 HIS HONOUR: The parties are nine former members of the solicitors' firm "Kell Heard McEwan" (KHM) which carried on practice at Wollongong and in surrounding areas for many years until they dissolved the firm on 21 May 1999. Thereafter the plaintiffs Mr Heard and Mr McEwan carried on practice also in Wollongong and surrounding areas under the firm name "Heard McEwan" (HM) and Mr Kell and six others carried on practice as "Kells the Lawyers" (KTL). The parties made two agreements dated 30 April 1999, entitled "Heads of Agreement (Finance)" and "Heads of Agreement (Procedure)". Heads of Agreement (Finance) set out the financial considerations and method of payment for the acquisition in cl.1 of Heads of Agreement (Procedure); it provided for collection and distribution of work-in-progress over 18 months and for a large amount as an assured minimum to be paid to HM; and also provided for a cash payment of a different large amount to HM on 21 May 1999 which was the completion date. Heads of Agreement (Procedure) established the terms and conditions for which the money and consideration in the Finance agreement were given. Stated in a broad way, the assets including goodwill and the business organisation passed to KTL on completion, the payment in the Finance Agreement was to be made to HM, and practical arrangements were made for all to cease to use the old business names, to allocate premises, staff, client files, business files and records, accounts, and other consequential provisions. 2 One of the assets of KHM was the commercial opportunity represented by dealings which had taken place since about 1984 with the publishers of the Yellow Pages telephone directory for Kiama, Shell Harbour and Wollongong. The identity of the publisher had changed but the publisher's practices and organisation had been continuous. In 1999 and since the publisher has been Pacific Access Pty Ltd (PA). At the section of the Yellow Pages with entries for solicitors KHM published a display advertisement in each annual issue from about 1984 onwards, under an oral arrangement originally made with Mr Duncan Coulton on behalf of the then publisher. Under this arrangement the KHM advertisement was the second advertisement appearing in the display section, and this was a very prominent position. Mr Coulton gave an assurance that if KHM took out a display advertisement it would have the second position and the KHM display advertisement would be on the first page of the Solicitors section or would be otherwise prominent. The second ranking was always maintained. The parties value this ranking highly and regard it as adding greatly to the effectiveness of the advertisement. It is difficult to suppose that KHM had a contractual right to maintain this position which it could enforce against the publishers of the Yellow Pages, but in fact the publishers were always willing, until the dissolution, to maintain the arrangement and the prominence of the advertisement, and contractual arrangements to lodge a display advertisement were made each year for the next annual edition of the Yellow Pages. It is difficult to define this commercial opportunity and it is not strictly accurate to speak of it as property or a chose in action, but the commercial opportunity should be regarded in equity as a partnership asset of KHM for purposes affecting the relationship of former partners among themselves; none of them could appropriate it and exclude the others from the opportunity while they were partners or on dissolution. I call this asset the advertising priority. 3 PA maintains rules called "Yellow Pages - Advertising Rules" which are incorporated in its contractual relations with advertisers by printed Clause 8 on the back of its Contracts. The Advertising Rules 1999 applied to contracts for the 2001 Yellow Pages. The Rules deal with priority of the kind which KHM's display advertisements received. The passages in the Rules which PA has relied on are these: