New South Wales Supreme Court CITATION : Laidlaw v Hillier Hewitt Elsley Pty Ltd [2007] NSWSC 727 HEARING DATE(S) : 2-3 July 2007 JUDGMENT DATE : 6 July 2007 JURISDICTION : Equity Division JUDGMENT OF : Rein AJ DECISION : See [77]-[78]. CATCHWORDS : Partnership dissolution - whether treatment of goodwill was the subject of a binding agreement precluding further claims by one of the former partners - issue of effect of agreement determined to have been reached - how plant and equipment to be valued Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC 319 Re Bird Precision Bellows Ltd [1986] Ch 658 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 Burton v Wookey (1822) 6 Madd 367; 56 ER 1131 Eastman v Director of Public Prosecutions (ACT) (2003) 214 CLR 318; [2003] HCA 28 Elmslie v Federal Commissioner of Taxation (1993) 46 FCR 576; 118 ALR 357 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 CASES CITED : Giumelli v Giumelli [2003] WASC 259 Re Golden Bread Pty Ltd; Queensland Co-operative Milling Association v Hutchison [1977] Qd R 44 GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 Masters v Cameron (1954) 91 CLR 353 Melcann Ltd v Super John Pty Ltd (1994) 13 ACLC 92 Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 Watson v Foxman (2000) 49 NSWLR 315 Joanne Lee Laidlaw (Plaintiff) Hillier Hewitt Elsley Pty Ltd (ACN 003 965 651) (First Defendant) PARTIES : Paul Joseph Hewitt (Second Defendant) Edwin Hillier (Third Defendant) Scott Peter Elsley (Fourth Defendant) FILE NUMBER(S) : SC 5977/04 COUNSEL : P Bolster (Plaintiff) M Ashhurst, S O'Brien (Defendants) SOLICITORS : Verekers (Plaintiff) Hewitts (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Rein AJ 6 July 2007 5977/04 Laidlaw v Hillier Hewitt Elsley Pty Ltd & Ors JUDGMENT 1 HIS HONOUR: Mr Paul Joseph Hewitt ("Hewitt"), Mr Edwin Hillier ("Hillier") and Mr Scott Peter Elsley ("Elsley") operated an accounting practice at Cessnock known as Hillier Hewitt Elsley, through a company Hillier Hewitt Elsley Pty Ltd ("the Company"), in which they owned equal numbers of shares. Mr M Ashhurst of counsel appears for the Company and the other three defendants. 2 The plaintiff, Joanne Lee Laidlaw ("Laidlaw"), for whom Mr P Bolster of counsel appears, bought into the practice for a 50 per cent share of the accountancy business operated by the Company until 1 July 1999 and commenced partnership with the Company trading under the name Hillier Hewitt Elsley, with effect from 1 July 1999. 3 On 23 February 2004 Laidlaw gave notice that she wished to resign immediately from the partnership but stating that this would take effect on 24 August 2004. There was some confusion on her part as to the effect of her notice (and in its terms) but because the Company was the only other partner, the effect of her notice was that the partnership was brought to an end. By agreement it is accepted that the partnership was dissolved on 31 March 2004. 4 The deed of partnership makes provision for dissolution and sets out in detail what is to occur (clause 24). Although there was a period of time in which Laidlaw threatened to seek appointment of a receiver of the partnership to facilitate sale, that is no longer sought or pressed. 5 Clause 24 of the Partnership Agreement was in the following terms: " 24. WINDING UP OF THE PARTNERSHIP 24.1 Where the Partnership is terminated, then within 12 weeks of the date of termination of the Partnership, a general account shall be taken of the assets and liabilities of the Partnership and the assets (including, but not limited to, the Business and its goodwill) shall be realised and sold and in settling accounts between the Partners the following rules shall, subject to any contrary agreement between the Partners, be observed: (a) losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the Partners individually in the proportion which they are entitled to share profits; (b) the assets of the Partnership, including the sums, if any, contributed by the Partners to make up losses or deficiencies of capital, shall be applied in the following manner and order: (i) in paying the debts and liabilities of the Partnership to persons who are not members of the Partnership; (ii) in repayment to each Partner (pro rata if necessary) of any actual payment or advance made by a Partner; (iii) in payment to each Partner (pro rata if necessary) of the final balance of his Current Account; (iv) in repayment to each Partner (pro rata if necessary) the balance of his Capital Account; and (v) the balance, if any, remaining after the above amounts have been paid in full shall be divided between the Partners in the same proportions as they were entitled to share in the profits of the Partnership immediately prior to the termination of the Partnership. 24.2 Each Partner shall sign all such documents and do all such acts as are reasonably required in connection with the winding up of the Partnership." 6 At the commencement of the hearing it was agreed that there were five issues relevant to the final adjustment between the partners, ie: (1) goodwill; (2) work in progress; (3) treatment of employee entitlements; (4) plant and equipment; (5) debtors. 7 Issues (2), (3) and (5) have been resolved and it is agreed between the parties that in respect of these items an adjustment will need to be made in favour of the plaintiff (a) in the amount of $16,304 for work in progress and debtors and (b) an amount of $9565 in respect of employee entitlements. This leaves then the goodwill issue and the plant and equipment issue. Goodwill 8 Laidlaw relies on paras 101-107 of the affidavit of Laidlaw of 27 October 2004, the affidavit of 1 July 2007 of Ms Katelin Jane Turner ("Ms Turner"), a solicitor employed by Verekers, Laidlaw's solicitors. The Company relied on the affidavit of Hewitt of 27 June 2007 paras 1-13 inclusive, and of Phillip Hewitt of 2 July 2007 (Hewitt's brother and solicitor). There was tendered by consent a bundle of documents (Exhibit "B") which contains Volume 1 of the defendants' tender bundle and those documents from the Exhibit "KJT-1" to Ms Turner's affidavit, upon which Laidlaw wanted to rely and which were not included in the defendant's tender bundle. 9 I was assisted by a summary of the evidence in Mr Ashhurst's written submissions, which except in minor respects (and which I have incorporated) was accepted by Mr Bolster as correct and which I set out in [10]-[15] below. 10 Prior to May 2004 Laidlaw was maintaining that she was entitled to appoint a receiver over the partnership assets for the purpose of having those assets sold and stating that it was her intention of doing so (Tabs 43, 47, 48 and 53 Exhibit "B"). On 19 May 2004 the Company suggested an alternative proposal to the sale of all assets being a proposal whereby the "fees" (clients) that neither party wished to retain would be identified and sold (Tab 54 Exhibit "B"). The Company requested a "maintenance fee" for servicing these clients until they were sold. By letter of 24 May 2004 (Tab 55 Exhibit "B") the solicitors for Laidlaw agreed to this proposal subject to certain matters which were: (i) The Company would not be paid any maintenance fee however Laidlaw would forgo her entitlement to be paid for any work performed after 31 March 2004 and the Company was entitled to any fees earned after this date; (ii) The fees being sold must closely approximate 50% of the gross fees available; (iii) The defendants to enter into restraints against soliciting former clients; (iv) Liabilities of the partnership to be dealt with in accordance with clause 24 of the partnership agreement; and (v) A final adjustment in respect of plant and equipment. 11 The Company agreed to the additional matters raised by Laidlaw (Tab 56 Exhibit "B") subject to the plant and equipment issue being determined by the parties in accordance with the Company's letter of 5 May 2004. 12 On 7 and 9 June 2004 (Tabs 57 and 58 Exhibit "B") the first defendant provided a proposed list of the "fees break-up". 13 On 11 June 2004 the solicitors for Laidlaw contended that the proposed break-up was not "50/50" (Tab 59 Exhibit "B"). This complaint was repeated in their letter of 17 June 2004 (Tab 62 Exhibit "B"). It was suggested in this later letter that these issues could be resolved at a without prejudice meeting. 14 The without prejudice meeting was held on 21 June 2004. On 22 June 2004 the solicitors for Laidlaw wrote that the meeting had not been successful. They considered that there was no agreement between the parties as to the distribution of the value of the goodwill of the partnership and that the fees should be sold (Tab 64 Exhibit "B"). It was also suggested in this letter that a business broker may be retained to ease the financial burden on the Company in having to maintain and sell the fees. 15 On 30 June 2004 a Mr David Doberer offered to purchase a parcel of the partnership fees for up to $100,000 (Tab 66 Exhibit "B"). 16 The letter of 1 July 2004 from Verekers to Hewitts (Tab 67 Exhibit "B") stated inter alia: "Our client is concerned that the actions and omissions of your client are having a materially detrimental and irreversible effect on the value of our client's partnership entitlement. We are instructed to put the following proposal regarding our client's entitlement to goodwill in the partnership: 1. Our client will take over the service of the clients on her client list as prepared by HHE for the meeting on 21 June 2004 ("the List"), including the $100,000 worth of fees intended to be sold in two $50,000 instalments to Mr Doberer, but excluding the Cessnock & Kurri Masonic Retirement Villages and Sundry Tax clients (valued by your client at $100,000). 2. In order to service the List, our client will require: (a) All client files, including all electronic records, in respect of clients set out in the List. (b) The computer our client most recently used at the partnership offices ("the Computer") (c) An amount of $30,000 to be paid by 31 July 2004, which amount includes the costs which our client will incur to set up her business and in order for her to obtain replicate Microsoft and Solution 6 software licences for the computer programs which are currently installed on the Computer. Such amount will be an advance on our client's entitlement under clause 24 of the Partnership Agreement. (d) Two of the desks, one credenza and 3 of the filing cabinets which were recently purchased by the partnership. (e) Access to the HHE computer system by Solution 6 staff for the transfer of client details for clients set out in the List to the Computer. (f) Access by our client to HHE client information regarding clients set out in the List, such as banklink data, until 31 July 2004. (g) A letter to be sent in a form prepared by this office to be signed by all partners of the partnership notifying all clients on the List of the transfer of their work to our client. (h) Provision by HHE of references and statements in respect of our client's employment history with the partnership for the purposes of our client's applications in respect of certification as a tax agent and registered company auditor. (i) Transfer of audit engagements for clients set out in the List from Paul Hewitt to our client, to be effected after such time as our client has obtained her certification as an registered auditor, or, in lieu of our client obtaining such certification 30 September 2004, to a registered auditor nominated by our client. Until such transfer, Paul Hewitt will continue to sign off audit reports prepared by our client for clients set out on the List after our client has endorsed their correctness. (j) Mutual undertakings provided by HHE and our client not to approach each other's clients for a period of 3 years." 17 On 8 July 2004, Hewitts responded saying that they had instructions to: "agree in principle with the contents of that letter [ie letter of 1 July 2004] except that: (i) Our client denies any actions or omissions materially affecting the value of your client's partnership entitlement; (ii) Any sum payable under 2(c) is dependant on funds being collected to the extent of $30,000 by 31 July 2004. Please submit a draft deed of dissolution and release for consideration." I shall refer to the qualification in (ii) as the "only if funds collected" qualification. 18 On 9 July 2004 Ms Turner telephoned Mr Phillip Hewitt and enquired whether payment of the $30,000 (referred to in para 2(c) of the letter of 1 July) was likely to be a problem (see para 9 of Ms Turner's affidavit and the evidence of Mr Hewitt at T40.45-51). Mr Hewitt, according to Ms Turner responded: "There shouldn't be a problem with the payment of $30,000 to Jo, but we'll need to get the Deed in place first. Are you going to put a draft together that we can work from?" 19 Ms Turner says that she replied: "You want me to prepare the Deed? Right I'll get instructions about that." 20 Hewitt says that he has no recollection of having said the words attributed to him by Ms Turner. 21 On the same day, Ms Turner contacted her client and obtained instructions to prepare a deed. Ms Turner did prepare a deed and on 13 July she forwarded the draft to Mr Hewitt by letter of 13 July 2004 which was in the following terms: "Please find enclosed draft Deed of Dissolution of Partnership. We are instructed that our client has arranged for your client to send an email enclosing the client lists, which will be of assistance in the preparation of Schedules 1 and 2 to the Deed. We look forward to the same … Our client requests that Goanna Print be added to her client list as this client of the Partnership has now specifically requested that our client service it in future." 22 The draft deed enclosed was comprehensive dealing inter alia with warranties, stamp duty, GST and other matters of detail. In para 3(b) it noted that retention of the clients of the partnership set out in Schedule 1 would be "in full satisfaction of the entitlement of HHE Pty Ltd to the Goodwill on the dissolution of the Partnership" and there was a similar provision relating to Laidlaw and "the clients of the Partnership as set out in Schedule 4". 23 So far as the $30,000 advance was concerned it was dealt with in clause 4 of the draft. There was no qualification on the requirement to advance $30,000 on 31 July 2004. Clause 4(c) of the draft stated: "It is agreed that the advance and the items set out in Schedule 3 to this Deed will form part of Laidlaw's entitlement under clause 24 of the Partnership Agreement." 24 Recital F to the deed said: "The parties have been in dispute as to the date on which the Partnership dissolved and as to distribution of the Partnership assets and have agreed to resolve such dispute pursuant to the terms of this Deed." 25 On 13 July 2004 Mr Hewitt responded to Verekers' fax of 13 July, asking for an email version of the draft deed "for ease of proposed amendments" and Ms Turner did so on the same day. 26 On the same day, Mr Hewitt sent Ms Turner two lists of clients, one list being Laidlaw's clients and one list being the Company's clients (see Tab 69 Exhibit "B" – fax which suggests that this was in response to a call from Ms Turner). 27 On 14 July Mr Hewitt emailed a revised draft of the deed containing amendments with track changes (there was no change to clause 4). 28 On 15 July Ms Turner emailed another version of the deed saying that she had been instructed to agree to amendments as set out in the deed there enclosed. 29 On 16 July Verekers sent a letter to Hewitts in the following terms: "We refer to our email of 15 July 2004 enclosing further draft Deed. Please find enclosed draft Schedule 4 letter to the clients to be taken over by Jo Laidlaw. Our client is keen to collect the partnership files of the clients she will service from the Cessnock office, so that she may commence working on their matters on 20 July 2004. Please obtain instructions from your client regarding for our client to attend the Cessnock office to collect the files." 30 Shortly after that letter was sent, Hewitt on behalf of the Company handed over the client files which were listed as Laidlaw's clients in the letter of 1 July 2004. Any further adjustment of clients to which Laidlaw laid claim in the list annexed to the draft deed has apparently occurred without incident. 31 Hewitt also handed over to Laidlaw the computer that she had used in the partnership practice, two desks, one credenza and three filing cabinets from the former partnership's assets (see para 7 of Hewitt's affidavit). He did so, he says, "in response to the letter from Verekers", which he identified as the letter of 1 July 2004. He also granted Laidlaw access to the Company's computer system and client information. He also provided a letter of reference (see para 10 of his affidavit). 32 There followed correspondence between Verekers and Hewitts over a number of months in which further amendments to the deed were proposed and discussed, and which treatment of GST became the subject of dispute. Also the Company had sent accounts prepared for the former partnership as at 31 March 2004 and 30 June 2004 (the post dissolution period) which prompted criticism by Verekers in their letter of 20 August 2004 (Tab 77 Exhibit "B"). The letter ended with the following: "In the circumstances, the partnership is clearly in a position in which it could advance our client the amount of $30,000 as agreed. We confirm that the payment of this amount is a condition under which our client agreed to enter the Deed for the assignment of goodwill in the partnership. Our client requires this amount to be paid by bank cheque on exchange of Deeds." 33 There followed exchanges on 20 August 2004 and in September, but by October Ms Turner had instructions to commence proceedings. The deed was never executed. 34 In the course of comments made at the outset of the case the dispute about goodwill centred on whether or not a binding agreement had been reached in relation to it. The Company accepted that there had not been a binding agreement effected by the exchange of letters on 1 and 8 July 2004, but it submitted that what occurred on 16 July and shortly thereafter involving the implementation of various steps contained in the Verekers letter of offer and particularly the handing over of client files was consistent only with agreement having been reached on essential terms. Laidlaw contended that there was no binding agreement. 35 In the course of final submissions, Mr Ashhurst pointed to the defence to cross claim filed by Laidlaw and said that the defence essentially admitted that there had been agreement to the "only if funds collected" qualification ("the first admission"). 36 In the course of final submissions, Mr Bolster indicated that there was another issue which he wished to argue for the first time (see T75.35) and that was a claim that even if there had been a binding agreement reached (and he did not concede there had been) that agreement did not preclude a claim for goodwill under clause 24 of the Partnership Agreement, his argument being that the letter of 1 July 2004 did not offer any release of claims to an amount for goodwill and really should be viewed as an interim arrangement only, similar to that in place prior to that date where the Company maintained the clients: see T76-T77. 37 Mr Bolster sought leave to amend Laidlaw's defence to cross claim to remove the first admission to which Mr Ashhurst had referred. His amendment if granted would also remove an impediment to the argument to which I have referred in [36] above, namely para 11(d) ("the second admission"): see MFI-1 which was the form of the amendment. 38 Mr Ashhurst objected to the amendment and its withdrawal of admissions but accepted that in relation to the question of the first admission he had not even been aware of it until late in the piece and there would be no prejudice in permitting the admission to be withdrawn. In relation to the second admission however he maintained his objection. 39 Mr Ashhurst contended that the amendment withdrawing the second admission should not be allowed because it was very late, sought to put in contest a matter that was not seriously in dispute and because the Company would be prejudiced since had that admission not been made and had the argument been clearly advanced his client could have mounted an estoppel argument. 40 I indicated that the appropriate course given the lateness of the application to amend was to deal with the issue of whether amendment should be allowed in this judgment, a course in which both counsel concurred. 41 The defence, cross claim and defence to cross claim, when looked at strictly, have a lack of precise correspondence to what I was informed on the first day was the real dispute between the parties on goodwill. The effect of the alleged agreement is not expressly pleaded either in the defence as a bar to Laidlaw's claim or the cross claim. The defence to cross claim seems to be inconsistent in its terms and the admissions are part of the difficulty. Subject to one matter, I think it is appropriate to permit Laidlaw to amend the defence to cross claim so that all issues between the parties in a long running and acrimonious dispute over a relatively small partnership and small amount of money can be finally determined. 42 The one qualification is that the contention of Laidlaw that even if there was a binding agreement, it was not one which ended the goodwill dispute, has led to an assertion by the Company that had it been made clear that this was asserted, an estoppel argument could have been advanced. Given that Laidlaw in her defence was understood to have denied a binding agreement (even if that is not what the defence clearly does) I have some difficulty in seeing why an estoppel argument based on the request for and handing over of the clients was not at all times available to the Company, and hence why it matters that Laidlaw now seeks to deny that if there was a binding agreement it had the effect of disposing of the issue of goodwill. As will be apparent from the balance of these reasons I do not regard the second argument now advanced by Laidlaw as having any substance and whilst that is itself a reason for refusing the amendment, I think the appropriate course is to permit the amendment in its entirety and permit Laidlaw to run both arguments. I will treat the statement of claim as having been amended in the form of MFI-1. 43 I should note that Mr Bolster, after completion of the hearing and without leave or the agreement of Mr Ashhurst, sent to my chambers written submissions dealing with the issue of the proposed amendment and dealing with stamp duty. Mr Ashhurst, who had been sent a copy of the submissions, points out correctly that Mr Bolster should not have done so (see Eastman v Director of Public Prosecutions (ACT) (2003) 214 CLR 318; [2003] HCA 28 at [27]-[30] per McHugh J, with whom Gummow J agreed at [32]). Mr Ashhurst however indicated that in the interests of saving time and costs he would not oppose the Court receiving the submissions, and he has responded to them. Some general principles 44 Counsel agreed that the law in relation to whether regard can be had to pre-contractual and post-contractual conduct of the parties in relation to the questions of construction of a contract and its formation was stated authoritatively by McHugh JA (as he then was) in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at 163-164 [24]-[27] as follows: "[24] The first relevant principle of law is that pre-contractual conduct is only admissible on questions of construction if the contract is ambiguous and if the pre-contractual conduct casts light on the genesis of the contract, its objective aim, or the meaning of any descriptive term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347–352. [25] The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed: Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669, 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9,147 at 9,149, 9,154–9,156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9,251 at 9,255. [26] The third relevant principle is that post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed. As explained by Priestley JA (Meagher JA agreeing) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326–330, the status of the relevant High Court authorities is unclear: hence unless it is demonstrated that the later decisions of the Victorian Full Court and Court of Appeal against admissibility, Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 and FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, are clearly wrong or they are overruled, they should be followed in New South Wales. No attempt was made to demonstrate that they are clearly wrong. [27] The fourth relevant principle is that the construction of a contract is an objective question for the court, and the subjective beliefs of the parties are generally irrelevant in the absence of any argument that a decree of rectification should be ordered or an estoppel by convention found. No argument of these kinds was advanced in this case." 45 In Masters v Cameron (1954) 91 CLR 353 at 360 consideration was given to whether a binding contract came into force notwithstanding the reference by the parties to formal documentation, and three classes were identified: (i) an intention to be immediately bound, all the terms having been agreed; (ii) agreement on all terms but performance conditional (wholly or in part) on execution of a formal document; (iii) no concluded agreement until execution of a formal contract; and in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 a fourth class was accepted following Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 317 per Knox CJ, Rich and Dixon JJ, ie: (iv) agreement as to essentials but it being contemplated that by agreement additional terms would be added later. 46 Categories (i), (ii) and (iv) give rise to a binding contract but (iii) clearly does not. 47 It was conceded by Mr Ashhurst that the letter of 8 July 2004 from Hewitts could not be construed as an acceptance because it was in effect a counter offer, but he submitted that what happened shortly thereafter changed matters dramatically. He relied on the decision of Brereton J in Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC 319. 48 In Azzi, Brereton J cited the words of McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117 in the following terms: "… It is an error 'to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed'. … Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. … The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract …" 49 Brereton J went on to say: "In many commercial situations, it can be seen that there is a contract, although it may be difficult to analyse at precisely what point in time there was an exact correspondence of offer and acceptance [ Rosser v The Maritime Services Board of NSW (No 2) , p 8]. In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, Heydon JA (at 177 [74]) acknowledged that recognition had been given to the possibility of finding that contracts exist even though it is not easy to locate an offer or acceptance, referring with apparent approval to the judgment of Ormiston J in Vroon , and to that of the Court of Appeal in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 – in which McHugh JA, with whom Samuels JA concurred, said (at 535) that where an offeree with a reasonable opportunity to reject an offer of goods or services took the benefit of them under circumstances which indicated that they were to be paid for in accordance with the offer, it was open to hold that the offer was accepted according to its terms – concluding (at 179 [81]): 'In the light of the above cases, it is relevant to ask: In all the circumstances can an agreement be inferred? Has mutual assent been manifested? What would a reasonable person in the position of the [Council] and a reasonable person in the position of the defendant think as to whether there was a concluded bargain?'" 50 In Azzi, the dealer claimed that Volvo had agreed to give him a five year dealership at the end of a one year interim arrangement. His Honour pointed to the delivery of cars by Volvo to the dealer and held the parties must have intended that there were binding long term obligations between them even though more formal documentation (the five year agreement) was contemplated. 51 Mr Ashhurst also relied on Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 itself, in which assent to a printed contract was inferred by reason of request for the performance of and acceptance of the services of a property consultant. 52 I have referred to the fact that on Ms Turner's version of events Mr Hewitt said, "We'll need to get the Deed in place first. Are you going to put a draft together that we can work from?". 53 Mr Ashhurst argued that since Ms Turner's note of the conversation with Mr Hewitt (see p 4 Exhibit "B") made no reference to "subject to contract" or words to the effect of what Ms Turner has said were said by Mr Hewitt, her evidence of what Mr Hewitt had said should be seen as having been affected by the type of matters relevant to reliability as to the contents of conversations and impact of extraneous matters on the subconscious, referred to by McLelland CJ in Watson v Foxman (2000) 49 NSWLR 315 at 319. Mr Bolster argued that that submission should not have been made since the possibility that Ms Turner's recollection had been affected subconsciously was not put to her. I am not persuaded that it was necessary for that to be put – a refusal to concede that her recollection had been affected would have had little value and a concession that it might have been could be of no greater value than the observations in Watson v Foxman itself. I think it is a relevant matter that Ms Turner did not, in making a note, record that part of what she says Mr Hewitt said to her but Mr Hewitt could not recollect having said the words attributed to him, and in those circumstances and having no reason to doubt Ms Turner's veracity other than by reason of the failure to record the particular words in her note, and given that the day before Mr Hewitt had written a letter in which he asked Ms Turner to submit a "draft deed of dissolution and release" for consideration which is not dissimilar, I accept her version of the conversation. 54 Accepting that Mr Hewitt did say "we'll need to get the Deed in place first", it is possible to view that statement in a number of different ways: (1) as an indication that there would be no agreement until execution of a formal document, ie category (iii) of Masters v Cameron ; (2) as an indication that payment of the $30,000 would not be made until the deed was executed, ie category (ii) of Masters v Cameron ; (3) as an indication that there could be no agreement until a deed had been prepared so that the precise terms of what was envisaged could be seen even if not formally executed – this would mean in terms of the categories in Masters v Cameron that as at that point no agreement had been reached, but once a deed was furnished, even if not executed, it could be. 55 Given the use of the words "in principle" in the letter of 8 July from Hewitts, and the counter offer re the "only if funds collected" qualification, and the request for the deed in the letter and then again on 9 July I think it is clear, as Mr Ashhurst concedes, that no agreement had yet been reached on 8 or 9 July. The Company however asserts that it is the combination of those matters together with what occurred on 16 July and shortly after that date, that establishes an agreement. 56 I regard the following matters as salient when added to the correspondence on and between 1 July and 16 July in considering, in accordance with the principles laid down in Empirnall and Brambles and adopted in Azzi, whether agreement can be inferred, whether mutual assent has been manifested and whether objectively the parties must have thought there was an agreement per Heydon JA (as he then was) in Brambles at [81], offering slightly different formulations to be added to the formulation of McHugh JA in Empirnall: (1) The files, and clients to which they related, were assets of the dissolved partnership. They could only be handed over to Laidlaw on the basis either that she would maintain the files pending sale to a third party or on a permanent basis if that was how entitlement to goodwill was to be dealt with. The matrix of facts in which the July correspondence is placed is consistent only with the latter approach and what occurred on or shortly after 16 July is clearly referable to the contents of the letter of 1 July and its broad acceptance. (2) The delivery of the files was coupled with delivery of other items referred to in the letter of 1 July – office furniture and computer, reinforcing the point made in (1). (3) It was also followed up by an act the provision of a reference and agreement on a form letter for advising clients of Laidlaw's taking over of those clients (see Exhibit "A"), advice that was consistent only with a final distribution of the clients since it said nothing of any temporary or interim arrangement, and to the contrary said (Exhibit "A"): "In order to make this transition as simple as possible for all concerned, we have agreed on which clients would be best serviced by us. As a result, your file is with Jo Laidlaw." and "We would like to thank you for your support and patronage over the years and hope that we can continue to assist you for many more." (4) The approach of Laidlaw through the correspondence was to agree upon a list that she believed to represent 50 per cent of the clientele of the former partnership – the same percentage as that of her interest in the partnership thus avoiding the need for a sale of the business which would have been highly disruptive to former clients of the partnership (a matter recognised in the correspondence). (5) It would be most unlikely that the parties would agree to a transfer from the Company which was "maintaining the files" by agreement to Laidlaw to "maintain" pending sale. Nothing in the correspondence is said to that effect. 57 Laidlaw points to the following matters, taken together with the absence of evidence of final agreement within the July correspondence, requiring a conclusion that no binding agreement was reached: (a) Mr Phillip Hewitt in response to the correspondence of Verekers after 16 July never asserted that there was a binding agreement; (b) the Company did not pay the $30,000 advance on 31 July 2004 or at all; (c) the deed that was sent by Verekers did not contain the "only if funds collected" qualification; (d) the request for files was consistent with Laidlaw's rights since she was a partner entitled just as much as the Company to maintain files pending sale of the assets of the partnership; (e) that stamp duty legislation was not complied with. 58 Dealing with [57](a) above, it is clear that Hewitt never asserted in correspondence or orally that there had been an agreement. Ironically it was Ms Turner who made that assertion in her letter of 20 August 2004 when she said (p 206 Exhibit "B"): "In the circumstances, the partnership is clearly in a position in which it could advance our client the amount of $30,000 as agreed. We confirm that the payment of this amount is a condition under which our client agreed to enter the Deed for the assignment of goodwill in the partnership. Our client requires this amount to be paid by bank cheque on exchange of Deeds." The assertion is that payment of the $30,000 was a condition under which our client agreed "to enter the Deed", an approach which is consistent with interpretation (2) of Mr Hewitt's words to which I have referred in [54] above. There does not appear to be any response to the Verekers letter of 20 August 2004 so her assertion was not challenged. 59 In a context where even on the Company's case there was still a need to reach agreement on the detail of the deed, and having regard to the contents of Ms Turner's letter, I do not think any significance can be placed on Hewitt's failure to assert that there was an agreement in place. 60 Dealing with [57](b) above, the fact that the Company did not pay the $30,000 advance before 31 July is not necessarily inconsistent with an agreement having been reached, first because if the "only if funds collected" qualification were part of the agreement it would need to be demonstrated that the funds were collected. There is an issue too about what "collected" means – the Company contends that the debts of the partnership had to be paid first so if there were not sufficient funds Laidlaw could not receive $30,000 as an advance from the partnership assets. The second possibility as I have mentioned is that the deed had to be executed before the advance would be made so that execution of the deed was a precondition for one of its terms. It has not been demonstrated that the Company was in breach of its obligation to advance the $30,000. The third possibility is that the Company was in breach of its obligation to advance the money. Were it established that the Company was required to advance the money on 31 July if the agreement were in place and that was an unconditional term, then in my view, the failure to pay would be a relevant fact to take into account in determining whether there was a binding agreement or not, but it would not be decisive having particular regard to the steps that were taken. 61 Dealing with [57](c) above, the fact that the draft deed did not contain the "only if funds collected" qualification points to that not having been accepted by Laidlaw as at 15 July, but the request for the files and furniture thereafter and the provision of them suggests one of four things: (a) that the qualification had been accepted; (b) that it was accepted that the $30,000 would be paid on exchange of deeds; (c) that the parties did not regard the matter as one on which there needed to be agreement; (d) that the Company accepted that the qualification was not to be added. 62 The absence of the qualification in Mr Hewitt's draft provides some support for [61](d), and [61](c) is the least likely of the alternatives. 63 Whilst I regard it as significant that neither the Verekers deed nor the Hewitts deed sent before handover of the files contained the qualification, as at the date of the request for the files and their handover neither the Company nor its solicitor had stated that it had given up on the qualification. Having regard to the letters of 1 July and 8 July, the exchange of deeds, request for information about the likelihood of the money being available and the words of Mr Hewitt followed by the handing over of the files, I think the objective characterisation of what occurred is that the parties accepted that the $30,000 would only be handed over in exchange for a signed deed (although they may well have believed that it would occur within a short period). That exchange did not occur and the transfer of funds did not occur. If that be a correct characterisation, failure by the Company to pay the advance on 31 July was not a breach of the existing agreement. Even if it be an incorrect characterisation, the other possibilities identified in [61] are all consistent with an agreement having been reached. 64 Dealing with [57](d), that Laidlaw's right to the files was equal to the Company's right at the point of dissolution is clear, but Laidlaw had indicated initially that she did not want to carry on with any part of the business and had proposed that the Company maintain the files pending sale: see Tab 45 Exhibit "B". In any event, there is nothing in the correspondence on or after 1 July which suggests that Laidlaw was seeking to exercise the right to hold files on an interim basis. 65 Laidlaw submits that another factor which points to the fact that no agreement was reached is that no memorandum was prepared for the purposes of stamp duty and lodged within three months of the alleged agreement at the Office of State Revenue. Mr Ashhurst responded to this saying that failure to lodge a memorandum could not demonstrate that there was no agreement since there could be a number of reasons why it was not done – one reason being that Hewitts rightly or wrongly questioned whether any stamp duty was payable in their letter of 20 August (Tab 76 Exhibit "B"). I agree with this submission and would add that there was no cross examination of Mr Hewitt on this point. Mr Ashhurst's second point is that even if payment of or arrangements for payment of stamp duty did not proceed because Mr Hewitt did not think that there was an agreement, that would not establish that there was no agreement in fact since the question of whether agreement was reached is a matter of objective fact (see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at 179 [40]). In circumstances where such decisive steps were taken in July and where by October the parties were heading to court, I do not think a failure to forward a memorandum to the Office of State Revenue, even if, contrary to Mr Ashhurst's submissions, it were capable of constituting some objective evidence that no agreement had been reached, has much weight at all. 66 Having regard to: (1) the fact that Verekers sent the letter of 13 July enclosing the draft deed and had received a deed in reply on 15 July, the enclosing of a further draft on 16 July coupled with a request for the files (and implicitly the equipment) and which points to an invitation to proceed with the agreement notwithstanding that not all the terms had as yet been agreed, and which objectively was agreed to; (2) the fact that steps were taken to implement the contents of the letter of 1 July (steps which I might add have never been retraced) even before the deed was finalised and executed; (3) the fact that whilst there is no evidence by either party of what was said when Laidlaw attended to collect files and equipment, the written request for the files was unqualified and there was no response such as "we will not be able to hand anything over until the terms of the deed are finalised"; (3) the fact that Ms Turner sought an indication as to whether there was likely to be a problem with provision of the advance and the indication of Mr Hewitt that this would not be likely to be a problem, which suggests that his answer was enough to give Laidlaw sufficient comfort to take over the files even if the "only if funds collected" qualification was accepted either expressly (which it was not) or implicitly, by conduct, or alternatively was viewed as a agreement for the advance to be made on exchange of deeds, in my view objectively the parties ought be construed as having entered into an agreement, the essential terms of which were set out in the letter of 1 July, and varied by agreement that the $30,000 was to be advanced on exchange of deeds. 67 Having determined that there is a binding agreement I need to address Mr Bolster's argument that it did not deal with Laidlaw's entitlement to goodwill. It is true that the letter of 1 July 2004 does not expressly state that the division of the files is in satisfaction of all claims of Laidlaw to goodwill but the words "the following proposal regarding our client's entitlement to goodwill in the partnership", the context and the contents of the arrangements proposed make it clear that the proposal was to deal with both former partners' entitlements to a share of goodwill on a final basis. 68 It follows in my view that goodwill needs no further consideration in the dissolution of the partnership. Plant and equipment 69 The fourth issue ("the equipment issue") relates to the amount to be paid by the Company for plant and equipment. The Company accepts that it must pay an amount 50 per cent of the market value of the plant and equipment (such as office furniture and computers). That would yield a figure of $12,500 to be paid to Laidlaw. 70 It is conceded by Laidlaw that the equipment would fetch at auction $25,000. It is conceded that there was agreement between her and the Company that apart from a small number of items which were to be handed over to her, the equipment would be retained by the Company. There is no claim that the Company has acted in any way improperly in keeping the equipment itself. The only question is how is that equipment to be valued. 71 Mr Bolster asserted that the Company had obtained a benefit by retaining the equipment – it could continue to use all of the items (that were not transferred to Laidlaw) without having to go out and buy all those items such as tables, chairs, and the like. He initially seemed to rely solely on the depreciation schedule but later reduced reliance on it to say that it was a guide, as were, he said, the invoices showing what had been paid for the items new. 72 Mr Bolster drew my attention to a number of cases: Burton v Wookey (1822) 6 Madd 367; 56 ER 1131 as described in para 16-21 of Lindley & Banks on Partnership, 16th ed, 1990, Sweet & Maxwell, a case involving (in effect) the cost to be ascribed to the purchase of partnership assets during the partnership: Re Golden Bread Pty Ltd; Queensland Co-operative Milling Association v Hutchison [1977] Qd R 44 (oppressive suit – valuation of shares on sale to oppressor); Elmslie v Federal Commissioner of Taxation (1993) 46 FCR 576; 118 ALR 357 at 379, which in dealing with the valuation of shares, made reference to Re Bird Precision Bellows Ltd [1986] Ch 658 – in which it was said that in oppression cases the valuation of the shares should not proceed upon a discounted basis referable to a minority holding. 73 Mr Bolster referred also to Melcann Ltd v Super John Pty Ltd (1994) 13 ACLC 92 per McLelland CJ (capital reduction refused because the valuation did not take into account special value of the shares to the majority shareholder and hence made the attempted reduction by cancellation of the minority shareholdings unfair) and ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536, dealing with fair value of units in a unit trust where Young J (as he then was) applied the decision in Melcann. 74 In my view none of these cases relied on by Mr Bolster are relevant to the present situation. 75 Mr Ashhurst submits that the only relevant question is what is the market value of the goods to be retained by the partnership – the depreciation schedule offers no indication as to what is the market value and nor do the invoices, and he referred me to Giumelli v Giumelli [2003] WASC 259 in which Master Sanderson had to determine entitlements on a dissolution of the partnership and considered how plant and equipment should be valued. The parties there agreed that the depreciation schedule had been prepared for tax purposes and did not necessarily reflect the true value of the items but the defendant argued that it was the only evidence the court could accept (see [30]). Master Sanderson rejected that contention and accepted the assessment of an experienced orchardist, who was not a valuer, as to the value of the equipment (see [42]), and I think this offers support for Mr Ashhurst's submission. In my view, even if invoices and depreciation schedule might offer some indication of current value they cannot do so when expert valuations have been obtained by both parties and the value is agreed. 76 I do not think the approach to valuation of plant and equipment is to be equated with the valuation of the business as Mr Bolster seemed to suggest. I accept that there is often, if not always, a most significant difference between sale of a business on a going concern basis and a liquidation basis, but tables, chairs and computers are saleable and have a market value (which unlike the situation in Giumelli has been agreed following appropriate expert opinion). I do not think that a partner who by agreement retains a tangible asset from the partnership gains a "benefit" beyond the value of the item, which requires assessment or needs to be taken into account on dissolution. Further, as Mr Ashhurst pointed out, if there was a benefit of not having to take the goods to auction, were that relevant it would be small and there is no evidence of what it would be. It follows that in my view the Company is required to allow $12,500 to Laidlaw for plant and equipment retained by the Company. Conclusion 77 The parties should bring in agreed short minutes to reflect the final orders that need to be made on the basis of the conclusions I have reached and containing agreement on the question of costs. If there is no agreement, the parties should exchange the proposed short minutes for which each contends within seven days of today's date and I will set a time for argument on the form and/or on costs. 78 The submissions of Laidlaw have made reference to stamp duty. The short minutes should provide a regime to ensure that whatever stamp duty is payable on the transfer of assets is paid even if no deed is finalised. ********** 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. 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