SUPREME COURT OF QUEENSLAND

SUPREME COURT OF QUEENSLAND CITATION: Maclag (No 11) P/L & Anor v Chantay Too P/L (No 2) [2009] QSC 299 PARTIES: MACLAG (NO 11) PTY LTD ACN 010 611 631 AS TRUSTEE FOR THE BURNS FAMILY TRUST (first plaintiff) LARRY MARK LAZARIDES (second plaintiff) FILE NO: BS 9219 of 2008 DIVISION: PROCEEDING: ORIGINATING COURT: v CHANTAY TOO PTY LTD ACN 099 086 521 AS TRUSTEE FOR THE CHANTAY TRUST (defendant) Trial Division Application Supreme Court of Queensland DELIVERED ON: 22 September 2009 DELIVERED AT: Brisbane HEARING DATE: 7 July 2009 JUDGE: ORDER: McMurdo J It is declared that: 1. Clause 21 of the Partnership Deed is enforceable. 2. Where clause 21 is engaged by the giving of any notice under clause 22 of the Deed, the date of the purchase taking effect for the purposes of clause 21 is the date of the giving of that notice under clause 22. CATCHWORDS: CONTRACTS GENERAL CONTRACTUAL PRINCIPLES OFFER AND ACCEPTANCE MATTERS NOT GIVING RISE TO BINDING CONTRACT VAGUENESS AND UNCERTAINTY AGREEMENT SUBJECT TO FURTHER AGREEMENT OR ARRANGEMENT where the contract provides that the price is to be fixed by agreement between the parties, failing which it should be determined by an independent accountant or valuer as agreed by the parties, failing which as determined by the President of the Queensland Law Society whether this is an unenforceable agreement to agree

2 COUNSEL: SOLICITORS: whether this provision is destined to fail as both a valuer and an accountant would be required CONTRACTS GENERAL CONTRACTUAL PRINCIPLES OFFER AND ACCEPTANCE MATTERS NOT GIVING RISE TO BINDING CONTRACT VAGUENESS AND UNCERTAINTY AMBIGUITY where the contract provides that the arbitrator in determining the price shall have regard to the market value of any real estate or other property belonging to the partnership where the contract provides that the price shall be the net value after providing for all debts and liabilities affecting the same on the date of the purchase taking effect where such other property is not defined where the net value shall be determined in accordance with the provisions of this agreement whether this provision is void for uncertainty Uniform Civil Procedure Rules 1999 (Qld), r 483, r 485 Faulkner v Thomas [2000] TASSC 159, distinguished Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289, followed The Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd s Rep 205, cited Upper Hunter Country District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, followed A P J Collins for the plaintiffs D Savage SC, with C Wilkins, for the defendant Frampton Legal for the plaintiffs Cronin Litigation for the defendant [1] By a partnership deed made on 14 February 2002, the plaintiffs and the defendant agreed to carry on a business of the acquisition and development of land under the name of Mermaid Retail Partnership. It was agreed that each partner would have a one-third interest in the capital and the income. The partnership commenced on the date of the deed and was to continue from year to year unless at least three months prior to the end of any financial year, a partner gave a notice of dissolution to take effect at the end of that year. [2] The partnership deed provided that in the event of the death of a partner, the other partners would each have an option to purchase one-half of the share of the deceased partner in the partnership business and its property. It was agreed that in the case of the partners which were corporations, the liquidation of a partner would engage that provision. It was also agreed that in the event of a certain default by a partner, the others would be entitled to purchase his share and that the provision for the purchase of a share of a deceased partner would apply as if the defaulting partner had died. [3] The plaintiffs plead that the defendant committed breaches of the partnership deed which entitled them to elect to purchase its share under these provisions. They say

3 that they are entitled to the defendant s share at a price to be fixed by an accountant or valuer appointed under the provision governing the purchase of a deceased partner s share. The defendant pleads, amongst other things, that the provision for the fixing of that price is uncertain. By this application the defendant seeks to have that issue determined ahead of others in these proceedings, and it seeks a declaration pursuant to UCPR r 485 that the agreement does not provide a valid or enforceable option for the purchase of a deceased or (relevantly for this case) expelled partner s share. [4] The question is one of the proper construction of the partnership deed for which there is no relevant factual dispute. Nor was it argued by the plaintiffs that this question should not be decided ahead of other issues. [5] The relevant clauses are 21 and 22 as follows: 21. PURCHASE OF SHARE OF DECEASED PARTNER (a) The death of a partner shall not dissolve the partnership but in the event of the death of any partner the surviving partners may elect to continue the partnership with the representatives of the deceased partner or their nominee or they shall have the option to be exercised in writing within three (3) months of the date of death to each purchase one half of the share of the deceased partner in the partnership business and the property thereof. The deceased partner s share in the partnership business and property thereof shall be purchased at a price fixed by agreement between the surviving partner and the personal representative(s) of the deceased partner as the net value thereof after providing for all debts and liabilities affecting the same on the date of the purchase taking effect and if the parties shall be unable to agree as to the value thereof the same shall be determined in accordance with the provisions of this agreement by a competent independent qualified accountant or valuer agreed by the partners or failing agreement determined by the President for the time being of the Queensland Law Society Incorporated who shall have regard to the market value of any real estate or other property belonging to the partnership. (b) The said accountant or valuer may fix the fees payable in respect of such valuation and the representative of the deceased partner and the surviving partners shall each pay one third thereof. (c) The purchase amount payable under this clause shall be paid by two interest free payments payable to the estate of the deceased partner the first of such instalments to be paid on the day seven (7) days following the receipt by the surviving partners of the accountant s or valuer s assessment and the second payment to be paid on the day

4 22. EXPULSION which is three (3) months after the date on which the first instalment was payable. If any partner shall: (a) commit any breach of clauses 16, 18 or 19 hereof, or (b) become bankrupt or execute any Deed of Arrangement or composition with his creditors or enter into voluntary administration or liquidation, or (c) become of unsound mind or become a person whose person or estate is liable to be dealt with in any way under the law relating to mental health; or (d) be guilty of any conduct that would be a ground for the dissolution of the partnership by the Supreme Court of Queensland, or (e) in the case of any partner which is a corporation if any of the following occur in respect of that corporation: If an application or petition for its winding up is made or presented or any order is made or any effective resolution is passed for its winding up (except for the purpose of reconstruction) or its dissolution or if it enters into any arrangement or composition with its creditors generally or any of them or if it is placed under official management, voluntary administration or liquidation or if an Inspector is proposed or appointed pursuant to any Companies Code or Act of any state or territory, or (f) cease to be the trustee of the relevant trust. THEN and in any such case it shall be lawful for the other partners by notice in writing to the partner affected by any of the preceding provisions of this paragraph (or his trustee or committee) within three (3) months after that partner s offence or incapacity shall have become known to the other partners to determine the partnership so far as concerns that partner whereupon the provisions of clause 21 of this Deed shall apply mutatis mutandis as if the offending or incapacitated partner had died on the date on which such notice was given. [6] Pursuant to UCPR r 483, the question for separate determination is whether clause 21 of the Partnership Deed between the plaintiffs and the defendant is uncertain and thereby unenforceable. [7] Before going to the particular arguments for the defendant, two points of principle must be noted. Firstly, a contract of which there can be more than one possible meaning or which, when construed, can produce in its application more than one

5 result is not unenforceable for uncertainty. 1 Secondly, in the search for the contractual intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. 2 In particular, where parties have agreed on an arbitration or valuation clause, full weight should be given to the manifest intention of the parties to create continuing legal relations and that [a]rguments invoking alleged uncertainty, or alleged inadequacy in the machinery available to the Courts for making contractual rights effective, exert minimal attraction. 3 [8] The first of the defendant s arguments is that clause 21 contains an agreement to agree which is thereby unenforceable. It is said that no duty to negotiate in good faith could exist because once a notice is given under clause 22, the partnership is determined so far as concerns that partner. It is argued that the expelled partner would not be obliged to be just and faithful to his former partners or to act reasonably in the negotiation of the price. Absent such an implication, it is argued, the agreement to agree cannot be enforceable. [9] It is unnecessary to decide whether the outgoing partner would have a duty of good faith in the process prescribed by clauses 21 and 22, although it might be noted that in the case of a dissolved partnership which has not been completely wound up, the obligations of the former partners to each other continue so far as is necessary for the winding up. 4 This agreement contains the familiar machinery for the fixing of a price according to the view of an independent arbitrator or (as here) expert if the parties do not agree upon the price. The reference to an agreed price is simply to make clear that the parties are not bound to engage the independent accountant or valuer if the price is agreed. It is irrelevant to consider whether, absent the provision for the independent fixing of the price, clause 21 would constitute a mere agreement to agree. [10] I go then to the arguments as to why the provision for this independent fixing of the price is uncertain. The first is that the parties have agreed the price would be fixed by a competent independent qualified accountant or valuer agreed by the partners or failing agreement determined by the President of the Queensland Law Society. It is argued that this machinery would be destined to fail in that a competent and independent valuer and a competent and independent accountant would be required. This is said to follow from the fact that to value a business (or, for that matter, to quantify its debts and liabilities) one often has to resort to an accountant; whereas to value land a valuer would be used. That submission cannot be accepted. The matter for the independent assessment is the net value of the outgoing partner s share in the partnership business and property. The parties have agreed that such an assessment could be performed by an accountant or alternatively by a valuer. They have agreed that the expert is to have regard to the market value of any real estate or other property belonging to the partnership. But that is not to say that they have agreed that the expert must reach his or her own professional opinion, by an exercise of valuation, of that market value. In other words the parties 1 2 3 4 Upper Hunter Country District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436 per Barwick CJ; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292 per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ. Upper Hunter Country District Council v Australian Chilling and Freezing Co Ltd (1967) 118 CLR 429 at 437 per Barwick CJ. The Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989] 1 Lloyd s Rep 205 at 210 per Sir Robin Cooke. Chan v Zacharia (1984) 154 CLR 178.

6 have not agreed that the expert is to do something which could only be done by a valuer. They have agreed that the assessment of the net value of the partner s share could be based upon the market value of partnership property although that property might have been valued by someone else. For example, that value might have been recently agreed by the partners for the purpose of their accounts, and the expert might then adopt it. [11] The second submission for the defendants is that it is said to be unclear whether the expert may have regard to matters other than the market value of partnership property, and if so, what those other matters are. In my view, it is clear that the expert is not to have regard only to the value of partnership property, at least because the expert must also assess the relevant debts and liabilities in order to ascertain the net value of the share of the outgoing partner. What is required of the expert is the assessment of the net value of that share, and the fact that the potentially relevant considerations for that assessment are not comprehensively defined does not make the provision unenforceable for uncertainty. What are the other matters to which the expert may have regard would be a matter for that expert s professional judgment. [12] Next it is argued that there is an uncertainty as to the date at which the value of the partner s share is to be assessed. Clause 21 provides that the price shall be the net value thereof after providing for all debts and liabilities affecting the same on the date of the purchase taking effect.... The defendants suggest that that date might be referable only to the debts and liabilities and not to the net value of the outgoing partner s share. In this respect there is no ambiguity let alone uncertainty. The value is to be assessed as at the date of the purchase taking effect, after providing for debts and liabilities as at that date. As to what constitutes the date on which the purchase takes effect, in my view it is the date of the exercise of the option under clause 22. That clause makes it clear that it is the giving of the notice which determines the partnership so far as concerns that partner. Thereafter the other partners are entitled to conduct the business with the use of what had been the partnership assets. But the defendant argues that the word affecting in the expression all debts and liabilities affecting [the outgoing partner s share] indicates that the debts and liabilities are not to be assessed as at a date which has passed by the date of the assessment. Further, the defendant points to clause 21(c) and suggests that the date of completion itself occurs two times, three months apart, by which they mean that the price is to be paid by two payments. In my conclusion these arguments have no merit. The date of the purchase taking effect is the day upon which the expelled partner ceases to be a partner, which is the day of the notice under clause 22. The value is to be assessed as at that date, by reference to the debts and liabilities as at that date. [13] A further argument is that there is a fatal uncertainty from the reference in clause 21 to the determination of the net value in accordance with the provisions of this agreement because there are no such provisions. On one view, this reference to the provisions of the agreement is simply to make it plain that a share in the partnership is a set of entitlements as defined by this partnership agreement. Alternatively, the words in accordance with the provisions of this agreement may have no meaning. But if so, it does not follow that the clause is unenforceable. There is still a certain agreement for the assessment of the price constituted by the net value of the share.

7 The defendants refer to Faulkner v Thomas, 5 where the purchase price for the share of an outgoing partner was to be fixed by an independent valuation and where that value was to be in a certain proportion to the gross fees charged by the partnership during the previous 12 months. The difficulty in that case was that a number which was essential for the quantification of that proportion, and in turn the value and the price, was missing from where it was clearly meant to be within the relevant clause. It was impossible in that case to fix the value as required by that agreement because it was impossible to give that clause any meaning and operation. In the present case the net value of the outgoing partner s share can be assessed even assuming that the words in accordance with the provisions of this agreement are given no effect. [14] It is argued that the clause is unenforceable because no machinery exists for discharging the outgoing partner s (present, future, certain or contingent) liabilities to creditors of the partnership. However no machinery of that kind is necessary for there to be a certain and enforceable agreement. Because the price is to be the net value, assessed after taking account of the debts and liabilities, it is necessarily implied that the continuing partners would indemnify the outgoing partner against all debts and liabilities... on the date of the purchase taking effect. [15] Next it is said that clause 21(c) is uncertain. The argument in that respect is premised upon the date of the purchase taking effect being the date for which there is a payment to the outgoing partner, from which it is said that there is uncertainty because there are two dates for payment of the respective instalments under clause 21(c). But as I have held, the date of the purchase taking effect is the date of the exercise of the option under clause 22. Hence there is no ambiguity in clause 21(c), let alone an uncertainty. [16] Finally it is argued that clause 21 does not provide for whether the person carrying out the valuation is to include or ignore the outgoing partner s entitlement to share in profits between the giving of notice of exercise of the option and completion of the purchase.... Again the valuation is to be at the date of exercise of the option, after which the outgoing partner has no entitlement to share in the profits. The profits made by the business after that date are not brought into account. [17] It follows that each of the arguments for the defendant is rejected and that the preliminary questions should be determined in favour of the plaintiffs. Pursuant to UCPR r 485, there will be a declaration that clause 21 of the Partnership Deed between the parties, on its true construction, is enforceable, and that where clause 21 is engaged by the giving of any notice under clause 22 of the Deed, the date of the purchase taking effect for the purposes of clause 21 is the date of the giving of that notice under clause 22. [18] I will hear the parties as to costs and other orders. 5 [2000] TASSC 159.