Cowley v Worrell, Whitehill, Khatri & Calendar Investments Pty Ltd [1997] QSC 160

IN THE SUPREME COURT OF QUEENSLAND No. 2198 of 1995 [Cowley v Worrell & Ors] BETWEEN: PETER ROBERT COWLEY Plaintiff AND: IVOR WORRELL First Defendant AND: CRAIG CORNELIUS WHITEHILL Second Defendant AND: RAJENDRA KUMAR KHATRI Third Defendant AND: CALENDAR INVESTMENTS PTY LTD Fourth Defendant REASONS FOR JUDGMENT - THOMAS J. Delivered: 8 September 1997 CA TCHWORDS: PARTNERSHIPS - Agreement for partnership - Accountants - Third partner joined existing partnership - Whether purchasing goodwill or future entitlements - Capital accounts - Need for clear agreement concerning capital entitlements Counsel: Solicitors: ESTOPPEL - Conduct by plaintiff implying his acceptance of accuracy of accounts - Probability of termination of partnership if plaintiff had challenged accounts earlier - Detriment - Plaintiff estopped from challenging original entries in capital accounts PARTNERSHIPS - Dissolution and winding up - Whether partners reached concluded agreement as to terms upon which one partner to leave partnership - Whether contract breached - Transfer of clients - Right to partnership name Mr D.R. Cooper for the plaintiff Mr P.R. Dutney QC for the defendants Nicol Robinson Kidd for the plaintiff Purvis Duncan for the defendants This judgment is to be copied for the purpose of research and private study only. It is not to be resold or used for republication in any other way without permission. -- 1 of 29 -- IN THE SUPREi\.1E COURT OF QUEENSLAND No. 2198 of 1995 [Cowley v Worrell & Ors] BETWEEN: PETER ROBERT COWLEY Plaintiff AND: IVOR WORRELL First Defendant AND: CRAIG CORNELIUS WHITEHILL Second Defendant AND: RAJENDRA KUMAR KHATRI Third Defendant AND: CALENDAR INVESTi\.1ENTS PTY LTD Fourth Defendant REASONS FOR JUDGMENT - THOMAS J Judgment delivered 8 September 1997 Index Introductory facts and issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Preliminary observations on evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The first issue: agreement of 18 August 1986; appropriate opening entries. . . . . . . . . . . . . 5 Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14 The second issue - termination of the second partnership . . . . . . . . . . . . . . . . . . . . . . . . .. 18 (a) Cash payment $45,000 ........................................ 21 (b) Clients estimated to be worth $450,000 ........................... 21 ( c) Debtors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (d) Investment account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (e) Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (f) Interest in the unit trust of the fourth defendant (Calendar Investments) ... 26 (g) Right to use firm name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (h) The defendants' counterclaim ................................... 27 ORDERS ............................................................. 28 -- 2 of 29 -- 2 This is a dispute between accountants who were formerly members of a partnership known as Worrell Whitehill & Co. Introductory facts and issues The issues fall into two separate areas. 1. What was the agreement under which the plaintiff (Mr Cowley) on 18 August 1986 joined the partnership then existing between the first defendant (Mr Worrell) and the second defendant (Mr Whitehill)? In particular, how should the opening entries in the capital accounts of the partners have then been recorded? 2. What were the circumstances in which Mr Cowley ceased to be a partner in July 1995? In particular, was there a binding agreement between the parties affecting its dissolution? If so, has any of the parties breached its terms? If so, what damages should be awarded for breach, or alternatively how should any necessary accounts be taken? Mr Worrell and Mr Whitehill joined partnership in 1979 and traded under the name of Worrell Whitehill & Co (or Worrell Whitehill) thereafter. In December 1985 they purchased what was described as "part of the practice" of another accountancy firm, Lindean. Such a transaction was loosely described during the hearing as "purchasing clients". The precise rights that were acquired are not defined by any written agreement, but in essence Worrell Whitehill & Co paid $260,000 to Lindean for the right to charge fees to designated existing clients and the opportunity of continuing to work on behalf of such clients. Such arrangements assume that the vast majority of such clients will consent to the change and remain as clients of the purchaser. Mr Cowley at that time was a partner in Lindean, and there followed a number of meetings between Mr Cowley, Mr Whitehill and Mr Worrell with a view to his joining -- 3 of 29 -- 3 Mr Worrell and Mr Whitehill's partnership. The parties considered that it was logical to proceed in this way in view of the extensive number of former clients of Mr Cowley who were now being serviced by Worrell, Whitehill & Co. Moreover, Mr Worrell was busy developing a bankruptcy and insolvency practice, and the acquisition of another partner was hoped to enable him to devote a far greater proportion of his time to the development of that very lucrative work. Thus on 18 August 1986, entirely on oral arrangement, a new partnership was formed between Mr Worrell, Mr Whitehill and Mr Cowley under the continuing name of Worrell Whitehill & Co. That partnership was referred to during the hearing as "the first partnership". Eight years later, on 1 July 1994 another partner, Mr Rajendra Khatri, was introduced. This involved the dissolution of the first partnership and its replacement (without disturbing the continuity of practice) with "the second partnership" consisting then of four persons. By May 1995 some tension was present, mainly it would seem between Mr Cowley and Mr Worrell, who was unhappy with Mr Cowley's contribution to the partnership. Mr Cowley was also at that time seeking to change the basis upon which the accounts of the partnership had been kept since 1986. If he could achieve this it would result in some considerable improvement in his overall financial position in the partnership and a corresponding loss of advantage on the part of Mr Worrell and Mr Whitehill. Soon after this, Messrs Worrell, Whitehill and Khatri became desirous of effecting an arrangement that would enable Mr Cowley to leave the partnership. A number of discussions ensued with Mr Cowley and various proposals and counter-proposals were made as to what would need to be done to achieve this. There is evidence that on 20 July 1995 Mr Whitehill (on behalf of the continuing partners) and Mr Cowley reached agreement concerning dissolution of the partnership, the benefits Mr Cowley was to receive for his interest in the partnership and the means by which -- 4 of 29 -- 4 those benefits were to be transferred. The conduct of all parties thereafter has been consistent with agreement having been reached in relation to these points. However differing submissions are made as to what the agreement actually was and indeed on whether any binding agreement was made on any point at all. So the precise terms of the agreement, and indeed the question whether any binding agreement exists, are in issue. Assuming there was an agreement, there are also live issues whether the plaintiff or the defendants have breached it. There are alternative claims for damages for the alleged breaches and for the taking of any necessary accounts in relation to the dissolution. It may be noted that if I do not think it appropriate to assess damages I might order an account, but it would still be necessary to make special findings as to any agreements made between the parties which ought to govern the taking of such accounts. Preliminary observations on evidence There were no partnership deeds governing any of these partnerships. The partnerships were all oral and at will. Among the features of this case are the absence of any written agreement on the occasions when the partnership changed by means of a partner "buying in" or being "bought out"; the failure (in my view) of all parties to address their minds to the legal nature of the rights with which they were dealing on relevant occasions; the absence of even any contemporaneous written notes by any of the parties concerning the important arrangements that they were making; the virtual absence of contemporaneous letters reflecting conflicting viewpoints at material times; and the absence of any independent accountancy expert to express a view on the correct way in which the disputed entries should have been recorded (if there was an accepted correct way). In short, the parties have each given to me practically nothing except their own recollections and rationalisations of -- 5 of 29 -- 5 arrangements made a long time ago. Inevitably much of this IS based upon personal assumption rather than recollection of words. I therefore confess to extreme difficulty in making satisfactory findings of fact. My task has not been made any easier by the circumstance (as I perceive it to be) that each of the witnesses attempted to be honest in giving his evidence, and that for the most part (there are only a few points on which my reservations will become apparent) they did not consciously embellish their evidence. However they have come to very different conclusions, and it is my task to endeavour to resolve their differences. The two principal groups of issues are discrete. It is common ground that all that the court need determine in relation to the first issue is whether the plaintiff is entitled to have the opening entries in the partners' capital accounts in the first partnership corrected in the manner he seeks. If those accounts are to be altered, I am informed that the parties are ad idem as to the financial consequences that should ensue. The resolution of that matter will enable it to be determined what, if any, contribution the plaintiff must make to repay the ANZ Bank debt; and what, if anything, the plaintiff is entitled to as a return of capital from the winding up of the affairs of the first partnership. That matter can therefore be discretely resolved without affecting the determination of the rights of the parties in relation to the determination of the second partnership. It will now be convenient to set out the remaining facts and to discuss their effect in the context of these separate areas of dispute. The first issue: agreement of 18 August 1986; appropriate opening entries I do not think that any of the parties has a clear recollection of what was said 11 years ago when they spoke about Mr Cowley joining the partnership. It is highly likely that they -- 6 of 29 -- 6 spoke elliptically about "buying in" or "buying a one-third interest in the partnership". There is no doubt that the price was $200,000. Mr Worrell and Mr Whitehill said that they would like to see some cash, but Mr Cowley did not have any significant sum available. If there were to be any actual injection of capital from the sale by Mr Worrell and Mr Whitehill to Mr Cowley of part of their interest in the partnership, it would have to be borrowed. The past accounts of Worrell Whitehill & Co were available for inspection, and undoubtedly some discussion took place which satisfied Mr Cowley that $200,000 was a reasonable price for the benefits he was acquiring. Historically, probably from some time not long after 1979 when Mr Whitehill had joined the practice, a figure of $120,000 had been shown in the books under the heading "goodwill" in the assets column. This was later increased to $379,408 some time after the acquisition of the Lindean clients for $259,408. If any serious attempt had been made to value goodwill, it would obviously have been substantially higher than this, and, I suspect, even higher than the figure of $600,000 which Mr Cowley claims to have been the estimate that he was given as the value of the goodwill. It is possible that some rationalisation has contributed to his belief in this respect, simply from the fact that he had agreed to pay $200,000 for a one-third interest in the partnership. But I am not satisfied that the discussions concerned the purchase of goodwill as such. I accept however that in the preliminary discussions mention was made of the price that had been paid for the Lindean clients as well as the fact that Mr Worrell's developing insolvency practice had yielded fees of over $400,000 for the year ended 30 June 1986 and was expected to achieve considerably more in the following year. The accounts prepared for the new partnership showed a figure for goodwill of $379,408 (notionally the old $120,000 plus the price paid for the Lindean clients). The contention on behalfofMr Cowley is that the figure of$379,408 should have been changed to -- 7 of 29 -- 7 $600,000. However I am not satisfied that the parties attempted to make a valuation of goodwill as such, or that there needed to be such a valuation in order for the parties to make their agreement. Subjectively Mr Cowley may well have believed goodwill to be worth something of that order before deciding to pay the price that he did, but at the same time it should be recognised that he was not simply purchasing goodwill. He was agreeing to become a partner and was purchasing other assets and liabilities, including the right to participate in any capital growth in the practice thereafter. It is true that in later years the partners treated the increasingly valuable goodwill as an item that might be sold to incoming partners and there are references to goodwill in other documents where it is treated in a different way to its treatment in the agreement with Mr Cowley. However there is no reason why different approaches could not be taken on such a subject at different times. I accept that it was agreed that in exchange for $200,000 to be paid by Mr Cowley, the existing assets and liabilities of the partnership would be brought across to the new partnership. This would include work in progress. Work in progress at the time of Mr Cowley'S joining the partnership was $195,414, and in addition there were fees to 15 August 1996 of $44,753 not at that time able to be put into the books. Such items would need to be brought into account in the opening accounting statement of the new partnership. Because Mr Cowley had no significant sum of cash to contribute to the business, his entitlement had to be borrowed in one way or another. The parties did not turn their minds to any legal analysis of the chain of borrowing, for example whether he was borrowing $100,000 from each ofMr Worrell and Mr Whitehill, or whether he was borrowing $200,000 from the partnership, whether the partnership was borrowing $100,000 each from Mr Worrell and Mr Whitehill and lending it to Mr Cowley, or whether the partnership was treating part of an -- 8 of 29 -- 8 existing loan as apportioned against Mr Cowley, or whether there was a chain consisting of several of the above. There seems to have been a common understanding however that Mr Cowley should now be regarded as largely responsible for the repayment of the greater part of the loan earlier obtained from the ANZ Bank, and that Mr Cowley ought to be responsible for the greater part of the interest payable on it. Mr Worrell and Mr Whitehill suggested to Mr Cowley that he take an "allocation of that loan" and "wear a proportion of the interest". The loan to the ANZ Bank was of the order of $286,000. It had initially been made to the old partnership to enable it to purchase the Lindean clients. In addition to this the partnership had an overdraft which moved up and down. For part of the year the total of the loan and overdraft in round terms may have been of the order of $420,000, but that would reduce as the year went on. Instead of a precise calculation, the parties agreed that Mr Cowley should be responsible for payment of two-thirds of the interest on the relevant fluctuating total of those accounts from time to time. Mr Worrell said that the anticipated fee base for the partnership was between $900,000 and $1 million, and that he expected the practice to make a net profit of about $200,000 for the year ending 30 June 1987. Mr Worrell neatly described this aspect of the agreement as follows "Mr Cowley was to obtain a third of those profits but have that profit reduced by two-thirds of the interest. That was for the next year, and of course for each succeeding year. He was being asked to pay $200,000 to obtain an income of - what's the figure, about $80,000, less interest, for the foreseeable future." Mr Cowley. also agreed that he would provide his house as additional security to the bank to support the partnership borrowings and that his profit would be adjusted each year by an amount equivalent to two-thirds of the interest paid to the ANZ Bank. That is common -- 9 of 29 -- 9 ground. In Mr Cowley's words "I didn't have to find cash up front; it seemed a cost-effective way to achieve that." It can be seen that the obligation to pay interest was likely to have a considerable impact upon the net amount that Mr Cowley would receive as future profits, as he was in effect going to have to use his profits to payoff not only the major share of the partnership interest, but also his capital deficit. In practice the arrangement would mean that before obtaining cash drawings against entitlements, Mr Cowley's entitlement would be reduced by two-thirds of the total interest bill, while those of Mr Worrell and Mr Whitehill would be reduced by one-sixth each. I accept that extensive information and access to the partnership was afforded to Mr Cowley at material times before the agreement was reached, though I find it difficult to tell the extent to which Mr Cowley availed himself of the opportunity to study the relevant documents. The documents so provided included profit and loss statements and balance sheets, projections of fees, costs and profits; client analyses; and analyses of relative profits between different parts ofthe practice. The plaintiff and the defendants are at issue, not only in relation to tIie way in which the initial partnership accounts should have shown the item "goodwill" but also in relation to the way in which the partners capital accounts should have been written up. I have little doubt that once it was clear that Mr Cowley would be contributing no cash to the business, Mr Worrell (who seems to have been primarily responsible for giving the instructions that would cause the accounts to be written up), intended to write up the capital accounts in the way in which they were in due course presented; But lam not satisfied that he succeeded in making this clear to Mr Cowley. -- 10 of 29 -- 10 It is to be understood that Mr Cowley's entitlement was to future profits, for work done after his commencement of work as a partner, not for past profits. Thus, Mr Worrell and Mr Whitehill regarded work in progress as at 16 August 1986 ($195,414) and mid-month fees to 15 August 1986 ($44,753) as being their own notional entitlement, notwithstanding that its benefit would be brought across into the new partnership. Mr Worrell intended that he and Mr Whitehill should retain the benefit of those items, by treating them as credit entitlements in their respective capital accounts and I accept that this much was understood by Mr Cowley (transcript p.ll) although the precise figures might not have then been known. This would give Mr Worrell and Mr Whitehill the benefit of credit entries in their respective capital accounts of$120,084. Mr Worrell gave evidence that he told Mr Cowley that the $200,000 price would "be included as an entry on our accounts by journal entry" and went on to say that he told Mr Cowley that the $200,000 would be "overlaid" on the accounts that he had shown Mr Cowley. He says that the parties had a balance sheet before them and that he, Mr Worrell, said "There is the balance sheet. These are the items. We will have that, we wil1lay on top of that the work in progress. And we will lie on top of that an accounting sense [ sic] of $200,000." He says that he explained this to Mr Cowley "as one accountant to another in the three steps". Thus far, as a lay person, I confess to some difficulty in giving any clear meaning to that evidence. The "three steps" are now demonstrated in ex.I7, which was an exhibit recently prepared for the purposes of the trial. With the benefit of explanations I can understand what Mr Worrell is attempting to say that he made clear to Mr Cowley in August 1986. The actual documents that are said to have been shown to Mr Cowley are not available. It may be doubted whether the figure of $44,753 was then known. I have considerable difficulty in -- 11 of 29 -- 11 being satisfied that Mr Worrell made the position as clear as the three steps now set out in ex.I7, or that Mr Cowley understood that that was what was to happen. Mr Whitehill's evidence provides only faint support for Mr Worrell's account in this respect, and in the end it does not help to persuade me that any clear message to this effect was understood by Mr Cowley. Mr Whitehill says that he told Mr Cowley as follows "The elements basically will be that our capital accounts will remain as they are in the existing partnership; that the work in progress that is in the existing partnership will come across to the new partnership; Cowley will pay $200,000, and the assets and liabilities will come across to the new partnership." This is equally consistent with the plaintiff's and the defendants' contentions. He confirms that Mr Worrell presented schedules and accounts at the meeting. Mr Whitehill's evidence proceeds "Did you tell Mr Cowley how his acquisition of an interest in the business would be recorded?- - - Mr Worrell did that sort of, those sort of entries. I didn't do them. Do you recollect whether there was any discussion with Mr Cowley about how the books would reflect his coming in as a partner?- - - Yes, as I said, my recollection Mr Worrell sort of wrote out roughly how this was going to transpire. Do you recollect what he wrote?- - - Not off the top of my head, no." In the end I am not satisfied that there was any meeting of minds between the three parties as to how the capital accounts were to be initially written up. I am however prepared to accept that Mr Worrell believed he had given such indications to Mr Cowley, and that he acted in good faith in instructing that the books be written up as they were in due course. The figure retained against the item goodwill ($379,408) may fairly be described as an historical figure. It was not intended to represent a valuation of that item, and I do not understand there to be any universal accounting practice that requires this to happen. -- 12 of 29 -- 12 Under Mr Worrell's direction the capital accounts of himself and Mr Whitehill reflected the small debit ($2848) existing immediately before the change of partnership, a credit of one half each for the work in progress and fees to 15 October 1996 (i.e. $120,083 each) and a credit of $100,000 each being the notional benefit that they were each entitled to receive from the $200,000 price that Mr Cowley agreed to pay. The figures actually recorded by Mr Worrell for the opening capital accounts were: Worrell Whitehill Cowley $222,932 $222,932 $200,000 (debit) Mr Cowley's case is that the old figure of $379,408 for goodwill should have been deleted and replaced with a figure of $600,000. In consequence the net assets of the partnership should be shown at $466,455. That should be divided equally between Mr Worrell and Mr Whitehill giving each of them a capital account entitlement of $233,227. Mr Cowley claims to be entitled to a credit of $200,000 in his capital account because he had purchased one third of the goodwill. He acknowledges that his capital account should then be reduced to nil because he had not paid for the benefit. In this way he says that the opening capital accounts should have been: Worrell Whitehill Cowley $233,227 $233,227 Nil The opening journal entry (made under Mr Worrell's direction) included the following entry "Practice acquisition drawings - To funds cont - IW To funds cont - CW Being sale of one third share of practice." $200,000 $100,000 $100,000 -- 13 of 29 -- 13 I do not interpret this as tending to prove either of the cases presented. It is an acknowledgement of the price, of what had been purchased, and of the need to give some recognition in the capital accounts of the failure of Mr Cowley actually to pay the money and of some corresponding benefit to the continuing partners. In my view Mr Cowley's desire to rewrite the partnership books founders in the first instance on his failure to prove the nature of what he agreed to acquire. There was no agreement that he was acquiring goodwill as such or that the goodwill should be restated in the partnership books at a value of $600,000. On the other hand I am unable to find any specific arrangement such as that suggested by Mr Worrell that the books were to be written up in the manner he suggests. Mr Worrell and Mr Whitehill did not have express contractual authority to present the capital accounts in that way. But there is no independent expert evidence to show that what Mr Worrell did was unreasonable or contrary to acceptable accounting practice. It may have been unreasonable, or contrary to acceptable practice, but in the absence of acceptable evidence to that effect I have no way of determining that it was. I have for example some doubt as to whether it was appropriate for the capital accounts to reflect not only a $200,000 debit against Mr Cowley, but also a $100,000 credit each in favour of Mr Worrell and Mr Whitehill. The method adopted by Mr Worrell certainly placed Mr Cowley in a weak position which it would take a very long time to wipe out. In succeeding editions of Lindley on Partnership it is pointed out that the capital is a sum fixed by the agreement of the partners and that "the amount of each partner's capital ought . . always to be accurately stated, in order to avoid disputes on a final adjustment of account" (Lindley, 14th ed. p 442; Lindley & Banks, 17th ed. p 497). Lindley also draws attention to the problems inherent in joint capital and current accounts, describing this practice as an "accounting heresy" (ibid, 17th ed. para 17-07). -- 14 of 29 -- 14 When parties rely upon oral arrangements in relation to such matters there is always a risk (as the present case illustrates) that they will act on assumptions rather than clear understandings. In the present case there was no clear specification of how the capital entitlements of the partners were to be recorded. Unfortunately, neither was there any expert evidence to assist the court as to the correct or preferred method of presenting the not so well defined arrangements of the parties. There may indeed be several acceptable ways in which such arrangements could be presented. It may be that Mr Worrell's presentation was acceptable or unacceptable. I simply do not know. The right questions were not asked, and appropriate expert evidence is lacking. On the acceptable evidence given in this case I am unable to hold that the capital accounts in the books of the first partnership are contrary to the actual agreement of the parties. Estoppel A notable feature of the present case is the lack of protest by Mr Cowley, over many years, in relation to the entries that he now seeks to alter. On Mr Cowley's evidence his first complaint about the accounts was made in December 1989, and in my view this seems to have been more an expression of disappointment than a genuine complaint. The occasion was an agreement of the partners to vary the original arrangement in relation to the paying of interest. They agreed that instead of the two thirds/one sixth/one sixth arrangement, interest would thereafter be payable by the partners in accordance with the level of their capital accounts. Mr Cowley agreed with this, but noticed that the disparity in capital accounts was larger than he had expected, and he mentioned that the balances seemed too high in the other partners' favour, and that the capital accounts might not be correct. Mr Worrell, reasonably I think, responded with the invitation that if there was error in the accounts, Mr Cowley should show -- 15 of 29 -- 15 it to him. He gave Mr Cowley the original journal entries. Mr Cowley made no further complaint. He says that he did not investigate the matter any further a.t that time. As the years went by, Mr Cowley accepted and approved the annual accounts which showed the partners' capital accounts as being in accordance with the position taken by the defendants. All the partners submitted their tax returns on this footing and paid tax in accordance with those returns year after year. The matter was not raised again until a partners' conference at the Gold Coast in May 1995. By this time a further partnership had been formed. Mr Khatri had joined the partnership on 1 July 1994, having paid $281,250 for a 12.5% share in it. Mr Cowley had not received any cash benefit from this payment, as his entitlement was received by way of credit to his capital account. At the partners' meeting in May 1995 the partners other than Mr Cowley desired to have the debt to the ANZ Bank apportioned severally to the old partners (Messrs Worrell, Whitehill and Cowley) in accordance with the balance of their capital accounts. When informed that his share would be an amount of $173,000 Mr Cowley said that that amount could not be right. Once again, there was no particularity in Mr Cowley's complaint. However on this occasion he said that he would "look at it". I do not think that Mr Cowley specifically agreed at that stage to the partners' proposal for the severance of the ANZ debt but plainly he accepted that something would have to be done in order to isolate Mr Khatri from it. I think it fair to say that he probably reserved his position on that question. At the same time, he was shown the draft letter that the other partners wished to send to the ANZ Bank, and the only comment which he wrote on that draft was, "What about the discussion last night about a proportion secured over the assets of the new practice?", which seems to have been a quite limited reservation. At all events, in late June 1995 when asked to sign documents that had been prepared by the ANZ Bank in accordance with the original proposal, he refused. He then -- 16 of 29 -- 16 started to investigate the accounts of the partnership and to formulate what he in due course alleged to be the true balances of the accounts. Having prepared a series of recalculations he showed them to Mr Whitehill on 7 July 1995 who said that they would need to be shown to Mr Worrell. Mr Cowley then left them on Mr Worrell's desk. Some days later, probably 12 July 1995, Mr Whitehill informed him that the other partners considered that the partnership would not work and that they wanted to terminate it. An offer was made to buyout his interest for $200,000. Mr Cowley did not regard that as a serious offer and over the following eight days there were suggestions and counter- suggestions of increasing figures, payable in various ways. On 19 or 20 July 1995 Mr Cowley informed Mr Whitehill that he had obtained advice from Mr Calabro that the value of his share in the practice was in the vicinity of $740,000 and that he would be looking for a figure somewhere in that league. Mr Whitehill said he would talk to his other partners. This provoked an insulting visit from Mr Worrell which need not be recounted. In due course Mr Whitehill, with whom Mr Cowley seems to have had a more mutually respectful relationship, telephoned Mr Cowley and proposed a "package" of $660,000. The terms of that proposal, which I find Mr Cowley accepted, will be later set out. It may be noted that in negotiating the terms upon which Mr Cowley would leave the second partnership, the dispute which has been referred to in this case as the first issue was reserved. No attempt was made to achieve an overall clearance of disputes. The discussions of July 1995 were directed simply to settling the terms upon which Mr Cowley would walk away from the second partnership. It seems then that the first and only serious complaint that the accounts of the first partnership be rewritten occurred in mid-1995, almost nine years after the partnership had commenced, and almost a year after it had ceased to exist inasmuch as it had been dissolved -- 17 of 29 -- 17 and converted into the second partnership (with Mr Khatri as a partner) in July 1994. There is little doubt in my view that the complaint was partly brought about by rationalisation on the part of Mr Cowley after realising that he was not getting ahead to the extent that he had anticipated, and a perception of some unfairness in the way in which the accounts had originally been presented. Had that presentation been contrary to any express agreement, one would have expected a far clearer and much earlier protest. It may also be noted that the time when the complaint finally emerged was one by which other tensions and dissatisfactions were starting to emerge within the partnership. At the very latest Mr Cowley had a copy of Mr Worrell's figures by January 1991 and he must have been aware of the partnership returns before and after this time. He expressly approved some of them. It seems to me to be probable that all partners accepted the opening accounts as being correct and in accordance with what had been agreed, and that it was not until the partnership dispute approached that Mr Cowley, in reconstructing events nine years earlier, formed the view that a fairer basis of entry would have been what he now alleges. Among the many occasions when one would think the issue should have been specifically raised, if it was to be raised at all, would have been the occasion ofMr Khatri's entry into a fresh partnership. The circumstances in my view are strong enough to raIse an estoppel against Mr Cowley in relation to the correctness of the original accounts. It is probable that had Mr Cowley raised allegations concerning the correctness of these accounts and an alleged entitlement to have the entitlements of the partners calculated with different effect, the partnership would have been terminated. It was a partnership at will. The lion's share of the profits of the partnership was being generated by Mr Worrell, and in Mr Worrell's phrase, "Mr Cowley wasn't generating very much". If the matter had been raised earlier it is probable that the partnership would have been terminated. Its termination, on the balance of -- 18 of 29 -- 18 probability, would have left Mr Worrell and Mr Whitehill in a better position than they would now be in through the continuation of the partnership, because their relative profitability and entitlements would probably have been higher if they had been given notice of what Mr Cowley now claims. If Mr Cowley could now be heard to say that these accounts are wrong and that the respective entitlements of the partners in the first partnership should now be redetermined, Mr Worrell and Mr Whitehill, who relied upon the assumption that Mr Cowley accepted the terms presented in the books, would suffer detriment through having being deprived of the opportunity to terminate the partnership or otherwise rearrange their affairs. That detriment in my view would be the direct consequence of the assumptions induced by Mr Cowley's representations that the capital accounts as presented in the books and accounts of the partnership were in order. I therefore consider that if otherwise entitled to challenge the entries in the capital accounts, Mr Cowley is estopped from alleging that such accounts are incorrect. The second issue - termination of the second partnership On Mr Cowley's behalf it was submitted that no binding agreement was reached on any point at all because there were a number of issues upon which the parties failed to make a concluded agreement. In particular Mr Cowley's counsel submitted that the parties failed to agree on the terms on which he might remain in occupation of a part of the premises the subject of the partnership lease; and that agreement on anything at all was conditional upon agreement being reached on that point too. It is a somewhat surprising submission, because the suggestion that he take over a part of the existing premises, and pay a proportional part of the rent, was made by the other partners, and Mr Cowley does not ever appear to have been -- 19 of 29 -- 19 particularly interested in it. I take the view that discussions concerning the lease were merely the canvassing of a further possibility that might be of mutual benefit. If they failed to settle that question it did not in the end affect the agreement that they made on other questions. It was not necessary for the parties to reach agreement on every possible point of dispute. In my view important binding arrangements were made, leaving any unresolved matters to be determined if necessary under the general law including the rules applicable to dissolution of partnerships. It is common ground that the parties at that time agreed that the second partnership should be dissolved with effect from 30 June 1995. It is also common ground that Mr Cowley moved out of the premises formerly occupied by that partnership and went to a different floor in the same building where he has thereafter conducted a practice of his own. It is also common ground that he took with him certain furniture and equipment selected by him and agreed to by the other parties and that he also took with him a considerable number of clients, as agreed by the other parties. There is no doubt that an effective severance was arranged and effected. I accept that on the night of 20 July 1995 Mr Cowley and Mr Whitehill (on behalf of the other partners) reached agreement that Mr Cowley would leave the partnership in exchange for a "package" of $660,000 which would be satisfied by four components. These were (a) "clients to the value of $500,000" which on the recognised rate of 90 cents in the dollar would be regarded as satisfying $450,000 of the package; (b) debtors to the value of $130,000; (c) plant and equipment selected by Mr Cowley to the value of$35,000; and (d) cash $45,000. -- 20 of 29 -- 20 The discussion included a suggestion by Mr Whitehill that Mr Cowley might take over part of the space within the partnership's lease,. which had formerly been sublet to solicitors Rogers Matheson Clark. Mr Cowley said that he thought the area would be far too big and Mr Whitehill suggested that it might be possible to subdivide it into a smaller area. I do not propose to set out the evidence of discussions on this subject at length. Suffice it to say that in my view the parties were never even close to reaching an agreement on this proposal, although discussions and alternative proposals in relation to it occurred over a few days. Mr Whitehill later suggested an alternative area at the rear of the building but that was quickly rejected. Mr Cowley asked Mr Whitehill whether his taking over part of the area of the partnership lease was a significant factor. Mr Whitehill said he did not think that it was critical and that he would get back to Mr Cowley. In point of fact Mr Whitehill never made any further proposal on that subject, and the parties proceeded to amplify and implement the basic agreement they had made on the $660,000 package. I find that agreement upon taking over part of the partnership lease was never a condition of that arrangement. I also find that it was agreed on behalf of the continuing partners that they would pay the wages ofMr Cowley's staff up until the time that he left the practice, and that Mr Cowley would be entitled to his normal draw for the month of July. During the week following 20 July Mr Cowley advised Mr Whitehill that he would be vacating the space. No objection was raised. Further negotiations between the parties led to agreement that the partnership would cease as from 30 June 1995. The parties settled which staff were to go with Mr Cowley, and in the event six members of staff went with him. He in fact moved out from the partnership premises on 28 July with his secretary, and the remainder of his staff followed a little later. At that time full cooperation was extended to Mr Cowley, permitting him to select clients estimated to be of the discounted value of $450,000, and -- 21 of 29 -- 21 arrangements were made in relation to their files and Mr Cowley's right to continue to act for those selected persons. Mr Cowley also selected plant and equipment to an estimated value of $35,000 and arranged for its removal. The continuing partnership, consisting of Mr Worrell, Mr Whitehill and Mr Khatri, continued to operate under the old name and in the old premises. Mr Cowley set up his own practice in the 26th level of the same building. There are however some parts of the agreement which have not been fully carried out, and some respects in which it has been breached. It will now be convenient to consider the position of the parties with respect to the various points of contention. (a) Cash payment $45,000 This has never been paid, and there is no justification at all for the defendants having failed to pay it. (b) Clients estimated to be worth $450,000 Mr Cowley complains that he has in fact ended up with a client base which has so far demonstrated a worth of only approximately $350,000 per annum. I may mention that throughout their evidence all parties used the jargon "sale of clients", and their discussions on this question are apparently premised on an assumption of actual value being approximately represented by the annual amount of fees, although no attempt was made to demonstrate how this is so. However the assumption seems to have been common, and whatever it means the parties seem to have been ad idem about it. The arrangement regarding clients was that Mr Cowley would take from his client list whatever clients he chose and who he thought might remain with him. To this end he and Mr Whitehill went through the list and Mr Cowley was permitted to make the -- 22 of 29 -- 22 selection. It is now alleged that the value of clients remaining with Mr Cowley is less than the intended $450,000. That however does not stem from any fault on the part of the defendants or any failure to cooperate in the carrying out of this part of the agreement. In my view, the defendants' obligations under this part of the agreement were satisfied by permitting Mr. Cowley to select clients that he estimated would represent the agreed value. Once he had taken such clients, various other factors could influence what they in fact turned out to be worth. It may be noted that even after Mr Cowley had left the practice, he was provided with further files which he had not initially selected but which he later mentioned in a supplementary list. If he failed to select wisely, or if clients did not stay with him, that should not in my view be visited upon the defendants. In these circumstances I consider that the defendants have discharged their obligations in this respect and that Mr Cowley accepted as performance what was done. (c) Debtors The evidence is conflicting as to who should initially effect the collection from the current debtors, and the agreed mode of collection seems to have changed at various stages. Initially a distinction was drawn between "old debtors" estimated to have a value of about $30,000 and "current debtors" estimated to have a recoverable value of $195,000. In the event, they seem to have been lumped together. Mr Whitehill concedes that the debtors outstanding on Mr Cowley's files were nominally in the region of $272,000 to $280,000. The initial proposal was that Mr Cowley would receive $100,000 from certain fees, and the defendants $95,000. It was contemplated that as the fees were collected (by Worrell Whitehill and Co) up to the sum of -- 23 of 29 -- 23 $190,000, there would be a "fifty/fifty split", that is to say each would progressively receive half of what was collected until each had received $95,000. Then the remaining $5000 that was collected would belong to Mr Cowley. Unfortunately, the defendants breached that arrangement. They collected and retained the first (and easiest) of the accounts to recover, and then, in November 1995 purported to discharge their obligation by giving to Mr Cowley the opportunity of collecting the remaining uncollected debtors totalling a maximum of $127,933. Mr Cowley has thereafter done his best to collect these, but has succeeded in doing so only to the extent of $62,936. It is to be inferred that not much further recovery is now possible, and that people who do not pay after two years are not to be highly regarded as debtors. Even so it is possible that a small further amount of recovery might be effected. The precise sum initially collected and retained by the defendants was not given in evidence but was said to have been slightly over $60,000. In short, it is submitted that all that the defendants have done under this part of their agreement is to give to Mr Cowley the least collectable of the available debts, and to have done so more than 90 days late. It is also to be noted that in the alleged "debtors reconciliation" forwarded by the defendants to Mr Cowley in November 1995 (ex. 15), they purported to set off certain sums against his entitlement, which I find they were not entitled to set off. These include amounts which were paid to Mr Cowley's staff (which I find the defendants had agreed to pay) and a demand for return of drawings ($4500) which I find the defendants had agreed Mr Cowley could take. It will also be seen that even the face value of the debtors who were transferred is less than the agreed $130,000. The defendants defence and counterclaim pleads the relevant agreement: -- 24 of 29 -- 24 " . that (Mr Cowley) would accept the following in full and final satisfaction of his entitlement from the second partnership ... : the sum of $660,000 made up as follows (a) clients to the value of$500,000 valued at 90% $450,000 (b) debtors 130,000 (c) plant & equipment 35,000 (d) cash 45,000 TOTAL $660,000 Subject to .. [certain further terms and conditions which need not here be set out]" As I understand this "package" agreement, the $660,000 was the estimated value of what Mr Cowley was to receive. So far as "clients" are concerned the benefit of continued dealing with any client depends upon the consent of that client, and of its very nature even with maximum cooperation of all parties, it could not be guaranteed that the result would be worth what was estimated. The result could vary upwards or downwards, and as I have already indicated, I consider that the parties discharged their obligations under subparagraph (a) above by means of the cooperative arrangement that ensued. However the same cannot be said with respect to the "debtors". In this instance sufficient debts existed to enable the stated sum of $130,000 to be obtained. Plainly it was agreed that payment of that sum be made out of moneys recovered from debtors, but subject to that limitation it was a promise to give Mr Cowley benefits of that kind to that value. The discussion concerning recovery of the initial $190,000, with equal distribution up to that point, and then payment of the remaining $5000 was in my view merely the contemplated order of procedure based on the belief that those estimates -- 25 of 29 -- 25 were accurate. The parties made no agreement as to what was to happen in the event that the debtors were worth less than they were alleged to be. In my view, in this instance, the obligation of the defendants was to transfer debtors to an actual value of $130,000, subject only to the proviso that such money had to be recoverable out of existing debts. It was not an agreement to split the debtors fifty/fifty or in any other proportion. It was essentially an agreement to transfer to Mr Cowley the benefits payable from existing debtors to an actual value of$130,000. The conduct of the defendants in relation to this part of the agreement was in breach even of the machinery provisions that had been agreed, and it reveals small regard for Mr Cowley's rights, associated with their failure to pay the promised cash payment. The sequence has also in all probability contributed to some extent to the paucity of the total amount actually recovered. In my view, making a small allowance for the prospect of some further recovery by Mr Cowley from those debts which were belatedly transferred, damages for the defendants breach of this obligation should be assessed at $65,000. If I am wrong in construing the agreement as one to transfer debtors to an actual value of $130,000, I would assess damages at only $25,000. One would start with the $2067 actual shortfall in the face value of debtors transferred in November 1995. The debtors actually transferred, ofa nominal value of$127,933, were probably overstated in that they included $13,787 ofMr Cowley's work in progress. On this basis even the nominal value of the debtors transferred is overstated by the sum of approximately $13,787. In this context I do not accept Mr Whitehill's evidence that there was a special promise made by Mr Cowley to the effect that his staff's wages and his own drawings would be covered by his fees for that month. -- 26 of 29 -- 26 The face value of the shortfall would therefore be a total of$15,854. However the defendants' breach of the machinery arrangements in my view probably contributed to the paucity of the collection and a conservative general assessment should be made for the breach, leading to an overall assessment of $25,000 on this alternative basis. (d) Investment account It is common ground that Mr Cowley received $5000 from a separate bank account of the partnership relating to investment advisory services and that this must be brought into account in the defendants' favour in any assessment of damages or accounting between the parties. (e) Plant and equipment There seems to be no dispute concerning the proper discharge of this part of the agreement. If there is a complaint in relation to leased computers no damage has been proved. (f) Interest in the unit trust of the fourth defendant (Calendar Investments) Mr Cowley, on request, transferred his share and signed papers relinquishing his directorship in the fourth defendant. He declined however to transfer his or his company's interest in a unit trust. Quite simply, no agreement was made between the parties in relation to that interest. In fact no agreement was necessary. The remaining partners who are in control of the fourth defendant have simply arranged its business so that entitlements will not now flow to the trust. Nobody seems particularly inconvenienced, and in any event there are no legal rights to be determined. < • -- 27 of 29 -- 27 (g) Right to use firm name Mr Cowley's stated objective was to leave the practice and set up a practice on his own. He agreed that the arrangements were directed to what the other partners had to payor do in order for him to "go away and leave us alone". It was plainly intended that the old partnership would continue under its existing name if it wished. Mr Cowley did not negotiate for any right to use the old partnership name, and it was understood that the others would continue as before. Mr Cooper, counsel for Mr Cowley, maintained that the defendants have "appropriated to themselves" the goodwill associated with the name Worrell Whitehill and that the name is an integral part of the goodwill, that this forms part of the assets to be realised on dissolution, and that Mr Cowley is entitled to an account of the profits that have come to the continuing partners by continuing to use the old name. However the evidence of Mr Cowley makes no suggestion along these lines, and plainly shows that he had no . expectation of restraining two of the remaining partners from continuing to use their own names, or that the continuing partnership would or should trade under any other name. In the present circumstances Mr Cowley has no right to restrain the former partners from continuing to use the old firm name (which included the actual names of two of those partners), or for an account of profits attributable to the use of that name (cf. Lindley above, 17th ed. para 10-162; Burchell v Wilde (1900) 1 Ch 551); and Scott v Bail [1914] VLR 270). (h) The defendants' counterclaim The counterclaim is based on the alleged promise by Mr Cowley to take over part of the old partnership tenancy. For reasons already given, I find that no agreement was -- 28 of 29 -- 28 made that he would undertake any such obligations. The second part of the counterclaim, which alleged that Mr Cowley failed to contribute to computer costs, was abandoned. ORDERS The following orders should be made: (a) Declaration that the first partnership was dissolved on 1 July 1994. (b) Declaration that the second partnership was dissolved on and from 30 June 1995. (c) Declaration that an agreement was made between the plaintiff and the first three defendants on 20 July 1995 concerning the terms upon which the plaintiff should leave the second partnership and the terms upon which it should be wound up. (d) Declaration that by reason of breaches of that agreement on the part of the first three defendants of that agreement the plaintiff has suffered $105,000 damages. (e) Judgment for the plaintiff for $105,000 damages together with interest. (f) The counterclaim should be dismissed. Before pronouncing final judgment the matter should be adjourned to 12 September 1997 to enable the parties to complete the windings up of the respective partnerships in accordance with these findings, and if thought fit to seek any necessary consequential orders. I shall also hear submissions on costs. $ , -- 29 of 29 --