Everingham v Clarke [1992] QSC 421 [1994] 1 Qd R 34

' . ;;:~~~;:;;. ·. :~~fj?f State Reporting Bureau p TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) ..SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION RYAN J No 1564 of 1992 PAUL ANTHONY EDWARD EVERINGHAM and ROSS DAVID CLARKE, EDWARD ALEXANDER KANN, REVISED COPiES ISSUED State R2port;ng Bureau Date cZ:<.4 i .Z.. I 9 ;v Plaintiff ' -, DARRYL DENI S McDONOUGH, PETER LEWI S GORE, _/ ANDREW MORGAN BROWN, KERRY JOHN HEILBRONN, ANDREW WILLIAM SMITH and MARTIN MAXIMILIAN KLAPPER '......_/ I BRISBANE .. DATE 1 6 I 1 2 I 9 2 .. JUDGMENT 1 Defendants -- 1 of 12 -- (. 161292 HIS HONOUR: I dismiss the application so far as it relates to paragraphs 1, 2 and 3 of the summons and order the applicant to pay the respondents' costs of the application. I shall hear submissions in relation to the application that the action be certified for speedy trial. That was a matter not ~ddressed in the submissions when this matter was before me, but it is part of the summons on an alternative basis. It does seem to me that in a case where there is involved a question of the conduct of a solicitor, as seems to be involved in this case, that speedy trial is highly desirable and unless you have some reason why I shouldn't do so, I propose to certify for speedy trial. MR SEARLE~ There is no opposition from this side of the table, Your Honour. HIS HONOUR: I take it that you would be seeking it? MS MORRISEY: Yes, Your Honour. HIS HONOUR: What I think then is required is an agreement in relation to the procedure; in other words, time for delivery of a-s~atement of cla~m and defence, etc. I think i-t is best, particularly as counsel were present and not here at the moment, that that be worked out between the parties or their counsel and that a draft be submitted to me. If it is impossible to get agreement, then the matter can be brought back before me again. I publish my reasons. JUDGMENT 2 '< 1 "' 10 20 30 40 50 60 c -- 2 of 12 -- ' .. . i------ IN THE SUPREME COURT OF QUEENSLAND ri.s."No. 1564 of 199 2 Brisbane Before The Hon. Mr. Justice K.W. Ryan [Re: Paul Anthony Edward Everingham] BETWEEN: AND: PAUL ANTHONY EDWARD EVERINGHAM ROSS DAVID CLARKE, EDWARD ALEXANDER KANN, DARRYL DENIS McDONOUGH, PETER LEWIS GORE, ANDREW MORGAN BROWN, KERRY JOHN HEILBRONN, ANDREW WILLIAM SMITH and MARTIN"'MAXIMILIAN KLAPPER REASONS FOR JUDGMENT- RYAN J. Judgment delivered on 16/12/1992 __ Counsel: Mr. M. Stewart for Applicant Mi\ B. 0 'Do:imell for Respondent Solicitors: Corrs Chambers Westgarth for Applicant McCullough Robertson for Respondent Hearing Date: 10/12/1992 Plaintiff Defendant -- 3 of 12 -- I~ IN THE SUPREME COURT OF QUEENSLAND O.S. No. 1564 of 199 2 Brisbane Before The Hon. Mr. Justice K.W. Ryan [Re: Paul Anthony Edward Everingham] BETWEEN: AND: PAUL ANTHONY EDWARD EVERINGHAM ROSS DAVID CLARKE, EDWARD ALEXANDER KANN, DARRYL DENIS McDONOUGH, PETER LEWIS GORE, ANDREW MORGAN BROWN, KERRY JOHN HEILBRONN, ANDREW WILLIAM SMITH and MARTIN MAXIMILIAN KLAPPER REASONS FOR JUDGMENT - RYAN J. Judgment delivered on 16/12/1992 Plaintiff Defendant The plaintiff applies for an order pursuant to s. 12 of the Judicature Act of 1876 that all questions and issues of fact and all questions of account arising in an action be tried before a special referee, and that the special referee shall be one of three named persons, each of whom is Her Majesty's counsel for the State of Queensland, or such other of Her Majesty's Counsel for the State of Queensland as the Chamber Judge may think fit to appoint. Each of these three persons has indicated that he is willing to act as referee in the event that an order is made pursuant to the term of the summons. The appointment of each is however opposed by the defendants on personal grounds. -- 4 of 12 -- 2 The defendants oppose the application for the matter to be heard by a special referee. ·The statement of . claim alleges that the plaintiff, the defendants and one· Stephen Charles Russell are solicitors of this Court. Prior to 8 August 1992 they carried on a practice in co-partnership in Brisbane under the firm name of "Clarke and Kann" and under the terms of a partnership agreement dated 10 Apri.l 1990. August 1992. The.plaintiff retired from the partnership on 8 It is·. alleged that the partnership agreement governs the relationship between the defendants and the plaintiff, and that ell. 12, 14 and 15 of the partnership agreement apply as between the parties to determine the plaintiff's entitlements upon his retirement from the partnership .. The defendants continue to - conduct the practice under the firm name of "Clarke and Kann" and employing the assets of. the partnership. They are therefore "the c continuing partners" within the meaning of the partnership ( \..__. agreement. By notice dated 8 September 1992, they exercised their option under the Partnership Agreement to purchase the plaintiff's share in the capital and assets of the partnership. The defendants by the terms of their notice of. exercise of option dated 8 September 1992 dispu~ed the plaintiff's entitlement to good-will as set o~t in paragraph 8 of the statement of claim. These allegations are admitted in the defence. It does not however admit the allegation as to the plaintiff's entitlement to. be paid: as set out. in para. 8 of the statement of claim. That allegation is in these terms:- I -- 5 of 12 -- 3 "Pursuant to clause 15 of the Partnership Agreement, the plaintiff (as a "retiring Partner") is entitled to be paid: (a) a purchase price representing 13.00% of the net value of the capital and assets of the partnership business, excluding goodwill, to be determined by a practising public or chartered accountant agreed by all partners and/ or their executors and administrators or in the absence of such agreement to be appointed by the President for the time being of the Queensland Law Society Incorporated; (b) An amount for the plaintiff's proportion of the goodwill of the partnership business, calculated as being 13.00% of the average annual net profit of the Partnership before investment, other than cash investments, and before adding back non-tax deductible i terns, for the period of three · years pr-ior . to his retirement." Clause 14 of the Partnership Agreement provides:- "14.1 14.2. Any Partner, in this Clause referred to as 'the retiring Partner' , may retir·e from the Partnership at any time upon the expiration of one month' s notice in writing of his intention so to do (the 'Retirement Notice' ) given to each of the other Partners in this Clause referred to as 'the continuing Partners' and in any ... such case the continuing Partners shall have the option, exerciseable at any time before· the expiration of the said one month, of purchasing the retiring Partner's share in the capital and assets of the business. The continuing Partners shall exercise··such , option by delivering to the retiring Partner a Notice of Exercise of Option within the said period of one month accompanied by a payment of the sum of ONE THOUSAND DOLLARS ( $1,000.00). The balance of the purchase price shall, subject always to the provisions of Clause 16 thereof, be paid by the continuing Partners to the retiring Partner in the following manner:- 14.2.1 Within 1 4 days of the receipt of the valuation of the Partnership as hereinafter set forth, the continuing Partners shall pay to the retiring Partner a sum equal to 10% of the valuation less the aforesaid sum of ONE THOUSAND DOLLARS ($1,000.00), along with such sum either, in specie or in -- 6 of 12 -- 14.2.2 4 cash, from the Asset Bank, as thecontinuing Partners deem prudent; The balance of the purchase price shall be·paid by the continuing Partners to the retiring Partner by 36 equal consecutive calendar monthlyinstalments, the first of such instalments to be paid within one month of the date of payment of the balance of deposit as aforesaid. Such equal consecutive calendar monthlyinstalments shall include interest at a rate equivalent to the rate from time to time .charged.by the partnership's Banker for the time being, on overdrafts of $100,000.00 or more calculated in the first instance from a date ·60 days after the date of receipt of the Retirement Notice by thecontinuing Partners from the retiring Partner." Clause 15 provides: "15.1 The price to be paid by the continuing Partners to a Partner who shall die or who shall give notice pursuant to Clause 14.1 or who shall receive notice as the defaulting Partner in terms of Clause 12.1, (in this Clause . referred· to as ' the Retiring Partner') for his interest in the:Partnership business shall be ascertained by agreement between the continuing Partners and the Retiring Partners, within 21 days of receipt by them of such notice (or such longer period as they may agree) or, failing such agreement, in the following manner:- 15.1.1 . 15.1.2 The Purchase price shall be the amount of a valuation of the Retiring Partner's respective proportion of the net value of the capital and assets of the Partnership business, excluding goodwill, such valuation to be determined by a practising Public orChartered Accountant agreed by all Partners and/or their Executors and Administrators. or in the absence ofsuch Agreement to be appointed by the President for . the time being of The Queensland Law Society Incorporated;and· Subject to Clauses 7.1.1, 7.1.2, 7.1.3, 7 • 1 • 4 f 7 • 1 • 5 f 7 • 1 • 6 f 1 5 • 2 f 1 5 • 3 and -- 7 of 12 -- ___ / Where: 5 17.1 hereof, there shall be added to the amount ascertained by the saidvaluation, an amount for the Retiring . Partner's respective proportion of the goodwill of the Partnership business, calculated in accordance with the following formula: G = NTP x RPP G is the amount to be paid for goodwill. NTP is the average annual net profit of the Partnership before investment, other than cash investments, and before adding back non-tax deductible items, for the period of 3 years prior to the retirement of the Retiring Partner, or such lesser period during which the Retiring Partner was a Partner of the Partnership, as the case may be, and RPP is the percentage share of the Retiring Partner in the capital and assets of the Partnership at the date of death, giving notice, or receiving notice, as the case may be." It appears that the only issue which arises is as to the entitlement of the plaintiff to be paid an amount for his proportion of the goodwill of ·the partnership business. The defendants assert that the plaintiff's entitlement to goodwill should be reduced because of his conduct as a partner which influenced them to serve the notice on him on 8 August 1992. ,._./ That notice alleges default in his obligations to the partnership. Clause 11 . 1 . 4 of the partnership agreement provides that each partner shall diligently attend to such aspect or aspects of the partnership business as it shall be mutually agreed upon by the partners that he should so attend. Section 12 of the Judicature Act of 1867 provides:- "In any cause or matter before the said Court in which all parties interested who are under no disabilityconsent thereto and also without such consent in any such cause or matter requ1r1ng any prolonged examination of documents or accounts or ..any scientificor local investigation which cannot in the opinion of -- 8 of 12 -- 6 the Court or a judge conveniently be made before a jury or conducted by the Court through its other ordinary officers the Court or a judge may at any time on such terms as may be thought proper order any .question or issue of fact or any question of account arising therein to be tried before a special referee to be appointed by the. Court or judge. All such trials before referees shall be conducted in such manner as may be prescribed by Rules of Court and subject thereto in such manner as the Court or judge · ordering the same shall direct. " In the absence of consent of all interested parties, my jurisdiction to-make an order under s. 12 arises if the cause of matter requires any prolonged examination of documents or accounts which cannot in my opinion conveniently be made before a jury or conducted by.the Court through its ordinary officers. In stating this, I accept that the relative clause "which cannot in the opinion of-. the Court or a judge etc" qualifies both alte-rnatives .mentioned in s. 12, namely a cause or matter requiring any prolong.ed examination of documents or accounts, and a cause or matter. ··requiring any scientific or local investi-gation. That interpretation was adopted in Charles Osenton &'eo·. v. Johnston [1942] A.C. 130 in respect to s. 89 of the.Judicature Act 1925 (U.K.),.but on words derived from s. 57 of the Supreme Court of Judicature Act 1873 (U .. K.) which correspond to those in s. 12 of the Judicature Act . . It was submitted for the applicant that a prolonged examination of accounts would be required. A contrary submission was-made on behalf-of the defendants. The calculation which is required _to be made under cl~ 1 5 .1 . 2 of .the Partnership Agreement is the average annual net profit of ·the partnership before investment, other than cash investments and before adding back non-tax deductible items, for c -- 9 of 12 -- .' 7 a period of three years prior to the retirement of the retiring parties. This involves an accounting exercise for a three year period which may be of some complexity, but r·have difficulty in thinking that it will require a prolonged examination of accounts which could not conveniently be conducted by.the Court through its other ordinary officers. No doubt, as.Lord Wright observed in Charles Osenton & eo. v. Johnston at pp. 144-5, "prolonged" involved practical questions of degree, and the. word "conveniently" is a word which affords a large scope for discretion. I assume, as Lord Parker did in the same case (at-:. ~ p. 149) that a prolonged examination of documents almost certainly cannot conveniently be tried by a jury andmay not be tried with convenience by a judge alone·o~ ~ne of the ordinary officers of the court other than an official referee. The applicant has not however shown with any particularity how it is that the accounts will require prolonged--investigation so as· to justify the making of an order . pursuant . to s. .12 of rthe Judicature Act. In the circumstances, I . consider tpat the applicant has not shown that the conditions laid down in s. 12 for the exercise of jurisdiction are fulfilled. Even if jurisdiction exists in the circumstances to make an order that any question of fact or any question of account arising in the cause or matter be tried before a special referee, I consider that I should in the exercise of my discretion refuse to make such an order. The main reasons put forward on behalf of the·. applicant as to why the discretion should-be exercised-to make·an order were that this would enable the matter to· be determined more -- 10 of 12 -- 8 expeditiously and that it was desirable in the interests of the parties and also of the partnership's clients and former c~ients that evidence in relation to an allegation that the applicant had breached cl. 11.1.4 of the Partnership Agreement and thereby damaged the business of the partnership not be given in a public forum~ In relation to the second of these matters, it was admitted that a reference of a matter to an·official referee may properly be resisted where fraud of the other party is alleged. · In Russell v. Russell (1880) 14 Ch. D. 471, it was said ·that in a case where fraud is charged, the Court will in general refuse to send a dispute to arbitration if· the party charged· with the fraud· desires a public ·.inquiry. But where the objection to arbitration ~s by fhe party charging the fraud, the Court will not·necessarily accede to it, and will never do so unless a prima facie case of fraud is proved. Viscount Simon L.C. referred to that case in Charles Osen-ton & Co. v. Johnston (1941) A.C. 130 at p. 131, which involved the professional reputation of the partners~, · I accept that where a professional person who is alleged to have breached his obligations under a Partnership Agreement desires to have the matter determined by a referee, this is a factor which should be taken into account in determining whether an.order should be made. So is the possibility that the matter may be dealt with more expeditiously through that procedure. But I accept as accurate the statement by Beach J. in·Taylor & Sons. Pty. Ltd. v. Brival Pty. Ltd. (1982) VR 762 at p. 765 that where a party to litigation wishes the sort of dispute which normally calls for judicial determination to be tried by a judicial '. c \..., cI -- 11 of 12 -- ... ' . 9 tribunal, it will only be in cases of an exceptional nature that his wishes will be disregarded and the matter referred to an arbitrator or special referee. I can see nothing of an exceptional nature in the instant case. A further important consideration is that on a trial by a referee under s. 12, the report of the referee upon any question of fact shall (unless set aside by the Court) be equivalent to the verdict of a jury: Judicature Act of. 1876, s. 13. The report may therefore only be set aside in the same way and on the same grounds as a verdict of a jury can be set aside: .Baroness Winlock v. River Dee Co. (1887) 19 Q.B.D. 155 at p. 158, quoted by Stephen J. in Buckley v. Bennell Design. &-Constructions Pty. Ltd. (1978) 140 C.L.R. 1 at p. 16. Such a limitation of the grounds on which a finding on a question of fact can be . challenged on appeal is a factor to be weighed when objection is taken to a reference. See Charles Osenton & Co. v. Johnston at p. 137. Having regard to the matters to which I have referred, I consider that I should not order any question or issue of fact or any question of account in the matter before me to be tried before a special referee. Accordingly, I dismiss the application so far as it relates to paras. 1, 2 and 3 of the summons, and order the applicant to pay the respondents' costs of that applicatiop. I shall hear submissions in relation to the application that the action be certified for speedy trial. -- 12 of 12 --