- Notable Unreported Decision
SUPREME COURT OF QUEENSLAND
Maclag (No 11) Pty Ltd as Trustee for the Burns Family Trust and Anor v Chantay Too Pty Ltd as Trustee for the Chantay Trust  QSC 299
MACLAG (NO 11) PTY LTD
ACN 010 611 631
AS TRUSTEE FOR THE BURNS FAMILY TRUST
LARRY MARK LAZARIDES
CHANTAY TOO PTY LTD
ACN 099 086 521
AS TRUSTEE FOR THE CHANTAY TRUST
9219 of 2008
Supreme Court of Queensland
13 August 2010
22-30 April and 24-26 May 2010
PARTNERSHIP – RIGHTS AND DUTIES OF PARTNERS INTER SE – FORFEITURE OF SHARES AND EXPULSION – where the plaintiffs and the defendant were equal partners in a partnership which carried on the business of real estate investment – where the partnership considered buying an additional property but decided not to purchase that property in the short term – where the defendant and other related entities subsequently purchased that property – where the personal relationship between the plaintiffs and the defendant broke down – where the defendant failed to sign certain documents required for the carrying on of the partnership business – whether there was otherwise conduct in breach of the defendant’s duty of diligence and good faith which justified the defendant’s expulsion from the partnership.
ESTOPPEL – ESTOPPEL IN PAIS – EQUITABLE ESTOPPEL – PROMISSORY ESTOPPEL – where the plaintiffs and the defendant were equal partners in a partnership which carried on the business of real estate investment – where the partnership considered buying an additional property but decided not to purchase that property in the short term – where the defendant and other related entities subsequently purchased that property – where the partnership deed provided that if a partner breached any of its duties as a partner, the other partners may expel that partner from the partnership within three months of becoming aware of that partner’s offence – where the defendant offered to grant the partnership a right of first refusal over the subject property – where the parties were unable to agree on the terms of the grant of a right of first refusal within the three month period from when the plaintiffs became aware that the defendant had purchased the subject property – where the plaintiffs purported to expel the defendant from the partnership for its conduct in purchasing the subject land, well outside the three month period – whether the defendant is estopped from relying on the three month time stipulation.
Partnership Act 1891 (Qld) ss 22, 27, 31, 38
Property Law Act 1974 (Qld) s 121
Retail Shop Leases Act 1994 (Qld) s 45
Attorney-General of Hong Kong and Anor v Humphreys Estate (Queen’s Gardens) Ltd  1 AC 114
Birtchnell and Anor v The Equity Trustees, Executors and Agency Company Limited and Anor (1929) 42 CLR 384
Blisset v Daniel (1853) 68 ER 1022
Const v Harris (1824) 37 ER 1191
Harvey v Walker & Ors (1945) 46 SR (NSW) 180
Maclag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2)  QSC 299
Wall v London and Northern Assets Corporation  2 Ch 469
Waltons Stores (Interstate) Limited v Maher and Anor (1988) 164 CLR 387
A P Collins with PA Travis for the plaintiffs
D Savage SC with C A Wilkins for the defendant
Frampton Legal for the plaintiffs
Cronin Litigation Lawyers for the defendant
- The three parties in this case were partners in what they described as the Mermaid Retail Partnership. The partnership commenced in 2002 and, on any view, has now been terminated. The question for determination is the means by which the partnership came to an end. The plaintiffs say that there were defaults by the defendant which, according to the express terms of the partnership deed, entitled them to exercise an option to purchase the defendant’s share, which they duly did on 3 September 2008 or alternatively on 9 January 2009. The defendant disputes that entitlement. It is common ground that if the defendant’s case is upheld, then the partnership has been terminated since 30 June 2009 by a notice of dissolution given by the defendant. It counterclaims for orders to effect a winding up of the partnership.
- The first plaintiff is a company controlled by Mr Paul Burns, an architect. The second plaintiff, Mr Lazarides, practised for many years in Brisbane and on the Gold Coast as a solicitor, particularly in matters involving commercial property. At the time of the events in question, he was no longer in practice, but he was a leasing consultant for at least one large shopping centre proprietor. The defendant is a company controlled by Dr Rackemann, who until 2007, practised as an orthopaedic surgeon. Each had extensive business experience prior to and apart from this partnership. They lived at the Gold Coast and they and their families were friends until these events.
- The nature of the partnership business was real estate investment. In the partnership deed, made on 14 February 2002, that business was described in clause 3 as follows:
The partnership shall carry on business as real estate investor/owners and developers of the property comprising a shopping centre located at 2375 Gold Coast Highway, Mermaid Beach or such other business as the partners may from time to time agree.
In April 2002, the partners purchased a shopping centre in MermaidBeach. In 2006 and 2007, the partners acquired other property, this time at nearby Miami. By a contract dated 24 June 2006, they purchased what has been described as a light industrial showroom at 2160-2164 Gold Coast Highway, Miami (which I will call lot 2160). They completed this purchase on 3 October 2006. On 14 August 2006, they contracted to purchase a smaller adjacent commercial property at 2158 Gold Coast Highway (which I will call lot 2158). This purchase was completed in September 2007.
- Each of these properties, at both Mermaid Beach and Miami, was purchased by the partners as tenants in common in equal shares, and each is still so held. This was consistent with the partnership deed, by which the parties agreed that they would be in all respects equal partners.
The partnership deed
- By cl 4 of the partnership deed, it was agreed that the partnership should commence on 14 February 2002 and continue from year to year unless:
… at least three (3) months before the end of any financial year (which shall be taken as June 30 in each year) any party shall have delivered to the other … a written notice of intention to dissolve the partnership at the end of that financial year.
- By cl 7, the capital of the partnership was to consist of all property both real and personal as was from time to time purchased or acquired for partnership purposes as well as all sums of money required for carrying on the partnership business. Clause 7(b) provided that the capital of the partnership might be increased from time to time as the partners should determine, in which case the increase should be contributed by the partners in equal shares. As mentioned already, the partners each held a third share in the capital and in the profits of the partnership business.
- Clause 10 provided that proper and sufficient books of account were to be kept and not removed from “the place of business” without the consent of all partners. It further provided that each partner should have full access to those books at all times and should be able to make such copies of them as he thought fit, either by himself or an agent. By cl 11, on 30 June in each year an account was to be taken, by a suitably qualified accountant agreed upon by the partners, of the assets and liabilities and the profit of the partnership, copies of which were to be furnished to each of the partners.
- Clause 13 required an annual general meeting to be held at least every July and provided that other meetings of the partners might be convened by notice in writing by any partner. No business was to be transacted at any general meeting unless all partners were present. Each partner was entitled to one vote. Clause 14 provided that any differences arising as to “ordinary matters connected with the partnership business” might be decided by a majority, but that no change was to be made “in the nature of the partnership business … without the consent of all existing partners”.
- Clause 17 provided that “[t]he partners may transact any or all of the partnership business through a nominee”. Clause 25 provided that any partner which was a corporation should notify the others of its individual representative and it was agreed that all acts and deeds of that person should be the acts and deeds of the corporate partner represented by him. By that clause it was agreed that the first plaintiff’s representative would be Mr Burns and the defendant’s representative would be Dr Rackemann.
- Clause 16 provided as follows:
- DUTIES OF PARTNERS
Each partner shall:
(a)Be just and faithful to each other in all transactions relating to the partnership.
(b)At all times give a just and truthful explanation of all matters relating to the affairs of the partnership.
(c)Diligently and faithfully employ himself in the business of the partnership and use his best skill and endeavours to carry on the same for the utmost benefit of the partnership.
- Clause 18 provided as follows:
No partner shall without the written consent of the other:
(b)Employ any of the money goods or effects of the partnership or pledge the credit thereof except in the ordinary course of business and upon the account or for the benefit of the partnership.
(g)Buy, order or contract on behalf of the partnership for any goods, articles or property exceeding the value of TWO HUNDRED DOLLARS ($200.00) and any goods, articles or property ordered or contracted for by any partner in breach of this provision shall be taken and paid for by him and shall be his separate property unless the other partner[s] shall elect to adopt the transaction on behalf of the partnership.
- Clauses 21 and 22 provided for the compulsory acquisition of the share of a defaulting partner and are the basis for the plaintiffs’ case. It is necessary to set them out in full:
- 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[s] 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 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.
- The plaintiffs’ case is that the defendant committed breaches of cl 16, by not being just and faithful to the plaintiffs in certain transactions relating to the partnership and by Dr Rackemann not diligently and faithfully applying himself to the partnership’s business. They also allege that the defendant was guilty of conduct that would provide a ground for dissolution of the partnership by the Court. In that respect, s 38 of the Partnership Act 1891 (Qld) provides that a court may decree a dissolution of a partnership in circumstances which include:
(c)if a partner, other than the partner suing, has been guilty of conduct that, in the opinion of the court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of the business;
(d)if a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself or herself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with the partner;
(f)if in any case circumstances have arisen which, in the opinion of the court, render it just and equitable that the partnership be dissolved.
- The defendants claim that those breaches or instances of misconduct engaged cl 22, by which they were entitled to “determine the partnership so far as concerns [the defendant]” with the consequence that cl 21 then applied. In a previous judgment in these proceedings, I rejected the defendant’s argument that cl 21 was unenforceable as uncertain and declared that when it is engaged by the giving of a notice under cl 22, the “date of the purchase taking effect” for the purposes of cl 21 is the date of the giving of that notice under cl 22.
- Clause 23 was a machinery provision for what should happen in the event of a dissolution of the partnership. It is common ground, as cl 4 provides, that in the event that a partner gave notice of dissolution prior to 1 April of a year, the partnership was to be wound up as at 30 June in that year. Of course, the plaintiffs’ case is that this was not a step open to the defendant once they had duly exercised their entitlement under cl 21 and cl 22 to acquire its share.
- Of the many breaches and events of misconduct alleged against the defendant, a matter which was particularly important in the deterioration of the relationship between the partners was the purchase by the defendant, as trustee of another trust controlled by Dr Rackemann, together with Dr Rackemann and his wife as trustees of the so-called Rackemann Superannuation Trust, of another property at Gold Coast Highway, Miami. This property, described in the evidence as the Leon Hill property (after the name of the vendor’s principal, Mr Hill) was purchased by the Rackemann interests by a contract dated 12 April 2007. It was two doors away from lot 2160, from which it was separated by a small parcel owned by a Mr Littlejohn (which the parties called the Littlejohn property). The plaintiffs became aware of this purchase of the Leon Hill property by the first week of May 2007. But they did not act to expel the defendant until September 2008, well beyond the three month period stipulated by cl 22. Their case is that nevertheless they were entitled to rely upon this breach because of an estoppel.
- Otherwise, with one exception, the various matters relied upon by the plaintiffs occurred, or were still occurring, within three months of either the notice of expulsion given in September 2008 or that given in January 2009. The exception is Dr Rackemann’s conduct in January/February 2008 in respect of a prospective tenant, of which the plaintiffs say they were unaware when expelling the defendant but upon which they say they can now rely.
- As noted already, until 2006 the partnership business was limited to the Mermaid Beach shopping centre. It seems that there was no proposal by the partners to redevelop this land. For several years they had been content with its rental income. Partnership meetings occurred every two to three months and the partners also discussed business by phone. The discussions would usually involve things such as proposals for new or renewed tenancies. And during this period, there were frequent meetings between Mr Lazarides and Dr Rackemann at which they discussed, amongst other things, this investment. The day to day conduct of partnership affairs was mostly in the hands of Mr Lazarides who worked from his office in Surfers Paradise. The shopping centre was managed by agents called Burgess Rawson who generally reported to Mr Lazarides.
The Miami properties
- The properties which were purchased at Miami were different, in that they did not constitute all or a part of a shopping centre. They were purchased with a view to redevelopment. Lot 2158 was triangular in shape with a relatively small frontage to the Gold Coast Highway and a longer frontage, to its south, to Pacific Avenue. On its northern boundary was lot 2160 which had about twice as much frontage to the Gold Coast Highway. It also had an extensive frontage to Pacific Avenue and access at its rear from Hillcrest Parade. Its area was 2,914 square metres; lot 2158 contained 433 square metres. Immediately to the north of lot 2160 and fronting the Gold Coast Highway was the Littlejohn property, having an area of 705 square metres and a frontage of about 10 metres. And to the north of the Littlejohn property was the Leon Hill property. It was made up of seven lots with a total area of about 2,833 square metres, with a combined frontage to the highway of about 40 metres and with a rear boundary on Hillcrest Parade of about 30 metres.
- By the time the partners contracted to buy lot 2160, they were interested in purchasing the Leon Hill property as well as lot 2158, with a view to a possible amalgamation and redevelopment with lot 2160. Mr Burns, the architect, prepared some drawings for such a possible redevelopment, as well as for a smaller project which would involve only lots 2158 and 2160. Traffic engineers, town planners and quantity surveyors were engaged to advise on these proposals. The contemporaneous documents evidence an interest by the partners also in other land on the highway to the north of the Leon Hill property. They were negotiating with Mr Littlejohn for the purchase of his land. The larger of the developments which they had in mind, on a site which would include lots 2158 and 2160 and the Leon Hill and Littlejohn properties, was for a supermarket and some other shops as well as apartments.
- It is common ground that the partners met in August 2006 and discussed these alternative development proposals. But there is some difference in their recollections of the outcome. The evidence of Mr Lazarides and Mr Burns is to the effect that it was resolved that the partners should proceed with the purchase of lot 2158 (as well as lot 2160) at that point and defer but not abandon the purchase of the Leon Hill and Littlejohn properties. According to their evidence, this was not because the larger project, which would involve the Leon Hill property, was not feasible or attractive in comparison with a development of only lots 2158 and 2160. Rather, it was that the partners should not undertake any redevelopment of lots 2158 and 2160 within the next couple of years, during which they could expect to be in a stronger bargaining position to purchase the Littlejohn and Leon Hill properties. This was because each of those properties would have little attraction for a purchaser buying only that property so that as the owners of lots 2158 and 2160, they would be the only likely buyers.
- According to Dr Rackemann, at the meeting of August 2006 he disagreed with the others about two things. The first was that he alone was favouring the larger development, that is to say one which would involve the Leon Hill property. The second was that he wished a development, whether that larger development or one involving only lots 2158 and 2160, to proceed immediately. He says that in effect the majority view prevailed.
- Dr Rackemann’s evidence was that at this meeting, when it became apparent that the majority was not in favour of any immediate development or of the purchase then of the Leon Hill property, he said words to the effect of “I believe it is to the benefit of the partnership so that I will purchase it”, to which Mr Burns made some objection but Mr Lazarides said nothing. He also recalled that as he left the meeting in the company of Mr Lazarides, he asked Mr Lazarides why the two of them could not buy the Leon Hill property, but there was no further discussion about that. Then a few days later, when he was talking to Mr Burns about other things, he asked him whether Mr Burns could “get back to [him] in the next week if [Mr Burns] had any change of mind about purchasing the Leon Hill property”.
- In Mr Burns’s evidence, he agreed that a few days after the August meeting, Dr Rackemann said to him that Dr Rackemann “was wanting to give the partnership seven days to decide to buy Leon Hills or he would … purchase it”, to which Mr Burns said that this was a partnership issue which would have to be discussed by the partners in a meeting and that it was a departure from the position reached at their recent meeting, which was that “we were looking at a long-term strategy of acquiring Leon Hill for the partnership to potentially achieve this major sort of mixed use development site”.
- According to Mr Lazarides’s evidence, the “generally accepted” view between the partners was that the asking price for the Leon Hill property, which was $4 million, was excessive at least “as a stand-alone acquisition”. He said that there was consensus amongst the partners to the effect that the Leon Hill acquisition could be deferred and that they should look to acquire the Littlejohn property first in the expectation that there would be no competing buyer for the Leon Hill property. He said that the strategy was to make it appear that the partners were not keen to acquire the Littlejohn or Leon Hill properties. He did recall that when leaving Mr Burns’s house after the August meeting, Dr Rackemann suggested that the two of them should buy the Leon Hill property, and said that he quickly dismissed this as an inappropriate proposal.
- It is difficult to determine precisely what was said between the parties at this meeting in August or in the days which followed it. However, some things are reasonably clear. The first is that the partners gave serious consideration, on the basis of professional advice, to the purchase of the Leon Hill property. Secondly, the advice and information provided to them did not reveal some fatal impediment to a development which included the Leon Hill property or indicate that it was likely to be unprofitable. Mr Burns gave evidence that such a development would have been unprofitable unless residential units could be constructed, which would not have been permitted under the then zoning, and undoubtedly that was a factor which was significant in the decision of the plaintiffs not to then buy the Leon Hill property. But as Dr Rackemann’s evidence demonstrates, this was not a factor which could not have been overcome: hence his strong inclination at the time for the partners to buy that parcel. Thirdly, although the partners considered that a smaller development, involving only lots 2158 and 2160, would be profitable and of itself would justify the purchase of those properties, the plaintiffs were not minded to immediately proceed in that way. They did not then pursue a course towards that smaller development which effectively put paid to the prospect of a larger development involving the Leon Hill property. This suggests that the prospect of using the Leon Hill property was deliberately left open.
- Fourthly, even on Dr Rackemann’s evidence, the August meeting ended upon the basis that the purchase of the Leon Hill property by the partnership remained a real prospect. Thus, when Dr Rackemann gave evidence of the purchase by his interests of the Leon Hill property in 2007, he explained that he did not consult his partners because they had given a clear message that “they didn’t want to purchase the Leon Hill property in the shorter term” and that “in their own words, they said ‘let’s wait and see’ … three years time maybe”. He said that in 2006 his partners had been reluctant to contribute the funds required for this purchase and to incur the losses of holding that property for several years and “that was one of their reasons why they didn’t want to proceed with the purchase at that time”. On Dr Rackemann’s account then, the majority had not excluded the prospect of the acquisition of this property. What they had rejected was the idea of buying it immediately. It remained a real prospect as a future acquisition by the partnership, to be used and developed in combination with the partnership properties already held.
- Fifthly, Mr Lazarides and Mr Burns believed that the Leon Hill property was too expensive at $4 million, but considered the property was unlikely to be sold to someone else and that ultimately it would be procurable by the partnership at a lower price.
- According to Dr Rackemann, he made some attempt to purchase the Leon Hill property shortly after the meeting of August 2006. But he did not explain why he did not purchase the land at that time and there is no contemporaneous documentary evidence that he did try to buy it then. Whilst I accept that he wanted the partnership to then purchase it, I do not accept that he tried to purchase it himself at that time. Nor would I accept that he clearly demonstrated an intention to do so, such that a failure by his partners to strongly object to that course could have been taken as a representation that they were not interested in the acquisition of this land at any time in the future.
- There was a meeting of the partnership at the end of September 2006 and a further meeting towards the end of October of that year. In the September meeting, the partners decided to change the managing agents. Dr Rackemann says that there was then also some discussion to the effect that “the partnership wouldn’t proceed with any purchase of [the] Leon Hill site, [but] that over time, Mr Lazarides would be responsible for trying to [negotiate a] purchase of the Littlejohn property on behalf of the partnership”. I do not accept Dr Rackemann’s evidence in that respect. No such case was pleaded by the defendant. Nor did it plead that in the meeting of August 2006, or at any other time, the partners abandoned any prospect of a purchase by the partnership of the Leon Hill property. At one stage well into the trial (during the cross-examination of Mr Burns), there was an objection by counsel for the plaintiffs on the basis that no such case had been pleaded. I allowed the cross-examination to continue when I was informed of the content of Dr Rackemann’s summary of evidence. However, the summary did not refer to such a decision as Dr Rackemann subsequently testified was made in the September 2006 meeting. The fact of such a decision at that meeting was not put to Mr Lazarides or Mr Burns. And such a decision, to purchase at sometime the Littlejohn property but not the Leon Hill property, would have been highly unlikely. The Littlejohn property was of no apparent benefit except as part of the larger development involving also the Leon Hill property. At one stage counsel for the defendant, in cross-examining Mr Burns, made that very point.
- The meeting of partners in October 2006 was uneventful. But this was to be the last partnership meeting. The apparent explanation for that is in what occurred between Mr Lazarides and Dr Rackemann in respect of a property at the Sunshine Coast.
Mr Lazarides and Dr Rackemann: their falling out
- The two owned land in equal shares at Sunshine Beach, which they had been trying to sell for some time. They had proposed to develop the land themselves but the estimates of construction costs were too high. In the latter half of 2006, Mr Lazarides proposed that Dr Rackemann purchase his interest. Dr Rackemann agreed, and the price to be paid was based upon the land having a value of $1,500,000.
- The land was mortgaged. Mr Lazarides proposed that the documents record the consideration as an amount which was calculated by halving the owner’s equity, ie by halving the difference between $1,500,000 and the mortgage debt. Dr Rackemann, on the advice of his solicitors, said that the consideration should be recorded as one-half of $1,500,000. There was no difference between them as to what should be the outcome, under which Dr Rackemann would assume the entire burden of the existing mortgage debt. In net terms, the amount of money to be paid to Mr Lazarides was in the order of $318,000 rather than $750,000. But the dispute was about whether the documents recording and giving effect to this transaction, and in particular those presented to the Commissioner of Stamp Duties or which might be submitted to the Commissioner of Taxation, should show the consideration as $318,000 or instead $750,000.
- Mr Lazarides was strongly challenged in cross-examination about this transaction, the suggestion being that he was attempting to misrepresent the consideration in order to obtain some taxation advantage. I am not prepared to make that finding. But the relevance of all of this is that it explains the course which the partnership took from about the end of 2006. From that point and throughout the events in question in this case, Mr Lazarides and Dr Rackemann did not speak to each other, although they did exchange emails and other correspondence. That transaction marked a critical point in their personal relationship and in turn their relationship as members of this partnership. It largely explains the absence of meetings of the partners after October 2006. In turn, that deteriorating relationship at least partly explains Dr Rackemann’s decision to acquire the Leon Hill property as he did in 2007.
The Leon Hill property
- In February 2007, Dr Rackemann was contacted by a real estate agent, Mr Callanan, acting for Mr Hill. He was told that the land was for sale for $4.1 million. The asking price had been $4 million when the partners had been considering it in 2006. Mr Callanan had not then been Mr Hill’s agent.
- Dr Rackemann was told that Mr Hill was keen to complete a sale of the property by the end of that financial year. He responded by signing a form of contract to purchase the land at a price of $3.5 million. Within a couple of weeks, and without any bargaining, Mr Hill accepted and signed the contract.
- All of this occurred without the knowledge of Mr Lazarides or Mr Burns. Dr Rackemann says that he saw no reason to refer Mr Callanan’s approach to his partners. Nor did he see that it was appropriate to tell them that the property was now being purchased at a price which was significantly less than that which had been considered too expensive by the partners in 2006.
- The contract was made on or about 12 April 2007 and the other partners became aware of it on 2 May 2007, when Mr Lazarides was told of it by another agent. The purchase by the partnership of lot 2158 had not been completed by then. That contract was subject to a due diligence provision and it became unconditional only at the end of March 2007. By then Dr Rackemann had been contacted by Mr Callanan and, I infer, had made his offer. Yet even according to Dr Rackemann’s version of the events of August and September 2006, his partners had not excluded the prospect of purchasing the Leon Hill property and developing it with lot 2158. I infer that he believed that if he informed them of his proposed purchase his partners would object and might reconsider the question of whether the Leon Hill property should then be acquired by the partnership.
- The response of the plaintiffs to the news of this purchase was immediate. On 3 May 2007, Mr Lazarides emailed Dr Rackemann (and also Mr Bayliss, by then the managing agent of the Mermaid Beach centre) complaining about Dr Rackemann’s purchase in several respects. He wrote that there was “concern” because Dr Rackemann had not informed his partners of the purchase, the land had been considered with other properties in development proposals “worked up” by him and Mr Burns and that the partners had decided in 2006 to put on hold the acquisition of this property whilst they attempted to purchase the Littlejohn property. He also complained that the agent with whom the partnership had been dealing in relation to the Leon Hill property in 2006 was “quite miffed” about being excluded from Rackemann’s purchase, damaging the relationship between the partnership and that agent. And he claimed that Dr Rackemann’s ownership “of a property adjoining the partnership holding create[d] potential for substantial conflict at several levels”.
- On the same day Dr Rackemann emailed Mr Bayliss but copied the email to Mr Burns and Mr Lazarides. He there rejected the suggestion by Mr Lazarides, apparently communicated to him through Mr Bayliss, that Mr Bayliss would have a conflict of duties in acting both as the managing agent of the partnership at the Mermaid Beach centre and as the agent for the Rackemann interests at the Leon Hill property. On the same day, Dr Rackemann emailed Mr Lazarides (copied to Mr Bayliss and Mr Burns) rejecting Mr Lazarides’s complaints.
- On 4 May 2007, Mr Burns emailed Dr Rackemann as follows:
I am disappointed to hear (not from you) that you have purchased the Leon Hill property at Miami. I believe this is not in the spirit or ethics of our partnership.
I believe this makes our partnership untenable and suggest that the solution is for Larry and myself to purchase your interest in the partnership assets at valuation.
Hopefully you will cooperate and that this can be achieved amicably.
- Thus, the immediate response of each of the plaintiffs was to complain that the defendant had acted inconsistently with its duties as a partner. It is now argued by the defendant that the plaintiffs had set about creating a document train with a view to litigation. If it be relevant, in my view the plaintiff’s complaints were genuine. For example, I have Mr Burns’s handwritten draft of his email which shows that it was his own work and not the product of Mr Lazarides’s legal experience.
- Mr Lazarides sought legal advice, from Gadens, within a few days. In his instructions to them he wrote that he and Mr Burns were of the view that Dr Rackemann’s actions in acquiring the Leon Hill property constituted a breach of the partnership agreement and in particular cl 16, and that they were considering exercising their right of expulsion under cl 22.
- At about the same time, Dr Rackemann saw Mr Burns and put a proposal which is described in a memorandum from Mr Burns and Mr Lazarides to him of 11 May 2007. Dr Rackemann proposed to retain the Leon Hill property, to sell to the plaintiffs his interests in lots 2158 and 2160 and to agree not to purchase the Littlejohn property. But he would retain his partnership interest in the Mermaid Beach shopping centre. In that memorandum of 11 May, Mr Burns and Mr Lazarides wrote that the proposal had merit with some qualifications, one of which was that Dr Rackemann should grant to them a first right of refusal over the Leon Hill property. They also made an alternative proposal which was that the partnership holdings would remain unchanged, the partnership would continue in its efforts to acquire the Littlejohn property and that Dr Rackemann would sell two-thirds of the Leon Hill property to the plaintiffs within 12 months of the acquisition of the Littlejohn property or within three years, whichever was the later. And they put a further alternative, which was that they buy his interests in all of the partnership assets at a price fixed by valuation.
- On 16 May 2007, Dr Rackemann emailed Mr Lazarides and Mr Burns suggesting that he sell to them his interest in the Mermaid Beach centre and that he would buy their interests in lots 2158 and 2160. This was rejected by Mr Lazarides in his email of 23 May 2007, in which he claimed that the decision of the partnership had been to acquire the Miami properties, as a “medium/long-term project with considerable upside down the track”. He suggested that in relation to the Leon Hill property “the partnership decision can be achieved” by Dr Rackemann giving a right of first refusal.
- On 8 June 2007, Dr Rackemann emailed his partners, saying that what had been proposed was “a constructive way forward”. He wrote:
I agree that the partnership would be well served by completing the Miami project including acquiring the Littlejohn property.
I would like to ensure that all three of us are clear as to the scope of the partnership – operating the Mermaid development and developing the properties (other than Leon Hill) at Miami – and accordingly the duties of each of us as partners, so that there can be no suggestion that any of us is not free to pursue other commercial opportunities outside the partnership business.
As to the Leon Hill property, I would be content to treat it as you suggest and grant the partnership a first and last right to purchase it so that it becomes part of the Miami project, if I ever decide to sell.
If you both agree to the principle, I will organise papers to formally amend the partnership deed to record these changes to our arrangements.
An equally simple alternative is for you to propose a figure to me for my share, for discussion.
- At this point Mr Lazarides went not to Gadens, but to Ms Shearer of the firm Primrose Couper Cronin Rudkin, who at least until this point had been the partnership’s solicitors. He asked her to draw a document by which “the partnership” would be granted a right of first refusal over the Leon Hill property and which would also contain an undertaking by the “Rackemann interests” not to acquire any further properties at Miami which might be amalgamated with the Leon Hill site. He said that the document should also include a non-lapsing caveat over the Leon Hill property in favour of the partnership, preventing all dealings except leases of a certain kind. This was done without reference to Dr Rackemann.
- Ms Shearer prepared drafts of a deed and a letter to be written to the Rackemanns which she sent to Mr Lazarides on 15 June 2007. On the same day Mr Lazarides emailed Dr Rackemann confirming what he claimed was Dr Rackemann’s agreement to give the partnership a right of first refusal. On 22 June 2007, Mr Lazarides gave further instructions to Ms Shearer, suggesting certain changes to her draft deed.
- On 1 July 2007, Dr Rackemann emailed his partners observing that a financial year had just ended but the partnership had not met for nine months, and suggesting that there be at least quarterly meetings. He sent a further email on the same day to Mr Lazarides, saying that he had not received any financial statements or other documents relating to lots 2158 and 2160 and requesting such documents.
- On 5 July 2007, Ms Shearer, whose firm had become known as Cronin Shearer Lawyers, wrote a letter addressed to the partners of the Mermaid Retail Partnership, care of Mr Lazarides, enclosing a further draft deed, and yet a further draft was emailed by her to Mr Lazarides on the same day.
- On 9 July 2007, Mr Lazarides received an email from Gadens, which was as follows:
A quick e-mail to ask how your negotiations are proceeding with Mr Rackemann.
The deadline for filing an expulsion notice under Clause 21 of the partnership agreement is approaching and we wanted to make sure that if you had not been able to resolve the dispute on a commercial basis that the deadline wasn’t missed.
On 12 July 2007, Mr Lazarides replied to Gadens as follows:
Thanks for your note of 9 July. We have reached ‘in principle’ agreement with Rackemann whereby he will grant the partnership a first right of refusal over the Leon Hill property he has purchased without telling the partnership. This is being documented now by the partnership’s lawyers. Assuming that is finalised satisfactorily, I probably will not have anything further for you, so thanks to you and Arthur for your help.
I will return to that correspondence for its relevance to the question of whether the defendant is estopped from relying upon the three month limit stipulated by cl 22 of the partnership deed.
- On the same day Mr Lazarides gave further instructions to Ms Shearer. He asked her to amend the draft deed in several respects. On the following day and again on 16 July 2007, he gave further instructions to her in relation to the draft documents. It is unnecessary to set out here the terms of these instructions. It is sufficient to say that they were instructions to protect the plaintiffs’ interests vis-à-vis those of Dr Rackemann.
- On 18 July 2007, Ms Shearer sent a further draft deed to Mr Lazarides and asked for instructions as to details to be inserted in his proposed lease of part of the Leon Hill property to the partnership. The proposal, which had not yet been put to Dr Rackemann, was that part of the Leon Hill property would be leased to the plaintiffs so as to provide an interest sufficient to support a caveat. Mr Lazarides was asked to provide details of, amongst other things, the area or areas to be leased as well as other terms of the lease.
- Drafts of a lease and a caveat were sent by Ms Shearer to Mr Lazarides on 19 July 2007 and an amended deed was sent to him on 24 July 2007. On the same day, 24 July 2007, Cronin Shearer wrote a letter addressed to the three partners, care of Mr Lazarides. This letter enclosed the same proposed deed, but it had the appearance of the solicitors having acted upon the instructions of all three partners. The solicitors wrote in their covering letter:
Further to our recent communications, please find enclosed Deed with annexures in relation to the Miami properties which should be printed and signed in quadruplicate.
The Deed contains the first right of refusal and provides for a lease to sustain a caveat and thereby secure the obligations of the Rackemann Partnership in the Deed.
The area to be leased under the Tenancy Agreements is intended to be an insignificant vacant strip around the perimeter of the Leon Hill Site so that it does not interfere with any other tenant’s rights.
- The deed provided for a right of first refusal to be given by the so-called Rackemann Partnership (the owners of the Leon Hill property) to “the Partnership”, which was defined as the partnership constituted by the plaintiffs and defendant. It provided that if the property was offered to the Partnership, the defendant would not vote on the question of whether or not to accept that offer and the defendant was to give a power of attorney to the plaintiffs to authorise them to accept such an offer. It provided that the Rackemann Partnership would grant to the Partnership a lease over a part of the Leon Hill site in terms of an annexed tenancy agreement. The lease was to be for a period of 20 years but the deed provided that “to give effect to this without the need for a code assessment under the Integrated Planning Act the Rackemann Partnership [would] agree to enter into two consecutive leases of ten years each”. The deed also provided that the Rackemann Partnership would consent to a caveat over the Leon Hill site. Then by a further clause it was to be agreed that if the Partnership was dissolved or terminated or for any reason the defendant ceased to be a member of the Partnership, the obligations of the Rackemann Partnership would nevertheless continue for the benefit of the plaintiffs. It contained a covenant by the defendant that whilst it had any interest in any of the properties in Miami, including but not limited to the Leon Hill site, it would not withdraw from the Partnership as allowed in cl 4 and cl 26 of the partnership agreement. Lastly but not unimportantly, it contained covenants whereby the Rackemann Partnership would not acquire any further properties in the immediate vicinity of the Leon Hill site and would not deal with that site except by leases not exceeding terms of five years including options.
- Whilst Dr Rackemann had suggested the grant of a right of first refusal, there had been no suggestion to him that there should be these other terms for a lease of part of the Leon Hill property, a caveat over that property and those significant restrictions on the defendant’s ability to terminate the Partnership or deal with the Leon Hill property.
Late 2007 – failed negotiations
- The three month period under cl 22 of the partnership agreement had commenced when Mr Lazarides was informed on 2 May 2007 of the Rackemanns’ purchase. Within the three months, Dr Rackemann had not withdrawn his proposal of a grant of a right of first refusal. But nor had he indicated any preparedness to agree to a document such as that which was sent to him on 25 July.
- It was not surprising that after this letter from Cronin Shearer and its enclosures were emailed by Mr Lazarides to Dr Rackemann on 25 July 2007, he found them unacceptable. But he did not reply until writing to Mr Lazarides and Mr Burns, on or about 27 August 2007, as follows:
I refer to Larry’s email of 25 July 2007 attaching the letter and documents prepared by Cronin Shearer lawyers for the Mermaid Retail Partnership.
As an initial point, I am disappointed that I was not consulted prior to Cronin Shearer Lawyers being instructed to prepare the documents. I do not wish Cronin Shearer to prepare any further documents on behalf of the partnership and do not consent to that occurring.
In any event, I have reviewed the documents that they have prepared. The documents are unacceptable to me and go much further than my email of 8 June 2007 contemplated. I do not feel that the matters that you have raised and that are set out in the proposed documents from Cronin Shearer will allow us, as you say, to put the matter behind us so the partnership can move forward.
In circumstances where I feel that our relationship as partners has deteriorated to the extent that you would instruct lawyers to prepare documents containing the mattes that these documents contain, it seems to me that a dissolution of the partnership is the most appropriate result.
I suggest that we negotiate my exit from the Mermaid Retail Partnership by an amicable winding up of the partnership without resort to the formal mechanisms in the deed. I suggest that you, and Paul purchase my share of the partnership properties, and 2174 Gold Coast H’way [the Leon Hill property], with appropriate releases and indemnities to bring finality to the partnership and to keep our respective lawyers happy.
As a first step, I am prepared to offer to sell to you at the prices set out below.
2375 Gold Coast H’way$11.5 million
2160 & 2158 Gold Coast H’way$5 million
2174 Gold Coast H’wayat cost
($3.7 million plus
interest to be
Total$20.2 million, plus any interest adjustment
Accordingly, my share of the above properties is $5.5 million plus $3.7 million (plus interest to be calculated).
Alternatively, I will purchase your share of the partnership properties based on the same prices as above. Ie. your share is $11 million.
Otherwise I expect that the properties will have to be put on the market.
I would be happy to discuss the wording of an appropriate deed to record the change in situation.
- Mr Lazarides’s response to Dr Rackemann’s letter of 27 August was to ask for information in relation to the Leon Hill site, such as tenancy details and outgoings. There was no complaint then that the plaintiffs had refrained from exercising a right, under cl 22 of the partnership deed, of compulsory acquisition of the defendant’s share in the belief that a right of first refusal would be granted. That complaint is now made and it is essential to the plaintiffs’ argument that the defendant is estopped from relying upon the expiry of the three month period to dispute their expulsion notice.
- Dr Rackemann responded with some information, as requested, on 4 September 2007. On the following day, Mr Lazarides sought further information about the Leon Hill property. On 14 September, he emailed Dr Rackemann with a proposal for the plaintiffs to acquire the defendant’s interest in the Mermaid Beach centre and for them to sell their interests in the Miami properties to Dr Rackemann. There followed emails between Mr Burns and Dr Rackemann in which, in very general terms, similar proposals were aired.
- Mr Lazarides and Mr Burns wrote to Dr Rackemann on 24 September 2007, setting out in some detail their case of the range of values of the partners’ shares, for the purposes of a proposed division of partnership assets. On the following day, Dr Rackemann emailed Mr Lazarides (copied to Mr Burns) requesting a formal valuation of lots 2160 and 2158 for his “own purposes” and at his expense. That was resisted by Mr Lazarides in his email of the following day. He there wrote that he was concerned that such a valuation might be detrimental to the partnership and that it might be discussed with the partnership’s bank. He also claimed that he and Mr Burns considered that Dr Rackemann’s “earlier agreement to give the partnership a right of refusal over [the Leon Hill site] is an enforceable obligation” and that should the negotiations break down, they would be calling upon him to honour it. On 25 September, the purchase of lot 2158 was settled.
- The negotiations for this division of assets did not progress further. In January 2008, Dr Rackemann retained Mr Cronin, a solicitor, and began to make more specific complaints to the effect that he was not being provided with accounts and other partnership records relating to its ongoing business. On 16 January 2008, Dr Rackemann emailed Mr Lazarides asking to be told what distributions had been made to partners from June 2007. Mr Lazarides replied simply “you can get this information from the bank statements”. On the same day, Dr Rackemann asked to be provided with a copy of the statements from the partnership records and Mr Lazarides replied that he had been informed by the bank that they had sent statements directly to Dr Rackemann as Dr Rackemann had requested in the previous April. Again on 16 January, Dr Rackemann emailed Mr Lazarides asking the question “what feedback have you had from the letting agents of (lot) 2160”, to which Mr Lazarides replied simply and unhelpfully: “quite a bit”. Mr Lazarides then emailed Mr Burns, saying that Dr Rackemann was not entitled to such information because of his conflict of interest by being the owner of the Leon Hill property, for which he might be competing for the same prospective tenants.
- On 17 January 2008, Mr Burns and Mr Lazarides wrote to Dr Rackemann with a different approach, which was to revive the proposal for a right of first refusal rather than to pursue some agreement for the division of partnership assets. They asked him to let them know specifically what parts of the documentation which had been sent to him (in the previous July) were unacceptable to him. They also renewed their complaints that the Leon Hill purchase had been a breach of the partnership deed and was causing ongoing problems for the partnership’s business.
- Mr Cronin wrote to Mr Lazarides on 29 January 2008 in response to the memorandum of 17 January. He denied any wrongdoing by Dr Rackemann in the purchase of the Leon Hill property. He then referred to cl 10 of the partnership deed, which provided that each partner should have full access to the partnership books of account at all times and be at liberty to make extracts therefrom, and demanded that Mr Lazarides produce various documents, including bank statements and copies of leases, by no later than 1 February 2008. He referred to another issue concerning a potential tenant for lot 2160 to which I will return. And he advised that he was seeking Dr Rackemann’s instructions on a “potential proposal for a resolution of the matters which are the subject of dispute”.
- On 30 January 2008, Mr Lazarides gave further instructions to Ms Shearer. He asked her to amend the deed of July 2007 in substantial respects.
- On 1 February 2008, he and Mr Burns signed a memorandum to Mr Cronin which contained the curious assertion that the partnership agreement did not recognise Mr Cronin’s “right to give or receive correspondence regarding partnership matters or to be involved in communications between partners”. Their point seems to have been that because the partnership deed permitted a corporate partner to nominate a representative, then by necessary implication, only that representative could deal with other partners. But the notion that a partner could not deal with the others through its lawyer was not expressed or implicit in the partnership agreement. On the same day, they wrote to Dr Rackemann, providing a response to many of the matters in Mr Cronin’s letter. They claimed they still considered that there was an enforceable agreement giving the partnership a right of first refusal.
- On 4 February 2008, they again wrote to Dr Rackemann, enclosing Ms Shearer’s redraft of the Deed. This again provided for the grant to the partnership of a right of first refusal. But it omitted the previous provisions for a lease of part of the Leon Hill property, a caveat over that property and restrictions upon dealing with that property or terminating the partnership. There had been no response by 22 February, when they again wrote to Dr Rackemann asking him to agree to the revised deed.
- On 29 February 2008, Mr Cronin wrote to the plaintiffs enclosing his draft of a deed between the partners and the Rackemann interests described as the Rackemann Partnership. It provided for a right of first refusal. In that respect it was largely in the terms of Ms Shearer’s most recent draft. There was one significant difference, however, which was that Mr Cronin had removed the provision to the effect that the Leon Hill property could be offered to another buyer only on the same terms and conditions as it had been offered to the partners. Further, Dr Rackemann and Mrs Rackemann were not to be parties to this deed, although they were co-owners of the land. For these reasons and others, the Cronin draft was not acceptable to the plaintiffs. Thus, on 10 March 2008, they wrote to Dr Rackemann rejecting the draft and saying that it seemed that “[t]he only option now left is to put the partnership’s Miami properties (and only the Miami properties) to the open market in a timely manner”. This appears to have been the last of the negotiations for a right of first refusal.
The Leon Hill purchase: a ground for expulsion?
- It is convenient at this point to discuss the plaintiffs’ case which relies upon the purchase of the Leon Hill property as a ground for a notice under cl 22. The questions which arise are whether it did provide such ground, and whether that ground was still available to the plaintiffs when they gave the first of their notices, well outside the three month period, on 3 September 2008.
- In my conclusion, the defendant’s participation in the purchase of the Leon Hill property engaged cl 22. It was a breach of the express duty in cl 16(a), that a partner should be just and faithful to the others in all transactions relating to the partnership. It was also a breach of the partner’s fiduciary duty owed according to the general law. In Birtchnell v The Equity Trustees, Executors and Agency Company Limited, Dixon J remarked that “it has been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners … The relation [between partners] is based, in some degree, upon mutual confidence that the partners will engage in some particular kind of activity or transaction for the joint advantage only”. He said:
The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm. Once the subject matter of the mutual confidence is so determined, it ought not to be difficult to apply the clear and inflexible doctrines which determine the accountability of fiduciaries for gains obtained in dealings with third parties. Of the duties imposed by these doctrines, one which is material for the decision of this case is that which forbids a partner from withholding from the firm any opportunity of advantage which falls within the scope of its undertakings, and from using for his own exclusive benefit, information, knowledge or resources to which the firm is entitled.
- The business of this partnership, according to the partnership deed, was as owners and developers of the Mermaid Beach shopping centre together with “such other business as the partners may from time to time agree”. At one point in the trial, the defendant’s case appeared to be that the Leon Hill property could not have been in any sense within the subject matter over which a partner’s obligations extended, because the partners had not agreed to include it within the partnership business. Such a case cannot be accepted. I have found that the acquisition of the Leon Hill property by the partnership remained very much in prospect after it was decided in August 2006 that the property would not be purchased at that point in time. The partners effectively decided to defer its acquisition, but to keep it under consideration because of what remained the real prospect that the partners would decide to undertake a larger development which included this land.
- In that way, the Leon Hill property represented “an opportunity of advantage” falling within the scope of the partnership’s undertaking. In particular, it represented an opportunity for the more profitable enjoyment of the partnership property constituted by lots 2158 and 2160, the development of which had become part of the partnership’s business. Further, it is clear enough that the experience of the partners in 2006, in investigating the possible uses of the Leon Hill property, must have been advantageous to the Rackemann interests in their acquisition of the land in 2007. Dr Rackemann was able to promptly respond to an agent’s approach, apparently without any of the usual enquiries, let alone a more thorough due diligence exercise, that would be expected of a potential purchaser unacquainted with the property.
- The defendant’s conduct was also within s 38(d) of the Partnership Act, providing then another basis for the defendant’s expulsion in that the defendant was guilty of conduct which was a ground for dissolution: cl 22(d). The conduct was also within s 38(c) of the Act in that the acquisition of Leon Hill was conduct “calculated to prejudicially affect the carrying on of the business [of the partnership]”. That business included the re-development of lots 2158 and 2160, which was likely to be affected by the unavailability of the Leon Hill property. And the business of leasing lots 2158 and 2160 was potentially affected by the competition which would be provided by the Leon Hill property, in circumstances where the landlords of that property would be privy to all of the partnership information relevant to the letting of lots 2158 and 2160.
- Accordingly, the plaintiffs were entitled to give a notice under cl 22. That notice had to be given by 2 August 2007 and the question then is whether the defendant is estopped from relying upon that time limit. The argument focuses upon Dr Rackemann’s email of 8 June 2007 and his non-response to the plaintiffs’ email of 15 June 2007. I have already set out Dr Rackemann’s email. On 15 June, the plaintiffs wrote “confirming your agreement to give the partnership a first right to purchase the Leon Hill property if ever you wish to sell it”. The argument also relies upon the absence of a response by Dr Rackemann to the draft Deed and other documents sent to him on 25 July 2007, until after the expiry of the three month period.
- The plaintiffs’ case is that Dr Rackemann thereby made them believe that the right of first refusal would be given, knowing that if he rejected that proposed resolution of their dispute, the plaintiffs would act under cl 22 within the required time. They say that in reliance upon Dr Rackemann’s representation that the right of first refusal would be given, they did not expel him within the three months, and that accordingly, the defendant is estopped from relying upon the expiry of that period.
- The plaintiffs also offered a variant of this argument, by which they submitted that even beyond the three month period, Dr Rackemann continued to effectively represent that he would grant a right of first refusal. The particular relevance of that conduct, if that be the proper understanding of what happened, is difficult to identify. The apparent purpose of this argument was to explain why the plaintiffs did not move to expel the defendant as soon as they had Dr Rackemann’s rejection of their proposed deed in August 2007.
- I accept that Dr Rackemann represented that he was minded to grant the plaintiffs a right of first refusal. But this was an indication of what he was prepared to agree, not such an agreement itself. On an objective view, there was no intention that the parties would be contractually bound by the emails of 8 and 15 June 2007. They were not in terms of a concluded agreement. Ordinarily some formal document would be expected in this context. Dr Rackemann’s email of 8 June 2007 referred to the need to “formally amend the partnership deed” to make the changes he there proposed in conjunction with the grant of a right of first refusal. Nor was there any expressed consideration for such an agreement by the defendant and the other Rackemann interests who were co‑owners of the Leon Hill property.
- An estoppel as alleged by the plaintiffs requires the proof of an assumption of the existence of a legal relationship or an expectation that that legal relationship would come into existence. I find that Mr Lazarides and Mr Burns did not assume that there existed a legal obligation on the part of the defendant and other owners of the Leon Hill property to grant a right of first refusal. The objective circumstances referred to in the previous paragraph make it unlikely that they did have that assumption. And in his email of 12 July 2007 to Gadens, Mr Lazarides said that the parties had reached an “in principle” agreement which was then being documented. He wrote that “assuming that is finalised satisfactorily, I probably will not have anything further for you …”. This demonstrates that, as would be expected from an experienced lawyer such as Mr Lazarides, he did not believe that there was then an enforceable obligation. Similarly, Mr Burns referred in his evidence to the existence of an “agreement in principle”. Accordingly, the plaintiffs must say that they expected that the defendant and the other Rackemann parties would become bound by the grant of a right of first refusal.
- But the plaintiffs must establish more than such an expectation. As Brennan J held in Waltons Stores (Interstate) Limited v Maher, in a case advanced upon an alleged expectation that a particular legal relationship would exist between the parties, it must also be established “that the defendant would not be free to withdraw from the expected legal relationship”. That requirement was explained by Brennan J by reference to the judgment of the Privy Council in Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd, where an agreement in principle had been reached but which was “subject to contract”. Lord Templeman there said that it was necessary for more to be established than an expectation that a binding contract would probably result. His Lordship said:
It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations set out in a document expressed to be ‘subject to contract’ would be able to satisfy the court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document. But in the present case the government chose to begin and elected to continue on terms that either party might suffer a change of mind and withdraw.
In Waltons Stores (Interstate) v Maher, Brennan J said:
It follows that an assumption or expectation by one party which does not relate to what the other party is bound to do or not to do gives no foundation for an equitable estoppel, though the assumption or expectation relates to the prospect of the other party conducting himself in a particular way. The risk that the other party who, being free to conduct himself in whatever way he chooses, may choose to conduct himself in a way different from that assumed or expected rests with the party who adopts the assumption or expectation.
Parties who are negotiating a contract may proceed in the expectation that the terms will be agreed and a contract made but, so long as both parties recognize that either party is at liberty to withdraw from the negotiations at any time before the contract is made, it cannot be unconscionable for one party to do so. Of course, the freedom to withdraw may be fettered or extinguished by agreement but, in the absence of agreement, either party ordinarily retains his freedom to withdraw. It is only if a party induces the other party to believe that he, the former party, is already bound and his freedom to withdraw has gone that it could be unconscionable for him subsequently to assert that he is legally free to withdraw.
- In the present case, the plaintiffs could not have believed that the defendant and the other Rackemann parties were unable to withdraw from the so-called agreement in principle. At least for this reason the alleged estoppel is not established.
- There are other flaws in the estoppel case. The plaintiffs have not established that they abstained from acting under cl 22 in the expectation that they would be given this right of first refusal. No doubt Mr Lazarides had been advised by Gadens of what should have been apparent to him in any case, which was that there was a three month time limit. There is no suggestion that he or Mr Burns was under some misunderstanding as to when the three months would expire. Mr Lazarides was advised by Gadens on 9 July 2007 that the deadline should not be allowed to pass if Mr Lazarides was not “able to resolve the dispute on a commercial basis”. The deed which the plaintiffs had Ms Shearer draw and send to Dr Rackemann provided for a resolution of the dispute on terms which went far beyond a grant of a right of first refusal. Dr Rackemann had given no indication that he would agree to such other terms; indeed they had not been put to him. As the deadline of the first week of August approached, Mr Lazarides and Mr Burns must have known that they had not reached that commercial resolution. They took until 25 July to submit the draft deed to Dr Rackemann and there was no demand or request that he sign it within the few days which remained of the three month period. Yet given the acrimony between the parties, coupled with the onerous terms of the agreement they were proposing, they could not have been especially confident that he would accept those terms. In my conclusion, it is at least just as probable that the plaintiffs had decided that they would not act under cl 22 and that if the grant of a right of first refusal had been rejected within the three months, still they would not have given an expulsion notice. Notably, they did not attempt to expel the defendant when Ms Shearer’s drafts were rejected in August 2007 and February 2008. Nor, as already noted, did they then complain that they had abstained from expelling the defendant on the faith of an expectation of the right of first refusal.
- Further, they have failed to prove that the defendant, and specifically Dr Rackemann, knew or intended that the plaintiffs should desist from acting under cl 22 by inducing them to adopt an expectation of a first right of refusal. I would accept that he was aware of the prospect that, consistently with the plaintiffs’ claims that the defendant was in breach of the partnership agreement, the plaintiffs might act or purport to act under cl 22. But it is a different thing to say that by his email of 8 June or his failure to respond to Mr Lazarides’s email of 15 June 2007, he knew or intended the plaintiffs would abstain from giving notice under cl 22. I find that Dr Rackemann was minded to give a right of first refusal but found the deed which was ultimately submitted to him to be one-sided and unreasonable.
- Had the plaintiffs otherwise established the essential elements of the alleged estoppel, a further difficulty would have been their case as to a detriment by the non-fulfilment of the alleged expectation. In effect, their case is that they were worse off for not having given a notice under cl 22 within time. Yet how are they worse off for not having done so? Clearly, by their prosecution of these proceedings, they believe that they would have been better off by giving notice under cl 22 within time. But they have not attempted to prove that matter. For example, they have not sought to prove that had they acquired the defendant’s partnership share in 2007, they would now be better off having regard to any movement in the value of partnership assets since then. Nor have they sought to prove, for example, that Dr Rackemann’s continuing participation in the partnership has led to some declining profitability of the partnership business.
- I conclude then that the defendant is not estopped as the plaintiffs allege and that the plaintiffs are unable to rely upon the acquisition of the Leon Hill property as a ground to support their notices of September 2008 and January 2009.
The unsigned lease documents
- Many of the arguments relied upon to support the notice of 3 September 2008 concern documents in relation to some tenancies at Mermaid Beach and the Miami properties which had been handed to Dr Rackemann on 19 August 2008. I shall refer to them as the lease documents. By then they had been signed by the tenant in each case and also by Mr Burns. The plaintiffs’ case is that Dr Rackemann wrongly failed to co-sign the documents and return them for the signature of Mr Lazarides. They further allege that Dr Rackemann wrongfully refused to instruct his solicitor, Mr Cronin, to allow Mr Lazarides to co‑sign the documents when Mr Lazarides and Mr Burns called at his office on 2 September 2008. It was that event which was the immediate cause of the expulsion notice which the plaintiffs gave on the following day.
- The documents were provided to Dr Rackemann under cover of a memorandum from Mr Burns and Mr Lazarides dated 13 August 2008. It identified the six documents in question and provided details in respect of some of them. The memorandum asked Dr Rackemann to sign them and return them by courier to Mr Lazarides’s office.
- Two of the documents related to premises at the Mermaid Beach centre which had been occupied by a business called “Bernie’s”. There was a surrender of an existing lease and a lease to be granted to a different party called Greek Style Realty Pty Ltd, although it was described in the memorandum as a company called Souvlaki Hut Pty Ltd. This was an obvious error, explained by the new tenant’s business being called the “Souvlaki Hut”. The covering memo advised that the new lease was for a rent of $105,000 per annum with the tenant paying for all of the necessary alterations, estimated at $150,000. But this was the extent of the information which the plaintiffs provided. Nothing was said about the financial worth of the new tenant or of the guarantors of the tenant’s performance. However in an email of 11 June 2008, Mr Lazarides had advised Dr Rackemann (and Mr Burns) that the new rental was significantly higher than that which could have been achieved on a rent review with Bernie’s. He had also advised that $30,000 from the new tenant had been provided by way of security, to be increased to $60,000 prior to handover and that the refurbishment of these premises would provide additional car spaces for the centre. Overall, the proposed new lease appears to have been quite favourable to the partnership. But of course by this stage things were so strained between the partners, particularly between Mr Lazarides and Dr Rackemann, that there had been no discussion about the matter.
- Next there was a document relating to a licence to the National Australia Bank for an ATM machine at the Mermaid Beach centre. The licence was for a term of five years commencing on 1 November 2007, although the document had been prepared in May 2008. There appears to have been nothing urgent about the finalisation of this document, as shown by that delay in its preparation and the fact that more than three months had passed before it was provided to Dr Rackemann. It was an apparently routine transaction, requiring no particular discussion between the partners.
- In relation to the Miami properties, there was a document by which the partners were to consent to an assignment of a lease from a tenant called Supertint Australia Pty Ltd to two individuals as trustees. The document contained covenants by them to perform the lease as and from 11 April 2008 and it was provided that neither the assignor nor its guarantor would be released from liability under the lease. It further provided for variations to the lease. No details were provided to Dr Rackemann to explain those changes. Nor was there any information provided to him in respect of the financial positions of the new lessees.
- The other documents concerned a lease to a company called Gene International Pty Ltd. It had executed the lease on 30 May 2008. The memorandum to Dr Rackemann advised that the net annual rental was $115,000, with a two month rent free incentive spread over the first 12 months of the lease, and that the lease contained a “demolition clause”. No information was provided as to the financial position of Gene International Pty Ltd or the proposed guarantor. There was also a document to record the lessors’ consent to an application by the lessee for a town planning approval required for the agreed use of the premises. Again, the transaction was probably beneficial: Mr Burns had seen fit to sign the documents. And again, the fact that some time had passed from the tenant’s execution of the documents until their delivery to Dr Rackemann might have indicated that the landlords’ signing of these documents was not considered to be urgent.
- What followed in the fortnight from 19 August 2008 was a series of exchanges between the parties, and sometimes their lawyers, which had little to do with the provision of information which would have been relevant to Dr Rackemann in assessing the documents, but which well demonstrate the level to which the relationship between the partners had descended. Because of the importance of these exchanges to the plaintiffs’ arguments, it is necessary to relate them here in some detail.
- On 25 August, Mr Lazarides emailed Dr Rackemann firstly to complain that he had handed the documents to his solicitor, Mr Cronin. He wrote:
Your solicitor has no authority from the partnership to review any documents. Your solicitor has not [sic] authority to even have these documents in his possession. Nor are you entitled to give these documents to your solicitor.
This was a variation of Mr Lazarides’s point, that the defendant company could act in any respect affecting the partnership only by its nominated representative, Dr Rackemann. The suggestion here was that this precluded the defendant from obtaining legal advice if that involved showing partnership documents to its own solicitor. The next matter raised in this email was an allegation of conflict of interest from the ownership of the Leon Hill property through the Rackemann interests being competing landlords. The immediate connection between that matter and the documents which had been provided for Dr Rackemann’s signature, was not explained in the email. Next, Mr Lazarides responded to matters which Mr Cronin had raised in previous correspondence. Lastly, his email dealt with the documents for Dr Rackemann’s signature. Mr Lazarides wrote:
The documents in question have been signed by MacLag (No 11) Pty Ltd. The documents are acceptable to me and I wish to sign them without delay.
The other parties to the documents have relied upon them. Most of them are in possession of the premises to which they relate and/or have paid rent to the partnership pursuant to these documents.
Our partnership agreement says decisions by a majority of the partners bind the partners.
It is our view that Chantay Too Pty Ltd is obliged to sign these documents. One of the documents, being the town planning consent form for Gene International Pty Ltd, is urgently required by the tenant so that it can lodge its town planning application with Council.
Your action in refusing to sign or delaying the signing may expose the partnership to legal liability. We now put you on notice that we hold you and Chantay Too Pty Ltd liable for all loss, damages and claims resulting from your actions.
At this point, Dr Rackemann had held the documents for less than a week.
- On the following day, Dr Rackemann replied:
You know my solicitor is handling this. If you require something from me, I suggest you communicate with him.
On the same day, Mr Lazarides replied that he would not be communicating with Mr Cronin because “[y]ou are Chantay Too’s representative, not your solicitor”. He asked whether Dr Rackemann was saying that the defendant would not sign the documents and warned that the plaintiffs would apply without further notice for an order requiring the defendant to sign them.
- Yet on 27 August, Mr Lazarides did communicate with Mr Cronin. In his email sent that morning, he asserted that Dr Rackemann had no authority from the partnership to hand the documents on to him and demanded that the documents be delivered to his office “without delay today”. He added:
Hopefully they will be returned duly signed by Chantay Too.
If we do not receive the documents from you today or they have not been signed by Chantay Too Pty Ltd, we will be joining you and your firm in legal proceedings we are bringing against Rackemann and Chantay Too Pty Ltd without further notice.
- Mr Cronin emailed Mr Lazarides that afternoon. First he dealt with the suggestion that the defendant could not have its own legal advice and, to that end, communicate information about partnership affairs to its lawyer:
We have informed you that the purpose of Clause 25 of the Partnership Deed is to identify, in respect of Corporate Partners (of which there are two), the person who is to be the representative for the purpose of conducting business of the partnership. In the case of Chantay Too, that person is Dr Rackemann. There is no question that Dr Rackemann continues to hold that position, and that we hold instructions from Dr Rackemann on behalf of Chantay Too.
However you have taken Clause 25 to mean that none of the partners are required to communicate with anyone other than the partners. No such terms of the Partnership Deed exist. In any event, such interpretation is, with respect, nonsensical, and contrary to the intention expressed in Section 31 of the Partnership Act.
Should it now matter, the position there expressed was clearly correct. Section 31(1) of the Partnership Act provides that partners are bound to render true accounts and full information of all things affecting the partnership to any partner “or his or her legal representative”. The plaintiffs’ case would appear to be that by the partnership deed, the partners agreed to vary the operation of s 31 to the effect of deleting that reference to a legal representative. But such an agreement does not at all appear from cl 25 or otherwise.
- Next, Mr Cronin’s email continued his previous complaints that the plaintiffs had failed to provide information concerning the partnership to Dr Rackemann and that the plaintiffs had been making partnership decisions without reference to him. There was also a repetition of a complaint that debts of the partnership, in excess of the $200 limit expressed within cl 18(g), had been incurred without Dr Rackemann’s knowledge or consent. As to that matter, there was no actual or apparent basis for any suggestion that partnership funds had been misapplied. Ultimately Mr Cronin referred to the documents which were for Dr Rackemann’s signature. Noting that some of the documents had been in existence for many months, he questioned the urgency alleged by Mr Lazarides. Mr Cronin then sought to link the signing of these documents with the defendant’s outstanding complaints about the unavailability of partnership information. He asserted that the defendant had been placed in a “precarious position” because it was unable “to obtain relevant financial information to afford our client an opportunity to make decisions about execution of the proposed documents”. Then under the heading “Moving forward”, Mr Cronin completed his email thus:
So that our client can consider the contents of the documents provided to him, and so that he can promptly arrange for their execution and return, our client requires:
(a)That you provide our client the partnership documents referred to in Paragraph 6 of our letter to you dated 29 January 2008 …; and
(b)That you provide details of the payees of the cheques as identified in our letter to you of 13 August 2008.
However, most of that documentation and information was irrelevant to a proper consideration of the lease documents for Dr Rackemann’s signature. Dr Rackemann could have made some reasonable enquiries as to, for example, the financial positions of the new tenants. But, through Mr Cronin, he appears to have been using these lease documents as a basis for renewing his wider demands and for complaining of being excluded from the partnership business.
- Later that afternoon, Mr Lazarides had a short telephone conversation with Mr Cronin. Mr Lazarides’s evidence was that Mr Cronin was asked whether he would be returning the documents to which Mr Cronin “said he wouldn’t be”. Mr Cronin was not called as a witness and this evidence is uncontradicted. But it is unlikely that Mr Cronin said in effect that the documents would never be returned. It is more likely that he was maintaining the position which had been set out in his email of that afternoon.
- On 28 August, Mr Cronin emailed Mr Lazarides, complaining that he had been “rude” with Mr Cronin in that telephone conversation. He wrote that he was instructed to require the provision of “relevant information concerning the partnership”, as identified in his email of the previous day, before Dr Rackemann would commit “to execution of the large bundle of documents he has received”. He added that the provision of this information should not be difficult and that the matter could “move forward without delay”.
- On the same day, Mr Lazarides emailed Dr Rackemann, referring to Mr Cronin’s email, and complaining that this stance was inconsistent with what was said to have been Dr Rackemann’s recent comments to Mr Burns, in which no mention had been made of a need for further information for the purpose of signing the documents. As to Mr Cronin’s reference to his request of 29 January 2008, Mr Lazarides wrote that this documentation might be obtained or viewed, as he said he had advised in February correspondence. He answered some other points from Mr Cronin’s email before dealing with the point which had been made by Mr Cronin, which was that it was necessary for Dr Rackemann to see an extensive amount of material concerning the affairs of the partnership before agreeing to sign these relatively few lease documents. He questioned the relevance of that material to the consideration of those documents. He wrote that Gene International had been calling for the consent to its town planning application, because this was holding up its use of the premises for which it was already paying rent. He also claimed that “the partnership’s bankers [had] recently sought information about the leasing status of the partnership properties for its annual review of the partnership account”.
- Again on that day, the plaintiffs had a solicitor, Mr Frampton, write to Mr Cronin. His letter referred to the delivery of the lease documents to Mr Cronin and Mr Cronin’s failure to return them to the plaintiffs. He queried Mr Cronin’s receipt of the lease documents as follows: “you have received partnership property from Steve Racekmann … however the basis on which you have been provided these documents (there being an agreed partnership lawyer) is unclear”. He alleged that “Dr Rackemann’s actions” contravened cl 16 and cl 18(g) of the partnership agreement and s 23(1), s 27(1)(h) and (i) and s 31 of the Partnership Act. It demanded that Mr Cronin deliver up the documents to Mr Lazarides’s office by 5.00pm on 1 September, failing which proceedings for the recovery of the documents would be commenced. Notably, it did not call upon Dr Rackemann to sign the documents before they were returned. Instead, Mr Frampton said that if the documents were returned unsigned, they would remain available to the defendant for Dr Rackemann’s signature.
- If what were referred to as “Dr Rackemann’s actions” were the matters set out in Mr Frampton’s letter in relation to these documents, it is difficult to see how they constituted a breach of cl 16 or cl 18(g) of the partnership agreement. There was no complaint in this letter that Dr Rackemann had refused to sign them or had unduly delayed in doing so. Nor was there a good basis for the allegation of breaches of those provisions of the Partnership Act.
- On Friday 29 August, Mr Lazarides emailed Dr Rackemann to say that the Souvlaki Hut tenant was enquiring about when it would receive its copy of the signed lease.
- On Monday 1 September, Mr Lazarides emailed Mr Cronin. He asked for an explanation of why Dr Rackemann had not availed himself of opportunities to obtain information as to the partnership affairs if that was relevant to his consideration of the lease documents.
- On the evening of 1 September, Mr Cronin responded to Mr Frampton’s fax of 28 August. Referring to his letter to Mr Lazarides of 27 August, Mr Cronin again asserted that the more general information was necessary for Dr Rackemann’s consideration of these documents. He threatened a cross-application by Dr Rackemann for “disclosure of relevant partnership financial information” in the event that the plaintiffs brought their threatened proceedings.
- Early on 2 September, Mr Cronin emailed Mr Frampton, saying that he was endeavouring to contact the partnership’s accountants with a view to arranging an inspection of documents. Mr Frampton faxed Mr Cronin saying that Mr Cronin’s fax had not dealt with “the only issue raised in our fax of 28 August” which was “simply … the return of partnership documents held by your client, or your office on your client’s instructions”. Mr Frampton wrote:
… [T]he issues you raise are irrelevant to your client’s obligation imposed by the partnership deed to abide the decision of the majority of partners as to business issues including the holding of partnership documents. The majority have demanded the return of these documents and agreed that they be held by Mr Lazarides.
Your client and you have been requested to return the documents, unsigned if necessary.
Please do so immediately by delivering them to Mr Lazarides’ office.
- That morning Mr Lazarides emailed Dr Rackemann saying that he was receiving calls from a solicitor for the National Australia Bank as to the whereabouts of the ATM licence. Just after midday on 2 September, Mr Cronin emailed Mr Frampton, advising that he had spoken to the partnership’s accountants and they had agreed to facilitate an inspection of documents, although no time had been fixed.
- What next happened was that Mr Lazarides and Mr Burns arrived unannounced at Mr Cronin’s office, early on the afternoon of 2 September. They asked to see Mr Cronin and were shown to a conference room. According to a fax from Mr Frampton to Mr Cronin of that day, Mr Cronin had called him to say that his clients were at Mr Cronin’s office and Mr Frampton had called him back to tell him that they were there simply to sign documents. Mr Cronin then saw Mr Lazarides and Mr Burns. They told him that because Mr Lazarides was soon to travel overseas, he wished to sign the lease documents immediately so that there would be no delay once they had been signed by the defendant. According to Mr Lazarides and Mr Burns, Mr Cronin then left the room to telephone Dr Rackemann for instructions and soon returned to tell them that the defendant’s instructions were to not make the documents then available to Mr Lazarides for his signature. As already noted, there was no evidence from Mr Cronin.
- According to Dr Rackemann’s evidence, Mr Cronin did not ask for instructions as to whether he should allow Mr Lazarides to sign the documents there and then, without the documents leaving Mr Cronin’s office. On his version, Mr Cronin sought instructions as to whether the documents could be simply handed over to the plaintiffs.
- On Mr Burns’s evidence, before Mr Cronin obtained Dr Rackemann’s instructions, there was an exchange between him and Mr Cronin in which the possibility of the plaintiffs fleeing Mr Cronin’s office with the documents was discussed. There was this evidence in the cross-examination of Mr Burns:
But Mr Burns, does this accord with your recollection, that you reiterated to Mr Cronin that you and Mr Lazarides were there to sign the document?-- Yes.
That you recall at one point you saying to Mr Cronin words to the effect ‘You keep intimating to me that we are just going to grab them and run out of your office’?-- Yes.
Do you recall saying that?-- That was the - Mr Cronin kept saying to me, ‘I won’t give you the documents’ and I kept saying, I was trying to explain no, I didn’t want the documents, we just wanted access to allow Larry to sign them. It’s quite straightforward.
I’m saying that you recall now precisely the words that Mr Cronin, that you said to Mr Cronin was, ‘You keep intimating to me that we are just going to grab them and run out of your office; that’s what Mr – that’s what you said to Mr Cronin----?-- I can recall something like that.
-----in precisely those terms, those exact words.
… And then you told Mr Cronin it wasn’t the case?-- I consistently told him it wasn’t the case from the first time I entered his office.
And then he went away and got some instructions from Dr Rackemann?-- Yes
- I accept the evidence of Mr Lazarides and Mr Burns as to what passed between them and Mr Cronin. I am fortified in that by the defendant’s failure to call evidence from Mr Cronin, which I infer would not have contradicted that evidence. Given that Mr Cronin had previously declined to deliver the documents to the plaintiffs as they had demanded, it was unlikely that Mr Lazarides and Mr Burns made, in effect, a like demand when they arrived at Mr Cronin’s office, rather than asking for the documents to be produced so that Mr Lazarides could sign them there and then.
- Dr Rackemann’s evidence about what Mr Cronin had said to him when seeking instructions was not within his evidence summary. That provides some basis for thinking that this had not always been Dr Rackemann’s recollection. In the same way, there was no pleading from him to the effect that his instructions to Mr Cronin were not to refuse to provide the documents for Mr Lazarides’s signature at Mr Cronin’s office, but simply to refuse to hand them over to him.
- Curiously, there was no challenge to Dr Rackemann’s evidence as to what passed between him and Mr Cronin on this point. When Counsel for the defendant had opened this evidence, it was said that Mr Cronin would also be called if Dr Rackemann’s evidence on the matter was challenged. It was submitted ultimately that this explains why Mr Cronin was not called.
- Because (as I find) Mr Lazarides and Mr Burns had clearly maintained that they only wished to have the documents for Mr Lazarides to sign and not to take them away, it is unlikely that Mr Cronin simply told his client that they wished to take them away. In turn, Dr Rackemann is likely to have understood what they were saying to Mr Cronin.
- However, it is also likely that Dr Rackemann, if not also Mr Cronin, was apprehensive that the documents would be taken. After all, the two men had arrived unannounced at Mr Cronin’s office, without any indication before their visit that they wanted to have the documents simply produced for Mr Lazarides to sign them. The preceding correspondence from Mr Lazarides and Mr Frampton had demanded that the documents be put into the possession of Mr Lazarides according to what was said to be the legal entitlement of the majority of the partnership in relation to partnership property. By this stage of course, there was a substantial degree of animosity and mistrust. Be that as it may, I do not accept that Mr Cronin failed to pass on to his client the plaintiffs’ statements that they only wanted the documents produced for Mr Lazarides to sign them at Mr Cronin’s office and I find that it was that request which Dr Rackemann knew that he was refusing.
The first expulsion notice
- That evening the plaintiffs prepared a notice to expel the defendant which was delivered on the following day. But before then, on the morning of 3 September, Mr Cronin emailed Ms Shearer, saying that Mr Lazarides and Mr Burns had left a message indicating that Ms Shearer would be available on the afternoon of 3 September to facilitate an inspection of partnership documents, particularly lease agreements. Mr Cronin advised that he proposed to attend with Dr Rackemann at 3.00pm on that day. The plaintiffs seemed to accept that they left such a message with Mr Cronin. Ms Shearer replied to Mr Cronin saying that she had received instructions from the plaintiffs “to facilitate an inspection” by Mr Cronin and Dr Rackemann of all leases held by her firm in respect of the partnership and that she would arrange for those documents to be available for inspection at 3.00pm that afternoon. Further emails between Ms Shearer and Mr Cronin at about 12.30pm confirmed that appointment. Ms Shearer advised that neither of the plaintiffs would be present. Mr Cronin had said that his client would not come if either was to be there.
- At about 3.16pm, an email from Mr Lazarides, written also on behalf of Mr Burns, was sent to Mr Cronin. It referred to the events at Mr Cronin’s office the previous day and to the fact, as I find it to be according to the evidence of Mr Lazarides and Mr Burns, that Mr Cronin had declined to state the reasons for his client’s refusal to meet their request. The email then simply reserved the plaintiffs’ rights.
- Mr Cronin and Dr Rackemann went to Ms Shearer’s office at the appointed hour. After a short time, Ms Shearer asked to see Mr Cronin and he left the room where the inspection of documents had commenced. He returned to Dr Rackemann bearing the notice of expulsion. Nevertheless, he and Dr Rackemann continued with their inspection before leaving.
- Notwithstanding the notice, Dr Rackemann and Mr Cronin requested documents held by the partnership’s accountants on 4 September 2008. The accountants had been told by an email from Mr Lazarides late on 3 September that the defendant had been expelled and that Dr Rackemann had no right to inspect partnership documents. Nevertheless, the Rackemann side pressed on with its request of the accountants. Mr Lazarides revised his advice to the accountants, saying that Dr Rackemann could inspect documents relating to the partnership in its trading up to the purported expulsion but not thereafter. Just how much documentation the accountants were likely to have held by then for the so-called new partnership between the plaintiffs is not apparent.
- On 5 September, Mr Lazarides and Mr Burns wrote to Mr Cronin, demanding that the defendant execute those lease documents, notwithstanding their expulsion notice, on the basis that the defendant remained obliged to do so. They said that Mr Lazarides would “within a few days” be overseas. They also said that to comply with cl 21(a) of the partnership deed, the defendant was to provide what it would say was a list of the assets, debts and liabilities of the partnership, together with its estimate of the proposed note value of its partnership share and an explanation for those figures.
- The plaintiffs commenced these proceedings on 18 September 2008 and they were in the Applications List on 7 October 2008, when the defendant gave undertakings to execute the lease documents and return them to Mr Frampton by 17 October 2008. The defendant complied with that undertaking.
- Apparently the plaintiffs had overlooked another lease for which they needed Dr Rackemann’s signature. So on 8 October, Mr Frampton wrote to Mr Cronin enclosing a deed of variation and covenant in relation to an assignment of a lease involving a company called Planet Noodle Investments Pty Ltd. On 16 October 2008, Mr Cronin replied by returning those documents unsigned by Dr Rackemann. Mr Cronin wrote that as this document had been signed by Planet Noodle before the court hearing, it seemed that the plaintiffs had kept this document from the defendant when negotiating the terms of undertakings to resolve that interlocutory application. The defendant’s refusal to co-sign the Planet Noodle documents is the basis for the second expulsion notice of January 2009, to which I will return.
The lease documents –grounds for expulsion?
- The question at this point is whether Dr Rackemann’s actions or inactions in respect of the lease documents constituted grounds for the expulsion of the defendant. The notice given on 3 September 2008 alleged, amongst other things, that on 12 June 2008, Mr Lazarides had requested Dr Rackemann to be “available” to sign these documents. But ultimately, there is no case that Dr Rackemann was in default for being in some way “unavailable”. The real complaints, so far as the lease documents are concerned, begin with his conduct from the time at which the documents were in his possession.
- Of itself, the fact that the documents were not signed by Dr Rackemann and returned by 3 September was not serious. There appears to have been no particular urgency about any of them. Some enquiries were being made by tenants about the progress of the documents. But in the interests of the partnership, it was not essential that they be signed by 3 September. As noted already, some of them had been in the plaintiffs’ hands for months.
- Moreover, the signing of these documents was not in every case a mere formality. Dr Rackemann was entitled to make up his own mind about whether the documents should be signed. The fact that (by cl 14) the partnership was able to resolve differences by a majority of partners did not mean that each of the partners was not entitled to consider a matter requiring a business decision. It was open to Dr Rackemann to reach his own view and to endeavour to persuade at least one of the others if he differed from their view as already expressed. In Const v Harris Lord Eldon said:
[The relevant decision] ought to have been the act of all the partners; and I will call that the act of all, which is the act of the majority, provided all are consulted, and the majority are acting bona fide, meeting … for the purpose of negativing, what, when they are met together, they may, after due consideration, think proper to negative: For a majority of partners to say; We do not care what one partner may say, we, being the majority, will do what we please, is, I apprehend what this Court will not allow.
- Nor, in my view, was any other action or inaction by the defendant in respect of the lease documents prior to 2 September a breach justifying the defendant’s expulsion. There was no refusal to sign the documents. There were claims that the provision of extensive information, going well beyond the circumstances of the subject transactions, was necessary so that Dr Rackemann could make up his mind about these documents. In that respect, the defendant’s approach was insincere. But at the same time, the defendant was assuring the plaintiffs that its requirements for this information would not unduly delay the execution of the documents.
- To those facts must then be added the defendant’s refusal to produce them for Mr Lazarides’s signature when he and Mr Burns arrived at Mr Cronin’s office. Dr Rackemann’s response to the plaintiffs’ request was unreasonable. Had the plaintiffs taken the documents away (as he probably feared they would), the defendant would not have been substantially prejudiced. But unreasonableness was not of itself a ground for expulsion. The plaintiffs must establish that this conduct was so serious as to have been a breach of cl 16 or a ground for dissolution by the court.
- The conduct must be assessed in the context of the surrounding circumstances. It was not only Dr Rackemann who had crossed the line of unreasonableness. For example, Mr Lazarides had continued to make, by his own correspondence and through a solicitor, claims that Dr Rackemann and his company were disentitled to show partnership documents to their own lawyer and to put those documents into the lawyer’s hands for the purposes of obtaining advice. By this stage, the personal relationship between these two sides had soured for many reasons, and their partnership had continued upon an unsustainable basis, illustrated by the fact that Mr Lazarides and Dr Rackemann had not spoken to each other for nearly a year. From Dr Rackemann’s perspective, the plaintiffs were clearly in possession of more information about the partnership business than had been provided to him. For example, in relation to the transactions the subject of these lease documents, they had a familiarity with the transactions which he had not and rather than convening a meeting or providing him with a fuller briefing on the transactions, they adopted the stance that the majority ruled.
- Although Dr Rackemann did not need to see all of the documentation and to have all the information held by the partnership’s lawyers and accountants in order to reach a view about these lease documents, in the defendant’s favour is the fact that at this stage Dr Rackemann was trying to complete that exercise immediately. He was in the course of inspecting the documents at Ms Shearer’s office when the notice of expulsion was delivered.
- The plaintiffs argue that by the defendant’s conduct with the lease documents, it wrongfully exposed the partnership to claims by third parties and caused the partnership to be in potential breach of its loan agreement with the National Australia Bank. It is argued that the partnership was exposed to claims for damages by the tenants Gene International, Souvlaki Hut and the same bank as licensee of the ATM machine. In turn, those potential claims are said to have engaged cl 38 of the partnership’s loan agreement with the bank, which contained warranties and representations as follows:
38(a)You represent and warrant to us that as at the date of this Agreement and at times thereafter:
(iii)all financial accounts, reports and factual information furnished to us at any time … are true and accurate and are not misleading … and give a true and fair view of your state of affairs and the result of your operations …
(iv)you are not in material default of any law or any agreement …
(v)no action, suit, litigation, arbitration or administrative proceedings are current or pending or, to your knowledge, threatened against you …
(vi)no potential event of default has occurred … and you are not in default in respect to any material monetary obligation contracted by or imposed upon you …
(ix)you will comply with all applicable laws …
- The first thing about this argument is that the partnership was unlikely to have been in breach of any agreement where the relevant document was yet to be signed upon its behalf. And if one or more of these documents was in the nature of a record of a contract already made by and binding upon the partnership (as to which there is no supporting evidence), it is difficult to see what compensable loss might have been suffered by any of these tenants, or the NAB in respect of its ATM, by the suggested delay in execution of the formal document. The exception here might be the consent to the town planning application to be made by Gene International. It had signed a lease for a period of five years commencing 1 July 2008 for a certain permitted use. By cl 3.10 of its lease, it was to obtain and keep current the consent of any Authority which was necessary for the permitted use of the premises and it was agreed that any failure to obtain a consent was not to relieve the lessee of its obligation to pay rent and otherwise comply with the lease. At least arguably, the lessors were obliged to reasonably cooperate in the lessee’s attempts to obtain any necessary town planning. But the evidence is that it was not until 7 August 2008 that the relevant consent form was sent by the tenant to Mr Lazarides and there was no serious prospect of the partners being liable to this tenant for not having returned the form by 3 September 2008. According to Mr Lazarides’s email of 2 September to Dr Rackemann, the principal of Gene International had made calls over the previous two to three weeks, saying that he needed this document urgently. But significantly, there is no evidence of any complaint by that company of some breach by the partners.
- There was no likelihood of a claim being made by the NAB in respect of its ATM licence. Its own solicitors had not prepared the draft licence agreement until 2 May 2008 and there is no evidence that it was alleging that in some way it was suffering a loss.
- As to the documents which were to record the consent of the partners to assignments of leases, the plaintiffs’ case misstates a landlord’s position in this context. A landlord is not under a positive duty to consent to an assignment where its consent could not be unreasonably withheld. The consequence of unreasonably withholding consent is not to expose a landlord to a claim for compensation; rather, it is to permit the assignment to take effect without the landlord’s consent: see the judgments in the High Court in Harvey v Walker and the cases there cited. In that case Dixon J said:
A condition, covenant or agreement in a lease against signing a term without consent qualified by a proviso that the consent will not be unreasonably withheld has an established meaning and operation. There are not cross-covenants or promises, one on the lessee’s part not to assign and the other on the lessor’s part not to withhold consent unreasonably. There is but one condition, covenant or stipulation. The proviso qualifies the provision against assigning without consent so that it forbids such an assignment unless upon request for consent the lessor unreasonably refuses or withholds it. In that event the lessee may assign without breach of condition or covenant.
By s 121 of the Properly Law Act 1974 (Qld), it is provided that in all leases containing a covenant, condition or agreement against assigning, underletting, charging or parting with the possession of premises, without licence or consent, such covenant etc shall, despite any express provision to the contrary, be subject to a proviso that consent is not to be unreasonably withheld.
- Accordingly, the evidence does not establish that there was any serious risk of a damages claim against the partners, let alone one having substance, by any of the lease documents remaining unsigned between 19 August and 3 September 2008. In turn, there was no breach of cl 38 of the partnership’s loan agreement with the NAB.
- It was a relevant circumstance that Mr Lazarides was to depart shortly for overseas, although his proposed date of departure was not known and it seems that he did not travel at least within the following week. Unfortunately, the plaintiffs had not seen fit to suggest this course, whereby the documents would stay with Mr Cronin for the time being but Mr Lazarides could sign them, prior to the plaintiffs arriving unannounced at Mr Cronin’s office. Faced with that unexpected request which required an immediate answer, Dr Rackemann ought to have agreed to it, in that that would have been the reasonable response. The fact that he did not do so, but instead left it for Mr Lazarides to sign the documents on another day, was not calculated to prejudicially affect the carrying on of the business of the partnership. And nor, of itself, was it conduct which made it not reasonably practicable for the other partners to carry on the business in partnership with him. Following this event, it was no more impracticable than it had been for the three partners to continue to carry on business in partnership.
- In my conclusion, the defendant’s conduct overall in relation to these documents should not be characterised as a denial of access to partnership property or as conduct in breach of a partner’s fiduciary duty or the like duty expressed in cl 16. A comparison of this conduct with the acquisition of the Leon Hill property would indicate the plaintiffs’ difficulty in elevating this conduct to the level of a breach of duty warranting the serious consequence of the defendant’s expulsion.
- And the seriousness or otherwise of Dr Rackemann’s conduct, insofar as the interests of the partnership were concerned, is demonstrated by the fact that the plaintiffs saw fit to expel the defendant, with the likely consequence of delaying the completion of the subject transactions, rather than waiting to see what came of Dr Rackemann’s proposed inspection of legal and accounting documents which was to be undertaken over the next couple of days. Put another way, had there been any serious risk to the interests of the partners as partners from this conduct, so far as the relationship between the partners and a tenant was concerned, the plaintiffs would have acted differently. They did not have to immediately expel the defendant.
- In my conclusion, the defendant’s conduct in relation to these lease documents did not provide a ground for the notice given in September 2008.
Other grounds for the first notice?
- One recurring point in the plaintiffs’ case is that cl 22 was engaged because the relationship of mutual trust had so broken down that the Court would have ordered the partnership to be dissolved on the just and equitable ground: s 38(f). I accept, as the submissions for the defendant appear to concede, that by 3 September 2008 there were circumstances which would have rendered it just and equitable for the partnership to be dissolved. But for cl 22 to have been engaged, there was a requirement that the defendant be “guilty of … conduct that would be a ground for the dissolution of the partnership”. The plaintiffs must prove that there was conduct which of itself provided a ground for dissolution, rather than simply conduct which, considered with all other relevant circumstances, had contributed to the breakdown of the relationship of trust between the partners. The plaintiffs must establish that there was conduct of the defendant within s 38(c) or (d).
- The next ground advanced by the plaintiff is that the defendant failed to use its best skill and endeavours to keep itself apprised of information relevant to the carrying on of the partnership business. This allegation is framed by reference to cl 16(c) of the partnership deed.
- The argument seizes upon the claims, made in Mr Cronin’s correspondence in 2008, that the defendant did not have the necessary information in order to decide whether to sign the lease documents. It is argued that this was a “self confessed ignorance” of the affairs of the partnership which was attributable solely to the defendant’s neglect of its responsibilities as a partner, particularly under cl 16(c). The argument thereby accepts at face value the defendant’s complaints that it was ignorant of information which was essential for a proper understanding of partnership affairs.
- The defendant, like the plaintiffs, received regular management reports in respect of the Mermaid Beach centre prepared by the partnership’s property managers. It also received the NAB bank statements for partnership accounts. Dr Rackemann had direct electronic access to these accounts. The defendant’s demands for information began with Mr Cronin’s letter of 29 January 2008. In response, the plaintiffs sent a memo to Dr Rackemann on 1 February 2008 in which they wrote that the partnership’s books of account were held by the partnership’s accountants and that they had no objection to Dr Rackemann’s accountant (who had been employed by the partnership’s accountants) inspecting them.
- On 5 February 2008, Mr Cronin wrote to the plaintiffs inviting them to indicate where the documents were presently located and a time and place for the defendant to attend and inspect them. On the following day, the plaintiffs emailed Dr Rackemann to say (again) that the financial records were kept at the accountants’ offices, the legal documents at the partnership’s solicitors’ offices and the management records were kept at the property manager’s offices. In fact, this was not entirely correct because at least many of the records for the Miami properties were kept at the office of Mr Lazarides.
- Yet Dr Rackemann did not then pursue his proposed inspections. In his evidence, this was explained by the fact that he was very ill, suffering from auto-immune hepatitis. This caused him to cease practising as a surgeon. There was no challenge to the fact that he did suffer from that illness and I accept that it would have affected his ability to attend to partnership affairs. But as it happened, the ailing personal relationships between him and his partners were probably the major cause for his non-involvement.
- On 13 August 2008, Mr Cronin wrote to the plaintiffs suggesting a breach of cl 18(g) of the partnership deed by the plaintiffs contracting on behalf of the partnership for “goods articles or property” exceeding a value of $200 and querying whether these payments by cheque had been contrary to cl 18(b), which prohibited any partner without the written consent of the “other” from employing any of the money of the partnership except in the ordinary course of business. A list of cheques identified by reference to their numbers, dates and amounts was attached. This was a remarkable letter, because despite the acrimony between the two sides, until then there had been no suggestion of the misuse of partnership moneys and nor was there any substantial basis for that suggestion. It had been a common practice in the conduct of the Mermaid Beach shopping centre for routine expenses exceeding that amount of $200 to be paid without the prior written consent of all of the partners. Cheques on the partnership account could be signed by two partners and cheques for such expenses were usually prepared by the property managers. Most of these expenses were reimbursed by tenants under the provisions for outgoings in their leases.
- I have set out already correspondence and events from 19 August to 3 September, specifically in respect of the requirements by the defendant for the inspection of documents and provision of information going well beyond the subject of the lease documents. A part of those demands was the defendant’s requirement for the provision of details of the payees of the cheques scheduled in Mr Cronin’s letter of 13 August. Many of those cheques had been drawn as early as 2006 and had no apparent relevance to, for example, the renewal of the NAB’s licence for an ATM machine.
- The personal feelings of Dr Rackemann towards at least Mr Lazarides, and Dr Rackemann’s perception that he was being excluded from partnership affairs, had caused him to adopt a position that he would not immediately comply with his partners’ demands of him without insisting upon strict performance of the partnership deed by them. Dr Rackemann’s need for this information was exaggerated. Mr Cronin’s argumentative correspondence as to what information was necessary for Dr Rackemann’s proper participation in partnership affairs has to be understood in this context. For example, clearly Dr Rackemann was entitled to access to records of the partnership which would have shown the purpose of a payment of $477.41 made by a cheque drawn on 11 August 2006 (the first in Mr Cronin’s schedule of 13 August). But ignorance of that matter was not fatal to his performance of the defendant’s duties under the partnership deed and would not have provided a ground for its expulsion.
- It follows that this ground for the notice of September 2008 is not established.
- The next ground is related to the previous one, because again it focuses upon the defendant’s requirement for the provision of this information as a condition of its executing the lease documents. The plaintiffs’ argument here is that the defendant’s claim, that all of this information was necessary for the defendant to make an informed decision in relation to the lease documents, was untrue and was thereby a breach of the duty under cl 16(a) to be “just and faithful … in all transactions relating to the partnership”. Similarly, they argue that the defendant thereby breached the duty under cl 16(b) to give “a just and truthful explanation on all matters relating to the affairs of the partnership”. They also claim a breach of the duty in cl 16(c). And they claim that the conduct was within s 38(c) and (d) of the Partnership Act and was conduct which, in all the circumstances, contributed to a loss of mutual trust and confidence such as to make it impracticable for ongoing business relations, thus providing a ground for dissolution by the Court on a “just and equitable” basis.
- I accept that Dr Rackemann, and thereby the defendant, knew that the provision of all of the information which he was seeking was unnecessary for the purpose of assessing the lease documents which he had been asked to sign. I do not accept that this constituted a breach of the partnership deed or otherwise engaged cl 22. The duty in cl 16(a) was one owed “in all transactions relating to the partnership”. The “transactions” which would be relevant here were the lease transactions. Dr Rackemann was not acting so adversely to the interests of the partnership by requiring this information, before signing the lease documents, that he was in breach of cl 16(a). As discussed already, there was no particular urgency about any of them and according to his position, expressed in Mr Cronin’s correspondence, there was unlikely to be any significant delay caused by his requiring this information. He was being argumentative and exaggerating the relevance of this information in the course of that argument. But that in itself did not constitute a breach of fiduciary duty or the like duty under cl 16(a).
- The argument based upon cl 16(b) strains its language. In arguing that there was an untruthful explanation of something, the plaintiffs must identify a matter “relating to the affairs of the partnership” which was not truthfully explained. As I understand the plaintiffs’ argument, that “matter” was Dr Rackemann’s reason for requiring the provision of this information ahead of signing the lease documents. However, cl 16(b) is not in terms of a duty to be truthful in saying anything to another partner on anything relating to the partnership. Rather, it is concerned with each partner having a proper and accurate understanding of the affairs of the partnership. To the extent that some aspect of partnership affairs required an explanation by one partner to another, cl 16(b) required that to be a just and truthful explanation.
- Dr Rackemann’s reasons for wanting this information ahead of signing the lease documents was not a matter which he was required to explain. To the extent that he was requiring an inspection of partnership books and records and to be provided with information as to the payments by the partnership, he was within his rights under cl 10 of the partnership deed and under s 27(1)(i) of the Partnership Act, by which every partner is to have access to the partnership books. He was not obliged to explain the exercise of his rights in that respect, and accordingly the defendant did not breach the obligation imposed by cl 16(b).
- Nor was this a contravention of the duty in cl 16(c). That duty was fulfilled or otherwise by a partner’s attention to the carrying on of the business of the partnership. It was not breached by the conduct the subject of this complaint. I reject also the argument that this was conduct which was “calculated to prejudicially affect the carrying on of the business”. As I have found already, there was no impact on the carrying of the business from the stance taken by Dr Rackemann in relation to the lease documents and nor could there have been any impact from what was said on behalf of the defendant to justify that stance. And this conduct did not make it reasonably impracticable for the other partners to carry on business with the defendant. Accepting that Mr Burns was offended by any suggestion in the letter of 13 August 2008 that funds had been misapplied, nevertheless it remained as practicable for the partners to carry on business as it had been prior to the conduct the subject of this complaint.
- It follows that this ground for expulsion is not established.
- The next ground is that the defendant refused to communicate with its partners concerning partnership affairs by its appointed representative Dr Rackemann, but instead through Mr Cronin. Part of this complaint is that Mr Cronin was involved at all. This involves the notion, which I have rejected, that the effect of cl 25 of the partnership deed was to prevent a partner from having his or its lawyer communicate with the other partners. But the plaintiffs also complain that the defendant refused to communicate at all through Dr Rackemann. In consequence, the plaintiffs argue, the defendant breached cl 16 by not diligently and faithfully employing itself in the business of the partnership and using its best skill and endeavours. They also say its conduct was within s 38(c) and (d) of the Partnership Act. Again, it is further argued that this was conduct which, in all the circumstances, caused or contributed to a loss of mutual trust and confidence which would have justified a dissolution of the partnership on the just and equitable ground.
- The factual sequence relied upon for this argument is as follows. It begins with Mr Cronin’s letter to Mr Lazarides and Mr Burns of 10 June 2008. The subject matter was a sign which had been erected on the partnership’s Miami property which suggested that it had been leased. Mr Cronin wrote that the defendant had received no notice of such lease and asked for particulars of it. He referred to cl 16(c) and 18(g) of the partnership deed. Mr Lazarides responded on the same day by an email to Mr Cronin. He wrote simply this:
In reference to your email of 10 June, we note that your client’s breach of its partnership obligations and conflicts of interest which have been the subject of numerous communications over the last 12 months or more [an apparent reference to the Leon Hill property] remain unresolved. It is also noted that your client continues to post a ‘for lease’ sign on its premises nearby the partnership property at Miami.
So far as commercial affairs of the partnership are concerned, we have advised you previously that we will not be communicating about these with you and we have explained the reason for that.
We will discharge all our obligations to your client in a timely and proper manner.
- On 12 June, Mr Lazarides’s personal assistant rang Dr Rackemann’s personal assistant to arrange for delivery of some partnership documents to him. Dr Rackemann was then in Sydney and Mr Lazarides’s assistant was apparently told that someone would call her back. She followed up with an email to Dr Rackemann’s office on 20 June. On 26 June, Mr Cronin emailed Mr Lazarides, referring to that query and he advised as follows:
Please note that documents can be delivered to our client at the following address:
Dr S Rackemann
PO Box …
ASHMORE QLD 4214
You are also aware of Dr Rackemann’s residential address at … and have his email addresses (including that copied to this email) should you require it.
If you are, for whatever reason, uncomfortable in posting to either of those addresses, our office is able to accept delivery of documents on behalf of our client and is open during office hours.
If there are documents requiring our client’s attention, we are instructed to convey to you that the documents should be delivered without further delay.
It is to be noted that this email, rather than requiring that the plaintiffs communicate with the defendants through Mr Cronin, was requesting that the documents be delivered to Dr Rackemann, which is at odds with the plaintiffs’ present argument.
- Mr Lazarides emailed Mr Cronin on the same day. It is probably necessary to set out this email in full:
I gather your email to me this afternoon is supposed to be a response by Stephen Rackemann to the email I sent him yesterday morning.
When she last spoke to my PA, Liesl Worth of Mr Rackemann’s office told my PA to send documentation directly to her at Hillview House because there was a tendency for documents to be misplaced.
Obviously your email today is at odds with the above advice from Rackemann’s office.
In the past when Rackemann’s office wants something, and there have been numerous occasions of this, they have had no hesitation in contacting my PA for it and my PA to date has been cooperative and assisting to them, to the extent she can.
No explanation is provided for the failure by Mr Rackemann or his office to respond to my and my PA’s last emails and phone calls.
The partnership cannot be expected to function with communications from Chantay coming from all of Stephen Rackemann, Liesl Worth and Sandy at his office as well as yourself. Apart from the proclivity for this to create confusion, it is not fair to expect the partners to deal with several representatives of Chantay.
As stated previously, we do not recognise any right for you to communicate with the partners in relation to partnership matters, so please do not communicate with me again. I will not be responding to any future communications from you.
Obviously, given our previously stated view, I cannot act on your communication today.
The partnership agreement stipulates that Stephen Rackemann is the representative of Chantay. As such it is considered that Stephen Rackemann, and he alone, has an obligation to respond. He has had no difficulty doing so in the past and if he is able to communicate with you, he is able to communicate with me too.
I await a response from Mr Rackemann to my and my PA’s email. Thank you.
- Mr Cronin immediately emailed in response:
The contents of my email are self-explanatory. You are on notice of how documents can be delivered to my client. It cannot be said that there is difficulty in relaying information to my client, now that we are clear about how documents can be delivered to my client.
No response to this email is required from you.
- The written submissions for the plaintiffs seek to make much of those exchanges, arguing in terms which echo the strong language of Mr Lazarides’s email of 26 June. It is argued that Mr Cronin’s email, which advised the ways in which the documents could be sent to Dr Rackemann, was disingenuous in that it provided nothing but information which the plaintiffs already knew. That criticism is not justified: the plaintiffs seem to have been in some doubt as to how they should transmit documents to Dr Rackemann and Mr Cronin’s email was a helpful response. It may or may not be the case, depending upon what was said between the personal assistants, that one was discourteous for not ringing the other back. But that was hardly important at the time and is less so now. And in all of this, there was still no response to Mr Cronin’s enquiry as to whether there had been some lease of the Miami properties without the concurrence of the defendant. In his letters to Mr Lazarides of 13 August 2008, Mr Cronin noted that there had been no response to that query.
- The next event was the memorandum of 13 August from Mr Burns and Mr Lazarides addressed to Dr Rackemann, enclosing the lease documents for his signature and return. As already discussed, these were collected by Dr Rackemann on 19 August. He had not insisted that they be delivered to Mr Cronin.
- On 25 August 2008, Mr Lazarides sent the email to Dr Rackemann to which I have referred above at , in which he complained that the lease documents had been handed on to Mr Cronin.
- On the following day, Dr Rackemann replied:
You know my solicitor is handling this. If you require something from me, I suggest you communicate with him. His email address is …
On the same day, Mr Lazarides emailed Dr Rackemann to say that he would not be communicating with Mr Cronin. Yet on the following day, Mr Lazarides and Mr Burns did email Mr Cronin. And as already discussed, Mr Lazarides rang Mr Cronin late on that day. They exchanged emails on the morning of 28 August. And then Mr Frampton entered the picture on the plaintiffs’ behalf.
- In this sequence of events, there was nothing said or written by Dr Rackemann which was to the effect that he would not communicate with the other partners on anything to do with the partnership. What he wrote in his email of 26 August was that Mr Cronin was handling “this”, which was the matter of the lease documents. That was unremarkable in circumstances where Mr Lazarides, an experienced property lawyer, had written letters and emails which advanced the plaintiffs’ case as to the parties’ respective legal rights and obligations, and the solicitors who had acted originally for the partnership (Ms Shearer’s firm) had acted in the interests of only one side of the dispute about the Leon Hill property. It was quite reasonable for Dr Rackemann to take his own advice and to have Mr Cronin act on the matter of those documents.
- In these events, there was no call by Mr Lazarides or Mr Burns for a partnership meeting. Nor did either, for example, telephone Dr Rackemann and endeavour to discuss anything of the affairs of the partnership. And the plaintiffs’ criticism of the defendant’s retention of a lawyer has even less force when it is seen that they retained Mr Frampton. In fact, the personal relationships had become so strained that neither side was attempting to resume the dialogue between the partners which was the manner of the conduct of this partnership until late 2006. It may or may not have been mainly the defendant’s fault that this position had been reached. But it is quite unrealistic to say that from the sequence of events to which I have referred, beginning in June 2008, there was a breach by the defendant company by failing to attend to partnership affairs or that it engaged in conduct which was within s 38(c) and (d) of the Partnership Act. The certainty apparently intended by cl 25 of the partnership deed was not compromised by the defendant, through its nominated representative Dr Rackemann, communicating through a solicitor. Nor was the use of that solicitor conduct which was calculated to prejudicially effect the carrying on of the business or to make it not reasonably practicable for the three to carry on business in partnership.
- The next grounds for expulsion are statements said to have been false and misleading and made by the defendant to the plaintiffs in connection with partnership affairs. In each case, they are statements made through Mr Cronin in his letter of 27 August 2008. The plaintiffs allege that Mr Cronin, for the defendant, falsely represented that:
- the defendant was unable to obtain relevant financial information;
- the defendant was not aware of partnership expenses or the details of such expenses, which details had not been communicated to the defendant;
- the defendant had repeatedly requested financial information relating to the partnership and its requests had been avoided or ignored;
- debts of the partnership had been incurred in excess of the $200 limit without the defendant’s knowledge;
- the plaintiffs were effectively operating the business of the partnership to the exclusion of the defendant;
- partnership accounts had been signed without the defendant’s knowledge, and without any attempt to communicate the content of such documents to the defendant.
- The defendant’s answer to these allegations is that each of the statements was made but was true. But before going to each of the particulars, two things should be noted. The first is that whilst the truth or falsity of the claim by Mr Cronin is relevant, it is not the real question, which is whether by making that claim through its solicitor, the defendant engaged in conduct which was of a kind described in cl 22 of the partnership deed. It is that which the plaintiffs must prove, if they can prove the falsity of the particular claim made in Mr Cronin’s letter. Secondly, an assessment of whether there was misconduct in this respect which engaged cl 22 must be made in the relevant factual context, which was not one in which such statements by Mr Cronin, if false, were likely to mislead the plaintiffs. In each case, the allegation by Mr Cronin was one relating to what the plaintiffs had or had not done and the plaintiffs were able to judge for themselves whether the criticism was valid. It is inapt to describe any of these statements, if it was false, as misleading or to in some way characterise Mr Cronin’s letter as an act of deception. Rather, if any of his claims was in fact incorrect, the plaintiffs must have seen it for what it was: a false or exaggerated claim which was being advocated in the course of a wider and long-running argument. Such conduct was no more serious than the unmeritorious denial of a claim made by Mr Cronin if it was factually correct. I go then to the particulars.
- The first particular is the allegation that the defendant falsely asserted that it was “not in a position to obtain relevant financial information”. Mr Cronin’s letter was not precisely in those words. He wrote that the defendant had “repeatedly requested financial information relating to the partnership, and such requests [had] either been avoided or ignored”. He referred to the fact that Mr Lazarides had said that books of account were held with the accountants. In truth, to the extent that the books were held by the accountants, they were accessible by Dr Rackemann. However, Mr Lazarides kept at his own office a number of records and documents relating to the Miami properties. He had not offered these for inspection. At least in that respect the plaintiffs had not been helpful in facilitating Dr Rackemann’s inspection of documents. I accept that Mr Cronin’s letter may have overstated his client’s case and that it would have been preferable for him to focus upon the fact that documents relating to the Miami properties had not been offered for inspection, in the context of there being no monthly property manager’s reports for those properties as there had been for the Mermaid Beach Centre. Nevertheless, it was the fact that the defendant was not then in a position to obtain some relevant financial information.
- The next particular is the alleged statement that the defendant was unaware of partnership expenses or the details of such expenses. Mr Cronin’s letter of 27 August complained that debts had been incurred in excess of the $200 limit without the defendant’s knowledge of such debts and that “details of expenses (whether on behalf of the partnership or otherwise) [had not been] communicated to [the defendant]”. The plaintiffs argue that this was untrue, because, they suggest, it would have been obvious to any partner taking an active interest in partnership affairs that the expenses referred to in Mr Cronin’s letter of 13 August 2008 and its accompanying schedule had been comprehensively detailed in management reports sent to each of the partners by the property managers. But, there were no such monthly reports in relation to the Miami properties. It was right to say, at least in relation to those properties, that the defendant was not provided with details of the expenses. Nor had the defendant been told about the fees paid to Cronin Shearer for their work in preparing a proposed deed and associated documents to create a right of first refusal over the Leon Hill property. As I have found, the work performed by her firm in that respect was not for the benefit of the partnership, but was in the interests of the plaintiffs. Yet the expenses were paid from partnership funds. I also accept that, for example, the defendant was not informed about an account of $1,500 for the removal of trees at the Miami properties and an account for $15,612.50 for the services of letting agents with respect to those properties. The present point is not whether those expenses were properly incurred. It is whether the defendant falsely claimed that details of expenses had not been communicated to it. In those respects its claim was correct.
- The same applies to the third allegation, which is that it was untrue to suggest that the defendant had “repeatedly requested financial information relating to the partnership and such requests [had] either been avoided or ignored”. There was some truth in this at least because of the response, or lack of it, to the requests for documents which related to the Miami properties. On 1 July 2007, Dr Rackemann emailed Mr Lazarides saying that he had not received “a single financial statement, balance sheet or reconciliation relating to either of the [Miami] properties” and asked whether the partnership intended to appoint managing agents of those properties as it had done for the Mermaid Beach centre. Mr Lazarides replied on 13 July 2007 to the effect that a property manager would be appointed after the expected settlement of the purchase of lot 2158 (in September 2007) and that he assumed that the partnership had arranged for the partnership accountants “to do the financials for the Miami properties”. But at the same time he did not offer to make the existing documents available for inspection. In response to Mr Cronin’s request for the documents on 29 January 2008, there was Mr Lazarides’s answer of 1 February 2008 that the “partnership’s books of account [were] held by the partnership’s accountants”. Clearly that was an incomplete answer because of the documents held by Mr Lazarides’s own office in relation to the Miami properties. To that extent at least, Mr Lazarides could be regarded as avoiding the defendant’s requests.
- Next it is alleged that the defendant falsely asserted that debts of the partnership had been incurred in excess of the $200 limit without its knowledge. Mr Cronin’s letter of 13 August 2008 referred to two parts of cl 18 of the partnership deed. He referred to the $200 limit prescribed by cl 18(g), which was a restriction upon the buying, ordering or contracting for any goods, articles or property exceeding the value of $200, without the written consent of the other partners. He referred also to cl 18(b) which precluded a partner, without the written consent of the others, employing any of the money, goods or effects of the partnership or pledging the credit of the partnership except in the ordinary course of business and upon the account or for the benefit of the partnership. But his letter alleged a breach of cl 18(g). He did not assert a breach of cl 18(b); rather he sought information so that the defendant could be satisfied that there had been no such breach.
- The plaintiffs submit that each of the amounts referred to in that schedule was spent in the ordinary course of the business of the partnership and for its benefit. That was not contested in the defendant’s argument. They also argue that the fact that there were outgoings for more than $200 would have been obvious from the bank statements which were being sent by the bank directly to the defendant. Again, that is uncontested. The defendant must have known that cheques were being drawn for more than $200 and that inevitably many of these would have been for “goods, articles or property”, rather than for services. But none of this answers the defendant’s point about cl 18(g). In no case is it suggested that the plaintiffs had the defendant’s prior approval to spend more than $200 on any goods or property in an individual case. Nor can it be said that the defendant elected to adopt a particular transaction on behalf of the partnership, when it was unaware of the facts and circumstances of the expenditure. The plaintiffs submit that these payments were made “using procedures agreed upon and adopted by the partnership since 2002”. I do not accept that submission. The partners’ earlier practice had been to have regular partnership meetings. And for most of this time the only property was the Mermaid Beach centre for which the partners had the monthly reports by the managing agents which provided the relevant information in relation to all outgoings. The circumstances were markedly different by August 2008. There were no property managers’ reports from the Miami properties.
- Some of the expenditures within Mr Cronin’s schedule were as early as August 2006. And some of the later payments may have been within the management reports for the Mermaid Beach centre. It is unnecessary and probably impossible to assess whether, payment by payment, the defendant did or did not act or failed to act in a way which constituted an election to adopt the transaction for the benefit of the partnership in accordance with cl 18(g). But because of the absence of reports for the Miami properties and the fact that there were no partnership meetings from late 2006, it is far from proved that the defendant had elected to adopt each of these transactions according to that clause. Accordingly, the case made by Mr Cronin in relation to cl 18(g) had some factual basis and was, at least to some extent, true.
- The plaintiffs’ next particular involves the claim by Mr Cronin, in his letter of 27 August 2008, that the plaintiffs had been “effectively operating the business of the Partnership to the exclusion of [the defendant]”. Much of what I have said already in relation to other particulars applies here, because Mr Cronin explained this contention by suggesting that requests for financial information had been avoided or ignored, the $200 limit had been disregarded and details of expenses had not been communicated to the defendant. Each of those contentions had some factual substance, as I have discussed. Even on the basis of those matters, it was a legitimate comment that the defendant had been excluded in the sense that he had not been given all the information and access to documents enjoyed by, for example, Mr Lazarides. It was not correct to say that the defendant had been excluded in the sense that no information had been offered to the defendant and that everything to do with the partnership had been kept from it. But again the question here is whether there was conduct by the defendant which engaged the expulsion power within cl 22. That question does not turn upon the nuances of the word “exclusion”. Again, cl 22 was not engaged in the way suggested by this particular argument.
- The last of the plaintiffs’ particulars relates to Mr Cronin’s statement, in support of his “exclusion” case, that partnership documents had been signed without the defendant’s knowledge or consent. The plaintiffs further plead, and the defendant admits, that Mr Cronin’s letter contained a further assertion that “there had been no attempt to communicate such documents to [the defendant]”. This is curious because Mr Cronin’s letter did not make that assertion. He wrote that “decisions of the partnership concerning leasing of the assets of the partnership [were] made with no attempt to communicate such decisions to [the defendant] …”, and that “details of expenses … are not communicated to our client”.
- Mr Cronin’s reference to the signing of partnership documents was in particular to the partnership’s 2007 financial statements. They were prepared by the partnership’s external accountants and according to the evidence of Ms Bland from that firm, the draft 2007 financial statements were provided to each of the partners on or about 29 August 2007. Ms Bland took instructions from the partnership through Mr Lazarides. Apparently, her instructions were that the partners approved the accounts. She signed a so‑called Compilation Report which accompanied the accounts and her signature is dated 30 August 2007. With the accounts was a page headed “statement by partners of partnership”, which contained these words under which Mr Lazarides and Mr Burns signed:
The accompanying Profit and Loss Account for the year ended 30th June 2007 and the Balance Sheet as at that date of MERMAID BEACH SHOPPING CENTRE PARTNERSHIP ABN 12 856 587 440 have been examined by the partners and are approved.
- There had been no meeting of the partnership to approve the accounts. Nor had Dr Rackemann said anything between 29 August 2007 and when Mr Lazarides and Mr Burns signed this document, which I infer was the next day or so, to indicate his approval.
- It had not always been the practice for all three partners to sign a document evidencing their approval of the accounts, although all three had signed the 2002 and 2005 accounts. But the difference in this case was that when this document was signed by Mr Lazarides and Mr Burns, the accounts had not been approved by the defendant and therefore had not been approved by the partners. In my view, this document, as signed by them, would have indicated to a third party that all three partners had approved the accounts. If the document was given to a third party in this form, then the defendant would have had some basis for complaint. Accordingly, there was a factual basis for the statement that accounts had been signed without the defendant’s consent. The seriousness of that complaint, however, would be according to the extent to which, if at all, the defendant could and would have disagreed with any of the content of the accounts. Dr Rackemann made no suggestion of any error in the accounts in 2007 when he had the drafts, in the 2008 exchanges or in these proceedings.
- There is a related argument for the plaintiffs, that the defendant wrongly accused the plaintiffs of falsifying the accounts. In his letter of 29 January 2008, Mr Cronin wrote as follows:
Partnership Return – 2007
- We are instructed that without our client’s knowledge or consent the annual return for the Mermaid Beach Shopping Centre Partnership for the financial year ending 30 June 2007 was signed by [Mr Lazarides] and Mr Burns, which document purports to have been ‘examined by the partners and approved’.
- This document, which appears on the face of it to be false, was never provided to our client, nor was our client invited to attend at the meeting of Partners for the purpose of approving the Partnership’s accounts for the 2007 financial year. Our client reserves its rights in respect of the return and in respect of the Partnership Deed generally.
The so-called “annual return” was apparently a reference to that page signed by Mr Lazarides and Mr Burns. What Mr Cronin there contended was that the document had not been approved by Dr Rackemann. It was in that respect that he was suggesting that it was false, in that it falsely represented that the accounts had been approved by all partners. The falsity was in “this document” as distinct from some falsity in the partnership’s accounts. But Mr Lazarides took this to be an allegation that the accounts themselves were false, as appears from his response of 1 February 2008. That is a misunderstanding which continues, as appears from the plaintiffs’ ultimate submissions.
- Thus, when the particular complaint made by Mr Cronin about the 2007 accounts is understood, it can be seen to have had substance. The accounts containing that page signed by the plaintiffs might well have represented that each of the partners had then approved the accounts, which was not the case. Therefore, the plaintiffs’ present complaint that there was a false and misleading statement on behalf of the defendant about those accounts is not proved. It must be said, however, that the complaint by Mr Cronin lacked force in circumstances where Dr Rackemann had received the accounts five months earlier and had said nothing to question their accuracy. In that way, this was an unreasonable complaint on the defendant’s behalf. But it did not provide a ground for expulsion under cl 22.
- In summary, the plaintiffs have not proved that the defendant made false and misleading statements in connection with partnership affairs so as to engage cl 22.
- I come then to the last of the alleged grounds for expulsion, a matter which was not the subject of the complaint at the time but which was raised at the commencement of the trial and was apparently inspired by the disclosure of documents. The plaintiffs’ case here is that the defendant intentionally withheld relevant information from the plaintiffs about a prospective tenant for one of the Miami properties.
- On 25 January 2008, Dr Rackemann received an email from Mr Mahuika, a real estate agent at the Gold Coast. Mr Mahuika wrote:
Thank you for your time this morning regarding the above address [which was lot 2160]. My Client is a National Tenant looking to expand into the gold coast on a 5 plus 5 lease. Can you please forward me the specifications for the warehouse and showroom and the lease details also.
If you could arrange an inspection Monday next week to show my client through, would be much appreciated.
- The plaintiffs argue that Dr Rackemann was then placed in a position of conflict of interest and duty, because of his interest in the ownership of the Leon Hill property and its suggested competition with lot 2160 as premises for Mr Mahuika’s client. But there was no interest expressed by Mr Mahuika in the Leon Hill property. And rather than directing Mr Mahuika towards the Leon Hill property, Dr Rackemann immediately rang Mr Burns and told him of the agent’s approach.
- There is a difference in the respective recollections of Mr Burns and Dr Rackemann about this conversation. Mr Burns said that he was told by Dr Rackemann that he had been approached by an agent who had a “national tenant” interested in a certain part of lot 2160 and that Dr Rackemann was wanting some keys for an inspection. Mr Burns said that he asked Dr Rackemann who was the agent and who was the tenant and that Dr Rackemann replied that he wasn’t going to tell him either name because, Dr Rackemann said, Mr Burns would then tell Mr Lazarides who would get involved and “mess it up or words to that effect”. Mr Burns said that Dr Rackemann was “adamant that he didn’t want to tell me the names”. They also discussed the possible rent to be asked for these premises.
- Dr Rackemann was not sure whether Mr Burns asked him the name of the real estate agent, but he believed that he would not have refused to say who it was because there would have been no reason to deliberately withhold it. He agreed that Mr Burns asked him to reveal who the tenant was but he replied to Mr Burns that he did not know.
- Next Mr Burns spoke to Mr Lazarides and there were then further conversations between Mr Burns and Dr Rackemann. Mr Burns advised Dr Rackemann of the area which might be leased and of the possible rental. He said that he told Dr Rackemann that Mr Lazarides was not keen to provide keys to him when he did not know the name of the agent or the tenant, and that Dr Rackemann became quite annoyed at that response. Mr Burns said that he asked him again for the names of the agent and the tenant and Dr Rackemann said he would not provide them. Again, Dr Rackemann disputes that he withheld the names of the agent and tenant.
- On the afternoon of 25 January, Mr Lazarides emailed Dr Rackemann (copied to Mr Burns) as follows:
Paul has informed me of the discussions between he and you this morning. Notwithstanding your conflict of interest and absence of any authority from the partnership, you have been conducting discussions with an agent and prospect to lease partnership property. (sic)
I would appreciate your explanation for refusing to give Paul details of the tenant prospect referred to you and also of the agent who referred this prospect. I would also appreciate your explanation as to why the partnership’s established leasing practice, which has been in place for some years, should not be followed.
Will you be discussing the vacancy at your adjoining property with this prospect?
How do you propose that your conflict of interest be resolved? …
Dr Rackemann’s evidence was that he understood this reference to an “established leasing practice” as being that Mr Lazarides was usually personally involved in such transactions. Dr Rackemann made no response to this email.
- In Mr Cronin’s letter of 29 January 2008, he referred to this subject as follows:
- It is important that the terms of clause 16 continue to be followed by each of the partners notwithstanding any matters of disagreement between them. We are instructed that our client had been approached directly by an agent for a national tenant last week who had showed particular interest in leasing at 2160 due to its large size (1320 square metres). Our client promptly provided this information to Mr Burns, and requested that keys be provided for the purpose of a proposed inspection. We are further instructed that Mr Lazarides has apparently refused our client access to the keys for the property, and may be otherwise hindering our client’s efforts to have the agent inspect the property.
- There seems to be no apparent basis for access to the property to be refused, and that such refusal is inconsistent with the clear intention of the terms of Clause 16 of the Partnership deed. Our client will continue to endeavour to relay such relevant information as is received consistent with the objects of Clause 16, but the refusal to allow our client access merely highlights to our client that the Partnership cannot continue to operate in an environment of mistrust.
- In their memorandum to Dr Rackemann of 1 February 2008, Mr Lazarides and Mr Burns referred to this subject, complaining that Dr Rackemann had refused to disclose the names of the agent and the tenant, which they said was a breach of cl 16 of the partnership deed.
- On the same day (1 February), Mr Mahuika again emailed Dr Rackemann. In this email he identified his client and wrote that its “CEO and CFO viewed the property [from] the outside and [were] impressed with [the] location, dual access, layout, quality of fit out and overall presentation”, but that “the asking price did not compare comparatively with other properties [the client] had viewed”. He wrote also that the client was not prepared to make any written offer. The rest of his email consisted of his own suggestions for a strategy for leasing these premises. The effect of this email then was to say that although this “national tenant” was no longer a prospective lessee, Mr Mahuika’s agency should be retained by the partnership. Mr Mahuika prepared a draft of an appointment of his firm. Dr Rackemann says that he sent at least the first page of that document to his partners. That would have revealed at least the identity of the agent. However, they say that it was not sent to them.
- On 12 February 2008, Mr Mahuika again emailed Dr Rackemann. He asked whether “you guys still want me to lease your property …?”. On 14 February, Dr Rackemann replied: “Sorry; waiting to hear from my partners”. From there the possibility of appointing Mr Mahuika’s firm passed. Dr Rackemann’s evidence was that at this point he simply “disengaged”.
- More probably than not, Mr Burns did ask Dr Rackemann for the names of the agent and the tenant. It is quite unlikely that they had several conversations as to the possible rental, the area to be leased and other things concerning this prospective tenancy without Mr Burns wanting to know who was the agent and who was the tenant. I find also that Dr Rackemann did not disclose either name to his partners. It is improbable that the plaintiffs would have accused Dr Rackemann of withholding the name of the agent if Dr Rackemann had already and recently disclosed it. It is also unlikely that Dr Rackemann, by himself or Mr Cronin, would have disputed the plaintiffs’ assertions in this respect if he had disclosed at least the agent’s name to Mr Burns. Dr Rackemann was wanting to negotiate this lease of lot 2160 by excluding Mr Lazarides from the negotiations. He wanted to demonstrate what he saw was his competence compared with that of Mr Lazarides in this kind of business. This explains why he did not identify the agent as Mr Mahuika.
- More probably than not, Dr Rackemann did not know of the identity of the proposed tenant until he received Mr Mahuika’s email of 1 February 2008. The tenant was not identified in Mr Mahuika’s email of 25 January. And it is likely that the agent was unwilling to disclose the name of the prospective tenant until the agent had secured an appointment to act for the partnership. In his email of 1 February, the agent’s reference to the tenant indicates that it was at that point that the tenant was identified, particularly because the tenant is named by a hyperlinked reference to its website. But when that party was no longer interested in leasing the premises, I infer that the agent then identified it to Dr Rackemann in order to demonstrate that the agent had been acting, in good faith, for a real tenant.
- I find that when Mr Burns asked Dr Rackemann on 25 January for the identity of the prospective tenant, Dr Rackemann simply declined to provide it and did not say that he was unaware of it. It is improbable that he would have refused to identify the agent but then say that he was unable to identify the tenant. More probably, he simply declined to identify either, preferring his partners to believe that he knew more rather than less.
- I reject Dr Rackemann’s evidence that he sent to either of his partners the agent’s draft of his appointment. There is no documentary evidence to that effect. And again, there was no contention by Mr Cronin, in his letter of 5 February written in response to the plaintiffs’ memorandum to Dr Rackemann of 1 February, that the agent had been identified, and in particular by the provision of that draft contract.
- There was no rational basis for Dr Rackemann’s withholding the identity of the agent from the plaintiffs. In the interests of the partnership, the defendant should have disclosed it. The argument for Dr Rackemann was critical of what was said to be the failure of the plaintiffs to cooperate in respect of this agent’s approach. It was argued that the plaintiffs wrongfully declined to provide the keys to the premises or to otherwise facilitate an inspection by this agent and his prospective tenant. That criticism of the plaintiffs is valid, but it did not excuse the defendant’s conduct in denying its partners potentially valuable information.
- The plaintiffs argue that by a failure to disclose the identity of the prospective tenant and its agent there was a breach of cl 16 or conduct which would provided grounds for dissolution by the Court. Dr Rackemann may have believed that he could do a better job negotiating this prospective lease than Mr Lazarides; but each of the partners should have been aware who the agent was and the partnership as a whole should have had an opportunity to formulate its response. I have the impression that Dr Rackemann kept the agent’s identity from his partners, because he believed that they had been conducting the partnership, at least in some respects, without including him, and that this was an opportunity for him to remind them of his business skills and what he saw as his ability to contribute to the conduct of partnership business. He was not looking to personally profit from this transaction or to deprive the partnership of an opportunity. I accept that he believed that the partnership would be at least as well served by his handling this transaction. In my conclusion, his conduct was not so serious as to breach cl 16 or to otherwise engage cl 22. It was no more serious than Mr Lazarides’s withholding information when asked, two weeks earlier, what feedback he had received from agents about letting lot 2160, he replied “quite a bit”.
- In any case, the further question would be whether this conduct could be used to support the purported expulsion of the defendant. The conduct occurred about seven months prior to the expulsion notice of 3 September 2008. Clause 22 provided that an expulsion notice had to be given “within three (3) months after that partner’s offence or incapacity shall have become known to the other partners …”. The plaintiffs knew that the defendant had refused to disclose the identity of the agent or the possible tenant well more than three months prior to their notice. They knew of the defendant’s “offence” which they claim now was a ground for his expulsion.
- But the plaintiffs argue that they were unaware of some relevant matters. They say that they saw the emails between Mr Mahuika and Dr Rackemann only after their expulsion notices. They argue that they were not sufficiently aware of the defendant’s conduct to have known of their right to expel the defendant based upon that conduct by the time they gave their notices. They further argue that on the proper construction of cl 22, they are entitled to rely upon conduct which provided a ground for expulsion at the time their notice was given, although they were then unaware of that ground.
- Arguably cl 22 did not require the plaintiffs to specify a ground or grounds for their expulsion notice. Arguably also, the plaintiffs were able to rely upon a ground for the defendant’s expulsion, although that ground was neither stated in the notice nor known to the plaintiffs. However, the difficulty for the plaintiffs would be in proving that as at 3 September 2008 there was a ground upon which they were still able to rely, by the events of earlier that year. The time limit prescribed by cl 22 was according to the plaintiffs’ knowledge of the defendant’s “offence”. It was not according to the time at which the plaintiffs became aware of all of the evidence of that offence. By mid-February 2008, the plaintiffs were well aware of the defendant’s refusal to identify the agent or the tenant, and they had strongly complained of that refusal. In fact they complained that the identity of the tenant was being withheld, according to my findings, before the tenant’s identity became known to the defendant. But that does not detract from the fact that, in essence, the defendant’s offending conduct, which was the failure to disclose the identity of the agent who had made this enquiry and the party for whom that agent was acting, was conduct which the plaintiffs, no later than February 2008, understood had occurred.
- In my conclusion, the plaintiffs would have been too late to expel the defendant upon this ground, when they gave their notice on 3 September 2008.
The second expulsion notice
- The second expulsion notice was based upon the defendant’s return of unsigned documents for the Planet Noodle lease, for which the facts are largely set out above at . Eight days after receiving the documents the defendant returned them under cover of a letter from Mr Cronin which explained the defendant’s reason for not signing them as the failure of the plaintiffs to inform the defendant of “Partnership affairs” and in particular of the subject transaction. At that stage, there was the mediation scheduled for 21 November 2008. Mr Cronin wrote that his client’s complaint of lack of information would be one of the issues to be discussed at that mediation.
- On 22 October 2008, Mr Frampton replied to that letter. He wrote that the plaintiffs did not accept that the defendant was unaware of the transaction or that it had any justification for the return of the documents unsigned. He claimed that this refusal to sign the documents was or would have an adverse impact upon the plaintiffs, the partnership, the partnership property and the lessee and its assignee. He reserved the plaintiffs’ rights.
- On 13 November 2008, the defendant delivered a notice of intention to dissolve the partnership, dated the previous day, to take effect as at 30 June 2009.
- The parties participated in a mediation on or about 24 November 2008, which was preceded by argumentative correspondence even as to what should be considered to be the issues to be negotiated. The mediation failed to resolve any issue.
- The plaintiffs gave their second expulsion notice on or about 9 January 2009. A covering letter from Mr Frampton explained that the notice was given in case the September notice had been ineffective. The only grounds stated in the second notice were to do with the Planet Noodle lease. It alleged that the defendant’s refusal to sign the documents was conduct which caused the partners to be in breach of that lease, to be in “breach” of s 121 of the Property Law Act 1974 (Qld) and/or s 45 of the Retail Shop Leases Act 1994 (Qld), unreasonably exposed the “partnership to a claim of loss and or damage by [the assignor of the lease]” and constituted a breach of cl 16 in that the defendant had not been just and faithful, had not diligently and faithfully employed itself in the business of the partnership and had not used its best skill and endeavours to carry on the business of the partnership.
- The documents in question were to record the lessors’ consent to an assignment of lease and to a variation of that lease. The variation was to increase the amount to be held by the lessors as security, from three months rent to four months rent. The deed provided that this variation was operative and took effect, despite the date of the deed, from the so-called Assignment Date which was 1 August 2008. The deed had been signed by the outgoing lessee, the new lessee, its guarantors and the plaintiffs.
- The expulsion notice misstated the effect of the deed being unexecuted by the defendant. As already discussed, there was no duty under the Properly Law Act to consent to an assignment. Nor was there any contravention of s 45 of the Retail Shop Leases Act, which provides by s 45(1) that a lessor under a retail shop lease must not obstruct or hinder the lessee in dealing with the lease “by way of security”. This was simply an assignment of the lease. There is no evidence of any detriment to the partnership from the defendant’s conduct in this respect.
- As with the lease documents the subject of the first expulsion notice, the defendant’s stated position was not to refuse forever to sign the documents. Rather, it was to require the provision of information. Again, not all of the information which the defendant had sought was referable to this transaction; but it was reasonable for the defendant to require information which was relevant to it. None seems to have been provided.
- Otherwise, my reasoning in relation to the lease documents, the subject of the first expulsion notice, applies also to this notice. If the first notice was ineffective, there were no grounds to justify the second notice.
- I mention here that on 3 April 2009, the plaintiffs delivered a document headed “Notice exercising option”. It recited that the plaintiffs had given the expulsion notice of January 2009 and stated that the plaintiffs then gave “notice of their exercise of the option provided for in clauses 21(a) and 22 of the Deed to each purchase one half of the share in the partnership held by [the defendant]”. As I have held in a previous judgment in these proceedings, such a notice would be unnecessary, because where there is a notice validly given under cl 22, the expelled partner ceases to be a partner on the receipt of that notice and that is the “date of the purchase taking effect” within cl 21.
- The outcome is that the plaintiffs have failed to prove any ground upon which they were entitled to expel the defendant when they gave either of the notices of expulsion. I should note that the plaintiffs argued that if there was no particular ground which was established, nevertheless the cumulative effect of the various matters of which they complain should be regarded as sufficient to justify their expulsion of the defendant. I accept that, in general, it is necessary to assess the seriousness of some particular conduct of the defendant in the context of the defendant’s other conduct. Nevertheless, the plaintiffs must establish conduct which, understood in context, was itself of the kind which engaged cl 22 and of which they were aware only within three months of that notice.
- It follows that the purported expulsion of the defendant was invalid and that now, in turn, the partnership has been dissolved as of 30 June 2009 by the defendant’s notice of dissolution. But in case a different view is taken as to the existence of a ground for expulsion as at the date of either notice, it is necessary now to discuss some further arguments made for the defendant.
Other arguments by the defendant
- The first of these arguments is that the expulsion notices were issued for improper purposes. In this way, the defendant alleges, the plaintiffs acted in breach of their obligations to be just and faithful as partners. The defendant sought a finding that the plaintiffs were minded to expel the defendant because they wished to buy the defendant’s interest in the partnership for a price determined under cl 21 and a finding that such a purpose was “an improper and mercenary one”.
- In an earlier judgment, I held that the price to be paid for the share of the expelled partner is according to the value of that share as at the date of the expulsion taking effect, which is the date of the expulsion notice. The defendant argued that the plaintiffs believed, as at the date of their notices, that the value of the partnership property might have been depressed. The defendant says this should be inferred from the concerns which the plaintiffs then expressed about Dr Rackemann’s obtaining a valuation, which might have made its way to the partnership’s bank and put the partnership in breach of the term of its loan facilities that a certain loan to value ratio is to be maintained.
- I accept that the plaintiffs were concerned, over an extended period, about a valuation being obtained by Dr Rackemann. In September 2007 the plaintiffs resisted attempts by Dr Rackemann to obtain a valuation and did so again in December 2008 and at an interlocutory hearing in these proceedings on 30 April 2009.
- I infer that the plaintiffs decided to expel the defendant, if they could, because of a number of circumstances acting in combination. One was that the relationship of mutual trust had broken down and this was undoubtedly threatening the future prosperity of the partnership. A further circumstance must have been that the plaintiffs assessed that they would be better off by acquiring the defendant’s share at its then value than by receiving their respective proportions of the net value of the partnership upon a winding up. That perception probably involved some comparison between the then value of the real properties and their potential future value. But motivated by those circumstances, the plaintiffs were not acting in bad faith, if it is assumed, for the purposes of considering the present argument, that there was conduct then justifying the defendant’s expulsion. Upon that assumption, the plaintiffs could not have been criticised for wanting to end their association with the defendant.
- By the terms of cl 22, they were given the remedy of expulsion as an alternative to a dissolution of the partnership. In choosing between those alternatives, they were not bound to consider what was in the economic interests of the defaulting partner. Nor were they bound to consider the defendant’s interest in deciding whether to act upon the defendant’s misconduct at all. The defendant’s argument cited cases, such as Blisset v Daniel, in which a power to expel a partner was held to be qualified, by requiring its exercise in good faith and not solely for the exclusive benefit of the partners exercising that power. However, in that case, the power of expulsion was simply conferred upon the holders of two-thirds or more of the shares, without the requirement for any misconduct by the partner to be expelled. The power of expulsion in such a case is quite different from that in the present case. The potential unfairness of an unqualified power of expulsion is apparent, whilst in the present case, the power is expressly qualified to circumstances when the partner has engaged in serious misconduct against the interests of the partnership.
- The defendant further argues that there was an improper purpose behind the September 2008 notice, which was to “deprive the defendant of the chance to execute the documents attached to the memo dated 13 August 2008 following inspections of partnership books and records which were underway and were in the process of being organised”. It is suggested that the plaintiffs knew, as at 3 September 2008, that they were too late to rely upon the Leon Hill property purchase and that they were concerned that if the defendant executed the lease documents, this would deprive them of their ability to expel the defendant. Accordingly, they decided to expel the defendant there and then to deprive it of the chance of remedying its alleged default.
- I accept that when they purported to expel the defendant in September 2008, the plaintiffs must have been conscious of the impact of this upon the prospect of their immediately obtaining the defendant’s signature upon the lease documents. Their action in giving the notice thereby indicates that they were not as concerned by the documents being unsigned by the defendant as they have claimed. I accept also that they felt more confident in the existence of a power of expulsion, given the events which had occurred in respect of the lease documents and in particular the events at Mr Cronin’s office on 2 September 2008. This might explain why they served the first notice when they did, in case the lease documents were signed and their case became weaker. Another explanation for the timing of this, which is just as probable, is that they gave a notice as soon as they felt confident in doing so, as they did after the events of the previous day.
- As to the second expulsion notice, the defendant argues that this involved a plan to lure Dr Rackemann into refusing to sign the Planet Noodle assignment document, thereby giving the plaintiffs a further basis to expel the defendant. I reject that argument. More probably, it simply occurred to the plaintiffs in the new year of 2009 that they might also rely upon the non-execution of this lease document. Because that had not preceded the September 2008 notice, they gave a further notice.
- Next it was argued that the plaintiffs were not entitled to expel the defendant because the plaintiffs themselves were in breach of the partnership deed. The defendant’s case is that upon the proper construction of the partnership deed, this contractual power of expulsion was one which could be exercised only by partners who were innocent of any breach of the partnership deed. The submission relies upon events at least some of which, whilst arguably amounting to a breach within cl 22, could not have justified an expulsion of one of the plaintiffs because of the three month time limit within cl 22. It is unnecessary for me to express a view on the legal questions, involving the proper interpretation of the partnership deed, of whether a breach by the plaintiffs precluded their expulsion of the defendant and whether that was the case only where the plaintiffs’ breach itself would have been an event within cl 22. But it is necessary that I record some findings of fact.
- The defendant argued that the plaintiffs had breached cl 16 and the corresponding fiduciary obligations owed by them under the general law, firstly by excluding the defendant from involvement in the affairs of the partnership. I have already found that the defendant was excluded in some respects from the partnership business.
- It is necessary to say something more here about the absence of partnership meetings. The plaintiffs did not refuse to hold partnership meetings. On 13 July 2007, Mr Lazarides emailed Dr Rackemann, saying that he had “no objection to quarterly meetings” and suggesting that Dr Rackemann prepare an agenda with some tentative meeting dates. It seems that this suggestion was then overtaken by events concerning the proposed first right of refusal and the draft deed which was rejected by Dr Rackemann. In October 2007, Dr Rackemann requested a partnership meeting, and Mr Lazarides replied by referring to his earlier email (of 13 July). I find that ultimately the reason why there were no partnership meetings was that neither side was minded to convene them.
- The defendant also argues that it was excluded in the conduct of the plaintiffs in instructing Ms Shearer to prepare documents, at the expense of the partnership, in relation to the grant of first right of refusal. As I have already found, Ms Shearer was instructed on the basis where she was effectively to protect the plaintiffs’ interests, which were relevantly in conflict with those of the Rackemann interests, and partnership funds ought not to have been used to meet the costs of this work. In that respect, I am persuaded that the plaintiffs breached cl 18(b). The defendant argues that cl 8 was also breached by paying those fees. But cl 8 provides for the payment of outgoings which are in the nature of being “in or about the partnership business”, which these were not. After Dr Rackemann had rightly protested that the partnership’s lawyers had been retained to protect the plaintiffs’ interests, vis-a-vis those of the defendant, the plaintiffs again retained Ms Shearer in early 2008 to prepare another deed in relation to the first right of refusal. But this time, rather than having Ms Shearer send the document to Dr Rackemann, the plaintiffs sent it with a memorandum in which they wrote that “we have redrawn the first right of purchase document …”. In this draft, there was no reference to its being a document produced by Ms Shearer’s firm, as there had been in previous drafts in accordance with that firm’s usual practice. In cross-examination, Ms Shearer was unable to satisfactorily explain the omission of the usual reference to her firm in this draft. I infer she was asked to delete that reference, so that the plaintiffs could represent that they themselves had redrafted the document so avoiding another protest about the use of Ms Shearer’s firm. I find also that the defendant was unaware of this further use of Ms Shearer’s services and at partnership expense.
- As discussed already, Mr Lazarides met Dr Rackemann’s requests to inspect the partnership documents by saying that they could be inspected at the offices of the partnership’s accountants, although not all of the documents were held by the accountants and many of them which related to the Miami properties were held at the office of Mr Lazarides. In that respect, Mr Lazarides breached his duty as a partner, because the exercise of good faith required him to make available partnership documents which were in his possession and not to effectively represent that he held no such documents.
- It is argued for the defendant that the plaintiffs “played Machiavellian tricks” on Dr Rackemann and Mr Cronin in the lead-up to the service of the expulsion notice on 3 September 2008. The plaintiffs certainly disguised their intention to serve that notice. They arranged for documents to be inspected at Ms Shearer’s office on the afternoon of 3 September whilst then intending that the notice be served when Dr Rackemann and Mr Cronin were attending for that inspection. However, had I been persuaded that the plaintiffs were then entitled to expel the defendant, I would not have regarded this as a breach of the plaintiffs’ duties as partners. The defendant’s inspection of documents at Ms Shearer’s offices was not consistent only with the continuation of the partnership. Had the defendant been duly expelled, nevertheless, it would have been entitled to inspect records relating to the partnership business to that point.
- The defendant submits that the plaintiffs were in breach of cl 8 of the partnership deed by paying an invoice to Jim’s Mowing for $1,500 and an invoice for $15,612.50 from Ray White Commercial (Gold Coast). As to whether these were breaches of cl 8, the question is whether they were made with the “unanimous approval of the partners”. The defendant had not approved these payments. But that does not mean that cl 16 was breached or that there was otherwise conduct by the plaintiffs of a kind within cl 22. The payments were made for partnership purposes and without any breach of fiduciary duty.
- I come then to the final argument for the defendant, which was that if either expulsion notice was validly given, it lost its effect because the plaintiffs breached obligations which were imposed, as implied terms, in the performance of the steps required by cl 21 of the partnership deed. In a previous judgment I found it unnecessary to decide whether a duty of good faith would be owed by the former partners to each other in the process prescribed by cl 21. Again, it is unnecessary to determine that question here, but the implied terms alleged by the defendant were that the plaintiffs were obliged to:
(a)provide the expelled partner with access to partnership records so as to enable the expelled partner to identify the debts and liabilities affecting the partnership’s business and property with the assistance of appropriate experts;
(b)provide the expelled partner with access to the partnership’s property so as to enable the expelled partner to value that property with the assistance of appropriate experts; and
(c)reasonably negotiate with the expelled partner a price for the purchase of that partner’s interest within a reasonable time.
- The defendant did not claim damages for breach of these implied terms. Rather, its case was that the plaintiffs repudiated obligations under cl 21 and that the defendant was thereby entitled to avoid the consequences of the expulsion notice. Again, the legal question of what could have been the consequences of breaches of these implied terms need not be assessed here. But it is necessary to record some findings of fact.
- On 19 September 2008, Mr Burns and Mr Lazarides emailed Mr Cronin, proposing that pursuant to cl 21(a) either HTW Gold Coast or Landmark White Gold Coast be appointed to value the defendant’s share. They asked for advice within seven days as to whether the defendant agreed to either valuer. Mr Cronin had written to the plaintiffs on the same day, challenging the validity of the expulsion notice, referring to cl 24 of the partnership deed which provided for an arbitration of any dispute between partners and advising that the defendant would request the President of the Queensland Law Society to appoint an arbitrator. On 24 September 2008, Mr Cronin wrote to the President of the Law Society. Mr Frampton for the plaintiffs wrote to the Law Society on 26 September, opposing any appointment. On the same day Mr Frampton wrote to Mr Cronin, contending that the Court should determine the question of the validity of the purported expulsion. At that stage, there was already filed the application, returnable on 7 October 2008, in respect of the (unsigned) lease documents.
- On 1 October 2008, the plaintiffs wrote to the President of the Law Society, asking for the appointment of a valuer under cl 21. By this stage, there had been no negotiation as to a price for the defendant’s share. No price had been proposed by the plaintiffs and, of course, the defendant was disputing that it had been expelled. On 3 October 2008, the Law Society replied that it was considering whether it was appropriate to appoint either an arbitrator or valuer in the circumstances.
- On 7 October, the originating application by which these proceedings were commenced came before a judge in the Applications List. The application sought declarations that the plaintiffs had duly exercised an option to purchase the defendant’s share as provided in cl 21(a). The outcome was one by consent, under which undertakings were given to the Court in relation to the lease documents. Again by consent, it was ordered that the parties participate in a mediation. On 8 October, Mr Frampton wrote to Mr Cronin proposing that the mediation take place in late November 2008.
- On 10 October 2008, Mr Cronin wrote to the President of the Law Society, asking that his request for an appointment of an arbitrator be placed on hold pending the mediation. But on 14 October, Mr Frampton wrote to the President, pressing for the appointment of a valuer under cl 21.
- There was then a debate about the terms of a mediation referral order. On 22 October, Mr Frampton objected to Mr Cronin’s draft. Remarkably, there was even a disagreement as to how the dispute, the subject of the mediation, should be defined within the proposed order.
- On 24 October, the President of the Law Society wrote to say that she would appoint a valuer under cl 21(a) upon certain conditions, one being that the parties should indemnify the Society, its President, officers and employees against any claims in connection with any act or omission by the appointee. On 27 October, Mr Frampton wrote to Mr Cronin saying that the plaintiffs agreed to the terms offered by the President. On 4 November, Mr Cronin wrote to Mr Frampton about the terms of the mediation referral order and to say that the defendant did not agree to the terms stated in the President’s letter.
- The parties did manage to agree on the terms of the referral order, which was filed on 18 November and provided for a mediation to be conducted on 21 November. The mediator’s certificate that the parties participated in the mediation was filed on 10 December 2008.
- The defendant sought to have the properties valued. Mr Cronin emailed Mr Frampton on 25 November 2008 to arrange an inspection by a valuer and seeking information which he said had been requested “for the purpose of providing the bank with sufficient information to proceed”.
- On 2 December 2008, Mr Frampton wrote to Mr Cronin concerning the defendant’s request for information and inspection of documents. He complained that Dr Rackemann had been representing to others that he was a potential purchaser of the plaintiffs’ interests in the properties. He recorded that no offer of purchase had been made by Dr Rackemann and that he ought not to make that representation. And he referred to the defendant’s having engaged the firm Landmark White, when that was one of the firms proposed by the plaintiffs as a valuer under cl 21. He asserted that the “Landmark White valuation process” was “not permitted by the partnership agreement”.
- The plaintiffs gave instructions to Ms Shearer, the partnership accountants and the managing agents, in or about the first week of December 2008, to provide documents for inspection by the defendant or its representatives only if a written request was first made to Mr Frampton. Nevertheless, with that qualification, the documents and records were made available to the defendant, insofar as they related to partnership affairs up to the expulsion notice.
- The defendant wished to have another solicitor, Ms Bostock, inspect the leases of the partnership properties. It is alleged that the plaintiffs instructed Ms Shearer to deny Ms Bostock access to those documents. In that respect, reference is made to certain emails passing between the two sides in the period of 5 to 8 December 2008. But they do not establish that Ms Bostock was denied access to the documents or that Ms Shearer was instructed to do so.
- On 8 December, Mr Lazarides emailed the partnership’s accountants, saying that it was emerging that the defendant “may be accessing partnership documents for a purpose not permitted by the partnership agreement” and that until some answers were provided to questions put to Mr Cronin, partnership documents should not be available to the defendant’s side. He wrote a similar email to the managing agents. On 9 December, Mr Lazarides caused Ms Shearer to write to Dr Rackemann that copies of partnership lease documents would be sent to him only upon Dr Rackemann’s “confirmation that the information obtained in the leases will only be used for the benefit of the partnership as agreed in clause 18(b) of the Partnership Deed and will not be used for a valuation or for the purpose of obtaining a personal advantage”. Dr Rackemann declined to give that undertaking. Again, on 9 December, Mr Frampton wrote to Mr Cronin requiring an undertaking that partnership documents would not be used by the defendant for any purpose “other than in the ordinary course of partnership business” and would not be “used or provided to Landmark White Valuers”.
- I find that the plaintiffs thereby acted to prevent the provision of information concerning the partnership, its assets and affairs to a valuer to be engaged by the defendant. This was a substantial impediment to any negotiation, if it was otherwise possible, of the price to be paid for the defendant’s share. But, neither party was minded to negotiate. The plaintiffs’ position was that the price should simply be fixed by a valuer under cl 21 and they had sought the defendant’s agreement to the appointment of HTW Gold Coast. The defendant’s position was that there had been no expulsion and the partnership continued, subject to the notice of dissolution which he had given which was to take effect at the end of that financial year. At one point in his evidence, Mr Lazarides seemed to suggest that he had put a price to Dr Rackemann for the defendant’s share. But he later clarified that by reference to a memorandum dated 24 September 2007, which is irrelevant to the position following the expulsion notice of September 2008.
- On 23 January 2009, the defendant had Mr Cronin write to Mr Frampton, making an offer to buy the plaintiffs’ shares, or alternatively to sell to them its share, in each case upon the basis that the net value of the partnership was $13.5 million. There were other terms which it is unnecessary to set out here. That was not the subject of a response until 27 March 2009, in which the plaintiffs made a counter-offer under which all of the partnership properties would be acquired by the defendant which would take over all partnership loans and pay $5 million to the plaintiffs.
- Dr Rackemann did manage to have the properties valued. His valuations were obtained well prior to 30 April 2009, when the defendant successfully applied for orders that partnership records be made available by the plaintiffs for inspection. The valuations were not disclosed at that hearing, as they should have been. On 30 April, submissions were made for the defendant that it “propose[d] to get a valuation …”. In my judgment I noted that the defendant sought orders which were expressly directed towards obtaining documents and information in order to enable the defendant to procure a valuation or valuations of its interests in the partnership. When cross-examined at the trial, Dr Rackemann said that the valuations of the properties which he had obtained were of limited assistance because those valuers had lacked relevant information. But as it happened, no further valuation was obtained by the defendant, notwithstanding the benefit of the orders of 30 April 2009. I am unable to assess whether the valuations which had been obtained, and which are in evidence, might have been made more accurate or reliable with the benefit of further information and documents which had to be produced according to those orders.
- In all of this there is some basis for criticism of the plaintiffs, if there were implied obligations in respect of cl 21 as the defendant alleges. In particular, the embargo upon the use of Landmark White would have been a breach of the alleged implied terms in (a) and (b) referred to above at paragraph . And the absence of negotiations as to the price to be paid for the defendant’s interest might be seen as a breach of the alleged obligation to “reasonably negotiate with the expelled partner a price for purchase of that partner’s interest …”. But two observations should be made. The first is that so far as access to relevant records and documents is concerned, that was available to the defendant at least after the orders of 30 April 2009 yet it was not until the filing of the defence on 5 June 2009 that the defendant claims to have acted upon the alleged repudiation by the plaintiffs. Secondly, considerable criticism could also be made of the defendant, if there were the implied terms which it alleges. The defendant impeded the appointment of a valuer under cl 21 and more generally, it denied the validity of its expulsion and the consequent operation of cl 21 at all. Accordingly, if the expulsion notice was valid and if there was thereby some contractual relationship for the sale of the defendant’s share subject to the alleged implied terms, the defendant could not be regarded as having itself performed that contract.
- Neither of the expulsion notices was validly given because in neither case was there a ground for expulsion which could then have been relied upon by the plaintiffs. There is no challenge to the efficacy of the defendant’s dissolution of the partnership if the defendant was not duly expelled. It will be declared that each of the notices given on or about 3 September 2008 and 9 January 2009, purporting to expel the defendant from the partnership between the plaintiffs and the defendant, was of no effect. It will be further declared that the partnership was determined on 30 June 2009 by reason of a notice of dissolution dated 12 November 2008 served by the defendant. It will be ordered that the partnership be wound up and that Jason Bettles and Ivor Worrell be appointed to the partnership without security to conduct the winding up, with powers equivalent to those prescribed by s 420 of the Corporations Act 2001 (Cth). I will hear the parties as to costs and other orders.
 By cl 7(a).
 Clause 9 which provided the partners should be entitled to the net profits in accordance with their contribution of capital. There is no question that the partners made their capital contributions equally.
 Maclag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2)  QSC 299.
 Transcript 7-30/45.
 Transcript 7-31/47.
 Transcript 7-23, 24.
 Which was read into the record at transcript 6-29.
 An email to Gadens of 8 May 2007.
 The letter is undated but it was ultimately common ground that it was sent on or about this date.
 (1929) 42 CLR 384, 407-408.
 Ibid, 408.
 Above at .
 Transcript 6-41/29, 6-43/14, 6-44/10.
 (1988) 164 CLR 387, 428.
  1 AC 114.
 Ibid, 127-128 and cited by Brennan J in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 422.
 (1988) 164 CLR 387, 422-423.
 Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 429.
 s 22 provides that the rights and duties of partners might be varied by agreement.
 Transcript 6-74/1.
 According to the usual pre-trial direction, the evidence be called by each witness was required to be summarised in a document to be provided to the other side ahead of the trial, with the direction that evidence not fairly disclosed by such a summary could not be called without leave of the trial judge.
 (1824) 37 ER 1191, 1202 and cited by Lindley MR in Wall v London and Northern Assets Corporation  2 Ch 469, 480.
 Exhibit 21.
 (1945) 46 SR (NSW) 180.
 Ibid, 182.
 Partnership Act (1891) Qld s 38(c).
 Ibid, s 38(d).
 See for example paragraph 92 of the written submissions.
 To which I have referred already at .
 Referred to above at .
 Plaintiffs’ written submissions at paragraph 147.
 Written submissions, paragraphs 189, 190 and 192.
 Referred to above at .
 Maclag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2)  QSC 299  QSC 299, .
 MacLag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2)  QSC 299, .
 (1853) 68 ER 1022.
 Defendant’s written submissions, paragraph 148.
 MacLag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2)  QSC 299, .
 Transcript 4-50/30 to 4-50/55.
- Published Case Name:
Maclag (No 11) Pty Ltd as Trustee for the Burns Family Trust and Anor v Chantay Too Pty Ltd as Trustee for the Chantay Trust
- Shortened Case Name:
Maclag (No 11) Pty Ltd v Chantay Too Pty Ltd
 QSC 299
13 Aug 2010
- White Star Case:
No Litigation History