Mills v Mills[2008] QSC 249

SUPREME COURT OF QUEENSLAND

1. The issue remaining in dispute in this litigation is the amount to be paid by the surviving member of a partnership that conducted a supermarket at Cunnamulla. At the start of the trial, the parties tendered a statement of agreed facts, the contents of which I shall incorporate in the following paragraphs.

Agreed facts

2. John William Robert Mills (“the deceased”) died on 1 February, 2004.

3. Immediately before he died, the deceased and the plaintiff conducted a mixed business at 30 John Street, Cunnamulla, in partnership.

4. The terms of the partnership were set out in a Deed of Partnership dated 29 October 1965, clauses 21 and 22 of which provide as follows:

“21.If any partner shall die during the continuance of the partnership the surviving partners shall as from the date of such death succeed in equal shares to the share of the deceased partner in the partnership business and the property and goodwill thereof and shall undertake all the debts and liabilities and obligations of the partnership the price of such share shall be the nett value of such share as at the date of death after providing for the then debts and liabilities of the partnership such value in case of dispute to be determined by arbitration under the provisions in that behalf hereinafter contained PROVIDED ALWAYS that it shall be lawful for the surviving partners to elect not to purchase the share of the deceased partner on giving notice in writing of such election to the representatives of such deceased partner or (if there be none) on leaving such notice at the place of business of the partnership within six months of his or her death and in that case the partnership shall be deemed to have been determined at the date of the giving or leaving such notice as aforesaid and thereupon the affairs of the partnership shall be wound up as provided in clause 20 hereof and in the meantime the business shall be deemed to have been carried on by the surviving partners on the joint account of himself or herself and the representatives of the deceased partner.

22. The sum payable under the last preceding clause to the representative of a deceased partner for his or her share in the capital and property of the partnership after deducting the amount (if any) by which his or her drawings on account of current profits shall exceed the amount of such allowance shall be paid as soon as conveniently may be after death and in any case within eighteen months thereafter and the surviving partners shall by his or her or their bond or covenant indemnify the representatives and estate of the deceased partner from the debts and liabilities of the partnership upon such payment being made and indemnity given the representatives of the deceased partner shall execute and do all acts matters and things necessary or proper for vesting the share of such partner in the surviving partners and enabling him or her or them to recover and get in the outstanding assets of the partnership.” (Original emphasis)

5. The property in which the business was conducted, namely 30 John Street, Cunnamulla, was at all relevant times registered in the names of the plaintiff and the deceased as tenants in common in equal shares and was an asset of the partnership.

6. The plaintiff did not make an election under clause 21 of the Deed of Partnership not to acquire the share of the deceased in the partnership business and accordingly, upon the death of the deceased, acquired the deceased’s share in pursuance of that clause, although payment is yet to be made.

7. In exchange for payment for that share, the plaintiff will be entitled to have the deceased’s estate transfer the deceased’s half interest in the 30 John Street property to the plaintiff.

8. By agreement, the only issues for the court to determine at the hearing commencing 30 September 2008 are the amount of the payment to be made under clauses 21 and 22, interest (if any) and costs.

The issues in dispute

9. Although under clause 21 of the Deed the value of the deceased’s share in the partnership was to be determined by arbitration^[1] there is no dispute that the Court has jurisdiction to determine the amount that is payable and that it should determine the issue.^[2] 

10. A significant element in arriving at the net value of the deceased’s share as at 1 February 2004 is to determine the value of the business known as Mills IGA Everyday Store Cunnamulla at that date.  The history of the business explains how its daily operations came to be conducted by the plaintiff and his immediate family at that date.

11. The business was purchased in 1946 by Mrs Estelle Mills, the mother of the plaintiff and the deceased. The freehold at 30 John Street, Cunnamulla was purchased by Mrs Estelle Mills and her husband in 1953.  In 1958 Mrs Estelle Mills sold an equal share in the business to her husband and to the plaintiff.  They entered a Deed of Partnership in 1958.

12. In 1964 the deceased moved to Brisbane where he took up work.  Soon after he commenced a career as an accountant.  He acquired a quarter share in the partnership under the Deed of Partnership dated 29 October 1965.  On 29 October 1965 Mrs Estelle Mills and her husband, Edward Albert Mills, sold a half share in 30 John Street to their sons who acquired such half interest as tenants in common in equal shares.  The deceased did not work in the business, but prepared its books of account and statutory returns.  He did not draw on the profits of the business. 

13. The plaintiff and his wife, Christine Mills, married in 1966. Mrs Christine Mills worked in the business thereafter, save for periods when she had young children. Mr Edward Albert Mills died on 29 June 1975. Mrs Estelle Mills worked in the business until her death on 24 May 1992. Upon her death the freehold title of 30 John Street was acquired by inheritance by the plaintiff and the deceased as tenants in common in equal shares.

14. In May 2001 the plaintiff and his wife, Mrs Christine Mills, purchased property situated at 32 John Street, Cunnamulla for $70,000.  Parts of this property were used for storage purposes for the business.  After consultation with the deceased it was agreed that the business would pay an annual rent of $30,000 for occupying these premises. 

15. The business was associated with independent retail chains from time to time, including Queensland Independent Wholesalers (“QIW”). Prior to the deceased’s death the business joined the IGA group, which is operated by a listed public company, Metcash Group Ltd (“Metcash”). The business’ association with IGA required it to pay certain fees including a fee described as the IGA Maintenance Fee. It also entitled the retail outlet to rebates and other benefits. The business originally acquired shares in QIW by taking rebates by way of shares. Over time, through different changes in ownership in retail chains, these QIW shares became shares in Metcash. The deceased drew one half of the dividends paid on the Metcash shares.

16. In the years prior to 1 February 2004 the plaintiff was the “working partner” in the business. The deceased continued to attend to the accounts of the business. With the agreement of the deceased, the plaintiff drew the profits of the business as part of his salary. The present day-to-day operations of the business are essentially the same as they were on 1 February 2004, but it is necessary to focus on the operations and financial performance of the business at that date in order to arrive at its value for the purpose of clauses 21 and 22 of the Deed. Accordingly, the following account of the facts addresses the state of affairs as at 1 February 2004.

17. The parties are agreed that the business’ value at that date should be determined by reference to what a willing but not anxious purchaser would be required to pay to induce a not unwilling vendor to sell it. ^[3]

18. The plaintiff worked, on average, approximately 80 hours per week in the business. His wife, Mrs Christine Mills, worked at least 52 hours per week. In about April 2001 her salary was increased from $600 to $963 gross per week, but she drew only $200 of this salary by way of cash and the balance was “left in the business” in a loan account in her favour.

19. Ms Stephanie Mills, the daughter of the plaintiff and Mrs Christine Mills, returned to Cunnamulla to work in the business in 1998. Her wage was initially $586 gross per week. This figure was not the subject of negotiation. Ms Stephanie Mills’ normal working week was 56 hours. Under the award she was entitled to overtime for 18 of these hours. Her work in the business involved a variety of tasks, including attending to scanning, computer and EFTPOS systems. She worked on Saturdays 9:30 am to 2:30 pm. She was available to be called back to the business at odd hours to attend to problems.

20. Mr John Mills is the son of the plaintiff and Mrs Christine Mills. He worked approximately 42-and-a-half hours per week, undertaking a variety of tasks including deliveries, packing and freezer work. These hours of work entitled him to be paid overtime under the relevant award.

21. In addition to the four family members who worked in the business each week, the business employed a number of casual employees.

22. Expert evidence was given in relation to the valuation of the business. Mr Malcolm Fraser, an experienced valuer, valued the business at $180,000 and its real property at $152,000. His valuation of the business was based upon a capitalisation rate of 45 percent being applied to an adjusted net profit of $80,298, to which he added an amount on account of stock in trade. A different approach was adopted by the two forensic accountants who gave evidence, Mr Maynes and Mr Kelly. Each adopted the same methodology, namely arriving at an estimated future maintainable earnings before interest and tax and then applying a capitalisation rate to it. Mr Maynes and Mr Kelly each produced a number of reports, supplementary reports and other documents for the purpose of the hearing.  Mr Maynes and Mr Kelly conferred in April 2008 in an endeavour to resolve the variances in their respective valuations of the business.  The result was an adjustment by each of them to their respective estimated future maintainable earnings.  Each agreed on a capitalisation rate of 25 percent.  The matters about which they agreed and disagreed at that time are summarised in exhibit 3.  It will be necessary to have regard to various adjustments and concessions that were made in the course of evidence. 

23. Prior to the trial Mr Maynes adopted an estimated future maintainable earnings figure of $77,900 which produced a value of the business of $311,600. This value is less than the net tangible asset value at which Mr Maynes arrived of $331,753. Mr Kelly adopted an estimated maintainable future earnings figure of $179,939 which, at a capitalisation rate of 25 percent, produced a valuation of the business of $719,756.

24. The major items of expense in respect of which Mr Maynes and Mr Kelly did not agree are:

(a) wages and superannuation;

(b) rent on the adjoining property.

There also was an issue concerning leasing costs.

25. The valuation of the business and an assessment of its net tangible assets enables the goodwill of the business, if any, to be determined. Mr Maynes and Mr Kelly agree that goodwill is the amount arrived at by deducting the net tangible operating assets from the value of the business. They disagree about whether cash deposits in the bank and on hand by the partnership were a “core” or “operating” asset. I shall describe this as the “cash issue”.

26. Other issues for determination are:

(a) liability for long service leave;

(b) the starting point for the capital account;

(c) the treatment of BAS and IAS liabilities;

(d) the treatment of Capital Gains Tax (“CGT”) on Metcash shares.

Wages and superannuation

27. The issue of wages and superannuation arises in the context of ascertaining the market value of the business, namely the price at which a not unwilling vendor would sell the business to a willing but not anxious purchaser as at 1 February 2004. Mr Maynes assessed the estimated maintainable earnings before interest and tax of the business after an allowance for an estimated fair market salary and superannuation for the manager of the business. The amount drawn by the plaintiff as salary was the profits of the business. I accept Mr Maynes’ assessment of a fair market rate salary and superannuation for a manager. Mr Kelly’s estimate was not materially different.

28. An area of contention between the parties and between the respective positions of Mr Maynes and Mr Kelly was in respect of the other Mills family employees. The defendant’s argument, namely that there was scope to reduce payment of wages and superannuation for the tasks undertaken by Mrs Christine Mills, Ms Stephanie Mills and Mr John Mills, was not a criticism of the way in which the plaintiff and his immediate family conducted the business.  The evidence is that the plaintiff and his immediate family devoted themselves to the business, worked long hours in it and that the business served the community.  The point made by the defendant related to the scope that a purchaser had to reduce the wages expenses of the business and thereby increase its net profits.

29. Save for the assessment of a manager’s salary that I have already mentioned, Mr Maynes adopted the actual wages paid and superannuation contributions made in respect of employees that are included as expenses in the business’ Profit and Loss Statements.  As a result of his review of these expenses and inquiries made by him, Mr Maynes was satisfied that the actual wages paid were an appropriate measure of wage costs in a business that was affected by a number of factors including its size, its location in a remote town and the availability of staff.

30. By contrast, in circumstances in which there was a disparity between actual wage records and the expenses appearing in profit and loss statements, Mr Kelly adopted a wages bill of 11 percent of turnover based upon industry benchmarks and his knowledge of other IGA businesses in country towns. The defendant submitted that where the actual figures were unreliable Mr Kelly had adopted the proper approach, and that in the case of a family-run business, expenses such as wages “should be viewed with a healthy scepticism during the valuation process”.

31. The plaintiff urged the adoption of the actual wages paid to the Mills family employees and other employees as recorded in profit and loss statements for the business. It was submitted that Mrs Mills provided management services that justified the payment in excess of the standard casual rate of $16.77 per hour. In the case of Ms Stephanie Mills the plaintiff relied upon the fact that her actual wages were less than the amount to which she would be entitled under various scenarios.^[4]  For instance, if she was paid for 56 hours on the basis of 38 ordinary hours, eight hours at time and a half and 10 hours double time, her annual salary would have been $52,037.44.  She received far less than that: approximately $40,000.^[5]

32. Ms Stephanie Mills had developed expertise in using computers when she worked in Brisbane prior to her return to Cunnamulla in 1998 and an important part of her work in the business was attending to the computers, computerised stock records and scanning records.  This made her a valuable employee.  There was evidence that Ms Mills undertook work associated with her photographic gallery and travelled away from Cunnamulla on occasions to undertake photography at weddings and other events.  This was apparent from entries in her log book, particularly in the period 1999 to 2000.  The plaintiff and his daughter acknowledged that there were occasions when she was paid when she was not there.  The plaintiff submitted that insofar as the business on occasions paid her whilst she was away taking wedding photographs, it was compensated for this because she made herself available at all times to deal with shut-downs in the computers. 

33. I find that the wages that Ms Mills was paid in the few years prior to 1 February 2004 were less than the market value of the wages that would have to be paid to an employee doing the same work at ordinary and penalty rates. The issue, however, is whether the wages that were paid or payable to Ms Stephanie Mills, Mrs Christine Mills and Mr John Mills should be taken as an indication of the cost of running the business in order to arrive at an estimate of the business’ future maintainable earnings.  The defendant submits that the overtime paid to them inflated the true cost of running the business, especially in the case of Ms Stephanie Mills.  Expressed differently, the defendant submits, in effect, that an incoming purchaser who did not wish to pay its staff overtime could have other employees undertake some of the work performed by Ms Stephanie Mills with the result of not having to pay 18 hours overtime or the equivalent of 32 hours of ordinary pay. 

34. The work of Mrs Christine Mills was said to not differ in substance from the work of several casual employees, save to the extent that she took additional responsibility for co-ordinating the front of the shop. Mrs Mills was paid $963 per week (approximately $50,000 per annum).  Mr John Mills worked on average 42.5 hours per week and was paid overtime.  The defendant submitted that some of the work performed by him could be undertaken by casual employees, removing the need to pay him or anyone else overtime. 

35. The basic submission of the defendant is that family members were better remunerated than their external counterparts who were paid at casual rates, and that the work undertaken by members of the Mills family could be undertaken by employees engaged by the purchaser of a business at a reduced cost. Mr Kelly expressed the opinion that an appropriate figure for wage costs was 11 percent of turnover, and that in his experience IGA stores of the size of the Mills’ store ran within a range of 10-12 percent of gross sales.

36. The plaintiff submits that Mr Kelly’s analysis was based on inadequate information as to the staffing of the business and local factors, including the range of services that the business provided such as deliveries, credit accounts and other services which required additional staffing. The plaintiff further submits that the 11 percent figure that he adopted was based upon averages of certain IGA stores with which he had been associated which were closer to Brisbane, including a larger store at Charleville which had a turnover of in excess of $5 million per year. The plaintiff also contends that there was no benchmark for IGA’s stores and this was illustrated by the evidence of Mr Leisk, the State Marketing and Operations Manager for IGA, who stated that there was a variation of staff costs of between 8 percent and 14.5 percent of turnover in IGA stores.

37. I accept these criticisms of Mr Kelly’s adoption of the 11 percent figure. It was permissible for Mr Kelly to have regard to what he understood to be an appropriate benchmark. However, the adoption of a figure of 11 percent or a departure from it required further inquiry by him and additional information about the operation of the business. I am not persuaded that the 11 percent benchmark adopted by Mr Kelly reflects what the defendant’s submissions described as “the true cost of running the business.”

38. A potential purchaser of the business would look first to the actual costs and consider the scope to reduce them, rather than assume that this particular business could achieve a benchmark of 11 percent or some other percentage of turnover.^[6]  The hypothetical purchaser might be a family company that would employ family members to manage and staff the business, along with a number of other employees.  Alternatively it might be an investor that employed others to manage and staff the business.  In any event, a potential purchaser would be influenced by the manner in which the business was already conducted.  A purchaser that was a family company might anticipate that family members employed in the business would be prepared to forego payment of overtime or other benefits.  A purchaser that did not intend to employ family members would expect to pay employees at a market rate appropriate to the responsibilities being undertaken and the time actually spent by them.

39. Whilst the actual wages paid to members of the Mills family and to the casual employees who worked in the store at 1 February 2004 would be an essential point of reference, a purchaser of the business would look to identify any scope to reduce the total wages expense. In addition to the position of manager, the business would require an assistant manager to undertake a variety of tasks. These tasks might include the front of store management activities undertaken by Mrs Christine Mills and the ordering, computer and other administrative tasks undertaken by Ms Stephanie Mills.  Alternatively, some of these tasks might be undertaken by casual employees.

40. The salary to be paid to a person who was not a family member of the operator of the business to undertake the role of assistant manager/administrator would need to be in excess of the casual rate of pay to ordinary employees. The amount would depend upon whether the assistant manager worked in excess of 38 hours per week. If the assistant manager worked only 38 hours per week, was employed in lieu of Mrs Christine Mills and Ms Stephanie Mills and undertook the management, computer and administrative work undertaken by them, then additional staff would be required to undertake the balance of the tasks performed by Mrs Christine Mills and Ms Stephanie Mills.

41. Any anticipated savings cannot be assessed with mathematical precision, however a prospective purchaser would need to offer a sufficiently attractive level of remuneration to attract someone who was prepared to work as an assistant manager in the business at Cunnamulla. I have had regard to the relevant award, the evidence given in the case concerning the difficulty of attracting and retaining casual and other staff to work in the business, the evidence and calculations performed by Mr Maynes and Mr Kelly, and the criticisms made of their respective approaches.

42. A potential purchaser in February 2004 that was familiar with the business and its operation would consider whether there was scope to employ an assistant manager to take on the management, administrative and computer responsibilities undertaken by Mrs Christine Mills and Ms Stephanie Mills. Mr Kelly’s projected wages costs include administrative employees being paid $700 for a 38 hour week or $994.74 (or $51,726 per annum) for 54 hours. I consider that a prospective purchaser who anticipated employing an assistant manager for 38 hours per week would expect to pay in excess of the award rate^[7] for a supervisor due to the difficulty of attracting a person to undertake those responsibilities in Cunnamilla.  The evidence was that there was difficulty in recruiting staff.  The assistant manager would be required to manage the business in the absence of the manager.  Like Mrs Christine Mills, the assistant manager would be responsible to manage the front of the store and assume some of the computer, ordering and administrative tasks undertaken by Ms Stephanie Mills.  An assistant manager employed to work as a full time employee for 38 hours per week undertaking these responsibilities would expect to be paid substantially in excess of the basic award wage for a first level or second level supervisor.  They probably would be able to negotiate a wage in excess of the casual rate of $17.58 per hour for a second level supervisor.  It is not unrealistic to conclude that a purchaser of the business would be required to pay such an individual at an ordinary rate of $20 per hour for a 38 hour week.  Together with holiday loading such an individual’s salary would be approximately $40,000 per annum.^[8]

43. Mrs Christine Mills worked on average 52 hours per week and Ms Stephanie Mills worked on average 56 hours per week or 108 hours in total. If one deducts 38 hours from this figure for the 38 hours to be worked by a new Assistant Manager/Administrator there remains 70 hours of work. Even assuming that a prospective purchaser anticipated that the duties undertaken by Mrs Mills and Ms Mills during these 70 hours could be performed by two casual employees, each working 30 hours per week,^[9] each casual worker would be paid $24,687.^[10]

44. A comparison between actual wages paid to Mrs Christine Mills and Ms Stephanie Mills with an estimate of the wages that would have to be paid to their replacements on these assumptions would be as follows:

45. I conclude that a prospective purchaser would not be prepared to assume that it could make substantial savings by replacing Mrs Christine Mills and Ms Stephanie Mills with a full time Assistant Manager/Administrator and have the balance of their “ordinary” work undertaken by casual employees.

46. A potential purchaser of the business could not safely assume that Ms Stephanie Mills would be prepared to work for it and continue to work 56 hours per week for the same wage that she was prepared to work for her family. Ms Stephanie Mills was paid less for working those 56 hours than she would have been had she been paid an ordinary rate of pay for the first 38 hours and then at penalty rates, in which event she would have been paid $52,037.44. If her 56 hours of work was allocated between two or more employees who were paid at casual rates then the business would pay these casual employees $47,924.76, namely several thousand dollars more than Ms Mills was paid.

47. The evidence did not establish that Ms Stephanie Mills did not do the work that she described each working week. The evidence indicated that there was scope for her to be paid on occasions when she was not actually at work. However, the evidence does not support the conclusion that she was paid substantial amounts on occasions when she was on trips away from Cunnamulla taking photographs of weddings and other events in the years that immediately preceded 1 February 2004. The entries in her log books to which she was taken relate to the period 1999 to 2000 and she gave evidence that many of these trips were on Saturday afternoons and that she was able to manage this activity whilst working on Saturday mornings. The plaintiff accepted that the wages records did not record trips undertaken by Ms Stephanie Mills and that, on these occasions, she would be paid “whether she was there that week or not”.^[11]  He accepted the proposition put to him that the absence of records of these trips as holidays in the wages book meant that there was “the facility” available to his family to be paid whether they were there or not.^[12] 

48. Some account must be taken of this acknowledged “facility”. However, the evidence does not persuade me that excessive use was made of it by Ms Stephanie Mills or anyone else. Ms Stephanie Mills would be required to be called back to work to attend to problems including shut downs with equipment and did so without any additional payment. The evidence indicates that occasions when family members were given some latitude to be away were part of the ordinary “give and take” accorded to a family member who worked long hours in a family business for less wages than the business would have been required to pay an outside employee undertaking the same work.

49. The wages paid to Mrs Christine Mills of $963 per week reflected the long hours worked by her in the business and the fact that some of her responsibilities included management of the store. A prospective employer would recognise the scope to replace her with an Assistant Manager/Administrator. However, whilst a full time Assistant Manager/Administrator working a 38 hour week would be paid in the order of $40,000 it would be necessary to make up the balance of Mrs Christine Mills’ hours by employing additional casual staff or paying the Assistant Manager penalty rates if the Assistant Manager was required to work beyond 38 hours per week.

50. In short, a prospective purchaser would not be prepared to assume that it could make substantial savings by replacing Mrs Christine Mills and Ms Stephanie Mills with other employees.

51. Mr John Mills was paid some overtime.  However, the scope to save money by reducing his hours or an equivalent employee’s hours to 38 hours per week would be limited.  If Mr John Mills was replaced by a new full time employee, then some payment of overtime might be necessary in order to attract and keep such a full time employee.  Otherwise, the work undertaken by Mr John Mills during the four-and-a-half hours per week that he was entitled to be paid overtime would need to be undertaken by another employee, who would be paid at casual rates.  A prospective purchaser of the business would not count on any substantial savings in this regard.

52. Apart from the Mills family, employees of the business undertook work at casual rates. On average, there were 13 casual employees. There is no sound reason to suppose that a potential employee would be able to reduce the number of casual employees or their total wages bill whilst maintaining the business’ turnover and profitability. The business employed the number of casuals that were required to do the work. The evidence is that Mr Mills had difficulty in engaging casual staff or having the employees who worked for him take up additional hours. Unlike in other centres in which IGA stores might operate with a number of junior employees who would be paid at a lesser casual rate than older employees, the business had difficulty in engaging junior employees.  This was a problem for businesses in Cunnamulla and Mr Mills gave evidence that of the 28 business houses in Cunnamulla that employed 70 people, only seven juniors were employed.  At the time of the hearing, the business employed 13 casuals and only one was a junior.  None of the employees other than Ms Stephanie Mills were able to operate the computer.

53. These features of the employment market in which the business operated illustrate the difficulty of assuming that the business could achieve a percentage wages bill similar to other IGA stores in other country towns, let alone the wages bill that an IGA store would have in the city with greater access to junior employees.

54. The business provided a range of services including town deliveries each day, packing orders, fulfilling orders by acquiring goods from other stores, delivering orders to country mail contractors and running a large number of accounts for debtors. Mr Mills, who was familiar with other IGA stores and the way they operated, described the business as unique, and I accept his evidence.

55. Mr Maynes, who was provided information about the business which Mr Kelly did not obtain, concluded that, save for the adjustment required in relation to the manager’s salary, the figures for wages in the profit and loss account reasonably represented fair market wages for the business at the relevant time and that Mr Kelly’s benchmark of between 11 and 12 percent was too low.  Mr Maynes did not subject the business’ wage and other records to a close forensic examination, and if he had done so he would have noticed a disparity between the wages book and the wages recorded in profit and loss statements.  He was criticised for not taking sufficient account of the fact that in a family business there is a “very real potential” that family members are being overpaid and that, save for Mr Edward Mills, he took up the wages figures that appeared in the profit and loss statements.  For the purpose of the hearing Mr Maynes undertook other exercises and calculations which led him to the conclusion that the wages and superannuation costs after adjusting for Mr Mills’ salary came to 13.4 percent.  He considered that this adjusted percentage was reasonable and not far from the benchmark range of 11 to 12 percent contended for by Mr Kelly.  The difference was explicable because of restricted access to junior staff, geographical differences and the additional services that the business provided to customers that many other IGA stores did not provide.  The fact that Mr Maynes did not subject the business’ wages records to a rigorous forensic analysis does not falsify the correctness of his conclusion, which was based upon a review of the businesses financial records and adoption of expenses drawn from its profit and loss statements. 

56. The fact that such a family-run business has the potential to overpay family members would need to be taken into account by any prospective purchaser. The fact that family members were the only employees being paid overtime also would need to be taken into account. However, these features do not mean that a potential purchaser would be able to reduce actual wages costs. Any purchaser of the business would need to employ a manager and the figure adopted by Mr Maynes for the salary and superannuation costs of the manager are reasonable. A purchaser of the business would be able to replace Mrs Christine Mills, Ms Stephanie Mills and Mr John Mills with new employees.  However, the potential to do so does not mean that their replacement with new employees would achieve an overall saving to the business. 

57. The evidence does not justify the conclusion that wages and superannuation costs could be reduced by a prospective purchaser to the level suggested by Mr Kelly, whilst maintaining the turnover and profitability that the business achieved at 1 February 2004.  I accept Mr Maynes’ calculations for wages and superannuation for the purpose of determining the value of the business at that date.

Rent on the adjoining property

58. The issues in relation to the rental of storage space on the adjoining property were its commercial cost, and whether any or all of that space was needed for the business.

59. Mr McLaren, a licensed real estate agent who has lived and practised in Cunnamulla for many years, was asked to assess an appropriate rent for the adjoining property that was purchased by Mr and Mrs Mills in 2001 for $70,000. He assessed the rent at $30,000 which approximated to $50 per m² of its area of approximately 600 m². Mr McLaren confirmed his assessment in a document dated 3 July 2007. The defendant submits that Mr McLaren’s valuation was based on “the slimmest of evidence” and that he was unable to point to any truly comparable rents. A more reliable exercise was to adopt an appropriate rate of return on the land that was acquired by Mr and Mrs Mills. Mr Kelly said that an appropriate rate would be 15 percent^[13] and the defendant also relies upon the fact that Mr Fraser’s calculation of the rent for the land upon which the shop sits adopted a figure of 15 percent.  Mr McLaren gave evidence about the relationship between the cost of acquisition of real property and rents in Cunnamulla.  He said it was possible to purchase an old home in Cunnamulla for $40,000 and to rent it for at least $120 per week.  This, incidentally, represents a return on investment of 15 percent.

60. The plaintiff urged reliance upon the fact that the deceased accepted the sum of $30,000 as an appropriate rent and this should be accepted as an arrangement that was “at arms length”. I am not persuaded that the deceased’s preparedness to agree to a rent of $30,000 per annum to be paid by the partnership business to the plaintiff and his wife provides a proper basis to conclude that the market rent was $30,000.

61. The relevant inquiry in the context of valuing the business is whether a hypothetical purchaser of the business would plan to continue to rent the adjoining property and, if so, be able to negotiate a reduction in the rent that the partnership agreed to pay. The defendant points to the fact that only part of the area was taken up for storage by the business. A shop front was used as Ms Stephanie Mills’ photographic gallery. Other parts were used for storage for a boat and kayaks. The defendant questions whether the storage space was reasonably required in 2004.

62. The storage area exceeds the floor area of the store which for many years used a shipping container for storage. When the stock in it was transferred following the purchase of the adjoining property it took up only three quarters of the second largest shed. Over time, additional space was used. The plaintiff justified use of the new storage area on the basis that it enabled goods to be purchased in greater bulk at better prices and also allowed for some efficiencies in the handling and storage of deliveries.

63. An insurance proposal in 2002 indicated that only a small percentage of the value of stock totalling $90,000 was stored outside of the premises. The source of this information was not established by other evidence but the defendant relies upon it as indicating that the amount of storage space was not actually needed. The insurance proposal may indicate that the most expensive stock was kept inside the store for security and other reasons.

64. The evidence does not persuade me that the business did not reasonably require the additional storage space that was used by it on the adjoining premises. It might have been possible for the business to revert to some other arrangement such as the use of shipping containers. However, a prudent purchaser of the business would need to be convinced that such a significant rearrangement of the business’ operation was justified. It seems more likely that a purchaser of the business would identify some scope to negotiate a reduction of the rent and also seek some payment from Ms Stephanie Mills and Mr and Mrs Mills for any continued use of part of the area.

65. Mr McLaren’s opinion provides some evidence of what a market rent would be for all of the storage facility situated at 32 John Street,Cunnamulla.  However, his estimate of $30,000 per annum from industries needing facilities of this nature was unable to be based upon rents drawn from a range of comparable premises.  The figure of $30,000 was what he “came up with” in circumstances in which there were no closely comparable commercial premises at the time in Cunnamulla such that he was required to speak to other agents in other centres.  He had regard to an ex-bank building in which the landlord was asking $300 a week and he justified his figure of $50 per m² as being only two thirds of the rent per m² being asked for the bank building. 

66. Mr McLaren’s evidence does not persuade me that an annual rental of $30,000 was achievable on the market at 1 February 2004 for the adjoining premises. A rental of $30,000 represents a substantial return on investment for a premises that was purchased for $70,000 a few years earlier. I find that the figure of $30,000 does not reflect a market rent of the whole of the premises, let alone the area that the business required to efficiently store and manage its stock. There is no satisfactory explanation as to why a return on investment of this order exceeded the capitalisation rate adopted by Mr Fraser in relation to the store’s premises. The rate of 15 percent adopted by Mr Kelly is not unrealistic in light of Mr McLaren’s evidence concerning other premises. A prospective purchaser wishing to negotiate the rental of storage space on the adjoining premises would be well-placed to negotiate a substantial reduction in the $30,000 figure that was agreed between the partnership and Mr and Mrs Mills as owners of the adjoining premises. However, in any negotiation Mr and Mrs Mills would be able to insist upon a reasonable rent to reflect the convenience of the location and the advantages that such a storage space provided to the business in achieving efficiencies and reduced costs by buying in bulk. A prospective purchaser would not have a large number of convenient alternative sites and the choice of reverting to use of shipping containers would not be as convenient as using the storage facilities available on the adjoining lot. I conclude that a resolution of any negotiation probably would result in a return on investment to Mr and Mrs Mills of 20 percent per annum on their investment of $70,000, resulting in an annual rental payment of $14,000.

67. Mr Maynes’ calculation of rent involved an adjustment below the figure of $30,000 per annum to an average annual rent of $26,211.^[14]  The adoption of a rent of $14,000 per annum results in an increase in the net maintainable earnings of the business by $12,211 above the figure adopted by Mr Maynes.

Leasing

68. Evidence was given about an expense referred to as the IGA maintenance fee. There also was evidence of leasing expenses in some earlier periods. The evidence was unsatisfactory concerning the leases that existed before the valuation date. One source of confusion was incorrect references in some of the accounts to the fee paid to IGA as being a lease fee. The evidence indicates that from time to time the business required scanning equipment, cash registers, computers and other equipment. Mr Kelly calculated leasing costs on various assumptions.^[15]  Mr Maynes accepted that there would be an interest cost in those leases and was content to accept an adjustment of $2,000 on account of these leasing costs. 

69. I find that leases of equipment would be required from time to time and that it is appropriate to adjust the expenses of the business to reflect financing costs associated with leasing. I adopt the adjustment figure of $2,000 accepted by Mr Maynes.  This will result in an adjustment of his estimated net maintainable income of $2,000.

The cash issue

70. Surplus assets do not form part of the operating assets of the business. Mr Maynes considered that cash at the bank and cash on hand was a core or operating asset.^[16]  Mr Kelly made an adjustment in this regard in order to arrive at the value of business goodwill.  Mr Kelly explained that an incoming purchaser would consider that stock levels were sufficient, that debtors exceeded creditors, that the business was profitable and that its cash flow situation did not warrant the retention of the amounts held as cash at the bank or on hand.  Mr Maynes pointed to substantial cash outflows each week but acknowledged that there were other substantial cash inflows arising, in part, from the fact that the supermarket has a substantial daily turnover with cash receipts.  The defendant submitted that there was insufficient evidence that cash inflow was sporadic, for instance that it comprised irregular large payments each month.  Whilst monies needed to be available to pay the weekly wages bill, debts for stock were paid on account.

71. The plaintiff pointed to differences between cash reserves at the end of particular financial years. However, I am not persuaded that the total of the cash reserves of $97,334 was a core or operating asset. A business that does not have an overdraft facility and that does not wish to incur the costs of operating one needs cash working capital. The business had significant, but relatively predictable, wage costs from week to week. Despite providing account facilities to many customers it was, in essence, a cash business and, over time, cash inflows into the business along with the payments of accounts were likely to exceed cash outflows. On occasions, the level of debtors might increase unexpectedly. In these circumstances, to allow for no cash to be kept on hand or at the bank as a business operating asset would be erroneous. I accept Mr Kelly’s evidence that in circumstances in which the business was profitable and “creating cash on a daily basis” the question needs to be asked whether the business needed cash reserves of more than $97,000. A cautious, and not unreasonable approach, would be to maintain cash assets at that level. However, I consider that an appropriate amount of cash was $50,000, and that the calculation of the net operating assets of the business should be adjusted accordingly.

Long service leave

72. The present accountant for the business, Ms Mardel-Howard, gave evidence that, at the date of death of the deceased, the business had a liability in respect of long service leave. Based upon information provided to her concerning award entitlements, Ms Mardel-Howard calculated long service leave as at 1 February 2004 as follows:

This liability to pay long service leave was not recorded in the books of account of the business.  The suggested liability to pay Mrs Christine Mills’ long service leave was based upon various assumptions concerning the length of her service and the application of the award provisions upon which Ms Mardel-Howard relied.  This included the assumption that Mrs Christine Mills had been working continuously in the business since 1966.^[17]  The evidence established that Mrs Mills worked in the business from 1966, but ceased to work in it when her children were young in the late 1960s and early 1970s.^[18]

73. The defendant submitted that it was inappropriate to make any allowance on account of this amount because the evidence that it was in fact payable was unsatisfactory and, in any event, it is most unlikely that such an accrual would be a liability that an incoming purchaser would be prepared to assume. The evidence does not satisfactorily establish that the partnership business had a liability to pay the long service leave in the amounts calculated by Ms Mardel-Howard. In any case, a prospective purchaser would not be prepared to assume such a liability upon acquisition of the business without proof that the sum was in fact owed by the business and, if it did, it would require an adjustment of the purchase price of the business.

74. It seems more likely that the position in relation to an accrued liability to pay long service leave would be taken up in arriving at the value of the deceased’s share in the business and that an incoming purchaser would be protected against any such accrued liability. Mr Maynes gave evidence that if an obligation to pay long service leave had accrued then the matter would not affect the incoming purchaser and that the existing partners would have to pay it. Mr Kelly agreed that any liability that existed in respect of long service leave would have to be taken up in calculating the value of the deceased partner’s share.

75. In the case of long service leave that had yet to accrue, an incoming purchaser would take account of the potential liability to pay long service leave if the relevant employees were to be retained and continued to work in the business until a liability to pay long service leave accrued. It is likely that a potential purchaser would not expect to retain the services of the Mills family if the purchaser was itself a family business. Accordingly, I do not consider that long service leave is a matter which should be taken into account in arriving at a value of the business.

76. The issue is whether a liability to pay long service leave existed as at 1 February 2004 in the amount calculated by Ms Mardel-Howard. Ms Mardel-Howard did not appear to be familiar with the relevant awards, at least in relation to the calculation of any entitlement that Mrs Christine Mills accrued some decades ago.^[19]  Her evidence is that she relied upon a summary sheet of the award that applied as at 1 February 2004.  In circumstances in which Mrs Christine Mills did not work continuously over the period that Ms Mardel-Howard assumed that she did and in which long service leave entitlements from the mid-1970s were not satisfactorily proved, I am not satisfied that the partnership had an accrued liability to Mrs Christine Mills in the amount of $31,367 as at 1 February 2004.  I conclude that the determination of the value of the deceased’s share in the partnership requires account to be taken of an accrued liability to pay Mrs Christine Mills long service leave as at 1 February 2004, and that neither the books of account of the partnership nor the evidence permits her entitlement to be calculated with any precision. 

77. It is not appropriate to value the deceased’s share on the basis that there was no entitlement and that the extent of the entitlement is a matter about which the plaintiff bears the onus. If any party bears an onus it is the defendant which is the claimant for present purposes. Some evidence indicated that an entitlement to long service leave arose after continuous service for more than 15 years.^[20]  The evidence indicates that Mrs Christine Mills resumed full time employment when her children went to school and this would have been in around 1976.  The evidence does not establish that she was in either part time or full time employment between 1967 and 1976.  In arriving at a figure for long service leave that was payable to her by the partnership as at 1 February 2004, it is likely that if she fell short of qualifying for long service leave on the basis of continuous service of 30 years that the partnership would have recognised some kind of moral obligation to pay long service leave on account of her period of continuous employment.  In the circumstances, I conclude that a resolution of the partnership’s liability for long service leave to Mrs Christine Mills as at 1 February 2004 would have resulted in recognition of an obligation to pay her a sum of $20,000.  I otherwise adopt the figures of $3,968 and $4,781 on account of accrued long service leave obligations as at 1 February 2004 in respect of Ms Stephanie Mills and Mr John Mills.  This totals a long service leave liability of $28,749.

The treatment of BAS and IAS liabilities

78. Mr Maynes included “BAS payable” in an adjusted amount of $5,054 amongst the liabilities of the business. This amount is referable to liability to pay GST.^[21]  Mr Kelly gave evidence that from the perspective of an outsider coming in to buy the business the GST liability would not be a liability of the particular business but would reside with the two partners.  Accordingly, he excluded it from the calculation of the value of the business and later included it as a liability of the partnership.  I accept Mr Kelly’s approach.

79. The accounts also included an amount of $17,629 for the year ended 30 June 2004 on account of a taxation liability that was wholly attributable to the plaintiff. Mr Kelly reversed this entry to the plaintiff’s current account on the basis that it was not a partnership liability and I accept that this is a proper approach.^[22]  Mr Maynes also recognised that an adjustment was required in relation to this liability.

The starting point for the capital account

80. Mr Maynes and Mr Kelly each adopted a different starting point for the calculation of the current account of each partner as at 1 February 2004. Ms Mardel-Howard supplied Mr Maynes with figures that were said to reflect the “actual” current account details of each partner at that date. Mr Kelly adopted a different approach whereby the assets and liabilities of the partnership were based on averages. He recognised that it is always possible to ascertain capital accounts at a particular date.^[23]  However, he identified a difficulty in bringing into account an actual movement as opposed to an average movement.  If an actual movement as opposed to an average movement was brought into account the accounts could not balance and so a uniform approach was required in respect of both assets and liabilities in the current account.^[24]  I accept Mr Kelly’s approach.  Mr Maynes’ starting figure for the opening balance for the deceased was only a few thousand dollars less than Mr Kelly’s starting point. 

The treatment of capital gains tax on Metcash shares

81. One of the assets of the business was Metcash shares. Assessment of their value as at 1 February 2004 was resolved by a revision by Mr Maynes to the share price that he had previously adopted.^[25]  An issue arose concerning CGT liability.  Again, the differences between the parties are not significant as to the amount in dispute.  The plaintiff’s approach was that the liability to pay CGT would have to be discharged before establishing the appropriate value of the deceased’s share that was being acquired by the surviving partner.  Mr Kelly did not take up the CGT liability on the basis that such liabilities reside with the partners and that, unlike other liabilities such as bank debts, did not reside with the partnership.^[26] 

82. The plaintiff submitted that account would necessarily have to be made for the CGT liability in what was, in effect, a sale from the deceased partner to the surviving partner since otherwise the deceased partner’s liability in relation to CGT would be discharged by the surviving partner. Mr Kelly accepted this proposition subject to the observation that the extent of the surviving partner’s liability would depend upon the surviving partner’s tax rate and income from all sources. That said, he accepted that the CGT liability would be at the marginal tax rate.

83. The defendant submitted that CGT will not be payable until the shares are sold by the plaintiff (assuming they are sold by him) and whether or not he pays CGT and at what rate will depend upon his personal circumstances, and that the liability for CGT on capital gains that occurred before 1 February 2004 should not be ignored.

84. I accept the plaintiff’s submissions that the liability for CGT on Metcash shares has to be taken into account. Otherwise the sale of these shares may impose upon the plaintiff a liability for tax on capital gains prior to 1 February 2004 that should be shared with the deceased.

85. A related issue is whether an adjustment needs to be made for the costs of realisation, since Mr Maynes made deductions for the costs of brokerage. I accept the defendant’s submission that the transfer of the Metcash shares will occur without the intervention of a broker.

86. An adjustment to the calculation undertaken by Mr Maynes^[27] is required to remove realisation costs of $1,566.  The value of the shares as at 1 February 2004 was $78,312.  Their cost was $53,251.  This represents a capital profit of $25,061, and 50 percent thereof is $12,530.  CGT at 48.5 percent would amount to $6,077. 

The value of the business

87. An appropriate methodology for the valuation of the business is that adopted by Mr Maynes and Mr Kelly, namely the application of a capitalisation rate of 25 percent to the estimated future maintainable earnings of the business before interest and tax.  I adopt as a starting point Mr Maynes’ figure of $77,900 and then make adjustments to it in the light of my previous findings.

88. The difference between the valuation of the business so arrived at and the value adopted by Mr Kelly in his valuation report is substantial. This is because adjustments in expenses produce correspondingly large differences in value. Every dollar adjustment in respect of the estimated future maintainable earnings before interest and tax is reflected in a four dollar difference in the value of the business.

89. The plaintiff urged acceptance of the valuation of Mr Maynes in preference to the valuation of Mr Kelly on the basis that Mr Maynes’ overall conclusion was consistent with the evidence of Mr Fraser, a registered valuer. Ultimately, the issue for determination was the appropriate value of the business, not simply a choice between the valuation opinions of Mr Maynes and Mr Kelly, and Mr Fraser’s evidence was said by the plaintiff to be extremely important because of his familiarity with the business, similar businesses in other towns and market conditions. Mr Fraser’s evidence included evidence of another mixed business in the town which was said to have been on the market for five years at a current price of $120,000, and another mixed business in Charleville which was said to have been on the market for three to four years before it sold.

90. The defendant submitted that no weight should be given to Mr Fraser’s valuation because it has not been the subject of any expert’s conclave of the kind undertaken by Mr Maynes and Mr Kelly and had not been subject to the same level of scrutiny. It was also submitted that Mr Fraser’s valuation took up, without question, figures for the business as entered in the profit and loss statements which the plaintiff submitted should be viewed sceptically or, at least, adjusted. The defendant also pointed out that Mr Maynes cast doubt on the usefulness of the methodology adopted by Mr Fraser compared to the approach adopted by Mr Maynes and Mr Kelly which was described as “an economic valuation”.  In addition, it was submitted that Mr Fraser’s “market valuation” should be ignored because it was influenced by what was said to be the difficulty which would be encountered in selling the business and the length of time that it might take to sell it. 

91. I do not accept the defendant’s submission that Mr Fraser’s valuation should be ignored or given no weight. Mr Fraser is an experienced valuer with important local knowledge. His market-based approach provides an alternative method of arriving at the valuation of the business. The preferred point of first reference, however, is the evidence and valuation opinions of Mr Maynes and Mr Kelly and their forensic analysis of the accounts of the business. This is apparent in Mr Fraser’s estimate of management salaries and other items.^[28]

92. I accept the defendant’s submission that the Deed of Partnership assumes that the deceased’s interest in the partnership had a value as at 1 February 2004 and that the partnership business itself had a value at that date. Market conditions, including the interest of potential purchasers, geographic influences and other factors are reflected in the capitalisation rate adopted by experts and their opinions about whether the earnings of the business are maintainable. I have had regard to Mr Fraser’s report and his oral evidence which was of assistance in arriving at an understanding of the business and the market in which a hypothetical sale of the business in February 2004 would occur.  However, for the reasons given by me, I arrive at a value for the business, based upon Mr Maynes’ analysis, subject to appropriate adjustments in the light of my findings, of $368,444.

The net value of partnership assets

93. The valuation of the business is a precursor to the determination of the value of the deceased’s share in the partnership. The value of the business of $368,444 exceeds its net tangible operating assets of $289,413, resulting in a goodwill of $79,031. The net operating assets of the business as a going concern can be summarised as follows:

94. An adjusted balance sheet for the partnership assets and liabilities as at 1 February 2004 would appear as:

95. The final calculation of the partner’s capital accounts requires an accounting exercise based upon the appropriate starting point for their capital accounts that I have found and adjustments for a variety of miscellaneous items. This calculation should be undertaken by the parties, agreed if possible, and reflected in draft minutes of orders.

96. The parties are agreed that the only form of relief that should be granted at this stage of the proceedings is a declaration about the net value of the deceased’s share in the partnership as at 1 February 2004. Further orders in relation to payment of the amount so determined are not sought at this stage.

Interest

97. The defendant’s amended counter-claim^[30] seeks a variety of orders including interest, costs and such further or other orders as may be appropriate.  The issue of interest was argued and it is appropriate that I determine that issue so as to enable the parties to come to agreement, if possible, concerning the payment of monies owed to the defendant whereupon there will be a transfer of the deceased’s half interest in the 30 John Street property to the plaintiff.

98. The defendant claims interest pursuant to the Supreme Court Act 1995 at the rates set out in the relevant Practice Directions from time to time for default judgments.  The plaintiff submits that any entitlement to interest is “apparently governed by s 45(1) of the Partnership Act”.  The defendant contests the application of s 45(1).  Section 45 of the Partnership Act 1891 provides:

“45   Right of outgoing partner in certain cases to share profits made after dissolution

1. If any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or the partner’s estate, then, in the absence of any agreement to the contrary, the outgoing partner or the partner’s estate is entitled at the option of the partner or the partner’s representatives to such share of the profits made since the dissolution as the court may find to be attributable to the use of the partner’s share of the partnership assets, or to interest at the rate of 5% per annum on the amount of the partner’s share of the partnership assets.

2. However, if by the partnership contract an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or the partner’s estate, as the case may be, is not entitled to any further or other share of profits, but if any partner assuming to act in exercise of the option does not in all material aspects comply with the terms of the option, the partner is liable to account under subsection (1).”

99. Section 45(2) is not applicable because, strictly speaking, the Deed of Partnership did not give an option to the plaintiff “to purchase the interest” of the deceased. Instead, it provided him with the right to elect not to purchase the share on giving notice in writing of such election within a specified period. Absent such an election, clause 21 operated according to its terms so that the plaintiff succeeded to the deceased’s share in the partnership.

100. Section 45(1) and similarly-worded provisions in other Partnership Acts have the apparent purpose of providing a retiring partner, or the estate of a deceased partner, with a statutory claim to either an account of profits or interest at a stipulated rate where the business is continued after dissolution, other than in the proper course of winding up, using assets of the retired or deceased partner.^[31]  The “statutory option” confers rights upon a retiring partner or the estate of a deceased partner and a remedy which is appropriate in a case in which the continuing or surviving partner carries on the business without authority, statutory or otherwise.^[32]  Significantly, s 45(1) provides this “statutory option” in the absence of any agreement to the contrary.

101. The defendant submits that the Deed of Partnership dated 29 October 1965 provides an agreement to the contrary. I accept this submission. Clauses 21 and 22 alter what would otherwise be the operation of s 36(1) of the Partnership Act which provides that, subject to any agreement between the partners, every partnership is dissolved by the death of any partner.  Clauses 21 and 22 also address the subject of payment in respect of the deceased’s share in the partnership to which the surviving partners succeed.  Clause 22 provides that the relevant amount “shall be paid as soon as conveniently may be after death and in any case within 18 months thereafter”.  The Deed of Partnership is an agreement which displaces what would otherwise be the operation of s 45(1).

102. The defendant submitted that if s 45(1) was not applicable then the interest rate should nonetheless be at the rate of five percent because:

(a)if the plaintiff had not acquired the share of the deceased and the business had been placed on the market, the evidence shows that there is every likelihood that the business would not have been sold by this time;

(b)prior to his death the deceased partner did not seek any payment from the plaintiff in relation to his utilization of such capital as the deceased had in the business.  That factor ought to be taken into account in assessing discretionary interest now.

103. However, the issue is not whether the business would have been placed on the market and the time that it would have taken to sell it. Clauses 21 and 22 of the Deed of Partnership are concerned with the net value of the deceased’s share at the date of death and makes specific provision for the timing of payment irrespective of any actual sale of the business or its timing. The fact that during his life the deceased did not seek payment in relation to the utilisation of his capital does not provide a compelling discretionary reason to not award interest on the amount that is payable by the operation of Clauses 21 and 22.

104. If required to make orders for the payment of money that is payable by the plaintiff an appropriate award of interest would be at the rate of nine percent per annum simple interest. Regard should be had to clause 22 of the Deed of Partnership in determining the date from which any award of interest should commence. It contemplates the relevant amount being paid “as soon as conveniently may be after death and in any case within 18 months thereafter”. A reasonable time would be required to value the business and settle accounts. I consider a reasonable period would be nine months after death. This would be 2 November 2004. An appropriate award of interest in the circumstances is at the rate of nine percent simple interest from 2 November 2004.

Relief and final orders

105. By its amended counter-claim the defendant sought a declaration in the following terms:

“(aa)A declaration that, for the purposes of the Deed of Partnership dated 29 October 1965, the net value of the deceased’s share in the partnership, as at 1 February 2004, is $319,864.”

This figure was based upon acceptance of the defendant’s submissions concerning the value of the business and the value of the deceased’s share in the partnership.  I have not accepted those submissions but the parties are agreed that I should make a declaration in a similar form.

106. I shall publish my reasons so as to permit the parties to agree, if possible, the calculation of the net value of the deceased’s share in the partnership in the light of my findings.

107. The parties also wish to be heard on the question of costs. The appropriate course is to direct that the defendant submit draft minutes of orders that reflect my findings concerning the net value of the deceased’s share in the partnership as at 1 February 2004 and such further orders as to costs and other matters as are required to finally determine the claim and counter-claim.