ACN 007 528 207 Pty Ltd (in Liq) v Bird Cameron (Reg); ACN 007 528 207 Pty Ltd (in Liq) v Bird Cameron Partners

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ACN 007 528 207 PTY LTD (IN LIQ) v BIRD CAMERON (REG) & ORS; ACN 007 528 207 PTY LTD (IN LIQ) v BIRD CAMERON PARTNERS
Judgment of The Honourable Justice Besanko
8 June 2005
CORPORATIONS - CORPORATE CHARACTER - NATURE OF A COMPANY
Trial of the issue of whether BPM Pty Ltd ("BPM") acted as agent for Bird Cameron and/or Bird Cameron Partners ("the firm") before the trial of other issues in the case - where the parties did not intend to create an agency relationship - where the parties had good commercial reasons for the proposal whereby BPM conducted the general practice - where the firm exercised a high degree of control over BPM - where the profits made from the general practice were received and accounted for by BPM - where the goodwill, business name and client files of the firm were not transferred to BPM but there was a licence of the goodwill from the firm to BPM - held that BPM was not the agent of the firm.
Supreme Court Rules 1987 r 75.01; Companies (South Australia) Code 1981 s 129; Merchant Shipping Act 1894 s 503; J D Heydon, "Cross on Evidence" (6th Australian ed, 2000) [41130]; Ford, Austin & Ramsay, "Ford's Principles of Corporations Law" (12th ed, 2005) [4.250], [4.258]; W Bowstead & F M B Reynolds, "Bowstead and Reynolds on Agency" (17th ed, 2001) [1-001]; Restatement, Second, Agency 1; J Harris, "Lifting the Corporate Veil on the Basis of an Implied Agency: A Re-evaluation of Smith, Stone and Knight" (2005) 23 Company and Securities Law Journal 7, referred to.
McLean Brothers & Rigg Ltd v James Grice & Anor (1906) 4 CLR 835; South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611; Industrial Equity Ltd v Blackburn (1977) 137 CLR 567; Walker v Wimbourne (1976) 137 CLR 1; Garnac Grain Co Inc v HMF Faure & Fairclough Ltd & Anor [1968] AC 1130; Salomon v Salomon & Co Ltd [1897] AC 22; Gramophone & Typewriter Ltd v Stanley [1908] 2 KB 89; Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267; Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549; Smith, Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116; Inland Revenue Commissioners v Sansom [1921] 2 KB 492; Spreag v Paeson Pty Ltd (1990) 94 ALR 679; Maclaine Watson & Co Ltd v Dept of Trade and Industry [1988] 3 All ER 257; WM Cory & Son Ltd v Dorman Long & Co Ltd [1936] 2 All ER 386; Tate v Freecorns Pty Ltd [1972] WAR 204; Soblusky v Egan (1960) 103 CLR 215; Scott v Davis (2000) 204 CLR 333; Geraghty v Minter (1979) 142 CLR 177; Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254; State Bank of Victoria v Parry & Ors (1990) 2 ACSR 15; Heytesbury Holdings Pty Ltd v City of Subiaco & Anor (1998) 19 WAR 440, considered.

ACN 007 528 207 PTY LTD (IN LIQ) v BIRD CAMERON (REG) & ORS; ACN 007 528 207 PTY LTD (IN LIQ) v BIRD CAMERON PARTNERS
[2005] SASC 204
Civil

BESANKO J: The plaintiff, ACN 007 528 207 Pty Ltd (In Liquidation) formerly known as Warlan Pty Ltd, has instituted two actions in this Court, one against Bird Cameron (Reg) (No 1392 of 1999) and the other against Bird Cameron Partners (No 1695 of 2001). Bird Cameron (Reg) and Bird Cameron Partners were registered business names. In both actions the plaintiff sues a group of persons, which it says were carrying on business in partnership under the registered business name for professional negligence. In action No 1392 of 1999 the plaintiff also sues a company called BPM Pty Ltd (“BPM”).
Before 1^st January 1989, a group of about 30 persons carried on business in partnership as chartered accountants. The business of the partnership involved the work ordinarily carried on by chartered accountants and included what has been referred to in the actions as statutory audit and insolvency work. For reasons which will become apparent, it is necessary to distinguish between the statutory audit and insolvency work and the balance of the practice which I will call the “general practice”.
In late 1988, a service company called Birds Practice Management Pty Ltd changed its name to BPM Pty Ltd. As from 1^st January 1989 the partners caused BPM to carry on the general practice previously carried on by the partnership and the company continued to do so until a date in 1995. It is not disputed that BPM carried on the general practice from 1989 to 1995, and that it did so under the business name, Bird Cameron. During the same time, the partnership continued to carry on a practice involving the statutory audit and insolvency work, and it did so under the business name, Bird Cameron Partners. The composition of the partnership changed from time to time, and of course a partnership is not a separate legal entity. Procedurally one can sue the partners of a partnership by reference to the firm name but that is for procedural convenience only. The entities which will be liable if liability is established are the individual partners. In this case, and unless otherwise indicated, it is convenient for me to refer to the individuals identified in the respective statements of claim and carrying on business in partnership as “the firm”.
The plaintiff was a client of the firm for a number of years and became a client of BPM. It was involved in two transactions, one which occurred in the period between 1989 and 1990, and the other which occurred in the period between 1992 and 1993, and it says that its involvement in the two transactions caused it substantial loss and damage. The plaintiff says that the firm and BPM are each liable for the loss and damage and it sues the firm and BPM to recover the loss and damage.
The plaintiff claims that even though BPM conducted the general practice between 1989 and 1995, it did so as agent for the firm and that in those circumstances it can recover its loss and damage from the firm. The firm denies that allegation and asserts that BPM carried on the general practice in its own right as principal and not as the firm’s agent. The firm says that any loss and damage suffered by the plaintiff can only be recovered from BPM.
BPM is said to have no or few assets. A trial of all of the issues raised in the respective statements of claim would be reasonably long and expensive. Success against BPM only may not benefit the plaintiff. In those circumstances, the parties agreed to a trial of the issue of whether BPM conducted the general practice as agent of the firm before the trial of other issues. The power of the Court to make such an order is contained in r 75.01 of the Supreme Court Rules 1987. I acceded to the request made by the defendants (and more particularly, the firm) which was not opposed by the plaintiff. The formal order which I made is as follows:
There be a separate trial on oral and documentary evidence as to whether, as a matter of fact and/or law:
1The individuals identified in Schedule A to the statements of claim in actions numbers 1392 of 1999 and 1695 of 2001, as a group or groups of chartered accountants, while they were in partnership:
1.1     from 1 January 1989 to 15^th December 1989, or at any time in that period, traded in their own right under the name “Bird Cameron”?
1.2     at any time from 1 January 1989 to 30 November 1995 traded via BPM Pty Ltd (BPM) such that they were principals of BPM and BPM traded as their agents?
1.3     after BPM commenced to operate the chartered accountancy practice, which it did from some time in 1989 (Practice), continued to own:
(a)the professional client files of the Practice including those in relation to Warlan
(b)the registered business name “Bird Cameron”;
(c)all of the assets of the Practice; and
(d)the Practice itself?
2      If the answer to questions 1.2 or 1.3 above is yes:
2.1     did the said chartered accountants, while they were in partnership, trade under the name “Bird Cameron” and
2.2     are they the natural persons sued in action 1392 of 1999 by the plaintiff suing Bird Cameron (Reg)?
I mention at this point that it was not in dispute that BPM commenced carrying on the general practice sometime in 1989. However, there was an issue as to the precise date upon which that occurred. For reasons I will give, I find that the relevant date is 1^st January 1989. Both parties accepted that the key or critical issue is that raised by question 1.2.
It is important to note at the outset of these reasons that the plaintiff’s case is that there was an actual agency between the firm and BPM between 1989 and 1995. It is not said that in relation to the plaintiff, or indeed all the clients of the general practice, that there was an apparent or ostensible authority such that the firm is liable for the acts and omissions of BPM. Nor is it the plaintiff’s case that BPM was a sham or fraud and that the Court should lift the corporate veil for this reason. The plaintiff’s case is that by words and conduct there was an actual agency between the firm and BPM in relation to the general practice between 1989 and 1995. It is also important to note that there is no document whereby the firm appoints BPM to be its agent and the plaintiff’s case is that the agency is to be implied from a number of facts which I will mention in due course.
The plaintiff’s case was documentary and it did not call oral evidence. It tendered a large volume of documents some of which were the subject of objection by the firm. I ruled on those objections and my rulings are contained in the transcript. The firm also tendered a large volume of documents. In addition to that evidence, the firm called as witnesses two partners of the firm at relevant times, Mr Charles Caldow and Mr John Airey. Generally speaking, I find that Mr Caldow and Mr Airey were satisfactory witnesses who were doing their best to recount the events and circumstances at the times identified. I will need to discuss their evidence in detail later.
Before turning to consider the events which led to BPM commencing to carry on the general practice, I need to say a little more about the plaintiff’s case, although it is not necessary for me to say a great deal because of the limited nature of the issues before me.
The plaintiff’s claim
I start with action number 1392 of 1999. The plaintiff is a proprietary company which was incorporated on 19^th May 1948, and it has its registered office in South Australia. On 25^th June 1996 a voluntary administrator of the plaintiff was appointed, and on 30^th July 1996 the administrator was appointed as the liquidator of the plaintiff by a creditors’ resolution. The plaintiff alleges that the trading of the partnership, Bird Cameron, from 1^st January 1989 or 1^st July 1989 or 15^th December 1989 to 30^th November 1995 was (to use the expression in its pleading) via the agency of BPM. The plaintiff alleges that the agency of BPM is to be implied from the following matters which it pleads in its Statement of Claim:
1On or before the dates referred to [being 1^st January 1989, or 1^st July 1989 or 15^th December 1989] certain chartered accountants in partnership operated a chartered accountancy practice which traded under the name Bird Cameron.
2On the dates referred to the partners authorised or licensed BPM to operate all of the accountancy practice save for the audit and insolvency aspects of the practice, under the trading or business name Bird Cameron.
3The partners retained ownership of the accountancy practice and the trading or business name Bird Cameron at all times material to the action.
4The partners also owned the professional files of the accountancy practice operated by BPM whether those files were created before or after BPM operated the accountancy practice or afterwards including the files of the plaintiff.
5In addition, the partners were, in addition to being partners, the directors and beneficial shareholders of BPM and in the circumstances controlled BPM.
In essence, the plaintiff asserts that the partners owned the accountancy practice operated by BPM, they owned the trading or business name, Bird Cameron, they owned the professional client files of the general practice and they controlled BPM, and that in those circumstances I should find that the firm continued to practise under the business name Bird Cameron, and that BPM carried on the general practice as its agent. Alternative allegations are made by the plaintiff but it is not necessary to mention those allegations in these reasons.
Relevantly, the plaintiff alleges that Bird Cameron via BPM provided accountancy services to the plaintiff from one of the three pleaded dates in 1989 until the appointment of the administrator to the plaintiff on 25^th June 1996.
Relevantly, the plaintiff further alleges that Bird Cameron via BPM in the course of providing accountancy services to the plaintiff provided advice and assistance in relation to two transactions, first between September 1989 and September 1990 a Management-Buy-Out Transaction (“MBO”), and secondly between 1992 and 1993 a transaction called the “Haynes Transaction”. The details of those transactions are set out in the Statement of Claim. As to the MBO, the plaintiff alleges that Bird Cameron, either directly or via its agent BPM, and BPM aided, abetted, counselled or procured or were, by act and/or omission directly or indirectly knowingly concerned in or party to a contravention of s 129 of the Companies (South Australia) Code 1981. It also claims that Bird Cameron and BPM acted in breach of a common law duty to use reasonable care, a contractual duty to use reasonable care and a fiduciary duty. It also claims that they aided and abetted a breach of director’s duty and that they made misrepresentations and were guilty of misleading and deceptive conduct. It claims the loss and damage resulting from the MBO from Bird Cameron and from BPM. In relation to the Haynes Transaction, the plaintiff alleges that Bird Cameron, either directly or via its agent BPM, and BPM acted in breach of a common law duty to use reasonable care, a contractual duty to use reasonable care and a fiduciary duty, and that they aided and abetted a breach of director’s duty. It claims the loss and damage resulting from the Haynes Transaction from Bird Cameron and from BPM.
In action number 1695 of 2001, it is alleged that the partners traded as Bird Cameron until 1989, but from 1^st January 1989 or 1^st July 1989 or 15^th December 1989 they traded as Bird Cameron Partners. Otherwise, for present purposes it is sufficient to say that the allegations made are in similar terms to those made in action number 1392 of 1999.
The events leading up to 1^st January 1989
As I have said, there is no dispute that BPM commenced carrying on the general practice in 1989. The plaintiff pleaded three alternative dates in 1989, the first of which was 1^st January 1989. The firm’s case was that it commenced carrying on the general practice on 1^st January 1989. The intention of the members of the firm was that BPM would commence carrying on the general practice on 1^st January 1989 and the financial statements were prepared on the basis that that was the appropriate date. In those circumstances even though (as will become apparent) there were still matters to be attended to as at 1^st January 1989, I find that BPM commenced carrying on the general practice on 1^st January 1989.
Both parties referred to events before 1^st January 1989 to support their respective cases. Most of the facts put before me were not in dispute and what follows are my findings of fact. Where there was a dispute I will identify it and state my finding of fact with respect to it.
On 27^th March 1922, Mr Edgar Woolcott and Mrs Jessie Woolcott formed a partnership called “The National Service Company” to carry on an accounting business in Western Australia. In 1930, a company called the National Service Company Limited (“NSC”) was incorporated, and on 1^st January 1931 it commenced to carry on the business previously conducted by the partnership.
NSC employed all the professional and non-professional staff engaged in the practice, and the professional staff included persons who were partners and/or shareholders of NSC. In 1937, NSC introduced a staff pension scheme which provided retirement benefits and under which NSC made contributions for all staff after a qualifying period of 12 months. In 1956, the scheme was varied to provide for the payment of a lump sum in lieu of a pension, and in 1967 the scheme was varied to provide for the lump sum to be a deferred benefit based on a final average salary. From 1958, the scheme was a private scheme with a committee managing the funds and making the necessary investment decisions.
In 1930, NSC introduced a bonus scheme which provided for all senior employees to participate in the profits generated by the practice. By 1953, senior members for the purposes of the bonus scheme were staff members, whether they were professional or non-professional, who had served the practice for seven years and the scheme involved the payment of all the profits of the firm. A proportion of the bonus payments was required to be invested by employees in shares and notes issued by NSC, which after 1955 changed its name to CPB & A Properties Limited. Some time later, Birds Holdings Limited (“BHL”) took over the assets of NSC, and shares and notes issued as part of the bonus payments were shares and notes in NSC. The benefits to employees of the share scheme were that the scheme provided an annual income to employees by way of the dividends paid on shares and the interest paid on notes, and upon retirement, employees were paid out the assessed share value of the shares and notes as a retirement benefit which was paid in addition to superannuation.
By 1954, the executive and directors of NSC were Mr Cyril Bird, Mr Len Newman and Mr Don Scott and the management of the practice from month to month was carried out by this executive.
In 1954, a partnership known as CP Bird and Associates was formed, and on 1^st January 1955, the partnership commenced to carry on the business previously conducted by NSC. This change came about because in 1954 the Australian Society of Accountants made a by-law which prohibited members in public practice from operating through a limited company. The executive continued to operate and was known as the Executive Committee. CP Bird and Associates employed the staff engaged in the practice.
In 1973, the firm opened its first interstate office in Adelaide, South Australia, and in 1981 the firm acquired a practice in Parramatta, New South Wales. In 1984 the firm acquired a practice in Canberra.
In 1975, Birds Practice Management Pty Ltd was incorporated and it became a service company which, from 1^st July 1975, was the employer of all professional and non-professional staff engaged in the practice including partners, and it hired and leased to the firm the plant, equipment and premises used in the practice. It made available to the firm the services of the professional and non-professional staff for the purposes of providing services to clients of the practice and in return the firm paid it a service fee.
In 1985, the firm or partnership traded under the name, Birds. Precisely when this change came about is not clear but that is not material for present purposes. The firm joined a federation of chartered accountants known as the Cameron Federation, and from 1^st July 1985 it traded under the name Bird Cameron. Neither party suggested that the firm’s membership of the federation had a material bearing on the issues in this case, and in those circumstances it is unnecessary to relate the details of the Bird Cameron Federation Agreement dated 1^st November 1985. It is sufficient to say that it involved an agreement between various firms around Australia to establish a national identity without constituting a partnership between them.

In 1988 there were six members of the Executive Committee and they were Mr Caldow, Mr Ron Swinney, Mr Neville Harris, Mr Alan Hicks, Mr Brian Mellor and Mr Geoffrey Sherwin. The Executive Committee did not distribute its minutes to the partners at large and the partners/shareholders who were not members of the Executive Committee played essentially no executive role in the conduct of the practice of the firm.
There was considerable debate before me as to the ownership of the goodwill associated with the practice. It is necessary to distinguish between goodwill associated with the original practice which I assume included the range of work carried on by accountants and chartered accountants, and the goodwill associated with practices which were acquired by the firm from time to time. I will refer to these practices as “the acquired practices”.
The firm did not recognise in its partnership accounts and financial statements the goodwill associated with the original practice which it conducted. Upon becoming a partner, a person paid a nominal amount of $10.00 and upon retiring from the partnership the partner was paid the amount of $10.00 in addition to the salary and retirement benefits he was entitled to as an employee.
Rules of the partnership, Birds within the Bird Cameron Federation and adopted with effect from 1^st December 1984 (and as amended at a meeting of partners on 28^th September 1985) were tendered in evidence. As I understand it, those rules were the rules of the firm until they were superseded in November 1990. The foreword to the rules states (inter alia):
On the formation of the partnership Cyril Bird and his senior colleagues wished to continue the philosophy of the old “National Service Company” of conducting the practice for the benefit of all the senior personnel. However as the law required a recognizable form of ownership seventeen partners were named but from the start they understood that they were to conduct the affairs of the firm for the benefit not only of themselves but for all the senior people on the staff.
A nominal sum of capital is contributed on becoming a partner which is returned on retirement from the partnership. The goodwill does not belong to any particular group of persons and on retirement those leaving the firm are paid their undrawn profits and their entitlement under the superannuation scheme. If it were not that way there would not be so many competent accountants working for the firm on a non-partner basis. They hope to become partners but know that even if they do not they will be treated in a manner befitting professional persons.
These matters should always be borne in mind. No decision should be made which adversely affects non-partners or favours partners unduly to the detriment of others.
The philosophy of the firm may be expressed as follows –
(a)To create an environment where the accountants in the firm, whether partners or not, may practise their profession under the most favourable conditions possible, earning an adequate income during their working life and receiving a comfortable retirement allowance.
(b)To conduct its affairs in a responsible manner, seeking to maintain financial stability and creating opportunities for growth and expansion.
(c)To keep abreast of developments in the profession, adopting modern techniques in the conduct of the practice and offering an increasing range of services to clients.
(d)To participate in the affairs of the two major accounting bodies and other professional and business organizations.
The rule dealing with capital provides:
2.     CAPITAL
2.1     Each Partner at the date of adoption of these Rules has contributed TEN DOLLARS ($10.00) to the capital of the Partnership.
2.2     Each new Partner shall contribute TEN DOLLARS ($10.00) to the capital of the Partnership.
2.3     Additional capital shall be contributed by the Partners in such proportion as shall be determined by them from time to time.
2.4     The capital contributed by each Partner shall be credited to that Partner’s capital account.
2.5     Save as otherwise herein provided for all Partnership purposes there shall be no goodwill and on the admission, retirement or death of a partner no value will be appropriated to goodwill and no payments in respect of goodwill shall be made provided that where goodwill is recorded in the books of the Partnership in respect of any business purchased by the Partnership the (sic) such goodwill as recorded in the books of the Partnership as at the date of death or retirement of the partner shall be taken into account as an asset of the Partnership.
Neither party suggested there were any changes to the partnership rules during the relevant period which bear upon the issues which I have to decide.
I pause at this point to say that the Birds or Bird Cameron group had grown over time and diversified in terms of the services it provided. For example, there was a company within the group which provided financial services.
In June 1986, the Institute of Chartered Accountants in Australia (“ICA”) issued an ethical ruling which permitted the use of a company to conduct an accounting practice, other than statutory audit and insolvency work, in certain circumstances. It is unnecessary to set out the details of the ruling. It is sufficient to note that it was this ruling which led the Executive Committee of the firm at its meeting on 29^th August 1986 to consider and discuss the possibility of a company carrying on or conducting the practice. However, at that point the ethical ruling issued by the ICA did not permit a company to use the designation “chartered accountants”.
At a meeting of the Executive Committee of the firm held on 9^th August 1987, it was resolved to recommend to the members of the firm that a company be incorporated to operate the general practice subject to special considerations such as stamp duty, the rules of the ICA and capital gains tax. The Executive Committee resolved that the special considerations it identified were to be examined by Mr Caldow and Mr Harris.
A meeting of the partners of the firm was held on the weekend of 29^th and 30^th August 1987. Mr Caldow and Mr Harris presented a paper to the meeting which dealt with a number of matters relevant to the structure of the Bird Cameron Group. The structure of the group is described in the paper and reference is made to the share scheme and the superannuation scheme. It is said that the Executive Committee had contemplated that as the ultimate ownership of the assets of the group lay with the shareholders of BHL, it would be desirable (if it can be achieved) for BHL to act as a holding company for all group activities. It is said that an early step to consider is whether the firm should establish a practice company and it is noted that that is permitted by the ethical ruling issued by the ICA in June 1986. It is noted that the present shareholding of BHL was partners, 72% and employees, 28%. The authors of the paper state that they do not believe BHL could “directly own” the shares in the practice company and that some trust or other arrangement would need to be devised. The authors state that they believe that any capital gains tax implications on the transfer of partnership assets to a company “can be largely overcome” and that “some stamp duty” would be payable on the acquisition by the company of the partnership assets. Mr Caldow was cross-examined about what he meant by the term “partnership assets” in the conclusions in his paper. It was suggested by the plaintiff that Mr Caldow’s evidence was unsatisfactory and bore adversely on his credit. I do not accept that submission as I did not think his evidence on this topic was unsatisfactory. Moreover, as will become apparent the topic itself is not particularly significant in light of the way the parties put their respective cases at the conclusion of the evidence.
As I have said, the issues raised in the paper were considered at a meeting of partners in August 1987. As I understand it, no resolution was passed in relation to the issues discussed in the paper other than that the partners were asked to make submissions.
At a meeting of the Executive Committee held on 8^th December 1987 it was proposed that Birds Practice Management Pty Ltd be the new practice company, and it was said that this would have the advantage of enabling the continuation of existing superannuation arrangements.
On 5^th February 1988 Mr Caldow wrote to the ICA advising it of a proposal to establish a practice company and of the details of the control at the level of directors and shareholders. It is not necessary for me to set out the details of the proposal which was put to the ICA at that time.
In March 1988 the ICA issued a further ethical ruling permitting a company to practise, and, subject to certain conditions, to practise as a chartered accountant.
A meeting of the partners of the firm was held on 25^th March 1988. Mr Caldow presented a paper to the meeting which dealt with, among other things, the establishment of a practice company. Mr Caldow stated in his paper that a number of matters had been discussed with the ICA’s representative and that the firm’s proposal seemed to have gained general acceptance. Two matters discussed with the ICA’s representative are of particular importance. First, the view was expressed that the management and control presently exercised by the partners would not be disturbed. The practice company would mirror the existing position “through its executive and directorship (partnership equivalent) structure”. Secondly, the view was expressed that the firm did not wish to formally recognise goodwill, but if such existed, or was deemed to exist some time in the future, there would be no change in the nexus between partners and goodwill as it then existed. For reasons I will give, at that time the firm owned the original practice and the goodwill associated with the original practice. The intention at that time was that the relationship between the partners and the goodwill would be unaffected by the reconstruction. Mr Caldow’s paper was discussed at the partners’ meeting. In the result it was noted that further discussions with the ICA and its representative would be necessary. The following in relation to directorships of the proposed company was discussed and noted:
Directorships of Proposed Company – the proposal envisages Executive Committee members as the Executive Directors of the company, and the Partners to mirror the present system of meetings and decision making.
The significance of this note in the minutes is that it was explained to the partners that there would be executive directors of the company in the same way as there were at that time executive partners. The proposal would “mirror” the present system of meetings and directors’ meeting. In other words, there would be an executive committee of directors of the company in the same way as there was an executive committee of partners of the partnership.
There were then further discussions and correspondence between Mr Caldow and the representatives of the ICA. The ICA advised Mr Caldow that BHL did not qualify as a shareholder under the relevant ethical ruling. It is unnecessary for me to explain the reasons why the ICA took that view.
On 30^th June 1988 the memorandum of association and articles of association of Birds Practice Management Pty Ltd were altered to allow for the issuing of further shares to meet certain requirements of the ICA. On 26^th August 1988 the Birdanco Practice Trust (“BPT”) was created with a view to it becoming a preference shareholder of Birds Practice Management Pty Ltd to enable that company to meet the capital requirements of the ICA.
At meetings on 2^nd August 1988 and 5^th October 1988 respectively, the Executive Committee decided to put the proposal whereby Birds Practice Management Pty Ltd would conduct the general accountancy practice to a meeting of partners to be held on 4^th November 1988.
In between those two meetings a meeting of partners had taken place on 27^th and 28^th August 1988 and Mr Caldow and Mr Swinney had presented a paper to that meeting. The minutes of the meeting refer to the topic “Group Financial Structure” and under that heading the following is noted:
Group Financial Structure – Mr Caldow, having distributed detailed notes on progress with the reconstruction, summarized the background of the scheme for new members present and brought all members up to date with progress so far. Mr Swinney supported Mr Caldow’s comments with a re-affirmation of the firm’s basis philosophy regarding ultimate ownership of the firm’s assets and distribution of profits which was directed. The ratio of ownership was maintained at approximately 75% partners, 25% other professional staff.
Mr Caldow commented further on the difficulties which had been encountered with the establishment of Birds Practice Management Pty Ltd as a true practice company and the steps that were being taken to achieve this as soon as possible with Institute approval. In answer to queries, he confirmed that aspects such as professional indemnity claims, legal rights and limited liability had all been examined and satisfactorily settled.
Mr Swinney advised that no decisions were yet called for from partners, but sought the approval of the meeting to continue advancing matters. This approval was agreed to by all partners.
The basic philosophy with regard to ultimate ownership of the firm’s assets referred to in this extract from the minutes is that ultimate ownership of the assets lay with the shareholders of BHL.
A meeting of partners was held on 4^th November 1988. Mr Caldow presented a paper to the meeting and he spoke at the meeting. In his paper Mr Caldow described the proposal as one which involved the conduct of the accounting, taxation and secretarial functions of the practice “through a practice company” while the partners would continue the Bird Cameron practice for the purpose of “audits, liquidations, receiverships and like statutory appointments”. Mr Caldow referred to the requirements of the ICA and described the proposal by reference to those requirements. The important matters and key features of the proposal as outlined in Mr Caldow’s paper are as follows:
1Birds Practice Management Pty Ltd was to be the practice company and its name was to be changed.
2All partners were to become shareholders of BPM and were to be issued with one share each.
3The ownership of the goodwill of the practice was a matter of concern. In relation to capital gains tax it was believed the roll over provisions would apply. The following statement appears in Mr Caldow’s paper:
Notwithstanding the above comments, our view has always been that such goodwill as may exist in the eyes of outside parties belongs (beneficially) to Birds Holdings Limited. Our Partnership Rules do not acknowledge goodwill, so we have had to live with the concept that from time to time the partners have reaffirmed their position of trust, in the knowledge that from the other side of the fence, the resources of Birds Holdings Limited, through its shareholders, are available to support the practice (now the proposed practice company) and the audit, liquidation partnership. This two way understanding is fundamental to maintaining the nexus between Birds Holdings and the practice, whatever form the latter takes.
Such nexus will be supported by a document of understanding to be executed by the parties in due course.
It appears that no document of understanding was executed by the parties.
4The establishment of the BPT and the fact that it was to take redeemable preference shares was noted.
5For the present, all directors were to become directors of BPM.
There is reference in Mr Caldow’s paper to profit sharing and “use of dividend imputation in conjunction with other established avenues for bonus/profit distributions”.
There is also a reference in Mr Caldow’s paper to limited liability and it is noted that the establishment of a practice company “goes part way down the track”. It is noted that in the meantime adequate professional indemnity insurance is necessary to protect the joint and several interests of all the participants. There is also a reference in Mr Caldow’s paper to superannuation, and it is said that this could well be the most critical aspect. There is concern expressed that superannuation benefits such as were then enjoyed may come under scrutiny because of the partnership/management company structure. It is said that by changing to a practice company for most of the professional activities, there would be an indisputable nexus between the employees of the company and the fees it earnt.
The minutes of the partners’ meeting held on 4^th November 1988 record a number of things. Mr Caldow spoke to the matters in his paper. He summarised the procedures necessary and the mechanics of achieving the aims set out in his general outline given in August 1988 and he reiterated that it was proposed to use Birds Practice Management Pty Ltd as the practice company as from 1^st January 1989. Mr Caldow said that at that point the company would be solely owned and controlled by the partners due to ethical restrictions imposed by the ICA. One of the partners, Mr Ross Bourne, asked a question and following that question, and I quote from the minutes, “Mr Caldow undertook to look into the matter of the New Company’s Memorandum of Articles (sic) being compatible with the present Partnership Rules, as Mr Bourne felt that Partners should be in a similar position under a company structure as at present with the Partnership”.
I pause at this point to deal with a matter which is in dispute, and that is whether at the meeting on 4^th November 1988 the members of the firm agreed that there would be an Executive Committee of BPM.
The plaintiff submitted that between 1^st January 1989 and 16^th November 1990 the affairs of BPM were conducted by an Executive Committee of the firm and not by an Executive Committee of BPM. This, it was said, was evidence of control of the affairs of the company by the firm and control was a strong indicator of agency. The plaintiff submitted that there was no minute of a resolution of either a partners’ meeting or a directors’ meeting of BPM prior to 16^th November 1990 which established or constituted an Executive Committee of BPM. In the absence of a minute of such a resolution there was no Executive Committee of BPM until a resolution establishing such a Committee was passed and minuted at a meeting of the directors of BPM on 16^th November 1990. The plaintiff referred to and relied upon the decision of the High Court in McLean Brothers and Rigg Limited v James Grice and Another (1906) 4 CLR 835. The submission was that a group of persons must act by way of resolution, and that to prove a resolution it was necessary to produce a minute of the resolution signed by the group’s duly authorised agent which invariably would be the chairman. The plaintiff also referred to and relied upon the rules of the partnership in that although they entrusted the management of the partnership to the Executive Committee (clause 4) they required any matter involving the rearrangement or alteration of the structure of the group to be the subject of resolution passed by a three-fourths majority vote of all partners (clauses 4.10 and 4.11 and Appendix C). The plaintiff also submitted that certain evidence of Mr Caldow and Mr Airey on this topic was not sufficient to establish that prior to 1^st January 1989 the firm agreed to a proposal whereby an Executive Committee of BPM would manage the affairs of BPM on a day-to-day basis. These were the submissions of the plaintiff.
In dealing with this issue it is convenient to start with some matters which are not in dispute.
As has already been noted, in the minutes of the partners’ meeting held on 25^th March 1988 there is, under the heading of “Directorships of Proposed Company”, reference to the proposal involving “Executive Committee members as the Executive Directors of the Company …”. The signed minutes of the partners’ meeting held on 4^th November 1988 do not record a resolution being passed to the effect that there be an Executive Committee of BPM and the evidence of Mr Caldow and Mr Airey establishes that a formal resolution to that effect was not put to the meeting. I will come back to their evidence that there was at least tacit agreement to such a proposal. A meeting of directors of BPM was held on 16^th November 1990 and the minutes of the meeting record that a resolution establishing a Management Committee of the company pursuant to article 86 was passed.

Was there an Executive Committee of BPM between 1^st January 1989 and 16^th November 1990? There was an Executive or Management Committee of BPM after 16^th November 1990 and the plaintiff did not suggest otherwise.
In McLean Brothers and Rigg Limited v James Grice and Another (supra) Griffith CJ said (at 847):
So I take it that in the case of a meeting – I am now dealing with common law, apart from the Statute – the best evidence of an agreement come to by a body of persons assembled together would be a record of it signed by them or their authorised agent, and I apprehend, in a case of this sort, the chairman of the meeting is the authorised agent of all of them, just as an auctioneer is the authorised agent of the bidder to sign the contract on his behalf.
(See also Barton J at 861; O’Connor J at 863). The plaintiff said that there being no minute of a resolution that there be an Executive Committee of BPM, there was no agreement of the members of the firm to this effect. I note that in the above passage Griffith CJ refers to the signed record as the best evidence of an agreement reached by a body of persons. However, an event at a meeting may be proved by other means such as the calling of a person present at the meeting (J D Heydon, Cross on Evidence (6^th Australian ed, 2000) [41130]).
The firm led evidence from Mr Caldow and Mr Airey seeking to establish that the partners did agree to the establishment of an Executive Committee of BPM and it is to a consideration of that evidence that I now turn.
Mr Caldow gave evidence that often matters were resolved by the partners by general consensus rather than by formal resolution. I accept that evidence although it must be said that from my perusal of the many minutes put before me on a number of occasions a formal resolution was put and carried and then recorded in the minutes. He attended the partners’ meeting held on 25^th March 1988 and, as I have said, in the minutes of that meeting it is noted that the proposal envisages members of the executive committee as the executive directors of the company and that the arrangement would mirror the present system of meetings and decision making. That followed Mr Caldow’s paper or written report to the meeting wherein it is said that there was no wish to disturb the management and control presently exercised by the partners, and any “practice company would mirror the existing position, through its executive and directorship (partnership equivalent) structure.” Mr Caldow said that he told those present at the meeting that executive control would be exercised by the six directors who formed the executive committee or the executive directorship of the company and that the partners agreed to that. Mr Caldow attended the partners’ meeting held on 4^th November 1988 and he told the meeting that management control would be exercised by an executive committee of the company. As I have said, a formal resolution to this effect was not put to the meeting. However, when the matter was raised there was no indication of dissent or disagreement, and in fact Mr Caldow said that he observed everybody nodding their heads in agreement. In cross-examination, Mr Caldow said that although he could recall the partners’ meeting held on 25^th March 1988, he could not recall the partners’ meeting held on 4^th November 1988 apart from what was recorded in the minutes of that meeting.
Mr Airey attended the partners’ meeting held on 25^th March 1988. He took the minutes and he said that there was no objection to the proposal that executive committee members be executive directors of the company and that the arrangement would mirror the present system of meetings and decision making. Mr Airey attended the partners’ meeting held on 4^th November 1988 and again he took the minutes. Mr Airey said that Mr Caldow told the meeting the present members of the executive committee would become the executive committee of directors of BPM. They would continue in their role as an executive committee of directors. He also said that all present partners would be directors of BPM and would meet at various intervals in conjunction with partners’ meetings. He also said that BPM would conduct the general practice from 1^st January 1989. No one at the meeting objected to these proposals, and Mr Airey observed various responses such as nodding, which suggested to him that there was agreement to what had been said. In cross-examination, Mr Airey said that he usually recorded a resolution or agreement by the use of the words “resolved” or “agreed” and that he had not done that in relation to the matters upon which Mr Caldow addressed the meeting.
I will need to return to discuss the significance of this issue in due course. However, in terms of findings of fact, I find that prior to 1^st January 1989 the members of the firm intended and agreed that there would be an Executive Committee of BPM and that that Committee would consist of the same persons as the persons comprising the Executive Committee of the firm, and that in relation to the affairs of BPM it would operate in a similar manner to the Executive Committee of the firm. The intention and agreement of the members of the firm may be proved as a matter of fact. A signed minute of a resolution would be the best evidence of the agreement, but I do not think that that is the only way in which the matters to which I have referred may be established. If one considers the events leading up to the partners’ meeting held on 4^th November 1988 and, in particular, the matter recorded in the minutes of the partners’ meeting held on 25^th March 1988, I think the absence of dissent in relation to what Mr Caldow proposed is sufficient to indicate the intention and agreement of the members of the firm to the establishment of an Executive Committee of BPM. In reaching that conclusion, I put to one side the evidence of Mr Caldow and Mr Airey as to the various signs of agreement such as nodding to which objection was taken by the plaintiff. The significant matter is that there was no dissent to what was proposed and that was clearly established by the evidence of Mr Caldow and Mr Airey. Furthermore, the partners must be taken to have known that BPM commenced carrying on the general practice early in 1989 and executive directors of the company were always part of the proposed change. I reject the submission made by the plaintiff that Mr Bourne’s question at the meeting (as recorded in the minutes) indicated that the partners had not agreed to an Executive Committee of the company as at 4^th November 1988. My characterisation of what occurred is that it was left to Mr Caldow to check something and providing there was no difficulty it was intended and agreed that the proposal could proceed. There was no difficulty and the proposal did proceed. It is true that no formal resolution was put and passed at the partners’ meeting held on 4^th November 1988 but, bearing in mind that none of the members of the firm assert that there was no agreement, I do not think that that fact prevents me from finding that the members of the firm in fact intended and agreed to the establishment of an Executive Committee of BPM.
The plaintiff did not suggest that the partners did not intend and agree to the proposal whereby BPM would carry on the general practice after 1^st January 1989 and in fact, the plaintiff alleged that BPM carried on the general practice albeit as agent for the firm. The plaintiff did submit (correctly) that there is no resolution of BPM’s directors whereby the company agreed to take over the conduct of the general practice.
I return to the events leading up to 1^st January 1989.
Mr Harris, Mr Swinney and Mr Hicks were the directors of Birds Practice Management Pty Ltd as at 25^th November 1988. On 30^th November 1988 an application was made to the ICA for approval for the company to conduct the general accountancy practice from 1^st January 1989. The ICA was told that the firm would permit the company to register the business name, Bird Cameron, and that the firm would change its name to Bird Cameron Partners “or something similar”. On 6^th December 1988 the shareholders of Birds Practice Management Pty Ltd resolved to change the name of the company to BPM Pty Ltd. On 9^th December 1988 the Executive Committee of the firm, which included the three directors of BPM, met and Mr Caldow advised that BPM would “assume” the business name, Bird Cameron, as from 1^st January 1989, and Mr Harris advised that the Bird Cameron Federation had been informed of the proposal and had no objection to it.
The firm had banking facilities with the ANZ Banking Group Limited (“the ANZ Bank”), and it was proposed to change the banking facilities from the firm to BPM. There was a special meeting of the Western Australian partners of Birds on 16^th December 1988 and two representatives of the ANZ Bank attended the meeting. The existing security for the facilities provided by the ANZ Bank was over the assets of BHL and included guarantees from the members of the Executive Committee of the firm. The new proposal envisaged a debenture charge over the assets of BPM as from 1^st January 1989 and guarantees from the present partners of the firm who would become directors of BPM. The minutes of the meeting on 16^th December 1988 record the fact that guarantees were executed at the meeting.
On 28^th December 1988 Mr Swinney signed a Statement of Change in Certain Particulars of the business name, Bird Cameron, showing that as from 1^st January 1989 the firm would cease carrying on business under that name and BPM would commence carrying on business under that name.
The evidence as a whole makes it clear that from time to time four reasons for the proposal whereby BPM would conduct the general practice from 1^stJanuary 1989 were put to the members of the firm and discussed by them. The reasons were as follows:
1.To provide a corporate form to reflect the corporate structure and philosophy of the firm, and query in the initial stages at least, for BHL to act as the holding company for the assets of the group.
2.To provide greater flexibility in the payment of bonuses in particular to pay franked dividends from BPM and then in turn distributions from BPT.
3.To provide further protection from a challenge by the Australian Taxation Office to the superannuation payments being made on behalf of employees.
4.To provide the benefits of limited liability.
I will consider in due course the relative significance of each of these matters.
These are the relevant events leading up to 1^st January 1989. I turn now to the relevant events between 1^st January 1989 and 30^th November 1995. There is no dispute that from 1989 to 30^th November 1995 BPM carried on the general practice and, as I have said, I find that it commenced doing so on 1^st January 1989.
Relevant events from 1^st January 1989 to 30^th November 1995
It is convenient to begin by identifying the assets which comprised the general practice or the business of the general practice. In theory at least, they could consist of the premises used in the conduct of the general practice whether held by way of freehold or leasehold, plant and equipment, business name, client files, work in progress and goodwill. There was no written agreement between the firm and BPM whereby any assets were transferred, or in which there is set out the terms and conditions upon which BPM commenced carrying on the business of the general practice.
It is important to remember the context in which the changeover occurred. Before 1^st January 1989, Birds Practice Management Pty Ltd was the service company to the firm, and it held the freehold or leasehold of the premises and owned or leased the plant and equipment used in the course of the general practice. If it had been intended to transfer the business of the general practice to BPM there would have been no need to transfer those particular assets because Birds Practice Management Pty Ltd became BPM and already held the assets.
On 5^th January 1989 Mr Swinney, on behalf of the firm, applied for the registration of the business name, Bird Cameron Partners. On the same day, the ICA approved the firm’s application to it to use a limited liability practice company.
On 3^rd March 1989 the directors of BPM met and all the partners of Bird Cameron Partners, other than Mr Swinney, Mr Harris and Mr Caldow who were already directors, were appointed directors of BPM. A resolution was passed as to the registered office of the company. On the same day, there was a meeting of the partners of the firm. The establishment of the practice company was referred to, as was the fact that the company would practise as Bird Cameron while the firm would practise as Bird Cameron Partners. The meeting resolved to endorse the reconstruction and that all partners be appointed directors of BPM. A circular prepared by Mr Caldow and dated February 1989 was discussed at the meeting but that circular cannot now be found.
I have already dealt with the premises and plant and equipment associated with the general practice. I turn to consider the business name, client files, work in progress and goodwill.
BPM became the registered owner of the business name Bird Cameron. It seems that the firm did not register the business name, Bird Cameron Partners, in South Australia until December 1989 and the reason that that did not occur was not explained by the evidence. A new letterhead was prepared which showed that BPM was practising as Bird Cameron. It seems that for some time after 1^st January 1989 the old letterhead on letters and invoices was used from time to time in the course of the general practice including in correspondence with the plaintiff. BPM took over the existing client files relating to the general practice but there was no transfer of work in progress. The firm received the fees for work done before 1^st January 1989 and BPM received the fees in relation to the work it carried out after 1^st January 1989. The fees received by BPM were paid into its bank account. There is no dispute about these matters which are clearly established by the financial statements put before me. For example, the financial statements of BPM for the year ended 30^th June 1989 show the receipt of revenue from the general practice from 1^st January 1989 and BPM earned an operating profit after income tax of $792,639 for the financial year and declared dividends of $352,087.00. Those dividends were paid to the BPT which in turn distributed them to eligible beneficiaries. The financial statements of Bird Cameron Partners for the year ended 30^th June 1989 show the receipt of revenue from the statutory audit and insolvency work carried out between 1^st January 1989 and 30^th June 1989.
As far as client files are concerned, it is unclear whether the consent of the clients of the general practice to the transfer of the file from the firm to BPM was sought. Mr Caldow and Mr Airey gave evidence which I accept that they informed their respective clients that BPM was carrying on the general practice, but there is no clear evidence that all clients of the general practice were so informed.
As I have said, before 1^st January 1989 the firm did not recognise the value of goodwill associated with the original practice in its financial statements. It only recognised goodwill associated with the acquired practices. After 1^st January 1989 neither the firm nor BPM recognised goodwill associated with that part of the practice which did not involve acquired practices, whether that be the general practice or the practice involving statutory audit or insolvency work.
The goodwill associated with acquired practices purchased by the firm before 1^st January 1989 was not transferred to BPM and the firm continued to recognise that goodwill in its financial statements. The goodwill associated with the acquired practices purchased by BPM after 1^st January 1989 was recognised in the financial statements of BPM and the company paid for the practices it acquired after 1^st January 1989 with its own monies.
There was no need to transfer an interest in the premises or in the plant and equipment, and there was no transfer of work in progress from the firm to BPM. What was the position with respect to the business name, Bird Cameron, client files and goodwill associated with the general practice (other than goodwill associated with practices acquired before 1^st January 1989)? There was no written agreement between the members of the firm and BPM at the time which would answer that question. I find that no stamp duty was paid in connection with the transfer of assets from the members of the firm to BPM and no capital gains tax was paid (or rollover declaration lodged) in connection with the transfer of assets. The plaintiff asked me to infer from this that the relevant assets were not transferred. The firm asked me not to draw such an inference and submitted that the way in which the transaction was effected meant that no stamp duty or capital gains tax was payable. I would be reluctant to reach a final conclusion as to whether stamp duty and capital gains tax was payable having regard to the state of the evidence before me. As it happens, I do not think it is necessary for me to do so because I am satisfied that the nature of what took place between the firm and BPM on or about 1^st January 1989 is explained by the documents which deal with the termination of the relationship on 30^th November 1995. It is to a discussion of those documents that I now turn.
It seems that BPM ceased operating the general practice on or about 30^th November 1995 and the firm entered into a new arrangement with a company called Birdanco Nominees Pty Ltd (“BN”). The termination of the relationship between the firm and BPM was the subject of a written agreement although it seems that the agreement was not executed until 4^th September 1997. The plaintiff submitted that the agreement is relevant because it establishes the basis and terms upon which BPM was conducting the general practice. The firm said that the agreement is irrelevant and should not be admitted. I decided to admit the agreement and certain other agreements executed at the same time. In the end I did not understand the firm to dispute the fact that the agreement does reflect the relationship between the firm and BPM between 1989 and 1995.
On 4^th September 1997 BPM and the firm, trading as Bird Cameron Partners (“BCP”), executed an agreement called an Agreement for Mutual Release (“AFMR”). As I have said, the AFMR is said to attach legal consequences to events which took place in November 1995. The recitals to the AFMR are important. It is stated in the first recital that from 1^st January 1989 BCP has conducted its practice as chartered accountants (“the business”) as to part in its own name and as to the balance it has permitted BPM to conduct the same under licence (“the licence”). It is stated in the second recital that the licence gave BPM the right to use certain assets, client files, the name Bird Cameron (“the business name”) and the goodwill associated with that name, and to retain registration of the business name and the trademark dated 24^th February 1995. The nature of the trademark was not the subject of evidence and it is not suggested that it is of significance in resolving the issues before me. It is stated that no warranty was given by BCP that they would not revoke the licence. It is stated in the third recital that BCP and BPM have agreed that the licence will be terminated with effect from 30^th November 1995 upon the terms and conditions set out in the AFMR.
The AFMR provides that in consideration of the grant of release given by the agreement of the licence and without any admission of liability, BCP would pay to BPM the sum of $250,000 within 12 months of the AFMR or within such sooner time as BCP determines. The parties to the AFMR agree to a mutual release and discharge of all claims and the like against each other or arising out of or touching or concerning the licence. The AFMR also provides for BPM to assign to BCP all restrictive covenants held by it for a consideration of $1,000.

On 4^th September 1997 the firm, BCP, and BPM also executed an agreement called a “Sale of Purchased Goodwill Agreement” (“SPGA”). Under the SPGA, BPM sold to the firm the practices it had acquired since 1^st January 1989 and the goodwill associated with those practices.
BCP and BN executed an agreement called a Licence Agreement (“LA”). The LA is said to attach legal consequences to events which took place in November 1995. Under the LA, BCP is the licensor and BN is the licensee. The recitals to the LA provide as follows:
A.From 1 January 1989 the Licensor has conducted its business as Chartered Accountants (the “Business”) partly in its own name. As to the balance, it had permitted the use of the name of “Bird Cameron” by another company BPM Pty Ltd (“BPM”).
B.The Licensor’s agreement with BPM was oral. This agreement has now ended and, including goodwill, the assets (the “assets”) formerly licensed to BPM are now to be licensed to the Licensee. The assets include confidential information as hereafter defined.
C.This licence to the Licensee has until this time been in the form of an oral agreement only and the Licensee has been trading on the basis set out herein. These presents represent the reduction to writing of the provisions under which the grant of licence of goodwill was made by the Licensor to the licensee.
D.Subject to due performance of the terms of this agreement the Licensor has promised that during the term of the licence, it will not seek to enjoin the licensee or any sub-licensees from using the business name (“the name”) Bird Cameron or any derivative thereof.
E.Birdanco Nominees Pty Ltd is the Trustee of the ~~(Bird Cameron)~~ Birdanco Practice Trust.
The LA contains a definition of “Confidential Information” and the plaintiff asked me to conclude that it included client files. The definition is in the following terms:
“Confidential Information” includes all inventions and information regarding the current or future business interests, methodology or affairs of the Licensor, or any person or entity with which the Licensor may deal or be concerned with, including:
(a)     matters of a technical nature,
(b)     research and development information,
(c)     manuals, notes, products, knowhow, trade secrets, engineering or other data,
(d)     specifications, processes, formulae,
(e)     planning or marketing procedures, techniques or information,
(f)    accounting procedures or financial information
together with:
(a)the possible or likely function, purpose or application of the same whether in the current activities of the Licensor or fields to which the activities of the Licensor may reasonably extend from time to time,
(b)any part of, or improvements to the same;
(c)any recommendation, test or report of the Licensor or any of its consultants or agents in connection with the same.
and whether:
(a)oral, written, recorded or stored by electronic, magnetic, electro magnetic or other form, process or otherwise or in a machine readable form;
(b)translated from the original form, recompiled, made into a compilation, partially copied, modified, updated or otherwise altered;
(c)originated or obtained by, or coming into the possession, custody, control or knowledge of, the Licensor performing its duties under this Agreement, either alone or jointly;
As wide as this definition is, I do not think it includes client files, but rather is restricted to information related to the firm’s operation of the general practice.
I pause to summarise my findings to this point. Between 1989 and 1995 the members of the firm were also the directors and shareholders of BPM. BPM carried on the general practice, and in relation to work carried out between those dates it received the revenue and profits generated by the general practice. The financial statements of BPM and the firm reflect those facts. From time to time, BPM purchased other practices with its own monies. Prior to 1^st January 1989 BPM held the relevant interest in premises and plant and equipment. BPM became the registered owner of the business name, Bird Cameron. It was given a licence or right by the firm to use the business name in the course of conducting the general practice. It was also given a licence or right to use the goodwill associated with the general practice. It owned the practices it acquired after 1^st January 1989. I will examine the position in relation to client files in more detail when setting out my conclusions.
I turn now to consider the question of who controlled BPM from 1^st January 1989 to 30^th November 1995. It was a major part of the plaintiff’s submissions that the members of the firm controlled BPM between 1989 and 1995 and that that was a very strong indicator of agency. I will need to return to discuss the legal significance of the findings I make about control.
I start with the period from 1^st January 1989 to 16^th November 1990. In that period there were a number of meetings of a body variously described in the minutes of the meetings as the “Executive Committee” or the “Executive” or the “Executive Partners”. Save and except for one meeting on 18^th July 1990 which is described in the minutes as a meeting of the National Executive Committee of Bird Cameron Partners and BPM Pty Ltd, there are no minutes of a body described in the minutes as the Executive Committee of BPM Pty Ltd in the period from 1^st January 1989 to 16^th November 1990. There are minutes of meetings of a body called the Executive Committee of BPM Pty Ltd after 16^th November 1990 and thereafter on a fairly regular basis until 30^th November 1995. As I have said, the Directors of BPM met on 16^th November 1990 and appointed a Management or Executive Committee. The same persons comprised the Executive Committee of the firm and the Executive Committee of BPM.
Although the directors of BPM met between 1^st January 1989 and 16^thNovember 1990, a number of important matters were considered by the Executive Committee at its meetings during that period and referred by that body to the partners for decision. A handful of examples will suffice to illustrate this point. At a meeting described in the minutes as a Quarterly Executive Committee Meeting of Birds held on 7^th February 1989 the acquisition of various interstate practices was discussed. At a meeting described in the minutes as a meeting of Executive Partners held on 2^nd March 1989 the acquisition of a practice in Canberra (“the Clarke practice”) was discussed and referred to the “forthcoming partners’ meeting” for decision and at a meeting described in the minutes as a Partners’ meeting the following day it was resolved to proceed with the acquisition of the practice. The Clarke practice was acquired by BPM. At a meeting described in the minutes as a meeting of the Executive Committee held in June 1989 the Committee resolved to recommend to partners at a special meeting before 15^th June 1989 that another practice in Canberra (“the Morton Parker practice”) be acquired. At a meeting described in the minutes as a meeting of the Partners of Birds held on 15^th June 1989, the partners approved the acquisition of the Morton Parker practice and of another practice (“the Bowfort practice”). Both these practices were acquired by BPM. At a meeting described in the minutes as a meeting of the Executive Committee, a proposed merger with the Melbourne office was discussed and it was resolved that the proposal be put to the next partners’ meeting. At a meeting described as a meeting of Partners of Birds held on 2^nd November 1989 it was resolved to proceed with the merger with the Melbourne office. The merger proposal proceeded.
The plaintiff also referred to an item dealt with at a meeting described in the minutes as a meeting of the Executive Partners held on 29^th September 1989. The matter appears under the heading “Financial Reconstruction” and Mr Caldow provided a report in relation to the matter. It was proposed that Birdanco Nominees Pty Ltd would act as a service entity employing non-professional staff and other services and be involved in the leasing of plant and equipment. The proposal proceeded. The plaintiff asked me to find that this was done for the sole purpose of benefiting partners and senior staff and to allow for a more tax effective distribution of income. The plaintiff asked me to find that the proposal involved no benefit to BPM and that in fact there was a detriment to BPM because it had to pay more for the same services, having to pay a “mark-up” to the service entity. Mr Caldow was questioned about this transaction. On the basis of his evidence, I find that this proposal involved no benefit to BPM and it was for the benefit of partners, their spouses and families and bonus participants.
The plaintiff referred to a number of other important matters relating to the general practice between 1^st January 1989 and 16^th November 1990 which were dealt with at meetings described as partners’ meetings. I have already referred to some examples and it is unnecessary to refer to others.
I turn now to the period from 16^th November 1990 to 30^th November 1995. The plaintiff makes two particular points in relation to this period. First, in this period and indeed from 1^st January 1989 the practice was (to use the plaintiff’s words) carried on as one unified practice. It referred to the undoubted facts, and I so find, that there were group accounts and consolidated budgets and the partners’ bonuses were determined by reference to the profit of the whole group. Secondly, although after 16^th November 1990 there were meetings of the Executive Committee of BPM Pty Ltd, that body and indeed the directors of BPM Pty Ltd from time to time referred various matters to the “partners” or the “partnership”. I so find. It is not necessary for me to identify the examples to which the plaintiff referred. They are set out in the plaintiff’s Closing Submissions (para 3.1.4 and exhibits P5 and P6). The plaintiff’s point was that the references in the minutes should be taken at face value and that these matters were referred to the members of the firm in their capacity as partners.
The firm submitted that as a matter of law control is irrelevant. I will deal with that submission in due course. The firm submitted that in any event control of clients’ affairs was exercised by individual accountants who were employees of BPM not BCP. In one sense of course that is true.
Looking at the question of control more broadly, I find that all the members of the firm became beneficial shareholders of BPM and directors of BPM. I find that from 1988 the intention of the members of the firm was that they would become directors and shareholders of BPM and would exercise control of the affairs of BPM. I accept and find that the intention was that the partners’ meetings up to March 1990 were meetings of both the partners of the firm and directors of BPM. That was the evidence of Mr Caldow and Mr Airey. I also accept and find that prior to 1^st January 1989 the intention of the members of the firm was that (to use the firm’s words) “there would be an Executive Committee of the company which mirrored and comprised the same personnel as the Executive Committee of the partnership”. After March 1990 there were regular board meetings of BPM which took place and were attended by directors who were also members of the firm.
Relevant Legal Principles
The firm did not expressly appoint BPM to conduct the general practice as its agent and there is nothing in writing to that effect. Nevertheless, the plaintiff submitted that when all the facts are considered I should find that there was an agency relationship between the firm and BPM. It was said that this was an implied agency. I have earlier identified the principal matters upon which the plaintiff relies in support of this submission ([11]).
Before turning to examine the authorities it is convenient for me to make some general observations.
The plaintiff said that it was not contending that the relationship between the firm and BPM was a sham and it was not asking the Court to lift the corporate veil. From time to time a court has lifted the corporate veil on the basis that the corporate entity is a fraud or a sham or has been established to avoid a legal obligation or involves the breach of a fiduciary duty. None of these matters was argued by the plaintiff. The plaintiff did argue that there was an agency relationship. In some cases it has been said that agency is a basis upon which the court lifts the corporate veil. I find it hard to see how such an analysis can be correct. Agency is a relationship well known to the common law. It recognises the existence of the agent and is a relationship between two legal entities. As will become clear, for an agency to arise the alleged agent must have consented to act on behalf of and subject to the control of another. Therefore, there would appear to be no need to lift the corporate veil where there is an agency relationship. Further consideration of whether agency is properly described as lifting the corporate veil is unnecessary because however one describes it the plaintiff was submitting that BPM was the agent of the firm. The plaintiff was not submitting that BPM is a fraud or a sham, or was established to avoid a legal obligation or was involved in the breach of a fiduciary duty.
These observations lead to a further observation. When the question is whether a company is the agent of another legal entity, I do not understand there to be any modification of the orthodox common law principles for determining if an agency relationship exists. It is true that the question must be determined in a context in which the alleged agent is a company, but I do not understand the principles to be any different by reason of the fact that the alleged agent is a company.
This case involves an assertion that a group of individuals was the principal and the company was the agent. It is not a case of an alleged agency relationship between a holding company and one of its subsidiaries. It has been suggested that the court would be less inclined to find an agency relationship between individuals who owned the shares in the company and the company than in the case of a holding company and one of its subsidiaries (see, for example, Ford, Austin and Ramsay, Ford’s Principles of Corporations Law (12^th ed, 2005) [4.250]). It is unnecessary for me to address this issue because I do not think there was an agency relationship even if the firm had been incorporated and had owned all the shares in BPM.
In putting their respective cases, and approaching the matter broadly at the moment, the parties identified the following matters as relevant to the question of agency:
1.The entity or entities which owned the business. Business in the context of this case means the business name, client files and goodwill.
2.The entity or entities which controlled the operation and management of BPM.
3.The entity or entities which received the profits of the business conducted by BPM.
4.The reason or reasons for the proposal whereby BPM came to carry on the general practice and, in particular, were they good commercial reasons.
A convenient starting point in an examination of the relevant authorities is the decision of Finn J in South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 (“South Sydney DRLFC”). I did not understand either party to contest the correctness of the general principles stated by Finn J in that case (at [131] – [137]).
As Finn J noted at [136], there appears to be no uniformly agreed definition of agency. There are two definitions which have been widely cited. The definition in the Restatement, Second, Agency, §1 is in the following terms:
Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
The definition in W Bowstead and FMB Reynolds, Bowstead and Reynolds on Agency (17^th ed, 2001) [1-001] is in the following terms:
Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly consents so to act or so acts.
One of the other points made by Finn J is that those definitions of agency which take the principal and agent relationship as their principal focus emphasise that that relationship “can only be established by the consent of the principal and agent” (Garnac Grain Co Inc v HMF Faure and Fairclough Ltd & Anor [1968] AC 1130 at 1137).
In this case the question whether the firm consented to BPM acting on its behalf and subject to its control, and the question whether BPM consented to act on behalf of and subject to the control of the firm, involve an examination of the acts of the members of the firm in the period leading up to 1^st January 1989 and the legal relationship which was established between the firm and BPM. Furthermore, I think that I may also have regard to the actual relationship between the firm and BPM from 1989 to 1995, bearing in mind that there was no written document executed by the parties at about the time the relationship between the firm and BPM was established.
In South Sydney DRLFC, Finn J also discussed the relevance of an express labelling provision as to the relationship between the alleged principal and alleged agent. There is no such provision in this case. Nevertheless, the cases dealing with such provisions make it clear that if in fact the relationship is properly characterised as one of agency then the fact that one of the parties sought to avoid that consequence will not prevent a court from concluding that an agency relationship existed.
The other matter mentioned by Finn J in South Sydney DRLFC (at [137]) is the significance of control to the question of whether a relationship of agency existed.
Finn J said that the characteristic of control and direction does not appear to figure prominently as a decisive indicator of agency in common law case law save in two settings. The second setting, where the question is whether an independent contractor is also an agent, was not suggested to be relevant in this case. It was not argued that BPM stood in a relationship of an independent contractor to the firm. The first setting is where it is contended that a company is an agent of its parent company, shareholders, or particular officers because of the control it or they exercise over it. As to this setting, Finn J said (at [137]):
Here and to accommodate the perceived demands of the principle established in Salomon v Salomon & Co [1897] AC 22 that a company is a legal person separate from its parent, officers and shareholders, the control characteristic has had to undergo a degree of refinement which it is not relevant to explore in this proceeding; but see Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89; Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549; see also Restatement, Third, Agency, Tentative Draft No 1, pp 50-2.
The significance of the ownership of the business and the entity or entities which controlled the operations of the company was considered by the Court of Appeal in Gramophone and Typewriter Limited v Stanley [1908] 2 KB 89. In that case, an English company which carried on business in the United Kingdom was the holder of all the shares in a German company. The question was whether the English company was liable to pay income tax on the profits made by the German company. The Court of Appeal held that the English company was only liable to pay income tax upon such profits of the German company as had been received in the United Kingdom. Cozens-Hardy MR said (at 95 – 96) that ownership of all of the shares of a company and therefore control of the company, whilst it may enable the person by exercising his voting powers to remove the directors and enforce his own views as to policy, does not diminish the rights or powers of the directors, or make the property or assets of the company his property or assets. Ownership of the shares did not make the company’s business his business. Cozens-Hardy MR said that it was possible for there to be an agency relationship and in each case it was a question of fact as to whether that was so. He referred to the fact that the two companies kept separate accounts in which their separate existence was recognised. Fletcher-Moulton LJ said (at 98) that the legal proposition that the legal corporator does not carry on the business of the corporation is not weakened by the fact that he exercises control, even complete control, over the manner in which the business is carried on. Buckley LJ (at 107 – 108) made a similar point.

In the well known case of Smith, Stone and Knight Ltd v Birmingham Corporation [1939] 4 All ER 116 (“Smith, Stone and Knight”) the question was whether a parent company could recover compensation for removal and disturbance to a business occasioned by the compulsory acquisition of a premises. The parent company’s subsidiary carried on business on the premises. The parent company held, directly or indirectly, all the shares in the subsidiary company and its profits were treated as the profits of the parent company. It was held that the subsidiary company was not operating on its own behalf but on behalf of the parent company. After referring to the reasons for judgment of Cozens-Hardy MR in Gramophone & Typewriter Ltd v Stanley (supra) and the reasons for judgment of Lord Sterndale in Inland Revenue Commissioners v Sansom [1921] 2 KB 492 and stating that in each case it is a question of fact, Atkinson J formulated six questions which he considered were relevant to determine whether the subsidiary was carrying on the company’s business or its own. Those six questions are as follow:
1.Were the profits of the business treated as the profits of the parent company?
2.Were the persons conducting the business appointed by the company?
3.Was the parent company the head and brain of the trading venture?
4.Did the parent company govern the adventure, decide what should be done and what capital should be embarked on the venture?
5.Did the parent company make the profits by its skill and direction?
6.Was the parent company in effectual and constant control?
In my opinion, the first question identifies an issue which is important to the question whether there is an agency. However, too much emphasis on the other five matters could lead to a result inconsistent with the decision in Salomon v A Salomon and Co Ltd [1897] AC 22. I say that because each of those five matters relates to control and control of itself cannot be a decisive indicator of agency. If it were otherwise there would often be an agency between a parent company and its subsidiary or a sole shareholder and his company. Such a result is not only inconsistent with Salomon v A Salomon and Co Ltd but also with High Court authority which recognises the separate legal existence of companies in a group (Industrial Equity Ltd v Blackburn (1977) 137 CLR 567; Walker v Wimborne (1976) 137 CLR 1 per Mason J (as he then was) at 6 – 7).
Although Smith, Stone and Knight has been followed in Australia (Spreag v Paeson Pty Ltd (1990) 94 ALR 670 per Sheppard J at 710 – 711) the weight of authority in England and in this country is that it does not provide a definitive test of agency. In Maclaine Watson & Co Ltd v Department of Trade and Industry [1988] 3 All ER 257 Kerr LJ said (at 310) that the facts in Smith, Stone and Knight were so unusual that they cannot form any basis of principle. The tenor of authorities in this country is to similar effect (Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267; Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 per Rogers A – JA (at 569 - 576); State Bank of Victoria v Parry & Ors (1990) 2 ACSR 15 per Nicholson J at 30 – 31; Heytesbury Holdings Pty Ltd v City of Subiaco & Anor (1998) 19 WAR 440 per Steytler J at 451 - 452; Ford, Austin and Ramsay, Ford’s Principles of Corporations Law (12^th ed, 2005) [4.250]; J Harris, “Lifting the Corporate Veil on the Basis of an Implied Agency: A Re-evaluation of Smith, Stone and Knight (2005) 23 Company and Securities Law Journal 7).
I would summarise the position as follows. The first matter identified by Atkinson J in Smith, Stone and Knight is an important, sometimes very important indicator of whether or not there is an agency relationship. In this case, the profits generated by the general practice were received by BPM and that is an indicator that it was not an agent. In relation to the other five matters identified by Atkinson J and insofar as they relate to control, those matters are not decisive and control of itself will not be sufficient to give rise to agency. Another fact must be present before it will be held that there is an agency such as the fact that the controller has not provided any resources to the company.
With respect, a useful summary of the significance of control and ownership of the business is contained in the reasons for judgment of Burt J (with whom the Full Court agreed on appeal) in Tate v Freecorns Pty Ltd [1972] WAR 204. The question in that case was whether Freecorns Pty Ltd, the defendant, was in occupation of premises in which the plaintiff was injured. A company, Central Provision Stores Pty Ltd, owned by Freecorns Pty Ltd was carrying on business in the premises. A question arose as to whether Central Provision Stores Pty Ltd was acting as agent for Freecorns Pty Ltd. Burt J said (at 208):
The plea is simply that Central Provision Stores Pty Ltd was carrying on business in the shop at 149 Oxford Street as the defendant’s agent and that, I think, is a question which I must resolve recognizing, as indeed the plea itself does recognize, that Central Provision Stores is a person in the law and otherwise consistently with the established doctrines relative to agency. The question is, I think, a simple question of fact, it being whether or not Central Provision Stores Pty Ltd was in operating the store at 149 Oxford Street, Leederville, then carrying on the defendant’s business as a grocer or whether it was carrying on its own business as a grocer. No doubt the fact that Central Provision Stores Pty Ltd is a company controlled and wholly owned by the defendant company may throw some light upon that question but it cannot be decisive. One is still required to look at all the facts to see what the true relationship was and unless the facts show that relationship to be one of principal and agent one cannot, apart from estoppel and consistently with the authorities “ignore the separate legal entities of various companies within a group and … look instead at the economic entity of the whole group” – see proposition 4(1)(b) at pp 1-6 of Gower (above) – so as to make the parent company either vicariously or directly liable for the tortious acts of its wholly owned subsidiary or for the tortious acts of the servant of the wholly owned subsidiary. It is of course possible that when those facts are considered it will appear that the shareholder company is the agent of the subsidiary: see William Corry & Son Ltd v Dorman Long Co Ltd, [1936] 2 All ER 386; or that the subsidiary company is the agent of the shareholder company; but it seems to me that to achieve either result one must in the end and in the absence of an express agreement which of itself provides the answer, be able to say that the proper inference is that one is carrying on the business of the other and on behalf of the other, and that, in my opinion, is not an inference which should be drawn from the facts of this case, on which facts I find that Central Provision Stores Pty Ltd was the occupier of the premises and that it was there carrying on its own business. It was not the agent of the defendant company.
Both parties also referred to WM Cory and Son Ltd v Dorman Long and Co Ltd [1936] 2 All ER 386, although I think the case is of somewhat limited assistance. The question in that case was whether WM Cory and Son Ltd, the plaintiff, was the owner or charterer by demise of a barge and therefore entitled to limit its liability under s 503 of the Merchant Shipping Act 1894. In previous proceedings the plaintiff had been held liable for damage caused by the barge. In 1916 the plaintiff had formed a subsidiary company, Cory Lighterage, and the lighters were transferred to that company and the workers employed on the barges became employees of Cory Lighterage. In 1917 the management of Cory Lighterage was carried out by William Cory and Son Ltd, and in 1927 a notice was sent out that trading in the name of Cory Lighterage ceased to exist. Although all agreements with third parties were made with William Cory and Son Ltd all profits were credited to Cory Lighterage and all expenses, wages and the like were debited against it. The Court of Appeal held that the plaintiff could not take advantage of the limitation provisions. The conclusion that the plaintiff was merely acting as the agent of Cory Lighterage was justified on the ground (at least in part) that Cory Lighterage was still receiving the profits and being made liable for the debts.
The authorities support the proposition advanced by the firm that I may have regard to the reason or purpose the company was established to carry on the relevant business. I refer to the discussion of Young J in Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254 at 267 who referred to whether there was a good commercial purpose for the company carrying out a particular function (see also Steytler J in Heytesbury Holdings Pty Ltd v City of Subiaco & Anor (supra) at 451).
The plaintiff sought to draw an analogy between this case and a case where the owner of a motor vehicle has been held liable for the negligent acts of a driver to whom he entrusts the vehicle. The principle has been held to apply even in cases where the owner has entrusted the vehicle to the driver for the driver’s own use and benefit. The argument was that the firm allowed BPM to conduct the general practice for its own benefit but the firm retained control of the general practice. It was said by the plaintiff that by analogy with cases such as Soblusky v Egan (1960) 103 CLR 215 the firm was liable for the acts and omissions of BPM. Both parties referred to the decision of the High Court in Scott v Davis (2000) 204 CLR 333.
I do not think that there is an analogy between cases like Soblusky v Egan (supra) and a case such as the present. The firm did not entrust a chattel to BPM. There was a legal relationship between the firm and BPM whereby BPM conducted the general practice. This is not a case of vicarious liability and the differences between a contract of service and a contract of services. A majority of the High Court in Scott v Davis said that the principle in Soblusky v Egan had a restricted operation to the vicarious liability of the owner of a motor vehicle (Gleeson CJ at [17] – [20]; Gummow J at [256]; Hayne J at [311]; Callinan J at [359]). Even if it was open to me to hold that the principle extended beyond the vicarious liability of the owner of a motor vehicle, not only can it be said that the general practice is not a chattel in the relevant sense, but I do not think it can be clearly said that in the relevant sense BPM was managing the general practice on behalf of the members of the firm as distinct from the shareholders of BPM.
I turn now to the central issue on this trial.
Was there an agency relationship between the firm and BPM?
Whether there was an agency relationship between the firm and BPM is a question of fact.
It is convenient to divide my analysis into three sections. The first section involves an examination of the intention of the members of the firm (who were to become shareholders and directors of BPM) in relation to the proposal that BPM conduct the general practice in the period leading up to 1^st January 1989. The second section involves an examination of the transaction whereby BPM commenced to carry on the general practice on 1^st January 1989. The third section involves an examination of the relationship between the firm and BPM between 1989 and 1995 and the light which that throws on the issue of whether or not BPM was the firm’s agent.
I start with the intention of the members of the firm before 1^st January 1989.
I have already identified the four reasons for the proposal which were raised with the members of the firm and discussed by them [65]. The first reason for the proposal was to return to a corporate structure which was consistent with the way in which the firm had operated in times past and, it was said, the firm’s longstanding philosophy. I find on the evidence that this was a reason for the proposal, but I doubt whether it was a significant reason. Of itself it was unlikely to have driven the proposal. The second reason was to achieve greater flexibility in the payment of bonuses, in particular to pay franked dividends from BPM and then in turn distributions from BPT. I find that this was a reason for the proposal, and furthermore, I accept Mr Caldow’s evidence that this aim would not be achieved by the firm appointing BPM as its agent to conduct the general practice. The third reason for the proposal was to provide further protection from a challenge by the Australian Taxation Office to the superannuation payments being made on behalf of employees. I find that this was an important reason for the proposal, and I accept Mr Caldow’s evidence that this aim would not be achieved by the firm appointing BPM as its agent to conduct the general practice. The fourth reason for the proposal was to provide the benefits of limited liability. This consideration was mentioned, but I do not think that it was as significant in the minds of the members of the firm as the third matter, and quite possibly the second matter. As I understand it, BPM took out professional indemnity insurance, and in any event the members of the firm would remain liable for negligent acts in the course of the practice involving the statutory audit and insolvency work.
I find that the proposal whereby BPM would conduct the general practice was put forward and then implemented for good commercial purposes. That is a relevant consideration (Pioneer Concrete Services Ltd v Yelnah Pty Ltd (supra); Heytesbury Holdings Pty Ltd v City of Subiaco & Anor (supra)). The purposes, or at least the more important of them, would not be achieved by the firm appointing BPM its agent. I do not think that it can be said that the desire to achieve greater flexibility in the payment of bonuses, in particular to pay franked dividends from BPM, and the desire to provide further protection from a challenge by the Australian Taxation Office to the superannuation payments being made on behalf of employees are not good commercial purposes.
There is no mention of an agency between the firm and BPM in any of the minutes or other papers put before me, and there is conduct such as the transfer of the banking facilities provided by the ANZ Bank from the firm to BPM which suggests that the members of the firm did not have in mind an agency relationship between the firm and BPM.
I am satisfied that the members of the firm had good commercial purposes for the proposal and that the most important of those purposes would not be achieved by appointing BPM as the firm’s agent. I am also satisfied that the members of the firm did not intend to create an agency relationship.
I turn now to the significance of the transaction effected on or about 1^st January 1989. The plaintiff tendered a considerable volume of evidence and made detailed submissions directed to the following argument. There was goodwill associated with the general practice even though, leaving aside goodwill associated with acquired practices, it was not recognised in the financial statements of the firm. I think that proposition is right and it was not seriously contested by the firm. The goodwill associated with the general practice was not sold by the firm to BPM. That is certainly true in the case of acquired practices purchased by the firm before 1^st January 1989, and I think that it is also true of the balance of the general practice. The AFMR is strong evidence that the firm gave BPM the right to use the goodwill and did not sell it to BPM. The firm submitted that in fact there was a licence of the goodwill from the firm to BPM and it did not assert that BPM purchased the goodwill associated with the general practice from the firm.
I find that there was no sale of the goodwill associated with the general practice from the firm to BPM.
The plaintiff submitted that if the goodwill was not sold then the business of the general practice was not sold and remained with the firm. The plaintiff relied on cases in which it is said that the goodwill of a business cannot be severed from the business itself (Geraghty v Minter (1979) 142 CLR 177 per Stephen J at 193 and Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 per Gaudron, McHugh, Gummow and Hayne JJ at [30]).
I have already identified the assets associated with the general practice. BPM held the relevant interest in premises and plant and equipment before 1^st January 1989. As far as the business name, Bird Cameron, is concerned although BPM became the registered owner of the business name, in fact it had a licence or right to use the business name given to it by the firm. As far as the goodwill associated with the general practice is concerned, that was no transfer of goodwill from the firm to BPM, but rather the firm gave BPM a licence to use the goodwill associated with the general practice for BPM’s benefit. The goodwill associated with practices acquired by BPM from its own monies after 1^st January 2005 was owned by BPM.
That leaves for consideration the position with respect to client files. The plaintiff submitted the firm remained the owner of all client files and became the owner of files associated with the general practice which were opened after 1^st January 1989.
The client files which are relevant to the present issue are those which were open and still current as at 1^st January 1989 and those which were opened after 1^st January 1989. I consider the latter category first. BPM were entitled to the work in progress and I think the client files which were opened after 1^st January 1989 were a part of, or the product of, the goodwill which the firm gave BPM the right or permission to use. As far as files still open as at 30^th November 1995 are concerned rights in respect of them reverted to the firm on the licence or right to use the goodwill coming to an end. The position with respect to files which were open and current as at 1^st January 1989 is not so clear. BPM had possession of the files. The firm had the right to the value of the work which had been done on the file, and BPM had the right as against the firm to the value of the work which was thereafter carried out on the file. I think the rights given to BPM in relation to files which were open and current as at 1^st January 1989 were an aspect of the goodwill associated with the general practice.
This is not a case in which it can be said that BPM owned the business insofar as the business consisted of the business name, client files and goodwill. At the same time this is not a case where it can be said that BPM was conducting the firm’s business for the firm’s benefit (Smith, Stone and Knight). The fact is BPM had a licence or right in relation to the business name, client files and goodwill and the licence or right was one of considerable value bearing in mind that BPM was receiving the revenue and profits of the general practice. To my mind, the receipt of revenue and profits by BPM is highly significant and until the licence or right was brought to an end it can be said that BPM was conducting its own business.
I turn now to consider whether the manner in which the relationship between the firm and BPM was carried out after 1^st January 1989 was such that I should find that BPM was the firm’s agent. Two matters are relevant in this context.
First, and I have already mentioned this, the revenue and profits generated by the general practice after 1^st January 1989 were received and accounted for by BPM. I accept the evidence given by Mr Caldow that if in fact BPM had been the firm’s agent, the profits would have been received and accounted for by the firm.
Secondly, there is the question of who controlled BPM. The precise issue here is somewhat elusive because the members of the firm became directors and shareholders of BPM. In that sense of course it could be said that they did control BPM, but I suppose it could equally be said that the directors and shareholders of BPM controlled the affairs of the firm. I think the real point the plaintiff makes is that the members owned the general practice before it was conducted by BPM and that nothing changed after 1^st January 1989, and in particular, nothing was done to give BPM a truly independent existence. The plaintiff submitted that that was particularly so in the period from 1^st January 1989 to 16^th November 1990 and that it is sufficiently clear thereafter up until the licence or right was terminated.

In essence, the plaintiff relied on four matters. First, it said that between 1^st January 1989 and 16^th November 1990 the Executive Committee of the firm and the firm controlled the affairs of BPM. Secondly, it said that even though there was an Executive Committee of the company after 16^th November 1990 the important decisions in relation to the general practice carried on by BPM were made by the members of the firm. Thirdly, it said that throughout the period from 1^st January 1989 and 30^th November 1995 the affairs of the general practice conducted by BPM and the affairs of the statutory audit and insolvency practice conducted by the firm were conducted as one practice. Fourthly, the plaintiff pointed to the decision made in 1989 when Birdanco Nominees Pty Ltd became the employer of non professional staff and the provider of other services and the lessee of plant and equipment as an instance where the partners of the firm and shareholders and directors of BPM acted in their own interests and contrary to the interests of BPM.
I start with the period between 1^st January 1989 and 16^th November 1990. During that period there were two organs of the firm, namely, an Executive Committee of the firm and the partners of the firm, and two organs of BPM, namely, the directors and the shareholders. The directors and the shareholders of BPM were the members of the firm. The members of the firm intended that there be an Executive Committee of BPM comprised of the same persons and, presumably meeting at the same time, as the Executive Committee of the firm. That was the intention of the members of the firm in 1988 and remained their intention until the formal resolution of the directors of BPM on 16^th November 1990. There is no evidence to suggest that there was any change in intention between late 1988 and 16^th November 1990. I did not understand the plaintiff to contend that if all its other arguments failed I should at least find that there was an agency between 1^st January 1989 and 16^th November 1990. In any event, I would reject such an argument. In the circumstances, to accept such an argument would be to allow form to prevail over substance and to ignore the intention of those persons who were at one and the same time, partners, directors and shareholders.
I put to one side the possibility of treating the period from 1^st January 1989 to 30^th November 1995 differently from the whole of the period and I consider all the circumstances during the whole of the period. In circumstances in which the same persons were members of the firm and directors and shareholders of BPM, and from within that group the same persons were members of the Executive Committee of BPM, I do not think the fact that minutes of meetings show that matters relating to the general practice were referred to a meeting of partners, or the fact that the affairs of the general practice and the practice of statutory audit and insolvency were conducted as one, to be of particular significance. The relevant fact is that the same persons made the decisions relating to the two practices throughout the relevant period. There would be more force in the plaintiff’s submission if there were numerous examples of the members of the firm making decisions which indicated that they preferred their interests to those of BPM, but at best for the plaintiff there is one such case in 1989 and that by itself is insufficient.
The fact that the members of the firm were the directors and shareholders of BPM and in that sense the firm controlled BPM cannot be enough of itself to establish agency between the members of the firm and BPM. Control by the shareholders said to be the principals is not an irrelevant factor, but by itself it cannot be enough. I refer to the discussion in [109] – [112]. Nor is it sufficient when coupled with the fact that there was not an outright transfer of the business name, Bird Cameron, and goodwill associated with the general practice from the firm to BPM but simply a licence of those assets.
To my mind, the critical facts in this case lead to the conclusion that there was no agency. There were good commercial reasons for the proposal whereby BPM conducted the general practice. BPM was given a licence or right in relation to the business name and goodwill and that licence or right was of considerable commercial value. BPM received the revenue and profits from the general practice. It purchased with its own monies and owned the practices acquired after 1^st January 1989.
I find that BPM was not the agent of the firm between 1^st January 1989 and 30^th November 1995.
Conclusions
For these reasons, I would decide the issues to be determined on a separate trial as follows:
1.1    No.
I reject the plaintiff’s submission that I should answer the question by distinguishing between the position in South Australia and the position elsewhere in Australia. That was not its pleaded case and, in any event, the evidence is not sufficient to support such a conclusion.
1.2    No
1.3(a)     Insofar as a client file consists of work in progress, the firm was entitled to the value of work done before 1^st January 1989 and BPM was entitled to the value of work done between 1^st January 1989 and 30^th November 1995. Otherwise the rights in relation to client files were the same as the rights in relation to goodwill (see the answer to question 1.3(c) below).
(b)Subject to the rights and obligations set out in the Federation Agreement dated 1^st November 1985 and subject to the licence or right granted by the firm to BPM to use the name, yes.
(c)Yes, to the extent that the assets of the Practice means the goodwill (and excluding the goodwill associated with practices acquired by BPM after 1^st January 1989) and subject to the licence or right granted by the firm to BPM to use the goodwill.
(d)It is not necessary to answer this question and in any event I think that the question is too general.
2.1.   No
2.2I do not think that it is necessary for me to answer this question and I would not do so without hearing further submissions from the parties.

[2005] SASC 204

8 June 2005

Key Legal Topics

Areas of Law

Corporate Law & Governance

Legal Concepts

Contract Formation

Nature of a Company

Agency