Atwell v Roberts
[2013] WASCA 37
•15 FEBRUARY 2013
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: ATWELL -v- ROBERTS [2013] WASCA 37
CORAM: PULLIN JA
BUSS JA
MURPHY JA
HEARD: 15 JUNE 2012
DELIVERED : 15 FEBRUARY 2013
FILE NO/S: CACV 102 of 2009
BETWEEN: MALCOLM WALTER ATWELL and IAN GEORGE ATWELL as Trustee of the Estate of WALTER CHARLES ATWELL on behalf of all partners in the Atwell Family Agency other than the respondents
Appellants
AND
LEIGH ROBERTS
First-named First RespondentNOEL HENRY ATWELL
Second-named First RespondentAUDREY ATWELL
Third-named First RespondentLEIGH ROBERTS as Trustee of the Estate of KEITH GILBERT ROBERTS
First-named Second RespondentLEIGH ROBERTS as Trustee of the Estate of HILDA DORCAS ROBERTS
Second-named Second RespondentLEIGH ROBERTS as Trustee of the Estate of ADA ETHEL ATWELL
Third-named Second RespondentLEIGH ROBERTS as Trustee for THE HAMERSLEY TRUST
Fourth-named Second RespondentJOHN CHARLES STACY as Trustee of the Estate of EDNA PHOEBE PATERSON
Fifth-named Second RespondentEVELYN DIANE BROADLEY as Trustee of the Estate of GLADYS JANET ADDISON BROADLEY
Sixth-named Second RespondentMAURICE EUGENE FRICHOT as Trustee of the Estate of DOROTHY MAY BECKETT
Seventh-named Second RespondentGARY JOHN ATWELL
Eighth-named Second RespondentBRIAN HUCK
KINGSLEY JAMES ADAM
JULIE PARR
NORMA HULL
TREVOR TAPPER
ROSEMARY SPURGE
KENNETH ATWELL ADAM
RODERIC ADAM
JONATHAN GRAHAM NICHOLLS as Trustee of the Estate of JOYCE CORONA NICHOLLS
Third Respondents
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :EM HEENAN J
Citation :MALCOLM WALTER ATWELL and IAN GEORGE ATWELL as trustees of the Estate of WALTER CHARLES ATWELL on behalf of all other partners in the Atwell Family Agency other than the first defendants -v- ROBERTS [No 3] [2009] WASC 96
File No :CIV 1832 of 2004
Catchwords:
Partnership - Dissolution - Notional winding up - Pre-emptive rights provision - Retirement or death of partners - Admission of new partners by the continuing partners - Consequences of the formation of new partnerships - Alleged breach of the pre-emptive rights provision - Approval of accounts and distribution of profits
Equity - Equitable relief - Rescission - Specific performance - Injunctions, inquiries or accounts
Legislation:
Limitation Act 1935 (WA), (repealed), s 38
Partnership Act 1895 (WA), s 32, s 33, s 42, s 43, s 44, s 50, s 56
Property Law Act 1969 (WA), s 20
Trustees Act 1962 (WA), s 2, s 10
Result:
Appeal dismissed
Category: A
Representation:
Counsel:
Appellants: Mr D H Solomon & Mr C S Williams
First-named First Respondent : Mr M L Bennett & Mr M P Bruce
Second-named First Respondent : Mr M L Bennett & Mr M P Bruce
Third-named First Respondent : Mr M L Bennett & Mr M P Bruce
First-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Second-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Third-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Fourth-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Fifth-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Sixth-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Seventh-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Eighth-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Third Respondents : No appearance
Solicitors:
Appellants: Solomon Brothers
First-named First Respondent : Bennett & Co
Second-named First Respondent : Bennett & Co
Third-named First Respondent : Bennett & Co
First-named Second Respondent : Bennett & Co
Second-named Second Respondent : Bennett & Co
Third-named Second Respondent : Bennett & Co
Fourth-named Second Respondent : Bennett & Co
Fifth-named Second Respondent : Bennett & Co
Sixth-named Second Respondent : Bennett & Co
Seventh-named Second Respondent : Bennett & Co
Eighth-named Second Respondent : Bennett & Co
Third Respondents : No appearance
Case(s) referred to in judgment(s):
Adam v Newbigging (1888) 13 App Cas 308
Andco Nominees Pty Ltd v Lestato Pty Ltd (1995) 126 FLR 404
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Australian Trade Commission v Film Funding and Management Pty Ltd (1989) 24 FCR 595
Ballas v Theophilos [No 2] [1957] HCA 90; (1957) 98 CLR 193
Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510
Byrne v Reid [1902] 2 Ch 735
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 321
Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242
Charles v Federal Commissioner of Taxation [1954] HCA 16; (1954) 90 CLR 598
Commissioner of State Taxation (SA) v Cyril Henschke Pty Ltd [2010] HCA 43; (2010) 242 CLR 508
Duke Group Ltd (in liq) v Pilmer (1998) 144 FLR 1
Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193
Ex parte Kenzler [1983] 2 Qd R 281
Fazio v Fazio [2012] WASCA 72
Federal Commissioner of Taxation v Everett [1980] HCA 6; (1980) 143 CLR 440
Gebauer Nominees Pty Ltd v Cole [No 2] [2008] WASCA 41
George Attenborough & Son v Solomon [1913] AC 76
Hadlee v Commissioner of Inland Revenue (NZ) [1989] 2 NZLR 447
Hagan v Waterhouse (1991) 34 NSWLR 308
Hendry v Perpetual Executors and Trustees Association of Australia Ltd [1961] HCA 44; (1961) 106 CLR 256
Homfray v Fothergill [1866] LR 1 Eq 567
Hurst v Bryk [2002] 1 AC 185
Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406
Lovegrove v Nelson (1834) 3 My & K 1
Lyle & Scott Ltd v Scott's Trustees [1959] AC 763
Mackay v Wilson (1947) 47 SR (NSW) 315
McGowan v Commissioner of Stamp Duties [2001] QCA 236; [2002] 2 Qd R 499
Muir v City of Glasgow Bank & Liquidators (1879) 4 App Cas 337
Perpetual Executors & Trustees Association of Australia Ltd v Federal Commissioner of Taxation (Thomas' case) [No 2] [1955] HCA 66; (1955) 94 CLR 1
Pritchard v Briggs [1980] Ch 388
Rasch Nominees Pty Ltd v Bartholomaeus [2012] SASC 70
Renowden v Hurley [1951] VLR 13
Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd [2002] QCA 210; [2003] 1 Qd R 320
Safeguard Industrial Investments Ltd v National Westminster Bank Ltd [1981] 1 WLR 286
Sahade v BP Australia Pty Ltd [2004] NSWSC 512
SJ Mackie Pty Ltd v Dalziell Medical Practice Pty Ltd [1989] 2 Qd R 87
Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489
Sterns Trading Pty Ltd v Shteinman (1988) NSW ConvR 55‑414
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321
Watson v Federal Commissioner of Taxation (1982) 61 FLR 268
Weiner v Harris [1910] 1 KB 285
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1
Wolfson v The RegistrarGeneral of New South Wales [1934] HCA 29; (1934) 51 CLR 300
Woodroffe v Box [1954] HCA 22; (1954) 92 CLR 245
Table of Contents
Pullin JA's reasons................................................................................................................... 9
Buss JA's reasons.................................................................................................................... 13
The Atwell family and the Atwell Arcade
The partnerships
The property of the Partnership
Overview of relevant provisions of the 1976 Deed
Overview of relevant provisions of the Rules
The parties to the appeal and other persons of significance
The alleged unauthorised transfers of units
The defence as it stood shortly before the commencement of the trial
The application to amend the defence shortly before the commencement of the trial
Separate issues stated at trial
The text of the 1976 Deed: the trial judge's reasons
The alleged non‑compliance with the pre‑emptive rights provision of the alleged unauthorised transfers of units: the trial judge's reasons
The nature and extent of the prohibition against the disposal of units in the Partnership under the pre‑emptive rights provision: the trial judge's reasons
The appellants' prayer for relief
Events confirming the admission of new partners or the increase in existing partners' unit holding after each of the six impugned transactions: the trial judge's reasons
Did any right to enforce the pre‑emptive rights provision constitute an equitable interest in any property? - the trial judge's reasons
Did any right to enforce the pre‑emptive rights provision constitute an equitable interest in any property? - the trial judge's reasons
Were the appellants partners in the Partnership? - the trial judge's reasons
The 20 person rule ‑ alleged oversized partnership: the trial judge's reasons
Was the 1976 Deed a deed and, if so, did it remain a deed? - the trial judge's reasons
Limitation: a specialty involving an action for debt or covenant: the trial judge's reasons
The consequences of ineligible partners being admitted to the Partnership by mistake or by ignorance of some admitting partners: the trial judge's reasons
The trial judge's answers to the separate issues stated at trial
The trial judge's disposition of the appellants' action
The grounds of appeal
Ground 1 of the appeal: the appellants' submissions
Ground 1 of the appeal: its merits
Ground 2 of the appeal: the appellants' submissions
Ground 2 of the appeal: its merits
Ground 3 of the appeal: the appellants' submissions
Ground 3 of the appeal: its merits
Ground 4 of the appeal: the appellants' submissions
Ground 4 of the appeal: its merits
The appellants' claim against the first respondents: the 'unauthorised remuneration issue'
Conclusion
Murphy JA's reasons............................................................................................................. 64
Introduction
Impugned transfers
The first transfer - 1 March 1984
The second transfer - 14 February 1985
The third transfers - 31 March 1985
The fourth transfer - 17 March 1986
The fifth transfer - 30 June 1986
The sixth transfer
The 1976 deed - preliminary observations
Management
Alteration of the Rules
Duration
Partners as 'unit' holders
Acquisition and disposal of units - overview - pt III of the Rules
Clause 4 - permitted disposals between partners
Permitted disposal - death of a partner
Clause 5(b) - new trustees
Permitted disposal - spouses, siblings, children and grandchildren
Disposals to third parties - cls 6, 7, 8, 9 and 10 of the Rules - preliminary
Clauses 6, 7 and 8
Ground 1 and its disposition
Ground 2 and its disposition
Ground 3 and its disposition
Ground 4 and its disposition
PULLIN JA: This is an appeal against EM Heenan J's judgment which included an order dismissing the appellants' action against the second and third respondents. The appeal should be dismissed for the following reasons.
The second respondents, either as trustees of estates of deceased members who were former partners of an inter vivos trust, or as a continuing partner (as at the time of the trial) were sued because it was asserted by the appellants that each of them, or each of the interests which they represented, disposed of or acquired a share or shares in a partnership which were described as 'units' in the partnership deed otherwise than in accordance with pre‑emptive rights provisions, giving rise to the transactions which were alleged to be invalid or which the appellants contended should be set aside. The appellants contended at trial that, on behalf of the original unit holders, these second respondents should 'have those transactions rescinded and be ordered to issue appropriate disposal notices for the shares in the partnership which were wrongly and invalidly transferred' (Atwell v Roberts [No 3] [2009] WASC 96 [17]). At the appeal the appellants' counsel said that the appellants no longer sought rescission. Now they seek an account.
The third respondents are parties who were other members of the firm at the time of trial. These third respondents objected to the appellants purporting to represent them and either wished to take no part in the proceedings or to have an opportunity to do so without consequences as to costs. None of the third respondents sought to make any submissions to the court.
I adopt the recital of facts set out in Buss JA's reasons. Various transactions are impugned, the first of which occurred in 1983, which is nearly 30 years ago, and it was about 20 years after that date before any protest was raised about the first of the transactions.
The trial judge was confronted with numerous applications to amend the pleadings before the trial was due to commence. The parties then decided that they would formulate some questions that should be answered as preliminary points. The parties formulated the questions and the trial judge agreed to answer them. The questions and answers were incorporated into the judgment, with the answers standing as declarations of the court.
The business of leasing out the Atwell Arcade in Fremantle has been conducted by 40 partnerships over several decades under the name 'Atwell Family Agency'. The first partnership was created by a deed dated 16 December 1964. This deed was superseded by a deed dated 25 March 1976 (the 1976 Deed). The 1976 Deed contained a schedule with 'Rules' of the partnership.
The appellants refer in the statement of claim to the 'Atwell Family Agency' as 'the Partnership' (par 1) and state that 'the Partnership' 'carries on and has ... carried on' the business of leasing the Atwell Arcade. This gives the impression that there was one continuing partnership because the name remained the same.
The impression that the partnership was a continuing single legal entity rather like a company was encouraged by the fact that the 1976 Deed and Rules defined a partner's interest by the number of 'units' the partner held in the partnership. The impression was further encouraged by various provisions in the 1976 Deed and Rules. For example, one provision stated that 'units standing in the name of a partner may be transferred to his spouse, brother or sister or to a child of such partner or in the event of there being no child then surviving such partner to a grandchild of such partner' (r 5(c)). Further, the pre‑emption provisions provided that the partner proposing to 'dispose' of or sell his units should give existing partners the first right of refusal to purchase the units.
The premise underlying the appellants' submissions about the pre‑emption provisions was that without them a partner could retire and freely dispose of, or sell 'units' - ie his or her share or part of his or her share in the partnership in the same way as a share in a company. The premise was fallacious because a partnership is not, in the event a partner retires, a continuing legal entity. A person cannot become a partner with other persons unless all of the other proposed partners give consent. If consent is given, a new partnership will come into existence. A stranger cannot create a new partnership against the wishes of the non‑retiring partners. A stranger cannot 'buy' an interest in a partnership from a retiring partner and then demand to participate in the 'old' partnership or in a new partnership without the non‑retiring partners agreeing. If the non‑retiring partners consent to the stranger becoming a partner, then a new partnership is formed.
The appellants asserted that on six occasions over the last 30 years, partners disposed of or sold their units in the partnership to others without observing the pre‑emption provisions. The primary contention by the appellants was that because the pre‑emption provisions had not been observed by the retiring partner, the appellants and third respondents gained a 'property' right which gave the appellants the right to relief against the second respondents. The 'property' was and is in this appeal said by the appellants to be an entitlement 'to receive ... an offer to purchase the units' held by the retiring partner (see prayer for relief). The appellants accept and concede in this court that on each of the six occasions when a retiring partner or the estate of a deceased partner purported to dispose of the units to a person, the new person became a partner in a new partnership together with the non‑retiring or surviving partners. This could only mean that the non‑retiring or surviving partners consented to the new person joining them in a new partnership and that the old partnership was dissolved.
The trial judge found that the new partners introduced on each of the six occasions participated fully in the new partnership formed after each such occasion. They attended meetings, received accounts and minutes of meetings and participated in a distribution of profits for periods ranging back over 30 years. These findings of fact were not challenged by the appellants. The appellants allege that some even actively participated in the management of the partnership. The trial judge found that the remaining partners on each of the six occasions agreed to 'the introduction of [a] ... new member': Atwell [No 3] [90]. The trial judge concluded that the appellants' primary contention which assumed that the units in the partnership 'were enduring and of the same character for all successive versions of the family partnership' (Atwell [No 3] [80]) was based on the fallacious premise that the 'Atwell Family Agency' was a 'continuing entity which survives, unaffected as to identity, by the deaths or retirement of members': Atwell [No 3] [23]. Ground 1 of the appellants' grounds of appeal contends that the trial judge erred in reaching that conclusion. Ground 1 must be dismissed. The legal propositions and authorities supporting the trial judge's conclusion and the dismissal of ground 1 are as follows:
(a)it is an axiom of partnership law that any change in the membership of a partnership occurring, whether by reason of the retirement, expulsion, death or otherwise of a partner has the consequence of dissolving the partnership: SJ Mackie Pty Ltd v Dalziell Medical Practice Pty Ltd [1989] 2 Qd R 87, 90 ‑ 91;
(b)after dissolution, the next step is to wind up the affairs of the partnership by realising the assets and paying the debts and liabilities of the firm before distributing the surplus, if any, among the partners according to their rights and interests: Partnership Act 1891 (Qld) s 42; Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd [2002] QCA 210; [2003] 1 Qd R 320, 323;
(c)winding up in that way may be avoided if the parties agree on a sale to one or more of the remaining partners of the share of the outgoing partner or if there is a provision in the partnership agreement to that effect. This is sometimes described as a technical or notional dissolution which is something of a misnomer because it is not the dissolution, but rather the winding up, that is notional. In those circumstances, the partnership or firm itself is dissolved as soon as there is a change in membership, but the assets and, as between the partners, responsibility for the liabilities of the partnership are taken over by the remaining partners: Rushton (323); Commissioner of State Taxation of the State of South Australia v Cyril Henschke Pty Ltd [2010] HCA 43; (2010) 242 CLR 508 [12]; Fazio v Fazio [2012] WASCA 72 [65];
(d)a share in a partnership, even if designated by reference to 'units', does not enjoy a corporate or quasi‑corporate existence apart from the members who comprise it: Mackie (90); Henschke [10];
(e)it is not possible to avoid the legal propositions set out above by terms of a partnership agreement: Hadlee v Commissioner of Inland Revenue [1989] 2 NZLR 447, 455 (Eichelbaum CJ); Henschke [11];
(f)in consequence, it is impossible to give literal effect to the pre‑emption provisions which are drawn as though a partner's interest (or units) in the partnership agreement has some transmissible, legal existence, rather like a share in a company;
(g)this is not to say that it was impossible for existing partnership members by their agreement inter se to impose express formal restrictions upon the admission of further individuals to their ranks. They can; and if they insist upon strict adherence to that formality, the newcomer will never be admitted to their ranks as a partner. But that is because, by requiring strict compliance with that formality, they reject him as a partner or, what is the same thing, they refuse to dissolve their existing partnership and form a new partnership of which he is a member: Mackie (91);
(h)conversely, however, if they do agree to accept him as a partner, the fact that the requisite formality has not been complied with
becomes irrelevant. The newcomer is ex hypothesi not a partner to the partnership agreement by which the relevant restriction is imposed, and so is himself not bound by it. The original partners, who are bound by it, may by common consent or acquiescence choose to ignore it. If they do so, no‑one is in a position to complain that a term of the original partnership agreement has been disregarded, waived, or set aside. And if both or all agree to disregard it, the result that follows is a new partnership comprising the original partners and the incoming partner now accepted as a member: Mackie (91). However, they may agree that the restriction should apply to the new partnership.
As stated above, those propositions support the trial judge's conclusion and warrant the dismissal of ground 1.
I agree with Buss JA's reasons and conclusions in relation to grounds 2, 3 and 4.
BUSS JA: This appeal from a judgment of EM Heenan J concerns a partnership dispute.
The appeal raises issues as to the proper construction of a pre‑emptive rights provision in a deed evidencing the terms and conditions of successive unit partnerships; whether various transfers of units in partnerships constituted pursuant to the deed were made in compliance with the provision; and, if any transfer did not comply with the provision, the effect of the non‑compliance.
The Atwell family and the Atwell Arcade
The Atwell Arcade is an arcade comprising numerous retail shops and similar premises. It is located in the Fremantle business district. The land on which the Atwell Arcade is situate has been owned for many years by members of the Atwell family.
The partnerships
Each of the partnerships was known as the Atwell Family Agency.
The first relevant partnership was constituted by a deed dated 16 December 1964 (the 1964 Deed). The 1964 Deed was amended by a deed dated 15 October 1965.
The 1964 Deed as amended was superseded by a deed dated 25 March 1976 (the 1976 Deed).
The events of which the appellants complained occurred after the execution of the 1976 Deed.
The schedule to the 1976 Deed contains the 'Rules of the Partnership' (the Rules).
Since 25 March 1976, the Atwell Family Agency has been dissolved on numerous occasions as a result of partners dying or retiring or new partners being admitted. The first schedule to the trial judge's reasons contains a chronology of the successive partnerships. Since 18 March 1975 there have been 29 partnerships trading as the Atwell Family Agency. It is convenient, in these reasons, to refer to each of the successive partnerships as 'the Partnership'.
The property of the Partnership
At all material times, the land on which the Atwell Arcade is constructed was registered in the names of three members of the Partnership who were appointed to the management committee established under the Rules (the Committee). These partners have held the land on trust for the partners. The only material asset of the Partnership has been the Atwell Arcade. The only material business of the Partnership has been the leasing of retail accommodation in the Atwell Arcade.
Overview of relevant provisions of the 1976 Deed
Clause 1 of the 1976 Deed provides that the parties agree to carry on the business of property owners under the style of 'Atwell Family Agency' in partnership between themselves and 'any other persons who may be admitted to partnership in manner provided in this deed'. Clause 1 also provides that the parties agree to carry on the business upon the terms and conditions set out in the Rules.
By cl 2, the provisions of the 1976 Deed are 'deemed' to have come into force on 1 July 1975.
By cl 3, the death or bankruptcy or other disability of any partner shall not determine the partnership as between the remaining partners.
Clause 4 provides for the admission to the Partnership of the legal personal representative of a deceased partner, any new trustee of the estate of a deceased partner or of any settlement made by a partner, or any transferee of 'units' (a notion embodied in the Rules) in the Partnership in whose name the units were entered in accordance with the Rules. Clause 4 deems such persons to become partners, subject to the Rules, with the other persons who are then partners.
Clause 5 provides for the legal title to partnership property to be held in the names of the members of the Committee as trustees for the partners.
Overview of relevant provisions of the Rules
Rule 2 deems each partner to hold 'units' in the Partnership.
Rule 3 states that the 'partnership' is 'divided into 142884 units'. Rule 3 then specifies the number of units 'held by the partners respectively' on 1 July 1975.
Rules 4 to 10 regulate the acquisition and disposal by partners of units in the Partnership.
Rules 4 to 8 create a pre‑emptive rights provision.
By r 9, before any units are entered in the books of the Partnership as belonging to a person not already a partner, 'he shall sign his name at the foot of this Schedule in token of his agreeing to be bound by the Rules'.
By r 10, no sale or transfer of units is permitted if the effect of the sale or transfer would be to increase the number of partners in the Partnership beyond 20.
The parties to the appeal and other persons of significance
Walter Charles Atwell (WC Atwell) was a party to the 1964 Deed. He died on 17 March 1975. The trustees of WC Atwell's estate were his wife, Elsie Frances May Atwell (Elsie Atwell) and his sons, Malcolm Walter Atwell (Malcolm Atwell) and Ian George Atwell (Ian Atwell). Malcolm Atwell and Ian Atwell are the appellants (in their capacity as the trustees of WC Atwell's estate).
WC Atwell's will provided for, relevantly, WC Atwell's units in the Partnership to be held on trust. During Elsie Atwell's life, all income of WC Atwell's estate was payable to Elsie Atwell. Upon her death, the income was payable to Malcolm Atwell and Ian Atwell.
The trustees of WC Atwell's estate when the 1976 Deed was executed were Elsie Atwell, Malcolm Atwell and Ian Atwell.
Elsie Atwell died on 9 November 1998. Between 25 March 1976 and 9 November 1998, Elsie Atwell, Malcolm Atwell and Ian Atwell were trustees of WC Atwell's estate. Since Elsie Atwell's death, Malcolm Atwell and Ian Atwell have been the trustees.
Raymond John Atwell (Ray Atwell) is the son of Malcolm Atwell and the nephew of Ian Atwell. Ray Atwell is not a member of the Partnership.
The first‑named first respondent and the first to fourth‑named second respondent (Leigh Roberts) is the son of Keith Gilbert Roberts (Keith Roberts). Keith Roberts was a party to the 1964 Deed and the 1976 Deed. Keith Roberts died on 27 February 2003.
Keith Roberts, in his capacity as trustee of the Hamersley Trust, was the purported recipient of units under several of the six alleged unauthorised transfers which are impugned by the appellants. During his lifetime, Keith Roberts was a member of the Committee.
Leigh Roberts and the other first respondents, Noel Henry Atwell (Noel Atwell) and Audrey Atwell are the current members of the Committee.
The second respondents are the purported transferors and transferees of units (or the legal personal representatives of such transferors or transferees) under the alleged unauthorised transfers.
The appellants asserted against the second respondents at trial that:
(a)each of the second respondents, or each of the interests he or she represents, disposed of or acquired a share or shares in the Partnership otherwise than in accordance with the pre‑emptive rights provision;
(b)as a result, the transactions in question were invalid, or alternatively should be set aside; and
(c)the second respondents 'should have those transactions rescinded and be ordered to issue appropriate disposal notices for the shares in the partnership which were wrongly and invalidly transferred' [17].
The third respondents were joined in the primary proceedings by order of the trial judge made on 5 March 2009. His Honour noted in his reasons that this order was made 'as a sequel' to orders he had made requiring notice to be given to those members of the current partnership whom the appellants claimed to represent in their capacities as representative plaintiffs under O 18 r 12 of the Rules of the Supreme Court 1971 (WA). At a directions hearing on 5 March 2009, each of the third respondents objected to the appellants purporting to represent them. On 5 March 2009, when his Honour joined the third respondents, the question of the appellants' claims to represent these individuals, who were former members of past partnerships, was left open to be addressed and resolved later, if necessary [21].
The third respondents did not take part in the appeal.
The alleged unauthorised transfers of units
The appellants challenged six purported transfers of units, as follows:
(a)Transaction No 1: a purported transfer of 23,220 units from the estate of Ada Ethel Atwell to the Hamersley Trust in 1983 (the Ada Atwell Transfer);
(b)Transaction No 2: a purported transfer of 4,267 units from Edna Phoebe Paterson to Noel Atwell on or around 14 February 1985 (the Edna Paterson Transfer);
(c)Transaction No 3: a purported transfer by Gladys Addison Broadley of 2,620 units to Noel Atwell and 1,500 units to the eighth‑named second respondent (Gary Atwell) on or around 31 March 1985 (the Gladys Broadley Transfers);
(d)Transaction No 4: a purported transfer of 23,100 units from Hilda Dorcas Roberts to Keith Roberts as trustee of the Hamersley Trust in 1986 (the Hilda Roberts Transfer);
(e)Transaction No 5: a purported transfer of 2,135 units from the estate of Dorothy May Beckett to the Hamersley Trust on or around 30 June 1986 (the Dorothy Beckett Transfer); and
(f)Transaction No 6: a purported transfer of the units, the subject of the Ada Atwell Transfer, the Hilda Roberts Transfer and the Dorothy Beckett Transfer, from the Hamersley Trust to Leigh Roberts as trustee for K Roberts, M Lister and the Sonoma Trust in 2001 (the Hamersley Trust Transfer).
The defence as it stood shortly before the commencement of the trial
The defence, as it stood shortly before the commencement of the trial, asserted in substance that:
(a)the 1976 Deed and the Rules only bound the parties to the 1976 Deed and ceased to have any effect upon the original partnership created under the 1976 Deed being dissolved by the first change in the composition of the partnership or, alternatively, by the first change in the composition of the partnership inconsistent with the terms of the 1976 Deed and the Rules, in that the new partners, in each successive partnership, were entitled to waive, adopt or vary any requirement concerning the transfer of units in the partnership and they did so;
(b)each of the new partnerships, created upon each of the alleged unauthorised transfers, accepted and approved the transfer of units to the transferees in question;
(c)for reasons specific to each of the second respondents (for example, waiver or consent) a disposal notice was not required for the relevant transfer of units;
(d)a 6 year limitation period applies pursuant to s 38 of the Limitation Act 1935 (WA) and is a defence to the appellants' claims in relation to the alleged unauthorised transfers of units which occurred in 1983, 1985 and 1986; and
(e)the defences of estoppel, laches and acquiescence apply to each of the impugned transactions.
The application to amend the defence shortly before the commencement of the trial
Shortly before the commencement of the trial, counsel for the respondents made an application for leave to amend their defence.
Counsel for the appellants opposed the amendments on the ground that they were extensive and, if leave to amend was granted, it would be impossible to proceed with the trial on the listed commencement date.
Counsel for the appellants made a separate application for leave to amend their reply in numerous respects. This prompted counsel for the respondents to seek leave to file a rejoinder.
In the event, none of the parties wished to proceed to trial on the pleadings as they stood.
The trial judge was satisfied that if leave to amend the defence were to be granted then the appellants could not be expected to proceed with the trial on the listed commencement date.
Separate issues stated at trial
His Honour explored with counsel for the parties the possibility that the trial should proceed on limited and specified issues. His Honour suggested that 'the parties should attempt to formulate issues for resolution dealing with [various] points which could then be tried without the need to address or take evidence on the many fact laden new issues or varied issues arising from the proposed amendments' [40].
In the event, the parties agreed upon separate issues, as follows:
1.Did the pre-emptive rights in the 1976 Partnership Deed (the pre‑emptive rights) cease to bind all succeeding Atwell Family Agency partnerships after and by reason of the dissolution which occurred upon:
(i)the transfer of the units by the trustee of the estate of Harold Atwell Adam to Mavis Victoria Adam in 1977;
(ii)the death of Evelyn Rose Adam between 1978 ‑ 1980;
(iiithe death of Ada Ethel Atwell on 24 March 1983; or
(iv)any subsequent or other dissolution event,
and, if so, which?
2.If the answer to question 1 is 'no', ‑
2.1(a) did the terms of the pre-emptive rights provisions contained in the 1976 Deed require that the transfers of the units to Keith Gilbert Roberts in his capacity as trustee of the Hamersley Trust pleaded in pars 14, 16 and 23 of the statement of claim require compliance with those pre‑emptive rights?
(b)did any of the disposals complained of in pars 14, 16, 18, 20, 23 and 24 of the statement of claim fail to strictly comply with the pre-emptive rights provisions in the terms contained in the 1976 Deed and, if so, which?
2.2If the answer to question 2.1 is 'yes', with respect to each disposal in connection with which the answer is 'yes':
2.2.1(a) Did Malcolm Walter Atwell and Ian George Atwell as trustees of the estate of Walter Charles Atwell deceased (M & I Atwell) become a partner or partners by the 1976 Deed jointly with Elsie Frances Atwell and, if so, did they continue to be a partner or partners of all successive partnerships?
(b)can M & I Atwell complain?
2.2.2If the answer to question 2.2.1 is 'yes', with respect to each disposal in connection with which M & I Atwell were a partner or person and entitled to complain:
(a)Is the claim of M & I Atwell a claim solely for breach of contract and, if so, what are the implications for limitation periods applying under the Limitation Act 1935 (WA) (the Act) or by analogy?
(b)Is there a fiduciary relationship which may apply to extend the six‑year or 20-year limitation period?
(c)Was each subsequent partnership after the 1976 Deed constituted by a deed or by agreement and, if by agreement, is the plaintiffs' claim within s 38(1)(e)(i) of the Act?
(d)Is there a limitation period applying by the Act or by analogy and, if so:
(i)is it six years or 20 years?
(ii)is there a fiduciary relationship which may apply to extend the six-year or 20-year limitation period?
3.1Do joint trustees of a trust estate count as one member of a partnership for the purposes of s 11 of the Partnership Act 1895 (WA) and s 115 of the Corporations Act 2001 and its predecessors or is each joint trustee a separate member for those purposes?
3.2If the answer to question 3.1 is that each joint trustee is a member for those purposes, what is the legal affect on the enforceability of the 1976 Deed and subsequent partnerships?
The trial judge ordered that these issues be tried.
The text of the 1976 Deed: the trial judge's reasons
The trial judge observed that many of the controversies in the litigation, and the problems which had arisen, had their genesis in 'the language adopted, no doubt deliberately, by the original parties to the [1976 Deed]' [23]. His Honour added:
The essential problem involves an underlying fallacy that the firm, 'Atwell Family Agency', is a continuing entity which survives, unaffected as to identity, by the deaths or retirements of members [23].
The alleged non‑compliance with the pre‑emptive rights provision of the alleged unauthorised transfers of units: the trial judge's reasons
The trial judge found that each of the alleged unauthorised transfers of units involved a breach, at least in some aspect, of the pre‑emptive rights provision. His detailed reasoning was as follows:
At this point it is necessary to notice the submission for the plaintiffs that the obligation to comply with the pre-emptive rights procedures, for disposal notices to be given and for valuations to be obtained where appropriate, arises whenever there is a change in the beneficial interest in the units. They submit that the need to comply with those procedures cannot be avoided merely because the transferee of the units is himself or herself an eligible member who may take under Rule 5 without the need for a disposal notice or compliance with the valuation procedures, if that person holds the benefit of the units for another or others, not within that category - as in the case of an executor, or a trustee of an inter vivos trust. I shall defer, for the moment, the determination of that submission because it is first necessary to appreciate its impact in the situations which existed when each of these six challenged transactions occurred. To do this it will be necessary to return to them in chronological order:
1.The Ada Ethel Atwell transfer.
When Ada Ethel Atwell died on 24 March 1983 her nephew, Keith G Roberts, was already a member of the partnership and, indeed, was a member of the Committee (see partnership No 13 listed in Schedule 1). By her last will she appointed Mr K G Roberts as her sole executor and trustee and he obtained probate of that will (exhibit 7). Under the will, all Ms A E Atwell's interests in the Atwell Family Agency were left to this trustee for the time being of the Hamersley Trust who then was the same Mr K G Roberts (exhibit 6A). Accordingly, if one looks at the personal eligibility of Mr K G Roberts to 'acquire' those units without the need for disposal notices or valuations, the first and second defendants submit that he was eligible in his capacity as a legal personal representative of a deceased partner (under clause 4(a)), and he was eligible as the trustee of a settlement made by a partner (Hilda Dorcus Roberts was the settlor of the Hamersley Trust) and he was also a partner of partnership No 13 at the same time (listed in First Schedule). The point by the plaintiffs is that, even if in any of those of those three capacities, Mr Roberts might have been eligible to take the Ada Ethel Atwell units for himself, the prospect that the beneficial interest in them might pass to other more distant beneficiaries under the Hamersley Trust, gave rise to the need to comply with the disposal notice procedure and, if necessary, the valuation procedure.
Another submission for the plaintiffs is that when Rule 5(b) permitted units standing in the name of the legal personal representative or trustee of the estate of any deceased partner or the trustees of any settlement made by a partner to be entered in the names of new trustees for the time being, and where cl 4(b), permitted any new trustee of the estate of a deceased or of any settlement made by a partner to become registered as the holder of units, that could not relate to newly created inter vivos trusts. The submission is that only such inter vivos trusts as had previously been established and whose former trustee had previously been recorded as a member of the firm and the holder of those units came within cl 4(5). So it was submitted that the transfer to Mr Roberts as trustee of the Hamersley Trust was not permitted under Rule 5(b) or cl 4(b), because no previous trustee of that trust had been recorded as the holder of those units.
I consider that this last submission is well founded and should be accepted so that, if strict compliance with cl 4(b), and Rule 5(b) of the 1976 partnership agreement were insisted upon by the partners making the decision to approve the transfer of the Ada Atwell units in 1983 to Mr Keith G Roberts, in his capacity as trustee of the Hamersley Trust, relying on cl 5(b) would not dispense with the need for a disposal notice or the other steps of valuation if they became necessary.
2.With the transfer of the units formerly held by Edna Paterson in February 1985, the transfer was made to Noel Henry Atwell who was Henry Atwell's son. This was an inter vivos transfer by Mrs Edna Paterson to a cousin who was not a member of the partnership at the time (partnership No 15 listed in Schedule 1) so that he was not an eligible transferee under Rule 4 or Rule 5(c). The defendants plead that a disposal notice was given but it is agreed that the valuation procedures were not strictly complied with.
3.The transfer of units held by Gladys Broadley to Noel Atwell and Garry Atwell in 1985 were also inter vivos transfers. Noel Henry Atwell was, by then, a member of the partnership (partnership No 16 listed in the First Schedule) although it must be noted that the plaintiffs contend that he was wrongly admitted as a partner in March 1985 pursuant to the Edna Paterson transfer. If he was properly a partner of the date of this third impugned transfer in 1985 then he was an eligible transferee without the need for a disposal notice in accordance with Rule 4. However Garry Atwell was not then a partner. He was the son of Lloyd D Atwell, a cousin of Mrs Gladys Addison Broadley and, therefore, not an eligible transferee under Rule 5(c). The position of the defendants in this respect, as already explained, is that disposal notices were given but that the valuation procedure was not strictly complied with. If the partners for the time being in about June 1985 had required strict compliance with the pre-emptive rights procedures in relation to the transfer of units to Mr Gary Atwell then this transaction was not strictly in accordance with those procedures.
4.The Hilda Roberts transfer of 23,100 units to the Hamersley trust in 1986 has already been described. Hilda Dorcus Roberts died on 5 January 1986 appointing her son Keith Gilbert Roberts as her executor who accepted the position and proved her will (exhibit 23). By her will she left the whole of her shares in the units in the Atwell Family Agency to her executor and trustee to be held on the terms of the Hamersley Trust (the deed dated 18 December 1972 ‑ exhibit 6A). At the time of her death and at the time of the transfer of those units Mr K G Roberts was already a member of the partnership, in his personal capacity; as trustee of the Hamersley Trust; and as trustee of his mother's estate (see partnership No 19 listed in the First Schedule). He had also been a member of the earlier partnership when his mother was a member (see partnership number 18 listed in the First Schedule). Subject to the determination of the issue about transfers of an equitable interest in the units, Mr Roberts was therefore eligible to be registered as the holder of his mother's units under Rule 5(b) when this transfer was processed. The remaining issue in this respect is whether or not the possibility of the beneficiaries under the Hamersley Trust might be varied to introduce beneficiaries not within the limited family circle provided by Rule 5(c) meant that the transfer of units to the trustee of the Hamersley Trust required compliance with the disposal notice procedure. This is similar to the issue raised in respect of the Ada Ethel Atwell transfer above.
5.The Dorothy Beckett transfer occurring on about 30 June 1986 involved a transfer of the units from the estate of Dorothy May Beckett who had died on 9 October 1985 and who had appointed her solicitor, Mr M E Frichot, as her sole executor (exhibit 26). The transfer of one parcel of those units to Mrs Rosemary June Spurge without compliance with the pre-emptive rights provisions was authorised because Mrs Spurge was her daughter and so eligible under Rule 5(c). It was the transfer of the other moiety of her units to Keith Gilbert Roberts as trustee for the Hamersley Trust which has produced this challenge. As previously noted, Mr K G Roberts was a member of the partnership at the time (partnership No 19 listed in the First Schedule) and also as trustee of the Hamersley Trust he was the trustee of a settlement which had been made by a previous partner, his mother although she had died before this later disposition. Accordingly if the members for the time being of partnership No 19 required strict compliance with the pre-emptive rights provisions in respect of this transfer then similar issues arise here as arise in the case of the Hilda Roberts transfer.
6.The Hamersley Trust transfer of units to Leigh Roberts as trustee for K Roberts, M Lister and the Sonoma Trust in 2001 involves the twin submissions that the units in question should never have been transferred to the Hamersley Trust under any of the three earlier transfers and that the transfer from the Hamersley Trust to Leigh Roberts as trustee for K Robert, M Lister and the Sonoma Trust could not have been validly achieved without compliance with the pre-emptive rights provisions because of the capacity for beneficiaries to include persons outside the family circle defined by Rule 5(c). This again raises the issue of changes in the beneficial interest [74] ‑ [76].
The nature and extent of the prohibition against the disposal of units in the Partnership under the pre‑emptive rights provision: the trial judge's reasons
The trial judge noted that the appellants, on the one hand, and the first and second respondents, on the other, were in dispute as to whether the restrictions upon the transfer or acquisition of units in the Partnership under the 1976 Deed 'apply only to the legal ownership of such units' (being the first and second respondents' position) or 'must, of necessity, be regarded as extending to the beneficial interest in those units' (being the appellants' position) [77].
His Honour said that if the prohibition in the 1976 Deed against the disposal of units, without compliance with the pre‑emptive rights provision, was restricted to 'legal interests' and did not include 'beneficial interests', it may be capable of evasion [80]. His Honour then said:
All that this demonstrates is that the regime of pre-emptive rights attempted in the 1976 agreement is not watertight or comprehensive and that, in any event, the plaintiff's contentions are based on the fallacy that the 'units' which are to be transferred are enduring and of the same character for all successive versions of the family partnerships. That the regime specified by the 1976 agreement is not comprehensive is readily apparent from the fact that a retiring partner or the representatives of the deceased partner may not be willing to 'transfer' their 'units' in the partnership to anyone at all and may, instead, demand payment from the continuing members of the former partnership of the value of the share of the deceased or retiring partner's interest or, failing that, seek a dissolution. The fallacy, as already remarked, is the assumption that the units in the partnership are a separate species of property which endure and continue from one partnership to another being analogous to a share in a company with limited liability [80].
The trial judge then stated this conclusion:
Accordingly, I am satisfied that in the context of the 1976 agreement and these various partnerships the restriction upon the transfer or acquisition of 'units' in the partnership relates solely to the legal ownership of such 'units' as demonstrated by the recording of the unit holder's name in the partnership records [80].
The appellants' prayer for relief
The appellants' amended statement of claim dated 29 September 2009 claimed extensive relief in relation to the alleged unauthorised transfers of units.
In par G of their prayer for relief the appellants claimed mandatory injunctions that:
(i)Leigh Roberts as trustee of the Estate of Ada Ethel Atwell issue a Disposal Notice for the Units held by the late Ada Ethel Atwell at a price being the value of the Units at 24 March 1983;
(ii)John Charles Stacy as trustee of the Estate of Edna Phoebe Paterson issue a Disposal Notice for the Units held by Edna Phoebe Paterson at a price being the value of the Units at 14 February 1985;
(iii)Evelyn Diane Broadley as trustee of the Estate of Gladys Addison Broadley issue a Disposal Notice for the Units held by Gladys Addison Broadley, at a price being the value of the Units at 31 March 1985, except the 750 Units transferred to Garry Atwell and then transferred with proper notice to third parties;
(iv)Leigh Roberts as trustee of the Estate of Hilda Dorcus Roberts issue a Disposal Notice for the Units held by the late Hilda Dorcus Roberts at a price being the value of the Units at 5 January 1986;
(v)Maurice Eugene Frichot as trustee of the Estate Dorothy May Beckett issue a Disposal Notice for the 2135 Units held by Dorothy May Beckett that were invalidly transferred to Keith Gilbert Roberts as trustee for the Hamersley Trust at a price being the value of the Units at 30 June 1986;
(vi)Alternatively to (i), (iv) and (v) the Trustee for the Hamersley Trust issue a Disposal Notice for all Units transferred in 2001 at a price being the value of the Units at the date of transfer; and
(vii)the Committee institute proceedings under s 60(4) of the [Real Estate and Business Agents] Act to recover all payments made pleaded in paragraph 34, alternatively paragraph 36.8, other than payments to Partners the subject to [sic] prayer for relief J below.
In par H of their prayer they claimed:
An order that any Partner who accepts an offer made pursuant to a Disposal Notice given under the injunctions referred to in prayer for relief G has liberty to apply for directions for the taking of accounts as between them and the transferor with respect to all income and other distributions made since the date at which the price is determined.
In par K of their prayer the appellants claimed '[all] other necessary accounts, enquiries and assessments including enquiries to ascertain the value of the Units at the times referred to in prayer for relief G above'.
Events confirming the admission of new partners or the increase in existing partners' unit holding after each of the six impugned transactions: the trial judge's reasons
The trial judge found that it was 'clear beyond any dispute' that, after the changes in the Partnership, whether by the introduction of new partners or the increase in existing partners' unit holding, after each of the impugned transactions, each newly formed partnership carried on the business of the Atwell Family Agency, and 'treated each of the newly admitted partners, or the partners whose unit holding had been increased by the transaction, as a member of that firm entitled to vote and participate in the distribution of profits in the same way as all the other partners' [81].
His Honour elaborated:
Annual general meetings of each new firm were held regularly at which the new partner was entitled to attend and vote and sometimes did. Schedules with the accounts were distributed to each of those partners as required by the agreement ‑ see for example exhibits 8 (1 ‑ 9), 11, 15, 22, 45 ‑ 47 among others. The Committee produced accounts and made recommendations as to the distribution of profits ('dividends') which, once approved at the AGMs (as they always were), were then acted upon and distributions made to each of the partners so identified including the new partner.
This pattern of partnership business and operation continued without objection or protest until about 2003 when allegations that units had been invalidly transferred to partners were first raised by or on behalf of Mr Malcolm Walter Atwell and Mr Ian George Atwell as the surviving trustees of the estate of their late father, W C Atwell. These were later taken up by Mr M W Atwell's son, Mr Raymond Atwell who, while never a partner, had been permitted to attend various AGMs or EGMs of the partnership as a spokesman for his father and uncle, as trustees of the estate of W C Atwell [82] ‑ [83].
The trial judge then said that 'this process, of treating new members of each successive partnership occurring after these challenged transactions, as regular partners of each succeeding new firm and the sharing of profits with them in proportion to the units held continued without interruption or challenge from 1983, immediately following the first of the challenged transactions ‑ the Ada Atwell transfer ‑ until well after the last of them, the Hamersley Trust transfer in 2001' [84].
His Honour decided that there could be no doubt that, as a result of this acceptance of new partners into the succession of firms after each of the impugned transactions, 'all of the members of each newly formed firm accepted each other, and any newcomer or existing partner with an increased unit holding, as a partner in each newly established and continuing firm' [86].
The trial judge concluded:
The only possible conclusion is, that by admitting the new member into the partnership, or increasing the unit holding of an existing member, and then carrying on business in a succession of partnerships, all the members of the newly formed partnerships have agreed upon the admission of that new member and to the shareholding which he or she had in the firm as recorded at the time. That extinguishes any prospect of endurance of the pre‑emptive rights except in a case of fraud or misrepresentation which is not alleged here. That being so there is simply no basis to challenge, retrospectively, the admission of those interests into the sequence of partnerships which are recorded in the First Schedule or to seek to set aside those 'transfers' of units.
Each succeeding partnership was a separate association of members quite distinct from its predecessor or successor. The members of that particular partnership, so long as it endured, were content, by their mutual acceptance of each other to carry on business in partnership together on the terms which they did. At the termination of each succeeding partnership, by death or retirement of a member, a new partnership came to be formed again, upon terms mutually agreed by its members. Their agreement is patent from the fact of the existence and continuation of the partnership business itself and especially in the sharing of profits. Whatever may have been the potential rights or entitlements of members of a former partnership to seek to acquire units from the retiring partner or the representatives of a deceased partner, the history speaks for itself. Those matters were resolved, either in conformity or not in conformity with the rules, and the terms of the partnership agreement and, the new partnership having been formed, was carried on together with the mutual consent of each member [92] ‑ [93].
So, his Honour was of the view that any rights which other partners may have had under the pre‑emptive rights provision, when the units the subject of each impugned transaction became available for transfer, ceased to exist upon the transferees becoming partners of the newly formed partnership with the consent of all of the persons who may have been entitled to insist upon the observance of the provision.
Did any right to enforce the pre‑emptive rights provision constitute an equitable interest in any property? - the trial judge's reasons
The trial judge observed that the appellants' claims for relief depended, to a significant extent, upon their contention that 'the right which a member of the [Partnership] … had at any one time to insist upon strict observance of the pre‑emptive rights provisions is a species of property, an equitable interest, not only which endured after an occasion when it had been wrongly disregarded but which takes priority over subsequent proprietary or equitable interests acquired in [the Partnership] and in the partnership property by persons, whom [the appellants] allege, were wrongly admitted to membership in disregard of the pre‑emptive rights provisions' [94].
His Honour recorded the concession by counsel for the appellants at trial that 'the grant of a right of pre‑emption conferred on the grantee no right to call for a transfer of the property unless the grantor chose to fulfil the conditions on which the right became exercisable' [94]. However, counsel for the appellants argued at trial that 'once the pre‑emptive right is triggered by a decision to dispose of the property, the grantee has a proprietary interest capable of enforcement in equity which will rank for priority according to the ordinary rules including that, generally speaking, the interest first in time prevails' [94].
The trial judge held that 'while the interest of a partner in the partnership property is entirely equitable, the partner's relations with fellow partners, both during the lifetime of the partnership or after dissolution and in the course of a winding up entail not only or exclusively equitable rights or obligations but also contractual obligations as determined by the terms of any applicable partnership agreement ' [98].
His Honour accepted that, in certain circumstances, injunctive relief may be granted in relation to contractual rights of pre‑emption, and that where a contractual right of pre‑emption has been triggered by a decision of the grantor to dispose of the property in question the right may be enforced by an order in the nature of specific performance, but, on his Honour's analysis, these propositions did not vindicate the appellants' arguments. His Honour explained:
For vindication to occur it would be necessary for the pre-emptive right to endure not only after it has, on this hypothesis, been wrongly disregarded by the grantor or others but also up to the point when the intervention of equity is sought. If by this latter date the right has ceased to exist and is incapable of restoration, there is nothing which can be regarded as an equitable interest which might rank in priority with any subsequent interest.
The point is that if the right of pre-emption is not utilised by any of the persons who have a right to claim it, and the subject matter is then sold to some third party in a manner which requires the consent of all those who are entitled to enforce the right of pre-emption, that consent terminates the right and for reasons expatiated upon earlier, the inevitable conclusion from the formation of each new succeeding partnership is that this is what occurred [99] ‑ [100].
The trial judge said that the appellants' argument that they had an equitable interest in the units transferred under the impugned transactions rested on 'very weak foundations' [105]. He continued:
I have already explained how the particular units in the firm available for transfer or disposal under the pre‑emptive rights provisions in the event of a death or retirement producing a dissolution of one partnership and the formation of another are essentially monetary claims because the former partnership has become dissolved. Secondly, even if the claims did involve an equitable interest in the property of the (dissolved) partnership the interest will not survive the formation of the new partnership because, the constitution of the partnership having changed, it becomes an interest in a new and different firm [105].
His Honour decided that the only sustainable proposition that could be advanced by the appellants was that the rights which continuing partners had immediately on the partnership dissolutions effected by each of the impugned transactions 'may potentially have led a court of equity to intervene to protect those rights' [109], for example, by injunctive relief or orders for specific performance. He elaborated:
The submission that the plaintiffs have an equitable interest therefore depends upon the court being satisfied that, in all the circumstances, full equitable relief to the extent sought by the plaintiffs, including orders for rescission of the six completed transactions, injunctions, specific performance and accounts and inquiries necessary to achieve adequate restitution were possible and should in the exercise of discretion be granted. This demonstrates just how tendentious it is to assert, without qualification, that the plaintiffs enjoy equitable interests in the units which were, according to them, wrongfully transferred.
Earlier I have concluded that any rights which other partners may have had under the pre-emptive provisions at the times when the units the subject of these transactions became available for transfer, had ceased to exist upon the transferees becoming partners of the newly formed partnerships with the consent of all those persons who may have been entitled to insist upon observance of the pre-emptive rights. There are other reasons, which I have also mentioned, which also point unambiguously to the conclusion that no such rights as the plaintiffs seek to assert could possibly have endured, at the latest, beyond the next change in the constitution of the family firm after the impugned transaction. Once these factors are appreciated the plaintiffs' submission that the persons whom they claim to represent have an equitable interest in the partnership property which passed to the six transferees can be seen to be unsustainable [109] ‑ [110].
Did any right to enforce the pre‑emptive rights provision constitute an equitable interest in any property? - the trial judge's reasons
The trial judge found that an unascertainable number of incoming partners, probably less than 10 between 1977 and 2007, became partners without signing the 1976 Deed or executing it as a deed [115]. However, his Honour said that each such new partner became bound by the terms and conditions of the Partnership which existed from time to time as a result of his or her agreement to join the firm, notwithstanding any lack of subscription to or execution of the 1976 Deed [115].
His Honour said that '[when] it comes to determining what the terms and rules of each succeeding partnership were, from time to time, all the indications are that, despite occasional relaxation of the formalities of subscription or execution of the 1976 agreement, and occasional instances where the Pre‑emptive Rights Provisions, or the ensuing valuation procedure if rendered necessary, were not strictly or fully observed, that all sequences of the partnership did treat the 1976 agreement as applying to the terms on which they conducted the affairs of the firm' [116].
The trial judge concluded:
… despite occasional episodes of new members not signing the 1976 partnership agreement, and some occasions when the formalities were not observed or fully observed, a requirement which could be insisted upon or relaxed with the unanimous agreement of all the members as I am satisfied it was from time to time, the terms of the 1976 agreement and its rules were treated as applying to all successive partnerships from 1976 to date [117].
Were the appellants partners in the Partnership? - the trial judge's reasons
The trial judge found that, from in or about 1979 to her death on 9 November 1998, Elsie Atwell was a partner in the Partnership as a representative of WC Atwell's estate and that, during this period, neither of the appellants was a partner, despite being joint executors and trustees of the estate [133], [134], [140], [141], [143] ‑ [147]. In particular, his Honour said:
I have been pressed with authority that for the estate to be bound all of the three joint trustees should have executed the document and that one trustee did not have the authority to bind the estate. However, the course of events from 1976 until the death of Mrs Elsie Atwell in 1998, followed by transmission of the interest of the estate of W C Atwell to the surviving trustees from then on, can lead to no other conclusion but that all the trustees had agreed to the action of Mrs Elsie Atwell in executing the 1976 agreement on behalf of the estate and in continuing to treat the interest of the estate as one single interest, the proceeds of which were to be shared or distributed in accordance with the will of the deceased. For this reason, therefore, I consider that Mrs Elsie Atwell should be treated as the single nominee of the estate as member of the Atwell Family Agency from 1976 until her death, and to have had the authority of her co-trustees to be, as it were, a trustee for the trustees of the estate interest. There is nothing to suggest that at any time the estate interest was dealt with otherwise than in accordance with the will of the deceased [145].
His Honour also found that the appellants first became partners, jointly in their capacity as executors and trustees of WC Atwell's estate, on 10 November 1998 [138], [172].
His Honour's reasons for making these findings were as follows:
(a)the Partnership treated Elsie Atwell as the sole representative of WC Atwell's estate [133], [136];
(b)Elsie Atwell was listed as a partner in the Partnership for WC Atwell's estate [134];
(c)Elsie Atwell's signature on the 1976 Deed was witnessed, but the signatures of the appellants were not, and the appellants signed the 1976 Deed at the request of Elsie Atwell on an occasion subsequent to her signing the deed [140]; and
(d)Malcolm Atwell's and Ian Atwell's names were not directly entered in the Partnership books or records as the holders of units, they did not receive correspondence from or communicate with the Committee and they were not in partnership 'with each other together in a larger partnership' [143].
The 20 person rule ‑ alleged oversized partnership: the trial judge's reasons
The respondents alleged that in several of the successive partnerships in and after 1976 the total number of partners exceeded 20 and that, in consequence, each of the partnerships was illegally formed or constituted.
The trial judge rejected this allegation. He was not satisfied that there was any occasion when the members of the Atwell Family Agency exceeded 20 [146]. His Honour added:
I realise that this means, on certain occasions, as in the case of Mrs Elsie Atwell, that the interest which she held in the firm was held on account for others to whom she had obligations as trustee, but that does not make the others partners for the purposes of the 20 person rule or at all [146].
Was the 1976 Deed a deed and, if so, did it remain a deed? - the trial judge's reasons
The trial judge held, consistently with his view that Elsie Atwell was the sole representative of WC Atwell's estate who was admitted to the partnerships after her husband's death, that the fact that Malcolm Atwell's and Ian Atwell's signatures on the 1976 Deed were affixed later, and not attested, did not detract from the execution of that document as a deed by Elsie Atwell on behalf of the estate [147]. He elaborated:
In other words, it is the deed to which she, but to which neither of her sons, is a party. The evidence established that the sons' signatures were appended later and were evidently the product of an arrangement by their mother, who did not fully comprehend the necessities or formalities, but those additions do not alter the position that she executed the agreement as a deed [147].
His Honour said that the 'appearances' were that the 1976 Deed was executed as a deed by each of the original parties, but a number of succeeding members did not execute the document formally as a deed and, in some cases, not at all [148].
The trial judge concluded, however, that all members of the Partnership from time to time 'should be taken as being bound by [the 1976 Deed] as if it were a deed' [148].
The facts which gave rise to this issue, and his Honour's findings and reasoning, were as follows:
Consistently with the view which I have reached that it was Mrs Elsie F Atwell who was the sole representative of the estate of W C Atwell admitted to the family partnerships after her husband's death, I reach the conclusion that the fact that Malcolm Atwell's and Ian Atwell's signatures on that deed were affixed later and not attested does not detract from the execution of the agreement as a deed by Mrs Atwell on behalf of the estate. In other words, it is the deed to which she, but to which neither of her sons, is a party. The evidence established that the sons' signatures were appended later and were evidently the product of an arrangement by their mother, who did not fully comprehend the necessities or formalities, but those additions do not alter the position that she executed the agreement as a deed.
The appearances also are that the agreement was also executed as a deed by each of the original parties, although a number of succeeding members did not execute the document formally as a deed and, in some particular instances, not at all. Nevertheless, I consider that by binding themselves to the terms of that agreement, subject to occasional departure by mutual agreement, and taking benefits in the form of distributions of profits, all members of the partnership from time to time should be taken as being bound by the document as if it were a deed (see authorities mentioned earlier) [147] ‑ [148].
Finally, in this context, the trial judge said:
The issues listed for determination before me do not require or permit any finding as to when these contractual rights of pre-emption could be exercised but, as I have already observed, it is apparent that if they are to be exercised at all they must be exercised before the identified subject matter passed into the hands of third parties without notice of the alleged irregularity or, at the latest, while the same subject matter remained in existence and capable of restoration if the circumstances so warranted [150]. (emphasis added)
Limitation: a specialty involving an action for debt or covenant: the trial judge's reasons
The trial judge decided that none of the causes of action relied on by the appellants was an action in debt or covenant and, accordingly, the 20‑year limitation period under s 38(1)(e)(i) of the Limitation Act 1935 (WA) did not apply [153]. Further, his Honour accepted that there was no analogous statutory limitation period for the causes of action in question which could or should be applied in the equitable jurisdiction [153].
The consequences of ineligible partners being admitted to the Partnership by mistake or by ignorance of some admitting partners: the trial judge's reasons
The trial judge was satisfied that 'the formation of successive partnerships, including each partnership following the admission or enlargement of the interests of individual partners following each of the six impugned transactions, can only mean that the admission of each of those partners, or the enlargement of the interests of a continuing partner following such a transaction, occurred with the consent of the other partners of that firm' [160]. His Honour emphasised:
Indeed, the continuation of each such partnership with the newly admitted partner or the partner with the enlarged interest, and the sharing of profits during the period of each such firm, can only connote the consent of each of the partners of that firm to carry on business together with each other in partnership with the mutual trust, confidence and acceptance of each other [160].
However, in response to those points, the appellants raised as an issue the consequences of a continuing partner having consented to the admission of a new partner, or the enlargement of the interest of an existing partner, as a result of a mistake about or ignorance as to the 'eligibility' of the incoming partner or the 'eligibility' of the existing partner to enlarge his or her interest.
His Honour made three points about this issue. First, there could not at any stage have been a mistake by the other partners about the identity of the incoming partner or the partner whose interest became enlarged [161]. Secondly, there was no allegation of fraud against the incoming partner or the partner whose interest became enlarged, nor was there any allegation of fraud against the members of the Committee who processed and recorded the introduction of the incoming partner or the increase in the interest of the existing partner, nor was there an allegation of fraud against anyone else [162]. Thirdly, there was no allegation of any innocent misrepresentation against anyone [163].
The trial judge said that, in the present case, 'the indications of affirmation by participating in the business of the new partnership and sharing profits are very strong but, even more formidable, is the absence of the prospects of any substantial restitution' [165]. He added:
The restoration of the parties to the position which would have obtained but for the voidable transaction in the present setting could only ever have occurred before there were any further changes in the partnership such as, for example, the formation of a succeeding partnership by the death or retirement of an existing member or the introduction of another new member. This is because a rescission of the admission of the new partner consequent upon any of the impugned transactions must, of necessity, involve the offering of an opportunity to acquire those units to members of the firm which existed before the new entrant was admitted. The same goes for rescission of the acquisition of further units by a continuing partner. The effect of the pre-emption rights is to confer, only upon those persons, the opportunity to acquire at the agreed or determined price the units of the former member who had died or retired. Once the membership of the partnership has changed by the admission of other members, as a result of subsequent alterations, deaths or retirements or sales or transfers of units between existing partners, there is no longer the same firm nor are the same persons entitled to the benefit of the conditional pre-emptive rights [165].
His Honour then expressed these views:
The evidence is clear beyond any contest that there have been changes in the membership of the firm and the introduction of new partners, or alteration in the extent of the interest of other partners, which have occurred since each of the impugned transactions, the latest of which was in 2001 … In practical terms this means that even were a claim for rescission based on innocent misrepresentation to have been raised in these pleadings, or even if it were capable of being accommodated on the existing pleadings, it could not lead to the remedy of rescission being granted in respect of any of the six impugned transactions.
Accordingly, while the plaintiffs' submissions that a person who enters into a partnership induced by fraud or misrepresentation is entitled to rescind on general equitable principles, the position still is that there are no prospects for rescission on those grounds in the present case. It is now simply impossible for the parties who might, if the situation had been as alleged by the plaintiffs, have had an opportunity to exercise the pre-emptive rights to acquire or enlarge their interests in former partnerships to do so now because each of those former partnerships has been determined and dissolved by the formation of successive partnerships [166] ‑ [167].
The trial judge's answers to the separate issues stated at trial
The trial judge's answers to the separate issues stated at trial (see [54] above) were as follows:
1.No.
2(a)Neither Malcolm Walter Atwell nor Ian George Atwell was a member of any of the successive firms known as the Atwell Family Agency until 10 November 1998, when they became recorded jointly as a single member of a partnership as the two surviving trustees for the estate of Walter Charles Atwell (see partnership 28 in the First Schedule). They continue jointly as one single member of the current partnership in that capacity.
2(b)Alex Atwell died on 6 March 1997 and from 7 March 1997 his administrators, David Henry Atwell, Malcolm Walter Atwell and Bradley John Atwell, were registered in their capacity as joint administrators as a single member of the partnership.
2(c)David Henry Atwell died in late 2007 and from the date of his death Malcolm Walter Atwell and Bradley John Atwell, as the surviving joint administrators of the estate of Alex Atwell, continued, in their joint capacity, as one single member of the partnership. They continue in that capacity as a single partner of the current firm. However, in the absence of the joinder of his co‑administrator, Bradley John Atwell, the plaintiff Malcolm Walter Atwell is unable to represent, and does not represent in these proceedings, the estate of Alex Atwell (dec'd).
2(d)In their capacities as the surviving trustees of the estate of W C Atwell (dec'd), and as trustees of the estate of Elsie F Atwell (dec'd), Malcolm Walter Atwell and Ian George Atwell have the standing to bring this action and to seek the relief claimed in respect of any or all of the six transactions referred to in the statement of claim which they allege were invalid or which they contend should be set aside for want of compliance with the pre‑emptive rights provisions contained in the 1976 partnership agreement.
2(e)In respect of each of the disposals challenged by the plaintiffs the claims are based on alleged breaches of contract insofar as they concern claims against the disponors of the units which were transferred, coupled with claims for recission, declarations of priority and incidental relief. So far as the claims are based against the acquirers of the units, they are not claims for breach of contract but for rescission of the contracts between the acquirers, and the disponors of those units, coupled with claims for declarations of priority of equitable interests, and incidental relief.
2(f)No limitation period directly applies to the claims against the acquirers of the units, nor is there any statutory limitation period which might, by analogy in the exercise of discretion, be applied against those claims in equity.
2(g)Accordingly, s 38(1)(c)(v) of the Limitation Act 1935 does not apply to the plaintiffs' claims against the second defendants.
2(h)The limitation period applying to claims by the plaintiffs against the disponors of the units which are subject to each of the six impugned transactions has not been separately addressed or identified in this action so far or in any of the issues ordered to be tried. For that reason, it is undesirable, as well as unnecessary, to attempt to determine whether there is any such statutory limitation period and, if so, what it is.
2(i)It is unnecessary to decide whether or not the 1976 partnership agreement was duly executed as a deed by all the original parties, or whether the members of succeeding partnerships of the firm, the Atwell Family Agency, who did not duly execute that agreement as a deed are nevertheless bound as if each had so duly executed it. Were the 1976 partnership agreement to be treated as a deed binding all members of successive partnerships known by the name Atwell Family Agency, the effect would be to establish a 20‑year limitation period under s 38(1)(e)(i) of the Limitation Act 1935 as the period applying to actions for debt or covenant. None of the relief sought by the plaintiffs in these proceedings is available upon an action in debt or covenant.
3.1The answer to this question depends upon how the partnership treated trustees of a trust estate, whether the estate of a deceased member, or of interests derived under an inter vivos deed of settlement. It is possible for such trustees, if each consents and all other members of the partnership in question also consent, for them each to be admitted as a member of a partnership and so to be partners. In the case of the successive partnerships of the Atwell Family Agency, however, the evidence establishes that the members of the various partnerships deliberately treated the interests of a deceased estate of a former partner or of the trust estate held by an existing partner under a deed of settlement, as a single interest constituting only one member of the partnership. In cases where there were joint trustees for such a trust estate the method of dealing with the participation of that estate in the partnerships varied over time. In some instances, notably in the case of the estate of W C Atwell (dec'd), the practice followed until the death of Mrs Elsie F Atwell in 1998 was to allow only one of several co-trustees of the estate to become a partner in the firm so representing the estate. In other instances, notably with regard to the estate of Alex Atwell, the practice adopted was to record three joint administrators of that joint estate as a single entity representing that estate as a partner. Despite this variation in practice on these and some other occasions the successive partnerships only ever treated such trust estate interests as a single interest. Where joint trustees were registered as the representatives of the estate, they were only ever treated as being a single member of the partnership in question in their joint capacities.
3.2This question does not now arise.
The trial judge's disposition of the appellants' action
The trial judge held that, as a result of the answers he had given to issue 2, the appellants' claims for relief arising out of the impugned transactions must necessarily fail [173].
His Honour made declarations in answer to the issues stated for trial.
Also, his Honour made these declarations:
1The 1976 [Deed] continued to bind the various partnerships which traded as the Atwell Family Agency before and after each dissolution of the various partnerships that occurred in the period 25 March 1976 to 17 April 2009.
2Membership of the various partnerships which traded as the Atwell Family Agency in the period 16 December 1964 to 17 April 2009 never offended the 20 partner limit prescribed by Australian law.
3No limitation period, whether express or by analogy, applies to the acquirers of the units pleaded in the plaintiffs' statement of claim.
Further, his Honour ordered that the appellants' action against the second and third respondents be dismissed.
The grounds of appeal
The appellants rely on four grounds of appeal. The grounds read:
1.The primary Court erred in law, further or alternatively in fact, in construing the [1976 Deed] on the basis that its terms reflected an underlying fallacy that the firm known as the 'Atwell Family Agency' was a continuing entity which survived, unaffected as to identity by the deaths or retirements of members, in that the primary Court should have construed the 1976 Deed in such a manner as to give effect to the parties' intentions to the maximum extent possible.
2.The primary Court erred in law, further or alternatively in fact, in holding that the pre‑emptive rights conferred by Rules 6 to 8 … related only to the transfer or acquisition of the legal ownership of 'units' in the firm known as the 'Atwell Family Agency' (as demonstrated by the recording of the unit holder's name in the partnership records) and did not relate to the transfer or acquisition of a beneficial interest in such 'units', in that the primary Court should have held that provisions of Rules 6 to 8 applied to both transfers of legal title to 'units' in the firm known as the 'Atwell Family Agency' and to the creation or transfer of beneficial interests in such 'units'.
3.The primary Court erred in law, further or alternatively in fact, in holding that Mrs Elsie Atwell alone was a partner in the successive firms known as the 'Atwell Family Agency' from 1976 until her death on 9 November 1998, in that the primary Court should have held that, at all material times prior to Elsie Atwell's death on 9 November 1998, Elsie Atwell, the first-named appellant and the second-named appellant were, jointly, a partner in each of the successive firms known as the 'Atwell Family Agency' in their capacity as joint executors and trustees of the estate of the late Walter Charles Atwell.
4.The primary Court erred in law, further or alternatively in fact, in holding that, upon the formation of any new firm including as a partner a person who would not have been entitled to become a partner had the pre-emptive rights conferred by Rules 6 to 8 … been followed, all rights under Rules 6 to 8 were lost and no person had an entitlement to seek any relief with respect to the admission (or purported admission) of the new partner, in that the primary Court should have held that any continuing partners were entitled to specific enforcement of Rules 6 to 8, even after the formation of a new firm, or successive new firms.
Ground 1 of the appeal: the appellants' submissions
As I have mentioned, the trial judge observed that the text of the 1976 Deed reflected an underlying fallacy that the Partnership was a continuing entity which survived, unaffected as to identity, by the deaths or retirements of members [23].
Counsel for the appellants submitted that the 1976 Deed and the Rules attempted to govern the affairs of the Partnership in a manner similar to the governance of a body corporate. In particular, it was argued that cl 4 and cl 5 of the 1976 Deed and r 2 ‑ r 10 of the Rules created 'a situation where the relationship between the Partners, and the Partners' rights and obligations, were analogous to shareholders of a body corporate'.
It was also submitted that there had been 'a number of "technical" or "notional" dissolutions of the Atwell Family Agency which have occurred as a result of existing partners dying or retiring and/or new partners being admitted'.
Assuming (without deciding) that an equitable interest in a disposing partner's share is created in accordance with the first step of the appellants' argument, the argument nevertheless breaks down, in my view, in the third step. In my view, the appellants' reliance upon Commissioner v Henschke in support of their proposition is misplaced.
In Commissioner v Henschke, the question was whether the instrument in question, a 'Retirement Deed', operated as a 'conveyance' within the meaning of s 60 of the South Australian stamp duties legislation. Under s 60, the word 'conveyance' was defined to include, in effect, an instrument 'by the operation of which' any equitable interest is 'vested in' any person (Commissioner v Henschke [17]). One partner, Mrs Henschke, retired from the partnership and received a payment of money in accordance with the terms of a Retirement Deed. The deed had two aspects to its operation. The first was, upon her acceptance of the payment, to discharge by accord and satisfaction, the former agreement by virtue of which Mrs Henschke had an interest in the dissolved partnership and her chose in action against the other partners. The second was that the assets previously committed to the dissolved partnership were to be held and applied for the purpose of the second partnership: Commissioner v Henschke [19], [28]. The court said that under the deed 'there were vested in the members of the second partnership the equitable choses in action representing their present partnership interests ... the Retirement Deed thus was a conveyance within the meaning of s 60 of the Act': Commissioner v Henschke [28].
An argument to the effect that the Retirement Deed simply left the assets of the former partnership under the control of the 'continuing' partners comprising the second partnership once the release of Mrs Henschke's interest was effected, and that the need for a 'conveyance' was accordingly obviated, was rejected. The interests of the 'continuing' partners in the former partnership were not the same as their interests in the second partnership, and the deed operated to vest in the continuing partners their equitable choses in action in the second partnership. The effect of the deed's operation with respect to the 'release' by Mrs Henschke was the enlargement of the interests held by the 'continuing' partners in the assets of the second partnership, to be applied by them in the conduct of the second partnership: Commissioner v Henschke [29].
Commissioner v Henschke is, relevantly for present purposes, authority for the proposition that where there is a binding agreement involving a 'technical dissolution' of the former partnership, with consideration having been given for the retiring partner's chose in action, the retiring partner's chose in action is discharged by accord and satisfaction: Commissioner v Henschke [19], [28]; Fazio v Fazio [65].
The appellants do not contend that the agreements by which disposing partners resigned from the partnership and successor partnerships were created, were not binding at law. Nor is it alleged that the optionee partners, or their agents, the committee members, were induced by fraud or misrepresentation to enter into the successor partnership agreements. The fact that the optionee partners, prior to the successor partnership agreements into which they entered (either directly or through the agency of the committee) had an equitable interest in the disposing partner's share is not, of itself, a basis upon which the successor partnership agreements could be avoided in equity at the suit of the optionee partners.
Accordingly, the partnership in which a disposing partner had an interest does not continue after the commencement of the successor partnership formed in consequence of the disposition of the disposing partner's share to the third party, and the disposing partner, whose interest has been discharged by accord and satisfaction, has no subsisting interest in the former partnership (or an interest in the successor partnership for that matter) which could now be assigned.
It follows that an order of the kind postulated by the appellants would be impossible to perform. Specific performance will not be ordered if performance is impossible. The learned authors of Meagher Gummow & Lehane's Equity: Doctrines & Remedies (4th ed, 2002) par 20‑140 observed:
Equity will not specifically enforce what cannot be done: Ferguson v Wilson (1866) LR 2 Ch App 77. And it does not matter that the impossibility may be entirely due to default on the part of the defendant; if, for whatever reason, the defendant cannot possibly perform his obligation, specific performance will not be decreed against him: Seawell v Webster (1859) 29 LJ Ch 71 ... Equity 'never does a vain thing, or enforces a void or impossible contract. Men may divide the moon by imaginary lines, but equity will not enforce their contract': Hall v Vernon 34 SE 764 at 765 (1899) per Dent P.
I would accordingly dismiss ground 4 of the appeal.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: ATWELL -v- ROBERTS [2013] WASCA 37 (S)
CORAM: PULLIN JA
BUSS JA
MURPHY JA
HEARD: ON THE PAPERS
DELIVERED : 17 JUNE 2013
FILE NO/S: CACV 102 of 2009
BETWEEN: MALCOLM WALTER ATWELL and IAN GEORGE ATWELL as Trustee of the Estate of WALTER CHARLES ATWELL on behalf of all partners in the Atwell Family Agency other than the respondents
Appellants
AND
LEIGH ROBERTS
First-named First RespondentNOEL HENRY ATWELL
Second-named First RespondentAUDREY ATWELL
Third-named First RespondentLEIGH ROBERTS as Trustee of the Estate of KEITH GILBERT ROBERTS
First-named Second RespondentLEIGH ROBERTS as Trustee of the Estate of HILDA DORCAS ROBERTS
Second-named Second RespondentLEIGH ROBERTS as Trustee of the Estate of ADA ETHEL ATWELL
Third-named Second RespondentLEIGH ROBERTS as Trustee for THE HAMERSLEY TRUST
Fourth-named Second RespondentJOHN CHARLES STACY as Trustee of the Estate of EDNA PHOEBE PATERSON
Fifth-named Second RespondentEVELYN DIANE BROADLEY as Trustee of the Estate of GLADYS JANET ADDISON BROADLEY
Sixth-named Second RespondentMAURICE EUGENE FRICHOT as Trustee of the Estate of DOROTHY MAY BECKETT
Seventh-named Second RespondentGARY JOHN ATWELL
Eighth-named Second RespondentBRIAN HUCK
KINGSLEY JAMES ADAM
JULIE PARR
NORMA HULL
TREVOR TAPPER
ROSEMARY SPURGE
KENNETH ATWELL ADAM
RODERIC ADAM
JONATHAN GRAHAM NICHOLLS as Trustee of the Estate of JOYCE CORONA NICHOLLS
Third Respondents
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :EM HEENAN J
Citation :MALCOLM WALTER ATWELL and IAN GEORGE ATWELL as trustees of the Estate of WALTER CHARLES ATWELL on behalf of all other partners in the Atwell Family Agency other than the first defendants -v- ROBERTS [No 3] [2009] WASC 96
File No :CIV 1832 of 2004
Catchwords:
Costs - Special costs order - Legal Profession Act 2008 (WA), s 280(2) - Inadequacy of the applicable costs determinations - Complexity and importance
Legislation:
Legal Profession Act 2008 (WA), s 275(1), s 280
Rules of the Supreme Court 1971 (WA), O 66
Supreme Court (Court of Appeal) Rules 2005 (WA), r 5(1)
Supreme Court Act 1935 (WA), s 37(1)
Result:
Special costs order made
Category: B
Representation:
Counsel:
Appellants: Mr D H Solomon & Mr C S Williams
First-named First Respondent : Mr M L Bennett & Mr M P Bruce
Second-named First Respondent : Mr M L Bennett & Mr M P Bruce
Third-named First Respondent : Mr M L Bennett & Mr M P Bruce
First-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Second-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Third-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Fourth-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Fifth-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Sixth-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Seventh-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Eighth-named Second Respondent : Mr M L Bennett & Mr M P Bruce
Third Respondents : No appearance
Solicitors:
Appellants: Solomon Brothers
First-named First Respondent : Bennett & Co
Second-named First Respondent : Bennett & Co
Third-named First Respondent : Bennett & Co
First-named Second Respondent : Bennett & Co
Second-named Second Respondent : Bennett & Co
Third-named Second Respondent : Bennett & Co
Fourth-named Second Respondent : Bennett & Co
Fifth-named Second Respondent : Bennett & Co
Sixth-named Second Respondent : Bennett & Co
Seventh-named Second Respondent : Bennett & Co
Eighth-named Second Respondent : Bennett & Co
Third Respondents : No appearance
Case(s) referred to in judgment(s):
Atwell v Roberts [2013] WASCA 37
Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66(S)
JUDGMENT OF THE COURT: On 15 February 2013, this court dismissed the appellants' appeal. See Atwell v Roberts [2013] WASCA 37.
The appeal raised issues as to the proper construction of a pre‑emptive rights provision in a deed evidencing the terms and conditions of successive unit partnerships; whether various transfers of units in partnerships constituted pursuant to the deed were made in compliance with the provision; and, if any transfer did not comply with the provision, the effect of the non‑compliance.
On 15 February 2013, this court made the following orders:
1.Appeal dismissed.
2.The appellants pay the first and second respondents' costs of the appeal to be taxed, including the first and second respondents' costs of each amendment to the appellants' case and the first and second respondents' answer and the first and second respondents' costs of the written submissions in answer to the Court's request for clarification dated 2 July 2012.
3.There be liberty to apply for any special costs order within 30 days.
Pursuant to Order 3, the first and respondents made application for a special costs order. They seek orders as follows:
1.The costs to be paid by the appellants to the first and second respondents pursuant to Order 2 of the orders made by this Honourable Court on 15 February 2013 be taxed without regard to the maximum limits (including hourly limits) prescribed by any relevant scale.
2.Pursuant to section 280(2) of the Legal Profession Act 2008 (WA), the limits (including hourly limits) on costs fixed for Item 23 of the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2012 (WA) and any corresponding items of the Legal Practitioners (Supreme Court) (Contentious Business) Determination (WA) 2008 and 2010 be removed for the purposes of any taxation referred to in Order 1 herein and Order 2 of the orders made by this Honourable Court on 15 February 2013.
3.Pursuant to Order 69 Rule 3 of the Rules of the Supreme Court 1971 (WA), the appellants pay the first and second respondents' costs of the running appeal hearing transcript and the transcript of each of the directions hearings held on 27 August 2010 and 7 December 2011.
4.The appellants pay the first and second respondents' costs of the first and second respondents' second Counsel fee on hearing (including preparation) to be taxed on the basis set out herein.
5.The appellants pay the first and second respondents' costs of this application to be taxed on the basis set out herein.
The appellants oppose the application.
The first and second respondents have filed an affidavit sworn 14 March 2013 by Amy Joanne Rumble, a legal practitioner employed by their solicitors, in support of the application. The appellants have filed an affidavit sworn 2 April 2013 by Christopher Stephen Williams, a partner of the firm of solicitors acting for them, in opposition to the application. The parties have also filed and served written submissions.
The statutory and regulatory framework
Section 37(1) of the Supreme Court Act 1935 (WA) provides:
Subject to the provisions of this Act and to the rules of court and to the express provisions of the Magistrates Court (Civil Proceedings) Act 2004, or any other Act, the costs of and incidental to all proceedings in the Supreme Court, including the administration of estates and trusts, shall be in the discretion of the Court or judge, and the Court or judge shall have full power to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid.
Section 37(1) confers a broad discretion on the court in relation to costs with full power to determine, relevantly, to what extent such costs are to be paid. This discretionary power enables the court to make orders with respect to the allowance of costs generally. See also O 66 r 1(1) of the Rules of the Supreme Court1971 (WA), which should be read together with s 37(1).
By O 66 r 10(2) of the Rules of the Supreme Court, relevantly, in the case of an appeal, the costs of the proceedings giving rise to the appeal, as well as the costs of the appeal and of the proceedings connected with it, may be dealt with by the court hearing the appeal.
Rule 5(1) of the Supreme Court (Court of Appeal) Rules2005 (WA) provides that the Court of Appeal Rules must be read with the Rules of the Supreme Court.
Section 280(1) of the Legal Profession Act 2008 (WA) (the Act) provides, relevantly, that the taxation of bills of law practices and any other aspect of the costs charged by law practices is regulated by an applicable costs determination.
Section 275(1) of the Act empowers the Legal Costs Committee (established under s 310) to make legal costs determinations regulating the costs that may be charged by law practices in respect of, relevantly, contentious business before the Supreme Court.
Section 280(2) of the Act provides:
(2)Despite subsection (1), if a court or judicial officer is of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter, the court or officer may do all or any of the following ‑
(a)order the payment of costs above those fixed by the determination;
(b)fix higher limits of costs than those fixed in the determination;
(c)remove limits on costs fixed in the determination;
(d)make any order or give any direction for the purposes of enabling costs above those in the determination to be ordered or assessed.
By s 280(3) of the Act, nothing in s 280(1) is to be construed as limiting the power of a court, a judicial officer or a taxing officer of a court to determine in any particular case before that court or judicial officer the amount of costs allowed.
In Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66(S) [3], Martin CJ, McLure P and Buss JA said in relation to s 280(2):
The section requires that before making an order pursuant to its terms the court must form an opinion which has two components. First, the court must determine that the amount of costs allowable in respect of a matter under a legal costs determination is inadequate. Second, the court must conclude that the inadequacy arises because of the 'unusual difficulty, complexity or importance of the matter' (Heartlink Ltd v Jones as Liquidator of HL Diagnostics Pty Ltd (in liq) [2007] WASC 254 (S) [11]). Having heard the matter and being familiar with the way in which the case was conducted and the issues which were litigated, the court is in a position to form the opinions required under the section as matters of impression rather than science or mathematics: EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2008] WASC 275 (S) [7]; Verdell Pty Ltd v F & G Nominees Pty Ltd [2002] WASC 58 (S2) [14].
As noted in Cape Lambert, the usual manner of establishing that the amount of costs allowable under an applicable costs determination is inadequate, for the purposes of s 280(2), is to demonstrate that there is 'a fairly arguable case that the bill to be presented to the taxing officer may tax at an amount which is greater than the limit imposed by that determination' [4].
Also, as noted in Cape Lambert, the word 'unusual' in s 280(2) of the Act qualifies only the term 'difficulty' and not the terms 'complexity' or 'importance' [5].
Proposed special costs orders nos 1 and 2
On or about 27 August 2009, the appellants filed their appeal notice. They challenged the judgment and orders made by the primary judge on 10 August 2009, after a five‑day trial of numerous separate issues agreed upon by the parties.
The work undertaken by the first and second respondents' legal representatives in relation to the appeal is covered by the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2008 (the 2008 Scale), the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2010 (the 2010 Scale) and the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2012 (the 2012 Scale).
Ms Rumble's affidavit includes particulars of the number of hours spent by her (a junior practitioner), Mr Bruce (a senior practitioner who carried out work as a solicitor and who also appeared as second counsel at the hearing of the appeal) and Mr Bennett (who appeared as counsel at the trial and as leading counsel at the hearing of the appeal).
Ms Rumble deposes that the hourly rates charged by Mr Bennett, Mr Bruce, herself and articled clerks and paralegals engaged in working on the appeal exceeded, at all times, the limits imposed by each relevant scale. She also deposes that, in her belief, an award of costs within the limits imposed by the relevant scales (including the limits on hourly rates) would be inadequate to compensate the first and second respondents for the costs of the work properly and necessarily performed by their legal representatives 'due to the unusual difficulty, complexity and importance of the matter' [79].
Ms Rumble does not, however, specify either the aggregate amount charged by the first and second respondents' legal representatives for the work undertaken in the appeal or the particular amounts they have charged for each discrete sub‑item in the item applicable to appeals to this court from a single judge under each relevant scale.
Where a party makes an application for a special costs order pursuant to s 280(2) of the Act, the affidavit filed in support of the application should annex a draft bill of costs that specifies the amounts proposed to be claimed under each discrete sub‑item and the total amount proposed to be claimed. Nevertheless, despite this omission in the present case, it is readily apparent, on the basis of the number of hours apparently worked and the maximum hourly rates permitted under the relevant scales, that the total amount which the first and second respondents' legal representatives have charged is highly likely substantially to have exceeded the total amount allowable under the relevant scales.
We are satisfied that there is a fairly arguable case that the bill to be presented for taxation by the first and second respondents may tax at an amount which is greater than the limits applicable under the relevant scales, and that the amounts allowable under the relevant determinations are inadequate within s 280(2) of the Act.
In the appeal, the appellants relied on four grounds of appeal. The grounds alleged that the primary judge had made various errors of law and fact in determining the numerous separate issues the subject of the trial. The alleged errors of fact and law related to events which occurred between the 1970s and 2003. The appeal involved factual complexity arising from the significant number of partnerships that were formed and dissolved during the period in question. There were issues of legal complexity arising from the necessity to construe various provisions of the partnership deed and rules (some of which were lacking in clarity) in the context of the Partnership Act 1895 (WA) and pronouncements on the law of partnership in the cases.
The resolution of the issues of fact and law raised in the appeal were of substantial importance to the members of the current partnership and to other persons and entities (including members of earlier partnerships) who were joined in the proceedings. These issues had the potential significantly to impact upon the efficacy of many transactions between members of earlier partnerships and on the conduct of future dealings between members of the current partnership.
In our opinion, the matters in the appeal are properly to be characterised as being of complexity and importance within the meaning of s 280(2) of the Act.
In the circumstances, it is appropriate to make special costs orders nos 1 and 2, as sought by the first and second respondents.
Proposed special costs order no 3
The first and second respondents obtained transcripts of directions hearings held before Pullin JA on 27 August 2010 and 7 December 2011. These transcripts comprised 13 and eight printed pages respectively.
The first and second respondents also obtained a running transcript of the appeal hearing on 15 June 2012. The transcript comprised 130 printed pages.
We are persuaded that it was reasonably necessary, for the proper conduct of the appeal, that the first and second respondents obtain the transcripts of the directions hearings on 27 August 2010 and 7 December 2011, but not the transcript of the hearing on 15 June 2012. The appeal was listed for one day only.
We would make special costs order no 3, as sought by the first and second respondents, to the extent we have indicated.
Proposed special costs order no 4
As we have mentioned, Mr Bruce appeared as second counsel for the first and second respondents at the hearing of the appeal. He had the conduct of the matter, as a solicitor, in the primary proceedings since May 2008 and in the appeal since August 2009. Ms Rumble attended at the hearing of the appeal as instructing solicitor.
Also, as we have mentioned, Mr Bennett appeared as counsel at the trial and as leading counsel at the hearing of the appeal.
We are persuaded that the nature and extent of the factual and legal complexity in the appeal made it reasonably necessary for the first and second respondents to be represented at the hearing of the appeal by leading counsel and second counsel. We note that the appellants were also represented by leading counsel and second counsel.
It is appropriate to make special costs order no 4, as sought by the first and second respondents.
Proposed special costs order no 5
As we have mentioned, the appellants opposed the first and second respondents' application for a special costs order.
The first and second respondents have succeeded, to a very significant extent, in their application.
It is therefore appropriate to make special costs order no 5, as sought by the first and second respondents.
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