Bilioara v Leisure Investments
[2001] NTCA 8
•6 September 2001
Bilioara v Leisure Investments [2001] NTCA 8
PARTIES:BILIOARA PTY LIMITED
v
LEISURE INVESTMENTS PTY LIMITED
TITLE OF COURT: COURT OF APPEAL OF THE NORTHERN TERRITORY
JURISDICTION: CIVIL APPEAL FROM THE SUPREME COURT EXERCISING TERRITORY JURISDICTION
FILE NO:AP1 of 2001
DELIVERED: 6 September 2001
HEARING DATES: 31 July & 1 August 2001
JUDGMENT OF: MILDREN, BAILEY & RILEY JJ
CATCHWORDS:
REPRESENTATION:
Counsel:
Appellant:P Bick QC and A Young
Respondent: D Jackson QC and AH Silvester
Solicitors:
Appellant:Ward Keller
Respondent: Hunt & Hunt
Judgment category classification: B
Judgment ID Number: Mil01249
Number of pages: 24
IN THE COURT OF APPEAL
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN
AP1 of 2001Bilioara v Leisure Investments [2001] NTCA 8
BETWEEN:
BILIOARA PTY LTD
Appellant
AND:
LEISURE INVESTMENTS PTY LTD
Respondent
CORAM: MILDREN, BAILEY & RILEY JJ
REASONS FOR JUDGMENT
(Delivered 6 September 2001)
THE COURT:
This is an appeal from the decision of Thomas J. The respondent, Leisure Investments Pty Ltd (hereinafter called Leisure Investments), brought proceedings against Bilioara Pty Ltd, (hereinafter called Bilioara) seeking certain declarations relating to the dissolution of the partnership between Leisure Investments and Bilioara and as to the validity of a notice of exercise of an option by Leisure Investments to purchase Bilioara's interest in the partnership. Her Honour delivered reasons for judgment in on 27 November 2000 and after hearing further submissions, made inter alia the following declarations on 6 December 2000:
1. The partnership between the plaintiff (respondent) and defendant (appellant) constituted by the deed dated 29 May 1990 ("the partnership deed"):
(a) was dissolved on 26 November 1998;
(b) thereafter continued as a partnership at will pursuant to section 31 of the Partnership Act ("the Act");
(c) was dissolved on 1 July 1999;
(d) thereafter continued as a partnership at will pursuant to section 3l of the Act;(e) was dissolved on 31 December 1999.
2. The notice dissolving the partnership on 31 December 1999 incorporating the notice of the exercise of the option by the plaintiff to purchase the defendant's interest in the partnership and the partnership assets conferred by clause 15(a) of the partnership deed was validly given and exercised.
It is common ground that there is a slip in the formal order made on 6 December 2000 in that the partnership was dissolved not on 26 November 1998 as declared in paragraph 1(a) of the order, but was dissolved on 26 September 1998.
It is common ground that the appeal in this matter raises two questions:
1.Whether clauses 14(d) and 15(a) of the partnership Deed dated 29 May 1990 are inconsistent with the partnership at will? It is common ground that if the answer to this question is yes, the appeal must succeed and the declaration of the validity of the notice of the exercise of the option conferred by clause 15(a) of the Deed must be answered in the negative.
2.If the clauses are not inconsistent with the partnership at will, the second question is whether or not her Honour was in error in finding that there was an irreconcilable deadlock between the parties. If her Honour's finding that there was such an irreconcilable deadlock was in error, then it is common ground that the declaration of the validity of the exercise of the option by Leisure Investments was in error and would need to be reversed.
It is also common ground that in the event that the appeal succeeds on either of the two grounds above mentioned that a third question then arises as to whether or not the respondent is entitled to a Syers order (Syers v Syers (1876) 1 App Cas 174), i.e. an order to the effect that the partnership having been dissolved and the option to purchase not having been validly exercised, the appellant transfer its interest in the partnership and the partnership assets to the respondent after payment by the respondent of a sum equal to the value of the appellant's interest.
The principal findings of Thomas J are not in dispute. Bilioara and Leisure Investments entered into a Deed of Partnership on 29 May 1990 under the terms of which the parties agreed to become partners in the business of tourist operators under the name and style of Mirambeena Tourist Resort (Mirambeena). At the time of entering into the Deed, Bilioara was known as Relkenet Pty Ltd (Relkenet).
Clause 14 of the partnership Deed provides as follows:
14 (a) The partnership shall be dissolved on the expiry of not less than six months notice of dissolution in writing by one of the partners to the other.
(b) If either partner:-
(i) shall commit any grave breach or persistent breaches of this agreement; or
(ii) shall fail to pay any undisputed monies owing by it to the partnership in connection with the business of the partnership within twenty eight days of being requested in writing by the other partner to do so,
the partnership shall be dissolved on the expiration of not less than fourteen (14) days notice of dissolution in writing upon the partner alleged to have been guilty of such conduct by the other partner unless within the said fourteen day period the partner upon which the said notice is served shall at its own expense remedy the breach complained of in the said notice to the satisfaction of the other partner.
(c) If either partner:
(i) shall have an order made or a resolution passed for winding it up; or
(ii) shall have a receiver of its income or assets appointed or shall have a judgment obtained against it for a sum in excess of twenty thousand dollars ($20,000) or any execution or other process of any court or other authority or any distress is sued out against or levelled or enforced upon any of the partnership assets for a sum in excess of twenty thousand dollars($20,000); or
(iii) shall have its name struck off the Register of Companies
the partnership shall be dissolved upon the service upon such partner by the other partner of a notice in writing dissolving the partnership.
(d) In the event of there being an irreconcilable deadlock between the partners or between the members of the Board referred to in clause 23 hereof then either partner may serve on the other partner a notice in writing dissolving the partnership. For the purpose of this Deed there shall be deemed to be an irreconcilable deadlock in the event of the members of the Board referred to in clause 23 hereof being unable to pass a unanimous resolution in respect of any of the matters referred to in clauses 24.1 to 24.9 hereof inclusive at two successive meetings of the members of the Board with not less than twenty eight (28) days interval between each such meeting.
Clauses 15(a) and (b) provide as follows:
15. (a) If a notice of dissolution is given in accordance with sub-clause (d) of the preceding clause then provided the irreconcilable deadlock shall relate to the matters set out in clause 24.1(a) hereof Leisure Investments shall have the option of purchasing the interest of Relkenet in the partnership and the partnership assets. Such option shall be exercisable by a notice in writing given by Leisure Investments to Relkenet in the notice given pursuant to clause 14(d) hereof. In the event of the option contained in this clause being exercised then the value to be placed upon the partnership and the partnership assets shall be determined by a Chartered Accountant appointed for that purpose by agreement between the partners or failing agreement shall be appointed for that purpose by the Chairman for the time being of the Institute of Chartered Accountants in Australia (N.T. Branch) (or in the event that that body has ceased to exist, by the professional body of Chartered Accountants in the Northern Territory that replaces it) and for the purpose of determining the said value such Chartered Accountant shall act as an expert and not as an arbitrator and his decision shall be final and binding upon the partners. The cost and expense of such valuation shall be born by the partners in equal shares. The partners agree that the Chartered Accountant so appointed shall value the partnership and the partnership assets as a going concern using a capitalisation rate determined by him as the then market rate on the net projected income of the partnership business for the then current financial year of the partnership business having regard to: -
(i)actual figures for the previous three years where available together with actual figures for the period from the commencement of the then current financial year to the date of dissolution and
(ii)existing company budget figures for the remainder of the then current financial year.
(b) If a notice of dissolution is given in accordance with sub clause (a) of the preceding clause or sub clause (d) of the preceding clause (provided the irreconcilable deadlock shall relate to matters other than those set out in clause 24.1(a) hereof) then neither partner shall have an option to purchase the interest of the other partner in the partnership and the partnership assets.
It is not necessary to set out the provisions of clause 15(c) of the Deed which provide for an option to purchase to either partner who may serve a notice of dissolution given in accordance with sub-clause (b) or (c) of clause 14.
Clause 24 provides as follows:
All matters relating to the management and conduct of the affairs of the partnership shall be decided by a majority of the members of the Board except the following matters which shall require a unanimous resolution of all members of the Board.
1.(a) the setting of annual budget limits in respect of all revenue, expenditure, borrowing or lending of any sum within the anticipated cash flow of the partnership business and in the ordinary course of such business by the partnership (including expenditure of a capital nature) for the forthcoming year.
(b) The variation of more than twenty per centum (20%) in any agreed budget item.
2. The giving of any guarantee.
3.The commitment to new capital expenditure outside the predetermined annual budget limitations.
4.The sale of the partnership premises being Lot 5238 Town of Darwin.
5. Any increase of the capital of the partnership.
6.Any decision concerning the varying of or the renewal of the Management Agreement referred to in clause 26 hereof.
7.Any decision concerning any alternation in the status quo of the liquor licence of the business.
8.Any decision concerning any alteration in the status quo of the leasehold interest in Lot 5645 Town of Darwin.
9.Any decision to vary the share of the profits and losses of the partnership from the proportions set out in clause 7 hereof.
Section 31 of the Partnership Act1997 provides as follows:-
31. CONTINUANCE OF PARTNERSHIP ON OLD TERMS
(1) Where a partnership entered into for a fixed term is continued after the term expires, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far as is consistent with the incidents of a partnership at will.
(2) A continuance of the business by the partners or those partners as habitually acted as partners during the term, without any settlement or liquidation of the partnership affairs, is presumed to be a continuance of the partnership.
There is no appeal or notice of contention filed in relation to her Honour's findings that the original partnership constituted by the Deed of 29 May 1990 was dissolved on 26 September 1998; that neither party took any steps to wind up the partnership; that the partnership continued in accordance with the provisions of s 31 of the Partnership Act as a partnership at will; that Leisure Investments served upon Bilioara a notice of dissolution of partnership and notice of exercise of option on 1 July 1999; that the partnership was thereby again dissolved; that neither party took any steps to wind up the partnership and the partnership continued as before as a partnership at will under s 31 of the Act; and that the second partnership at will was dissolved on 31 December 1999 by notice of dissolution given by Leisure Investments which contained a notice of exercise of option relying upon clauses 14(d) and 15(a) of the partnership Deed; nor is it in contention that the provisions of s 31 of the Partnership Act applied in the circumstances of this case.
In our opinion, whether or not clauses 14(d) and 15(a) are consistent with a partnership at will is a question of the construction of the Deed of Partnership. It is well established that a right of pre-emption is an incidence of a partnership agreement which is not necessarily inconsistent with a partnership at will; see Neilson v Mossend Iron Company and Others (1886) 11 App Cas 298 at 309 per Lord Watson; Cox v Willoughby (1880) 13 Ch D 863 at 871; Daw v Herring (1892) 1 Ch 284 at 288-291; Brooks v Brooks (1901) 85 LT 453 at 454; M'Gowan v Henderson (1914) SC 839; and Murphy v Power (1923) 1 IR 68.
There are no Australian authorities on the topic and no authorities which are binding on this Court. Nevertheless the principles discussed in the authorities to which we have referred appear to us to be sound and ought to be followed and applied. In each of the cases to which we have referred, the approach taken was to examine the relevant provisions of the partnership agreement and to see whether as a matter of construction of those provisions the clause or clauses in question were inconsistent with a partnership at will. In the case of a clause granting a right of pre-emption the answer to that question usually depended upon whether or not the provision conferring the right of pre-emption was sensibly capable of operating in the light of the fact that a partnership at will is determinable by either partner at any time and without any need to state grounds. In Neilson v Mossend Iron Company, supra, the pre-emption clause was inapplicable to the partnership at will because it was required to be given three months before the termination of the contract. As the Earl of Selborne said at 306:
...it is quite plain that it is a provision inapplicable to the subsequent partnership at will, because you never can get those three months in any such subsequent partnership, and there is an end of the case.
In Cox v Willoughby, supra, the relevant clause provided for the payment of fixed sums of money to the estate of a deceased partner. Fry J had no difficulty in concluding that that provision survived a partnership at will which was constituted by mutual consent after the expiration of the original term of the partnership. In Daw v Herring, supra, the relevant clause provided an option for one of the partners to purchase out the other's interest at valuation, such option to be exercised within three months after the expiration or determination of the partnership. Stirling J said at pp 290-291, that whilst the language of the clause was not strictly appropriate to the termination of a subsequent partnership at will, "...what I have to consider is whether the provisions of these clauses are in their essence inapplicable to a partnership at will. I think not.". In Brooks v Brooks, supra, the relevant clause arose upon the giving of six months' notice in writing determining the partnership or upon the partnership becoming determined by effluxion of time. The partnership was in fact dissolved by the plaintiff commencing an action seeking a declaration that the partnership was determined by the issue of a writ and that the plaintiff might be permitted to exercise the option contained in the partnership agreement. At the time the action was brought, the original term of the partnership had expired and the partnership had continued as a partnership at will. Farwell J held that in so far as the option might arise upon determination of the partnership by effluxion of time, the pre-emption clause was not inconsistent with a partnership at will. In M'Gowan v Henderson, supra, the relevant pre-emption clause arose in the event of the partnership not being renewed on the expiry of the original term. The partnership continued after the original term of five years as a partnership at will when it was dissolved by notice and the right to exercise the option of pre-emption was claimed. The Court held that the case was like that of Daw v Herring and the clause in question was not inconsistent with a partnership at will. In Murphy v Power, supra the pre-emption clause arose in the event of one partner pre-deceasing the other during the original term of ten years. The Court in that case held that the option did not carry forward as it was intended to apply only during the original term of ten years. A similar conclusion was reached in Clark v Leach (1862) 32 Beav 14; 55 E.R. 6 where the relevant clause was construed as applying only during the original term of seven years.
Counsel for the appellant, Mr Bick QC, submitted that the relevant clauses were clearly intended to apply only during the original term and were inconsistent with the subsequent partnership at will. Part of his argument rested upon the proposition that clause 14(a) provided for notice of dissolution of not less than six months, with clauses 14(b), (c) and (d) providing exceptions. His submission was that clause 14(d) in particular was inconsistent as it was unnecessary for there to be an irreconcilable deadlock between the partners for the partnership at will to be determined. In his submission, a provision which is redundant or unnecessary is inconsistent with a partnership at will. We do not accept this submission. There is nothing inconsistent with the partnership at will with the power of either partner to bring the partnership to an end immediately upon the happening of a defined event. It may be unnecessary, but it is not inconsistent. Further, in our opinion clause 14(d) must be read in the light of clause 15(a). When the two clauses are read together it is apparent that in the event of an irreconcilable deadlock relating to the setting of the annual budget limits, as contemplated by clause 24.1(a), the option to purchase in favour of the respondent arose. There is nothing inconsistent in an option arising in those circumstances. Clause 15(a) goes on to provide that the option is exercisable by a notice in writing given by the respondent to the appellant in the notice given pursuant to clause 14(d). We see nothing inconsistent with that.
Mr Bick QC relied upon the decision of Sir John Romilly MR in Clark v Leach, supra. In that case, the relevant clause provided that if either of the partners should neglect or refuse to attend to the business of the partnership then the other partner may dissolve the partnership by notice in writing and in that event, the partner giving the notice had an option to purchase the share of the other at valuation. Sir John Romilly MR said:
It was not necessary that this article should continue after the seven years, because neither of the partners was then bound to continue or compellable to work for the benefit of the other, for he might give notice of dissolution at any moment.
To hold otherwise, it would also involve this inconsistency:- If after the seven years the negligent partner gave notice of dissolution, the partnership would have to be wound up as in any ordinary case, that is, as the partners might agree, or by sale and division. But if the active partner give the notice, then the penal consequences are to follow and it is to be wound up in the peculiar form mentioned in this proviso. It is scarcely possible this can have been the intention of the parties.
It is true that Clark v Leach bears some similarity to the present case, but there are distinguishing features. According to clause 14(d) either party may have given notice of dissolution in the event of an irreconcilable deadlock. Further, although on one view of 15(a), it is only if Leisure Investments gives notice that the right to the option arises, because 14(a) provides that "such option shall be exercised by a notice in writing given by Leisure Investments to Relkenet in the notice given pursuant to clause 14(d) hereof", we are of the view for reasons discussed below, that the option would arise whoever gave the notice. The very inconsistency that troubled Sir John Romilly MR is not inherent in the provisions of clauses 15(d) and 14(a) of the Deed between the parties. That being so, we do not consider that the decision in Clark v Leach is apposite. Further, to the extent that the decision rested upon a consideration of whether it was necessary for the relevant clause to continue, we consider that, with respect, his Lordship asked himself the wrong question, and that to this extent the case is inconsistent with the subsequent authorities to which we have referred. The true question is not whether it is necessary for the relevant clause to continue, but whether the clause is inconsistent with a partnership at will.
Mr Bick QC submitted that clause 15(a) was designed to protect the partnership business in the event of the Board being dysfunctional. In the light of the peculiar provisions of clause 15(a) which give the option only to Leisure Investments in the event the partnership is determined due to an irreconcilable deadlock of the Board, we are unable to see the logic of this submission. We consider that on its true construction, the requirement for the giving of the notice of exercise of option in the same document as the notice of dissolution was intended to apply only in the event that the notice of dissolution was given by Leisure Investments. If this be so, the option arises irrespective of whether the partnership is dissolved by Leisure Investments or by Bilioara. It may be unlikely that Bilioara would seek to rely upon clause 14(d) during the term of a partnership at will, but given that the option was granted only to Leisure Investments, we do not consider that the two clauses read together were redundant or inconsistent with a partnership at will. If the purpose of the option was to enable Leisure Investments, as the original owner of the business and of the land, to keep the business as a going concern and to protect it from irreconcilable deadlock, to that extent that purpose was capable of being fulfilled during the term of the partnership at will. We do not think that the fact that the right of pre-emption existed in only one party and not in both parties is determinative against the construction which we have preferred. We would not uphold the appeal on this ground.
Was the option validly exercised
The unchallenged findings of the learned trial Judge detail a number of issues which had developed between the members of the Board representing Bilioara and the members of the Board representing Leisure Investments from July 1994 onwards. One source of conflict arose out of the fact that Bilioara acted as the trustee of a unit trust known as the Bilioara Unit Trust. The Bilioara Unit Trust was owned as to 20% by the Northern Aboriginal Investment Corporation Pty Ltd (NAIC) and as to 80% by the Aboriginal & Torres Strait Islander Commission (ATSIC) (see paragraphs 2 and 3 of the Amended Statement of Claim and paragraphs 2 and 3 of the Further Amended Defence).
From May 1998 it was the understanding of Leisure Investments that ATSIC proposed to divest its interests in the Bilioara Unit Trust to NAIC. Her Honour found that the original intention of ATSIC at the time of the establishment of the Bilioara Unit Trust was to divest its interests in the Bilioara Unit Trust as soon as possible. According to her Honour's findings, ATSIC was unable to divest itself of its interest in the Trust although it had at various times indicated to Mr Gamble, a director of Leisure Investments and a member of the partnership Board, that it was proposing to transfer its interest to NAIC on the basis that NAIC enter into an agreement whereby 50% of the proceeds from the business were to be distributed for the benefit of groups identified by the Yilli Rreung Regional Council. Her Honour found that it was common ground that the partnership was to be run as a commercial venture; that investment by ATSIC was intended to give Aboriginal and Torres Strait Islanders training and employment opportunities, but that it was Bilioara's responsibility to prepare any training programs and to fund the cost of the training of any Aboriginal participants rather than the partnership. During the mid-1990's a number of expressions of interest were received from other interested parties in acquiring an interest in Mirambeena, but the Bilioara members of the Board were not interested in accepting any offer to purchase prior to the divestment of ATSIC's equity to local interests because the directors of Bilioara believed that any sale of its interest before ATSIC divested its interest in Mirambeena would result in the total proceeds of sale being credited to the Commonwealth Treasurer's Consolidated Funds rather than to local Aboriginal interests such as NAIC.
From July 1994 onwards, there were increasing tensions between Leisure Investments and Bilioara Board members which her Honour found arose from the failure of Bilioara to resolve critical outstanding matters and to participate in ensuring the commercial success of the operations of the partnership. Her Honour accepted that there were major items continually carried forward to Board meetings which included the preparation of new joint venture documentation, revised budgets, working capital requirements, missed sale opportunities for the property and steadily decreasing market values, which resulted in potential liabilities and lost business opportunities involving very substantial amounts of money. At Board meetings on 2 October 1997 and 30 October 1997, Mr Gamble stated that unless the unresolved matters were satisfactorily decided Leisure Investments would dissolve the existing arrangements. Because these matters remained unresolved, Leisure Investments gave notice of its intention to dissolve the partnership on 26 September 1998 by notice of dissolution dated 24 March 1998. As well, there were other major problems facing the Board about which agreement was not able to be reached. One related to a proposal by the Bilioara directors that the partnership should prepare the training program and pay for the training of Aboriginal participants. Another issue which arose related to the refusal of the Bilioara Board members to approve the 1998 audited accounts. This arose because of differences of opinion as to the valuation to be put on certain capital assets of the partnership. Other differences arose over the proposed terms of the new joint venture.
Towards the end of 1997, the local accommodation industry entered into a severe and ongoing economic downturn. The efficient management and control of the financial affairs of the partnership required a revised budget. Mr Gamble tabled a revised budget at a Board meeting on 29 June 1998, but was unable to obtain approval of it. The Bilioara directors stated that until the proposed ATSIC divestment was completed and the new joint venture terms and conditions were agreed, it would be pointless to revise the budget.
Budgetary problems continued thereafter. The original preliminary 1999 operating budget was tabled at a Board meeting on 10 December 1998. The directors of Bilioara refused to accept or pass the 1999 operating budget at that meeting. Consideration of it was deferred until the resolution of discussions between Bilioara and ATSIC and "a new agreement between Leisure and Bilioara". The approval of the budget was not achieved at subsequent Board meetings. At a meeting of the Board on 15 April 1999, one of the directors of Bilioara advised that Bilioara would not agree to three key items in the budget, those being the inclusion of payments to an external director, the revised management fees and the exclusion of Aboriginal training costs. It was agreed that these matters should be discussed separately from the approval of the budget. An updated operating budget was tabled at a Board meeting on 29 April 1999. The directors of Bilioara advised that they had not had sufficient time to consider it. At the next Board meeting held on 27 May 1999 a formal motion was moved to adopt the 1999 budget as tabled on 15 April 1999. Bilioara Board members voted against the budget. As it was not unanimously approved it was not able to be adopted. Her Honour found that because of the continuing deadlock between Leisure Investments and Bilioara over the 1998 audit report; the three key management issues unresolved at the meeting on 25 September 1998 and the failure of Bilioara to approve the 1999 operating budget, Mr Gamble served Ms Brennan as secretary-director of Bilioara at the Board meeting on 1 July 1999 with a notice of dissolution of the partnership and a notice of exercise of option dated 1 July 1999.
Her Honour found that there were no meetings of the Board between 1 July 1999 and 22 December 1999, although discussions did continue between the partners with a view to settling their differences. Her Honour found that at the Board meeting held on 22 December 1999 the Bilioara directors again refused to pass the budget and that all of the outstanding issues remained unresolved. Her Honour found that because of the inability of the parties to resolve their dispute, on 31 December 1999 Mr Gamble on behalf of Leisure Investments delivered a notice of dissolution of the partnership and a notice of exercise of option dated 31 December 1999 to the registered office of Bilioara.
Her Honour found that Bilioara increasingly lost focus from the original primary intention of the partnership that it be run on a strictly commercial basis. She found that this cost Leisure Investments considerable loss of capital and placed its investment at risk. Her Honour also found that Bilioara's continued refusal to finalise and pass the 1999 budget, its failure to sign the 1999 audited financial statements and the irreconcilable deadlock which had existed between the parties since September 1998 made the partnership totally unworkable and was placing Leisure Investments' investment at serious risk. Her Honour further found that Bilioara's refusal to pass the 1999 budget was not for reasons to do with the continuing partnership business but in order to force Leisure Investments to accept new terms to a new joint venture which were un-commercial and unacceptable to Leisure Investments and because Bilioara was endeavouring to delay a decision until there had been a divestment by ATSIC of its shares in Bilioara. Her Honour found that the refusal to pass the budget rendered the continuing partnership deadlocked and unworkable.
It will be seen from her Honour's findings that her Honour found that there was "an irreconcilable deadlock between the partners or between the members of the Board" within the meaning of clause 14(d), rather than relying upon the deeming provisions of that clause.
Counsel for the appellant, Mr Bick QC, submitted that that there was no irreconcilable deadlock. His submission was that the business was still able to continue to operate and that the partners were still prepared to negotiate over the matters in issue. In his submission, the words "irreconcilable deadlock" should be confined to a situation where the effect of the deadlock is to paralyse, or virtually paralyse, the business of the partnership. He submitted that on the facts the partnership was able to carry on without a budget: expenses incurred in the running of the partnership were subsequently approved by the partners and the business was able to be continued. This submission ignores the provisions of the partnership Deed.
Clause 23 of the Deed provided as follows:
The business of the partnership will be conducted by a Board of Management which shall comprise four Board members of which two shall be appointed by Leisure Investments and two shall be appointed by Relkenet (the said Board of Management is hereinafter referred to as "the Board").
Clause 24 of the partnership Deed required that all matters relating to the management and conduct of the affairs of the partnership be decided by a majority of the members of the Board except for certain matters which required a unanimous resolution of all members of the Board.
Pursuant to clause 25(a) of the partnership Deed, Mr Gamble was appointed Chairman of the meetings of the Board and had a casting as well as a deliberative vote, except of course in relation to matters requiring a unanimous resolution of all the members of the Board. According to its terms, as things stood there could be no deadlock except where the Board was unable to pass a unanimous resolution as required by clause 24 of the Deed, or as required by law. (In this respect, see also clause 25(g) of the partnership Deed.) We consider it is clear that the fact that the ordinary affairs of the partnership were able to be carried on indicates that the words "irreconcilable deadlock" in clause 14(d) must be taken to refer to matters requiring the consent of both of the partners or a unanimous resolution of the Board. We would therefore reject this argument.
The next submission was that there was in any event no "irreconcilable deadlock (which) shall relate to the matters set out in clause 24.1(a)..."of the Deed. Mr Bick’s submission was that the budget referred to in clause 24.1(a) related to the budget for the "forthcoming year", whereas the budget which had been rejected by the Board related to the existing year. Some support for this argument is to be found in clause 25(e) of the Deed which provides that:
Prior to the 30th day of November in each year the Board shall set budget limits for the business of the partnership for the ensuing twelve month period.
By virtue of clause 25(f) the financial year of the partnership was from 1 January to 31 December in each year. However, the budget when it was first presented to the Board on 10 December 1998, clearly related to the ensuing year. We do not think that it lost its character as such by virtue of the fact that it was not passed at that meeting. It is not difficult to envisage circumstances where a budget presented to a Board meeting at or around 30 November is not able to be then approved but is deferred until a meeting to be held in January, or even later. We note also that clause 25(c) envisages meetings of the members of the Board to be held whenever reasonably possible "at least once in every month with at least ten (10) such meetings being held in each year". Therefore the Deed itself did not necessarily envisage that there would be a meeting in December, so that two consecutive meetings of the Board at least twenty-eight days apart must inevitably have occurred in the preceding year to that which the budget related.
Mr Bick QC submitted that the respondent was not able to rely upon this budget as being a budget for the forthcoming year because at the time of its presentation in December 1999, it was the first time a budget had been presented to the Board in respect of what he called the second partnership at will and so far as that partnership was concerned, it was not a budget for the forthcoming or ensuing year. However, we think that this overlooks the provisions of s 31(2) of the Partnership Act which provide that a continuance of the business by the partners without any settlement or liquidation of the partnership affairs is presumed to be a continuance of the partnership. We would therefore reject that submission.
Similarly we would reject his submission that her Honour was wrong in the ultimate conclusion that she drew that there was an irreconcilable deadlock between the members of the Board to the extent that her Honour relied upon events which preceded 1 July 1999. Mr Bick QC submitted that each partnership was separate and that events which occurred during the life of the first partnership at will had no relevance to the question of whether there was an irreconcilable deadlock by December 1999 when the final notice was given. Not only does this submission ignore the provisions of s 31(2) of the Partnership Act, it ignores the common experience of mankind that the past history of the relationship between the parties would inevitably throw light on the state of affairs as it existed at the time the notice was given.
Mr Bick QC further submitted that in any event the budget was not rejected at the Board meeting on 22 December 1999. However, the evidence before her Honour was that at the Board meeting on 22 December the Bilioara directors confirmed that there was still a deadlock on the three issues of management fees, payments to external directors and training costs and it was therefore decided that as the matter was still deadlocked it was a waste of time putting the budget to a vote again. Mr Bick QC submitted that in order for there to be a deadlock demonstrated there had to be at least a formal motion before the Board. We do not accept that submission.
Even if Mr Bick QC is correct and that each partnership was a separate partnership, that does not mean that there was not a deadlock following the Board meeting on 22 December 1999 relating to the budget. In our opinion there clearly was and we would adhere to our view that the budget had not lost its character, even by then. There is some force in the argument of Mr Bick QC that as time went by the passage of the budget for the year ended 31 December 1999 would become less and less relevant to the running of the business, but that does not mean to say that it had lost its importance to the respondent. The submission of Mr Bick QC was that the deadlock had to be real and not an historic or irrelevant one and whether this was so depended upon an objective assessment rather than the opinion of one of the parties. We are unable to accept this submission. Surely if the budget had become irrelevant, the Bilioara members of the Board would have had no reason not to pass it. We think the proper test is whether the respondent in acting upon the notice and in relying upon the deadlock over the budget was acting bona fide. In Neilson v Mossend Iron Company, supra, at page 309, Lord Watson said that the right to determine the partnership and exercise the option in circumstances such as this must be exercised bona fide "...and not for the purpose of deriving an undue advantage from the state of the firm's engagements."; see also Daw v Herring, supra, page 291. In this case her Honour specifically found that the respondent had acted bona fide when delivering the notice of 31 December 1999 and not for the purpose of deriving an undue advantage from the state of the firm's engagement and there is no appeal from that finding.
We therefore consider that her Honour's conclusions were correct and that the appeal on this ground should be dismissed as well. In these circumstances it is not necessary for us to consider the question of whether or not a Syers order ought to be made in favour of the respondent.
Accordingly, save for allowing the appeal to the extent that it is necessary to correct the slip in paragraph 1(a) of her Honour's order of 6 December 2000 by deleting "26 November 1998" and replacing it with "26 September 1998", the appeal is dismissed with costs.
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