Fisher, Kelly, Fisher, Racegale Pty Ltd & Waltint Pty Ltd v GRC Services Pty Ltd, Eichberger, Anese & Haliday

[1997] QSC 228

IN THE SUPREME COURT

OF QUEENSLAND  Writ No. 558 of 1993
  Writ No. 2005 of 1993
  Writ No. 1430 of 1993

[Fisher, Kelly, Fisher, Racegale Pty Ltd & Waltint Pty Ltd v GRC Services Pty Ltd, Eichberger, Anese & Haliday]

BETWEEN:PETER CAMERON FISHER

First Plaintiff

AND:ROBIN THOMAS KELLY

Second Plaintiff

AND:FRANCES FISHER

Third Plaintiff

AND:RACEGALE PTY LTD (ACN 010 608 303)

Fourth Plaintiff

AND:WALTINT PTY LTD

Fifth Plaintiff

AND:GRC SERVICES PTY LTD (ACN 010 232 765)

First Defendant

AND:HELMUT EICHBERGER

Second Defendant

AND:CLAUDE ANESE

Third Defendant

AND:RONALD HALIDAY

Fourth Defendant

CATCHWORDS:                 RESTRAINT OF TRADE - construction of deed of partnership - whether a partnership deed contains an invalid restraint of trade - whether a prohibition on solicitation can amount to an invalid restraint of trade.

Counsel:  Mr J. Bell Q.C. for the applicant.

Mr T. North for the respondent.

Solicitors:  Bennett & Philp for the applicant.

Gilshenan and Luton for the respondent.

Hearing Date:  22 October 1997

REASONS FOR JUDGMENT - MUIR J.

Judgment delivered 21 November 1997

Supplementary judgment delivered 12 December 1997

In my reasons for judgment delivered on 21 November I expressed some doubt as to the  true construction of clause 32(c) of the Deed of Partnership (“the deed”).  The question I raised was whether the restraint imposed by the clause operated only in the event that the remaining partners had given notice under clause 32(a) of the Deed.

The clause relevantly provides:

32.(a) Upon retirement of a partner as provided in clause 31(b) in the case where the retiring partner has indicated in the notice of retirement that he will practice or act as a Patent or Trademark Attorney the remaining partners shall determine the following matters, namely:

(i)which clients, if any, and which Australian and overseas associate firms, if any, shall receive written notification of the retirement of the retiring partner on partnership letterhead;

(ii)which clients, if any, and which Australian and overseas associate firms, if any, shall receive written notification of the retirement of the retiring partner other than on partnership letterhead;

(iii)the contents of all or any such notification and the signatory or signatories of such notification;

(iv)any other matter or thing of and incidental to (i) and (ii) above and the determination of the foregoing matters shall be made in the manner specified in clause 13 hereof.

(b)       The retiring partner shall not directly or indirectly approach or solicit any client of the partnership.
(c)       If consequent upon notification pursuant to paragraph (a) of this clause and within one (1) month of the date of retirement, any client of the firm advises the partnership in writing that the client wishes the retiring partner to continue to act for that client, then the retiring partner may do so but not otherwise.

Reasons favouring the construction that the sub-clause operates only where notice under sub-clause (a) has been given are contained in my reasons for judgment.  Mr Bell QC, for the applicants, embraced these reasons and added some of his own.  Mr North QC, for the respondents, points to a number of countervailing considerations.  They are -

1. If the applicants’ construction is adopted a retiring partner could continue to act for a client upon his retirement.  If the client failed to give notice within the time specified in clause 32(c) the retiring partner would be in breach of his contractual obligations.  He further submits that there would be difficulty in ascertaining when the breach first occurred.

2. There is nothing to compel a client to tell a retiring partner that he has received a notice under clause 32(a).  A retiring partner who has commenced to act for a client who has not received a clause 32(a) notice might continue to act in breach of clause 32(c) after a notice has been received by the client and be unaware of the breach.

3. Clauses 31 and 32(c) are inter related.  Under clause 31 a retiring partner will receive his full entitlement to a share of the firm’s goodwill unless the amount of goodwill is reduced by operation of clause 32(c).  It would an inappropriate result if retiring partners could continue to act for clients for whom they were acting and yet receive a full share of goodwill.  This, Mr North points out, is the result of the applicants’ construction of clause 32(c).  Under that construction the amount of goodwill payable to a retiring partner is reduced only if notice is given by the firm under clause 32(a) and then by a client under clause 32(c).

   I do not consider Mr North’s first two points particularly persuasive.  On the respondents’ construction of clause 32(c) a retiring partner would, contrary to what is implicit in the wording of the clause, be prevented from continuing to act for a client of the firm until notification by the client to the firm (not to the partner).  If the respondents’ construction is correct the retiring partner must, of necessity, cease to continue to act for all clients.  If the applicants’ construction is accepted, the prohibition on continuing to act could commence to operate, without doing violence to the wording of the provision, one month from the date of retirement.  In that event there would be no restriction on a retiring partner in fact continuing to act for clients.

   I regard Mr North’s point three of greater merit.  Mr Bell QC submits in response that -

   “The reason why the reduction in price contemplated by clause 31 is confirmed only to those clients for whom the retiring partners continue to act under clause 32(c) is because in practical terms, it was never intended that the retiring partners be prevented from acting for any client of the firm.  The only restriction was upon retiring partners continuing to act for clients for whom they had been acting (for the partnership) should the client (in effect) elect to stay with the partnership and give the remaining partners no entitlement to a reduction in the price payable for good will and then change the election to have the retiring partner continue to act.

These were the clients of the firm from whom the remaining partners were at greatest risk in respect of their payment for good will; as such, it was seen as appropriate by all partners... to allow a deduction from the price of goodwill should a client be likely to leave with the retiring partner, and expressly elect to do so and notified of the opportunity to do so.”

I have concluded, on balance, that the preferred construction is that advanced by the respondents.  Although that construction does have the oddities mentioned in my earlier reasons it is the construction which gives greatest effect to the grammatical meaning of the words used in the sub-clause.