Fry v Oddy

SUPREME COURT OF VICTORIA

COURT OF APPEAL Not Restricted
No. 5291 of 1995

BARRY MACRAE FRY & ORS

Appellants

BERNARD RAYMOND ODDY

Respondent

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JUDGES:	BROOKING, ORMISTON and CALLAWAY, JJ.A.
WHERE HELD:	MELBOURNE
DATES OF HEARING:	22 and 23 July 1998
DATE OF JUDGMENT:	31 August 1998
MEDIA NEUTRAL CITATION:	[1998] VSCA 26

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PARTNERSHIP - Dissolution - Continuing partners carrying on business without final settlement - Retiring partner’s entitlement to share of profits attributable to use of share of partnership assets - Ascertainment - Whether process of judicial estimation - Firm of solicitors - General transformation in practice of solicitors in recent decades - Contribution to profits by assets and continuing partners respectively - Profits prima facie attributable to assets - Accounts - Just allowance for exertions of continuing partners on taking - Just allowances as means of ascertaining profit attributable to assets.

PARTNERSHIP ACT 1958, S.46.

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APPEARANCES:	Counsel	Solicitors
For the Appellants	Mr N.J. Young, Q.C. and	Deacons Graham & James
Mr M.N. Connock
For the Respondent	Mr D.J. Habersberger, Q.C.	Anderson Rice
and Mr M. Dreyfus

BROOKING, J.A. :

Mr Oddy is a solicitor. Until his retirement from the firm in September 1994 he practised as one of the nine members of Maddock Lonie & Chisholm. In April 1995 he took proceedings by way of originating motion against the continuing partners for a declaration that the partnership had been dissolved by his retirement, an account of what was due to him upon the dissolution and payment of what was found to be due. By an amendment made on 4 April 1996, after the case had been fixed for trial, he sought in addition an account under s.46 of the Partnership Act 1958 and payment of what was found to be due on the taking of that account. By the relevant part of s.46:
"Where any member of a firm has died or otherwise ceased to be a partner and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate then in the absence of any agreement to the contrary the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since the dissolution as the court may find to be attributable to the use of his share of the partnership assets or to interest at the rate of seven per centum per annum on the amount of his share of the partnership assets."
The alternative offered by the section to an account of profits - interest at seven per cent - will be unattractive in times of high inflation. The rate has not been changed since the section was first enacted in the Partnership Act 1891. For a large part of the last half century it has been inadequate. The rate in England was criticised in Sobell v. Boston [1975] 1 W.L.R. 1587 at 1593. On the other hand gloomy statements have been made suggesting that an account of profits is unlikely to prove a beneficial remedy. Lord Lindley himself expressed this view, both extra-judicially (Partnership, 5th ed., 1888, p.536) and judicially (Siddell v. Vickers (1892) 9 R.P.C. 152 at 163), and it seems to have been shared by Windeyer, J. (Colbeam Palmer Ltd. v. Stock Affiliates Pty. Ltd. (1968) 122 C.L.R. 25 at 44-45). Notwithstanding these discouraging remarks, Mr Oddy's pursuit of an account of profits affords an instance in which a judgment for a share of profits after dissolution has resulted beneficially to the plaintiff. But to say this is to anticipate, and I should return to the short summary upon which I had embarked.
On 16 May 1996 the present case first came on for trial, before McDonald, J. On that day it was agreed between the parties that the plaintiff had retired from the firm on 30 September 1994, that he was entitled to be paid by the defendants one- ninth of the value of the firm as at 30 September 1994 and that the benefit of holding units in the Maloch Unit Trust was to be treated as a benefit incidental to membership of the firm and should be taken into account in valuing the net assets of the firm. At all times thereafter it was common ground that regard should be had, in determining the assets and profits of the firm, to the assets and profits of that trust and the Maloch Discretionary Trust, each of which provided staff, services and facilities to the firm in the conduct of the partnership business.
By 16 May 1996, notwithstanding that it was common ground that the plaintiff had retired from the firm some 20 months earlier, he had still received no payment from it. No explanation of the failure to make any payment has ever been given. On 16 May 1996 the defendants by their counsel undertook to pay to the plaintiff on or before 23 May 1996 the sum of $240,000 in respect of his claim for his share of the surplus assets. This amount was in fact paid on 23 May 1996.
The order of 16 May 1996 was made by consent. It appointed a chartered accountant as Special Referee to give his opinion with respect to six questions or groups of questions, the first five concerning the value of the firm as at 30 September 1994. In due course the Special Referee made his report. He valued the firm as at 30 September 1994 at $2,970,698, being the value of the net tangible assets. One ninth of that sum was $330,077. The plaintiff had been paid by the defendants $240,000, as already mentioned, on 23 May 1996, and on 28 February 1997 the defendants paid him a further $90,077 as the balance of the $330,077. The matter came before McDonald, J. again on 6 August 1996, when the plaintiff invited the judge to adopt the report in all respects save for the answer to part 2 of the last question, while the defendants invited him to adopt the report in all respects. The last question was as follows:

"(f) Having regard to the provisions of Section 46 of the Partnership
Act 1958:

(i)

What are the profits made by the firm from 30 September 1994 to the date of determination of this reference?

(ii)

What share, if any, of the profits made by the firm from 30 September 1994 to the date of determination of this reference is attributable to the use of the Plaintiff's share of the partnership assets?"

The Special Referee had reported in relation to the second part of this question that no share of the profits was attributable to the use of the plaintiff's share of the partnership assets.

On 9 August 1996 McDonald, J. ordered that the report of the Special Referee be adopted other than his opinion given in answer to the second part of the last question, and took time to consider his decision on the matter in dispute. He gave this decision on 18 December 1996 (it is reported: Oddy v. Fry [1998] 1 V.R. 142) and thereupon ordered that the report of the Special Referee be not adopted as regards his answer to the second part of the last question and that "the plaintiff's claim pursuant to Section 46 of the Partnership Act, in particular the issue that was addressed to the Special Referee by question (f)(ii), be determined by the Court at trial". His Honour tried the case himself in March 1997, on viva voce evidence, and gave a carefully considered judgment on 16 June 1997. The only question for determination was that which had been referred to the Special Referee as question (f)(ii). McDonald, J. determined that profits amounting to $402,883 were attributable to the use of the plaintiff's share of the partnership assets and gave judgment for the plaintiff in that sum, together with interest of $59,857 pursuant to s.58(1) of the Supreme Court Act 1986.
The defendants have appealed. They do not challenge the award of interest as such, nor do they challenge the award as such of costs as between solicitor and client in respect of part of the proceedings. They say only that those awards should fall with the award of $402,883 which is the subject of the appeal.
The stand taken by the defendants with regard to the plaintiff's attempts to extract money from the partnership after its dissolution has always been a determined one. I have already mentioned their unexplained failure to make any payment in respect of surplus assets - the plaintiff's original claim - until after the matter came before the Court, some 20 months after the dissolution. The plaintiff's second claim - for an account of profits - was the natural result of that failure. That claim, too, has always been resisted with determination, although the position taken up by the defendants has varied from time to time. As already mentioned, on 16 May 1996, they consented to an order which presupposed the applicability of s.46 of the Partnership Act, while leaving open the question of the result of its application. Yet, as his Honour recorded in his decision given on 18 December 1996 (Oddy v. Fry [1998] 1 V.R. 142 at 146-7), when argument was held on whether the Special Referee's answer to question (f)(ii) should be adopted, the defendants took up the position that s.46 of the Partnership Act had no application at all, since the plaintiff had retired from the partnership voluntarily and acquiesced in the continuance of the business and there had been no fraud or misconduct on the part of the continuing partners. That submission was rejected by his Honour ([1998] 1 V.R. at 153-4). His Honour's decision on the point was not sought to be challenged by way of appeal, nor has it been called in question in the present appeal. But at the outset of the hearing of the present appeal the defendants, by a point not taken at any earlier stage of the proceedings, sought to persuade us that for another reason s.46 had no application at all to the present case. This had not been the position taken up by them at the hearing during March 1997: in that hearing they had accepted that the section was applicable and resisted the plaintiff's claim on the merits, as it were, contending, as one might have expected them to contend in view of the earlier course of the litigation, that no amount whatever was payable to the plaintiff once s.46 was applied to the facts of the case.
Long Innes, J. once described a particular claim under this section as a most ungracious one, taking the precaution of going on to say that, the claim having been made and pressed, it must be dealt with as a mere question of law: Powell v. Powell (1932) 32 S.R.(N.S.W.) 407 at 413. By contrast, the attitude of the defendants to the plaintiff's claim in this case may be described as ungracious, but, like Long Innes, J., I observe that this cannot affect the outcome.
I return to the point taken by the appellants when the appeal came on for hearing. It is not to be found in the written outline of submissions and I suspect that it had occurred to counsel only in the last day or so. It was this: that the judge had, in his reasons given on 18 December 1996, made findings concerning an agreement which rendered s.46 inapplicable. Those supposed findings will be found in [1998] 1 V.R. at 143. As his Honour there notes, the order made by him on 16 May 1996, which appointed a Special Referee, recorded this (under "OTHER MATTERS"):

"2. The parties are agreed that:

(a) The Plaintiff retired from the firm of Maddock Lonie & Chisholm ('the firm') on 30 September 1994.
(b) The Plaintiff is entitled to be paid by the Defendants one- ninth of the value of the firm as at 30 September 1994.
(c) The benefit of holding units in the Maloch Unit Trust is to be treated as a benefit incidental to membership of the firm and should be taken into account in valuing the net assets of the firm."

The argument was that from 16 May 1996 the rights of the parties were regulated by a contract, the making of which was recorded in the order of 16 May and found by the judge as a fact on 18 December 1996. It was a term of this contract (so the argument ran) that the plaintiff was entitled to be paid by the defendants one- ninth of the value of the firm as at 30 September 1994 and that this right was given and taken in substitution for the rights which the plaintiff would otherwise have had under the Partnership Act, namely, his right to have the partnership wound up under s.43 and so to have the surplus assets applied in accordance with the section (the amount due in respect of his share being by virtue of s.47 a debt accruing at the date of the dissolution) and the right to a share of profits, or in the alternative interest, under s.46. Section 46 could not, it was said, be applied in the events which had happened, since the plaintiff had by agreement become entitled to "one-ninth of the value of the firm as at 30 September 1994" in lieu of what s.46 describes as "his share of the partnership assets"; the right given by s.43 to have the partnership property applied in payment of the debts and liabilities of the firm and to have the surplus assets applied in payment of what was due to the partners respectively was a different right to that conferred by the agreement; in those circumstances s.46 was not available to the plaintiff.
This is a startling submission. Mr Young, senior counsel for the appellants, seemed reluctant to enter upon the question when and by what means the agreement was made, but was clearly enough relying on it as a legally binding and enforceable contract. The point was not taken below, is not taken in the grounds of appeal and is not raised even in the written outline of submissions put forward very shortly before the appeal was heard. The point raises a question of fact - the making and express terms of a contract - and should not be entertained. In any event it is a palpably bad point. By the very order which is now said to record the making of this contract the parties agreed that a special referee should be appointed and should make findings for the purposes of a claim under s.46, which claim the parties all clearly accepted was an extant and competent one. We have no material showing what took place between the parties shortly before the making of the order of 16 May and the only material which we have showing what took place at the time of the making of the order is contained in what the judge said in his reasons of 18 December and what is to be found in the authenticated order itself, at which I have seen fit to look, although it is not in the appeal book. This absence of material is one reason why we should not now entertain the point, quite apart from the effect of acts done by the plaintiff on the faith of the view that he was to be given the benefit of the usual inquiry under s.46. I do not propose to speculate about the extent to and sense in which what is recited in paragraph 2 of the authenticated order under "OTHER MATTERS" may be regarded as reflecting some kind of contract. What is quite clear is that all parties intended that the Special Referee should make determinations for the purposes of s.46 on the footing that that section was applicable in the events which had happened.
Leaving aside a witness called from the defendants' bank on questions of interest rates and the availability of finance, there were four witnesses: Mr Hardy, the chartered accountant called by the plaintiff, Messrs Barkla & Boyce, the chartered accountants called by the defendants, and Mr Chisholm, the defendants' managing partner, who, although not an accountant or valuer, was permitted without objection to give opinion evidence on whether the firm's profits were attributable to the use of its assets or to the exertions of its members.
Ultimately there was no dispute about what should be taken to be the amount of the profits made by the firm between the date of dissolution (30 September 1994) and the date on which the plaintiff received the balance of the sum payable to him in respect of the surplus assets (28 February 1997). It was accepted by both sides at the trial that the profits made by the firm between 1 October 1994 and 31 December 1996 were $9,468,923, made up as follows:

1 October 1994 to 30 June 1995 - $3,385,647

1 July 1995 to 30 June 1996 - 3,604,773

1 July 1996 to 31 December 1996 - 2,478,503 _________ $9,468,923 _________

The defendants having made no information available about the profits for the first two months of 1997, Hardy thought it appropriate, as did the judge, to take for that period one third of the profit for the immediately preceding six months, giving $826,167 and a resulting total of $10,295,090 for the whole period covered by the inquiry.
During that period the firm had grown considerably. The number of partners and of professional and support staff had increased, as had the firm's gross assets.
Mr Hardy's conclusion - adopted by the judge - was that $402,883 was the share of the profits made between dissolution and settlement of accounts that was attributable to the use of the plaintiff's share of the partnership assets. He said that three steps were necessary:

• the determination of the plaintiff's share of the
partnership assets at the date of his retirement;
• the ascertainment of the firm's profits between that date
and the date of settlement of accounts;
• the identification of the profits attributable to the use of the plaintiff's share of the partnership assets during that period.

As to the first step, for reasons which he gave Hardy proceeded to determine the plaintiff's share of gross, not net, assets. Since this has not been called in question by the defendants, I say no more about it. Taking the Special Referee's determination that at the time of the plaintiff's retirement the gross assets of the firm amounted to $5,390,969, and applying to it a percentage of 11.1, Hardy determined that at the time of his retirement the plaintiff's share of the firm's gross assets amounted to $598,398. (From now on I shall describe the gross assets simply as the assets.) This determination has not been assailed by the defendants, except indirectly by their belated and unsuccessful attempt to contend that the result of a contract recorded in the order of 16 May 1996 was to render s.46 inapplicable. More than nine tenths of the firm's assets at the time of the retirement were current assets, the largest items being work in progress and trade debtors.
Hardy's second step - the ascertainment of the firm's profits - was, as I have said, ultimately not the subject of dispute at the trial. What was disputed was his third step, the identification of the profits attributable to the use of the plaintiff's share. Before dealing with the dispute I shall briefly describe Hardy's method. Fundamental to it was his expressed opinion that, provided that there was an appropriate allowance for the contribution made by the partners' exertions, all the profits of the firm should be said to be attributable to the use of its assets. I shall have a good deal more to say in due course about the allowance made for the partners' exertions. For the moment I am concerned to sketch the way in which Hardy dealt with the problem of identifying the plaintiff's share of assets having regard to two variables. The first of these was the amount of the firm's total assets, which increased over the period under consideration. The second was the amount outstanding to the plaintiff, which was reduced by the payment on account of $240,000 made on 23 May 1996.
Hardy calculated what the assets of the firm were as at 1 October 1994, 30 June 1995, 30 June 1996 and 31 December 1996. From this (and using the figure for 30 June 1996 as that applicable as at 23 May 1996 in the absence of further information), he calculated that the average assets of the firm - it will be remembered that I am throughout speaking of gross assets - were as follows -

1 October 1994 to 30 June 1995 - $5,969,110

1 July 1995 to 23 May 1996 - 8,390,231
1 July 1996 to 31 December 1996 - 11,016,491

Hardy calculated that the plaintiff's share of assets when he retired ($598,398) was 10% of the average total assets during the period 1 October 1994 to 30 June 1995 ($5,969,110), and that it was 7.1% of the average total assets during the period 1 July 1995 to 23 May 1996 ($8,390,231). Because of the payment of $240,000 made to the plaintiff on 23 May 1996 Hardy treated his share of assets as reduced from $598,398 to $163,300, by deducting from the former sum the part of it representing the proportion borne by the payment ($240,000) to the total sum payable ($330,077). Since information was not available to enable the average assets to be calculated for the period 23 May 1996 to 30 June 1996, Hardy took the assets as at the latter date. He calculated the plaintiff's share of assets as at 30 June 1996 as 1.6% by dividing $163,300 by the total assets as at 30 June 1996 ($10,233,212). He then calculated the plaintiff's share of assets for the period 1 July 1996 to 31 December 1996 as 1.5%, being $163,300 divided by average total assets for that period. He dealt with the last period (the first two months of 1997) by taking as the plaintiff's share of profits one third of the amount at which he had arrived for the immediately preceding six months.
Hardy applied his percentages of 10, 7.1, 1.6 and 1.5, not to the total profits for each of the periods respectively, but to the total profits as reduced by an allowance of $130,000 per annum for each continuing partner in respect of personal exertion. In this way he arrived at his determination that $402,883 was payable to the plaintiff under s.46.
It was argued before us that Hardy, and in consequence the judge, erred in allowing $130,000 per annum for each continuing partner, in that this was an estimate, not of the contribution to profits made by the skill and work of each partner, but only of what should be allowed as a notional salary for each partner. Mr Habersberger, senior counsel for the respondent, argued that this point was not taken below and should not be allowed to be taken now. Having considered what is disclosed by the course of evidence and the course of argument before McDonald, J., I am of opinion that this point was not taken in the sense of properly exposed below, that if it had been taken the course of evidence might have been different and that it would be unjust to the respondent to allow the point to be taken on appeal.
In any event the point is a bad one. I now proceed to state my reasons for this last conclusion. I begin by considering what it was the judge set out to ascertain with regard to the continuing partners (an expression I use throughout as including additional partners). For this purpose I shall consider what, according to the reasons for decision, his Honour took to be the case of the plaintiff in this regard, then what his Honour took to be the evidence of Hardy in this regard and finally what his Honour intended the allowance of $130,000 which he himself made to cover. As regards his Honour's understanding of the plaintiff's case on this point, the judge said this (654):
"The plaintiff further relied on evidence called on behalf of the defendants in support of his contentions that during the relevant period from 1 October [1994] to 28 February 1997 the continuing firm of Maddock Lonie & Chisholm earned profits, which, after taking account of the personal exertion and contribution to those profits by the partners, were attributable to the use of the assets of the firm including the use of his share of the assets."
With this may be compared what was said later in the reasons (at 681):
"On behalf of the plaintiff in this case, it has been put that after due allowance is made for the personal exertions and contributions of the continuing partners and additional partners to the profits of the firm (by making notional deductions from such profits) the plaintiff is entitled to a share of the profits ... ."
Both passages show that his Honour took the case of the plaintiff to be that an allowance should be made for the contribution of the continuing partners to the profits of the firm. Similarly, the reasons for decision show that his Honour took the evidence led from Hardy on the point in support of the plaintiff's case to be evidence concerning an appropriate estimate of the contribution of the continuing partners to profits. In discussing the notional commercial salary for each partner allowed by Hardy at the rate of $130,000 per annum, his Honour spoke of the making of that allowance "in order to take account of the personal exertion and contribution of that person to earning the profits" (656). At 658-9 the judge spoke of Hardy as making his notional reduction "to take account of the continuing and additional partners' exertion and contribution to the profits" and a little later he referred to Hardy as taking account of "the personal exertion of the partners" (660). Similarly, at 660 the judge spoke of Hardy's making a reduction "by taking account of a notional sum for the energies and contribution of the continuing and additional partners of the firm to the profits earned". Regard should also be had to the whole of p.661 of the reasons. The entirety of this passage is concerned with the allowance of $130,000 per annum per partner. The judge describes Hardy as using that allowance to take account of "the continuing and additional partners' personal exertion and contribution to the profits" and "the continuing or additional partners' individual or collective personal exertion and contribution to the profits of the firm".
I have no doubt that his Honour regarded Hardy as putting forward $130,000 as the appropriate amount to allow per partner per annum for each partner's contribution to profits.
As regards what may be described, for the moment, as the ultimate question, namely what the judge intended the allowance of $130,000 made by him to cover, it is clear from the description given by him of the plaintiff's case and the summary given by him of Hardy's evidence in this regard, and his acceptance of the approach and evidence of Hardy, that the allowance made by the judge was intended to cover the contribution to profit. His Honour spoke of its being appropriate to make an allowance against the profits of the continuing firm "for the personal exertion and contribution made by the continuing partners" (687).
I turn now to the evidence of Hardy. It was clearly open to the judge to take the view, as he did, that Hardy intended his allowance of $130,000 to represent, not a notional salary such as might be paid to someone who was not an equity partner, but an appropriate amount to represent the contribution of the partner to profits. Near the outset of Hardy's oral evidence counsel for the plaintiff put in evidence the written report made by the witness on 18 March 1997. This report showed (415-6) that Hardy had reduced the post dissolution profits by $130,000 per annum for each partner as "an amount which represents the continuing partners' personal contribution over that time" (416) and that in doing this he had adopted the amount chosen by the Special Referee in his report as a notional commercial salary for each partner in arriving at the estimated future maintainable earnings of the firm (484). In examining Hardy in chief, counsel for the plaintiff obtained his assent to the statement made by the Special Referee that it was common practice in the valuation of professional practices to deduct an amount which attempted to approximate the salary of the equity partners, rewarding them for their professional work and management of the business but not for their return for being an equity participant. Hardy was then asked whether it was appropriate to use the same figure, $130,000, for the purposes not of a valuation but of s.46. Unfortunately, before the witness answered that question he was diverted to another, asked by the judge himself, the question put being whether $130,000 was a fair and reasonable sum to take into account. The reply was that it was a little on the high side. Somewhat later the witness assented to the judge's suggestion that he had taken "a notional amount reflecting personal exertion" (98). A little later he said that "the criteria for notional salary is for the personal exertion and management of the firm" (102).
The matter of the $130,000 allowance was taken up by counsel for the defendants at the end of his cross-examination of Hardy:
"You've then looked at the profits of the firm and you have reduced those profits for a notional amount attributable to effort?---That is correct. If I could just define effort further as the personal exertion in respect of matters of working on files and management of the practice.
Of the partners?---Of the partners.
And limited to the partners?---Yes, because the staff are already
included in the profit and loss.
We will just come to that in a moment. Then you've said, having attributed what is to the effort of the partners and their work in the management, 'The assets have' - I'm sorry, you then say, 'The assets of the firm must be attributable to the profits of the firm'?- --That is correct, your Honour.
You've then taken his proportion of the share of the assets and had regard to the profits reduced by that attributable to the effort of the partners and said, 'That share or that proportionate share of the assets is his share of the profits'?--That is correct.
So you're saying all the profits after you've reduced that which is attributable to the efforts of the partners is attributable to the assets?---That is correct."
Whatever might have been said in the absence of this additional evidence, the eliciting of it makes it quite impossible to contend that it was not open to the judge to form the view that the $130,000 allowance put forward by Hardy was intended by him as an estimate which would account for the contribution to profits made by each partner. It is moreover impossible to say that it was not open to the judge to act on that evidence as reliable. As his Honour pointed out in his reasons for decision, no competing figure was put forward in the evidence called for the defendants. The evidence called for the defendants, and the attack made on Hardy, was not concerned with the way in which he applied his methodology to the particular case, as by determining what particular amount should be allowed for the contribution to profit made by partners. The defendants' case was one of outright rejection of the methodology, no attempt being made to put forward an alternative case that, if Hardy's methodology or something like it was to be employed, its application should lead to a different result from that put forward by the plaintiff. Indeed it was not until a written submission which counsel for the defendants was allowed to put in by way of reply at the end of the case that the distinction now sought to be made can perhaps be said to have been drawn by the defendants.
The accountants Barkla and Boyce and the defendants' managing partner all said that in their opinion none of the assets of the partnership contributed to its profits: these were attributable solely to the skill and exertions of the partners. The only exception was any cash that might be earning interest; but that could be ignored as negligible. Regard should be had only to assets, like invested cash, which directly contributed to profit. The indirect contribution of other assets was irrelevant. Those assets might be said to provide the milieu in which profits were made, but it was the partners' exertions which made them. The evidence of these witnesses did to some extent touch upon the suggestion that at least it could be said that the plaintiff's share of the assets had contributed to profits by saving the firm the interest cost of borrowing a corresponding sum, but none of them ever expressly resiled from his position that the profits of the firm were attributable solely to the partners' exertions, and the defendants' counsel in his final address asked unequivocally for judgment for the defendants. Before us, a milder position was taken up, and it was said that the plaintiff should have been awarded, not $402,883, but $87,243, the latter sum being not interest as such but a sum calculated as the plaintiff's entitlement to a share of the profits based on the saving in interest on borrowed funds resulting to the firm from the use of his share of the assets.
Section 46 reproduces the alternative remedies afforded by equity before the enactment of the Partnership Act. There is a good deal of authority for the view that the section did not alter the pre-existing law and, so far as I am aware, no authority to the contrary. Sir Frederick Pollock, who drew the first Partnership Act, treated the decisions given before it as illustrative of the rules contained in the English equivalent of s.46 (Digest of the Law of Partnership, 6th ed., 1895, pp.118-126), and successive editions of Lindley, or Lindley and Banks, on Partnership, have done the same. This is also the approach in Higgins and Fletcher, The Law of Partnership in Australia and New Zealand, 7th ed., pp.250-7 and Webb and Molloy, Principles of the Law of Partnership, 6th ed., pp. 314-25. As one would expect, the approach of the text-writers is supported by the authorities: Jamieson v. Jamieson (1921) 63 S.C.R. 188 at 199-200 per Duff, J.; De Renzy v. De Renzy [1924] N.Z.L.R. 1065 at 1070-1; Manley v. Sartori [1927] 1 Ch. 157 at 162; Powell v. Powell (1932) 32 S.R.(N.S.W.) 407; Cameron v. Murdoch (No. 2) [1984] W.A.R. 278 at 280.
If the early cases show one thing, it is that each case depends on its own facts. Sometimes the skill, industry, credit and reputation of the continuing partners will be of particular importance in the generation of profits and the assets employed in the business will be of less importance: Vyse v. Foster (1872) 8 Ch. App. 309 at 331, where James and Mellish, L.JJ. instance the case of solicitors. But this was said in 1872. In the days when Mr Wickfield could carry on his practice with the aid of Uriah Heep, and Soames Forsyte and his father could rely for assistance on the venerable Gradman, the contribution of the partnership assets to a legal firm's profits may have been small. But the last half century has seen a transformation in the practice of solicitors. The mega-firm will be courted as the prospective tenant of a block of floors in the latest skyscraper. The wasted space of the atrium - a form of conspicuous consumption - emphasises by way of advertisement the firm's standing and success. Sponsorships will be used. Less oblique forms of advertising are commonplace: in newspapers and journals; on television; by public relations exercises; even by the "shopper-docket" offering one free will. Discounts are in terms offered by some firms on a variety of products. Old Gradman wrote everything by hand. Now the pen has been replaced by the word processor, if not by voice recognition software. The new technology is used both for communication and for the management of information and activities. With technological change, no large firm could now prosper without its computer on every desk, its giant photocopiers (themselves a source of revenue), its computer notebooks, its fax machines and answering machines, its mobile telephones and pagers, its dictation equipment, its video conferencing facilities. Its library will be to a considerable extent in electronic format. Its drafting will be done with the aid of artificial intelligence. Its requirements in terms of human resources will range from caterers to librarians. Outsourcing may be used. The firm will need a managing partner or general manager or office manager to carry the cares of the practice. It may be so large that some partners hardly know one another. A service entity will provide services to the practice at a profit. It will have complicated financing arrangements with its banker and others. It will train its staff by means of continuing professional development courses or seminars. It will make provision for the supply of floral arrangements and potted palms. Its staff will be legion; many of them will have quotas to meet and will charge their time in small units. Charge rates per unit of time will be determined for the various categories of employee and the productivity of employees will be monitored. It has been said that legal partnerships use "leverage through people", and that the large Australian firms do this more than the smaller ones, having 5.5 fee earners to each principal: Stein and Stein, Legal Practice in the 90s, p.4. Competition will be a major consideration in relation to pricing. Partners and senior staff may be headhunted ruthlessly. Clients may be poached.
All this makes the practice of at least the bigger legal firms resemble a manufacturing business, producing and selling at a profit a range of legal and at times related services. So it is written (Stein and Stein, pp.77, 89 and 99):
"Legal practices of every size and nature will, in future, wrap their skills and capabilities in parcels that intelligently identify consumer needs. Picked off-the-shelf, the packaging should make the cost, quality and benefit trade-off easy to make. Packaging is the marketing challenge raised by this key strategic issue."
"When a firm or a service 'owns' a position in a purchaser's mind, it becomes a synonym for the generic name. 'A conveyancing practice' means a firm of solicitors. In advertising, well-known brands promote their product categories. 'Its [sic] Mac time' for McDonalds fast food. 'Nescafe: The taste of espresso'.
Cross-selling has caught the imagination of some lawyers as a way of getting their clients to buy more service from them. Although not quite the same, it is similar to line extension in product merchandising. Firms reason that if a client wants a conveyance they will also need a will. If they win a case they will also need financial advice."
"Lawyers carry substantial credibility when interviewed as part of a news story. As this form of marketing is an important secondary source of information about a firm, preparation for the task is best not left to chance. Anyone making public appearances should train for them.
The other area is motivational training. This takes many forms. Sales training makes firm members more comfortable in their contacts with clients."
Mr Young submitted that his Honour had not expressly rejected the evidence of the two expert witnesses called by the defendants or that of their managing partner and that he should be taken to have accepted that evidence. But the whole point of the case as it was argued below - as against sought to be argued before us - was the contest between the view put forward by Hardy on the one hand and that put forward by the defendants' witnesses on the other. Hardy said that the assets of the partnership contributed to its profits and that the profits actually earned were attributable to the assets subject only to a need to make an allowance for the contribution to profits made by the partners. The view put forward by the witnesses Barkla, Boyce and Chisholm was that the assets did not contribute to the profits and that the profits were solely attributable to human endeavours. It was the defendants' case that the plaintiff should recover nothing under s.46. This is made entirely clear in the final address of their counsel. Acceptance by his Honour of the plaintiff's case entailed rejection of that of the defendants along with the opinion evidence called on their behalf.
Mr Young took us to passages in the reasons for decision in which his Honour rehearsed evidence called for the defendants without expressly rejecting it. He submitted that the judge had, in reciting the substance of evidence called for the defendants, by implication accepted it. But this submission is unsound. The passages relied upon contain neither express nor implicit acceptance of the evidence concerned, and its acceptance would be quite inconsistent with the clear and express adoption by the judge of the contrary views of the witness Hardy.

It was in particular submitted that the evidence - it was I think at one stage suggested that the uncontradicted evidence - was that the only relevant role of the assets of the partnership - with the exception of the fixed assets, whose role was described as insignificant - was to provide cash and that the judge had accepted this evidence. I do not think the judge took this view. In my opinion the judge decided that all the assets of the partnership contributed to its profits in that they provided the apparatus (an expression I use in a very wide sense) which enabled the practice to be carried on. In this the judge was correct. Attention has been directed in argument to the circumstance that more than 90 per cent of the assets of the business comprised some half dozen varieties of working capital. But this working capital circulated as the life blood of the business.
To what extent, if any, the profits of a firm are attributable to the use of its assets, and to what extent they are attributable to the use of the former partner's share of its assets, are questions of fact. I see no reason to differ from the careful conclusion of McDonald, J., on the evidence before him, that the profits were entirely attributable to the use of the assets of the firm except to the extent to which the skill and exertions of the continuing partners contributed to the profits, or with his Honour's conclusion that the method adopted by Hardy was a satisfactory means of allowing for the continuing partners' contribution and arriving at a figure for the purposes of s.46. It seems to me that, while every case depends upon its own facts, as a matter of common sense one should proceed upon the basis that prima facie the profits of a partnership are attributable to the use of its assets. This was the view of Lord Lindley himself, who said (Partnership, 5th ed., 1888, p.525):
"Profits, and very large profits, may be made by skill, and an extensive connection, with little or no capital; and even if there be capital, the profits may be attributable less to it than to other matters, and it may be impossible to determine with any precision the extent to which the capital has contributed to the realisation of the profits obtained. Special inquiries on this subject, therefore, are almost always necessary, and if it can be shown that, having regard to the nature of the business or other circumstances, the profits which have been made cannot be justly attributed to the use of the capital or assets of the late partner, his prima facie right to share such profits will be effectually rebutted."
This passage is reproduced in the current edition of Lindley and Banks on Partnership (17th ed., 1995) at p.744, where it is supplemented by a reference to Manley v. Sartori [1927] 1 Ch. 157, where Romer, J., having cited the second sentence of the corresponding passage in the 9th edition of Lindley, went on to say, at 165-6:
"By that I understand the learned author to mean that where surviving partners continue to carry on the business, prima facie they are carrying it on by reason of their possession of the assets of the partnership; and the executors of the deceased partner are prima facie entitled to a share of the profits proportionate to his share in the assets of the partnership. It is for the surviving partners to show, if they can, that the profits have been earned wholly or partly by means other than the utilization of the partnership assets."
The order made in Manley v. Sartori reflects the view expressed in the judgment that profits are prima facie attributable to the use of the partnership assets. The view is adopted in other texts: Higgins and Fletcher, The Law of Partnership in Australia and New Zealand, 7th ed., p.254; Webb and Molloy, Principles of the Law of Partnership, 6th ed., pp.315 and 322-3. It is supported by what was said by the Judicial Committee in Pathirana v.Pathirana [1967] 1 A.C. 233 at 240 and by what was said by the Court of Appeal in Popat v. Shonchhatra [1997] 1 W.L.R. 1367 at 1373-4. It is consistent with the practice of courts of equity in partnership cases before the Partnership Act of taking an account of the profits made by the use of the property and making a just allowance for the exertions of the continuing partner: Brown v. De Tastet (1821) Jac. 284; 37 E.R. 858 (a decision of Lord Eldon, affirmed by the House of Lords); Cook v. Collingridge (1822) Jac. 607; 37 E.R. 979; Crawshay v. Collins (1826) 2 Russ. 325; 38 E.R. 358 (another decision of Lord Eldon); Yates v. Finn (1880) 13 Ch.D. 839. Compare Page v. Ratliffe (1896) 75 L.T., a decision given under the Partnership Act. Generally as to the making of just allowances on the taking of accounts see Daniell's Chancery Practice, 8th ed., pp.923-8; Parkinson (ed.), Principles of Equity, chap. 26, especially para. 2626. As regards the particular case of a just allowance for the exertions of a continuing partner see De Renzy v. De Renzy [1924] N.Z.L.R. 1065 at 1071-3; Powell v. Powell (1932) 32 S.R.(N.S.W.) 407 at 419-20; Castle v. Castle (1951) G.L.R. 541 at 549; Atkin's Encyclopaedia of Court Forms, 2nd ed., vol. 30 (1994 issue), title Partnerships and Firms, Form 31. In De Renzy v. De Renzy Stringer, J. declined to direct that a salary be allowed to the defendant on the taking of the account, observing that any reward to the defendant would be reflected in the taking of an account of the profits attributable to the use of assets, which would not credit the plaintiff with profits attributable to the exertions and qualities of the remaining partner. To say this is to recognise that the making of the just allowance is only a means of arriving at the true profit attributable to the use of assets; compare Mr Justice Kearney's discussion of just allowances to fiduciaries in Finn (ed.), Equity and Commercial Relationships, at p.195 and what was said by the High Court in Warman International Ltd. v. Dwyer (1995) 182 C.L.R. 544 at 561.
I should add that my view that McDonald, J.'s decision is correct on the evidence in this case, while supported by what the text-writers and authorities say about the need for a defendant to disturb the prima facie position that as a matter of common sense profits are prima facie attributable to the use of the partnership assets, would be the same even without that support.
Near the outset of those reasons I mentioned the gloomy prognostications that had been made about the prospects of worthwhile success of a claim for an account of profits under s.46. These may, I think, at the present day be tempered by the approach of the Judicial Committee in Pathirana v. Pathirana [1967] 1 A.C. 233 (admittedly a case in which the accounting party had failed to produce the books of account), where at 240 their Lordships endorsed a robust and practical approach to the task required by s.46. I note also the practical approach of Stirling, J. to what he called a very difficult task in Page v. Ratliffe (1896) 75 L.T. 371 at 373, the approach of the High Court in Warman International Ltd. v. Dwyer at 567, the reference to a "broad brush" approach in Tilbury, Noone and Kercher on Remedies, p.522 and the suggestion in the article by Patfield, The Modern Remedy of Account, (1987) 11 Adel. L.R. 1 that more use might be made of the remedy of account.
The defendants protest that the judgment below gives the plaintiff a very high rate of return on the money he has been kept out of. No doubt this is so. It may be that if they had not taken up the unrealistic position at the trial that nothing should be awarded they would have succeeded, by calling or otherwise eliciting evidence, in persuading the judge that more than $130,000 per partner per annum should be allowed for the continuing partners' contributions to profits. But they chose to fight the case on an all or nothing basis.
The decision of McDonald, J. should be affirmed.

ORMISTON, J.A. :

The retirement of the respondent from a well-known firm of city solicitors, of which he and the appellants were then the partners, has led to the present dispute in which the appellants at the trial and in the original notice of appeal asserted that no profits of the continuing firm were attributable to the respondent's share of the partnership assets, within the meaning of s.46 of the Partnership Act 1958. The learned judge's conclusion rejecting that stark contention resulted in his having to make an estimation of the share in the firm's later profits attributable to the respondent's share for a period of some two and a half years, up to 28 February 1997, when the respondent was finally paid the balance of his interest in the partnership assets. For this purpose the judge was obliged to use some relatively detailed evidence by a chartered accountant as to what he thought were appropriate calculations, but he had no similar evidence from the two experts and the managing partner called on behalf of the appellants, except to the extent they constituted bald denials that any part of the profits could be attributable to the respondent's share in the assets, save for a possible exception that the interest saved on the amount required to pay out the respondent might be treated as having to be borrowed at compound interest for the purpose of attributing that saved interest to and as constituting the respondent's share of profits.
At the trial counsel for the appellants, who was different from counsel who appeared on this appeal, appeared not even to concede that interest on some such "borrowed" sum should be paid although from the opening of the appeal in this Court the appellants' case was that at least that interest, amounting to some $87,243.14, should now be paid. Their argument however was that the respondent's share of profits in the sum of $402,883 ordered by the learned judge had been calculated by both expert witness and trial judge on an incorrect basis; not that that sum had been calculated erroneously or by the use of incorrect sums, rather that all but a minor part of the subsequent profits were attributable to the labours of the former partners, their new partners and the other lawyers employed by the firm. However, even assuming the correctness of their contention that some of the figures that the expert witness and the trial judge relied upon were inaccurate or inappropriate, there was no alternative evidence called by the appellants upon which the learned judge could rely for this purpose. Arguably the matter could have been sent out for yet further inquiries if the argument before the trial judge had taken a course which had suggested that only by such inquiry could the figures be properly found and it is conceivable that the judge might, of his own motion as it were, have decided that such figures were sufficiently unreliable so as to require some such further inquiry, but the argument at trial was so bald and uncompromising that there would have seemed no reason to take such a step which would have inevitably and yet further delayed payment of the appropriate sum to the respondent.
The argument on this appeal having taken a rather different course, queries were raised on this appeal as to a number of figures and calculations made, albeit with little or no evidence to support any specific alternative. In the result, even if this Court were to think that the figures or calculations resulted in too high an award in favour of the respondent, there was in the end no ready substitute for any of those figures and it would be unfair to impose yet another inquiry upon the respondent unless no other course could fairly be adopted: cf. Pathirana v. Pathirana [1967] 1 A.C. 233 at 240.
In truth, as may be seen from the judgment of Brooking, J.A., there was no relevant error of law in the learned judge's reasoning and no error of fact has been made out. Upon a consideration of the authorities, what is to be fairly attributed as a retiring partner's appropriate share of subsequent profits is largely a matter of estimation and impression, assuming that the correct questions have been asked from the outset. What s.46 of the Partnership Act 1958 requires is a determination as to what share of those profits was fairly attributable to the use of the retiring (or deceased) partner's share of the "partnership assets". The vagueness, though not unfairness, of the concept may be seen by the section's reference to the use which an aliquot share of the partnership assets has in the production or derivation of profits by others which will almost invariably be expressed in an undifferentiated figure in the profit and loss account. The individual partner's former share, as such and calculated at the date of retirement, can hardly contribute in itself to the production of profits, except to the extent that all assets may produce profits to the extent that they are in whole or in part attributable to the use of those assets. But, whichever way one approaches the matter, it is not an exercise capable of producing a sum by way of share of profits which will be capable of being verified as unquestionably right or wrong, for there will be no mathematical or other means of checking its correctness. One may start with what may be assumed to be correct for accounting and practical purposes as the appropriate figures for the retiring partner's share of the partnership assets and for the subsequent years' profits of the new partnership, but what was attributable one to the other had to be an estimation, no doubt assisted by such expert evidence as was available, which the learned trial judge reached as best he could on the whole of the relevant materials. As has been said in relation to the taking of an account of profits resulting from an infringement of patent: "The ultimate process is one of judicial estimation of the available indications": per Lord Wilberforce in General Tire Co. v. Firestone Tyre & Rubber Co. Ltd. [1975] 1 W.L.R. 819 at 826, a passage cited and approved by the High Court in Warman International Ltd. v. Dwyer (1995) 182 C.L.R. 544 at 567. For the purposes of consideration upon appeal it might be said that the judge's decision on such a question is not unlike that involved in reaching a judgment as to non-economic loss or other general damages: cf. the discussion and the authorities cited in Mobilio v. Balliotis (C.A. unreported 10 November 1997) per Brooking, J.A. at pp.6-12, even if I did not there agree entirely in describing those judgments as "discretionary".
In that sense I have no reason to believe that the learned trial judge's decision in this case was incorrect or that this appeal should be allowed: a number of attacks were made upon the findings, but in the end, although presented to this Court with ingenuity and persuasiveness, none of them went to establish appellable error, unless it could have been said that none of the profits resulted from the application or use of the partnership assets or, as the section requires, the respondent's share of them. The remedy now sought on appeal, which appears to assume that at least some part of the later profits were attributable to the respondent's share of assets in order to calculate the amount which should be paid to the respondent by way of his share of those profits, shows that no such broad approach is now contended for, whatever was said and sought at the trial. Moreover, I am not satisfied of the correctness of the corollary of that concession, namely, that no other part of the subsequent profits was attributable to the respondent's share of assets because they were all the product of the individual endeavours of the appellants, their new partners and, so it would seem, the employed lawyers, because those profits were earned by the exercise of their personal skills and abilities as solicitors. Such an argument may once have been thought capable of being easily made out, but the statements made in the authorities to which counsel referred were made of solicitors (and others) practising in a very different era and in a very different way which it is hard to believe would now be replicated in the conduct of a legal practice, at least of the kind here in question. The matter is discussed in detail by Brooking, J.A. in his judgment. I would add only that it does not follow, as the night the day, that in every case a former partner is entitled on the same basis as was adopted by the learned judge in this case to a share in the profits of a continuing partner or partners. One may contemplate partnerships in which the partners joined as a matter only of convenience or where the continuing partner continues in practice in a modest way from home, but each case must depend upon its own circumstances.
An apparent difficulty in the present case is that the calculations made by the expert witness Hardy and the learned judge have produced what was asserted, and might at first glance appear, to be a very substantial return on the respondent's share of the assets. In general I would agree with Brooking, J.A.'s analysis of this matter but there appear to me to be two factors which may have produced that seemingly generous result. The first is the allowance of only $130,000 per partner in respect of their contribution to the ongoing profits of the partnership business. To this I shall return but essentially there was but one figure which the judge could fairly have adopted and no attempt was made in evidence called by the appellants to put in evidence higher figures for this purpose which may have effectively reduced the respondent's share of profits when calculated. This being the only evidence the judge could only have rejected it if it was not relevant for the purpose or otherwise was manifestly unreasonable.
The second factor might be thought to be the large figure adopted as the total assets of the partnership at date of dissolution. Some argument was put to the effect that the trade debtors and work in progress should not have been included for this purpose as they were sums which did not truly constitute the partners' capital or its assets at the relevant date and so were irrelevant to calculating the respondent's share of those assets for present purposes. For the first period, of course, this criticism was misplaced as the respondent's share must have been one-ninth on any basis of calculation and this had never been in dispute. It could only have been relevant in calculating a different share for subsequent years as the expert Hardy attempted to do and as the trial judge accepted. This was a difficult calculation and one upon which minds could differ. But the fact is that there were no alternative bases put forward in the expert evidence called on behalf of the appellants. Their bald denial of attribution meant that there were no other reliable figures upon which the judge might have acted and it was not for the trial judge to guess at what other figures might be substituted as the relevant assets for the later years of the calculations. Even if it would have been inappropriate to use the year by year balance sheet figures for trade debtors and work in progress over a further period of ten or more years, I am not persuaded that it was wrong to use those assets for the purpose of determining a share of profit for the period of slightly under two and a half years. There was no evidence which would justify disregarding those figures, but even if they were removed from the present calculation in whole or in part, the respondent's interest started at one-ninth and was in any event reduced considerably for later periods of calculation, and the inquiry was to what extent the firm's profits were attributable to the respondent's share of assets. The conclusion that essentially the relevant proportion of the profits were all so attributable except for a reasonable allowance for the other partners' own contributions cannot be shown to be affected in any significant way by any reduction in the relevant figures for partnership assets. As I have said, there was no evidentiary basis for reducing the figures chosen as representing partnership assets and it has not been shown in the circumstances that they were incorrect. I would add that I am by no means persuaded that the goodwill of the former partnership did not contribute in a very significant way to the earning of the firm's future profits, but for technical accounting reasons (see judgment of the trial judge at p.4), it had been given a value of "nil" by both the referee and the expert witnesses. "Goodwill" has many meanings for the purposes of the law: see generally Commissioner of Taxation v. Murry (1998) 72 A.L.J.R. 1065. For present purposes it may have had a significant practical value, to which the respondent must have been entitled to one-ninth. This possibility of the "valueless" goodwill nevertheless contributing to future profits was clearly recognised by Romer, J. in Manley v. Sartori at pp.166-167. No argument was addressed to this issue but it may help to explain any seeming anomaly in the outcome.

The first factor is the only aspect of the case which, in the circumstances and having regard to the whole of the evidence, gave me concern. One of the key points of the appellants' argument was that, although the expert witness and the trial judge had chosen a figure by way of "allowance" of $130,000 for each of the continuing partners, that figure was treated only as the notional salary of each of those partners to be deducted from gross profits to produce the net profits for the present purpose, whereas the true exercise should have been to ascertain what part of the subsequently earned profits was attributable to the retiring partner's share in the assets. That, it was said, would have also made allowance for the profit element in the other partners' earnings. Of course it must be noted that this concept of "allowances" does not flow directly from the language of s.46 or any other section of the Partnership Act, except in Western Australia where s.s.(3) has been there added referring to allowing of "remuneration ... for carrying on the partnership business"; s.55(3) of the Partnership Act 1895 (W.A.). There is no doubt, notwithstanding the absence of any specific provision in this State, that the previously worked out equitable rules as to the making of such allowances continue to apply to the taking of an account of profits such as the present, but it is not in terms specifically characterised in the cases either as a deduction from profits or as a reduction in the share of those profits attributable to the former partner's share. It may be said, as was argued, that, if the salaries are treated only as a deduction, the continuing partners' notional salaries contained no allowance for profit, representing merely the cost of their labour as best could be calculated. The appellants argued that, even after making some such deduction for salaries, it was still necessary to take into account the element of profit to which those partners would have been entitled before ascertaining the share of profits which were attributable to the outgoing partner's share. Logical as this may appear to be, I am not persuaded that the deduction required must be dealt with on that basis and none of the authorities cited to us required that conclusion. To this must be added, in the present case, that there were no figures put forward by expert witnesses or others as to what the additional component should be and the judge was thus left in the unenviable position of having to guess that element of profit, even if it had been put to him as a required calculation. That reason is itself sufficient reason not to accept the argument put forward on this appeal by the appellants.
It has always been accepted, to my knowledge, that on a taking of accounts the necessary inquiry as to profits earned requires for the purpose of calculating those profits that all "just allowances" be made by way of deduction in relation to the taking of accounts for the purposes of this section. It has been held that there should be made "a proper allowance to the surviving partners for their trouble in ... carrying on the business": Manley v. Sartori [1927] 1 Ch. 157 at 162, and explicit orders are frequently made to that effect, although it is also provided by rule of court that "all just allowances shall be made" on taking an account: see now O.52.06 of Chapter I of the R.S.C. Moreover it is of no consequence that no explicit provision requiring consideration of the remuneration of continuing partners is contained in the Victorian Partnership Act in terms of s.s.(3) of the equivalent section (s.55) of the West Australian Act. As is pointed out in the judgment given on behalf of the Privy Council by Lord Brandon in Cameron v. Murdoch (1986) 60 A.L.J.R. 280 at 286, although the Act is a code (as it is in both jurisdictions), the section has not changed the law on this subject in any respect, but that in any event, insofar as there are any omissions from the express terms of the statute, s.6 of the West Australian Act and s.4 of the Victorian Act explicitly declare that "the rules of equity and of common law applicable to partnership shall continue in force except so far as they are inconsistent with the express provisions of this Act": see at 286-288.
Although some of the cases would suggest that in order to deal with continuing partners' deemed contributions one should deduct a notional figure for salaries for the purpose of calculating net profits (see Orders 1 and 2 at the end of Manley v. Sartori at pp.166-167), it is by no means clear that the exercise must be done by way of deduction to ascertain the profits relevant for the purpose of s.46. All that the cases say, which is entirely consistent with the language of the section, is that an allowance will frequently be appropriate in respect to the work performed by each of the continuing partners, at least where that significantly contributes to the earning of those profits, and that the notional earnings of those partners must be taken into account when working out the entitlement of the retiring (or deceased) partner. It is just as frequently asserted that that partner's right will be reduced to the extent that "the exercise of skill and diligence by the surviving partner" has contributed to the earning of those later profits: cf. per Romer, J. in Manley v. Sartori at 165. Many of the authorities are set out in the judgment of Brooking, J.A. The issue in each case is what is fairly attributable to the outgoing partner's share of assets and the language used to require the courts to take account of the contribution of the continuing partners varies from case to case because, in my opinion, it is ordinarily of no real consequence whether it is done by way of deduction or by seeing how much is fairly attributable to the former partner's share.
One may compare the language used in the judgments cited on this issue by Brooking, J.A. with a number of observations made in a court of highest authority when dealing with the application of this section. In Hugh Stevenson & Sons Ltd. v. Aktiengesellschaft Für Cartonnagen-Industrie [1918] A.C. 239 (only the Court of Appeal judgment was cited to this Court), a case primarily about the effect of enemy alien status on a German partner's rights during the First World War, the House of Lords held that a British partner should account to the former German partner and upheld various decrees for the taking of an account. Lord Atkinson, who delivered the leading speech, said, after observing that the British partner was in a fiduciary relationship (at 250):
"He must hold the profits he is making in trust for the owner of the property the use of which produced them. Of course, in estimating the amount of these profits an allowance may well be made for the skill and labour expended by the accounting party in acquiring them."
Lord Finlay, L.C. in his speech said (at 245):
"The German partner is, of course, not entitled to any share of the profits attributable to the skill or industry of the English partner, but some portion of the profits may be attributable to the machinery used, and the enemy partner would be entitled to some allowance in respect of its interest therein. Or to put the matter in another way, some allowance may be made in lieu of interest on its value in respect of the use by the English partner of the German share in the machinery."
Lord Dunedin, in his concurring speech said (at 248):
"Nor will he after the war be necessarily entitled to a moiety of the gross profits. He will only get the fruits to which his property is entitled. In other words, the working partner may claim and obtain a large allowance for his work and skill."
Lord Parmoor said nothing on this particular issue and Viscount Haldane in a short speech said little more than that he agreed with the judgment of Swinfen Eady, L.J. in the Court of Appeal, which was likewise approved explicitly by Lord Dunedin and implicitly by the other members of the House. Swinfen Eady, L.J. had said in reaching his judgment ([1917] 1 K.B. 842 at 849):
"It is almost always necessary to direct special inquiries, rendered necessary by the nature of the business and many other circumstances which have to be taken into consideration. In some cases the subsequent profits made may be wholly attributable to the diligence, business aptitude, credit, and personal qualities of the remaining partner."
The manner in which those judgments (and other judgments) have been expressed might appear to lead to the conclusion that there are unresolved differences in the way in which the services of continuing partners are recognised for the purposes of s.46. In my opinion that is not so: each is directed to ensuring that the correct answer is reached as to what share of profits is in fact attributable to the former partner's share of the partnership assets. As I have said earlier, there is no precisely correct answer to questions, such as are here raised for decision, as to how much the continuing partners' own efforts have made to the production of later profits, for that can rarely if ever be proved objectively by reference to any book, record or other provable circumstance.
The difference, if there be one, does not appear to be resolved by any decision of courts in England or Australia, but I am inclined to believe that the explanation is to be found in some observations contained in the series of annotations on this subject in the American Law Reports entitled "Accountability of Partner or Joint Adventure for Profits Earned Subsequently to Death or Dissolution", which appear first in 80 A.L.R. 12-98 (1932), revised and updated under the title "Rights in Profits Earned by Partnership or Joint Adventure After Death or Dissolution" in 55 A.L.R. 2d 1391-1427 (1955), further updated to April 1998 in the Later Case Service (1987 and 1998). I refer to these materials with diffidence in the light of what I have said previously about the untutored use of American authorities: see most recently Gascor v. Ellicott [1997] 1 V.R. 332 at 358, including the references to earlier observations. However, partnership law, at least at the relevant time, was a field of law where common law and more particularly equitable principles seem to have been applied largely upon the same basis in the United States and England. The reason for this may be perhaps traced to the reliance which Joseph Story placed on English authority in writing his Commentaries on the Law of Partnership (1841): see the preface thereto at pp.ix-xi. Its continued influence may be seen in the annotation at 80 A.L.R. passim where there are frequent references to English authority: indeed the author's first proposition is supported by a quotation from Lord Eldon in Crawshay v. Collins [1826] 2 Russ. 325; 38 E.R. 358: see 80 A.L.R. at p.15. This is an area of the law where statutory codification also intervened but on this occasion, so far as I am aware the statutes passed, say in New York and Pennsylvania, were almost identical and thereafter in those of the 49 States which adopted the uniform Partnership Act, the legislative provisions were similar to those of the English Partnership Act: see 80 A.L.R. 73-74 and 55 A.L.R. 2d 1419-1420. The relevant provision is almost the same and in the latter case the right of the outgoing partner was expressed in terms of the "profits attributable to the use of his right in the property of the dissolved partnership". Although there appear to be some differences in the uniform Partnership Acts, there seem to have been few changes to the statement of principles contained in the primary annotation and no reflection of change in the Later Case Service. However, the 1993 Revised Uniform Partnership Act has different provisions as to retirement, so far as I can gather.
Importantly the relevant statement of principle in both 80 A.L.R. at 58-63 and 55 A.L.R. 2d at 1414-1415 expresses the rule in almost identical terms to those stated in the English and Australian authorities. Indeed considerable weight is placed on the English authorities including Willett v. Blandford (1842) 1 Hare 253; 66 E.R. 1027 and Manley v. Sartori: see 80 A.LR. at 61. Moreover in each of the annotations the issue of the profits attributable to personal skill and services are dealt with both as a matter of attribution (80 A.L.R. 63-65; 55 A.L.R. 2d 1416-1417) and in considering the allowances to be made in calculating profits by way of compensation for services (80 A.L.R. 79-84; 55 A.L.R. 2d 1423. In each case heavy weight is placed upon and detailed quotations cited from Manley v. Sartori.
In those circumstances it is interesting and persuasive to observe the following general comment at 80 A.L.R. 79 (not varied at 55 A.L.R. 2d 1423). The learned author there says of the need to make allowances by way of compensation for services:
"The present division of the annotation deals with the right of a partner, on being held accountable for profits earned subsequently to dissolution, to certain allowances and deductions by way of set off against his former partner's claims. If the rule, previously discussed in subdivision VI, limiting a partner who claims an interest in profits earned subsequently to dissolution, to such of the profits as are attributable to the use of his share of the assets, were properly understood and applied, it would seem that it would eliminate most of the questions arising under the present heading. Under this theory, the amounts claimed by way of set off and deduction would be allowed or rejected according to whether they were attributable to use of the other partner's interest in the capital. However, the courts have not seen to take this method of disposing of such claims; and they are treated herein, in the manner that the courts have treated them - i.e., as subjects of set off and deduction."
The matter is reiterated on the following page, concluding that the enquiry as to attribution of profits is the same thing, in effect, as allowing the continuing partners compensation for their services by way of set off: "There could hardly be any question but that a partner whose services and skill have been considered as an element in limiting the other partners to such of the subsequently earned profits as are attributable to his interest in the capital, should not also be awarded compensation for such skill and services by way of set off" (80 A.L.R. at 80). It is interesting to note that in the 65 years since the making of those original caustic comments, which no doubt are replicated elsewhere, there have been a mere half a dozen reported cases in American jurisdictions in which the question whether a deduction should be made has been considered, at least according to the annotations and service.
In my opinion, whatever the strict or technical accounting or other legal arguments may require, and the difference in them is not hard to discern as the judgment of Callaway, J.A. demonstrates, the decision whether to estimate the value of the other partners' personal services by way of deduction or as part of the process of attribution ought not to be seen as being of consequence. The variety of language used in the authorities directly applicable to this jurisdiction suggests it has not been seen to have been a matter of difficulty or requiring strict analysis of the figures in the books of account. It is a question of estimation and in the end the real issue is what amount should be attributable to the former partner's share and what attributable to other established causes. No point of the distinction was made before the trial judge and, for the reasons given by Brooking, J.A., it ought not to be seen as being of significance upon this appeal. The judge should be seen as having made a broad estimate of the contribution of the continuing partners' own labours upon the material available to him and it has not been shown that he was incorrect in so doing.
I would add that I agree that the onus rests on the parties seeking to deny the natural consequences of the use of partnership assets, as was stated by Romer, J. in Manley v. Sartori: the same view appears in the annotation in 80 A.L.R. at p.68. To describe the issue in terms of onus of proof is, however, in many cases inappropriate. The jurisdiction of the Court to order an account or inquiries is that part of the Court's equitable jurisdiction which can fairly be said to derive from its ecclesiastical and civilian law forebears: see Atiyah: "The Transformations of Account" (1904) 80 L.Q.R. 203, esp. at pp.218-224 and cf. Graves v. Budgel (1737) 1 Aik. 444 at 445; 26 E.R. 283 per Lord Hardwicke, L.C.: "The constant and established proceedings of this Court [of Chancery] are upon written evidence, like the proceedings upon the civil or canon law". See also Gresley: Law of Evidence in the Courts of Equity (2nd ed. 1847) p.3 and Holdsworth: History of English Law, vol. 1 pp.458-459; vol. 5 pp.287- 288 and vol. 9 pp.335-338 and 353-354. This "inquisitorial" (Stoljar, loc. cit at p.210) procedure entitled and entitles a judge to direct a Master or (now) a third party to make inquiries so as to produce the information which may lead to the correct decree being made to compensate the outgoing partner for the loss of the use of his money and assets over the relevant period. In the ordinary course of events the information must come from the defendant or defendants, the accounting parties, who have used the partnership assets in the whole of which the former partner retains an interest: Cameron v. Murdoch at 287; Chan v. Zacharia (1984) 154 C.L.R. 178 at 194.
Finally I would add a footnote on a matter which was not in the end argued before us. If I were to cavil with any part of the learned judge's reasoning it would be as to his approach to the interpretation of the Partnership Act as a code. At one stage (at p.28 of his reasons for judgment) the judge comes dangerously close to saying that cases such as Willett v. Blandford are of no present use in interpreting the Partnership Act and its provisions. No doubt heavy weight was placed on the observations in that case and in Vyse v. Foster [1872] L.R. 8 Ch. App. 309 implying that former partners in firms of solicitors can rarely show that any part of future profits is attributable to their share in assets. Those statements have been dealt with in detail in the judgment of Brooking, J.A. However, by seeking to dispose of them by saying they are inapplicable because of the passing of the code contained in the Partnership Act the learned judge has perhaps (I say only, perhaps) given undue weight to a proposition that where a code such as the present sought to re-enact existing common law and equitable rules, little weight could be put on earlier authorities after the passing of the Act. It is unnecessary to express a final view on this issue, but this is an area of the law where, upon reading the many cases raised for our consideration and those cases I have found useful to consider for the purpose of writing this judgment, not one to my recollection said that it was impermissible to look to these earlier cases for the purpose of interpreting at least this section and indeed most of them (taking only by way of example Manley v. Sartori) placed considerable weight on the learning on partnership law worked out by the courts of equity in the nineteenth century. The earliest reported case defining the basic principle seems to have been Crawshay v. Collins, when first reported in (1808) 15 Vesey 218, although Lord Eldon, L.C. makes reference to a brief dictum 100 years earlier in Brown v. Litton (1711) 1 P. Wms 140; 24 E.R. 329 by Lord Harcourt, L.C. when Lord Keeper. It has changed little since those times.
Subject to what I have said above, which differs only in emphasis from the reasoning of Brooking, J.A., I would agree with him that this appeal should be dismissed for the reasons he has stated. The conclusion may be seen by some to be unsatisfactory or even unfair but it shows the risks of failing to define issues which risks are best avoided by the use of conventional pleadings, the directing of which might well have been sought when these questions were ordered for trial.

CALLAWAY, J.A.:

Where an account of profits is claimed, equity sometimes finds it necessary to draw a distinction between permitting the defendant to retain a share of those profits and requiring him to disgorge them in full, subject to a payment for his work and skill. Such a payment may, in an appropriate case, be on a liberal scale. See, for example, Boardman v. Phipps [1967] 2 A.C. 46 at pp.104 and 112 and Warman International Ltd. v. Dwyer (1995) 182 C.L.R. 544 at pp.561-562. In Manley v. Sartori [1927] 1 Ch. 157 Romer, J. drew a similar distinction in two quite separate passages in the judgment and in the order that was ultimately made.
The first passage is at p.162. His Lordship said: "Where, in such a case, the surviving partners, instead of realizing the
assets and distributing the proceeds amongst the parties in accordance with their rights and interests, choose to carry on the business and make profits by virtue of the employment of any of the partnership assets, then, subject no doubt to making a proper allowance to the surviving partners for their trouble in so carrying on the business, such profits belong to all the persons interested in the partnership assets by means of which the profits have been earned in accordance with their rights and interests in those assets; that is to say, proportionately to their interests in those assets." (Emphasis added.)
The italicized words describe a payment for carrying on the business, rather than a share of the profits. If there were any question about that, it would be answered by the off-hand expression "subject no doubt" and by the fact that the ensuing pages contain a discussion of the circumstances in which the continuing partner or partners may have an entitlement to profits as such.
The second passage appears at pp.164-165:
"[I]t does not necessarily follow that because the surviving partners have been carrying on the business the profits or the whole of the profits are attributable to the use of the partnership assets. ... [I]t may well be that in a particular case profits have been earned by the surviving partner not by reason of the use of any asset of the partnership, but purely and solely by reason of the exercise of skill and diligence by the surviving partner; or it may appear that the profits have been wholly or partly earned not by reason of the use of the assets of the partnership, but by reason of the fact that the surviving partner himself provided further assets and further capital by means of which the profit has been earned. Those profits, so far as earned by sources outside the partnership assets, are not profits in which the executors of the deceased partner could be entitled to any share. Applying those observations to the present case, I am met by this difficulty, that there is no evidence, so I am told - my attention has not been called to the affidavits, but everybody is agreed that there is no evidence - from which the Court can answer definitely the question whether the profits, which undoubtedly have been earned by carrying on the business, have been earned, or whether any part of those profits has been earned, by using any of the assets of the partnership."
The profits to which reference is made in the first sentence of that passage are the profits after deducting the allowance to the surviving partners to compensate them for their trouble in carrying on the business. See Featherstonhaugh v. Turner (1858) 25 Beav. 382 at p.389, 53 E.R. 683 at p.686; and Yates v. Finn (1880) 13 Ch.D. 839 at p.843. That allowance does not represent a share of profits, but a notional item of expense to be taken into account in calculating the profits to which s.46 applies. It is similar in that respect to a salary paid to a managing clerk, had the surviving partners chosen to employ a manager rather than to carry on the business themselves. Compare Phipps v. Boardman [1964] 1 W.L.R. 993 at p.1018. That is why the whole of those profits may be attributable to the use of the partnership assets, although, as his Lordship explains, that is not necessarily the case. To say that the whole of the profits is attributable to the use of the assets but that an allowance may nevertheless be made out of those profits would, of course, be contrary to the statute.
The second sentence refers to an entitlement to the profits as such, which a surviving partner may have either because they have been earned wholly or partly by his exercise of skill and diligence or because they have been earned wholly or partly by his provision of further assets or capital. The words "purely and solely" in the first part of the sentence simply instance an extreme case; they do not imply that a surviving partner has no such entitlement to profits unless they derive purely and solely from his skill and diligence. That would be absurd. The question is as to the extent of the parties' respective entitlements: see Lindley and Banks on Partnership (17th ed. 1995) at para.25-24.
The last sentence of the passage at pp.164-165 contemplates the possibility that some, or even all, of the profits may have been earned by the skill and diligence of one or more of the surviving partners as opposed to the use of the partnership assets. The third enquiry that was directed is to be understood accordingly.
The order made in Manley v. Sartori, which appears at pp.166-167 of the report, proceeded on that basis. Three enquiries were directed. The first was as to the allowance to be made to the surviving managing partner in respect of his personal superintendence and management of the business. The second was as to the net profits earned by the surviving partners after deducting that allowance. The third was whether any, and if so what, part of such net profits was earned otherwise than by the user of the partnership assets. It was in connexion with that third enquiry that it was for the surviving partners to show, if they could, that those profits had been earned wholly or partly by means other than the utilization of the partnership assets (p.166).
McDonald, J. concluded (p.686) that the partnership assets were used by the ongoing firm and that there existed a causal connection between such use and the profits earned by it. His Honour said that the next question to be addressed was whether Mr. Hardy's evidence should be taken as establishing that the sum of $402,883 represented the share of the profits of the continuing firm attributable to the use of the respondent's share of the partnership assets. (The reference to using the respondent's share of the partnership assets reflects the inartificial language of s.46, the sense of which was explained in Manley v. Sartori at p.163.) The first matter to be addressed, his Honour continued, was whether, in determining the profits of the firm during the relevant period, it was appropriate to make allowance for the personal exertion of the continuing and additional partners. The first passage I have quoted above from Manley v. Sartori was then set out. That has caused me some hesitation.
I put to one side whether one or more of the continuing partners was or were entitled to an allowance for his or their trouble in carrying on the business, i.e. a management allowance that would be a notional item of expense to be taken into account in determining the profits. The important point is that this was a case in which the appellants were entitled to more than that. They were entitled to a share of the profits, which were clearly attributable only in part to the use of the assets. My concern is all the greater because part of the second passage from Manley v. Sartori had been quoted on the previous page of his Honour's judgment and the words "purely" and "solely" had been emphasized. Mr. Habersberger said that that was no more than a rejection of the contention advanced by the appellants that none of the profits of the firm was attributable to the use of the assets. I should have had no difficulty in accepting that submission were it not for his Honour's explicit equation of $130,000 per annum with the "proper allowance to the surviving partners for their trouble in so carrying on the business".
In the end I think it is unnecessary to pursue these matters to a conclusion. The distinction to which I have alluded is not free from difficulty in the case of a professional partnership. More importantly, it does not reflect the way the case was argued below. If the distinction had been put to Mr. Hardy, it is impossible to say whether he would have said that the $130,000 per annum was a management allowance or an entitlement to profits. He might well have responded that it was both. Compare, in a different context, O'Sullivan v. Management Agency and Music Ltd. [1985] Q.B. 428, discussed in Kearney, 'Accounting for a Fiduciary's Gains in Commercial Contexts' in Finn (ed.), Equity and Commercial Relationships (1987), at pp.195-198. The evidence summarized by the learned presiding judge shows that, the distinction not having been drawn, it was open to McDonald, J. to treat the $130,000 per annum as representing "the continuing and additional partners' personal exertion and contribution to the profits" (p.661, emphasis added). A similar course appears to have been taken by Stirling, J. in Page v. Ratliffe (1896) 75 L.T. 371 at p.373. It was for the appellants to show to what share of the profits they were entitled. Encouraged by the opinion and testimony of their expert witnesses, they adopted a position which has since been shown to be mistaken. They could succeed on appeal only by approaching the matter in a different manner for which the necessary evidentiary foundation has not been laid. Both authority and elementary considerations of fairness show that that cannot be done.
One of the questions in Central Pacific (Campus) Pty. Ltd. v. Staged Developments Australia Pty. Ltd. (1998) VConvR ¶ 54-575 was whether it was open to the appellants to submit, for the first time, that a notice of rescission was ambiguous. At pp.66,907- 66,908, in a judgment in which Ormiston and Buchanan, JJ.A. concurred, I said:
"It is well established that a point cannot be raised for the first time upon appeal when it could possibly have been met by calling evidence below. See, for example, Suttor v. Gundowda Pty. Ltd. (1950) 81 C.L.R. 418 at p.438 and Water Board v. Moustakas (1988) 180 C.L.R. 491 at pp.497-498. Mr. Kaye did not suggest that the new ground might have been met by evidence. Instead he opposed leave to amend the grounds of appeal on the broader policy bases explained by Tadgell, J., with whom the other members of the Full Court agreed, in Geelong Building Society v. Encel [1996] 1 V.R. 594 at pp.604-609. He submitted that that case and the authorities to which Tadgell, J. referred qualified broader statements of principle such as that to be found in O'Brien v. Rosedale Corporation [1969] V.R. 645 at p.647. It was also contended that a respondent is more readily allowed to support the judgment given below by reference to a new point. Ravinder Rohini Pty. Ltd. v. Krizaic (1991) 30 F.C.R. 300, on which Mr. O'Callaghan relied, was a case of that kind and so too was Chalmers Leask Underwriting Agencies v. Mayne Nickless Ltd. (1983) 155 C.L.R. 279, a point emphasized by Brennan and Deane, JJ. at p.285. The ordinary rule is that a new point may not be raised by an appellant unless there are exceptional circumstances. The latter are various and it is not profitable to try to catalogue them. Mr. Kaye's submission was that there were no exceptional circumstances here.
As in the case of an express concession that is sought to be withdrawn, the ultimate question is usually whether it is in the interests of justice to permit the appellant to rely upon a point not raised below: cf. Masters v. McCubbery [1996] 1 V.R. 635 at p.658. The interests of justice include the policy considerations referred to in the authorities, such as the proper division of responsibility between a trial court and an appellate court, deciding cases with reasonable expedition and without undue cost; and the adversary system, which requires the parties to formulate the issues that they desire to have resolved. Considerations of fairness and the reasonableness of taking a point at a late stage are often of great importance. In the present case it may fairly be said that, if the references to CPQ and CPC do make the notice ambiguous, that was an obvious point that was readily available to the appellants and should have been raised at the earliest opportunity. There is no suggestion that the notices were in truth perceived to be ambiguous on that account. Whatever relevance that might have if the point had to be decided (cf. Tenth Dancote Pty. Ltd. v. Pyramid Building Society, Court of Appeal, unreported, 7th May 1997, at p.7), it is permissible to take it into account on the question of leave."
For similar reasons, the appellants cannot be permitted to argue, for the first time, that from 16th May 1996 the rights of the parties were regulated by an agreement recorded in the order made by McDonald, J. on that date. It matters not whether the agreement would derive its force from contract, from conventional estoppel or in some other way. I should say that I did not understand Mr. Young to contend that the agreement denied the respondent an entitlement under s.46, but rather that the entitlement was to be measured in a different way by reason of the agreement.
Subject to the foregoing, I agree in the reasons of Brooking, J.A. and in his Honour's conclusion that the appeal should be dismissed.

1 October 1994 to 30 June 1995	-	$3,385,647
1 July 1995 to 30 June 1996	-	3,604,773
1 July 1996 to 31 December 1996	-	2,478,503 _________ $9,468,923 _________

•	the determination of the plaintiff's share of the partnership assets at the date of his retirement;
•	the ascertainment of the firm's profits between that date and the date of settlement of accounts;
•	the identification of the profits attributable to the use of the plaintiff's share of the partnership assets during that period.

1 October 1994 to 30 June 1995	-	$5,969,110
1 July 1995 to 23 May 1996	-	8,390,231
1 July 1996 to 31 December 1996	-	11,016,491

[1998] VSCA 26

31 August 1998