Maclag (No 11) Pty Ltd as Trustee for the Burns Family Trust and Anor v Chantay Too Pty Ltd as Trustee for the Chantay Trust - [2010] QSC 299

SUPREME COURT OF QUEENSLAND

CITATION:

Maclag (No 11) Pty Ltd as Trustee for the Burns Family Trust and Anor v Chantay Too Pty Ltd as Trustee for the Chantay Trust [2010] QSC 299

PARTIES:

MACLAG (NO 11) PTY LTD
ACN 010 611 631
AS TRUSTEE FOR THE BURNS FAMILY TRUST

(First Plaintiff)

and

LARRY MARK LAZARIDES

(Second Plaintiff)

v

CHANTAY TOO PTY LTD
ACN 099 086 521
AS TRUSTEE FOR THE CHANTAY TRUST

(Defendant)

FILE NO/S:

9219 of 2008

DIVISION:

Trial Division

PROCEEDING:

Trial

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

13 August 2010

DELIVERED AT:

Brisbane

HEARING DATE:

22-30 April and 24-26 May 2010

JUDGE:

McMurdo J

ORDER:

1.    It will be declared that each of the notices given on or about 3 September 2008 and 9 January 2009, purporting to expel the defendant from the partnership between the plaintiffs and the defendant, was of no effect.

2.    It will be further declared that the partnership was determined on 30 June 2009 by reason of a notice of dissolution dated 12 November 2008 served by the defendant.

3.    The partnership be wound up and Jason Bettles and Ivor Worrell be appointed to the partnership without security to conduct the winding up, with powers equivalent to those prescribed by s 420 of the Corporations Act 2001 (Cth).

CATCHWORDS:

PARTNERSHIP – RIGHTS AND DUTIES OF PARTNERS INTER SE – FORFEITURE OF SHARES AND EXPULSION – where the plaintiffs and the defendant were equal partners in a partnership which carried on the business of real estate investment – where the partnership considered buying an additional property but decided not to purchase that property in the short term – where the defendant and other related entities subsequently purchased that property – where the personal relationship between the plaintiffs and the defendant broke down – where the defendant failed to sign certain documents required for the carrying on of the partnership business – whether there was otherwise conduct in breach of the defendant’s duty of diligence and good faith which justified the defendant’s expulsion from the partnership.

ESTOPPEL – ESTOPPEL IN PAIS – EQUITABLE ESTOPPEL – PROMISSORY ESTOPPEL – where the plaintiffs and the defendant were equal partners in a partnership which carried on the business of real estate investment – where the partnership considered buying an additional property but decided not to purchase that property in the short term – where the defendant and other related entities subsequently purchased that property – where the partnership deed provided that if a partner breached any of its duties as a partner, the other partners may expel that partner from the partnership within three months of becoming aware of that partner’s offence – where the defendant offered to grant the partnership a right of first refusal over the subject property – where the parties were unable to agree on the terms of the grant of a right of first refusal within the three month period from when the plaintiffs became aware that the defendant had purchased the subject property – where the plaintiffs purported to expel the defendant from the partnership for its conduct in purchasing the subject land, well outside the three month period – whether the defendant is estopped from relying on the three month time stipulation.

Partnership Act 1891 (Qld) ss 22, 27, 31, 38
Property Law Act 1974 (Qld) s 121

Retail Shop Leases Act 1994 (Qld) s 45

Attorney-General of Hong Kong and Anor v Humphreys Estate (Queen’s Gardens) Ltd [1987] 1 AC 114
Birtchnell and Anor v The Equity Trustees, Executors and Agency Company Limited and Anor (1929) 42 CLR 384
Blisset v Daniel (1853) 68 ER 1022
Const v Harris (1824) 37 ER 1191
Harvey v Walker & Ors (1945) 46 SR (NSW) 180
Maclag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2) [2009] QSC 299
Wall v London and Northern Assets Corporation [1898] 2 Ch 469

Waltons Stores (Interstate) Limited v Maher and Anor (1988) 164 CLR 387

COUNSEL:

A P Collins with PA Travis for the plaintiffs

D Savage SC with C A Wilkins for the defendant

SOLICITORS:

Frampton Legal for the plaintiffs

Cronin Litigation Lawyers for the defendant

The three parties in this case were partners in what they described as the Mermaid Retail Partnership. The partnership commenced in 2002 and, on any view, has now been terminated. The question for determination is the means by which the partnership came to an end. The plaintiffs say that there were defaults by the defendant which, according to the express terms of the partnership deed, entitled them to exercise an option to purchase the defendant’s share, which they duly did on 3 September 2008 or alternatively on 9 January 2009. The defendant disputes that entitlement. It is common ground that if the defendant’s case is upheld, then the partnership has been terminated since 30 June 2009 by a notice of dissolution given by the defendant. It counterclaims for orders to effect a winding up of the partnership.

The first plaintiff is a company controlled by Mr Paul Burns, an architect. The second plaintiff, Mr Lazarides, practised for many years in Brisbane and on the Gold Coast as a solicitor, particularly in matters involving commercial property. At the time of the events in question, he was no longer in practice, but he was a leasing consultant for at least one large shopping centre proprietor. The defendant is a company controlled by Dr Rackemann, who until 2007, practised as an orthopaedic surgeon. Each had extensive business experience prior to and apart from this partnership. They lived at the Gold Coast and they and their families were friends until these events.

The nature of the partnership business was real estate investment. In the partnership deed, made on 14 February 2002, that business was described in clause 3 as follows:

The partnership shall carry on business as real estate investor/owners and developers of the property comprising a shopping centre located at 2375 Gold Coast Highway, Mermaid Beach or such other business as the partners may from time to time agree.

In April 2002, the partners purchased a shopping centre in Mermaid Beach. In 2006 and 2007, the partners acquired other property, this time at nearby Miami. By a contract dated 24 June 2006, they purchased what has been described as a light industrial showroom at 2160-2164 Gold Coast Highway, Miami (which I will call lot 2160). They completed this purchase on 3 October 2006. On 14 August 2006, they contracted to purchase a smaller adjacent commercial property at 2158 Gold Coast Highway (which I will call lot 2158). This purchase was completed in September 2007.

Each of these properties, at both Mermaid Beach and Miami, was purchased by the partners as tenants in common in equal shares, and each is still so held. This was consistent with the partnership deed, by which the parties agreed that they would be in all respects equal partners.

The partnership deed

By cl 4 of the partnership deed, it was agreed that the partnership should commence on 14 February 2002 and continue from year to year unless:

… at least three (3) months before the end of any financial year (which shall be taken as June 30 in each year) any party shall have delivered to the other … a written notice of intention to dissolve the partnership at the end of that financial year.

By cl 7, the capital of the partnership was to consist of all property both real and personal as was from time to time purchased or acquired for partnership purposes as well as all sums of money required for carrying on the partnership business. Clause 7(b) provided that the capital of the partnership might be increased from time to time as the partners should determine, in which case the increase should be contributed by the partners in equal shares. As mentioned already, the partners each held a third share in the capital[1] and in the profits of the partnership business.[2]
[1]By cl 7(a).
[2]Clause 9 which provided the partners should be entitled to the net profits in accordance with their contribution of capital. There is no question that the partners made their capital contributions equally.

Clause 10 provided that proper and sufficient books of account were to be kept and not removed from “the place of business” without the consent of all partners. It further provided that each partner should have full access to those books at all times and should be able to make such copies of them as he thought fit, either by himself or an agent. By cl 11, on 30 June in each year an account was to be taken, by a suitably qualified accountant agreed upon by the partners, of the assets and liabilities and the profit of the partnership, copies of which were to be furnished to each of the partners.

Clause 13 required an annual general meeting to be held at least every July and provided that other meetings of the partners might be convened by notice in writing by any partner. No business was to be transacted at any general meeting unless all partners were present. Each partner was entitled to one vote. Clause 14 provided that any differences arising as to “ordinary matters connected with the partnership business” might be decided by a majority, but that no change was to be made “in the nature of the partnership business … without the consent of all existing partners”.

Clause 17 provided that “[t]he partners may transact any or all of the partnership business through a nominee”. Clause 25 provided that any partner which was a corporation should notify the others of its individual representative and it was agreed that all acts and deeds of that person should be the acts and deeds of the corporate partner represented by him. By that clause it was agreed that the first plaintiff’s representative would be Mr Burns and the defendant’s representative would be Dr Rackemann.

Clause 16 provided as follows:

16. DUTIES OF PARTNERS
Each partner shall:
(a)Be just and faithful to each other in all transactions relating to the partnership.
(b)At all times give a just and truthful explanation of all matters relating to the affairs of the partnership.
(c)Diligently and faithfully employ himself in the business of the partnership and use his best skill and endeavours to carry on the same for the utmost benefit of the partnership.

Clause 18 provided as follows:

No partner shall without the written consent of the other:
…
(b)Employ any of the money goods or effects of the partnership or pledge the credit thereof except in the ordinary course of business and upon the account or for the benefit of the partnership.
…
(g)Buy, order or contract on behalf of the partnership for any goods, articles or property exceeding the value of TWO HUNDRED DOLLARS ($200.00) and any goods, articles or property ordered or contracted for by any partner in breach of this provision shall be taken and paid for by him and shall be his separate property unless the other partner[s] shall elect to adopt the transaction on behalf of the partnership.

Clauses 21 and 22 provided for the compulsory acquisition of the share of a defaulting partner and are the basis for the plaintiffs’ case. It is necessary to set them out in full:

21. PURCHASE OF SHARE OF DECEASED PARTNER
(a)The death of a partner shall not dissolve the partnership but in the event of the death of any partner the surviving partners may elect to continue the partnership with the representatives of the deceased partner or their nominee or they shall have the option to be exercised in writing within three (3) months of the date of death to each purchase one half of the share of the deceased partner in the partnership business and the property thereof. The deceased partner’s share in the partnership business and property thereof shall be purchased at a price fixed by agreement between the surviving partner[s] and the personal representative(s) of the deceased partner as the net value thereof after providing for all debts and liabilities affecting the same on the date of the purchase taking effect and if the parties shall be unable to agree as to the value thereof the same shall be determined in accordance with the provisions of this agreement by a competent, independent, qualified accountant or valuer agreed by the partners or failing agreement determined by the President for the time being of the Queensland Law Society Incorporated who shall have regard to the market value of any real estate or other property belonging to the partnership.
(b)The said accountant or valuer may fix the fees payable in respect of such valuation and the representative of the deceased partner and the surviving partners shall each pay one third thereof.
(c)The purchase amount payable under this clause shall be paid by two interest free payments payable to the estate of the deceased partner the first of such instalments to be paid on the day seven (7) days following the receipt by the surviving partners of the accountant’s or valuer’s assessment and the second payment to be paid on the day which is three (3) months after the date on which the first instalment was payable.
22.EXPULSION

If any partner shall:
(a)commit any breach of clauses 16, 18 or 19 hereof; or
(b)become bankrupt or execute any Deed of Arrangement or composition with his creditors or enter into voluntary administration or liquidation; or
(c)become of unsound mind or become a person whose person or estate is liable to be dealt with in any way under the law relating to mental health; or
(d)be guilty of any conduct that would be a ground for the dissolution of the partnership by the Supreme Court of Queensland; or
(e)in the case of any partner which is a corporation if any of the following occur in respect of that corporation: If an application or petition for its winding up is made or presented or any order is made or any effective resolution is passed for its winding up (except for the purpose of reconstruction) or its dissolution or if it enters into any arrangement or composition with its creditors generally or any of them or if it is placed under official management, voluntary administration or liquidation or if an Inspector is proposed or appointed pursuant to any Companies Code or Act of any state or territory; or
(f)cease to be the trustee of the relevant trust.

THEN and in any such case it shall be lawful for the other partners by notice in writing to the partner affected by any of the preceding provisions of this paragraph (or his trustee or committee) within three (3) months after that partner’s offence or incapacity shall have become known to the other partners to determine the partnership so far as concerns that partner whereupon the provisions of clause 21 of this Deed shall apply mutatis mutandis as if the offending or incapacitated partner had died on the date on which such notice was given.

The plaintiffs’ case is that the defendant committed breaches of cl 16, by not being just and faithful to the plaintiffs in certain transactions relating to the partnership and by Dr Rackemann not diligently and faithfully applying himself to the partnership’s business. They also allege that the defendant was guilty of conduct that would provide a ground for dissolution of the partnership by the Court. In that respect, s 38 of the Partnership Act 1891 (Qld) provides that a court may decree a dissolution of a partnership in circumstances which include:

…
(c)if a partner, other than the partner suing, has been guilty of conduct that, in the opinion of the court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of the business;
(d)if a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself or herself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with the partner;
…
(f)if in any case circumstances have arisen which, in the opinion of the court, render it just and equitable that the partnership be dissolved.

The defendants claim that those breaches or instances of misconduct engaged cl 22, by which they were entitled to “determine the partnership so far as concerns [the defendant]” with the consequence that cl 21 then applied. In a previous judgment in these proceedings, I rejected the defendant’s argument that cl 21 was unenforceable as uncertain and declared that when it is engaged by the giving of a notice under cl 22, the “date of the purchase taking effect” for the purposes of cl 21 is the date of the giving of that notice under cl 22.[3]
[3]Maclag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2) [2009] QSC 299.

Clause 23 was a machinery provision for what should happen in the event of a dissolution of the partnership. It is common ground, as cl 4 provides, that in the event that a partner gave notice of dissolution prior to 1 April of a year, the partnership was to be wound up as at 30 June in that year. Of course, the plaintiffs’ case is that this was not a step open to the defendant once they had duly exercised their entitlement under cl 21 and cl 22 to acquire its share.

Of the many breaches and events of misconduct alleged against the defendant, a matter which was particularly important in the deterioration of the relationship between the partners was the purchase by the defendant, as trustee of another trust controlled by Dr Rackemann, together with Dr Rackemann and his wife as trustees of the so-called Rackemann Superannuation Trust, of another property at Gold Coast Highway, Miami. This property, described in the evidence as the Leon Hill property (after the name of the vendor’s principal, Mr Hill) was purchased by the Rackemann interests by a contract dated 12 April 2007. It was two doors away from lot 2160, from which it was separated by a small parcel owned by a Mr Littlejohn (which the parties called the Littlejohn property). The plaintiffs became aware of this purchase of the Leon Hill property by the first week of May 2007. But they did not act to expel the defendant until September 2008, well beyond the three month period stipulated by cl 22. Their case is that nevertheless they were entitled to rely upon this breach because of an estoppel.

Otherwise, with one exception, the various matters relied upon by the plaintiffs occurred, or were still occurring, within three months of either the notice of expulsion given in September 2008 or that given in January 2009. The exception is Dr Rackemann’s conduct in January/February 2008 in respect of a prospective tenant, of which the plaintiffs say they were unaware when expelling the defendant but upon which they say they can now rely.

As noted already, until 2006 the partnership business was limited to the Mermaid Beach shopping centre. It seems that there was no proposal by the partners to redevelop this land. For several years they had been content with its rental income. Partnership meetings occurred every two to three months and the partners also discussed business by phone. The discussions would usually involve things such as proposals for new or renewed tenancies. And during this period, there were frequent meetings between Mr Lazarides and Dr Rackemann at which they discussed, amongst other things, this investment. The day to day conduct of partnership affairs was mostly in the hands of Mr Lazarides who worked from his office in Surfers Paradise. The shopping centre was managed by agents called Burgess Rawson who generally reported to Mr Lazarides.

The Miami properties

The properties which were purchased at Miami were different, in that they did not constitute all or a part of a shopping centre. They were purchased with a view to redevelopment. Lot 2158 was triangular in shape with a relatively small frontage to the Gold Coast Highway and a longer frontage, to its south, to Pacific Avenue. On its northern boundary was lot 2160 which had about twice as much frontage to the Gold Coast Highway. It also had an extensive frontage to Pacific Avenue and access at its rear from Hillcrest Parade. Its area was 2,914 square metres; lot 2158 contained 433 square metres. Immediately to the north of lot 2160 and fronting the Gold Coast Highway was the Littlejohn property, having an area of 705 square metres and a frontage of about 10 metres. And to the north of the Littlejohn property was the Leon Hill property. It was made up of seven lots with a total area of about 2,833 square metres, with a combined frontage to the highway of about 40 metres and with a rear boundary on Hillcrest Parade of about 30 metres.

By the time the partners contracted to buy lot 2160, they were interested in purchasing the Leon Hill property as well as lot 2158, with a view to a possible amalgamation and redevelopment with lot 2160. Mr Burns, the architect, prepared some drawings for such a possible redevelopment, as well as for a smaller project which would involve only lots 2158 and 2160. Traffic engineers, town planners and quantity surveyors were engaged to advise on these proposals. The contemporaneous documents evidence an interest by the partners also in other land on the highway to the north of the Leon Hill property. They were negotiating with Mr Littlejohn for the purchase of his land. The larger of the developments which they had in mind, on a site which would include lots 2158 and 2160 and the Leon Hill and Littlejohn properties, was for a supermarket and some other shops as well as apartments.

It is common ground that the partners met in August 2006 and discussed these alternative development proposals. But there is some difference in their recollections of the outcome. The evidence of Mr Lazarides and Mr Burns is to the effect that it was resolved that the partners should proceed with the purchase of lot 2158 (as well as lot 2160) at that point and defer but not abandon the purchase of the Leon Hill and Littlejohn properties. According to their evidence, this was not because the larger project, which would involve the Leon Hill property, was not feasible or attractive in comparison with a development of only lots 2158 and 2160. Rather, it was that the partners should not undertake any redevelopment of lots 2158 and 2160 within the next couple of years, during which they could expect to be in a stronger bargaining position to purchase the Littlejohn and Leon Hill properties. This was because each of those properties would have little attraction for a purchaser buying only that property so that as the owners of lots 2158 and 2160, they would be the only likely buyers.

According to Dr Rackemann, at the meeting of August 2006 he disagreed with the others about two things. The first was that he alone was favouring the larger development, that is to say one which would involve the Leon Hill property. The second was that he wished a development, whether that larger development or one involving only lots 2158 and 2160, to proceed immediately. He says that in effect the majority view prevailed.

Dr Rackemann’s evidence was that at this meeting, when it became apparent that the majority was not in favour of any immediate development or of the purchase then of the Leon Hill property, he said words to the effect of “I believe it is to the benefit of the partnership so that I will purchase it”, to which Mr Burns made some objection but Mr Lazarides said nothing. He also recalled that as he left the meeting in the company of Mr Lazarides, he asked Mr Lazarides why the two of them could not buy the Leon Hill property, but there was no further discussion about that. Then a few days later, when he was talking to Mr Burns about other things, he asked him whether Mr Burns could “get back to [him] in the next week if [Mr Burns] had any change of mind about purchasing the Leon Hill property”.

In Mr Burns’s evidence, he agreed that a few days after the August meeting, Dr Rackemann said to him that Dr Rackemann “was wanting to give the partnership seven days to decide to buy Leon Hills or he would … purchase it”, to which Mr Burns said that this was a partnership issue which would have to be discussed by the partners in a meeting and that it was a departure from the position reached at their recent meeting, which was that “we were looking at a long-term strategy of acquiring Leon Hill for the partnership to potentially achieve this major sort of mixed use development site”.

According to Mr Lazarides’s evidence, the “generally accepted” view between the partners was that the asking price for the Leon Hill property, which was $4 million, was excessive at least “as a stand-alone acquisition”. He said that there was consensus amongst the partners to the effect that the Leon Hill acquisition could be deferred and that they should look to acquire the Littlejohn property first in the expectation that there would be no competing buyer for the Leon Hill property. He said that the strategy was to make it appear that the partners were not keen to acquire the Littlejohn or Leon Hill properties. He did recall that when leaving Mr Burns’s house after the August meeting, Dr Rackemann suggested that the two of them should buy the Leon Hill property, and said that he quickly dismissed this as an inappropriate proposal.

It is difficult to determine precisely what was said between the parties at this meeting in August or in the days which followed it. However, some things are reasonably clear. The first is that the partners gave serious consideration, on the basis of professional advice, to the purchase of the Leon Hill property. Secondly, the advice and information provided to them did not reveal some fatal impediment to a development which included the Leon Hill property or indicate that it was likely to be unprofitable. Mr Burns gave evidence that such a development would have been unprofitable unless residential units could be constructed, which would not have been permitted under the then zoning, and undoubtedly that was a factor which was significant in the decision of the plaintiffs not to then buy the Leon Hill property. But as Dr Rackemann’s evidence demonstrates, this was not a factor which could not have been overcome: hence his strong inclination at the time for the partners to buy that parcel. Thirdly, although the partners considered that a smaller development, involving only lots 2158 and 2160, would be profitable and of itself would justify the purchase of those properties, the plaintiffs were not minded to immediately proceed in that way. They did not then pursue a course towards that smaller development which effectively put paid to the prospect of a larger development involving the Leon Hill property. This suggests that the prospect of using the Leon Hill property was deliberately left open.

Fourthly, even on Dr Rackemann’s evidence, the August meeting ended upon the basis that the purchase of the Leon Hill property by the partnership remained a real prospect. Thus, when Dr Rackemann gave evidence of the purchase by his interests of the Leon Hill property in 2007, he explained that he did not consult his partners because they had given a clear message that “they didn’t want to purchase the Leon Hill property in the shorter term” and that “in their own words, they said ‘let’s wait and see’ … three years time maybe”.[4] He said that in 2006 his partners had been reluctant to contribute the funds required for this purchase and to incur the losses of holding that property for several years and “that was one of their reasons why they didn’t want to proceed with the purchase at that time”.[5] On Dr Rackemann’s account then, the majority had not excluded the prospect of the acquisition of this property. What they had rejected was the idea of buying it immediately. It remained a real prospect as a future acquisition by the partnership, to be used and developed in combination with the partnership properties already held.
[4]Transcript 7-30/45.
[5]Transcript 7-31/47.

Fifthly, Mr Lazarides and Mr Burns believed that the Leon Hill property was too expensive at $4 million, but considered the property was unlikely to be sold to someone else and that ultimately it would be procurable by the partnership at a lower price.

According to Dr Rackemann, he made some attempt to purchase the Leon Hill property shortly after the meeting of August 2006. But he did not explain why he did not purchase the land at that time and there is no contemporaneous documentary evidence that he did try to buy it then. Whilst I accept that he wanted the partnership to then purchase it, I do not accept that he tried to purchase it himself at that time. Nor would I accept that he clearly demonstrated an intention to do so, such that a failure by his partners to strongly object to that course could have been taken as a representation that they were not interested in the acquisition of this land at any time in the future.

There was a meeting of the partnership at the end of September 2006 and a further meeting towards the end of October of that year. In the September meeting, the partners decided to change the managing agents. Dr Rackemann says that there was then also some discussion to the effect that “the partnership wouldn’t proceed with any purchase of [the] Leon Hill site, [but] that over time, Mr Lazarides would be responsible for trying to [negotiate a] purchase of the Littlejohn property on behalf of the partnership”.[6] I do not accept Dr Rackemann’s evidence in that respect. No such case was pleaded by the defendant. Nor did it plead that in the meeting of August 2006, or at any other time, the partners abandoned any prospect of a purchase by the partnership of the Leon Hill property. At one stage well into the trial (during the cross-examination of Mr Burns), there was an objection by counsel for the plaintiffs on the basis that no such case had been pleaded. I allowed the cross-examination to continue when I was informed of the content of Dr Rackemann’s summary of evidence.[7] However, the summary did not refer to such a decision as Dr Rackemann subsequently testified was made in the September 2006 meeting. The fact of such a decision at that meeting was not put to Mr Lazarides or Mr Burns. And such a decision, to purchase at sometime the Littlejohn property but not the Leon Hill property, would have been highly unlikely. The Littlejohn property was of no apparent benefit except as part of the larger development involving also the Leon Hill property. At one stage counsel for the defendant, in cross-examining Mr Burns, made that very point.
[6]Transcript 7-23, 24.
[7]Which was read into the record at transcript 6-29.

The meeting of partners in October 2006 was uneventful. But this was to be the last partnership meeting. The apparent explanation for that is in what occurred between Mr Lazarides and Dr Rackemann in respect of a property at the Sunshine Coast.

Mr Lazarides and Dr Rackemann:their falling out

The two owned land in equal shares at Sunshine Beach, which they had been trying to sell for some time. They had proposed to develop the land themselves but the estimates of construction costs were too high. In the latter half of 2006, Mr Lazarides proposed that Dr Rackemann purchase his interest. Dr Rackemann agreed, and the price to be paid was based upon the land having a value of $1,500,000.

The land was mortgaged. Mr Lazarides proposed that the documents record the consideration as an amount which was calculated by halving the owner’s equity, ie by halving the difference between $1,500,000 and the mortgage debt. Dr Rackemann, on the advice of his solicitors, said that the consideration should be recorded as one-half of $1,500,000. There was no difference between them as to what should be the outcome, under which Dr Rackemann would assume the entire burden of the existing mortgage debt. In net terms, the amount of money to be paid to Mr Lazarides was in the order of $318,000 rather than $750,000. But the dispute was about whether the documents recording and giving effect to this transaction, and in particular those presented to the Commissioner of Stamp Duties or which might be submitted to the Commissioner of Taxation, should show the consideration as $318,000 or instead $750,000.

Mr Lazarides was strongly challenged in cross-examination about this transaction, the suggestion being that he was attempting to misrepresent the consideration in order to obtain some taxation advantage. I am not prepared to make that finding. But the relevance of all of this is that it explains the course which the partnership took from about the end of 2006. From that point and throughout the events in question in this case, Mr Lazarides and Dr Rackemann did not speak to each other, although they did exchange emails and other correspondence. That transaction marked a critical point in their personal relationship and in turn their relationship as members of this partnership. It largely explains the absence of meetings of the partners after October 2006. In turn, that deteriorating relationship at least partly explains Dr Rackemann’s decision to acquire the Leon Hill property as he did in 2007.

The Leon Hill property

In February 2007, Dr Rackemann was contacted by a real estate agent, Mr Callanan, acting for Mr Hill. He was told that the land was for sale for $4.1 million. The asking price had been $4 million when the partners had been considering it in 2006. Mr Callanan had not then been Mr Hill’s agent.

Dr Rackemann was told that Mr Hill was keen to complete a sale of the property by the end of that financial year. He responded by signing a form of contract to purchase the land at a price of $3.5 million. Within a couple of weeks, and without any bargaining, Mr Hill accepted and signed the contract.

All of this occurred without the knowledge of Mr Lazarides or Mr Burns. Dr Rackemann says that he saw no reason to refer Mr Callanan’s approach to his partners. Nor did he see that it was appropriate to tell them that the property was now being purchased at a price which was significantly less than that which had been considered too expensive by the partners in 2006.

The contract was made on or about 12 April 2007 and the other partners became aware of it on 2 May 2007, when Mr Lazarides was told of it by another agent. The purchase by the partnership of lot 2158 had not been completed by then. That contract was subject to a due diligence provision and it became unconditional only at the end of March 2007. By then Dr Rackemann had been contacted by Mr Callanan and, I infer, had made his offer. Yet even according to Dr Rackemann’s version of the events of August and September 2006, his partners had not excluded the prospect of purchasing the Leon Hill property and developing it with lot 2158. I infer that he believed that if he informed them of his proposed purchase his partners would object and might reconsider the question of whether the Leon Hill property should then be acquired by the partnership.

The response of the plaintiffs to the news of this purchase was immediate. On 3 May 2007, Mr Lazarides emailed Dr Rackemann (and also Mr Bayliss, by then the managing agent of the Mermaid Beach centre) complaining about Dr Rackemann’s purchase in several respects. He wrote that there was “concern” because Dr Rackemann had not informed his partners of the purchase, the land had been considered with other properties in development proposals “worked up” by him and Mr Burns and that the partners had decided in 2006 to put on hold the acquisition of this property whilst they attempted to purchase the Littlejohn property. He also complained that the agent with whom the partnership had been dealing in relation to the Leon Hill property in 2006 was “quite miffed” about being excluded from Rackemann’s purchase, damaging the relationship between the partnership and that agent. And he claimed that Dr Rackemann’s ownership “of a property adjoining the partnership holding create[d] potential for substantial conflict at several levels”.

On the same day Dr Rackemann emailed Mr Bayliss but copied the email to Mr Burns and Mr Lazarides. He there rejected the suggestion by Mr Lazarides, apparently communicated to him through Mr Bayliss, that Mr Bayliss would have a conflict of duties in acting both as the managing agent of the partnership at the Mermaid Beach centre and as the agent for the Rackemann interests at the Leon Hill property. On the same day, Dr Rackemann emailed Mr Lazarides (copied to Mr Bayliss and Mr Burns) rejecting Mr Lazarides’s complaints.

On 4 May 2007, Mr Burns emailed Dr Rackemann as follows:

I am disappointed to hear (not from you) that you have purchased the Leon Hill property at Miami. I believe this is not in the spirit or ethics of our partnership.
I believe this makes our partnership untenable and suggest that the solution is for Larry and myself to purchase your interest in the partnership assets at valuation.
Hopefully you will cooperate and that this can be achieved amicably.

Thus, the immediate response of each of the plaintiffs was to complain that the defendant had acted inconsistently with its duties as a partner. It is now argued by the defendant that the plaintiffs had set about creating a document train with a view to litigation. If it be relevant, in my view the plaintiff’s complaints were genuine. For example, I have Mr Burns’s handwritten draft of his email which shows that it was his own work and not the product of Mr Lazarides’s legal experience.

Mr Lazarides sought legal advice, from Gadens, within a few days. In his instructions to them[8] he wrote that he and Mr Burns were of the view that Dr Rackemann’s actions in acquiring the Leon Hill property constituted a breach of the partnership agreement and in particular cl 16, and that they were considering exercising their right of expulsion under cl 22.
[8]An email to Gadens of 8 May 2007.

At about the same time, Dr Rackemann saw Mr Burns and put a proposal which is described in a memorandum from Mr Burns and Mr Lazarides to him of 11 May 2007. Dr Rackemann proposed to retain the Leon Hill property, to sell to the plaintiffs his interests in lots 2158 and 2160 and to agree not to purchase the Littlejohn property. But he would retain his partnership interest in the Mermaid Beach shopping centre. In that memorandum of 11 May, Mr Burns and Mr Lazarides wrote that the proposal had merit with some qualifications, one of which was that Dr Rackemann should grant to them a first right of refusal over the Leon Hill property. They also made an alternative proposal which was that the partnership holdings would remain unchanged, the partnership would continue in its efforts to acquire the Littlejohn property and that Dr Rackemann would sell two-thirds of the Leon Hill property to the plaintiffs within 12 months of the acquisition of the Littlejohn property or within three years, whichever was the later. And they put a further alternative, which was that they buy his interests in all of the partnership assets at a price fixed by valuation.

On 16 May 2007, Dr Rackemann emailed Mr Lazarides and Mr Burns suggesting that he sell to them his interest in the Mermaid Beach centre and that he would buy their interests in lots 2158 and 2160. This was rejected by Mr Lazarides in his email of 23 May 2007, in which he claimed that the decision of the partnership had been to acquire the Miami properties, as a “medium/long-term project with considerable upside down the track”. He suggested that in relation to the Leon Hill property “the partnership decision can be achieved” by Dr Rackemann giving a right of first refusal.

On 8 June 2007, Dr Rackemann emailed his partners, saying that what had been proposed was “a constructive way forward”. He wrote:

I agree that the partnership would be well served by completing the Miami project including acquiring the Littlejohn property.
I would like to ensure that all three of us are clear as to the scope of the partnership – operating the Mermaid development and developing the properties (other than Leon Hill) at Miami – and accordingly the duties of each of us as partners, so that there can be no suggestion that any of us is not free to pursue other commercial opportunities outside the partnership business.
As to the Leon Hill property, I would be content to treat it as you suggest and grant the partnership a first and last right to purchase it so that it becomes part of the Miami project, if I ever decide to sell.

If you both agree to the principle, I will organise papers to formally amend the partnership deed to record these changes to our arrangements.
An equally simple alternative is for you to propose a figure to me for my share, for discussion.

At this point Mr Lazarides went not to Gadens, but to Ms Shearer of the firm Primrose Couper Cronin Rudkin, who at least until this point had been the partnership’s solicitors. He asked her to draw a document by which “the partnership” would be granted a right of first refusal over the Leon Hill property and which would also contain an undertaking by the “Rackemann interests” not to acquire any further properties at Miami which might be amalgamated with the Leon Hill site. He said that the document should also include a non-lapsing caveat over the Leon Hill property in favour of the partnership, preventing all dealings except leases of a certain kind. This was done without reference to Dr Rackemann.

Ms Shearer prepared drafts of a deed and a letter to be written to the Rackemanns which she sent to Mr Lazarides on 15 June 2007. On the same day Mr Lazarides emailed Dr Rackemann confirming what he claimed was Dr Rackemann’s agreement to give the partnership a right of first refusal. On 22 June 2007, Mr Lazarides gave further instructions to Ms Shearer, suggesting certain changes to her draft deed.

On 1 July 2007, Dr Rackemann emailed his partners observing that a financial year had just ended but the partnership had not met for nine months, and suggesting that there be at least quarterly meetings. He sent a further email on the same day to Mr Lazarides, saying that he had not received any financial statements or other documents relating to lots 2158 and 2160 and requesting such documents.

On 5 July 2007, Ms Shearer, whose firm had become known as Cronin Shearer Lawyers, wrote a letter addressed to the partners of the Mermaid Retail Partnership, care of Mr Lazarides, enclosing a further draft deed, and yet a further draft was emailed by her to Mr Lazarides on the same day.

On 9 July 2007, Mr Lazarides received an email from Gadens, which was as follows:

A quick e-mail to ask how your negotiations are proceeding with Mr Rackemann.
The deadline for filing an expulsion notice under Clause 21 of the partnership agreement is approaching and we wanted to make sure that if you had not been able to resolve the dispute on a commercial basis that the deadline wasn’t missed.

On 12 July 2007, Mr Lazarides replied to Gadens as follows:

Thanks for your note of 9 July. We have reached ‘in principle’ agreement with Rackemann whereby he will grant the partnership a first right of refusal over the Leon Hill property he has purchased without telling the partnership. This is being documented now by the partnership’s lawyers. Assuming that is finalised satisfactorily, I probably will not have anything further for you, so thanks to you and Arthur for your help.

I will return to that correspondence for its relevance to the question of whether the defendant is estopped from relying upon the three month limit stipulated by cl 22 of the partnership deed.

On the same day Mr Lazarides gave further instructions to Ms Shearer. He asked her to amend the draft deed in several respects. On the following day and again on 16 July 2007, he gave further instructions to her in relation to the draft documents. It is unnecessary to set out here the terms of these instructions. It is sufficient to say that they were instructions to protect the plaintiffs’ interests vis-à-vis those of Dr Rackemann.

On 18 July 2007, Ms Shearer sent a further draft deed to Mr Lazarides and asked for instructions as to details to be inserted in his proposed lease of part of the Leon Hill property to the partnership. The proposal, which had not yet been put to Dr Rackemann, was that part of the Leon Hill property would be leased to the plaintiffs so as to provide an interest sufficient to support a caveat. Mr Lazarides was asked to provide details of, amongst other things, the area or areas to be leased as well as other terms of the lease.

Drafts of a lease and a caveat were sent by Ms Shearer to Mr Lazarides on 19 July 2007 and an amended deed was sent to him on 24 July 2007. On the same day, 24 July 2007, Cronin Shearer wrote a letter addressed to the three partners, care of Mr Lazarides. This letter enclosed the same proposed deed, but it had the appearance of the solicitors having acted upon the instructions of all three partners. The solicitors wrote in their covering letter:

Further to our recent communications, please find enclosed Deed with annexures in relation to the Miami properties which should be printed and signed in quadruplicate.
The Deed contains the first right of refusal and provides for a lease to sustain a caveat and thereby secure the obligations of the Rackemann Partnership in the Deed.
The area to be leased under the Tenancy Agreements is intended to be an insignificant vacant strip around the perimeter of the Leon Hill Site so that it does not interfere with any other tenant’s rights.

The deed provided for a right of first refusal to be given by the so-called Rackemann Partnership (the owners of the Leon Hill property) to “the Partnership”, which was defined as the partnership constituted by the plaintiffs and defendant. It provided that if the property was offered to the Partnership, the defendant would not vote on the question of whether or not to accept that offer and the defendant was to give a power of attorney to the plaintiffs to authorise them to accept such an offer. It provided that the Rackemann Partnership would grant to the Partnership a lease over a part of the Leon Hill site in terms of an annexed tenancy agreement. The lease was to be for a period of 20 years but the deed provided that “to give effect to this without the need for a code assessment under the Integrated Planning Act the Rackemann Partnership [would] agree to enter into two consecutive leases of ten years each”. The deed also provided that the Rackemann Partnership would consent to a caveat over the Leon Hill site. Then by a further clause it was to be agreed that if the Partnership was dissolved or terminated or for any reason the defendant ceased to be a member of the Partnership, the obligations of the Rackemann Partnership would nevertheless continue for the benefit of the plaintiffs. It contained a covenant by the defendant that whilst it had any interest in any of the properties in Miami, including but not limited to the Leon Hill site, it would not withdraw from the Partnership as allowed in cl 4 and cl 26 of the partnership agreement. Lastly but not unimportantly, it contained covenants whereby the Rackemann Partnership would not acquire any further properties in the immediate vicinity of the Leon Hill site and would not deal with that site except by leases not exceeding terms of five years including options.

Whilst Dr Rackemann had suggested the grant of a right of first refusal, there had been no suggestion to him that there should be these other terms for a lease of part of the Leon Hill property, a caveat over that property and those significant restrictions on the defendant’s ability to terminate the Partnership or deal with the Leon Hill property.

Late 2007 – failed negotiations

The three month period under cl 22 of the partnership agreement had commenced when Mr Lazarides was informed on 2 May 2007 of the Rackemanns’ purchase. Within the three months, Dr Rackemann had not withdrawn his proposal of a grant of a right of first refusal. But nor had he indicated any preparedness to agree to a document such as that which was sent to him on 25 July.

It was not surprising that after this letter from Cronin Shearer and its enclosures were emailed by Mr Lazarides to Dr Rackemann on 25 July 2007, he found them unacceptable. But he did not reply until writing to Mr Lazarides and Mr Burns, on or about 27 August 2007,[9] as follows:
[9]The letter is undated but it was ultimately common ground that it was sent on or about this date.

I refer to Larry’s email of 25 July 2007 attaching the letter and documents prepared by Cronin Shearer lawyers for the Mermaid Retail Partnership.
As an initial point, I am disappointed that I was not consulted prior to Cronin Shearer Lawyers being instructed to prepare the documents. I do not wish Cronin Shearer to prepare any further documents on behalf of the partnership and do not consent to that occurring.
In any event, I have reviewed the documents that they have prepared. The documents are unacceptable to me and go much further than my email of 8 June 2007 contemplated. I do not feel that the matters that you have raised and that are set out in the proposed documents from Cronin Shearer will allow us, as you say, to put the matter behind us so the partnership can move forward.
In circumstances where I feel that our relationship as partners has deteriorated to the extent that you would instruct lawyers to prepare documents containing the mattes that these documents contain, it seems to me that a dissolution of the partnership is the most appropriate result.
I suggest that we negotiate my exit from the Mermaid Retail Partnership by an amicable winding up of the partnership without resort to the formal mechanisms in the deed. I suggest that you, and Paul purchase my share of the partnership properties, and 2174 Gold Coast H’way [the Leon Hill property], with appropriate releases and indemnities to bring finality to the partnership and to keep our respective lawyers happy.
As a first step, I am prepared to offer to sell to you at the prices set out below.
Property Price

2375 Gold Coast H’way  $11.5 million
2160 & 2158 Gold Coast H’way                   $5 million
2174 Gold Coast H’way  at cost
($3.7 million plus
interest to be
calculated)

Total$20.2 million, plus any interest adjustment

Accordingly, my share of the above properties is $5.5 million plus $3.7 million (plus interest to be calculated).
Alternatively, I will purchase your share of the partnership properties based on the same prices as above. Ie. your share is $11 million.
Otherwise I expect that the properties will have to be put on the market.
I would be happy to discuss the wording of an appropriate deed to record the change in situation.

Mr Lazarides’s response to Dr Rackemann’s letter of 27 August was to ask for information in relation to the Leon Hill site, such as tenancy details and outgoings. There was no complaint then that the plaintiffs had refrained from exercising a right, under cl 22 of the partnership deed, of compulsory acquisition of the defendant’s share in the belief that a right of first refusal would be granted. That complaint is now made and it is essential to the plaintiffs’ argument that the defendant is estopped from relying upon the expiry of the three month period to dispute their expulsion notice.

Dr Rackemann responded with some information, as requested, on 4 September 2007. On the following day, Mr Lazarides sought further information about the Leon Hill property. On 14 September, he emailed Dr Rackemann with a proposal for the plaintiffs to acquire the defendant’s interest in the Mermaid Beach centre and for them to sell their interests in the Miami properties to Dr Rackemann. There followed emails between Mr Burns and Dr Rackemann in which, in very general terms, similar proposals were aired.

Mr Lazarides and Mr Burns wrote to Dr Rackemann on 24 September 2007, setting out in some detail their case of the range of values of the partners’ shares, for the purposes of a proposed division of partnership assets. On the following day, Dr Rackemann emailed Mr Lazarides (copied to Mr Burns) requesting a formal valuation of lots 2160 and 2158 for his “own purposes” and at his expense. That was resisted by Mr Lazarides in his email of the following day. He there wrote that he was concerned that such a valuation might be detrimental to the partnership and that it might be discussed with the partnership’s bank. He also claimed that he and Mr Burns considered that Dr Rackemann’s “earlier agreement to give the partnership a right of refusal over [the Leon Hill site] is an enforceable obligation” and that should the negotiations break down, they would be calling upon him to honour it. On 25 September, the purchase of lot 2158 was settled.

Early 2008

The negotiations for this division of assets did not progress further. In January 2008, Dr Rackemann retained Mr Cronin, a solicitor, and began to make more specific complaints to the effect that he was not being provided with accounts and other partnership records relating to its ongoing business. On 16 January 2008, Dr Rackemann emailed Mr Lazarides asking to be told what distributions had been made to partners from June 2007. Mr Lazarides replied simply “you can get this information from the bank statements”. On the same day, Dr Rackemann asked to be provided with a copy of the statements from the partnership records and Mr Lazarides replied that he had been informed by the bank that they had sent statements directly to Dr Rackemann as Dr Rackemann had requested in the previous April. Again on 16 January, Dr Rackemann emailed Mr Lazarides asking the question “what feedback have you had from the letting agents of (lot) 2160”, to which Mr Lazarides replied simply and unhelpfully: “quite a bit”. Mr Lazarides then emailed Mr Burns, saying that Dr Rackemann was not entitled to such information because of his conflict of interest by being the owner of the Leon Hill property, for which he might be competing for the same prospective tenants.

On 17 January 2008, Mr Burns and Mr Lazarides wrote to Dr Rackemann with a different approach, which was to revive the proposal for a right of first refusal rather than to pursue some agreement for the division of partnership assets. They asked him to let them know specifically what parts of the documentation which had been sent to him (in the previous July) were unacceptable to him. They also renewed their complaints that the Leon Hill purchase had been a breach of the partnership deed and was causing ongoing problems for the partnership’s business.

Mr Cronin wrote to Mr Lazarides on 29 January 2008 in response to the memorandum of 17 January. He denied any wrongdoing by Dr Rackemann in the purchase of the Leon Hill property. He then referred to cl 10 of the partnership deed, which provided that each partner should have full access to the partnership books of account at all times and be at liberty to make extracts therefrom, and demanded that Mr Lazarides produce various documents, including bank statements and copies of leases, by no later than 1 February 2008. He referred to another issue concerning a potential tenant for lot 2160 to which I will return. And he advised that he was seeking Dr Rackemann’s instructions on a “potential proposal for a resolution of the matters which are the subject of dispute”.

On 30 January 2008, Mr Lazarides gave further instructions to Ms Shearer. He asked her to amend the deed of July 2007 in substantial respects.

On 1 February 2008, he and Mr Burns signed a memorandum to Mr Cronin which contained the curious assertion that the partnership agreement did not recognise Mr Cronin’s “right to give or receive correspondence regarding partnership matters or to be involved in communications between partners”. Their point seems to have been that because the partnership deed permitted a corporate partner to nominate a representative, then by necessary implication, only that representative could deal with other partners. But the notion that a partner could not deal with the others through its lawyer was not expressed or implicit in the partnership agreement. On the same day, they wrote to Dr Rackemann, providing a response to many of the matters in Mr Cronin’s letter. They claimed they still considered that there was an enforceable agreement giving the partnership a right of first refusal.

On 4 February 2008, they again wrote to Dr Rackemann, enclosing Ms Shearer’s redraft of the Deed. This again provided for the grant to the partnership of a right of first refusal. But it omitted the previous provisions for a lease of part of the Leon Hill property, a caveat over that property and restrictions upon dealing with that property or terminating the partnership. There had been no response by 22 February, when they again wrote to Dr Rackemann asking him to agree to the revised deed.

On 29 February 2008, Mr Cronin wrote to the plaintiffs enclosing his draft of a deed between the partners and the Rackemann interests described as the Rackemann Partnership. It provided for a right of first refusal. In that respect it was largely in the terms of Ms Shearer’s most recent draft. There was one significant difference, however, which was that Mr Cronin had removed the provision to the effect that the Leon Hill property could be offered to another buyer only on the same terms and conditions as it had been offered to the partners. Further, Dr Rackemann and Mrs Rackemann were not to be parties to this deed, although they were co-owners of the land. For these reasons and others, the Cronin draft was not acceptable to the plaintiffs. Thus, on 10 March 2008, they wrote to Dr Rackemann rejecting the draft and saying that it seemed that “[t]he only option now left is to put the partnership’s Miami properties (and only the Miami properties) to the open market in a timely manner”. This appears to have been the last of the negotiations for a right of first refusal.

The Leon Hill purchase: a ground for expulsion?

It is convenient at this point to discuss the plaintiffs’ case which relies upon the purchase of the Leon Hill property as a ground for a notice under cl 22. The questions which arise are whether it did provide such ground, and whether that ground was still available to the plaintiffs when they gave the first of their notices, well outside the three month period, on 3 September 2008.

In my conclusion, the defendant’s participation in the purchase of the Leon Hill property engaged cl 22. It was a breach of the express duty in cl 16(a), that a partner should be just and faithful to the others in all transactions relating to the partnership. It was also a breach of the partner’s fiduciary duty owed according to the general law. In Birtchnell v The Equity Trustees, Executors and Agency Company Limited,[10] Dixon J remarked that “it has been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners … The relation [between partners] is based, in some degree, upon mutual confidence that the partners will engage in some particular kind of activity or transaction for the joint advantage only”. He said:[11]

The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm. Once the subject matter of the mutual confidence is so determined, it ought not to be difficult to apply the clear and inflexible doctrines which determine the accountability of fiduciaries for gains obtained in dealings with third parties. Of the duties imposed by these doctrines, one which is material for the decision of this case is that which forbids a partner from withholding from the firm any opportunity of advantage which falls within the scope of its undertakings, and from using for his own exclusive benefit, information, knowledge or resources to which the firm is entitled.

[10](1929) 42 CLR 384, 407-408.

[11]Ibid, 408.

The business of this partnership, according to the partnership deed, was as owners and developers of the Mermaid Beach shopping centre together with “such other business as the partners may from time to time agree”. At one point in the trial, the defendant’s case appeared to be that the Leon Hill property could not have been in any sense within the subject matter over which a partner’s obligations extended, because the partners had not agreed to include it within the partnership business. Such a case cannot be accepted. I have found that the acquisition of the Leon Hill property by the partnership remained very much in prospect after it was decided in August 2006 that the property would not be purchased at that point in time. The partners effectively decided to defer its acquisition, but to keep it under consideration because of what remained the real prospect that the partners would decide to undertake a larger development which included this land.

In that way, the Leon Hill property represented “an opportunity of advantage” falling within the scope of the partnership’s undertaking. In particular, it represented an opportunity for the more profitable enjoyment of the partnership property constituted by lots 2158 and 2160, the development of which had become part of the partnership’s business. Further, it is clear enough that the experience of the partners in 2006, in investigating the possible uses of the Leon Hill property, must have been advantageous to the Rackemann interests in their acquisition of the land in 2007. Dr Rackemann was able to promptly respond to an agent’s approach, apparently without any of the usual enquiries, let alone a more thorough due diligence exercise, that would be expected of a potential purchaser unacquainted with the property.

The defendant’s conduct was also within s 38(d) of the Partnership Act, providing then another basis for the defendant’s expulsion in that the defendant was guilty of conduct which was a ground for dissolution: cl 22(d). The conduct was also within s 38(c) of the Act in that the acquisition of Leon Hill was conduct “calculated to prejudicially affect the carrying on of the business [of the partnership]”. That business included the re-development of lots 2158 and 2160, which was likely to be affected by the unavailability of the Leon Hill property. And the business of leasing lots 2158 and 2160 was potentially affected by the competition which would be provided by the Leon Hill property, in circumstances where the landlords of that property would be privy to all of the partnership information relevant to the letting of lots 2158 and 2160.

An estoppel?

Accordingly, the plaintiffs were entitled to give a notice under cl 22. That notice had to be given by 2 August 2007 and the question then is whether the defendant is estopped from relying upon that time limit. The argument focuses upon Dr Rackemann’s email of 8 June 2007 and his non-response to the plaintiffs’ email of 15 June 2007. I have already set out Dr Rackemann’s email.[12] On 15 June, the plaintiffs wrote “confirming your agreement to give the partnership a first right to purchase the Leon Hill property if ever you wish to sell it”. The argument also relies upon the absence of a response by Dr Rackemann to the draft Deed and other documents sent to him on 25 July 2007, until after the expiry of the three month period.
[12]Above at [46].

The plaintiffs’ case is that Dr Rackemann thereby made them believe that the right of first refusal would be given, knowing that if he rejected that proposed resolution of their dispute, the plaintiffs would act under cl 22 within the required time. They say that in reliance upon Dr Rackemann’s representation that the right of first refusal would be given, they did not expel him within the three months, and that accordingly, the defendant is estopped from relying upon the expiry of that period.

The plaintiffs also offered a variant of this argument, by which they submitted that even beyond the three month period, Dr Rackemann continued to effectively represent that he would grant a right of first refusal. The particular relevance of that conduct, if that be the proper understanding of what happened, is difficult to identify. The apparent purpose of this argument was to explain why the plaintiffs did not move to expel the defendant as soon as they had Dr Rackemann’s rejection of their proposed deed in August 2007.

I accept that Dr Rackemann represented that he was minded to grant the plaintiffs a right of first refusal. But this was an indication of what he was prepared to agree, not such an agreement itself. On an objective view, there was no intention that the parties would be contractually bound by the emails of 8 and 15 June 2007. They were not in terms of a concluded agreement. Ordinarily some formal document would be expected in this context. Dr Rackemann’s email of 8 June 2007 referred to the need to “formally amend the partnership deed” to make the changes he there proposed in conjunction with the grant of a right of first refusal. Nor was there any expressed consideration for such an agreement by the defendant and the other Rackemann interests who were co‑owners of the Leon Hill property.

An estoppel as alleged by the plaintiffs requires the proof of an assumption of the existence of a legal relationship or an expectation that that legal relationship would come into existence. I find that Mr Lazarides and Mr Burns did not assume that there existed a legal obligation on the part of the defendant and other owners of the Leon Hill property to grant a right of first refusal. The objective circumstances referred to in the previous paragraph make it unlikely that they did have that assumption. And in his email of 12 July 2007 to Gadens, Mr Lazarides said that the parties had reached an “in principle” agreement which was then being documented. He wrote that “assuming that is finalised satisfactorily, I probably will not have anything further for you …”. This demonstrates that, as would be expected from an experienced lawyer such as Mr Lazarides, he did not believe that there was then an enforceable obligation. Similarly, Mr Burns referred in his evidence to the existence of an “agreement in principle”.[13] Accordingly, the plaintiffs must say that they expected that the defendant and the other Rackemann parties would become bound by the grant of a right of first refusal.
[13]Transcript 6-41/29, 6-43/14, 6-44/10.

But the plaintiffs must establish more than such an expectation. As Brennan J held in Waltons Stores (Interstate) Limited v Maher,[14] in a case advanced upon an alleged expectation that a particular legal relationship would exist between the parties, it must also be established “that the defendant would not be free to withdraw from the expected legal relationship”. That requirement was explained by Brennan J by reference to the judgment of the Privy Council in Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd,[15] where an agreement in principle had been reached but which was “subject to contract”. Lord Templeman there said that it was necessary for more to be established than an expectation that a binding contract would probably result. His Lordship said:[16]
[14](1988) 164 CLR 387, 428.
[15][1987] 1 AC 114.
[16]Ibid, 127-128 and cited by Brennan J in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 422.

It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations set out in a document expressed to be ‘subject to contract’ would be able to satisfy the court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document. But in the present case the government chose to begin and elected to continue on terms that either party might suffer a change of mind and withdraw.

In Waltons Stores (Interstate) v Maher, Brennan J said:[17]

It follows that an assumption or expectation by one party which does not relate to what the other party is bound to do or not to do gives no foundation for an equitable estoppel, though the assumption or expectation relates to the prospect of the other party conducting himself in a particular way. The risk that the other party who, being free to conduct himself in whatever way he chooses, may choose to conduct himself in a way different from that assumed or expected rests with the party who adopts the assumption or expectation.
Parties who are negotiating a contract may proceed in the expectation that the terms will be agreed and a contract made but, so long as both parties recognize that either party is at liberty to withdraw from the negotiations at any time before the contract is made, it cannot be unconscionable for one party to do so. Of course, the freedom to withdraw may be fettered or extinguished by agreement but, in the absence of agreement, either party ordinarily retains his freedom to withdraw. It is only if a party induces the other party to believe that he, the former party, is already bound and his freedom to withdraw has gone that it could be unconscionable for him subsequently to assert that he is legally free to withdraw.

[17](1988) 164 CLR 387, 422-423.

In the present case, the plaintiffs could not have believed that the defendant and the other Rackemann parties were unable to withdraw from the so-called agreement in principle. At least for this reason the alleged estoppel is not established.

There are other flaws in the estoppel case. The plaintiffs have not established that they abstained from acting under cl 22 in the expectation that they would be given this right of first refusal. No doubt Mr Lazarides had been advised by Gadens of what should have been apparent to him in any case, which was that there was a three month time limit. There is no suggestion that he or Mr Burns was under some misunderstanding as to when the three months would expire. Mr Lazarides was advised by Gadens on 9 July 2007 that the deadline should not be allowed to pass if Mr Lazarides was not “able to resolve the dispute on a commercial basis”. The deed which the plaintiffs had Ms Shearer draw and send to Dr Rackemann provided for a resolution of the dispute on terms which went far beyond a grant of a right of first refusal. Dr Rackemann had given no indication that he would agree to such other terms; indeed they had not been put to him. As the deadline of the first week of August approached, Mr Lazarides and Mr Burns must have known that they had not reached that commercial resolution. They took until 25 July to submit the draft deed to Dr Rackemann and there was no demand or request that he sign it within the few days which remained of the three month period. Yet given the acrimony between the parties, coupled with the onerous terms of the agreement they were proposing, they could not have been especially confident that he would accept those terms. In my conclusion, it is at least just as probable that the plaintiffs had decided that they would not act under cl 22 and that if the grant of a right of first refusal had been rejected within the three months, still they would not have given an expulsion notice. Notably, they did not attempt to expel the defendant when Ms Shearer’s drafts were rejected in August 2007 and February 2008. Nor, as already noted, did they then complain that they had abstained from expelling the defendant on the faith of an expectation of the right of first refusal.

Further, they have failed to prove that the defendant, and specifically Dr Rackemann, knew or intended that the plaintiffs should desist from acting under cl 22 by inducing them to adopt an expectation of a first right of refusal.[18] I would accept that he was aware of the prospect that, consistently with the plaintiffs’ claims that the defendant was in breach of the partnership agreement, the plaintiffs might act or purport to act under cl 22. But it is a different thing to say that by his email of 8 June or his failure to respond to Mr Lazarides’s email of 15 June 2007, he knew or intended the plaintiffs would abstain from giving notice under cl 22. I find that Dr Rackemann was minded to give a right of first refusal but found the deed which was ultimately submitted to him to be one-sided and unreasonable.
[18]Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 429.

Had the plaintiffs otherwise established the essential elements of the alleged estoppel, a further difficulty would have been their case as to a detriment by the non-fulfilment of the alleged expectation. In effect, their case is that they were worse off for not having given a notice under cl 22 within time. Yet how are they worse off for not having done so? Clearly, by their prosecution of these proceedings, they believe that they would have been better off by giving notice under cl 22 within time. But they have not attempted to prove that matter. For example, they have not sought to prove that had they acquired the defendant’s partnership share in 2007, they would now be better off having regard to any movement in the value of partnership assets since then. Nor have they sought to prove, for example, that Dr Rackemann’s continuing participation in the partnership has led to some declining profitability of the partnership business.

I conclude then that the defendant is not estopped as the plaintiffs allege and that the plaintiffs are unable to rely upon the acquisition of the Leon Hill property as a ground to support their notices of September 2008 and January 2009.

The unsigned lease documents

Many of the arguments relied upon to support the notice of 3 September 2008 concern documents in relation to some tenancies at Mermaid Beach and the Miami properties which had been handed to Dr Rackemann on 19 August 2008. I shall refer to them as the lease documents. By then they had been signed by the tenant in each case and also by Mr Burns. The plaintiffs’ case is that Dr Rackemann wrongly failed to co-sign the documents and return them for the signature of Mr Lazarides. They further allege that Dr Rackemann wrongfully refused to instruct his solicitor, Mr Cronin, to allow Mr Lazarides to co‑sign the documents when Mr Lazarides and Mr Burns called at his office on 2 September 2008. It was that event which was the immediate cause of the expulsion notice which the plaintiffs gave on the following day.

The documents were provided to Dr Rackemann under cover of a memorandum from Mr Burns and Mr Lazarides dated 13 August 2008. It identified the six documents in question and provided details in respect of some of them. The memorandum asked Dr Rackemann to sign them and return them by courier to Mr Lazarides’s office.

Two of the documents related to premises at the Mermaid Beach centre which had been occupied by a business called “Bernie’s”. There was a surrender of an existing lease and a lease to be granted to a different party called Greek Style Realty Pty Ltd, although it was described in the memorandum as a company called Souvlaki Hut Pty Ltd. This was an obvious error, explained by the new tenant’s business being called the “Souvlaki Hut”. The covering memo advised that the new lease was for a rent of $105,000 per annum with the tenant paying for all of the necessary alterations, estimated at $150,000. But this was the extent of the information which the plaintiffs provided. Nothing was said about the financial worth of the new tenant or of the guarantors of the tenant’s performance. However in an email of 11 June 2008, Mr Lazarides had advised Dr Rackemann (and Mr Burns) that the new rental was significantly higher than that which could have been achieved on a rent review with Bernie’s. He had also advised that $30,000 from the new tenant had been provided by way of security, to be increased to $60,000 prior to handover and that the refurbishment of these premises would provide additional car spaces for the centre. Overall, the proposed new lease appears to have been quite favourable to the partnership. But of course by this stage things were so strained between the partners, particularly between Mr Lazarides and Dr Rackemann, that there had been no discussion about the matter.

Next there was a document relating to a licence to the National Australia Bank for an ATM machine at the Mermaid Beach centre. The licence was for a term of five years commencing on 1 November 2007, although the document had been prepared in May 2008. There appears to have been nothing urgent about the finalisation of this document, as shown by that delay in its preparation and the fact that more than three months had passed before it was provided to Dr Rackemann. It was an apparently routine transaction, requiring no particular discussion between the partners.

In relation to the Miami properties, there was a document by which the partners were to consent to an assignment of a lease from a tenant called Supertint Australia Pty Ltd to two individuals as trustees. The document contained covenants by them to perform the lease as and from 11 April 2008 and it was provided that neither the assignor nor its guarantor would be released from liability under the lease. It further provided for variations to the lease. No details were provided to Dr Rackemann to explain those changes. Nor was there any information provided to him in respect of the financial positions of the new lessees.

The other documents concerned a lease to a company called Gene International Pty Ltd. It had executed the lease on 30 May 2008. The memorandum to Dr Rackemann advised that the net annual rental was $115,000, with a two month rent free incentive spread over the first 12 months of the lease, and that the lease contained a “demolition clause”. No information was provided as to the financial position of Gene International Pty Ltd or the proposed guarantor. There was also a document to record the lessors’ consent to an application by the lessee for a town planning approval required for the agreed use of the premises. Again, the transaction was probably beneficial: Mr Burns had seen fit to sign the documents. And again, the fact that some time had passed from the tenant’s execution of the documents until their delivery to Dr Rackemann might have indicated that the landlords’ signing of these documents was not considered to be urgent.

What followed in the fortnight from 19 August 2008 was a series of exchanges between the parties, and sometimes their lawyers, which had little to do with the provision of information which would have been relevant to Dr Rackemann in assessing the documents, but which well demonstrate the level to which the relationship between the partners had descended. Because of the importance of these exchanges to the plaintiffs’ arguments, it is necessary to relate them here in some detail.

On 25 August, Mr Lazarides emailed Dr Rackemann firstly to complain that he had handed the documents to his solicitor, Mr Cronin. He wrote:

Your solicitor has no authority from the partnership to review any documents. Your solicitor has not [sic] authority to even have these documents in his possession. Nor are you entitled to give these documents to your solicitor.

This was a variation of Mr Lazarides’s point, that the defendant company could act in any respect affecting the partnership only by its nominated representative, Dr Rackemann. The suggestion here was that this precluded the defendant from obtaining legal advice if that involved showing partnership documents to its own solicitor. The next matter raised in this email was an allegation of conflict of interest from the ownership of the Leon Hill property through the Rackemann interests being competing landlords. The immediate connection between that matter and the documents which had been provided for Dr Rackemann’s signature, was not explained in the email. Next, Mr Lazarides responded to matters which Mr Cronin had raised in previous correspondence. Lastly, his email dealt with the documents for Dr Rackemann’s signature. Mr Lazarides wrote:

The documents in question have been signed by MacLag (No 11) Pty Ltd. The documents are acceptable to me and I wish to sign them without delay.
The other parties to the documents have relied upon them. Most of them are in possession of the premises to which they relate and/or have paid rent to the partnership pursuant to these documents.
Our partnership agreement says decisions by a majority of the partners bind the partners.
It is our view that Chantay Too Pty Ltd is obliged to sign these documents. One of the documents, being the town planning consent form for Gene International Pty Ltd, is urgently required by the tenant so that it can lodge its town planning application with Council.

More probably than not, Dr Rackemann did not know of the identity of the proposed tenant until he received Mr Mahuika’s email of 1 February 2008. The tenant was not identified in Mr Mahuika’s email of 25 January. And it is likely that the agent was unwilling to disclose the name of the prospective tenant until the agent had secured an appointment to act for the partnership. In his email of 1 February, the agent’s reference to the tenant indicates that it was at that point that the tenant was identified, particularly because the tenant is named by a hyperlinked reference to its website. But when that party was no longer interested in leasing the premises, I infer that the agent then identified it to Dr Rackemann in order to demonstrate that the agent had been acting, in good faith, for a real tenant.

I find that when Mr Burns asked Dr Rackemann on 25 January for the identity of the prospective tenant, Dr Rackemann simply declined to provide it and did not say that he was unaware of it. It is improbable that he would have refused to identify the agent but then say that he was unable to identify the tenant. More probably, he simply declined to identify either, preferring his partners to believe that he knew more rather than less.

I reject Dr Rackemann’s evidence that he sent to either of his partners the agent’s draft of his appointment. There is no documentary evidence to that effect. And again, there was no contention by Mr Cronin, in his letter of 5 February written in response to the plaintiffs’ memorandum to Dr Rackemann of 1 February, that the agent had been identified, and in particular by the provision of that draft contract.

There was no rational basis for Dr Rackemann’s withholding the identity of the agent from the plaintiffs. In the interests of the partnership, the defendant should have disclosed it. The argument for Dr Rackemann was critical of what was said to be the failure of the plaintiffs to cooperate in respect of this agent’s approach. It was argued that the plaintiffs wrongfully declined to provide the keys to the premises or to otherwise facilitate an inspection by this agent and his prospective tenant. That criticism of the plaintiffs is valid, but it did not excuse the defendant’s conduct in denying its partners potentially valuable information.

The plaintiffs argue that by a failure to disclose the identity of the prospective tenant and its agent there was a breach of cl 16 or conduct which would provided grounds for dissolution by the Court. Dr Rackemann may have believed that he could do a better job negotiating this prospective lease than Mr Lazarides; but each of the partners should have been aware who the agent was and the partnership as a whole should have had an opportunity to formulate its response. I have the impression that Dr Rackemann kept the agent’s identity from his partners, because he believed that they had been conducting the partnership, at least in some respects, without including him, and that this was an opportunity for him to remind them of his business skills and what he saw as his ability to contribute to the conduct of partnership business. He was not looking to personally profit from this transaction or to deprive the partnership of an opportunity. I accept that he believed that the partnership would be at least as well served by his handling this transaction. In my conclusion, his conduct was not so serious as to breach cl 16 or to otherwise engage cl 22. It was no more serious than Mr Lazarides’s withholding information when asked, two weeks earlier, what feedback he had received from agents about letting lot 2160, he replied “quite a bit”.[33]
[33]Referred to above at [62].

In any case, the further question would be whether this conduct could be used to support the purported expulsion of the defendant. The conduct occurred about seven months prior to the expulsion notice of 3 September 2008. Clause 22 provided that an expulsion notice had to be given “within three (3) months after that partner’s offence or incapacity shall have become known to the other partners …”. The plaintiffs knew that the defendant had refused to disclose the identity of the agent or the possible tenant well more than three months prior to their notice. They knew of the defendant’s “offence” which they claim now was a ground for his expulsion.

But the plaintiffs argue that they were unaware of some relevant matters. They say that they saw the emails between Mr Mahuika and Dr Rackemann only after their expulsion notices. They argue that they were not sufficiently aware of the defendant’s conduct to have known of their right to expel the defendant based upon that conduct by the time they gave their notices. They further argue that on the proper construction of cl 22, they are entitled to rely upon conduct which provided a ground for expulsion at the time their notice was given, although they were then unaware of that ground.

Arguably cl 22 did not require the plaintiffs to specify a ground or grounds for their expulsion notice. Arguably also, the plaintiffs were able to rely upon a ground for the defendant’s expulsion, although that ground was neither stated in the notice nor known to the plaintiffs. However, the difficulty for the plaintiffs would be in proving that as at 3 September 2008 there was a ground upon which they were still able to rely, by the events of earlier that year. The time limit prescribed by cl 22 was according to the plaintiffs’ knowledge of the defendant’s “offence”. It was not according to the time at which the plaintiffs became aware of all of the evidence of that offence. By mid-February 2008, the plaintiffs were well aware of the defendant’s refusal to identify the agent or the tenant, and they had strongly complained of that refusal. In fact they complained that the identity of the tenant was being withheld, according to my findings, before the tenant’s identity became known to the defendant. But that does not detract from the fact that, in essence, the defendant’s offending conduct, which was the failure to disclose the identity of the agent who had made this enquiry and the party for whom that agent was acting, was conduct which the plaintiffs, no later than February 2008, understood had occurred.

In my conclusion, the plaintiffs would have been too late to expel the defendant upon this ground, when they gave their notice on 3 September 2008.

The second expulsion notice

The second expulsion notice was based upon the defendant’s return of unsigned documents for the Planet Noodle lease, for which the facts are largely set out above at [121]. Eight days after receiving the documents the defendant returned them under cover of a letter from Mr Cronin which explained the defendant’s reason for not signing them as the failure of the plaintiffs to inform the defendant of “Partnership affairs” and in particular of the subject transaction. At that stage, there was the mediation scheduled for 21 November 2008. Mr Cronin wrote that his client’s complaint of lack of information would be one of the issues to be discussed at that mediation.

On 22 October 2008, Mr Frampton replied to that letter. He wrote that the plaintiffs did not accept that the defendant was unaware of the transaction or that it had any justification for the return of the documents unsigned. He claimed that this refusal to sign the documents was or would have an adverse impact upon the plaintiffs, the partnership, the partnership property and the lessee and its assignee. He reserved the plaintiffs’ rights.

On 13 November 2008, the defendant delivered a notice of intention to dissolve the partnership, dated the previous day, to take effect as at 30 June 2009.

The parties participated in a mediation on or about 24 November 2008, which was preceded by argumentative correspondence even as to what should be considered to be the issues to be negotiated. The mediation failed to resolve any issue.

The plaintiffs gave their second expulsion notice on or about 9 January 2009. A covering letter from Mr Frampton explained that the notice was given in case the September notice had been ineffective. The only grounds stated in the second notice were to do with the Planet Noodle lease. It alleged that the defendant’s refusal to sign the documents was conduct which caused the partners to be in breach of that lease, to be in “breach” of s 121 of the Property Law Act 1974 (Qld) and/or s 45 of the Retail Shop Leases Act 1994 (Qld), unreasonably exposed the “partnership to a claim of loss and or damage by [the assignor of the lease]” and constituted a breach of cl 16 in that the defendant had not been just and faithful, had not diligently and faithfully employed itself in the business of the partnership and had not used its best skill and endeavours to carry on the business of the partnership.

The documents in question were to record the lessors’ consent to an assignment of lease and to a variation of that lease. The variation was to increase the amount to be held by the lessors as security, from three months rent to four months rent. The deed provided that this variation was operative and took effect, despite the date of the deed, from the so-called Assignment Date which was 1 August 2008. The deed had been signed by the outgoing lessee, the new lessee, its guarantors and the plaintiffs.

The expulsion notice misstated the effect of the deed being unexecuted by the defendant. As already discussed, there was no duty under the Properly Law Act to consent to an assignment. Nor was there any contravention of s 45 of the Retail Shop Leases Act, which provides by s 45(1) that a lessor under a retail shop lease must not obstruct or hinder the lessee in dealing with the lease “by way of security”. This was simply an assignment of the lease. There is no evidence of any detriment to the partnership from the defendant’s conduct in this respect.

As with the lease documents the subject of the first expulsion notice, the defendant’s stated position was not to refuse forever to sign the documents. Rather, it was to require the provision of information. Again, not all of the information which the defendant had sought was referable to this transaction; but it was reasonable for the defendant to require information which was relevant to it. None seems to have been provided.

Otherwise, my reasoning in relation to the lease documents, the subject of the first expulsion notice, applies also to this notice. If the first notice was ineffective, there were no grounds to justify the second notice.

I mention here that on 3 April 2009, the plaintiffs delivered a document headed “Notice exercising option”. It recited that the plaintiffs had given the expulsion notice of January 2009 and stated that the plaintiffs then gave “notice of their exercise of the option provided for in clauses 21(a) and 22 of the Deed to each purchase one half of the share in the partnership held by [the defendant]”. As I have held in a previous judgment in these proceedings,[34] such a notice would be unnecessary, because where there is a notice validly given under cl 22, the expelled partner ceases to be a partner on the receipt of that notice and that is the “date of the purchase taking effect” within cl 21.
[34] Maclag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2) [2009] QSC 299
[2009] QSC 299, [12].

The outcome is that the plaintiffs have failed to prove any ground upon which they were entitled to expel the defendant when they gave either of the notices of expulsion. I should note that the plaintiffs argued that if there was no particular ground which was established, nevertheless the cumulative effect of the various matters of which they complain should be regarded as sufficient to justify their expulsion of the defendant. I accept that, in general, it is necessary to assess the seriousness of some particular conduct of the defendant in the context of the defendant’s other conduct. Nevertheless, the plaintiffs must establish conduct which, understood in context, was itself of the kind which engaged cl 22 and of which they were aware only within three months of that notice.

It follows that the purported expulsion of the defendant was invalid and that now, in turn, the partnership has been dissolved as of 30 June 2009 by the defendant’s notice of dissolution. But in case a different view is taken as to the existence of a ground for expulsion as at the date of either notice, it is necessary now to discuss some further arguments made for the defendant.

Other arguments by the defendant

The first of these arguments is that the expulsion notices were issued for improper purposes. In this way, the defendant alleges, the plaintiffs acted in breach of their obligations to be just and faithful as partners. The defendant sought a finding that the plaintiffs were minded to expel the defendant because they wished to buy the defendant’s interest in the partnership for a price determined under cl 21 and a finding that such a purpose was “an improper and mercenary one”.

In an earlier judgment, I held that the price to be paid for the share of the expelled partner is according to the value of that share as at the date of the expulsion taking effect, which is the date of the expulsion notice.[35] The defendant argued that the plaintiffs believed, as at the date of their notices, that the value of the partnership property might have been depressed. The defendant says this should be inferred from the concerns which the plaintiffs then expressed about Dr Rackemann’s obtaining a valuation, which might have made its way to the partnership’s bank and put the partnership in breach of the term of its loan facilities that a certain loan to value ratio is to be maintained.
[35]MacLag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2) [2009] QSC 299, [12].

I accept that the plaintiffs were concerned, over an extended period, about a valuation being obtained by Dr Rackemann. In September 2007 the plaintiffs resisted attempts by Dr Rackemann to obtain a valuation and did so again in December 2008 and at an interlocutory hearing in these proceedings on 30 April 2009.

I infer that the plaintiffs decided to expel the defendant, if they could, because of a number of circumstances acting in combination. One was that the relationship of mutual trust had broken down and this was undoubtedly threatening the future prosperity of the partnership. A further circumstance must have been that the plaintiffs assessed that they would be better off by acquiring the defendant’s share at its then value than by receiving their respective proportions of the net value of the partnership upon a winding up. That perception probably involved some comparison between the then value of the real properties and their potential future value. But motivated by those circumstances, the plaintiffs were not acting in bad faith, if it is assumed, for the purposes of considering the present argument, that there was conduct then justifying the defendant’s expulsion. Upon that assumption, the plaintiffs could not have been criticised for wanting to end their association with the defendant.

By the terms of cl 22, they were given the remedy of expulsion as an alternative to a dissolution of the partnership. In choosing between those alternatives, they were not bound to consider what was in the economic interests of the defaulting partner. Nor were they bound to consider the defendant’s interest in deciding whether to act upon the defendant’s misconduct at all. The defendant’s argument cited cases, such as Blisset v Daniel,[36] in which a power to expel a partner was held to be qualified, by requiring its exercise in good faith and not solely for the exclusive benefit of the partners exercising that power. However, in that case, the power of expulsion was simply conferred upon the holders of two-thirds or more of the shares, without the requirement for any misconduct by the partner to be expelled. The power of expulsion in such a case is quite different from that in the present case. The potential unfairness of an unqualified power of expulsion is apparent, whilst in the present case, the power is expressly qualified to circumstances when the partner has engaged in serious misconduct against the interests of the partnership.
[36](1853) 68 ER 1022.

The defendant further argues that there was an improper purpose behind the September 2008 notice, which was to “deprive the defendant of the chance to execute the documents attached to the memo dated 13 August 2008 following inspections of partnership books and records which were underway and were in the process of being organised”.[37] It is suggested that the plaintiffs knew, as at 3 September 2008, that they were too late to rely upon the Leon Hill property purchase and that they were concerned that if the defendant executed the lease documents, this would deprive them of their ability to expel the defendant. Accordingly, they decided to expel the defendant there and then to deprive it of the chance of remedying its alleged default.
[37]Defendant’s written submissions, paragraph 148.

I accept that when they purported to expel the defendant in September 2008, the plaintiffs must have been conscious of the impact of this upon the prospect of their immediately obtaining the defendant’s signature upon the lease documents. Their action in giving the notice thereby indicates that they were not as concerned by the documents being unsigned by the defendant as they have claimed. I accept also that they felt more confident in the existence of a power of expulsion, given the events which had occurred in respect of the lease documents and in particular the events at Mr Cronin’s office on 2 September 2008. This might explain why they served the first notice when they did, in case the lease documents were signed and their case became weaker. Another explanation for the timing of this, which is just as probable, is that they gave a notice as soon as they felt confident in doing so, as they did after the events of the previous day.

As to the second expulsion notice, the defendant argues that this involved a plan to lure Dr Rackemann into refusing to sign the Planet Noodle assignment document, thereby giving the plaintiffs a further basis to expel the defendant. I reject that argument. More probably, it simply occurred to the plaintiffs in the new year of 2009 that they might also rely upon the non-execution of this lease document. Because that had not preceded the September 2008 notice, they gave a further notice.

Next it was argued that the plaintiffs were not entitled to expel the defendant because the plaintiffs themselves were in breach of the partnership deed. The defendant’s case is that upon the proper construction of the partnership deed, this contractual power of expulsion was one which could be exercised only by partners who were innocent of any breach of the partnership deed. The submission relies upon events at least some of which, whilst arguably amounting to a breach within cl 22, could not have justified an expulsion of one of the plaintiffs because of the three month time limit within cl 22. It is unnecessary for me to express a view on the legal questions, involving the proper interpretation of the partnership deed, of whether a breach by the plaintiffs precluded their expulsion of the defendant and whether that was the case only where the plaintiffs’ breach itself would have been an event within cl 22. But it is necessary that I record some findings of fact.

The defendant argued that the plaintiffs had breached cl 16 and the corresponding fiduciary obligations owed by them under the general law, firstly by excluding the defendant from involvement in the affairs of the partnership. I have already found that the defendant was excluded in some respects from the partnership business.

It is necessary to say something more here about the absence of partnership meetings. The plaintiffs did not refuse to hold partnership meetings. On 13 July 2007, Mr Lazarides emailed Dr Rackemann, saying that he had “no objection to quarterly meetings” and suggesting that Dr Rackemann prepare an agenda with some tentative meeting dates. It seems that this suggestion was then overtaken by events concerning the proposed first right of refusal and the draft deed which was rejected by Dr Rackemann. In October 2007, Dr Rackemann requested a partnership meeting, and Mr Lazarides replied by referring to his earlier email (of 13 July). I find that ultimately the reason why there were no partnership meetings was that neither side was minded to convene them.

The defendant also argues that it was excluded in the conduct of the plaintiffs in instructing Ms Shearer to prepare documents, at the expense of the partnership, in relation to the grant of first right of refusal. As I have already found, Ms Shearer was instructed on the basis where she was effectively to protect the plaintiffs’ interests, which were relevantly in conflict with those of the Rackemann interests, and partnership funds ought not to have been used to meet the costs of this work. In that respect, I am persuaded that the plaintiffs breached cl 18(b). The defendant argues that cl 8 was also breached by paying those fees. But cl 8 provides for the payment of outgoings which are in the nature of being “in or about the partnership business”, which these were not. After Dr Rackemann had rightly protested that the partnership’s lawyers had been retained to protect the plaintiffs’ interests, vis-a-vis those of the defendant, the plaintiffs again retained Ms Shearer in early 2008 to prepare another deed in relation to the first right of refusal. But this time, rather than having Ms Shearer send the document to Dr Rackemann, the plaintiffs sent it with a memorandum in which they wrote that “we have redrawn the first right of purchase document …”. In this draft, there was no reference to its being a document produced by Ms Shearer’s firm, as there had been in previous drafts in accordance with that firm’s usual practice. In cross-examination, Ms Shearer was unable to satisfactorily explain the omission of the usual reference to her firm in this draft. I infer she was asked to delete that reference, so that the plaintiffs could represent that they themselves had redrafted the document so avoiding another protest about the use of Ms Shearer’s firm. I find also that the defendant was unaware of this further use of Ms Shearer’s services and at partnership expense.

As discussed already, Mr Lazarides met Dr Rackemann’s requests to inspect the partnership documents by saying that they could be inspected at the offices of the partnership’s accountants, although not all of the documents were held by the accountants and many of them which related to the Miami properties were held at the office of Mr Lazarides. In that respect, Mr Lazarides breached his duty as a partner, because the exercise of good faith required him to make available partnership documents which were in his possession and not to effectively represent that he held no such documents.

It is argued for the defendant that the plaintiffs “played Machiavellian tricks” on Dr Rackemann and Mr Cronin in the lead-up to the service of the expulsion notice on 3 September 2008. The plaintiffs certainly disguised their intention to serve that notice. They arranged for documents to be inspected at Ms Shearer’s office on the afternoon of 3 September whilst then intending that the notice be served when Dr Rackemann and Mr Cronin were attending for that inspection. However, had I been persuaded that the plaintiffs were then entitled to expel the defendant, I would not have regarded this as a breach of the plaintiffs’ duties as partners. The defendant’s inspection of documents at Ms Shearer’s offices was not consistent only with the continuation of the partnership. Had the defendant been duly expelled, nevertheless, it would have been entitled to inspect records relating to the partnership business to that point.

The defendant submits that the plaintiffs were in breach of cl 8 of the partnership deed by paying an invoice to Jim’s Mowing for $1,500 and an invoice for $15,612.50 from Ray White Commercial (Gold Coast). As to whether these were breaches of cl 8, the question is whether they were made with the “unanimous approval of the partners”. The defendant had not approved these payments. But that does not mean that cl 16 was breached or that there was otherwise conduct by the plaintiffs of a kind within cl 22. The payments were made for partnership purposes and without any breach of fiduciary duty.

I come then to the final argument for the defendant, which was that if either expulsion notice was validly given, it lost its effect because the plaintiffs breached obligations which were imposed, as implied terms, in the performance of the steps required by cl 21 of the partnership deed. In a previous judgment[38] I found it unnecessary to decide whether a duty of good faith would be owed by the former partners to each other in the process prescribed by cl 21. Again, it is unnecessary to determine that question here, but the implied terms alleged by the defendant were that the plaintiffs were obliged to:

(a)provide the expelled partner with access to partnership records so as to enable the expelled partner to identify the debts and liabilities affecting the partnership’s business and property with the assistance of appropriate experts;
(b)provide the expelled partner with access to the partnership’s property so as to enable the expelled partner to value that property with the assistance of appropriate experts; and
(c)reasonably negotiate with the expelled partner a price for the purchase of that partner’s interest within a reasonable time.

[38]MacLag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2) [2009] QSC 299, [9].

The defendant did not claim damages for breach of these implied terms. Rather, its case was that the plaintiffs repudiated obligations under cl 21 and that the defendant was thereby entitled to avoid the consequences of the expulsion notice. Again, the legal question of what could have been the consequences of breaches of these implied terms need not be assessed here. But it is necessary to record some findings of fact.

On 19 September 2008, Mr Burns and Mr Lazarides emailed Mr Cronin, proposing that pursuant to cl 21(a) either HTW Gold Coast or Landmark White Gold Coast be appointed to value the defendant’s share. They asked for advice within seven days as to whether the defendant agreed to either valuer. Mr Cronin had written to the plaintiffs on the same day, challenging the validity of the expulsion notice, referring to cl 24 of the partnership deed which provided for an arbitration of any dispute between partners and advising that the defendant would request the President of the Queensland Law Society to appoint an arbitrator. On 24 September 2008, Mr Cronin wrote to the President of the Law Society. Mr Frampton for the plaintiffs wrote to the Law Society on 26 September, opposing any appointment. On the same day Mr Frampton wrote to Mr Cronin, contending that the Court should determine the question of the validity of the purported expulsion. At that stage, there was already filed the application, returnable on 7 October 2008, in respect of the (unsigned) lease documents.

On 1 October 2008, the plaintiffs wrote to the President of the Law Society, asking for the appointment of a valuer under cl 21. By this stage, there had been no negotiation as to a price for the defendant’s share. No price had been proposed by the plaintiffs and, of course, the defendant was disputing that it had been expelled. On 3 October 2008, the Law Society replied that it was considering whether it was appropriate to appoint either an arbitrator or valuer in the circumstances.

On 7 October, the originating application by which these proceedings were commenced came before a judge in the Applications List. The application sought declarations that the plaintiffs had duly exercised an option to purchase the defendant’s share as provided in cl 21(a). The outcome was one by consent, under which undertakings were given to the Court in relation to the lease documents. Again by consent, it was ordered that the parties participate in a mediation. On 8 October, Mr Frampton wrote to Mr Cronin proposing that the mediation take place in late November 2008.

On 10 October 2008, Mr Cronin wrote to the President of the Law Society, asking that his request for an appointment of an arbitrator be placed on hold pending the mediation. But on 14 October, Mr Frampton wrote to the President, pressing for the appointment of a valuer under cl 21.

There was then a debate about the terms of a mediation referral order. On 22 October, Mr Frampton objected to Mr Cronin’s draft. Remarkably, there was even a disagreement as to how the dispute, the subject of the mediation, should be defined within the proposed order.

On 24 October, the President of the Law Society wrote to say that she would appoint a valuer under cl 21(a) upon certain conditions, one being that the parties should indemnify the Society, its President, officers and employees against any claims in connection with any act or omission by the appointee. On 27 October, Mr Frampton wrote to Mr Cronin saying that the plaintiffs agreed to the terms offered by the President. On 4 November, Mr Cronin wrote to Mr Frampton about the terms of the mediation referral order and to say that the defendant did not agree to the terms stated in the President’s letter.

The parties did manage to agree on the terms of the referral order, which was filed on 18 November and provided for a mediation to be conducted on 21 November. The mediator’s certificate that the parties participated in the mediation was filed on 10 December 2008.

The defendant sought to have the properties valued. Mr Cronin emailed Mr Frampton on 25 November 2008 to arrange an inspection by a valuer and seeking information which he said had been requested “for the purpose of providing the bank with sufficient information to proceed”.

On 2 December 2008, Mr Frampton wrote to Mr Cronin concerning the defendant’s request for information and inspection of documents. He complained that Dr Rackemann had been representing to others that he was a potential purchaser of the plaintiffs’ interests in the properties. He recorded that no offer of purchase had been made by Dr Rackemann and that he ought not to make that representation. And he referred to the defendant’s having engaged the firm Landmark White, when that was one of the firms proposed by the plaintiffs as a valuer under cl 21. He asserted that the “Landmark White valuation process” was “not permitted by the partnership agreement”.

The plaintiffs gave instructions to Ms Shearer, the partnership accountants and the managing agents, in or about the first week of December 2008, to provide documents for inspection by the defendant or its representatives only if a written request was first made to Mr Frampton. Nevertheless, with that qualification, the documents and records were made available to the defendant, insofar as they related to partnership affairs up to the expulsion notice.

The defendant wished to have another solicitor, Ms Bostock, inspect the leases of the partnership properties. It is alleged that the plaintiffs instructed Ms Shearer to deny Ms Bostock access to those documents. In that respect, reference is made to certain emails passing between the two sides in the period of 5 to 8 December 2008. But they do not establish that Ms Bostock was denied access to the documents or that Ms Shearer was instructed to do so.

On 8 December, Mr Lazarides emailed the partnership’s accountants, saying that it was emerging that the defendant “may be accessing partnership documents for a purpose not permitted by the partnership agreement” and that until some answers were provided to questions put to Mr Cronin, partnership documents should not be available to the defendant’s side. He wrote a similar email to the managing agents. On 9 December, Mr Lazarides caused Ms Shearer to write to Dr Rackemann that copies of partnership lease documents would be sent to him only upon Dr Rackemann’s “confirmation that the information obtained in the leases will only be used for the benefit of the partnership as agreed in clause 18(b) of the Partnership Deed and will not be used for a valuation or for the purpose of obtaining a personal advantage”. Dr Rackemann declined to give that undertaking. Again, on 9 December, Mr Frampton wrote to Mr Cronin requiring an undertaking that partnership documents would not be used by the defendant for any purpose “other than in the ordinary course of partnership business” and would not be “used or provided to Landmark White Valuers”.

I find that the plaintiffs thereby acted to prevent the provision of information concerning the partnership, its assets and affairs to a valuer to be engaged by the defendant. This was a substantial impediment to any negotiation, if it was otherwise possible, of the price to be paid for the defendant’s share. But, neither party was minded to negotiate. The plaintiffs’ position was that the price should simply be fixed by a valuer under cl 21 and they had sought the defendant’s agreement to the appointment of HTW Gold Coast. The defendant’s position was that there had been no expulsion and the partnership continued, subject to the notice of dissolution which he had given which was to take effect at the end of that financial year. At one point in his evidence, Mr Lazarides seemed to suggest that he had put a price to Dr Rackemann for the defendant’s share.[39] But he later clarified that by reference to a memorandum dated 24 September 2007, which is irrelevant to the position following the expulsion notice of September 2008.
[39]Transcript 4-50/30 to 4-50/55.

On 23 January 2009, the defendant had Mr Cronin write to Mr Frampton, making an offer to buy the plaintiffs’ shares, or alternatively to sell to them its share, in each case upon the basis that the net value of the partnership was $13.5 million. There were other terms which it is unnecessary to set out here. That was not the subject of a response until 27 March 2009, in which the plaintiffs made a counter-offer under which all of the partnership properties would be acquired by the defendant which would take over all partnership loans and pay $5 million to the plaintiffs.

Dr Rackemann did manage to have the properties valued. His valuations were obtained well prior to 30 April 2009, when the defendant successfully applied for orders that partnership records be made available by the plaintiffs for inspection. The valuations were not disclosed at that hearing, as they should have been. On 30 April, submissions were made for the defendant that it “propose[d] to get a valuation …”. In my judgment I noted that the defendant sought orders which were expressly directed towards obtaining documents and information in order to enable the defendant to procure a valuation or valuations of its interests in the partnership. When cross-examined at the trial, Dr Rackemann said that the valuations of the properties which he had obtained were of limited assistance because those valuers had lacked relevant information. But as it happened, no further valuation was obtained by the defendant, notwithstanding the benefit of the orders of 30 April 2009. I am unable to assess whether the valuations which had been obtained, and which are in evidence, might have been made more accurate or reliable with the benefit of further information and documents which had to be produced according to those orders.

In all of this there is some basis for criticism of the plaintiffs, if there were implied obligations in respect of cl 21 as the defendant alleges. In particular, the embargo upon the use of Landmark White would have been a breach of the alleged implied terms in (a) and (b) referred to above at paragraph [229]. And the absence of negotiations as to the price to be paid for the defendant’s interest might be seen as a breach of the alleged obligation to “reasonably negotiate with the expelled partner a price for purchase of that partner’s interest …”. But two observations should be made. The first is that so far as access to relevant records and documents is concerned, that was available to the defendant at least after the orders of 30 April 2009 yet it was not until the filing of the defence on 5 June 2009 that the defendant claims to have acted upon the alleged repudiation by the plaintiffs. Secondly, considerable criticism could also be made of the defendant, if there were the implied terms which it alleges. The defendant impeded the appointment of a valuer under cl 21 and more generally, it denied the validity of its expulsion and the consequent operation of cl 21 at all. Accordingly, if the expulsion notice was valid and if there was thereby some contractual relationship for the sale of the defendant’s share subject to the alleged implied terms, the defendant could not be regarded as having itself performed that contract.

Conclusion

Neither of the expulsion notices was validly given because in neither case was there a ground for expulsion which could then have been relied upon by the plaintiffs. There is no challenge to the efficacy of the defendant’s dissolution of the partnership if the defendant was not duly expelled. It will be declared that each of the notices given on or about 3 September 2008 and 9 January 2009, purporting to expel the defendant from the partnership between the plaintiffs and the defendant, was of no effect. It will be further declared that the partnership was determined on 30 June 2009 by reason of a notice of dissolution dated 12 November 2008 served by the defendant. It will be ordered that the partnership be wound up and that Jason Bettles and Ivor Worrell be appointed to the partnership without security to conduct the winding up, with powers equivalent to those prescribed by s 420 of the Corporations Act 2001 (Cth). I will hear the parties as to costs and other orders.

CITATION:	Maclag (No 11) Pty Ltd as Trustee for the Burns Family Trust and Anor v Chantay Too Pty Ltd as Trustee for the Chantay Trust [2010] QSC 299
PARTIES:	MACLAG (NO 11) PTY LTD ACN 010 611 631 AS TRUSTEE FOR THE BURNS FAMILY TRUST (First Plaintiff) and LARRY MARK LAZARIDES (Second Plaintiff) v CHANTAY TOO PTY LTD ACN 099 086 521 AS TRUSTEE FOR THE CHANTAY TRUST (Defendant)
FILE NO/S:	9219 of 2008
DIVISION:	Trial Division
PROCEEDING:	Trial
ORIGINATING COURT:	Supreme Court of Queensland
DELIVERED ON:	13 August 2010
DELIVERED AT:	Brisbane
HEARING DATE:	22-30 April and 24-26 May 2010
JUDGE:	McMurdo J
ORDER:	1. It will be declared that each of the notices given on or about 3 September 2008 and 9 January 2009, purporting to expel the defendant from the partnership between the plaintiffs and the defendant, was of no effect. 2. It will be further declared that the partnership was determined on 30 June 2009 by reason of a notice of dissolution dated 12 November 2008 served by the defendant. 3. The partnership be wound up and Jason Bettles and Ivor Worrell be appointed to the partnership without security to conduct the winding up, with powers equivalent to those prescribed by s 420 of the Corporations Act 2001 (Cth).
CATCHWORDS:	PARTNERSHIP – RIGHTS AND DUTIES OF PARTNERS INTER SE – FORFEITURE OF SHARES AND EXPULSION – where the plaintiffs and the defendant were equal partners in a partnership which carried on the business of real estate investment – where the partnership considered buying an additional property but decided not to purchase that property in the short term – where the defendant and other related entities subsequently purchased that property – where the personal relationship between the plaintiffs and the defendant broke down – where the defendant failed to sign certain documents required for the carrying on of the partnership business – whether there was otherwise conduct in breach of the defendant’s duty of diligence and good faith which justified the defendant’s expulsion from the partnership. ESTOPPEL – ESTOPPEL IN PAIS – EQUITABLE ESTOPPEL – PROMISSORY ESTOPPEL – where the plaintiffs and the defendant were equal partners in a partnership which carried on the business of real estate investment – where the partnership considered buying an additional property but decided not to purchase that property in the short term – where the defendant and other related entities subsequently purchased that property – where the partnership deed provided that if a partner breached any of its duties as a partner, the other partners may expel that partner from the partnership within three months of becoming aware of that partner’s offence – where the defendant offered to grant the partnership a right of first refusal over the subject property – where the parties were unable to agree on the terms of the grant of a right of first refusal within the three month period from when the plaintiffs became aware that the defendant had purchased the subject property – where the plaintiffs purported to expel the defendant from the partnership for its conduct in purchasing the subject land, well outside the three month period – whether the defendant is estopped from relying on the three month time stipulation. Partnership Act 1891 (Qld) ss 22, 27, 31, 38 Property Law Act 1974 (Qld) s 121 Retail Shop Leases Act 1994 (Qld) s 45 Attorney-General of Hong Kong and Anor v Humphreys Estate (Queen’s Gardens) Ltd [1987] 1 AC 114 Birtchnell and Anor v The Equity Trustees, Executors and Agency Company Limited and Anor (1929) 42 CLR 384 Blisset v Daniel (1853) 68 ER 1022 Const v Harris (1824) 37 ER 1191 Harvey v Walker & Ors (1945) 46 SR (NSW) 180 Maclag (No 11) Pty Ltd & Anor v Chantay Too Pty Ltd (No 2) [2009] QSC 299 Wall v London and Northern Assets Corporation [1898] 2 Ch 469 Waltons Stores (Interstate) Limited v Maher and Anor (1988) 164 CLR 387
COUNSEL:	A P Collins with PA Travis for the plaintiffs D Savage SC with C A Wilkins for the defendant
SOLICITORS:	Frampton Legal for the plaintiffs Cronin Litigation Lawyers for the defendant