Pannell Kerr Forster Aust Ltd v Cleland & Ors No. DCCIV-98-845 Judgment No. D129
[1999] SADC 129
•7 October 1999
PANNELL KERR FORSTER v CLELAND & ORS.
[1999] SADC D129
His Honour Judge Lowrie
Civil
1 The first and second named plaintiffs carry on an Australian and International accountancy practice and have sued the first, second, third and fourth defendants, who were chartered accountants practising in Adelaide and on 16th May 1995 then continued to operate in South Australia under the business name of Pannell Kerr Forster. The defendants, with the aid of their company Panker Nominees SA Pty Ltd entered into contractual arrangements with the plaintiffs. On 26th March 1996 Panker Nominees SA Pty Ltd entered into what has been referred to as a members' agreement which made provision for payments of certain moneys and levies to PKF Australia Ltd, and monetary provisions to be paid in the event of Panker ceasing to be a member of PKF Australia partnership.
2 The statement of claim alleges that on 1st June 1997 the defendants, with the exception of one Peter John Whelan, ceased to carry on business under the business name of Pannell Kerr Forster, and thereafter carried on the accountancy practice under the name of Cleland McFarlane Selth and consequently their conduct was in breach of the members agreement. PKF Australia gave notice that the defendant's conduct constituted, in their view, a dissolution of their association and consequently, the defendants were liable to pay PKF Australia for the sum of $160,465 and $6,075 for certain stated moneys and levies.
3 The defendants appeared and the continuing partner, John Whelan, was made a third party in the proceedings.
4 The defendants have denied the amounts as claimed are owing.
5 The action has proceeded through various interlocutory applications.
6 During the course of interlocutory skirmishes both parties sought orders for further and better discovery.
7 Clause 11.11 of the agreement has, and no doubt will, receive much attention. It is the clause in the members' agreement that relates to dissolution. The clause provides as follows:-
"11.11 If an associated firm is dissolved by resolution of its partners or by the resignation or retirement of all of its partners, the partners in the associated firm immediately prior to its dissolution, its controlled corporation (if any) and the member with which the relevant associated firm is associated shall be jointly and severally liable to pay to the company, in order to partly compensate it for the costs and expenses likely to be incurred by the company in replacing the relevant associated firm, a lump sum equal to 5% of the gross fees rendered by the relevant associated firm and its controlled corporation (if any) during the calendar year immediately proceeding the date when the composition of the associated firm changed as provided by clause 11.5, provided that the said lump sum shall be not greater than $100,000."
8 An issue in this case is the meaning of the construction of this clause and particularly the word "all", bearing in mind that the factual situation appears that Messrs Cleland, McFarlane, Selth, Hill and Whelan comprised the initial partners, Cleland, McFarlane, Selth and then Hill left the partnership which was then continued by Mr Whelan.
9 Detailed affidavits have been filed by both the solicitors for the plaintiff and the defendants which exhibit relevant material. The master heard detailed submissions by counsel for both parties. I mention both parties sought further and better particulars of relevant pleadings. The Master delivered his Reasons on 12th August 1999 and dealt firstly with the defendants' application where they sought documents regarding partnership changes in the firm PKF Australia Ltd. The Master was of the view, on the basis of the pleadings, that such documents were not sufficiently relevant to the issues. He viewed that partnership changes would be voluminous and could see no relevance for the discovery of these documents and consequently he was not disposed to make any further orders for discovery by the plaintiffs.
10 The plaintiff had sought discovery from the defendants of documents which related to a continuing identity. The Master viewed that request as appropriate that the documents sought, particularly in the letter of 26th August 1998, and numerated and the documents sufficiently relevant to the issue and directed that those documents be discovered.
11 The defendants lodged an appeal against such orders by an application dated 27th August 1999, sought the following orders:-
"1. That plaintiffs discover and produce all documents recording partnership changes in member firms comprising PKF Australia Ltd for the period from 15 May 1991 to 15 May 1995; from 15th May 1995 to 31st May 1997 (as now amended).
All notes, memoranda and correspondence passing between Mr Bryan James and Mr Peter Whelan concerning their partnership arrangements and the partnership constituting Pannell Kerr Forster, Adelaide.
That the defendants have the costs of and incidental to the Application for Further and Better Discovery and the costs of the appeal."
12 When the matter was argued before me on 2nd December 1999, I was referred to the relevant contractual documents between the parties. The Master viewed relevant extrinsic material as of assistance and allowed discovery of documents relating to the defendant's conduct since the dissolution.
13 I refer to Rule 58.01 with reference to the relevant procedure for discovery of documents.
14 The defendants case is apparent from the factual matters, namely on 26th March 1997, the first, second and third defendants gave notice of their intention to retire as partners, and, subsequent to that date the fourth defendant gave notice of his intention to retire as a partner, and from this factual base, the defendants contend that there was no retirement of "all" of the partners, nor, was there any resolution that the firm be dissolved, as at all material times PKF in South Australia continued because Whelan remained the continuing partner in South Australia. This argument is on the basis that Clause 11.11 is to be construed strictly according to its terms, and consequently the moneys cannot be levied. No doubt there would be further arguments as to whether such levies are in any event recoverable or in the nature of penalties. Defendants' counsel submitted that if there is ambiguity in the construction of the contract then intrinsic evidence can be admitted. The authorities for this proposition were cited.
15 Counsel for the plaintiff addressed me briefly on the defendants' contention of the construction of clause 11.11 and his view that the factual situation which occurred here meant, to all intents and purposes, that all partners had resigned. He pointed out the continuing nature of the location of the practice, equipment and staff, and that in effect the defendants' association remained a continuing entity and thus fell within the meaning of Clause 11.11 and it then followed that the default provisions took effect.
16 The construction of this clause will no doubt in time become the focus of attention of the parties. The word "all" has been the subject of much judicial comment. I mention the case of Wellsted's Will Trusts. Wellsted v Hanson [1949] 1 All ER 577 at 579-580, where Lord Greene stated:-
"I do not think it is an exaggeration to say that the word "all" in a statute is extremely recalcitrant, and if the meaning is to be cut down so as to exclude certain things which might otherwise be included by it, that must be done in the clearest possible language. The proper way of construing a word like 'all' is to say that it means 'all' and does not mean 'some' unless one finds a compelling context which forces one to place some limitation on the word." (Cited in J.B. Saunders (ed), Words and Phrases legally defined, 3rd ed, vol. 1, Butterworths, London, 1988, p.68).
17 The solicitor for the defendant had filed an affidavit of March 1999, and an exhibit of such affidavit were minutes of a Board meeting which occurred on 13th August 1996, in Perth. The minutes confirmed an earlier meeting held in Fiji on 15th May 1996. There appears that there are regular meetings of constituent partners of PKF Australia Ltd. Under 4.2 of those minutes there is a heading called "Partner Movements".
18 I believe there is merit in the defendants' application as it relates to details of prior partnership movements, and, no doubt the manner that the same have been dealt with or construed by the plaintiffs.
19 I view such details as discoverable.
20 The defendant amended the appeal document at the hearing, seeking documents in relation to partnership changes in the firms comprising PKF Australia Ltd. in the period May 1991 to May 1995, and May 1995 to 31st May 1997.
21 As I have mentioned it appears from the minutes of PKF Australia Ltd minutes, being exhibit SPW1 attached to the affidavit of Stephen White, all relevant constitutional and partner movements are recorded. I think it appropriate to order discovery on the defendants' application in the following manner:-The plaintiffs, within 28 days of this date, discover in summary form all partnership movements (including retirement and new members) and including names and relevant dates of PKF Australia Ltd between:
May 1991 to May 1995;
and
May 1995 to May 1997
That following such discovery the defendants be at liberty to request, and the plaintiff will provide discovery of all documents relative to any of such partnership movements.
22 I direct that the costs of this appeal be costs in the cause.
23 I give the parties liberty to apply.
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