Pickup v Low - [1999] WASC 42

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: PICKUP & ANOR -v- LOW [1999] WASC 42

CORAM: SCOTT J

HEARD: 24 MAY 1999

DELIVERED : 28 MAY 1999

FILE NO/S: CIV 1494 of 1999

BETWEEN: HARVEY EASTWOOD PICKUP
RACHEL JANE WOODHOUSE
Plaintiffs
AND
JENNIFER ELIZABETH LOW
Defendant

Catchwords:

Injunctions - Mandatory injunctions - Partnership - Retirement of partners - Account of work in progress before retirement - Turns on own facts.

Legislation:

The Partnership Act1895, s 43

Result:

Applications granted.

Representation:

Counsel:

Plaintiffs: Mr J Gilmour QC & Mr D M Stone
Defendant: Mr M J Hawkins

Solicitors:

Plaintiffs: Williams & Hughes
Defendant: Williams & Co

Case(s) referred to in judgment(s):

Castlemaine Tooheys Ltd & Ors v State of South Australia (1986) 161 CLR 148

Case(s) also cited:

Bullock & Ors v Federated Furnishing Trades Society of Australasia & Ors (No 1) (1985) 5 FCR 464
Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499
Carr Boyd Minerals Ltd v Ashton Mining Ltd & Ors (1989) 15 ACLR 599
Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471
Moss v Elphick [1910] 1 KB 465
Regent's Pty Ltd v Subaru (Aust) Pty Ltd (1996) ATPR 41-463

SCOTT J: In this matter the plaintiffs have brought before the court two summonses, one for an injunction and the other for the taking of accounts in relation to a partnership which was entered into between the plaintiffs and the defendant, and which terminated on 30 April 1999.
It is common ground that the plaintiffs and the defendant entered into a partnership known as Sheffields ("Sheffields") which carried on business as accountants from 1 July 1988 until 30 April 1999. It is also common ground that the plaintiffs and the defendant carried on business as chartered accountants prior to the formation of the partnership and that at the date of formation of the partnership, agreement was reached to merge the two accountancy practices.
A dispute arose between the plaintiffs and the defendant resulting in the defendant terminating the partnership as at 30 April 1999.
As a result of the termination of the partnership, the plaintiffs say that they are left in a difficult financial situation because prior to the dissolution of the partnership the defendant failed to bill work in progress as required under the terms of the partnership, so that the plaintiffs' cash-flow was severely curtailed. That issue is contested.
In the two summonses that the plaintiffs have lodged with the court, they seek by the first summons orders that the defendant:
1.Pay to the plaintiffs all sums which have been paid, or are in the future paid to her which represent, or are attributed to work performed by or on behalf of the accounting partnership of "Sheffields" (the Partnership);
2.On reasonable notice make available for inspection by the plaintiffs or their authorised agents all files, documents, computer records or papers of any description relating to work performed by or otherwise affecting the affairs of the partnership;
3.The time for service and hearing of this summons be abridged;
4.The defendant is to pay the plaintiffs' costs to be taxed.
By a second summons the plaintiffs seek orders that:
1.The defendant is to within 14 days lodge with the Master's Associate an account of;
1.1the value of all work performed by her as a partner of the Partnership or by Partnership employees under her supervision;
1.2the value of all work performed by or on behalf of the Partnership on behalf of clients whose files were either
(1)removed by her or at her direction from the Partnership's office 23 Emerald Terrace West Perth, on or before 1 May 1999 or
(2)are now in her possession;
1.3All monies received by her for and on behalf of the Partnership; and
1.4All her dealings with partnership property whatsoever description with all necessary vouchers and verify the account by affidavit.
All papers shall be served on the plaintiffs.
2.The question of directions for the account be referred to the Master.
3.The defendant is to pay the plaintiffs' costs to be taxed.
The partnership arrangement between the plaintiffs and the defendant was in writing (see exhibit HEP1 to the affidavit of Harvey Eastwood Pickup, sworn 14 May 1999). That document is extraordinary in the way in which it provides for the dissolution of the partnership. The relevant clause cl 16, is critical to the dispute between the plaintiffs and the defendant:
"16.0 Partner retirement by choice
16.1A partner wishing to retire by choice from the partnership must provide a minimum of 6 months notice in writing. In the event of a partner serving such notice, the remaining partners reserve the right to terminate, by majority decision, the partner's position (together with all entitlements to profit, interest and salary) either with immediate effect or at any stage during the six month notice period, such right also requiring to be exercised in writing.
16.2Upon retirement by choice, if the retiring partner retains any client of the merged practice, unless agreed upon by all the remaining partners the retiring partner will not be entitled to goodwill pursuant to clause 16.5.
16.3Upon retirement by choice, the retiring partner will be paid out their current account (see clause 16.4) and goodwill (see clause 16.5). The continuing partners will endeavour to pay the retiring partner their share of the merged practice at the earliest possible date, but in any event, in the case of the current account, no later than 6 months from the date of retirement, and, in the case of goodwill, no later than 1 year from the date of retirement, such terms to be interest free.
16.4For the purposes of valuing the current account of a partner retiring by choice, the value of WIP [a term not defined in the partnership agreement but which may mean work in progress], debtors and any other tax timing differences will be notionally discounted to an after tax value at a rate to be agreed by all continuing partners and the retiring partner or, failing agreement, at the highest marginal rate of income tax prevailing at the time, including levies. The partnership tax returns are thereafter to be prepared on the basis that the continuing partners assume the tax liability for those timing differences, and, in the event of any dispute with the ATO, [again undefined by assumed to mean the Australian Taxation Office] the continuing partners will assume such liability and indemnify the retiring partner.
16.5Subject to clause 16.2, the goodwill entitlement of a partner retiring by choice will be determined by agreement of a majority of the remaining partners but, unless otherwise agreed by all the remaining partners and the retiring partner, will be no less than 70% of one year's average profit share (ie excluding salary and interest) of the retiring partner, calculated on a full accrual accounting basis and, for averaging purposes, calculated by reference to the retiring partner's profit share over the 3 years immediately preceding retirement (taken to the nearest quarter end), or such lesser average as can be calculated if the partner has not served for 3 years."
As the submissions for the parties unfolded at the hearing of these applications, it is clear that there is an entrenched and bitter dispute between the plaintiffs and the defendant arising out of the defendant's termination of the partnership. There are disputes as to the work in progress of the defendant as at the date of termination and as to whether that work was, or should have been billed. The plaintiffs seek access to the defendant's files for the purpose of assessing work in progress and for sending accounts where appropriate to clients, so that the cash-flow of the plaintiffs can be regenerated. The defendant on the other hand, maintains that all work in progress was accounted for and that where appropriate, accounts have been sent. However, as the bulk of the defendant's work is said to be of an insolvency nature, in many cases work in progress could not be billed until such time as accounts have been approved by a meeting of creditors.
As can be seen from the terms of the partnership agreement set out earlier, there is no provision dealing with the inspection of files following dissolution of the partnership. Senior counsel for the plaintiffs maintains the view that the partnership agreement assumes that the partnership will continue after retirement by choice and that is so subject to cl 16.2.
It is to be noted that there is no express provision dealing with the valuation of work in progress, although implicitly work in progress is to be valued as at the date of dissolution. In that respect it is in the interests of both the plaintiffs and the defendant that work in progress should be valued as soon as possible so that current accounts can be determined in accordance with the partnership provisions. Whilst the plaintiffs maintain that it is only the defendant who should give inspection of the files of the partnership, in my view that is not so. The plaintiffs have an equal obligation to the defendant to enable work in progress to be costed and in my opinion, for that purpose both parties should be required to produce the files for inspection so that work in progress to 30 April 1999 can be evaluated and subject to any necessary legal qualification (such as the approval of creditors), accounts for work in progress, where appropriate, can be sent out and the income collected. It is to be noted that there is no provision in the partnership agreement for the appointment of a receiver and although the defendant would seek to have the accounts taken by an independent accountant, I accept the plaintiffs' submission that there is no provision in the partnership deed for that to occur.
Having taken into account the submissions of the parties, the orders that I am prepared to make are these:
1.That the defendant pay to the plaintiffs all sums which have been paid or are in the future to be paid to her which represent, or are attributed to work performed by or on behalf of the accounting partnership of Sheffields (the partnership).
2.The defendant on reasonable notice, make available for inspection by the plaintiffs or the defendant as the case may be, or their authorised agents, all files, documents, computer records or papers of any description relating to work performed by, or otherwise affecting the affairs of the partnership. I would be prepared to consider a corresponding order in favour of the defendant should an appropriate application be made.
3.The time for service and hearing of the summons be abridged.
In relation to the proposal for the taking of accounts, in my opinion it is appropriate and necessary for the accounts to be taken by a Master of this Court. For that purpose it will be necessary for both parties to prepare accounts of the work performed for the partnership prior to 1 May 1999. As I have already indicated, the defendant is under an obligation to account to the plaintiffs for any monies received by her on behalf of the partnership and she also has an obligation to account for partnership property. The question of the accounts and exactly how they are taken, will need to be determined by the Master and a summons for directions in that respect should be taken out by the plaintiffs for determination by the Master as soon as possible after the delivery of these reasons.
The question of costs and any other ancillary orders arising out of the hearing on 24 May 1999, should be reserved to the trial Judge.
In my opinion, all monies received in relation to work in progress for partnership work done either by the plaintiffs or by the defendant prior to 30 April 1999, should be verified on affidavit, and subject to the approval of the Master, be paid to the plaintiffs.
I would finally order that there be liberty to apply to either party in relation to these orders in view of the obvious acrimony which has developed between them.
In reaching these conclusions I have taken into account those matters which are required to be considered according to Castlemaine Tooheys Ltd & Ors v State of South Australia (1986) 161 CLR 148 at 153 and the provisions of s 43 of the Partnership Act 1895 together with the authorities referred to in the plaintiffs' summary of submissions.