Rowella Pty Ltd v Abfam Nominees Pty Ltd

[1989] HCATrans 147

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No Bl4 of 1989

B e t w e e n -

ROWELLA PTY LTD

Appellant

and

ABFAM NOMINEES PTY LTD & ORS.

being all of the special partners

of THE ROWELLA PTY LTD & ORS

LIMITED PARTNERSHIP (RECEIVERS

& ~.ANAGERS APPOINTED) other than

WROB PTY LTD

Respondents

MASON CJ
BRENNAN J
DAWSON J

Rowella(2)

TOOHEY J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON WEDNESDAY, 28 JUNE 1989, AT 10.15 AM

Copyright in the High Court of Australia

BlT 1/1/PLC 1 28/6/89

MR P.D. ROBIN, QC: If the Court please, I appear with my

learned friend, MR W.V. VITALI, for the appellant,

Rowella Pty Ltd. (instructed by Bowdens)

MR P.A. KEANE, QC:  May it please the Court, I appear with

my learned friend, MR P.H. MORRISON, for the

respondents. (instructed by Chambers, McNab,

Tully & Wilson)

MR ROBIN:	Your Honours, I will hand to the Court five copies
of the outline of argument.
:MASON CJ:	Thank you.
MR ROBIN:	Your Honours, Rowella Pty Ltd and Others is a limited
partnership formed in 1984 under section 57 nf the
Queensland MERCANTILE ACT 1867 for one of the
permitted purposes, in terms of that Act. Its business was to engage in gold mining in the Georgetown area of north Queensland.

Rowella Pty Ltd was the general partner of

by way of capital of the partnership a sum of about

the limited partnership which means it was the only

one entitled to conduct the partnership's business.

$1\ million in different multiples of $10,000.

Rowella Pty Ltd contributed no capital and its only

hope of profiting from the venture lay in its right

to receive 40 per cent of profits under clause 10

of the partnership deed.

One of the features of a limited partnership

under section 54 of the legislation is that the

liability of the special partners is limited to the

amount of their capital contributions so long as the

requirements of the Act, the conduct of the partnership,

are met whereas the general partner is liable to

creditors of the partnership without limit for all

of its debts.

The present proceeding was an application

brought by a Mr Hault on sunmlons before

Mr Justice Carter in the supreme court for a determination of the interests of the special partners as against the general partner in respect

of the assets of the limited partnership. Mr Hault

or entities connected with him purport to have
acquired from the original special partners the

great bulk of the special partners' interests.

The auulication before Mr Justice Carter

was unsuccessful in the sense that the aim of the

application before His Honour had been to establish

that Rowella Pty Ltd, the general partner, had no

interest in the assets of the partnership whereas,

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Rowella(2)

by application of section 47(2)(d) of the

PARTNERSHIP ACT of Queensland, Mr Justice Carter

held that after application of the assets of the
partnership in paying the debts of the firm to

outsiders, the debts of the firm to partners and,

finally, the return of the capital sums contributed

by the partners, the ultimate residue fell to be

distributed:  40 per cent to Rowella Pty Ltd, the

general partner, and 60 per cent to the special
partners, within that 60 per cent pro rata

according to their contributions.

The case concerns section 47(2)(d) of the

PARTNERSHIP ACT which is made applicable to limited

partnerships by section 5(3) of the PARTNERSHIP ACT.

Your Honours, we have supplied in booklet

form all of the materials to which reference is

likely to be made.

MASON CJ:	Yes, we have that.
MR ROBIN:	Your Honours will see at a page numbered 029B
section 5(3) of the PARTNERSHIP ACT as it stood at
relevant times a  limited partnership under the
MERCANTILE ACT is declared to be a partnership with~n the meaning of the PARTNERSHIP ACT.

The following page of the booklet brings in a

matter of recent legislative history. It does not

affect the interpretation of this matter but the

Court ought perhaps to know - and I think

Mr Justice McPherson referred to this .in the Full

Court - that the provisions of the MERCANTILE ACT

relating to limited partnerships have been replaced

by new legislation, the PARTNERSHIP (LIMITED

LIABILIT'Y)ACT 1988 which provides in a slightly

different way for the formation of limited

partnerships. But the amendment which is made to

section 5(3) of the PARTNERSHIP ACT, in consequence, indicates that the provisions of the PARTNERSHIP ACT

will continue to have their ace us tamed application

for future limited partnerships in Queensland.

Section 47 of the Act has been set out in

paragraph 2 of our outline. The issue in the case

is solely concerned with the last words of

section 47(2)(d) where reference is made to:

the proportion in which profits are

divisible.

His Honour the primary judge at page 57 - - -

MASON CJ:	We are familiar with the views expressed at first
instance and in the Full Court. There is no need
to cover that territory again.

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Rowella(2)
MR ROBIN:	Very well, Your Honour.	The expression "profits"

may mean, we submit, trading profits or capital

profits, if there is a difference between them,

or a combination of both. Our submission is that

either trading profits or capital profits or a

combination of both would satisfy (2)(d) if a

provision in the partnership deed can be found which

covers any of those three possibilities. Our

case is that clause l0(c) of the partnership deed,

at pages 10 to 11 of the record, does establish the

proportion in which profits are divisible.

McHUGH J:	It would be an extraordinary partnership agreement or
almost any other sort of agreement, would it not,
if you had two different ways of dealing with
trading profits and capital profits? I cannot ever
recollect in my experience of reading ever seeing
any document which dealt with a division of capital
profits.
MR ROBIN:	I am in the same situation as Your Honour. It seems
a most artificial distinction particularly where
the business of the partnership,as this one, is dealing with gold mining tenements. All the partnership is going to do is sell off its assets
either as mineral or as the tenements themselves,
and how that can be a distinction - it is easy enough
to understand that accountants or other people could
distinguish between trading profits and capital
profits.  A capital profit may be represented just
by an increase in value of a long-term asset but
it - - -
McHUGH J:	How does section 47(2)(d) operate, assuming that you
did have a document which distinguished between the
proportion and division of the net profits and capital
profits?  How do you make your choice?
MR ROBIN:	Your Honour., our submission would be that the evident purpose
of section 47 is to deal with a matter which the
partners have left undealt with by their deed and that an effort ought to be made to give maximum effect to that provision so that if it could be made effective
by a reference to a provision in the deed dealing
either with trading profits or with capital profits,
it would be made effective. The question would then
arise,if there was an inconsistency between the two,
whether other provision had been made by the partnership
deed in terms of the words "subject to any agreement"
at the beginning of section 47, and it may be that
on a construction of the two provisions there had
been an agreement to the contrary which precluded the
application of section 47(2).  But there seems to be
a strong legislative policy that 47(2) ought to apply
and one would think you would need a very strong
indication to the contrary in the case Your Honour
Justice McHugh stipulated to overcome it.

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Rowella(2)

May I take the Court to the clause that we

rely on which, in this case, happens to be the only

one dealing with profits of a capital or a trading
or any other nature. It commences at page 9 of the
record and directs, in subparagraph (a), that:

The net profits of the partnership shall mean the profits as determined by the general partner in accordance with generally accepted accounting principles.

Subparagraph (b) rather suggests that the generally

accepted accounting principles are those which

the Commissioner of Taxation might favour because

the net profits are there subject to the general

partners' discretion to apply the:

net profits ..... in payment of any expense
or liability incurred or undertaken by

the partnership notwithstanding that such

payment is not allowable as a deduction.

Once that exercise has been carried out, what remains

is called "the distributable profits", if Your Honours

look at line 14 on page 10. The distributable profits

by (c)(i) are the source from which provision can
be made for future operating expenses. That operation

gives a balance of distributable profits dealt with

pursuant to l0(c)(ii):

The balance of the distributable profits

shall be paid as to forty percent (40%)
thereof to the general partner, and as to
the remaining sixty percent (60%) thereof

to the special partners -

if you take pro rata. There is a proviso at the

end of the subparagraph:

that no payment of any amount shall be

made if the making thereof would contravene

Section 61 of the Act.

Section 61 is designed to preserve the capital of the limited partnership intact so far as: possible and it forbids the distribution of capital to

partners.

The leading judgment in the Full Court was

delivered by the senior puisne justice and

Mr Justice Demack agreed with it. At page 69 point 1

of the record His Honour referred to the clause and

noted that:

it provides for the distribution of profits and it is not to the point that the special partners have provided capital whereas the

general partner has not.

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Mr Justice McPherson also wrote a judgment and, at page 80, line 26, His Honour noted that

that was the appellant's point. It is a very

simple case, we say, of clause lO(c) providing

the mode in which profits are distributed which

fits neatly into section 47(2)(d).

The senior puisne justice's judgment went

on to make the distinction which has been adverted

to by me and by Your Honour Justice McHugh at

page 69, line 10 and following, where His Honour

said:

It does not, however, follow that the

provision made by cl. 10 for the division

of trading profits -

which he thought was what were being dealt with

and -

capital profits.

His Honour then went on to set out a dictum of

Sir George Jessel in GRIFFITH V PAGET which, before

the enactment of the PARTNERSHIP ACT, evinced a view

that when a partnership was dissolved, it was

appropriate to distribute the assets in accordance

with the partners' entitlements to capital.

On the following page, lines 12 to 13, the

judgment purports to apply section 47(2)(d) but,

in our submission, what the judgment is really
doing is applying the dictum from GRIFFITH V PAGET
because, although His Honour says at line 12:

S. 47(2)(d) is to be applied and in my·· opinion in its application these profits

are to be divided in proportion to the

capital. Rowella, having made no

contribution to the capital, is not

entitled to any share in it pursuant to

cl. S(e) of the deed so that in the

division of the capital profits as part

of the assets on the termination of the

partnership it is not entitled to share

in those profits.

His Honour Mr Justice McPherson, at page 78, line 26, summarized the dictum of Sir George Jessel and, at page 83, line 28, once again referred to the rule

of distribution indicated by Sir George Jessel.

(Continued on page 7)

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Rowella(2)

MR ROBIN (continuing):  At page 86, line 20, His Honour

referred to section 48 of the PARTNERSHIP ACT

which continues in force the old law so far as that

inconsistent with the Act and His Honour

speculated that the pre-PARTNERSHIP ACT cases

might apply. Your Honours, we submit that the

Full Court's approach is tantamount to

a refusal to recognize that section 47 has been

enacted. The texts have indicated quite correctly,

in our submission, that one has a recourse to the

pre-Act decisions only if there is some difficulty or

confusion arising from the provisions in the Act.

As an example of that, at page 030 of the booklet,

Your Honours will find what the current edition

of Lindley, the 15th, says at page 10. Reac1ers are asked:

to bear in mind that the Act, and

not the decisions previous to it, must be

regarded as his guide on all points

specifically dealt with by it. Where the

language of the Act is clear, it must be

followed; and previous decisions must not be

regarded as binding authorities to be

followed in preference to the Act. They

may, however, be useful as explanatory of

the history -

and so forth. There is now a decision of the Privv

Council which has given Lindley's-· statement authority

of that tribunal and it is the decision called

CAMERON V MURDOCH, 60 ALJR 280 at 286, 26G - it is

at page 25A in the booklet - in the right-hand column

at the top. Your Honours will see reference there

the West Australian Act - and in this respect it

to section 6 of the PARTNERSHIP ACT of Western Australia, that

that is in identical terms with section 48 of the

is the same as the Queensland Act - is not simply

a codifying or consolidating Act, it is:

"An Act -

as its title says -

to consolidate and amend the Law of

Partnership".

So that the possibility of amendments has to be

taken into account and, in this respect assuming

that Sir George Jessel had correctly stated the

rule in 1877, there has been a change in the law.

The division of assets of a partnership is not tied

to the division of capital any more by statute

in respect of the residue; it is now tied to the

distribution of profits.

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Rowella(2)

The special partners 1 recompense for their

contribution of capital sums is their entitlement

on a dissolution to have those cash amounts returned

to them under 47(2)(c) in priority to any right of
the general partner who has not put in any capital

to participate in the assets at that level. The

only additional claim which the special partners

have to the assets arises under 47(2)(d) and in

respect of that provision the general partner

participates as well.

The Full Court - in particular Mr Justice McPherson -

expressed the view that it would be odd or

surprising if - which had not put up any

capital - was to have an interest in the partnership

assets pursuant to section 47(2)(d). That, of course,

Your Honours is not a reason for declining to apply

47(2)(d) in accordance with its clear terms.	But
that approach appears to overlook the special

situation of Rowell~ which has the sole management
of the partnership - in other words, it does all the

work - and is also solely liable to the creditors partnerships 1 debts,is not compensated in respect of

those matters at all except by the share of profits

which it takes under clause l0(c). We would

respectfully suggest that what is odd is that

ought to be precluded from interest in the

assets particularly assets which might have been

acquired with retained profits from the partnerships'

operations.

McHUGH J:  Yes, but that raises another question, does it not?

If there are assets which have been obtained as the result of retained profits then, on the other side of the balance sheet, those retained profits will

either be credited against capital or they will be

in special partnership advance accounts.

I want to ask you a few questions about how this

section operates. Could I take you to section 47 -

MR ROBIN:  Yes, Your Honour.

McHUGH J:  - - - because I find sorre of it provision, particularly

in subsection (1) rather difficult. It is at

page 29N of your book. In subsection (1), when it

talks about:

Losses, including losses and deficiencies

of capital, shall be paid first out of

profits,-

"losses" there obviously must include trading losses.

So, when it says:

shall be paid first out of profits.-

does "profits" there mean undistributed profits from

a preceding trading period? It would be an odd use

BlT2/2/JH	8	28/6/89
Rowella(2)

of "',profits" in that context to be talking about

it as 'individual profit~\on transactions. But

then it goes on:

next out of capital, and lastly, if
necessary, by the partners individually

in the proportion in which they were

entitled to share profits.

Now, what does "profits" mean there in

subsection ( 1)? If it means "capital profits", then

it would mean trading losses in the opening words it

would be divided in accordance with the way the

partners are entitled to share in capital profits.

It must surely mean"trading profits"then, must it not?

MR ROBIN:	Where "profits" is used the last time?
McHUGH J:	Yes.
MR ROBIN:	Yes, Your Honour.  It does not necessarily mean

the same thing where the word is secondly used as

it does where it is firstly used.

BRENNAN J:  I am sorry, Mr Robin, you have lost me there.

What is the difference between "profits" in those

two parts of subsection (l)?

MR ROBIN:  If a distinction is admitted between trading and

capital profits and let us say for the moment that

a capital profit is represented by a gain made on the

sale of an asset which has been held for a long time -

the sale of a mining lease or equipment or something

of that kind - I guess I am struggling for a notion

but the company may have lots of different bank

accounts where it keeps moneys in different

categories. In one of them, for example, it may put

its payments to - - -

BRENNAN J:	Well, before you get into examples, are you saying, or are you not saying, that there is a
difference between the connotation of the word "profits" in subsection (1) in the two places where
it appears?
MR ROBIN:	Your Honour, I am saying - not having considered

the matter - I am attBmpting to avoid the question

perhaps by saying that the meaning of

the term in the two places is not necessarily

exactly the same. I am not wishing to positively say

that it is different.

BRENNAN J:  And, in cases where they are not the same, what do you perceive is the possible difference?

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Rowella(2)

MR ROBIN:  The possible difference might be a distinction

between trading profits and capital profits.

BRENNAN J:	And why do you derive that possible difference?
MR ROBIN:	I may be incorrect to do so, Your Honour, and

on reflection I possibly am. The idea of

paragraph 1 seems to be that the very last thing

you do is call on the partners to put more money

into the pot.

DAWSON J: Should you not concentrate on the word

"losses". Losses means 'losses on individual

transactions"and this extends to include losses and

deficiencies of capital, is paid out of the profits

and if the profits are not enough to make it up

you take it out of capital. And then, if the capital

is down, if you make a profit next year you top up

the capital from that profit. That is what it

means, does it not?

MR ROBIN:  Yes, Your Honour, and that is quite consistent with

the order of distribution in 47(2): that those
who have contributed the cash capital are entitled

to have it replenished -

DAWSON J:	Replenished, if it has been depleted, out of profits.
MR ROBIN:	When funds become available, yes.
DAWSON J:	So it means 'trading profits" in both parts.
MR ROBIN:	Yes.
BRENNAN J:	Why are profits not simply the excess of the funds of the partnership over the capital?
MR ROBIN:	Your Honour, we will be happy to accept that.
BRENNAN J:	Well, do you submit it, not whether you accept

it, I am asking the question not putting the

proposition?

MR ROBIN:	Yes, Your Honour, we do. That is in accordance with some of the few authorities we have been able
to locate which might be of some assistance such as ROBINSON V ASHTON, but it does not really matter what the cause is of the partnership's
position being bettered; it does not matter whether
it is a trading profit or a capital profit, if you like
to put it that way.
DAWSON J:	That may be right but that is not the way it is

customarily v.Drked, is it? I mean you do not every

year revalue the assets and see how much -

all you do is you look at your trading and see

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whether you have made a profit or not. If you

have not made a profit, you nade a loss,

then you deplete the capital of the partners.

If you have made a profit then you distribute the

profit, if necessary topping up their capital.

MR ROBIN:  Yes. Section 47, of course, only applies on a

dissolution so it is sensible then, if indeed it is
not inevitable, to find out quite accurately what

the value of all the assets is.

DAWSON J:	Yes, that is right.
McHUGH J:	The hypothesis upon which subsection (2) operates

is that the business has come to an end.

MR ROBIN:  Yes, well it is the same with subsection (1),

it would seem.

McHUGH J:  Yes,and there is in hand assets which may be of

a capital nature or which may have been current

assets, however you describe them, they are just

assets.

MR ROBIN:  Yes and as His Honour Justice Brennan said, it

is p'lainly right that you compare what you have at

that stage with the $1.5 million which the
partnership had at the beginning plus any other
factors which had to be taken into account to work

out its value at the outset.

McHUGH J:  Well, the ultimate residue must represent

capital profits, must it not?

MR-ROBIN:  Well, if there are capital profits, that is where

they would end up, yes, Your Honour.

BRENNAN J:  But does this Act make any distinction between

capital and revenue?

MR ROBIN:  No - I hope I do not speak too soon - but I do

not think so. Our submission is that -

DAWSON J:  But it does make a distinction between losses

and profits.

MR ROBIN:  Yes. Our submission in relation to the Full

Court's approach is that the Full Court was seduced

by this inappropriate distinction.

DAWSON J:  'tapital profiti~ in a sense, is a misleading

term, is it not? 'Capital profit''is just capital.

MR ROBIN:	In a partnership. context, Your Honour, we say the
capital is the $1.5 million and continues to be the
$1.5 million. That is the capital and that is all that can be dealt with under 47(2)(c).

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DAWSON J:  Yes, that is right but - well, the distinction

between "capital" and "assets" really.

MR ROBIN:  Yes, and that is a distinction which we say

the Full Court failed to apply correctly although

it is a rather basic matter of partnership law.

If I could take Your Honours to what Lindley says

about it in the booklet at page 30A - this is the
15th edition of Lindley at 494, the second

sentence on the page. I beg to read that to

Your Honours where it says this:

The capital of a partnership is not

therefore the same as its property: the

capital is a sum fixed by the agreement of

the partners; whilst the actual assets

of the firm vary from day to day, and

include everything belonging to the firm

and having any money value.

The same point was made on another - - -

McHUGH J:  Well, one of the problems I have about this section

is whether you approach it in the way an accountant
would approach it or whether it has a wider meaning.

Accountants, particularly at the time this section

was enacted, proceeded upon the historical cost

theory of accounting. Until there was a realization

particularly fixed assets in any event. of assets, ~hey would just put it:at ~ost -

MR ROBIN:	Yes, Your Honour.
McHUGH J:	So, in terms of the partnership books you would have the capital that was put in plus any
undistributed profits - I am talking on the liabilities
side - and that would either be represented as a
further contribution of capital or as a special advance or maybe just a general undistributed profits'
account. But, on the assets side, any capital assets
that were purchased would be just shown at the
historical cost figure less depreciation.
MR ROBIN:	Yes, Your Honour.
McHUGH J:	Well, what is this section talking about? Is it

talking about - when it talks about the ultimate

residue it must be talking about the realization of

assets, is it?

MR ROBIN:  Yes, Your Honour. It is rather similar to the

distribution order that one finds in companies

legislation. The receiver, or whoever is winding

the partnership up, comes into possession of a

certain fund under priorities for its distribution

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as set out there. A lot of the difficulties

appear not to matter in the end because funds can

only be distributed pursuant to (a), (b), (c) or (d).

DAWSON J:  It probably does not have in mind partnerships

under the MERCANTILE ACT at all, does it, because

ordinarily profits are divisible in accordance

with the capital contributions. Not necessarily but -

well, ordinarily in that way, (d) would work

perfectly well. When you get one partner who makes no

capital contribution it is an unusual situation from

the point of view of section 47, is it not?

MR ROBIN:  Yes, it is, although the draftsman thought he

was applying his rule to limited partnerships

as section 5(3) shows.

McHUGH J:  But even in ordinary partnerships - take a

solicitors'partnership - it is not unusual that the profits will be shared unequally even though capital

contributions may be equal.

MR ROBIN: That is so,and that is why we say that there is no

occasion for surprise here that Rowella has put in

nothing and may take out 40 per cent of the residue.
I was about to refer Your Honours to Miller's book,

The Law of Partnership in Scotland; it is

substantial work published by Green in 1973 and it

is at page 31 and at page 404 the author says:

In its normal use in partnership affairs

the capital of a firm is distinct.from

its property. The capital of the

partnership is a term used to denote the aggregate of the sums contributed by the partners for the purpose of carrying on

the business of a partnership. It is thus

not equiparate to the assets or property of

the firm which will vary during the

conduct of the business and it is really

represented by the amounts at credit of the

partners on capital account.

The author then sets out section 44, the English equivalent - or Scots' equivalent - of section 47 and the first comment thereafter of the author is:

The PARTNERSHIP ACT 1890 appears, therefore,

to distinguish between the capital of the

firm, i.e. the sums contributed by the
partners and placed at risk in the venture

and the property or assets of the firm;

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MR ROBIN (continuing):  May we next take Your Honours to the

authority of ROBINSON V ASHTON,(1875) LR 20 Eq 25

of page 27 of the booklet which establishes how

increases in value of partnership assets are

dealt with. On the dissolution of the partnership

it was claimed that a substantial increase in the

value of a mill, which had been brought in by one

of the partners, belonged to him on a dissolution.

At page 27 of the report, in the middle of the

page appears a significant submission which failed,

and it is this submission:

We submit that Ashton was only entitled to a

share in the working profits made while the

partnership was a going concern, and that

he had no interest in the mill and fixed plant,

which could not be sold without winding up

the business.

Your Honours might note about point 8 on the left-hand page that throughout the partnerships

in question here, the capital of the parties,

Robinson and Ashton, was not equal. Robinson's

was said to be always much larger. Sir George Jessel,

in the short judgment, said:

that in the absence of special agreement the rise or fall in value of fixed plant or real

estate belonging to a partnership was as

much profit or loss to the partnership as

anything else.

The result in that case was a 50:50 distribution

after the partnership debts had been paid.

The authority of that case was recognized

in this Court by Mr Justice Menzies in a case of

HARVEY V HARVEY, at 120 CLR 529 page 553, where

His Honour referred to, in the middle of the page:

authority which shows that where property,

contributed by one partner as a partnership

asset and for which that partner is credited
in the capital account of the partnership,

is improved, so that upon the dissolution of

the partnership the sale price exceeds the
value fixed at the time when the property
became a partnership asset, the excess is

divisible as profits of the partnership

business.

ROBINSON V ASHTON is referred to.

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As well as searching in the present partnership deed for a provision dealing expressly with

capital profits, and of course there is none,

the Full Court appeared to impose a further

requirement, that it was necessary to find in the

partnership deed a provision which could be

identified as intended to apply on a

dissolution.

(Continued on pagel6)

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Rowella(2)

Mr Justice McPherson so proceeds at page 83, line 7, where His Honour says:

that the provisions of cl.10, and in

particular of cl.l0(c)(ii), are intended to
prevail in the determination of annual

distributable profits or income earned in
the course of trading from year to year,
but do not govern the rights of the partners
in surplus assets or "ultimate residue" on

dissolution. The direction in cl.l0(c)(ii) that as between general partner and special

partners profits are to be distributed in the
proportion 40:60 consequently does not, in
the terms of s.47(2)(d) of The PMTNERSHIP ACT

prescribe "the proportion in which profits are

divisible" for the purpose of distributing

residue after dissolution.

One suspects that GRIFFITH V PAGET may have had a lot to do with His Honours approach there.

A similar idea appears in the leading judgment at

page 69, line 10, where His Honour said it did

not follow from cl.l0(c)(ii):

that the provision made by cl.10 for the
division of trading profits during the
subsistence of the partnership is also to

be applied to the division of capital profits

as part of the assets of the partnership

business on the termination of the partnership. Section 47, in our respectful submission, is there

to assist partners who have not made provision of

that kind. The Australian text authority on

partnership is helpful to us and it started out

as Higgins on The Law of Partnership in

Australia and New Zealand, as Your Honours will

be aware, and the third and fourth editions were

known as Higgins and Fletcher, and the fifth

edition is by Fletcher.

The fifth edition known as Fletcher on The Law of Partnership is at page 32 of our booklet,

page 252 of the work, having set out the

section 47, in the middle of the last paragraph

deals with residue in this way:

If an amount remains, the rule states that this

ultimate residue is divisible between the

partners in the proportions in which the

profits were shared by them during the

continuance of the partnership.

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Rowella(2)

The learned author is of course going on no more

than the words of the section but we submit that

the construction which he put on it is quite

correct, that what one looks at is the proportion

in which profits are shared during the continuance

of the partnership.

The last edition of the work for which the

late Professor Higgins was solely responsible

was the second and at pages 32A and 32B, Your Honours

will find that what appears now in Fletcher

is in fact the work of Professor Higgins.

Reading from the last half a dozen words on page 229 of the work, the rule states:

This ultimate residue is divisible between

the partners in the same proportions in

which the profits were shared by them during

the continuance of the partnership.

We submit that that view would commend itself to

Your Honours rather than the Full Court's approach.

BRENNAN J:  Mr Robin, is not your problem chiefly this, that

you rely upon clause l0(c} to give you your proportion,

it that right?

MR ROBIN:  Yes, Your Honour.

BRENNAN J: And the assumption therefore is that l0(c) is

dealing with the profits that are referred to

in 47(2)(d). But, l0(c) deals with distributable

profits and it gives its own dictionary for

distributable profits. May the argument not be

that the profits referred to in 47(2)(d), as

appears from the context, are the profits of

the partnership in the ordinary sense, that is,

the excess of its assets over its capital,

whereas distributable profits under clause 10(c)

means something different? '

MR ROBIN:  Your Honour, that is a theoretical possibility

we have to concede, but our submission is that
on the proper construction of clause 10 the labels, which the draftsman has attached to the fund he

is dealing with at various stages have no

significance at all. Looking at the substance of

the provision that is made, I do not have to

repeat at too much length what has already been

said, but one starts with profits calculated

according to general principles, which appear to

have the tax regime in mind, then under (b) one

deducts from that expenses of the operation,

although they may not be tax deductible.

BIT3/4/CM	17	28/6/89
Rowella(2)

There is nothing, we would submit, unconventionable

about that, but that would hardly allow room for

deduction of expenses which were not proper ones.

And the only other withholding that occurs is

under l0(c)(i) in respect of anticipated operating

expenses in the next period. Your Honour, our

submission in relation to l0(c) is that it is

an absolutely conventional way of dealing with

profits.

BRENNAN J: Well put it to the test. Why is the amount that

is retained under l0(c)(i) not to be taken to

account under 47(2)(d) in your favour?

MR ROBIN: Yes, well - - -

BRENNAN J: It is part of distributable profits.

MR ROBIN:  Yes, well bearing in mind that 47(2)(d) operates

only on a dissolution, then it must be - the

withholding must come to an end.

BRENNAN J: 

Be it so, but if one looks at clause l0(c) as at

charter of the meaning of 47(2)(d), one must
take into account retentions under clause l0(c)(i),

must one not?

MR ROBIN: 

Yes, Your Honour.

BRENNAN J: 

How does that work?

MR ROBIN: 

I find it difficult for a moment to see how the

proportion of 40:60 is likely to be affected,

because - - -

BRENNAN J: Because distributable profits consist of two

sums, only one of which is distributable 40:60;

the other is retainable as to 100 per cent by

Rowella.

MR ROBIN: That is so,Your Honour, but not necessarily for

Rowella's own interest. Rowella is the managing

partner and a kind of trustee of those withheld

funds no doubt .

TOOHEY J:  Once you move from the formula in the 40:60 in

l0(c)(ii), is there any other formula by way of

distribution which can be found in the partnership

agreement?

MR ROBIN:  Nowhere, Your Honour. I mean it would be very

nice for Rowella if the retained sums under l0(c)(i)

could be kept by Rowella for its benefit. It may

be difficult to argue that because it would seem

BIT3/5/CM 18 28/6/89

Rowella(2.)

they have to be employed for partnership purposes,

but lO(c)(ii) is the only provision that deals

with distribution of profits.

TOOHEY J:  So if the partnership agreement was silent in

that respect the Act would require an equal

distribution.

MR ROBIN:  That is right. Mr Justice McPherson wrote

something about that and saic that would seem

very funny if a special partner who had put in

$100,000	was to receive only as much as a
special partner who had put in $10,000	and
I suppose there might be some room for an

argument that regard should be had to section 27,

I think it is, in respect to ~his partnership,

and the presumption of equalicy created by that,

but it would really produce a very funny result

that Rowella would suffer because it would be one

of -I think there are some 90 partners, so the 40 per cent that it bargained for and the special partner who put in very limited amounts

would, it would seem, be unjustifiably enriched.

I am about to come, Your Honours, onto

provisions that the deed makes in relation to

capital. The Full Court agreed at page 67, lines

2-3, with the proposition that in the deed the

term 'partners' referred to general and special

partners indiscriminately. The deed provides,

on page 6,clause 5 (e), that the partners own the

capital in accordance with their contributions.

It says:

The capital for the time being of the partnership shall belong to the partners in the proportio~s

in which it has been contributed by them in

accordance with clause S(a) hereof.

Ir Your Honours were interested you could see

from pages 25-30, alongside each partners name

and address, the amount of capital which it had

contributed. So S(e) gives Rowella an entitlement

to nothing, however the capital, as we have already

indicated, is part only of the assets. S(f) on

page 6 really makes that quite clear by saying:

The assets of the partnership shall consist of

the aforesaid capital and such other property

whether real or personal as shall be acquired

by the partnership from time to time.

By clause 7(b) OQ. page 7., all partners have "A capital

account',' and that is no doubt where items such

as retained profits are to be accounted for and

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Rowel1a(2)

we ask why Rowella should not participate in

assets. Perhaps relevant to that is the

provision in 14(a)(v) on page 16, it starts at

line 10, and it indicates that one of the bases

on which the partnership may be dissolved inside

the seven-year term, which the Act gives it, is,

upon a resolution of three-quarters of the special

partners. It would seem curious, particularly

if the partnership were trading very successfully,

that Rowella could be deprived of any opportunity
to participate in the advantage they hroze brought a1::out,

because the special partners resolve to dissolve

early.

Our submission,Your Honours, is that

Mr Justice Carter was right and the Full Court

was wrong and that the Full Court order ought

to be set aside and instead the appeal to which should

be ordered dismissed. Those are our submissions.

MASON CJ: Thank you Mr Robin. Yes Mr Keane?

(Continued on page21)

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Rowella(2)

MR KEANE:  Thank you, Your Honours. Your Honours, may we

hand up copies of our outline?

MASON CJ: Yes.

MR KEANE:	Your Honours, we make three submissions. Firstly,
the submission that we seek to develop in paragraphs 1, 2, 6 of the outline is to the effect
that clause 10 of the deed, even if it creates a
right to profits, as that term is understood in
section 47(2)(d),has no operation in relation to the administration on dissolution contemplated by section 47(2).

The second submission we make is that the deed

is inconsistent with such an application of

section 47(2)(d) as that contended for by our

learned friends, and the third submission we make is

that the payments to which Rowella is entitled

under clause ll(c)(ii) of the deed are not payments

in the nature of profits as that term is understood

in the Act.

Your Honours, if we can go first to the first

submission we make, and in that regard our

submission is that section 47(2)(d) of the Act does

not itself confer any entitlement to profits. It

assumes the existence of such a right. Section 47(2)(d)

operates by reference to an assumed present entitlement

to profits on dissolution after the payment of the

sums referred to in subparagraphs (a), (b) and (c).

McHUGH J:	Where do you get that proposition that it operates by
reference to a present entitlement co profits on dissolution?
MR KEANE:	Your Honour, by reference to the language of section 47(2)(d) itself which speaks of, "The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible."
McHUGH J:	But the ultimate residue is the ultimate residue of
assets, is it not?
MR KEANE:	Your Honour, that may be so on one view of it. It
is our submission -and we will take Your Honour to
the case- that the language of the section - the language of that particular provision - is explicable historically by reference to the manner in which the Privy Council developed the phrase in
BINNIE V MUTRIE where they were concerned, it is our submission, to distribute cap~.tal profits, and it is our submission that the Act reflects the decision in
that case.

McHUGH J: Well, if that is so, how do you deal with this

illustration:  supposing the profits of a business

B1T4/l/FK	21	28/6/89
Rowella(2)

trading profits are divisible on 30 June each

year, the business proceeds to trade for another

11 months and it is then dissolved. The assets

of that partnership, as at 11 months later, will

include not only capital assets, it will include

current assets and trading profits. What happens

to those trading profits that were made during

the 11 months?

MR KEANE:	Your Honour, in our submission, they are picked up
and they are payable. As Mr Justice McPherson
recognized, they are payable, in our submission,
by virtue of section 42 of the Act, or by virtue of section of 47(2)(b). In relation to 47(2)(b)
they are payable on the basis that if they are
trading profits earned, but nuL paid, but kept in the books - - -
McHUGH J:	No, but they will not even - - -
MR KEANE:	They are advances, Your Honour.
McHUGH J:	They will not be declared.  As of 30 June, let us
assume there had been a distribution of all the
trading profits of the partnership up to that time.
Eleven mmths later you have ceased trading, all you
have got now is assets which you are going to
realize, but those assets will include trading
profits.  Now, what is to happen to that?
MR KEANE:	In so far as they are debts that have not been
paid, they are advances, and alternatively, section 42,sums due - - -
McHUGH J:	I am sorry, where is 42?

MR KEANE: Section 42 of the PARTNERSHIP ACT:

On the dissolution of a partnership every

partner is entitled, as against the other

partners in the firm, and all persons claiming through them in respect of their	interests as partners, to have the property
of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such
payment applied in payment of what may be due to the partners respectively.

So that if there be an accrued entitlement in respect of trading profits, the partners are entitled to be paid those as His Honour

Mr Justice McPherson recognized in his judgment.

McHUGH J:	On that hypothesis, then, the illustration I
gave, then you would have to have a general accounting and work out what the trading profits of the partnership

B1T4/2/FK	22	28/6/89"
Rowella(2)

were for that 10 months period and distribute

them.

MR KEANE:  That may be so, yes.

McHUGH J: That must mean that (d) is talking only about

capital profits?

MR KEANE : 4 7 ( 2 ) ( d) ?

McHUGH J: Yes.

MR KEANE:  Yes, Your Honour, that would be our submission.

McHUGH J: Capital profits only.

MR KEANE:	Yes. Your Honour, may we say as well, in relation to the
question that Your Honour posed, that in speaking,as we do, of a present entitlement to profits after the exercise contemplated by 47(2)(a) to (c) has been
performed, we do submit there is, perhaps, some
significance in the circumstance that in 47(1) the language of that subsection is relevantly:

the proportion in which they were entitled

to share profits.

Which, in our submission, seems to hark back to
the time at which trading losses were incurred and

to suggest, perhaps, that it may well be that the

term "profits" in subsection (1) is more

comprehensive than the term "profits" in

subsection (d). ·

TOOHEY J:	Mr Keane, you seem to be running two arguments in
parallel, if I have understood you correctly. One
is that somehow you read paragraph (d) as if it
read:

The ultimate residue, if any, shall be

divided amont the partners in the

proportion in which profits are divisible -

on dissolution, which is the way you seem to begin.

Now you say, perhaps by way of an alternative, "Well, if you do not read it that way you insert the word

'capital' before the word 'profits' in that paragraph".

MR KEANE:	Your Honour, the better way to put it is the first way that Your Honour put it to me and, Your Honour, we
would submit, in relation to that that one is not
attempting some impermissible exercise of implication
because dissolution is the occasion for the performance of the exercise.

McHUGH J: It takes a bit of reading, does it not, to read the

words "on dissolution" into the paragraph.

BlT4/3/FK 23 28/6/89

Rowella(2)
MR KEANE: With respect, no, Your Honour, for that is the

occasion on which one performs the exercise.

BRENNAN J:  What work is there for than paragraph to

do then? What does it do which would not otherwise

be done?

MR KEANE:	Your Honour, what it does is, give effect in statutory form to the form of language used by
the Privy Council in BINNEY V MUTRIE. May I take
Your Honour to that case now?  We refer to it
in paragraph 3 of our outline.  BINNIE V MUTRIE,
Your Honours, is in the volume which I understand was given to Your Honours yesterday. It is the
third case in the folder.  Your Honours, that is
the decision of ti.11.e Privy Council reported in (18 8 7 ) 12 AC 16 0 and, Your Honours, before I take Your Honours to
the particular passage which appears to be the passage which Sir Frederick Pollock, the draftsman
of the PARTNERSHIP ACT,took up in enacting the Act, can I take you first of all to page 163, and at
about point 7 Your Honours will see in the last sentence of the second-last paragraph on the page
His Lordship refers to the provision made by the
partnership articles that:

profits, and losses are not to be shared in
the ratio of the respective capitals.

Your Honours, at page 165, at the beginning of the second full paragraph, Their Lordships say:

Their Lordships understand that all claims of persons external to the partnership have

been satisfied. That being so, it is clear

that the surplus assets s~ould be first applied

in paying to each partner his claims in respect

of capital. The residue will be profits, and

will be divisible as such.

Now, Your Honours, it is important to pause to recall

that the profits of the partnership while it operated,

while it continued to trade, were not divisible in

accordance with the shares of capital.

If Your Honours then look at page 166 to the

forms of order that Their Lordships made, firstly,

to subparagraph (e), and then to subparagraph (g),

where Their Lordships:

Declare that the residue after payment of

capital as aforesiad is divisible as profit
into 100 parts, of which 40 are to be paid to

tre plaintiff, 35 to the defendant Mutrie, and

25 to defendant Currie.

And they are the proportions in which the parties

had contributed capital.

BlT4/4/FK	24	28/6/89
Rowella(2)

Your Honour, we have drawn Your Honour's attention

to the language used on page 165:

The residue will be profits, and will be

divisible as such.

Your Honours will recall that His Honour

Mr Justice McPherson observed that that decision

appears to be, or the order made in that case appears

to be the source of section 47(2)(d), and His Honour

makes that observation at page 84, line 20 of the

record.

Your Honours, we apprehend that it is not seriously contested that prior to the Act profits

were regarded as divisible in a accordance with

capital contributions. Our learned friends do not

seek to persuade Your Honours that GRIFFITH V PAGET

was in error. Paragraph 4, we have given Your Honours

reference to that decision, the relevant passage,

to WOOD V SCHOLES, the decision of the Court of Appeal

Lord Justice Turner and Lord Justice Knight Bruce, and

to the decision in BINNEY V MUTRIE, an4 Your Honour,

in relation to a point that Your Honour Mr Justice McHugh

raised with my learned friend earlier, both WOOD V SCOLES

and GRIFFITH V PAGET are cases where the distribution

on dissolution was made in accordance with capital

in proportions different from the proportions in which

profits were divisible whilst the partnership

continued to trade.

TOOHEY J:	Mr Keane, is it apparent from BINNEY V MUTRIE that
the proportions referred to on page 166 in
paragraph (g) are, in fact, proportions relating
to capital and not to profit?  I only ask that
because at the foot of page 163 there is reference to a partnership article that provides that the business, and I quote:

(by which the parties evidently mean

profit and loss) shall be divided into-

the parts that there appear.

MASON CJ: Well, it accords with the proportions towards the

the top of page 161?

MR KEANE:	Yes, that is so, Your Honour, page 161 at the
bottom of the first paragraph. We have drawn
Your Honours' attention to the circumstance
at page 163:

But as by the partnership articles, profits, and losses are not to be shared in the ratio.

BRENNAN J: That does not appear clearly from the statement of

facts, does it?

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MR KEANE: 

No, Your Honour. That is the only part at

which it appears.

BRENNAN J: Yes. 

It seems from the contentions of the parties

at 162 that it was at all times agreed that it was
a capital based distribution, is that right, whether

one tooks the plaintiff's view or the defendant's
view?

MR KEANE: 

It does seem to be difficult, Your Honour, to glean

any evidence in those accounts of a contest on the

point.

BRENNAN J: 

Is there any other report of BINNEY V MUTRIE that

might illuminate the authority of it as an

authority dealing with the distinction between

distribution of non-capital profits?

MR KEANE:	Not that we have been able to find, Your Honour, no.
Your Honour, can I say though, in relation to our
learned friend's submission, that there was by the
enactment of section 47(2)(d) a deliberate change
in the law from GRIFFITH V PAGET and BINNEY V MUTRIE,
but that certainly does not appear to have been the
case as recognized in the texts.  One would have
expected such a change in the law to be accompanied
with some fanfare, and, for example, in Halsbury's
Laws of England, fourth edition, voh.ure 35, which we will
hand up to Your Honours, at paragraph 200, note 5,
Your Honours will see that section 44 (b) 4 - which is
the English analogue of section 47(2)(d) -and
BINNEY V MUTRIE are both cited as authority for the
proposition that residue is to be provided in
proportion in which pfotis are divisible, so that
at least the learned authors of Halsbury, far from
regarding a change as having been wrought, treat section 47(2)(d) as effecting no change to the
position recognized by the order in BINNEY V MUTRIE.
That, Your Honour, is the position as well if one
looks at the extract from Pollock on the
Law of Partnership which Your Honours will find
at the very front of the manilla folders that were
delivered to Your Honours yesterday. If Your Honours will go to the photocopied
page 131, Your Honours will see section 44(b)4
set out at the bottom of 131, and the note 2
which goes over to the following page to say:

Compare the form of order fully stated in the judgment of the Judicial Committee,

BINNEY V MUTRIE.

McHUGH J:	Mr Keane, perhaps I have not been following this
but, can I take you back to BINNEY V MUTRIE?

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McHUGH J (continuing):  Having regard to the second of

the partnership articles which is set out at the bottom of page 163 and runs over to 164,

how could the board make any other order than

the order that they made in paragraph (g) on

page 166? It says that the business which,

evidently meant profit and loss, shall be

divided into 100 parts and then, in (g),

Their Lordships:

Declare that the residue after payment of

capital ..... is divisible as profit into

100 parts.

MR KEANE:  Your Honour, it would seem that a different

order could have been made if the board had given

effect to the provision in respect of profits

which was to the contrary effect.

TOOHEY J:  Which provision are you speaking of now,

Mr Keane?

MR KEANE:	The provision as to profits, Your Honours, which is mentioned by Their Lordships at
pa8e 163 in the last sentence of the second-last paragraph on the page.

Your Honour, it would appear that Their Lordships,

without saying so explicitly, distinguishing between

profits during the course of trade and profits in

the sense of the interest in the business - - -

McHUGH J: But why do you say that? The capital just means

the sums of money that they put in. Now, they

might have put it in in proportions of 80, 15 and 5.

MR KEANE:	Yes.
TOOHEY J:	I would have thought that led to precisely the

opposite conclusion, Mr Keane.

McHUGH J: Exactly.

MR KEANE: Well, Your Honours, all one can do is look at

the case, observe that Their Lordships have
recognized there was a different provision in
respect of profits than there was in relation to
the interests in the business and then observe
the form of the order which the author of the Act

appears to regard as being in conformity with the

section which he drew.

McHUGH J:  I must say at the moment I think this case is

dead against you.

MR KEANE:	Can I take Your Honour, then, to WOOD V SCOLES, (1886) LR 1 Ch App 369 and that is under tab 2 in
the folder which we gave Your Honours yesterday.

B1T5/l/SH	27	28/6/89
Rowella(2)

If Your Honours have that report, Your Honours will

see from the headnote that the:

Articles providing that the business

should be carried on "for the mutual

and common benefit of the partners,

and risk of profit and loss in equal

shares."

Your Honours will see that·the capital was

contributed in unequal shares, two to one. If

Your Honours would go to page 373, Your Honours

will see the order made by the Master of the Rolls

which was the subject of the appeal, and the fourth

line, Your Honours will see that the residue was:

to be divided rateably between the

partners according to the amount of

the respective capitals -

TOOHEY J:  But do you not run into the same sort of problems?

Is there in WOOD V SCOLES an indication that profit

and loss was to be shared in a different manner than

contributions of capital?

MR KEANE: 

Yes. It was to be shared equally, Your Honour.

DAWSON J: 

But there was provision on dissolution that the

remaining capital should be divided in accordance
with the respective shares or interest therein.

MR KEANE: 

Yes.

rQOHEY J: That does not really give rise to the point at

issue here, does it, because you have got no

difference between capital distribution or

capital contribution and the distribution of

profit and loss?

MR KEANE:	There is.
TOOHEY J: Is there?
MR KEANE:	There is, the headnote having recorded that the

deed provided for business to be carried on "for

the mutual and common benefit of the partners,

and risk of profit and loss in equal shares."

TOOHEY J:	Yes, I see.
MR KEANE:	That seems to contemplate that the partnership,

while it is carried on, is carried on with an

equal division of trading profits and losses but

that when the order was made, the distribution

occurred in accordance with the parties'

respective capitals and, if we can take

Your Honours to the judgment of Lord Justice Turner,

BlTS/2/SH	28	28/6/89
Rowel la (2)

picking up the provision of the deed which

Your Honour Mr Justice Dawson referred to a
moment ago, at about point 7 on page 377,

and I propose to commence reading in the last

sentence of the page:

It was said for the Appellant that these

words mean shares and interests in the

assets, and not in capital.	But surely
cannot be considered otherwise than as interests in the assets of the partnership.	the capitals of partners in a partnership interests which the partners have in the
partnership after its dissolution.

Your Honours, as we understand the position, there really is no contest that the decision in GRIFFITH V

PAGET accurately stated the position prior to the

Act. The burden of our argument at this point is

to submit that section 47 was not intended to

effect any alteration in the law as reflected in

those authorities and I was taking Your Honours

to - - -

BRENNAN J: That might be right if one regards BINNEY V

MUTRIE as having come later and with more authority

than the other two cases and have decided that there should be a distribution of the residue of assets in accordance with the provisions of the partnership

deed dealing with the distribution of profits and

losses.

MR KEANE:  BINNIE V MUTRIE does come after the other two

cases.

BRENNAN J:	And is of a higher authority.
MR KEANE:	Yes.
BRENNAN J:	And was picked up, as you say, by the PARTNERSHIP

ACT.

to the third possibility that Your Honour

Mr Justice Brennan advanced in discussing the

three possible bases upon which the matter might

be approached, and that is the possibility we

address in paragraph 8 of the outline. Our

submission is that because of the structure of

clause 10, clause l0(c)(ii) does not provide
for profits in any sense whether one wishes
to use the refinements, capital profits or
trading profits. It does not provide a right
to profits in the sense of a right to share in
the ultimate excess of assets over liabilities

or even indeed the annual excess of receipts over

outgoings or excess of assets and receipts over

outgoings and liabilities.

BRENNAN J:  The difficulty with your argument about

it does not provide for the ultimate distribution

BIT6/6/JM	38	28/6/89
Rowella(2)

is that section 47 is posited on the hypothesis that there is no contrary agreement between the

parties and it specifies the rules which are

then to be applied. So that what section 47 is

looking for is some provision by reference to

which it may operate according to its terms,

not which governs the dissolution or the

distribution on dissolution but which governs

something else which provides the dictionary for

it. At the moment I confess that if I look at

clause l0(c)(ii) I do not see why that is not an

appropriate dictionary.

MR KEANE:  Your Honour, we differ with Your Honour

when Your Honour says that section 47(2)(d)

looks elsewhere for a dictionary. It provides

that there shall be a distribution of

residue in accordance with the then

entitlement to profits. The term "profits"

is the language of the Act.

BRENNAN J:  "Profits" there can only surely mean what

"profits" means in subsection (1) and "profits"

in subsection (1) surely means the excess of

assets over the sum of the partnership's

external liabilities and capital.

MR KEANE:  And if that was so, Your Honour, it does not

fit clause l0(c)(ii).

DAWSON J: Because you say profits in that sense are a

return on capital and there has been no capital

here. All you have is a payment made to someone

for services rendered.

MR KEANE:  That is so. We say the provision made by

clause l0(c)(ii) is really in the nature of

remuneration for services rendered.

(Continued on page 40)

39

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DAWSON J: AnD it is a mistake to call that profits, in

this context, anyway.

MR KEANE:  That is our submission, Your Honour, and it

is particularly so to call it a misnomer because

one cannot identify any necessary proportion

and Your Honour will recall that section 47(2)(d)

speaks about the proportion in which profits

are divisible. lO(c), if applied in the mandatory

manner required by lO(c)(i), that is the taking

out of future operating expenses, will not

necessarily give you a particular proportion

of entitlement. For example, if one took out

20 per cent when one was making one's provision

so that one was left to divide 80 per cent or

whatever was distributable that would give you
48 as to 32. If one took out 30 per cent you

would get 42 as to 28 so you do not - - -

BRENNAN J: That is out of the figure that it is described

in the clause as distributable profits?

MR KEANE:  No.

BRENNAN J: And it is clear enough, is it not, that what

is retained under subclause (i) is not within

any meaning of profits in the PARTNERSHIP ACT

a profit which is payable to or retained by

a partner? I mean, it is held in trust for the

purposes of the partnership agreement. The only

distribution provision that there is in the agreement,

if it be a distribution provision, is lO(c)(ii).

MR KEANE: Yes. lO(c)(ii) is necessarily a balance after

the step which (c)(i) requires to be taken.

BRENNAN J:	Yes.
McHUGH J:	What would you say about the partnership agreement

which said, "50 per cent of the net profit shall

be retained in the business and the balance shall

be· distributed among the partners equally."?

Do you say that 47(2)(d) has got no application

to that?

MR KEANE:  That gets you over - if one assumed that there

were not the other indications that it is intended

to operate only during the currency of trading

Your Honour's suggestion would not get over that

problem but Your Honour's suggestion would get

over the problem that one cannot identify a

proportionate entitlement to profits until the exercise

which (c)(i) requires to be performed is performed.

Your Honour's suggestion would get over one problem

but not both, in our submission and, of course,

the position is here that lO(c)(i) does not say

what Your Honour said.

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Your Honours, that is all we wish to say

in relation to the submission that lO(c) does

not provide for profits in any relevant sense.

The third submission, which was the second we

mentioned at the commencement of our submissions

is that the deed provides for a distribution

on dissolution different from that contemplated

by 47(2)(d), if Your Honours reject both our other

submissions. And that submission is based on

the terms of clause 5.

Your Honours will appreciate, of course, Clause S(a) provides for: that section 47 is expressed to be subject to any agreement.

The capital of the partnership -

to -

be the total sum as designated in the First

Schedule -

and provides for it to be -

contributed by the special partners -

so that it is clear, in our submission that

it is not intended that any sum be contributed

to capital by Rowella.

Under (b):

The capital ..... shall be held by the special

partners in the proportions set out in the

First Schedule.

That is in accordance with their contributions,

a situation quite inconsistent with any notion

that there might be a distribution on the basis

of equality between partners. And in (e) - I

notice in paragraph 7 of our outline it refers

to·· (c), that should be (e): 

The capital ...... belong to the partners

in the proportion in which it has been

contributed -

Your Honours, our learned friend has addressed
Your Honours with the submission that the
Full Court misconceived capital and assets but
what, in our submission, is important is to observe
that in the terms of the arrangement made by

the parties the parties have not observed any

such distinction. Clause lO(e) would make little

sense if the parties were to have that distinction

attributed to them. It does seem to suggest

that what clause lO(e), the work clause lO(e)

is trying to do is to suggest that the capital

belongs in the proportions in which it is being

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contributed. In other words, that that creates

an equity in respect of the partnership and that

is confirmed, in our submission, by the provisions
of S(f) _which say:

The assets of the partnership shall consist of the aforesaid capital and such other property whether real or personal as shall

be acquired by the partnership from time

to time.

Your Honours, our learned friends, in

paragraph 11 of their outline, ask rretorically:

Why should Rowella not participate in assets,

especially any purchased from partnership

profits?

Now, Your Honours, that rhetorical question is

asked without any suggestion that such an acquisition

was ever made and, Your Honours, it is made without

reference to the provisions of clause - or it

failing to recognize the provisions of clauses l0(b)

and (c).

TOOHEY J:  I do not quite see where that argument takes

you, Mr Keane, because on dissolution of the

partnership the capital contributed by each of

the limited partners is to be repaid to them

before the question arising under paragraph (d)

does arise. Is that not so?

MR KEANE: It is but, Your Honour, at the moment - - -

TOGHEY J: It is not as if they are prejudiced in any way

by the operation of paragraph (d) in relation
to the capital that they have contributed because

they get that back anyhow.

MR KEANE:  Indeed, Your Honour, but the question here is

whether the terms of the deed are such as to

indicate an intention inconsistent with the notion

that having contributed the capital in the terms

of a deed which says:

The capital for the time being of the

partnership shall belong to the partners - and which says that -

The assets of the partnership shall consist

of the aforesaid capital -

It is, in our submission, inconsistent with those

provisions to suggest that a party who contribute

no capital at all - - -

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TOOHEY J:  Except that the assets not only consist of the

original capital but consist of other property

acquired by the partnership from time to time

which presumably is acquired out of profits.

MR KEANE:  Your Honour, indeed, and in relation to that

we want to say two things: firstly, there is no suggestion ever been made that that should

interest the Court, that it is a relevant matter;

but, apart from that, Your Honour, perhaps more

importantly, any acquisition that is made under

the terms of the deed would appear to be made in the terms of clauseslO(b) and (c)(i). And

as our learned friends have said, those acquisitions

are made and held on trust for the partnership.

They are made not from the profits in which our

learned friends are entitled to share - if they

are properly called profits at all - they are

made from the income or from the other assets

of the partnership before any payment by way

of distribution under lO(c)(ii) is made.

McHUGH J:  But surely in (e) the provision is doing no

more than saying that the capital contributed

is not a gift? They are entitled to get it back

but it is not theirs, they just cannot do what they want to do with the capital. They do not

have dominion over it. Under section 23 of the PARTNERSHIP ACT it is partnership property, the

sums of money that they have put in, and available
for the creditors, available for the general
business of the organization. It is just one

of the assets of the firm.

MR KEANE:  Your Honour, in that case, then, (e) would seem

to do little work at all but whether or not that

be so (f) does seem to suggest, reasonably clearly,

in our submission, that the assets shall consist

of the capital.

McHUGH J:

B~t you seem to be treating (e) as though it

made partnership capital the equivalent of a

share in a company rather than the way it is

ordinarily treated as simply a liability of the

partnership.

MR KEANE:  Your Honour, we submit that it does reflect -

perhaps not particularly felicitously - we submit

that it does reflect such an intention.

McHUGH J: Yes, I follow that is the way you put it, yes.

BRENNAN J: What is the purpose of (f), what does it do?

MR KEANE:  Your Honour, once again, perhaps infelicitously,

it is intended to indicate an intention that

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the special partners, they who have contributed the capital and own the assets, since it is said

they own the cap i ta 1 , in ( e) , and then i t i s

said in (f) the assets consist of the capital

and other property acquired - it does not say

other property acquired otherwise than by profits

or whatever. So it does seem to be perhaps infelicitously

but nevertheless, in our submission, sufficiently

indicated, an intention that those who contribute

the capital should own the assets and, therefore,

should enjoy any increase or any profit arising

from their realization.

BRENNAN J:  The difficulty about that, of course, is that

the word in (e) is "capital" and the word in

(f) is "assets" and if (e) had read, "the assets

for the time being of the partnership", it would
have been, of course, a very explicit declaration

along the lines for which you contend.

MR KEANE:  Yes. (f) would seem to contemplate that the

capital will be turned into something else, I mean

the capital being the original money contributions

becomes turned into something else. And then,

Your Honour, we recognize it is somewhat

infelicitous but we do submit that it does reflect

an intention contrary to the notion that a party

who has contributed no capital is entitled to

enjoy an interest in any ultimate residue from

the venture to which, unlike the partner in ROBINSON

V ASHTON,no contribution of capital has been

made. Your Honours, those are our submissions.

MASON CJ:	Thank you, Mr Keane.	Yes, Mr Robin.
MR ROBIN:	There are two matters only, Your Honours:	firstly,

in respect to section 42 of the PARTNERSHIP ACT,

this is a section which has nowhere been thought
to warrant a mention in the history of this matter

until our learned friend's address, our submission

in. relation to it is that section 47 is the relevant
operative provision.	The way in which section 42

works is that it gives a partner a right to

apply to the court to wind up the busin~ss and

affairs of the firm.

The language of t-he preceding part of

section 42 really appears to be surplusage in

the light of section 47 which deals with the

same subject-matter more completely and by reference

to mandatory language, whereas section 42 seems

rather more declaratory until it gets to that

part which confers on partners a right to apply

to the court for dissolution.

The other matter concerns our learned friend's

submission in relation to clause lO(c)(ii) that

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it was not a prov1s1on dealing with profits but

a provision dealing with remuneration of Rowella

for services rendered. The fallacy in that is

demonstrated by the circumstance that that

provision is the provision on which the

special partners themselves who render no services

must depend for allocation of any part of the	·
partnership's profits to them. It may, in

common sense terms, serve the function of providing

Rowella with remuneration because there is no other way in which it can earn anything from

its participation but it is the central provision

in the partnership deed which provides how the

profits g~ not only to Rowella but to the special

partners too. Thank you, Your Honours.

MASON CJ:  Thank you, Mr Robin. The Court will consider

its decision in this matter and will adjourn.

- AT 1 2. 32 PM THE MATTER WAS ADJOURNED SINE DIE

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