Ryder v Frohlich

[2004] NSWCA 472

CITATION:	Ryder & 1 Ors v Frohlich & 1 Ors [2004] NSWCA 472
HEARING DATE(S):	4 - 5 November 2004
JUDGMENT DATE:	21 December 2004
JUDGMENT OF:	Hodgson JA at 1; Ipp JA at 2; McColl JA at 17
DECISION:	1.The appeal should be dismissed, save that order 3 made by the primary judge be set aside and the following order be substituted:; "3.The matter be remitted to the Master to determine:; (a) as at the date of termination of the partnership (being 2 March 2001):; (i) the nature and value of the partnership assets, including the nature of the "right" Mr Ryder and Mr Frohlich had to manage the Diversified Fund and whether it had a goodwill value which survived the dissolution of the partnership (but not including any other interest in the Diversified Fund); (ii) whether monies were owing to Mr Ryder referable to the value of the business as at 2 March 2001 and whether Mr Ryder owed monies to Mr Frohlich - being those referred to in Mr Frohlich's cross-claim; (b) whether, in the light of the identification of the partnership assets and their use, if any, after 2 March 2001, Mr Ryder is entitled to a share of profits pursuant to s 42 of the Partnership Act 1892 (NSW) and, if so, to determine the amount of that share; (c) in the light of the findings made, the respective indebtedness of Mr Ryder and Mr Frohlich."; 2. The appellants to pay 80% of the costs of the appeal.
CATCHWORDS:	CONTRACT - PARTNERSHIPS - Agreement between first appellant and first respondent to establish hedge investment fund - identity of partners - TERMINATION - term of partnership agreement that each partner would contribute equally in terms of time and effort - first respondent left partnership to take up full-time employment - whether partnership agreement terminated - whether first respondent accepted first appellant's repudiation - principles concerning repudiation and partnerships - Abandonment - whether partnership agreement abandoned - Conduct of trial - terms of referral to Master - Estoppel - whether appellants estopped from asserting any share in the business or profits after the termination date. (D)
LEGISLATION CITED:	Corporations Law s 9, s 88, s 601FA Partnership Act 1890 (Imp) s 35(d) Partnership Act 1892 (NSW) s 26, s 30, s 32, s 35, s 42
CASES CITED:	Carter, J.W. Breach of Contract (The Law Book Company Limited, 2nd Ed, 1991) Carter and Harland, Contract Law in Australia (Butterworths, 4th Ed) Chitty on Contracts (Sweet & Maxwell, 28th Ed) Lindley & Banks on Partnership (Sweet & Maxwell, 17th Ed, 1995) Peden, Elisabeth & J.W. Carter, The Bonds of Partnership, (2000) 16 Journal of Contract Law at 277-281 Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 Australian Energy Limited v Lennard Oil NL (No 2) [1988] 2 Qd R 230 Barclay's Bank Trust Co Limited v Bluff [1982] 1 Ch 172 Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd's Rep 446 Blacktown Concrete Services Pty Limited v Ultra Refurbishing & Construction Pty Limited (In Liq) (1998) 43 NSWLR 484 Chandroutie v Gajadhar [1987] 1 AC 147 Chilean Nitrate Sales v Pansuiza Compania de Navegacion SA (The Hermosa) & Marine Transportation Co [1982] 1 Lloyd's Rep 570 CIC Insurance Limited v Bankstown Football Club Limited (1995) 8 ANZ Ins Cas 61-232 Cutts v Holland [1965] Tas SR 69 Darlington Futures Limited v Delco Australia Pty Limited [1986] HCA 82; (1986) 161 CLR 500 D T R Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423 Equuscorp Pty Limited v Glengallan Investments Pty Limited [2004] HCA 55; (2004) 211 ALR 101 Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 Freeth v Burr (1874) LR9CP 208 Heyman v Darwins Limited [1942] AC 356 Hitchman v Crouch Butler Savage Associates (1983) 80 LS Gaz 550; (1983) 127 Sol Jo 441b Hochster v De la Tour (1853) 2 El & Bl 678; (1853) 118 ER 922 Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409 Hudson Crushed Metals Pty Ltd v Henry [1985] 1 Qd R 202 Hugh Stevenson & Sons Ltd v Aktiengesellschaft fur Cartonnagen-Industrie [1917] 1 KB 842 Hugh Stevenson & Sons Ltd v Aktiengesellschaft fur Cartonnagen-Industrie [1918] AC 239 Hurst v Bryk [2002] 1 AC 185 In re Ruddock (1879) 5 VLR (IP & M) 51 In the matter of ACN 007 764 249 (in liq) (formerly Adelaide Industrial Equipment); Smith v Deputy Commissioner of Taxation (Full Court of the Federal Court of Australia, 22 November 1996, unreported) Jorgensen v Boyce (1896) 22 VLR 408 Karacominakis v Big Country Developments Pty Limited [2000] NSWCA 313; [2001] ANZ ConvR 513; [2001] ANZ ConvR 577 Lakshmijit v Sherani [1974] AC 605 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 Lombok Pty Limited v Supetina Pty Limited (1987) 14 FCR 226 Lukin v Lovrinov & Anor [1998] SASC 6614 Marminta Pty Limited v French [2003] QCA 541 M'Lure v Ripley (1850) 2 Mac & G 274; (1850) 42 ER 105 Mullins v Laughton [2002] EWHC 2761 (Ch); [2003] Ch 250 Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 78 ALJR 1045 Palmer v Moore [1900] AC 293 Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235 Photo Productions Limited v Securicor Transport Limited [1980] AC 827 Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 Repatriation Commission v Nation (1995) 57 FCR 25 Ripley v M'Lure (1849) 4 Ex 345; 154 ER 1245 Ross T Smyth & Co Limited v T D Bailey Son & Co [1940] 3 All ER 60 Ryder & Anor v Frohlich & Anor [2004] NSWSC 418 Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 Summer v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144 Syers v Syers v Paraire (1876) 1 App Cas 174 Thompson v De Lissa (Supreme Court of New South Wales, unreported, 16 February 1990) Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52 Tropical Traders Limited v Goonan [1964] HCA 20; (1964) 111 CLR 41 Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 Wallera Pty Limited v CGM Investments Pty Limited [2003] FCAFC 279 Wood Factory Pty Limited v Kiritos Pty Limited (1985) 2 NSWLR 105
PARTIES :	Nicholas John Ryder (First Appellant) Protected Equity Investments Pty Limited (ACN 086 671 516) (Second Appellant) Peter Frohlich (First Respondent) Coastal Capital Limited (ACN 061 336 445) (Second Respondent)
FILE NUMBER(S):	CA 40476/04
COUNSEL:	I M Wales SC/M W Young (Appellants) B W Walker SC/R G McHugh (Respondents) (4 November 2004) R G McHugh/S T Chrysanthou (Respondents) (5 November 2004)
SOLICITORS:	Grahame Jackson & Associates (Appellants) Speed and Stracey Lawyers Pty Ltd (Respondents)

LOWER COURTJURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S):	SC 2314/03
LOWER COURT JUDICIAL OFFICER :	Cripps AJ

CA 40476/04
SC 2314/03

HODGSON JA
IPP JA
McCOLL JA

Tuesday, 21 December 2004

Nicholas John RYDER & 1 ORS v Peter FROHLICH & 1 ORS

FACTS

The first appellant, Mr Ryder, is an investment banker. The second appellant, Protected Equity Investments Pty Ltd (“Protected”), is a private company wholly owned by Mr Ryder’s family trust. The first respondent, Mr Frohlich, is also an investment banker. The second respondent, Coastal Capital Ltd (“Coastal”), is his family company. Mr Ryder was a director, but not shareholder, of Coastal.

Mr Frohlich and Mr Ryder agreed in early 1999 to create an “absolute return” investment fund and to attract subscribers to it. The Coastal Magma Diversified Performance Fund (the “Diversified Fund”) was established in about June 2000. Coastal was the “responsible entity” for the Diversified Fund. Mr Ryder contributed equally with Mr Frohlich to the establishment of the Diversified Fund and to attracting subscribers to it until March 2001. As at March 2001 the Diversified Fund had not made a profit. Hence there was no revenue to share between the parties. Because of this Mr Ryder decided to take full-time employment with Salomon Barney Smith (“Salomons”).

Due to Mr Frohlich’s efforts in attracting additional subscribers, investment capital in the Diversified Fund rose substantially between March 2001, when Mr Ryder left to work for Salomons, and the time of trial. Mr Ryder played no part in attracting the additional subscribers.

Cripps AJ found that a partnership existed between Mr Ryder and Mr Frohlich, a fundamental term of which was that Mr Ryder and Mr Frohlich would contribute equally in terms of time and effort to the establishment of the Diversified Fund, to advising in respect to it and to attracting subscribers to it. He held that that partnership had been dissolved when Mr Ryder went to work for Salomons. He remitted the matter to the Master to determine the indebtedness of the partners as at the date of dissolution.

HELD per McColl JA (Hodgson and Ipp JJA agreeing), dismissing the appeal save as to amending order 3 made by the primary judge:

1. The primary judge’s decision that the partnership was between Mr Ryder and Mr Frohlich and that Protected and Coastal were not members of that partnership was correct.

In re Ruddock (1879) 5 VLR (IP & M) 51; Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540; Equuscorp Pty Limited v Glengallan Investments Pty Limited [2004] HCA 55; (2004) 211 ALR 101; Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 78 ALJR 1045; Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; Equuscorp Pty Limited v Glengallan Investments Pty Limited [2004] HCA 55; (2004) 211 ALR 101 referred to.

2. The partnership was terminated by Mr Ryder’s anticipatory breach and Mr Frohlich’s acceptance of that breach by his agreement to Mr Ryder’s departure.

Heyman v Darwins Limited [1942] AC 356; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235; Holland v Wiltshire [1954] HCA 42; (1954) 90 CLR 409; Tropical Traders Limited v Goonan [1964] HCA 20; (1964) 111 CLR 41; Lakshmijit v Sherani [1974] AC 605; Wood Factory Pty Limited v Kiritos Pty Limited (1985) 2 NSWLR 105; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385; Karacominakis v Big Country Developments Pty Limited [2000] NSWCA 313; [2001] ANZ ConvR 513; [2001] ANZ ConvR 577 applied.

Jorgensen v Boyce (1896) 22 VLR 408; Palmer v Moore [1900] AC 293; Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420; Cutts v Holland [1965] Tas SR 69 discussed and applied.

M’Lure v Ripley (1850) 2 Mac & G 274; (1850) 42 ER 105; Thompson v De Lissa (Supreme Court of New South Wales, unreported, 16 February 1990); Lukin v Lovrinov & Anor [1998] SASC 6614; Hurst v Bryk [2002] 1 AC 185; Mullins v Laughton [2002] EWHC 2761 (Ch); [2003] Ch 250 discussed.

Freeth v Burr (1874) LR9CP 208; Ross T Smyth & Co Limited v T D Bailey Son & Co [1940] 3 All ER 60; Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401; Chilean Nitrate Sales v Pansuiza Compania de Navegacion SA (The Hermosa) & Marine Transportation Co [1982] 1 Lloyd’s Rep 570; Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620; Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17; Hudson Crushed Metals Pty Ltd v Henry [1985] 1 Qd R 202; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623; In the matter of ACN 007 764 249 (in liq) (formerly Adelaide Industrial Equipment); Smith v Deputy Commissioner of Taxation (Full Court of the Federal Court of Australia, 22 November 1996, unreported) referred to.

3. In circumstances where Mr Ryder evinced an immediate intention to take up full-time employment at Salomons, which Mr Frohlich accepted, the partnership arrangement was also abandoned on 2 March 2001.

Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144; Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420; D T R Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423; CIC Insurance Limited v Bankstown Football Club Limited (1995) 8 ANZ Ins Cas ¶61-232; Wallera Pty Limited v CGM Investments Pty Limited [2003] FCAFC 279; Marminta Pty Limited v French [2003] QCA 541 applied.

4. It was apparent from the conduct of the trial that the partnership’s right to manage the Diversified Fund was an asset of the partnership.

5. The Master should determine the nature of the “right” to manage the Diversified Fund in order to value the business as at March 2001 as well as whether that right had a goodwill value which could enure to Mr Ryder’s benefit.

6. The appellants were not estopped from seeking relief pursuant to s 42 of the Partnership Act 1892 (NSW).

7. In dealing with the issue of whether Mr Ryder is entitled to a share of profits pursuant to s 42 of the Partnership Act 1892 (NSW), the Master would have to make an appropriate allowance for Mr Frohlich’s work post termination: Hugh Stevenson & Sons Ltd v Aktiengesellschaft fur Cartonnagen-Industrie [1917] 1 KB 842; Hugh Stevenson & Sons Ltd v Aktiengesellschaft fur Cartonnagen-Industrie [1918] AC 239 applied.

Per Ipp JA (Hodgson JA agreeing):

8. It would offend common sense to entertain the notion that the appellants could be permitted to assert that the partnership was not terminated as the judge found: Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd’s Rep 446 referred to.

ORDERS

1. The appeal should be dismissed, save that order 3 made by the primary judge be set aside and the following order be substituted:

“3. The matter be remitted to the Master to determine:

(a) as at the date of termination of the partnership (being 2 March 2001):

(i) the nature and value of the partnership assets, including the nature of the “right” Mr Ryder and Mr Frohlich had to manage the Diversified Fund and whether it had a goodwill value which survived the dissolution of the partnership (but not including any other interest in the Diversified Fund);

(ii) whether monies were owing to Mr Ryder referable to the value of the business as at 2 March 2001 and whether Mr Ryder owed monies to Mr Frohlich – being those referred to in Mr Frohlich’s cross-claim;

(b) whether, in the light of the identification of the partnership assets and their use, if any, after 2 March 2001, Mr Ryder is entitled to a share of profits pursuant to s 42 of the Partnership Act 1892 (NSW) and, if so, to determine the amount of that share;

(c) in the light of the findings made, the respective indebtedness of Mr Ryder and Mr Frohlich.”

2. The appellants to pay 80% of the costs of the appeal.

CA 40476/04
SC 2314/03

HODGSON JA
IPP JA
McCOLL JA

Tuesday, 21 December 2004

Nicholas John RYDER & 1 ORS v Peter FROHLICH & 1 ORS

Judgment

1 HODGSON JA: I agree with the orders proposed by McColl JA, and I agree substantially with her reasons. I also agree that the matter could be disposed of for the reasons given by Ipp JA.

2 IPP JA: I have had the benefit of reading in draft form the reasons to be published by McColl JA and, subject to the limitations set out below, agree generally with them.

3 The first issue in the appeal is whether there were four partners or only two.

4 Cripps AJ based his decision that there were only two partners on Mr Ryder’s oral evidence. Mr Ryder testified in this regard:

“[There were] two partners being Mr Frohlich and Mr Ryder with two legal – two other companies which could substitute for the partners”.

He said further that the two companies, said by the appellants to have been partners in the partnership, “were not partners in the sense that you might think of them. They are just nominees for the two partners”.

5 The judge pointed out that Mr Ryder himself said that there were two “partners” (Mr Frohlich and Mr Ryder) and the arrangement was that either one of them could “substitute” their corporate entity as they pleased.

6 The draft documents that were intended to lead to a formal agreement are equivocal on this issue. There is no consistency in this respect in other documents to which the parties referred. Much of the material reflects a belief on the part of both parties that there were only two partners. I am not persuaded that Cripps AJ erred on this issue. I would not uphold the appellants’ appeal in this regard.

7 The second issue is whether the partnership terminated on 2 March 2001.

8 Mr Ryder’s evidence was that on 23 February 2001 he said to Mr Frohlich:

“I have received a good job offer from Salomon Smith Barney, which I am interested in accepting”.

According to Mr Ryder, Mr Frohlich responded with words to the effect:

“I think you should take the job …”.

Mr Ryder then duly joined Salomons.

9 Cripps AJ said that by joining Salomons Mr Ryder had “put it out of his power to perform an essential and fundamental term of the agreement he had with Mr Frohlich. It is not merely that he undertook some work inconsistent with what he was obliged to contribute to the partnership. What he did was to put it out of his power entirely to perform his obligations”.

10 The appellants did not suggest that the judge, in so finding, erred. Indeed, they accepted that Mr Ryder, by taking full-time employment with Salomon’s, repudiated the partnership agreement.

11 In my opinion, that repudiation was unequivocally accepted by Mr Frohlich when – according to Mr Ryder himself – he said:

“I think that you should take the job”.

By saying that, Mr Frohlich made it plain that he accepted the consequences of what Mr Ryder was doing. He told Mr Ryder in effect to leave the partnership: to go. This was an unequivocal acceptance of the repudiation.

12 McColl JA has set out other statements by Mr Frohlich and conduct on his part that indicate an acceptance by him of the repudiation. Her Honour has also discussed various other ways in law how the partnership agreement came to an end. In my view, to adapt the words used by Mustill J in Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd's Rep 446 at 457, whatever technical labels one may choose – acceptance of repudiation, abandonment, agreement by conduct, unilateral act, or some other doctrine – common sense rebels against the notion that the appellants can now be permitted to assert that the partnership was not terminated as the judge found. In my opinion, it is unnecessary to examine this issue any further.

13 The respondents have put their case on the basis that the partnership agreement came to an end on 2 March 2001 when Mr Ryder joined Salomons. I think the partnership agreement came to an end on 23 February 2001 but, as the respondents conducted the matter on the basis that the partnership was terminated on 2 March 2001, that must be taken as the termination date. I would dismiss the appeal in respect of this issue.

14 I come now to the order that should be made. I agree with McColl JA that, before Cripps AJ, it seemed to be common ground that the partnership’s right to manage the Diversified Fund was an asset of the partnership. That being so, the Master should determine the value of the right to manage the Fund in order to value the partnership business as at 2 March 2001. The Master should also determine whether, as at 2 March 2001, the right to manage the Fund had a goodwill value that was part of the partnership business.

15 The appellants have been partially successful, but only to a very minor extent. I agree that they should pay 80% of the costs of the appeal.

16 Accordingly I agree with the orders proposed by McColl JA.

17 McCOLL JA: This is an appeal from a decision of Cripps AJ in which he determined that a partnership existed between the first appellant (“Mr Ryder”) and the first respondent (“Mr Frohlich”), a fundamental term of which was that each would contribute equally in terms of time and effort to the establishment of a hedge investment fund referred to as the Coastal Magma Diversified Performance Fund (the “Diversified Fund”), to advising in respect to it and to attracting subscribers to it, but that that partnership had been dissolved in March 2001 when Mr Ryder went to work for Salomon Barney Smith (“Salomons”).

18 Mr Ryder is an investment banker. The second appellant, Protected Equity Investment Pty Ltd (“Protected”), is a private company wholly owned by Mr Ryder’s family trust.

19 Mr Frohlich is also an investment banker. The second respondent, Coastal Capital Ltd (“Coastal”), is his family company. Mr Ryder was a director, but not shareholder, of Coastal.

Statement of the case

20 The key questions the primary judge had to resolve were whether, as the appellants alleged, they had entered into a partnership with the respondents in or about April 1999 or whether, as the respondents contended, the parties had entered into a joint venture. Secondly, the primary judge was required to determine whether the relationship between the parties had been terminated in March 2001 as the respondents contended or was repudiated by the respondents’ assertion on 14 February 2003 that the appellants were not entitled to an equal share of the business.

21 In addition the appellants claimed that they had rights in relation to the Diversified Fund which should be determined and valued in an inquiry before the Master. There was also a dispute as to whether Coastal International Equity Fund (the “Equity Fund”) which was created by Mr Frohlich in September 2002 was part of the partnership business at the time of hearing or, if it was not, whether it was a business of the same nature as and competing with the business of the partnership without the consent of the appellants in circumstances requiring the respondents to account for all profits they made in that business: s 30 Partnership Act 1892 (NSW) (the “Partnership Act”).

22 The respondents contended that Mr Ryder was estopped from asserting that he had an equal entitlement to share in the profits made in the management of the Diversified Fund after March 2001. The respondents also denied that the appellants were entitled to a share of any revenue of the business other than that attributable to subscribed funds to the Diversified Fund received before March 2001.

23 The respondents also cross-claimed against the appellants, claiming, in effect, that if there was an agreement between the parties as claimed by the appellants, monies were owing by the appellants to the respondents.

24 It is important, for reasons which will become apparent, to note that the primary judge was not asked to determine any issue concerning the monetary claims between the parties. He was only asked to determine liability: Ryder & Anor v Frohlich & Anor [2004] NSWSC 418 at [16].

The primary judge’s factual findings

25 The primary judge identified (at [17]) the first matter for determination as “the characterisation of the legal relationship between the parties … and the terms of that relationship”. To that end, his Honour found the following facts.

26 Mr Frohlich and Mr Ryder agreed in early 1999 to create an “absolute return” investment fund and to attract subscribers to it. “Absolute return” investment funds are funds that are managed in a way that ensures that movements in the equity bond or property markets do not substantially influence the return on investment ([23]).

27 The Diversified Fund was established in about June 2000. Coastal was the “responsible entity” for the Diversified Fund ([25]). I interpolate to note that a “responsible entity” of a registered scheme was required to be a public company holding a dealer’s licence authorising it to operate a managed investment scheme: s 601FA of the Corporations Law which then applied. Being the “responsible entity” meant Coastal was the company so identified in the Australian Securities and Investments Commission’s (“ASIC”) records of the Diversified Fund's registration: s 9 of the Corporations Law.

28 Mr Ryder became a non-executive director but not a shareholder of Coastal ([25]). He contributed equally with Mr Frohlich to the establishment of the Diversified Fund and to attracting subscribers to it until March 2001 ([48]).

29 As at March 2001 the Diversified Fund had not made a profit. Hence there was no revenue to share between the parties. Because of this Mr Ryder decided to take full-time employment with Salomons.

30 Due to Mr Frohlich’s efforts investment capital in the Diversified Fund rose from $4 million, as it was in March 2001 when Mr Ryder left, to a little over $30 million at the time of trial ([48]). The primary judge found the Fund’s improved position had nothing to do with Mr Ryder. By then another person was doing the work Mr Ryder would have done had he remained. That person spent approximately 35-36 hours per week undertaking that work. The primary judge concluded that Mr Ryder took no part in attracting the additional subscribers to the Diversified Fund ([48]).

31 The primary judge found that Mr Ryder and Mr Frohlich contributed equally in terms of time and effort until March 2001 ([48]). As a result of Mr Ryder taking up fulltime employment with Salomons, Mr Frohlich then had to work 80 hours per week (at [41]).

32 The primary judge rejected Mr Ryder’s estimate that after he left to work for Salomons he spent between one and one and half hours a week in discharge of his obligations as a director of Coastal. His Honour accepted Mr Frohlich’s evidence that Mr Ryder had overstated his involvement with Coastal after his departure (at [46]).

33 The Equity Fund was established in about September 2002. The primary judge concluded (at [58]) that it was the result of Mr Frohlich’s own efforts. By the time of trial it appeared that the Equity Fund had captured a number of investments. It was confined to international investors and was directed to equity markets in contrast to the Diversified Fund which had a wider range of investments and attracted retail as well as institutional investors. The primary judge found ([48]) that Mr Ryder took no part in the establishment of the Equity Fund or attracting subscribers to it. Until Mr Ryder commenced proceedings against Mr Frohlich (and Coastal) the primary judge found, he never thought he had an interest in anything other than the Diversified Fund ([47]).

34 His Honour concluded that it was significant that after Mr Ryder’s employment with Salomons was terminated in or about October 2002 he offered to return to the business with Mr Frohlich “if you want me to” ([47]). The primary judge found that that evidence “does not sit comfortably with his assertion that he had merely moved from a full-time partner to a part-time partner”.

Primary judge’s conclusions

35 The three issues the primary judge identified as relevant to liability were: the characterisation of the parties’ legal relationship and its terms and the effect of Mr Ryder’s departure for Salomons.

36 The primary judge ([35]) regarded aspects of draft agreements which had passed between Mr Ryder and Mr Frohlich as relevant in determining the agreement they ultimately concluded. His Honour accepted that those documents demonstrated that Mr Frohlich and Mr Ryder had agreed to “work together to establish a fund and obtain subscribers for it and [to] contribute equally in terms of time and effort” and did in fact so contribute (at [41]).

37 The primary judge noted (at [36]) Mr Ryder’s concession that the arrangement was between Mr Frohlich and himself and “that the business … was to advise selected clients interested in ‘absolute return’ investment funds”.

38 The primary judge made adverse findings concerning Mr Ryder’s credit. He concluded (at [34]) that “[a]t all times Mr Ryder appeared to have a firm understanding of the direction he wished his evidence to go and that any facts or circumstances inconvenient to that course were denied or ignored by him”.

39 The primary judge found that Mr Frohlich and Mr Ryder carried on the business of establishing the Diversified Fund and advising Coastal with respect to it. He held ([38], [39] and [41]) that the legal relationship between Mr Ryder and Mr Frohlich which resulted in the establishment of the Diversified Fund was a partnership whose business was the establishment of the Diversified Fund, advising Coastal with respect to it and attracting subscribers to it.

40 He rejected ([39]) the appellants’ submission that Coastal and Protected were partners in the partnership. He also held ([40]) that Protected was “not part of the business” nor was Coastal, “otherwise than it was the responsible entity of the Diversified Fund”.

41 He reached this conclusion “… largely because Mr Ryder himself referred to the circumstance that there were two ‘partners’ (i.e. Mr Frohlich and Mr Ryder) and an arrangement which allowed either one of them to ‘substitute’ their corporate entity as they pleased” (at [20]).

42 The primary judge found (at [56]) that after Mr Ryder assumed his new position he did nothing to advance the business other than to attend some compliance meetings and a presentation shortly after he left which he admitted he was under no obligation to do. His Honour concluded (at [53]):

“Mr Ryder by his conduct put it out of his power to perform an essential and fundamental term of the agreement he had with Mr Frohlich. It is not merely that he undertook some work inconsistent with what he was obliged to contribute to the partnership. What he did was to put it out of his power entirely to perform his obligations .” (emphasis supplied)

43 The appellants’ primary position before the primary judge was that the partnership had not been terminated, continued to subsist and should be dissolved by the Court pursuant to s 35 of the Partnership Act.

44 They argued that the partnership had not been terminated by Mr Ryder’s announcement on or about 2 March 2001 that he intended to accept Salomons’ job offer because, even if that announcement constituted a “fundamental breach” of the partnership contract, the respondents had not, by words or conduct, communicated acceptance of that breach so as to bring the partnership to an end. The appellants asserted that it was the respondents who subsequently breached the partnership agreement in February 2003 by refusing to permit them to receive 50% of the net revenue and by maintaining they were not entitled to an equal share in the partnership business.

45 The respondents put their case on termination in a number of ways before the primary judge. They contended that by ceasing to work in the business in any significant manner after March 2001 either Mr Ryder or both appellants had breached and thus repudiated the agreement - a breach the respondents accepted by pleading their defence. Alternatively, they pleaded an estoppel based on the fact that they asserted that as the appellants made, in substance, no claim to an equal share in the business or its profits between 2 March 2001 and 17 February 2003, they had represented that they did not regard themselves as entitled to claim an equal share in the business in reliance upon which representation the respondents had continued to carry on the business.

46 The respondents also relied upon the appellants’ failure to lay claim to the partnership business or its profits between March 2001 and February 2003 as constituting a waiver of any breach of the partnership agreement by the respondents and also as supporting the proposition that the appellants were precluded from obtaining the relief they sought by reason of “laches, acquiescence and/or delay”.

47 In the course of the trial, however, Mr Richard McHugh who appeared for the respondents submitted that Mr Frohlich’s conduct in March 2001 in permitting Mr Ryder to accept the full time position at Salomons constituted communication of acceptance of Mr Ryder’s repudiation of the agreement. In addition, in written submissions before the primary judge the respondents submitted that Mr Ryder abandoned the parties’ arrangement by taking up employment with Salomons on 2 March 2001.

48 The primary judge concluded that neither Photo Production Limited v Securicor Transport Limited [1980] AC 827 or Darlington Futures Limited v Delco Australia Pty Limited [1986] HCA 82; (1986) 161 CLR 500, upon which the appellants relied to contend the partnership had not been brought to an end, precluded Mr Frohlich from maintaining that Mr Ryder by his conduct in March 2001 put an end to the agreement. His Honour described those cases as being concerned with “the discarded doctrine of fundamental breach in its application to exclusion clauses in contracts”.

49 The primary judge appears to have reached his conclusion that the partnership had been terminated by Mr Ryder’s announcement by applying the following passage in Chitty on Contracts (Sweet & Maxwell, 28th Ed at para 25-017 – “Chitty”):

“A renunciation of a contract occurs when one party by words or conduct evinces an intention to perform, or expressly declares that he is or will be unable to perform, his obligations under the contract in some essential respect. The renunciation may occur before or at the time of performance ... Short of such an express refusal or declaration, however, the test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provisions. The renunciation is then evidenced by conduct.... Even a deliberate breach, actual or threatened, will not necessarily entitle the innocent party to treat himself as discharged, since it may sometimes be that such a breach can appropriately be sanctioned in damages. If the contract is entire and divisible, that is to say, if it is expressly or impliedly agreed that the obligation of one party is dependant or conditional upon complete performance by the other, then refusal to perform or declaration of inability to perform any part of the agreement will normally entitle the party in default to treat himself as discharged from further liability …” (emphasis supplied)

50 After referring to this passage, the primary judge held that Mr Ryder’s conduct in gaining employment with Salomons meant he put it out of his power entirely to perform “an essential and fundamental term of the agreement he had with Mr Frohlich” (at [53]). His Honour found the observation of Holroyd J in Jorgensen v Boyce (1896) 22 VLR 408 to be apposite. That case concerned a working partnership between a plaintiff and a defendant to mine gold, which the primary judge found (at [54]) to be “a type of relationship relevantly not dissimilar to the relationship between Mr Frohlich and Mr Ryder.” He quoted with approval (at [55]) the following passage from Holroyd J’s judgment (22 VLR 408 at 410):

“The plaintiff then went away on the 3rd November 1894, and Neils Jorgensen also went away on the 24th November, saying that the prospects were not good enough, and that he could not afford to stop. What then was the plaintiff [it was agreed ‘plaintiff’ should read ‘defendant’] to do? His partner had gone, and that partner’s substitute had also gone. Was he to work the claim alone, incurring all the toil, risk and expense without any chance of having these shared by his partner – while, if he got any gold, he would have to save half for the man who did nothing? In my opinion the plaintiff ceased to be a partner when he ceased to do his share of the work either by himself or by his brother, and it seems extraordinary to me that he should now come forward and ask for a share of the proceeds.”

51 The primary judge held ([53], [56]) that Mr Ryder’s conduct brought the partnership to an end on 2 March 2001.

52 Having regard to that conclusion, the primary judge said it was unnecessary to deal with the submission that the respondents should account for and pay over to the partnership all profits made by the respondents in the Equity Fund by virtue of s 30 of the Partnership Act. He held (at [57]) that the Equity Fund was not part of the partnership business because it did not come into existence until after Mr Ryder had left and the partnership was dissolved. Accordingly, as I understand his Honour’s reasons, because the partnership no longer existed at the time the Equity Fund was established it could not be said to have competed with the partnership.

53 The primary judge made declarations and orders (at [60]) which were embodied in the following Order entered on 24 May 2004:

“THE COURT DECLARES that -

1. A partnership did exist between Mr Frohlich and Mr Ryder an essential and fundamental term of which was that each would contribute equally in terms of time and effort to the establishment of the Diversified Fund and for subscribers for it.

2. The conduct of Mr Ryder in March 2001 had the consequence that thereafter the partnership was dissolved.

THE COURT ORDERS that -

3. The matter be remitted to the Master to determine as at the date of dissolution of the partnership (being March 2001) whether monies were owing to Mr Ryder referable to the value of the business at that date and whether Mr Ryder owed monies to Mr Frohlich – being those referred to in the cross-claim to which I have already referred but have not, at the request of the parties, determined.

4. Costs are reserved.
5. The proceedings be relisted in the general list before the registrar on 1 June 2004.”

Issues on appeal

54 The essential issues raised by the appellants were whether the primary judge erred:

(a) in concluding that the partnership was limited to Mr Ryder and Mr Frohlich.

(b) in concluding that Mr Ryder had terminated the partnership on 2 March 2001 by taking up employment at Salomons.

(c) in finding the Equity Fund was not part of the partnership business or failing to determine whether the Equity Fund was of the same nature and in competition with the partnership business.

(d) in holding that Mr Ryder was only entitled to a share in the value of the partnership business as at March 2001.

55 In the event that their challenge to the finding that the partnership terminated in March 2001 failed, the appellants nevertheless contended the primary judge erred in failing to find, given the fact that the respondents continued to carry on the partnership business after that date:

(a) that pursuant to s 42 of the Partnership Act the appellants were entitled to such share of the profits made since March 2001 that were attributable to the appellants’ share of the partnership assets.

(b) that the value for the appellants’ share of the partnership assets was to be determined in accordance with their value at the date of judgment, as opposed to the value of those assets in March 2001.

56 The respondents did not challenge the conclusion that the arrangement between Mr Ryder and Mr Frohlich was a partnership. They filed a Notice of Contention seeking to maintain the primary judge’s decision on the following bases:

1. that in all the circumstances, the respondents’ conduct on or after 2 March 2001:

(a) constituted acceptance of the appellants’ repudiation of the agreement; or

(b) in the alternative, constituted communication of acceptance of the appellants’ repudiation of the agreement.


2. that by reason of the conduct of the parties on and after 2 March 2001, the appellants were estopped from asserting:

(a) any share in the business, or in the profits derived therefrom, being carried on by the respondents after 2 March 2001; and


(b) any of the relief claimed in the Statement of Claim.

3. that by reason of the conduct of the parties on and after 2 March 2001, the partners by the consent of all of them varied their mutual rights and duties on and from 2 March 2001, to the effect that the appellants’ interest in the business was confined to 50% of the value of the net assets of the business as at 2 March 2001 and did not extend to any increase in those assets or in their value or to any profits made by the business after that date.

4. that no order pursuant to s 42 of the Partnership Act should have been made because:

(a) there were no assets, or alternatively no net assets, of the partnership business as at 2 March 2001;

(b) further, or in the alternative, no profits were made by the partnership business after that date which are attributable to the use of either the first or second appellant’s share of the partnership assets;
(c) further, or in the alternative, all profits made after 2 March 2001 were wholly attributable to the first respondent’s carrying on of the business.

57 Although Mr Walker SC, who appeared on appeal with Mr McHugh for the respondents, referred to ss 26 and 32 (which provide that a partnership may be determined or dissolved by the unilateral act of one partner) in oral argument, the Court was informed by Mr McHugh that the respondents did not rely upon Mr Ryder’s departure announcement as constituting notice under either of those provisions.

58 The issue concerning s 42 of the Partnership Act assumed greater significance in argument on the appeal than it had before the primary judge or in the parties’ written submissions.

Consideration

Four partners or two?

59 Although the relationship between the parties was never formalised in an executed document, Mr Ryder and Mr Frohlich exchanged three draft documents in their ultimately unsuccessful attempt to reach formal agreement concerning their arrangement. The appellants relied upon the fact that those drafts named both appellants and both respondents as parties to the arrangement as well as the fact that both corporate entities had acted in a manner consistent with being partners to support their proposition that there were four rather than two partners. They also submitted that Coastal was involved in the business by virtue of being the responsible entity of the Diversified Fund and the Equity Fund while, they contended, there was uncontested evidence that Protected had made a financial contribution to the business and a number of documents used in the business said Protected had an interest.

60 The respondents argued that the draft documents were both equivocal on the issue of the identity of the partners and, in some instances, inconsistent with the proposition that both Mr Ryder and Mr Frohlich as well as their corporate structures were all members of the partnership.

61 The three draft documents, respectively created in April 1999 and in or about 11 June 1999 and 15 June 1999 (the latter being the dates on which they were forwarded as attachments to emails), listed each of Coastal, Mr Frohlich, Protected and Mr Ryder as a party in the context of the following definitions:

“ ‘Coastal Party’ means any one of Coastal or Peter Frohlich or any associate or entity controlled by Peter Frohlich who together are referred to as the ‘Coastal Parties’.
‘Ryder Parties’ means any one of Protected or Nick Ryder or any associate or entity controlled by Nick Ryder who together are referred to as the ‘Ryder Parties’.”

62 In the first draft, described as a “Deed for Establishment of Funds Management Business”, “Harbour Protected Growth Fund Limited” was also identified as a party in the context of the “business” being defined as “the business of advising the Harbour Fund and other Absolute Return Funds or Managed Accounts conducted by the Coastal and Ryder Parties together …”. Harbour did not survive the first cut.

63 Each of the three drafts contemplated that the “Coastal and Ryder Parties” should own the “business” equally.

64 Each draft, in varying terms, defined the “business” as involving advising (inter alia) “Managed Accounts” conducted by the Coastal and Ryder Parties together. “Managed Accounts” referred to a portfolio owned by any investor client. The third draft defined the “business” as “advising Managed Accounts on Absolute Return Strategies conducted by the Coastal and Ryder Parties together …”

65 Each draft provided that Coastal would act as the “Investment Advisor” and would issue a “Proper Authority” to Mr Ryder and appoint him advisor. I assume that the “Proper Authority” was a reference to a copy of Coastal’s securities licence, on which s 88 of the Corporations Law required to be endorsed a statement that Mr Ryder was employed by or acted by arrangement with Coastal.

66 Mr Frohlich forwarded the first draft to Mr Ryder in April 1999. Mr Ryder forwarded the second draft to Mr Frohlich while Mr Frohlich returned the third draft to Mr Ryder. The second and third drafts were entitled “Investment Advisory Joint Venture Agreement”. On 16 June 1999 Mr Frohlich emailed Mr Ryder and informed him he wanted to work on a Savoy clause (a clause dealing with exit strategies) which was “1/3 complete”.

67 The primary judge did not determine why no final agreement was executed. Mr Wales SC who appeared with Mr Marcus Young for the appellants suggested in argument that the explanation was to be found in an email from Mr Frohlich to Mr Ryder in March 2000 in which he wrote “the absence of the shareholders agreement is reflexive (sic, as in original) of the fact that I find this document boring, tedious to type, and … there have been a variety of more pressing matters … I have no intention of resiling from the basic understanding agreed at the outset so whilst I accept that the delay is irritating, I hope you do not consider our arrangement as somehow ‘at risk’.” Mr Walker did not disagree with Mr Wales’ submission in this respect.

68 Various documents were brought into existence which referred to the involvement of the parties in the business.

69 In June 1999 the “Coastal Group” and the “Magnum Group” entered into a joint venture “letter agreement” pursuant to which they agreed to work together to form a “multi-manager, multi-strategy hedge fund … designed for and marketed to Australian investors”. “Coastal” was said, for the purposes of the letter agreement, to include “all entities directly or indirectly owned or controlled by either Peter Frohlich or Nick Ryder”.

70 In June 2000 a prospectus for the Diversified Fund was lodged with ASIC. Under the heading “Declarations of Interests”, the following appeared:

“ P J P Frohlich and N J Ryder are directors of Coastal and have an equal economic interest in the net fees to be received from the management of the fund.” (emphasis supplied)

71 A document dated 16 October 2000 described as “Coastal’s response to Rothschild Australia Asset Management’s Due Diligence checklist”, provided in connection with a proposed investment mandate for Rothschild’s “Total Return” Fund, described Coastal as having entered into a joint venture in the following manner:

“(a) Protected Equity Investments & Nicholas Ryder
Coastal and Peter Frohlich (a director of Coastal) have entered into an unincorporated joint venture with Protected Equity Investments Pty Limited (a company associated with a director of Coastal, Nicholas Ryder) and Nicholas Ryder to provide absolute return investment management service to clients. Frohlich and Ryder or their associates own the interests in the joint venture in equal proportions . Coastal is the nominee or ‘managing partner’ of the joint venture so that clients conveniently deal with Coastal and not the joint venture participants. The economic benefit of the investment service to be provided by Coastal to Rothschild would be shared by the Frohlich and Ryder interests .” (emphasis supplied)

72 In March 2001 a document prepared to make a presentation to Amcor, a potential investor, referred to Mr Frohlich and Mr Ryder under the heading “Coastal Principals”.

73 In the Directors’ Report to Coastal’s Financial Statements, signed by Mr Frohlich and Mr Ryder on 29 September 2002, the following appeared:

“Nicholas Ryder, director of the company, is a director of Protected Equity Investments Pty Limited, a company which has an economic interest in certain activities of the company under an unincorporated joint venture.”

74 Finally, the appellants relied upon two documents of an accounting nature in support of the four partners thesis. The first was an invoice in June 1999 from Coastal to Protected seeking reimbursement of office expenses. The second was a profit and loss statement kept by Coastal listing income and expenses attributable to Protected. These documents were said to recognise Protected’s role as a partner.

75 The various documentary references to the role of the parties to the agreement are not entirely consistent however the constant theme, in my opinion, is that Mr Ryder and Mr Frohlich are the principal parties in the relationship.

76 Mr Walker’s essential proposition was that conceptually both men thought of their arrangement as involving themselves and that their nominated corporate alter egos, Coastal and Protected, could be involved as, too, could any “associates or entity” controlled by either of them and later identified.

77 Mr Walker submitted that the fact that a dual rather than a quadruplet partnership was proposed could be seen from the agreement that the ownership of the business was split 50:50 between the Coastal and Ryder Parties – a division incompatible with the notion of quadrivalence.

78 The respondents also submitted that the four partner thesis was incompatible with his Honour’s finding that the business of the partnership was “advising Coastal with respect to [the Diversified Fund]” ([39]). They argued that it would be unusual for Coastal also to be a partner for it would then be “in the business of advising itself”. They pointed out that it had never been suggested that Coastal was property or the nominee of the partnership, propositions which would be inconsistent with the fact that Coastal was Mr Frohlich’s wholly owned family company in which the appellants held no shares and which pre-existed the partnership.

79 The primary judge based his conclusion that the partnership involved Mr Ryder and Mr Frohlich but not Coastal and Protected largely on Mr Ryder’s oral evidence in which he said he believed that “[there were] two partners being Mr Frohlich and Mr Ryder with two legal - two other companies which could substitute for the partners” and that Protected and Coastal “were not partners in the sense that you might think of them. They are just nominees for the two partners”.

80 Later Mr Ryder also said that the way he “understood the joint venture to work was there was [sic] two individuals were effectively the joint venturers or partners. We had an ability to substitute different corporate entities, if you like, underneath those two partners …”.

81 Where there is a dispute as to the characterisation of a contractual relationship not reduced to writing, or of its parties or terms, the determination of those issues must be made by reference to the parties’ dealings, their oral and written communications and their conduct: In re Ruddock (1879) 5 VLR (IP & M) 51. The identity of the parties is to be determined objectively as, too, are the rights and liabilities of the parties: Pacific Carriers Limited v BNP Paribas [2004] HCA 35; (2004) 78 ALJR 1045; see also Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52.

82 The meaning of the contractual arrangement is to be determined objectively: Equuscorp Pty Limited v Glengallan Investments Pty Limited [2004] HCA 55; (2004) 211 ALR 101 at [34] per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ; Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 at 105 [23] per Gaudron, McHugh, Hayne and Callinan JJ; Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 at 549 per Gleeson CJ.

83 In this context, in my view, the draft joint venture agreements are of some utility. Although they were not executed, the core concepts were retained and appear to me to reflect Mr Ryder’s evidence concerning the parties’ roles. While they identify both appellants and both respondents as parties, their terms make it plain that the operative definition was that of “Coastal Parties” and the “Ryder Parties” with each “camp” owning 50% of the business. The fact that the parties intended the business to be structured around Mr Ryder and Mr Frohlich (and include any entity they nominated) was the most sensible interpretation of the documents. Throughout the body of each draft the relevant responsibilities are identified as being undertaken by the Coastal and Ryder Parties respectively. There is no distinction between the roles or responsibilities of, for example, Mr Ryder and Protected. One exception to this is that Coastal is identified in each document as having, in effect, a third party role. This was recognised in the recitals to the drafts as arising by virtue of it being the responsible entity.

84 In my view, the primary judge was correct to conclude that the partnership was between Mr Ryder and Mr Frohlich and that Protected and Coastal were not members of that partnership.

85 The first ground of appeal must be rejected.

Terminating the partnership

86 The appellants accepted, for the purposes of the termination argument, that Mr Ryder’s announcement of his departure for Salomons in March 2001 constituted a repudiation of the partnership agreement. I understand that that concession meant the appellants accepted the primary judge’s finding that Mr Ryder had “by his conduct put it out of his power to perform an essential and fundamental term of the agreement he had with Mr Frohlich.”

87 They complained that the primary judge found that termination of the partnership agreement had occurred by virtue of Mr Ryder’s act, independent of any act constituting communication of an election to terminate on Mr Frohlich’s part.

88 The appellants contended that that approach was erroneous. They submitted that however Mr Ryder’s conduct was characterised, the partnership agreement remained on foot in the absence of unequivocal words or conduct by Mr Frohlich and/or Coastal evincing an election to terminate: see Carter and Harland’s Contract Law in Australia, Butterworths, 4th Ed at [1967] (“Carter and Harland”). The appellants also contended that the evidence as to the state of the relationship after March 2001 supported the proposition that the partnership continued as Mr Ryder continued to perform work for the benefit of the business although at a greatly reduced level. The appellants also relied upon the fact that documents generated by the business following March 2001 continued to describe Mr Ryder as having an interest in the business of managing the Diversified Fund.

89 In argument Mr Wales accepted that the filing of the Amended Defence purporting to accept Mr Ryder’s repudiation of the agreements effected a termination of the partnership relationship. Accordingly, he contended that if the appellants were correct in their submission that the partnership had not terminated in March 2001, it had been terminated by the filing of the defence on 16 June 2003.

90 Mr Wales submitted that the primary judge erred in applying Jorgensen v Boyce. He contended that Jorgensen v Boyce was simply wrong or turned on its own facts in the context of a partnership agreement whose terms were said by the judge to be well known and commonly understood in the gold mining industry.

91 The respondents put their case on termination in a number of ways. First, they contended that the primary judge had correctly held that where a party to a contract disables himself from performance, the innocent party is not required to communicate an election to terminate. They said that Mr Ryder’s departure for Salomons meant he had disabled himself from performing his part in the partnership and that the situation was indistinguishable from that described in Jorgensen v Boyce. They contended there was no need for an election to terminate in circumstances where the party at fault had made performance impossible because an election must involve a real choice - a choice which was not available where the other party had disabled himself from future performance. They relied upon Lombok Pty Limited v Supetina Pty Limited (1987) 14 FCR 226 at 236 – 237 where Lockhart J said:

“A breach automatically terminates a contract only where its effect is to render the contract impossible of future performance … in other cases, where the breach is sufficiently serious, the party not in breach is given an option either to insist upon performance or to accept the breach as a repudiation of a contract.”

92 The respondent submitted that in circumstances where Mr Ryder had disabled himself from future performance so that Mr Frohlich considered it was “self-evident that the joint-venture had terminated because [Mr Ryder] had ‘bailed out and gotten a job’”, to require an election to terminate would not only be redundant but would allow Mr Ryder to make a virtue out of his own breach.

93 The respondents submitted that, in any event, Mr Frohlich had made it clear by his conduct on or about 2 March 2001 that he had elected to terminate the partnership.

94 The respondents relied upon Mr Frohlich’s evidence that when he left in March 2001 Mr Ryder told Mr Frohlich “just decide what you want to do with the business. I leave that up to you”. They also relied upon the fact that after Mr Ryder’s departure Mr Frohlich took sole responsibility for the tasks which had been performed by the partnership. They noted that although Mr Ryder made virtually no contribution after March 2001 Mr Frohlich had not suggested that he remained obliged to continue his contribution to the partnership business. Equally, they noted that Mr Ryder was unapologetic concerning his failure to contribute equally in terms of time and effort to the partnership, an attitude they submitted was only consistent with his belief that he was under no such obligation after he went to Salomons.

95 Thus, the respondent submitted, the parties’ conduct evinced a clear understanding that the arrangement was at an end. They contended that it would have been artificial, contrary to principle and plainly unjust to require of Mr Frohlich in the circumstances that he expressly say to Mr Ryder, “I accept your repudiation: our contract is at an end”.

96 The respondents challenged the proposition that Mr Ryder continued to perform work for the business after March 2001. First, they pointed to the fact that the primary judge concluded that the work Mr Ryder performed after his departure was minimal. Significantly, his Honour had found that Mr Ryder had nothing to do with the subsequent success of the Diversified Fund or the establishment of the Equity Fund. Secondly, the respondents contended that the substance of Mr Ryder’s involvement after March 2001 was not pursuant to the partnership but, rather, in his capacity as a director of Coastal, a position from which he resigned on 18 February 2003, the day his parents withdrew a large sum they had invested in the Diversified Fund.

97 Accordingly, the respondents submitted that Mr Ryder’s post-March 2001 activities were not consistent with the partnership remaining on foot, but were referable to his desire to monitor his family’s investment after the partnership came to an end.

98 Insofar as post-March 2001 documents were concerned the respondents pointed out that Mr Frohlich had acknowledged that Mr Ryder had a moral if not a legal entitlement to a share of the management revenue derived from subscribers to the Diversified Fund, as at the time Mr Ryder departed, as long as those subscribers remained in the Fund. On the other hand Mr Frohlich did not believe Mr Ryder was entitled to any of the fees from subscriptions received after he left.

99 It was consistent with the former proposition, however, the respondents submitted, that Mr Ryder’s “interest” was disclosed in the Fund’s documents. The respondents drew attention to the fact that whereas the original prospectus for the Diversified Fund had identified Mr Ryder and Mr Frohlich as having an “equal economic interest”, a subsequent prospectus referred merely to the men as having “an economic interest”, the omission of the word “equal” being said to reflect the alteration of the relationship between the men post-March 2001.

196 However I also accept the appellants’ submission that the primary judge’s finding is elliptical and arguably inconsistent. Having regard to the manner in which the case was conducted, his Honour’s statement that the business was establishing the Diversified Fund and advising Coastal with respect to it and attracting subscribers to it must be taken to have encompassed a “right” to manage the Diversified Fund, the nature and value of which right (including whether it had a goodwill value) was to be determined pursuant to the reference to the Master. In addition, in my opinion, Mr McHugh acknowledged that if a partnership was found to exist, the right to manage the fund was an asset of the partnership which should preferably be dealt with by an order for sale at valuation rather than a winding up, a course with which Mr Young concurred.

197 It might be assumed that when his Honour referred the matter to the Master for determination of “whether monies were owing to Mr Ryder referable to the value of the business at that date”, he did so on the assumption that what appeared to be common ground before him would form the basis of the accounting exercise.

198 The effect of this conclusion is that it is for the Master to determine the nature of the “right” to manage the Diversified Fund in order to value the business as at March 2001 as well as whether that right had a goodwill value which could enure to Mr Ryder’s benefit.

The s 42 claim

199 His Honour made no explicit reference to the appellants’ claim for s 42 relief. It may be idle to speculate why that is so, but the probability is that the omission can be explained by the fact that s 42 was not pleaded, although it was referred to in the appellants’ final written and oral submissions. The respondents did not object to it being raised at that late stage, but contended that there was no partnership capital or asset used after termination which would attract the operation of s 42. Mr Wales submitted that his Honour’s referral to the Master implicitly recognised that the arguments about the effect of s 42 would proceed at that stage. In my view that that is an available interpretation of the judgment having regard, for example, to the fact that when his Honour referred to the parties’ agreement that he should not determine any issues concerning the monetary claims, he illustrated the effect of that request (at [16]) by saying that the Master would determine the question whether “the business, however characterised, was worthless on 2 March 2001 … with appropriate grounds being established for that to happen”. A corollary of that proposition, in my opinion, would be that the Master was to determine the nature of the partnership assets and the extent to which, if at all, those assets were used post termination in a manner which would attract s 42 relief.

200 The respondents’ Notice of Contention asserted that by reason of the conduct of the parties on and after 2 March 2001 the appellants were estopped from asserting any share in the business, or in the profits derived therefrom, being carried on by the respondents after the termination date. The essence of this case was that Mr Ryder represented that he would no longer have any interest or claim on the partnership, that Mr Frohlich acted to his detriment on that representation and Mr Ryder should not now be permitted to resile from that position. The primary judge did not determine the estoppel case. The appellants submitted that if the Court was of the view that the estoppel issue arose, the matter should be remitted to the Equity Division for determination.

201 In my opinion the respondents cannot succeed on the estoppel case. As I have already noted, Mr Frohlich acknowledged that Mr Ryder had a moral if not a legal entitlement to a share of the management revenue derived from subscribers to the Diversified Fund as at the time Mr Ryder departed as long as those subscribers remained in the Fund. Mr Ryder’s “economic interest” was acknowledged in documents published after March 2001. In such circumstances I do not accept that Mr Frohlich acted upon any representation that Mr Ryder would no longer have any interest or claim on the partnership.

202 Finally I accept that in dealing with the s 42 issue, the Master would, as the respondents submitted, have to make an appropriate allowance for Mr Frohlich’s work post termination: see Hugh Stevenson & Sons Ltd v Aktiengesellschaft fur Cartonnagen-Industrie [1917] 1 KB 842 (affirmed on appeal, Hugh Stevenson & Sons Ltd v Aktiengesellschaft fur Cartonnagen-Industrie [1918] AC 239).

Orders

203 The appellants have failed on their principal grounds of appeal, but Mr Ryder has succeeded in challenging the manner in which the reference to the Master is framed. The matters to which the accounting exercise relates should be made explicit.

204 In my view the appeal should be dismissed, save that I propose that order 3 made by the primary judge be set aside and the following order be substituted:

“3. The matter be remitted to the Master to determine:
(a) as at the date of termination of the partnership
(being 2 March 2001):

(i) the nature and value of the partnership assets, including the nature of the “right” Mr Ryder and Mr Frohlich had to manage the Diversified Fund and whether it had a goodwill value which survived the dissolution of the partnership (but not including any other interest in the Diversified Fund);
(ii) whether monies were owing to Mr Ryder referable to the value of the business as at 2 March 2001 and whether Mr Ryder owed monies to Mr Frohlich – being those referred to in Mr Frohlich’s cross-claim;
(b) whether, in the light of the identification of the partnership assets and their use, if any, after 2 March 2001, Mr Ryder is entitled to a share of profits pursuant to s 42 of the Partnership Act 1892 (NSW) and, if so, to determine the amount of that share;
(c) in the light of the findings made, the respective indebtedness of Mr Ryder and Mr Frohlich.”

205 The appellants’ last ground of appeal complained that the primary judge erred in reserving costs rather than ordering the respondent to pay the appellants’ costs. No written or oral submissions were addressed to this ground of appeal and I have, therefore, assumed it was abandoned.

206 Having regard to the fact that the appeal has achieved only a fine-tuning of the order referring the matter to the Master, I propose that the appellants pay 80% of the costs of the appeal.

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Last Modified: 12/21/2004