S J Mackie Pty Ltd v Dalziell Medical Practice Pty Ltd

[1989] 2 Qd R 87

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(Judgment by: McPherson J)

Between: S J Mackie Pty Ltd
And: Dalziell Medical Practice Pty Ltd

Court:

Judges: Macrossan J

McPherson JShepherdson J

Subject References:
PARTNERSHIP
Formation
Express agreement on procedure for admission to existing firm
Person treated as partner without adhering to agreed procedure
Whether new partnership constituted
Equitable remedies and relief
Accounts
Partner's interests to be benefited by distributions from service trust which charged partnership at greater than commercial rates
Form of account

Case References:
Allen v Carbone - (1975) 132 CLR 528
Austen v Boys - (1858) 2 De G J & S 626; 44 ER 1133
Baird's Case - (1870) L R 5 Ch App 725
Birtchnell v Equity Trustees, Executors and Agency Co. Ltd - (1929) 42 CLR 384
Federal Commissioner of Taxation v Everett - (1980) 143 C.L.R. 440
Geddes v Wallace - (1820) 2 Bligh 270; 4 ER 328
Re Hulton; Hulton v Lister - (1890) 62 LT 200
Masters v Cameron - (1954) 91 CLR 353
Murgatroyd v The Silkstone & Dodsworth Coal & Iron Co. Ltd; ex parte Charlesworth - (1895) 65 LJ Ch 111
Sadler v Whiteman - [1910] 1 KB 868
Swain v Ayres - (1888) 21 QBD 289
United Dominions Corporation Ltd v Brian Pty Ltd - (1985) 157 CLR 1

Hearing date: 3, 4 October 1988
Judgment date: 8 December 1988

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Judgment by:
McPherson J

Until 1 July 1985 a partnership carried on under the name The Dalziell and Savage Medical Centre the business or practice of radiologists at various towns or locations on or near the north coast of Queensland.  The two partners were the defendant proprietary companies Dalziell Medical Practice Pty Ltd and Savage Medical Practice Pty Ltd, which may for brevity be referred to as the Dalziell company and the Savage company.  The directors of the former were Dr H. A. Dalziell and his wife Mrs L. Dalziell; and of the latter Dr J. M. Savage, who was evidently not married at the relevant time, and Dr Dalziell.  In addition to 'those entities another company, Organ Imaging Pty Ltd ("Organ"), carried on the business of providing to the Dalziell company and the Savage company various "services" for which it was paid.  It did so as trustee of a trust under the name The Organ Imaging Trust.  Under the trust deed units had been issued in the trust and were held, as to half of that number each, by Dr H. A. & Mrs L. Dalziell as trustees of the Dalziell Family Trust, and by Dr J. M. Savage as trustee of the Savage Family Trust.  In those capacities all of those persons are defendants in this action.

From some time late in 1984, Dr S. J. Mackie, who is the third plaintiff in these proceedings, was for discontinuous periods employed by the partnership as a radiologist.  The trial judge, who was Dowsett J., found that Mackie returned to the practice early in 1985 on the basis that if he proved suitable he would be offered a partnership.  In the conflicts of testimony that emerged at the trial his Honour preferred the evidence of Mackie to that of Dalziell and Savage and other witnesses whom he identified in his reasons.  It is important to bear in mind that no challenge is made on appeal to his Honour's findings with respect to credibility or fact, except to the extent that they are said to be inconsistent with documentary evidence or incapable of sustaining inferences drawn from the primary facts.

According to those findings, Mackie had by the end of June, 1985 been offered and had accepted a partnership in the radiology practice, and had "in all respects" become a partner.  His Honour found that the agreement was that the partnership would commence from 1 July 1985; that thereafter Mackie ceased to be an employee, and that efforts were directed to the recording of his admission into the partnership; that Mackie was described by or in the presence of Dalziell and Savage as "the new partner"; and that the three radiologists proceeded as if Mackie had been admitted to the partnership.

The circumstance that the Dalziell and Savage companies, rather than the individuals themselves, were the partners, is acknowledged in his Honour's finding that it was those companies, together with the first plaintiff S. J.

Mackie Pty Ltd which had been formed in anticipation of the new arrangement, that were the members of the partnership.  The learned judge also found that it was agreed that a further company Rostangle Pty Ltd, incorporated at Mackie's behest, would when formed (which took place only after 1 July) acquire a beneficial interest in or under the Organ trust.

It was evidently in or about early November 1985 that differences first arose between the parties, which was followed by formal notice to Mackie from the other two partners on 8 November; or, as his Honour preferred to express it, on that date Mackie accepted that he had been finally excluded from the practice.  Viewing the relationship as one of partnership, the effect was to bring the partnership to an end.  On the strength of the foregoing findings, his Honour held that Mackie, or his corporate emanation the first plaintiff, was entitled to his share of profits and to participate in the partnership goodwill.  He assessed the value of the partnership share in August 1985 at $100,000 which, allowing for the agreed purchase price of $90,000, produced a difference of $10,000, with interest at 15 per cent for 4.25 years.  An account was directed to be taken of the profits of the partnership from 1 July to 8 November 1985, credit to be given to the first plaintiff in those accounts for the sum of $10,000 with interest as specified.  The trial judge also made declarations and various other consequential or subsidiary orders or directions for carrying his findings and decision into effect.

Against that judgment the defendants now appeal.  Their primary complaint is that the trial judge ought not to have found that Mackie or his company ever became a partner at all.  The essence of the submission is that no partnership could have or did come into existence until the necessary documents had been settled by the legal and financial or accounting advisers and were executed by those parties.  The agreement as found was that the partnership relationship was to be regulated in accordance with the pre-existing deed ex.3 governing The Dalziell and Savage Medical Centre partnership; accordingly, so the submission ran, until there were taken the necessary steps envisaged by that deed for becoming a partner, the parties were not bound, or intended to be bound, by any mere informal partnership agreement that might have been arrived at between them.

It is necessary, therefore, to begin by considering the partnership deed.

Relevant provisions of the deed, which is headed "unit partnership" and is dated 1 October 1982, identify the two corporate partners and the business or practice to be carried on.  Clause 5.1 provides that each partner "shall be deemed to hold units in the partnership", and shall be entitled to share in partnership assets and profits and responsible for liabilities and losses in proportion to the numbers of those units.  Clause 6 provides for a register of unit holders (cl.6.1); when signed by a unit holder, "he shall at all times thereafter be deemed to have agreed to be bound by the terms and conditions of these presents . . ." (cl.6.4).  By cl.7.1, all transfers of units are to be effected in the manner or form approved by a supervisory committee, the name of the transferee being entered in the register in lieu of that of the transferor.  Clause 7.2, on which particular reliance was placed by the appellants, is as follows:

"7.2.

  No assignment transfer or conveyance of any unit on (sic) the partnership is effective unless the assignee agrees to be bound as a partner of the partnership by the terms of this Agreement."

Clause 8 provides that the partnership "shall be a continuing partnership and shall not be dissolved by the transfer or purported transfer of any unit or other interest in the partnership", and that any such transfer is not to "occasion any general accounting as between partners".  The supervisory committee referred to in cl.7.1 is described in cl.13.1, which provides that it is to consist of two members to be appointed by the partners, or such other number of members as the partners should unanimously determine, the first members being Dalziell and Savage.  Further sub-clauses of cl.13 specify the procedure for appointment and removal of committee members as well as other matters related to it.

Founding himself primarily on the foregoing provisions of the deed, Mr Chesterman Q.C. for the appellants submitted that, without signing the register of unit holders as provided in the deed, Dr Mackie or his company was incapable of becoming a partner in the unit partnership; it was, so he submitted, only by that means that the first plaintiff could be admitted to the partnership; and to effectuate that purpose it would consequently have been necessary either for the existing corporate partners to issue new units, or for each to assign a proportion of his own existing units.

In my opinion this submission, at least in the form in which it was initially advanced, is contrary to a basic principle of partnership law.  For that the provisions of the deed and its title are no doubt in part responsible.  Underlying the provisions particularly of cll.7.2 and 8, and implicit in the description "unit" partnership, is the notion that a partnership like this enjoys a corporate or at least quasi-corporate existence apart from the members who comprise it.  That is, of course, quite foreign to the conception of a partnership as understood by English law, which regards any change in membership as destroying the identity of the firm.  See Lindley on Partnership, 15th ed., at 34, 50, and 543.  Hence it is that under our law the transfer of a share to a non-partner inevitably breaks the continuity of the firm, thus constituting a new firm or partnership of those members of the former partnership who remain, together with the newcomer.  This approach is sometimes contrasted with that of continental legal systems and of Scotland, where a partnership is seen as possessing at least some features or attributes of distinct legal personality.  It was to accommodate this difference that in the United Kingdom s.4(2) of the Partnership Act 1890, a provision naturally omitted from the corresponding Queensland Act of 1891, provides that in Scotland a firm is a legal person distinct from the partners of whom it is composed.  Use of the word "firm" to describe the members of a partnership under English law has in the course of time helped to promote the reception of this foreign heresy; but the rule nevertheless remains, as a recent Scots writer on the subject has accurately observed, that in our legal system the word "firm" is no more than "a collective title for the individuals who comprise it" (J. B. Miller, The Law of Partnership in Scotland, at 451-452; Edinburgh W. Green & Son Ltd 1973).

In Queensland, as in England, a firm as such still has, as Farwell J. expressed it in Sadler v. Whiteman [1910] 1 K.B. 868, 889, "no existence".

Once this principle is grasped, or rather called to mind, it is impossible to give literal effect to a provision like cl.8 of the deed (ex.3) in this case that the partnership is a continuing partnership not dissolved by transfer of a unit or other interest in the partnership.  At least that is so if what is meant by that clause is that the introduction, whether by addition or substitution, of a new partner effects no dissolution of the existing partnership.  If less than that is meant, then it is of no assistance to the appellants' submission in this case.  It makes no difference to that conclusion that the partnership agreement here chooses to speak of a "unit" rather than a share; for a unit is nothing more nor less than a partner's share, or a particle of it, called by another name.  Clause 7.2 therefore adds nothing to general principles of partnership law in providing, as it does, that no transfer of any unit in the partnership is effective unless the transferee agrees to be bound as a partner of the partnership by the terms of the agreement.  Except in a limited sense as mortgagee or as the assignee of the benefit of a share (see Federal Commissioner of Taxation v. Everett (1980) 143 C.L.R. 440 , 448-449), a person cannot acquire a unit or share in a partnership except by becoming a partner; and, if he becomes a partner, he is necessarily bound by the terms, whatever they may be, of the partnership agreement.

It was nonetheless submitted that it was possible for existing partnership members by their agreement inter se to impose express formal restrictions upon the admission of further individuals to their ranks.  So they can; and if they insist upon strict adherence to that formality, the newcomer will never be admitted to their ranks as partner.  But that is because, by requiring strict compliance with that formality, they reject him as a partner or, what is the same thing, they refuse to dissolve their existing partnership and form a new partnership of which he is a member.

Conversely, however, if they do agree to accept him as a partner, the fact that the requisite formality has not been complied with becomes irrelevant.

The newcomer is ex hypothesi not a party to the partnership agreement by which the relevant restriction is imposed, and so is himself not bound by it.

The original partners, who are bound by it, may by common consent or acquiescence choose to ignore it.  Who, if they do so, is in a position to complain that a term of the original partnership agreement has been disregarded, waived, or set aside?  And if both or all agree to disregard it, the result that follows is a new partnership comprising the original partners and the incoming partner now accepted as a member.

That is precisely what, according to the findings of the learned trial judge, happened in the action from which this appeal is brought.  Dalziell and Savage or their respective companies were partners in the medical practice on the terms of the deed ex.3.  They agreed upon Mackie or his company becoming their partner in the conduct of the practice.  A new partnership was thus constituted comprising all three.  It might be possible to regard their actions and transactions as resulting in a partnership of the three of them on no specific terms at all apart from those implied by the Partnership Act or the general law.  His Honour preferred the view, which he considered "more probable than not", that the agreement reached was that relations between them be regulated "in accordance with the pre-existing partnership deed".  That can only mean in accordance with such of the provisions of that deed as were applicable and appropriate to a new partnership of three in place of the original partnership of two.  Apart from the provisions already referred to concerning the register of units, its signature, and the transfer of units or some of them to the newcomer, it is perhaps difficult to identify any provisions of the deed that were not capable of being applied to the new regime.  We were pressed with the example of the supervisory committee of which, according to the terms of the deed, Dalziell and Savage were the original and only members.  Mackie was, however, treated as a partner by the others, and he attended partnership meetings with them.  Whether, as a consequence, the correct view is that he was informally admitted to membership of that committee, or that the provisions regulating and defining powers of that committee were simply set aside, waived or excluded in the course of conducting the affairs of the new partnership on and after 1 July, is immaterial to the result in this action.  It is perfectly possible for partners to conduct their affairs by reference to the terms of a written document without legally binding themselves to such of its terms as are inconsistent with the course of their dealings inter se.  The problem for the court then is to decide which of those terms have, and which have not, been carried over from that document and the earlier dealings so as to regulate their affairs in the new state of things.  When confronted by questions of that kind, the only course open to the court is to examine the acts and conduct of the parties in order to determine as a matter of inference what it was the parties were agreeing to.  As long ago as 1820 that was held to be so in Geddes v. Wallace (1820) 2 Bligh 270; 4 E.R. 328, which, although it was an appeal from Scotland, was applied by the Lord Chancellor in Austen v. Boys (1858) 2 De G. & J. 626; 44 E.R. 1133.  In that respect, the laws of the two kingdoms are unanimous:  see Partnership Act 1890 (U.K.) s. 19, reproduced in Queensland by s.22 of The Partnership Act of 1891, providing that the mutual rights and duties of partners, whether ascertained by agreement or defined by the Act, may be varied by the consent of all the partners, "and such consent may be either express or inferred from a course of dealing".  See on this Halsbury, 4th ed., vol.35, para.39, at p.23.

Once this proposition is accepted, it remains to be decided which of the terms of the deed ex.3 became terms of the new tripartite partnership.  The inquiry need, however, go no further than is strictly necessary to resolve the dispute in hand.  In the court below the decision reached was that the parties were partners equally, and hence equally entitled to share in both the profits and assets of the partnership.  That accords with the statutory presumption arising under s.27(1) of The Partnership Act. It is true it does not literally correspond to the provisions of cl.5.1 of the partnership deed, which leaves the result to depend on the number of units entered in the name of each partner.  Dalziell and Savage or their companies held equal numbers of units.  Mackie, as we have seen, was never issued with units before 8 November; but, at least for the months of July and August he was paid from partnership funds, and on approximately the same dates, the same amount as the other two partners.  The prima facie presumption therefore is that the parties were equal partners in the profits and assets of the partnership business of conducting a radiology centre.

To go further it is necessary to examine in more detail the evidence relied upon as showing that the parties had in fact become partners in the business.  It is convenient to do so in conjunction with the other major submission by the appellants, which was that the common intention of the parties was that they should not be bound by any partnership agreement until formal documents to that effect had been signed.  The submission takes as its starting point the principles discussed in Masters v. Cameron (1954) 91 C.L.R. 353 , 360-364, and seeks to fit the present case into the third category or class of cases there discussed.  It is pertinent before going further to observe that most, but admittedly not all, of the instances referred to in Masters v. Cameron as illustrations of that class are cases involving sales of land or interests therein, as to which the traditional expectation is strong that the parties do not intend to be bound until a formal contract is executed:  see, for example, Allen v. Carbone [1989] 2 Qd R 87 at 93 (1975) 132 C.L.R. 528 .  It is also true to say that in most if not all of the cases in the third category the agreement was one that embodied or was accompanied by the formula "subject to contract".  No express formula of that kind was used in or of the present transaction, so that it becomes a matter of discovering such an intention, if any, in the words and actions of the parties themselves.  The inquiry is thus resolved into one of identifying and contrasting the competing inferences capable of being drawn from the conduct of the parties during the relevant period:  cf. Re Hulton; Hulton v. Lister (1890) 62 L.T. 200.

Some of the matters relied on by the appellants have already been mentioned.  They include the form and terms of the deed ex.3 and the fact that the first plaintiff's name was never entered in the register of units maintained by the original partners.  In addition, reliance was placed on various documents which were said to demonstrate that throughout the parties were still engaged in the process of negotiating the terms of Mackie's entry into partnership.  These include a letter ex.24 dated 22 July 1985 from the plaintiffs' solicitors to the defendants seeking instructions concerning the disposition to Mackie of units in the partnership; membership of the supervisory committee; details of the payment to be made of the price of $90,000; and apportionment of the sale price for stamp duty purposes.  The letter concludes, however, by seeking confirmation that the date of Mackie's entry into the practice was 1 July 1985.  In sequence, the next letter of some importance was ex.60 dated 5 August 1985 from the partnership accountants to the plaintiffs' solicitors.  It inquired whether Mackie's entry into the partnership was to be achieved by sale of existing partnership units; and also said Mackie would need to be admitted as a director and shareholder of Organ.  The letter concludes by stating that Mackie's admission as a partner is "to be effective from 1 July, 1985".  Exhibit 33 is another letter, dated 29 August 1985 from the plaintiffs' solicitors, this time to the defendants' solicitors, recording some of the history of events and explaining that it was proposed in due course to make comments on the documentation; in the meantime copies of financial statements were asked for and particulars of the leases of premises referred to.  The letter also advised of the existence of S. J. Mackie Pty Ltd and of the establishment of a Mackie family trust, the trustee being Rostangle Pty Ltd, the second plaintiff.  In reply, a letter, ex.34, dated 13 September 1985 from the defendants' solicitors enclosed various past financial accounts, and advised that before current accounts could be finalised various distributions of past income remained to be made to Dalziell and Savage.  Comments on stamp duty apportionment were also invited.  This letter concludes with a proposal for a discussion of the proposed documentation "for your client's entry into our client's business".  The ensuing letter, ex.35, dated 14 October from the plaintiff's solicitors, contains specific comments on particular clauses of the partnership deed ex.3, suggesting preferred amendments, and advising of Mackie's instructions with respect to the purchase price of $90,000 which was said to be payable by an initial deposit of $10,000.  The letter ends with a request for documentation to be forwarded for perusal as soon as convenient. If this and some other correspondence stood alone it might be said that the parties through their legal and financial advisers were simply progressing toward completion of the documents by which Dr Mackie or his company was to become a member of the partnership.  It is, however, equally consistent with a desire to reduce to writing or documentary form a transaction already fully consummated by Mackie's entry into partnership on 1 July 1985.  No doubt in this the real concern was to ensure that the documents when executed satisfied the exigencies of the tax planning scheme that was evidently being pursued and so were capable, when the time came, of satisfying the inquiries of the Tax Commissioner.  To these matters there were, in support of the appeal, also added references to the circumstances that the deposit on purchase price was never paid; that Mackie never became a signatory to the partnership bank account; and that he never had "access" to the partnership books and records, which were kept locked in a safe to which he had no key.

None of these matters is compelling evidence of the intention sought to be discovered by the appellants.  Each is fairly capable of being explained on other grounds without greatly detracting from the strength of the plaintiffs' case.  Mackie was in a position to pay the deposit but said he was advised by Savage that there was no need to do so immediately.  He had no pressing need to become a signatory to the bank account so long as others were available, as in fact they were, to sign cheques.  Inspection of partnership books and records was never sought by him, and his "access" to them was consequently never tested.

In any event, when one turns to what the partners themselves, or through them their corporate nominees, were actually saying and doing at the relevant time, a quite positive impression emerges.  There was oral evidence from Mackie, which the judge accepted, of agreement with Dalziell and Savage on the price and amount of the deposit to be paid for entry into partnership, and that the commencing date for it was to be 1 July.  Then or soon afterwards, on an occasion on which both Dalziell and Savage were present, the former welcomed Mackie into the partnership, and informed him that he would henceforth receive payment as a partner.  Previously he had been paid a fixed amount, recorded in the wages book, as an employee or perhaps independent contractor, together with other benefits.  Thereafter he received regular payments in a different amount, which on appeal were shown to have corresponded to similar amounts received by Dalziell and Savage during the same period, and particular employee benefits were terminated.  In August 1985 Savage Medical Practice Pty Ltd, W. L. & L. E. Dalziell and Rostangle Pty Ltd each received two payments totalling $20,000 from Organ.  The cheques for Rostangle were signed by Dalziell (cheque 328504) and Savage (cheque 328509).  Receipt of a share of the profits of a business is itself prima facie evidence that the recipient is a partner in the business:  Partnership Act, s.6(3).  In addition, Mackie attended partnership meetings after 1 July, including one held at a restaurant at which questions concerning retention of staff and equipment in the practice were much debated before decisions were reached upon them.  In short, for a period of at least two full months from 1 July 1985 Mackie was unquestioningly treated by the defendants, not as an employee or contractor, but as an equal member of a partnership.

The conclusion to which one is inevitably drawn is that, although the accountants and solicitors for the parties were continuing to prepare documents which were no doubt required as a formal record of partnership arrangements, the parties, in the persons of the principals Dalziell, Savage and Mackie, plainly regarded themselves as having entered into the relation of partners.  A partnership is, as s.5 of The Partnership Act expresses it, the subsistence of a "relation" between persons carrying on business for profit.  The essence of that relation is, as James L.J. recognised in Baird's Case, one of "mutual trust and confidence of each partner in the skill, knowledge, and integrity of every other partner":  see Re Agriculturist Cattle Insurance Company, Baird's Case (1870) L.R. 5 Ch. App. 725, 732-733; Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd (1929) 42 C.L.R. 384 , 407-408.  Once a relation of that kind is found to subsist between persons carrying on such a business, a partnership exists between them:  United Dominions Corporation Ltd v. Brian Pty Ltd (1985) 157 C.L.R.1.  It is plain that from 1 July 1985, until it was admittedly terminated on 8 November, the relation between the parties was of that kind.

The inference that it was is supported not only by Mackie's testimony as to the oral agreement but by evidence of the conduct of the parties during that period.  It is not displaced by references to the provisions of the deed or communications by solicitors and others, of the detail of which the individuals concerned almost certainly knew very little.

In opposition to this conclusion another subsidiary point was canvassed by the appellants.  It was that it was never shown that Savage had the authority of both the Dalziell and Savage companies to make the partnership agreement with Mackie.  He was, it was said, only one of two directors of his own company of which Dalziell was the other; and that it was only he that conducted the negotiations with Mackie resulting in the agreement.  The fact is, however, as I have already said, both Dalziell and Savage were present on the occasion when Mackie was welcomed into the partnership by Dalziell; that all three of them attended partnership meetings including the one held in the restaurant at which the business was discussed; and that it was Mrs Dalziell, who was the other director of the Dalziell company, who attended to the secretarial duty of preparing the partnership cheques received by Mackie.

Those cheques (ex.16) were drawn on the partnership account and were ordinarily signed by Savage; but at least one of them, which is dated 15 July 1985 and in favour of the first plaintiff, bears Dalziell's signature (cf. ex.9), and he also signed a cheque (ex.16) in favour of Rostangle.  In the face of all this evidence, it becomes impossible to accept that the partnership agreement was not shown to be authorized by the corporate partners.

What remains to be considered is the claim of the third plaintiff Mackie to a share of the income received by Organ Imaging Pty Ltd as trustee of the Organ Imaging Trust.  That company as I have pointed out provided services to the partnership business in return for payments which ultimately found their way to the family trusts of Dalziell and Savage.  The intention plainly was that Mackie and his family should participate and so benefit from that income in precisely the same manner as the others.  To that end the second plaintiff Rostangle Pty Ltd was formed to serve as the "conduit" through which the equivalent one third distribution would pass to the Mackie interests.

On this aspect of the litigation the conclusion reached by the trial judge was that the agreement reached by the parties was that a company controlled by Mackie should become a one-third beneficiary in the unit trust.

Rostangle was the company formed for that purpose, and his Honour held that it accordingly became entitled to share in the net proceeds of the trust for the relevant period from 1 July to 8 November 1985.

In reaching that conclusion the learned judge acknowledged that there were certain theoretical difficulties in justifying the result.  One was that Rostangle was not incorporated until after the agreement was made.  It was sought to overcome that difficulty by invoking s.81 of the Companies (Queensland) Code, or alternatively s.55 of the Property Law Act 1974 - 1981.

His Honour appears to have acted on the former alternative, holding that the agreement was a pre-incorporation contract for the benefit of Rostangle which it had ratified by conduct after its formation.  On appeal, it was the appellants' contention that no such ratification had been pleaded, nor had the evidence at the trial, on which it might have been founded, been led for the purpose of establishing ratification.  In addition, it was necessary, if Rostangle was to participate as beneficiary in distributions of the Organ trust, to assume it had acquired the requisite units under that trust.  For that to be achieved, some at least notional decree of specific performance must be assumed; yet the route to that result was obstructed by the fact that at the outset of the case junior counsel for the plaintiffs had expressly elected not to proceed with a claim for specific performance "but to seek damages only", asking that his statement in that behalf be recorded "because that is our position".  Later in the proceedings Mr Robin Q.C. explained that the earlier statement was intended to convey the impression that what was being claimed was damages in lieu of specific performance.  In the last resort, he was on appeal prepared if necessary to stake his claim on the right to damages as a form of compensation in equity; or finally, abandoning pretensions to more refined legal subtlety, on the ground that, having bargained for a share to be paid out of the proceeds of trust income, it was Mackie himself who was entitled to recover it.

However one approaches the matter, problems of principle and formulation emerge.  It is common ground that the partnership agreement and any concomitant right to participate in distributions of the Organ trust was determined not later than 8 November 1985.  To decree, even notionally, specific performance of an admittedly terminated agreement is to proceed contrary to at least the tenor of what was said in Swain v. Ayres (1888) 21 Q.B.D. 289 ; cf. also Murgatroyd v. The Silkstone & Dodsworth Coal & Iron Co. Ltd; ex parte Charlesworth (1895) 65 L.J. Ch. 111.  In addition, by the terms of the trust deed itself (ex.45) distributions may by cl.13 be made only at annual intervals in June of each year, in amounts to be determined in the absolute discretion of the trustee, and only to unit holders in proportion to their holdings.  Rostangle is not a unit holder, and it would require a considerable degree of equitable legerdemain to fashion an order capable of compelling the trustee to exercise its discretion to fix upon an amount for distribution to a notional unit holder, whose interest as such would presumably also need to be notionally obliterated immediately the distribution had been made.

In the face of these problems, it is prudent to return to what the parties were found to have agreed and done, which was that they should and did, by their respective companies, become partners sharing equally in the radiological practice.  No doubt it was agreed that Mackie or his trust company when nominated should also become a beneficiary or entitled to participate in distributions from the Organ trust.  Premature termination of the agreement has rendered that result now unattainable.  It would be pleasing to be able to allow the matter to rest there; but the fact is, as is evident from material in the record, that the amounts paid by the partnership for the services rendered by Organ exceeded the real commercial or market value of those services.  By that process the income of the partnership available for distribution to the partners as such has in increasing amounts been diverted and depleted.  No doubt that was within the contemplation of the parties including Mackie at the time the agreement was entered into; what was not contemplated was that the agreement should come to a premature end before he or his had received the corresponding benefit of distribution from the Organ trust.

In these circumstances it seems to me that the only means by which the equality can be restored is by directing that as between the partners the account should be taken on the footing that disbursements to Organ as trustee should be allowed only at the commercial or market rate payable for similar services at the relevant time and not the possibly inflated rate at which such payments were in fact made.  The desired result can be achieved by crediting the first plaintiff with one third of any difference between the amount in fact paid by the partnership to Organ and the amount that would at market rates have been paid for similar services at the relevant time.  The record contains insufficient material to enable that difference to be assessed, and it will therefore be necessary to direct an inquiry for its ascertainment.  Moreover, as was pointed out in the course of submissions, possible irregularities in the amounts or dates of payments from time to time might well produce an arbitrary result if, for this purpose, only the period between 1 July and 8 November 1985 were to be looked at.  To avoid distortion of that kind the proper course is to ascertain the difference between actual payment for, and the market value of, the services throughout the whole of the financial year from 1 July 1985 to 30 June 1986, and then to ascribe a rateable proportion of that difference to the period between 1 July and 8 November considered as part of the whole financial year.

To achieve this result in the form in which an order of court ought to be expressed will required fuller attention and more precise drafting than this Court is prepared or has time to devote to the matter.  The plaintiffs should therefore in due course prepare and bring in draft minutes of the judgment to which, in accordance with these reasons, they claim to be entitled.  For that purpose further consideration of the appeal should be adjourned to a date to be fixed.

It should, however, be obvious that in directing that course I am persuaded that some part of the decision and more particularly the orders made by the learned judge were incorrect.  The defendants' appeal will in due course be to that extent allowed, and such parts (only) of the judgment below set aside as are comprised in:

(a)

  Paragraph 3 of the declaration on the second folio of the judgment (appeal record, at p.846);

(b)

  Paragraph (b) of the order numbered 1 on the same folio;

(c)

  The words "or second plaintiff Rostangle Pty Limited" twice appearing in para.3 on folio 3 of the judgment (appeal record, at p.847).

(d)

  Paragraph 5 on the same folio.

In lieu thereof there will be orders and inquiries in accordance with these reasons as expressed in the draft minutes to be prepared and considered by the court.  Except to the foregoing extent the appeal should be dismissed.

The appellants have partly succeeded but also substantially failed in their appeal.  In all the circumstances I consider that justice would be done it they were ordered to pay two thirds of the respondents' costs of appeal.