Contis Investments Pty Limited v Dinach Holdings Pty Limited [1994] ACTSC 77 (29 July 1994)

SUPREME COURT OF THE ACT

CONTIS INVESTMENTS PTY LIMITED v DINACH HOLDINGS PTY LIMITED
No. SC208 of 1994
Number of pages - 8
Contract

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
HIGGINS J

CATCHWORDS

Contract - partnership agreement - whether a valid agreement - part void for uncertainty - whether part severable - notice of dissolution of partnership - construction of notice - whether in accordance with partnership agreement - whether any effect otherwise - whether notice vitiated by mistake.

Partnership Act 1963 (ACT), s.37

Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60

Hall v Busst [1960] HCA 84; (1960) 104 CLR 206
van der Waal v Goodenough (1983) 1 NSWLR 81
Sudbrook Trading Estate Ltd v Eggleton (1983) 1 AC 444
Watson v Eales (1857) 23 Beav. 294; 53 ER 115
Carradine Properties Ltd v Aslam (1976) 1 All ER 573; (1976) 1 WLR 442
P Phipps and Co (Northampton and Towcester Breweries) Ltd v Rogers (1925) 1

KB 14

Warder v Stilwell (1856) 26 LJ Ch 373; 3 Jur. (N.S.) 9
Homfray v Fothergill (1866) LR 1 Eq 567
Jones v Lloyd (1874) LR 18 Eq 265
Smith v Mules (1852) 9 Hare 556; 68 ER 633
Torrance v Bolton (1872) LR 8 Ch App 118
Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422

HEARING

CANBERRA, 22 June 1994
29:7:1994

Counsel for the Plaintiff: Mr F Douglas QC with Mr R Refshauge

Instructing Solicitors: Macphillamy Cummins and Gibson

Counsel for the Defendant: Mr N C Hutley

Instructing Solicitors: Gallens Crowley and Chamberlain

ORDER

THE COURT ORDERS THAT:

There be declarations that:
1. The provisions in clause 13 of the Agreement as to payment by
instalments of the value of an outgoing partner's share by a remaining
partner, security by promissory note and interest on the deferred
balance are void for uncertainty.
2. The Agreement is otherwise enforceable.
3. The notice of dissolution of 29 March 1994 is not a notice
conforming to clause 1 of the Agreement. Its effect will depend on
whether all joint ventures of the parties were intended to be embraced
by the Agreement as seems, at least retrospectively, to have been
assumed. Its effect will also depend on whether the Notice has, as
appears prima facie to be the case, been rejected by the defendant.
4. Any effect the Notice might have is not vitiated by mistake. It
either has effect by reason of being accepted according to its terms or
it has no effect by reason of its rejection by the party to whom it was
given.
5. If the notice was accepted in accordance with its terms, then it had
the effect of dissolving the partnership from 29 March 1994.

DECISION

HIGGINS J On 5 September 1984, the plaintiff and the defendant entered into a partnership agreement (the Agreement). A solicitor prepared the document setting out the agreement and the parties duly executed it.

2. The scope of that partnership was expressed to be limited to,

the business of builders and developers of the land known as
Block 5 Section 25 Belconnen in the Australian Capital Territory...

3. The Crown Lease of Block 5 Section 25 (5/25) Belconnen was acquired by the plaintiff at government auction on 13 March 1984. On 19 November 1985, the plaintiff, by Deed dated that day, declared that it held one-half interest in that Crown Lease in trust for the defendant.

4. Pursuant to that Deed, on 10 April 1986, the plaintiff executed a Memorandum of Transfer of the Crown Lease. The transferees were, at the direction of the defendant, Angelos Stramarcos and Helen Stramarcos as to 50% "as joint tenants", and the plaintiff as to the remainder, "as tenants in common".

5. Building work commenced on the land as required by the terms of the Crown Lease. Before completion of that work, the Commonwealth of Australia proposed an arrangement whereby it would take a sublease of the building. The building was duly completed and the tenancy commenced on and from 1 June 1985, although the sublease, registered on 21 August 1989, bears date 30 May 1989. It is due to expire on 31 May 1995. There are two successive five year options which could be exercised by the Commonwealth if it so chose.

6. Mr Nick Contis, a director of the plaintiff, and Mr Angelos Stramarcos, who is also a director of the defendant, or members of their respective families, have conducted such business as has been necessary to manage the tenancy. The rentals were paid into a bank account described as "the bank account of the partnership".

7. In November 1988, Messrs Contis and Stramarcos decided to acquire another Crown Lease. This was Block 5 Section 31 (5/31) Belconnen which was the site of the Belconnen Markets. There were premises constructed on that land which were used for the purposes of the markets. The Crown Lease was issued in the names of the plaintiff and defendant "as tenants in common in equal shares".

8. Subleases were entered into with various tenants. From that time on the management of those tenancies has been conducted by Messrs Contis and Stramarcos or members of their respective families.

9. It seems that differences have recently arisen between the Contis and Stramarcos families concerning the management of the Belconnen Markets. In February 1994, an independent agency was appointed to manage the markets as a result of these differences.

10. Other assets have been acquired by the plaintiff and defendant in joint names out of the joint funds accruing to the partnership account.

11. As a result of increasing difficulties created by the differences referred to, proposals were made to sell the assets acquired jointly by the parties with the intention of winding up their mutual arrangements.

12. Mr Stramarcos, however, has expressed the view, with which Mr Contis does not agree, that selling the Crown Leases of 5/25 and 5/31 Belconnen would be imprudent at present. He also opposes the appointment of a receiver to wind up the joint affairs of the parties. It appears, from his stance in relation to these matters, that Mr Contis decided that the partnership between the plaintiff and the defendant should be terminated.

13. The present application arises out of the delivery to the defendant on behalf of the plaintiff of a document in the following terms,

NOTICE OF DISSOLUTION OF PARTNERSHIP
TAKE NOTICE that Contis Investments Pty Limited A.C.N. 008 535 439 a
company duly incorporated under the Corporations Law and having its
registered office situate at c/- J N Neill, MLC Building, Hobart Place,
Canberra City in the Australian Capital Territory Hereby Dissolves the
partnership heretofore subsisting between it and Dinach Holdings Pty
Limited A.C.N. 008 595 097 a company duly incorporated under the
Corporations Law and having its registered (office) c/- J W Turner and
Co, 2nd Level, City Bank Building, 24 Marcus Clarke Street, Canberra
City in the said Territory, the partnership being known as Contis
Investments Pty Limited and Dinach Holdings Pty Limited and carrying on
the business of owners and lessors of real property in the ACT.
AND TAKE FURTHER NOTICE that the said Partnership being entered into for
an undefined time that the said Partnership is determined as from the
date of this Notice pursuant to Section 37 of the Partnership Act 1963.
Dated this 29th day of March 1994.
(signed)

14. The plaintiff's solicitors followed this notice (the Notice) with a letter of 31 March 1994 enclosing documents making application to this Court for the appointment of a receiver and manager.

15. Mr Contis deposed that at the time he instructed the sending of the Notice he had forgotten completely about the Agreement. It is not disputed that the Notice was executed and delivered in the belief that there was no written partnership agreement then in existence as between the plaintiff and the defendant.

16. The Agreement itself is under challenge because a relevant clause, clause 13, was not properly completed before the Agreement was executed.

The validity and scope of the Agreement
17. The Agreement was expressly confined in its preamble to "the business of builders and developers of the land known as Block 5 Section 25 Belconnen". The parties clearly continued to carry on business together as the landlords of the premises on that land. They subsequently carried on the business of landlords of Belconnen Markets (5/31 Belconnen). They have invested monies jointly in other assets. There is no evidence before me as to whether those further ventures and assets were intended to be governed by the terms of the Agreement.

18. It may be accepted that the net rents and the net proceeds of any sale of the building and land at 5/25 Belconnen would be within the meaning of the Agreement insofar as it is in force.

19. It is common ground that the Notice was not expressed to be given under the Agreement. It did not purport to give the period of notice required under the Agreement as provided by clause 1 in the following terms,

The partnership shall commence on the date hereof and shall continue
until determined by three month's notice in writing to be given by
one partner to the other or otherwise pursuant to the terms of this
agreement.

20. There is no evidence that the partnership has been determined "otherwise pursuant to the terms of this agreement".

21. Clause 12 provides that (omitting irrelevant provisions),

If the partnership be dissolved by notice pursuant to Clause 1 hereof
... the other partner may purchase the share of the partner whose action
has caused the determination (hereinafter called the "outgoing partner")
in the partnership assets upon giving to the outgoing partner ... notice
in writing of his intention in that behalf within three calendar months
from the date of dissolution.
...

22. Clause 13 provides for the valuation of the net assets of the partnership with a view to fixing the price to be paid to the outgoing partner by the remaining partner pursuant to the option contained in clause 12. In the absence of agreements to value, it is to be ascertained by arbitration pursuant to clause 15 of the agreement. Clause 13 also provides for terms as to payment of the price in the following terms,

...
The sum of money ascertained to be the net value of the said share shall
be payable by four equal instalments at the expiration of six, twelve,
eighteen and twenty-four calendar months respectively from the
dissolution of the partnership with interest on the amount thereof for
the time being remaining unpaid at the rate of $ per centum per
annum and shall be secured by the promissory note of the purchaser ...

23. It is not possible now to ascertain what the intention of the parties might have been as to the level of interest to be paid on the balance due from time to time under this clause. It is not certain whether a penal, concessional or commercial rate of interest was intended to have been inserted nor whether, had the parties given attention to the question, they would have applied a fixed rate or a variable rate.

24. It cannot be concluded, either, that the parties intended that there should be no interest payable on the balance of the price from time to time. It is obvious that they overlooked the need to agree upon a rate of interest or upon a method of fixing that rate when they signed the agreement.

25. It follows that rectification is not appropriate and, therefore, that there is an uncertainty in the agreement as to payment of interest.

26. The provision as to interest is an essential part of the Agreement as to the terms for payment by instalments of the price fixed under clause 13.

27. The parties had carried on business in partnership for many years. The absence of any terms as to payment by instalments of the price payable to an outgoing partner by the remaining partner would be capable of being addressed in the course of an arbitration held pursuant to clause 15. That consideration favours severance of the provisions as to payment by instalments: Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60; Hall v Busst [1960] HCA 84; (1960) 104 CLR 206.

28. In some cases, of course, the entire agreement conferring an option to purchase an outgoing partner's share might fail if its terms were affected by uncertainty: van der Waal v Goodenough (1983) 1 NSWLR 81. The absence of terms as to interest and payment by instalments of any such price does not prevent an arbitrator fixing the value of the outgoing partner's share. The price to be paid and the terms for payment of the price by the remaining partner, whether by instalments or otherwise, could also be so determined. The arbitrator would be able to impose terms as to interest to ensure that the price maintained the value it would have if payable forthwith: Sudbrook Trading Ltd Estate v Eggleton (1983) 1 AC 444.

29. In my view, therefore, the provisions in the Agreement as to payment by instalments of the value of an outgoing partner's share by a remaining partner are void for uncertainty but are severable from the remainder of the Agreement.

Is the notice of dissolution of 29 March 1994 valid?
30. An option to purchase, pursuant to clauses 12 and 13, only arises if the partnership has been dissolved whether by notice under clause 1 of the Agreement or otherwise as specified in clause 12. None of those other circumstances are relevant.

31. The Notice purported to be a notice pursuant to s.37 of the Partnership Act 1963 (ACT) (the Act). It did not purport to give three months notice or to be given pursuant to the Agreement.

32. Nevertheless, the defendant contends it should be construed as if it had been a notice given pursuant to the Agreement. It contends that the Notice is, therefore, effective to dissolve the partnership at the expiration of three months from its delivery. The plaintiff contends that the Notice is invalid either because of its lack of compliance in form with clause 1 of the Agreement, or by reason of mistake in that it believed it was entitled to dissolve the partnership forthwith and to have the affairs of the partnership wound up pursuant to the Act rather than in accordance with the terms of the Agreement. In particular, the plaintiff did not intend to invoke the provisions within clause 13 relating to payment by instalments of the price fixed for purchase of the outgoing partner's share.

33. Generally speaking, parties required to give a specific period of notice cannot give effect to their intention by giving a lesser period of notice: Watson v Eales (1857) 23 Beav. 294; 53 ER 115; Carradine Properties Ltd v Aslam (1976) 1 All ER 573; (1976) 1 WLR 442; (1942) 2 KB 326; P Phipps and Co (Northampton and Towcester Breweries) Ltd v Rogers (1925) 1 KB 14.

34. If the Notice had been validly given pursuant to clause 1 of the Agreement or pursuant to the Act, it would not have been open to the party giving it to have withdrawn it: Warder v Stilwell (1856) 26 LJ Ch 373; 3 Jur. (N.S.) 9; Homfray v Fothergill (1866) LR 1 Eq 567; Jones v Lloyd (1874) LR 18 Eq 265.

35. However, in my view, the Notice cannot realistically be interpreted as a notice answering the description of a notice given pursuant to clause 1 of the Agreement. The Notice was not capable of being construed as being other than an offer to terminate the partnership between the plaintiff and the defendant forthwith. It was open to the recipient to reject it or to accept it as effective according to its terms.

36. It was, therefore, open to the recipient of the Notice to treat it as effective to dissolve the partnership in fact created by the Agreement even if it was insufficient as to the length of notice: Smith v Mules (1852) 9 Hare 556; 68 ER 633. It is not clear to me whether the defendant has in fact so accepted the Notice. If it has then it may, under clause 12, give notice of intention to purchase the plaintiff's share in the partnership. That notice would be required to have been given on or before 29 June 1994. The only information as to how the Notice was, in fact, treated by the defendant suggests that it was accepted as "a notice pursuant to Clause 1 of the Agreement". That does not seem to render it effective to dissolve the partnership constituted by the Agreement, as it is not clear whether or not the defendant intended to waive the requirement for three month's notice before dissolution. If there was a dissolution, the continuing partner has a period of three months after the dissolution of the partnership within which to determine whether to exercise the option to purchase the outgoing partner's share.

37. It seems more likely, therefore, that the defendant has rejected the offer constituted by the Notice. Having been so rejected, the Notice has no force or effect.

Is the notice of dissolution vitiated by mistake?
38. In order for the Notice, assuming it to have been accepted or otherwise validly given, to be vitiated by mistake on the part of the plaintiff it must appear that,

it is unconscientious for a person to allow himself of a legal
advantage which he has obtained.(1)
(1) Torrance v Bolton (1872) LR 8 Ch App 118, 124. See also
Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422.

39. In this case the Notice could not have bound the defendant to accept it under the Agreement. It could have effect, if at all, only so as to dissolve the partnership as from 29 March 1994. The Notice could have that effect only if the defendant accepted the offer to terminate forthwith. Assuming that the defendant did accept the offer, unless the defendant then purported to exercise the option to purchase the plaintiff's share in the partnership's assets within three months from that date, there would have to be a realisation of the partnership property. That would be a similar process to that which would have applied had the position been as the plaintiff had assumed it to be when it gave the Notice. It follows that, if the Notice has been effective to dissolve the partnership pursuant to the Agreement, it would not be unconscionable for the plaintiff to be bound by the Notice.

40. Even if the defendant had both accepted the Notice and exercised the option referred to in clause 12, the invalidity of that part of clause 13 which I have held to be void for uncertainty, would have destroyed any unfair advantage which otherwise might have accrued to the defendant from its acceptance of the Notice according to its terms.

The identification of the property subject to the Agreement
41. It was assumed by the parties that all after-acquired property purchased in their joint names or as they have directed, was partnership property subject to the Agreement. By the time the Notice came to be delivered, it was common ground that by that time neither party, by its relevant officers, had any conscious recollection of the Agreement or its terms. I, therefore, cannot be certain that when property was acquired subsequent to the execution of the Agreement and apparently outside of its ambit, it was intended, nevertheless, to be subject to the Agreement. Given that the point was not argued and, having regard to the view I have taken of the proper construction of the Agreement, it may be that there is little practical utility in determining whether all or only part of the property purchased and managed by the partnership is subject to the Agreement. It is a matter which may be further argued or made the subject of further directions if either party perceives any advantage in doing so.

Relief sought - Plaintiff
1. That clauses 12 and 13 of the Agreement are void for uncertainty.
I find that only that portion of clause 13 which relates to payment by instalments, security by promissory note and interest on the deferred balance are void for uncertainty. I will make a declaration accordingly.

2. That the Agreement is enforceable otherwise.
I will make a declaration accordingly.

3. Rectification of clause 13.
There are no grounds for rectification. I decline to make any such order.

4. Effect of the notice of 29 March 1994.
(a) I decline to declare that the Notice is null and void but I find that it is not a notice conforming to clause 1 of the Agreement. Its effect will depend on whether all joint ventures of the parties were intended to be embraced by the Agreement as seems, at least retrospectively, to have been assumed. Its effect will also depend on whether the Notice has, as appears prima facie to be the case, been rejected by the defendant.
(b) Any effect the Notice might have is not vitiated by mistake. It either has effect by reason of being accepted according to its terms or it has no effect by reason of its rejection by the party to whom it was given.

5. Setting aside the notice for mistake.
I decline to make the order sought.

Relief sought - Defendant
1. Declaration that the notice of 29 March 1994 conforms to clause 1 of the Agreement, that is, dissolves the partnership at the expiration of three months from delivery.
The Notice has effect according to its terms or not at all. I decline to make this declaration.

2. Declare the partnership dissolved as from 29 June 1994.
If the Notice was effective to dissolve the partnership, it did so as from 29 March 1994. However, the Notice had such effect only if it was accepted in accordance with its terms. I decline to make the declaration sought.

3. Declaration that the defendant may purchase the plaintiff's share.
This effectively seeks a declaration that the defendant is entitled to exercise the option created by clause 12 of the Agreement. The evidence does not support a positive finding that the partnership stands dissolved or that, if it does, the defendant has purported to exercise the option in question.

I decline to make the declaration sought.

4. Declaration that there is no obligation on the defendant to purchase the plaintiff's share if the option is exercised but the price is ascertained by arbitration.
If the parties are unable to agree on the price after the defendant has, following dissolution, exercised its option to purchase the plaintiff's share, arbitration is appropriate pursuant to clause 15. However, if the defendant has the right to exercise the option and does so, it is bound to purchase for the price lawfully so ascertained.

I decline to make the declaration sought.
5. Declaration that the terms as to payment of the price ascertained for purchase by the defendant of the plaintiff's share pursuant to clause 12 of the Agreement should be by the instalments, secured by the promissory note and interest-free pursuant to clause 13 of the Agreement.
I have found those terms as to payment void for uncertainty.

I decline to make the declaration sought.

42. I will hear the parties as to what further evidence, if any, they wish to adduce to enable appropriate declarations and orders to be made in accordance with these reasons and as to costs.