Quinn Chi On v Karen Gore

In these proceedings the plaintiff, Quinn Chi On, seeks a declaration that the defendant, Karen Gore, validly exercised an option to acquire a one-sixth share of the business situated at Shop G1 Illawong Village, 273 Fowler Road, Illawong NSW (the Pharmacy) and an order that the defendant specifically perform the Option and pay him $775,000 (plus interest).

Both parties are registered pharmacists and have been in partnership since 2006 when they and Mr Sunny Sung Duong To (Mr To) purchased the Pharmacy. That Partnership Agreement was dated 1 September 2006 (the 2006 Partnership Agreement) and provided that each partner held a one-third interest in the partnership. The 2006 Partnership Agreement provided that the “name of the partnership is the Illawong Pharmacy” (clause 2). That Agreement included the Partnership Rules attached to it. Those Rules were headed “The Illawong Partnership”.

At the time of the purchase of the Pharmacy the partners took out a loan from the Australia and New Zealand Banking Group Limited (ANZ) for $900,000 (each being liable for $300,000). It appears that the partners operated the Pharmacy business quite amicably until 2011. Disputes then arose about a number of matters including the plaintiff’s decision to open a discount pharmacy business in Menai, a suburb close to the location of the Pharmacy.

On 18 August 2011 the partners attended a mediation to try to resolve their differences. The plaintiff and the defendant were represented by the same counsel and Mr To was represented by a solicitor. The parties sought to negotiate a buy-out of Mr To’s interest in the partnership. The plaintiff and the defendant together agreed to make an offer of $1.5 million to buy Mr To’s interest in the partnership. However it became clear during private discussions between the plaintiff and Mr To that he was only willing to sell his share in the partnership to the plaintiff. In the circumstances the plaintiff and the defendant agreed privately to proceed on the basis that the plaintiff would purchase Mr To’s share in the partnership for $1.5 million and he would provide an option to the defendant to purchase a one-sixth share for $750,000 to be exercised before 31 December 2012 to achieve an equal partnership between the plaintiff and the defendant.

Mr To agreed to sell his one-third share in the partnership to the plaintiff not for $1.5 million but for $1.55 million; $50,000 more than the plaintiff and the defendant had agreed would be offered to Mr To. The plaintiff claimed that during the mediation the defendant said that if she exercised the Option “it is only fair if I contribute half of the extra $50,000 that Sunny is being paid”. The plaintiff claimed that in response he said “[t]hank you, that would be fair”. There is a dispute about this conversation to which I will return later.

The plaintiff, the defendant and Mr To executed a document entitled “Heads of Agreement” on 18 August 2011 which included the following:

The partners also released each other under the 2006 Partnership Agreement in respect of all claims, including in respect of the plaintiff opening the pharmacy in Menai. Their agreement was conditional upon ANZ discharging Mr To from liability under the loan.

Also on 18 August 2011 the plaintiff and the defendant executed the Option Agreement which was in the following terms:

The annexure to the Option Agreement was a copy of the Heads of Agreement executed on 18 August 2011.

On 2 September 2011 the plaintiff, the defendant and Mr To executed a Deed of Dissolution and Agreement pursuant to which their partnership was dissolved as from 21 September 2011 at which time Mr To would transfer his one-third interest to the plaintiff for $1.55 million less the sum of $300,000 (Mr To’s liability under the loan) and less the costs of novation in respect of the ANZ loan and the partnership’s accountant’s costs (clauses 2(a), (b); 4(a)). Completion was conditional upon ANZ discharging Mr To and the lessor consenting to the transfer of the lease to the plaintiff and the defendant (clause 4(j)(1)).

On 2 September 2011 the plaintiff and the defendant executed another Partnership Agreement (the 2011 Partnership Agreement), the Recitals to which were as follows:

The 2011 Partnership Agreement included the following definition (clause 1(i)):

The only other section of the 2011 Partnership Agreement that referred to the Option was as follows:

Clause 19 of the 2011 Partnership Agreement fixed the mechanism for the valuation of the interests in the partnership.

On 4 October 2011 the plaintiff’s sister, Ms Be Be Poon, wrote to the defendant in the following terms:

On 4 October 2011 the defendant advised Ms Poon of the identity of her lawyer and that her financing was with the Commonwealth Bank of Australia (CBA). The defendant also advised that she would speak to her lawyer to see whether there should be any changes to the 2011 Partnership Agreement.

The defendant claimed that in mid-October 2011 she had a conversation with the plaintiff in which he advised her that he wanted to wait until 2012 before they looked at making any changes “to the ownership of the partnership”. The defendant claimed that the plaintiff informed her that he was very busy with his new pharmacy in Menai and did not have any time to deal with the changes at this stage.

On 3 May 2012 Ms Poon wrote to the defendant in terms that included the following:

On 16 May 2012 Ms Poon wrote to the defendant in relation to the CBA’s review of the “buy/sell agreement”. She asked the defendant to confirm that the value of the Pharmacy was $3 million; the current share was 66.66 per cent to the plaintiff and 33.33 per cent to the defendant; and the loan was at $1.9 million. On the same day the defendant responded to Ms Poon advising that the loan was $1.976 million as at 1 May 2012 and was to be “shared 50/50 once I purchase the remaining share which I’m hoping to do in July”. The defendant also advised Ms Poon that she still needed to “talk over” the 2011 Partnership Agreement with the plaintiff when she was to see him the following Friday.

On 17 May 2012 Ms Poon wrote to CBA advising that the plaintiff and the defendant were “in the process of arranging for their partnership to be changed to a 50% share each ownership” and that it “may take a couple of months to finalise”.

On 6 November 2012 the defendant wrote to the plaintiff by email in terms that included the following:

The copy of the letter dated 3 November 2012 attached to the email was in the following terms:

On 7 November 2012 the plaintiff wrote by email to the defendant suggesting that they meet to talk about the new Partnership Agreement later that week. That email included a number of points for discussion. On 8 November 2012 the defendant responded advising that she would go over all of the points raised by the plaintiff in his email which seemed “pretty straight forward”. It appears that no meeting eventuated at this time. However the defendant claimed that she had a conversation with the plaintiff in late November 2012 when she again asked him when they could complete the Option and when she could move to a 50 per cent share of the partnership. The defendant claimed that the plaintiff said that he wanted to wait until the new year because he was busy dealing with various issues with his new pharmacy at Menai.

The defendant claimed that between March and May 2013 she had about three conversations with the plaintiff in which she asked him to finalise the Option because it was causing a lot of pressure on her and her family and she wanted to complete it before the end of the financial year. The plaintiff once again indicated that he was very busy at that time.

On 25 April 2013 the plaintiff wrote to the defendant suggesting that they meet the following week to “discuss the transfer of the partnership”. By this time Mr Neil Featherstone, of Pinn Deavin Accountants/Valuers, had become involved in the discussions between the plaintiff and the defendant to the extent that he had completed draft reports for the new partnership.

On 7 August 2013 the plaintiff wrote to the defendant referring to the history of the purchase of Mr To’s share and the fact that he had paid an extra $50,000 bringing the purchase price from $1.5 million to $1.55 million. The plaintiff claimed that at the mediation on 18 August 2011 they “privately agreed” that the defendant would “pay ½ of what I ended up paying” Mr To. The plaintiff also claimed that in respect of the extra $50,000 that he paid at settlement “I recall you had verbally agreed to contribute your share’s worth”. That email included the following:

On 7 August 2013 the defendant responded in terms that included the following:

On 9 August 2013 Mr Featherstone wrote to the plaintiff with a copy to the defendant in terms that included the following:

The plaintiff responded on 12 August 2013 advising that he would like to make “the date of KG going from third to half from 1st September 2013”.

On 16 August 2013 Mr Featherstone wrote to the plaintiff and the defendant enclosing a “mock-up” of how the capital payout from the defendant to the plaintiff would look based on the position as at September 2011 when Mr To was paid out. That mock-up included a requirement for the defendant to pay the plaintiff $124,485 “to become 50% owner”. Mr Featherstone also explained that once the parties agreed upon “the restructure to 50% each” they could determine the value of a “complete buyout” by the defendant.

Mr Featherstone advised the plaintiff and the defendant on 20 August 2013 that after further adjustments in relation to the original bank loan the defendant had to pay $108,485 to the plaintiff “to become 50% owner”. The defendant advised the plaintiff that she was “happy with this calculation” and asked him to advise what he needed in order to “value the remaining half”.

On 30 August 2013 Mr Featherstone wrote to the parties in terms that included the following:

Mr Featherstone advised that the defendant would have to pay $1.3 million to the plaintiff for the 50 per cent share with the plaintiff paying out in full 50 per cent of the ANZ loan and the defendant refinancing her additional 50 per cent using the Pharmacy as security subject to a bank valuation.

On 9 September 2013 the defendant wrote to the plaintiff in terms that included the following:

On 9 September 2013 the plaintiff responded to the defendant in terms that included the following:

On 30 September 2013 the defendant forwarded a valuation of the Pharmacy to the plaintiff advising that she had also forwarded it to her bank. That communication included the following:

The defendant claimed that she had a conversation with the plaintiff on 7 October 2013 when he asked her whether she still wished to purchase the whole Pharmacy. The defendant claimed she advised the plaintiff that she did not wish to do so and just wanted to exercise the Option and purchase the one-sixth share to “make it a 50/50 split”. The defendant claimed that the plaintiff responded that he would “have to think about what I want to do”.

On 21 October 2013 the defendant wrote to the plaintiff and Mr Featherstone advising that ANZ had assumed that the “partnership was 50:50 already” and that no change was needed on the current loan because they were both individually liable.

On 8 November 2013 the defendant wrote to the Pharmacy Council in the following terms:

On 10 January 2014 the defendant wrote to Mr Featherstone in terms that included the following:

On 13 January 2014 the plaintiff wrote to Mr Featherstone in terms that included the following:

On 24 January 2014 Mr Featherstone advised the parties that if they treated the change as having occurred on 1 July 2013 they would need to ensure that the “internal paperwork” reflected that date and that this would be the date of “disposal” in respect of Capital Gains Tax issues.

In a further communication on 31 January 2014 Mr Featherstone advised the parties that he had analysed the loan statements for the period September 2011 to June 2013 in relation to the restructure to “50/50”. Mr Featherstone asked the parties to confirm how they wanted the interest and principal that had been paid to be taken into account because there were different methodologies in relation to such accounting. That communication also included the following:

On 7 February 2014 the plaintiff wrote to Mr Featherstone asking him for a convenient time at which he and the defendant could meet with him to discuss the “partnership matter”.

It was about this time that the plaintiff met Frank Sirianni, the principal of Medici Capital, a pharmacy valuation and consultancy provider specialising in pharmacy management. Mr Sirianni met with the plaintiff in early May 2014 after providing a series of questions referred to as “partnership facilitation questions”.

The plaintiff and the defendant met on 15 May 2014 when it was agreed that the defendant was to contact Ms Kate O’Sullivan, a lawyer, or Mr Featherstone “to start the partnership agreement ASAP”.

The plaintiff and the defendant met Mr Sirianni on 18 June 2014. Minutes of that meeting noted that the defendant was “OK” for the plaintiff to maintain two-thirds profit share until the new Partnership Agreement “is set for 50/50”.

On 3 September 2014 Mr Sirianni noted that both the plaintiff and the defendant were “frustrated by progress to date”. In fact the defendant claimed that she had a conversation with the plaintiff in September 2014 in which she informed him that the delay in completing the Option was upsetting her and putting financial strain on her. She suggested to the plaintiff that she should have become an equal partner by that time and in response the plaintiff said once again that he was very busy with his pharmacy at Menai and did not have the time to discuss it.

On 1 October 2014 the defendant wrote to the plaintiff and Mr Featherstone in the following terms:

The draft Deed of Sale of Partnership Interest (the Deed of Sale) that was enclosed with that email was between the plaintiff, as the “Selling Partner”, and the defendant, as the “Incoming Partner” and included the following:

On 8 October 2014 Mr Featherstone wrote to the plaintiff enclosing the “calculations for the cost base for the 1/6th share”. That email included the following:

On 9 October 2014 the plaintiff chased Mr Sirianni for some documents that he had apparently promised to send to the plaintiff and the defendant including the 2011 Partnership Agreement.

On 9 October 2014 the defendant wrote to the plaintiff in the following terms:

On 10 October 2014 the defendant wrote to Mr Sirianni and the plaintiff in respect of materials that Mr Sirianni had sent through to them in terms that included the following:

On 12 October 2014 the plaintiff wrote to the defendant in the following terms:

On 12 October 2014 the plaintiff wrote to Ms O’Sullivan with a copy to the defendant in the following terms:

On 20 October 2014 the defendant wrote to the plaintiff in terms that included the following:

On 22 October 2014 the plaintiff wrote by email to the defendant in terms that included the following:

On 23 October 2014 the defendant wrote to the plaintiff in the following terms:

The defendant claimed that she had a conversation with the plaintiff on 24 October 2014 in the following terms:

On 24 October 2014 the plaintiff wrote to the defendant in the following terms:

A draft Partnership Agreement was prepared by Roone Richardson Lawyers, solicitors then acting for the defendant. That Agreement included the following:

On 13 November 2014 the defendant wrote to the plaintiff in the following terms:

The parties met on 18 November 2014 to discuss matters generally and in particular amendments to the proposed Partnership Agreement. The Minutes of that meeting include the following:

In her affidavit (affirmed on 26 May 2016) the defendant claimed that on 26 November 2014 she received a telephone call from the plaintiff in which he asked her to meet with him the following day to talk to her about “selling you all of the Illawong Pharmacy” (at [27]). The parties met at a café in Illawong on 27 November 2014. The defendant claimed that the following conversation took place (at [28]):

The defendant’s affidavit evidence in relation to this conversation and the meeting included the following (at [29]):

On 27 November 2014 the plaintiff wrote to the defendant in the following terms:

On 28 November 2014 the defendant responded to the plaintiff in the following terms:

On 8 December 2014 the defendant wrote to the plaintiff in the following terms:

On 8 December 2014 the plaintiff wrote to the defendant attaching the letter as requested and advising that he was in the process of getting his lawyer to draw up a formal letter for the proposed sale to her. The attached letter was in the following terms and dated 8 December 2014:

On 12 December 2014 the plaintiff’s solicitors wrote to the defendant referring to the negotiations for the potential sale of “2/3 share of Illawong Pharmacy Business”. That letter included the following:

On 27 January 2015 the defendant’s then solicitors wrote to the plaintiff’s solicitors responding relevantly as follows (emphasis added):

On 2 February 2015 the plaintiff wrote to Mr Featherstone and the defendant suggesting a meeting to discuss a number of matters including: the amount that the defendant needed to pay the plaintiff to acquire the one-sixth share; and the sale of the plaintiff’s 50 per cent share to the defendant.

On 6 February 2015 Mr Featherstone wrote to the parties enclosing his calculations regarding “the buy-out calculations”. That document included two stages: the first stage was the transfer of the one-sixth share; the second stage was the transfer of the remaining 50 per cent share. There were further negotiations and discussions between the parties and Mr Featherstone in relation to the figures and the receipt of the valuation.

On 21 April 2015 the defendant wrote to the plaintiff in the following terms:

On 21 April 2015 the plaintiff responded to the defendant in terms that included the following:

The defendant replied on 27 April 2015 thanking the plaintiff for his email and advising that she would “respond in due course”. However there was no further dealing between the plaintiff and the defendant in respect of this offer.

On 27 May 2015 the defendant’s new solicitors, Sewell & Kettle Lawyers, wrote to the plaintiff referring to a loan from the partnership to him and demanding that it be repaid into the partnership account within 14 days from the date of the letter. That letter enclosed a letter written on the same day to Mr Featherstone by the defendant’s solicitors setting out the history leading up to the loan with a request that the partnership’s financial statements be rectified to reflect the existence of the loan. One of the matters raised by the solicitors in the letter to Mr Featherstone was the entry into the Heads of Agreement on 18 August 2011.

The plaintiff’s solicitors responded on 4 June 2015 referring to the background to the execution of the Heads of Agreement. That letter included the following:

On 20 July 2015 the defendant’s solicitors wrote to the plaintiff’s solicitors in terms that included the following:

The solicitors continued their communications and the parties also commenced the process of referring their dispute to arbitration. However, the parties reached an impasse and proceedings were commenced.

These proceedings were commenced by the filing of a Statement of Claim on 7 March 2016. The plaintiff’s claim for relief included an order dissolving the partnership with consequential orders for the taking of accounts. The plaintiff also sought a declaration that the defendant had validly exercised the Option and an order that the defendant pay him $750,000 (later amended to $775,000) plus interest.

On 16 May 2016 the parties reached an agreement that the only issues to be determined by the Court are whether the defendant validly exercised the Option and whether the plaintiff is entitled to an order that the defendant pay him $775,000 plus interest. The parties also agreed that upon the determination of these issues the partnership is to be dissolved in accordance with clause 20 of the 2011 Partnership Agreement, with the respective shares of the partners being assessed in accordance with the Court’s determination and the partnership assets being sold in a manner agreed between the parties.

The proceedings were heard on 2 June 2016 when Mr IR Pike SC appeared for the plaintiff and Mr JA Rose, of counsel, appeared for the defendant.

The plaintiff was granted leave to file an Amended Statement of Claim in Court in paragraph 2 of which he seeks an order that the defendant “specifically perform the Option and pay” him “$775,000 (plus interest) pursuant to the Option”.

The plaintiff relied upon his affidavits sworn on 23 May 2016 and 31 May 2016. The defendant relied upon her affidavits affirmed on 3 April 2016, 1 May 2016, 26 May 2016 and 29 May 2016.

There is no issue that the defendant exercised the Option in accordance with the provisions of the Option Agreement by sending her letter of 3 November 2012 to the plaintiff at the address prescribed. However the defendant opposes the making of the declaration and order on three bases. The first is the contention that the Pharmacy partnership was dissolved on 21 September 2011, frustrating the performance of the Option Agreement and making it unenforceable from that date. The second is the contention that the plaintiff’s conduct between 6 November 2012 and 4 June 2015 amounted to a repudiation of the Option Agreement, which it is alleged the defendant accepted. The third is the contention that the Option Agreement was abandoned by the parties between 6 November 2012 and 4 June 2015. The defendant abandoned her claim of laches at the beginning of the hearing.

There is a further issue in respect of the Option amount. Although the Option Agreement refers to an amount of $750,000, the plaintiff contends that the defendant agreed on 18 August 2011 that if she exercised the Option she would pay half of the additional $50,000 (over the offered price of $1.5 million) that the plaintiff paid to purchase Mr To’s share. Accordingly the plaintiff seeks the additional amount of $25,000. The defendant denies that this oral agreement was made on 18 August 2011.

The concept of frustration was defined by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729 (applied in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337) as follows:

As was noted by JW Carter, Contract Law in Australia (LexisNexis Butterworths, 6th ed, 2013) the relevant event (the “frustrating” event) must have severe consequences; it is a “radical” not a mere change in circumstance to that which the parties anticipated in their contract at the time they reached their agreement (at [33-02]).

The defendant submitted that the radical change occurred when the three partners executed the Deed of Dissolution on 2 September 2011. The defendant contended that the Option Agreement was to purchase a one-sixth share in the partnership that was dissolved by that Deed. In this regard the defendant submitted that by the use of the words “one sixth share of the partnership known as the Illawong Pharmacy partnership” in the Option Agreement the parties intended to refer to the partnership established between the plaintiff, the defendant and Mr To. It was submitted that the change in the subject matter of that partnership after the execution of the Deed of Dissolution amounted to a situation that was fundamentally or radically different to the situation contemplated by the Option Agreement, thus frustrating it. It was also submitted that the contracted method of performance, namely the transfer of an interest in a particular partnership, ceased to be possible when the partnership between the three partners was dissolved. It was also contended that the foundation of the contract disappeared when that partnership was dissolved.

The Heads of Agreement executed on 18 August 2011 noted that the partners had resolved all their differences “concerning various aspects of the operation of their partnership relating to the Illawong pharmacy”. The Heads of Agreement also provided that Mr To’s share “in the partnership” would be sold “effective 31 August 2011”.

The 2011 Partnership Agreement between the plaintiff and the defendant was executed on 2 September 2011. The Deed of Dissolution was also executed on 2 September 2011 and provided for a “Completion Date” of 21 September 2011 (rather than 31 August 2011 as provided in the Heads of Agreement dated 18 August 2011). At the time of the dissolution of the partnership between the plaintiff, the defendant and Mr To, the plaintiff and the defendant had been operating the Pharmacy business in accordance with the 2011 Partnership Agreement since 2 September 2011.

The Option Agreement is a contract that must be viewed in light of the surrounding commercial circumstances. Its object was to enable the defendant to become an equal partner with the plaintiff in circumstances where the outgoing partner, Mr To, refused to treat with the defendant and would only sell his one-third share in the partnership to the plaintiff. The fact that the formality of the dissolution of that partnership did not occur until 21 September 2011 does not affect the Option Agreement between the plaintiff and the defendant. It related to the partnership between them, not the partnership between them and Mr To that was to be dissolved.

Notwithstanding that the parties referred to the partnership in their various Agreements as “Illawong Pharmacy”; “the Illawong Pharmacy Partnership”; “the Illawong Partnership”; and “the Partnership”, I am satisfied that the intention of the parties in entering into the Option Agreement was to sell a one-sixth share of the partnership that was then proposed between the plaintiff and the defendant in the Illawong Pharmacy and not a one-sixth share of a partnership between the plaintiff, the defendant and Mr To.

The performance of the Option Agreement was not frustrated by the dissolution of the partnership between the plaintiff, the defendant and Mr To.

Conduct that evinces an intention to no longer be bound by a contract or to fulfil a contract only in a manner substantially inconsistent with a party’s obligations and not otherwise amounts to repudiation of that contract. In such circumstances the other party is entitled to accept the repudiation and be discharged from further performance under the contract and to sue for damages: Shevill v Builders Licensing Board (1982) 149 CLR 620 per Gibbs CJ at 625-626. Repudiation of a contract is a serious matter not to be lightly found or inferred: Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd Receiver & Manager Appointed (formerly CEL Home Video Pty Ltd) (1997) 42 NSWLR 462 citing Lord Wright’s statement in Ross T Smyth & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60 at 71-72.

The defendant relied on three aspects of the plaintiff’s conduct as evincing an intention to no longer be bound by the terms of the Option Agreement or to fulfil it only in a manner substantially inconsistent with his obligations under the Option Agreement and not otherwise. The first is the plaintiff’s conduct in demanding that the defendant pay half of the additional $50,000 that he paid to Mr To (increasing the purchase price from $1.5 million to $1.55 million) over and above the amount of $750,000 recorded in the Option Agreement (the additional $25,000 Conduct). The second is the plaintiff’s demand for the defendant to pay a proportion of the Stamp Duty that he paid on the purchase of Mr To’s share in the partnership (the Stamp Duty Conduct). The third is the plaintiff’s refusal to complete the sale of the one-sixth share in the partnership pursuant to the exercise of the Option unless and until the new Partnership Agreement was finalised. The defendant claimed that she accepted the plaintiff’s repudiation of the Option Agreement by her solicitor’s letter dated 20 July 2015 bringing it to an end from that date.

The plaintiff claimed that the defendant agreed with him during the mediation on 18 August 2011 that if she exercised the Option it would be “fair” for her to pay half of the additional amount of $50,000 that had to be paid to Mr To over the offered price of $1.5 million to buy him out. The defendant denied that such an agreement was made.

The plaintiff was cross-examined about his claim in his affidavit that such a conversation occurred. He gave the following evidence (tr 15-16):

The reference to “two years later” was a reference to the email the plaintiff wrote to the defendant on 7 August 2013 in which he claimed that he recalled that the defendant had “verbally agreed to contribute your share’s worth” (see [26] above). The plaintiff was cross-examined further as follows (tr 16):

The plaintiff was referred to the written report of what occurred at the mediation which included the following:

The plaintiff was further cross-examined as follows (tr 18-20):

The defendant responded to the plaintiff’s email of 7 August 2013; an email in which he had claimed that he recalled that she had verbally agreed to contribute her “share’s worth” of the additional amount (see [26] above). In that response the defendant claimed that she understood that she had to pay $50,000 and the remainder would be included in the loan which would bring it up to being 50/50. That reference to $50,000 is to the cash component of the proposed transaction and not the additional $50,000 that the plaintiff had to pay to Mr To. However the defendant did not deny that she had verbally agreed to pay “her share’s worth” as the plaintiff claimed.

The plaintiff’s answer at the beginning of his cross-examination when he was challenged about whether the conversation on 18 August 2011 occurred was very tentative. His evidence was that it was “hard to say” whether the conversation had happened, but he thought “it may have” occurred. However as his evidence continued he became firmer in his recollection of the conversation.

The defendant accepted in her evidence in cross-examination that in 2013 Mr Featherstone was working out the net figure that she would have to pay to give effect to increasing her share in the partnership to bring it up to 50 per cent (tr 53). The defendant also accepted that Mr Featherstone’s calculations proceeded on the basis that she would be paying $124,485 based on the purchase price of $1.55 million paid to Mr To (tr 54). She gave the following evidence (tr 55):

The defendant was then taken through the correspondence to which she had referred and the calculations that Mr Featherstone had performed after the defendant had raised a question in relation to an extra bank bill (tr 55). She was then cross-examined further as follows (tr 55-56):

The factors pointing to the parties having reached an agreement that the defendant would pay an additional $25,000 if she exercised the Option to purchase the one-sixth share from the plaintiff are: (1) the defendant did not expressly reject the suggestion made by the plaintiff in his email of 7 August 2013 that he recalled that she had verbally agreed to do so; (2) her understanding that the figures upon which Mr Featherstone proceeded included the additional amount that was paid to Mr To over and above the figure that she and the plaintiff had agreed of $1.5 million; (3) her lack of objection to such figures being included in the calculations; (4) her evidence that she understood in August 2013 that she was required to pay “in effect” $775,000 (tr 55); and (5) the plaintiff’s affidavit evidence that the conversation occurred.

The factors pointing against such an agreement having been reached are: (1) the reference in the mediation report to the defendant’s unwillingness to go above $750,000 for the purchase price of the one-sixth share in the Option Agreement; (2) the defendant’s denial of the conversation; (3) the claim in the plaintiff’s solicitors’ letter of 4 June 2015 that the defendant had “subsequently acknowledged” that the “option price should have been $775,000” and the absence of any reference to the conversation of 18 August 2011 in that letter; and (4) the plaintiff’s tentative evidence when first asked about the conversation in cross-examination.

The question of whether the agreement was reached on 18 August 2011 falls away on the repudiation issue by reason of the later correspondence between the parties, the defendant’s acceptance in her evidence that she understood that the figures were based on the additional amount and her evidence that she agreed to pay the additional amount. I am not satisfied that the plaintiff’s suggestion in his email of 7 August 2013 that he recalled that the defendant had “verbally agreed to contribute” this amount was repudiatory conduct. However even if the plaintiff’s request for the additional $25,000 evinced an intention not to be bound by the Option Agreement the defendant accepted that she would pay it in the circumstances then under discussion, namely the two stage process of buying the one-sixth share and then the remaining 50 per cent share in the Pharmacy.

I am not satisfied that the defendant has established that the plaintiff repudiated the Option Agreement by the additional $25,000 Conduct.

The defendant’s claim in respect of the plaintiff’s demand to pay a half share of the Stamp Duty was also the subject of cross-examination in relation to Mr Featherstone’s calculations. Her evidence included the following (tr 59):

At a later point in her cross-examination the defendant gave the following evidence in respect of the $108,485 cash component that was referred to in the draft Deed of Sale for the one-sixth share in the partnership (tr 63-64):

The parties were continuing to negotiate various alternatives. One alternative was for the defendant to purchase the one-sixth share in the partnership so that she and the plaintiff would operate the partnership on an equal basis. Another alternative was that the defendant would proceed in two stages: the first stage was to purchase the one-sixth share from the plaintiff to bring her share up to fifty per cent of the partnership; the second stage was to purchase the remaining fifty per cent from the plaintiff to become the outright owner of the Pharmacy. There were obviously other discussions which included the plaintiff offering to buy the defendant’s share in the partnership.

I am not satisfied that the plaintiff’s request for the defendant to pay fifty per cent of the stamp duty evinced an intention to no longer be bound by the terms of the Option Agreement. The figures that were calculated were in the confines of the alternatives referred to above and in any event the defendant candidly admitted in cross-examination that she agreed to pay this amount.

I am not satisfied that the defendant has established that the plaintiff repudiated the Option Agreement by the Stamp Duty Conduct.

The plaintiff was cross-examined in relation to the draft Deed of Sale proposed in early October 2014 which included the consideration of $808,485. He agreed that that figure was much higher than the claim that he now makes for $775,000 and certainly higher than the figure in the Option Agreement of $750,000 (tr 31). He gave the following evidence in cross-examination (tr 32-37):

The plaintiff refused to complete the sale of the one-sixth share in accordance with the Option Agreement and imposed a condition that he would not complete the sale unless and until the new Partnership Agreement was finalised. I am of the view that such conduct evinced an intention not to be bound by the Option Agreement. However the defendant continued to treat with the plaintiff in respect of the purchase of the one-sixth share and then the purchase of his remaining fifty per cent share. It is not clear why the defendant allowed the matter to drag on in the way that it did. It is clear that it was frustrating for her but the fact of the matter is she exercised an Option and allowed the process to continue as it did without seeking some form of enforcement of her entitlement under the Option Agreement. At the time the plaintiff imposed the condition on completion, the defendant did not claim that his conduct was a repudiation of the Option Agreement. Indeed the defendant subsequently imposed a condition that the completion occur at the time of the finalisation of the 2013/2014 “financials”.

The defendant’s affidavit evidence was that after the conversation on 27 November 2014 she regarded the Option as being “rejected” and that she did not press it further (see [66] above). The difficulty for the defendant’s claim in this regard is that two months later, on 27 January 2015, her solicitors wrote to the plaintiff’s solicitors accepting that the parties would not have a binding contractual relationship in respect of the purchase of the Pharmacy until they signed a contract, but requiring an acknowledgement that there was the “existing exercised option”.

Although the defendant claimed in these proceedings that she had accepted the plaintiff’s repudiation of the Option Agreement in her solicitors’ letter dated 20 July 2015, its contents do not support this claim. There are numerous claims made in that letter including that the defendant was estopped from seeking to rely upon the Option Agreement and that the Option Agreement had been waived by mutual agreement. However there was no claim that the plaintiff’s conduct amounted to a repudiation of the Option Agreement or that such repudiation was accepted.

When the plaintiff improperly imposed a condition on the completion of the sale of his one-sixth share in the partnership, the defendant was entitled to treat such conduct as a repudiation of the Option Agreement. The defendant did not do so and I am satisfied that she elected to continue the process accepting the plaintiff’s condition.

In any event, on 4 June 2015 the plaintiff, through his solicitors’ letter of that date, resiled from his previous demand that the new Partnership Agreement be finalised before completion of the sale of his one-sixth share in the partnership. In that letter the plaintiff’s solicitors requested the completion of the sale by 30 June 2015.

The defendant’s claim that she accepted the plaintiff’s repudiation of the Option Agreement fails.

In support of the defendant’s contention that the parties abandoned the Option Agreement, reliance was placed upon the following passage of Isaac J’s judgment in Summers v Commonwealth (1918) 25 CLR 144 at 151-152:

The defendant also relied upon the following passage of Finkelstein J’s judgment in CGM Investments Pty Ltd v Chelliah [2003] FCA 79; 196 ALR 548 at [18]:

Although that judgment was reversed on appeal, this statement of principle was not criticised: Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279.

The defendant submitted that viewed objectively the parties’ conduct in the period between 6 November 2012 and 4 June 2015 manifested an intention to abandon the Option Agreement. It was submitted that the proposed sale of the two-thirds interest in the partnership business to the defendant was inconsistent with a sale of a one-sixth interest in the partnership under the Option Agreement.

The plaintiff was cross-examined about the proposed sale of the Pharmacy to the defendant based on the $2.8 million price. It was suggested to the plaintiff in cross-examination that in this proposed process the defendant was not required to first purchase the one-sixth share to bring her to an equal share of the partnership before the apportionment of the parties’ respective interests on the basis of a figure of $2.8 million. The plaintiff gave the following evidence in cross-examination in relation to this aspect of the matter (tr 40-42):

The defendant submitted that the Option Agreement was abandoned when it was subsumed into the discussions about the purchase of the whole Pharmacy for $2.8 million. The reference to the “whole thing” in the last question and answer in the evidence extracted above is a reference to the fact that the plaintiff did not expressly advise the defendant that she had to complete the first stage to which Mr Featherstone had referred in his calculations. However Mr Featherstone’s correspondence made it very clear that this was a two stage process. The first stage was that in which the plaintiff sold his one-sixth share to the defendant pursuant to the exercise of the Option. The second stage was the process of selling fifty per cent of the Pharmacy once the parties were equal partners in the Pharmacy.

As I have said above, the defendant made it very clear through her solicitors’ letter of 27 January 2015 that whilst negotiations continued for the sale of the whole Pharmacy and the parties would not be bound until a contract for that sale was executed, it was necessary to acknowledge the “existing exercised option”.

The defendant has not established that the parties abandoned the Option Agreement.

I should return to the question of the defendant’s obligation to pay to the plaintiff an amount of either $750,000 or $775,000. As I said earlier there are a number of factors in support of and against a finding that the parties reached an agreement on 18 August 2011. I did not decide that question earlier because the defendant’s concession in relation to her willingness to pay that extra amount during the course of later negotiations meant that her repudiation claim failed. However it is appropriate now to consider whether that agreement was reached for the purpose of deciding the amount to which the plaintiff is entitled in respect of the defendant becoming a fifty per cent shareholder in the partnership. That will affect the process of the dissolution of the partnership and the taking of accounts.

The mediation report is powerful evidence in favour of the defendant’s denial that she reached such an agreement at that meeting. I take into account the plaintiff’s claims in his email of 7 August 2013 and the plaintiff’s response. However the plaintiff’s tentative evidence in cross-examination that it was “hard to say” whether the conversation had happened, but he thought “it may have” occurred, combined with the absence of any mention of such agreement in his solicitors’ letter of 4 June 2015 (and only a reference to it being “subsequently acknowledged” that the fee should have been $775,000) leads me to conclude that, on balance, I prefer the defendant’s evidence. I am satisfied that the parties did not reach such an agreement on 18 August 2011.

The defendant was willing to proceed with the negotiations for the purchase of the whole Pharmacy in a two-stage process on the basis of Mr Featherstone’s calculations which were based on the higher purchase price of $1.55 million. The circumstances are now very different. The parties have asked the Court to determine whether the exercise of the Option was valid in circumstances where the partnership is to be dissolved immediately after the relevant declaration is made.

The plaintiff’s case as pleaded was that the defendant reached an agreement with him to pay the additional $25,000 at the meeting on 18 August 2011 (paragraph 7A of the Amended Statement of Claim filed in Court on 2 June 2016). It is on that basis that the plaintiff claimed that he was entitled to $775,000 rather than $750,000. I am not satisfied that the plaintiff has proved that such an agreement was reached as pleaded. The Option fee as agreed to by the parties was $750,000.

The plaintiff also seeks an award of interest on the Option fee from the expiration of the time that he stipulated for the completion of the sale, 30 June 2015. The plaintiff delayed the completion of the sale for years. When the defendant produced a signed Deed of Sale in October 2014, the plaintiff imposed a condition on the completion of the sale that delayed the process even further and then moved into negotiations for the sale of the whole Pharmacy. The defendant waited for the plaintiff to comply with his obligations under the Option Agreement with extraordinary tolerance. It is an unimpressive claim for interest in circumstances where, after abandoning his demand for a new Partnership Agreement, the plaintiff demanded the completion of the sale within three weeks in June 2015. The parties were then in dispute and planned to proceed to arbitration before coming to Court. The whole process in the Court has been concluded in four months. I am not satisfied that an award of interest should be made in these circumstances.

There was also evidence that the defendant was paying part of the interest on the loan that the plaintiff obtained from the partnership to purchase Mr To’s share. However that is a matter that should be brought to account in the process of the distribution of the assets of the partnership.

The plaintiff’s claim for specific performance was first introduced at the hearing when he was granted leave to file the Amended Statement of Claim in Court. Prior to that amendment the only relevant order sought was that the defendant pay to the plaintiff $750,000.

The defendant submitted that the plaintiff’s claim for specific performance is wanting because there is no claim that he is ready, willing and able to perform his obligations under the Option Agreement by transferring the subject property (the one-sixth share in the partnership) to her. It is true that there is no such claim in the pleading. However the plaintiff gave some very general affidavit evidence (admitted over objection) that he is “ready, willing and able to complete the exercise of the defendant’s Option”. There was no evidence as to the steps the plaintiff was willing and ready to take to cause the transfer of the one-sixth interest in the partnership to the plaintiff. The plaintiff’s evidence in this regard included a claim that he “never suggested that the completion of a new Partnership Agreement was a pre-condition for the completion of the exercise of the option by the Defendant” (affidavit 31 May 2016; par 20). This claim is unsustainable having regard to the plaintiff’s email of 22 October 2014, his evidence in cross-examination extracted earlier (tr 32-37) and the defendant’s evidence, which I accept, that on 24 October 2014 the plaintiff informed her that he was “not prepared to do the transfer until there is a new partnership agreement”.

The defendant also submitted that there is no utility in making a specific performance order in circumstances where the parties have agreed to dissolve the partnership immediately consequent upon the outcome of this aspect of the proceedings.

The real purpose in having the Court determine the question as to whether the defendant had validly exercised the Option was to enable the parties to have certainty about their respective shareholding and to then effect the appropriate distribution to the partners on the dissolution of the partnership. The Option to purchase the plaintiff’s one-sixth interest in the partnership had to be (and was) exercised before 31 December 2012. Once the Option was exercised it was necessary to do some act or take some steps to cause the plaintiff’s one-sixth interest in the partnership to be transferred to the defendant. As part of that process the defendant signed the Deed of Sale in October 2014 for the further one-sixth “interest in the Business including goodwill, plant furniture and fittings” that required her to pay only $108,485 of the total consideration of $808,485, with the balance being brought to account in a transaction which involved a mortgage in favour of ANZ so that “both partners have equal liability for all outstanding monies over the Business”.

The plaintiff now seeks an order that the defendant “specifically perform the Option and pay” him “$775,000 (plus interest) pursuant to the Option”. The plaintiff has not proposed the steps that should be taken to cause the transfer of the one-sixth interest, nor has he suggested that he would sign any particular Deed of Sale.

It is important to enable the parties to conclude their relationship by the dissolution of the partnership as agreed. If the order for specific performance sought by the plaintiff were to be made there would have to be some form of Deed or Agreement entered into by the parties, obviously different from the terms of the Deed of Sale that the defendant signed in October 2014 for the payment of a different amount and the execution of a mortgage. At this stage when the parties’ relationship has become dysfunctional and they are on the verge of the dissolution of their partnership it would not be efficacious or fair for the Court to impose an order that they enter into a mortgage so that they “have equal liability for all outstanding monies over the Business”. The most appropriate course in the circumstances is to make the declaration but to refuse the order for specific performance as sought in the Amended Statement of Claim. This will enable the parties to proceed with certainty as to their respective equal entitlements in the partnership bringing to account the various amounts owed by each (including $1.1 million by the plaintiff and $750,000 by the defendant) when the assets are distributed.

I make the following declaration and orders: