Paltos v Milevski

1. [1]

   MACFARLAN JA: This is an appeal by Mr Dennis Paltos against a judgment of Parker J of the Equity Division delivered on 14 March 2022 (Milevski v Paltos [2022] NSWSC 261) and consequential orders that his Honour made on 8 April 2022 (Milevski v Paltos (No 2) [2022] NSWSC 437). The orders were made in the course of taking accounts in proceedings relating to the winding-up of a solicitors’ partnership between Mr Paltos and Mr Peter Milevski. The appeal is founded upon the following single ground:

2. [2]

   For the reasons given below, I consider that this ground should be rejected, both for the reasons given by the primary judge and for an additional reason advanced by Mr Milevski in his Notice of Contention that his Honour ought to have made the finding, that he said he was inclined to make, that the goodwill of the solicitors’ partnership was not at any relevant time transferred to Mr Milevski.

THE FACTUAL CIRCUMSTANCES

1. [3]

   Mr Paltos commenced practice as a solicitor in 1979, starting his own firm, “Paltos & Co, Solicitors” in 2000. Mr Milevski was initially employed as a law clerk and then from October 2003 as an employed solicitor.

2. [4]

   On 29 June 2010 Mr Paltos and Mr Milevski signed three documents, being a Heads of Agreement, a Deed of Agreement of Partnership Terms and a Put and Call Option Agreement. The last of these provided for Mr Milevski to purchase a 30% interest in the practice of Paltos & Co for the total consideration of about $232,000, payable in three tranches over a two-year period.

3. [5]

   That agreement also provided that on the death or total and permanent disablement of one of the partners, the other partner was entitled to purchase that partner’s interest. This was achieved by put and call options involving a sale at “market value”, which was to be the weighted average figure for one year’s earnings of the practice multiplied by 3.4.

4. [6]

   The new partnership commenced trading, apparently on 1 July 2010, with a new name (“Paltos Briggs, Family Lawyers”) being adopted in January 2011 and the name “Paltos Milevski Family Lawyers” being adopted in 2014.

5. [7]

   The partnership was profitable, with net profit for the financial years ending 30 June 2012 to 30 June 2015 being between $785,000 and $1,014,000.

6. [8]

   Mr Paltos was hospitalised as a result of strokes that he suffered on 23 December 2015. Although he was able to communicate, he ceased to attend the practice and was unable to undertake legal work. Mr Milevski accordingly took over the supervision of his files.

7. [9]

   Mr Milevski gave uncontested evidence that in January 2016 he discovered that Mr Paltos had made substantial unauthorised withdrawals of partnership funds for his own purposes, with the result that instead of his capital account with the partnership being in credit, as was Mr Milevski’s account, Mr Paltos owed a significant amount of money to the partnership.

8. [10]

   Thereafter, Mr Milevski retained his current firm of solicitors, Harris Friedman, to act on his behalf in relation to the partnership business and Mr Paltos retained the firm of Bartier Perry. Communications took place between these firms but no agreement was reached, leading to Mr Milevski commencing the present proceedings for the winding up of the partnership on 18 April 2016. After urgent hearings before Sackar J, his Honour made orders on 21 April 2016, dissolving the partnership, ordering that it be wound up under the direction of the Court and appointing receivers and managers (the “Receivers”) of the partnership business. The Receivers were authorised to carry on the partnership business but as they were accountants, not lawyers, they were not able to do so. The orders directed that the partnership assets, including its goodwill, be realised by the Receivers and that either partner be at liberty to purchase any partnership asset from them. In addition, the usual form of order for the taking of accounts was made.

9. [11]

   Prior to the orders being made, Mr Milevski had incorporated Milevski Family Lawyers Pty Ltd (“MFL”), through which he proposed to practise on his own account. Subsequently, in this Court, he belatedly sought by his Notice of Contention to assert that Mr Paltos’ claim against him should fail because only Mr Milevski’s company, and not Mr Milevski himself, received assets from the original firm and from early 2016 conducted a separate legal practice. As Mr Paltos contended, Mr Milevski should be, and is, precluded from taking this point as it was not taken before the primary judge and, if it had been, Mr Paltos may have been able to call evidence to address it.

10. [12]

    MFL’s office was on Castlereagh St, Sydney, not far from the partnership practice’s Pitt St office. On dissolution of the partnership, Mr Paltos’ companies, which owned the Pitt St premises, resumed occupation of them by arrangement with the Receivers. Mr Paltos had earlier indicated his intention to conduct his own family law practice when he recovered from his strokes and, subsequently, he did.

11. [13]

    Soon after their appointment, the Receivers formed the view that they “had to make arrangements very quickly for the ongoing carriage of the [firm’s] matters in order to best secure recovery of debtors and work in progress”. One of them, Mr Geoffrey Davis said in evidence:

12. [14]

    At about this time the Receivers also terminated the employment of all but one of the existing staff, resulting in Mr Milevski employing some seven employees of the previous partnership and assuming their unpaid employee entitlements. The Receivers also transferred almost all of the active (and archived) files of the partnership to MFL on the basis that it would account to the partnership for fees relating to any work done before the partnership dissolution.

13. [15]

    Most of the deed packets held by the partnership were also delivered to MFL, as was its “practice manual”, comprising precedents and procedural documents. The partnership telephone number was transferred to MFL and also, for a limited period, its website was diverted to MFL. The business name “Paltos Milevski Family Lawyers” was not however taken over or used by either former partner.

14. [16]

    The complicated litigious history that then ensued is described in detail by the primary judge. It is sufficient for present purposes to note that a creditor of the partnership, Westpac Banking Corporation, brought debt recovery proceedings against Mr Paltos and Mr Milevski, that Mr Paltos sought to claim against the Receivers for breaches of fiduciary duty in transferring assets to MFL without requiring proper payment for their value and that Mr Paltos sued Bartier Perry, his former solicitors, for damages for negligent advice given in connection with the disintegration of the partnership. The claim against Bartier Perry was finally resolved by the decision dated 3 August 2021 of this Court in Bartier Perry Pty Ltd v Paltos [2021] NSWCA 158.

15. [17]

    The hearing of the proceedings before the primary judge for the taking of the partnership accounts occupied 5 days in February 2022 with judgment being delivered on 14 March 2022.

16. [18]

    Most of the Receivers’ calculations as to the partnership assets and liabilities were agreed, the remaining matter in dispute being Mr Paltos’ claim for 70% (that being his percentage interest in the partnership) of the value of the goodwill of the partnership that he contended had been transferred to Mr Milevski. His claim in this respect was for 70% of $723,640, being $506,548.

17. [19]

    His Honour summarised as follows the extent of the agreement between the parties at the conclusion of the hearing before him:

THE JUDGMENT AT FIRST INSTANCE

1. [20]

   The primary judge noted that Mr Paltos’ case on the goodwill valuation issue was based on the expert evidence of Ms Rebecca Conoulty, an experienced forensic accountant.

2. [21]

   His Honour quoted the following description that Ms Conoulty gave of the way in which family law practices ordinarily acquire work:

3. [22]

   His Honour also noted that Ms Conoulty’s evidence was based on the premise that, subject to some exceptions, “Mr Milevski carried on substantially the same business within [MFL] as was previously operated” by the partnership. She said that this was due to the continuity of the files, staff, procedure manual, telephone number and internet presence. Later, his Honour said that the most important of the “exceptions” that Ms Conoulty stated was that Mr Paltos did not participate in MFL’s business and noted also that the MFL practice operated out of different premises.

4. [23]

   Ms Conoulty’s preferred method of valuation was capitalisation of maintainable earnings, involving the application of a multiple to an estimate of future maintainable earnings of the partnership business based on its previous earnings. Ms Conoulty made an adjustment to reflect the fact that when conducted by MFL the practice “would no longer enjoy the income generated by Mr Paltos”. Her valuation on this basis produced a range of $667,975 to $779,304.

5. [24]

   As an alternative, Ms Conoulty undertook an “asset-based valuation” attributing value to the individual “Transferred Assets” amongst which she included the staff, the practice’s files (both current and archived), the procedure manual and equipment such as the leased photocopier.

6. [25]

   His Honour then turned to a detailed consideration of the law relating to goodwill in a partnership context, referring to the decision in Trego v Hunt [1896] AC 7 as the key decision. His Honour said that prior to Trego v Hunt “[t]he existing law of restraint of trade had already firmly established that the vendor of a business had the right, unless an express covenant to the contrary was given, to set up immediately in competition with the purchaser” but noted that in Trego v Hunt, Lord Herschell at 20-21 said that a departing partner could nevertheless be restrained from soliciting the firm’s customers. His Lordship described the partner who could be subject to such a restraint as one who “specifically and directly appeals to those who were customers of the previous firm”.

7. [26]

   The primary judge also relied on the decision of Windeyer J in Page v McKensey (Supreme Court of New South Wales, 17 December 1993) in which Windeyer J said:

8. [27]

   In that case, after one partner (Mr Page) left the accounting partnership, the remaining five partners continued to trade under the firm name. Mr Page’s claim to a portion of the value of the goodwill of the partnership failed (so far as is presently relevant) because the valuation on which he relied erroneously assumed that any purchaser of the partnership business would have the benefit of covenants by the remaining partners not to compete with the purchased business.

9. [28]

   The primary judge said that Windeyer J’s statement of principle had been cited with approval in subsequent decisions of this Court (his Honour was referring to Old v McInnes and Hodgkinson [2011] NSWCA 410 at [87] and Bartier Perry Pty Ltd v Paltos at [228]) and then concluded:

10. [29]

    His Honour accordingly concluded that Ms Conoulty’s valuation was conducted on an incorrect basis because she did not take into account “the possibility of competition from Mr Milevski (and Mr Paltos, in due course)”.

11. [30]

    His Honour also rejected Ms Conoulty’s view that she was entitled, in valuing the goodwill of the partnership, to have regard to the “special value” to Mr Milevski of the partnership practice, because of his association and familiarity with the business and its clients. His Honour said that, instead, the question was “what the asset would have fetched if sold on the open market” on the relevant date and that Mr Paltos was “[not] entitled to insist that Mr Milevski pay more for [the practice] than it was worth to a third-party purchaser in a competitive bidding process”.

12. [31]

    His Honour identified further, separate, difficulties that he saw with Ms Conoulty’s valuation and then turned to “an even more fundamental objection” to the valuation, being Mr Milevski’s contention that no goodwill of the partnership practice had in fact been transferred to MFL, his counsel having submitted as follows:

13. [32]

    His Honour then referred to the definition of goodwill given by the majority of the High Court in Commissioner of Taxation v Murry (1998) 193 CLR 605 at 623; [1998] HCA 42 in the following passage at [45]:

14. [33]

    The primary judge then said that although substantially the whole of the partnership business infrastructure was transferred to MFL, “by far the most important element in the business was the conduct of legal work for clients” and referred to counsel’s submissions that the former partners were not subject to any ongoing restraint on competition.

15. [34]

    As to whether the partnership business was transferred to MFL or whether it was terminated, his Honour observed:

16. [35]

    His Honour added:

17. [36]

    His Honour’s decision to stop short of finding in favour of Mr Milevski on the additional basis that the partnership business was not transferred to MFL is the subject of Mr Milevski’s Notice of Contention.

18. [37]

    The primary judge then considered, and rejected, Ms Conoulty’s “asset-based” valuations.

19. [38]

    For these reasons, his Honour concluded that Mr Paltos had not established that he was entitled to be credited in the taking of accounts with any sum representing the acquisition by Mr Milevski of any goodwill of the partnership. His Honour added that “[t]he result is unfortunate for Mr Paltos, given that his damages were docked by almost $500,000 [in this Court’s decision referred to in [16] above] for the value of intangible assets which I have now found to have had no value” and continued:

DETERMINATION OF APPEAL

1. [39]

   Mr Paltos’ case on appeal is that in substance Mr Milevski acquired, through the Receivers, the whole business of the pre-existing firm of Paltos Milevski Family Lawyers, including its goodwill, and that as a result Mr Paltos is entitled, in the taking of the partnership accounts, to be credited with 70% of the value of the firm’s goodwill (the percentage being Mr Paltos’ share of the partnership, the remainder being Mr Milevski’s share). He contends that Ms Conoulty’s evidence properly assessed the value of that goodwill but in any event there was other evidence on which the primary judge could, and should have, relied to assess that value. In particular, Mr Paltos submitted that inferences as to the goodwill’s value in April 2016 should have been drawn from the documents signed by Mr Paltos and Mr Milevski in June 2010 when Mr Milevski was admitted to the partnership (see [4] above) and from the partnership’s subsequent earnings history.

The Notice of Contention ground – whether goodwill was transferred to Mr Milevski

1. [40]

   I turn first to Mr Paltos’ proposition that in or about April 2016 Mr Milevski acquired the partnership’s goodwill. This is put in issue by Mr Milevski’s Notice of Contention.

2. [41]

   As appears from [32] above, goodwill is “the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means which in the past have attracted custom to the business” (Murry at [45]; Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 265 CLR 585 at 607; [2018] HCA 59 at [71]). As the plurality in Placer Dome Inc pointed out, the concept of custom is central to goodwill and custom may have a number of different sources, varying in type from one business to another (at [63]–[64]). Moreover, “goodwill is inseparable from the business to which it adds value” and is not something that can be “dealt with separately from the business with which it is associated” (Murry at [16] and [22] citing Inland Revenue Commissioners v Muller & Co’s Margarine Ltd [1901] AC 217 at 235 and Geraghty v Minter (1979) 142 CLR 177 at 181; [1979] HCA 42, respectively).

3. [42]

   It follows from these principles that continuity of the business is necessary for its goodwill to continue to exist. To repeat what was said in Murry (see [41] above), if goodwill is to continue to subsist, the business must continue to be conducted “in substantially the same manner and by substantially the same means that have in the past attracted custom to the business”.

4. [43]

   In a case, as here, of a two-partner solicitors’ firm one would ordinarily expect, in the absence of evidence to the contrary, that its sources of custom would principally be the names and reputations of its two partners. There was no evidence suggesting that that was not so in relation to Mr Paltos’ and Mr Milevski’s partnership and that expectation is consistent with what Ms Conoulty said about how family law practices generally attract custom (see [21] above). In particular, there was no evidence to suggest that Paltos Milevski Family Lawyers attracted custom because, for example, of the eminence of particular employed solicitors or the partnership’s use of any of its other “assets” which came into MFL’s possession, or under its control (see [46] below). The Court is left then with the compelling inference that the partnership’s custom had been generated and maintained by the names and reputations of Mr Paltos and Mr Milevski.

5. [44]

   At least by the date of the Court’s order in April 2016 dissolving the partnership, the partners no longer practised together and the business name Paltos Milevski Family Lawyers ceased to be used by either. Mr Milevski did not thereafter purport to be practising under the name of the previous partnership, nor is there any evidence that he used Mr Paltos’ name or reputation to advance MFL’s business. Instead, Mr Milevski used only his own name in the name of his firm and practised at different premises. For his part, Mr Paltos was incapacitated and did not therefore practise using the partnership name or Mr Milevski’s name. Moreover, Mr Paltos “vigorously” asserted that he intended, when able, to practise under his own name, as he in fact subsequently did.

6. [45]

   The partnership business was, in these circumstances, brought to an end by the parties’ conduct and/or the Court’s order for its dissolution (see Ryder v Frohlich [2004] NSWCA 472 at [135]; Woolworths Group Ltd v Gazcorp Pty Ltd [2022] NSWCA 19 at [91]-[96]). There was thus no continuity of the business that might have resulted in the preservation of its goodwill, with the consequence that that goodwill ceased to exist and there was no goodwill of the partnership that Mr Milevski acquired and for which he had to give credit on the taking of the partnership accounts. I add that Mr Paltos does not make any claim against Mr Milevski on the basis of any breach of any fiduciary or other duties by Mr Milevski. It is not therefore relevant, at least for present purposes, to enquire as to the reasons for the termination of the partnership.

7. [46]

   On appeal, Mr Paltos did not put any persuasive arguments to justify the proposition, at least implicit in his case, that the partnership business, including its goodwill, continued after the partnership’s winding up and was, or had been, acquired by Mr Milevski. Mr Paltos simply asserted that Mr Milevski acquired “practically the whole business” and referred to Mr Milevski acquiring the following “assets”:

8. [47]

   Unable to be included in this list, because they were clearly not acquired or used by Mr Milevski, were the important “assets” comprising the partnership’s firm name, Mr Paltos’ name, and the offices from which the partnership had operated. Without Mr Milevski using, or at least having a right to use, those sources of custom, it could not be said that Mr Milevski acquired the business, including its goodwill. As Stephen J said in Geraghty v Minter at 190–191, in relation to a loss assessor’s business whose only customers were insurance companies, “[m]uch of the custom must tend to be personal to the person or persons actually doing the work of loss assessing, just as it would be were barristers organised into firms” and beyond goodwill associated with individuals, goodwill “must very largely reside in the firm name…”.

9. [48]

   In listing the partnership assets said to have been acquired by Mr Milevski without seeking to identify whether their acquisition carried with it the right to conduct the former partnership’s business, Mr Paltos neglected to adhere to the direction given by the majority in Murry at [30] that “[c]are must be taken to distinguish the sources of the goodwill of a business from the goodwill itself”. Their Honours continued:

10. [49]

    The same issue was addressed as follows by Meagher JA (with the concurrence of Beazley and Giles JJA) in Old v McInnes and Hodgkinson:

11. [50]

    In that case, three persons carried on business as patent and trademark attorneys under the firm name Hodgkinson Old & McInnes. Following the dissolution of the partnership, an issue arose on the taking of accounts as to whether “an adjustment as between the partners should be included in the accounts for the partnership as at 30 June 2002 for the value of the goodwill of the HOM partnership upon the basis that the business continued to be conducted after 30 June 2003, in part by the entity Fraser Old & Sohn Unit Trust [in which Mr Old, one of the previous partners, was involved] and as to part by the Hodgkinson and McInnes partnership [in which the other two previous partners were involved].” Mr Old relied on the decision of the Full Court of the Supreme Court of South Australia in Walker v Martin (unreported, 23 December 1993) and as Meagher JA said:

12. [51]

    Meagher JA referred also to the rejection of this argument by the primary judge in Old v McInnes and Hodgkinson (Young CJ in Eq) and his Honour’s conclusion that the partnership business had come to an end, relying on observations of Needham J in Alcock v Robb (1978) 2 BPR 9625 at 9630. One of these observations was that “[i]f… the former partners decide to give up the business and go their separate ways, it seems to me that they destroy the goodwill of that business”. Meagher JA accepted that this was what had occurred in the case before him. He distinguished Walker v Martin on the basis that in that case there was evidence that patients of the medical partnership there under consideration were informed that the business of the partnership was to continue notwithstanding changes in the identity of the partners. The decision in Chia v Ireland [2000] SASC 47, also relied on by Mr Paltos in the present appeal, is distinguishable on a similar basis. In that case there was what Williams J, who gave the leading judgment, described as only a “technical dissolution” involving one partner leaving and the business continuing to be conducted by the remainder.

13. [52]

    In contrast, in Old v McInnes and Hodgkinson the partners agreed, to use the words of Needham J in Alcock v Robb, “to give up the business and go their separate ways”. Likewise, in the present case, the conduct of the parties and the intervention of the Court and of the Receivers had the same consequence – the business was “given up” and the parties went their “separate ways”, destroying the goodwill of the business.

14. [53]

    Consistently with Murry and Old v McInnes and Hodgkinson, some of the “assets” of the partnership that Mr Paltos alleged that Mr Milevski acquired (see [46] above) may individually have had some value. That value might take account of their “potential use” but only because it would be an “attribute of the asset” and not “an element of the goodwill” (Old v McInnes and Hodgkinson at [89] – see [49] above)

15. [54]

    On appeal counsel for Mr Paltos made it clear in oral argument that his case was not that value should have been attributed to individual “assets” in that list but that it was dependent upon establishing the proposition referred to above in [39] that Mr Milevski acquired “the whole business”, with the result that he acquired the goodwill and needed to account for its value. I have addressed, and rejected, that case above.

16. [55]

    For these reasons the primary judge’s “inclination” to think that the goodwill of the partnership practice was not transferred to MFL was well-founded and the orders that his Honour made were justified on that basis. I therefore uphold the Notice of Contention ground.

17. [56]

    Before leaving that issue, I should refer to this Court’s decision in Bartier Perry Pty Ltd v Paltos to which the primary judge referred (see [38] above). In that case, the Court was concerned with proceedings brought by Mr Paltos against his former solicitors for damages for negligence. In its decision the Court proceeded on the assumption, contrary to what I have found above, that the business of the partnership, including its goodwill, was transferred to Mr Milevski. The Court however emphasised at [177] that its judgment would not have any bearing on questions to be litigated in the present proceedings because of the different parties involved. The soundness of that proposition is confirmed by the fact that all parties in that case proceeded on the assumption that that transfer of goodwill to Mr Milevski did occur (see [180] and [207]). There was therefore no protagonist for the contrary view advanced, and accepted, in this case.

The appeal ground – Ms Conoulty’s valuation

1. [57]

   In light of my conclusion above on the Notice of Contention ground, the appeal against the primary judge’s orders fails and it is unnecessary to consider the soundness or otherwise of the ground advanced in the Notice of Appeal. Nevertheless, I state my views on the ground as follows.

2. [58]

   As earlier noted, the primary judge rejected the valuation of goodwill upon which Mr Paltos relied, being that of Ms Conoulty, and concluded that there was no other acceptable evidence before him to enable the value of the goodwill that Mr Paltos alleged that Mr Milevski acquired to be determined.

3. [59]

   The primary judge’s principal reason for rejecting Ms Conoulty’s valuation was that it proceeded upon the assumption, erroneous in his Honour’s view, that the purchaser of the goodwill of the partnership, as Ms Conoulty hypothesised, would have the benefit of covenants by the former partners of the business not to compete with that purchaser. Such a covenant, if reasonable in its duration and extent, is a valid means of protecting the goodwill of a business acquired by a purchaser (see Geraghty v Minter at 191).

4. [60]

   The primary judge did not err in finding that Ms Conoulty’s assumption was incorrect in light of the principles (see [25] and [26] above) stated in Trego v Hunt and Page v McKensey. On this issue, Mr Paltos emphasised that, where a business and its goodwill are sold, former partners may be restrained from soliciting the firm’s customers. However, as is clear from the speech of Lord Herschell in Trego v Hunt, the concept of solicitation is a narrow one because it is confined to the conduct of a person who “specifically and directly appeals to those who are customers of the previous firm” (see [25] above). As Windeyer J pointed out in Page v McKensey, former partners would nevertheless be able effectively to compete with a purchaser including by practising in the immediate vicinity (see [26] above).

5. [61]

   In oral argument Mr Paltos went further in relying on this Court’s decision in McFadden v Commissioner of Stamp Duties (NSW) (1980) 11 ATR 1 to assert that the hypothetical purchaser would in fact be protected against competition from the previous partners and that Ms Conoulty was accordingly correct to assume (without addressing the point) that such protection would exist. That decision does not however support the existence of such a broad protection. The Court in that case proceeded upon the basis that a purchaser would be protected to the extent described in Trego v Hunt, but did not suggest that the protection would be greater. Samuels JA referred to protection “against conduct by the vendors which would tend to depreciate what he has bought” and in this regard to “rules which forbid subsequent solicitation or unfair competition” (at 6). His Honour had earlier described the “unfair competition” to which he referred as carrying on business “in the [previous] firm name or in any other way likely to conduce to the belief that the business ‘was the same as, or a continuation of, the partnership business’” (at 4). Mahoney JA’s observations (at 8-9) were to similar effect.

6. [62]

   It follows that Ms Conoulty’s primary basis of valuation was flawed because there was nothing in it to suggest that she had taken into account that a hypothetical purchaser would not have the benefit of any express covenant against competition with the previous partners and that any other protection that would be provided by the law would be limited in the manner described in Trego v Hunt. One would expect those circumstances to be of critical importance to a purchaser but there was no evidence from either Ms Conoulty nor any other source of what a purchaser would be prepared to pay in light of them.

7. [63]

   Although in oral argument on appeal Mr Paltos appeared to eschew reliance on Ms Conoulty’s “asset-based” valuations (see [37] and [54] above), such reliance was arguably evident in his written submissions. As a result, I make the following comments in relation to those valuations.

8. [64]

   The principal “assets” that Ms Conoulty referred to were the active files that MFL acquired and subsequently worked on to generate fees. Ms Conoulty used the amount of the fees so generated as a basis for calculating a value of the files for which Mr Milevski should account. As the primary judge however correctly pointed out, fees later earned from the clients to whom the files related were not an accurate guide as to what a third party purchaser might have been prepared to pay for the files because it was, as it ought to have been, entirely open to the clients to keep Mr Milevski as their solicitor (rather than use the purchaser) or to seek legal services elsewhere. In these circumstances a third party purchaser would be unlikely to have bought the rights to the files in the expectation that it would earn the same amount in respect of the files as Mr Milevski did.

9. [65]

   Similarly, Ms Conoulty’s approach was flawed in respect of the other main “assets” (for example, the partnership’s staff, archived files, practice manual and precedents) because she directed her attention to what those items were worth to Mr Milevski, in terms of what work or expenses their acquisition saved him, rather than considering what a third party purchaser might have paid for them.

10. [66]

    Similar considerations answer Mr Paltos’ reliance on other evidence before the primary judge to attempt to prove the value of the partnership’s goodwill.

11. [67]

    First, the fact that Mr Milevski paid a substantial sum to join Mr Paltos in partnership in June 2010 does not assist Mr Paltos on this question because one of the terms agreed between them was that if one of them wanted to “exit the partnership he will agree to enter into a reasonable non-compete or restraint of trade agreement mutually acceptable to both parties”. Thus the goodwill that Mr Milevski acquired was protected and therefore presumably retained significant value. In the circumstances that occurred, no such restraint was entered. There was no claim in this matter for breach of contract.

12. [68]

    Secondly, the Put and Call Agreement also entered into in June 2010 between Mr Paltos and Mr Milevski provided for substantial sums to be paid on the exercise of options in relations to interests in the partnership but the options were only able to be exercised in the event of the death or total and permanent disablement of one of the partners. If such an event occurred, the value of the remaining partner’s goodwill would be protected because of the inability of the other, through death or total and permanent disablement, to compete against him.

13. [69]

    Thirdly, Mr Paltos relied upon the profitability of the partnership in the years prior to its dissolution. That submission however did no more than implicitly repeat the primary basis upon which Ms Conoulty valued the goodwill and, as in the case of her valuation, did not address the question of what a hypothetical purchaser would have paid for the business and its goodwill in the absence of a non-compete covenant.

14. [70]

    Finally, Mr Paltos relied on the principle that the Court “must do the best it can” to assess the quantum of a claim. In Placer (Granny Smith) v Thiess Contractors [2003] HCA 10; (2003) 77 ALJR 768, Hayne J at [38] (with the concurrence of Gleeson CJ, McHugh and Kirby JJ) indicated that “estimation, if not guesswork” is more likely to be appropriate in a case where a plaintiff cannot adduce precise evidence of its loss rather than one in which “although apparently able to do so, the plaintiff has not adduced such evidence” (see also Admiral International Pty Ltd [2022] NSWCA 277 at [270]). Here, the question of whether purchasers of solicitors’ practices ordinarily regard the presence or absence of a vendor’s non-compete covenant as significant could conceivably have been addressed by evidence. In the absence of such evidence, I do not consider it appropriate to assume the correctness of, what appears to me to be, the unlikely proposition that it is not significant.

ORDERS

1. [71]

   For these reasons, the appeal should be dismissed. I propose the following orders:

   1. (1)

      Dismiss the appeal, with costs.

   2. (2)

      Dissolve the stay granted on 15 August 2022, of the judgment and orders below.

   3. (3)

      Order that the sum of $25,000 paid by the appellant by way of security for costs of the appeal be released to the respondent.

2. [72]

   KIRK JA: I have had the privilege of reading the judgment of Macfarlan JA in draft. I agree with the orders his Honour proposes, for the reasons his Honour gives.

3. [73]

   BASTEN AJA: I agree with Macfarlan JA.