Court of Appeal (WA)|2015-07-16|Before: Lure P, Buss JA, Murphy JA

BELGRAVIA NOMINEES PTY LTD -v- LOWE PTY LTD [2015] WASCA 143 (16 July 2015)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : BELGRAVIA NOMINEES PTY LTD -v- LOWE PTY LTD [2015] WASCA 143

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : BELGRAVIA NOMINEES PTY LTD -v- LOWE PTY LTD [No 2] [2014] WASC 315

Practice and procedure - Application by plaintiff to join a party jointly entitled to the claimed relief - Plaintiff and proposed party to be joined were partners in a partnership - Partnership dissolved prior to commencement of proceedings

A v Corruption and Crime Commissioner [2013] WASCA 288

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) [2009] HCA 41; (2009) 239 CLR 27

Beak v Beak (1674) 3 Swan 627; [1675] EngR 1865; 36 ER 1000

Belgravia Nominees Pty Ltd v Lowe Pty Ltd [2014] WASC 225

Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 2] [2014] WASC 315

Burnside v Harrison Marks Productions Ltd [1968] 1 WLR 782

Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd [1985] HCA 13; (1985) 155 CLR 541

Coulls v Bagot's Executor and Trustee Co Ltd [1967] HCA 3; (1967) 119 CLR 460

Court v Berlin [1897] 2 QB 396

Cullen v Knowles [1898] 2 QB 380

Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62

Don King Productions Inc v Warren [2000] Ch 291

Duncan v The MFV Marigold PD 145 [2006] ScotCS CSOH_128; [2006] CSOH 128

Ellis v Kerr [1910] 1 Ch 529

Grizonic v Suttor [2011] NSWSC 471

Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29

Heydon's Case (1584) 3 Co Rep 7a, 7b; 76 ER 637

Hurst v Bryk [2002] 1 AC 185

Inland Revenue v Graham's Trustees [1971] SLT (46)

Johnson v Stephens & Carter Ltd & Golding [1923] 2 KB 857

Pelechowski v Registrar, Court of Appeal (NSW) [1999] HCA 19; (1999) 198 CLR 435

Proudfoot v Bank of New Zealand [1885] NSWLawRp 38; (1885) 6 LR (NSW) 170

Queensland Southern Barramundi v Ough Properties Pty Ltd [2000] 2 Qd R 172

Rajski v Computer Manufacture & Design Pty Ltd [1981] 2 NSWLR 798

Rodriguez v Speyer Bros [1919] AC 59

Rose v Federal Commissioner of Taxation [1951] HCA 68; (1951) 84 CLR 118

Seal & Edgelow v Kingston [1908] 2 KB 579

Sutherland v Gustar (Inspector of Taxes) [1994] Ch 304

1 McLURE P: I agree with the orders proposed by Murphy JA. I can shortly state my reasons.

2 The primary issue in the appeal is whether, following dissolution of a partnership, s 49 of the Partnership Act 1895 (WA) (the Act) is the exclusive source of a partner's right to bring proceedings to recover partnership property. Section 49 relevantly provides:

After the dissolution of a partnership, the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.

3 To answer that question it is necessary to identify the partnership property in question and the ownership of and interests in the partnership property.

4 It is sufficient for present purposes to note the following. The appellant (Belgravia) pleads that it and Penhurst Nominees Pty Ltd (Penhurst) carried on the business of trading in land in partnership (the partnership); in August 1999 the partners and another entered into an agreement appointing the first respondent (Lowe) their agent to manage the subdivision, development and sale of land (agency agreement); at all material times the second respondent (Heath) was a director of Belgravia and Lowe; between April 2006 and January 2012 the partnership made payments to Lowe totalling around $4.3 million; the partnership was dissolved in June 2012.

5 Belgravia pleads multiple causes of action against Lowe and one against Heath. In particular, Belgravia claims against Lowe damages for breach of the agency agreement and, in addition, claims the sum of $4.3 million as a statutory debt pursuant to s 60(4) of the Real Estate and Business Agents Act 1978 (WA) (REBA Act) on the ground that Lowe's appointment as agent was invalid. Belgravia claims against Heath that, in his capacity as a director of Belgravia, he contravened s 181 and s 182 of the Corporations Act 2001 (Cth).

6 The first issue is whether the claims in the action are mere expectancies or a chose in action. A chose in action is a personal right of property which can only be claimed or enforced by action, as distinct from taking physical possession. A mere expectancy is the possibility of a future right. As to which, see Heydon JD, Leeming MJ, Turner PG, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2015) 6-190, 6-200.

7 Each of the following is both a chose in action and property of the partnership:

(1) the partnership's interest in the agency agreement;

(2) the partnership's accrued right to take legal action against Lowe for damages for breach of the agency agreement;

(3) the partnership's accrued right to take legal action to recover a statutory debt under s 60(4) of the REBA Act.

8 For myself, I would not characterise the claim against Heath for breach of his director's duties as partnership property. However, nothing turns on that.

9 The rules of equity and common law applicable to partnership continue in force except so far as they are inconsistent with the express provisions of the Act (s 6).

10 A partnership is not a separate legal entity; it is the partners as a whole. A partner's interest in partnership assets is a present, equitable chose in action, being a right to its proportion of the surplus after the realisation of partnership assets and payment of its debts and liabilities: s 33 of the Act; Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 [40] - [42]. Partners are not entitled, in their individual capacity, to exercise proprietary rights over any partnership asset: Hancock Prospecting [42]. All the partners together hold the partnership property jointly and exclusively for the purposes of the partnership: s 30(1) of the Act; Rodriguez v Speyer Bros [1919] AC 59, 89; Don King Productions Inc v Warren [2000] Ch 291. It is unnecessary to determine whether the partnership property is held jointly as trustees or alternatively, as joint tenants.

11 Thus, the partnership's accrued rights to take action against Lowe for breach of the agency agreement and to recover the statutory debt are held jointly by Belgravia and Penhurst. Under O 18 r 4(2) of the Rules of the Supreme Court 1971 (WA) (the Rules), Penhurst must be joined as a plaintiff with its consent, or absent its consent, made a defendant. That rule applies where the plaintiff in any action claims relief to which any other person is entitled jointly with him.

12 The requirement to join Penhurst flows from the nature of, and interests in, partnership property and the general and statutory law governing the enforcement of joint rights of action in judicial proceedings.

13 Belgravia is suing in its capacity as a partner of the partnership at the time the causes of action accrued. All its relevant rights and entitlements as a partner had accrued prior to the dissolution. The capacity in which it sues makes it a joint holder of the claims. However, it is its status as a joint holder of property that is the source of its entitlement to unilaterally bring proceedings if other non-consenting joint holders are made a defendant.

14 The outcome in this case does not depend upon the existence of the agency powers that a partner has under s 26 of the Act and the general law during the currency of the partnership which are continued, for the purposes of winding up the partnership, under s 49 of the Act.

15 That is, s 49 is not the exclusive source of a partner's accrued right to take legal proceedings in respect of partnership property after the dissolution of the partnership.

16 In the circumstances, I would reserve my position on the proper construction of s 49 of the Act.

17 BUSS JA: I agree with the orders proposed by Murphy JA for the reasons given by McLure P.

18 This is an application for leave to appeal from an interlocutory decision of Master Sanderson. The learned master dismissed an appeal from a registrar in respect of a decision by the registrar to dismiss an application by the appellant to join a party to the proceedings. The party proposed to be joined was Penhurst Nominees Pty Ltd (Penhurst). The proposed joinder was under O 18 r 4(2) of the Rules of the Supreme Court 1971 (WA).

19 The disposition of this simple interlocutory application was, in effect, blown off course by a side wind concerning the proper construction and application of s 49 of the Partnership Act 1895 (WA) (the Act).

20 For the reasons which follow, leave to appeal should be granted, and the appeal should be allowed.

21 The proceedings as constituted at the time of the application for joinder concerned, relevantly, the appellant (Belgravia) and another party (Joondel) as plaintiffs; the first respondent (Lowe) as first defendant and the second respondent (Heath) as second defendant (the respondents).

22 By a statement of claim dated 20 March 2014, Belgravia alleged, amongst other things, that:

(a) by an agreement made 26 August 1999 (Agency Agreement) between Belgravia, Joondel, Penhurst and Lowe;

(i) Belgravia, Joondel and Penhurst appointed Lowe to act for them as project manager in relation to the subdivision and development of various properties and the sale of the subdivided properties; and

(b) the appointment was not a 'valid' appointment, in consequence of the operation of the Real Estate and Business Agents Act 1978 (WA);

(d) in the premises, Lowe was not entitled to the monies and should be ordered to repay them as a statutory debt or by way of money had and received; and

(e) Heath, a director of Lowe, Belgravia and Joondel also acted in breach of statutory duties in causing Belgravia and Joondel to make the payments pursuant to the purported Agency Agreement, for which he was liable to pay compensation.

23 Objections were taken to the plaintiffs' pleading by the solicitors for the respondents on the basis that:

Unless Penhurst is joined as a plaintiff, the claim by Belgravia cannot proceed because it is common ground that Belgravia and Penhurst made those payments as partners.[1]

24 Belgravia consequently proposed to amend the statement of claim in terms of a document dated 8 April 2014, a copy of which was annexed to an affidavit of Ms Godecke sworn 16 April 2014 which supported the application to join Penhurst as a third defendant.

25 Paragraphs 8 and 10 of the proposed amended pleading alleged that:

(a) Belgravia and Penhurst had at all material times carried on business in partnership as property developers;

(b) the partnership was dissolved by agreement in June 2012; and

(c) it was a term of the Agency Agreement that Joondel, Penhurst and Belgravia 'jointly and severally appointed Lowe to be the sale ... manager and selling agent of their respective interests in the properties' to be listed in the Agency Agreement and any other properties acquired by them in the future.

26 Paragraph 13 of the proposed plea included an allegation that the particularised payments received by Lowe under the Agency Agreement were received by Lowe 'in equal shares' from Belgravia and Penhurst.

27 Ms Godecke, in her affidavit in support of the application to join Penhurst as a third defendant, verified the contents of the proposed statement of claim.

28 The application for joinder, by chamber summons dated 17 April 2014, sought orders to the effect that Penhurst be joined as a third defendant to the proceedings. The grounds for the application were stated to be:

[Belgravia] claims relief to which [Penhurst] is entitled jointly with [Belgravia] pursuant to a partnership which existed between them and by virtue of O 18 r 4(2), [Penhurst] is required to be a party to these proceedings;
[Penhurst] does not consent to being joined to these proceedings as a plaintiff and is required to be joined as a defendant pursuant to O 18 r 4(2).

29 The chamber summons, in its terms, indicated that it was to be served on Penhurst.[2] Also, in the attached memorandum of conferral,[3] the solicitors for Belgravia referred to communications with the solicitors for certain directors of Penhurst in relation to seeking Penhurst's consent to the joinder.

30 In the original decision,[4] Registrar Boyle said:[5]

The following facts are either common ground, or it is accepted that for the purposes of this application they are to be taken as correct:

Belgravia and Penhurst carried on a partnership engaging in land trading.
The partnership entered into an agreement with the first defendant (Lowe) under which the first defendant by its agent and principal actor the second defendant (Mr Heath) was to provide certain services to the partnership in respect of its land.
Pursuant to that agreement between April 2006 and January 2012 the partnership made payments to Lowe totalling a little over $4.3 million.
The partnership was dissolved in June 2012.

Belgravia sues by a writ issued on 18 October 2013, claiming that Lowe was prohibited by certain provisions of the Real Estate and Business Agents Act 1978 (WA) from receiving those payments. The exact basis of that claim does not matter for present purposes. The claim is that by virtue of certain other provisions of the legislation, Mr Heath is personally liable jointly and severally with Lowe to refund the $4.3 million paid, together with interest. Again, for present purposes, the exact nature of the personal claim against Mr Heath is not material.

The claim is for monies claimed to be due to the dissolved partnership. It seeks to enforce a right belonging to the partnership, not to the first plaintiff alone.

The second plaintiff (Joondel) was a party to the agreement between the partnership and Lowe. For the purposes of this act of the drama, Joondel may be treated as background furniture only.

31 The registrar referred to s 49(1) of the Act (set out in [42] below).[6]

32 The registrar said that, relevantly, Belgravia accepted that the pursuit of the action 'could not be classified as acts to complete transactions begun but unfinished' within the meaning of s 49(1) of the Act.[7] As to the submission[8] that the pursuit of the action fell within the words 'so far as may be necessary to wind up the affairs of the partnership' within the meaning of s 49(1) of the Act', the registrar said:[9]

I think otherwise. The statement of claim discloses the nature of this action. Not only is this not an action to complete a transaction, it is in fact an action to undo a completed transaction and recover monies paid under that transaction by a form of statutory restitution.

That is an action of a kind that might be undertaken by a receiver of the partnership, or by the partners in agreement in the course of a winding up. However, it cannot even arguably be described as an action of a type 'necessary' in a winding up. That is, the partnership might be wound up without this action.

Obviously, if this action was successfully prosecuted and the monies paid recovered, the outcome of the partnership winding up would be different: the partnership would be better off by $4 million or so. But that is not to say the action is 'necessary' for the winding up. There may be room for argument about where the boundary of necessity may be. (It may be a fractal basin boundary: legal distinctions often are). But it seems to me that the language of s 49(1) imports the strictest kind of necessity, of the 'but for' or 'without which not' type. Wherever the limit of that necessity lies, this action is clearly outside it.

It therefore appears to me that the first plaintiff did not have authority under s 49(1) of the Partnership Act to commence this action. It is not even an arguable proposition. That want of authority cannot be cured by joining a former partner as a defendant.

33 There was an appeal by Belgravia to the master. The learned master dismissed the appeal.[10] The master observed:[11]

The outcome of the application and this appeal depended upon the proper interpretation of s 49(1) of the Partnership Act.

...

As the learned registrar pointed out there are two, and only two, circumstances when the authority of partners to bind the firm continues after dissolution of the partnership. The first is 'so far as may be necessary to wind up the affairs of the partnership'. The second is 'to complete transactions begun but unfinished at the time of dissolution'. The learned registrar concluded the second of these two circumstances did not apply in the present case. That decision was not challenged on appeal. The learned registrar determined the present action was not necessary to wind up the affairs of the partnership. It was that finding which was challenged on appeal. The learned registrar stated his conclusions quite succinctly, he said:

'The statement of claim discloses the nature of this action. Not only is this not an action to complete a transaction, it is in fact an action to undo a completed transaction and recover monies paid under that transaction by a form of statutory restitution [21].'

It is true if the action presently on foot were pursued to its conclusion then funds would come back to the partnership and those funds would have to be distributed to the former partners in conformity with the requirements of the Act. But there is no guarantee the action will be successful. These proceedings do not have to be taken to bring to a conclusion the affairs of the partnership. In my view the plaintiffs cannot maintain the action and the learned registrar was right to refuse leave.

The second point is that the plaintiffs here are not left without a remedy. A receiver can be appointed to the affairs of the partnership and if the receiver takes the view action against the present-named and proposed defendants is warranted, then those proceedings can be issued. In my view that is the way the matter ought be approached. It will ensure the interests of the partners are properly protected.

36 Belgravia applied, by application dated 19 March 2015, to further amended its amended grounds of appeal. The minute which was filed is in the following terms (the proposed additional amendments being underlined):

The learned Master erred in law and in fact in finding that the Appellant (Belgravia Nominees Pty Ltd) did not have authority to commence the proceedings against the respondents and that its proceedings against the respondents were not competent, whereas he should have found that:

(a) Belgravia did not seek to sue in the name of the dissolved partnership between Belgravia and Penhurst Nominees Pty Ltd (Penhurst);

(b) section 49(1) of the Partnership Act 1895 (WA) was irrelevant to the question of whether Belgravia's proceedings against the respondents were competent and whether Penhurst should be joined as a defendant in the proceedings;

(c) Belgravia's action against the respondents was competent in that it was entitled to commence and maintain proceedings against the respondents in its own right and it required neither the consent nor the authority of Penhurst to do so; and

(d) as Belgravia's causes of action against the respondents sought relief to which Belgravia and Penhurst were entitled jointly, or Penhurst otherwise had an interest in the relief sought and as Penhurst did not wish to join Belgravia in the action as plaintiff, Penhurst should be joined as a defendant to the proceedings.

1A. Further and in the alternative, the learned Master erred in law and in fact in finding that the appellant's proceedings against the respondents were not necessary to wind up the affairs of the partnership within the meaning of s 49(1) of the Partnership Act, whereas the learned Master ought to have found that if s 49(1) of the Partnership Act applied at all then the appellant's proceedings against the respondents are necessary to wind up the affairs of the partnership within the meaning thereof.

1B. Further and in the alternative, the learned Master erred in law and in fact in summarily determining against the appellant the question of whether the appellant's proceedings against the respondents were maintainable, whereas the learned Master ought to have found that if there was any doubt as to that question it should be determined following trial.

By reason of the learned Master's errors of law and fact referred to in grounds 1, 1A and/or 1B, he misdirected himself and took into account irrelevant considerations and failed to have regard to relevant considerations in the exercise of his discretion and, thereby, he failed to order, as should be ordered, that Penhurst be joined as a defendant to the proceedings.

37 The respondents opposed the application to amend essentially on three bases. First, the respondents contend that proposed ground 1A raises for the first time in the appeal arguments of a kind advanced by Belgravia in the court below, and Belgravia's reliance up to this point on ground 1, which is inconsistent with ground 1A, signifies an abandonment of such arguments in the appeal. The respondents contend that in the circumstances, the application should be dismissed on the basis that it is effectively an application for an extension of time to appeal, for which no proper grounds are shown. Secondly, the respondents say that similarly, the argument raised by ground 1B was not advanced in the court below and should not now be permitted to be ventilated. The respondents also say that had the point in ground 1B been raised below, the respondents would have adduced further material as to why it was appropriate to resolve the matter at that point, rather than leave it for determination at a trial. Thirdly, the respondents contend that in any event, the proposed grounds have no merit.

38 Beyond their resistance to the application to amend, the respondents also contend that the grant of leave to appeal should, in any event, be refused on the basis that no substantial injustice would be done if leave was refused. In this regard the respondents say that Belgravia would not be left without a remedy in that s 50 of the Act would permit the appointment of a receiver and, if sufficient grounds were shown, the receiver could pursue the claims made by Belgravia in these proceedings.

39 The points raised by the respondents on the merits of the appeal involved, essentially, the following propositions:

(a) After dissolution and prior to the filing of final accounts, a partner is not entitled to exercise any proprietary rights against any partnership asset. Reference was made to the observations of McLure P in Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd:[14]

Partners are not entitled in their individual capacity to exercise proprietary rights over any partnership asset: Re Fuller's Contract [1933] Ch 652, 656; Inland Revenue Commissioners v Gray [1994] STC 360, 377. As a consequence, the interest of a partner in an asset of the partnership is characterised as equitable, sui generis and of a non-specific kind: Canny Gabriel (328). Each partner has an undivided interest in the whole of the assets of the partnership. The interest of a partner in partnership assets is not a fixed proportion of each item nor is it an immediately ascertainable quantity of the item; it is an indefinite and fluctuating interest.

(b) In the absence of consent by the other partner, Penhurst, any right of Belgravia to bring the proceedings was 'regulated' by s 49 of the Act.[15]

(c) By s 49 of the Act, Belgravia could only commence the action if it 'were necessary to wind up the affairs of the partnership' within the meaning of s 49.

(d) The words in s 49 are limited in the scope of their operation. Relevantly, what is 'necessary to wind up the affairs of the partnership' includes the recovery of the debts of the firm,[16] however, 'debts' for this purpose are confined to liquidated sums presently due and payable in respect of which there is no, or at least no genuine, dispute. Beyond that, if one partner seeks to recover a partnership asset by the commencement of proceedings in the name of the firm, but the other partner does not agree to lending his or her name to the action, the only, or the only appropriate, course for the partner seeking to recover the asset, is to apply for the appointment of a receiver under s 50 of the Act. Particular reference was made to Butchart v Dresser.[17]

(e) The pursuit of other claims, such as for unliquidated damages, are not necessary to wind up the affairs of the partnership because such claims may be sold, for example, by a receiver appointed under s 50.

(f) The commencement of the cause of action by Belgravia, at least to some extent, is analogous to the pursuit of a claim for an expectancy, and a claim of that nature is not comprehended by the phrase 'necessary to wind up the affairs of the partnership'.[18]

40 It may be noted at this point that Butchart involved a dispute between the partners concerning a pre-dissolution transaction. The partners were sharebrokers. Before dissolution, one of them, Mr Tempest, had entered into contracts for the purchase of certain shares on behalf of the firm. After dissolution, he borrowed money from the former firm's bank to enable the purchase to be completed. He secured the borrowing by depositing the shares with the bank as security, and gave instructions in the name of the firm authorising the bank to sell the shares. Pursuant to those instructions, the bank sold the shares. The other partner subsequently sued the bank on the basis that the firm had not authorised the deposit of the shares or their subsequent sale. That partner contended that the purchase of the shares should not have been completed, and that the 'shares should be thrown back on the hands of the vendors'. Turner LJ (with whom Knight Bruce LJ concurred) said:[19]

The general law is clear, that a partnership, though dissolved, continues for the purpose of winding up its affairs. Each partner has, after and notwithstanding the dissolution, full authority ... to deal with the property of the partnership, for partnership purposes, as he had during the continuance of the partnership. This must necessarily be so. If it were not, at the instant of the dissolution, it would be necessary to apply to this Court for a receiver in every case, although the partners did not differ on any one item of the account. Nor is there any inconvenience in this state of the law; for it is competent to any partner to apply, in case of necessity, for a receiver, and to have the affairs of the partnership wound up under the direction of this Court, and thus to prevent his partner from exercising unduly any power which he has as a partner.

...

The question arises whether Mr Tempest had authority to raise money for the purpose of completing the purchases. If the partnership had continued there could have been no doubt on the subject, and I think that there is no doubt that it subsisted after dissolution for the purposes of the contracts entered into during its continuance. The true solution of the question is, that if the Plaintiff [the other partner] had reason to complain of the acts of his partner [Mr Tempest], his proper course was to apply to this Court for a receiver.

41 It is convenient, at this point, to refer to the relevant provisions of the Act concerning the authority of a partner. Section 26 of the Act provides:

Subject to the provisions of this Act, the acts of every partner who does any act necessary for or usually done in carrying on business of the kind carried on by the firm of which he is a member shall bind his partners to the same extent as if he were their agent duly appointed for that purpose; unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing -

(a) knows that he has no authority; or

(b) does not know or believe him to be a partner.

42 Section 49(1), upon which Belgravia's application for joinder foundered in the court below, provides:

After the dissolution of a partnership, the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.

43 In Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd,[20] the High Court observed, with reference to the New South Wales statutory equivalent[21] of s 26 of the Act:

Both at common law and under the provisions of the Partnership Act 1892 (NSW) (the Act), a partner has prima facie actual authority to act as an agent of the firm and his other partners for the purposes of the business of the partnership: see, eg, Cassels v Stewart; Birtchnell v Equity Trustees, Executors and Agency Co Ltd; the Act, s 5 [s 26 of the Act]. That prima facie authority can however, both at common law and under the Act, be negated or qualified by contrary agreement among the partners.

...

It can be seen that s 5 [s 26 of the Act] comprises two distinct limbs. The first deals with actual authority. It provides not that every partner is deemed to be an agent of the firm and his other partners for the purposes of the partnership business but that every partner is an agent of the firm and his other partners for that purpose. The actual authority to which it refers is, however, but prima facie in that it may be negated or qualified by contrary agreement of the partners ... In substance, that first limb states the common law.

...

The second limb of s 5 [s 26 of the Act] deals with ostensible authority. Even though actual authority be lacking, the act of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member binds the firm and his partners unless the other party 'either knows that he has no authority, or does not know or believe him to be a partner'. Again, this limb effectively states the common law. (original emphasis) (footnotes omitted)

44 Prior to the Judicature Act of 1873, the old common law rule was that generally speaking, one joint promisee could not join another joint promisee as co-plaintiff in an action against a defendant promisor, unless the other joint promisee consented.[22] In the absence of the joint promisee's joinder, the action was not properly constituted and could not be maintained at law.

45 The practice of Chancery, on the other hand, was that where a covenantor covenanted with two persons jointly, and one of the two joint covenantees refused to sue at law, the court would allow one covenantee to sue the covenantor, making the co-covenantee a party to the action.[23] The basis for the practice was that Chancery treated the co-covenantees as trustees for themselves and each other, and Chancery would not allow a co-covenantee to refuse to join in an action into which, in all honesty, he was bound to join for the benefit of both.[24]

46 Since the Judicature Act of 1873, an action was not to be defeated by the non-joinder of the parties.[25] Following the influence of Chancery, the old common law rule was superseded. The position at law emerged that a joint promisee could be allowed to join his or her co-promisee in an action, contrary to the wishes of the co-promisee. Generally, this required the plaintiff joint promisee, to indemnify the co-promisee as to his or her costs, and if the co-promisee still refused to be joined as a plaintiff, then the co-promisee could be added as a defendant.[26]

47 With reference to that practice, in Johnson,[27] Younger LJ observed that:

[T]he statement of claim also contains a claim against the defendant company for breach of contract made by them with two joint contractors, of whom the plaintiff is one; and the other joint contractor having refused to join in the action the plaintiff has added him as a defendant in respect of that claim. The question then arises as to the circumstances in which one of two joint contractors is entitled to maintain an action in that form. Now I think it is clear that he has no absolute right to do so, and that he is only allowed to take that course as a matter of privilege and upon terms. What then are the terms on which that privilege is to be enjoyed? Speaking for myself I should prefer not to say that the condition of his being allowed to join the other joint contractor as a defendant is that he shall have offered him an indemnity against costs if he will allow the use of his name as plaintiff, but to state the principle rather more widely, and say that before joining his co-contractor as a defendant he must first have exhausted all reasonable means of obtaining his consent to being joined as plaintiff. No doubt in ninety-nine cases out of a hundred one of those reasonable means is the offer of an indemnity, and the absence of such an offer unexplained would in these cases be a reason for saying that the action was not properly constituted if the co-contractor was joined as a defendant. But in the hundredth case, and the present case is an instance, where the co-contractor is alleged in breach of his duty to the plaintiff to have colluded with the other party to the contract and procured a breach of it, it would not be reasonable to require the plaintiff to offer him an indemnity as a condition of being allowed to join him as a defendant. (emphasis added)

48 The italicised part of that passage was cited with approval by Needham J in Rajski v Computer Manufacture & Design Pty Ltd.[28]

49 This practice of having a joint promisee added as a defendant eventually became embodied in the English rules of court in 1962.[29] In this State, the local equivalent is O 18 r 4(2) of the Rules of the Supreme Court 1977 (WA), which provides:

Where the plaintiff in any action claims any relief to which any other person is entitled jointly with him, all persons so entitled must, subject to the provisions of any Act and unless the Court gives leave to the contrary, be parties to the action and any of them who does not consent to being joined as a plaintiff must, subject to any order made by the Court on an application for leave under this subrule, be made a defendant.

This subrule shall not apply to a probate action.

50 The general effect of such a rule is that the unwilling plaintiff who is jointly entitled to the relief must be joined as a defendant subject to the power of the court to give leave to the contrary.[30] It will generally be relevant, on an application to the court under the rule, to consider whether the plaintiff has first sought to obtain the consent of the other person to join in the action as a co-plaintiff, on the basis of offering him or her an indemnity as to costs. But, the unwilling plaintiff need not necessarily be offered an indemnity as to costs before being so joined.[31]

51 Order 18 r 4(2), as a rule relating to joinder, should be interpreted liberally so as to permit joinder of parties whenever reasonably possible.[32]

52 Moreover, the offer of an indemnity as to costs is for the protection of the other joint contractor, ie, the prospective co-plaintiff. A defendant is not entitled to insist that the plaintiff should first make such an offer before joining the joint contractor.[33]

53 However, the old common law rule referred to in [44] above did not apply where the co-contractors were partners. Since at least the 1834 decision of Whitehead v Hughes (a decision in the Exchequer, not Chancery),[34] it was recognised that, prima facie, a partner had, under the general law, actual authority, arising from the agency relationship of the partners, to commence proceedings in the names of the partners, or in the name of the firm (the two are the same) without first seeking the consent of his or her co-partners. But if the co-partners did not consent to the bringing of the action, they could apply to the court for an indemnity against the costs to which they might be subjected by the use of their names.[35]

54 In Proudfoot, Martin CJ (with whom Innes J concurred) said:[36]

There can be no doubt, on the authority of the case of Whitehead v Hughes, that when persons are in partnership, any one of them may bring an action in the partnership name without the express consent of the others. It is not necessary that one of them, going to an attorney with instructions to bring an action, should be armed with the authority of his co-partners to do so. But there is a right reserved to any one of these partners, dissenting from the bringing of the action, to take steps to have proceedings stayed until security is given for the costs which he may be called upon to pay. Upon making such an application, the Court or a judge cannot go into an inquiry whether the partnership exists, or whether the contract sued upon is a joint one or not. Such a course would be inconvenient, and if the existence of the partnership is denied, it might be equivalent to trying the action. (footnotes omitted)

55 Presumably, however, the partner's prima facie actual authority was nevertheless subject to any provision in the partnership agreement to the contrary.

56 As the old Exchequer case of Whitehead indicates, the prima facie right of the partner to use the names of the other partners in proceedings, subject to the others applying for an indemnity if they objected to their names being used, continued after the dissolution of the firm. In Whitehead, dissolution occurred through the bankruptcy of one of the partners. Similarly, Court, Seal and Rodriguez, all concerned cases where a partner was suing after the dissolution of the partnership. In Coulls, Windeyer J referred with evident approval[37] to the decisions of Whitehead[38] and Rodriguez.

57 It is also to be recalled that under Anglo-Australian law (unlike Scottish law) a partnership is not a distinct legal entity, and thus does not cease to exist as a legal person upon its termination.[39] A cause of action accruing to a partnership prior to its dissolution is joint property of the firm and each partner, whether in an action commenced before or after dissolution of the partnership, is jointly entitled to the relief sought. As a matter of principle, accordingly, the observations of Lord Atkinson in Rodriguez[40] with respect to choses in action concerning debts due to the partnership apply equally to other choses which are the property of the firm:

The partners who, after dissolution, sue for a debt due to the firm, and therefore forming part of its assets, cannot be treated as the beneficial owners of the debt. It may, if recovered, increase the share of assets ultimately divisible amongst them on taking the final account. Or it may decrease the amount they have to pay to the creditors of the firm should it prove insolvent. So that the right, by virtue of which the plaintiffs sue in this action to recover the sum sued for, is precisely the same in character and nature as that by virtue of which they could have sued to recover it had the partnership not been dissolved. The fact that the attempt to recover the money is a step in the winding up of the partnership business cannot alter the character in which they sue - namely, that of creditors to whom a debt is jointly due.

58 The consequences of the dissolution should also be recalled. In Hurst v Bryk,[41] Lord Millett observed:[42]

When a partnership is dissolved, its affairs must be wound up. This is the responsibility of the partners themselves. There is no provision for it to be undertaken by an office holder, though any of the parties can apply to the court for the appointment of a receiver if this is necessary to preserve the partnership assets.

...

The winding up of a partnership involves the realisation of the firm's assets, the ascertainment and discharge of its liabilities, and the adjustment of accounts between the partners so that the profits can be distributed to them or the losses borne by them in the appropriate shares. (emphasis added)

59 Against this background it is appropriate to refer again to s 49(1) of the Act (set out in [42] above).

60 Hayne, Heydon, Crennan and Kiefel JJ observed in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) that:[43]

The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy. (footnotes omitted)

61 'Mischief' in this sense includes the common law position before the making of the Act.[44]

62 An extensive review of the history of, and authorities dealing with, the English equivalent of s 49[45] was undertaken in Duncan v The MFV Marigold PD 145.[46] In the course of the review in that case, the court observed[47] that the English equivalent of s 49 of the Act (s 38) was modelled on cl 35 of Sir Frederick Pollock's partnership bill in 1879, together with a corresponding provision (s 263) of the Indian Contract Act 1872. The view has been expressed by the learned author of 'The Law of Partnership in Australia'[48] that s 49 'appears to make little or no change in the pre-existing law'.

63 It is unnecessary for present purposes to determine the metes and bounds of s 49 of the Act. Nor is it necessary to reach a final view of the meaning of the word 'necessary' as it appears in s 49(1). Nevertheless, I would observe, on a preliminary basis, that I am not persuaded by the registrar's view that the word 'necessary' in s 49 imports the 'strictest kind of necessity'. The section does not use the language of 'strictly' necessary, let alone other language denoting the 'strictest kind of necessity'. That would appear to me to put a gloss on the provision.

64 The meaning of the word 'necessary' is to be determined having regard to the statutory context and purpose.[49] Its meaning may include 'reasonably required' rather than 'essential', and that it is to be 'subjected to the touchstone of reasonableness'.[50]

65 Having regard to the common law position referred to earlier; the context of s 49 within the Act as a whole, its evident relationship with s 26 in particular on the topic of agency; and the conjunction of the word 'necessary' with the phrase 'to wind up the affairs of the partnership'; I would have thought that the better view is that the word 'necessary' in s 49(1) of the Act is to be understood in the sense of reasonably required.

66 Moreover, on any view of the word 'necessary', I would have thought that it is 'necessary' to get in the firm's assets to undertake a winding up of the firm. Upon dissolution, the partner's right and duty is to wind up the partnership affairs.[51] A partner commencing proceedings, following a general dissolution, for relief to which the partnership is entitled arising from causes of action accruing prior to its dissolution would, in the language of Farwell LJ in Seal,[52] ordinarily be 'endeavouring to get in the firm's assets', absent proof of any collateral purpose.

67 That conclusion is consistent with the observations of de Jersey CJ in Queensland Southern Barramundi v Ough Properties Pty Ltd[53] with respect to the corresponding Queensland provision:

[It] operates to continue the authority of each partner to bind the former firm so far as may be necessary to wind up its affairs. I accept that that includes the authority to start a claim as necessary in the firm name.[54]

68 However, it is unnecessary to reach a final view on these matters because the disposition of this appeal does not depend upon the proper construction and application of s 49 of the Act.

69 The 'ordinary position' (as de Jersey CJ described it in Queensland Southern Barramundi) is that utilising O 18 r 4(2), Belgravia could always sue in its own name and right for the relief to which it was (allegedly) jointly entitled, joining Penhurst as a defendant if it did not consent. Any proceeds of the action, by judgment or settlement, would be held by Belgravia on trust, to be disposed of in the course of the winding up of the partnership in the usual way. On the proper construction of the proposed statement of claim and the application to amend, that is what Belgravia sought to do. It did not purport to sue in the name of the firm or the partners of the firm.

70 The application by Belgravia was a simple procedural application which should have been dealt with in the conventional way on the application of the rules of court. Section 49 of the Act had no bearing on this particular application. It certainly could not be used by the defendant to bring the litigation to an end, which is the practical consequence of the decisions given by the registrar and the master below.

71 Turning next to the specific propositions advanced by the respondents in opposition to the appeal (see [39] above), the first point has no merit. A claim by a partner against a third party for relief to which the partners are jointly entitled does not involve the partner, in its individual capacity, exercising in the sense discussed in Hancock at [42], a proprietary right over any asset of the partnership. The remaining points depend upon the premise in the second point that Belgravia's rights were 'regulated' by s 49 of the Act. For the reasons given earlier, the relief being claimed by Belgravia was relief to which it was allegedly jointly entitled with Penhurst. Whilst Belgravia might have had the authority, within the meaning of s 49, to sue in the name of itself and Penhurst, it could, in any event, sue in its own name and right utilising O 18 r 4(2).

72 Two final observations may be made. One is that Butchart[55] provides no assistance to the respondents in any event. It was a case dealing with the authority of a partner after dissolution, to complete a transaction which had been commenced but was unfinished at the time of the dissolution (the share purchase transaction). It was not dealing specifically with the authority of a partner to commence proceedings in the names of the partners or the name of the firm without first seeking the consent of his or her partners. Also, it provides no real support for the proposition that s 49(1) of the Act has a limited scope of operation. The case decided that fresh, secured, borrowing entered into after the dissolution of a partnership was within authority, on the basis that it was associated with the completion of the share purchase agreement entered into prior to dissolution. Further, it indicates that where partner A contends that partner B should refrain from 'exercising unduly any power which he has as a partner',[56] the proper course is for partner A to apply for the appointment of a receiver. Neither the nature or effect of the decision, nor its reasoning, assists the respondents in their resistance to this appeal.

73 Secondly, Belgravia's causes of action all arose prior to dissolution of the partnership, and were property of the partnership upon its dissolution. The suggestion that there is any analogy with the pursuit of a claim for an expectancy is misconceived.

74 It follows from the foregoing that the appellant has established grounds 1 and 2 (in its unamended form) of the appeal.

75 I would not grant leave to amend to add grounds 1A and 1B. Proposed ground 1A relies on the application of s 49(1) of the Act. As indicated above, on the true construction of the proposed amended statement of claim and the application to amend, s 49(1) had no bearing on the proper disposition of Belgravia's interlocutory application. Proposed ground 1B adds nothing to the merits of the appeal.

77 It is in the interests of justice that leave be granted. The primary decision was wrong, Belgravia was entitled to invoke O 18 r 4(2), and the injustice is not cured by the prospect that Belgravia might apply for orders for a receiver under s 50 of the Act.

78 Belgravia, as with any litigant, has a right to have its cause determined according to the ordinary rules of procedure, subject to the inherent jurisdiction of the court to stop an abuse of its process.[57] That right is not diminished in the circumstances by the right to apply to appoint a receiver. Ordinarily, an application to appoint a receiver, and the appointment of a receiver, would be attended by considerable inconvenience and expense. It is not for the defendant (a third party to the partnership) in this situation to insist, in effect, that the prosecution of the plaintiff's cause of action should be contingent or dependent upon the resolution of other proceedings between that plaintiff and the other party jointly entitled to the relevant relief.

Dismiss the application to amend the grounds of appeal.
Grant leave to appeal in respect of grounds 1 and 2 of the appeal.
Allow the appeal.
Set aside Master Sanderson's orders of 11 September 2014 and Registrar Boyle's orders of 27 June 2014.

80 Subject to any matters raised by the parties consistent with these reasons, I would also order that Penhurst Nominees Pty Ltd be joined to the proceedings as a third defendant, and that the writ of summons in the action be amended accordingly.

[4] Belgravia Nominees Pty Ltd v Lowe Pty Ltd [2014] WASC 225.

[10] Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 2] [2014] WASC 315.

[11] Belgravia[No 2] [6] - [7].

[14] Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 [42].

[15] Respondents' submissions 24 March 2015, par 11.5.

[16] Beak v Beak (1674) 3 Swan 627; [1675] EngR 1865; 36 ER 1000.

[18] Sew Hoy v Sew Hoy [2000] NZCA 314; (2001) 1 NZLR 391.

[20] Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd [1985] HCA 13; (1985) 155 CLR 541, 544 - 545, 547 - 548.

[22] Johnson v Stephens & Carter Ltd & Golding [1923] 2 KB 857, 861.

[23] Johnson (863 - 864); Ellis v Kerr [1910] 1 Ch 529, 540.

[24] Johnson (863 - 864), Ellis (540).

[25] Daniell's Chancery Practice (8th ed, 1914) page 151.

[26] Cullen v Knowles [1898] 2 QB 380, 381 - 382; Coulls v Bagot's Executor and Trustee Co Ltd [1967] HCA 3; (1967) 119 CLR 460, 493 (Windeyer J).

[28] Rajski v Computer Manufacture & Design Pty Ltd [1981] 2 NSWLR 798, 799.

[29] Sutherland v Gustar (Inspector of Taxes) [1994] Ch 304, 310 - 311.

[32] Payne v Young [1980] HCA 54; (1980) 145 CLR 609, 611.

[33] Burnside v Harrison Marks Productions Ltd [1968] 1 WLR 782.

[34] Whitehead v Hughes (1834) 2 Cr & M 318; see also Hatton v Royle [1858] EngR 826; (1858) 3 H & N 500 (Martin B in arguendo) - a case where the partnership had been dissolved by mutual consent.

[35] Whitehead; Proudfoot v Bank of New Zealand [1885] NSWLawRp 38; (1885) 6 LR (NSW) 170, 174 - 175, 176 - 177; Tomlinson v Broadsmith [1896] 1QB 386, 392; Court v Berlin [1897] 2 QB 396, 398 - 399; Seal & Edgelow v Kingston [1908] 2 KB 579, 581 - 582, 583; Rodriguez v Speyer Bros [1919] AC 59, 69; Johnson (861); Coulls (493) (Windeyer J); Sutherland (310).

[38] cf Johnson (861) where Atkin LJ decided the joinder issue in that case on the basis of Cullen v Knowles and left open the question of whether Whitehead continued to apply with respect to claims by partners.

[39] Rose v Federal Commissioner of Taxation [1951] HCA 68; (1951) 84 CLR 118, 124; Inland Revenue v Graham's Trustees [1971] SLT (46), 8, 51, per Lord Upjohn.

[41] Hurst v Bryk [2002] 1 AC 185.

[43] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) [2009] HCA 41; (2009) 239 CLR 27 [47].

[44] Heydon's Case (1584) 3 Co Rep 7a, 7b; 76 ER 637, 638.

[45] Section 38 of the Partnership Act 1890 53 and 54 Vict c 39.

[46] Duncan v The MFV Marigold PD 145 [2006] ScotCS CSOH_128; [2006] CSOH 128 [29] - [39].

[48] The Law of Partnership in Australia (2007, 9th ed), K L Fletcher, 251.

[49] A v Corruption and Crime Commissioner [2013] WASCA 288 [68], [221].

[50] Pelechowski v Registrar, Court of Appeal (NSW) [1999] HCA 19; (1999) 198 CLR 435 [51]; A v Corruption and Crime Commissioner [68] - [74].

[51] Grizonic v Suttor [2011] NSWSC 471 [18]; Hurst (196 - 197).

[53] Queensland Southern Barramundi v Ough Properties Pty Ltd [2000] 2 Qd R 172.

[54] Queensland Southern Barramundi [173].

[57] Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62, 91 - 92.

Estate and Business Agents Act 1978

A v Corruption and Crime Commissioner

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (197 paragraphs)

BELGRAVIA NOMINEES PTY LTD -v- LOWE PTY LTD [2015] WASCA 143 (16 July 2015)

Parties

Legislation Cited (2)

Cases Cited (8)