Beale v Trinkler

Supreme Court of NSW|2007-05-31|Before: Brereton J

CITATION : Beale v Trinkler [2007] NSWSC 1058

HEARING DATE(S) : 31 May 2007 JURISDICTION : Equity Division Duty Judge List

DECISION : Property in a partnership that has been dissolved but not yet wound up remains property of the partnership and does not vest in the individual partners pro rata. Notice of Motion dismissed with costs.

LEGISLATION CITED : (NSW) Conveyancing Act 1919, s 36A

Alcock v Robb (1978) 2 BPR 9625 Big Top Hereford Pty Ltd v Thomas [2006] NSWSC 1159 Case of Swans (1592) 7 Co Rep 15(b); 77 ER 435 Ferrari v Beccaris [1979] 2 NSWLR 181 Gray v Inland Revenue Commissioners [1994] STC 360 Hadlee v Commissioner of Inland Revenue (NZ) [1933] AC 524 CASES CITED : Liquor National Wholesale Pty Ltd v Redrock Co Pty Ltd [2007] NSWSC 392 Naziridis v Rimis (1985) 9 BPR 16,201 Ngatoa v Ford (1990) 19 NSWLR 72 Popat v Shonchhatra [1997] 1 WLR 1367 Re Fettell (1952) 52 SR(NSW) 221 Stephens v Debney (1959) 60 SR(NSW) 468 Lindley & Banks on Partnership, 18th ed

Aileen Beale (first plaintiff/second cross defendant) Phillip Beale (second plaintiff/first cross defendant) PARTIES : Clemelle Way Pty Limited (third cross defendant) George Trinkler (first defendant/cross claimant) Dwyer Young & Co Pty Ltd (second defendant)

COUNSEL : S R Donaldson SC w B De Buse (plaintiffs) J E Thomson (first defendant)

MacElbing Mednis & Associates (plaintiffs) SOLICITORS : Sparke Helmore (first defendant) Raymond Robert Martin (second defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

5235/05 Aileen Beale & Anor v George Trinkler & Anor JUDGMENT (ex tempore) 1 HIS HONOUR: In the substantive proceedings the plaintiffs Aileen Beale and Phillip Beale claim specific performance of an agreement said to have been made between them and the first defendant George Trinkler for the mutual transfer between them of interests in two lots, one at The Branch and the other on Bucketts Way, which they hold in common - so that each would be to the exclusion of the other the proprietor of one of the two lots - and an order that a partnership formed between Mr Beale and Mr Trinkler for the breeding and sale of cattle be wound up. Mr Trinkler denies that there was any such enforceable agreement as the plaintiffs assert, but that issue can be set to one side for the purposes of the present application. In respect of the cattle partnership, Mr Trinkler seeks orders for its dissolution and winding up, and the taking of accounts between the partners. At least for present purposes, it appears to be common ground that there was a partnership between Mr Beale and Mr Trinkler for the breeding and sale of cattle. It also appears to be common ground that that partnership has been dissolved, but not yet wound up, in that it retains assets which have not been distributed between the parties, comprising at least the adult breeding cattle owned by the partnership. It also appears to be common ground that Mr Trinkler has traditionally had the defacto management of the cattle partnership, and has continued to do so since its dissolution, and that until recently the progeny of the breeding herd have from time to time been sold and the proceeds divided between the partners, after as well as before the dissolution of the partnership.

2 The present interlocutory application is brought by Mr Trinkler by Notice of Motion filed on 29 May 2007 and made returnable, pursuant to an abridgement of time for service, on 31 May. By that Notice of Motion, Mr Trinkler seeks an order pursuant to (NSW) Conveyancing Act 1919, s 36A, that certain of the cattle - namely, the vealers and weaners, which are the young cattle, less than 12 months old, being progeny of the breeding herd - be sold, and the net proceeds divided equally between Mr Beale and Mr Trinkler. However, in the course of the hearing, it was accepted on the part of Mr Trinkler that the proceeds should be paid into Court or into trust pending the outcome of proceedings, rather than divided equally between the parties. It was also accepted that an appropriate mechanism for the sale would be the appointment of a person with appropriate expertise, such as a stock and station agent, to conduct the sale, including to select the appropriate time (namely, whether it should be now in the autumn, or later in the spring). An alternative application for the appointment of a receiver, not to the whole of the partnership assets, but to the vealers and weaners, was not pressed at the hearing.

3 Conveyancing Act, s 36A, provides as follows: Power to direct division of chattels

Where any chattels belong to persons jointly or in undivided shares, the persons interested to the extent of a moiety or upwards may apply to the court for an order for division of the chattels or any of them, according to a valuation or otherwise, and the court may make such order and give any consequential directions as it thinks fit.

4 Section 36A authorises orders for sale and division of the proceeds of sale, as well as for division in specie, of chattels [Ferrari v Beccaris [1979] 2 NSWLR 181]. The issue in this case is whether s 36A authorises an order for the division (including by way of sale) of property of a dissolved partnership. This requires consideration of: · the nature of the interest of a partner in the property of a partnership after it has been dissolved; and in particular, whether personal property of the partnership can said to belong to the partners "jointly or in undivided shares"; and where there are only two equal partners, whether such a partner can be said to be "interested to the extent of a moiety" in any such property; and · if, as a matter of law, jurisdiction under s 36A is available, whether nonetheless, given the relationship between partners and their rights, relief under s 36A ought to be declined as a matter of discretion.

5 For present purposes, the nature of a partner's interest in partnership property may be taken to have been adequately and sufficiently summarised in Lindley & Banks on Partnership, 18th ed (in particular at [19-03], [19-09] and [19-10]). The authors refer at (at [19-03]) to Gray v Inland Revenue Commissioners [1994] STC 360, 377, in which Hoffmann LJ said: As between themselves, partners are not entitled individually to exercise proprietary rights over any of the partnership assets. This is because they have subjected their proprietary interests to the terms of the partnership deed which provides that the assets shall be employed in the partnership business, and on dissolution realised for the purposes of paying debts and distributing surplus. As regards the outside world, however, the partnership deed is irrelevant. The partners are collectively entitled to each and every asset of the partnership, in which each of them therefore has an undivided share. 6 As the authors point out (at [19-09]), the precise nature of each partner's beneficial interest depends on the terms of the partnership agreement, but commonly, if not invariably, has two characteristics: first, that it is in the nature of an interest taking effect in possession on and not before the determination of the partnership; and secondly, that on determination of the partnership, when the beneficial interest falls into possession, it takes effect subject to the right of the other partners to have the assets applied towards the payment of the firm's debts and liabilities and any surplus divided between the partners in the manner prescribed by the Partnership Act. This normally involves a sale of the partnership property, except where the partners otherwise agree. In the absence of agreement to the contrary, the share of a partner represents a proportionate share in the net proceeds of the partnership assets after all the firm's debts and liabilities have been discharged. The authors of Lindley point out that this analysis has apparently been accepted by the Privy Council in Hadlee v Commissioner of Inland Revenue (NZ) [1933] AC 524, 532G, and by the Court of Appeal in Popat v Shonchhatra [1997] 1 WLR 1367, 1372C-E.

7 At [19-10], the authors describe the position in the event of a general dissolution of a partnership - namely, that each partner is entitled to insist on the partnership assets being applied towards payment of the firm's debts and liabilities, and any surplus proceeds divided, and that until such time as the assets are either sold, or divided in specie - and division in specie can only take place with the agreement of the partners - each partner's share has the same proprietary character as it had prior to the dissolution.

8 It is also worth observing that, in respect of shares in partnership land, the authors of the current edition refer to what Lord Lindley wrote prior to the Partnership Act, namely that it followed, from the principle that a share of a partner is nothing more than his or her proportion of the partnership assets after they are liquidated, that in equity a share in a partnership, whether its property consisted of land or not, must be viewed as personal and not real estate, unless that were inconsistent with the agreement between the parties. This indicates that, absent agreement to the contrary, if partners held interests in land in the same proportions as their interests in the partnership, and that land was an asset of the partnership, then their interests in that land would not be as joint tenants or tenants-in-common in real estate, but a personal interest which arose from the operation of the contract of partnership on the legal interests in the land.

9 In Alcock v Robb (1978) 2 BPR 9625, Bowen CJ in Eq said (at 9627) that on dissolution of a partnership, in the absence of express provision covering the matter, the prima facie right of the partners was to have the partnership assets including goodwill (of which the partnership name was an element) sold and the proceeds applied, first, to discharge the liabilities of the partnership, and then by way of distribution to the partners. His Honour said that if goodwill (including the firm name) was to be sold, no previous partner would be entitled to use the firm name.

10 In Liquor National Wholesale Pty Ltd v Redrock Co Pty Ltd [2007] NSWSC 392, it was necessary to consider in some respects the position of partners after dissolution of a partnership but before it was wound up, particularly in respect of the right to use the partnership name and carry on the partnership business. Having considered Alcock v Robb and other cases, I concluded that neither partner was entitled, following termination of the joint venture, to appropriate the business, business name, goodwill or commercial opportunities of the venture for their own benefit, and that all those assets were held for the benefit of those entitled in the joint venture upon winding up.

11 The same follows in respect of what might be called hard assets of a partnership, as well as its goodwill. In short, between dissolution of a partnership (whether by notice or otherwise) and its winding up, neither partner is entitled to appropriate for his or her own use the assets of the partnership, at least without the consent of the other. If one partner is permitted to carry on the partnership business pending winding up, he or she does so as quasi-receiver or trustee for the partners, according to their ultimate entitlements as may be determined upon the taking of accounts.

12 It follows that there is no basis for the contention advanced on behalf of Mr Trinkler, that somehow following dissolution of the partnership the assets ceased to be held for the benefit of the partners according to their interests following taking of accounts, but instead were transmogrified into assets held by the former partners as co-owners.

13 So far as the manner in which the yearling cattle have been dealt with to this point, it is established that the offspring of cattle are, on birth, the property of the owner of the dam [Case of Swans (1592) 7 Co Rep 15(b); 77 ER 435; Big Top Hereford Pty Ltd v Thomas [2006] NSWSC 1159, [35]]. It follows that the progeny that have been born to the breeding herd remain property of the dissolved partnership pending the winding up of the partnership, the sale of its assets and the distribution of the proceeds. Insofar as progeny have been sold in the interim by agreement of the parties, the proper characterisation of what has happened is not that the parties have treated the progeny as their property as co-owners free from the partnership obligations, but rather that by agreement between the partners, the progeny have been sold and the proceeds distributed between them as an interim distribution of profits arising from the birth and sale of progeny - that is, an interim distribution of profit on account of the ultimate entitlements of the former partners, and not a change in the nature of their interests in the cattle from partners into co-owners.

14 Returning to s 36A, from Lord Lindley's description of the nature of a partnership share, it follows that the assets of a partnership are not owned by the partners jointly or in undivided shares, but rather that the interests of the partners in the partnership assets are shares in the net assets as a whole following sale and discharge of liabilities. I, therefore, do not accept that s 36A is attracted, because here the cattle do not belong to Mr Trinkler and Mr Beale "'jointly or in undivided shares"; they belong in equity to the partnership, subject to the obligations of the partnership. Alternatively, neither Mr Trinkler nor Mr Beale is "interested to the extent of a moiety or upwards" in the cattle. Their interest is not an interest in half of each cow or half of the herd, but in half of the net proceeds of sale of the partnership assets. 15 If I were wrong in that view, nonetheless, as a matter of discretion it would be inappropriate to make an order under s 36A. I appreciate that in Naziridis v Rimis (1985) 9 BPR 16,201, Young J (as his Honour the Chief Judge then was) observed that, when facts were made out that the plaintiff had a moiety at least in the chattel, then, by analogy with the decision in Re Fettell (1952) 52 SR(NSW) 221, the Court had no discretion in the matter and must make the orders. However, Re Fettell was a case concerning Conveyancing Act s 66G, and it is now apparent that there is, indeed, a discretion to decline to make an order under s 66G where the equities otherwise require. In Ngatoa v Ford (1990) 19 NSWLR 72, Needham J analysed the cases which resulted in that conclusion, which was endorsed by the court of Appeal in Williams v Legg (1993) 29 NSWLR 687. After reference to Re Fettell, the Court of Appeal referred to the judgment of Myers J in Stephens v Debney (1959) 60 SR(NSW) 468, 469-470, in which his Honour said: In my opinion the legislature could never have intended to make the right to an order dependent exclusively on the existence of co-ownership, or to prevent the court from examining the circumstances in order to determine whether it was right, in any particular case, to make an order. Trustees, for example, are co-owners, but their powers of sale depend upon the terms of the trust instrument. If the remarks to which I have referred were taken literally it would mean that despite the terms of the trust instrument one of two trustees could force a sale of the trust property by merely making an application under s 66G. 16 The Court of Appeal (at 693) described the reasoning of the Myers J as persuasive, and observed that the section could not be intended to require the Court to extend relief to a party putting forward a claim, for what was equitable assistance, merely to enable that party to evade its contractual obligations. 17 There is a close analogy between partners and trustees as co-owners, in that whereas trustees' powers of sale depend upon the terms of the trust instrument, partners' entitlements in respect of property depend upon the relationship of partnership. Given the nature of a partner's interest in property, it would be quite inappropriate, and contrary to the rights of the partners to have all of the assets sold and the proceeds divided, to make orders on the application of one partner for, in effect, removal of some of the assets from the partnership and division of those assets between the partners without consent, and without application of their proceeds to partnership liabilities.

18 Further, I do not accept the submission that there is no potential claim on the partnership, which its assets might be required to satisfy. It is unnecessary to examine the merits of the suggested claim in any detail, but the partnership has, since its dissolution, and pending its winding up, occupied property of others who claim rent or an occupation fee in respect of that occupation. The partnership business has, as I have sought to indicate, been carried on for the benefit of the partners according to their ultimate entitlements since dissolution of the partnership; it is at least arguable that any occupation fee incurred as a result is a liability of the partnership, for which provision ought be made in the winding up of the partnership.

19 As I have observed, an application for the appointment of a receiver of the vealers and weaners was not pursued at the hearing. In any event, no such jeopardy to the assets as would justify such an appointment (as distinct from an appointment of a receiver of all of the assets of the partnership) is apparent. The real dispute between the parties seems to be in respect of the commercial merits of selling the yearling cattle now or later; although there is some reference to the danger of frosts in winter, I do not take the evidence to show any real jeopardy to the welfare of the stock over the winter.

21 First, because of the nature of the interest that a partner has in partnership property following dissolution and before winding up, the cattle do not belong to the partners jointly or in undivided shares, nor are the partners interested in cattle to the extent of a moiety or upwards each, so that s 36A is not engaged.

22 Secondly, if I be wrong in that conclusion, nonetheless, the superimposition of the relationship of partnership on any relationship of co-ownership would require, as a matter of discretion, that relief under s 36A be declined.

23 The Court is not inclined to embark on resolution of questions of commercial judgment as between partners pending the winding up, but prefers to appoint a receiver. In circumstances where partners are unable to agree on the management of a partnership following dissolution and before winding up, the usual remedy is the appointment of a receiver to the whole of the partnership assets; but neither party presently seeks that.

24 For the foregoing reasons the Notice of Motion will be dismissed with costs. 25 I order that the Motion be dismissed with costs. **********

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Cases Cited (4)