Buttigieg v Buttigieg
[2002] NSWSC 738
•23 August 2002
CITATION: Buttigieg v Buttigieg [2002] NSWSC 738 CURRENT JURISDICTION: Equity Division FILE NUMBER(S): SC 2889/00 HEARING DATE(S): Thursday, 20 June 2002 JUDGMENT DATE: 23 August 2002 PARTIES :
Emanuel Buttigieg (Plaintiff)
Frank Buttigieg (Defendant)JUDGMENT OF: Master McLaughlin
COUNSEL : E.G. Petersen (for Plaintiff)
P.A. Fury (for Defendant)SOLICITORS: Mark Turnbull & Co. (Plaintiff)
Burston, Cole & Co. Solicitors (Defendant)CATCHWORDS: Partnership - Claim by former partner for interest - Circumstances attracting that entitlement - Period in respect of which interest should be calculated - Claim is a statutory entitlement, not a discretionary remedy - Not necessary that the entirety of the partnership assets should be used by the former partner who continues to carry on business. LEGISLATION CITED: Conveyancing Act 1919
Partnership Act 1892CASES CITED: Barclays Bank Trust Company Ltd v Bluff [1982] 1 Ch 172
Booth v Parkes 1 Moll. 465
Bourne v Bourne [1906] 2 Ch 427
Powell v Powell (1932) 32 SR (NSW) 407
Meagher v Meagher [1961] IR 96
Oddy v Fry [1998] 1 VR 442DECISION: See paragraph 44.
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
MASTER McLAUGHLIN
Friday, 23 August 2002
2889/00 EMANUEL BUTTIGIEG -V- FRANK BUTTIGIEG
JUDGMENT
1 MASTER: These proceedings were instituted by summons filed by the Plaintiff Emanuel Buttigieg on 22 June 2000. The Defendant named in that summons was Frank Buttigieg. By that summons the Plaintiff sought relief pursuant to Division 6 of Part 4 of the Conveyancing Act 1919 in respect to land situate at and known as Lot 2, Pine Ridge Crescent, Silverdale (which I am informed is located near Penrith). I shall refer to that land as “the subject land”.
2 The Plaintiff and the Defendant (who are brothers) were co-owners of the subject land as tenants in common in equal shares.
3 The Defendant filed a cross-claim on 18 October 2000, seeking relief in respect to the partnership which had been conducted by the parties on the subject land.
4 Pursuant to leave in that regard granted on 7 September 2001 by Acting Justice Knight, the Defendant on that date filed an amended cross-claim. Prayer 7 in that amended cross-claim is as follows,
- An order that the cross-defendant pay to the cross-claimant interest at the rate of 6% per annum from the date of the dissolution of the Partnership to the date of the termination of the cross-claimants share of the assets of the Partnership.
5 Consequent upon orders made by consent by Acting Justice Knight on 7 September 2001 there remained outstanding in the proceedings only the claims for relief made in the amended cross-claim for the taking of an account in respect to the partnership, for an inquiry as to the assets and liabilities of the partnership and the respective interests of the parties in the property in the partnership, and for the relief claimed in prayer 7 of the amended cross-claim. Order 7 of those orders made by Acting Justice Knight was in the following terms,
ORDERS that the proceedings be referred to a Master in Equity for:
(a) The taking of the account referred to in paragraph 5; and
(c) The hearing of the cross-claimant’s claim that the cross-defendant pay to the cross-claimant interest at the rate of 6% per annum from the date of the dissolution of the Partnership to the date of the determination of the cross-claimant’s share on the amount of the cross-claimant’s share [ sic ] of the assets of the Partnership.(b) The inquiry referred to in paragraph 6; and
6 [I assume that the words “on the amount of the cross-claimants share” in paragraph (c) have been inserted inadvertently in the foregoing orders, and that it was the intention of the parties that the form of order 7(c) should follow the form of the relief sought in prayer 7 of the amended cross-claim.]
7 I have been informed by Counsel that the matter of accounts has essentially been resolved between the parties.
8 The hearing before me was, in consequence, limited to the claim of the Defendant/Cross-Claimant for the relief by way of interest, as sought in prayer 7 of the amended cross-claim.
9 That relief is grounded upon the statutory provision contained in section 42(1) of the Partnership Act 1892, as follows,
- Where any member of a firm has died, or otherwise ceased to be a partner, and the surviving and continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner, or the partner’s estate, then, in the absence of any agreement to the contrary, the outgoing partner or the partner’s estate is entitled, at the option of the partner or the partner’s representatives, to such share of the profits made since the dissolution as the Court may find to be attributable to the use of the partner’s share of the partnership assets, or to interest at the rate of six per centum per annum on the amount of the partner’s share of the partnership assets.
10 The foregoing provision of the Partnership Act of New South Wales reflects the equivalent provision of the United Kingdom Partnership Act 1890, section 42(1). There are equivalent provisions (in similar or identical terms) in partnership legislation in other Australian States, and overseas (including the Republic of Ireland).
11 Before I proceed to a consideration of the effect of that statutory provision for interest (which has been the subject of a number of decided cases), it is appropriate that I should set forth the factual background to this matter, and my findings on any relevant factual matters which are in issue between the parties.
12 In 1976 the Plaintiff (to whom I shall refer as “Emanuel”) suggested to the Defendant (to whom I shall refer as “Frank”) that they should go into the market gardening business together, and that they would be equal partners in such an enterprise. Each of them had had experience in their father’s market garden business. Later in 1976 Emanuel located the subject property, which was appropriate for their proposed enterprise. That property was purchased by the parties as tenants in common in equal shares for $45,700, the memorandum of transfer being dated 19 October 1977.
13 Thereafter the parties conducted a market garden business upon the subject property. It is appropriate here to record (and in doing so I mean no discourtesy or disparagement to either party) that neither the Plaintiff nor the Defendant (both of whom came originally from Malta) reads or writes English well). There was a suggestion in the evidence of Emanuel that there had originally been a written partnership agreement, which appears to have been lost. In any event, the partnership was conducted by the parties upon the basis of equality. They contributed equal labour to the enterprise. They shared the profits equally. Upon the market garden the parties grew various vegetables, including cauliflowers, cabbages, lettuce, spinach and potatoes.
14 The parties and Frank’s wife moved into residence upon the subject property in October 1977. When Emanuel married some five or six years later he moved into another residence away from the subject property, but he continued to conduct the business as an equal partner with Frank.
15 Emanuel started suffering from back problems in about 1990. Those problems increased in severity in early 1996, and eventually surgery upon his back became necessary in June of that year. He was unable to work from then until early November 1996, when he resumed work, performing light duties. In about November 1977 he was able to resume full duties upon the market garden. Throughout the period whilst he was off work and whilst he was performing only light duties Emanuel still continued to receive his half share of the profits.
16 The partnership lodged partnership income tax returns for the years ending 1979 to 1998 (Exhibits 1-32). Throughout that period the partnership and their respective interests therein were the only source of income for the parties.
17 Essentially as a result of Emanuel’s back problems preventing him from making a contribution to the partnership equal to that of his brother during the period 1996-1997, the relationship between the parties deteriorated throughout 1997 and 1998. There were discussions between the parties concerning the selling of the property.
18 In June 1998 Frank’s wife moved out of the residence on the subject property, and into a residence which Frank had purchased as Llandilo. Frank and their eldest son Michael remained upon the subject property for a further two months. Ultimately Frank and Michael departed the subject property and Frank decided to seek other employment.
19 The relationship between the parties had completely broken down by the time of a physical confrontation between them in about October 1998.
20 In this regard, it should be noted that the orders made by Acting Justice Knight on 7 September 2001 include, as order 3, a declaration that the partnership was dissolved on or about 1 August 1998.
21 From the time when Frank departed the subject property in August 1998, Emanuel continued for a period to operate the market garden on his own. According to his affidavit of 21 June 2000, Emanuel retained and recorded all takings, and was able to identify what takings were attributable to crops which were planted by Frank and himself before August 1998.
22 At the time of Frank’s departure in August 1998 a crop of leeks was growing upon the subject land. In the following month, September 1998 (or possibly in October), Emanuel harvested that crop, which he sold at the Flemington Markets, and of which he retained the proceeds. In October 1998 Frank planted a crop of capsicums, egg-plant and parsley. He subsequently planted a winter crop of spinach and Chinese cabbages. All those crops were subsequently harvested and sold, and Emanuel retained the proceeds.
23 When the goods and services tax (GST) came into operation on 1 July 2000, Emanuel ceased his market gardening operations upon the subject land.
24 Ultimately the subject property was sold at auction in 2001, and the proceeds were divided equally between the parties.
25 Throughout the period from the dissolution of the partnership on 1 August 1998 to the sale of the property on 1 June 2001, an income of $386,000 was produced by the activities of Emanuel upon the subject property.
26 The present claim is brought by Frank in the following fashion. He submits that his interest in the foregoing income of $386,000 is one half thereof, that is, an amount of $193,000, and that that amount constitutes his share of the partnership assets.
27 Pursuant to the foregoing provision of section 42(1) of the Partnership Act, Frank has purported to exercise the option contemplated by that subsection, and to be entitled “to interest at the rate of 6 per centum per annum on the amount of [Frank’s] share of the Partnership assets”.
28 It is submitted on behalf of Frank that the calculation of 6 per cent on $193,000 for the foregoing period of two years and ten months results in an amount of $32,804. That is the amount which is presently claimed by Frank from Emanuel.
29 In order to attract the foregoing statutory entitlement to interest, it is necessary that the Court be satisfied that Emanuel (the continuing partner) carried on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner (Frank).
30 It is apparent that Emanuel continued to conduct the market garden business for a period after the departure of Frank. However, he ceased to conduct that business on 30 June 2000. I am satisfied that throughout that period Emanuel conducted the business using the assets of the former partnership, those assets being, firstly, the crop of leeks which had been planted before the departure of Frank (in which regard Emanuel acknowledges that Frank has an entitlement), and, further, the land itself and the various items of plant and equipment which had previously belonged to the partnership and which remained on the property after the departure of Frank.
31 It was the submission on behalf of Frank that the period contemplated by section 42(1), in respect of which period Frank was entitled to interest at the statutory rate, continued after Emanuel ceased to carry on the market gardening activities on 30 June 2000. I reject that submission. The application of the subsection is postulated upon the Frank carrying on the business of the partnership with its capital or assets. It does not seem to me to be consistent with that requirement that the fact that the sale of the subject property was delayed for a further year after Emanuel had ceased to carry on the business, using plant and equipment as well as the land itself, should entitle Frank to the statutory interest for a period after Emanuel ceased to carry on the partnership business. In my conclusion, the period in respect of which Frank is entitled to interest is the period from the date of the dissolution of the partnership on 1 August 1998 (consequent upon order 3 made by Acting Justice Knight) to the date upon which Emanuel ceased to carry on the market gardening business on 30 June 2000, that being a period of one year and eleven month.
32 It was submitted on behalf of Emanuel that the provisions of section 42(1) do not have application to the circumstances of the instant case. That submission was grounded upon the following matters:
· Frank unilaterally withdrew from the partnership.
· At the time when Frank withdrew, there was a crop of leeks growing upon the subject land, which was subsequently harvested.
· Emanuel farmed only 2.5 acres of the total area of the subject property, which was 25 acres.
· There was no evidence that Emanuel was using the totality of the partnership equipment after Frank’s departure.
· At all times from August 1998 to the commencement of the proceedings, Frank had free access to the land, which he visited every weekend.
· There was correspondence passing between the solicitors, relating to possible settlement of the matters in dispute between the parties, which disclosed the possibility of Emanuel continuing to conduct market gardening activities on the subject land.
33 Moreover, it was submitted on behalf of Emanuel that the business of the firm was being carried on by him no later than the harvesting of the crop of leeks (October 1998), and that after that date Emanuel was carrying on business on his own account as a sole trader. It was further submitted that Emanuel did not carry on business for any unreasonable period, and that the correspondence between the parties, and their respective solicitors, was intended to achieve a modus vivendi between them.
34 Emanuel also relied upon the fact that the claim for interest was first raised in the amended cross-claim, which was filed only on 7 September 2001, that being more than two years after the departure of Frank from the partnership. It was submitted that Frank had an equivalent obligation to Emanuel to wind up the partnership business.
35 As to the foregoing submissions, it should be recognised at the outset that the entitlement to interest under section 42(1) is not a discretionary remedy. Once the factual preconditions contemplated by the subsection have been established, a former partner in the situation of Frank has a right, at his option and in the alternative, either to a share of profits or to interest at the statutory rate.
36 The practical difficulties which have been recognised as confronting any attempt to take an account of profits of the nature described in the first alternative presented in section 42(1) appear to explain the reason why the statute presents the second alternative of interest at a specified rate. See Lindley & Banks on Partnership (17 ed., 1995) paragraphs 25-23 – 25-26. Lord Lindley himself stated (in a passage written before the enactment of the 1890 statute),
…owing to the extreme difficulty of taking an account of subsequent profits, so far as they are attributable only to one particular source, the tendency of the courts… appears to be rather in favour of not exercising than of exercising the power alluded to, except in cases of gross fraud or breach of trust.
His Lordship then observed in a footnote,
Judgment for an account of profits after dissolution are fearfully oppressive; and the writer is not aware of any instance in which such a judgment has been worked out and has resulted beneficially to the person in whose favour it was made.
It was these practical difficulties which prompted Lord Lindley, in his Supplement on the Partnership Act 1890, to express regret that the Court was not empowered to award interest of a rate greater than 5 per cent. It will be observed that in New South Wales the interest is now at a rate of 6 per cent.
37 The various matters relied upon by Emanuel which occurred at the time of and after Frank’s departure from the property can have no bearing upon Frank’s entitlement to his statutory claim for interest, once the factual preconditions contemplated by the subsection, in respect to the use by Emanuel of assets of the partnership, have been fulfilled. Further, in respect to the submission of Emanuel that only some of the assets of the equipment were used by him after the termination of the partnership, in my conclusion it is not essential, in order to attract the provisions of the subsection, that the entirety of the partnership assets should be used by the former partner. In any event, it will be appreciated that the most significant of those assets, being the land itself, was used by Emanuel.
38 As to the submission on behalf of Emanuel that after he had harvested the crop of leeks in about October 1998 Emanuel was carrying on the business on his own account as a sole trader, and not as a former partner, I am in agreement with the submission made on behalf of Frank that, if such an assertion of the existence of a fresh business coming into existence be accepted, the entire effect of section 42(1) would be destroyed. The application of the subsection was considered by Long Innes J in Powell v Powell (1932) 32 SR (NSW) 407, where His Honour reviewed all the relevant case law to that time. At 415 His Honour quoted the following passage from the decision of Hart LC in Booth v Parkes 1 Moll. 465 at 466,
- It is not correct to say, that the survivor carrying on the business for the purpose of winding it up, carries on a partnership trade – he only deals with the effects finally ex necessitate , and rather in the character of a trustee. If he continues it as a trade, it is at his own risque, liable to the option of accounting for profits, or being charged with interest upon the deceased partner’s share of the surplus, as taken at his death.
39 It was held in that latter case that the business had been carried on by the surviving partner, not as a trustee winding up, but for his own profit, and the Court applied the rule now embodied in section 42(1). Similarly, in the instant case, it cannot be asserted that for the period whilst Emanuel was conducting the business of a market gardener on the subject property from August 1998 until the end of June 2000, he was doing so in any capacity other than that of a former partner in the character described in section 42(1). The fact that he was continuing to trade was (in the words of the Lord Chancellor) “at his own risque”.
40 For the sake of completeness, I would also refer to the following authorities: Bourne v Bourne [1906] 2 Ch 427 (Court of Appeal); Barclays Bank Trust Company Ltd v Bluff [1982] 1 Ch 172 at 182; Oddy v Fry [1998] 1 VR 442; Meagher v Meagher [1961] IR 96 (described by the learned authors in Lindley & Banks, on Partnership, paragraph 25-27 as “the unsatisfactory Irish decision”) was distinguished in Barclays Bank Trust Company Ltd v Bluff at 192.
41 Further, the fact that negotiations embarked upon by Emanuel (through his solicitors) were in train during the period in respect of which interest is now being sought, does not affect or reduce the entitlement of Frank to such a statutory claim for interest. The fact of those negotiations did not of itself require Emanuel to continue growing crops on the subject property; it was of his own choice that he did so.
42 It is relevant also to recognise that the proceedings which were commenced by Emanuel were limited to relief under Division 6 of Part 4 of the Conveyancing Act in respect to land held by the parties in co-ownership. It was left to Frank to make application to the Court, by the cross-claim originally filed by him on 18 October 2000, for relief in respect to the partnership and, in particular, for the winding up of that partnership.
43 I am satisfied that after the dissolution of the partnership on 1 August 1998 Emanuel continued to carry on the business of that partnership, using the assets of the partnership, until 30 June 2000. In consequence, therefore, Frank is entitled to interest at the statutory rate of 6 per cent upon his share of the partnership assets from 1 August 1998 to 30 June 2000. It was not disputed that Frank’s share of the partnership assets was one half of the amount of $386,000 – that is, an amount of $193,000. Upon my calculation, 6 per cent of the amount of $193,000 for the foregoing period of 1 year and 11 months comes to $22,195. That is the amount to which Frank is entitled upon his claim grounded upon section 42(1) of the Partnership Act. If there is any error in the foregoing arithmetical calculation, such error may be corrected within seven days of the date hereof.
44 I have not heard any submissions as to costs. My preliminary view is that costs should follow the event, and that, in consequence, the Plaintiff should pay the costs of the Defendant of the hearing pursuant to order 7(c) of the order of 7 September 2001 made by Acting Justice Knight. However, should any party desire to make submissions for some other costs order, a opportunity will be given to him to do so. Accordingly, unless within seven days of the date hereof either party arranges with my Associate for the matter to be listed for argument as to costs, I make the following orders:
(1). I order that the Plaintiff pay to the Defendant, by way of interest pursuant to section 42(1) of the Partnership Act 1890, the sum of $22,195, and that there be judgment for the Defendant in such sum.
(3). I stand over generally the balance of the proceedings, with liberty to either party to restore on seven days’ notice.(2). I order that the Plaintiff pay the costs of the Defendant of the hearing in respect to the foregoing claim of the Defendant.