Lowe Pty Ltd & Anor v Belgravia Nominees Pty Ltd

[2016] HCATrans 21

[2016] HCATrans 021

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P36 of 2015

B e t w e e n -

LOWE PTY LTD (ACN 009 354 143)

First Applicant

COLIN REGINALD HEATH

Second Applicant

and

BELGRAVIA NOMINEES PTY LTD (ACN 008 821 654)

Respondent

Application for special leave to appeal

KIEFEL J
GORDON J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 12 FEBRUARY 2016, AT 12.15 PM

Copyright in the High Court of Australia

MR D.H. SOLOMON:   May it please the Court, I appear for the applicants.  (instructed by Solomon Brothers)

MR M.D. CUERDEN, SC:   May it please the Court, I appear for the respondent.  (instructed by Robertson Hayles Lawyers)

KIEFEL J:   Yes, Mr Solomon.

MR SOLOMON:   Your Honours, the error of which we complain in this matter appears in the judgment of the learned President, with whom Justice Buss agreed, in paragraphs 10 and 11 of the reasons at page 23 of the application book and, in particular, in the fourth sentence of that paragraph 10, the point being that:

All the partners together hold the partnership property jointly and exclusively for the purposes of the partnership ‑

The main case there cited, Rodriguez v Speyer Bros [1919] AC 59 at 89, cites the dissenting judgment in that case of Lord Atkinson. The error in that passage is the same error that appears in the cases relied upon by the respondent in paragraph 11 of its submissions and noted in footnote 15 of those submissions, that is, the decision in Re Fuller’s Contract and the decision in the Inland Revenue Commissioners v Gray. 

All of those cases hold ‑ and they are all UK authorities, of course ‑ and they hold that a partner has an undivided share of partnership property before winding up.  All of those decisions are contrary to what was said by this honourable Court in a joint judgment of the Court in Commissioner of State Taxation v Cyril Henschke Pty Ltd (2010) 242 CLR 508 at paragraph 28 as being the established doctrine of this Court. That doctrine is detailed in paragraphs 13 and 14 of my written outline at page 55 to 56 of the application book.

If one looks at the joint judgment of the Court in Cyril Henschke, it details what that principle is between paragraphs 22 and 27, with the summary of it adopted in paragraph 27 from the judgment of his Honour Justice Mason with the agreement of Chief Justice Barwick, Justice Gibson, Justice Wilson in United Builders Pty Ltd v Mutual Acceptance Ltd, the second paragraph of the quote:

The vital consideration is that the partner’s interest is in truth a chose in action, which, as [Federal Commissioner of Taxation v Everett] acknowledged, ‘consists of a right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership’.

Earlier in that judgment in Cyril Henschke the Court noted in paragraph 23 that – having firstly quoted in paragraph 22 the judgment of Lord Millett in Hurst v Bryk ‑ noting that it is the application of equitable principles in “winding up of partnerships” that is applicable.  As the Court noted at paragraph 23:

This . . . has given rise to judicial consideration of the nature of the interest conferred by equity upon each partner with respect to partnership assets as they exist from time to time and in advance of a “general” dissolution under the control of a court of equity.  Neuberger LJ recently described as “conceptually somewhat opaque” the concept of a partner’s share in the partnership assets as understood in the earlier English authorities.  However, the matter has received attention in a series of decisions in this Court.

The Court then goes on to cite Chief Justice Dixon’s description of a partner’s interest as:

“a right in respect of assets but . . . a right, or a congeries of rights, growing out of the partnership articles”.

The judgment of Justice Windeyer, that is really to similar effect to that of Justice Mason in paragraph 27.  As noted at paragraph 25:

The position here is not sufficiently or accurately expressed merely by use of the term “beneficial interest” any more than when considering the operation of discretionary trusts and unit trusts.

The point is that:

It is that the interest of each partner can be ascertained finally only upon completion of the liquidation and the identification of any surplus share.

The effect of what we respectfully submit is the error, as noted at page 23 of the application book in the judgment of the learned President in adopting the principle which comes – expressed by Lord Atkinson in Rodriguez v Speyer Brothers and also in the other case Re Fuller and IRC v Gray that each partner actually has an undivided interest in the partnership property gave rise to the inclusion at paragraph 11 and, ultimately, gave rise to the conclusion in paragraphs 14 and 15 of the learned President’s judgment on page 24 of the application that:

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.

That is, s 49 is not the exclusive source of a partner’s accrued right to take legal proceedings in respect of partnership property –

Once one accepts that the ‑ ‑ ‑

KIEFEL J:   But as long as they are saying that there are matters of practice and procedure which govern the right to take – the ability to take action and have partners joined in proceedings, because it was an application for joinder that was in question here.

MR SOLOMON:   No, I think what her Honour is saying is that not that it is a matter of practice and procedure but that the ‑ it is the first sentence in paragraph 11 that:

the partnership’s accrued rights to take action . . . and to recover the statutory debt are held jointly by Belgravia and Penhurst –

and that each of them has an interest in the property and it was only because of that that the rules of practice and procedure for joinder of parties were engaged.

GORDON J:   Is not that your problem, Mr Solomon?  You have got a cause of action accruing to a partnership, prior to its dissolution, which is a joint form of property.  The second thing then is that each partner in an action commenced before or after dissolution is jointly entitled to the relief sought.  One partner brings action and either the other partner joins in as plaintiff and, if not, rules provide as a matter of practice it is joined as the defendant.  Is not that what happened here?

MR SOLOMON:   That is what the Court of Appeal has done, but it is based upon a false premise that, in fact, each of them does have an interest in the property that they are entitled to enforce as a joint owner.  In truth, they do not have any interest in the property.  That is the doctrine in Chan v Zacharia and Commissioner of State Taxation v Cyril Henschke.  Their authority to bring proceedings depends upon section 26 of the Act during the currency of the partnership after dissolution and before winding up.  That authority is curtailed by section 49.  It is curtailed such that they can only exercise the powers and authorities that they had prior to the dissolution for the limited purposes that are dealt with in ‑ ‑ ‑

GORDON J:   Is it common ground here that there was a dissolution?

MR SOLOMON:   The position about dissolution is this:  this was an application for joinder.  It is dealt with in the annexed submissions from the court below.  An application for joinder, with an amendment of the statement of claim ‑ ‑ ‑

GORDON J:   I understand the history; I am just trying to work out whether or not there is common ground that it was dissolved or are we dealing with a hypothetical?

MR SOLOMON:   Our position was this, that there is an affidavit of a director of Belgravia that it was dissolved by agreement in 2012 and we accepted, for the purposes of argument, that that was the case.  So the matter was argued on the basis that a director of Belgravia had sworn in support of the application for joinder that the partnership was dissolved and we accepted that for the purposes that I have given.

Therefore, the outcome by having one partner on the false basis that they actually have an interest in the property as opposed to a right to a surplus, if there is a surplus after dissolution, having one partner pursue these proceedings with the other partner as a defendant – the other partner not wanting to do that – as opposed to section 50 of the Act being applied, it is not as if one partner is without a remedy.  They have the remedy under the final words in section 50, that is, to apply for a winding up by the court.  The court can, if appropriate, appoint a receiver who can take directions of the court and can pursue the proceedings, if considered appropriate.  But by having one partner ‑ ‑ ‑

KIEFEL J:   But is not the critical fact here when the cause of action accrued in relation to the dissolution?

MR SOLOMON:   The cause of action had accrued years before.  It was almost statute barred.

KIEFEL J:   So it is not a question of binding the other partner in the period after dissolution in relation to the affairs of the partnership.  We are talking about the right to pursue a cause of action that had accrued to the partners in their capacities as partners, and to that given that the right had already accrued to them all one needs is the matter of practice and procedure to attach to it and I think that is really what the President is saying.

MR SOLOMON:   The answer to that is the right which had accrued is partnership property.  The authority of one partner to pursue it depended upon agency, as I have dealt with in the written submissions.  That agency ‑ prior to dissolution there would have been no argument that one partner could bring these proceedings pursuant to the general authority whilst prior

to dissolution in section 26 of the Act.  The point is that those authorities are completely limited by section 49 and the two decisions below the Court of Appeal each based themselves upon that, that it is not to complete an uncompleted transaction to start proceedings to recover an amount claimed to be due under a cause of action that had accrued five years before. 

Indeed, the learned registrar who dealt with it first said this is not to complete an uncompleted transaction, it is to try and reverse a completed transaction.  It is not within section 49, therefore, one partner does not have the authority to bring these proceedings in by merely joining another defendant, and the appropriate way forward ‑ and this is what the Master expressly held as well in paragraph 18 of the Master’s decision ‑ the appropriate way forward is under section 50 of the Act.  The plaintiff is not without a remedy.  They can apply for a winding up by the Court and that is what was the practice in equity for a long time and now codified by section 50 of the Act.  I do not think I can advance the argument any further than that, your Honour.

KIEFEL J:   Yes, thank you, Mr Solomon.  We need not trouble you, Mr Cuerden. 

In our view, there is no reason to doubt the correctness of the decision of the Court of Appeal.  Special leave is refused with costs. 

The Court will take a short luncheon adjournment and resume hearing the next matter at 1.00 pm Canberra time.

AT 12.30 PM THE MATTER WAS CONCLUDED