Mannigel, C.N v Aitken, L.R

I	CATCHWORDS

Bankruptcv - partnership - authorities executed under

6.188

Bankruptcy Act 1966 - sequestration orders made against estate6 of t'wo partners - application under s.179(1) Bankruptcv Act for an inquiry into conduct of trustee - whether bankruptcy of a partner dissolved partnership - partnership agreement construed in relation to s.33 Partnership Act (NSW) 1912 - consideration of

proprietary rights and interests in

a partnership.

Partnership A c t ,

(NSW) 1912: ss.31,33.

CAROLYN

ANCY

MANNIGEL.

GUNTHE3

HENRY

FREDERICK

MANNIGEL,

HEINRICH O S W D HERMAN MANNIGEL v LINDSAY ROBERT AITKEN

G261 of 1983

CORAM: Bowen C.J., Fisher and Lockhart JJ.

10 September 1985

Sydney.

IN THE FEDERAL COURT OF AUSTRALIA

) )

NEW SOUTH WALES DISTRICT REGISTRY )

G.261 of 1983

)

DIVISION

GENERAL

)

CAROLYN NANCY MANNIGEL

GUNTHER HENRY F'REDERICK MANNIGEL

HEINRICH OSWALD HEXMAN MANNIGEL

Appellants

LINDSAY ROBERT AITKEN

Respondent

JUDGES MAKING ORDER:	Bowen C.J., Fisher and Lockhart	JJ.
WHERE MADE:	Sydney
W:	10 September 1985

MINUTE OF ORDER

THE COURT ORDERS THAT:

The appeal

dismissed.

The

appellants pay the respondent's costs

including any

reserved costs.

NOTE: Settlement and entry

of orders is dealt with in Order 36

of the Federal Court

Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY )

No. G.261 of 1983

)

GENERAL DIVISION

)

ON APPEAL FROM THE FEDERAL COURT OF

AUSTRALIA

BETWEEN:

CAROLYN

ANCY

MANNIGEL

GUNTHER HENRY FREDERICK MANNIGEL

HEINRICH O S W D HERMAN MANNIGEL

Appellants

AND: LINDSAY

ROBEXT

AITKEN

Respondent

Bowen C.J., Fisher and Lockhart

JJ.

1985

REASONS FOR JUDGMENT

THE COURT

Between 1969 and 1979 Gunther Henry Frederlck Mannlqel,

Carolyn Nancy Mannigel (his wife) and

Hemrich Oswald Herman Mannigel

(Gunther Mannigel's father)

(we shall refer to them collectively

"the appellants")

carried on in partnership a retail buslness at Nowra

of selling cameras and accessories and providing related services.

The business was known

as the "Nowra Camera Centre".

The terms of

their partnership were reduced to writing

by an agreement dated

December 1973. Heinrich Manniqel had

a fifty percent Interest in the

partnership buslness whilst Gunther and Carolyn Manniqel each had a

twenty-five percent Interest.

, -

By at least 1978

the

business was in serious financial

difficulties which became acute

in 1979. On

March 1979 each

appellant executed an authority under

188 of the Bankruptcy Act

1966 ("the Act") authorising

Lindsay

Robert

Aitken,

chartered

accountant and registered trustee, to call a meeting of

his creditors

(we	use the masculine for convenience and because Gunther Mannigel

appears to have been the person principally involved in the business)

for the purposes of Part

of the Act and to take over control of

his

property in accordance with that Part.

Separate meetings of creditors of each of the appellants were

convened and held on 27 April 1979. At each meeting

the

creditors

present passed a special resolution

require each appellant to

execute a deed of arrangement under Part

X.	Other resolutions were

passed

including

resolution

that

Lindsay

Robert

Aitken

("the

Trustee") be appointed the trustee

of each deed of assignment.

additional resolution was passed by the creditors at the meeting in

respect of Heinrich Mannigel that his assets be not reallsed until the

assets of

the other two appellants had been realised or

a period of

two years had elapsed, whichever was the

earlier.

Heinrich Mannigel

executed a deed

of assignment on

18 May

1979.

Neither Gunther nor

Carolyn Mannigel executed

a deed of assignment.

The Trustee applied to this Court, as

the controlling trustee

of the property of each

of Gunther and Carolyn Mannigel, for a summary

sequestration order pursuant to paragraph 221(l)(b)

of the Act on the

ground that each

of them had failed, wlthrsut sufficient cause, to

execute the deed

assignment

within

the

prescribed

time

when

required by the meeting of creditors. On 3 December 1979 orders were

made by this Court sequestrating

the estates of Gunther and Carolyn

Manniqel. Initially the Official Receiver was

the trustee of each of

the two sequestrated estates, but on	11 May	1980 the Trustee was
appointed trustee of each estate.

Each

appellant applied to this Court, pursuant

to sub-s.

179(1) of the

Act, for an inquiry

m t o the conduct of the Trustee In

relation to his administration

of the estate

or affairs of each

appellant. Orders were sought in each case that the Trustee be

removed from his position of trustee and that

an ssessment be made of

the damages allegedly suffered by the estates

by reason of the alleged

breaches of duty of the Trustee in the management of the estates and

an order that .the Trustee make good the losses that the estates have

sustained. The learned

primary

Judge,

who

heard

the three

applicatlons together, held that no ground had been shown for an

inquiry Into the conduct of the Trustee in relation

to either of the

two bankrupt estates

or as trustee of

the deed of assignment and

dismissed each of the three applications

with costs.

The

appellants appealed from his

Honour’s ~udgment by one

notice of appeal.

By consent we treated the notice of appeal as if

wa5 a separate notice of appeal in each	of the three matters and heard
them together.

When the appeals came on for hearing before us we heard also

a motion

the

Trustee

dismiss

the

appeals

for

want

prosecution. We heard the motion first and reserved our decision. We

then proceeded to hear the appeal.

The

notice of motion should be

dealt with first.

We do not find it necessary to recite the history

of the appeals since they were instituted on 6 September 1983.

It is

sufficient to say that the conduct of the appellants in relation to

their prosecution of the appeals (including their failure to settle

the index to the appeal papers and

to print them, failure to attend

the call-over of the appeal and failure to honour assurances to the

Court that they would prosecute the appeal with diligence) constitute

inexcusable

and

inordinate

delay

their

part.

would

have

dismissed the appeals for want

of prosecution were it not for

the fact

that the appellants lodged

the appeal papers on

the Friday before the

Monday on whioh the hearing

the appeals commenced. Since the

appeals were before us that

day, notwithstanding the failure to lodge

the appeal papers until the eleventh

hour, in our opinion

we should

determine the appeal itself. Although

It follows

that the notice of

motion to dismiss the appeals shall

be dlsmissed, In the circumstances

the proper order for costs is that the appellants pay the

Trustee's

costs of the notice

of motion including reserved costs whatever may be

the result of the appeals themselves.

We turn to the appeals. The primary Judge carefully reviewed

the large body

of material before

h m relating to the Trustee's

administration of the property and affalrs of

the appellants and found

that

the

applications

had

foundation.

His

Honour

found

particular that it was not established that there was any breach of

duty by the Trustee in his handling of the assets of the business of

the Nowra Camera Centre. He accepted that the Trustee had made the

correct decision to close down the business and found that there was

no evidence that his actions had caused any

loss.

Counsel for the appellants accepted before

us the correctness

the primary Judge's findings of fact; but

he challenged

his

Honour's finding that the taking of possession by the Trustee of the

partnership assets was not

an unlawful proceeding.

His essential

contention was that the Trustee was not entitled to take possession

these assets in the absence of an order of the Court because the

bankruptcy of the two partners did not dissolve the partnership.

It is true

that

the

bankruptcy

of a partner

does

not

necessarily dissolve a partnership: see

S. 33 of the Partnership Act

1912 (N.S.W.) ("the Partnership Act") which provldes:

"33. (I)

Subject

any

agreement

between

the

partners, every partnership is dissolved

as regards

all the partners by the death or bankruptcy of any

partner.

(11) A partnership is in every case dissolved

by the happening of any event which makes

unlawful for the business of the firm to be carried on, or for the members of the firm to carry it on

in partnership.

It was argued that the partnership agreement In the present

case answers the description, for the purposes of sub-s. 33(1),	of an
agreement between the partners that the partnershlp shall not be

dissolved by the bankruptcy of one

of the partners. Reliance was

I	placed on clause	20 which is in the following terms with the relevant
parts emphasised:

"If either partner shall assign

charge or encumber

his share in the partnership

of any part thereof or

shall

suffer

the

same to be

charged

for

his

separate debt under the Partnership Act or shall

become bankrupt or insane or otherwise permanently

incapable of attending to the partnership business

or shall act

any manner inconsistent with the

good faith observable between the partners

o shall

be guilty

of any conduct which would be

a ground of

dissolution

of the partnership by the Court

then

and	in any such case it will be lawful for the

other partner by notice in writinq to the offendinq

or incapacltated

partner

determine

the

partnership so

far as concerns such partner where

upon

the

interest

such

partner

the

partnership shall cease and the provisions herein

contained for the determination of the aqreement

shall apply."

No formal notice of determination

of the partnership was

given by

any of the partners pursuant to clause

20; accordingly the

contention of counsel was that the partnership existed

on 3 December

1979 when the

states

Gunther

and

Carolyn

Mannigel

were

sequestrated and still exists.

In our

oplnion

the

argument

advanced

behalf

the

appellants

misconceives

first, the construction and operation

clause 20

of the partnershlp agreement and second, the nature of the

partners' interest in the partnership and

m partnership property in

the

circumstances

of this

matter. We propose

consider

these

matters in turn.

I .

It was common ground that the partnership between the three

appellants

was

not

dissolved

by the

execution

the

deed

assignment; but the parties were

in disagreement as to whether it was

dissolved upon the bankruptcy

of Gunther and Carolyn Mannigel. In our

opinion it

was so dissolved unless clause

20 of the partnership

agreement operated to the contrary:

S . 33 of the Partnership Act.

To constitute

an agreement to the contrary for the purposes

S . 33 one would normally expect

to find a clause specifically

stating that the partnership shall not be dissolved notwithstanding the bankruptcy of one of the partners: see Lindley on Partnership,

15th Ed., p.

192;

Higgins and Fletcher "Law of Partnership'' 4th Ed.

Appendix 11 p. 344 and Pearce v. Chamberlain

(1750) 2 Ves. Sen. 33; 28

E.R. 23.

Clause 20 does not do this.

Clause 20 lists a number of events, including the bankruptcy

of a partner, that would be a ground

of dissolution of the partnership

by the Court. But the clause does not expressly or, in our opinion, impliedly provide that the partnership shall continue notwithstandlnq

the

bankruptcy

partner;

rather

points

the

opposite

direction because in such

case it provides a mechanlsm for the

remalning partners, not to continue, but

t o determme the partnership

so far as concerns the bankrupt partner, whereupon the interest

that partner in the partnership ceases and the provislons

of clause la

then operate. Clause

not directed to the preservation or

continuance, notwithstanding bankruptcy, of the partnership, but to

the rights of the solvent partners upon the bankruptcy of

a partner.

! .

Clause 18 is a fairly standard clause relating to the winding up

of a

partnership.

Thus the partnership agreement does not expressly or by

necessary implication provide to the contrary of S. 3 3 .

We make one

final observation on this aspect of the case, namely, that even if

clause 20

were to be construed

as meaning that the interest of the

bankrupt partner is to be fbrfeited in favour of the remalning

partners if he or they give a notice under the clause then the clause

would be to that extent invalid

as an attempt to evade the bankruptcy

law:

Whitmore

v. Mason (1861) 7 0 E.R. 1031. In our

opinion

the

partnership was dissolved on

December 1 9 7 9 and the only question is

whether the appellants are correct in contending that the Trustee had

no authority to take possession

f the partnership assets.

Before considering the effect

of the bankruptcy of Gunther

and Carolyn Mannlgel upon their interests and those of Heinrich

Manniqel in the partnership

it is

necessary to say something about

their proprietary rights and interests

in the partnership following

their execution of authorities pursuant to

S . 188

of the Act.

The

actions of

the

Trustee

winding

the

partnership

must

considered In the light, inter alia, of the following circumstances.

When each appellant executed hls authority on 30 March 1 9 7 9

authorising the Trustee to call

a meetlnq of his creditors and to take

over the control of

his property and the Trustee consented to exercise

the powers conferred by that authority, the Trustee	was, by S. 1 9 0 of
the Act, empowered -

(a)

to take immediate control

the property and affairs of each

appellant;

(b)

to make such inquiries and investigations in connection with necessary;

(C)

to carry on the business of the partnership if

In his opinion

it would be

In the interests of the creditors to

do so (this

authority

stems

from

the

fact

hat

Trustee

was

Controlling Trustee

of the property of all partners of the

partnership); and

(d)

to deal with the property

of each appellant in any way that

would in his opinion be in the interests

of he creditors.

The

Rroperty of

which the Trustee assumed control was the

property of each appellant that would be divlsible amongst

his

creditors if

a sequestration order had been made against him on the

day on which

he signed the authority and includes after-acqulred

property (sub-S . 190(5)).

Each appellant was prohibited from removlng,

disposmg of or

dealing with any

of hls property except

wlth the consent

of the

Trustee and was required to

furnish to the Trustee such lnformation

with respect to his property and affairs

the Trustee requlred and

was required to comply

with any direction glven to him

by the Trustee

wlth respect to his property or affairs

(sub-S. 189(2)).

10.

Also, each appellant is by definition

a "debtor" for the

purposes of Part

X of the Act, that is

"a person who is unable to pay

his debts as

they become due out of his own monies" (sub-s. 187(1)).

So each

appellant

was

prima

facie

insolvent,

for

all

relevant

purposes, from the time

he executed the S . 188 authority.

The Trustee's authority

to control the property and affairs

of Gunther and Carolyn Mannigel pursuant to their respective

S. 188

authorities continued until they became bankrupt

on 3

December 1979

when their property vested in the Official Receiver

trustee of

their respective estates.

The

Trustee's authority to control the

property and affairs

of Heinrich Mannigel pursuant to the

188

authority continued until

he and the Trustee executed the deed of

assignment on 18 May 1979 (sub-S. 189(1)).

Thereafter, by operation

of the deed qf assignment,

all the divisible property

of Heinrich

Mannigel was assigned to the Trustee for the benefit

o his creditors,

but not property, if any, acquired by or which devolved on him on or

after the day	on which he executed the deed of assignment	(sub-S.
187(1)).

When

assessing

the

propriety

the

Trustee's

actions

subsequent to the bankruptcies it

is helpful to consider the nature

a partner's lnterest in partnershlp property. The nature of such

interest is that

he has

a right to his proportion of the surplus

remaining after the realisation of the partnership assets and the

payment of partnership debts and liabilities.

partner hes a right

to call for due administration of the partnershlp. its assets and

11.

liabilities. Although

a partner has no title to specific property

owned

by the partnership

has a beneficial interest in each and

every asset of the partnership. His interest in the partnershlp is

equitable interest in the sense that it is

a right or interest

enforceable in equity and not

law.

See Cannv Gabriel Castle

Jackson

Advertisins

Ptv.

Lmited v. Volume

Sales

(Finance)

Pty.

Limited (1974) 131 C.L.R.

321 at pp. 327-328; Federal Commissioner of

Taxation v. Everett (1980) 143 C.L.R. 440 at pp. 446-447.

Upon the sequestration of the estates of Gunther and Carolyn

Mannlgel the Official Receiver became the trustee of their respectlve estates and the Trustee contlnued to be the trustee of the deed of assignment of Heinrich Mannigel. Between them the Official Recelver

and the Trustee held

all relevant choses

in action and interests in

the

partnership

property

all

partners.

They

were

therefore

entitled to act as

they did, namely, the Official Receiver authorlsed

the

Trustee

upon

the

bankruptcy

two

partners

the

partnership business which had been running at

a loss and to wind It

up. This was the course which

both the

Offlclal Receiver and the

Trustee found convenient. It was a permissible course and the course

which in our oplnion would

have been directed and, if necessary,

authorised by the Court if

an appllcation had been made. In

a u r

oplnlon such

an application would have been in the circumstances a

mere formality and an unnecessary expense. Even if bankruptcy did

not, contrary to our

vlew of the proper construction of clause

2 0 ,

dissolve the partnership, the Trustee

as the assignee was pursuant to

clause 23 of the agreement the person entitled to give the requisite

12.

notice under clause

20.

As the Trustee and the Official Receiver

acted in concert there

is no person entitled to complain of the

absence of a formal notice.

The general rule is that when one partner has become bankrupt

the solvent partner has a right to get in the assets of the dissolved

partnership and may for that purpose use the name of the trustee in

litigation on givmg him an indemnity: Ex parte Owen:

In re Owen

(1884) 13

Q.B.D.

113 per Cotton L.J. at pp.

116-117

and per Lindley

L.J. at p. 117.

As the bankruptcy of Gunther and Carolyn Mannigel had

the effect of dissolving the partnership pursuant to

S .

of the

Partnership Act the general rule would apply only if Heinrich Mannigel

was

a solvent partner. But all

his

rights and interests in the

partnership had been assigned

to the Trustee by the deed

of assignment

under Part X.of the

Act

and the evidence does not support the

concluslon

that

was other

than an insolvent

administration.

Indeed, counsel for the appellants disavowed any suggestion that

Heinrich Mannigel was solvent at any relevant time. Hence this

1 s not

an appropriate case for the application of the general rule. In any

event, as

the rule 1s one

of administration, even if it had applied

the Trustee and the Offlcial Receiver would have been entitled to

determlne by arrangement between themselves the appropriate course to

follow in winding up the affalrs

of the partnershlp.

The question whether S.

31 of the Partnership Act applied to

limit the rights

of the Trustee as trustee of the assigned estate of

Heinrich Mannigel

to the matters specified

In that section does not

13.

arise for determination because that section only restricts the rights

of the assignee of

a partner’s share during the continuance of the

partnership.

The partnership was dissolved on

3 December 1979 and the

case for the appellants argued before us related to the conduct of the

Trustee

thereafter.

Furthermore

ven

that

section

did

not

authorise

the

Trustee

give

a notice

under

clause

20 of

the

partnership

agreement,

clause

23 of

the

agreement

gave

him

the

necessary authority as the assignee of a partner.

We agree with the view of the primary Judge that an inquiry

is not requlred to be held in the circumstances of this matter.

The appeals should be dismissed with costs including reserved

costs.

I cerufy rlrac this and the /d.

preceding

pages are a true copy of the reasons for

Judgment herein of the Court

‘c Qwt~

W rO 6‘epmber Iq6-

[1985] FCA 450

10 Sep 1985