Sundale Enterprises Pty Ltd v Christie & Anor

[2002] QSC 155

[2002] QSC 155

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

BYRNE J

No 2896 of 2000

SUNDALE ENTERPRISES PTY LTD            Plaintiff

and

BRUCE JAMES CHRISTIE                   First Defendant

and

MARGARET TERESA CHRISTIE               Second Defendant

2951 of 2000

BRUCE JAMES CHRISTIE AND
MARGARET TERESA CHRISTIE               Applicants

and

SUNDALE ENTERPRISES PTY LTD
ACN 062 804 737  Respondent

BRISBANE

..DATE 31/05/2002

ORDER

1

HIS HONOUR:  The plaintiff and the defendants were once in

partnership.  The partnership has been dissolved and wound

up.  The assets have been realised and the creditors paid.

Approximately $46,000 remains to be distributed.  The

former partners, however, cannot agree on the destination

of the fund.  The plaintiff claims to be entitled to all

the money.  The defendants say it should first be used to

pay the costs of the dissolution litigation.

A Judge has ordered that the costs incurred on both sides

be assessed on an indemnity basis and paid out of the

assets of the former partnership.  The defendants say that

the fund constitutes the residue of those assets and should
be used to defray the costs.

Under the partnership agreement, the plaintiff on the one

hand and the defendants on the other were obliged to

contribute equally to capital.  As things happened,

however, the plaintiff made contributions to be treated as

being about $70,000 more than the value of the defendants'

capital contributions.  By reason of this additional

contribution to the assets, the plaintiff claims an

entitlement to the whole of the fund.

Section 47 of the Partnership Act 1891 does not in terms

dictate the outcome of the contest.  The regime it

prescribes assumes that the former partners would have

provided, and the partnership would have retained as its

assets, the capital contributions required under the

agreement.  This is implicit in Ross v. White [1894]

3 Ch 326. When Ross v. White was decided, s.44 of the

Partnership Act 1890 (UK) stipulated for the distribution

of the partnership assets on dissolution in terms soon

after adopted in Queensland by s.47 of our Partnership Act.

In Ross v. White the former partners had initially made

equal capital contributions.  During the subsistence of the
partnership venture, however, one partner obtained a

greater return of part of his contribution than the other. 
This meant that at dissolution the capital contributions of
the partners were unequal, contrary to the basis upon which
the partnership was agreed to be conducted.

A unanimous English Court of Appeal, affirming Kekewich J.,
rejected the contention that the costs of the dissolution

proceedings ought to be paid out of the surplus assets

before the capital contributions were rendered equal again

by an adjustment allowing the partner who had contributed

more to take the difference from the assets.

Lord Herschell LC said (at pp 335-336):

"the Defendant ... claims that he shall take his costs      out of the fund in Court without making good to the
     assets of the partnership that which he has taken
     out in excess of the sum taken out by the Plaintiff.
     I think he cannot do so.  Before he can claim to
     take his costs out of the assets, he would have to
     make good to the assets the sum which is found due
     from him."

Lord Justice Lindley said (at p 336):

"Before he can take his costs out of the assets, he
     must make good what is due to the assets; otherwise
     obvious injustice will be done."

Lord Justice Davey was of the same opinion, saying (at

p 337):

"The defendant cannot take his costs until in fact or
     in account he has made good his obligations to the
     assets of the partnership.

...

The right form of order ... would have been, 'To pay
     the plaintiff's costs out of the fund in Court; to
     let the Defendant deduct his costs out of the
     £600 which he owed to the assets; pay the
     balance into Court, and then divide between them the
     balance that then remained in Court."

In the present case, the inequality of capital

contributions at dissolution does not result from one

partner's taking more capital out of initially equal

capital contributions.  Rather, it arises because one has

contributed more than the other in circumstances where both
had promised to contribute equally.

The facts of this case are therefore different from those

considered in Ross v. White; but not materially so.  True

it is that Kekewich J. mentioned that he was not

considering a question that might arise if the claim was by
the partnership against any one partner to make him bring

in capital which he had agreed to, but had not,

contributed.  The Judge added (at p 332):

"Whether that would be a different case or not, I do
     not pause to inquire, because it is not the case
     with which I have to deal."

But it is the inequality of the capital contributions in

circumstances where the arrangements between the partners

required such equality that supplies the reason for the

rule Ross v. White propounds.  So it is immaterial that 

here the contributions are unequal for the reason that the

defendants did not advance the money needed to match the

value of the plaintiff's contributions despite being

obliged under the partnership agreement to do so.  See also

Lindley & Banks, On Partnership, 17th edition, at p 753.

The defendants ought therefore to provide the deficiency.

If they paid the aggregate of that sum to add to the

approximately $46,000 fund presently retained, that amount

could then be applied to pay the costs.  The balance, if

any, could then be distributed in accordance with

section 47.

As it happens, however, there appears to be no prospect

that the $70,000‑odd, which the defendants ought to have,

but have not, contributed by way of capital, can be paid.

I will entertain submissions as to the forms of order

that ought to be made in these circumstances.

...

I declare that the plaintiff is entitled in priority to the

defendants to the whole of the sum of $46,784.58 held in

the trust account of Carvosso & Winship to the credit of

the plaintiff.

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