Kaiwarua-Ealing Limited v Pullington Investments Pty Limited
[2012] NZHC 2226
•30 August 2012
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV 2012-409-40 [2012] NZHC 2226
BETWEEN KAIWARUA-EALING LIMITED First Plaintiff
ANDANDREW JAMES MORRIS and RACHELE SARAH MORRIS Second Plaintiff
ANDPULLINGTON INVESTMENTS PTY LIMITED
Defendant
ANDMARGARET JEAN HUBBARD in her capacity as executrix in the ESTATE OF THE LATE ALLAN JAMES HUBBARD and MARGARET JEAN HUBBARD Third Party
Hearing: 13-14 August 2012
Further closing submissions received on 17 & 23 August 2012
Counsel: R Hopkins and with A Butler and D Hume for Plaintiffs
G Brodie and P Bradford for Defendant
A Butler and D Hume for Third Party
Judgment: 30 August 2012
JUDGMENT OF MALLON J
Table of contents
Introduction ....................................................................................................................................... [1] The Evidence ..................................................................................................................................... [8] Background to purchase of farm..................................................................................................... [8] Discussions between the parties leading up to settlement ............................................................ [14] Settlement...................................................................................................................................... [51] Revisions to draft partnership agreement ..................................................................................... [53] Partnership post-settlement .......................................................................................................... [59] The Hubbards in statutory management ....................................................................................... [73] Are the plaintiffs bound by clause 6 of the final version of the draft partnership agreement? [99] The competing positions ............................................................................................................... [99] Finding of fact: what was agreed in February 2000? ................................................................ [103] Finding of fact: parties knew that Pullington needed to be a permanent participant?............... [110] Finding of fact: did Mr Holman discuss the draft partnership agreement with Mr Morris?...... [118]
My assessment in light of the facts as found. .............................................................................. [127] Termination under the Partnership Act...................................................................................... [143] Pullington’s claim against Mrs Hubbard .................................................................................... [147] Result .............................................................................................................................................. [148]
KAIWARUA-EALING LTD v PULLINGTON INVESTMENTS PTY LTD HC CHCH CIV 2012-409-40 [30 August 2012]
Introduction
[1] The issue in this case is whether a farming partnership agreed that there were to be pre-emptive rights if a partner wished to terminate the partnership. A written partnership agreement was prepared which contained pre-emptive rights, but there is no evidence that it was signed by all the partners. The question is whether that unsigned agreement was accepted and adopted by the parties at the time the partnership was formed. The plaintiffs say it was not and that there was no agreement as to what would happen if a partner wished to terminate the partnership. They have served notice of dissolution of the partnership and wish to agree a division of the assets with the defendant. The defendant says there are pre-emptive rights which apply, and pursuant to those rights it wishes to purchase the plaintiffs’ interest in the partnership at a price to be determined by arbitration.
[2] The farm operation that is the subject of this dispute is at Ealing, which is in the South Island and is situated between Timaru and Ashburton. It is a 1245 (approx) hectare property made up of 16 titles. It was purchased by the partnership in 2000 for $5 million. It has been a successful operation and land values have increased substantially since its purchase. The property is now worth approximately
$60 million. There is a bank loan of about $20 million which is secured over the land and subject to guarantees from the partners and their associated individuals.
[3] Mr and Mrs Morris (who are the first plaintiffs) have a 25 per cent equity interest in the farm. They live on the farm and Mr Morris has been the farm manager since its purchase. They purchased their interest through a partnership with the late Mr Allan Hubbard and his wife, Mrs Jean Hubbard. Mrs Hubbard, in her personal capacity and as administrator of her husband’s estate, has a 25 per cent equity interest in the farm. The remaining 50 per cent interest is owned by Pullington (the defendant), which is a company owned and controlled by Mr Geoffrey Holman and his wife, Mrs Frances Holman. The Holmans live in Western Australia.
[4] The interests in the Ealing farm were structured into two partnerships as
follows:
Ealing Land Partnership
(owns land and the Fonterra shares)
Ealing Pastures Partnership (trading entity which farms the land and owns the stock and plant)
50%
50%
50% 50%
Kaiwarua Station Partnership (wound up in 2005)
50% 50%
Pullington Kaiwarua-Ealing Ltd Pullington
Mr and Mrs Morris Mr and Mrs Hubbard
50%
shares
50%
share
Mr and Mrs Morris Mr and Mrs Hubbard
[5] The issue in this case has arisen following a falling out between Mr Holman and Mr Morris over the purchase of the Hubbards’ share of the partnership. As a result of that falling out, Mr and Mrs Morris want to end the partnership, and to divide the farm into two. Pullington would take one half and they would take the other. They would like to continue to live on the farm which is their home. Mr Holman objects to this. Although it is technically feasible to divide the property (the property has for a number of years been run as two farming operations), it would be necessary to transfer the existing ownership of the titles that make up the property. Mr Holman says that this has significant tax implications for him. He says that if Mr and Mrs Morris wish to terminate the partnership, they must offer to sell their share of the assets to him and he wishes to exercise his right to purchase those assets.
[6] The specific relief sought by the plaintiffs (Kaiwarua-Ealing Ltd and Mr and Mrs Morris) are orders declaring that the two Ealing partnerships that were put in place are terminable under the Partnership Act 1908, that no notice period applies for the dissolution of the partnerships and that the plaintiffs are not compelled to sell their shares in the partnerships on dissolution.
[7] Pullington counterclaims, seeking an order for specific performance directing the plaintiffs to sell their title and interest in the Ealing partnerships at a price determined by arbitration in accordance with the unsigned agreement. It also seeks
orders against Mrs Hubbard declaring that she may not sell the Hubbards’ interest in the partnerships without offering them to Pullington, and directing her to transfer the Hubbards’ interest to Pullington at a price to be determined by arbitration.
The Evidence
Background to purchase of farm
[8] Mr Hubbard was the person who initiated the purchase of Ealing. He was a Timaru accountant and businessman. Through various entities, he had a controlling interest in South Canterbury Finance and Aorangi Securities Ltd, which were finance companies which had built up significant farming and other investments. Through his investments he was thought to have considerable wealth.
[9] Mr Holman, through Pullington, had funds to invest because of the sale of a plastic equipment business he and his wife had established in Australia. The capital gain from that sale was taxable income in Australia, but the liability for this tax could be deferred by reinvestment in a qualifying asset. Mr Holman was introduced to Mr Hubbard at the end of February 1999 through a friend, Mr Andy Turney. Mr Holman discussed with Mr Hubbard his desire to find a farming business in New Zealand that would meet the purpose of deferring the payment of his tax.
[10] Mr Holman says that Mr Hubbard found the Ealing property with Pullington in mind in or about November 1999. A farm consultant, Mr Peter Horman, was instructed to inspect and appraise the property. Although Mr Holman had not seen the property, Mr Hubbard decided to purchase the property with confidence that Pullington would approve the purchase. There was some time pressure to make the offer and Mr Hubbard’s business interests were such that he would not have been too concerned if Pullington did not proceed.
[11] On 6 December 1999 Mr Edgar Bradley, a solicitor from Timaru who had acted for many years for Mr Hubbard, was instructed by Mr Hubbard to make an offer to purchase Ealing for $5 million. Mr Bradley’s evidence is that he understood that the purchaser was to be Mr Holman, although it had not been determined who
the purchasing entity would be. The offer was accepted with settlement to take place on 30 June 2000.
[12] Mr and Mrs Morris were also introduced to the possibility of purchasing the farm by Mr Hubbard. Mr and Mrs Morris were already in 50:50 partnership with Mr and Mrs Hubbard in another farming operation, at Kaiwarua, at that time. That partnership began in 1991 when Mr and Mrs Morris had funds to invest from an earlier farming partnership (not involving Mr Hubbard). In the Kaiwarua partnership Mr Hubbard was “very much a silent partner”, with Mr Morris as farm manager free to make the day to day decisions as well as decisions about more substantial expenditure (e.g. spending $250,000 on a new woolshed).
[13] The Kaiwarua partnership was a successful one. After nine years it was debt free and there was $400,000 in the bank. By that time Mr and Mrs Morris were looking at moving closer to Mrs Morris’ mother and to where they could get suitable schooling for their children. In late November/early December 1999, Mr Hubbard provided Mr Morris with information about the Ealing property. Mr Morris was not able to respond immediately. When he did respond to say that he was interested in the Ealing property, Mr Hubbard said that Mr Morris was too late because he had bought the property and on-sold it to a foreign party. That foreign party was Mr Holman.
Discussions between the parties leading up to settlement
[14] Mr Holman says that he inspected the Ealing property for the first time in January 2000. He made that inspection with Mr Horman and a friend, Paul Turney, who had agricultural investments in the United Kingdom with his brother Andy Turney. Mr Holman says that he spent the better part of a day inspecting the Ealing property. Mr Holman says that the property was larger than he could afford but he understood that Mr and Mrs Hubbard would take a third of the equity.
[15] Mr Holman says that in the evening after the inspection, he typed up a three page memorandum. This document was headed “Long term objectives for Ealing Pastures”. It commenced with the following:
Each of the investors would have his own objectives. In Geoff’s case he would be content with a long term holding but if opportunities arose for profitable disposals then the constraints would be to make no disposals before 01/07/2001 and preferably 01/07/2005 at which date a further rollover would be permitted by the Australian Tax Office.
[16] The document also recorded that the assets needed to be purchased by Pullington directly. It noted that the 16 titles which made up the property would need to be shared in an equitable manner and held by each investor.
[17] The document was faxed to Mr Hubbard on 26 January 2000. Mr Holman says this document formed an agenda for a meeting that took place on 28 January
2000 between Mr Hubbard, Mr Horman, Mr Holman, Paul Turney and another friend. The notes of that meeting recorded that if Mr Turney did not wish to take a share then Mr Hubbard saw no difficulty in finding an investor.
[18] Mr Holman says that after this meeting he typed a rough draft of an agreement. This rough draft was headed up “Agreement to Farm in Co-operation”. It listed Pullington, the Turney brothers and Hubbard Churcher (Mr Hubbard’s accounting firm) as the parties. It provided for each party to own approximately equal assets in the property and stock (etc) and for profits and losses to be shared equally. It provided an acknowledgement that improvements to the land could occur in a way that disadvantaged one or more of the partners. It then provided:
It is hereby agreed as follows:-
At such time that one party may wish to end this agreement, notice not less than 12 months, will be given in writing to Ealing Pastures Farming and copied to other parties.
The procedure will be as follows:-
Ealing Pastures Farming will instruct a licensed valuer to value the total area of land buildings and fixtures, plant, livestock and conserved feed being farmed under this agreement.
With not less than 6 months unexpired notice remaining, a new average value by area will be determined and used to assess the value of the portion which is to be withdrawn from management under this agreement.
That portion will then be offered for sale to the other two parties for each to buy 50%.
If a contract of sale has not been made within one calendar month, the portion will be offered to each of the other parties as one complete lot.
If a contract of sale has not been made within a further calendar month then the selling party may sell his portion to a new investor, providing that the new investor is approved in writing by the remaining parties.
If with 3 months unexpired notice remaining, a contract of sale is not in place, the selling party will have the right to demand that the total area of land, and stock be placed on the market as a going concern, and that no reasonable offer to purchase should be refused.
Any dispute arising from this agreement will be referred to arbitration by the xxxxxxxxxxxxxx
[19] Mr Holman says that the day or so after the meeting on 28 January 2000, Mr Turney informed Mr Holman that he could not participate in Ealing. Mr Holman says that Mr Hubbard was informed. He says that Mr Hubbard said that he had another farming associate who might be prepared to take a share in the partnership and to reside on the farm as manager. This was Mr Morris.
[20] Mr Morris says that in early February 2000 Mr Morris called into Mr Hubbard’s office about another property he was looking at. Mr Hubbard told him that the foreign party who had purchased the Ealing property could only afford a half share in it and that he was looking for another half-shareholder. Mr Hubbard asked Mr Morris if he was interested in the property. Mr Morris said he would like to have a look at it. Mr Hubbard said he would arrange for Mr Morris to meet with the farm consultant (Mr Horman) who had been working on the sale and the foreign party (Mr Holman).
[21] There is a conflict in the evidence about where Mr Holman and Mr Morris first met. Mr Holman says that, when he told Mr Hubbard that Mr Turney was not proceeding, Mr Hubbard arranged for Mr Holman to meet Mr Morris at Hubbard Churcher’s offices in Timaru on 3 February 2000. He also says that it was at this meeting that he tabled his “Agreement to Farm in Co-operation” and which Mr Morris agreed to. Mr Holman says that he made a handwritten change to this document by deleting Turney and writing “KIVARUA”. He says that the misspelling of Kaiwarua was his. He said it was because Mr Morris and Mr Hubbard pronounced the word with a “V”.
[22] He says that at this meeting, Mr Hubbard, Mr Morris and he committed to an agreement to enter into a partnership in which he would take 50 per cent, the Hubbards would take 25 per cent and Mr and Mrs Morris would take 25 per cent, but subject only to Mr Morris clearing it with his wife. Mr Holman says that he agreed to go into partnership with Mr Morris on the day he met him. He says that the Turney brothers, who were his close friends, had absolute confidence in Mr Hubbard and this gave him the necessary confidence.
[23] Mr Holman says that at the end of the meeting on 3 February 2000, Mr Hubbard told Mr Holman to see Mr Bradley to give him instructions to make an application to the Overseas Investment Commission (the “OIC”) and for the preparation of a partnership agreement. Mr Bradley’s offices were next door to Hubbard Churcher’s offices.
[24] A memorandum from Mr Bradley to Mr Hubbard dated 3 February 2000 confirms that Mr Holman visited Mr Bradley that day. Mr Bradley’s “understanding” from that visit (as set out in his memorandum) was that:
(a) Mr Holman would take a half share in the land in the name of
Pullington.
(b)the half share would be taken up by having transferred land approximately equivalent in value to the company holding “but on a split up the total value of the assets less liabilities would be the basis on which calculation is made.” (Mr Holman’s evidence is that this slightly unusual arrangement was because Pullington needed to acquire an asset in its own right to obtain the tax benefit he was seeking.)
(c) any agreement Mr Holman signed would need to be subject to the Overseas Investment Regulations, and Mr Holman wondered if it should be signed by Mr Hubbard because he did not want to run the risk of losing the purchase if the vendor considered the agreement has
been substantially altered (thereby justifying cancelling the agreement).
(d)Mr Holman’s main concern was that the vendor should be put on notice that pending settlement the property was to be farmed in accordance with standard farming practices of Landcorp.
[25] Mr Bradley’s memorandum makes no reference to the drafting of a partnership agreement. Nor does it make any reference to Mr Morris.
[26] There is no dispute that Mr Morris inspected the Ealing property on
3 February 2000. Mr Holman says that this inspection took place after the meeting at Hubbard Churcher and the discussions with Mr Bradley. Mr Holman says that he, Mr Horman and Mr Morris spent the afternoon at the farm. Mr Morris recalls Mr Horman taking him around the property. He does not remember whether Mr Holman went around the property with him, but he can recall being at Mr Horman’s place after the inspection, and Mr Holman being there also. He says that this was the first time he met Mr Holman. He is sure that he did not meet Mr Holman at Hubbard Churcher’s offices before inspecting the property with Mr Holman. He is also sure that at this stage he had not agreed to go into partnership with Mr Holman. Mr Morris recalls that at Mr Horman’s property they discussed some initial figures and talked about the Ealing property.
[27] Mr Holman returned to Perth on 4 February 2000 and then sent an email to Mr Hubbard on 5 February 2000. In this email Mr Holman thanked Mr Hubbard for his assistance in the past few days and reported on his “interesting afternoon with Andrew [Morris]” and Mr Horman. He said that “Andrew appears to be the capable young man you described to me on the phone. I hope we can find some common ground.” He also said that “if Andrew [Morris] decided for one reason or another that Ealing was not for him my Scottish friend, I think, would take the remaining shares”. But Mr Morris was interested and, at some point after the inspection of the property on 3 February 2000, Mr Morris informed Mr Hubbard of this.
[28] Mr Holman returned to New Zealand for eight days on 28 February 2010. Mr Holman says that on one of those days he and his Scottish friends had a picnic with Mr Morris. He says that this was not for the purpose of discussing whether he would be a partner as that had already been agreed. He says there was no discussion about the terms of the partnership at this time. During this visit he met Mrs Morris at the Kaiwarua farm.
[29] Mr Morris recalls Mr Holman and his friends visiting him and his wife at Kaiwarua. He says that this was the first time his wife met Mr Holman. He said that the purpose of this visit was to “see if we were suitable”. However he thinks that this visit took place after a meeting with Mr Hubbard and Mr Holman on
28 February 2000 at the offices of Hubbard Churcher. Mr Morris thinks that there was only the one meeting with Mr Hubbard, Mr Holman and Mr Morris present before they proceeded with the purchase.
[30] Mr Morris does not remember seeing the Agreement to Farm in Co-operation but accepts it is possible that Mr Holman tabled it at the meeting on 28 February
2000. Mr Morris’ memory is that Mr Hubbard said “I’ll deal with it”, “I’ll take it away and get Edgar Bradley to draft something up”. Mr Morris says that Mr Hubbard would have said something along the lines of “Andrew will be running the business. He will be paid $X. Hubbard and Churcher would be doing the accounts. Edgar Bradley will be the lawyer and we will need to instruct him to draw something up and we will circulate it.”
[31] Mr Morris says that at the meeting they discussed how Landcorp were managing the property prior to takeover. They discussed finance and how to deal with the existing manager on the property. He also recalls that there was a discussion about Mr Holman’s capital gains tax situation. He understood from the discussion that Mr Holman had sold a company in Australia for NZ$5 million and needed to invest for a period of five years in farming or in land in order to avoid having to pay capital gains tax. Mr Morris says that he distinctly remembers that there was this five year term and that therefore the partnership would be for a period of five years, after which they would re-look at everything.
[32] He says that the discussion also involved how the land would be owned. Mr Holman needed to have Pullington’s name on the titles. Mr Hubbard decided that Mr and Mrs Morris and he and Mrs Hubbard would form a company Kaiwarua- Ealing which would hold the land 50:50 with Pullington, with Kaiwarua-Ealing owning half the land and Pullington owning the other half. Mr Morris left the formation of the company to Mr Hubbard.
[33] Mr Morris says that there was no discussion that Pullington needed to be a permanent participant or would need to purchase the rest of the partnership. He says that it would have been said that an agreement would include that if anyone wanted to exit then the other parties would have an option of buying. Mr Morris says that his understanding was that it would not necessarily be sold and that the partnership could end and the property split. He accepts that the potential for a division of the land was not discussed with Mr Holman at this initial meeting.
[34] Mr Morris says that it was after this meeting and Mr Holman’s visit to Kaiwarua that he and his wife committed to going into partnership. Not long after this, Mr Morris had discussions with Landcorp about the on-going management of the property and wrote some notes to Mr Holman about this. On 15 March 2000
Mr Holman responded to Mr Morris about that. Mr Holman’s response also included the following:
...We do need to get on with the issue of dividing the titles so we both have approximately the same area of land. I am happy for Alan to do this but you might care to mention that my view is to mix them up in patchwork style. That will consolidate the principle that we are acting as a team and frustrate any future attempts to break our agreement other than by mutual consent or by due process provided for in the agreement.
I am more than confident that Alan, you and I will have no bother dealing with each other but who knows what may happen some time in the future when one or more of us has gone to heaven.
You might also check that Alan has someone working on the terms of our land valuation and share farming agreement. I think it can be very short and simple but let us ensure that it is done properly.
It is important that you have an agreement which gives you some certainty for the future. If Fran and I get bowled over by a bus you do not want to be left in a position where our estate could give you six months notice to sell up and move on. But I guess a rolling 3 year agreement would be fair to both sides.
[35] Pullington needed OIC approval. Mr Hubbard instructed Mr Bradley to prepare the OIC application. Mr Morris was not involved in this. On 21 March
2000 Mr Bradley sent a memorandum to Mr Hubbard enclosing a first draft of the OIC application for Pullington’s investment in the property. This draft included the following:
It has been agreed between Pullington and Kaiwarua that on a split up
(a) the total value of the assets less liabilities would be the basis on which the calculation is made irrespective of the then values of individual pieces of land and
(b) if either party wished to sell the other would have the right to purchase at a price to be fixed by agreement or arbitration
[36] On 22 March 2000 Mr Morris and Mr Holman met with the farm manager and a representative for the vendor. This meeting resolved the farm management issues pending settlement.
[37] Mr Holman set about realising investments to fund his share of the purchase. On 1 May 2000 Mr Holman wrote to Mr Hubbard regarding his funds for the purchase of the property. He also said that he intended to be in New Zealand in the week preceding settlement.
[38] On 15 May 2000 Mr Hubbard instructed a farm consultant (Mr Montgomery) to work out a division of the titles. The letter said that “[b]ecause of some Australian tax problems, Pullington was to take title in its own name.” The letter said:
Could you inspect and work out which titles should be purchased by Pullington Investments Pty Ltd and which by Kaiwarua Ealing Ltd. To this end a schedule of titles and areas is enclosed together with two plans and a copy of DDT tests. The two partners intend to enter into an Agreement providing that despite the different ownership the property will be farmed as one, and if one partner wishes to sell to the other, the total property will be valued and the result divided in two.
[39] On 18 May 2000 Mr Bradley wrote to the Overseas Investment Commission seeking approval for Pullington to purchase a half share in the Ealing property. The letter included the same statement as the draft as to what had been agreed on a split up (refer [35] above). There were further communications between the OIC and Mr Bradley. Mr Hubbard was involved in these communications. On 8 June 2000
the OIC advised that consent was granted “to the giving effect to any transaction which results in the Applicant acquiring an estate in 1284.349 hectares of land” situated at Ealing. The consent “decision sheet” recorded:
(a) the “Offeror/Applicant” as “Ealing Pastures Joint Venture”.
(b)the “Applicant Ownership” as Mr and Mrs Holman (50 per cent), Mr and Mrs Hubbard (25 per cent) and Mr and Mrs Morris (25 per cent); and
(c) the “Beneficial Overseas Ownership” of the asset proposed to be
purchased as 50 per cent.
[40] By letter dated 12 June 2000 Mr Hubbard instructed Mr Bradley to form Kaiwarua-Ealing Ltd in which Mr and Mrs Hubbard and Mr and Mrs Morris were to be 50:50 shareholders. He noted that a decision on the bank would be made that week. He also said:
...
5. We need a Partnership Agreement –
Partners – Pullington Pty Ltd and Kaiwarua-Ealing Ltd
Period – 5 years
Bankers – to come
Profits / Losses – split 50/50
Manager to be Andrew J. Morris. Salary to be fixed by mutual agreement. He to reside on the property and to devote his full time and attention to the affairs of the Partnership. He is allowed to still supervise Kaiwarua Station Ltd with a reimbursement from Kaiwarua for his time.
Cheques to be signed by either: Andrew Morris
Allan Hubbard
Geoff Holman
A provision needs to be made that if either party wishes to sell, his shares to be offered to the other party first.
6.Enclosed are some notes from Geoff, which could be incorporated into the Agreement.
[41] The “notes from Geoff” referred to in the letter are thought to be the
Agreement to Farm in Co-operation referred to above ([18]).
[42] Mr Bradley duly prepared the forms to incorporate Kaiwarua-Ealing Ltd. Incorporation occurred on 21 June 2000.
[43] Mr Bradley also prepared a first draft of the partnership agreement. It is not clear when that was first circulated but it seems that it was prior to the settlement date. Mr Bradley says that he circulated the draft to Mr Hubbard and Mr Holman and that he did not provide a copy to Mr Morris. Mr Bradley understood that in preparing the draft agreement he was acting for “everyone”. That is, he was acting for Mr and Mrs Hubbard, Pullington (Mr and Mrs Holman), and Mr and Mrs Morris. However, he understood that the instructions from Mr and Mrs Morris would be conveyed via Mr Hubbard.
[44] That draft named Pullington and Kaiwarua-Ealing Ltd as parties to the agreement. Clause 1.2 of that draft provided that “[t]he partnership shall be for a term of five years commencing on 1 July 2000 subject to clause 6”. Clause 6 was as follows:
6. Termination
6.1 Notwithstanding the provisions of clause 1.2 of this Deed either partner shall be entitled to terminate the partnership by giving to the other not less than one year’s notice in writing at any time.
6.2 If the partnership is terminated in this way then the partner (“the purchasing partner”) to whom notice was given shall be entitled to purchase the interest of the partner giving notice to terminate (“the retiring partner”) upon giving notice to the retiring partner within three months of receiving the notice to terminate.
6.3 After notice has been given by the purchasing partner the partners will intrust a registered valuer or valuers to value all land, buildings, fixtures, plant, livestock and conserved feed as at the date of termination or if the parties shall not be able to agree upon the registered valuer or valuers each partner shall be entitled to appoint its own valuer or valuers with such valuer or valuers appointing an umpire. Half the total value of all the land and buildings shall be deemed to be the value of each partner’s interest in the same notwithstanding ownership as shown on the titles. Likewise half the
total value of all other assets shall be deemed to be the value of each partner’s interest in such assets. In all other respects the price to be paid shall be fixed by agreement between the partners or failing agreement by arbitration as hereinafter provided. Settlement of the purchase shall be effected on the date of termination of the partnership or as otherwise agreed upon between the partners.
6.4 If no sale shall eventuate pursuant to the provisions of clause 6.2 the retiring partner shall be entitled to sell its interest in the partnership to any person, persons or company approved by the other partner. For that purpose either partner may require ownership of the various pieces of land to be adjusted to take into account changes brought about since the commencement of the partnership by virtue of specific investment strategies and improvements to land which may have in any way disadvantaged such partner in relation to the other such adjustment to be made by David Montgomery Agribusiness Consultants & Valuers Ltd or its nominee.
6.5 If no sale shall eventuate pursuant to the provisions of clauses 6.2 or
6.4 by the date of termination of the partnership all the assets of the partnership including each partners share of the land and buildings and all fixtures plant and livestock and conserved feed shall be sold with all convenient speed and the proceeds applied in paying and discharging such debts and liabilities and the expenses of and incidental to the winding up of the partnership affairs. The balance of such proceeds shall be shared equally between the partners.
6.6 The partners shall execute all necessary or proper instruments, acts, matters and things for facilitating any other matters above referred to.
[45] Mr Holman’s evidence is that after he received the first draft of the partnership agreement from Mr Bradley he had a discussion with Mr Morris. He said that the purpose of the meeting was to review the agreement. He says this meeting took place at the cottage at Ealing, during his visit to New Zealand in the week before settlement.
[46] Mr Holman says that Mr Morris had indicated to him “from the outset” that he had made a promise to his wife that at the age of 50 he would leave farming and pursue other ventures or lifestyle. Mr Holman also says that he made it clear to Mr Morris that, because of the potential liability for capital gains tax, if any land were to be sold Pullington would be a permanent participant at Ealing, more or less obliged to purchase its partners’ interests if they wished to leave. Mr Holman says that Mr Hubbard had explained to him, as his New Zealand accountant, that it was not correct that the investment needed to be held for five years and that the investment needed to be permanent. He cannot remember when Mr Hubbard gave him this advice, but says that it would have been before settlement.
[47] Mr Holman says that he orally agreed with Mr Morris that in the event that either wished to terminate the partnership, one year’s notice would be provided, a valuer would be engaged and if agreement could not be reached the matter would go to arbitration. He says that a firm oral agreement to this effect was reached and, following that agreement, instructions were given to Mr Bradley. He says that Mr Hubbard had assured Mr Holman that he understood the Australian capital gains tax provisions and that he would organise a partnership structure that met his requirements.
[48] Mr Holman is not specific about the point in time that these matters ([46] and [47]) were discussed and agreed – that is, whether it was at the earlier February meeting or when meeting with Mr Morris at the cottage to discuss the draft partnership agreement. In any event, he says that on one copy of the agreement he made some handwritten notes. In relation to the term his handwritten note was “why is this term limited at all? I wonder are we creating a termination date unnecessarily.” On this same document, alongside clause 6.4, Mr Holman wrote “please explain”. Clause 6.4 was also underlined by hand. Mr Holman is not certain that it was him that underlined this clause and says that it may have been underlined by Mr Morris. He says that at this meeting at the cottage he said to Mr Morris that when they were all gone no-one would understand why the titles had been acquired in two different entities and jumbled in a patchwork style.
[49] Mr Holman also prepared a handwritten note containing a revised preamble. He says that Mr Morris was present in the kitchen at the cottage while he wrote this out. Mr Holman sent the revised preamble with the handwritten note to Mr Bradley. That note was as follows:
Dear Edgar
Ealing Pastures Deed - Draft
1.Please consider my preamble. Just in case we are all dead and no- one knows why done this way.
2. 1.2 Why 5 years. Would an indefinite time be better.
3. 6.4 I need to discuss because I’m not sure I understand why we
might need this.
4. 7.1 Typing error final line. I will ring later.
Geoff Holman
[50] Mr Morris disputes that he took the draft partnership agreement to Mr Holman at the cottage and that they discussed it. He has no recollection of ever seeing a draft partnership agreement. He says that he did not underline clause 6.4 of the draft. He says that he would not have wanted an indefinite term. He says that as the farm manager in this partnership he wanted the certainty of a five year term. Mr Morris does not recall saying to Mr Holman that he did not want to have a permanent involvement in Ealing. He did in fact intend to scale down his involvement with farming by the time he was 50. (He has now done that by putting a share-milker on the property.) However he says that this was not the reason for the five year term, as he would not have been 50 when the five year term expired.
Settlement
[51] Settlement was due on 30 June 2000. To fund the purchase Kaiwarua-Ealing and Pullington invested $2 million each and the partnership borrowed $3 million from Westpac for stock-plant and development capital. This debt was secured against the land. The borrowings were in the name of Mr and Mrs Hubbard, Mr and Mrs Morris, Mr Holman, Pullington and Kaiwarua-Ealing Ltd “all trading as Ealing Pastures Partnership”. Mr Hubbard sent a letter dated 28 June 2000 to Mr Bradley advising that he had arranged for 3pm that day “a meeting with all concerned (to sign up documents etc)” in Mr Bradley’s boardroom. The documents referred to were the bank documents (there being no other documents signed that day).
[52] On the agreed settlement day not all the funds for the purchase were paid. The balance was paid on 3 July 2000 and the settlement of the purchase was completed that day. On settlement two of the titles that made up the Ealing property were transferred into the name of Pullington and the balance were transferred into the name of Kaiwarua-Ealing Ltd.
[53] On 3 July 2000 (that is, the day settlement of the property was completed) Mr Bradley circulated a further draft partnership agreement to Mr Holman (address c/o Hubbard Churcher) and Mr Hubbard. The preamble in the amended draft partnership agreement was as per Mr Holman’s handwritten note (refer [49]) and read as follows:
A Pullington and Kaiwarua have pooled resources to purchase from Ngai Tahu Holdings Ltd, a 1284 ha grazing property, known as Ealing Pastures, which had been owned and managed by Landcorp until 30th June
2000.
B Pullington would be nominating its share of the investment as a “roll-over” asset pursuant to Australian Tax Office Capital Gains Tax regulations.
C These regulations created a requirement for Pullington to hold direct title to the new assets; not a 50% share in a company or similar entity which might otherwise have been formed for the purpose.
D This deed arises from those constraints but with the partner’s primary objective of being even-handed in the treatment of both parties, during the resolution of any events, envisaged or otherwise, which might arise.
[54] Clause 1.2 was amended to provide that “[t]he partnership shall be for an indefinite period commencing on 1 July 2010 and expiring as provided on [sic] clause 6.1 of this Deed”. Clause 6.1 was consequently amended to provide that “[e]ither party shall be entitled to terminate the partnership by giving to the other not less than one year’s notice in writing at any time”. Clauses 6.2 to 6.6 remained unamended as did the other provisions of the draft.
[55] Mr Bradley said in his covering letter to Mr Holman that he had made the amendment to the preamble and clause 1.2 and a consequential amendment to clause
6.1. He went on to say that:
... on reflection I have retained clauses 6.3 and 6.4 as they are since it seems to me they cover two separate circumstances. In clause 6.3 one partner is buying out the other so who owns which pieces of land is irrelevant. In clause 6.4 it is contemplated one of the partners will remain farming its own pieces of land while the other will sell its pieces of land to a third party. In such event who owns what is very relevant.
I have also sent a copy of this draft to Allan.
[56] Mr Holman says that Mr Morris collected the draft partnership agreement from Hubbard Churcher and brought it to Mr Holman for discussion just prior to Mr Holman’s departure to Perth on 5 July 2000. He says that he signed the agreement and asked Mr Morris to take it back to Timaru and to get Mr Hubbard to sign it at his next meeting. He says that he did not retain a copy of the agreement because he did not have a photocopier or computer at the cottage. He says that he relied on Mr Morris to deliver the signed agreement to Mr Hubbard. He says that it was important to have the partnership agreement in place because of the disproportionate ownership of the land titles.
[57] Mr Morris does not recall picking anything up from Hubbard Churcher and taking it out to Mr Holman before he left for Perth. He says it is possible that he did and does not now remember doing this because there was so much going on at that time. He says “[w]hat I do know is that if I had been through a partnership agreement, seen it, discussed it, and agreed to anything in it, I would remember it” and that if he had been “asked to deal with it, I would have dealt with it.” He says it is not possible that he discussed the agreement with Mr Holman and that Mr Holman asked him to take the signed copy back to Mr Hubbard for signature.
[58] Mr Bradley says that after sending out this draft there was only one occasion after this when he discussed it with Mr Hubbard. He recalls asking Mr Hubbard how matters were progressing. He says that Mr Hubbard was non-committal. He says that he gained the strong impression that Mr Hubbard and Mr Holman had fallen out with each other. He says that Mr Hubbard was quick to change the subject. Mr Bradley also sent a statement to Mr Hubbard in relation to the settlement of the property on 14 August 2000. In his covering note he said “I think all that remains is finalising the partnership agreement.” Mr Bradley says that he never received any further instructions.
[59] Mr Morris’ family moved to the property shortly after settlement. He was the farm manager. Mr Holman and his wife primarily lived in Australia, but there was a house on the property (referred to by Mr Holman as the cottage) which they used for holidays. Mr and Mrs Holman came out to the farm about two or three times a year. Mr Hubbard did not come to the property very often.
[60] Mr Morris, Mr Holman and Mr Hubbard would generally meet once a year for an annual meeting at Mr Hubbard’s office in Timaru. Mr Morris says that at annual meetings Mr Hubbard would barely talk. Consistent with Mr Bradley’s evidence that Mr Hubbard appeared to have fallen out with Mr Holman, Mr Morris says that from very early on Mr Hubbard took a disliking to Mr Holman and limited his contact with Mr Holman as much as possible. Mr Morris says that, from his perspective, he got on well with Mr Holman.
[61] Shortly after the purchase it was decided to proceed to convert part of the farm to dairy (this proposal was referred to in the application to the OIC). Mr Morris discussed this with Mr Holman as it involved significant expense. Mr Morris also tried to discuss this with Mr Hubbard, but Mr Hubbard considered that this was a decision for Mr Morris as the farmer.
[62] Mr Holman says that the farming investment thereafter proceeded satisfactorily with substantial development work, reasonable earnings and very good capital returns. Mr Morris’ evidence is that the first eight years at Ealing were incredibly demanding and required a tremendous amount of effort to get the farm running profitably.
[63] At the end of the first year, Mr Hubbard produced trading accounts for the partnership under cover of a letter dated 26 November 2001. The letter noted that there were two separate partnerships: Ealing Pastures Partnership (which was a
50:50 partnership which owned the livestock, plant and equipment and the like) and Ealing Land Partnership (which owned the land 50:50). Mr Holman says that up until then he had not been made aware that the business was to be conducted through
two separate partnerships. He says that he and Mr Morris raised this with Mr Hubbard and were satisfied with his explanation. Mr Morris says that he was not involved in arranging the structure and left it to Mr Hubbard, but that he did know that it was intended that there would be a land owning entity and an operational entity. In any case, thereafter the financial statements were prepared with this structure without objection from Mr Holman or Mr Morris.
[64] Mr Morris recalls that there was a discussion about the partnership agreement about 18 months after settlement. He says that this discussion was probably at the first annual meeting in November or December 2001. He says that they discussed that the partnership agreement needed to be sorted out. He says that Mr Hubbard said he would talk to Mr Bradley about getting it sorted out. He says that he and Mr Holman decided that it should be progressed and they went straight around to see Mr Bradley. He says that they did not have an appointment. He says that they asked Mr Bradley to draft the agreement and that Mr Bradley said he would get a draft out to them. He says that there was no discussion of the contents of the agreement and Mr Bradley did not say that he had previously prepared a draft agreement.
[65] Mr Bradley’s evidence is that he “very vaguely” recalled such a meeting. He says it was “very short ... we didn’t even sit down”. He says that he did not send out a draft agreement because he assumed that he was supposed to do a variation to the agreement he had prepared in July 2000. He says that he got out his old file and saw that there were no instructions that he had not attended to. He says that he then telephoned Mr Hubbard but Mr Hubbard was not available. He says that he left a message asking if there was anything further he needed to do, but no response was forthcoming. He did not take the matter further.
[66] Mr Holman disputes that there was any such meeting with Mr Bradley in November/December 2001. It was put to Mr Bradley in cross-examination that the only occasion that Mr Holman and Mr Morris popped into Mr Bradley’s office unannounced after settlement was to make an inquiry about the river boundaries (because they wanted to see if they could ask a man who had set up a duck shooting posy to leave). Mr Bradley was asked if he remembered that occasion and replied “No, frankly I don’t”.
[67] Mr Holman says that he recalls that towards the end of the first year (which is possibly around the November/December 2001 time period Mr Morris refers to), when the first milking shed was nearing completion, they had a bit of a joke about whose title it was on. He says that Mr Morris then mentioned that he should follow this up with Mr Hubbard to ensure that the partnership agreement had been signed, and to obtain copies for both of them. Mr Morris does not accept this evidence, but says that he and Mr Holman would on occasion discuss that the partnership agreement had not been done and needed to be.
[68] In about 2004 Mr Morris says that he and Mr Hubbard discussed selling Kaiwarua and that Mr and Mrs Morris could use their share of the proceeds to buy out Mr and Mrs Hubbard’s interests in Ealing. Mr Morris says that Mr Holman was told about this plan and was happy with it to proceed because Mr Hubbard was an older man. Mr Morris says that Mr Holman never suggested that he also had a right to buy Mr Hubbard’s interests. Kaiwarua took some time to sell. When it was sold, Mr Hubbard decided that he wanted to stay in the Ealing partnership. He said that they could do the Ealing deal later. As a result of the sale of Kaiwarua, the Kaiwarua Station Partnership was wound up.
[69] Mr Morris completely disagrees with Mr Holman’s evidence that Mr Holman told him that he could never sell his interests in the Ealing partnership. He says that over the years they discussed how the property could be divided into two farms and operated separately. He says that they also discussed the possibility of the partnership selling the farms as a whole. He said that in these conversations Mr Holman did not say that he could not sell. He says that Mr Holman only started saying this after Mr Hubbard went into statutory management and Mr and Mrs Morris were trying to buy the Hubbards’ interests. Mr Morris says that the casual talk about selling the property usually arose after a real estate agent had called in and said what the property would be worth. Mr Morris would then tell Mr Holman what the real estate agent had said, when Mr Morris next saw or was speaking with Mr Holman. Mr Morris says that in those conversations, Mr Holman indicated that if the time was right and it was in their interests then he would sell.
[70] In 2005 a second milking shed was built on the property. Mr Morris says that he discussed this with Mr Holman. He says that the location of the shed was agreed upon as the logical place if the farm was ever split as there would be one milking shed on each property.
[71] In 2007 two new houses for farm staff were built. Mr Morris says that, when he updated Mr Holman about this, he told Mr Holman that he had decided to build them so that there would be an equal number of workers’ accommodation on each farm if the property was ever split into two farms. He says that Mr Holman did not raise any objection or say that the farm could not be divided.
[72] In 2007 or 2008 Mr Morris recalls having a conversation with Mr Holman about some trees that Mr Morris had pulled out and about an agreement Mr Morris had reached with a neighbour to square up a boundary. Mr Morris says that Mr Holman criticised him for taking these actions without his approval. Mr Morris says that this annoyed him. Mr Morris says that he responded by saying that he made decisions every day without Mr Holman, he did not need Mr Holman’s criticism, and that if Mr Holman wanted to be involved in every decision, then they could split the farms now and they could each run their own farms. Mr Morris says that Mr Holman backed right off and said that he did not want to do that.
The Hubbards in statutory management
[73] On 20 June 2010, on the recommendation of the Securities Commission, Mr and Mrs Hubbard, Aorangi Securities, and several charitable trusts with which the Hubbards were associated, were placed into statutory management. Mr Hubbard was also stood down as chairman of South Canterbury Finance. Soon after that, South Canterbury Finance was placed into receivership owing approximately
$1.8 billion. The Serious Fraud Office commenced an investigation which led to charges against Mr Hubbard and others.
[74] Mr Martin Gray assisted in the statutory management. He was involved in exploring the potential to realise the Hubbards’ assets. As part of this, the statutory managers commissioned a desktop valuation of the Hubbards’ Ealing interests.
Mr Gray says that Mr Hubbard indicated to him that Mr Morris might be willing to buy the Hubbards’ Ealing interests. He therefore discussed this with Mr Morris. He says that Mr Morris confirmed that he and his wife wanted to purchase the Hubbards’ Ealing interests if they could afford to.
[75] Mr Morris says that he talked to Mr Holman two or three times, telling him that they would be buying the Hubbards’ interests if they could afford them. Mr Morris recalls that at one stage Mr Holman asked him how the negotiations were going. Mr Morris says that he gave Mr Holman a copy of the desktop valuation that he had from the statutory managers. Mr Morris says that Mr Holman asked if he could do some work on the valuation and Mr Morris said that would be fine.
[76] In January 2011 Mr Morris had an accident. He was flown to hospital in a helicopter. He had concussion, three fractured vertebrae and a bruised spleen. He was in hospital overnight and discharged the next day. He was prescribed a number of drugs including tramadol and anti-inflammatories. Mr Morris says that when he got home from hospital he went to check in briefly with the share-milker. He says that he had a bad headache and was not feeling well. He says that Mr Holman arrived and invited him into his house. Mr Morris says that he did not want to have a discussion but, at Mr Holman’s insistence, he did. Mr Morris says that he recalls that Mr Holman was inquiring as to where things were at with the negotiations with the statutory managers. He says that he ended up being at Mr Holman’s house for about an hour and a half.
[77] Mr Morris says that the next day Mr Holman came to see him and said that they had an agreement to split Mr Hubbard’s interests between the two of them. He says that he told Mr Holman that he would never agree to that. Mr Morris says that Mr Holman was annoyed that Mr Morris would not agree to a joint purchase of Mr Hubbard’s interests. There was an argument in Mr Holman’s house about this. Mr Morris says that Mr Holman was insisting that they had agreed to this. Mr Morris says that he denied that he had and that he had been concussed. Mr Morris said that he made it very clear to both Mr Holman and his wife that he had no intention of being in a minority partnership with Mr Holman and that it was never going to happen. Mr Morris said that he suggested that, if Mr and Mrs Morris
could not afford to buy, they could split the property. He says that Mr Holman said that he could not sell, that he could never sell and that he could only buy. Mr Morris says that he suggested doing boundary adjustments, rather than a sale, and Mr Holman said he did not know what he was talking about.
[78] Mr Morris says that Mr Holman said he was going to see Mr Gray. Mr Morris says that he had no problems with that because, if Mr and Mrs Morris could not afford to purchase the Hubbards’ interests, then Mr Holman would have the next right to do so. Mr Gray confirmed that Mr Morris arranged for Mr Holman to meet with him.
[79] Mr Holman’s version of these discussions is different. He says that Mr Morris said that he would like to purchase the Hubbards’ share of the partnership but that he had insufficient resources unless Pullington was prepared to raise the cash against all the Ealing titles and guarantee his debt. He says that he told Mr Morris that he was not prepared to do that. He says that Mr Morris came up with an alternative suggestion that the land be divided into two farms, one for Pullington and one for Mr and Mrs Morris. He says that he told Mr Morris that this would involve a huge tax cost for Pullington. He says that “in a spirit of compromise” he offered to “forego Pullington’s right to purchase two thirds of” the Hubbards’ share of the partnership. He says that they agreed that they would enter negotiations with the statutory managers with a view to negotiating the purchase of that share, on the basis that Pullington and Mr and Mrs Morris would acquire half each. He says that the argument with Mr Morris was later (see below at [86]).
[80] Around this same time the Ealing partnership were contacted by the statutory managers about some transactions that Mr Hubbard had put in place, transferring Mr and Mrs Hubbard’s interests in the partnership to Mr Morris and Mr Bradley as trustees for a charitable trust. It seems that this was one of a number of other transfers of assets to charitable trusts which Mr Hubbard had put into place, and which he had purported to sign in Mr Morris’ name. These transfers were done without Mr Morris’ knowledge. On 25 January 2011 the statutory managers enclosed a deed of annulment in relation to the purported transfer in relation to the Ealing interests.
[81] Also around this time, Mr Holman says that he conducted a search of his files to see if he had a copy of the partnership agreement for Ealing. He says that he asked Mr Morris if he had copy of it and if he could recall whether Mr Hubbard had executed it. He says that Mr Morris said he would look but later reported that he could not find a copy. He says that he told Mr Morris that there was bound to be a copy in the box file that Mr Hubbard used to bring to their annual meetings. He says that Mr Morris later reported that he had found no correspondence or record of the agreement.
[82] The first meeting between Mr Gray and Mr Holman was on 27 January 2011. At this meeting Mr Holman provided Mr Gray with advice he had received that the value of the Hubbards’ interests should include a minority discount. Mr Gray considered a minority discount to be unacceptable to the statutory manager. On
28 January 2011 Mr Holman emailed Mr Gray with some steps towards reaching agreement on a price and settlement. Those steps included a process for an umpire to determine value in the event that the respective valuers from each side could not agree on value. Mr Gray responded by email that day saying that the statutory manager did not wish to get a further valuation. A further meeting between Mr Holman and Mr Gray took place on 3 February 2011. At this meeting and/or the meeting on 27 January 2011 Mr Holman advised Mr Gray that Pullington would acquire 66 per cent of the Hubbards’ Ealing interests and Mr and Mrs Morris would acquire the remaining 34 per cent share. Mr Holman had obtained a valuation and used this as the basis for a possible price.
[83] Mr Holman’s evidence is that the discussions with Mr Gray went very well. After the meetings he says that Mr Morris came to his house to see how he had got on. He says that he gave Mr Morris his handwritten summary of his calculation. He says that Mr Morris was both pleased and surprised at the figure being discussed with Mr Gray. Mr Morris took this handwritten note with him: that is confirmed by the handwritten note being discovered by Mr Morris as part of the discovery process in this proceeding.
[84] When Mr Gray informed Mr Morris of his discussions with Mr Holman, Mr Gray says that he learned that at 66/34 split was unacceptable to Mr Morris.
Mr Morris confirms that he was contacted by the statutory managers as to whether there was an agreement between Mr Holman and Mr and Mrs Morris to purchase the Hubbards’ interests. Mr Morris said that he told them that that was definitely not the case.
[85] Mr Gray also understood from Mr Morris that he wanted to agree on a price that was fair to both Mr and Mrs Morris and the Hubbards. He therefore thought that the Mr and Mrs Morris were likely to pay a higher price for the Hubbards’ Ealing interests than Pullington. For those two reasons Mr Gray did not pursue further the proposal from Pullington.
[86] Having not heard from Mr Gray, Mr Holman decided to telephone Mr Gray. He says that this was about two weeks after his meetings with Mr Gray. He says that Mr Gray informed him that Mr Morris had instructed Mr Gray to cease negotiations with him. After this, Mr Holman says that he confronted Mr Morris in front of Mrs Holman, as to why Mr Morris had instructed Mr Gray not to have further discussions with him. He says they had a “row” with Mr Morris claiming to have no memory of their agreement about this.
(b)The plaintiffs submit that there would be OIC issues if the pre- emptive rights were exercised by Pullington. That is not accepted by Pullington. In any event, to the extent that the plaintiffs contend that clause 6 is illegal and therefore unenforceable without retrospective consent and open to cancellation by the plaintiffs, it was not pleaded. To the extent that the plaintiffs submit that this shows there were still matters to work through before the agreement was finalised, there is no indication that the parties had not committed to the agreement because they thought there were still OIC issues to tidy up.
(c) The plaintiffs submit that a right of pre-emption if one party wishes to
“sell” is different from a right of pre-emption in the event of
dissolution. A sale would be of the partner’s interest in the partnership assets. Primarily this was a half share in the land. If Kaiwarua-Ealing Ltd wished to sell its partnership assets, that would put an end to the partnership between those partners. That is reflected in the OIC application which referred to pre-emptive rights in the event of a “split up”. While those instructions contemplated that a party might not wish to sell in the event of a “split up”, the draft agreement provided for a division of assets only if the pre-emptive rights did not result in a sale to the other partner or an approved new partner. However that was envisaged for a termination within five years. The parties had not committed to pre-emptive rights applying after five years and termination could therefore involve a division of assets, rather than a sale by one partner to the other or a sale of the interest in the assets to a new partner.
[142] The end result is that the parties had not agreed on what was to occur on termination of the partnership if it extended beyond five years. As the partnership has extended beyond five years, termination is governed by the Partnership Act.
Termination under the Partnership Act
[143] The notices of dissolution were given under s 35(1)(c) of the Partnership Act. Section 35 provides:
35 Dissolution by expiration or notice
(1) Subject to any agreement between the partners, a partnership is dissolved,—
...
(c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership.
(2) In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is so mentioned, as from the date of the communication of the notice.
[144] In accordance with this provision the Kaiwarua Land Partnership is dissolved.
[145] The Kaiwarua Pastures Partnership was dissolved earlier, pursuant to s 36 of the Partnership Act. That provides:
36 Dissolution by death, bankruptcy, or charge
(1) Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner.
...
[146] Mr Hubbard died on 2 September 2011. He was a partner in the Ealing Pastures Partnership. As the parties have been in dispute and a notice of dissolution was given by Mr and Mrs Morris soon afterwards, the conduct does not show that the parties intended to continue the partnership after Mr Hubbard’s death.
Pullington’s claim against Mrs Hubbard
[147] It follows from my findings above that Pullington has no pre-emptive rights in respect of the Hubbards’ interest in Ealing. The parties had not agreed to clause 6 of the draft partnership agreement. Even if they had, in respect of the Ealing Land Partnership (which Mr Holman says is of most concern to him), the partner was Kaiwarua-Ealing Ltd. Clause 6 would not have given any pre-emptive rights to Pullington in the event of a change in the shareholding of Kaiwarua-Ealing Ltd.
Result
[148] I make declarations as follows:
(a) The Ealing Land Partnership and the Ealing Pastures Partnership are terminable under the Partnership Act 1908;
(b) The Ealing Land Partnership was terminated by the notice given on
7 November 2011;
(c) The Ealing Pastures Partnership was terminated by the death of
Mr Hubbard on 2 September 2011;
(d) The plaintiffs are not required to sell their interests in the assets of the
Ealing Land Partnership and the Ealing Pastures Partnership assets. [149] Pullington’s counterclaim and third party claim is dismissed.
[150] The plaintiffs and the third party are entitled to costs in accordance with the High Court Rules. My preliminary view is that category 2B is appropriate. If there is any dispute about these costs, memoranda on the points in dispute, and limited to no more than three pages for each side, are to be filed and served within three weeks of the date of this judgment.
Mallon J
Solicitors:
Goodman Tavendale Reid, Christchurch for the First and Second Plaintiffs
Russell Moon & Fail, Ashburton for the Defendant
Russell McVeagh, Wellington for the First Plaintiff and Third Party
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