Ipsofactoj.com: International Cases [2003] Part 3 Case 8 [NZCA]




- vs -





25 MARCH 2002


Richardson P

  1. This appeal from a judgment of Neazor J of 3 May 2001 relates to dairy company shares associated with a dairy farm at Greytown.

  2. The parties are the daughters and the son of Mr and Mrs Bicknell senior. Father and son carried on a dairy farming partnership pursuant to a deed dated 1 April 1969. The father died on 24 December 1988 and the mother on 11 May 1996. The deed provided that unless notice of termination was given the death of one partner did not determine the partnership. Farming continued until the partnership was dissolved on 31 May 1996.

  3. The sisters' interests arise through the will of their father and the will of their mother. The father's will left a house in Greytown and a life interest in the residuary estate to the wife. It then provided that "from my death one half of my farm assets shall go to my son" with an option to purchase the remaining one half, which has not been exercised, and left the balance of the estate to his daughters in equal shares. The mother's will left her estate to her daughters.

  4. The partnership deed provided for the business of the partnership to be carried on on the lands of each partner as set out in two schedules (the father's 75 acres (30 hectares) and the son's approximately 175 acres freehold and 110 leasehold), and that the father should make available for the use of the partnership the livestock totalling 214, described in a further schedule to the deed. Under the deed the parties were entitled on dissolution to the return of the lands and the father (and so his estate) to have livestock of like numbers, ages and quality returned. Subject to minor qualifications not relevant for present purposes, the partners were to share equally in the capital and in the net profits.

  5. As a result of further acquisitions the lands totalled 184 hectares at the father's death and the livestock at 31 December 1996 numbered 604 (136 the father and 374 the son). Under the father's will the son received a half interest in the farm land the father originally contributed, and the livestock the father bailed to the partnership. As well, he received his father's half share in lands they subsequently acquired jointly, in partnership owned livestock, and in their other farm assets and capital. Thus, by the end the son owned far more livestock than his father's estate and far more of the land used by the partnership. In area, the estate's landholding was 8% of the total area and the son's was 92%.

  6. In his earlier judgment of 20 December 1999, which has not been appealed, Neazor J held in relation to dairy company shares:


    The plaintiffs contend that the shares should be divided 50/50 as at 31 May 1996 on the basis that the terms of issue are such that the shares are an income related item not a deliberate investment. The evidence is sparse about the shares, as is the argument. It is contended by the parties that shares in a co-operative dairy company are compulsorily issued on the basis of milk solids or butterfat supplied. Without the shares the supply cannot be made. I further understand there is to be a similar relationship between farming operation and fertilizer company shares. On that basis in my view the shares would be covered by the term "my farm assets" in the will as assets related to the farming operation and Mr J A Bicknell would have become entitled to one-half of his father's entitlement in the shares held as at the date of death i.e. after 1988 Mr J A Bicknell would be entitled to three-quarters of those shares. That should be a sufficient determination for valuation to be made as at May 1996.

  7. In the later judgment of 3 May 2001 Neazor J dealt with various issues between the parties. Again it is convenient to set out the Judge's conclusions and reasoning in relation to the dairy company shares:


    The argument advanced by the plaintiffs' accountant is that the increase in shareholdings in these companies from 1988 is not attributable to the shareholding that existed at that date but is to be regarded as part of the income of the continuing partnership which should be divided as a 50/50 basis for that reason. The basis of the argument is that the shares when issued represent a rebate paid to the farmer ....


    Mr Allan on the other hand in submissions said that issues of shares were by way of bonus, so that the division of any increase in shareholding should be proportional to the original entitlement. A further difficulty is introduced by the factor that again in submissions Mr Allan indicated that all the shares are in the name of the defendant because the dairy company (like other farm co-operative companies) will not allow any person not involved in supplying milk to the dairy company to hold shares; indeed if the plaintiffs as non-suppliers wished to dispose of shares they would be required to surrender them at par.


    As I understand it there are two questions:


    whether Mr Bicknell should be regarded as owner of three-quarters or one-half of shares issued after 1988;


    whether the valuation (and numbers) of the shares to be taken into account should be as at 31st May 1996 when the partnership was dissolved or later. If later, complicated issues will arise because of company mergers and consequent changes in valuation issues in the dairy industry.


    I do not believe I have enough information to determine the first question. If the shares after 1988 were bonus shares which can be related back to the holding as at that date, I should have thought Mr Bicknell would be entitled to three-quarters of the value. If they were related to farm income payments from the company, the proper division would appear to be 50/50 in respect of the increase. The parties may be able to resolve this. If they wish to continue to dispute the issue, they will have to arrange a procedure whereby the Court can determine it on evidence, or an expert umpire can determine it in an arbitral way.


    The second question is, in practical terms, as I understand it, the more significant. I can discern no basis for attributing any shares allocated after the dissolution of the partnership in 1996 to the plaintiffs, because after that date they had no interest arising from the working of the partnership to which new shares could be related. That, as I read it, is the view expressed by Mr Sadler in para 11.12 of his original brief.


    Equally, in my view, the valuation of shares should be that as at the date of termination of the partnership in accordance with the partnership agreement (paragraph [6] of the judgment). Thereafter the ownership of the shares would remain in the name of the defendant as the operator of the undertaking and supplier of milk or purchaser of fertiliser and any increase in value would be his. That also was Mr Sadler's tentative view in paragraph 11.1.1 of his original brief. It must lie on the plaintiffs to establish a date other than the date of dissolution for valuation, and I can discern no basis for fixing upon a later date. This second issue is accordingly decided in favour of the defendant.

  8. In essence, the appellant sisters contend that the Judge erred in holding that the estate relinquished ownership of its one half of the dairy company shares on dissolution of the partnership. Unless the respondent is able to demonstrate otherwise, the value of their interest should be the present market value.

  9. In essence, the respondent brother contends that what the appellants seek to have post-dissolution is not partnership property to which the appellants have a claim. The post-dissolution share allocations and increase in share values derived from the respondent's farming operations after the dissolution.

  10. In relation to the first question posed by Neazor J in his para 22(a), it is now common ground for present purposes that having regard to the additional milk production from the farm between 1988 and 1996 the sisters' share of the value of the dairy company shares as at 31 May 1996 ($45,214) was $15,185. That proportional change between 1988 and 1996 reflected the additional shares purchased ex-income and, to the extent that they related to the mother's interest as life tenant in the father's estate which had a one half share in the partnership income, that they went to the daughters as beneficiaries in her estate.

  11. On dissolution of the partnership on 31 May 1996 cl 19 of the deed provided for a full and general account to be taken of the assets and liabilities and for the realisation "with all convenient speed" and, after payment of the liabilities and the unpaid profits and share of capital of each partner, for the balance to be divided between them in the shares in which they were entitled to the net profits of the partnership.

  12. The questions for consideration on the appeal concern the identification of the sisters' property in respect of dairy shares and its value. Those questions are not affected by whether the son's option under the will can be exercised. The appellant sisters contend that the Judge erred in holding that their entitlement on dissolution was confined to the dairy company shares issued in respect of the dairy enterprise as at 31 May 1996. They say that the shares could and should be traced through to the current dairy company shareholding and that the value of their interest is the present market value. The brother responds that what the appellants are seeking beyond the $15,185 is not partnership property and that the post-dissolution share allocations and increases in share values derived from his farming operations after the dissolution.

  13. Both parties tendered affidavits which helpfully discuss the relevant share allocation arrangements and industry changes and which have been admitted by consent to aid understanding. The experts, Mr AJ Bichan for the sisters and Mr DB Todd for the brother, expressed different opinions as to the appropriate answers in this case but, as could be expected, were largely agreed as to the changes in share allocation arrangements and industry funding over that period. It is convenient to focus on the fuller explanation given by Mr Bichan.

  14. Historically, New Zealand's dairy exports consisted largely of butter and cheese and the most valuable component was fat. With product diversification dairy companies changed the basis of shareholding in 1997 from the weight of milk fat supplied in a season to milk solids supplied. And, as Mr Bichan put it:

    Historically dairy companies needed very little capital to process milk into butter or cheese, but a greater injection of capital was required as they started collecting milk, manufacturing a greater range of products and had to meet higher product and environmental standards (effluent disposal). This change prompted the move to the shareholding structure in place today.

  15. Various mergers from 1 June 1997 eventually led in 2001 to the formation of Fonterra. There were three features noted by Mr Bichan which should be mentioned.

    • First, where there has been an increase in production, the supplier has been required to purchase additional shares in the following season to cover the increase at the price fixed for the preceding season.

    • Second, there have been changes to the way in which shares are valued for the particular season since the shift to milk solids in 1997 and thus the resumption value in the season ending 31 May 2002 is $4 for each kilo of milk solid supplied, compared with par value dollar per share in 1996.

    • The third is that as share standards have increased the land value has decreased by a broadly similar amount to reflect what would have to be paid by an ingoing purchaser to take up shares entitling supply to the dairy company and farm valuations are now based on the value of land and improvements net of the value of dairy company shares.

  16. Mr Bichan calculated the appellants' share value in 2002 from 1996 using 1996 production levels so as to give the respondent the benefit of productivity increases since then. He concluded that if Fonterra were to resume the dairy company shares they would be worth $446,860, of which the appellants' share would be $150,079.

  17. Mr Turkington submitted that where, as here, a partnership deed provides for a general dissolution then, until the assets are realised, an outgoing partner is entitled to share in any increase in the value of that asset, that ownership does not change because one party has exclusive use of the partnership asset, and that it is for the continuing partner to satisfy the court that an earlier date than realisation date is to be preferred. He cited Chandroutie v Gajadhar [1987] 1 AC 147 and Barclays Bank Co Ltd v Bluff [1982] Ch 172, 182. See also Webb and Molloy, Principles of the Law of Partnership (6th ed) para 5.156 and Cameron v Murdoch (1986) 63 ALR 575, 588.

  18. In Chandroutie v Gajadhar Lord Brightman succinctly expressed the principle in this way at p154:

    Where a partnership is dissolved by the death of one partner and the surviving partner continues the business for some years without realisation, the estate of the deceased partner prima facie remains entitled to an appropriate share of the proceeds of sale of the assets and is not confined to a share of the value of such assets as at the date of death.

    Lord Brightman went on to say that there were no facts pleaded in that case, no findings of fact of the Judge, nor was there any point of law relied on which could lead to a conclusion that the widow in that case had lost her ordinary partnership right to a share of the proceeds of realisation then reflecting the current value of the assets.

  19. The principle is not in doubt. The issue as we see it is whether the current shareholding in Fonterra can fairly be described as "that asset", which the partnership supplying the dairy company held on 31 May 1996. On our assessment of the dairy company arrangements we have no hesitation in concluding, as Mr Allan submitted, that the changes in shareholding and value, and further share allocations and increases in value, related to the continuing supply (and related production levels of the respondent) and to the post-1996 industry changes, not to the shares held at the date of dissolution.

  20. We were not referred to any reported case raising on its facts the distinct combination of features present in this case. The matter is to be decided on first principles. Essentially, as we have said, the appellants claim an interest arising from the shares held in Tui Milk Products Ltd ($15,185 of the total $45,214 at the surrender value of $1 per share) at dissolution of the partnership on 31 May 1996, in the shares held in Fonterra in 2002, $150,079 of the total $446,860 of the redemption value of $4 per share in convertible notes. That ten-fold difference in values cannot be characterised or explained as a rise in the value of Tui shares traced through to Fonterra shares. Rather, it is a combination of changed market forces in the dairy industry and changes in the nature of the supply arrangements and in the character of supplier shares affecting the incidents of shareholding and share values. The end result in 2002 is not a fortuitous accretion to the value of dissolution date shares.

  21. Only suppliers could hold dairy company shares. A dairy company resuming the shares on 31 May 1996 would pay $1 per share. Tui could have resumed for $15,185 the shares held beneficially for the appellants under the partnership on dissolution that day, and then, to meet the supply obligations of the respondent, it could have allocated shares of that number and par value to the respondent to be paid for by the respondent. That step was unnecessary because the shares already stood in the respondent's name. Thereafter, in terms of the relationship between successive dairy companies and the respondent, the share entitlements attached and were enhanced because the respondent was the supplier from the farm to the successive dairy companies.

  22. Except for the taking of accounts, the partnership ceased to exist on dissolution and the farming business was thereafter carried on solely by the respondent. It was a new, sole proprietor, business, not a continuation of the partnership business by a continuing partner. The sisters have received or are to receive the agreed market rental from 1 June 1996 in respect of the 8% landholding, bailment rental for livestock and interest on the purchase price of other livestock, which supports that conclusion that the partnership ended on 31 May 1996.

  23. A share in a company has been described as a series of mutual covenants entered into by all the shareholders in accordance with the Companies Act and the memorandum and articles of association: Borland's Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279, 288. The nature of the property in a share is the interest of a person in the company, that interest being comprised of various rights and obligations: IRC v Crossman [1937] AC 26,66; Re Alex Russell [1968] VR 285.

  24. In this case there are different dairy companies. The incidents attaching to the shares and the rights and obligations are different. And the supply and share allocation arrangements are different. The successive changes with changes in the incidents attaching to shares and the different incidents attached to shares taken up in the industry mergers are so substantial as to change the nature of the shareholding interest and a passive former supplier in 1996 could not possibly claim an interest in supplier shares in 2002. Put simply, it is not the same property. And, standing in the shoes of the sisters in 1996 looking ahead to the future of dairy supply, does not justify describing whatever expectations may then have been held in relation to shares as property. As explained in Sew Hoy v Sew Hoy [2001] 1 NZLR 391, 405,

    an expectation, however well founded in fact, and however well warranted by political or business considerations, will not do, if it is devoid of legal title.

  25. Further, the dissolution provisions of the Partnership Act 1908 provide no support for the sisters' claim. In particular, the supply and shareholding arrangements subsequent to 31 May 1996 up to 2002 were not continuing steps "to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of dissolution" (s41, and see Sew Hoy); the respondent could not be said to have derived without the consent of the other partner a benefit from any use by him of the partnership property under s32(1), the partnership having been dissolved, but not by the death of a partner so as to come within s32(2); and there is no basis in the facts before the court for a finding that the business of the farm was carried on by the continuing partner and that profits were made since the dissolution attributable to the use of the sisters' share of the partnership assets (s45). Rather, it is a proper case for the payment of interest on the $15,185 which the respondent has agreed to pay as from 31 May 1996 (s46) at the 90 day bill rate, rather than the lower statutory rate of 5% applying where the interest alternative is sought under s45.

  26. For the reasons given the appeal is dismissed with costs to the respondent of $3,500 together with any reasonable disbursements as fixed, if necessary, by the Registrar.


Chandroutie v Gajadhar [1987] 1 AC 147; Barclays Bank Co Ltd v Bluff [1982] Ch 172; Cameron v Murdoch (1986) 63 ALR 575; Borland's Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279; IRC v Crossman [1937] AC 26; Re Alex Russell [1968] VR 285; Sew Hoy v Sew Hoy [2001] 1 NZLR 391

Authors and other references

Webb and Molloy, Principles of the Law of Partnership (6th ed)


G L Turkington for Appellants (instructed by Gold Walsh & Co, Masterton)

G J Allan for Respondent (instructed by Gawith Burridge, Masterton)

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