Ipsofactoj.com: International Cases [2003] Part 7 Case 10 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Holdgate

- vs -

Holdgate

TIPPING J

HAMMOND J

RANDERSON J

8 APRIL 2002


Judgment

Randerson J

(delivered judgment of the court)

INTRODUCTION

  1. The appellant and the first respondent are brothers. For convenience, we will refer to them as Simon and Andrew. In 1983 they formed a property owning partnership but, by 1992, the partnership’s only remaining land was sold and the partnership ceased to trade. Thereafter, the two have been locked in a long running battle which has already resulted in substantial litigation.

  2. After Andrew’s bankruptcy in 1997, Simon lodged a proof of debt which was partially admitted by the second respondent (the OA). Andrew appealed to the High Court under s 86 of the Insolvency Act 1967. In a judgment delivered on 22 May 2001, the High Court partially allowed the appeal and deleted the interest component from the admitted proof on the basis that Andrew’s liability to Simon did not arise in 1992 but arose at the date of his adjudication in 1997. The Judge reached that conclusion because he determined that the dissolution of the partnership occurred at the date of Andrew’s adjudication and not at the date the partnership ceased business.

  3. The central issue before us on this appeal is whether the Judge’s conclusion on the dissolution date is correct. But counsel for Andrew also raised another important subsidiary issue. He submitted that any liability by Andrew to Simon did not arise on dissolution of the partnership but only after the taking of a final account between them as contemplated by the Partnership Act 1908. As well there are other issues raised on Andrew’s cross-appeal which we later mention.

  4. We have been assisted by helpful submissions by all counsel including written submissions by Mr. Fulton whose attendance was excused.

    THE COURSE OF THE HEARING IN THE HIGH COURT

  5. The appeal was heard over two days in April 2001. Matters took an unexpected course because up to that point, Simon and the OA had proceeded on the assumption that the partnership was dissolved in 1992 when its land was sold and business ceased. There had been no indication from Andrew or his counsel of any challenge to that assumption. Indeed, Andrew had been required to provide particulars in support of his appeal and had not adverted to the issue of the dissolution date at any stage.

  6. During the hearing, the Judge raised the issue of the dissolution date and, in a minute issued subsequent to the hearing, sought further written submissions from counsel on that and other issues. Submissions were made by counsel but leave was sought by counsel for Simon (supported by the Official Assignee) to adduce further evidence on the dissolution issue. It appears that the Judge must have concluded that no further evidence was required and delivered the decision on 22 May without reference to the request to adduce further evidence. No doubt he did so with the understandable intention of bringing the matter to finality without undue cost or delay to the parties.

    THE FACTS IN MORE DETAIL

  7. On the critical issues, the evidence before the Judge was relatively sparse. That resulted from the late raising of the date of dissolution issue during the hearing. Because it was assumed at all stages prior to the hearing that the 1992 dissolution date was not in dispute, there was no opportunity to present to the Court fully detailed evidence on that question nor evidence addressing issues surrounding the taking of accounts between the partners and whether or not that was a necessary precursor to the creation of a debt owed by Andrew to Simon.

  8. On the basis of the material before the Judge, the only physical asset owned by the partnership in 1992 was a property in Great North Rd, Auckland which was leased to a third party for the purposes of a car yard. That property was mortgaged to the Auckland Savings Bank and was sold by mortgagee’s sale in June 1992. There is no evidence of any trading thereafter and any activity was confined to resolving the financial position as between the two partners.

  9. Independently of the partnership, Simon had advanced funds to Andrew which were secured by an all obligations mortgage executed by Andrew in favour of Simon on 13 May 1992 over a property owned by Andrew at Manurewa. During 1996, Simon began enforcement proceedings against Andrew, issuing notices under the Property Law Act in relation to the advances. Andrew responded by bringing proceedings in the High Court at Auckland under CP.303/96. He named Simon and his mother as defendants. Andrew sought an order restraining both of them from exercising their rights as mortgagees in relation to mortgages registered over the Manurewa property and another property at Bassant Ave, Auckland. Andrew also sought an order for rectification of the mortgage, claiming it was intended to secure only the funds independently advanced and had not been intended to be an all obligations mortgage.

  10. Simon counter-claimed against Andrew for $81,469 with interest at 15% from 1 July 1992, claiming that the debt arose out of their partnership. It is evident from an affidavit sworn by Simon in the 1996 proceedings that he asserted the partnership was at an end in 1992 after the sale of the Great North Rd property. Andrew strongly resisted the application for summary judgment although there is no evidence that he disputed Simon’s assertion that the partnership ended in 1992.

  11. Andrew was unsuccessful in restraining the sale of the properties. Amongst other judicial officers who dealt with that particular file, Williams J delivered an oral judgment on 26 November 1996 which was referred to in the judgment under appeal. It is evident that the Judge perused the 1996 file at some stage after the initial hearing and has, in part, relied on material from that file. However, we do not consider there is any justifiable criticism on that account. The material on the earlier file is a matter of record and the Judge considered it primarily for the purpose of determining whether there was any estoppel or res judicata argument arising from a passage in Williams J’s decision. The Judge sought and received further submissions on that point. We also agree with the Judge that the reference by Williams J to the partnership lasting "until about mid-1992" could not be regarded as a firm finding on the date of dissolution. It was simply a recitation of history in the context of an interlocutory judgment in which Williams J was not called upon to determine the dissolution date.

  12. After Andrew’s unsuccessful attempt to stop the sale, the Manurewa property was sold by Simon as mortgagee in December 1996. Initially, Simon's solicitors sent a settlement statement to Andrew’s solicitors dated 28 February 1997. The gross proceeds of sale were $215,422.33 and after repayment of the separate advances due to Simon and other liabilities and costs, it was said that a sum of $112,558.80 was still owed by Andrew to Simon. Amongst the various deductions from the gross proceeds of sale were a sum of $93,665.29 for mortgagee’s costs and a total of $141,514.31 for the amount Simon claimed was owed to him by Andrew for the partnership debt. This sum was said to comprise a debt of $92,633.50 plus interest of $48,880.81 being 15% from 1 June 1993 to 12 December 1996.

  13. The mortgagee’s sale of the Manurewa property did not release Andrew from his personal covenants under the mortgage. While Simon discontinued his counterclaim in the earlier proceedings in December 1996, there is no suggestion that he is in any way estopped from pursuing his claim. However, Andrew’s adjudication intervened on 20 June 1997 and numerous proofs of debt were lodged, including one by Simon. His initial proof of debt was for a sum of $120,999 which was based on the settlement statement figure of $112,558, together with further interest of $8441 to June 1997.

    MR. GAVINGAN'S SPREADSHEET

  14. After Andrew’s adjudication, Simon engaged a Mr. A J Gavigan to prepare a spreadsheet setting out the financial affairs of the partnership and a calculation of the amount Simon alleged was due to him by Andrew arising from that partnership. On 19 March 1998, Mr. Gavigan and Simon’s counsel discussed the spreadsheet with the OA’s representative.

  15. The spreadsheet adopted an opening position based on accounts for the partnership prepared by Blackmore Hearne and Virtue as at 31 March 1992. At that date, the accounts showed that Andrew owed $84,299 to the partnership on capital account and that a sum of $84,142 was owed to Simon from the partnership on capital account. Four adjustments were then made to the position at 31 March 1992:

    1. Andrew’s debt was increased by $15,000 to reflect an error in the 1986 drawings (it being alleged that Andrew rather than Simon had drawn that sum).

    2. An adjustment of $23,643 was made in Simon’s favour on the basis that the Auckland Savings Bank had wrongly taken from the proceeds of sale of the Great North Rd property, an amount to repay a personal liability of Andrew’s to the bank.

    3. An adjustment in favour of Andrew of $9697 for miscellaneous items in 1991 and 1992.

    4. An adjustment in Andrew’s favour in the year ending March 1993 of $2522 for rent said to have been taken by Andrew as drawings and $3201 for GST adjustments.

  16. Interest was also calculated on the amount due by Andrew to Simon from 12 June 1992 at 15% (being the amount permitted by the charging clause in the mortgage over the Manurewa property). Mr. Gavigan’s spreadsheet noted that "the partnership activities effectively came to an end on 12 June 1992 when the sole partnership asset was sold. Apart from completing the accounting up to 31.3.93, there was little activity after this date."

  17. Mr. Gavigan’s reconciliation arrived at a figure of $127,300 as the amount due from Andrew to Simon plus interest of $72,118. Those figures were reflected in an amended settlement statement for the Manurewa property prepared by Simon’s solicitors and sent to the Official Assignee around the same time as Mr. Gavigan’s figures were prepared in or about March 1998. The result of the adjustments to the amount claimed for the partnership debt and the amended settlement statement was to show Andrew owed Simon $170,462.49. Simon then filed an amended proof of debt for that sum.

  18. After deduction of two amounts which are no longer in dispute, the OA admitted the proof at a figure of $129,100.49 by notice dated 31 March 2000.

    THE DATE OF DISSOLUTION

  19. The Judge referred to ss 42, 46 and 47 of the Partnership Act and to certain authorities relating to the time when a debt arises between the individual partners in a firm (as distinct from a debt owing by a partner to the partnership). We review those authorities below.

  20. The Judge then stated:

    There is no evidence before the Court, and certainly no evidence before the OA, to suggest that the S & A Holdgate Partnership was dissolved at any date earlier than the bankrupt’s adjudication on 20 June 1997. I reject Ms Mills’ submission to me that the partnership can be treated as having been dissolved when the mortgagee sale of its one remaining asset, the car-yard, was completed in May 1992. It may well be that the partnership did not participate in other ventures but final accounts had not been prepared; there was still ongoing financial transactions (albeit disputed) involving the partnership as the Gavigan spreadsheet shows; nor did either partner seek formal dissolution.

  21. The Judge determined that the dissolution occurred at the date of Andrew’s adjudication by operation of law under s 36 of the Partnership Act. We have strong reservations about the Judge's conclusion in this respect. It is accepted that the business relationship between Simon and Andrew was a partnership at will. Such a partnership may be dissolved by notice but a dissolution may also be inferred from the circumstances. In Lindley & Banks on Partnership, 17th ed. (1995) paragraph 24-18, it is noted that the following observation by Lord Lindley in Pearce v Lindsay (1860) 3 De G.J. & S. 139 still applies:

    A dissolution of a partnership at will may be inferred from the circumstances, e.g., a quarrel, although no notice to resolve may have been given.

  22. We note that in Smith v Baker [1977] 1 NZLR 511, 513, Somers J was prepared to infer a dissolution of a partnership at will from the cessation of business and the denial by one of the partners that a partnership existed.

  23. The learned author of Lindley & Banks observes at paragraph 24-38 that if the partners agree upon a permanent cessation of all forms of business, this must take effect as an agreement to dissolve since, in the absence of a business, no partnership can exist given the definition of partnership. In the New Zealand context, s 4(1) of the Partnership Act defines a partnership as:

    The relation which subsists between persons carrying on a business in common with a view to profit.

  24. While it may not be appropriate to infer a dissolution from the mere cessation of business, the overall circumstances including the conduct of the partners may be such as to enable the inference to be drawn that the partners have agreed that the partnership be dissolved. On the basis of the evidence available in the present case, there is a strong inference that the partnership was dissolved in 1992. Not only did the business activity cease, but the partnership’s sole physical asset was sold. There is no evidence of any partnership activity thereafter other than the steps which would ordinarily follow to wind up the affairs of the partnership following the initiation of a dissolution. It must be remembered that it is the commencement of the winding up, not its completion, which was at issue under this limb of the argument.

  25. It does not appear on the material before us that there was ever any suggestion by or on behalf of Andrew that dissolution had not occurred in 1992 (at least until the matter was raised by the Judge in the course of the hearing).

  26. It is also relevant that Simon and Andrew had been in dispute over a variety of matters, at least from 1992 onwards. As Williams J noted in his decision in 1996:

    The application currently before the Court and with which this judgment is concerned, is the latest skirmish in a long-running war of attrition between the plaintiff on the one hand and his brother and mother on the other.

  27. There could be little doubt that at least by 1996, and probably earlier, there was a substantial "quarrel" between the two and, of course, Simon lodged a specific counterclaim in the 1996 proceedings for the amount due to him by Andrew in relation to the partnership.

  28. We were urged by Ms Mills on behalf of Andrew to rule that the Judge should not have embarked upon an inquiry into the dissolution date given that it had not been raised in the pleadings. As an alternative, she submitted that the Judge had erred in reaching his conclusion that the dissolution had occurred in 1997 and that the proper finding was 1992. As a final fall-back position, Ms Mills submitted that the matter ought to be referred back to the High Court so that further evidence on the issue could be heard.

  29. We have given this part of the case anxious consideration because we are reluctant to involve the parties in further cost. Ordinarily, we would strive to make appropriate findings on appeal without referring the matter back to the High Court. However, with considerable regret we have concluded that this is the only option which would do justice to the parties in the circumstances of this case.

  30. We accept the force of Ms Mills submission on the pleading point. However, the Judge having raised the matter and having called for further submissions on the point, we consider it is too late to take the stance that it ought not to have been considered at all. The Judge must be taken to have impliedly granted leave to Andrew to put this matter in issue, notwithstanding his failure to raise it in the pleadings.

  31. The difficulty is that the parties have not focused specifically on the date of dissolution issue in their affidavit evidence. There may well be further evidence which could be adduced in that respect, including evidence from both Andrew and Simon and the various accounting and legal advisers. The evidence before the Judge was limited and the possibility of a dissolution of the kind envisaged by Lord Lindley does not appear to have been considered.

  32. We also note the possible application of s 35(1)(b) of the Partnership Act in terms of which, subject to any agreement between the partners, a partnership is dissolved in the case of a "single adventure or undertaking" by the termination of that adventure or undertaking. It may be that, on investigation, this alternative ground of dissolution is available.

    WHEN DOES THE DEBT BETWEEN THE PARTNERS ARISE?

  33. The determination of this issue is directly relevant to the time from which any interest would run in favour of Simon on any sum due to him by Andrew. The Judge, correctly in our view, distinguished between a debt owed by Andrew to the partnership and a debt owed directly from Andrew to Simon. The Judge noted the general rule that partners in a firm are not to be considered as debtor and creditor as between themselves until the partnership is wound up or there is a binding settlement of the accounts: Webb and Molloy, Principles of the Law of Partnership, 6th ed., 308. The Judge also cited as authority for that proposition Jackson v Stopherd (1834) 2 Cr & M 361 and Green v Herzog [1954] 1 WLR 1309 (CA).

  34. The general rule is well established in other texts and authorities. See for example, Halsbury's Laws of England, 4th ed., volume 35, paragraphs 3 and 147 and Lindley & Banks on Partnership, 17th ed., paragraph 23-72. However, as noted in Halsbury's at paragraph 147, the rule does not apply where a partner has left the partnership leaving it to the remaining partners to continue the firm’s business. That exception is embodied in s 46 of our Partnership Act which provides:

    46.

    Retiring or Deceased Partner's Share to Be A Debt

    Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner, in respect of the outgoing or deceased partner's share, is a debt accruing at the date of the dissolution or death.

  35. One of the earliest cases cited for the general rule is Richardson v Bank of England (1838) 4 My & Cr 165, 41 E.R.65. There, the partnership was described as being at an end but there had been no final accounting. One partner had become a creditor of the firm by advancing sums to it for the use of the partnership business while another had become a debtor to the partnership by drawing funds with the consent of the partners. It was held that the advances made and the drawings taken could only constitute items in the account between the partners and could not be treated as debts inter se. The Court was not therefore prepared to order, before the taking of accounts, that the amount of the advances be paid into Court.

  36. At 172, Cottenham L.C. stated:

    But though these terms "creditor" and "debtor" are so used, and sufficiently explain what is meant by the use of them, nothing can be more inconsistent with the known law of partnership than to consider the situation of either party as in any degree resembling the situation of those whose appellation has been so borrowed. The supposed creditor has no means of compelling payment of his debt; and the supposed debtor is liable to no proceedings either at law or in equity - assuming always that no separate security has been taken or given. The supposed creditor’s debt is due from the firm of which he is a partner; and the supposed debtor owes the money to himself in common with his partners; and, pending the partnership, equity will not interfere to set right the balance between the partners. Indeed it could not do so with effect, inasmuch as immediately after a decree has enforced payment of the money supposed to be due, the party paying might, in exercise of his power of a partner, repossess himself of the same sum.

    But if, pending the partnership, neither law nor equity will treat such advances as debts, will it be so after the partnership has determined, before any settlement of account, and before the payment of the joint debts or the realisation of the partnership estate? Nothing is more settled than that, under such circumstances, what may have been advanced by one partner, or received by another, can only constitute items in the account. There may be losses, the particular partner’s share of which may be more than sufficient to exhaust what he has advanced, or profits more than equal to what the other has received; and until the amount of such profit and loss be ascertained by the winding up of the partnership affairs, neither partner has any remedy against, or liability to, the other for payment from one to the other, of what may have been advanced or received.

  37. The rationale for this general rule is that the extent of a partner’s share in the partnership is not determined until the statutory procedures have been completed. A partner’s rights on a dissolution are, subject to any agreement to the contrary, established by ss 42 to 47 of the Partnership Act. Of particular relevance in this context is s 47 which sets out the rules which are to be observed in settling accounts between the partners after a dissolution. It is not until that process has been completed that the entitlement of the partners is established: Re Ward (A bankrupt) [1985] 2 NZLR 352, 355 (CA). See also the discussion in Lindley and Banks at paragraphs 19.03 to 19.09 and 22-05.

  38. The English Court of Appeal has confirmed recently the general rule in Marshall v Bullock (unreported, 27 March 1998; [1998] EWCA Civ 561). Upon a dissolution, no liability arises between the partners inter se until the completion of the taking of an account. It makes no difference whether one partner seeks to recover from another a share of a partnership asset or to recover a contribution towards a partnership liability. That is confirmed by the following passage from page 5 of the transcript attributed to Peter Gibson LJ:

    I find it difficult to see why in principle there should be any difference in approach. Why should the principle as to the recovery of a share of a partnership asset be different from the principle as to the recovery of a contribution in respect of the discharge of a partnership liability? Both are relevant for the purpose of taking an account. Both are necessary ingredients in any proper account. In my judgment in principle there ought to be no difference. Just as one cannot say what is the entitlement of a partner in respect of a partnership asset without the taking of an account, so one cannot say what is the liability of a partner in respect of a partnership liability discharged by another partner without that account being taken. The authorities show that unless the case is an exceptional one the court will not allow one partner to seek to recover from another partner a sum which is referable to a partnership asset save through an action for an account. So too, I would hold, generally a contribution in respect of the discharge of a partnership liability must be sought by an action for an account.

  39. In New Zealand, the principle has been accepted in the context of a tax case: Johnstone v Commissioner of Inland Revenue [1966] NZLR 833, 836 per Tompkins J.

  40. The completion of the taking of accounts following dissolution is treated as sufficient consideration for an implied promise by each partner to pay the balance found to be due on the taking of the account. No express promise is necessary to support a claim for payment: Halsbury's (4th ed.) Vol 35, paragraph 148. Because the liability to pay does not arise until the completion of the accounts, any obligation to pay interest on a debt found to be due by one partner to another does not run until that point unless there is an agreement between the partners which allows for interest (e.g. for advances to the partnership on current account).

    EXCEPTIONS TO THE GENERAL RULE

  41. We have already mentioned one exception to the general rule in the case of an on-going partnership as reflected in s 46 of the Partnership Act. A second exception is where there is an agreement by the partners to the contrary. A third is where the taking of an account would serve no useful purpose: see Lindley and Banks at paragraph 23-72. A fourth exception may arise where there is an independent promise by one partner to pay a sum of money to another. A fifth exception may arise where an unexpected asset or liability comes to attention after the taking of a final account.

  42. There is discussion of the exceptions to the general rule in Marshall v Bullock (pp 5 and 6 of the transcript) and in another unreported decision of the English Court of Appeal to which we were referred: Brown v Rivlin (1 February 1983; CA Transcript 56). In the latter, a partnership was terminated and the plaintiff sought summary judgment against the defendant for various sums alleged to have been misappropriated from partnership funds. While affirming the general principle, Eveleigh LJ discussed some of the exceptions we have identified at pp 6 and 7 of the transcript. Summary judgment was considered to be appropriate for those cases where liability was clearly established and it was unnecessary to wait for any final account. That was because the terms of the partnership agreement showed that no account was to be taken for the purpose of determining a share of the assets as between the plaintiff and the defendant. In those circumstances, no useful purpose would be served.

  43. Eveleigh LJ also observed, at p 7 of the transcript, that there was no general rule that a partner may not be sued for the recovery of partnership assets in his hands when it can be demonstrated that nothing is due to him from the partnership. His Lordship considered that, if one partner could show that he was solely entitled to the partnership assets, he ought to be entitled to recover the asset in the hands of the former partner.

  44. We do not interpret the remarks of Eveleigh LJ in this respect as determining that one partner may sue another after dissolution where the possibility of adjustments through the process of the taking of accounts may vary the amount due by the partner either by adding further liabilities or by allowing credits in reduction of the outstanding amount. But it may be possible to demonstrate on the facts that a liability by the partner to pay is clearly established and that, in the particular circumstances, no purpose would be served by the taking of an account.

  45. Ms Mills submitted that this was a case where no useful purpose would have been served by the taking of accounts as at the 1992 dissolution date (if that were accepted as the appropriate date). She argued that Andrew already had a liability to the partnership at that point of some $84,000 and the partnership had sold the last of its physical assets. There were, she said, no other significant assets which could have affected the liability. Indeed, after that time, Andrew’s liability to the partnership only increased.

  46. Mr. Williams’ response on behalf of Andrew was that the Judge had been right to determine the date of adjudication as the date of dissolution, and it followed that there could be no question of interest arising from 1992, there being no liability by Andrew to Simon until the dissolution in 1997. Alternatively, if the 1992 date were established to be the correct date of dissolution of the partnership, then the general rule applied and no debt would arise from Andrew to Simon in relation to the partnership until the taking and completion of accounts. He pointed to the fact that, for example, there had been a recovery of funds from the bankrupt estate of the lessee of the Great North Road property. That, he said, was a recovery in which Andrew was entitled to share and thereby reduce his liability.

  47. On the view which the Judge took of the dissolution date, it was unnecessary for him to consider the possible application of any of the exceptions to the general rule about the time when a debt may arise between the partners after dissolution. Nor have the parties had the opportunity of putting material before the court on those issues including, for example, evidence and submissions as to whether any useful purpose would be served by the taking of an account in 1992 or such other date prior to the date of adjudication as might be established as the date of dissolution.

  48. We do not have sufficient factual material before us to enable this issue to be determined. Nor do we have the benefit of any finding by the Judge. For those reasons, we have concluded that it would not be right to attempt to reach our own conclusion on that issue. The parties ought to have the opportunity of placing further evidence before the court and of advancing any further submissions on the issue.

    IS THE LIABILITY COVERED BY THE MORTGAGE?

  49. It is common ground that if any liability to pay interest arose, then it could only do so by virtue of the mortgage Andrew gave to Simon over the Manurewa property. It was therefore necessary for the Judge to determine whether the debt owed by Andrew to Simon was secured by the mortgage. The charging clause was expressed in these terms:

    1.

    PAYMENT OF THE MONEYS HEREBY SECURED

    In this mortgage the expression "the moneys hereby secured" shall mean all moneys which are now or may hereafter from time to time be owing to the Mortgagee by either the Mortgagor solely (and if more than one person is named as Mortgagor, then severally by each person so named) or the Mortgagor together with any other person or persons and including by way of example and not limitation, all moneys owing in respect of:

    ...

    (a)

    all interest, commission, costs and charges payable by the Mortgagor to the Mortgagee or incurred by the Mortgagee in relation to this mortgage or any indebtedness secured hereunder including all those incurred by the Mortgagee in the exercise or attempted exercise of the Mortgagee’s rights powers and remedies hereunder; and

    (b)

    any other indebtedness whatsoever of the Mortgagor to the Mortgagee.

  50. Largely on the grounds that there was no personal debt owing by Andrew to Simon until dissolution, the Judge appears to have found that the charging clause did not cover the debt in issue. Nor, he found, would it cover a debt owed by the partnership to Simon. But, with respect to the Judge, the mortgage expressly covers not only monies owing to Simon by Andrew alone but also monies owing to Simon by Andrew jointly and severally with another debtor or debtors. For present purposes, it is sufficient that the mortgage secures any liability by Andrew alone to Simon whether for such indebtedness as Andrew might have to Simon as a member of the firm or independently thereof. It does not matter whether any such liability arose before or after the date of the mortgage.

  51. In these circumstances Andrew’s liability to pay interest on the monies secured depends not so much on whether the debt is characterised as a personal debt or a partnership debt, but on whether Andrew’s indebtedness to Simon arose prior to Andrew’s adjudication and, if so, when the indebtedness arose, for that will mark the date interest commences to run. The answer to those questions will depend on the answer to the first two issues we have discussed in this judgment. Some or all of the following will need determination:

    1. Was the partnership dissolved in 1992 or on some other date prior to the date of adjudication?

    2. Having regard to the general principle, and any exceptions thereto, was the debt between Andrew and Simon created on a date earlier than the date of adjudication and, if so, what date?

    3. If a final accounting was necessary, did it take place prior to the date of adjudication?

    THE CROSS APPEAL

  52. To the extent that the cross appeal raised issues as to interest, they have already been dealt with in relation to the appeal itself.

  53. The remaining two issues are the deduction of legal costs and the proper treatment of an amount of $15,000 in the partnership accounts. We can deal with those quite briefly.

    LEGAL COSTS

  54. The Judge rejected the submission made to him that the legal costs deducted from the sale by Simon as mortgagee amounting to $93,665.29 should be referred to a costs reviser under s 146 of the Law Practitioners Act. The Judge reached that view essentially on the basis that the extensive costs involved in any such revision would not be justified bearing in mind the OA’s considered judgment that seeking a costs revision was an unwise use of available funds and the absence of any material presented by or on behalf of Andrew to justify his complaint that the mortgagee’s costs were excessive or unjustified.

  55. The point taken before us by Mr. Williams was that if the relevant debt were not covered by the mortgage or if it were found that interest was not payable on that debt, then the question of legal costs ought to be reconsidered. We have no difficulty in rejecting that submission. Apart from the ordinary costs of a mortgagee sale, there would undoubtedly have been very substantial expenditure in resisting the litigation brought by Andrew in 1996 in an unsuccessful effort to restrain the mortgagee’s sale. His propensity to engage in litigation unquestionably led to the mortgagee incurring substantial costs. As well, there is still nothing before us to indicate that there is any substance whatsoever in the claim on Andrew’s behalf. We see it as no more than a fishing expedition. There is nothing to persuade us that either the OA or the Judge on appeal erred in any respect on this subject.

    THE $15,000.00

  56. Mr. Williams submitted that the adjustment of $15,000 made to the partnership accounts in relation to drawings taken by Andrew in 1986 should not have been made because it related to a matter which arose more than six years before the accounting was undertaken (compare s 4(2) of the Limitation Act 1950 which provides that an action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action). Mr. Williams submitted that he had raised it in the court below but the Judge did not mention it in his decision.

  57. We do not consider there is any merit in this element of the cross-appeal. It is yet another example of an issue being raised in the course of the hearing which was not signalled on the pleadings. Little, if any, attention appears to have been focused on it in the court below and we consider it is far too late to raise it before us.

    DISPOSITION

  58. For the foregoing reasons:

    1. We allow the appeal insofar as it relates to the disallowed interest and direct a rehearing in the High Court which is to be strictly limited to the issues identified in paragraph [51] hereof. The rehearing is to be conducted by the Judge who heard the appeal. He is to convene a conference as soon as convenient to establish a timetable for the filing of any further evidence and submissions.

    2. The cross-appeal is dismissed.

    3. As the first respondent is legally aided, there will be no award of costs in this Court.

    4. The costs ordered in the High Court will remain unaltered.


Cases

Pearce v Lindsay (1860) 3 De G.J. & S. 139; Smith v Baker [1977] 1 NZLR 511; Jackson v Stopherd (1834) 2 Cr & M 361; Green v Herzog [1954] 1 WLR 1309 (CA); Richardson v Bank of England (1838) 4 My & Cr 165, 41 E.R.65; Re Ward (A bankrupt) [1985] 2 NZLR 352 (CA); Marshall v Bullock (unreported, 27 March 1998; [1998] EWCA Civ 561); Johnstone v Commissioner of Inland Revenue [1966] NZLR 833; Brown v Rivlin (1 February 1983; CA Transcript 56)

Legislations

Partnership Act: s.4(1), s.46

Authors and other references

Lindley & Banks on Partnership, 17th ed. (1995)

Halsbury's Laws of England, 4th ed., volume 35

Representations

P A B Mills for Appellant (instructed by Fraser Powrie, Auckland)
J L Williams for First Respondent (instructed by Sladden Cochrane and Co, Wellington)
K W Fulton for Second Respondent (Attendance excused)(instructed by Meredith Connell, Auckland)


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