Laidlaw v Hillier Hewitt Elsley Pty Ltd [2007] NSWSC 808 (24 July 2007)

Last Updated: 25 July 2007

NEW SOUTH WALES SUPREME COURT

CITATION: Laidlaw v Hillier Hewitt Elsley Pty Ltd [2007] NSWSC 808


JURISDICTION: Equity Division

FILE NUMBER(S): 5977/04

HEARING DATE{S): 20 July 2007

JUDGMENT DATE: 24 July 2007

PARTIES:
Joanne Lee Laidlaw (Plaintiff)
Hillier Hewitt Elsley Pty Ltd (First Defendant)
Paul Joseph Hewitt (Second Defendant)
Edwin Hillier (Third Defendant)
Scott Peter Elsley (Fourth Defendant)

JUDGMENT OF: Rein AJ

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable



COUNSEL:
P Bolster (Plaintiff)
M Ashhurst (Defendants)

SOLICITORS:
Verekers (Plaintiff)
Hewitts (Defendants)


CATCHWORDS:
Dissolution of partnership
Rate of interest to be applied to moneys held by one partner after dissolution and before accounts taken

LEGISLATION CITED:
Civil Procedure Act 2005, s 100
Partnership Act 1892, s 42
Supreme Court Act 1970, s 95

CASES CITED:
Barfield v Loughborough (1872) LR 8 Ch App 1
Bartels v Behm (1990) 19 NSWLR 257
Behm v Bartels (1988) 14 NSWLR 432
Cavasinni v Cavasinni [2007] NSWSC 619

DECISION:
See [12] and [13].


JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


Rein AJ

24 July 2007


5977/04 Laidlaw v Hillier Hewitt Elsley Pty Ltd & Ors

JUDGMENT

1 HIS HONOUR: On 6 July 2007 I delivered judgment in this matter, and on 19 July 2007 I heard argument on the form of orders. I indicated to the parties my decision on matters remaining outstanding concerning costs and interest and ordered the parties to bring in short minutes. The parties returned on 20 July 2007 with short minutes of order in respect of which all but one ventilated a further issue, namely the rate of interest.

2 By reason of adjustments which were agreed during the hearing and one which was not agreed (the amount due Laidlaw for her share of plant and equipment) and as a consequence of the rejection of Laidlaw’s claim for further adjustment in respect of goodwill, it is agreed that the amount due to be paid by Laidlaw is $38,000. It is accepted by the Company that it has had the benefit of the $38,000 since the dissolution of the partnership on 31 March 2004. It is accepted in the light of my ruling that interest is to be paid on the $36,000 from 31 March 2004 to date. The Company asserts that the rate of interest should be that specified in s 42 of the Partnership Act 1892 ie 6 per cent.

3 Laidlaw submits that interest should be determined by s 100 of the Civil Procedure Act 2005. There is agreement on the figure that each approach yields.

4 Counsel referred me to a number of cases and texts: Behm v Bartels (1988) 14 NSWLR 432 (Young J, as he then was) and on appeal Bartels v Behm (1990) 19 NSWLR 257; Cavasinni v Cavasinni [2007] NSWSC 619; Lindley on Partnership paras 20-31, 20-35; Halsburys Laws of England, Butterworths, 1994, 4th ed, paras 147-148. Mr Bolster also referred me to clause 21 of the Partnership Deed which prescribes that interest is payable in accordance with s 95 of the Supreme Court Act 1970 that however is from the date of default in payment of moneys due to outgoing partner pursuant to clause 21. He submits that that gives some indication of what was intended, but accepted that the clause was not directly relevant since Laidlaw was not an outgoing partner.

5 Section 42 of the Partnership Act 1892 is in the following terms:

“42 Right of outgoing partner in certain cases to share profits made after dissolution

(1) Where any member of a firm has died, or otherwise ceased to be a partner, and the surviving and continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner, or the partner’s estate, then, in the absence of any agreement to the contrary, the outgoing partner or the partner’s estate is entitled, at the option of the partner or the partner’s representatives, to such share of the profits made since the dissolution as the Court may find to be attributable to the use of the partner’s share of the partnership assets, or to interest at the rate of six per centum per annum on the amount of the partner’s share of the partnership assets ...”

6 It has been held that “in taking accounts of a partnership interest after the dissolution will not in general be allowed to the partners on their respective capitals”: per Lord Selborne in Barfield v Loughborough (1872) LR 8 Ch App 1, but this is subject to a number of exceptions as Young J pointed out in Behm v Bartels at 434G-435D. His Honour accepted that use of partnership moneys after dissolution was one such situation, saying that:

“In case (d), the Partnership Act, s 42, permits a former partner to claim an account of profits or interest at 6 per cent if partnership assets are employed in a fresh venture: see also Keily v Stevens (1886) 3 TLR 189.”

7 Behm v Bartels was a case in which a partner was seeking to recover interest which he had had to pay to a third party which at first instance and on appeal he was held entitled to recover.

8 In Behm, the Court of Appeal, Mahoney JA (with whom Clarke JA and Meagher JA agreed) at 260G accepted that where “it is found that partner A is liable to pay money to partner B, partner A will be ordered to pay interest on the amount to be paid only from the date of determination that such payment is to be made.”

9 Mr Bolster relies on para 20-31 and 20-35 of Lindley, but whilst the learned author accepts that there is no reason in principle why interest should not be paid on the balance due following the taking of accounts he does point out that it is questionable to what extent the equivalent of s 100 has altered the rights of partners to interest as between themselves.

10 So far as clause 21 of the Partnership Deed is concerned, it is not relevant as it relates to a situation where moneys due under the formula have not been paid. There has here been no default by the company because until the disputes that existed between it and Laidlaw were determined there could be no final adjustment. The amounts due were not agreed or determined until 6 July.

11 The heading of s 42 is “Right of outgoing partner in certain cases to share profits made after dissolution”. Section 42 by its reference to “surviving and continuing partners” reinforces the notion of “outgoing partner” and would not appear to be strictly applicable to the present situation, but I think the rate of 6 per cent which it specifies is the appropriate rate to use and for the following reasons:

(1) the statement of the exception by Young J in Behm, although obiter, supports such an approach;

(2) the general rule and the Court of Appeal reference in Behm to interest “only from the date of determination that such payment is to be made” supports a restricted approach to interest between partners until accounts have been taken;

(3) the present situation is closely analogous to the situation expressly dealt with in s 42;

(4) the alternative basis for interest advanced by Laidlaw is s 100 of the Civil Procedure Act which relates to “proceedings for recovery of money”, and I have a real doubt as to whether that could have any application to the present claim for interest but even assuming that it does, s 42 of the Partnership Act is so closely linked to the subject matter of the dispute that it is appropriate to treat it as providing a good guide to what interest rate should be applied.

(5) I do not think that 6 per cent per annum is in any way unfair or minimalistic rate having regard to the rate of interest yielded for deposits.

12 It follows that interest at 6 per cent on the $38,000 should be paid by the first defendant.

13 The cost of proceedings to be paid by the plaintiff should include the costs of this argument. I will make orders in accordance with the short minutes of order prepared on behalf of the first defendant.

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LAST UPDATED: 24 July 2007