CATCHWORODS BANKRUPICY - going behind judgment. PARTNERSHIP - change in composition with partner. Partnership Acts 1891-1965 (Q.) Re: John Frederick Wright & Anor. - onus on creditor dealing Ex parte: Hastings Deering (Queensland) Pty. Ltd. Qld P754 of 1987 PINCUS J. BRISBANE 27 JULY 1987 1Oatt EaranTiet IWHLSNy, 46 sunoo Wut [96 IN" SZ co ee I ay ¥ IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISTON ~ QLD P754 of 1987 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND awe RE: JOHN FREDERICK WRIGHT and LINDSAY GEORGE WRIGHT Debtors EX PARTE: HASTINGS DEERING (QUEENSLAND) PTY. LTD. Creditor MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 27 JULY 1987 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The petition be adjourned to a date to be fixed by the Registrar. 2. Costs be reserved. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. TI tp ce prt tr re gt ne ee ee . a . . a ,. > . bel. lk wa ye ~ x IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) ~ QLD P754 of 1987 mrNote RE: JOHN FREDERICK WRIGHT and LINDSAY GEORGE WRIGHT Fee meee ee mr oe ae a5 ~ tee fz Debtors EX PARTE: HASTINGS DEERING (QUEENSLAND) PTY. LTD. Creditor te PINCUS gd. 27 JULY 1987 . REASONS FOR JUDGMENT ne on ee = en, This 18 a creditor's petition for a sequestration order, based on a judgment debt. One of the judgment debtors has already i: been made bankrupt without opposition, but the other debtor says that he is not truly liable and that I should go behind the I r if judgment. The two men were in partnership. The question, to put it briefly, 1s whether the judgment fi debtor in question is liable as a partner for a debt incurred b~ after dissolution of the partnership, on the ground that he did not notify the creditor of the dissolution. It is one which is strangely bereft of modern authority. I had hoped to dispose of the matter finally, as it wee ee ae tee ae - . > 7 seems unlikely the debtor has any substantial funds. However, Mr. "ep Keller for the debtor said, and it seems to me likely to be correct, that information from employees of the judgment creditor who had personal knowledge of the dealings in question might throw light upon the issue; the only representative of the judgment creditor who gave evidence (Mr. Ashton, the current credit Manager) has no personal knowledge of the relevant dealings. Owing to the paucity of the evidence, it is necessary for me to treat the question as one for disposition in a preliminary way and to determine only whether there is ground for going behind the judgment. The following findings are, in this sense, provisional only. It is unclear whether the two men I shall mention, or those men and their wives, constituted the partnership; since that is of no present consequence, I shall consider the male partners only. On 20 October 1983, Mr. J.F. Wright, who 1s now bankrupt, and Mr. L.G. Wright, whom I have called "the debtor", applied to'the judgment creditor for a 30 day trading account. They disclosed to the creditor that they were trading then as "Riterock Quarry Contractors". After making some enquiries, the creditor approved the opening of the account, but placed a limit of $2,000 on it. Parts and services were supplied from that time on. However, at the end of that financial year (on 30 June 1984), the debtor ceased to be a member of the partnership. There is no evidence that the creditor was notified. However, some arora a tr et eee rr rr ae rs tereey oe t te eee appropriate steps were taken, namely that three hire purchase agreements, which the partnership had with Hastings Deering Finance & Investment Co. Limited, were assigned from the old partnership to the new, by documents executed in October 1984, Hastings Deering Finance & Investment Co. Limited consented to those assignments in writing and it has been argued by Mr. Keller that it is likely that the judgment creditor had knowledge of the change in the composition of the partnership about that time. He points to the admitted fact that the two companies, the judgment creditor and that just named, are part of the same group, and that they operate out of the same premises. However, Mr. Ashton says that they have a "different managerial structure and staff". There is not sufficient basis for a finding that the judgment creditor became aware, because of the dealings with its associated company, of the change in the partnership, although it must be conceded that there is a possibility that it did so. At some time during 1985, probably about the middle of that year, the continuing partners arranged to have the records at the Commissioner of Corporate Affairs altered appropriately to disclose the retirement, but there is no evidence, nor reason to assume, that the creditor became aware of that. The debt in question became due in June 1986, some two years after the debtor ceased to be a partner. I deduce this from exhibit 1, although the effect of that document is rather obscure. Mr. Keller took the point that the debt was a sum of over $20,000, well in excess of the agreed credit limit. There is Peace = 7 Pree ss no evidence as to how that extra credit came to be allowed, or whether any step was taken, within the hierarchy of the judgment creditor, formally to approve so considerable an extension of credit. The creditor relied upon s.39(1) of the Partnership Acts 1891-1965 (Q.) which reads as follows: "Where a person deals with a firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change." Subsections (2) and (3) deal with the same subject, but do not affect this case. ' "Apparent members" in the subsection has been held to mean "members who are apparently members to the person who is dealing with the firm": Tower Cabinet & Co. Ltd. v. Ingram [£19493 2 K.B. 397 at 403. Here, there is no direct evidence as to what appeared to those who gave the partnership credit in 1986, but the Court is asked, on behalf of the creditor, to infer that matters must have appeared to them then as they had done since 1983. The inference is a possible but not an inescapable one. I regard the apparent change in credit arrangements as tending to weaken the inference, just as Derrington J. did in C.S.R. Limited v. Armitage (unreported, 5 September 1984, Supreme Court of Queensland, p.12). It may be, of course, that no one can be found who dealt with the firm on behalf of the judgment creditor in 1986, but there is no evidence that that is so. Once the conclusion is reached, which qe was adopted in the Tower Cabinet case and also in C.S.R. Limited v. Armitage (above), that the question of apparent membership for the purpose of s.39(1) must be judged as of the date of the dealing in question, the absence of any direct evidence as to what appeared to the creditor to be the membership of the firm in 1986 must tell against it. The only information from its side on that precise question is that Mr. Ashton has found nothing in the company's records on the point. It is worthwhile noting that the effect of the Partnership Acts may have been to alter what previously was regarded as the law on this topic. The old cases of Parkins v. Carruthers 3 Esp. 248, 170 E.R. 604, and Farrar v, Delfinne (1844) 1 Car. & Kir. 580, 174 E.R. 946, are authorities for the view that where a person is known at any time to have been a partner in a firm, the creditor is entitled to rely upon that in dealings with that person until, by notice or surmise, he becomes aware that the person is no longer a member of the firm. The Partnership Acts, however, as noted above, may place an additional onus on the creditor, to show what appeared to it to be the composition of the partnership at the time of the relevant dealing. Thus, whereas previously there need only have been shown a failure by the disputed partner to give notice of the change in the partnership, the creditor needs now to prove that the disputed partner was still apparently a member of the firm at the time of the relevant dealing. If the creditor is a substantial organisation with changing personnel, that can create difficulties for it. sree vo ee we Se a eee ~~ "i .a z If the parties desire to add nothing further to the evidence presently available, umsatisfactory though it is, If shall, albeit reluctantly, reach a final conclusion on that. But in the circumstances, I have determined merely to make a preliminary finding that there is substantial reason for questioning "whether behind that judgment there was in truth and reality a debt due to the petitioner" - Wren v. Mahoney (1972) 126 C.L.R. 212 at p.225, per Barwick C.J. The petition will be adjourned, with that intimation, to a date to be fixed, and the costs reserved. It can be relisted by arrangement with the Registrar. ' certify that this and the 5 preceding "ages are a true copy of the reasons for adgment herein of His Honour sir Justice Pincus Hip Bory Dated 27 Jely 1957 Pacha aed meyers tna tees mg aan > i. Leet - ry aS ey te re rere ose b <, "