FORD v MLLLER SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY, MEAGHER and BEAZLEY JJA 28 August 1996, 11 October 1996 [1996] NSWCA 189 Partnership — contract — agent for partnership — whether bankruptcy of partner is change in proprietorship of partnership — indemnity or contribution — s17, Partnership Act — liability partner in cases of fraud, culpable negligence or wilful default. CONTRACT — partnership — agent for partnership — variation of contract — repudiation of contract — when repudiation of contract accepted for purposes of Statute of Limitations. Evidence — admission of fresh evidence on appeal — failure to explain why such evidence was not available at trial admission of fresh evidence dealing with matter not relied on by trial judge. FACTS: The respondent entered into a contract to sell a printing business, including plant and equipment to a partnership of four people, Mr Ford, Mrs Ford, Mr Barrett and Mrs Barrett. Payment for the business was to be by monthly instalments. The terms of the contract provided that: (a) the plant and equipment were to remain the respondent's until the contract was fully performed; (b) the partnership would take over leasehold payments relating to particular equipment; and (c) the respondent would be employed by the partnership until the contract had been fully performed. The appeal proceeded on several points: 1) Throughout the course of the sale period, several variations to the contract were alleged by the respondent, Mr Miller. First, it was alleged that by way of variation, the appellant, Mrs Ford, and her husband, Mr Ford, had granted the respondent a mortgage over the house for security. A letter from the appellant's husband was tendered as evidence of this variation although this letter was apparently sent from Sydney at a time when the appellant's husband was in Queensland. Without finding forgery, the trial judge held that the respondent/plaintiff had not proved this term of the contract. On appeal, the respondent sought to lead the fresh evidence of a handwriting expert relating to this letter. 2) A second variation alleged was that in November, 1979, the parties agreed to suspend monthly payments of the purchase price until all lease payments on the plant and equipment were made. Subsequent to this, no further instalments on the purchase price were made. The appellant argued that this meant that the respondent's claim at first instance was statute barred. 3) Cl13 of the agreement for sale stated that: "(13) In the event that a change occurs in the proprietorship of Eros Productions and Publications [the partnership], responsibility for payment of moneys in respect of the original agreement to purchase my printing business will rest jointly and severally with Mr David Barrett and Mr John Ford." On the basis of this clause, the appellant submitted that the bankruptcy of two of the members of the partnership constituted a "change in proprietorship" for the purposes of this clause and that she was no longer liable for any of the debt. 4) Throughout the course of the relevant time period, two of the partners, the Barrett's, ceased to be involved in the partnership. Subsequent to this, the business was sold, the 2 UNREPORTED JUDGMENTS proceeds from this sale going to the appellant and her husband without any of these funds going to the Barretts. The appellant now seeks contribution from the Barretts for liability. 5) The appellant alleged that she was not a party to this contract because all relevant negotiations were conducted by two other members of the partnership. HELD: By Priestley, Meagher, Beazley JJA agreeing: 1) A member of a partnership was bound by a contract entered into by another member of that partnership. 2) Fresh evidence could not be admitted on appeal because such evidence could have been called at trial and no satisfactory explanation was given as to why it was not so called. 3) The plaintiff had not accepted repudiation of the contract until he issued the statement of claim and the Statute of Limitations does not operate. 4) The bankruptcy of two members of the partnership did not amount to a change in the proprietorship of the partnership for the purposes of liability of the partners. 5) A partner is unable to claim a contribution for liability from his partner where the liability arose as the result of fraud, culpable negligence or wilful default by a partner. ORDERS: Appeal dismissed with costs. Priestley JA I agree with Meagher JA. Meagher JA This is an appeal by Irene Margaret Ford against a judgment of McInerney J delivered on 26 October 1992. The litigation before his Honour arose out of the sale of an asset to a partnership in 1979. The partnership, trading as Eros Productions and Publications, consisted of Mrs Ford and her husband John Anthony Ford, David Austin Barrett and his wife Gweneth Mary Barrett. They were publishers. The plaintiff, Mr Charles H Miller, carried on a successful, but small-time, business as a printer. The plaintiff's case, which was accepted by his Honour, and challenged only to a limited extent on appeal, was that at some date in the second half of 1979 he sold his business to the Eros partnership for the sum of $75,000. I say "the plaintiff" as if there were only one, Mr Miller. In fact there were two plaintiffs, Mr Miller and the Official Trustee in Bankruptcy. The antics of the partnership led to Mr Miller's inability to pay his income tax, which in turn led to his bankruptcy. History does not relate what his status is now; in any event, it does not matter, as the case can by analyzed as if he were sole plaintiff. For the sake of completion, I might add that the wheel of fortune granted Mr Miller some compensation, for Mr Ford became bankrupt before the hearing of the appeal. As far as one knows, he still is. Mr Miller's case was that he entered into a contract to sell to the Eros partnership his business, including plant and equipment, by monthly instalments commencing on 18 October 1979 and concluding in October 1985. The following were also terms of the contract: (a) the plant and equipment were to remain the plaintiff's until the contract was fully performed; (b) the Eros partnership would also take over the leasehold payments relating to certain equipment then being leased by the plaintiff; and (c) the plaintiff would be employed by the Eros partnership until the contract had been fully performed. His Honour found for the plaintiff on all these matters as he was clearly entitled to. Neither at the trial, nor before us, was it denied that a contract containing these terms was entered into. However it was submitted by the appellant, Mrs Ford, that she was not a party to the contract; that all negotiations between Mr Miller and Eros were conducted URJ FORD v MLLLER (Meagher JA) 3 by Messrs Ford and Barrett, as far as the partnership was concerned; and that Mr Miller's contract was only with those two gentlemen. This argument must be rejected. It overlooks the fact that Mr Ford was an agent for the partnership, as indeed was Mr Barrett; it is moreover, hardly consistent with the appellant taking the advantages of being a purchaser of Mr Miller's business. The plaintiff alleged that there was another condition of the contract, by way of an apparently early variation of the contract to which I have referred, whereby Mr and Mrs Ford granted the plaintiff a mortgage over their house at Kogarah as security for the performance of the contract. The plaintiff tendered a letter Dom Mr Ford, the appellant's husband, in support of this condition. It did so in terms. It was dated 6 September 1979. Mr Ford in evidence said it was his signature on the letter, it was not a forgery; yet the letter purported to come from Sydney at a time he was in Queensland. For various good reasons McInerney J held that this term of the contract had not been proved by the plaintiff; it was, I think, the only issue on which the plaintiff failed. No one in the Eros partnership, either below or before us, suggested that Mr Miller was in any way, directly or indirectly, a party to forging Mr Ford's signature on the letters. Yet on appeal an application was made to lead fresh evidence by way of a handwriting expert to prove that the signature was forged. We refused the application, without at that stage giving any reasons. For my part it would have been sufficient reason that such evidence could have been called at the trial, and no satisfactory explanation was given as to why it was not. However, there is an additional reason: the interests of justice would, in my opinion, hardly be served by debating whether or not a signature on which the learned trial judge did not rely, was or was not forged. There was another variation alleged and on which his Honour found in favour of the plaintiff. This was that on or about 7 November 1979 the partnership (through Mr Ford) agreed with the plaintiff to suspend monthly payments of the purchase price until all lease payments on the plant and equipment were made: payment on these chattels was to take place by 26 November 1982. Thereafter the monthly instalments would begin. There was much debate before us as to the exact terms of the November 1979 agreement: whether there was consideration, what the amount of the instalments would be, whether they would include interest as well as principal, and so on. Even if there is some uncertainty or lack of clarity about the consequences of the suspension, that there was an agreement to suspend the monthly instalments is not in dispute. The partnership acted to its own advantage on this agreement, and made no payment of instalments. Even if that meant some latitude about how the rest of the contract should be performed after the cessation of the suspension, the agreement should still be recognized: Thorby v Goldberg (1965) 112 CLR 597 at 654 and 613. But, in any event, the debate is sterile. The only point of it seems to be to found an argument that the plaintiff's claim was barred by the Statute of Limitations. This argument, in my view, is doomed to failure. The plaintiff's case was based on (a) a conversion by the partnership of its chattels, and (b) damages for repudiation of the contract. The defendant partnership repudiated the contract again and again: it paid not a single instalment. So far as I can see, the plaintiff did not really accept the repudiation until he issued his Statement of Claim. In these circumstances it is not easy to see how the operation of the Statute of Limitations could defeat his action. Another submission made by Mr Libling SC, learned senior counsel for the appellant, was centred on cl13 of Mr Miller's son's precis of the agreement for sale. Insofar as it was relevant that clause said: 4 UNREPORTED JUDGMENTS "(13) In the event that a change occurs in the proprietorship of Eros Productions and Publications, responsibility for payment of moneys in respect of the original agreement to purchase my printing business will rest jointly and severally with Mr David Barrett and Mr John Ford." The argument then proceeded by pointing out that Mr and Mrs Barrett both were made bankrupt on or about 20 June 1983. It was then said that the bankruptcy of a partner necessarily involved a "change in the proprietorship" of the partnerships within the meaning of cl13. It was further said that it was agreed by all counsel at the trial that the partnership came to an end on or about 29 June. This argument must be rejected. First, it was not agreed by the plaintiff, but only by the four defendants. Secondly, I find this construction of cl13 very strained: parties can hardly agree that one of them will gain a new partnership liability on his bankruptcy. Thirdly, on 23 October 1984 both bankruptcies were annulled, wherefore at law they must be treated as never having occurred: Oates v Federal Commissioner of Taxation (1990-1) 27 FCR 289. Meanwhile, some very curious things were happening. Mr and Mrs Barrett ceased (possibly at the Fords' suggestion) to interest themselves in the partnership, which seemed to change its name to Barford Printing; or, conceivably, Barford Printing was a new business name for the printing business formerly conducted by Mr and Mrs Miller. In any event, a company was incorporated on 13 April 1984 and it became the owner of the Barford Printing business. It was called Avichest Pty Ltd, and its directors and shareholders were Mr and Mrs Ford. At some undiscoverable date in 1986 it sold "the business" to a Mr Raymond Gall, a former employee of Eros. "The business" sold was presumably the Eros business, incorporating the Miller business, whose assets still belonged to Mr Miller. The price was $100,000. Mr and Mrs Ford (through the company) received all of this, and Mr and Mrs Barrett received nothing. At the trial at first instance, Mr and Mrs Ford claimed that if all matters in issue were found against the partnership, Mr and Mrs Barrett should either indemnify them or contribute to what was their verdict. The plaintiff, with his usual negligence, had never served his Statement of Claim on Mr and Mrs Barrett, although they were named in it as third and fourth defendants. The matter therefore proceeded as if he were suing Mr and Mrs Ford alone. No party seemed to object to this mode of conducting the case; the question of non-joinder was never mentioned. When Mr Miller won. therefore. he obtained a judgment against Mr and Mrs Ford only. However, Mr and Mrs Barrett did participate in the hearing, and that is because Mr and Mrs Ford issued a cross-claim against them, seeking contribution and indemnity. McInerney J dismissed the cross-claim on the basis of s17 of the Partnership Act, which reads as follows: "A retiring partner may be discharged from any existing liabilities by an agreement to that effect between himself and the members of the firm as newly constituted and the creditors, and this agreement may be either expressed or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted." this section does not support his conclusion. One can certainly infer that Mr and Mrs Ford agreed to Mr and Mrs Barrett ceasing to be members of the partnership, but there is no evidence that the creditors did. But, whilst the reasoning cannot be sustained, the result, in my opinion, can. Whilst the general rule undoubtedly is that a partner is able to claim indemnity or contribution against his co-partner, so that he is not rendered solely liable for the partnership's liability, there are limits to the doctrine. It does not apply where URJ FORD v MLLLER (Beazley JA) 5 a partner's liability arises out of fraud, culpable negligence or wilful default: Bury v Allen (1845) 1 Coll 604, 63 ER 556, Thomas v Atherton (1878-79) 10 Ch D, 185. Mr Ford certainly fits into that category, and in my view his wife (who does not disown him) is just as unable to obtain contribution towards the verdict against herself and her husband from Mr and Mrs Barrett as he himself would be. It might be observed that if contribution were allowed against Mr and Mrs Barrett, those unfortunates would be saddled with partnership liabilities although deprived of partnership assets. Quantum was not in dispute. The appeal should be dismissed with costs. Beazley JA I agree with Meagher JA. Appeal dismissed with costs. Counsel for the appellant: D Libling Solicitors for the appellant: Peter Saxton and Co Counsel for the first, second respondents: DB McGovern/AG O'Brien Solicitors for the first, second respondents: Michael P Carroll and Peter S Knudsen Counsel for the fourth, Fifth respondents: K Andrews Solicitors for the fourth, Fifth respondents: Cohen Ajaka and Walter