New South Wales Supreme Court CITATION : Harper-MacRae & Associates Pty Ltd v The Official Trustee in Bankruptcy of the Estate of John Patrick Darcy [2007] NSWSC 953 HEARING DATE(S) : 23/08/07 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 23 August 2007 DECISION : Plaintiffs entitled to exercise option to purchase partnership assets. CATCHWORDS : PARTNERSHIP [8]- Rights and duties of partners inter se- Articles and terms of partnership- Option to purchase assets of partnership in event of, inter alia, bankruptcy of one partner- Bankruptcy occurs after expiration of fixed term partnership agreement- However continuation of partnership effected by s 27(1) of Partnership Act- Option validly exercised. LEGISLATION CITED : Partnership Act 1892, s 27(1) CASES CITED : Daw v Herring [1892] 1 Ch 284 Leisure Investments Pty Ltd v Bilioara Pty Ltd [2000] NTSC 94 Harper-MacRae & Associates Pty Ltd (P1) PARTIES : Brisk Bay Holdings Pty Ltd (P2) The Official Trustee in Bankruptcy of the Estate of John Patrick Darcy (D1) The Official Trustee in Bankruptcy of the Estate of Roslyn Anne Darcy (D2) FILE NUMBER(S) : SC 2229/07 COUNSEL : M Pesman (P) SOLICITORS : DLA Phillips Fox (P) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Thursday 23 August 2007 2229/07 – HARPER-MACRAE & ASSOCIATES PTY LTD v THE OFFICIAL TRUSTEE IN BANKRUPTCY OF THE ESTATE OF JOHN PATRICK DARCY JUDGMENT 1 HIS HONOUR: The plaintiffs essentially seek orders to carry out the grant of an option to purchase partnership property in the events which have happened which flows from a Deed of Partnership made between them on the one part and John Patrick Darcy and Roslyn Anne Darcy on 21 April 2005. 2 The partnership agreement was with respect to operating a hotel in Warren. Clause 2 of the partnership deed said that the partners will, from the date of the Deed, become and remain partners for the purpose of purchasing what was defined in the partnership agreement as Assets, which was essentially the land and business of the hotel in Warren. 3 Clause 3 of the Deed provided that the partnership is to continue for 15 months from the date of the Deed or such later date as agreed by the partners. Accordingly, the partnership will come to an end on 21 July 2006. 4 Clause 17 of the partnership agreement is as follows: " 17. Effect of death, bankruptcy, retirement or expulsion 17.1 If one Partner shall die, become bankrupt, retire or cease to be a Partner for any reason conferred by this Deed the Partnership will be terminated. 17.2 The remaining Partner must purchase the interest in the Assets of the other Partner for the price paid for those Assets to the Vendor. 17.3 If the remaining Partner does not wish to purchase the other Partner's interest then at the sole discretion of the remaining Partner the Assets may be sold. 17.4 Whilst the remaining Partner is continuing to trade the remaining Partner will be entitled to the profits of the Business." 5 The facts are that Mr Darcy became a bankrupt on 3 February 2006. However, Mrs Darcy did not become a bankrupt until 1 November 2006. 6 The first question to consider is whether under clause 17.1 the "Partner" became bankrupt in February, that is before the fixed term partnership expired, or November which is after the fixed term partnership expired. 7 In my view, the word "Partner" is defined in a peculiar way so that the joiner of Mr and Mrs Darcy constitutes one Partner and the joiner of the two plaintiffs constitutes the other Partner. 8 There is no clause in the Deed making rights joint and several so that, for the reasons set out in Professor Glanville Williams book, Joint Obligations, the obligations are joint only. Thus, in my view, the word Partner means the joiner of Mr and Mrs Darcy. They did not become bankrupt until 1 November 2006. 9 My problem, before Mr Pesman came into the case, was that the partnership agreement conferring the option (because I would construe the rather strangely worded clause 17.2 as the grant of an option) was only to a renewal whilst the partnership agreement was in force. 10 However, Mr Pesman drew my attention this morning to s 27(1) of the Partnership Act 1892 which provides that: "Where a partnership entered into for a fixed term is continued after the term has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far as is consistent with the incidents of a partnership at will." Exhibit PX03 shows that the partnership business did continue past 21 July 2006. 11 I have been referred to the decision of Stirling J in Daw v Herring [1892] 1 Ch 284 and the decision of Thomas J in the Supreme Court of the Northern Territory in Leisure Investments Pty Ltd v Bilioara Pty Ltd [2000] NTSC 94. These cases deal with very similar problems and they are authority for me taking the view in the present case that the option, despite the termination of the fixed term partnership, was still in existence when it was exercised because of the continuation of the partnership effected by section 27. The evidence shows that the consideration is $160,000. 12 The Trustee in Bankruptcy has indicated that he submits to the order of the court except as to costs and it is appropriate to make orders 1 to 8 in the amended short minutes of order which I have initialled, dated and placed with the papers and involves the matter being listed before the Registrar at 9.30am on 14 September 2007. *********************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.