WOOD V FRESHER FOODS LIMITED HC AK CIV 2007-404-001313

WOOD V FRESHER FOODS LIMITED HC AK CIV 2007-404-001313 13 December 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-001313BETWEEN DESMOND CHARLES WOOD AND AUDREY LILIAN WOOD Appellants AND FRESHER FOODS LIMITED Respondent Hearing: 15 November 2007 Appearances: G Hall for Appellants I Williams for Respondent Judgment: 13 December 2007 at 3.30 p.m.JUDGMENT OF VENNING JThis judgment was delivered by me on 13 December 2007 at 3.30 pm, pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar DateSolicitors: Kemps Lawyers, Penrose, Auckland Buddle Findlay, Auckland Copy to: I Williams, AucklandIntroduction[1] This appeal raises a very short but important point concerning the liability of former partners of a firm to creditors. Mr and Mrs Wood, together with their daughter and son-in-law, Mr and Mrs Williams, were in partnership in the firm of Chipman Enterprises. Fresher Foods Limited supplied Chipman Enterprises with french fries and other produce on credit for resale. [2] The Woods ceased working in the partnership of Chipman Enterprises towards the end of March 1999 but the partnership was not dissolved until 1 April 2001. From 1 April 2001 the Williams carried on the business for themselves. Fresher Foods continued to supply Chipman Enterprises with product on credit. By December 2003 the debt had risen to $83,500.18. Fresher Foods sued the members of the partnership (including the appellants) for that sum. Ultimately the Williams did not oppose entry of judgment. The Woods opposed Fresher Foods' claim on the basis they had retired from the partnership on 31 March 2001 and should not be liable for the partnership debt which had been incurred after that date. [3] Judge Hole identified the sole issue as whether Fresher Foods had received notice that the Woods had retired from the partnership when the debt was incurred. He found that although Fresher Foods knew the Woods (particularly Mr Wood) intended to cease day-to-day work, Fresher Foods did not have notice of their retirement from the partnership so that the Woods remained liable. The Woods appeal from that decision.The issues[4] The two issues raised on the appeal are:• Did the Judge err in finding the Woods did not give sufficient notice of retirement from the partnership?• Was the Judge wrong to identify the sole issue as whether Fresher Foods received notice that the Woods had retired from the partnership?Procedural matter[5] The hearing before Judge Hole proceeded on the basis of affidavit evidence, written witness statements and oral evidence, both in chief and in cross-examination. Prior to the hearing counsel agreed that there was no need for the transcript of the oral evidence to be prepared for the purposes of this appeal. The appeal proceeded on the basis of the affidavits, written statements, and the Judge's record of the oral evidence as noted in his judgment. No issue was taken with that by counsel.Did the Judge err in finding the appellants did not give sufficient notice of retirement from the partnership?[6] Section 39(1) of the Partnership Act 1908 applies.(1) 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.[7] If Fresher Foods had notice of the Woods' retirement from the partnership then the Woods could not be held liable for the debt incurred after that retirement. [8] The relationship between Fresher Foods and the partnership was based on a distributorship agreement executed by all parties on 13 February 1991. Under that agreement, Fresher Foods would supply Chipman Enterprises with stock on credit for on-sale to retailers. [9] The partnership initially operated two trucks. Mr Williams drove one, and Mr Wood the other. Each day they would go to the offices of Fresher Foods, give an order to either Ms Wong (the wife of the sole shareholder and director of Fresher Foods) or Ms Ng and then take the docket to the Fresher Foods factory to have the order filled. Initially Mr Williams worked six days a week and Mr Wood five days. Mr Williams said that a couple of months before March 1999, the truck Mr Wooddrove was written off in an accident. The partnership was then down to using only Mr Williams' truck. Mr Williams' truck was later sold and with the proceeds of sale and the insurance proceeds from the written-off truck, a new truck was bought. [10] Mr Wood said in his statement that he told Mrs Wong and Ms Ng that he and Mrs Wood were retiring. He said he also said the same thing to Mr Hun Wong, the director's brother who worked as a dispatcher at the factory. Neither Mrs Wong nor Ms Ng could recall the conversation. Mr Hun Wong did not give evidence. His command of English is limited. He did not hold any position of authority within Fresher Foods. Mr Williams said in his affidavit that he told Mrs Wong and Ms Ng that Mr and Mrs Wood had retired from the business and that he and his wife were taking over. He said that was in late March or April 1999. He said that Mr Wood told Mrs Wong and Ms Ng in his presence that he was retiring. Mr Williams also said that some time later Mrs Wong asked him how Mr Wood was getting on in his retirement. [11] Mr Hall characterised the Woods and the Williams' partnership as a "working partnership". He submitted that when the change in the way they worked (when Mr Wood ceased coming to Fresher Foods) was taken together with the evidence that Mr Wood had told Mrs Wong and Ms Ng that he and Mrs Wood were retiring, Fresher Foods had sufficient notice of his and Mrs Wood's retirement from the partnership. [12] I am not able to accept that submission for the following reasons:• While Mr Hall referred to the evidence contained in the affidavits and witness statements, the parties also gave oral evidence. The Judge made his finding that Fresher Foods did not have notice of the Woods' retirement from the partnership based on that oral evidence. The Judge concluded:[19] I prefer the oral evidence as the affidavits were prepared by a lawyer and contain obvious legal language. The prepared briefs of evidence read by each witness have similar defects; but they were prepared for this hearing in the knowledge of what the issues would be. Further, they were amplified by oral unprepared evidence.[20] Mr Wood said he told Mrs Wong and Ms Ng that "Audrey and I were retiring". Mr Williams said that Mr Wood told Mrs Wong and Ms Ng in his presence "that he was retiring." Significantly, Mr Wood in the preceding paragraph of his prepared brief of evidence talked about telling the customers that he was "ceasing work" and that he told the customers that Barry was the person who "would be delivering to them and dealing with them in the future". This was confirmed by the customer, Mr Chang, who told how Mr Wood had told him he was retiring. Both Mr Wood and Mr Williams recalled Ms Ng asking Mr Wood about his retirement plans. [21] Having listened carefully to this evidence, and having observed the two witnesses, I am very clear that all the talk of retirement was about Mr Wood ceasing work. He did not say he was retiring from the partnership. Indeed, it was apparent from his testimony that he did not consider the partnership implications of his retirement. [22] Mr Wood's evidence of the discussion with Mr Hun Wong is of the same tenor: it was about his ceasing work.• Mr Hall's submission as to the significance of the "working partnership" taken with what Mr Wood said to Mrs Wong and Ms Ng overlooks that some time prior to the March 1999 conversation Mr Wood's truck had been written off. The precise timing is not clear, but Mr Williams said it was a "couple of months" before. The partnership was down to using one truck at that stage and some time before Mr Wood's retirement. The partnership later replaced Mr Williams' truck. It is reading too much into the change from two trucks to one, particularly when that did not exactly coincide with the March conversation, to say that amounted to notice of a change in the partnership and specifically, of Mr and Mrs Wood's withdrawal. Further, the "working partnership" argument does not address the fact Mrs Wood's role in the partnership was very limited throughout.• The Judge accepted that neither Mrs Wong nor Ms Ng understood they were being given notice of a partnership change or that the Woods were to retire from the partnership. Mrs Wong said that given the level of debt at the time (March 1999) she would have insisted that the parties make a firm and acceptable arrangement for payment of the hard core debt which had built up if she thought the Woods were retiring from the partnership. Ms Ng confirmed that Fresher Foods had required that from another partnership they dealt with when alerted to a change.• The Woods and the Williams did not give formal effect to the retirement themselves for two years after 1999. The financial accounts prepared for the partnership recorded that the appellants remained as partners for the years ended 31 March 2000 and 2001. The Woods admit in their statement of defence that they ceased to be partners on 1 April 2001. The partnership was not dissolved and reconstituted until that date. That is consistent with the Judge's finding that Mr Wood's retirement in 1999 was from the work of driving the truck, but not from the partnership.• The Judge found as a matter of fact that the discussion on 31 March 1999 was not effective notice of the change of constitution in the partnership. The distributorship agreement remained in place and effective. It was never altered. Significantly, clause 4 provided that "Any Sale of the Distributors business and/or assignment or transfer of the Distributors rights under this Agreement shall be subject to the [Fresher Foods'] consent and reasonable requirements for approval". Upon the retirement of Mr and Mrs Wood in March 2001, the Chipman Enterprises partnership was reconstituted. The Woods and Williams should have sought Fresher Food's consent to the change. If they had done so, on the evidence Fresher Foods would have required assurance the existing debt would be paid. [13] This first ground of appeal is in essence a challenge to the Judge's findings on the evidence. A Court on appeal will be reluctant to reverse a factual finding that was open to the Judge unless compelling grounds are shown for doing so: Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190. There is nothing in the appellants' submissions that persuade me there are such compelling grounds to reverse the Judge's factual findings that Fresher Foods was not given notice of a change in the partnership's constitution in March 1999. The Judge's conclusion that the conversation of March 1999 was not about a change in the partnership's constitution was open to him on the evidence. [14] Where, as here, Fresher Foods knew that the Woods were partners in Chipman Enterprises with the Williams, then the onus was on the Woods to prove that they had given notice of the change, either by direct notice or at least by factsand circumstances from which that could be inferred: Huffman v Ross [1926] 1 DLR 603 (SCC). The Woods have failed to establish that. It was open to the Judge to conclude that Fresher Foods did not have notice of the Woods' retirement from the Chipman Enterprises partnership.Was the Judge wrong to identify the sole issue as whether Fresher Foods received notice that the Woods had retired from the partnership?[15] Mr Hall next submitted that in identifying the sole issue in the case as whether Fresher Foods received notice that Mr and Mrs Wood had retired from the partnership, the Judge was in error and had failed to apply the reasoning of the Court of Appeal in Elders Pastoral Limited v Rutherfurd (1990) 3 NZBLC 101,899. He submitted that even if a retired partner has not given notice of the retirement, he or she will not be liable for debts incurred by the partnership following his or her retirement unless, at the time the debts were incurred, the retired partner was still an apparent partner. He submitted that in light of the Elders Pastoral case the onus was on Fresher Foods to prove that the appellants were apparent partners at the time the debt was incurred. [16] In Elders Pastoral Limited Elders had supplied horticultural chemicals and other goods to a partnership. Mrs Rutherfurd was formerly a partner in the firm but had retired from the partnership on 10 July 1987. Elders sued to recover a debt for stock supplied after 10 July 1987. Elders had not been given notice of Mrs Rutherfurd's retirement from the partnership. However, Elders did not know that Mrs Rutherfurd had been a partner. They first learnt of the fact that she had been a member of the earlier partnership after the date on which she had retired from it. The Court of Appeal identified the case as:a simple one in which Elders claim to recover from Mrs Rutherfurd, a retired partner of whose existence as such they did not know, a debt incurred by the new or continuing partnership after her retirement.[17] Section 39(3) of the Partnership Act covered the position:(3) The estate of a partner who dies or who becomes bankrupt, or of a partner who, not having been known to the person dealing with the firm tobe a partner, retires from the firm, is not liable for partnership debts contracted after the date of the death, bankruptcy, or retirement respectively.[18] Referring to the wording of s 39(3) the Court held that a partner who retires from the firm and was not known to the creditor before the retirement to have been a member is not liable for post-retirement debts. That finding was sufficient to determine the case. However, the Court went on to refer to s 39(1) and at 101,901 Somers J said two points must concur for liability to arise under s 39(1):The first is that the person sought to be made liable was "known" to the creditor before actual retirement to have been a partner. The second is that the former partner must still be an "apparent" member. [19] Mr Hall submitted that while the Woods may have been "known" as partners before retirement, the second point required that they still be "apparent" members if they are to be liable. This can be contrasted with the Judge's approach in the present case where he held once the Woods were known to be partners, they were liable until Fresher Foods had notice they were no longer partners. [20] On Mr Hall's interpretation Elders Pastoral would be authority for the proposition that a creditor who has dealt with a partnership can only hold a former partner liable for the debt of the partnership incurred after his retirement if that creditor did not have notice of the retirement and the creditor could establish that the former partner was still an apparent member of the partnership. For there to be such an "apparent membership", some form of representation would be required. But the liability of persons for partnership debts based on apparent membership of the partnership by representation is provided for by s 17 of the Partnership Act. The effect of s 17(1) is that where the person allows themselves to be represented as a partner they are liable to a creditor even if the representation was made to the creditor without the knowledge of the apparent partner. [21] Section 39 is directed at a different end. It is to confirm that former partners of a firm remain liable to creditors dealing with that firm unless the creditor has notice of a change in partnership: s 39(1) and (2). Section 39(1) provides for the situation of existing creditors of the firm. Section 39(2) provides for the situation of creditors who had not dealt with the partnership before.[22] There is thus a distinction between creditors who have had dealings with the firm before the change in its constitution and those who did not have any such dealings with it at all. An advertisement in the gazette is notice as to creditors who had no dealings with the firm before the date of dissolution. [23] Section 39(3) provides an exception to the requirement for notice in the case of death or bankruptcy or, as in the case of Elders Pastoral, where the creditor had no knowledge that the partner was formerly a member of the firm. [24] Section 39(1) applies to the present case. The Woods were known to Fresher Foods as partners in Chipman Enterprises. Applying the wording of the section Fresher Foods was entitled to treat all apparent members of Chipman Enterprises as still being members of the firm until it had notice of the change. The Judge found that Fresher Foods did not have notice of the change in partnership after 31 March 2001. The issue is the meaning to be given to "apparent members" in this context. [25] With respect to the Court of Appeal in Elders Pastoral I am not able to accept that the former partner must "still be an apparent member". The word "still" as it appears in s 39 relates to the liability as a member of the firm rather than to their apparent membership of the firm. The plain wording of the section is that persons who are known to the creditor as partners of the firm remain liable as apparent members until the creditor has notice of the retirement. [26] That approach is consistent with the English and Australian authority on the point. In Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397 Lynskey J considered the equivalent section in the United Kingdom legislation and stated:In my reading of that sub-section, "apparent members" means members who are apparently members to the person who is dealing with the firm, and they may be apparent either by the fact that the customer has had dealings with them before, or because of the use of their names on the notepaper, or from a sign outside the door, or because the customer has had some indirect information about them.[27] Lynksey J also referred to the earlier decision of Farrar v Delfinne (1843) 1 Car & Kir 580 where Cresswell J set out the matter as follows:Todd and the defendant were once in partnership, but they had not been so since the year 1837. The plaintiff dealt with the firm during the partnership, and he continued to do so afterwards; and the question is, whether the defendant is liable in respect of such subsequent dealings now that the partnership is dissolved. The law stands thus: if there had been a notorious partnership, but no notice had been given of the dissolution thereof, the defendant would have been liable. If there had been a general notice, that would have been sufficient for all but actual customers; these, however, must have had some kind of actual notice. The question for you, therefore, is, was this partnership actually known to the plaintiffs, either by the general report, or by direction communication? Because, if it were, and he did not know, either from notice of the fact, or from surmise, that the dissolution had taken place, you must infer that he still dealt on the faith of the partnership, and the defendant will therefore be liable.[28] In Hamerhaven Pty Ltd v Ogge [1996] 2 VR 488 the Victorian Court of Appeal considered the application of the Australian equivalent of the same section. Callaway J A referred to the Elders decision as follows:In Elders Pastoral Ltd v Rutherfurd it was said of the corresponding New Zealand provision that a former partner must still be an apparent member after he or she retires. With respect, I do not think that is the true construction of the section. In my opinion it means that a person who was an apparent member of the old firm, i.e. the firm as it existed before the change in its constitution, may for that reason alone continue to be treated as a member of the firm after the change in its constitution until the plaintiff has notice of the change. "Apparent" is used only in relation to membership of the old firm and "still" relates to continuing membership not the appearance thereof. Accordingly the respondent's allegation that he ceased to be a partner on 30 June 1987, even if it were true, would avail him nothing unless the appellant had notice of the change. (emphasis added)[29] In my judgment that statement accurately reflects the effect and plain meaning of the words s 39(1) of the Act. The section does not require the former partner to "still be" an apparent member. The Woods are apparent members of the Chipman Enterprises, because Fresher Foods knew that they were initially, and did not have notice that the position had changed. The focus must be on whether the creditor dealing with the firm, knowing that the person was formerly a partner has notice that they are no longer a partner. If not, then in the absence of any other evidence, they remain apparent members of the firm and the creditor is entitled to treat them as still being members of it.[30] The notice need not be by express words. It may be inferred from the circumstances known to the creditor. As Callaway J said in Hamerhaven the onus was on the partner to:" prove either 'direct notice'" thereof or, at least, "facts and circumstances from which knowledge of such retirement might fairly be inferred."[31] This approach is consistent with Hammond v Hamlin HC WN CP66-92 3 April 1992, Master Williams QC and Pont v Wilkins (1992) 4 NZBLC 102,894. InHammond a salaried partner was held liable in respect of a post-retirement breach of undertaking given by his partner to another firm of solicitors which knew the former to have been a partner by virtue of the appearance of his name on the firm's letterhead both before and after his retirement, notice of which was given too late to prevent liability. Also in Pont v Wilkins the retired partner who had given no formal notice at all of retirement had taken no step to have his name taken out of the firm name. His name and qualifications continued to appear on the firm's letterhead. He was held liable as a partner. [32] Having regard to the wording of s 39(1) I do not consider the Court of Appeal in Elders Pastoral can be taken to have meant that s 39(1) requires a creditor to establish that the former partner was still apparently a member of the partnership (in addition to having knowledge of initial membership of the partnership and no notice of a change) for liability to ensue. But if the Court of Appeal decision in Elders Pastoral is to be interpreted in that way then, with respect, I consider that it is wrong and as the comments in relation to the application of s 39(1) were obiter in that case I would decline to follow it. [33] If I am wrong in coming to the view that s 39(1) does not require Fresher Foods to establish that the Woods were still apparent members of the partnership then I would nevertheless have found the Woods were still apparent members of the partnership in this case. I would have come to that conclusion for the following reasons:• The trading relationship which led to the credit account between Fresher Foods and Chipman Enterprises was established by the distributorship agreementsigned by all four partners. The agreement contemplated that if there was to be a change in the trading arrangement by a change in the membership of the partnership that would also be done formally and in writing. That was not done.• At its highest, the Woods' case is that they were no longer apparent members of the partnership after March 1999. But the Woods remained liable as partners even on their own case until March 2001. It was only at that time that the Woods formally retired from partnership. There is no evidence of any change in the dealings between Fresher Foods and Chipman Enterprises between 2001 and 2003.Conclusion[34] The discussion that Mr Woods had in March 1999 with the staff at Fresher Foods was not notice under s 39(1) of the Act of a change in the partnership. The business carried on under the distributorship agreement. The Woods remained apparent members of the partnership. As they did not give notice to Fresher Foods of their retirement they remained liable.Result[35] The appeal is dismissed.Costs[36] Costs to the respondent on a 2B basis. __________________________ Venning J