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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Macpherson & Others v. Richmond [1868] ScotLR 6_348 (16 February 1868)
URL: http://www.bailii.org/scot/cases/ScotCS/1868/06SLR0348.html
Cite as: [1868] SLR 6_348, [1868] ScotLR 6_348
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SCOTTISH_SLR_Court_of_Session
Page: 348↓
Court of Session Outer House
(Before Lord Manor,)
v.
Facts:
Held ( per Lord Manor) and acquiesced in, that one of the members of a partnership having, in violation of the contract of copartnery, so grossly misconducted himself as to destroy his co-partners' confidence in him, they were entitled to have the estates of the company judicially wound up. Judicial factor accordingly appointed for that purpose.
This was a petition for the appointment of a judicial factor on the estates of Richmond, Struthers, & Company, Cabinetmakers, Upholsterers and Warehousemen in Glasgow, and was brought by three of the partners of that firm. It was directed against, and was opposed by, Mr Robert Richmond, the remaining partner of the firm. After setting forth the various contributions to the capital of the firm by the several members; the distribution of profits and losses; and the several amounts which the partners were entitled to draw in anticipation of profits, the petition proceeds thus:—
That notwithstanding the provisions of the contract of copartnery recited, and the fact that the petitioners contributed their full stipulated shares of capital in the Company, the said Robert Richmond commenced in the year 1863, and has continued, to draw from the concern sums greatly exceeding the amount which he was entitled to draw under the provisions of the contract. An abstract of the accounts of the four partners respectively, showing overdrafts by Mr Richmond, as at 5th September 1867, to the extent of £1019, 2s. 4d., is herewith produced and referred to. These overdrafts have very seriously prejudiced the Company in their financial arrangements.
For some time prior to the last-mentioned date, the petitioners repeatedly and anxiously remonstrated with the respondent Mr Richmond upon the impropriety of his conduct in thus withdrawing his capital from the concern, in breach of the contract of copartnery, and to the serious prejudice of the interests of the firm, but without effect; and on or about that day the petitioners Mr Macpherson and Mr Struthers gave notice to the petitioner Mr Rennie, who acted as cashier,
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to permit no further overdrafts. Mr Rennie himself concurred in the course which they adopted. Mr Richmond thereupon absented himself from business for a period of eleven weeks, not returning until the 16th of the following month of November. He stated expressly, as his reason for so absenting himself, the prohibition by the petitioners of further overdrafts on his part in violation of the contract. Mr Richmond also, without cause or reasonable excuse, absented himself from business from the 21st of March till the 14th day of April last, both inclusive.
After Mr Richmond did return to business, he refused to write up the books of the upholstery and cabinetmaking departments of the business, which he had regularly done previously as a part of his duty, just as the other partners in charge of their departments had always written up the books of these departments. Ultimately, in the month of April last, he, through his brother Mr George Richmond jun., proposed to stipulate for a salary of £200 per annum in addition to his share under the contract, as a consideration for his writing up these books, and on the 1st of May, the said George Richmond, acting on his behalf, threatened that if this proposal was rejected, ‘he would try the firm's strength financially.’ The petitioners on the 5th May declined the proposal. Thereafter, in fulfilment of the threat made by the respondent through his said brother, the respondent, Mr Richmond, arranged with his brother, Mr George Richmond jun., and with his law agent, Mr William Mathison, writer in Glasgow, to bring pressure on the petitioners, by arranging that these parties should make sudden and peremptory calls for immediate payment of sums lent by them respectively on interest to the firm. In consequence of this arrangement, Mr Mathison, on the 6th or 8th of May, applied for and received £200. On the 8th May, Mr George Richmond jun. demanded £600, to be paid on the following day, which was done accordingly. On the 14th May Mr Mathison demanded and was paid £100, and on the 19th May Mr Richmond himself, and Mr George Richmond demanded upwards of £180 to be paid to them as trustees for third parties, which was paid accordingly on the same day, making in all £1080 within a fortnight.
During the month of May Mr Robert Richmond improperly, and without the consent, and contrary to the expressed desire of the petitioners, removed, or caused to be removed, from the warehouse of the firm, a considerable quantity of household furniture, forming part of their stock in trade, which is now believed to be in his dwelling-house.
In order to embarrass the petitioners as much as possible, and to drive them into making the concessions which he demands, the respondent Mr Richmond has persisted in taking numerous orders from the customers of the Company, and executing these orders without making any entries in the books kept for the purpose, or any of the hooks of the Company, and without giving any information regarding them, so that it is impossible to know what goods have gone out or to whom to render accounts for said goods. This has been carried on by the respondent to a large extent.
By the seventh article of the contract of copartnery it is stipulated, that in case of any difference of opinion arising between the partners as to the conducting of the business, the same should he determined by a majority of the partners, whose determination should bind the whole partners. In terms of this provision, the petitioners, on the 8th of June 1868, subscribed and intimated to the respondent Mr Robert Richmond a minute in the following terms:—‘ Glasgow, 8th June 1868. Mem. In the present circumstances of the firm we resolve that its obligations shall not be increased either by purchasing goods or manufacturing for stock, and that operations in either way shall be strictly limited to the execution of such orders as are duly entered in the firm's order-books. Further, that no purchases whatever be made without the written consent of our cashier, Mr Rennie, or a majority of the partners.’
Notwithstanding this minute, and with a view of embarrassing the petitioners, Mr Richmond, as the petitioners have learned, proceeded to buy timber to a considerable extent, and on disadvantageous terms, which timber was not required at the time for the purposes of the business, and has made other purchases of a similar character, and with the same object. By all which the interests of the Company have been seriously prejudiced.
Upon finding that Mr Richmond had withdrawn upwards of one half of his capital from the concern, the petitioners resolved to bring the claims thence arising before the arbiter named in the contract; and Mr Lumsden, the arbiter first named, having declined, they applied to Mr James Campbell of Tulliechewan, the arbiter second named; and, as ordered by him, lodged a statement or claim for replacement of the funds improperly withdrawn by Mr Richmond, which Mr Richmond has not answered. He has prevented the submission from being proceeded with by failing or refusing to produce the contract of copartnery, which is in his hands or those of his agent, Mr Mathison, to the arbiter as required by him.
The respondent, Mr Richmond, still perseveres and continues to act in utter disregard of the wishes and interests of the petitioners and of the firm; he makes no entries of his transactions in the books of the firm, refuses all explanations on the subject, and refuses to replace that portion of his capital which he has withdrawn. In these circumstances it is absolutely necessary for the interests of all concerned that the Company should be immediately wound up and that for that purpose the Company's estate and effects should be sequestrated by your Lordships, and a judicial factor appointed to wind up the Company's affairs. The present petition has accordingly been presented for that purpose.
“The petitioners respectfully propose Mr Peter White, accountant in Glasgow, as a suitable and proper person to be appointed to the office of judicial factor.”
The petition then concludes with a prayer for the appointment of a judicial factor for the purpose of winding up the affairs of the Company.
The respondent substantially denies the allegations in the petition, in consequence of which evidence was led.
Shand for petitioners.
A. Moncrieff for respondent.
The following authorities were referred to at the hearing on the evidence—Clark on Partnership, 659; Walker v. Taylor, 2 Ves. and R. 399; Tudor's L. C., 329, 376; Harrison v. Tennent, 21 Beav. 482; Smith v. Jeyes, 4 Beav. 503; Errill v. Hayward,
Page: 350↓
30 Beav. 158; De Berenger v. Ramuel, 7 Jac. and Blyth. 83; Bell's Comm., ii, 635; Lindley, 232; Baxters v. West, 1 Dr. and Sm. 173; Watnes v. Ellis, 30 Beav. 56–60; Peare v. Hewitt, 31 Beav. 22; Hoey on Partnership, 287–8; Chessman v. Price, 35 Beav. 142.
Note.—It is not proposed in this note to enter into any minute examination of the whole evidence in the case, because, according to the view which the Lord Ordinary takes of it, any one of' the various grounds of complaint stated by the petitioners is of itself sufficient, if fairly established, to entitle them to the remedy they seek. At all events, the Lord Ordinary is of opinion that if the petitioners succeed in showing the misconduct of the respondent to have been such as to lead to a total and lasting want of confidence between him and his copartners, without any reasonable hope of their being reconciled so as to be enabled to work together for their common advantage, the Court, in the exercise of its equitable powers, ought to interfere to dissolve the society. And that this unhappy state of matters has been brought about, and exists, there cannot, it is thought, be the slightest doubt.
The firm of Richmond, Struthers & Company commenced business in 1863 upon a very slender capital, amounting to no more than £6,700, whereof the respondent, Robert Richmond, contributed only £700, the remaining £6000 being made up by the other three partners in different proportions; and, in order to have at their command as large an amount of funds as their limited capital admitted of, the partners resolved that the whole yearly profits should not be divided among them at each annual balance, but should, in part at least, be reserved and retained in the Company, to be employed in their business. For this purpose the sixth article of the contract was introduced, providing that each of the partners should be entitled to draw in each year, in anticipation of profits, not exceeding the sums following, viz., the said Robert Richmond, Thomas Struthers, and Alexander Macpherson, £300 per annum, and the said Robert Rennie the sum of £200 per annum. These proportions were plainly not fixed with any direct reference to the share of the input stock or capital which was contributed by each of the partners, as the respondent, though the lowest contributor of all, was placed in the highest scale of allowance of anticipated profits, while Mr Rennie, who contributed nearly three times as much as he, was placed in the lowest scale. The proportions accordingly were regulated upon other and different considerations, such as the amount of skill and connection and influence which each partner was able to bring to the concern; and there is no question that in all these respects the respondent had claims which were entitled to regard. He had previously been engaged in the same line of business—he was a man of acknowledged experience and capacity—and he had, moreover, obtained for the Company, from his brother George Richmond, a loan of £2500, bearing interest at 5 per cent., and to be repaid by instalments of £500 a-year. But, however much weight may have been due to these considerations, it is certain that the sum which each partner had right in each year to draw in anticipation of profits was absolutely fixed by the sixth article of the contract. The rule so laid down was a most important one, and its observance was essential to the success of the business.
The respondent nevertheless, in disregard of this rule, began from the very first to overdraw his account, and continued and increased his overdrafts from year to year, till the other members of the firm became alarmed for the consequences. They frequently and repeatedly spoke to him on the subject in a friendly way, but without effect, and after the annual balance for 1866 was completed and signed on 5th March 1867, it was ascertained that he had overdrawn to the extent of upwards of £1000, as appears from an abstract of the accounts of the four partners (No. 43 of process), the accuracy of which is not disputed. Mr Struthers was then appointed by the other partners to remonstrate with him seriously on the impropriety of his conduct, which he did—the respondent not denying the rule to which he was bound to conform, or the correctness of the charges brought against him, but excusing himself on the ground that he was unable to live within his limited income. The overdrafts still went on as before; and at length, on 10th September 1867, the three partners concurred in resolving to suspend,
Page: 351↓
He states that the pressure was certainly put upon the Company in consequence of the quarrel between the partners, and that he, though aware of what his brother was about to do in the matter, did not ask him to withhold his hand and save the firm. On the contrary, he distinctly admits that, yielding to the feelings arising from what he considered the harsh treatment he had received at the hands of his partners, it is the fact that he wished the Company to be pressed for money. This avowal, alone, without going into any theor details of the case, manifestly shews that he was in a state of complete hostility to his partners; and though in another part of his deposition he says that he has not lost confidence in them, the worth of that statement must be judged of by what he actually did and consented to, and by the feelings and motives which he does not seek to disguise. His partners unanimously declare that they have lost all confidence in him. In these circumstances the Lord Ordinary ventures to think that the time has come for the interposition of the Court in the manner prayed for in the petition.
This is a point on which there is very little direct authority in the law of Scotland. Mr Bell in his Principles, jj 878, in speaking of the dissolution of partnership, mentions renunciation by one or more of the partners,, where there is no term fixed, as a mode of dissolution. ‘Or, even where there is a term fixed, this may be done on just cause for separating being shewn. The former may be by extrajudicial, the latter will require a judicial act.’ And in like manner, in his Commentaries, vol. ii, p. 633, the same author says ‘where a certain term has been fixed for the duration of the partnership, it can be dissolved only on cause shewn; or a majority also may dissolve a partnership, or joint trade, though undertaken for a certain term, provided the dissolution be made in bona fide, and justifiable on rational grounds.’ These passages indicate clearly enough the principle which is thought to be applicable to a case like the present; but there are no Scotch decisions cited which have much bearing on the point; and even the English decisions referred to are deficient as authorities. The law in England, however, is now much more matured on the subject than it is with us in Scotland, and since Mr Bell's day numerous decisions have been pronounced in the English Courts which clearly establish the rule, that wherever there has been such gross misconduct on the part of any one of the members of a company as to destroy mutual confidence and harmony between him and the other partners, and to prevent the concern from being carried on in terms of the contract, a Court of Equity will decree dissolution. The Court will not take cognisance of mere partnership squabbles, or quarrels arising from ill temper or sullenness in any of the partners, but whenever the ground of complaint assumes the form of broken confidence, however that may have been occasioned—whether by a substantial violation by one partner of the conditions of the contract, or by his acting adversely to the rest, and refusing to submit to the wishes of the majority—or by his otherwise conducting himself so as to create a state of continued and irreconcilable dissension, wholly inconsistent with that friendly co-operation which is of the very essence of partnership, the Court will interfere and grant the remedy.
A full exposition of this branch of the law will be found in Lindley on Partnership, vol. i, p. 225 et seq., and the decided cases are collected in Tudor's Leading Cases on Mercantile and Maritime Law, where they are examined and commented upon. From these it appears that the current of modern authority in England now runs very strongly, and indeed uniformly, in favour of granting the remedy in such circumstances as occur in the present case. Among the decisions chiefly deserving notice are those of Waters v. Taylor at p. 329 of Tudor, and also separately reported in 2 Ves. and Beav. 299; Harrison v. Tennant, 21 Beav. 48; Baxter v. West, 1 Drewry and Smail's Chancery Cases; and Watrey v. Wells, 30 Beav. 56. A reference to these authorities will shew that such a case as the present would, without hesitation, be disposed of in the English Courts in favour of the petitioners; and, as the principle of the law is the same in both countries, there seems no room for saying that a wholesome rule, so plainly founded in reason and equity, ought not also to be
Page: 352↓
The Lord Ordinary is satisfied that the respondent, besides violating the contract by with-drawing his capital from the business to an extent exceeding the amount authorized by the 6th article, and taking the adverse part he did along with his brother in bringing pressure upon the Company and embarrassing their pecuniary arrangements, and, besides absenting himself from the business and leaving his duties undischarged, has also furnished good ground for this petition against him by refusing to communicate with his partners, or to give them such information as was necessary for enabling them to keep the books of the company in order, and render their accounts to the customers; that he has further, in violation of the express resolution of his partners, purchased goods for the business not required therefor; and lastly, that he has wrongfully refused to implement his part of the contract, by declining to go on with a reference as proposed by his partners for settling their differences, in terms of a special provision in the contract by which he was bound to such reference. All these additional particulars have been clearly proved; but, as already observed, the matter of the respondent's overdrafts, and what ensued immediately in connection with the stoppage of them, form the central point of the case, and are thought to be by themselves sufficient for its disposal. It has therefore been deemed unnecessary to go further in the way of examining the proof.
“There remains only one point to be adverted to in conclusion. At the debate which took place before the Lord Ordinary, the respondent's counsel raised a question as to the interpretation of the sixth article of the contract, suggesting a doubt whether, upon a sound construction of its terms, the respondent could be held to have violated the rule with respect to overdrafts. The obvious answer to any such argument is that, even assuming the article to be in any respect ambiguous, the understanding and course of dealing among the partners themselves must regulate the manner in which the Court is to deal with them in regard to it. But all the partners undoubtedly were agreed as to the construction of that article. The respondent, in particular, raises no question on the record on the ground of its ambiguity; and in his deposition as a witness in the cause he states that he thought his partners justified in what they did in stopping his overdrafts, but objected to the manner in which they did it, and characterised the letter which they sent him on the occasion as insulting, impertinent and harsh; hence arose his resentment and all the consequences which followed of his absenting himself from the business, and refusing when he returned to do the duties of his place, or to communicate with his partners, or aid them by his counsel and advice, which they were entitled to expect.”
The said interlocutor has become final.
Agents for Petitioners— G. & H. Cairns, W.S.
Agents for Respondent— Campbell & Smith. S.S.C.