Scottish Court of Session Decisions

LORD JUSTICE-CLERK (Thomson).—This is a petition at the instance of Mrs Carabine against her husband brought under section 39 of the Partnership Act. At the time when the petition was brought the parties were not living together and had apparently parted company on 22nd June 1948. For some time before that date the parties had carried on business in partnership as hotel keepers at a house in Edinburgh. The partnership was entirely informal. There was no written deed, and it came to an end when the petitioner left the hotel on the date I have already referred to—22nd June 1948.

The record is not altogether at one as to the amount of money which was contributed by each party but it does appear on a fair reading that each had contributed something in the neighbourhood of £1000, plus some furniture and other things, but it appeared to-day for the first time that there was a building society involved in the matter and that the payments on the sum loaned by the society had fallen into arrears.

Since the petitioner has left, the respondent has been carrying on the hotel business. Apparently at first the petitioner was quite agreeable to this as a temporary arrangement, but it has ceased to be a temporary arrangement and the petitioner has put considerable pressure on the respondent to settle up the outstanding partnership issues and ultimately has brought this petition.

The Lord Ordinary dismissed the petition. In dismissing it, he said that the competency of it was not in dispute and he then expressed the view that it was well settled that a factor would only be appointed if such a course was considered necessary or highly expedient, and, in his view, the appointment in this case was neither necessary nor highly expedient. In expressing that view of section 39, the Lord Ordinary was expressing what does seem to be the prevalent view of that section. While the section gives the Court power to appoint a factor, it is clear that the Court has been unwilling to make the appointment unless strong grounds have been put forward. Accordingly, the Lord Ordinary, following what he regarded as the accepted practice, refused to make the appointment. When the case came before us last March, we felt that it was unfortunate that this dispute should be taking place between parties who have been husband and wife, and we continued the cause in the hope that parties would be able to reach some kind of settlement. Unfortunately they have not been able to do so, and the matter has come back before us to-day—the petitioner asking us to make an appointment and the respondent asking us to continue the petition till after the vacation in order that the parties may still be able to reach a settlement.

I have come to the view that this is a case where we ought to make the appointment of a factor. This unsatisfactory state of matters has now been going on against the will of the petitioner since October 1948. It is perfectly true that under the Partnership Act one partner is entitled to wind up the affairs of the partnership and to pay out the other partners or the other partners' representatives, and the Court for obvious reasons, particularly from the point of view of expense, prefers and encourages such a course. But such a course is only desirable if there is harmony, or at any rate agreement as to the propriety of such a course being adopted, between the partner who is carrying on the business and the other interested parties, and if the winding-up partner is making a proper effort to get things settled. Here there is no harmony, and the impression I take from what I have been told is that the respondent has just been staying on running the hotel and that he has not the slightest intention of settling up the partnership affairs unless he is subjected to pressure, and this puts the petitioner in a very awkward position and prevents her from enjoying her rights under the Act. That is just the sort of situation which seems to me to make it necessary or expedient that we should intervene. This is not just a dispute between the winding-up partner and the late partner on some matter of detail or accounting arising out of the winding-up; it is something much more fundamental which attacks the propriety of the course adopted altogether. What is more, what we were told to-day about the payments of the building society loan indicates to me that there is also an element of urgency in the matter, and for these reasons I suggest to your Lordships that we recall the Lord Ordinary's interlocutor and appoint a judicial factor.

LORD MACKAY .—I agree. I do think it possible that the question of practice of the Court may have been considerably altered since the passing of the Partnership Act of 1890. But, for my part, I do not think that there is any present practice, other than what I shall mention, except that certain proposals for delaying or taking the place of a formal winding-up have been often put before the Court, and have sometimes, but only sometimes, been sanctioned. But here is the plain result on the Partnership Act of 1890:—

"Section 32. Subject to any agreement between the partners, a partnership is dissolved—(a) If entered into for a fixed term, by the expiration of that term: (b) If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking: (c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership…"

Accordingly that cesser has been effected, now over thirteen or fourteen months ago. [His Lordship then quoted section 39 and continued]—Now, nothing is said in the Act as to what is the ordinary instrument of the Court in taking upon itself, on application, the duty of winding-up the firm, for, notice, it is not the remaining partner or any other, but it is the Courtthat is to wind up. Now, I find, in opposition rather, if anything, to the Lord Ordinary's view, that the ordinary method of the Court is the method of employing an officer of its own to wind up. I find that stated quite clearly by Clark on Partnership away back, no doubt, in the company law before 1890, merely with the qualification that in certain circumstances the Court will take some other step instead of appointing a factor. I find that still to be true since 1890. Although there are numerous cases, vaguely referred to by Mr Anderson, in which the Court has sanctioned other methods as in certain circumstances proposed to them, it still remains that the one method by which the Court can regularly and effectively exercise its function under section 39 upon a firm which has been held dissolved is to put its own officer in charge of the business.

It is perfectly obvious to me that nothing—no amount of time given—will compel the present parties to come any closer to a proper settlement. In a position like the present where one of the partners of the dissolved firm desires to have his own way—as Mr Anderson admitted that he does—to secure for himself the premises, the furnishings and the goodwill of the business, and accordingly only to pay out the other partner on a cash basis selected by himself, or at best with some selected individual elements valuated by hisvaluator, and where they cannot reach a reasonable conclusion of their differences within the months with which they have been indulged since our last interlocutor, then I think that it is obviously much wiser that a factor should forthwith be appointed; and that it should be he who should ascertain what the recalcitrant partner is willing to offer in the sense of money payment in order to retain what he desires, to wit, the ownership of all these assets and the ownership of the remaining goodwill of the business. It is really for the Court's officer, in my opinion, to extract suitable proposals from Mr Anderson's client.

No doubt, the Court has sometimes allowed other considerations reasonably to weigh with them, but, for my part, I think that, when we in March of this year after hearing the questions debated fairly fully, and contrary to the Lord Ordinary's disposal of the case by dismissal, have allowed the parties time to consider, it must be obvious that we did so on the footing that a reasonable time only would be allowed, and that, if they did not come to terms in that time, we would take the ordinary course, that is to say, for the Court to interfere and to wind up by its officer. Now what has happened to-day? Instead of the weeks of the spring vacation which we thought had been enough, they have taken the vacation and the whole of another session to the very last week of that session, and still they come back to tell us that they have not attained any settlement nor, on the submissions put before us to-day by Mr Johnston on the one side and by Mr Anderson on the other, do I feel any security whatever that, if we gave them six months more, they would find each other's proposals acceptable. There were produced before us letters and other material, on which we were expected to ponder and to express our view as to which party was the more reasonable. Clearly we are right in refusing to listen or to arbitrate in any such way. The right course is that which your Lordship proposes, seeing that that procedure is, in my opinion, the ordinary instrument of the Court, upon its being appealed to under section 39; and certainly not, as the Lord Ordinary's disposal would appear to assume, a highly exceptional or violent means. The Court's duty, failing all other indulgences conceded by it, in my opinion is to put its officer in charge; and that officer's duty will be first to try to settle the questions amicably, and if he cannot, it may very well be his next duty to put the properties on the market. One would hope that the first method would here arrive at some success; but I am certain that it is more likely so to arrive by using our powers than by giving the parties further, and hopeless, continuance of time.

For the really simple propositions involved, in my opinion, I would make reference to Clark on Partnership, vol. ii, pp. 662, 673, 674, Lindley on Partnership, (10th ed.) p. 707, heads (1), (2) and (5), and Mr Christie in his Encyclopædia of Scots Law article on Partnership at paragraphs 159 and 160. The latter paragraph commences:—

"This section seems to impose on the Court the duty of intervening, on cause shown, to wind up the business and affairs of the firm, a duty exercised through the machinery of the appointment of a judicial factor."

I desire to add, in relation to the Lord Ordinary's views, that his so-called alternative process by way of an action of division and sale (1) would only apply to the heritage alone, (2) would not be an administrative intervening by the Court as section 39 requires, but a doubtful expedient and at the sole instance of the party claiming and possessing the statutory right, and (3) is a slow and costly affair. The other "alternative" offered by counsel instead of this is an action of count reckoning and payment, and that has almost all the same defects as a method of working out the absolute right given by section 39 of the Act. The truth is these are not alternative methods for the adoption of the Court. The possible confusion of thought is in taking into account those other (quite different) paragraphs which deal with the invitation to intervention of the Court when and while the partnership is still alive and undissolved.

LORD JAMIESON .—I am of the same opinion.

When this case was before us in March we thought it was a case which was eminently suitable for an amicable arrangement between the parties. I still think that it is, and that, if parties had come together with their advisers, a settlement could easily have been reached; but four months have gone and the parties have failed to agree on the method of winding-up the partnership assets. The Court will be slow to appoint a judicial factor on a dissolved partnership and will not do so if the partners or the remaining partners are in a position to and can conduct the winding-up. In this case, nothing appears to have been done except that certain offers were made by one partner which were not acceptable to the other. We have to-day been told that the property which belonged to the partnership is really in the hands of a building society and that certain instalments due to the society have not been paid. In these circumstances, it appears to me that there is danger that the building society may step in and force a sale at a time or in circumstances which might be disadvantageous to both parties.

Accordingly I agree with your Lordships that a judicial factor should be appointed, and, if it proves that such appointment causes expense which might have been avoided, the parties have only themselves to blame.