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Nilsen v Murcott HC Invercargill CIV-2007-425-000348 [2007] NZHC 2152; [2008] 2 NZLR 750; [2008] NZCCLR 16 (27 November 2007)

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IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

_{CIV-2007-425-000348}

BETWEEN OLAF BRUCE NILSEN Appellant

AND BEVAN ROY MURCOTT Respondent

Appearances: S Barker for Appellant

RGR Eagles for Respondent

Judgment: 27 November 2007

_{JUDGMENT OF HON. JUSTICE JOHN HANSEN}

[1] This is an appeal against a judgment of Judge Phillips delivered in the Invercargill District Court on 30 March 2007, dismissing the appellant’s application for summary judgment.

[2] Between 1985 and 1994 the appellant and respondent fished in partnership out of Bluff and Milford Sound. In 1991 their arrangement was reduced to a written partnership agreement. On 1 July 1994 this partnership was formally dissolved. In accordance with the Deed of Dissolution, the assets of the partnership were divided between them, with the deed recording the dissolution was in full and final settlement of all satisfactions of rights and claims one against the other.

[3] During the period of the partnership the parties fished primarily for shark and crayfish. A by-catch was Spiny Dogfish. During the period of the partnership, as an administrative exercise it was necessary to return a Catch Effort and Land Returns (CELR) which included the Spiny Dogfish by-catch. The appellant submitted the

_{CELR under his own fishing permit number even though the partnership received its}

NILSEN V MURCOTT HC INV CIV-2007-425-000348 [27 November 2007]

own fishing permit number by 1991. The reason for his using that permit number is unclear.

[4] In 2004 the relevant authority brought Spiny Dogfish within the quota management system. To determine allocation of Spiny Dogfish quota a provisional catch history needed to be established. The dates used were the two years running from 1 October 1990 through 1 October 1992. On that basis the appellant was allocated around 45,000 kilograms of Spiny Dogfish quota. This was the result of the PCH determined by reference to the CELR lodged under his fishing permit number.

[5] The respondent’s claim is that the Spiny Dogfish quota is partnership property which was not the subject of an allocation in the dissolution of the partnership. The appellant argues that all partnership property rights were determined with the dissolution in 1994, a date long before Spiny Dogfish came under the quota management system.

Issues on appeal

[6] Four issues arise:

Issue 1: Was the Spiny Dogfish quota, or the PCH, an asset of the partnership?

[7] The District Court Judge found that one question for determination at trial was whether or not the CELR completed by the defendant could be said to have been completed by him for and on behalf of the partnership. The Judge considered that there was a factual dispute between the parties on this point and thought it was a material issue. While accepting the partnership did not exist in 2003, at the time the quota was allocated, he was of the opinion the argument did not end there. He found it would be necessary to determine whether the appellant had made a major gain from an asset of the partnership or whether the asset was jointly owned property.

[8] He also noted that while he accepted that the allocation of quota came after the Deed of Dissolution, the catch history existed in fact but was not addressed in the dissolution as it was not considered by the parties. He considered the decision of the

High Court in Fearnley v Fearnley [1997] NZFLR 609 where at 615 the Court in discussing individual transferable quotas said:

While the bare entitlement to ITQ is triggered by the previous licence, the quantity of quota depends upon catch history.

[9] The judge noted that the catch history was generated by the efforts of both partners, and concluded he was not satisfied the quota could never have been an asset of the partnership. In doing so he effectively accepted the respondent’s argument.

[10] The appellant submits that the finding is flawed and the quota and/or the PCH could never have been partnership property. Additionally the appellant submits that all property rights were determined by the Deed of Dissolution.

[11] The concept of PCH was introduced into the Fisheries Act 1996 some two years after the dissolution of the partnership. The introduction of Spiny Dogfish into the quota management system occurred in October 2004, some ten years after the dissolution of the partnership. Following the introduction of the 1996 Act, CELR could be used to qualify for quota. But prior to the Act there was no possibility that CELR could be used for quota allocation purposes. In other words, at the time of the relevant CELRs in this case it was impossible for them to be used for any form of quota allocation. Further, under s45 of the Act, to qualify for Spiny Dogfish quota an applicant had to have obtained a PCH for Spiny Dogfish, not be an overseas person, and hold a fishing permit at the date of publication of a notice in the Gazette, ie 16 October 2003. The partnership did not exist in 2003, and did not have a valid fishing permit.

[12] Clearly PCH was a new concept introduced by the Fisheries Act 1996. It did not exist on dissolution of the partnership and at the dissolution date there was no possibility that any of the CELRs for the period 1990 to 1992 might one day create a valuable right. The appellant’s submission is that at the time the Fisheries Act was enacted the partnership was no longer in existence, thus there was no legal basis on which the partnership could have been allocated PCH.

[13] The appellant submits that the factual dispute around the filing of the CELRs was immaterial to its application for summary judgment.

[14] The appellant relies on the decision of the Court of Appeal in Sew Hoy v Sew Hoy [2000] NZCA 314; [2001] 1 NZLR 391 where it was held that an inchoate right was found not to be property for the purposes of a partnership. Further reliance was placed on Robertson v Bicknell CA129/01 25 March 2002 where the Court noted that an expectation, however well founded in fact and however well warranted by political or business considerations, will not do if it is devoid of legal title.

[15] The learned District Court Judge considered Sew Hoy was markedly different from the present case. I do not accept that. In my view there is no basis on which the quota or the PCH was or could have been an asset of the partnership at the time of its dissolution. While I accept that the categories of property that a partnership may own are almost unlimited, in this instance I am satisfied that there was no property to begin with. At the time of dissolution in fact, there was not even a possibility of property in the future. Mr Eagles, in submissions for the respondent, described it as a “mirage” of possible future property rights. At the date of the dissolution of the partnership the statutory scheme applying was such that it was not even a mirage. I accept that the quota was established by reference to the PCH calculated on the CELR submitted while the parties fished together. But the reality is that at dissolution no-one could have known what laws Parliament would have brought into effect. What is being suggested here is that partnership property can arise from the possibility of some future legislative enactment that could lead to property rights.

[16] At the date the partnership was wound up the PCH did not exist, and there was no possibility whatsoever that the CELR might one day be vested with some sort of value. Further, I also agree with the appellant that the partnership could not have fulfilled the conditions required for an allocation of quota in 2003, as it did not exist and did not have a permit. It may well be, as the respondent submitted, that the Ministry of Fisheries has a procedure for situations where a partnership has been dissolved but the partners remain in the industry. To my mind that would only be relevant if a partnership had been dissolved post the PCH concept being brought into

law and where the parties had contemplated it or should have contemplated it at the time of dissolution. In this case I do not see it as relevant.

[17] Unlike the learned District Court Judge I also consider that Sew Hoy is relevant in the present circumstances. In that case there was a partnership which had owned land that was acquired by the Crown. The partnership dissolved by death. Some time after dissolution the Crown offered back to the partners part of the land which had been acquired. The ability to offer the land back came as the result of legislative change which had occurred after the dissolution of the partnership. The successors in title to one of the partners chose to take up the offer, but the other partners did not. Eventually they realised the value of the land and sued, claiming breach of fiduciary duties arising by virtue of s1 of the Partnerships Act 1908. While much of the discussion of the case centred on fiduciary duties, the primary ratio can be summarised as that a respective right was not partnership property and was not an inchoate right which could be said to be analogous to an option. The Court of Appeal concluded that the partnership had come to an end in 1982 upon receipt and distribution of final compensation being paid, and no rights or duties continued past that date.

[18] Section 41 of the Partnership Act provides:

Continuing Authority of Partners For Purposes of Winding Up

After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue (notwithstanding the dissolution) so far as may be necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise:

Provided that the firm is in no case bound by the acts of a partner who has become bankrupt; but this proviso does not affect the liability of any person who has after the bankruptcy represented himself, or knowingly suffered himself to be represented, as a partner of the bankrupt.

[19] In relation to that, Blanchard J stated at [28]:

... it seems to me that the Sew Hoys gained no more than an expectation or hope (spes) that at an indefinite future time, which might be decades or, theoretically, even hundreds of years hence, the conditions ... might be satisfied.

[20] Blanchard J continued to consider s41 and said:

[32] The evident purpose of s41 is to enable the winding-up of the dissolved partnership. Rights and obligations of former partners continue “so far as may be necessary to wind up the affairs of the partnership” and “to complete transactions begun but unfinished”, which Lord Reid described as “unfinished operations necessary to fulfil contracts of the firm which were still in force when the firm was dissolved” (Inland Revenue v Graham's Trustees (1971) SLT 46, 48).

[33] The rights and obligations of former partners do not continue for other purposes (“but not otherwise”). In this case it was neither necessary nor possible in order to complete the winding up of the partnership to deal with the chance that there might be a future offer by the Crown under s40. There was no transaction then unfinished in relation to the land. The mere possibility of a future offer back did not leave the sale to the Crown unfinished. If the s40 offer occurred and it was accepted that would give rise to an entirely new venture involving only those who chose to accept, and it would require of them substantial expenditure. This is not something contemplated by s41. In Graham's Trustees Lord Reid said that it was clear that surviving partners had no right to bind the assets of the firm by making new bargains. In my view the same would apply to successors of a former partner. Even if everyone to whom an offer was properly addressed had joined in the acceptance, the transaction arising would have been an event quite distinct from an incident of a winding up. It would have been something done by the choice of the former partners and their successors, not an act of the dissolved partnership permitted under s41. No partner could have had any continuing authority under that section to bind the others to an acceptance of the Crown's offer.

...

[36] ... The opportunity afforded by the s40 offer was not, for the reasons already given, an asset of a kind falling within s41 of the Partnership Act.

[21] McGrath J expressed similar sentiments, and concluded at [65]:

On the meaning I attribute to “the affairs of the partnership” in s41, a mere expectancy is not covered because an expectation of a benefit, even if well founded, does not amount to “property”.

[22] I concur. But in this case there was not even an expectancy that a CELR for Spiny Dogfish would one day be used to create quota. It was not until the enactment of the Fisheries Act 1996 came into effect a significant period after the dissolution of the partnership, that any expectancy arose. In my view not even an inchoate right existed at the date of dissolution.

[23] It follows that even if the CELR had been entered under the partnership’s permit number, the result would be the same. So in my view there is no factual dispute of moment. The reality is that the respondent is claiming for something that could not at law exist, or even be expected at the date of dissolution.

Issue 2: did the CELR constitute a right or interest in property?

[24] Issue 1 effectively answers this. It also appears to have been conceded by the respondent in submissions. The simple fact is at the date of dissolution no property right or interest actual, inchoate or expected existed in the CELR.

Issue 3: Does the appellant owe the respondent any duty of utmost good faith and fairness?

[25] Again I consider that Sew Hoy provides a complete answer. The passages cited above from the decision of Blanchard J make that plain.

[26] McGrath J noted that s41 made no major intrusion on the general policy of the Act that a dissolved partnership’s affairs should be promptly wound up and the partners discharged from their residual continuing authority and obligations. It is only where it is shown interest is in property of a dissolved partnership that s41 will apply duties of good faith between partners who will continue in relation to dealings with the property during the winding up, including the completion of unfinished contracts. However, in that case he stated at [71]:

... once the final payment of compensation was made to the dissolved partnership and a final accounting followed, which took place in 1982, the winding up was complete. Neither partnership property nor anything which could properly be regarded as a partnership remained. Section 41 was spent and could not be the basis of continuing obligations.

[27] I do not accept the respondent’s submission that while all duties the partners had to each other were crystallised and terminated on dissolution, they continued in respect of unknown assets. To my view that is illogical, but in any event there were unknown assets for the reasons given above. If the partners resolved all matters known to them at the time, then with the exception of matters which should and could have been known to them at the time, the rights and obligations are finished

when the affairs of the partnership are wound up and the transactions already begun, finished. Neither the quota nor the PCH could have been in contemplation of the partners, let alone an asset of the partnership. It follows they cannot have been part of the affairs of the partnership attracting the provisions of utmost good faith. No obligations of utmost good faith and fairness survived the dissolution of the partnership, and the respondent cannot assert that these duties were owed some ten years later.

Issue 4: does the appellant need to account for private profits?

[28] The respondent claims pursuant to s32 of the Partnership Act which reads:

Partners to Account For Private Profits

(1) Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership, or from any use by him of the partnership property, name, or business connection.

(2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner, and before the affairs thereof have been completely wound up, either by any surviving partner or by the representatives of the deceased partner.

[29] In view of the findings above I agree with the appellant’s submission that the CELR was completed by the appellant in compliance with statutory obligation and at the time no benefit could be derived from them, nor could it in the future, thus s32 cannot apply.

Issue 5: is the respondent entitled to be reimbursed for services provided through the partnership by way of quantum meruit?

[30] It seems to me that this argument is fatally flawed. The respondent’s services were provided to the partnership, not the appellant.

[31] It is clear from the Court of Appeal’s discussion in Morning Star (St Lukes

Garden Apartments) Limited v Canam Construction Limited CA90/05 8 August

2006 that there remains a degree of confusion within the law as to whether quantum

meruit claims are based upon a doctrine of implied contract or upon the principles of unjust enrichment. Most commentators tend towards the latter view.

[32] In my view if quantum meruit is being advanced on a doctrine of implied contract it must fail. This was a partnership, and the dissolution of that partnership must militate against the view the respondent could have any expectation of further reimbursement. Indeed at the time of dissolution neither party had any expectation of further reimbursements. I cannot accept that a claim could be founded on any form of general expectation. Here the dissolution was done on the footing that it was in full and final settlement of all rights and claims, and as the PCH did not exist at that time, in my view the respondent cannot claim to have expected anything. There was nothing to expect.

[33] If it said to be an argument of quantum meruit based on unjust enrichment, it again fails. In Morning Star the Court of Appeal noted that in order to succeed a defendant must have been enriched by the receipt of a benefit; that such a benefit must have been gained at the plaintiff’s expense; and that it would be unjust to allow the defendant to retain that benefit. While the allocation of quota may have enriched the appellant, I do not consider that to be a benefit as understood in Morning Star. Furthermore it is not at the expense of the respondent. I reach that view in the light of my conclusion there is no legal basis on which the quota or the PCH on which the quota is based could be seen as partnership property.

[34] Finally, while I accept that a dissolution deed may not bind any partner in terms of an unknown asset, although BCCI v Ali [2001] UKHL 8; [2002] 1 AC 251 must be said to indicate that Courts will be slow to allow claims made after full and final settlement, I note that such an argument could only ever extend to assets which are in existence at the time of dissolution, but unknown. At the danger of being repetitive, Sew Hoy is clear authority for the fact that assets which spring from the ashes of a partnership, post-dissolution, due to what could be termed “historical accident” are not partnership assets. Again, repetitively, it is clear that the PCH and quota did not arise until well after dissolution. They were never an asset of the partnership, and thus could never support a claim for quantum meruit.

[35] In the circumstances I consider it unnecessary to consider the other arguments put forward by the parties. In my view the appellant has clearly established that the respondent’s claim could never succeed.

[36] Accordingly, I allow the appeal and enter summary judgment in favour of the appellant. Unless the parties wish to submit otherwise, there will be costs to the appellants on a 2B basis to include reasonable disbursements as fixed by the Registrar. If the parties do seek to file cost memoranda they should be filed within ten working days.

Solicitors:

Buddle Findlay, Wellington

Eagles, Eagles & Redpath, Invercargill