Mati v Singh [1994] FJHC 130; Hbc0524j.88s (28 September 1994)

IN THE HIGH COURT OF FIJI
(AT SUVA)
CIVIL JURISDICTION

ACTION NO. 524 OF 1988

BETWEEN:

BHAN MATI
alias MALA SINGH (daughter of Sahadeo)
as the Personal Representative
of DR. BHAJAN SINGH (son of Johra Singh)
deceased and in her personal capacity
Plaintiff

AND

SOHAN SINGH
(son of Johra Singh) AND
HARBANS KUAR (daughter of Hiralal)
Defendants

H.K. Nagin for the Plaintiff
Raman Singh for the Defendants

Dates of Hearing: 15th and 16th June, 14th July 1993 and
2nd May 1994
Date of Judgment: 28th September 1994

JUDGMENT

The Plaintiff is the widow of the late Dr. Bhajan Singh of Labasa, hereinafter called "the deceased" who died intestate on 13th June 1982 at Labasa. Letters of Administration were granted by the Supreme Court of Fiji to the Plaintiff on the 30th of November 1982.

At the time of the deceased's death a partnership under the name of "Johra Singh & Sons" subsisted between the deceased and the Defendants and they carried on Shopkeeping and Cinema Theatre businesses at Labasa.

The partnership had no fixed term of duration since it was entered into for an undefined time.

At all material times the Defendants managed and controlled the businesses of the partnership and had possession and control of the books and accounts and all records relating to the partnership.

The deceased was at all material times a passive partner in the partnership business.

An Originating Summons was issued on behalf of the Plaintiff on the 14th of July 1988 seeking various Declarations and Orders including the following:

(1) That until the 13th of June 1982 when the Plaintiff's husband Dr. Bhajan Singh died, a partnership at will or for undefined time under the name of "Johra Singh & Sons" subsisted between Dr. Bhajan Singh and the Defendants and they carry on shopkeeping at Labasa.

(2) That upon the death of said Dr. Bhajan Singh that partnership was dissolved by virtue of Section 34(1) of the Partnership Act Cap.248.

(3) That the Plaintiff as the personal representative of the said Dr. Bhajan Singh the deceased is entitled to a one-third share of the profit earned by the partnership before and since Dr. Bhajan Singh's death and attributed to the use of the partnership assets.

(4) An Order that the Defendants file and serve on the Plaintiff a true and correct Statement of Assets and Liabilities, a Statement of Stock-in-Trade and a Statement of Income and Expenditure in respect of the partnership for the years 1982 to a date considered just by this Court.

(5) An Order that a full inquiry be held before the Chief Registrar of this Court or before a Special Referee ordered by this Court under Order 36 of the Rules of the High Court so as to examine all details and transactions of the partnership from the years 1982 to a date fixed by the Court.

(6) That pending the finalisation of the winding-up of the affairs and business of the partnership, a suitable person acceptable to this Court be appointed as the Receiver and Manager and be paid a reasonable remuneration and be authorised to carry out all such acts as are necessary to wind-up the affairs of the partnership.

Initially the Defendants refused to agree to an inquiry being held by the Chief Registrar or before a Special Referee and asked that the accounts be settled by this Court between the partnership and that the Court should follow the rule for distribution of assets on the final settlement of accounts as set out in Section 45 of the Partnership Act.

The reason why the Defendants would not agree to the appointment of a Receiver and Manager was that they said that they had been running the business of the shopkeeping and theatre since the deceased's death and should carry on until the finalisation of the affairs of the partnership.

On the 5th of June 1989 Mr. Justice Palmer made Orders and Declarations by consent in the terms of (1), (2) and (4) above and on the 27th of July 1989 particulars of assets and liabilities and a Statement of Stock-in-Trade and Income and Expenditure were provided by the Defendants.

On the 20th of October 1989 I made further orders the main two of which were that the matter was to be continued as if it had begun by Writ and that all affidavits filed in the proceedings stand as pleadings.

On the 13th of February 1990 a Statement of Defence was delivered which stated that at all relevant times there were two partnerships operating between the deceased and the Defendants namely "Johra Singh & Sons" and Macuata Theatre Co.

At the time of the deceased's death the partnership of "Johra Singh & Sons" was indebted to various persons in the sum of $62,346.39 and that the partnership known as Macuata Theatre Co. was indebted to "Johra Singh & Sons" and other creditors in the sum of $61,407.95.

The Defence further stated that the income of the partnership had been utilised in paying off in part the partnership liabilities.

On the 21st of February 1990 in an attempt to decide the amount to which the Plaintiff was entitled, by consent I ordered that accounts of the partnership be taken by a Special Referee from the 1st of January 1982 to the 15th of February 1989 and from the 16th of February 1989 to 31st of December 1989.

Various other incidental orders were then made in an attempt to facilitate the resolution of the matter.

Unfortunately later the Defendants declined to give their undertaking to pay their share of the charges payable to a Special Referee and accordingly on the 6th of November 1992 I ordered that my order of the 20th of February 1990 be vacated and a hearing date fixed for the case.

On the hearing I heard sworn evidence by Shyam Narain a Chartered Accountant on behalf of the Plaintiff and the First Defendant Sohan Singh, who is a Money Lender.

Mr. Narain stated that he had been admitted as a Chartered Accountant in 1982 at the Fiji Institute of Accountants and began work as a Public Accountant in January 1986 on his own account, having previously been employed as an Accountant by Peat, Marwick & Co. from 1974 to 1985.

The Second-named Defendant had asked Mr. Narain to look at the accounts of Sohan Singh & Co. from 31st of December 1980 to 31st of December 1988 for the purpose of valuing the entitlements of the late Dr. Bhajan Singh in the partnership.

Mr. Narain stated that on his calculation the estate was entitled to undrawn capital of $74,756.72 and goodwill of $22,108.00 plus one-third of any profits made from 1989 todate.

From 1989 to 1992 he estimated the average gross profit as $66,324.00 of which the estate was entitled to one-third namely $22,108.00. This had to be added to the $96,864.72 giving a total due to the estate of the deceased of $118,972.72 up to the 31st of December 1992.

Mr. Narain stated that he considered the surviving partners had understated the profits of the partnership since 1984 based on various Notices of Assessments which had been supplied by the Inland Revenue Department. However as Mr. Narain's evidence on this question was based on the assumption that the Notices of Assessments were genuine but no evidence was called by the Plaintiff as to this, I disregard Mr. Narain's evidence on this question. This means that I have only before me as evidence the sum of $118,972.72 which I have mentioned above.

Mr. Narain stated that the legal basis for distribution of partnership assets is that after the death of a partner the business continues as usual until it is finally wound-up and the accounts of the deceased partner closed off or settled. He stated that it was always better in such matters to supply accounts quickly as this gives the surviving partners immediate control of the business.

The First Defendant then gave evidence but it was quite clear that he had little understanding of the meaning of goodwill. For example, in cross-examination he stated that goodwill only arises where a capital gain is made on a sale of land and that businesses did not generate goodwill in the course of their transactions.

He further stated that goodwill was not calculated on the profitability of a business and that Mr. Singh believed that he should get his share of his brother's medical practice as well.

It will thus be seen that Mr. Singh's notion of the meaning of goodwill does not accord with the meaning of the term as settled by various authorities, namely that the goodwill of a business is the whole advantage of the reputation and connection formed with customers together with the circumstances, whether of habit or otherwise, which tend to make that connection permanent - Trego v. Hunt [1895] UKLawRpAC 49; (1896) AC 7 at 16, 17, 23, 27, HL.

On page 741 of Lindley on Partnership the following paragraph appears:

"In the absence of an express agreement to that effect, the surviving partners have no right to take the share of the deceased partner at a valuation; nor to have it ascertained in any other manner than by a conversion of the partnership assets into money by a sale; nor have they any right of pre-emption. Even the goodwill of the business, if saleable, must be sold for the benefit of the estate of the deceased; although the surviving partners are under no obligation to retire from business themselves, and cannot, it seems, be prevented from recommencing business together in the name of the old firm unless the goodwill has been or is to be sold. And if the partnership assets have increased in value between the date of death and the date of sale, the surviving partners cannot claim the increase as their own to the exclusion of the deceased partner's estate"

Applying the law as stated in that passage, and in the absence of any Partnership Deed providing for pre-emption, I have no hesitation in accepting the evidence of Mr. Narain and holding that as at 31st of December 1992 the Plaintiff is entitled to a share in the partnership which amounts to the sum of $118,972.72. There will therefore be judgment against the Defendants in that sum and I also order them to pay the Plaintiff's costs to be taxed if not agreed.

JOHN E. BYRNE
JUDGE

Authorities and cases cited in the judgment:

(1)Trego v. Hunt [1895] UKLawRpAC 49; (1896) AC 7

(2)Lindley on Partnership p.741.

No other authorities or cases were cited in argument.

HBC0524J.88S