Buchanan v Wilikai [1982] SBHC 13; [1982] SILR 123 (6 December 1982)

1982 SILR 123

IN THE HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 103 of 1981

BUCHANAN

-v-

WILIKAI

High Court of Solomon Islands
(Daly C.J)
Civil Case No. 103 of 1981

6th December 1982

Partnership - determination - notice of - section 26(1) Partnership Act 1890 - effect of determination

Facts:

In 1979 the Plaintiff and Defendant agreed to operate a ship together. After extensive repairs the ship was operated from 31st July 1980. The Defendant received fees for a charter of the ship and disbursed money to the Plaintiff. On 17th January 1981 the Defendant wrote a letter stating the Plaintiff had liquidated his share by withdrawing the amount of his contribution. In November 1981 the Plaintiff issued a writ claiming money due from operation of the ship before and after 17 January 1981.

Held:

There was a partnership subsisting between the parties. However the letter of 17th January was a notice by the Defendant to determine the partnership sufficient for section 26(1) Partnership Act, 1890. The partnership therefore ceased as from 17th January, 1981. Obiter dicta, section 42(1) would appear to apply to the situation after the dissolution.

For Plaintiff: A. Nori
For Defendant: K. Brown

Daly C.J: This is a case in which it is clearly and sadly demonstrates that good friends often make bad partners in business.

The Plaintiff Mr. Bartholomew BUCHANAN and the Defendant Mr. John WILIKAI are old acquaintances. In September 1979 Mr. Buchanan came across an opportunity to purchase a motor trading vessel at what he considered to be a good price. This vessel was then called 'GUDRUN' but its name has been subsequently changed to 'FRANCIS'. The price for the vessel was $4500. Mr. Buchanan paid a deposit of $400 on the vessel. Mr. Wilikai upon hearing of this told Mr. Buchanan that he would like to go in with him. This was agreed and Mr. Wilikai paid $2000 towards the purchase price; Mr. Buchanan $1000 and a third party who subsequently dropped out of the picture paid $1400.

That was not an end to the financial outlay as the vessel required considerable work both to hull and machinery before a certificate of seaworthiness could be obtained for her. This work was undertaken under the control and at the expense of Mr. Wilikai with the agreement of Mr. Buchanan. The amount involved has been variously put at "over $5000" to $6000 or $7000 by Mr. Wilikai. Mr. Buchanan paid $435 as half a bill for spare parts.

Even though these large sums were being spent there was no written agreement between the parties although they did get as far as calling themselves the Malagua Company, a business name that was not, in fact, registered until the middle of 1981. However the arrangement between the parties was well understood by both of them. This was that the vessel would be put into seaworthy condition from finance provided or arranged by Mr. Wilikai. The vessel would then be operated by Mr. Wilikai who would be paid an unspecified fee for his management services. Out of operating profits Mr. Wilikai would be entitled to reimburse himself first for his outlay in the repairs and the amount paid back to the third party on her withdrawal. The remaining profit was to be shared 50/50 by Mr. Buchanan and Mr. Wilikai.

On 31st July 1980 the vessel received its seaworthiness certificate and, after a trial run, began operations. At first business was excellent as there was an initial charter for five to six weeks to the Solomon Islands Government for which the total amount paid was $7000.00. Mr. Wilikai said that after deducting expenses and partially reimbursing himself for his outlay on repairs the net profit on this charter was about $4000.

At about this time the Plaintiff required funds and asked the Defendant for advances from the company. There is some dispute about how the requests were put but it seems likely that at this stage, as all was going well and there was money in the bank account, no one took any trouble to specify exactly what was being asked for or what was being paid. Precise records were however kept and these show that from 2nd September 1980 to 24th December 1980 payments were made on ten separate occasions of sums ranging from $20 to $500, making a total amount of $1380, to Mr. Buchanan.

Mr. Wilikai said that he got tired of paying out these sums and on 17th January 1981 he wrote a letter to Mr. Buchanan (Exhibit H). This letter is crucial to this case. It sets out the amounts contributed and the details of payments made to Mr. Buchanan. It then goes on:-

"You can note from the forgone that the total cash withdrawn so far has exceeded your share by $380.00. Also note that the said company has not yet in operation for a year there no proper statement of accounts can be produced at this stage. However, please note the attached Bank and Cash Reconciliation Statement as per 31st Dec. 80. You will note that after deducting the initial costs repairs, parts, maintenance and labour incurred through advances from Honiara Fish Market, the balance at the end of the year is a deficit of $1,789.86.

Given that financial position of the company, it appears therefore that you have frozen and liquidated your share by withdrawing $1,380.00 and therefore has been refunded in full.

The forgone is made without prejudice to your rights as a shareholder for the last six months for any dividend that, may be payable to you after the accounts are audited. You are advised that I am making arrangements for the accounts of the company to be audited with respect to the last six months. This is necessary because of the circumstances we are now in."

Appended to the letter was a Bank and Cash Reconciliation Statement.

I must consider the legal effect of that letter later in this judgment. Mr Buchanan was not at all happy with the letter and indeed, he says that prior to its receipt he had already consulted a lawyer about the business relationship between himself and Mr Wilikai which he found unsatisfactory in that Mr Wilikai avoided business discussions of any kind on a formal or informal basis. At this stage Mr Buchanan says he had no idea of what was going on in the business.

Mr Wilikai continued to operate the vessel. She went on regular runs to Auki and small Malaita with passengers and cargo. The vessel was renamed "Francis". From July to September 1981 she was slipped for repairs prior to survey and following survey was again operated until June 1982 when she again required repairs. The vessel has not been operated since that date.

Mr Buchanan continued to be unhappy about the turn taken in his business relationships with Mr Wilikai. In July 1981 Mr Wilikai paid a further sum of $500 to Mr Buchanan making the total paid $1880. The reason for this payment is not very clear; Mr Buchanan says he cannot remember receiving it; Mr Wilikai says he paid it as the total of $1880 struck him as more "fitting" for Mr Buchanan to receive than $1380.00. Why this was so he did not say. Nevertheless Mr Buchanan pursued his legal remedies, a task, he said, made difficult by the lack of private lawyers, and on 20th November, 1981 the writ in this action was issued.

The Statement of Claim makes no express claim that a partnership existed but its tenor is to that effect. Nor does it claim that a partnership continues to exist which is the way the case is put for Mr Buchanan at this stage. No point is taken on the pleadings perhaps because the Defence, too, fails to put forward the case as now made out for Mr Wilikai.

The position in this court is a straight forward one. Both sides agree that there was a partnership without fixed term formed between the parties which had the incidents set out earlier in this judgment. The case for Mr Wilikai is that that partnership was terminated by notice given by him in the letter of 17th January, 1981. The case for the Plaintiff is that that letter was a form of letter of expulsion which was ineffective because it had not been preceded by a full opportunity for Mr Buchanan to state why he should not be expelled. Thus, says counsel for Mr Buchanan, the partnership still subsists. The point, then, turns on the letter of 17th January, 1981.

In Solomon Islands partnership is regulated by the English Partnership Act 1890 ('the Act'). Section 26(1) of the Act provides:-

"Where no fixed term has been agreed for the duration of the partnership, any partner may determine the partnership at any time on giving notice of his intention so to do to all the other partners".

Section 32 of the Act provides that if no date is mentioned in the notice, the dissolution of the partnership takes place as from the date of communication of the notice. The latter date is agreed to be 17th January, 1981.

As counsel for Mr Wilikai observes, Exhibit H is not drafted by a lawyer. But nevertheless, he goes on, its intention is clear and that is to bring to an end the partnership relationship between the two parties. Words such as "you have frozen and liquidated your share....." and "The forgone is made without prejudice to your rights as a shareholder for the last six months" do indicate in the judgment of the court, such an intention. I therefore find that this letter, as seen against the background of the dealings of the parties amounted to notice within the terms of section 26(1) of the Act.

I do not think there is much in the point as to expulsion with respect. There is, in law, no power to expel unless this is conferred by express agreement of the partners (see section 25 of the Act) and therefore any purported expulsion in this case would be invalid as an expulsion as there was no such express agreement. It is, in any event, difficult to say that expulsion is a logical possibility in a partnership consisting of two persons as expulsion must leave a partnership subsisting otherwise there would be nothing from which a person could be expelled. Where one partner 'expels' the other sole partner then there is no longer a "relationship which subsists between persons carrying on a business in common with a view to profit" (section 1(1) of the Act) and hence no partnership. Such a purported expulsion could, I would suggest, only be construed as a notice to terminate. In this case I am satisfied on the facts, however, that Exhibit H is a notice to terminate and it is not therefore necessary for me to decide the point.

It therefore follows that the partnership was dissolved on the 17th January, 1981. The results of this dissolution were touched upon briefly by counsel but in the absence of full argument I shall say little about them. I should however say, with respect, that what little discussion took place did not seem to be based upon what would appear to be the relevant section of the Act. This is section 42(1) which reads:-

"42(1) Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate, then, in the absence of any agreement to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since the dissolution as the court may find to be attributable to the use of his share of the partnership assets, or to interest at the rate of five per cent per annum on the amount of his share of the partnership assets".

I therefore propose to defer making any specific orders until such time as I have heard further argument on the applicability of that sub-section to the situation arising from the findings made in this judgment and such other matters as to final orders as counsel seek to raise.