Lowe v Pascoe

Introduction

1. These two proceedings, 262284 of 2005 (the Lowe Proceedings) and 325815 of 2017 (the FC Chow Proceedings), are concerned with certain actions of the late Kut Sze Tu (KST), who died intestate on 20 October 1997. The actions in question concerned the misappropriation by KST of funds of a partnership that commenced on 1 August 1975 and came to an end on 1 July 1989 (the Partnership). Before dealing with the issues in the two proceedings, it is convenient to describe the family of KST.

The family of KST

1. In October 1933, KST married his first wife, Tang Fung, in China. They had five children, namely, Mary, Janet, John, Margaret and Helen. Relevantly, Mary, is married to Mr Geoffrey Lowe, who provided professional accounting services to the Partnership. In March 1956, KST married his second wife, Fung Chun Chow (FC Chow), in Hong Kong. KST and FC Chow had three children, namely, Stella, Gordon and Sunly. Without intending any disrespect, it is convenient to refer to all members of KST's family by their respective first names.
2. In January 1994, FC Chow died intestate and Sunly was appointed as administrator of her estate. Tang Fung died in April 2004.
3. In October 1998, probate of a purported will of KST was granted to Mary, Helen and Sunly. On 26 March 2001, in proceedings No 118302 of 2000 brought by Mary in relation to that purported will (the Will Proceedings), the grant of probate to Mary, Helen and Sunly was revoked. In addition, Mr Scott Pascoe (the Administrator) was appointed interim receiver of the estate of KST. On 29 November 2001, the Administrator published a draft interim report in relation to the estate of KST (the Interim Report) and, on 13 May 2002, published a final report (the Final Report). Shortly after its publication, the Interim Report was received by Mary and Geoffrey. It has been alleged that, on 24 June 2002, the Final Report was served on Sunly as administrator of the estate of FC Chow. The significance of the receipt by those parties in relation to limitation of action questions will become apparent below.
4. On 22 November 2002, the Court ordered that Letters of Administration in the estate of KST be granted to the Administrator. At the same time, the Court ordered that Sunly, Helen, Gordon, Stella, Mary, John, Janet and Margaret perform and execute a deed of family arrangement (the Family Arrangement Deed). Geoffrey was not a party to the Family Arrangement Deed. The Administrator thereafter commenced administering KST's estate. [1]
5. By the Family Arrangement Deed, the parties, being the children of KST, acknowledge that KST died intestate and agreed that a grant of letters of administration in the estate of KST be granted to the Administrator. The principal operative provisions of the Family Arrangement Deed contained an agreement by the parties that the estate of KST was to be distributed in accordance with the provisions of cl 3. The effects of the clause may be stated as follows:

• 42,048 of 168,000 shares in the property known as 88 Harris Street, Fairfield (the Fairfield Property) and a one quarter share in a property in Wiley Park (the Wiley Park Property) were to be divided equally amongst Gordon, Sunly and Stella;
• the residue of the estate was to be distributed as to 10% to Gordon and Sunly in equal shares and as to the balance equally among the parties to the Family Arrangement Deed;
• any distribution of the assets of the estate of KST was to be brought to account "in accordance with the law" and the Administrator was then required to distribute the assets in accordance with the Family Arrangement Deed;
• Mary was to pay the sum of $20,000 to Janet, John was to pay the sum of $20,000 to Janet and Gordon was to pay the sum of $10,000 to Janet out of their respective shares of the estate of KST. The Family Arrangement Deed also contained other provisions dealing with taxation and stamp duty, costs, notices, governing law and the like.

KST's misappropriations

1. The members of the Partnership were as follows: KST 20% Mary 10% Geoffrey 10% Janet 10% Margaret 10% Helen 10% FC Chow 30%. The Partnership was evidenced by an agreement dated 1 August 1975 (the Partnership Agreement) signed by all the partners. It engaged in two businesses, being a general store/grocery business known as "Wing Yuen Tai" (WYT) and a butchery business known as "Yee Sing Butchery" (YS). The general store/grocery business closed down on 30 June 1989 and the butchery business was sold a short time before that time.
2. Misappropriated funds of the Partnership were applied by KST towards the purchase prices of three properties (the Partnership Properties). Specifically, a property situated in Haig Street, Maroubra was purchased in December 1978 (the Haig Street Property), a property situated in Maroubra Road, Maroubra Junction was purchased in February 1983 (the Maroubra Road Property) and a property situated in Queen Street, Campbelltown (the Campbelltown Property) was purchased in July 1988. KST applied some funds of his own towards the purchase of the Partnership Properties. However, the evidence did not establish how much of KST's own money was applied in the purchase prices. Accordingly, ultimately, a presumption was made that he contributed no more than 10% of the price for each of the Partnership Properties.
3. KST caused title to Partnership Properties to be registered in respect of himself and other members of his family. Thus, KST's interest in the Haig Street Property was a one third share and each of Gordon and Sunly had a one third share. KST's interest in the Maroubra Road Property was a four-fifths share and Margaret had a one fifth share. KST's interest in the Campbelltown Property was a six-tenths share and each of Gordon, Sunly, Margaret and Helen had a one tenth share. There was no evidence that any of those members of KST's family provided any consideration for the interests that they acquired.
4. In June 2004, the Administrator sold KST's interest in the Haig Street Property to Sunly and Gordon for full consideration. In September 2005, the Administrator sold KST's interest in the Maroubra Road Property to an unrelated third party. In November 2005, the Administrator sold KST's interest in the Campbelltown Property to Margaret and Helen for full consideration. The Administrator received all of the proceeds of those sales.

The parties' submissions

1. The parties have endeavoured to assist the Court by providing detailed written submissions, in addition to lengthy oral argument. However, because there are two proceedings and the alignment of parties changes from one set of proceedings to the other, the written submissions can be confusing. The submissions were as follows:

• Submissions dated 13 July 2020 were provided by Mr Williams SC and Ms Little in relation to the FC Chow proceedings.
• Submissions dated 14 July 2020 were provided by Mr Stoljar SC and Ms Hillman in relation to both the Lowe Proceedings and the FC Chow Proceedings.
• On 27 July 2020, Mr Williams SC and Ms Little provided submissions in relation to the Lowe Proceedings.
• Submissions dated 4 August 2020 were provided by Mr Williams SC and Ms Little in response to the submissions by Mr Stoljar SC and Ms Hillman in relation to the FC Chow proceedings.
• On 3 August 2020, Mr Pesman SC and Mr Allen provided written submissions principally in relation to the Lowe Proceedings. However, the submissions made reference in paragraphs 6 to 16 to the FC Chow proceedings.
• By submissions of 7 August 2020, Mr Williams SC and Ms Little responded to the submissions by Mr Pesman SC and Mr Allen of 3 August 2020 but, unhelpfully, referred to those submissions as being dated 10 August 2020.
• On 17 August 2020, Mr Williams SC and Ms Little provided written submissions in relation to the FC Chow proceedings.
• On 17 August 2020, Mr Stoljar SC and Ms Hillman provided written submissions in relation to both the Lowe Proceedings and the FC Chow proceedings.
• On 17 August 2020, Mr Pesman SC and Mr Allen provided written submissions in relation to both the Lowe Proceedings and the FC Chow Proceedings. Paragraphs 6 to 16 repeated the submissions of 3 August 2020 concerning the FC Chow Proceedings. Apart from a "prologue", the submissions of Mr Pesman SC of 17 August 2020 reproduced the submissions of 3 August 2020 with amendments arising from the evidence admitted at the hearing.

The Lowe Proceedings

1. On 26 September 2005, solicitors acting for Mary and Geoffrey wrote to Sunly, in his capacity as administrator of the estate of the late FC Chow, notifying him of their claim that KST had misappropriated funds of the Partnership prior to his death and had applied them in the purchase of the Partnership Properties. On 7 November 2005, Geoffrey and Mary commenced the Lowe Proceedings. The Administrator, as administrator of the estate of KST, is the first defendant in the Lowe Proceedings. The other members of the Partnership are the other defendants.
2. On 17 April 2008, a submitting appearance in the Lowe Proceedings was filed on behalf of the estate of FC Chow. The significance of that fact will become apparent below.
3. Amended statements of claim were filed on 11 March 2008, 14 November 2008 and 17 August 2012. Judgments have been delivered as follows:

• Smart AJ on 7 May 2010, [3] 25 June 2010 [4] and 24 March 2011; [5]
• Bergin CJ in Eq on 29 February 2012; [6]
• Gzell J on 29 June 2012 [7] , 3 August 2012, [8] 8 August 2012, [9] 5 December 2012 [10] and 13 March 2013; [11] and
• Court of Appeal on 23 December 2014. [12]

1. The trial of the Lowe Proceedings began before Smart AJ in October 2008. On 25 June 2010, [13] Smart AJ made orders for reasons that his Honour had published on 7 May 2010. [14] Smart AJ did not decide all issues raised in the Lowe Proceedings and, on 29 February 2012, Bergin CJ in Eq directed that there be a further hearing in the Lowe Proceedings. The further hearing took place before Gzell J, who made orders on 13 March 2013 for reasons that his Honour published on 5 December 2012. [15] Mary and Geoffrey appealed to the Court of Appeal from the orders made by Smart AJ and Gzell J. On 23 December 2014, the Court of Appeal made orders for reasons published on that day. The Court of Appeal allowed the appeal in part and set aside certain orders made by Gzell J. An application to the High Court for special leave to appeal from the orders of the Court of Appeal was refused on 7 August 2015.

Conclusions of Smart AJ

1. Smart AJ recorded that the principal protagonists in the Lowe Proceedings were Mary and Geoffrey, on the one hand, and Margaret, Helen, Sunly and Gordon, on the other. [16] In those circumstances, the Administrator adopted a neutral position and left the contest to those protagonists.
2. Margaret and Helen denied that they had entered into a partnership with Mary, Geoffrey, KST, Janet and FC Chow and alleged that the Partnership Agreement was a sham or a device to protect KST's assets from possible claims by the Inland Revenue of the British Solomon Islands. They asserted that they only signed the Partnership Agreement because KST had signed it and because they were accustomed to acting in accordance with his wishes. However, Smart AJ recorded that, while they may have been intending to raise a defence of "non est factum", no amendment was made to their defences to plead that defence. [17]
3. Sunly and Gordon admitted that the Partnership Agreement had been signed by Geoffrey, Mary, KST, Margaret, Helen, Janet and FC Chow but contended that, to the extent that the Partnership Agreement bound any of its signatories, it referred only to the business of WYT and not to the business of YS. Sunly and Gordon did not admit that the signatories to the Partnership Agreement became partners in a partnership and did not admit that the Partnership Agreement was intended by the parties to operate as an effective partnership. [18]
4. Smart AJ found that KST was secretive about his financial affairs and business interests and did not tell anyone of all of the assets that he had and, in particular, did not tell anyone of the amount of cash that he had or his use of cash from the two businesses. His Honour considered that KST was unlikely not to have considerable resources, since he had been in business for a long time and he anticipated what was likely to happen in relation to taxation issues in the British Solomon Islands. His Honour considered that KST's non-disclosure of the receipt and use of cash tended to demonstrate that conclusion [19]
5. In his reasons of 7 May 2010, Smart AJ concluded, provisionally, that a declaration should be made that Geoffrey, Mary, KST, FC Chow, Margaret, Helen and Janet were partners from 1 August 1975 and operated both businesses pursuant to a partnership in the shares set out above. His Honour also considered that declarations should be made that five sixths of the Maroubra Road Property and the whole of the Campbelltown Property were acquired by KST using monies of the Partnership and that the legal interest of each of the first to seventh defendants, or the estates they represented, in five sixths of the Maroubra Road Property and the whole of the Campbelltown Property were held on trust for the Partnership. His Honour was not inclined to make a declaration as to portion of the Haig Street Property because that portion had not been defined. [20]

Conclusions of Gzell J

1. In his reasons of 5 December 2012, Gzell J concluded that an order dissolving the Partnership should be made. His Honour found that, in utilising money of the Partnership in the purchase of the Haig Street Property, the Maroubra Road Property and the Campbelltown Property, KST breached duties owed to his co-partners of good faith and honesty and a duty not to obtain a private advantage at the expense of co-partners without their full knowledge and consent. His Honour found that KST took money from the Partnership, that it was trust money and that it could be traced into his family's interest in the Partnership Properties and held that Partnership funds accounted for 90% of the purchase price of the three Partnership Properties. Therefore, his Honour held that 90% of the KST family's interest in the Haig Street Property and in the proceeds of sale of the Maroubra Road Property and the Campbelltown Property were held on trust for the members of the Partnership in proportion to their interests in the Partnership.

Conclusions of the Court of Appeal

1. The Court of Appeal found that, in January 1981, Geoffrey requested KST to distribute profits from the two businesses, telling KST that he wanted a distribution to enable him to purchase a new home. On 4 March 1981, KST provided Geoffrey with a cheque for $25,500. The Court of Appeal noted that there was a dispute at trial as to whether that amount was a repayment of money that Geoffrey claimed he had lent to the businesses in 1975 or a loan to him from the Partnership. Geoffrey contended that any loan from the Partnership had been repaid by 1984. [22] The Court of Appeal found that, in June 1989, the WYT business was closed by KST after its lease expired. At that time, the WYT business was losing money.
2. The Court of Appeal then referred to the Will Proceedings, saying that, following KST's death, Sunly, Margaret and Helen, together with others, "dishonestly prepared a false will" in the name KST and sought to obtain, and were initially granted, probate of that false will. [23] After referring to the appointment of the Administrator as receiver and subsequently as administrator of KST's estate, the Court of Appeal referred to the Interim Report, which disclosed to Mary and Geoffrey that the Partnership Properties had been purchased without finance. The Court of Appeal then observed that Smart AJ had found that reasonable diligence would not have enabled the facts giving rise to Mary and Geoffrey's cause of action in the Lowe Proceedings to be discovered earlier than November 2001, when the Interim Report was provided to them. [24]
3. The Court of Appeal observed that, following further investigations after November 2002, Mary and Geoffrey determined that the Partnership Properties had been purchased by KST using funds of the Partnership and, in November 2005, commenced the Lowe Proceedings. The Court of Appeal observed that the relief sought by Mary and Geoffrey was an order that they be paid their share, as members of the Partnership, of ownership of the Partnership Properties and an accounting in respect of profits of the Partnership. [25]
4. The Court of Appeal formulated the major issues before it into the following groups: A. Whether the Partnership Properties were held on trust for the Partnership and, if so, the nature of the trust; B. Whether Mary's and Geoffrey's claims for declaratory and accounting relief in respect of the Partnership Properties were barred by:

The effective orders

1. The substance of the orders still standing, following the decision of the Court of Appeal, can be restated as set out in the Schedule to these reasons (the Consolidated Orders). The essence is that the Partnership existed and was dissolved on 1 July 1989 and the parties to the Partnership and their shares were as stated above.
2. The effect of the declarations made by the Court of Appeal is that, in respect of each of the Partnership Properties:

• 90% of the net proceeds of the sale of KST's interests in the Partnership Properties is held on constructive trust for the Partnership (the Net Proceeds Trust); and
• 90% of the profits, if any, derived by KST from the Partnership Properties, after just allowances, if any, since the date of their acquisition, was and is held on constructive trust for the Partnership (the Profits Trust).

1. The Court directed that an inquiry be held (the Inquiry) to identify what (if any) moneys Mary and Geoffrey are entitled to from KST by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by KST through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.

Claims on behalf of FC Chow

1. Stella acted as representative of the estate of FC Chow in the Lowe Proceedings. However, no substantive claim was made on behalf of the estate of FC Chow against KST in the terms that were made on behalf of Mary and Geoffrey, and, as I have said, Stella (as representative of FC Chow Estate) filed a submitting appearance on behalf of the estate FC Chow on 17 April 2008. Accordingly, no determination has been made in the Lowe Proceedings that KST has any liability to the estate of FC Chow.
2. However, based on the determination that FC Chow was a member of the Partnership and that KST misappropriated funds of the Partnership, Sunly, on behalf of the estate of FC Chow, claims to be entitled to be paid 30% of the amount determined in accordance with the taking of accounts. On 27 October 2017, Sunly, as administrator of the estate of FC Chow, commenced the FC Chow Proceedings, in which he seeks, in effect, orders in favour of FC Chow equivalent to those made in favour of Mary and Geoffrey in the Lowe Proceedings.
3. In particular, Sunly seeks an order that the Administrator pay to the estate of FC Chow 30% of the amount of the benefits that KST obtained through his ownership, possession and/or use of the Partnership Properties since their acquisition as may be found to be held on constructive trust for the Partnership pursuant to the Inquiry and the orders made in the Lowe Proceedings. The Administrator, as administrator of the estate of KST, is the first defendant in the FC Chow Proceedings. The other members of the Partnership are also defendants. On 23 November 2017, orders were made by consent that the Lowe Proceedings and the FC Chow Proceedings be heard together, with evidence in one being evidence in the other.
4. By notice of motion filed in the Lowe Proceedings on 27 October 2017 (the October Motion), Stella, as representative of the estate of FC Chow, sought an order that KST pay to FC Chow 30% of the amount found to be payable on the taking of accounts of the Partnership. The October Motion was opposed by the Administrator and Mary and Geoffrey on the basis of the submitting appearance filed by Stella on behalf of FC Chow. Accordingly, by notice of motion filed on 7 December 2017 (the Withdrawal Motion), the estate of FC Chow sought leave to withdraw the submitting appearance to the extent necessary to enable it to move on the October Motion. The Withdrawal Motion was also opposed by the Administrator and by Mary and Geoffrey.

The Inquiry Report

1. On 1 February 2017, orders were made for the conduct of the Inquiry. On 31 August 2017, the Administrator was ordered to prepare a report for the purposes of the Inquiry and, on 8 February 2018, the Administrator produced a report in accordance with that order (the Inquiry Report).
2. The Inquiry Report proceeds on the basis that the effect of the orders made by Smart AJ, Gzell J and the Court of Appeal is the creation of two trusts being the Profits Trust and the Net Proceeds Trust. The Inquiry Report concludes as follows: 1. the amount payable to Geoffrey and Mary with respect to the profits claim is nil; 2. the amount payable to Geoffrey and Mary with respect to the net proceeds claim is $423,224, which amount should be reduced by the Administrator's costs attributable to the net proceeds claim incurred after 31 January 2018; and 3. the maximum amount payable to Mary and Geoffrey with respect to costs is $550,000, [54] which amount should be reduced by the Administrator's costs attributable to the assessment of the costs incurred after the date of the Inquiry Report. The references to "the profits claim" and "the net proceeds claim" are references to the claims made by Mary and Geoffrey in respect of the Profits Trust and the Net Proceeds Trust respectively.
3. Mary and Geoffrey take issue with several matters dealt with by the Administrator in the Inquiry Report. It will be convenient to deal with each of those issues separately. In the Lowe Proceedings, the protagonists have been Mary and Geoffrey, on the one hand, and the Administrator, on the other. The other defendants, being the other members of the Partnership, have not played an active part in the Inquiry.
4. In the FC Chow Proceedings, the protagonists have been Sunly in his personal capacity and as administrator of the estate of FC Chow, and Gordon on the one hand, and the Administrator, on the other. Once again, the other defendants, being the members of the Partnership, apart from Mary and Geoffrey, have not taken an active part other than to support the submissions of the Administrator. In the Lowe Proceedings, the contentions on behalf of the Administrator have been supported by Sunly, as administrator of the estate of FC Chow. In the FC Chow Proceedings, the contentions of the Administrator have been supported by Mary and Geoffrey. The principal question raised in the FC Chow Proceedings is the operation of the Limitation Act.

Issues in the Inquiry

1. The orders of the Court of Appeal require that the Inquiry is to identify what, if any, monies Mary and Geoffrey are entitled to from the estate of KST by way of an account of profits, after taking into account any just allowances in respect of the benefits, if any, obtained by KST through his ownership, possession and/or use of his respective interests in the Partnership Properties. The task in conducting the Inquiry is not to undertake a general inquiry into the assets and profits of the Partnership or an inquiry as to the net proceeds and the profits held on trust for the Partnership for the general benefit of the Partners. Rather, the Inquiry is to identify what, if any, monies Mary and Geoffrey are entitled to from KST. That is to be done by taking an account of profits, less just allowances, in respect certain benefits obtained by KST. The benefits in question are those obtained by KST through his ownership, possession and/or use of his interests in the three Partnership Properties. Thus, the first task is to identify the benefits, if any, obtained by KST through his ownership, possession and/or use of his interests in the three Partnership Properties.

Relevant principles

1. A defendant in proceedings for an account of profits is required to account for, and is then stripped of, profits that the defendant has derived by reason of infringement, which it would be unconscionable for the defendant to retain. Equity does not punish a fiduciary for misconduct by making the fiduciary account for more than the fiduciary actually received as a result of a breach of duty. [55] Rather, an account is confined to profits actually made, the purpose being to prevent the unjust enrichment of the defendant, not to punish the defendant. [56] Thus, requiring a fiduciary to account for profits should not result in a windfall for the plaintiff so as to constitute a vehicle for the unjust enrichment of the plaintiff. [57]
2. Where a trustee purchases a property with a mixed fund consisting of the trustee's own monies and trust monies, the identification of the benefit resulting from the breach of duty will normally be straightforward and uncontroversial. The fiduciary will normally be liable for the same proportion of any profit from the purchase as the trust monies bear to the total purchase price, reflecting the position that the sole source of profit in such a case is the capital used on the purchase. [58] However, difficulties will arise when there is uncertainty as to the extent to which an errant fiduciary has used his own moneys. As will appear, that is the present case. Thus, where mathematical exactitude is impossible in taking accounts, general standards and principles of accounting may be of assistance. [59]
3. An errant fiduciary who has occupied trust property rent free may be ordered to pay a market rent or occupation fee for that use of the property. That may require an inquiry as to the benefit derived by the fiduciary from the occupation or use.
4. In approaching the question of just allowances, the extent to which an errant fiduciary has been remunerated will be relevant. The denial of an allowance to the errant fiduciary should not leave the beneficiary unjustly enriched. Questions of the risk that might be borne by the parties may come into play. [60] The Court may in appropriate circumstances make an order, in favour of an errant fiduciary, that the fiduciary receive proper remuneration for the pains and trouble that he has been put to in the management of the trust property. [61]

The Inquiry Report

1. Following his appointment, the Administrator caused the assets of the estate of KST to be realised and the proceeds have since been held in a mixed fund. The assets of the estate included both the Partnership Properties and other assets. The result is that a single fund exists, which consists of the property of the Net Proceeds Trust, the property of the Profits Trust and the net proceeds and profits of KST's estate excluding the Partnership Properties and the profits derived from them (the Residual Estate). As at 30 June 2020, the value of the mixed fund was approximately $2,879,332.
2. In making the Inquiry Report, the Administrator addressed three distinct periods as follows:

• Period 1, being from the date of purchase of each of the Partnership Properties to the date of the death of KST, 20 October 1997;
• Period 2, being from 21 October 1997 to the appointment of the Administrator on 21 March 2001; and
• Period 3, being from 21 March 2001 until the sale of each of the Partnership Properties.

1. In relation to each of the Maroubra Road Property and the Campbelltown Property, in respect of Period 1, the Administrator has accounted for:

• actual rent received where the actual rent can be ascertained;
• an estimate of rent likely to have been received where the actual rent cannot be ascertained;
• income tax paid by KST on rental income;
• interest earned by KST on rental income;
• payments made to co-owners of the Partnership Properties and to other beneficiaries of KST's estate; and
• just allowances, including for KST's services in procuring and managing those two Partnership Properties.

1. In relation to each of the Maroubra Road Property and the Campbelltown Property, in respect of Period 2, the Administrator has accounted for:

• actual rent received;
• income tax paid by KST on rental income;
• interest earned by KST on rental income; and
• payments made to co-owners of the Partnership Properties and to other beneficiaries of KST's estate.

Interest

1. Mary and Geoffrey, in accordance with directions given by the Court, filed points of claim in relation to the account for profits. In relation to the Maroubra Road Property they made, relevantly, the following assertions:

• at all material times from the date of purchase to the date of sale, the Maroubra Road Property was fully or partially tenanted on a commercial basis and rent was paid by the tenants;
• the net rent received, being the gross rent less expenses that were not paid by tenants, was received by KST during his lifetime and by the Administrator after KST's death and was deposited into interest bearing bank accounts from time to time by KST during his lifetime and by the Administrator after KST's death;
• no portion of the net rent was distributed to any of KST's co-owners of the Maroubra Road Property by KST during his lifetime or by the Administrator subsequent to KST's death;
• the rent received from the Maroubra Road Property is ascertainable from various sources;
• to the extent that those sources do not provide a complete record of the rent received by KST it should be assumed that rent was received for the whole of the Maroubra Road Property for the whole of the period of time in question;
• the amount of the event earned for which no records exist should be estimated based on various records;
• the interest earned on the net rent received for the Maroubra Road Property from the date of receipt should be calculated by the application of the interest rate applicable to the bank accounts into which the rents were paid from time to time or, where there is no record of the actual interest rate applicable to the accounts in question, the interest earned should be estimated by reference to the interest rate applicable to equivalent bank accounts in the period in question;
• the benefit that KST obtained from his ownership, possession and/or use of the Maroubra Road Property was the totality of the net rent received from the Maroubra Road Property as calculated or estimated above and the interest earned on the net rent from date of receipt to date of distribution to Mary and Geoffrey as calculated or estimated above.

1. Similar allegations were made in respect of the Campbelltown Property.

Expenses and remuneration

1. The Administrator allocated his expenses and remuneration by reference to the nature of the work undertaken by him and whether that work can fairly be said to relate to the maintenance and management of the Profits Trust, the Net Proceeds Trust or the Residuary Estate. There is now no issue about that allocation. However, Geoffrey and Mary contend that the whole of the Administrator's expenses and remuneration are tied to the order made by the Court that he administer KST's estate.
2. The Administrator asserts that he was legally responsible for, and was required to administer, all of the assets of KST's estate, including those in relation to which Mary and Geoffrey have an equitable claim. He asserts that they should not have a windfall by being relieved from paying their share of the expenses of, and remuneration in relation to, administering the whole of KST's estate, at least to the extent that such expenses and remuneration relate to assets of the Partnership. The Administrator contends that the expenses and remuneration attributable to the maintenance of the Partnership Properties is necessarily an amount that is to be allowed for in accounting for the profits generated by the Partnership Properties. That is to say, the profits could not have been generated without ongoing expenses specific to those assets.
3. The alternative would have been for a receiver or an administrator to be appointed separately in respect of the assets of the Partnership. That would have incurred expenses including remuneration, which would properly have been chargeable against the assets of the Partnership. I consider that the expenses and remuneration of the Administrator are properly to be brought into account for the purposes of the Inquiry.

Income tax

1. In calculating profit in the Inquiry Report, the Administrator deducted the tax actually paid by KST and by the Administrator in respect of rent received from the Partnership Properties and the interest earned on the proceeds of the sale of the Partnership Properties. Mary and Geoffrey dispute that treatment.
2. The Administrator takes the position that income tax was payable by KST by reason of the receipt by KST and the Administrator of income from KST's interest in the Partnership Properties in the form of rent and interest. The tax deducted by the Administrator is no more than the tax payable by reason of the receipt by KST of that income. The Administrator contends that the moneys actually received by KST and by the Administrator should be net of the liability for tax and that to ignore the tax paid would result in KST's estate bearing the income tax on the rent obtained from the Partnership Properties and the interest on the proceeds of sale whereas the members of the Partnership as a whole would receive the whole of the rent and interest derived. That, the Administrator asserts, would result in a windfall for the members of the Partnership.
3. KST and the Administrator paid income tax in respect of rent and interest received on the basis that the rent and interest was income beneficially derived by KST and the estate of KST as the case may be. In the light of the determinations now made, the rent and interest were not in fact derived beneficially by KST or the estate. Whether the estate of KST is entitled to file amended returns and recover the tax that was paid and for which neither KST nor the estate had any liability, is not presently a question before the Court.
4. However, it is clear that KST, and subsequently the Administrator as legal personal representative of KST, obtained benefits consisting of rent and income and that those benefits were obtained through ownership, possession and/or use by KST of his respective interests in the Partnership Properties after their acquisition. The fact that KST and the Administrator paid income tax on the basis that those benefits were received beneficially is not to the point. I consider that the benefits obtained by KST, and the Administrator as legal personal representative, extend to the gross amount of rent and interest and not simply the net amount after payment of tax for which KST was not liable.

Haig Street

1. As indicated above, the Haig Street Property was used as a family home by KST, FC Chow and their three children. It did not generate any rental income during KST's lifetime or during the course of the administration of KST's estate. Further, FC Chow was a member of the Partnership. In addition, Sunly and Gordon obtained indefeasible titles to their respective interests in the Haig Street Property.
2. Clearly enough, KST obtained a benefit through his ownership and possession of the Haig Street Property. However, ascertaining that benefit is complicated by Sunly and Gordon's indefeasible interests, which limited KST's interest to one third, of which 90% was held for the Partnership. Further, the Haig Street Property did not produce any rental income during KST's lifetime. On one view, the profit or benefit obtained by KST should reflect the fact that KST used the Haig Street Property as a family home. The Administrator contends that KST's interest was only one of five occupants of the property, and thus his interest should accordingly reflect that position.
3. Thus, the Administrator has allowed a 20% interest in the benefit that was thereby obtained by KST. That 20% interest is based on the fact that the Haig Street Property was occupied by not only KST, but also FC Chow and their three children such that, the Administrator contends, KST obtained one fifth of the benefit of the total occupation fee for that period. That is to say, KST was only one of five occupants of the Haig Street Property during the relevant periods.
4. However, the Court of Appeal found that KST provided the Haig Street Property as a home for his family consisting of FC Chow and their three children. Putting aside questions of limitation of action, it could not be thought that FC Chow and the three children could have been required to account for their occupation of the Haig Street Property. The realistic analysis is that the Haig Street Property was occupied by KST. FC Chow and their children were there as his licensees. There is no dispute about an appropriate occupation fee for the Haig Street Property during the periods in question. The Administrator should bring to account one third of 90% of that occupation fee.

Withdrawals from KST's estate after death

1. Following the death of KST and prior to the appointment of the Administrator, monies amounting to $1,333,242 that belonged to KST and formed part of his estate, were paid out from a St George interest bearing term deposit account and Citibank term deposits. The Administrator says there is no evidence as to whether the total amount of $1,333,242 represents rental actually received from the Partnership Properties.
2. In the Inquiry Report, the Administrator determined the net rent from Period 1 from Maroubra Road Property as $1,095,733 and from the Campbelltown Property as $546,074. The Administrator then included a figure for Haig Street of $37,578, giving a total rent for Period 1 of $1,679,385. That requires adjustment for the Haig Street Property. The Administrator also deducted income tax and just allowances. There is a question about just allowances to which I shall refer below. I have already dealt with income tax. The Administrator arrived at net benefits of $798,670. He then deducted the sum of $1,333,242, giving it a negative figure for Period 1 of $534,572.
3. In assessing the benefits that KST obtained from the Partnership Properties, the Administrator has taken the view that the funds that were paid out of the bank accounts were "stripped" from the accounts by the recipients without the consent of a legal personal representative, because there was none, and were therefore lost to KST's estate. Until the appointment of the Administrator, the legal ownership of the money was vested in the NSW Trustee and Guardian by the operation of s 61 of the Probate and Administration Act 1898 (NSW).
4. Clause 3.1 of the Family Arrangement Deed recorded an agreement that the estate of KST would be distributed generally in accordance with cl 3. Clause 3.4 relevantly provided that all distributions of the assets of the estate of KST would be brought to account in accordance with the law and that the Administrator would then distribute the assets in accordance with the Family Arrangement Deed. The Administrator understood that the persons who received the funds distributed out of the bank accounts that were assets of KST's estate were to account notionally for the distributions, and that the Administrator was not required to seek to bring those funds back into the estate.
5. The remedy of account is fundamentally different from, for example, an award of equitable compensation or damages, which looks at the position in which the plaintiff would have been but for the equitable wrong. Thus, a plaintiff obtaining an award of equitable compensation or damages is compensated for the whole of the loss. On the other hand, an account of profits requires attention to be given to events after the equitable wrong. Therefore, the Administrator says, the Court should examine whether, at the end of the day, a defendant who is being held to account has been successful or otherwise in earning and retaining a benefit from the misappropriated funds. The Administrator says that, if at the end of the day, there is no benefit, there is nothing to be gained by the plaintiff from the account. The Administrator draws an analogy between the position of the estate of KST, on the one hand, and a defendant who misappropriated funds and invested them in a business that was unsuccessful and ultimately returned no or only limited profit. He says that a defendant in that position who is ordered to give an account of profits is not required, for the purpose of that remedy, to indemnify or compensate the plaintiff for actual loss.

Capital gains tax

1. The Administrator, as legal personal representative of KST, paid capital gains tax on the disposition of the Partnership Properties as well as on the disposition of other properties owned by KST that were not purchased with funds of the Partnership. The Administrator also paid legal fees with respect to advice concerning liability for capital gains tax and those legal fees were allocated proportionately to the Haig Street Property and Maroubra Road Property. The total capital gains tax paid by the Administrator was as follows:

• Haig Street Property $30,464;
• Maroubra Road Property $151,805; and
• Campbelltown Property $0.

1. Capital gains tax is in the same position as income tax. That is to say, if capital gains tax was not properly payable, because the properties were not owned beneficially by KST, there may be an entitlement to recover the tax paid from the Commissioner of Taxation. However, that is a different question entirely from whether or not KST obtained a benefit from the ownership, occupational and/or use of the Partnership Properties. There should be no allowance in respect of capital gains tax.

Allowance for KST's efforts

1. The Administrator considered that there were two categories of allowance that should be made in favour of the estate of KST with respect to the Partnership Properties. The first was the costs of maintaining the Partnership Properties, with the assistance of a managing agent, authorising expenditure, ascertaining suitable tenants and entering into leases with tenants. The second category concerned the effort involved in seeking out opportunities, assessing the opportunities and undertaking the purchase of the Partnership Properties.
2. There was no evidence that the latter were performed by any person other than KST. There were competing contentions as to the amount of work performed by KST in relation to the maintenance of the Partnership Properties. The Administrator had regard to the fees charged by a typical real estate investment fund that carries out activities similar to the categories of activity described above. The Administrator relied upon product disclosure statements of DomaCom Fund, a property investment fund that invests in residential real estate and small commercial and real estate, which disclose management fees of 0.88%. Typically, such a fund provides a platform for investment in various types of property, seeks out suitable properties for investment, acquires the properties and appoints and manages a professional property manager to manage the property. The Administrator ascertained that the majority of such funds charge acquisition fees in the range of between 1.25% and 2% of the purchase price and management fees in the range between 0.6% to 0.8% of the gross value of the assets managed.
3. The Administrator estimated just allowances for the categories of allowance described above on the basis of an acquisition fee of 1.75% and a management fee of 0.7%. That resulted in total allowances of $178,732 for the three Partnership Properties as follows:

• Maroubra Road Property $97,947;
• Campbelltown Property $70,591; and
• Haig Street Property $10,194.

1. It is fair to say that the real issue is what value should be ascribed to the efforts of KST in finding the Partnership Properties and managing them. There was no evidence other than that of the Administrator as to the appropriate fee for the efforts of KST. The approach adopted by the Administrator does not appear to be unreasonable. In the circumstances, it is an appropriate allowance.

Issues in the FC Chow Proceedings

1. The bulk of the hearing was taken with the issues in the FC Chow Proceedings. All the defendants in the FC Chow Proceedings and their privies are bound by the judgments and orders made in the Lowe Proceedings. Sunly contends, as administrator of the estate of FC Chow, that the entitlement of the late FC Chow under the Partnership was declared and found in the Lowe Proceedings. Therefore, he asserts, there are no real issues in dispute in respect of the claims in chief in the FC Chow Proceedings and positive defences raised by the defendants must be established by them.
2. In the FC Chow Proceedings, Sunly seeks an order that the Administrator pay to the estate of the late FC Chow 30% of the amount of the benefits the late KST obtained through his ownership, possession and/or use of the Partnership Properties since their acquisition as may be found to be held on constructive trust for the Partnership pursuant to the Inquiry. That prayer is clearly based on the relief ordered in the Lowe Proceedings, the parties to which are the same as those in the FC Chow Proceedings. That is to say, the operative orders made in the Lowe Proceedings were declarations that 90% of the Partnership Properties was acquired on account of the Partnership and that 90% of the net proceeds of sale of the interests of KST in the Partnership Properties is held on trust for the Partnership.
3. The Administrator, in his capacity as legal personal representative of KST, holds property that did not belong to KST but to the members of the Partnership. If there were to be a surplus, after Geoffrey and Mary have been paid from the trust property held by the Administrator their entitlement as determined by the Inquiry, the beneficiaries of KST's estate would have the benefit of a significant windfall. However, the assets of KST's estate have been depleted in two ways. The first is as the consequence of the conclusion by the Court of Appeal that the interests of his children in the Partnership Properties were protected by indefeasibility under the Real Property Act. The second is by reason of the fact that funds held by KST were taken after his death by Sunly and Gordon and any prospect of recovery of those funds is statute barred. As a consequence, the assets of the estate of KST may well be inadequate to meet even the claims of Mary and Geoffrey, much less claims by other members of the Partnership, such as the estate of FC Chow. If the Administrator's stance in the FC Chow Proceedings were to prevail, Geoffrey and Mary could receive the whole or a substantial part of their claim, to the exclusion of all other members of the Partnership. I shall deal with those consequences below.

Pleadings

1. The further amended statement of claim filed in the FC Chow Proceedings on 11 March 2019 (the Chow Statement of Claim) made allegations that may be relevantly restated as follows:
2. In December 1975, the Haig Street Property was purchased by KST in the name of KST as to a one third interest.
3. In February 1983, the Maroubra Road Property was purchased by KST in the name of KST as to a 4/5th interest.
4. In July 1988, the Campbelltown Property was purchased by KST in the name of KST as to a 6/10th interest. …
5. In May 2004, the Administrator sold KST's one third interest in the Haig Street Property.
6. In September 2005, the Administrator sold KST's 4/5th interest in the Maroubra Road Property.
7. In November 2005, the Administrator sold KST's 6/10th interest in the Campbelltown Property.
8. Mary and Geoffrey, Margaret, Helen, Janet, KST and FC Chow were partners as from 1 August 1975.
9. As from 1 August 1975 until the date of dissolution on 1 July 1989, FC Chow was a partner, holding a 30% share in the Partnership.
10. By reason of his relationship of partner, KST owed the other partners fiduciary duties in dealing with the Partnership's assets and funds.
11. The Partnership Properties were acquired by KST using his own funds as to 10% of the purchase price of each of the Partnership Properties.
12. 90% of the purchase price of each of the Partnership Properties was contributed from funds of the Partnership. 26A. The Partnership Properties were purchased using the Partnership funds referred to in para 26 other than in the names of the partners and without the full knowledge and consent of the other partners. 26B. KST acquired the following legal interests in the Partnership Properties in his own name: (a) Haig Street Property - one third interest; (b) Maroubra Road Property - four fifths interest; (c) Campbelltown Property - six tenths interest.
13. In utilising Partnership funds to purchase each of the three Partnership Properties, KST did not act in good faith, did not act honestly and obtained a private advantage at the expense of his co-partners and thereby breached his duties to his co-partners.
14. By reason of KST's breaches KST and, therefore, after his appointment the Administrator, hold the following on constructive trust for the Partnership: 1. 90% of the net proceeds of sale of a one third interest in the Haig Street Property; 2. 90% of the net proceeds of a four fifths interest in the Maroubra Road Property; and 3. 90% of the net proceeds of the sale of a six tenths interest in the Campbelltown Property.

Knowledge of FC Chow

1. There is limited documentary evidence available as to the knowledge, or lack of knowledge, of FC Chow as to KST's use of funds belonging to the Partnership to purchase the Partnership Properties. The Administrator asserts that such evidence as is available points to significant differences between the position of FC Chow, on the one hand, and the position of Geoffrey and Mary, on the other.
2. In the Partnership Agreement, FC Chow's occupation was described as "investor". At that time, she appears to have been living in Hong Kong. However, within a year, FC Chow and her children had arrived in Australia. Thereafter, FC Chow was one of the three members of KST's family who worked full time in the WYT and YS businesses. She continued to work in those businesses until they closed. From the time when the Partnership businesses commenced to trade, tax returns were lodged. Accordingly, distributions were made to FC Chow as a member of the Partnership. The distributions reflected the fact that she held the largest share in the Partnership.
3. FC Chow and her family lived in the Haig Street Property from the time when it was purchased by KST. By the time of her death, FC Chow had acquired a significant property portfolio in her own name, holding interests as a tenant-in-common in properties situated in Shoalhaven, Port Macquarie, Maroubra, Fairfield and Lakemba. Income statements for those properties indicate that the proportionate share of income from those properties was distributed to FC Chow in recognition of her interest in the properties.
4. It was the practice of KST not to borrow money in order to purchase property but to purchase property with money that was available to him. That is a matter about which KST often spoke. The Administrator says that an inference should be drawn by the Court that FC Chow was aware of that practice of KST's and that the only source of money to purchase the Partnership Properties was money belonging to the Partnership.
5. Sunly complains that the Administrator makes no attempt to prove any of the facts relied upon by him in answer to the allegations made in para 26A of FC Chow Statement of Claim. Rather, the Court is asked to infer knowledge on the part of FC Chow from matters that were the subject to findings in the Lowe Proceedings, which, he says, are not admissible as evidence in the FC Chow proceedings.

Estoppel

1. The doctrines of res judicata and issue estoppel are founded on the broad rules of public policy expressed in the maxims "nemo debet bis vexari pro una et eadem causa" [64] and "interest reipublicae ut sit finis litium". [65] It would be an abuse of process to allow parties to litigate repeatedly matters that have been finally determined by the Court. [66] Further, a party may be estopped from proceeding with a case where matters that are proposed to be relied upon in that case by that party were so relevant to the subject matter of an earlier action in which that party was a party that it was unreasonable not to rely upon those matters in the earlier proceedings. As a general rule, it will be unreasonable not to plead a defence if, having regard to the nature of the claim made by the plaintiff and its subject matter, it would be expected that the defendant would raise that defence and thereby enable relevant issues to be determined in one proceeding. [67]
2. Those principles are relied upon by both the Administrator and Sunly as administrator of the estate of FC Chow. The Administrator contends that it was unreasonable for the claims presently made in the FC Chow Proceedings not to have been raised in the Lowe Proceedings and that FC Chow's estate is estopped from making them. On the other hand, FC Chow's estate contends that the Administrator is estopped from denying many of the matters alleged in the FC Chow Statement of Claim on the basis that they were established in the Lowe Proceedings. I shall deal with each separately.

Abuse of process: failure to claim in the Lowe Proceedings

1. In his defence to the FC Chow Statement of Claim, the Administrator makes allegations that may be restated as follows:
2. In order to determine the interest, if any, that the estate of the late FC Chow had in the net proceeds of sale held by the Administrator, it would be necessary to determine what knowledge, if any, the late FC Chow had as to the use of the funds of the Partnership for the purpose of purchasing the Partnership Properties and what consent, if any, she provided for the use of funds of the Partnership for the purposes of purchasing the Partnership Properties.
3. Any application for determination of those matters ought to have been brought in the Lowe Proceedings.
4. In lieu of seeking a determination in the course of the Lowe Proceedings, Stella, the representative of the estate of the late FC Chow for the purposes of the Lowe Proceedings, filed a submitting appearance and, accordingly, the estate of the late FC Chow has foregone any opportunity for having a determination made as to its interest, if any, in the net proceeds of sale held by the Administrator.
5. By reason of the conduct of Stella in the Lowe Proceedings, no evidence was adduced in the Lowe Proceedings as to the knowledge of the late FC Chow as to the breaches of fiduciary duty committed by KST in relation to the Partnership, and her consent to those breaches.
6. The matters now raised in the FC Chow Proceedings were relevant to the Lowe Proceedings such that it was unreasonable not to rely on those matters in the Lowe Proceedings.
7. The estate of FC Chow is therefore estopped from bringing the claims that are the subject of the FC Chow Proceedings.
8. Sunly, as administrator of the estate of the late FC Chow seeks to ventilate in the FC Chow Proceedings claims that cannot be bought in the Lowe Proceedings by reason of the submitting appearance filed by Stella, which remains on foot in the Lowe Proceedings.
9. The claims sought to be brought in the FC Chow Proceedings could and should have been brought in the Lowe Proceedings.
10. Accordingly, the FC Chow Proceedings are an abuse of the Court's process and ought to be dismissed or permanently stayed.
11. Sunly asserts that, at all times during the course of the Lowe Proceedings, the conduct of all parties was consistent with the Lowe Proceedings being a claim made on behalf of the Partnership for the benefit of all members of the Partnership. Stella was appointed as representative of the estate of FC Chow for the purposes of the Lowe Proceedings, in lieu of himself as administrator of FC Chow's estate, because of the claim that interests of Sunly in the Partnership properties were held on constructive trust for the members of the Partnership. Sunly took an active part in the Lowe Proceedings in resisting that claim, which was in conflict with his role as administrator of the estate of FC Chow having regard to the distribution that he says the estate of FC Chow would receive if the Lowe Proceedings were successful.

Estoppel against the Administrator

1. Sunly asserts that, as a consequence of the orders made in the Lowe Proceedings, he is entitled, in his capacity as administrator of the estate of FC Chow, to compel the Administrator, as the legal personal representative of KST, to distribute to all members of the Partnership, including the estate of FC Chow, their respective shares in the funds now held on trust by the Administrator.
2. There can be no dispute as to the following matters:

• the Partnership existed and was dissolved on 1 July 1989;
• at all times up to the date of dissolution of the Partnership, FC Chow had a 30% share of the Partnership; and
• KST owed fiduciary duties to the other members of the Partnership including to FC Chow. Sunly also asserts that there can be no dispute as to the following additional matters:
• in acquiring the Partnership Properties partly with funds belonging to Partnership, KST breached the fiduciary duties owed to all members of the Partnership, including FC Chow;
• 90% of KST's interest in the net proceeds of sale, and in the profits, if any, from the holding of the Partnership Properties, is held on constructive trust for all members of the Partnership, including FC Chow.

1. The Administrator disputes the last two matters on the basis that the Lowe Proceedings did not determine the question of whether the actions of KST complained about by Geoffrey and Mary in the Lowe Proceedings occurred without the knowledge or acquiescence of members of the Partnership other than Geoffrey and Mary. Thus, the Administrator resists the claim on behalf of the estate of FC Chow, in so far as it is based on estoppels arising from the Lowe Proceedings, on the basis that there is no evidence to support that allegation in para 26A that KST purchased the Partnership Properties without "the full knowledge and consent of his co-partners".
2. The essence of the approach adopted by Sunly in the FC Chow Proceedings, as legal personal representative of FC Chow, is that FC Chow was entitled to rely on the ultimate determination made in the Lowe Proceedings to the effect that the Partnership Agreement evidenced a partnership among the members of the Partnership in the proportions indicated above. Further, Sunly says, the result of the Lowe Proceedings was a determination that 90% of the net proceeds of the sale of KST's interests in the Partnership Properties and 90% of the profits derived by KST from the Partnership Properties are held on constructive trust for the Partnership. That conclusion gives rise to the Net Proceeds Trust and the Profits Trust, the property of which is held by the Administrator, albeit intermingled with the residue of the estate of KST.

Laches and delay

1. The Administrator accepts that mere delay is not, of itself, sufficient to establish a defence of laches. Rather, there must be a delay by the plaintiff in the institution or prosecution of an equitable claim in circumstances where the defendant alters its position or has otherwise suffered prejudice in reliance on the acceptance by the plaintiff of the status quo. A court of equity requires that those who come to it to ask for relief must use due diligence after there has been such notice or knowledge as to make it inequitable to lie by. [69]
2. It is necessary to demonstrate knowledge by the plaintiff of the impugned conduct, delay by the plaintiff in commencing proceedings and unconscionable prejudice by reason of the delay. Actual knowledge need not be proved, and the level of knowledge required is a matter of fact and degree. Thus, if a prospective plaintiff strongly suspects that there has been unconscionable conduct perpetrated and does nothing either to obtain more detail or to prevent the prospective defendant from proceeding on the basis that there will be no challenge to the conduct, a defence of laches may be available.
3. The types of prejudice that can ground a defence of laches include the loss of evidence by reason of death of witnesses, loss of written materials and the failing of memories. In the context of an account of profits, if a plaintiff knowingly stands by while a prospective defendant makes profits from the illicit use of property, it may be inequitable to allow recovery of those profits, when the property is recovered, if the prospective defendant has spent the profits. There may be acquiescence where there is deliberate and informed inaction by a prospective plaintiff or a standing by on the part of a prospective plaintiff, in circumstances that encourage the prospective defendant to believe, on reasonable grounds, that the conduct of the defendant was accepted, or not impugned, by the prospective plaintiff. [70]
4. The Solicitors for Mary and Geoffrey invited Stella, as the representative of the estate of FC Chow, to abide the outcome of the Lowe Proceedings. Having regard to the conclusion that I have reached above concerning knowledge or acquiescence on the part of FC Chow and the failure to claim in the Lowe Proceedings, the Administrator has failed to make out the defence of laches and delay as an answer to the claim on behalf of the estate of FC Chow.

Limitations

1. In further answer to the FC Chow Statement of Claim, the Administrator relies on the Limitation Act as follows: 47(a) From about the time of the acquisition of each of the Partnership Properties, FC Chow discovered the facts from which any misappropriation of funds of the Partnership by KST could be identified. 47(b) By 24 June 2002 at the latest the representative of the estate of the late FC Chow discovered the facts from which any misrepresentation of funds of the Partnership by the late KST could be identified.
2. In the circumstances, the FC Chow proceedings are barred by operation, either expressly or by analogy, of s 47 of the Limitation Act.
3. Thus, the Administrator's pleaded defence is based on s 47 of the Limitation Act on the basis of the knowledge of Sunly, as the representative of the estate of FC Chow, as at 24 June 2002. The pleaded defence alleges that the requisite knowledge was acquired, at the latest, on 24 June 2002, the date of alleged service of the Final Report.
4. Sunly complains that the Administrator is now attempting to rely upon a defence that is not pleaded, namely, that Sunly had acquired the requisite knowledge required by s 47 no later than 26 September 2005, by virtue of a letter of that date from the solicitors acting for Mary and Geoffrey written to Sunly as administrator of FC Chow. Sunly asserts that it is not open to the defendants to rely upon such a defence, which is not pleaded and is not part of the "justiciable controversy" now before the Court. In any event, Sunly says, the relationship between Sunly, on the one hand, and Geoffrey and Mary, on the other was strained as a result of the proceedings initiated by Mary as against her sibling in relation to the forged will and Mary's refusal to transfer the Wiley Park Property to the estate of KST "pursuant to the deed of trust".
5. The allegation of discovery by either FC Chow or the representative of the estate of the late FC Chow is particularised by reference to the matters alleged by the Administrator in answer to para 26A of the FC Chow Statement of Claim. That is to say, the Administrator relies upon the same allegations to support a contention that FC Chow knew of, or acquiesced in, the misappropriation of funds by KST and a contention that, even if there was no acquiescence or knowledge, FC Chow was aware of the misappropriation by KST such that the limitation period began running from the time of the acquisition of the Partnership Properties. For the reasons indicated above, I am not persuaded, on the balance of probabilities, that FC Chow had knowledge of any misappropriation by KST.

Characterisation of the claims in the FC Chow Proceedings

1. Sunly contends that the approach of the Administrator in relation to the Limitation Act involves a misapprehension or mischaracterisation of the nature of the claim made in the FC Chow Proceedings. Sunly characterises the claim as one that requires the Administrator, as trustee of an institutional constructive trust in favour of the members of the Partnership, to distribute to a member of the Partnership, namely, the legal personal representative of FC Chow, that member's share of that trust property, namely, 30%.
2. The term "constructive trust" is used in various senses when identifying a remedy available in a court of Equity. The trust institution involves both the holding of property by the trustee and a personal liability, on the part of the trustee, to account for the discharge the duties of the trustee. However, some constructive trusts do not create or recognise a proprietary interest but impose a personal liability to account in the same way as an express trustee has a liability to account. Thus, a personal liability will be imposed on one who dishonesty procures, or assists in, a breach of trust or fiduciary obligation by a trustee or another fiduciary. In other cases, however, a constructive trust will be proprietary in nature and attaches to identified property. Such a trust does not necessarily impose upon the trustee the various administrative duties and fiduciary obligations that would attend the settlement of property to be held by a trustee upon an express trust for successive interests. [72] In the case of a constructive trustee, the sole obligation of any practical significance is to restore the property that is the subject of the trust. [73] Sunly contends that the remedy sought in the FC Chow Proceedings is simply one to which s 47 of the Limitation Act has no application.
3. Sunly asserts that FC Chow's legal personal representative is entitled to compel the Administrator, being the legal personal representative of KST, the defaulting fiduciary and the constructive trustee holding the property of the Partnership, to distribute to FC Chow's estate FC Chow's share of the property of the Partnership. Sunly asserts that the Administrator's failure to distribute the property of the Partnership on demand is a continuing breach by the Administrator as a constructive trustee, such that there is no applicable limitation period capable of preventing the claim.

Estoppel in relation to Administrator's costs and trustees' indemnity

1. By way of further answer to the FC Chow Statement of Claim, the Administrator relies on an alleged estoppel in relation to funds that are the subject of payments for costs of administration by the Administrator of the estate of KST. The Administrator pleads that defence by making allegations that may be restated as follows: 50 The Administrator has incurred and continues to incur costs and expenses (the Administration and Trust costs), which include:

• maintenance costs in respect of the Partnership Properties;
• costs associated with managing, valuing, marketing and selling the Partnership Properties, including the costs of applying to the Court for the appointment of trustees or sale of the Maroubra Road Property and the Campbelltown Property;
• taxes and duties;
• general administration costs; and
• the costs of the FC Chow Proceedings.

51. Notice of the Administration and Trust Costs was provided to affected parties, including Sunly and Stella, as administrator and representative of the estate of the late FC Chow, at or shortly after the time in which they were incurred.
52. No objection has been taken by Sunly or Stella to the Administration and Trust Costs.
53. Orders have been obtained from the Court from time to time approving the payment of the Administration and Trust Costs.
54. The Administrator will properly incur further costs in his capacity as administrator of the estate of KST and as trustee of the Net Proceeds Trust and the Profits Trust (Future Administration and Trust Costs) including the costs of the Inquiry.
55. With the knowledge of Sunly and Stella, the Administrator has paid the amounts ordered to be paid by the Court by utilising the funds held by him in his capacity as administrator of the estate of the late KST.
56. No objection was taken by Sunly or Stella to the Administrator effecting payments referred to above. 57 In reliance upon the matters alleged above, the Administrator has made payments and acted and continues to act as administrator of the estate of KST and trustee of the Net Proceeds Trust and the Profits Trust to progress the Inquiry. 58 In the circumstances, Sunly, as administrator of the estate of FC Chow, is estopped from making any claim to an entitlement to any part of the funds held by the Administrator in his capacity as administrator of the estate of the late KST that has been deployed to meet the payments referred to above. 59 From 26 March 2001, the Administrator has been the trustee of the Net Proceeds Trust and the Profits Trust. 60 As trustee of the Net Proceeds Trust and the Profits Trust, the Administrator is entitled to be indemnified out of the assets that are the subject of those trusts. 61 Pursuant to the indemnity referred to above, the Administrator has made the payments referred to above. 62 Pursuant to the indemnity referred to above, the Administrator is entitled to pay such part of the future administration costs as are attributable to his remuneration, costs and expenses incurred properly in his capacity as trustee of the Net Proceeds Trust and the Profits Trust, out of the respective assets that are the subject of those trusts.

Depletion of assets of KST's Estate

1. There are insufficient funds subject to the Net Proceeds Trust and the Profits Trust to meet claims on behalf of all members of the Partnership. But for the depletion of assets of the estate of KST, the dispute between Mary and Geoffrey, on the one hand, and the estate of FC Chow, on the other may have evaporated.
2. Funds of the Partnership were deployed in the acquisition of interests in the Partnership Properties by third parties, whose interests have been held by the Court of Appeal to be protected by indefeasibility under the Real Property Act. Those interests would have been part of the estate of KST but, because of the holding by the Court of Appeal, those interests have been lost to the estate of KST. Some of the parties who have been held to have acquired indefeasible interests by way of gift are beneficiaries under the estate of FC Chow.
3. Further, income received by KST from the Partnership Properties would have been included in the estate of KST. However, some of those funds were paid away from the estate of KST by persons who administered KST's estate before the appointment of the Administrator. Those persons are also beneficiaries under the estate of FC Chow.
4. The Administrator resists the claims on behalf of FC Chow's estate on the basis that those who would benefit from an order in favour of the estate of FC Chow are those who have otherwise received a benefit to the detriment of the estate of KST or have been responsible for the depletion of property that would have been part of the estate of KST and would have been subject to the Net Proceeds Trust and the Profits Trust. The Administrator seeks to rely on those circumstances as an answer to the claim on behalf of the estate of FC Chow.
5. Each of Gordon and Sunly received substantial funds that were the property of the Partnership. Thus, it is clear that each of Gordon and Sunly received substantial funds belonging to the Partnership prior to the appointment of the Administrator.
6. As indicated above, the Inquiry Report records that, following the death of KST and prior to the appointment of the Administrator, monies amounting to $1,333,242 that belonged to KST and formed part of his estate, were paid out from a St George interest bearing term deposit account and Citibank term deposits. The Administrator says there is no evidence as to whether the total amount of $1,333,242 represents rental actually received from the Partnership Properties. The likely source of at least 70% of those funds was money belonging to the Partnership. That follows from the fact that most of KST's rental income in the financial years ended 30 June 1995, 1996 and 1997 was derived from the Partnership Properties. Thus in 1995, $148,712 of the total rent of $205,123 was derived from the Maroubra Road Property and the Campbelltown Property. In 1996, $134,755 of a total of $182,354 was derived from the Maroubra Road Property and the Campbelltown Property and in 1997, $152,149 of $215,435 was derived from the Maroubra Road Property and the Campbelltown Property. All of those balances were distributed to Sunly, Gordon, Margaret and Helen prior to the appointment of the Administrator and the funds have been unavailable to the Administrator.

Conclusion

1. The Administrator should be directed to bring in short minutes of orders to reflect the conclusions that I have reached above, both in relation to the Inquiry and in relation to the FC Chow Proceedings. The proposed short minutes should be made available within 14 days of the publication of these reasons to all of the other parties to the Lowe Proceedings and the FC Chow Proceedings. Any party who objects to the orders proposed by the Administrator should within 14 days of receipt of the proposed orders specify in writing the nature of the objection and the reasons for the objection. The Administrator should within 14 days after receipt of the last of any such objections, file and serve a statement indicating his response to the objections. The proceedings will be listed for directions in order to resolve any dispute as to the orders and to make final orders. Leave to apply is reserved to the parties if there are difficulties in working out notional reimbursements and distributions.

The Schedule

1. A declaration that Geoffrey, Mary, Margaret, Helen, Janet, KST and FC Chow were partners as from 1 August 1975 and operated the businesses of Wing Yuen Tai and Yee Sing Butchery pursuant to the Partnership in the following shares: 1. Geoffrey as to a 10 per cent share; 2. Mary as to a 10 per cent share; 3. Margaret as to a 10 per cent share; 4. Helen as to a 10 per cent share; 5. Janet as to a 10 per cent share; 6. KST as to a 20 per cent share; and 7. FC Chow as to a 30 per cent share.
2. A declaration that each of the Partnership Properties was acquired by KST using his own funds as to 10% and funds of the Partnership as to 90%.
3. A declaration that by utilising partnership funds to purchase each of the Partnership Properties, KST breached the fiduciary duties he owed to the members of the Partnership, including Mary and Geoffrey.
4. A declaration that: a. In respect of the Haig Street Property, 90% of the net proceeds of the sale of the one-third interest held by KST is held on constructive trust for the Partnership. b. In respect of the Maroubra Road Property, 90% of the net proceeds of the sale of the four-fifth interest held by KST is held on constructive trust for the Partnership. c. In respect of the Campbelltown Property, 90% of the net proceeds of the sale of the six-tenth interest held by KST is held on constructive trust for the Partnership.
5. Declare that 90% of any profits (if any) derived by KST from the Partnership Properties after just allowances (if any) since the date of their acquisition were and are held on constructive trust for the Partnership.
6. Declare that the Partnership was dissolved on 1 July 1989.
7. Direct that an inquiry be held to identify what (if any) moneys Mary and Geoffrey are entitled to from KST by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by KST through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
8. Order that KST pay to Mary and Geoffrey 20% of the amount of the benefits KST obtained through his ownership, possession and/or use of the Partnership Properties since their acquisition as may be found to be due pursuant to the inquiry referred to in order 6 above.

Endnotes

1. See Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [76].
2. Ibid at [60].
3. Lowe v Pascoe [2010] NSWSC 388.
4. Lowe v Pascoe (Supreme Court (NSW), Smart AJ, 25 June 2010, unrep).
5. Lowe v Pascoe (No 3) [2011] NSWSC 192.
6. Geoffrey Alan Lowe v Scott Pascoe [2012] NSWSC 151.
7. Lowe v Pascoe [2012] NSWSC 740.
8. Lowe v Pascoe (No 2) [2012] NSWSC 885.
9. Lowe v Pascoe (No 3) [2012] NSWSC 907.
10. Lowe v Pascoe (No 4) [2012] NSWSC 1493.
11. Lowe v Pascoe (No 6) (Supreme Court (NSW), Gzell J, 13 March 2013, unrep).
12. Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462.
13. Lowe v Pascoe (Supreme Court (NSW), Smart AJ, 25 June 2010, unrep).
14. Lowe v Pascoe [2010] NSWSC 388.
15. Lowe v Pascoe (No 4) [2012] NSWSC 1493.
16. Lowe v Pascoe [2010] NSWSC 388 at [16].
17. Ibid at [19].
18. Ibid at [28].
19. Ibid at [107].
20. Ibid at [573]-[574].
21. Lowe v Pascoe (Supreme Court (NSW), Smart AJ, 25 June 2010, unrep) at [27].
22. Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [63].
23. Ibid at [73].
24. Ibid at [75].
25. Ibid at [78].
26. Ibid at [105].
27. Ibid at [141], citing Black v S Freedman & Co (1910) 12 CLR 105 at 108-110; [1910] HCA 58.
28. See Black v S Freedman & Co (1910) 12 CLR 105 at 109; [1910] HCA 58.
29. Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [147]-[148], citing Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 at 100; [2004] NSWCA 82 at [113].
30. Ibid at [162].
31. Ibid at [168]-[169].
32. Ibid at [172]-[174].
33. Smart AJ's findings also included Janet and "probably" FC Chow herself; see Lowe v Pascoe [2010] NSWSC 388 at [567].
34. Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462, at [175]-[177].
35. Ibid at [196].
36. Ibid at [195].
37. See Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 614; [1988] HCA 16 and Farah Construction Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [192].

Amendments 16 November 2022 - At [28] 'infeasibility of title' should read 'indefeasibility of title' DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 November 2022