Paton & Anor v Reck & Ors [1999] QCA 517

[1] McMURDO P: This is an appeal in respect of a declaration made in the District Court that the male appellants hold the sum of $130,000 on a constructive trust to account to the partnership established under a deed of partnership between the appellants and respondents.

[2] The male appellants owned a 144ha farm on the bank of Littabella Creek, north of Bundaberg, where they carried on small crop farming. The male respondent had been a truck driver and had business dealings with the appellants. He became interested in prawn farming and discussed it with the appellants; the result was the formation and operation of a partnership between the appellants and respondents under a deed of partnership dated 27 February 1989. The purpose of the partnership was "conducting a prawn farming business"; the partnership business was to be that of "prawn farming and aquaculture and such other ventures as they shall from time to time mutually decide and shall be carried on in the District of Bundaberg or at such other place or places as the partners may from time to time agree"; the partnership was to continue "until determined by notice in writing given by any partner to the others as hereinafter provided". The partnership business operated as Pacific Garden Prawn Farm and farmed penaeus monodon (tiger prawns) which were cooked and sold locally. Although silent on a number of relevant issues, including the effect of the carrying on of the partnership business on the land owned by the male appellants, the partnership deed provisions included:

"The capital and property of the partnership business shall be provided and owned by the partners in the shares following, that is to say:

• the Patons - a one- third share;
• Reck Bros. - a two-thirds share[1]

No partner shall, without the consent in writing of every other partner, dispose of his interest in the partnership assets by way of sale or mortgage or otherwise.[2]

The partners shall be just and faithful to one another and shall furnish each other with full accounts and information with regard to all matters and transactions relating to the partnership business ...[3] .

If any partner shall be desirous of retiring from the firm and shall give to each other partner at least six (6) months' notice in writing to that effect, then the partnership shall, subject to the provisions hereinafter contained determine as from the date of the expiry of the said notice.[4]"

[3] The partnership deed also provided that the $35,000 loan from Westpac borrowed in the name of the respondents and secured on their residence was treated "as a partnership liability to meet repayments thereof before calculation of partnership profits"[5]. The loan was repaid not by the partnership but by the respondents on the subsequent sale of their house; it is conceded that the learned trial judge rightly concluded that the respondents are entitled to have it taken into account in their favour as a partnership debt discharged by them.

[4] In July 1988, the appellant Arthur Reck and the male respondent applied for an aquaculture permit which was required to be accompanied by an Environmental Impact Statement ("EIS"); a document titled "EIS Report" was attached to the permit. This was not an independent, expert EIS but a document which dealt briefly with the position description and zoning of the land and details of the partnership project touching on environmental matters. A permit for aquaculture purposes was subsequently issued on 29 August 1988. On 23 February 1990 a further permit for aquaculture purposes (Q200) was issued in the name of H.R. Paton and A. Reck which remained in force until 28 August 1994. Each permit cost the partnership $115.

[5] Ponds were constructed on the property and pumps and aerators powered by diesel generators were installed. The prawns were introduced, manually fed several times a day and harvested after 4-6 months. The appellants were largely responsible for crop monitoring, feeding and running the prawn farm whilst the respondents were responsible for marketing[6] but also gave some assistance on the farm.

[6] Between July 1988 and March 1991 the respondents contributed $78,000 capital to the partnership. From March 1991 the partnership ceased trading as neither the appellants nor the respondents had available finance to continue the business. They agreed to remove the prawns and let the ponds lie dormant until such future time as the partners became financial. The partnership was not dissolved, nor were its affairs wound up.

[7] In September 1992 Dallas Donovan, who had been involved in the aquaculture industry since the beginning of 1989, was retained as a consultant for Queensland Prawn Farm Pty Ltd, a company controlled by companies involved in aquaculture in Japan, to locate potential sites for a prawn farm and to look at options for investment in existing farms or portions of farms, especially sites suitable for the culture of penaeus japonicus (Kuruma prawn) to export live to Japan. He became aware of the appellants' property through the Department of Primary Industries' ("DPI") register of properties which have licences or a connection with aquaculture.

[8] The male appellants rejected an initial offer of $750,000 made by Donovan for the property. Donovan made no enquiries about other nearby land which may have been suitable for prawn farming; the only property in the area which had been used for aquaculture and which had a permit belonged to the male appellants.

[9] The purchaser then wrote to Mr Arthur Reck with a proposal to purchase the farm for $1.1 million. The proposed contract was to be, inter alia:

"... conditional upon the purchaser carrying out and being satisfied with the results of an appropriate due diligence investigation including:

b. DPI aquaculture permits being transferred to the purchaser."[7]

[10] The proposal contained other favourable terms for the male appellants in addition to the generous purchase price. It was proposed that the appellants lease back the northern 70ha of the land for 10 years at $10 per year for farming and cattle grazing;[8] keep 2ha for the vendors to live on;[9] and the vendors remain in their current home for a few months after settlement whilst building a new home.[10]

[11] On 12 January 1993 the purchaser's solicitor informed the DPI in writing that they acted on behalf of a Japanese company interested in acquiring the appellants' prawn farm and enquiring as to the procedure to transfer the aquaculture permit Q200 in the name of H.R. Paton and A. Reck, issued for five years from 28 August 1994.

[12] On 20 January 1993, the Gooburrum Shire Council informed Donovan that aquaculture was an as of right use and did not require town planning approval. On 21 or 28 January 1993,[11] the purchaser applied to the DPI for a permit to farm and sell its prawns, primarily penaeus japonica but also penaeus monodon. Although all new ponds were to be constructed in a different area from the partnership ponds, the application referred to the existing ponds built by the partnership in describing the farm.

[13] In a letter of 25 January 1993, Donovan wrote to the DPI about the new permit application stating:

"This land currently holds a DPI permit for aquaculture, permit number Q200, under the names A. Reck and H.R. Paton. ...

Please find attached our application for the transfer of this permit to the company name of Queensland Prawn Farm Pty Ltd ... ."

[14] On 28 January 1993, the DPI wrote to the purchaser's solicitors in response to the letter of 12 January stating:

"Χ Permits are issued by the Queensland Fish Management Authority under s 35A of the Fishing Industry Organisation and Marketing Act 1990. These permits are issued to a nominated person or company for a nominated site and time period and are not transferable.

Χ Aquaculture permits cannot be issued until approvals, permits or licences are obtained in respect to the following legislation:

With Tomen Australia Limited acquiring the prawn farm on Littabella Creek it will be necessary for them to follow the standard procedure for obtaining a permit as outlined above. Enclosed is a booklet which provides more detail on the requirements for each licence or permit."

[15] The contract for the sale of the property between the appellants and Queensland Prawn Farm Pty Ltd, largely in terms of the proposal, was signed on 31 January 1993, the date for completion being 30 April 1993. Clause 4.1 of the contract provided that:

"... the Purchaser must pay for the Balance Purchase Price as directed by the Vendor or its solicitor in exchange for:

(9) the original Permit for Aquaculture No Q200 and any permitted assignment of the permit in favour of the Purchaser."

(1) the Purchaser, prior to the date for completion:

(b) obtaining a Permit for Aquaculture in similar terms to that referred to in clause 4.1(9);

(c) obtaining approvals, licences or permits necessary for the Purchaser to operate a prawn farm on the Land;

The male appellants signed this contract without reference to the respondents.

[17] At the time the contract was signed, the permit Q200 was in force and continued in force until 28 August 1994; it was not however operable as other permits under other Acts had lapsed.

[18] A DPI file note in respect of the purchaser's application for a permit dated 2 March 1993 referred to aquaculture permit Q200; that the farm had not been used as a prawn farm for the last two seasons; that the only part of the existing operation to be used in the proposed new development was the position of the intake channel where it entered Littabella Creek and that a different permit application would be required in respect of removal of mangroves.

[19] A DPI briefing note on the purchaser's project dated 1 April 1993 to the Ministers for Primary Industries and Environment and Heritage stated that:

"The current owner of the land has an aquaculture permit for a small pond system of less than 0.5 ha. Prawns have not been farmed on the property for the last two seasons.

Higashimaru's purchase of the land is subject to an aquaculture permit being granted for the new venture within three months. This period expires on 30 April 1993.

As the original application was deficient in many areas further information is required ... on the [impact on the local environment]. ...

... a full Environmental Impact Statement (EIS) is not required to finalise the current application, although it would have been advantageous earlier in the process."

[20] That briefing note and a later briefing note of 5 May 1993 from the DPI to the Ministers for Primary Industries and Environment and Heritage made no mention of aquaculture permit Q200.

[21] A letter from the Fisheries Division of the DPI to the Queensland Fish Management Authority dated 24 May 1993 noted:

"The property is being purchased from Mr F G and A L Reck. The farm currently has a Section 35A(2) permit (Q200) licensed to H R Paton and A Reck in the company name Pacific Garden Prawn Farm"

"Mr K Higashi of Queensland Prawn Farms Pty Ltd be considered for a section 35A(2) Aquaculture Permit to farm Penaeus Japonicus and Penaeus Monodon on his property. The permit should also include the operation of a prawn hatchery on the same property.

This application and permit specifically refers to the construction of a maximum of 22 hectares of growout ponds. Any further expansion should require the following:

[22] On 3 June 1993, a permit for aquaculture purposes was issued to Mr K. Higashi, Queensland Prawn Farm Pty Ltd for the operation of a maximum of 22 hectares of grow out ponds; any further expansion would require, amongst other things, an Environmental Impact Statement.

[23] In mid-1993, when the respondents first became aware of the sale of the Recks' property, they sought legal advice; at this time they were still repaying the bank loan for funds used by the partnership and secured by their home.

[24] In a letter of 9 September 1993 on Queensland Prawn Farm Pty Ltd letterhead titled "To whom it may Concern", Donovan stated that the purchase of the property from the male appellants was not a purchase of any equipment or a transfer of any permits held by Pacific Gardens Prawn Farm; permits held by Pacific Garden Prawn Farm were of no use to Queensland Prawn Farm Pty Ltd because of the difference in cultivated species and in size of the developments; none of the facilities established by Pacific Gardens Prawn Farm were of any use to Queensland Prawn Farm Pty Ltd and had since been destroyed.

[25] The respondents commenced this action in December 1995. Notice of dissolution of the partnership was given in para 5 of the defence and counterclaim delivered on 15 May 1996. There has been no taking of partnership accounts.

• No part of the works constructed by the partnership were used in the purchaser's business and no part of the purchase price related to works constructed by the partnership.

• Donovan appeared to be somewhat partisan and produced the letter of 4 September 1993 at the appellants' request to assist them to defeat the respondents' claims; the letter overstated the position in the appellants' favour as a partnership freezer and a generator were purchased by Queensland Prawn Farm Pty Ltd in mid 1993 for $10,000.

• Donovan made no enquiries about the purchase of other less expensive properties which may have been suitable for aquaculture. Because of the partnership licence to farm prawns on the land, the land was in a list kept by the DPI to which Donovan referred in seeking out a property suitable for the purchasers' prawn farm. As a prawn farming business had been conducted on the land in the past, it appeared more attractive to a purchaser interested in aquaculture as there may have been less difficulty in obtaining the necessary approvals to use the land for the purchaser's aquaculture requirements, especially when one of those approvals was still current.

• Mr Vickery, a solicitor with many years experience in agricultural conveyances, was of the opinion that the partnership licence would be of some benefit when dealing with a government department to obtain a permit if the department knew that a non-transferable permit in respect of that property for aquaculture had been granted.

• Mr Haylock, an environmental consultant experienced with government and non-government agencies, saw that some advantage accrued where a permit had previously been granted in respect of land and an EIS prepared, if a further permit was wanted in respect of the activity the subject of the licence and EIS. Haylock's view was consistent with the evidence of the appellants' town planner Mr Craven, that if an application is substantially different from the subject matter of an earlier permit relating to aquaculture, no regard will be paid to the earlier permit; the evidence of Mr Elmer, a Senior Resource Manager with the Queensland Fisheries Authority, that the existence of a permit over property the subject of a further application for a permit was a matter to be taken into account in deciding whether to issue the new permit, especially where the proposal the subject of the new permit was similar to the subject of the pre-existing permit and the evidence of Mr Gillespie, General Manager, Aquaculture Industry Development, DPI, that when the DPI was considering an application for a second permit in respect of a business on land which had a pre-existing licence then unless there was something distinctly different about the second application, it would normally be expected that the second application on the same site would be approved.

• This evidence supported the conclusion that the male appellants obtained a benefit upon the sale of the land from the advantage of prior approvals conferred on the partnership by the previous activities of the partnership, at the expense of and for the purposes of the partnership, and that by seeking to retain the benefit of the realisation of that advantage, the appellants were in breach of their fiduciary duty to their partners, the respondents. As a result, to the extent that the proceeds of sale of the land reflected the advantage conferred by the partnership activities, the appellants held them on a constructive trust and must account to the partnership.

• The difference between the value of the land when used for farming, $450,000 and the purchase price of $1.1 million was $650,000, 20 per cent of which, namely $130,000, was the advantage conferred on the male appellants by the prior obtaining of approvals and the use of the land as a prawn farm by the partnership. His Honour declared that the male appellants hold the sum of $130,000 on a constructive trust to account to the same for the partnership.

(a) Was there a breach of a fiduciary relationship?

[27] The appellants contend that the primary judge did not define the partnership purpose or property sufficiently to determine if a fiduciary relationship existed, the extent of that relationship and whether it had been breached so as to warrant the interference of the court: see In re Coomber; Coomber v Coomber.[12] They submit the purpose of the partnership was to improve the appellants' property only for the purpose of carrying on the partnership business profitably, not to increase its value on sale; such increase in property value was merely incidental to the partnership, not something for which it was necessary to account to the partners who did not own the land.

[28] In Birtchnell v Equity Trustees Executors and Agency Co Ltd,[13] Dixon J (as he then was) said in discussing the special relationship between partners:

"The relation between partners is, of course, fiduciary. Indeed, it has been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners. 'Their mutual confidence is the life-blood of the concern. It is because they trust one another that they are partners in the first instance; it is because they continue to trust one another that the business goes on' (per Bacon VC in Helmore v Smith [1] (1886) 35 ChD 436, at p 444). The relation is based, in some degree, upon a mutual confidence that the partners will engage in some particular kind of activity or transaction for the joint advantage only. In some degree it arises from the very fact that they are associated for such a common end and are agents for one another in its accomplishment. Lord Blackburn found in this consideration alone sufficient reason for the fiduciary character of the partnership relation (Cassels v Stewart (1881) 6 AppCas at p 79). The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm. Once the subject matter of the mutual confidence is so determined, it ought not to be difficult to apply the clear and inflexible doctrines which determine the accountability of fiduciaries for gains obtained in dealings with third parties."

"In considering the operation of these rules ... it is necessary to begin by ascertaining the subject matter over which the fiduciary obligations extend."[14]

[29] The extent of the fiduciary relationship and whether that relationship has been breached is a question of fact in each case. These issues have been discussed by the High Court in Harvey v Harvey,[15] Chan v Zacharia,[16] and Warman International Ltd v Dwyer.[17]

[30] In Harvey a partnership was formed between the ailing owner of a pastoral property "Fonthill" and his brother and his brother's adult sons. The owner had considered selling "Fonthill" but following an approach from his brother it was orally agreed "Fonthill" would be run by the owner and his brother and sons to give the sons experience in pastoral management and to make the land available in the future for the owner's son then aged 6. The owner and his brother and sons were to carry on a pastoral business on "Fonthill"; the owner was to bring in stock and implements; the brother and sons were to contribute labour and skill but no other capital; the owner was not to be active in the working of the business and the expenses (including the cost of improvements) and the profits were to be divided between the owner on the one hand and the brother and his sons equally on the other. "Fonthill" required improvement in order to carry on the partnership business profitably; there was no express agreement as to whether or not "Fonthill" would be a partnership asset and it was not treated as such in the books of the partnership; nor was there any agreement as to how the improvements were to be dealt with between the partners.

[31] The brother died in 1963 and the partnership and its business was carried on by his sons and the owner. The partnership was determined on 30 June 1967. During the course of the partnership "Fonthill" was improved by substantial clearing and cultivation, erection of fences, construction of dams and sinking of bores.

[32] The Supreme Court held that "Fonthill" had become an asset of the partnership in equity when the partnership was formed and that in accounts to be taken between the partners, its market value as improved from the commencement of the partnership should be allowed to the owner and the present value of the capital improvement effected during the partnership should be divided equally between the owner and the firm.

[33] On appeal to the High Court, Menzies and Walsh JJ, Barwick CJ dissenting, found that the land did not become at law or in equity an asset of the partnership and that the additional value of the pastoral property attributed to the improvements made to it in the course of the partnership business should not be taken into account in the final accounts of the partnership; there is no general principle that in the absence of agreement a partner whose property has been increased in value by the expenditure of partnership money is bound to allow the other partners to share in the increased value.

[34] Barwick CJ said that the questions for determination by the court were firstly what constituted the property of the partnership and secondly what did the business or purpose of the partnership comprise. [18]

[35] This approach was also accepted by Menzies J although his ultimate conclusion differed from that of Barwick CJ. Menzies J formulated the question for determination as:

"... whether, when partnership activity improves the property of one of the partners used for the purposes of the partnership business, and does so pursuant to the partnership agreement and not merely accidentally or incidentally, the additional value of the property, by reason of the improvements made to it, is to be regarded as an asset of the partnership divisible among the partners at the determination of the partnership.

Where the partnership agreement itself makes provision for such an eventuality, that is an end of the matter, but where the partnership agreement is silent, as here, the problem can, I think, only be determined by the application of general principles.

There is authority which shows that where property, contributed by one partner as a partnership asset and for which that partner is credited in the capital account of the partnership, is improved, so that upon the dissolution of the partnership the sale price exceeds the value fixed at the time when the property became a partnership asset, the excess is divisible as profits of the partnership business ..."

[36] Menzies J concluded that on the facts the property did not become in equity an asset of the partnership.[19] It was part of the partnership business to improve the property but:

"In the absence of an express agreement, the only way in which improvements could possibly be regarded as profits divisible among partners would be upon the sale of the improved property. In a case where a property does not become an asset of the partnership but is intended to be retained by one partner after the determination of the partnership it follows that there can be no basis for treating the difference between the value of the property as it was when it was made available for partnership use, and the higher value of the property at the end of the partnership due merely to improvements made by the partnership as a profit divisible among the partners. There can be no profit realized without sale ...

... No express agreement was made concerning any increase of the value of 'Fonthill' arising from the making of the improvements intended to be made and there is no need to imply any agreement as to this matter. The improvements would not only increase the value of 'Fonthill', they would improve the partnership profits. At what point improved profits would exceed the cost of the improvements is a matter of speculation, but no doubt it was present to the minds of H.H. Harvey and H.L. Harvey when they made their agreement. When experienced men can reasonably think it unnecessary to make any express provision about improvements it is not for the court to supplement their agreement."[20]

[37] Walsh J also noted[21] that there was no general principle that a partner whose property has been increased in value by the expenditure of partnership money is bound to allow the other partner or partners to have a share in the increased value and referred to the principle which is now embodied in legislation that a partner is not allowed to retain for himself a private advantage at the expense of the firm.[22] Walsh J added:

"... that provision does not apply so as to impose upon the appellant in this case an obligation to account to the firm for a benefit consisting of an increase in the value of his own property resulting from work which, as was intended by the partners, was carried out by the partnership. Nor is it possible in my opinion to say that there was an implied term in the partnership agreement that all the partners were to have a share in any increase in capital value so produced. ...

It is not necessary to decide that in no circumstances falling short of express agreement could a partner become liable to account for a share in an increase in the value of his property produced by partnership effort. It is sufficient to say that in my opinion there is no general principle that he must do this unless it can be established that there was an agreement to the contrary. In my opinion the circumstances of the present case do not require or warrant a finding that the appellant is liable to such an account." [23]

[38] In Chan, Dr Zacharia carried on business as a medical practitioner at leased premises; in 1979 he entered into partnership with Dr Chan and a new lease of those premises was granted to the partnership. In 1981, Dr Chan dissolved the partnership and declined to join with Dr Zacharia in exercising the option to renew the lease; before the affairs of the partnership had been wound up the owner agreed to lease the premises to Dr Chan. Although the partnership had been dissolved, the trial judge found that any interest acquired by Dr Chan in the new lease of the premises was an asset of the former partnership and was held by him upon constructive trust. In the High Court the majority agreed with that conclusion. Deane J, with whom Brennan (as he then was) and Dawson JJ agreed, found that the lease was an asset of the partnership. Deane J cited[24] with approval the passages to which I have earlier made reference from Coomber and Birtchnell noting that the written partnership agreement between the doctors reinforced the ordinary fiduciary obligations in relation to partnership property, the essential question being whether Dr Chan was entitled to decline to join in an exercise of the option for a further lease and to then obtain and retain the benefit of a new lease of the premises for himself:

"There is a wide variety of formulations, of the general principle of equity requiring a person in a fiduciary relationship to account for personal benefit or gain. The doctrine is often expressed in the form that a person 'is not allowed to put himself in a position where his interest and duty conflict' (Bray v Ford [1896] AC 44 at p 51) or 'may conflict' (Phipps v Boardman [1966] UKHL 2; [1967] 2 AC 46 at p 123) or that a person is 'not to allow a conflict to arise between duty and interest': New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 1 WLR 1126 at p 1129. ... The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement 'in which he has, or can have, a personal interest conflicting ... with the interests of those whom he is bound to protect' (per Lord Cranworth LC, Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq. 461 at p 471) or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed.

The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one 'fundamental rule' embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the 'use of fiduciary position' doctrine is but an illustration or part of a wider 'conflict of interest and duty' doctrine ... the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee: see Keith Henry & Co Pty Ltd v Stewart Walker & Co Pty Ltd [1958] HCA 33; (1958) 100 CLR 342 at p 350. That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed. In some, perhaps most, cases, the constructive trust will be consequent upon an actual breach of fiduciary duty: e.g., an active pursuit of personal interest in disregard of fiduciary duty or a misuse of fiduciary power for personal gain. In other cases, however, there may be no breach of fiduciary duty unless and until there is an actual failure by the fiduciary to account for the relevant benefit or gain: e.g., the receipt of an unsolicited personal payment from a third party as a consequence of what was an honest and conscientious performance of a fiduciary duty. The principle governing the liability to account for a benefit or gain as a constructive trustee is applicable to fiduciaries generally including partners and former partners in relation to their dealing with partnership property and the benefits and opportunities associated therewith or arising therefrom: see ..., ; at p 394."

"Many of the statements of the general principle requiring a fiduciary to account for a personal benefit or gain are framed in absolute terms - 'inflexible', 'inexorably', 'however honest and well- intentioned', 'universal application' - which sound somewhat strangely in the ears of the student of equity and which are to be explained by judicial acceptance of the inability of the courts 'in much the greater number of cases', to ascertain the precise effect which the existence of a conflict with personal interest has had upon the performance of fiduciary duty. ... The principle is not however completely unqualified. The liability to account as a constructive trustee will not arise where the person under the fiduciary duty has been duly authorised, either by the instrument or agreement creating the fiduciary duty or by the circumstances of his appointment or by the informed and effective assent of the person to whom the obligation is owed, to act in the manner in which he has acted. The right to require an account from the fiduciary may be lost by reason of the operation of other doctrines of equity such as laches and equitable estoppel: see, e.g., C_legg v Edmondson_ (1857) 8 De GM & G at pp 807-810. It may still be arguable in this Court that, notwithstanding general statements and perhaps even decisions to the contrary in cases such as Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 and Phipps v Boardman {1967} 2 AC 48, the liability to account for a personal benefit or gain obtained or received by use or by reason of fiduciary position, opportunity or knowledge will not arise in circumstances where it would be unconscientious to assert it or in which, for example, there is no possible conflict between personal interest and fiduciary duty and it is plainly in the interests of the person to whom the fiduciary duty is owed that the fiduciary obtain for himself rights or benefits which he is absolutely precluded from seeking or obtaining for the person to whom the fiduciary duty is owed: cf. Peso Silver Mines Ltd (NPL) v Cropper (1966) 58 DLR (2d) 1, at p 8."[26]

[40] In Warman, the company carried on a business which included an agency for the distribution of Italian gearboxes. Dwyer was Warman's Queensland general manager. The Italian company informed Warman that it was considering a joint arrangement for the local assembly of its products in Australia but Warman was not interested. Dwyer negotiated with the Italian company and declined an offer from Warman to purchase the agency's division. Dwyer incorporated companies and the staff of Warman's Queensland branch left Warman to work for a new joint venture between the Italian company and Dwyer, his wife and their companies. Dwyer's business was successful and he was sued by Warman for an account of profits.

"A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves 'at a level higher than that trodden by the crowd'. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage.

Thus, it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken ...

The assessment of the profit will often be extremely difficult in practice; accordingly it has been said that '[w]hat will be required on the inquiry ... will not be mathematical exactness but only a reasonable approximation'. What is necessary however is to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty." [27]

[42] A partnership existed between the appellants and respondents to commercially farm prawns and consequently they were in a fiduciary relationship: see Birtchnell.[28] The partnership had not been dissolved and may have become active at some future time. There is no general principle that in the absence of agreement where property belonging to one partner has been increased in value by the partnership business the other partner is entitled to share in the increased value: see Harvey. Whether the fiduciary partnership relationship has been breached will depend on the application of the principles of law I have set out to the facts of the case. This case on its facts differs from Harvey and is more analogous to Chan where the lease, an asset of the former partnership, was wrongly used by a former partner for personal gain.

[43] On the findings of the learned primary judge, the current permit Q200 was partnership property obtained to further the partnership business which was to farm and market prawns. The contract of sale between the male appellants and the purchaser, without consultation with the respondents, required that on the date for completion of the contract the purchaser must pay the balance purchase price to the appellants in exchange for, amongst other things, the original permit for aquaculture Q200.[29] The appellants therefore used partnership property to obtain a personal benefit, namely the sale of their property to the purchaser at a value beyond its value were it not licensed and previously used for commercial prawn farming. In so doing, the male appellants breached the fiduciary relationship which existed between the parties. The appellants must account to the partnership for this benefit which they now hold as constructive trustee for the partnership.[30] There is nothing in this case to place it within the exceptions to the liability to account noted by Deane J in Chan.[31]

[44] The learned primary judge sufficiently defined the partnership purpose, which was to farm and market prawns, in order to determine that the male appellants' use of the licence Q200 and the previous use of the property by the partnership for commercial prawn farming to obtain a higher price for the sale of their property without account to the partnership, breached their fiduciary relationship with the respondents so as to warrant the interference of the court. Once that is so, it is irrelevant that the increased value of the appellants' property was not a purpose of the partnership but was incidental to it. Accordingly the benefit so received by the male appellants is held by them on a constructive trust for the partnership.

(b) Did the partnership's prawn farming activities and approvals increase the value of the property?

[45] The appellants claim that the primary judge erred in concluding that the activity of prawn farming carried out by the partnership enhanced the value of the property.

[46] As has been noted, his Honour found the evidence of Vickery, Haylock, Craven, Elmer and Gillespie supported a conclusion that the partnership's prior prawn farming and approvals made the male appellants' property more valuable to the purchaser.

[47] The appellants claim such a finding was unsupportable. Firstly, they claim this evidence conflicted with that of Lobegeiger, the Supervising Extension Officer with DPI, who his Honour found to be an impressive witness. Lobegeiger concluded that there was no significant advantage to any purchaser of a prawn farm because of a prior permit; the existence of the permit Q200 did not cause the application to be expedited; nor did it render unnecessary the provision of information otherwise required to obtain a new permit. His Honour did not accept Lobegeiger's evidence on this point because Lobegeiger was concerned with the technical assessment of the suitability of the site rather than the environmental considerations. It could also have been noted that Lobegeiger worked at a level below a review group and below Gillespie, the General Manager, Aquaculture Industry Development.

[48] His Honour was entitled to reach that conclusion on the evidence.

[49] His Honour also rejected Donovan's evidence on this issue and gave sound reasons for so doing.

[50] Complaint is made by the appellants of his Honour's comment that:

"... there was evidence (notwithstanding what appears to be the clear requirement to the relevant regulation that an environmental impact statement is mandatory in the case of an application of this nature) a decision was taken by the Department to waive the requirement of an environmental impact statement in respect of the application for this licence (Ex 34), at least unless and until the project extended beyond what was initially constructed."

[51] In order to prawn farm commercially an authority was required under s 35A of the Fishing Industry Organisation and Marketing Act 1982. An application for such a permit must comply with the conditions prescribed by the regulations.[32] In 1990, when Reck and Paton applied for a permit, the Fishing Industry Organisation and Marketing Regulations 1983, s 19(2), required that "an application for a permit for aquaculture purposes shall be accompanied by an environmental impact statement giving specifications of the nature and extent of the aquaculture methods which the applicant intends to use and documentary evidence of the applicant's ability to finance and carry out the proposed aqua culture activities at an efficient level." Attached to the application for an aquaculture permit lodged by Reck and Paton was a document entitled "Queensland Department of Primary Industries EIS Report"; it was a simple document, not an expert EIS.

[52] The later Fishing Industry Organisation and Marketing Regulations 1991, 18(1), which applied to the application for permit made by the purchasers in 1993 required that the application be accompanied by an EIS which must include details as to the considerations listed in reg 18(1)(a)(i)-(vii) together with an economic feasibility study.

[53] The purchasers attached to their application a two page summary of impact briefly answering the matters set out in reg 18(1)(a)(i)-(vii) so that an EIS of a sort was provided by the purchasers, but again not an expert EIS. If this document was an EIS as required by regulation 18 then the statement in the briefing note from DPI to the Ministers of 1 April 1993[33] and the evidence of Gillespie[34] in context is to the effect that no further or more detailed EIS involving expert environmental consultants was required at that stage.

[54] His Honour did not decide whether or not the purchaser's EIS complied with the Regulations (which his Honour seems to have mistakenly assumed were the 1983 Regulations[35]); it was unnecessary to do so. His Honour was entitled to conclude that the document lodged with the purchasers' permit application was deemed sufficient to meet the requirements of the Regulations and to grant the permit without a more detailed expert EIS, in part because of the existence of the permit Q200 and its attachments and the partnership's earlier aquaculture on the land.

[55] The learned trial judge was entitled to conclude that the partnership's approvals and prawn farming activities enhanced the value of the land owned by the male appellants at the time of sale. The contract itself supports that conclusion as do other documentary exhibits, Gillespie's evidence and Donovan's conduct both before and after the sale. The partnership's permit and its earlier prawn farming operation on the land improved the purchaser's prospects of successfully, speedily and inexpensively obtaining a permit for their commercial prawn farming venture; as a result the male appellants' land was more valuable to the purchasers than other similar land without the prior approval and prawn farming operation.

[56] The appellants also claim the assessment of quantum was excessive. His Honour assessed the profit for which the appellants must account to the partnership as $650,000 and reached that figure in the following way. The difference between the value of the land as used for farming, $450,000, and the purchase price received by the appellants, $1.1 million, was $650,000. That finding is not disputed. Twenty per cent of that amount, $130,000, was due to the pre-existing partnership aquaculture venture and the permit relating to it.

[57] The effect of those factors on the increase in value of the appellants' land and the amount for which account must be made will often be imprecise: see Warman.[36] The primary judge had to do his best on the evidence before him, which properly allowed the judge to conclude the figure of $130,000 was the value of the pre-existing partnership aquaculture venture and the permit relating to it. No proper grounds for criticising the approach taken by the primary judge have been established and I would not interfere with that assessment.

[58] It follows that I would dismiss the appeal with costs.

[59] DAVIES JA and WHITE J: This is an appeal from a judgment of the District Court ordering that the male appellants, the male defendants in the action, hold the sum of $130,000 being part of the proceeds of the sale of land on a constructive trust to account to the same for a partnership established pursuant to a partnership deed between the appellants and the respondents. His Honour also made orders declaring that the partnership was dissolved and ordering that an account be taken of the partnership. There is no appeal against that declaration or order.

[60] We have had the advantage of reading the reasons for judgment of the President. We agree with her that this appeal must be dismissed. However as our reasons for reaching that conclusion differ from hers we shall set them out in full.

[61] For many years prior to 1988 the male appellants had been the owners of approximately 144 hectares of land in the Bundaberg district, bordering on Littabella Creek, on which they had conducted a farming business and on which they and their wives, the other appellants, lived. On 1 July 1988 the appellants and the respondents entered into a partnership in the interests of two-thirds and one-third respectively for the farming of prawns, of the variety penaeus monodon, on part of that land. From 27 February 1989 that partnership was conducted pursuant to a partnership deed of that date which provided that it be carried on in the district of Bundaberg and at such other place or places as the partners might from time to time agree and that it should continue until determined by notice in writing given by any partner to the others as provided therein.

[62] In order to carry on the business of prawn farming the partnership required a number of approvals. The first of these was an aquaculture permit under the Fishing Industry Organisation and Marketing Act 1982 and in this respect attention was focussed on aquaculture permit Q200, still in force in the names of two of the partners, the appellant Arthur Leslie Reck and the respondent Hector Robert Paton, at the time of the sale referred to below. The others were a processor's licence and a certificate of registration, also under the Fishing Industry Organisation and Marketing Act, and a licence under the Clean Waters Act 1971 permitting the discharge of effluent into Littabella Creek. All of these, except the aquaculture permit, had expired at the time of the sale. But the most important of these, by far, was the aquaculture permit; it permitted the purchase of post larval prawns from hatcheries, their transport from the hatcheries to the subject land, their aquaculture in dams, ponds or tanks on the land and their harvest and sale.

[63] The partnership business continued until 1991 when it ceased to operate. It had been financially unsuccessful due mainly, it seems, to lack of capital. Nothing in the failure of the business reflected adversely on the physical or legal capability of the land for the farming of prawns. Notwithstanding the cessation of the business, the partnership did not dissolve, the parties leaving open the possibility that the business might later be revived if circumstances changed. It remained in existence at the date of sale of the land referred to below.

[64] The partnership deed did not provide that the land, or that part of it used for the partnership business, was to become partnership property and it was not so treated in the books of account of the partnership. Indeed the respondents did not allege that the land or any part of it became partnership property. What they did allege, with perhaps some circularity, was that it was the parties' intentions that the male appellants hold the partners' interests in improvements constructed on the property upon trust for the partners in proportion to their entitlements under the partnership deed. However it may be unnecessary to consider this further. No question of entitlement to fixed improvements arises in this appeal.

[65] By a contract dated 31 January 1993 the male appellants sold the land to a third party, who intended to farm prawns on the land, for $1.1M. At all relevant times Mr Donovan, a person experienced in the aquaculture industry, was acting as agent for the purchaser. He had initially made the male appellants an offer of $750,000 which they had rejected. He then made a further offer in writing of $1.1M on 6 January 1993. This then resulted in the execution of the contract dated 31 January 1993.

[66] The purchaser was interested in farming principally a different variety of prawn, penaeus japonicus, although it also contemplated farming penaeus monodon. The scale of the purchaser's proposed operation was greater than that of the partnership, utilizing much larger ponds in a different location. However it had in common with the partnership's operation the use of the tidal waters of Littabella Creek.

[67] The principal question at trial and the sole question in this appeal, put generally, is whether the male appellants were liable to account to the partnership for any and if so what part of the sum of $1.1M on the basis that they held it upon a constructive trust for the partnership. The learned trial judge answered that question in the affirmative and held that the male appellants were liable to account to the partnership for the sum of $130,000, part of the sum of $1.1M.

[68] His Honour arrived at that sum in the following way. The value of the land, at the time of sale, as farm land, that is leaving out of account its potential for use as a prawn farm, was $450,000. This meant that the purchaser paid more than $650,000 for, to put it neutrally, that potential. It was in fact more than $650,000 because, in addition to the purchase price of $1.1M, the male appellants received by the contract of sale a right to excise from the land and retain two one hectare house blocks and a lease of about half the land sold for five years, with an option for an additional five years, at a nominal rental. His Honour then said that he would attribute 20 per cent of that premium of $650,000 to the advantage conferred by prior approvals for and use of the land as a prawn farm by the partnership. But it is clear that by prior approvals his Honour included the aquaculture permit existing at the date of sale. This yielded a figure of $130,000 for which, his Honour said, the male appellants must account to the partnership.

[69] The issues in this appeal are whether his Honour was correct in identifying the facts that the land had previously been used in part for a prawn farm with the necessary approvals and that it was currently (ie at the time of sale) covered by a permit allowing use as a prawn farm as matters for which a proportion of the premium of $650,000 was paid (ground 4 of the notice of appeal); if yes, whether it was equitable, in those circumstances, for the male appellants to retain the whole of that sum (grounds 2 and 3); and if no, whether the sum of $130,000 was an appropriate estimate of the amount for which the male appellants were liable to account to the partnership (ground 5).

[70] The first of these issues is a contested question of fact which lies at the heart of this appeal. However in order to resolve the second and third issues it is necessary to pose that factual question more broadly.

1. What factors caused the purchaser to pay $650,000 more than the market value of the land as farming land?

[71] The statement of the question in this way assumes, as the learned trial judge found, that $450,000 was the value of the land for its highest and best use other than as a prawn farm, that is as farming land. That finding is not contested in this appeal.

[72] His Honour answered this question by saying that the factors were that the land had physical advantages which made it particularly suitable for prawn farming, that prawn farming had previously been carried on on the land, that all necessary approvals had previously been obtained for that purpose and that the principal approval necessary for that purpose was still current. And, as already mentioned, his Honour went on to hold that the appellants must account to the respondents for that part of the $650,000 attributable to all except the first factor.[37]

[73] His Honour's reference to the fact that prawn farming had previously been carried on on the land was plainly intended as no more than a reference to the fact that the land had been legally (as opposed to merely physically) capable of being used as a prawn farm; for it was the difference between land which was physically suitable for use as a prawn farm and land which also had had the benefit of the necessary approvals for that purpose, and retained the major approval for that purpose, thereby increasing the likelihood that it could, again, be legally used for that purpose, which his Honour sought to value in arriving at the sum of $130,000. It is convenient therefore to refer to the factors which demonstrated the physical capability of the land for use as a prawn farm and those which demonstrated its likely legal capability for such use.

[74] His Honour accepted that the first of these factors, the physical suitability of the land, was the major factor. That is why he attributed 80 per cent of the $650,000 to it. There is no dispute that this was the major factor.[38] The appellants contend that his Honour ought to have found, in effect, that it was the sole factor. That was the effect of the evidence of Mr Donovan the purchaser's agent, the only person who could give direct evidence on this question.[39] And he had provided the appellants, at their request, with a letter, apparently with this litigation, or at least the dispute leading to it, in mind, saying, amongst other things, that permits held by the partnership were of no use to the purchaser.

[75] However his Honour thought that Donovan was an unsatisfactory witness in a number of respects and found him to be somewhat partisan. There can be no doubt that his Honour was justified in reaching that conclusion and the appellants did not contend to the contrary. His Honour rejected Donovan's evidence in the above respect. He then turned to other evidence from which he might draw inferences as to whether any part of the $650,000 was attributable to factors other than the physical suitability of the land for farming prawns.

[76] There were two kinds of evidence from which his Honour inferred that the fact that the land had been legally capable of being used as a prawn farm and, more specifically, the existence of permit Q200, were factors contributing to the premium of $650,000. The first was evidence of the contractual negotiations and the contract itself. And the second was expert evidence which tended to show that these would be factors which would be likely to increase the amount which a prospective purchaser would pay. In assessing the evidence of both of these kinds Mr Donovan's experience in the aquaculture industry since the beginning of 1989, including his prior dealings with departmental officers, was a relevant consideration.

[77] The initial proposal from the purchaser to purchase the land for $1.1M, which was dated 6 January 1993, was expressed to be made subject, amongst other things, to "DPI aquaculture permits being transferred to the purchaser" and "any other approvals, licences, permits etc necessary for the purchaser to operate the land as a P. Japonicus farm being granted". The first of these conditions was plainly a reference to aquaculture permit Q200, as it was then known by the purchaser (Donovan) that it was still current but that all other approvals had expired. It is likely that, at that stage, Mr Donovan did not know that the aquaculture permit was not capable of assignment. Indeed on 25 January he wrote to the Department of Primary Industries (Mr Lobegeiger) submitting an application for transfer of the permit to the proposed purchaser.

[78] By the time the contract of sale, dated 31 January 1993, was executed, Mr Donovan claimed to have known that the aquaculture permit was not capable of assignment. That seems to be contradicted by a provision in the contract which provided that the purchaser would pay the purchase price in exchange for, amongst other things "the Original Permit for Aquaculture No Q200 and any permitted assignment of the permit in favour of the Purchaser".[40] The contract also provided that it was conditional upon, amongst other things, "obtaining a Permit for Aquaculture in similar terms to that referred to in" the provision just quoted. And "obtaining approvals, licences or permits necessary for the Purchaser to operate a prawn farm on the Land".

[79] Whether or not by then Donovan knew that the aquaculture permit was not capable of assignment, the purchaser plainly still saw some advantage in obtaining possession of Aquaculture Permit No Q200 and, if that were possible, an assignment of it. Put more generally, it apparently saw some advantage in the demonstration by the permit of the legal capability of the land for use as a prawn farm.

[80] It is not clear how, if the aquaculture permit had been capable of assignment, the male appellants would ever have been capable of complying with the requirement that it be assigned for, as has been mentioned, it was in the joint names of the appellant Arthur Leslie Reck and the respondent Hector Robert Paton. Nor does it appear from the evidence how the male appellants complied with the requirement in the contract to hand over the aquaculture permit.

[81] On the evidence which the learned trial judge accepted, and which he was plainly entitled to accept, the purchaser would have been correct in thinking that the previous legal capability of the land for use as a prawn farm, and the currency of the aquaculture permit which, it might reasonably have been thought, evidenced its current capability for that use, were advantages to it in obtaining whatever approvals were necessary to enable it to farm prawns, of the kind and in the way which it intended. That evidence came from a number of sources.

[82] Mr Vickery, the solicitor who acted for the purchaser, who was considerably experienced in agricultural conveyancing, expressed the opinion that it would clearly be of some benefit when a person required a permit for a particular use on land that a permit had previously been granted in respect of that use on that land because it established that the land had previously had the legal capability of such use. His evidence was supported in its application to this case by Mr Haylock, an environmental consultant with considerable experience both in government and private industry, Mr Elmer and Mr Gillespie, officers of the Queensland Fisheries Authority and the Department of Primary Industries respectively.

[83] Those opinions seem to be common sense. It would be surprising if Mr Donovan, although his evidence was to the contrary,[41] did not also hold that opinion. He had been involved in the aquaculture industry for some years including the obtaining of approvals for that purpose and in that capacity had had previous dealings with government officers. And it may be inferred that it was he who had formulated the proposal to purchase dated 6 January 1993 and negotiated the terms of the contract dated 31 January 1993.

[84] Mr Donovan was unable to give any sensible reason for his failure to approach the appellants' neighbour or any of the other owners of properties downstream of the appellants' property on the northern side of the creek after the appellants had rejected his initial offer of $750,000, notwithstanding that those other properties appeared to Mr Lobegeiger,[42] to have the same physical capability for use for prawn farming as the appellants' land. An obvious explanation for this, which, it may be inferred, Mr Donovan was reluctant to give because of his bias, was that the likely legal capability of the appellants' land made it more desirable, from the point of view of the prospective purchaser, than any of those other properties.

[85] The prior existence of all approvals for the purpose of prawn farming on the land, the continued existence, up to the date of sale, of the aquaculture permit and, to a lesser extent, the prior legal use of the land as a prawn farm would have indicated to a purchaser, and probably did so in this case, that the necessary approvals for use of the land as a prawn farm would be more likely to be granted than if those facts had not existed and that, because of those facts, the course of obtaining those approvals would be easier than if they had not existed. In our opinion therefore there was an adequate basis for his Honour's conclusion that part of the $650,000 premium, albeit a minor part, was attributable to the likely legal capability of the land of use as a prawn farm. We turn then to the second issue.

2. Was it inequitable, in those circumstances, for the male appellants to retain the whole of the premium of $650,000?

[86] The learned trial judge saw some analogy between this case and the facts considered in Harvey v Harvey[43] but distinguished that case on its facts and expressed the view that, in the light of subsequent cases, particularly Chan v Zacharia[44] and Warman International Ltd v Dwyer[45] the continuing authority of that decision may be doubtful. The facts in that case are, indeed, similar in a number of respects to those in this.

[87] In Harvey the parties entered into a grazing partnership on land owned by one of the parties and that partnership, although only a partnership at will, continued for more than 20 years. The agreement between the parties required the non landowning partners to contribute labour and skill and provided that other expenses would be borne by the partnership. It was common ground that the property required substantial improvement and that occurred. Upon dissolution of the partnership the primary question was whether the land had become a partnership asset. There was no express agreement to that effect and it had not been treated as such in the books of account. Nevertheless the minority judge, Barwick CJ, held that it had. His Honour said that the business of the partnership included the extensive improvement of the property by the expenditure thereon of money, skill and labour and by that use to make divisible profits.[46] He then reasoned from that that the partnership acquired the beneficial interest in the land.[47]

[88] The majority judges, Menzies and Walsh JJ reached a contrary conclusion, substantially because it was plain from the negotiations which led up to the making of the partnership agreement that the landowning partner intended to retain the property for his young son, if he wanted it, when the partnership came to an end.[48] Their Honours also relied, for this conclusion, upon the absence of any reference to the land in the partnership accounts.[49]

[89] Of greater relevance to this case was the alternative conclusion, on the basis that the land did not become the equitable property of the partnership, as to whether, on any other basis, the landowning partner was accountable to the partnership for any benefit which he would have as the beneficial proprietor of the land which was created or produced by partnership expenditure of money or effort.[50] Barwick CJ accepted as a correct statement of principle that no partner can retain for his sole benefit the product of the necessary expenditure of partnership money and effort in the conduct of the partnership generally. He therefore concluded that the landowning partner, in the taking of accounts, should be debited with half the added value of the land brought to it by the improvements effected by the partnership in the carrying on the partnership business.

[90] The majority also disagreed with this conclusion. Menzies J thought that, in the absence of express agreement, the only way in which improvements could possibly be regarded as profits divisible among the partners would be upon the sale of the improved property and realisation of the profit.[51] On the contrary, as his Honour found, the common intention had been that the landowner partner would retain the property upon the conclusion of the partnership. Walsh J found it unnecessary to decide whether, in circumstances falling short of express agreement, a partner could become liable to account for a share in an increase in the value of his property produced by a partnership effort. He found it sufficient to say that there was no general principle that such a partner must so account unless it can be established that there was an agreement to the contrary.[52] However it may be inferred from the reasoning of Menzies and Walsh JJ, in this respect, that the result of the case may have been different had the landowning partner terminated the partnership, not to retain the land but to sell it, and had sold it accordingly, or if he had sold it during the existence of the partnership.

[91] There is therefore some similarity between that case and this and between the alternative conclusions in that case, referred to in the last two preceding paragraphs, and the application of equitable principles to this case. Both concern the question whether one partner is entitled to part of a sum apparently representing the value of land owned by the other. However, unlike Harvey, this case is concerned, not so much with an equitable interest in the land of one partner, retained by him upon dissolution of the partnership as the partnership contemplated it would be, as with part of an unapportioned sum of money received during the currency of the partnership partly for sale of such land and partly for the benefit conferred on the purchaser by the past and present approvals. For reasons which appear below, those facts distinguish this case from Harvey.

[92] Because it is distinguishable, it is unnecessary to consider whether Harvey would be decided differently today. But the learned trial judge was correct in implying that the notion of a constructive trust as a remedy for breach of fiduciary duty and for unconscionable conduct has developed and expanded considerably since that case was decided. In addition to Chan and Warman International reference may be made in this respect to Muschinski v Dodds[53] and Baumgartner v Baumgartner.[54]

[93] There is no doubt that, as partners, the male appellants owed fiduciary obligations to the respondents during the currency of the partnership. Nor could it be disputed that the approvals obtained to enable the land to be lawfully used as a prawn farm were obtained for the benefit of the partnership to be held for the benefit of the partners at least for the duration of the partnership. It is unnecessary to explore the question, where land beneficially owned by a former landowning partner had been used in a partnership business, whether, and if so in what circumstances, upon sale of the land after termination of the partnership, that part of the consideration which represented the benefit of prior approvals for the use of that land for that business would be received by the landowning former partner beneficially. In circumstances where, as here, the partnership continued in existence at the time of sale and the partners had not abandoned the possibility that the business might be revived, it was inequitable for the appellants, upon the sale of their land used in the partnership business, to retain for themselves that part of the sum which represented the benefit which the purchaser would receive from the approvals, past and continuing, obtained by and for the partnership, notwithstanding that the respondents themselves could never have sold that benefit.

[94] The learned trial judge was correct, in our view, in seeing an analogy between this case and Ravinder Rohini Pty Ltd v Krizaic.[55] In that case a hotel owner and a developer experienced in the redevelopment of hotels entered into an agreement to investigate the possibility of developing the hotel. It was contemplated that they would enter into an equal partnership for that development, if it became feasible, to which the hotel owner would contribute the hotel property and the other party the development expertise and work, the money costs to be shared equally. Pursuant to that agreement and in anticipation of the partnership the parties, at their joint cost, engaged an architect, had preliminary plans prepared and applied for development approval. After the approval was obtained the parties fell out, the proposed partnership did not proceed and the hotel owner sold the property with the approval. It was held that $440,000 of the purchase price represented the increased value which the approval brought. The Full Court of the Federal Court held, by a majority, that that sum of $440,000 was held in trust for the parties jointly and upheld a judgment for the developer for $220,000 on the basis that it was inequitable for the hotel owner to appropriate for himself the consideration for that benefit.

[95] Mr Bell QC for the appellants sought to distinguish that case on the basis that one of the principal purposes of the proposed partnership was the obtaining of the approval, for the amount representing the value of which it was held the hotel owner was liable to account. On the contrary he submitted, in the present case, the primary business of the partnership was the carrying on of prawn farming and the obtaining of the approvals was merely incidental to that purpose. Mr Bell did not contend that the decision in Ravinder Rohini was wrong. Consequently, he conceded, this appeal turned on this distinction.

[96] In our view that is not a valid distinction. The critical fact in each case is that one partner or proposed partner[56] sought to retain for himself the whole of a sum of money, part of which had been paid on account of a benefit which had been obtained by and for the partnership. In our opinion the principle applied in that case is equally applicable here.

[97] There is, of course, a valid distinction between that case and this. There, because the approval was capable of transfer, the land's capability of lawful development in the hands of the purchaser was certain. Here, because some approvals had expired and the principal approval was not capable of transfer, the land's capability of lawful use as a prawn farm in the hands of the purchaser was not certain; but the existence of all prior approvals and the currency of the principal approval increased the likelihood of that capability and of its prompt realisation. The distinction, then, is one of degree rather than of kind.

3. Was the learned trial judge wrong in his estimate of the sum of $130,000 as the amount for which the male appellants were liable to account to the partnership?

[98] Two points should be made, at the outset, about this estimate. The first is that the evidence about this was unsatisfactory but it was, in effect, rightly conceded by the appellants that the learned trial judge had to do the best he could on that unsatisfactory evidence to arrive at an appropriate figure. Secondly although this question was put in issue on appeal the submission was simply that $130,000 was too high; no attempt was made to justify some lower estimate.

[99] Of course the appellants submitted that nothing was paid for the benefit of the likely legal capacity of the land for prawn farming because Mr Donovan said nothing was paid for it and because the contract was conditional upon consents being obtained. However, as has already been pointed out, the terms of the offer proposal of 6 January and the contract itself show that the purchaser considered that benefit to be of value and there is expert opinion which supports the correctness of that view. The submissions of the appellants on this issue are of no assistance in determining what that value should be.

[100] The evidence of one of the valuers, Mr Roffey, although unsatisfactory in some respects, at least gave guidance as to how the existence of appropriate approvals, and the consequent likelihood of future approvals being granted, increased the consideration which a purchaser would pay. And the evidence of the other valuer, Mr Slater, of two sales of a parcel of land near Cairns, the first unconditional, the second conditional on all approvals for this purpose, showed that a substantial increase in value was attributed to those approvals. From this his Honour was justified in obtaining some guidance as to the extent to which the likelihood of approval for this purpose, to be inferred from past approvals and the existing principal approval, also increased the value to the purchaser of the subject land. He was also correct in comparing, as he did, the value of this benefit with that of the other benefit for which, together, the premium of $650,000 was paid. The measure, of the increase cannot be based on any mathematical considerations. No error of principle was pointed to in the course which his Honour took in arriving at this estimate and we cannot be satisfied that it was wrong.

[101] For those reasons we would dismiss the appeal with costs.

[11] The purchasers' permit application was dated 21.1.93 on the first page but signed on the final page and dated 28.1.93.

[12] [1911] 1 Ch 723, 729. This case was a dispute between mother and son as donor and donee, not partners.

[13] [1929] HCA 24; (1929) 42 CLR 384 at 407.

[15] [1970] HCA 11; (1970) 120 CLR 529.

[16] [1984] HCA 36; (1984) 154 CLR 178.

[17] [1995] HCA 18; (1995) 182 CLR 544.

[22] See, for example, Partnership Act 1891 s 32.

[27] Mason CJ, Brennan J (as he then was), Deane, Dawson and Gaudron JJ at 557-558.

[29] Contract, cl 4.1(9) and see cl 29(1).

[30] See Chan fn 16 at 198-199 and Warman fn 17 at 557-558; Partnership Act 1891, s 32.

[34] Summarised in these Reasons [26].

[37] Ground 4 of the notice of appeal and at least some parts of the appellants' argument state his Honour's finding too narrowly in this respect.

[38] Mr Lobegeiger, a technical officer with the Department of Primary Industries had recommended the land to Mr Donovan as ideal for the farming of penaeus japonicus, the particular variety of prawns that the purchaser was interested in farming.

[39] He conceded no more than that a transfer of the existing aquaculture permit Q200, had it been transferable, would have eased and sped up the licensing and approvals process; and that he would have used the prior approvals "as a reference" in his dealings with the Department of Primary Industries.

[40] And possibly also by his letter of 25 January which was presumably written after the parties had agreed on the sale.

[41] The learned trial judge specifically rejected his evidence in this respect.

[42] See fn 38. Mr Donovan had sought Mr Lobegeiger's advice in respect of this purchase.

[43] [1970] HCA 11; (1970) 120 CLR 529.

[44] [1984] HCA 36; (1984) 154 CLR 178.

[45] [1995] HCA 18; (1995) 182 CLR 544.

[53] [1985] HCA 78; (1985) 160 CLR 583.

[54] [1987] HCA 59; (1987) 164 CLR 137.

[55] [1991] FCA 318; (1991) 30 FCR 300.

[56] In Ravinder Rohini it was an associated entity; in the present case it was two of the partners.