Introduction and overview
5These three appeals, which were heard together, concern a partnership dispute between family members in relation to events going back to 1975 and extending from that year. The existence or enforceability of the partnership was disputed by the appellants at trial. However, it is now common ground that the partnership commenced on 1 August 1975 and operated a grocery business and a butchery business, located in close proximity to each other, in Haymarket in Sydney.
6The dispute centres on the conduct of the late Kut Sze Tu (KST), the family patriarch and managing partner. It is alleged that he stole money belonging to the partnership and used it to acquire in his own name, and in the names of some of his children, three real properties - at Haig Street, Maroubra in 1978 (Haig Street), at Maroubra Road, Maroubra Junction in 1983 (Maroubra Road), and at Queen Street, Campbelltown in 1988 (Queen Street). By June 1989 the businesses the subject of the partnership had been sold or closed at the direction of KST. No accounting in respect of the partnership was ever provided by KST, nor had it been sought by the other partners prior to his death on 20 October 1997.
7On 7 November 2005 a proceeding by two of the partners was commenced against KST's Estate, the other partners, and a number of family members. By this proceeding claims were made regarding KST's conduct in relation to the use of money belonging to the partnership and the title of KST's Estate, and of other family members, as registered proprietors of the three properties. The relief sought included declarations that the three properties were held on trust for the partnership and an account of profits to the partnership in respect of those properties.
8As will be seen, the proceeding had an unfortunate procedural history. After a lengthy trial on eight identified issues on liability, the primary judge (Smart AJ) was unable to continue due to ill health. A "fresh trial" before another judge was subsequently ordered by the Chief Judge in Equity, limited to three issues which had not been determined by Smart AJ - namely, the dissolution of the partnership; the existence of fiduciary duties, if any, owed by KST to the partners and breaches of any of those duties; and whether the three properties were held on trust.
9The second judge (Gzell J), before whom the fresh trial took place, characterised the plaintiffs' trust claim differently to the conclusion reached by Smart AJ. Whereas Smart AJ seems to have found an express trust, Gzell J found an institutional constructive trust. He did not however revisit certain defences to the plaintiffs' claim which had been determined by Smart AJ adversely to the defendants.
10Gzell J held that each of the three properties was acquired by KST using partnership funds (as to 90% of the purchase price) and thus KST had breached the fiduciary duties he owed to the partnership, including to the plaintiffs. His Honour made declarations that (a) 90% of the interest of the appellants and KST's Estate in the three properties, or their net proceeds of sale (as two of the properties had since been sold), were held on trust for the partnership; and (b) 90% of any profits from the three properties, after just allowances (if any) since the date of their acquisition, were held on constructive trust for the partnership. His Honour ordered that the partnership be dissolved pursuant to s 35 of the Partnership Act 1898 (NSW). He also ordered that an inquiry be held to identify what moneys the plaintiffs were entitled to (and from whom) by way of an account of profits. The appellants were ordered to pay the plaintiffs' costs of the proceeding, including the proceeding before Smart AJ, except in two limited respects: Lowe v Pascoe (No 6) (Supreme Court (NSW), Gzell J, 13 March 2013, unrep) (GJ2).
11Many of the issues at trial were raised again and debated in written and oral submissions on the appeals. Some of the parties also sought to raise new points on appeal. Unsurprisingly this drew strong objection from the opposing parties. The multitude of issues on the appeals reflected, in part, the fact that the proceeding had been vigorously contested at trial and no issue seems to have been left unturned.
12As will be seen, the appeals may be disposed of without deciding all of the issues which have been raised. Before outlining the factual background it is convenient to identify the parties to the appeals and the general nature of the case.
[2]
The parties to the appeals
13The active parties to the appeals, in the order in which they were argued on the hearing, were the appellants Shiu Shing Sze Tu (Sunly) and Shiu How Sze Tu (Gordon) in the first appeal, Margaret Sze Tu (Margaret) in the second appeal, and Helen Sze Tu (Helen) in the third appeal. Geoffrey Lowe (Geoffrey) and his wife, Mary Lowe (Mary), as first and second respondents to each appeal (and plaintiffs below), were the only active respondents at the hearing. It is convenient to use the parties' first names, and in doing so I intend no disrespect.
14The third respondent to each appeal, Scott Pascoe (Administrator), is the administrator of the Estate of the late Kut Sze Tu (Estate). The Administrator did not appeal against the decision below. Nonetheless he filed written submissions on two issues: first, the defence of laches; and secondly, various accounting errors said to have been made by Gzell J in drawing the inference that only 10% of the total cost of acquiring the three properties represented KST's own moneys.
15The Administrator's standing to challenge factual findings of Gzell J in the absence of an appeal against the decision below was challenged by Geoffrey and Mary. Senior counsel for the Administrator appeared at the commencement of the appeals and stated that he did not seek to be heard, as the matters raised in the Administrator's written submissions were otherwise to be addressed by the appellants. Counsel for the Administrator accepted that, to the extent that the Administrator's submissions were not advanced by the other appellants, then they were not pressed by the Administrator. In these circumstances the Administrator's submissions may be put aside and attention needs only to be given to the submissions of the appellants.
16The sixth respondent, Janet McNamara (Janet), filed a submitting appearance and did not appear on the hearing of the appeals. This was also her position at trial, after leave had been given for her to withdraw her defence.
17The seventh respondent, Stella Sze Tu (Stella), is the representative of the Estate of the late Chow Fung Chun (F C Chow), the second wife of KST. Stella appeared in person, but did not advance any written or oral submissions on the appeals. At trial Stella had filed a submitting appearance.
18It should be observed that neither Janet nor F C Chow is a registered proprietor of any of the three properties the subject of the dispute. Their joinder to the proceedings arose solely from their interest as a partner in the family partnership.
[3]
The nature of the case
19Geoffrey and Mary characterised the dispute as a simple case. They contended that KST had used partnership funds to buy the three properties for himself and four of his children, that they found out about this, at the earliest, in November 2001, and that the properties were held on trust by the Estate and the relevant appellants for the partnership. They also said that the partnership had not been dissolved prior to the commencement of the proceeding in November 2005, and that the partnership was entitled to an account of profits in the form of the proprietary and accounting relief ordered by Gzell J. They said that these were purely equitable remedies which were not barred by any defence of delay based on the Limitation Act 1969 (NSW), or the equitable defence of laches, acquiescence, or delay, or by any conventional estoppel, which the appellants had relied upon at trial.
20The appellants disputed both the factual and legal premises of the trust based claims in respect of the properties. In addition to the defences mentioned in the previous paragraph, their primary defence was that of indefeasible title under s 42 of the Real Property Act 1900 (NSW). Smart AJ rejected the defence under s 42 as well as the defences based on the Limitation Act, delay, and conventional estoppel.
21Broadly speaking there can be seen to be four parts to these appeals. First, questions relating to whether the claim against the Estate and the other appellants was one to recover trust property of the partnership "in the strict sense". This is primarily relevant to the indefeasible title defences raised by the appellants who were volunteers. It is also relevant to the alternative defences as regards limitation.
22Secondly, questions relating to the proper characterisation of Geoffrey and Mary's claims for relief and whether they are barred by the provisions of the Limitation Act, either directly or by analogy, or by the equitable defences of laches, acquiescence, or delay.
23Thirdly, questions relating to whether, in the absence of direct evidence, it should be inferred that KST in fact used some partnership funds and, if so, to what extent, and whether dishonestly or otherwise, in the acquisition of the three properties, including whether partnership funds could be traced into the acquisition of the three properties.
24Fourthly, questions relating to whether the proceedings below miscarried, having regard to the manner in which the part-heard trial before Smart AJ was continued as a fresh trial before another judge (Gzell J) upon limited issues only, following the illness of Smart AJ.
25In addition there are a myriad of other complaints, including challenges made by the appellants regarding various factual findings below. It is unnecessary to say anything further about these matters at this stage.
[4]
The trust based claims
26Before describing the factual background to the proceeding, it is convenient to outline the trust based claims which featured at the forefront of the appeals. The main argument which Geoffrey and Mary advanced on appeal, seeking to uphold the relief granted by Gzell J, was that the properties were acquired by KST using partnership funds, and accordingly they were deemed by s 21 of the Partnership Act to be acquired on account of the partnership and therefore they were held on trust by the registered proprietors on behalf of the partnership. This case was described as the "statutory trust claim". This was not the approach taken by either Smart AJ or Gzell J.
27Alternatively, Geoffrey and Mary sought to uphold the approach taken by Gzell J that partnership funds were misappropriated by KST and used to acquire the properties in breach of his fiduciary duties to the partnership. Accordingly the funds, and ultimately the properties (as the traceable product), were found by Gzell J to be held on constructive trust on behalf of the partnership from the date of misappropriation of the funds. This was described as the "institutional constructive trust claim", relying upon the principle in Black v S Freedman & Co (Black v Freedman) (1910) 12 CLR 105 at 110.
28Although not raised in their written submissions served in advance of the appeals, in oral argument Geoffrey and Mary also sought to uphold the orders of Gzell J on the grounds of either an express trust, as found by Smart AJ (which relied upon cl 20 of a written partnership agreement), or a resulting trust in respect of the three properties.
29The premise of the express trust claim was that KST had acquired the three properties in his own name as agent for the partnership. It was properly acknowledged by counsel that the premise of the express trust claim is inconsistent with the institutional constructive trust found by Gzell J.
30The premise of the resulting trust claim is also inconsistent with the institutional constructive trust found by Gzell J. It was said that KST's intention was that the properties were to be owned by the partnership but held in his name and that of his children. The presumption of advancement by KST in favour of the appellants as his children was said to have been rebutted, although Smart AJ made no findings to this effect. Counsel argued that this Court could make the necessary findings without needing to remit the matter.
31The appellants accepted on appeal that KST owed fiduciary duties to his co-partners, but challenged the factual findings of both Smart AJ and Gzell J that KST had used "some" partnership funds in the acquisition of the three properties. The findings of Smart AJ in Lowe v Pascoe [2010] NSWSC 388; 5 ASTLR 1 (the May Judgment) were expressed somewhat tentatively at [445] and [573]-[574]. His Honour indicated that he was inclined to declare that five sixths of Maroubra Road and the whole of Queen Street were acquired by KST using moneys of the partnership. In relation to Haig Street his Honour's view "provisionally, and subject to argument" was that about 45% of Haig Street was acquired using moneys of the partnership.
32In Lowe v Pascoe (Supreme Court (NSW), Smart AJ, 25 June 2010, unrep) (the June Judgment), Smart AJ discussed his earlier findings in relation to the three properties. His Honour accepted (at [7]) that he had misunderstood some of the accounting evidence in relation to Maroubra Road, and indicated that an inquiry would need to be held to determine the amount of partnership moneys used in the purchase of the three properties (at [8]-[9] and [14]-[15]).
33Ultimately this inquiry was not ordered. Gzell J analysed the evidence and made his own findings in the course of the fresh trial. He inferred that KST had the capacity to contribute only 8.5% of his own moneys towards the acquisition of the three properties, but rounded this figure up to 10%. In reaching this finding, Gzell J adopted the approach that the Estate and the appellants bore the onus of proof of demonstrating how much of KST's own moneys were contributed to the acquisition cost of the three properties. His Honour considered that this approach was required by the principle that where a wrongdoer mixes part of his own moneys with another person's money, the wrongdoer bears the onus of proof of establishing how much of his own money was contributed to the acquisition of the asset. The appellants challenged the correctness of applying this approach in the present case.
34Apart from the factually based challenges, the appellants also raised a number of fundamental challenges to Geoffrey and Mary's trust based claims.
35First, the appellants said that the statutory trust claim was not pleaded or argued below and ought not to be permitted to be advanced for the first time on appeal. Alternatively they disputed the premise of this claim - it was said that even if the terms of s 21 of the Partnership Act were engaged on the facts, no trust of partnership property arises under s 21 on its proper construction.
36Secondly, the appellants argued that Gzell J mischaracterised the constructive trust claim against the appellants as being a claim for trust property "in the strict sense". They said that this characterisation does not apply to moneys derived from the operation of a partnership which are dealt with in breach of fiduciary duty. It was contended that the appellants may only be made constructive trustees of their interests in the properties if the circumstances of the case were such so as to warrant the granting of the equitable remedy of a constructive trust. The grant of this remedy was said to be affected by discretionary considerations including the potential impact on innocent third parties from the imposition of a constructive trust. The appellants pointed to the absence of any case against them pleading some kind of knowledge or conduct on their part which binds their conscience.
37Alternatively the appellants said that Gzell J erred in accepting the institutional constructive trust claim in light of the defences which had been raised, but wrongly rejected by Smart AJ, and not re-considered by Gzell J. As already mentioned, Gzell J regarded these defences as having been determined by Smart AJ (adversely to the interests of the appellants). The appellants said that the failure by Gzell J to address these defences is one of the reasons why the fresh trial miscarried.
38Thirdly, the appellants disputed the premise of the express trust claim. They contended that the terms of cl 20 of the written partnership agreement were not engaged, because KST did not acquire the properties in his own name as an agent for the partnership.
39Fourthly, the appellants disputed the premise of the resulting trust claim. They pointed to the absence of any relevant findings by Smart AJ that the presumption of advancement in favour of the appellants as KST's children was rebutted by evidence that KST had a contrary intention that the properties be owned by the partnership.
40Geoffrey and Mary's response to the appellants' indefeasibility defences included that the fraud exception to indefeasibility applied in respect of the appellants' registered interests. The appellants complained that this involved a new point which had not been pleaded or raised below and therefore ought not to be permitted on appeal.
41Geoffrey and Mary's response to the appellants' defences based on limitation and delay included seeking to uphold the favourable findings made by Smart AJ in relation to the application of s 47 of the Limitation Act by analogy, namely that reasonable diligence would not have enabled the facts giving rise to their cause of action to recover trust property to be discovered earlier than November 2001.
[5]
Factual background
42The following summary, which is highly abbreviated, will be sufficient to understand the principal issues in dispute.
[6]
KST and his family
43KST had seven children by two different wives. KST married his first wife, Tang Fung, in 1933. They had four daughters - Mary, Janet, Margaret, and Helen. They also had an adopted son, John. In 1956, KST took a second wife, F C Chow, in a traditional Chinese marriage ceremony in Hong Kong. They had three children - Stella, Gordon, and Sunly.
44From about the early 1950s, KST conducted general stores and maintained other assets in the British Solomon Islands.
45From about 1964 KST sent his children to boarding school in Sydney - first Mary, then Janet, and later Margaret, John, and Helen.
46In June 1969 KST purchased a three-bedroom unit in Coogee Bay Road, Randwick for approximately $19,350. The registered proprietors were KST, John, and F C Chow, each as to one third share. Also in June 1969 KST purchased a block of eight residential units in Wiley Park for $68,000. The registered proprietors were KST, John, F C Chow, and Mary. John and Mary agreed to hold 25% of the Wiley Park property in trust for KST pursuant to a deed of trust. Around 1969 or 1970 KST started spending more time in Australia. In 1972 KST purchased a block of 12 residential apartments at Harris Street, Fairfield for $168,000. The registered proprietors were Tang Fung, Mary, Margaret, Helen, Stella, Gordon, and Sunly.
47KST came to Australia in about mid 1974 with his first wife, Tang Fung. In December 1974 KST's daughter Mary married Geoffrey Lowe.
48It seems that KST's affairs may have come to the attention of the revenue authorities in the Solomon Islands as early as 1972. In May 1975 Margaret visited the Solomon Islands at the request of KST. She completed the sale of KST's island trader boat for $12,000 and returned to Sydney on 21 May 1975 with a cheque for that sum. In August 1975 KST was issued with a tax assessment by the Inland Revenue Branch of the Solomon Islands for $160,000.
[7]
Purchase of two businesses - July 1975
49In about July 1975 KST acquired two businesses in the Haymarket area of Sydney. The first was a general store or grocery business known as Wing Yuen Tai (WYT) for $57,500. The second was a butchery business known as Yee Sing Butchery (YS) for $30,000. He took possession of these businesses on 1 August 1975. Settlement occurred some weeks later, after what appears to have been a trial period. A finance facility in the amount of $145,000 was made available by the Commonwealth Bank, either to acquire, or as working capital for, one or both of the businesses. Smart AJ found that the full $145,000 was probably not drawn down but that a lesser figure probably was. A Commonwealth Bank account in the names of KST and F C Chow showed withdrawals on 1 August 1975 of $50,000 and $10,000; a withdrawal of $25,000 in September 1975; and a withdrawal of $36,000 in December 1975. Smart AJ held that these withdrawals probably related to payments by KST for the two businesses and stock, or the provision of working capital, although this could not be affirmatively established. His Honour rejected Geoffrey's evidence that he contributed $25,000 to the purchase of the businesses.
50In August 1975 Margaret again travelled to the Solomon Islands, staying there for approximately one month. It seems that she completed the sale of one of KST's branch stores. Margaret did not say whether she received payment of any proceeds of the sale or money for completing this task.
51On 24 September 1975 a meeting took place at the offices of Clayton Utz & Co, solicitors, attended by KST, various members of his family, and a representative of GT Hartigan & Co, KST's accountants. The meeting related to KST's taxation difficulties in the Solomon Islands. The matters discussed included whether KST was liable to face extradition and whether his Australian assets could be seized by the Solomon Island authorities. Clayton Utz obtained the opinion of senior counsel. Advice was also given in relation to possible steps which might be taken to protect KST's Australian assets including the establishment of a discretionary trust (which KST could control as settlor). Ultimately it seems that a discretionary trust structure was not pursued by KST. Instead he pursued a course of establishing a partnership with family members and buying real estate in his name and that of various family members.
[8]
Agreement dated 1 October 1975
52KST and certain members of his family (Geoffrey and Mary, Janet, Margaret, Helen, and F C Chow) entered into a written partnership agreement dated 1 October 1975 (the Agreement). It recited that KST had purchased the business of WYT for $57,500 for, and on behalf of, the partnership. Clause 1 provided that KST, Geoffrey, Mary, Margaret, Janet, and F C Chow "will become and remain partners as and from 1 August 1975 and shall continue as partners until the partnership shall be determined". No point was taken that Helen was not mentioned in this clause. She was stated to be one of the partners in cl 3 and was one of the parties to the Agreement.
53In cl 2, the name of the partnership was stated to be WYT but, as Smart AJ observed for the purposes of the proceedings, YS was included when WYT was referred to: at [95] May Judgment. Clause 19 provided that KST was to be the managing partner of the partnership. Other significant provisions of the Agreement will be referred to below where relevant.
54Smart AJ found that these family members were partners from 1 August 1975 and operated the WYT and YS businesses pursuant to a partnership in the shares stated in cl 3 of the Agreement: at [325] and [573] May Judgment.
55Notably Smart AJ did not accept the contention of Geoffrey and Mary that the scope of the partnership included investment in real property. His Honour rejected Geoffrey's evidence that KST made a representation to him in about August or September 1975 in the terms alleged in para 19 of the further amended statement of claim, that "'we' will continue to reinvest the profits in property": at [77], [81] and [86] May Judgment.
56In January 1976 KST divorced his first wife and married F C Chow, again in Hong Kong, so that his second marriage would be legally recognised in Australia to meet immigration requirements. He wanted to bring her and their three children - Stella, Gordon, and Sunly - to Australia.
57In February 1976 a warrant was issued attaching to KST's real property in the Solomon Islands. In about mid 1976 KST's second wife, F C Chow, and their children arrived in Australia. Initially they all lived with KST's first wife, Tang Fung, and her daughters, Margaret and Helen, at Coogee Bay Road. Subsequently, KST, his second wife, and their three children lived at Janet's home in Bondi.
58Later in 1976 KST sold his apartment in Hong Kong for $16,000.
59In March 1977 a dispute arose between Geoffrey and KST relating to distribution of the profits of the partnership businesses. KST rejected Geoffrey's demand for a share of profits. On 25 March 1977 Geoffrey wrote to Mr Wong, the accountant for the partnership, and copied his letter to "our solicitors" Clayton Utz & Co, and to Yee & Co, the solicitors for KST. Smart AJ inferred that Geoffrey was seeking to call in aid Mr Wong, his solicitors and those of KST in order to obtain a distribution of profits of the partnership: at [195] May Judgment.
[9]
Haig Street - 1978
60In December 1978 KST purchased the first of the three properties which are at the centre of this dispute - Haig Street for $129,000 - in the names of KST, Gordon, and Sunly, as to one third each. No finance was used in the purchase of this property. Haig Street was purchased to provide a home for KST's second wife (F C Chow) and family - Stella, Gordon, and Sunly. Smart AJ found that due to the size of the purchase price, it is probable that a substantial portion of the moneys required to complete the purchase of Haig Street came from the two businesses and that there was a mixing of the funds of KST and those businesses: at [360] May Judgment.
61To a substantial extent, the businesses received income and paid expenditures in cash. It seems that around the time of the purchase of Haig Street, Geoffrey suspected defalcations by KST from the partnership. In December 1978 Geoffrey consulted his then solicitors, Slattery Thomson. Geoffrey sought advice as he suspected that some of the cash being received by the businesses was not being accounted for. Slattery Thomson provided written advice to Geoffrey which included:
We note also your advice that you do not at the present time propose to deal with the company's problems otherwise than on an internal family basis and we confirm our advice that on the scant evidence that is available to you at the present time no other course is feasible.
62In late December 1978 Geoffrey raised his concerns with KST. Geoffrey told KST that he could not have purchased Haig Street from the rental income available to KST from the Wiley Park and Fairfield properties. He accused KST of using moneys from the partnership to acquire Haig Street. KST denied that he had used partnership funds and otherwise refused to discuss the matter with Geoffrey.
63Following the birth of Geoffrey's son in January 1981, Geoffrey made another request of KST for a distribution of profit from the two businesses. He told 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. There was a dispute at trial as to whether this amount was a repayment of money, which Geoffrey claimed he had lent the business in 1975, or a loan from the partnership. Smart AJ was unable to say which competing version was correct: at [212] May Judgment. Geoffrey contended that any loan from the partnership had been repaid by 1984, because his loan account for an identical amount ($25,500) was shown in the partnership accounts as having been repaid by this date.
64It seems that from at least early-mid 1981 Geoffrey ceased to have any active involvement in the businesses.
[10]
Maroubra Road - 1983
65On 14 February 1983 KST and Margaret purchased the Maroubra Road property for $585,000. KST had a four fifths share and Margaret had a one fifth share, as tenants in common. Maroubra Road is the second property the subject of this dispute. Again, no finance was used in this purchase.
66Smart AJ found that Margaret contributed $100,000 from a bank bill held in her name towards the acquisition of her one fifth share of Maroubra Road and that her share in this property was not held on trust for the partnership. However, Gzell J later found on the fresh trial that Margaret made no contribution towards the acquisition of Maroubra Road, and that it was purchased by KST with mixed moneys of the partnership and his own.
[11]
Queen Street - 1988
67On 1 July 1988 KST purchased the property at Queen Street for $1,850,000 in the names of KST (six tenths) and Margaret, Sunly, Gordon, and Helen (each had a one tenth share as tenants in common). Queen Street is the third property the subject of this dispute. Again no finance was used in the purchase of this property.
[12]
Sale and closure of partnership businesses
68During 1986 the YS business was sold. The sale price is unknown. Geoffrey and Mary were aware of the sale at the time or shortly thereafter. Smart AJ rejected their evidence that they were not aware of this sale until some years later: at [306] May Judgment.
69In about June 1989 the WYT grocery business was closed by KST after its lease expired. It seems that this business was losing money.
[13]
Events of 1994
70On 11 January 1994 KST's second wife, F C Chow, died intestate.
71On 16 July 1994, KST turned 80. A family gathering was held to celebrate this occasion. Geoffrey accepted at the trial that he was told on this occasion that the YS and WYT businesses had been sold. He also accepted that around this time he was aware that KST had acquired both the Maroubra Road and Queen Street properties.
[14]
KST dies intestate - 1997
72On 20 October 1997 KST died intestate aged 83. At the time of his death he had funds exceeding $1,300,000 in bank accounts and bank deposits. The source of these funds was unclear.
[15]
Dispute in relation to false "will"
73Following KST's death, some of the appellants (Sunly, Margaret and Helen), together with others, dishonestly prepared a false will in the name of KST and sought to obtain (and were initially granted) probate of his Estate with that document. A dispute ensued between the family members about the authenticity of the "will".
74In 2000, proceedings for revocation of the grant of probate were commenced by Mary. In the course of the probate proceedings, Mr Pascoe was appointed Administrator of KST's Estate, on 22 November 2002, having earlier been appointed interim receiver on 26 March 2001.
[16]
Administrator's interim report - November 2001
75On 29 November 2001 Mr Pascoe issued a draft interim report which disclosed to Geoffrey and Mary that the three properties had been purchased without finance. There was a dispute at trial as to whether Geoffrey and Mary were already aware of that fact. Smart AJ found that reasonable diligence would not have enabled the facts giving rise to Geoffrey and Mary's cause of action to be discovered earlier than November 2001: at [507(g)] May Judgment.
[17]
Settlement Deed - November 2002
76The probate proceedings were subsequently resolved. In November 2002 a Deed of Family Arrangement (Settlement Deed) was entered into between the family members which recorded an agreement as to the distribution of KST's Estate. Geoffrey was not a party to that Deed. Mr Pascoe commenced administering the Estate.
77On 8 June 2004 the Administrator sold KST's one third interest in Haig Street to Sunly and Gordon for $367,000. The consideration was treated as having been paid by Sunly and Gordon by a notional distribution of their entitlement to KST's Estate. On 15 September 2005 the Administrator sold KST's four fifths interest in Maroubra Road to an unrelated third party for $1,992,145.88. In November 2005 the Administrator sold KST's six tenths interest in Queen Street to Margaret (as to two thirds) and Helen (as to one third) for $1,000,000.
[18]
Proceedings commenced - November 2005
78Following further investigations after November 2002, Geoffrey and Mary determined that the three properties had been purchased by KST using partnership funds. In November 2005 they commenced a proceeding claiming that the businesses of WYT and YS were operated pursuant to a partnership, that the three properties were purchased with partnership funds, and that the properties therefore did not form part of KST's Estate (except to the extent of KST's partnership share). The relief sought by Geoffrey and Mary was their share, as partners, of ownership of the three properties and an accounting in respect of profits of the partnership.
[19]
Procedural history of the litigation
79It is convenient to now briefly refer to the procedural history of the litigation. This provides the context for many of the issues raised by the appeals.
80The trial commenced before Smart AJ on 30 October 2008. On 6 November 2008, his Honour ordered a separate hearing on liability in respect of eight issues: (a) the existence of a partnership between the plaintiffs and the defendants or any predecessors; (b) the dissolution of the partnership; (c) the fiduciary duties, if any, owed by KST to the plaintiffs and the breaches of any of those duties; (d) whether the three properties are held on trust; (e) the defences of laches, including gross laches and acquiescence; (f) the defences based on the Limitation Act 1969 (sections 15, 47, 48, and 68A); (g) the defences based on estoppel; and (h) the defences based on indefeasibility of title.
81The hearing on liability occupied 25 days. Each of Geoffrey and Mary, their son Jason Lowe, Janet, Mr Wong (the family accountant), Mr Pascoe, Mr Hill, Mr McMurran and Mr Williden, as well as Margaret, Helen, Sunly and Gordon, gave evidence and were cross-examined.
82Smart AJ reserved his decision on 9 October 2009. On 7 May 2010, Smart AJ delivered lengthy reasons for judgment (in the May Judgment) in which he indicated the relief he was inclined to consider relating to the declaration of a partnership, an order winding up the partnership under the direction of the Court, and declarations in relation to the properties and consequential orders.
83At [573]-[574] his Honour said:
573 I am inclined to consider at this stage:
1. A declaration that Geoffrey Lowe and Mary Lowe, the late Kut Sze Tu, the late Chow Fung Chun, Margaret Sze Tu, Helen Sze Tu and Janet McNamara were partners as from 1 August 1975 and operated the businesses of Wing Yuen Tai (WYT) and the Yee Sing Butchery (YS) pursuant to a partnership in the following shares:
a. the late Kut Sze Tu as to a 20 per cent share;
b. Geoffrey Lowe as to a 10 per cent share;
c. Mary Lowe as to a 10 per cent share;
d. Margaret Sze Tu as to a 10 per cent share;
e. Helen Sze Tu as to a 10 per cent share;
f. Janet McNamara as to a 10 per cent share;
g. the late Chow Fung Chun as to a 30 per cent share.
2. An order winding up the partnership under the direction of the Court. (In practical terms this may necessitate the appointment of a Receiver and Manager. It should not be assumed that the Court would attend to the many matters of details that may arise. If a Receiver and Manager is not appointed this may raise questions whether such an order should be made.)
3. A declaration that five-sixths of the Maroubra Road property and the whole of the Queen Street property were acquired by the late Kut Sze Tu using moneys of the partnership.
4. A declaration that the legal interests of each of the first to seventh defendants (or the estates they represent) in five sixths of the Maroubra Road property and the whole of the Queen Street property were held on trust for the partnership.
574 I do not propose to make a declaration as to portion of the Haig Street property because that portion has not been defined. Provisionally, and subject to argument, I had in mind that on a broad assessment about $60,000.00 or about 45 per cent of the cost of purchasing the Haig Street property probably came from partnership funds.
84After identifying certain taxation issues which required attention, Smart AJ indicated (at [583]) the consequential orders which he was contemplating might be made. However, apart from ordering that a copy of the judgment be sent to the Australian Taxation Office (ATO) for a taxation review, his Honour made no other orders on this occasion.
85On 25 June 2010, Smart AJ delivered further reasons for judgment (in the June Judgment) and made a declaration that the partnership existed and as to the shares of such a partnership. No final orders were made. The proceedings were listed for further directions on 23 September 2010.
86After the June Judgment, Sunly located further discoverable documents and gave discovery of cash payments journals for WYT for the period 1 August 1975 to 7 October 1980, and for YS from 1 August 1975 to 3 October 1980 (the Green Journals).
87On 20 December 2010 the Green Journals were bought to the attention of the Court. Sunly and Gordon indicated that they wished to tender these documents. Smart AJ ordered that an expert report be filed and served by Sunly and Gordon. An expert report of Mr Jason Murray, a director of Murray Consulting Group, was subsequently served.
88On 31 January 2011 the appellants sought to rely upon the Green Journals on the basis that the matter was part-heard and final orders had yet to be entered that disposed of the proceedings. Geoffrey and Mary opposed reliance on this new material, amongst other reasons, on the basis of an objection to jurisdiction, namely that Smart AJ had concluded his consideration of the matter. On 1 February 2011, Smart AJ made orders and gave directions for the further conduct of this aspect of the matter.
89In March 2011 Smart AJ heard the jurisdictional objection over three days and later delivered his reasons for judgment on 24 March 2011: Lowe v Pascoe (No 3) [2011] NSWSC 192. The objection to jurisdiction was overruled. Smart AJ ruled that he had not completed his consideration of the controversy.
90In April and July 2011 the trial continued for seven days to determine whether the appellants should be given leave to re-open their evidence to tender the Green Journals and the report of Mr Murray, and whether Smart AJ should revisit some of the findings in the May Judgment.
91In August 2011, Smart AJ suffered a serious illness and was unable to continue the trial.
92At a directions hearing on 25 August 2011, Bergin CJ in Eq made orders that the proceedings before Smart AJ be terminated and invited the parties to attempt to agree as to the manner in which the proceedings could be concluded. No agreement was reached. Geoffrey and Mary made application for final orders based upon the May and June Judgments. The appellants countered seeking a fresh trial before a new judge pursuant to ss 88 and 89 of the Civil Procedure Act 2005 (NSW) (the Act). These applications were heard by Bergin CJ in Eq on 28 October 2011.
93On 29 February 2012, Bergin CJ in Eq delivered reasons for judgment in which she found that there should be a fresh trial before a judge to be nominated by the Chief Justice pursuant to s 88 of the Act: Lowe v Pascoe [2012] NSWSC 151 (the s 88 Judgment).
94Bergin CJ in Eq held that certain of the "defences" had been decided by Smart AJ by virtue of the May Judgment. Accordingly, the fresh trial before the new trial judge would be limited to three questions which her Honour identified as not having been decided by Smart AJ. These were: the dissolution of the partnerships; the fiduciary duties, if any, owed by KST to the partners and breaches of those duties; and whether the three properties were held on trust. Further, her Honour stated that the first matter to be decided in the fresh trial was to determine the "part-heard application" of the appellants upon which Smart AJ was embarked at the time he fell ill.
95The nominated judicial officer for the fresh trial was Gzell J. On 14 June 2012, Gzell J made orders that all evidence before Smart AJ be initially taken to be evidence in the fresh trial without the need for the witnesses to be recalled and reserved the question of recalling witnesses.
96On 29 June 2012, Gzell J delivered reasons for judgment giving directions under s 89 of the Act: Lowe v Pascoe [2012] NSWSC 740 (the s 89 Judgment). Gzell J adopted the findings of Bergin CJ in Eq and found that any evidence or cross-examination of witnesses in the fresh trial would be limited to the three questions not determined by Smart AJ in his May Judgment.
97On 3 August 2012, Gzell J ruled that the Green Journals and report of Mr Murray should be admitted as evidence in the fresh trial: Lowe v Pascoe (No 2) [2012] NSWSC 885.
98The fresh trial before Gzell J took place over five days in August 2012. Although largely conducted on the papers, there was some further evidence in chief and cross-examination of Geoffrey and Mary and also of Mr Wong, the accountant. Gzell J delivered his reasons for judgment on 5 December 2012: Lowe v Pascoe (No 4) [2012] NSWSC 1493 (GJ1).
99On 13 March 2013 Gzell J heard further argument on the question of relief and made final orders (in GJ2).
100By the final orders Gzell J:
(1)declared that each of Haig Street, Maroubra Road and Queen Street were acquired by KST using his own funds as to 10% and funds of the partnership as to 90%;
(2)declared that by utilising partnership funds in this manner, KST breached the fiduciary duties he owed to the partnership, including to Geoffrey and Mary;
(3)made declarations consistently with (1) above, as to the proportions of Sunly and Gordon's interests in Haig Street; Margaret, Helen, Sunly and Gordon's interests in Queen Street; Margaret's interest in the net proceeds of sale of Maroubra Road; and the Estate's interest in the net proceeds of sale of KST's share of Haig Street, Maroubra Road and Queen Street, which were held on trust for the partnership;
(4)declared that 90% of any profits from the three properties, after just allowances (if any) since the date of their acquisition, were held on constructive trust for the partnership;
(5)ordered that the partnership be dissolved pursuant to s 35 of the Partnership Act;
(6)ordered that an inquiry be held and made an accounting order in the following terms:
7. An order that an inquiry be held in order to identify what (if any) moneys the Plaintiffs are entitled to (and from whom) by way of an account of profits (after taking into account any just allowances) having regard to:
a. the current assets of the partnership, after taking into account just allowances (if any) including the proceeds from the sale of any of the partnership Properties; and
b. the extent of the capital and loan contributions made to the partnership by KST;
c. the dealings and transactions between the Partners (if any);
d. the respective entitlements (if any) of the Plaintiffs to the partnership assets as a result of such contributions, dealings and transactions (if any); and
e. the just allowances (if any) in favour of other Partners and/or Defendants which should be made in the calculation of the Plaintiffs' respective entitlements;
f. the benefits (if any) obtained by the Defendants through their ownership, possession and/or use of the partnership Properties in the period:
(i) since 3 November 2005 in the case of the Fifth and Sixth Defendants; and
(ii) since their acquisition in the case of the First, Second, Third, Fourth, and Seventh Defendants.
8. An order that the Defendants must account to the partnership for the benefits they have obtained through their ownership, possession and/or use of the partnership Properties:
(i) since 3 November 2005 in the case of the Fifth and Sixth Defendants; and
(ii) since their acquisition in the case of the First, Second, Third, Fourth, and Seventh Defendants.
(7)ordered Margaret, Helen, Sunly and Gordon to pay Geoffrey and Mary's costs of the proceedings, including the proceedings before Smart AJ, except in two limited respects as to which Geoffrey and Mary were ordered to pay the defendants' costs, or Sunly and Gordon's costs.
[20]
Issues on the appeals
101Sunly and Gordon raised 59 appeal grounds in their further amended notice of appeal. Helen raised 38 appeal grounds. Margaret raised 6 appeal grounds, which in turn raised 22 sub-grounds. There is much in common between them.
102The appellants did not press their challenge to the finding by Smart AJ that a partnership existed. This finding was the subject of the declaration made by Smart AJ on 25 June 2010. Nor did they press their appeal grounds which challenged (a) the existence of a fiduciary duty owed by KST to the other partners, and (b) the election by Geoffrey and Mary for an account of profits before Gzell J, notwithstanding that they had earlier elected for equitable compensation before Smart AJ.
103Although not completely uniform in their approach, the appellants' grounds of appeal are largely directed to the final orders made by Gzell J on 13 March 2013, based on his Honour's reasons for decision of that date and his earlier reasons of 5 December 2012. In addition, some of the appeal grounds of Sunly and Gordon, and also Margaret, are directed to the interlocutory decisions of Smart AJ (the May Judgment and the June Judgment), Bergin CJ in Eq (the s 88 Judgment), and Gzell J (the s 89 Judgment). These were said to be subsumed in, and affected part of, the final orders. An interlocutory order "which affected the final result" can be challenged in an appeal against the final judgment: Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22; 209 CLR 478 at [6].
104Helen does not challenge the interlocutory decisions of Bergin CJ in Eq on the fresh trial question, or those of Gzell J on the fresh trial issues.
105The major issues can be grouped as follows:
A. Whether the three properties were held on trust for the partnership? If so, the nature of the trust(s) and whether Geoffrey and Mary's claims for declaratory and accounting relief in respect of the properties were barred by any of the following defences:
(1)indefeasibility of title;
(2)the Limitation Act or delay; or
(3)conventional estoppel.
B. Did the partnership come to an end in or about June 1989? If so, whether the claims for relief by way of inquiry and account were barred by the Limitation Act, or should have been refused on discretionary grounds?
C. Did KST use any partnership funds towards the acquisition of the properties? If so, was this a breach of his fiduciary duties and did this conduct amount to stealing from the partnership? Can partnership funds be traced into the acquisition of the properties, and who has the onus of proof on this issue?
D. Did the fresh trial before Gzell J miscarry?
E. Relief.
F. Costs.
106The appellants also challenged a large number of the factual findings of Smart AJ and Gzell J. As will be seen, it is unnecessary to address all of these challenges. It is only necessary to do so insofar as they are relevant to the issues relied upon by the appellants which are dispositive of the appeals.
[21]
Whether any of the interests of KST's Estate, Margaret, Helen, or Sunly & Gordon as registered proprietors of the three properties was subject to an express trust (or a bare trust or a resulting trust) or a statutory trust (if open to be raised or argued on appeal) or a constructive trust in favour of the partnership?
107The premise upon which this issue arises is that KST used some partnership funds to purchase the properties. Both Smart AJ and Gzell J found that at least some partnership funds were so used by KST. The appellants' challenge to this finding may be deferred for the present. Let it be assumed that KST did use some partnership funds in acquiring the properties. Smart AJ seems to have found that there was an express trust in favour of the partnership arising from cl 20 of the Agreement: at [569]-[571] May Judgment. Clause 20 of the Agreement provided:
All property and assets purchased and acquired or contracts or leases entered into by a partner in his own name as agent for the partnership shall become partnership property and all such property and assets so purchased and acquired shall be held in trust by such partner or partners in trust for the partnership.
108Smart AJ said in relation to cl 20:
[102] ... The plaintiffs contended that KST did acquire property out of the partnership assets and was acting as agent for the partnership. This clause reflects the general law. It also creates an express trust of the property and assets purchased and acquired.
109Smart AJ found that the properties were held on trust by KST and the other family members for the partnership, except for Margaret's one fifth share of Maroubra Road: at [540] May Judgment. He found that Margaret had contributed $100,000 (being the proceeds of a bank bill investment in her name) to the purchase of Maroubra Road: at [422]-[424] May Judgment.
110As already mentioned, Gzell J took a different approach in his reasons in GJ1. He found that the partnership funds were impressed with an institutional constructive trust from the time they were stolen by KST, and that the three properties (as the traceable product) were impressed with an institutional constructive trust from the time they were acquired: at [40]. Gzell J found that Margaret did not contribute to the purchase of Queen Street because the proceeds of the bank bill in her name belonged to KST, not Margaret: at [85]-[86], [90]. Gzell J concluded that KST probably obtained the money for the bank bill from the partnership business and possibly from rental income earned from Wiley Park or Fairfield: at [194]-[195].
111It is convenient to deal with the question "What type of trust" in the following order: statutory, constructive, express, or resulting.
[22]
(a) Statutory trust
112The first issue is whether this Court should permit Geoffrey and Mary to raise what the appellants say is a new point on appeal. The second issue is whether the so called "statutory trust" in respect of the three properties is a trust "in the strict sense". This raises a question of construction of s 21 of the Partnership Act. It is appropriate to deal with the construction question first.
[23]
Relevant provisions of the Partnership Act
113Section 21 is to be read together with s 20 and also s 29 of the Partnership Act. These sections relevantly provide:
20(1) All property, and rights and interests in property, originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement. [emphasis added]
(2) Provided that the legal estate or interest in any land which belongs to the partnership shall devolve according to the nature and tenure thereof, and the general rules of law thereto applicable, but in trust so far as is necessary for the persons beneficially interested in the land under this section.
...
21 Property bought with partnership money
Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm."
29 Accountability of partners for private profits
(1) Every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership, or for any use by the partner of the partnership property, name, or business connexion.
114In cases in which the exception created by its opening words does not operate, s 21 of the Partnership Act deems "property bought with money belonging to the firm" to have been "bought on account of the firm". The purchased property is accordingly "property ... acquired, whether by purchase or otherwise, on account of the firm" as described in s 20(1); and that section makes it "partnership property".
115Consequences of the status of property as "partnership property" include those prescribed in s 20(1) itself and in s 39. The former states that partnership property is to be "held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement". Section 39 provides that, on dissolution, every partner is entitled, as against the other partners in the firm (and persons claiming through them in respect of their interests as partners), to have the partnership property "applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm". Creditors of the firm must resort to partnership property in priority to partners' separate property for satisfaction of their debts; and execution at law does not lie against partnership property except on a judgment against the firm (s 23).
116Let it be assumed that one or more of the three items of real property was bought with money belonging to the partnership. Geoffrey and Mary say that the status of that real property as "partnership property" of the partnership, by virtue of a combination of ss 20(1) and 21, is of itself sufficient to make the real property "trust property", as referred to in s 47 of the Limitation Act.
117This contention is not based on any submission as to constructive trust or resulting trust. Rather, it is said that, once particular property is characterised as "partnership property" for the purposes of the partnership legislation, it is, for that reason alone, held upon trust and is trust property accordingly. The contention is derived from statements in decided cases to the effect that partnership property, the legal title to which is held by one partner, is impressed with a trust for the partnership. One such statement is found in the joint judgment of Dixon CJ, Kitto, Taylor, Menzies, Windeyer and Owen JJ in Carter Bros v Renouf [1962] HCA 67; 111 CLR 140. The court referred (at 163) to the question of whether property acquired in the name of one only of the partners "was acquired as partnership property, and therefore upon trust for the partnership", so that "the purchasing partner is a trustee of the property for the firm".
118Statements such as this imply that characterisation of particular property as partnership property has the consequence that it is trust property and that all partnership property must therefore be regarded as held upon trust.
119The first step in assessing that proposition is to consider the nature of a partner's interest in partnership property. That matter was examined by the High Court in Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43; 242 CLR 508. French CJ, Gummow, Hayne, Heydon and Kiefel JJ referred (at [23]) to an observation of Neuberger LJ (in Sandhu v Gill [2006] Ch 456 at 462) that the concept of a partner's share in the partnership assets, as understood in earlier English authorities, was "conceptually somewhat opaque". The members of the High Court pointed out, however, that the matter had received attention in a series of decisions of the High Court itself. Reference was made to Dixon CJ's description (in Perpetual Executors & Trustees Association of Australia Ltd v Federal Commissioner of Taxation (Thomas' Case) [No 2] [1955] HCA 66; 94 CLR 1 at 15) of a partner's interest in partnership property as "a right in respect of assets but ... a right, or a congeries of rights, growing out of the partnership articles".
120Their Honours also referred to Windeyer J's statement in Bolton v Federal Commissioner of Taxation [1965] ALR 481; (1964) 9 AITR 385 at 389 that an individual partner's right is generally regarded as equitable and is "a fractional interest in a surplus of assets over liabilities on a winding up and in the future profits of the partnership business"; and to the observation of McTiernan, Menzies and Mason JJ in Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; 131 CLR 321 at 328 that the interest of the partner is sui generis. The joint judgment continued:
The position here is not sufficiently or accurately expressed merely by use of the term 'beneficial interest' any more than when considering the operation of discretionary trusts and unit trusts. The critical point, putting to one side the prospect of future profits, was explained by Kitto J in Livingston v Commissioner of Stamp Duties (Qld) [1960] HCA 94; 107 CLR 411. It is that the interest of each partner can be ascertained finally only upon completion of the liquidation and the identification of any surplus share. That reasoning is reflected in the terms of s 39 of the Partnership Act, and exemplifies a proposition expressed by Viscount Radcliffe upon the further appeal in Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12; [1965] AC 694. His Lordship said:
Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.
121The position was summarised by McLure P (with the concurrence of Newnes JA and Le Miere J) in Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; 45 WAR 29 at [42]:
Partners are not entitled in their individual capacity to exercise proprietary rights over any partnership asset: Re Fuller's Contract [1933] Ch 652 at 656; Inland Revenue Commissioners v Gray [1994] STC 360 at 377. As a consequence, the interest of a partner in an asset of the partnership is characterised as equitable, sui generis and of a non-specific kind: Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd at 328. Each partner has an undivided interest in the whole of the assets of the partnership. The interest of a partner in partnership assets is not a fixed proportion of each item nor is it an immediately ascertainable quantity of the item; it is an indefinite and fluctuating interest: Sharp v Union Trustee Co of Australia Ltd (1944) 69 CLR 539 at 551; Livingston at 453; Canny Gabriel at 328.
122In the eyes of equity, therefore, a partner has an undivided interest in the whole of the partnership property. This interest is non-specific and of a unique kind. It is the concomitant of the right of the partner to see the property applied only as partnership property may lawfully be applied and, on dissolution, to see any surplus remaining after payment of the firm's debts distributed to the partners according to their respective shares in the partnership.
123Statements to the effect that particular property, by virtue of its being partnership property, is "held in trust for the partnership" do not mean that the property is trust property or property held upon trust. Any applicable concept of "trust" is analogical or metaphorical and arises from the circumstance that, as Duff J put it in Boyd v Attorney-General of British Columbia (1917) 54 SCR 532 (at 555), the property is "dedicated to the purposes of the partnership" and held "in trust for such purposes". The allied notion that, in cases of insolvency, partnership property is held on "trust" for partnership creditors was explained by the Supreme Court of the United States, in Hollins v Brierfield Coal & Iron Co 150 US 371 (1893) at 385, in this way:
Whenever a partnership becoming insolvent, a court of equity takes possession of its property, it recognizes the fact that in equity the partnership creditors have a right to payment out of those funds in preference to individual creditors, as well as superior to any claims of the partners themselves; and the partnership property is therefore sometimes said, not inaptly, to be held in trust for the partnership creditors, or that they have an equitable lien on such property, yet, all that is meant by such expressions is the existence of an equitable right, which will be enforced whenever a court of equity, at the instance of a proper party, and in a proper proceeding, has taken possession of the assets. It is never understood that there is a specific lien or a direct trust ...
124This is an example of the use "trust" terminology in a way to which reference was made in Commissioner of Taxation v Linter Textiles Australia Ltd (Linter Textiles) [2005] HCA 20; 220 CLR 592. Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ there pointed to several instances in which analogical or metaphorical resort had been had to the language of trust when, in reality, no trust exists. Reference was made to Re Oriental Inland Steam Co; Ex parte Scinde Railway Co (1874) LR 9 Ch App 557, where the property of a company subject to winding up was said by Mellish LJ (at 560) to be subject to "a trust for the benefit of creditors" and by James LJ (at 559) to be "clearly trust property" - a proposition squarely rejected in Linter Textiles itself. Reference was also made to Clay v Clay [2001] HCA 9; 202 CLR 410 where (at [41]) it was noted that descriptions of company directors as "trustees" were "at best ... metaphorical because property of the company was not vested in the directors".
125In both Linter Textiles and Clay v Clay, the High Court referred to the observation of Lord Westbury in Knox v Gye (1872) LR 5 HL 656 that, upon the death of one of two partners and dissolution of the partnership accordingly, the partnership estate accrued to the survivor (the entitlement of the representative of the deceased being to an account); and the survivor, although frequently called a "trustee" was not in truth a trustee, because he did not hold property exclusively for the benefit of a cestui que trust. Lord Westbury endorsed a remark of Lord Mansfield that "nothing in law is so apt to mislead as a metaphor".
126Sometimes, as in Carter Bros v Renouf (above), one partner will hold the legal title to an item of partnership property. That item is, in the individual partner's hands, trust property in the true sense. This is not because it forms part of the partnership property. It is because the individual's sole and separate ownership is acknowledged to be for the account of the firm. Property that is partnership property is not, for that reason alone, held on trust for anyone.
127As such, even if the combined effect of s 20(1) and s 21 of the Partnership Act was to cause the three parcels of real property to be partnership property of the partnership, that circumstance alone was not sufficient to make the land "trust property" as referred to in s 47 of the Limitation Act.
[24]
"Unless the contrary intention appears"
128Several possibilities that attend any purchase of property with money of a partnership were identified by Turner LJ in Ex parte Neale; In re Laurence (Bank of England case) (1861) 3 De G F & J 645; 45 ER 1029 at 1033:
It cannot I think be laid down as an universal rule, that when lands are bought by partners in trade, and are paid for out of the partnership assets, they of necessity become part of the joint-estate of the partners. There are different purposes for which the lands may have been bought. They may have been bought for the purpose of being used and employed in the trade . . . , or they may have been bought, not for the purpose of being used or employed in the trade, but for the purpose of a mere speculation on account of the partnership, for I know nothing which can prevent partners from speculating in land, if they think proper to do so, as freely as they may speculate in mere articles of commerce, though foreign to their trade. Again, they may have been bought without reference to the purposes of the trade or the benefit of the partnership, with the intention of withdrawing from the trade the amount employed in the purchase, and converting that amount into separate property of the partners, or they may have been bought on account of one or more of the partners, he or they becoming debtors to the partnership for the amount laid out in the purchase.
129Turner LJ added that the choice among the alternatives must be made by reference to "the circumstances attending the purchase". The conclusion that the purchase was made "by way of speculation on account of the partnership" was reached after examination of "the whole course of dealing with the Estate and by the mode in which the accounts of the Estate with the partnership were kept".
130That case predated partnership legislation. It proceeded on the basis that, where partnership funds had been used to purchase the relevant property, the question of the status of that property vis-à-vis the partnership was to be determined by reference to the intention of the partners as established by the evidence before the court.
131In Butler v Madden (1941) 41 SR (NSW) 245, Nicholas CJ in Eq referred to ss 20 and 21 of the Partnership Act and the Bank of England case when stating that there is a "strong presumption" that property bought with money of the partnership is partnership property, adding:
But it is also established that partners may agree among themselves that an asset however acquired may descend according to the terms of their agreement and not as a partnership asset.
132This is the principle now reflected in the opening words of s 21: "Unless the contrary intention appears". The relevant intention is that of the partners; and it is to be ascertained by examining the whole of the circumstances pertaining to the outlay of partnership funds in the purchase of property. The question is whether the evidence establishes an intention of the partners that the acquisition should be, in one of the ways to which Turner LJ referred (or otherwise), an acquisition not for the account of the partnership. If such an intention of the partners is not established, the statutory presumption operates.
133Evidence of events at the time of purchase may be sparse. Resort to records such as partnership accounts may then provide an answer. In Cameron v Murdoch (1986) 63 ALR 575; 60 ALJR 280 (PC), the Court was required to decide some 20 years after the event whether a house purchased with partnership funds but in the name of one partner (who then occupied it) was partnership property. The decision that it was not was based on entries in the accounts for the year of purchase showing a deduction from the relevant partner's capital account of a sum described as "on account of purchase of house L6,574". This, said the Privy Council, was evidence from which the judge was entitled to draw the inference that the house had been purchased by the partner for his own account and not for the account of the partnership. He had, in effect, withdrawn the purchase price from the partnership for his own use; and the accounts, which recorded the consensus of the partners, reflected that withdrawal.
134In Walker v Melham [2007] NSWSC 264, a combination of absence of reference to purchased land in the partnership accounts and oral evidence about application of funds produced a finding that the s 21 presumption had been displaced by a contrary intention or agreement of the partners. The fact that property was not recorded in partnership accounts was also influential in Harvey v Harvey [1970] HCA 11; 120 CLR 529 where the question was whether land on which the partnership business was conducted formed part of the partnership property.
[25]
New point on appeal
135The claim based on the statutory presumption in s 21 of the Partnership Act was not pleaded. Nor was it advanced before Smart AJ or Gzell J. It was first referred to briefly by Geoffrey and Mary after the fresh trial had concluded, in written submissions dated 25 July 2012 concerning the appropriate final orders (Black 6/2900W-2901F). The context of this brief reference was that s 21 was said to reflect common law principles as to the liability of a partner who uses partnership funds to acquire property for himself or another person, in breach of his or her fiduciary duties to the partnership, to account whether by way of the imposition of a constructive trust, or an account of profits or equitable compensation. No submissions were made on the question of whether "the contrary intention appears".
136Counsel for Geoffrey and Mary acknowledged that the s 21 argument was not put on their behalf at trial. In accordance with well-established principle, they are not entitled to advance a fresh argument on appeal if that argument "could possibly have been met by calling of evidence below": Water Board v Moustakas [1988] HCA 12; 180 CLR 491 at 497; Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418 at 438, or if, had the ground been raised below, the other party might have conducted the case differently at trial: Multicon Engineering Pty Ltd v Federal Airports Corporation [1997] NSWCA 214; 47 NSWLR 631 at 645 (Mason P; Gleeson CJ and Priestley agreeing). The present is such a case. What was sought to be put in issue by Geoffrey and Mary on appeal was whether the evidence established an intention of the partners that the acquisition of the three properties should be an acquisition for the account of the partnership.
137If the s 21 argument had been pleaded, the question of whether the "contrary intention appears" would have been squarely raised at trial. The appellants may well have conducted their case differently. They may also have wished to cross-examine Geoffrey and Mary on the issue of the properties having been acquired by KST without reference to the purposes of the business of the partnership.
138As the High Court has repeatedly emphasised, it is elementary that a party is bound by the conduct of its case. In Metwally v University of Wollongong [1985] HCA 28; 60 ALR 68 at 71 it was said:
Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.
139Fundamental to the principle that a party is bound by his or her case, is the notion of finality of litigation. The few, narrowly defined, circumstances in which controversies, once quelled, may be reopened, reflect this fundamental proposition: Mamo v Surace [2014] NSWCA 58; 86 NSWLR 275 at [79] (McColl JA; Ward JA and Tobias AJA agreeing) citing D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; 223 CLR 1 at [34]-[35].
140Geoffrey and Mary did not point to any exceptional circumstances existing in this case.
[26]
(b) Constructive trust
141Black v Freedman is authority for the proposition that "where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character" (O'Connor J at 110). See also Griffith CJ at 108-109 (Barton J agreeing at 110).
142Where the thief makes a gift of the funds to a third party, the volunteer recipient is amenable to equitable jurisdiction. In Black v Freedman the volunteer recipient had no notice of the theft at the time of the receipt but discovered it while the funds were still in her hands. In such a case the equitable obligation arises when this knowledge is acquired: Black v Freedman at 109 (Griffith CJ); Agip (Africa) Ltd v Jackson [1990] Ch 265 at 291 (Millett J); Port of Brisbane Corporation v ANZ Securities Ltd [2002] QCA 158 at [33] (McPherson JA; Davies JA and Mullins J agreeing); Lurgi (Australia) Pty Ltd v Gratz [2000] VSC 278 at [74]-[75] (Byrne J).
143As Millett J explained in Agip (Africa) Ltd v Jackson at 291, when describing the liability of a person who receives for his own benefit trust property transferred to him in breach of trust:
He is liable as a constructive trustee if he received it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust; or if he received it without such notice but subsequently discovered the facts. In either case he is liable to account for the property, in the first case as from the time he received the property, and in the second as from the time he acquired notice.
144In Heperu Pty Ltd v Belle (Heperu) [2009] NSWCA 252; 76 NSWLR 230, Allsop P at [92] summarised the effect of the principle in Black v Freedman with respect to a volunteer recipient as follows:
A person entirely innocent of a fraud who comes to know that he or she has received and still retains the proceeds of, or taken advantage of, a fraud to which he or she was not a party, cannot knowingly seek to retain those proceeds or that advantage, without, in effect, becoming a party to that fraud and liable accordingly.
145Later at [154]-[155], Allsop P emphasised that the claim in Black v Freedman was a claim against the assets in the volunteer's hands or so much as was still remaining (whether in original form or traceable product). His Honour continued:
To call the volunteer recipient a constructive trustee and to call upon him or her to account as a constructive trustee (because he or she upon discovery of the fund or asset belonging to another has become one) does not mean the volunteer comes under personal liabilities, independently of, or beyond, the obligation to restore the fund or asset and any attendant obligation. He or she does not, for instance, become liable to pay damages for the moneys received that led to the fund or asset being created, as if he or she were a knowing participant in the fraud.
It is also important to recognise that the trust rests on the existence of property rights and in that sense is not purely remedial. The court declares that a trust exists and existed (though the innocent volunteer did not know it)...
146Tracing can be used to follow the proceeds of fraudulently obtained property or funds: Heperu at [93] citing as examples Black v Freedman itself and Creak v James Moore & Sons Pty Ltd [1912] HCA 67; 15 CLR 426 at 432. The use of tracing as a process of demonstration or proof of what has happened to property is well recognised: Foskett v McKeown [2001] 1 AC 102 at 128; Robb Evans of Robb Evans & Associates v European Bank Ltd (Robb Evans) [2004] NSWCA 82; 61 NSWLR 75 at [133]; Toksoz v Westpac Banking Corporation [2012] NSWCA 199; 289 ALR 577 at [7]. I will return to the topic of tracing under Issue C when dealing with the challenge to the factual finding of Gzell J that KST used partnership funds in the acquisition of the three properties.
147Whether the trust based on a Black v Freedman claim is more properly characterised as a resulting trust: (Robb Evans at [112]-[117]); or a constructive trust: (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] NLJR 877; AC 669 at 716 (Lord Browne-Wilkinson)), the trust is properly viewed as being of an institutional rather than simply a remedial character. It arises because the conscience of the thief is bound: Heperu at [154]-[155]; Wambo Coal Pty Ltd v Ariff [2007] NSWSC 589; 63 ACSR 429 at [40] (White J).
148In Robb Evans, Spigelman CJ said (at [113]) that the thief holds any property into which the stolen property has been converted on trust in a manner which should be seen as automatic. That is, a trust arises immediately upon the acquisition of the property, not when recognised by a court. He continued (at [115]):
If appropriately characterised as 'constructive', the trust that arises upon receipt of stolen funds by an active participant in the theft is of an institutional rather than remedial character. [Emphasis added.]
149The authors of Jacob's Law of Trusts in Australia (7th ed, LexisNexis Butterworths) observe (at [1310]) that there is a remedial flavour about various constructive trusts, including that in Black v Freedman. Nonetheless they state (at [1311]) that "it does not follow that the constructive trust in such cases is 'remedial' in the sense that it first has existence and effect only upon the Court making its decree". The authors point out that in Black v Freedman, O'Connor J meant (at 110) that the thief became a trustee forthwith.
150The institutional character of such a constructive trust may be seen as "connoting a relationship which arises and exists under the law independently of any order of the Court": Muschinski v Dodds [1985] HCA 78; 160 CLR 583 at 614 (Deane J), although his Honour doubted (at 613) that there was any perceived dichotomy between institutional and remedial constructive trusts, preferring to view a constructive trust both as an institution and a remedy.
151In Grimaldi v Chameleon Mining NL (No 2) (Grimaldi) [2012] FCAFC 6; 200 FCR 296 the Full Federal Court (Finn, Stone and Perram JJ) at [504]-[505] distinguished the remedial use of the constructive trust from those cases where, on proof of particular facts in a given context, the circumstances are "construed" as giving rise to a constructive trust. Earlier, at [256], the Court noted the distinction between those cases "where a constructive trust is sought to be imposed by way of remedy on extant property which a delinquent fiduciary or a third party participant in fiduciary or trust wrongdoing has derived on their own account as a result of their wrongdoing" and those cases "where the property or interest sought to be recovered (or its traceable proceeds) is, or had been, the property of the claimant".
152The Court continued (at [256]) by observing that in the former cases, the constructive trust is used as a remedy in addition, or as an alternative, to the well accepted personal remedies available against fiduciaries and knowing participants in fiduciary wrongdoing. In the latter cases, proprietary relief by way of imposition of a constructive trust should be granted "if appropriate": Grimaldi at [255]. The latter category may be taken to include cases based on the Black v Freedman claim.
153It might be thought that it should be of no consequence whether the appellants are considered an institutional constructive trustee or a remedial constructive trustee. In England, the distinction has significance in the context of the limitation statute, having regard to the definition of "trust" and "trustee" which, as will be seen, is narrower than the definition in s 11(1) of the Limitation Act. The issue in England has been comprehensively considered by Millett LJ in Paragon Finance plc v DB Thakerar & Co (Paragon) [1999] 1 All ER 400 and in Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366 at [139]-[143]. The views of Millett LJ were referred to extensively by Ormiston JA with approval in Nolan v Nolan [2004] VSCA 109 in the context of s 21(1)(b) of the English Limitation Act 1980 (English Limitation Act).
154In Paragon Lord Millett distinguished (at 409) between two kinds of constructive trust for the purpose of the limitation statute. The first concerned those cases to which the statute applied, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covered those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.
155In the first class of cases Lord Millett observed that the constructive trustee "really is a trustee". In the second class of cases Lord Millett said that when the defendant is implicated in a fraud such a person is not in fact a trustee at all, even though they may be liable to account as if they were. Lord Millett emphasised (at 413) that the distinction drawn in the English authorities for the purpose of the limitation statute was "the distinction between an institutional trust and a remedial formula - between a trust and catchphrase".
156Here however the appellants rely upon the distinction between an institutional constructive trustee and a remedial constructive trustee for a different purpose. It is argued that the conduct of KST could only give rise to a remedial constructive trust, and that Gzell J erred in failing to consider whether proprietary relief was "appropriate" in the circumstances: Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; 195 CLR 566 at [42] (a case involving land held by a local authority for a public purpose); Giumelli v Giumelli [1999] HCA 10; 196 CLR 101 at [10] (an equitable estoppel case). It was also contended that Gzell J erred in failing to consider the impact of the proposed relief on third parties, namely the appellants, whom it was said were innocent of any wrongdoing: John Alexander's Clubs Pty Ltd v White City Tennis Club [2010] HCA 19; 241 CLR 1 at [128]-[129] (an alleged breach of fiduciary duty case).
157One answer to these contentions is that the observations of the High Court in the cases referred to above were in the context of the Court imposing a constructive trust as a remedy, as distinct from declaring a constructive trust arising independently of any court order. Another answer is that the impact of proprietary relief on third parties is not a basis to decline to impose a trust based on a Black v Freeman claim in respect of so much of the assets remaining in the volunteer's hands, whether in original form or traceable product. Nor is it a basis for imposing some other measure of relief, such as equitable compensation, as an alternative to proprietary relief. As Heperu makes clear at [154]-[155], the trust based on a Black v Freedman claim rests on the existence of property rights and the volunteer recipient comes under no personal liabilities independently of, or beyond, the obligation to restore the fund or asset and any attendant obligation.
158Let it be assumed however that the "principle of appropriateness" has application in a case based on a Black v Freedman claim as the statement in Grimaldi at [255] might suggest. What does "appropriate" mean in this context? The answer in the present case, at least where no change of position defence was relied on, is to be found in the qualifications stated in Heperu at [154]-[155]. It is "appropriate" to grant proprietary relief in respect of the assets in the volunteer's hands, or so much as is still remaining, whether in original form or traceable product, at the time the volunteer receives notice of the claim.
159One further consideration should be mentioned. This is the matter left open in Heperu at [167] - whether relief is not available on the basis of a Black v Freedman claim by reason of s 42 of the Real Property Act. Counsel for Geoffrey and Mary contended that this issue had been determined in Black v Freedman itself, where Griffith CJ said at 108:
It is suggested that in following trust property there is a distinction between real and personal property which gets into the hands of a volunteer. But the rule appears to be the same with respect to all kinds of property.
160Two observations may be made in relation to this statement. First, the claim in Black v Freedman was a claim in respect of stolen money which had been traced into the bank account of the thief's wife. It did not involve a claim to real property into which the stolen money had been converted.
161Secondly, as appears from the report (at 106) of the summary of the appellants' counsel's argument, Griffith CJ was, in the passage (at 108) set out above, addressing the appellants' argument that once money had been through the bank it had passed into currency and could not be followed. This was the context in which Griffith CJ rejected the distinction between real and personal property. His Honour is not to be taken to have had in mind whether a volunteer recipient who had no notice of the theft at the time of the acquisition of property in their name did not acquire an indefeasible title. I deal further with the indefeasibility defences at [209]ff.
162Subject to consideration of the appeal grounds relating to the defences raised by the appellants, and the challenge to the finding of breach of fiduciary duty by KST, there was no error, in my view, in Gzell J concluding that the trust claim based on a Black v Freedman claim gave rise to an institutional constructive trust over the partnership moneys or their traceable product.
[27]
(c) Express trust
163Geoffrey and Mary contended that there was an express trust by operation of cl 20 of the Agreement. The terms of cl 20 are set out at [107] above.
164For cl 20 to be engaged, the partner must acquire the relevant asset "in his own name as agent for the partnership". The focus of the inquiry must be on the intention of the partner when acquiring property in his own name. Did the partner intend that the acquisition was on his own account (and possibly others), or on account of the partnership?
165As already noted, the contention that KST was acting as agent in acquiring the properties for the partnership is directly inconsistent with Geoffrey and Mary's primary contention that KST stole money from the partnership and used it in the acquisition of the properties. It is difficult to see what room, if any, there is for cl 20 of the Agreement to be engaged in those circumstances. In any event, even if it was possible to ignore the primary way in which Geoffrey and Mary put their claim against KST, cl 20 would not be engaged for the following reasons.
166First, KST did not acquire the properties merely in his own name; he did so in his own name and in the names of his children, some of whom were not partners. Acquiring properties (Haig Street and Queen Street) in the names of non-partners is inconsistent with an intention to do so as agent for the partnership.
167Secondly, this claim is inconsistent with the available evidence regarding KST's intentions in relation to the purchase of each of the properties:
[28]
Haig Street
168So far as Haig Street is concerned, it is common ground that prior to this acquisition in 1978, KST's second wife, F C Chow, and their children - Stella, Gordon and Sunly - lived with Janet and her family at Bondi. Smart AJ found that although KST was captivated by the economies of these arrangements, his second wife became fed up with them: at [329] May Judgment. Following its acquisition, Haig Street became the family home of F C Chow and their three children two of whom, Sunly and Gordon, were included on the title by KST.
169Having regard to the background circumstances as found by Smart AJ, and the relationship of the parties, the inference to be drawn is that KST intended to acquire Haig Street as a family home and not on account of the partnership.
170There is a further consideration in relation to Haig Street. The memorandum of transfer in respect of this property is dated 10 December 1978. Geoffrey's evidence was that in or about late December 1978 he had a conversation with KST in which he challenged him as to how he had financed the purchase. He said that KST denied that he had used partnership funds and asserted that the purchase moneys had come out of the rentals of other properties located at Wiley Park and Fairfield (Blue 1/90T-91G).
171This evidence might be thought to offend the principles laid down in Shephard v Cartwright [1955] AC 431 at 445-446 so far as they survive the Evidence Act 1995 (NSW): the statement was not an admission, was not part of the transaction, and was self-serving: see Damberg v Damberg [2001] NSWCA 87; 52 NSWLR 492 at [45] (Heydon JA) which is discussed below at [183]. Nonetheless, this evidence was led by Geoffrey and Mary, and admitted apparently without any s 136 limitation (Black 35 Q - 36 E). The evidence was relatively contemporaneous with the acquisition of Haig Street. Although not conclusive, it supports the conclusion that KST's actual intention was not to acquire Haig Street on account of the partnership.
[29]
Maroubra Road
172So far as Maroubra Road is concerned, Smart AJ found (at [400] May Judgment) that in early 1983 Margaret was looking to buy an investment property, and that KST stated that he knew that she had saved up some money, that she should draw out what she had from her bank accounts, and that such money would be her share of ownership of the Maroubra Road property. Smart AJ accepted that Margaret had told KST that she could probably buy one fifth and he replied that if she was a little short he would top it up for her. Smart AJ found that Margaret was unaware of the source of the funds provided by KST towards his share of the purchase of Maroubra Road: at [567] May Judgment.
173Although Smart AJ and Gzell J reached conflicting findings as to whether Margaret contributed $100,000 of her own money towards the purchase of Maroubra Road, it was not in dispute on appeal that Margaret and KST agreed to acquire the Maroubra Road property together as an investment.
174The findings of Smart AJ that KST and Margaret agreed in 1983 to jointly purchase an investment property, together with the finding that Margaret was unaware of the source of the funds provided by KST towards the purchase of this property, are inconsistent with either KST or Margaret (as partners) having an intention to acquire Maroubra Road on account of the partnership.
[30]
Queen Street
175So far as Queen Street is concerned, Margaret gave evidence in cross-examination, which was not challenged, that KST had made statements in front of her stepmother (F C Chow) that he was thinking of giving 10% of this property to each of the appellants (who KST referred to by their Chinese names of Shing (Sunly), How (Gordon), Kim (Helen), and Ling (Margaret)), because he said Margaret and Helen had been working very hard for the business (Black 2/959J-N). Sunly gave similar evidence in cross-examination, which again was not challenged, that KST told him he was giving an interest in Queen Street to him on condition that KST kept the rents (Black 3/1355Q-R).
176Smart AJ found that the appellants were unaware of the source of the funds provided by KST towards the purchase of Queen Street: [567] May Judgment. The inference to be drawn from the acts and declarations of KST before or at the time of purchase is that KST intended to acquire Queen Street as an investment property for himself and the appellants and not on account of the partnership.
177The express trust claim based on cl 20 of the Agreement must be rejected.
[31]
(d) Resulting trust
178The relevant principles are stated by Aickin J (Stephen, Mason and Murphy JJ agreeing) in Napier v Public Trustee (WA) (1980) 55 ALJR 1; 32 ALR 153 at 158 as follows:
The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis) there is a presumption of advancement so that the beneficial as well as the legal interest will pass.
179The rationale underlying the presumption of advancement has been variously expressed. Generally it has been seen as arising from established categories of lifetime relationships rather than the presence of love or affection: Nelson v Nelson (1994) 33 NSWLR 740 at 745 (Sheller JA); Calverley v Green [1984] HCA 81; 155 CLR 242 at 259 - 260, 266). The recognised categories of relationships include that of husband and wife, and parent and child: Nelson v Nelson at 745.
180In Wirth v Wirth [1956] HCA 71; 98 CLR 228 at 237 Dixon CJ explained the rationale for the presumption, in a passage approved by Gibbs CJ in Calverley v Green at 249, as follows:
While the presumption of advancement doubtless in its inception was concerned with relationships affording "good" consideration, it has in the course of its growth obtained a foundation or justification in the greater prima facie probability of a beneficial interest being intended in the situation as to which the presumption has been applied.
181It needs to be emphasised that it is "the actual intention of the purchaser at the time of the purchase" which is relevant: Calverley v Green at 251 (Gibbs CJ). The true intention of the person who has paid the purchase price may be ascertained from direct evidence from that person as to their intention: Martin v Martin [1959] HCA 62; 110 CLR 297 at 304-305, or from evidence of the circumstances surrounding the transfer such as the relationship of the parties and statements made by them: Charles Marshall Pty Ltd v Grimsley [1956] HCA 28; 95 CLR 353 at 364-365.
182The question which must be addressed is by what evidence can the presumption of advancement be rebutted? The formulation by Viscount Simonds in Shephard v Cartwright at 445-446 was in the following terms, based on a passage from Snell's Equity ((1954), 24th Edition, Sweet & Maxwell) at p153:
The acts and declarations before of the parties before or at the time of the purchase, or so immediately after it as to constitute a part of the transaction, are admissible in evidence either for or against the party who did the act or made the declaration... But subsequent declarations are admissible as evidence only against the party who made them, and not in his favour.
183This statement was approved by the High Court in Charles Marshall Pty Ltd v Grimsley at 365 and Calverley v Green at 251, 262 (Mason and Deane JJ) and also in Bryson v Bryant (1992) 29 NSWLR 188 at 215 (Sheller JA). However as Heydon JA noted in Damberg v Damberg (at [45]), Viscount Simonds' formulation does not exclude testimonial evidence of intention. Heydon JA explained that the reference to "declarations" is a reference to out of court declarations. He said: "In general a person whose intention at an earlier time is in issue may give evidence of it, and the position is the same here, even though the weight of the evidence, coming as it does from an interested witness, must be scrutinised with care". He concluded: "It follows from the proposition that the rules for admissibility of evidence tendered to rebut the presumption are simply those of the general law, that any modifications effected by the Evidence Act 1995 (Cth) are applicable". (His Honour's reference to the Commonwealth Evidence Act rather than the NSW Evidence Act is explained by the nature of the appeal in that case, which came to this Court from orders made in the Family Court of Australia).
[32]
Is the presumption of advancement rebutted?
184In oral argument Geoffrey and Mary initially put the resulting trust claim in the following way:
9. If KST intended that the properties be owned by the partnership, but held in the name of himself and Margaret, Helen, Sunly and Gordon for some period, then a resulting trust also arose whereby the properties were held by them on trust for the partnership.
10. If KST intended that the properties be owned by him but held by his children, then a resulting trust also arose whereby the properties were held by Margaret, Helen, Sunly and Gordon on trust for KST.
185Counsel subsequently withdrew the contention in para 10. Counsel described this as the "more remote version" of the resulting trust claim - that the appellants as registered proprietors held their interests in the properties on trust for KST, who in turn held the properties on trust for the partnership (AT, 1/4/14 at 47, line 21).
186Turning to the contention in para 9, counsel accepted that there were no findings below that the presumption of advancement had been rebutted. Nonetheless, counsel pointed to a number of transcript references and disparate findings of Smart AJ and Gzell J as providing the basis on which this Court could make a finding that the presumption of advancement had been rebutted (AT, 1/4/14 at 16, lines 46-50 and 17, lines 17-28).
187First, it was said that each of the appellants had accepted in cross-examination that, if they had been asked to do so, they would have transferred their interest in the properties to KST during his lifetime. These answers were relied upon by way of an admission against interest that the appellants did not hold a beneficial interest in the properties.
188Secondly, counsel pointed to the finding of Smart AJ (at [404] May Judgment) that KST controlled all the rental income in relation to the properties.
189Thirdly, counsel pointed to the finding of Gzell J (at [86] GJ1) that KST had a practice of holding his investments in his children's names. These two findings were relied upon for a suggested inference that KST did not intend for the appellants to hold their interests in the properties beneficially.
190Geoffrey and Mary contended that the presumption of advancement could be rebutted on "comparatively slight evidence" and argued that the materials referred to above were sufficient for that purpose. They referred to statements to this effect in two English decisions: Pettitt v Pettitt [1970] AC 777 at 814 (Upjohn LJ) and Laskar v Laskar [2008] EWCA Civ 347; 1 WLR 2695 at [20] (Neuberger LJ, Tuckely and Rimmer LJJ agreeing); and a Victorian decision Paulet v Stewart [2009] VSC 60 at [285] (Habersberger J).
191However these submissions ignored seemingly contrary statements both in the High Court and in this Court. First, it has been said that although the presumption of advancement is rebuttable, it does "not ... give way to slight circumstances": Shephard v Cartwright at 445 (Viscount Simonds) cited in Charles Marshall Pty Ltd v Grimsley at 365 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ). As observed by Heydon JA (as his Honour then was) in Damberg v Damberg at [43] (in a section not included in the authorised report), according to Viscount Simonds the quoted words in Shephard v Cartwright were uttered by Lord Eldon LC in Finch v Finch (1808) 15 Ves Jun 43; 33 ER 671, but in fact they were not, though they appear in the headnote, and though the expression "slight circumstances" was used by the losing counsel in argument. Lord Eldon LC actually said that the "presumption is not to be frittered away by nice refinements" (at 674).
192Secondly, it has been said that there must be proof of a "definite intention" to retain beneficial title, not a "nebulous intention to rely upon the... relationship as a source of control over the property": Drever v Drever (1936) ALR 446 at 450 (Dixon J, dissenting, but not on this point), cited with approval in Damberg v Damberg at [44] (Heydon JA).
193By contrast in 2008 in Laskar v Laskar, Lord Neuberger of Abbotsbury (Tuckely and Rimmer LJJ agreeing) said at [20]:
The presumption of advancement still exists, although it was said as long ago as 1970 to be a relatively weak presumption which can be rebutted on comparatively slight evidence: see per Lord Upjohn in Pettitt v Pettitt at 814. I would add that it is even weaker where, as here, the child was over 18 years of age and managed her own affairs at the time of the transaction.
194None of the parties addressed argument on whether this Court should depart from the earlier statements by the High Court. My own view, with due respect to the English Court of Appeal, is that the ascribing of labels, such as "weak", to recognised presumptions distracts attention from the relevant question - is there proof of a "definite intention" to retain beneficial title to rebut the presumption of advancement: Drever v Drever at 450; Damberg v Damberg at [44].
195Nonetheless, it is unnecessary to decide whether Laskar v Laskar represents the approach which should be taken by this Court to the presumption of advancement. For the reasons which follow, even if "comparatively slight evidence" is sufficient to rebut the presumption, the materials relied upon by Geoffrey and Mary are not capable of demonstrating that KST's actual intention was contrary to the presumption.
[33]
KST's actual intentions
196Reference has already been made above to: the evidence of Margaret concerning the acquisition of Maroubra Road with KST as an investment property; the evidence of Margaret and Sunly concerning the statements made by KST in relation to the proposed acquisition of Queen Street for the appellants, each as to a 10% interest; and the circumstances of the acquisition of Haig Street as a family home for KST's second wife and their children. That evidence supports the view that KST intended to make a gift to the appellants of their respective interests in the properties.
197I turn next to the appellants' "so called" admissions during cross-examination. This only concerns Haig Street and Queen Street. The Court was not taken to any cross-examination of Margaret in which the proposition was put to her that she would have transferred her interest in Maroubra Road to KST, if he made such a request.
[34]
Haig Street
198Gordon gave evidence (Black 2/762L-763G) that if KST had asked him to transfer his one third interest in Haig Street to "anyone" he would have asked his mother first. He agreed this was partly because Haig Street was his mother's residence, but also said that he understood that she had made a contribution to the purchase of that property. The qualifications attached to Gordon's evidence are significant. They are inconsistent with the suggested admission against interest.
199Sunly disagreed with the cross-examiner's proposition that he would have transferred his interest in Haig Street to another person, if requested by his father (Black 3/1355U). Later in cross-examination he agreed that he would have transferred his interest back to his father or someone else at his request, but said that he would have asked his father why. He also said that if he was unable to convince his father to change his request he would have complied with the request (Black 3/1356J-N). Sunly's evidence in relation to Haig Street needs to be viewed in light of his preceding answers that he was respectful of his father's wishes both during his lifetime and after his death (Black 3/1356F-G). Acceding to his father's wishes, if unable to persuade him otherwise, is not an unqualified acknowledgment that the property was held beneficially for KST.
[35]
Queen Street
200Sunly agreed to the proposition that he would transfer his interest in Queen Street (or the Fairfield property), if requested by his father, but said that he doubted that this would have ever happened because it was not logical that his father would sell those properties, as he would only buy more properties again (Black 3/1355K-M). Sunly also gave unchallenged evidence that KST said to him, when he purchased Queen Street, "Because I am giving this to you, you pay nothing for it but for the meantime I'm collecting the rent". He denied that he was holding his interest in Queen Street for his father (Black 1355Q-S).
201When asked about Queen Street, Gordon gave evidence that his share of the rental income went to KST and was controlled by him (Black 2/823E-P). He also agreed that he "probably" would have followed his father's direction to transfer the property to somebody else, but again qualified his answer by saying that he would first ask his mother (Black 2/821V-X), and that it would have been "out of character" for KST to ask him to transfer something (Black 2/822D-V)
202Margaret was equivocal as to whether she would have transferred her interest in Queen Street at the request of her father. She said "maybe yes, maybe no" (Black 2/959J-K). When asked to explain her answer, she said that she did not think her father would ask her to transfer her 10% interest back to him, because of statements she said KST had made in front of her stepmother that he had given each of "them" (Sunly, Gordon, Helen, and Margaret) a 10% interest in Queen Street (Black 2/959L-N).
203Helen agreed to the proposition that if asked by her father she would have transferred her interests in Queen Street (and Fairfield) (Black 3/1216C-D). Her evidence is consistent with a deferential respect of a daughter to her father's wishes. However, the cross-examiner never confronted Helen with the direct question of whether the reason she would have transferred her interest at her father's request was because she understood that she held her interest in Queen Street on behalf of her father. Her evidence is insufficient to rebut the presumption of advancement in light of Margaret's evidence as to KST's actual intention at the time of acquisition of Queen Street.
204In my view, none of the appellants made any relevant admission that they held their interests in the properties beneficially for KST.
[36]
KST's dealing with rental income
205The finding of Smart AJ that KST controlled all the rental income in relation to the properties during his lifetime is not of itself inconsistent with KST having an intention that the appellants would have a beneficial interest in the properties. As already mentioned, Sunly's unchallenged evidence in relation to Queen Street was that a condition of KST giving Sunly and Gordon an interest in that property was that KST kept the rents.
206So far as Maroubra Road is concerned, Margaret's evidence was that the cheques for the rental income were deposited monthly into a separate account with the Advance Bank in their joint names kept for the Maroubra rental income (Black 2/960S-961H). She agreed that she permitted KST to deal with the money in the Advance Bank account such as if it was put on Term Deposit and said that this was done in both of their names (Black 2/961J-Q). She also agreed that she never dealt with any money in their joint account for rental income inconsistently with KST's directions (Black 2/961 R-U). None of these answers cast doubt on Margaret's beneficial title to her interest in Maroubra Road.
[37]
Holding properties in children's names
207The finding of Gzell J that KST had a practice of holding his investments in his children's names does not take the matter very far. What is critical is KST's actual intention in relation to the acquisition of the three disputed properties. The matters to which Geoffrey and Mary referred the Court are insufficient to rebut the presumption of advancement.
208In my view the resulting trust claim must fail.
[38]
Whether any of the plaintiffs' claims for declaratory & accounting relief in respect of the properties was barred as against KST's Estate, Margaret, Helen, or Sunly & Gordon by the Real Property Act, s 42.
209Section 42 provides:
Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded ... . [Emphasis added.]
210Fraud for the purposes of s 42 means "something more than mere disregard of rights of which the person sought to be affected had notice and as importing something in the nature of personal dishonesty or moral turpitude": Stuart v Kingston [1923] HCA 17; 32 CLR 309 at 329 per Knox CJ; and involves "dishonesty on the part of the registered proprietor in securing ... registration as proprietor": Bahr v Nicolay [No 2] (Bahr v Nicolay) [1988] HCA 16; 164 CLR 604 at 614.
211In Farah Constructions Pty Ltd v Say-Dee Pty Ltd (Farah) [2007] HCA 22; 230 CLR 89 at [192] the requirement that there be actual fraud or moral turpitude was again confirmed. It is for this reason that merely to take a transfer with notice, or even actual notice, that its registration will defeat an existing unregistered interest is not, without more, fraud: Bahr v Nicolay at 630 (Wilson and Toohey JJ) and at 655 (Brennan J).
212In Bahr v Nicolay the members of the High Court were divided on the question of whether fraud within the meaning of s 42 is confined to fraud in the obtaining of a transfer or in securing registration. The purchaser in that case had undertaken to the vendor to hold his title subject to a third party's right to repurchase. Mason CJ and Dawson J (at 615) were of the view that the fraud exception would embrace fraudulent conduct arising from the dishonest repudiation of a prior interest which the registered proprietor has acknowledged or has agreed to recognise as a basis for obtaining title. They held that cl 4 of the agreement between the vendor and the purchaser created a trust in favour of the Bahrs as third parties (at 618). They held that the trust was an express trust (at 619). Alternatively they found that the conduct of the purchaser, in repudiating the undertaking given to the vendor to recognise the Bahr's interest, constituted fraud within the statutory exception (at 619).
213Wilson and Toohey JJ preferred the view that the fraud must be committed in the act of acquiring a registered title (at 633). Nonetheless their Honours accepted (at 638) that the indefeasibility provisions do not protect a registered proprietor from the consequences of his own actions where those actions give rise to a personal equity in another. Such an equity may arise from conduct of the registered proprietor after registration (as occurred in that case). Wilson and Toohey JJ held (at 638-639) that the purchaser remained bound by his undertaking after the registration of the transfer and if the purchaser repudiated the third party's right to purchase, equity would impose a constructive trust so that the registered proprietor holds his title on trust for the third party to the extent of the third party's interest.
214Brennan J (at 654-655) drew a distinction between fraud in equity and at common law. He reasoned that where a registered proprietor has undertaken that his transfer should be subject to an unregistered interest and later repudiates the unregistered interest he is, in equity's eye, acting fraudulently and may be compelled to honour the unregistered interest. His Honour noted that one means by which equity intervenes to prevent the fraud is by imposing a constructive trust on the purchaser when he repudiates the unregistered interest. He observed (at 654) that this is different to the situation where the registration of the transfer to a proprietor is affected by such fraud as may defeat the registered title (that is, actual fraud).
[39]
The appellants' reliance on the indefeasibility principle
215At trial, and again on appeal, the appellants relied on the defence of indefeasibility contained in the Real Property Act, s 42, in relation to their respective interests in Haig Street and Queen Street. Margaret also raised this defence on appeal in relation to Maroubra Road, although she had not done so at trial. Geoffrey and Mary did not object to Margaret relying on this defence on appeal (AT, 1/1/14 at 20, lines 21-22).
216The Estate did not plead or rely at trial on the defence of indefeasibility. There is no appeal by the Administrator against any of the orders or declarations made by Gzell J. Mr Parker SC, counsel for Margaret, did not contend that the Estate could rely upon the defence of indefeasibility (AT, 27/3/14 at 41, lines 40-45). So much should be accepted. The analysis which follows only concerns the appellants.
217There are two aspects of the appellants' reliance on the indefeasibility principle. The first is the contention that Smart AJ erred in rejecting the indefeasibility defences. The second is the contention that Gzell J erred in declaring a constructive trust over 90% of the appellants' interests in the three properties.
218Geoffrey and Mary contended that the appellants did not have indefeasible title to the properties for three reasons:
First, s 22 of the Partnership Act has the effect that the indefeasibility principle in s 42 of the Real Property Act does not apply, as between partners, to partnership property. (This contention only applied to Margaret and Helen).
Secondly, there was an in personam claim against the appellants because they had each received trust property "in the strict sense" as volunteers.
Thirdly, the fraud exception to s 42 applied to the appellants.
219It is convenient to deal with these contentions in reverse order.
[40]
Fraud as an exception to indefeasibility
220Despite not having pleaded or raised the fraud exception to indefeasibility at trial, nor referring to it in their written submissions in advance of the appeals, counsel for Geoffrey and Mary contended in a written document provided to the Court on the third day of the appeals (AT, 31/3/14 at 5, lines 5-8), that the fraud exception to s 42 applied to the appellants for two reasons.
221The first was described as "pre-registration conduct" of the appellants. It was asserted, without further elaboration, that registration was obtained by fraud and thus the fraud exception applied to each of the transferees.
222The second was described as "post-registration conduct" of the appellants being:
(a)in the case of Margaret and Helen as partners, treating partnership assets as their own which was said to involve fraud, dishonesty, and moral turpitude; or
(b)that Margaret, Helen, Sunly and Gordon are seeking to retain the proceeds, or take advantage, of KST's fraud by retaining the properties and have thereby become a party to the fraud and are liable accordingly; or
(c)alternatively, Margaret and Helen are "primary wrongdoers" because they have repudiated their obligations as partners to account to the partnership for the benefits derived by them without the consent of the other parties.
223Unsurprisingly the appellants objected to Geoffrey and Mary relying on the fraud exception to s 42 on appeal, when fraud was not pleaded or relied upon at trial. This objection should be accepted. As already mentioned, fraud for the purposes of s 42 involves actual fraud or moral turpitude. Such an allegation must be specifically pleaded and particularised: Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 14.14(3) and r 15.3. Particulars of fraud must be exactly given: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538. Here this did not occur. Geoffrey and Mary are not entitled, in the absence of any exceptional circumstances, to advance a fresh argument on appeal based on the fraud exception to s 42: Metwally v University of Wollongong at 71. No exceptional circumstances were demonstrated.
[41]
In personam claims as an exception to s 42
224It is not in doubt that the indefeasibility conferred on a registered proprietor "in no way denies the right of a plaintiff to bring ... a claim in personam, founded in law or in equity, for such relief as the Court acting in personam may grant: Frazer v Walker [1967] 1 AC 569 at 385; Breskvar v Wall [1971] HCA 70; 126 CLR 376 at 384-5. Authority provides that the Court may recognise such a claim, commonly referred to as a personal equity, notwithstanding that an in personam claim is not an exception contained in s 42 of the Real Property Act: Farah at [193]ff and Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd [2013] HCA 11; 247 CLR 149 at [31].
225The High Court made clear in Farah that only certain legal or equitable causes of action against a registered proprietor operate as an in personam exception outside the indefeasibility provision in s 42(1). Farah concerned whether the in personam exception extended to claims arising under the "knowing receipt" and the "knowing assistance" limbs of Barnes v Addy (1874) LR 9 Ch App 244. Farah held that they did not (at [193]-[195]); citing Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 156-157; LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; 26 WAR 517 and the dissenting judgment of Davies JA in Tara Shire Council v Garner [2002] QCA 232; [2003] 1 Qd R 556 at 578 [34].
226Critical to the High Court's conclusion in Farah was the reasoning of Tadgell JA in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd at 156-157 (see Farah at [193]). The salient part of Tadgell J's reasons included the following statement:
If registration of the mortgagee's interest is achieved dishonestly then the registration, and with it the interest, are liable to be set aside not because, on registration, the registered holder became a constructive trustee but because s. 42(1) recognises that fraud renders the interest defeasible. If, on the other hand, the registration is not achieved by fraud the Act provides, subject to its terms, for an indefeasible interest. Those terms allow, it is true, a claim in personam founded in equity against the holder of a registered interest to be invoked to defeat the interest; and a claim in personam founded in equity may no doubt include a claim to enforce what is called a constructive trust. There may be room for debate whether, even under the general law system of title, a mortgagee in the appellant's circumstances would be accountable as a constructive trustee: Westdeutsche Landesbank Girozentrale v Islington London Borough Council. at 707B-E, per Lord Browne-Wilkinson; and cf. Professor Peter Birks, "Equity in the Modern Law: An Exercise in Taxonomy" (1996) 26 U.W.A.L.R. 1, especially at pp. 19-20, pp. 40-1. However that may be, to recognise a claim in personam against the holder of a mortgage registered under the Transfer of Land Act, dubbing the holder a constructive trustee by application of a doctrine akin to "knowing receipt" when registration of the mortgage was honestly achieved, would introduce by the back door a means of undermining the doctrine of indefeasibility which the Torrens system establishes. It is to be distinctly understood that, until a forged instrument of mortgage is registered, the mortgagee receives nothing: before registration the instrument is a nullity. As Street J pointed out in Mayer v Coe [1968] 2 NSWR 747 at 754, the proprietary rights of a registered mortgagee of Torrens title land derive "from the fact of registration and not from an event antecedent thereto". In truth, I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker and Breskvar v Wall, to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property. The argument that the appellant is liable as a constructive trustee because it had "knowingly received" trust property should in my opinion fail.
227Nonetheless the High Court also recognised in Farah (at [195]) that indefeasibility is no answer to a claim for a constructive trust where "the defendant was the primary wrongdoer, attempting to ignore an obligation to share or convey the land with or to the plaintiff", citing Pullin J in LHK Nominees Pty Ltd v Kenworthy at 571 [289]. This is because there is no analogy between those cases where the defendant is the primary wrongdoer (such as Bahr v Nicolay) and those which can arise from the application of the first limb of Barnes v Addy where the defendant is a party who merely had notice of an earlier interest.
228Earlier in Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851; 59 NSWLR 312, Austin J at [103]-[104] had contrasted those cases where a personal equity will not be created (those where the registered proprietor merely asserts his registered title after acquiring it with notice of the unregistered interest) with those cases which contain what his Honour referred to as the "additional ingredient" sufficient to create a personal equity.
229Having reviewed the authorities, in particular Bahr v Nicolay, Austin J described the "additional ingredient" as conduct involving some form of acknowledgment of the unregistered interest, or an agreement or undertaking to act in accordance with it, from which the registered proprietor later resiles.
[42]
Reasons of Smart AJ
230As counsel for Geoffrey and Mary acknowledged, it was not alleged at trial that KST was the agent for the appellants in taking title and that his alleged fraud or dishonesty could be imputed to them (AT 1/4/14, 25, line 48 - 26, line 1). Thus, although Smart AJ found (at [487] May Judgment) that KST's conduct in treating partnership assets as his own involved fraud, an act of dishonesty and moral turpitude, his Honour was not required to and did not address whether the fraud exception to indefeasibility applied to the appellants on the basis of any "agency" argument: see Breskvar v Wall at 377 where the fraud of Petrie, who fraudulently inserted the name of his grandson Wall in a transfer and caused it to be registered, was imputed to Wall and rendered his title defeasible.
231Smart AJ approached the appellants' defences of indefeasibility by reference to whether Geoffrey and Mary's trust based claims gave rise to an in personam exception outside the indefeasibility provision in s 42(1).
232Smart AJ gave the following reasons in the May Judgment for rejecting the indefeasibility defences:
488 Each of Margaret, Helen, Sunly and Gordon holds her or his interest in the Queen Street property under a bare trust. The legal title of these co-owners and KST was subject to a personal equity capable of defeating any claim by the legal owners to an indefeasible title: Frazer v Walker and Breskvar v Wall. Additionally, there was an express trust in favour of the partnership. The interest of KST vis-à-vis the co-owners is capable of being traced into the properties by the plaintiffs under a successful partnership claim in respect of the partnership assets. The personal equities against the co-owners of the properties which are beneficially held for the partnership cannot be defeated by any claims of indefeasibility of title. The plaintiffs' submissions extended to the interests of the three legal co-owners of the Haig Street property and the legal co-owners of the Maroubra Road property.
489 The second and third defendants, apart from contending that no partnership existed, relied upon paragraph 49 of their Defence, filed 3 April 2009 in answer to the FASOC, namely that the ten per cent interest which each of them had in the Queen Street property as at 7 November 2005 was given to them by KST and that, upon each of them being registered as proprietor of that ten per cent interest, each became indefeasibly entitled to that share, pursuant to s 42 of the Real Property Act. I would not so construe s 42 of that Act and in my opinion it has not been so construed.
490 The fifth and sixth defendants also submitted that the plaintiffs' case was barred by s 42. They relied upon Bogdanovic v Koteff (1988) 12 NSWLR 472, but the decision did not assist them. The plaintiffs placed reliance on the express trust under clause 20 of the partnership agreement in addition to what they alleged were the bare trusts of Margaret, Helen, Sunly and Gordon.
491 I reject the indefeasibility defences raised by Margaret, Helen, Gordon and Sunly having regard to the facts of the present case.
233Later in his reasons, when rejecting the appellants' defences based on the Limitation Act, Smart AJ recorded, without making any findings, Geoffrey and Mary's contentions:
504 The plaintiffs contended for a personal equity in the three properties in two ways. In respect of the interests in the properties standing in the name of KST, Helen and Margaret, the interests are impressed with an express trust. As to Gordon and Sunly, and also alternatively as to Margaret and Helen, as volunteers who were prepared to return the property to KST upon his request; their interests in the properties was subject to a bare trust or a resulting trust. The plaintiffs submitted that the presumption of advancement has been rebutted as assets were routinely held in the name of KST's children which were treated as his property and under his control. The plaintiffs submitted that the bare trust does not fall foul of s 23C(1) of the Conveyancing Act 1919. It is an implied trust under s 23C(2). Alternatively, if it is an express trust which fails, a resulting trust will arise in favour of the partners: Jacob's Law of Trusts at [120]. In the further alternative the plaintiffs submitted that the use of partnership funds would be impressed with a constructive trust which the partners were entitled to trace into the hands of the registered proprietors.
[43]
Discussion
234The reasoning of Smart AJ is not without difficulty. His Honour seems to have found that there was an in personam claim against the appellants based on an express trust. However, he also referred to a "bare trust". The use of the term "bare trust" is often used to describe a trust in which the trustee has no active duties to perform. The authors of Jacob's Law of Trusts in Australia observe (at [315]) that "a more precise use of the term 'bare trustee' is to identify a trustee who has no interest in the trust assets other than that existing by reason of the office of trustee and the holding of the legal title, and who never has had active duties to perform or who has ceased to have those duties with the result that in either case the property awaits transfer to the beneficiaries or at their direction".
235If however Smart AJ was intending to use the expression "bare trust" interchangeably with the concept of a resulting trust, then his Honour's reasons failed to address whether the presumption of advancement had been rebutted. Counsel for Geoffrey and Mary fairly acknowledged these difficulties with his Honour's reasons. As already mentioned, counsel accepted that Smart AJ did not find that the presumption of advancement had been rebutted and indeed urged this Court to make such a finding (AT, 1/4/14, at 17, lines 25-28). However, for the reasons given above, this Court should not make such a finding and the resulting trust claim must fail.
236Insofar as Smart AJ based his rejection of the indefeasibility defences on his finding that there was an express trust over the three properties in favour of the partnership, this contention has also been addressed and rejected above.
237This leaves for consideration the approach adopted by Gzell J. He found that there was a personal equity against the appellants based on a Black v Freedman claim, but did not address the indefeasibility defences. With respect, Gzell J should have addressed the indefeasibility defences afresh, because he proceeded to characterise the in personam claim differently to the approach taken by Smart AJ. To this extent his Honour erred in adopting an overly restrictive approach to the issues raised upon the fresh trial. It is necessary for this Court to address the matter itself.
[44]
Is the Black v Freedman claim an in personam exception to s 42?
238As already observed, an institutional constructive trust based on a Black v Freedman claim against a volunteer recipient arises from the fact that the recipient is placed on notice of an unauthorised receipt of funds or their traceable product. It does not involve an allegation of fraud in the sense of dishonesty on the part of the recipient. Rather it involves an allegation that the recipient is bound in conscience to recognise the claimant's rights once the recipient has been placed on notice of those rights: Heperu at [154].
239Here the appellants were first placed on notice of the alleged unauthorised receipt of funds many years after they became registered proprietors of the properties (in 1979, 1983, and 1986 respectively). It seems that they first received notice of the claim sometime after the Settlement Deed of 22 November 2002.
240It is trite law that the proprietary rights of a registered proprietor of Torrens Title land are derived from "the fact of registration and not from an event antecedent thereto": Mayer v Coe at 754 (Street J). Consistently with the principle of indefeasibility, it is not possible "to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property": Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd at 157 (Tadgell JA; Winneke P concurring), cited in Farah at [193].
241As mentioned, the equitable obligation of a volunteer recipient of stolen funds does not arise until the recipient is put on notice of an unauthorised receipt of funds. If notice comes after the volunteer recipient acquires an indefeasible title, then the notice is too late to impose an equitable obligation on the recipient, as a constructive trustee, to restore the property to the victim of the theft. It is not to the point that the recipient is a volunteer. Authority in this Court is that indefeasibility may be asserted by a volunteer: Bogdanovic v Koteff at 479-480 (Priestley JA; Hope and Samuels JJA agreeing): Gerard Cassegrain & Co Pty Ltd v Cassegrain [2013] NSWCA 453; 305 ALR 612 at [81]-[83] (Beazley P; Macfarlan JA agreeing).
242The present case is distinguishable from the result in Heperu where, as Allsop P noted (at [167]), no issue had been raised at trial or on appeal by way of a defence under s 42 of the Real Property Act.
243Subsequently in Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508, Black J addressed the defence of indefeasibilty in relation to a Black v Freedman claim. There, prior to being placed on notice, a recipient had applied what was claimed to be stolen funds to pay down a mortgage over a property in respect of which he was the registered proprietor. Black J concluded (at [102]-[103]) that the recipient's indefeasible title was an answer to a Black v Freedman claim. Although the facts in Break Fast Investments Pty Ltd v Giannopoulos are different from the present case, his Honour's reasoning reflects, in my view, a correct application of principle.
244The present case is also distinguishable from Bahr v Nicolay. Here the denial by the appellants of Geoffrey and Mary's claim after they had obtained registration of title to the properties did not involve the dishonest repudiation of a prior interest which they had acknowledged or agreed to recognise as a basis for obtaining title.
245It was suggested in oral argument that the position of Margaret and Helen may be different because they are partners. I do not think this is so. It was not pleaded that they breached their fiduciary duties to the partnership. The only breach of fiduciary duty alleged was against KST: see para 40 FASC (at Red 86 S-U). The pleaded allegation against Margaret and Helen was that they held their interests in the properties pursuant to an express trust based on cl 20 of the Agreement (see para 41A FASC: Red 87 A-D). Although Smart AJ found that there was an express trust based on cl 20, I have concluded above that his Honour erred in reaching that conclusion. Further, Smart AJ had also found that Helen and Margaret were unaware of the source of the funds which KST used to acquire Maroubra Road and Queen Street: at [567] May Judgment. It was therefore not established that they were "primary wrongdoers" attempting to ignore an obligation to share or convey the land with or to the partnership: LHK Nominees Pty Ltd v Kenworthy at [289].
246Geoffrey and Mary raised an alternative contention that the appellants may have a personal liability to account for benefits received from the use of partnership funds, notwithstanding that they acquired indefeasible title. I deal with this contention below at [256]ff.
[45]
Section 22 of the Partnership Act
247Geoffrey and Mary contend, as against Margaret and Helen only, that there is an additional reason why the indefeasiblity defence under s 42 of the Real Property Act should fail. This argument, which was not raised below, is based on the terms of s 22 of the Partnership Act. Section 22(1) provides:
22 Conversion into personal estate of land held as partnership property
(1) Where land or any heritable interest therein has become partnership property, it shall, unless the contrary intention appears, be treated as between the partners (including the representatives of a deceased partner), and also as between the heirs of a deceased partner and the deceased partner's executors or administrators as personal or movable and not real or heritable estate.
248It is said that the indefeasibility defence is not available between partners, because partnership property in the form of land is not treated as real property, but is to be treated as personalty.
249Section 22 may be taken to reflect what Isaacs J referred to in McCaughey v Commissioner of Stamp Duties (NSW) [1914] HCA 45; 18 CLR 475 at 488-489 as "a fundamental principle in partnership law that in equity land held for partnership purposes is regarded as personal property, being affected with an eventual trust for sale".
250As explained by Keith L Fletcher in The Law of Partnership in Australia,
(9th ed 2007, Thomson Law Book Co) at [5.30] at common law where a deceased person's realty passed direct to their heir at law it was not an asset available for payment of the debts of the deceased. In contrast, equity applied the doctrine of conversion to partnership realty to ensure that it was available to meet partnership debts. The author continues:
Recognition that partnership assets are held by their legal owners on trust for sale protects the rights of partners inter se, and, indirectly, the creditors of the partnership, because any partner may insist that proceeds of sale are applied in payment of partnership obligations.
251The premise of s 22 is that where partners have bought land for the purpose of a partnership it is to be considered part of the partnership fund. Section 22 reflects the position in equity that partnership property is to be treated as personalty in point of succession and distributable as such: Darby v Darby (1856) 3 Drew 495 at 498-499; 61 ER 992 at 932.
252In Darby v Darby the principal question was whether on the death of a partner his share of the unrealised real estate descended to his heir at law or whether it passed as personal estate to his personal representative. The Vice Chancellor referred (ER at 994) to a number of decisions of Lord Eldon including one in a Scottish case (at 500), Kirkpatrick v Sime (1811) 5 Patterson's Scotch Appeal Cases 525, where Lord Eldon said:
As to all partnerships in England I think the rule is, and the better rule of decision would be, to say that the partners held the property as trustees for the creditors, and that the whole became personal estate ... Till the case decided by Lord Thurlow the lawyers always considered the real estate belonging to a partnership as personal in point of succession; and we have always wish to get out of that case of Lord Thurlow's.
253Lord Thurlow had earlier expressed the opinion that a special contract was necessary to convert land into personalty as between partners: Thornton v Dixon 3 Br CC 199. The Vice Chancellor in Darby v Darby, having reviewed the authorities, preferred the approach of Lord Eldon and said that if partners purchased land merely for the purpose of their trade, and pay for it out of partnership property, that transaction makes the property personalty and effects a conversion out and out (ER at 995). The Vice Chancellor expressed the rule as follows (ER at 996):
... any real property which has become the property of the partnership becomes, by force of the partnership contract, converted into personalty; and that, not merely as between the partners, to the extent of discharging the partnership debts, but as between the real and personal representatives of any deceased partner.
254In Duckett v Collector of Imposts (1927) 33 ALR 379; [1927] VLR 457 the Victorian Full Court held that, notwithstanding the doctrine of conversion, a revenue statute applied as if the subject matter of the transaction were real property. Cussen J said at 466:
The fact is, we think, that 'land' being partnership property must for many purposes, at all events for most statutory purposes, to continue to be regarded as land, though as between partners and their representatives, as to accounts, dealings, succession on death etc, it may be regarded as otherwise.
255It is unnecessary to explore the limits of the doctrine of conversion and its effects, as embodied in s 22 of the Partnership Act. Here, s 22 can have no application to Margaret and Helen's interests (in Maroubra Road and Queen Street respectively) because the premise of Geoffrey and Mary's argument is incorrect. Those interests are not partnership property within the meaning of s 22 of the Partnership Act: there is no express trust based on cl 20 of the Agreement, because they did not acquire their interests in the two properties "as agent" for the partnership; there is no resulting trust, because the presumption of advancement has not been rebutted; and there is no constructive trust based on a Black v Freedman claim. Margaret and Helen are entitled to rely upon their indefeasible titles.
[46]
Assuming indefeasible title, are the appellants liable to a personal claim?
256Counsel for Geoffrey and Mary accepted that if Sunly and Gordon have indefeasible title, then they could not seek to uphold the accounting relief granted against Sunly and Gordon in order 8(i) (AT, 1/4/14 at 33, lines 24 and 27, at 34, lines 26-30). This order required Sunly and Gordon to account to the partnership for the benefits they obtained through their ownership, possession, or use of the properties in which they had an interest, since 3 November 2005.
257However, counsel adopted a different position in relation to the accounting relief granted against Margaret and Helen in order 8(ii). Counsel contended that even if Margaret and Helen had indefeasible title, they are liable to account to the partnership for the benefits they have obtained through their ownership, possession, or use of their interests in Maroubra Road and Queen Street since the date of acquisition.
258Counsel accepted that the premise of this argument was that the registered interests of Margaret and Helen in Maroubra Road and Queen Street were not partnership property (AT, 1/4/14 at 33, lines 25-40). Nonetheless it was argued that the partnership may have a personal remedy against Margaret and Helen as partners to account for an undisclosed benefit in respect of the use of partnership funds by KST to acquire their interests in Maroubra Road and Queen Street. It was said that this argument was supported by statements of White J in Super 1000 Pty Ltd v Pacific General Securities Ltd (Super 1000) [2008] NSWSC 1222 at [234]-[237].
259In Super 1000 the indefeasibility principle was raised as a defence to a claim for proprietary relief based on the first limb of Barnes v Addy. White J accepted (at [234]) that he was bound to follow LHK Nominees Pty Ltd v Kenworthy, and accordingly, no proprietary remedy was available against Super 1000 as an accessory to Mr McLay's breach of fiduciary duty by having taken a (registered) mortgage over the company's property. The point which White J considered (at [235]) had been left open in LHK Nominees Pty Ltd v Kenworthy, was whether personal remedies against a third party liable as a constructive trustee under the first limb of Barnes v Addy, are also excluded because the person acquired the title to the property by registration.
260It is unnecessary to address this question here. The short answer is that Geoffrey and Mary did not plead or contend at trial that Margaret and Helen were liable to account to the partnership as constructive trustees under either limb of Barnes v Addy. (This was accepted by their counsel: AT, 1/4/14 at 33, lines 1-15). Hence, the reasoning in Super 1000 does not assist Geoffrey and Mary.
261I would add that any personal cause of action by the partnership against Margaret and Helen to account for an undisclosed benefit (assuming such a claim could otherwise be made out, without seeking to rely on either limb of Barnes v Addy) would have been an item included in taking of accounts on dissolution of the partnership. Any such claim would have been subject to a six year limitation period from the date of dissolution of the partnership, there being, on the premise of this argument, no element of trust in the obligation of the partners to account: Limitation Act, s 15. See below at [381]-[382].
[47]
Conclusions on trust based claims
262Each of the appellants has the benefit of indefeasible title in respect of their registered interests in the three properties. Accordingly, the trust based claims made against them must fail, even assuming that KST used some partnership money in acquiring the properties. These conclusions are sufficient to dispose of the appeals. The proprietary and accounting relief granted by Gzell J against each of the appellants must be set aside.
263Although the indefeasibility defences provide the decisive ground for disposing of the appeals, it is appropriate to deal with some of the other grounds of appeal in the event that my conclusion on indefeasibility is wrong: Kuru v New South Wales [2008] HCA 26; 236 CLR 1 at [12].
264There is a further reason for doing so. As will be seen, some of the other grounds raised by the appellants, if successful, would also provide a defence for the Estate consistently with its pleaded defence. Although the Estate has not appealed against the final orders of Gzell J, it is not appropriate for there to be inconsistent outcomes in respect of the same defences raised by different parties. It is not necessary however to deal with all of the other grounds. Some have no bearing on the Estate's liability to Geoffrey and Mary, as found by Gzell J.
265It is convenient to deal next with the dissolution issue, before addressing the Limitation Act, delay, laches, and conventional estoppel defences.
[48]
Issue B: Orders for dissolution, inquiry and account
[49]
Was the partnership dissolved on or about 30 June 1989?
266It is common ground that the butchery business, YS, came to an end when it was sold in or about June 1986 and that the grocery business, WYT, closed on or about 30 June 1989. Written notification of cessation of trading by WYT was given to suppliers, customers, and the Australian Taxation Office (ATO) (Blue 3/1116-1142). The ATO acknowledged cancellation of the partnership's group employer registration in a letter addressed to Geoffrey dated 8 November 1989 (Blue 3/1145).
[50]
Defences at trial
267Margaret and Helen pleaded in their defence that any partnership (the existence of which was denied) was dissolved no later than 1 July 1989 when WYT was closed. As will be seen, the particulars to this defence relied solely on s 32(b) of the Partnership Act. Smart AJ said that this contention had not been pleaded: at [23] May Judgment. This was incorrect. It seems that his Honour may have confused this pleaded defence with a related submission by Sunly and Gordon that the partners had abandoned any partnership in 1989.
268The abandonment argument was contained in the written submissions of Sunly and Gordon dated 21 September 2009 (Black 7/3081M-Q). Geoffrey and Mary objected to Sunly and Gordon raising this argument before Smart AJ. They said that it had not been pleaded in any defence filed by any party, nor had it been litigated at trial, and that it was too late to raise such a matter in final submissions (Black 6/2654H-I). None of the appellants contested this submission at trial, nor did they seek leave to amend their defences.
269Ultimately Smart AJ did not decide the dissolution issue. This was one of the issues addressed by Gzell J in the fresh trial.
270Before Gzell J, Sunly and Gordon contended that the partnership had ceased when WYT was sold. The argument as advanced relied solely on s 32(b) of the Partnership Act. Gzell J rejected this contention and held that the partnership was still on foot when the proceeding was commenced in November 2005. He made an order for dissolution under s 35 of the Partnership Act: at [304]-[311] GJ1. No date of dissolution was stated in the order. It seems to be common ground that the dissolution is to take effect as at the date of the order, subject to the effect of the stay which was made by Gzell J on 13 March 2013 (order 12).
[51]
Contentions on appeal
271On appeal Margaret and Helen repeated their pleaded contention that the partnership was dissolved no later than 1 July 1989. They relied upon s 32(b) of the Partnership Act. They also raised a further argument that none of the partners intended to conduct themselves in accordance with the Agreement after 30 June 1989. Accordingly, it was said that the partnership was abandoned or terminated by consent: Ryder v Frohlich [2004] NSWCA 472 at [135]-[137] (McColl JA, Hodgson JA agreeing). Counsel for the other appellants adopted these submissions.
272Before turning to the substantive issues, it is appropriate to note the significance of the date of dissolution of the partnership.
273First, it was relied upon by the appellants for the contention that the dissolution order made by Gzell J on 13 March 2013 was inappropriate. It was said that the appropriate order, if any, would have been a declaration that the partnership was dissolved following the closure of WYT on or about 30 June 1989.
274Secondly, it was argued that the date of dissolution had consequences for Geoffrey and Mary's claim for an account of profits as regards any applicable limitation period. It was said that any claim for an account brought more than six years after dissolution was barred by s 15 of the Limitation Act, either directly or by analogy.
[52]
Was the partnership a "single adventure or undertaking"?
275It is appropriate to first address the dissolution argument based on the Partnership Act, s 32(b).
276Section 1(1) of the Partnership Act defines partnership as "the relation which exists between persons carrying on a business in common with a view of profit...". The circumstances in which a partnership can be dissolved are set out in Div 4, ss 32 to 35.
277Section 32 of the Partnership Act provides:
Subject to any agreement between the partners, a partnership is dissolved:
(a) If entered into for a fixed term, by the expiration of that term;
(b) If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking;
(c) If entered into for an undefined time, by any partner giving notice to the other or others of the partner's intention to dissolve the partnership.
In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is mentioned, as from the date of the communication of the notice.
278In Hurst v Bryk [2002] 1 AC 185, Lord Millett said (at 195), in relation to the English Partnership Act 1890 (which is in relevantly similar terms to the NSW Partnership Act), that it expressly states the circumstances in which a partnership is dissolved (expiry of a fixed term, or termination of the venture or undertaking, notice, bankruptcy or death of any partner, supervening illegality or order of the Court). He continued (at 195):
It is true that a partnership may also be dissolved by mutual agreement, and it may be objected that this is not mentioned either; but in fact it is catered for by s 19 taken in conjunction with s 32(a).
279Section 19 of the Partnership Act provides that the "mutual rights and duties of partners ... may be varied by the consent of all partners" and that "such consent may be either expressed or inferred from a course of dealing". In Chahal v Mahal [2005] EWCA Civ 898 at [21], Neuberger LJ (as his Lordship then was) observed that dissolution by agreement may actually be covered by the opening words of s 32 "subject to any agreement between the parties", rather than the more indirect way identified by Lord Millett.
[53]
Gzell J's reasoning
280Gzell J dealt with the dissolution argument as follows in GJ1:
[305] Sunly and Gordon submit that no order for dissolution is necessary. They rely on s 32(b) of the Partnership Act. It provides that, subject to any agreement between the partners, a partnership is dissolved if entered into for a single adventure or undertaking, by the termination of that adventure or undertaking. They rely upon the sale of YS in May 1986 and the closure of WYT on 30 June 1989.
[306] But there is no single date on which an adventure or undertaking was terminated. As the provision deals with a single adventure or undertaking, it presupposes that there will be but one date of termination.
[307] Besides, there is no evidence that the partnership was for a single adventure or undertaking. The evidence is to the contrary. The business the subject of the partnership agreement was WYT. The partnership agreement did not provide that it was the only business the partnership could acquire and YS was purchased subsequently.
[308] Clause 20 of the partnership agreement provided that all property purchased or acquired, or contracts, or leases entered into by a partner in his own name as agent for the partnership should become partnership property and all such property and assets so purchased and acquired should be held by such partner in trust for the partnership.
[309] Mr Williams had an alternative submission that the partnership was dissolved on 20 October 1997 when KST died. Reference was made to s 33(1) of the Partnership Act. It provides that subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner.
[310] But cl 16 of the partnership agreement provided that the death of a partner should not dissolve the partnership.
[311] Geoffrey and Mary seek an order that the partnership be dissolved. I will make that order.
[54]
Submissions
281Counsel for Margaret relied upon the cessation of business by WYT in June 1989 as indicating the termination of the venture or undertaking.
282There were two major steps in counsel's argument. The first was that Gzell J took a too narrow view of the scope of the expression "single adventure or undertaking" in s 32(b). It was said that, there was a "single" venture or undertaking comprising the two businesses and that the scope of the partnership venture was the conduct of retail businesses. The venture terminated, it was said, when the remaining part of the venture, WYT, closed on or about 30 June 1989.
283The second step raised a construction question which had not been addressed by Gzell J. It was said that, on its proper construction, the Agreement did not contain a contrary agreement that the partnership would continue after the termination of the WYT venture. It was emphasised that the contention by Geoffrey and Mary that the business of the partnership was broader than the retail businesses, so as to include investment of profits in real property, had been argued before Smart AJ and rejected (AT, 2/4/14, at 50, lines 25-29).
284Geoffrey and Mary sought to uphold the reasoning of Gzell J. On the construction question they contended that cl 1 of the Agreement, read with cl 10 (which provided for termination by any partner upon giving two months written notice), had the effect of excluding s 32(b) from operating to bring the partnership to an end on the cessation of business of WYT in June 1989.
285In oral argument, counsel for Geoffrey and Mary accepted that there was no partnership "business" or activity after the closure of WYT, but argued that the partnership nonetheless continued because it held assets, being the three properties, although this was unknown to the partners (other than KST) (AT, 1/4/14 at 57, lines 11-23).
[55]
Discussion
286Gzell J reasoned that because there were two businesses it could not be said that there was a single venture or undertaking, or a single date on which the venture or undertaking was terminated. This reasoning assumed that the "venture" was properly characterised as that of two separate businesses or ventures - a general store/grocery store and a butchery business. His Honour did not consider whether the venture could be characterised more broadly so as to meet the description of a "single adventure or undertaking".
287The narrow characterisation given to the venture by Gzell J partly stems from his Honour's error in referring to YS as being purchased "subsequently" to WYT (at [307] GJ1). In fact both businesses were purchased contemporaneously from the same vendors, pursuant to letters of offer dated 30 July 1975, and in each case the purchaser was to take possession on 1 August 1975: at [59]-[60] and [62] May Judgment. Geoffrey's evidence was consistent with there being a single venture. He described the vendors as owning "a business in Chinatown", comprising WYT situated in Little Hay Street, Sydney and YS situated just around the corner in Harbour Street, Sydney (Blue 1/81H-K).
288Gzell J also seems to have overlooked the earlier finding of Smart AJ that, although separate accounts were kept, the two businesses were controlled by KST and acted in conjunction with each other: at [95] May Judgment. This finding is consistent with Margaret's contention that the two businesses were acquired and operated in tandem and constituted the "venture". The finding by Smart AJ is amply supported in the evidence, including:
(1)Geoffrey's evidence that he registered as a group employer with the ATO of both businesses (Blue 1/82I and 83G), and that he obtained sales tax exemptions from the ATO (Blue 1/82H), which were issued in the names of the partners "trading as Wing Yuen Tai and Yee Sing Butchery". The sales tax exemption certificate described the partnership as "manufacturers and wholesale merchants" (Blue 1/60J and N).
(2)Mary's evidence that the takings from YS were brought over to WYT and given to KST at the end of each day (Blue 1/7M-N), and that the staff from WYT would sometimes go to YS to help out when the butchery business was busy (Blue 1/70G-P).
289The proper characterisation of the partnership "venture", as either single or multiple, is complicated here by the fact that the Agreement only referred to the WYT business. It seems however that the partners were content to rely upon their written Agreement in respect of WYT as also covering YS. Certainly, as Smart AJ recorded (at [95] May Judgment), for the purpose of the proceedings YS was included where WYT was referred to. The declaration made by Smart AJ on 25 June 2010 seems to have also proceeded on this basis.
290Whether two businesses can meet the description of a "single adventure or undertaking", must be addressed by reference to the whole of the circumstances of the case. The mere circumstance that the partnership in the present case operated two businesses at different premises is not determinative. A single venture or undertaking may have more than one outlet or place of business, as cl 2 of the Agreement contemplated for WYT. Nor does the existence of separate product lines - grocery items and butchery - preclude there being a single venture. The description of the partnership for the purpose of obtaining sales tax exemptions as "manufacturers and wholesale merchants" is not inconsistent with there being a single venture, being that of merchants buying and selling goods, including items produced by the butchery business.
291If the better view is, as I think it is, that the two businesses here comprised a single venture, no difficulty arises with identifying a single date on which the venture was terminated. If one part of the business or outlet ceased before the other, the relevant date of termination of the venture would be the cessation of business of the latter part. The position is no different than if WYT had carried on business at more than one place of business (as contemplated by cl 2 of the Agreement). In that circumstance the mere closure of one place of business would not have had the effect of terminating the venture. Rather, the venture would terminate upon the closure of the last place of business.
292Subject to the argument next considered, I would accept the appellants' submission that there was a single venture which terminated when the WYT business closed on or about 30 June 1989.
[56]
Was there a contrary agreement to continue the partnership?
293The question is whether there was any contrary agreement (within the opening words of s 32(b) of the Partnership Act) that the partnership continue after the cessation of business of WYT. This involves the proper construction of the Agreement. Clause 1 provided that the named persons would become and remain partners as and from 1 August 1975, "and shall continue as partners until the partnership shall be determined in the manner herein after appearing". That is a reference to cl 10, which provided:
A partner shall be entitled to terminate the partnership by giving two calendar month's notice in writing of his intention so to do and the partnership shall be terminated upon the exploration of the said period of notice.
294Counsel for Margaret submitted that there was no contrary agreement of the partners in cl 1 to continue their relationship as partners after the WYT business had terminated. It was argued that cl 1 must be construed consistently with s 1(1) of the Partnership Act. Accordingly, it was said that upon the closure of WYT, the partners were no longer "persons carrying on a business" whether at all or "in common with a view to profit", and that the partnership had come to an end in a way recognised by s 32(b) of the Partnership Act, namely on termination of the venture.
295It may be accepted that the mere fact that a partnership has ceased trading does not of itself put an end to the partnership. The partners may intend the partnership relationship to continue, for example, for the purpose of starting up a fresh business or venture, reviving the previous business, improving or maintaining their position with regard to tax liability, or crystalising certain rights or obligations: Chahal v Mahal at [26] (Neuberger LJ, Carnwarth and Arden LJJ agreeing); National Westminster Bank Plc v Jones [2001] 1 BCLC 98 at [113]-[114] (Neuberger J when sitting as a Judge of the Chancery Division).
296Nonetheless, the fact that partners have ceased carrying on business together may, in the circumstances, and in the absence of reasons to the contrary, raise the inference that there is no longer a partnership because of the provisions of s 1(1) of the Partnership Act. Here it is said by the appellants that a reasonable person would have understood cl 1 of the Agreement not to provide for the continuation of the partnership after the closure of WYT unless the Agreement specifically provided for that to occur.
297It was also said that the provision for termination of the partnership by giving two months' written notice pursuant to cl 10, was directed to the circumstance where the WYT business was still continuing, and that the clause had no sensible work to do once the WYT business had come to an end. At that point, so the argument ran, s 32(b) of the Partnership Act brought about the dissolution without the need for the giving of any written notice of termination.
298The Court must adopt an objective approach in determining the rights and liabilities of the partners under the Agreement. As the High Court has recently emphasised "The meaning of the terms of a commercial contract needs to be determined by what a reasonable business person would have understood those terms to mean... it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract": Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 306 ALR 25 at [35] (French CJ, Hayne, Crennan and Keifel JJ).
299One relevant background circumstance is the finding of Smart AJ rejecting Geoffrey's evidence that the terms of the partnership included the investment by KST of partnership profits in real estate (at [86] May Judgment). This finding, which is not challenged, is inconsistent with the partners intending by cl 1 that the partnership would continue beyond the termination of the WYT business, until written notice was given under cl 10 by one of the partners. Further, nothing in cl 1, or elsewhere in the Agreement, points to an intention of the partners to continue the partnership beyond the undertaking identified as WYT.
300In my view, a reasonable businessperson would not have understood cl 1 to mean that after the WYT business ceased the partners nonetheless intended to continue the partnership. The scope of the partnership business did not include investing in real property. Nor did the partners subsequently agree to continue the partnership after the WYT business ceased. Of course, that does not mean that there would be no liability to the other partners for any breaches of fiduciary duty by KST in using partnership funds without authority. Any liability of a partner to account to the other partners would remain part of the post-dissolution winding up.
301I conclude that on proper construction of the Agreement, the partnership came to an end upon closure of WYT on or about 30 June 1989.
302Accordingly Gzell J erred in rejecting the dissolution argument based on s 32(b) of the Partnership Act.
[57]
Abandonment
303Where it is plain from the conduct of parties to a contract that neither intends that the contract shall be further performed the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423 at 434; Summers v The Commonwealth [1918] HCA 33; 25 CLR 144 at 151-152 (Isaacs J).
304Whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from objective assessment of the conduct of the parties: Ryder v Frohlich at [136] and the cases there cited.
305As McColl JA noted in Ryder v Frohlich at [137], the underlying premise of the abandonment cases is that a period of time elapses during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned. Her Honour continued (at [137]) "it is clear that the question whether an 'inordinate' length of time has been allowed to elapse" is relative.
306The reference by McColl JA to "an 'inordinate' length of time", is taken from Fitzgerald v Masters [1956] HCA 53; 95 CLR 420 at 432. There Dixon CJ and Fullagar J considered that where neither party has attempted to perform a contract and where "an 'inordinate' length of time" has elapsed, it may be inferred that the contract has been abandoned. Their Honours (at 432) gave as an example the decision in Pearl Milco Ltd v Ivy Tannery Co Ltd (1919) 1 KB 78 at 82 (Rowlatt J). They continued:
What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that (in the words of Rowlatt J) 'the matter is off altogether'.
307Margaret contended, in the alternative to dissolution brought about by s 32(b) of the Partnership Act, that the partners ceased to conduct themselves as a partnership after 30 June 1989. It was said that, implicitly, they agreed to terminate the partnership from that date. Margaret pointed to the following conduct from which it was said an agreement to abandon the partnership should be inferred:
(1)that all of the business assets of YS and WYT had been sold or liquidated by 30 June 1989;
(2)that Geoffrey and Mary knew of the sale of YS by 1989 at the latest, and also knew of the closure of WYT by 1994 at the latest, and in both cases did not raise any objection or require the partnership business to continue in some other way;
(3)that the partners ceased recording partnership income in their individual tax returns after 1989; and
(4)the partnership itself ceased preparing financial statements after 1989 and did not lodge any further tax returns.
[58]
New point on appeal
308Geoffrey and Mary objected to the appellants raising the abandonment argument and said that it involved a new point on appeal. Counsel for Margaret fairly accepted in oral argument that this was not the way the case was argued below (AT, 31/3/14 at 9, lines 26-31). Later however counsel contended that the dissolution issue had been sufficiently raised in Margaret's defence, although not separately particularised. Counsel for Margaret also contended that the reply by Geoffrey and Mary had the effect of widening the issues (AT, 31/3/14 at 12, line 40, - 14, line 8).
309It is necessary to turn to the relevant parts of the pleadings. In paras 45 and 46 of the defence of Margaret and Helen (Red 42), it was contended:
45. In the alternative, any partnership (the existence of which is otherwise denied) was dissolved at the latest on 1 July 1989 when Wing Yuen Tai was closed down and any legal or equitable rights arising on dissolution arose no later than 1 July 1989.
PARTICULARS
Section 32(b) of the Partnership Act 1898 NSW.
46. In the premises and in answer to the whole of the Further Amended Statement of Claim, the Defendants say that, pursuant to the Limitation Act 1969, the action brought by the plaintiffs is not maintainable as it has been brought more than six years after 1 July 1989, being the date on which the cause of action accrued.
PARTICULARS
(a) To the extent that a liability to account at law is alleged, the Defendant rely on section 15 of the Limitation Act 1969 (NSW).
(b) To the extent a liability to account in equity is alleged, the Defendant say that the section 15 of the Limitation Act is to be applied by analogy.
... .
310By their reply (Red 24), Geoffrey and Mary contended as follows:
3. In answer to paragraph 45 of the Defence, the Plaintiffs say that the partnership was not limited to the operation of the Wing Yuen Tai business and was not dissolved on the cessation of the operation of that business.
4. In answer to paragraph 46 of the Defence, the Plaintiffs say:
...
(b) the partnership was not dissolved as at the time of the commencement of this proceeding;
Particulars
(i) No notice of termination of the partnership was given pursuant to clause 10 of the Agreement;
(ii) By reason of clause 16 of the Agreement, the partnership did not terminate on the death of a partner;
(iii) The partnership was not limited to the operation of the Wing Yuen Tai and Yee Sing businesses but included investment in the properties the subject of this proceeding.
... .
311The function of pleadings is to state with sufficient clarity the case that must be met. As the High Court said in Banque Commerciale SA, En Liquidation v Akhil Holdings [1990] HCA 11; 169 CLR 279 at 286:
pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision.
312Particulars fulfil the "important function of informing a party of the nature of the case he has to meet and of limiting the issues of fact to be investigated by the court": Bailey v Federal Commissioner of Taxation [1977] HCA 11; 136 CLR 214 at 219.
313Here the issue squarely raised on the pleadings was whether the partnership was dissolved no later than 1 July 1989 when the WYT business was closed. The particulars to para 45 of Margaret's defence limited the dissolution argument to the issue raised by s 32(b) of the Partnership Act. The reply by Geoffrey and Mary only put in issue whether the partnership was entered for a single venture or undertaking. In my view, the reply did not have the effect of widening the issues to encompass the abandonment argument now sought to be raised on appeal.
314Next it was contended by counsel for Margaret that the present case fell within one of the recognised exceptions to the principle that a party is bound by the conduct of his or her case. It was said that the abandonment argument was based upon facts either admitted or proved beyond controversy and thus it was expedient in the interests of justice that the question should be argued and decided: O'Brien v Komesaroff [1982] HCA 33; 150 CLR 310 at 319 (Mason J); Coulton v Holcombe [1986] HCA 33; 162 CLR 1 at 8.
315Counsel for Geoffrey and Mary submitted that this exception does not apply here because the new ground could possibly have been met by calling evidence at the hearing or, had the ground been raised below, Geoffrey and Mary might have conducted the case differently at trial: Multicon Engineering Pty Ltd v Federal Airports Corporation at 645. Although counsel was unable to identify in oral argument what further evidence might possibly have been called by Geoffrey and Mary at trial to meet the abandonment argument, it was argued that any assent by conduct to the abandonment of the partnership was vitiated by misrepresentations by KST and Helen that there were no partnership assets. It was further argued that Geoffrey and Mary might have brought a cross claim against the Estate, and possibly also against Helen.
316I accept the submission of Geoffrey and Mary that they might have conducted the case differently at trial if the abandonment argument had been squarely raised. In the circumstances the appellants should not be permitted to rely on this new point.
317There is a further matter to be considered. As already mentioned, Geoffrey and Mary had objected at trial to the abandonment argument when it was first raised in written submissions by Sunly and Gordon before Smart AJ. Having been put on notice of this objection, no application was made by any of the appellants to seek leave to amend their defences to rely upon the abandonment argument. It may be inferred that the appellants made a decision at trial not to pursue the abandonment argument, recognising the force of the objection. No sufficient reason has been demonstrated why the appellants ought to be permitted to raise this new point on appeal.
[59]
Conclusions on the date of dissolution
318The appellants are not entitled to raise the abandonment argument as a new point on appeal. Nonetheless, for the reasons earlier given, Margaret's contention that the partnership was dissolved on or about 30 June 1989 has been made out. It follows that Gzell J erred in dissolving the partnership as at the date of the Court order made on 13 March 2013. This declaration should be set aside. In its place there should be a declaration that the partnership was dissolved by no later than 1 July 1989. The implications of this conclusion for limitation are a matter to which I now turn.
[60]
Limitation Act defences
319At trial the appellants raised defences relying on various provisions of the Limitation Act - ss 15 (account), 24 (arrears of income), 47 (recovery of trust property), and 48 (breach of trust). The Estate pleaded the Limitation Act generally by way of defence and in particulars referred to ss 15 and 48 (Red 30Q-31C).
320By their reply, Geoffrey and Mary pleaded that: (i) the claims for an account of profits and equitable compensation were not subject to the Limitation Act; (ii) as at the commencement of the proceeding the partnership had not been dissolved; (iii) the claims relating to trust property were brought within the time prescribed by s 48 or, alternatively, s 47 of the Limitation Act; and (iv) their claims were not time barred (Red 19C-P). (The claim for equitable compensation, in the alternative to an account of profits, may be put aside. This claim was not ultimately pressed in final relief.)
321Notably Geoffrey and Mary did not plead any reliance on the Limitation Act, s 55 - that the cause of action was fraudulently concealed and that time did not commence to run until they discovered, or should with reasonable diligence have discovered, the concealment: s 55(1)(b). Nor did they plead any reliance on the equitable doctrine of fraudulent concealment as a reason why equity would not apply any time bar in the statute by analogy.
322The proceeding was commenced on 7 November 2005. If a 6 year limitation period applied, without suspension, any cause of action accruing prior to 8 November 1999 would have been extinguished; if a 12 year period applied, without suspension, that result followed only in respect of causes of action which accrued prior to 8 November 1993.
[61]
Reasons of Smart AJ
323Smart AJ rejected all of the defences based on the Limitation Act: at [509] May Judgment. In relation to ss 15 and 24, which provide a limitation period of six years with respect to an action for an account based on a liability at law and an action for arrears of income, his Honour seems to have proceeded upon the basis that Geoffrey and Mary's claims were for equitable relief and that the Limitation Act did not apply otherwise than by analogy (see Limitation Act, s 23): at [493]-[494] May Judgment.
324In relation to s 47, which provided a limitation period of 12 years with respect to an action based on fraud or fraudulent breach of trust, or to recover trust property or money on account of a wrongful distribution of trust property, Smart AJ rejected the application of s 47 on the basis that it did not apply directly and that equity would, in the exercise of the Court's discretion, not apply the limitation defences by analogy. The discretionary matters which his Honour took into account were his findings of an express trust; the propounding of the false will of KST; and the conduct of KST and the statements made by him, including his false statements that the businesses had incurred losses and there were no profits: at [499] May Judgment.
325Smart AJ also found in relation to s 47 that any cause of action to recover property was suspended until at least November 2001 because Geoffrey and Mary could not with reasonable diligence have discovered the facts giving rise to that cause of action before that date: at [506]-[507] May Judgment.
[62]
The limitation issues on appeal
326The focus of the debate on appeal was on whether the claims for relief were purely equitable, and if so, whether the Limitation Act, in particular ss 15 or 47, applied either directly or by analogy. The argument proceeded at three levels. One concerned the proper characterisation of the relief claimed by Geoffrey and Mary: were they claiming purely equitable relief by way of an account of profits in respect of specific wrongdoings, were they seeking to recover trust property, or were they seeking an account based on a liability at law to account?
327The second concerned the manner in which equity applied the statute by analogy, assuming that the statute did not apply directly to their claims.
328The third concerned whether Geoffrey and Mary could rely upon postponement of any statutory time bar fixed by ss 15 or 47 if applicable, because the cause of action was "fraudulently concealed" until November 2001: Limitation Act, s 55.
329So far as ss 24 and 48 of the Limitation Act are concerned, the appellants did not press reliance on these provisions in oral argument and these may be put aside.
330The provisions of the Limitation Act which were debated on appeal provide:
15 Accounts
An action on a cause of action for an account founded on a liability at law to account is not maintainable in respect of any matter if brought after the expiration of a limitation period of six years running from the date on which the matter arises.
47 Fraud and conversion; trust property
(1) An action on a cause of action:
(a) in respect of fraud or a fraudulent breach of trust, against a person who is, while a trustee, a party or privy to the fraud or the breach of trust or against the person's successor,
(b) for a remedy of the conversion to a person's own use of trust property received by the person while a trustee, against that person or against the person's successor,
(c) to recover trust property, or property into which trust property can be traced, against a trustee or against any other person, or
(d) to recover money on account of a wrongful distribution of trust property, against the person to whom the property is distributed or against the person's successor,
is not maintainable by a trustee of the trust or by a beneficiary under the trust or by a person claiming through a beneficiary under the trust if brought after the expiration of the only or later to expire of such of the following limitation periods as are applicable:
(e) a limitation period of twelve years running from the date on which the plaintiff or a person through whom the plaintiff claims first discovers or may with reasonable diligence discover the facts giving rise to the cause of action and that the cause of action has accrued, and
(f) the limitation period for the cause of action fixed by or under any provision of this Act other than this section.
(2) Except in the case of fraud or a fraudulent breach of trust, and except so far as concerns income converted by a trustee to his or her own use or income retained and still held by the trustee or his or her successor at the time when the action is brought, this section does not apply to an action on a cause of action to recover arrears of income.
331Section 55 provides:
55 Fraud and deceit
(1) Subject to subsection (3) where:
(a) there is a cause of action based on fraud or deceit, or
(b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed,
the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment.
(2) Subsection (1) has effect whether the limitation period for the cause of action would, but for this section, expire before or after the date mentioned in that subsection.
(3) For the purposes of subsection (1), a person is answerable for fraud deceit or concealment if, but only if:
(a) the person is a party to the fraud deceit or concealment, or
(b) the person is, in relation to the cause of action, a successor of a party to the fraud deceit or concealment under a devolution from the party occurring after the date on which the fraud deceit or concealment first occurs.
....
332The following definitions are to be found in s 11(1):
11 Definitions
(1) In this Act, unless the context or subject matter otherwise indicates or requires:
...
Trust includes express implied and constructive trusts, whether or not the trustee has a beneficial interest in the trust property, and whether or not the trust arises only by reason of a transaction impeached, and includes the duties incident to the office of personal representative but does not include the duties incident to the estate or interests of a mortgagee in mortgaged property. [Emphasis added]
Trustee has a meaning corresponding to the meaning of "trust".
333Notably the words which are emphasised in the above definition, "and whether or not the trust arises only by reason of a transaction impeached", do not appear in the definition of "trust" and "trustee" in the English Limitation Act or its predecessor the Limitation Act 1939. Those limitation statutes (see s 38(1) of the English Limitation Act and s 31(1) of the Limitation Act 1939) adopted and made applicable the definition of "trust" and "trustee" as now appearing in s 68(17) of the English Trustee Act 1925 which provides:
In this Act unless the context otherwise requires ...
(17) ... the expressions 'trust' and 'trustee' extend to implied and constructive trusts, and to cases where the trustee has a beneficial interest in the trust property, and to duties incident to the office of a personal representative, and 'trustee' where the context admits, includes a personal representative, and 'new trustee' includes an additional trustee.
334In its First Report on the Limitation of Actions (LRC 3, October 1967), the New South Wales Law Reform Commission commented on its proposed definition of "trust" (at para 80):
The reference to a trust arising only by reason of a transaction impeached and the marginal reference to Taylor v. Davies ([1920] A.C. 636) are made so as expressly to comprehend what might appear to many minds to be a typical constructive trust, namely, the case of a man in a fiduciary position acquiring, in breach of his duty, property in relation to which he is a fiduciary. In Taylor v. Davies (above) however, Viscount Cave, giving the reasons of the Privy Council, said that such a man was not a trustee within a definition similar to that in the Trustee Act and was thus not disentitled to plead a statute of limitations. He said (at p. 653), in relation to a provision like section 69 of the Trustee Act, 1925-1965- "The expressions 'trust property' and 'retained by the trustee' properly apply, not to a case where a person having taken possession of property on his own behalf, is liable to be declared a trustee by the Court; but rather to a case where he originally took possession for or on behalf of others. In other words, they refer to cases where a trust arose before the occurrence of the transaction impeached and not to cases where it arises only by reason of that transaction." We think that a fiduciary who becomes a constructive trustee by taking property in breach of his duty should not be in a better position in relation to the limitation of actions than other trustees and the references inserted in the definition of "trust" will ensure that he is not.
335The definitions of "trust" and "trustee" in the Limitation Act adopted the proposals of the New South Wales Law Reform Commission. None of the parties contended on appeal that these definitions, when used in s 47 of the Limitation Act, did not give effect to the intention of the New South Wales Law Reform Commission as stated in LRC 3 at para 80.
336The position in England is different. In Williams v Central Bank of Nigeria [2014] UKSC 10; 2 WLR 355 at [144], the Supreme Court recently held, by majority, that the words "trust" and "trustee" in s 21(1)(a) of the English Limitation Act bore their orthodox meaning and so, for the purposes of the limitation provision, a "trustee" did not include a party who was liable to account in equity simply because he was a knowing recipient of trust assets or a dishonest assister in a breach of trust. The reference to "constructive trusts" in the definitions of "trust" and "trustee" for the purposes of the English Limitation Act was held to apply only to those who, at the time of the misapplication of the assets, have assumed the responsibilities of a trustee, whether expressly or de facto (at [13] per Lord Sumption JSC, Lord Hughes JSC agreeing; [70]-[73] per Lord Neuberger PSC, Lord Hughes JSC agreeing).
337Earlier in Nolan v Nolan, Ormiston JA (Chernov and Eames JJA agreeing) had reached the same view (at [63]) as to the meaning of the words "trust" and "trustee" in s 21(1)(b) of the English Limitation Act, in relation to a claim to recover trust property said to have been converted to the use of a "constructive trustee".
338By contrast, when one looks at the definitions of "trust" and "trustee" in s 11(1) of the Limitation Act, the reference to "and whether or not the trust arises only by reason of the transaction impeached", makes clear that it was intended that "constructive trustee" or "trustee" was to have a wider meaning than that which they had been given by the Courts of Equity previously, such as in Taylor v Davies. No party sought to argue that s 47 of the Limitation Act did not apply to a constructive trustee liable to account in equity based on a Black v Freedman claim. In the absence of argument to the contrary, the Court should proceed to determine these appeals on the basis argued by the parties.
339It is convenient to next turn to the reliance placed by Geoffrey and Mary on s 55 of the Limitation Act:
[63]
Postponement of limitation period under s 55
340Counsel for Geoffrey and Mary contended that if ss 15 or 47 applied to their claims, the statutory time bars fixed by those provisions would be postponed under s 55 on the basis that the cause of action was "fraudulently concealed", within the meaning of s 55(1)(b), until November 2001. They argued that the fraudulent concealment by KST was proven by the findings of Smart AJ, when dealing with the indefeasibility defences, that KST's conduct in treating partnership assets as his own involved fraud, an act of dishonesty, and moral turpitude: at [487] May Judgment.
341The appellants objected to Geoffrey and Mary raising s 55, which they said was a new point on appeal. This objection should be accepted. Reliance on s 55(1)(b) raises an allegation of fraud against the appellants which was not pleaded or raised at trial. The requirement that such an allegation must be specifically pleaded and particularised has already been referred to in the context of the indefeasibility defences: see UCPR r 14.14(3) and r 15.
342Later in oral argument counsel for Geoffrey and Mary stated that s 55(1)(b) was only relied upon against the Estate (AT, 2/4/14 at 18, lines 39-45). However the difficulty which arises is that no notice of contention was filed seeking to uphold the findings of Smart AJ on limitation (against the Estate), relying upon alleged fraudulent concealment of the cause of action by KST. This is fatal in circumstances where the "fraudulent concealment" issue was not pleaded at trial, Smart AJ did not make specific findings referable to this issue, and the findings of fraud relied upon related to a different issue (KST's misuse of partnership assets).
343It is not to the point that the written submissions of Geoffrey and Mary on appeal made reference to s 55 of the Limitation Act (Orange 2/291). The matter is one which should have been raised in a notice of contention such as to give the Estate proper notice of the way in which Geoffrey and Mary sought to uphold the findings of Smart AJ on limitation. The belated attempt to rely on s 55 on appeal should be rejected.
[64]
Characterisation of Geoffrey and Mary's claims for relief
344Counsel for Geoffrey and Mary acknowledged that the relief claimed included a general account against the Estate and FC Chow. However, it was said that no action for an account at law was pleaded or claimed against any of the appellants.
345The primary contention advanced in written submissions was that Geoffrey and Mary did not seek to recover trust property at all. Rather it was said that they sought an account of profits earned from property held on trust for the partnership. It was argued that the claim for an account of profits against the appellants was purely equitable and did not accrue until the partnership was dissolved (Orange 2/298 [182]-[183]).
346Alternatively, if the claim was properly characterised as a claim to recover trust property, it was contended that such a claim was also purely equitable and the Limitation Act did not apply directly; that s 15 did not apply by analogy because the claim included a trust element; that s 47 was the closest analogy in the Limitation Act to the circumstances of the case (AT, 2/4/14 at 17, lines 9-17); but that time did not run under s 47 prior to November 2001, because as Smart AJ found, Geoffrey and Mary could not with reasonable diligence, have discovered the facts until receipt of the draft report of the Administrator dated 29 November 2001.
347The appellants contended that at least some of the claims for relief involved an action for an account at law based on the Agreement, to which s 15 applied directly or at least by analogy. The claims for proprietary and accounting relief in respect of the properties were said to be time barred by s 47 either directly or by analogy.
348In addition, counsel for Margaret raised a preliminary objection that, in the absence of a claim for an account of partnership profits, the claims by Geoffrey and Mary for proprietary relief should have been dismissed. It was argued that it is only in unusual circumstances that the Court will permit one partner to sue another in respect of a partnership transaction or the receipt by one partner of a partnership asset, otherwise than in an action for an account: Marshall v Bullock [1998] EWCA Civ J0327-15. Here the alleged breaches of fiduciary duty by KST by using partnership funds in acquiring the properties were said to be entirely derivative of, or parasitic on, primary breaches of the Agreement by KST. It was also said that the claim for an account of partnership profits would have been time barred by the 6 year limitation period in s 15, because the partnership was dissolved on or about 30 June 1989.
[65]
Discussion
349The starting point on limitation must be the pleadings and the relief claimed. Attention must also be given to the relief ultimately granted in the final orders made by Gzell J.
350So far as the pleadings are concerned, the claims for relief by Geoffrey and Mary included:
(1)proprietary relief in respect of the use of partnership funds by KST to acquire the three properties (Relief, paras 2A and 3);
(2)proprietary and accounting relief in respect of any profits derived from the three properties and the sale of the businesses (WYT and YS) (Relief, para 6);
(3)an account on a wilful default, or alternatively, common form basis, to the partnership generally as against KST and his second wife, F C Chow (Relief, paras 13 and 14).
351By an amendment to their pleading on 17 August 2012 (being well after the May judgment of Smart AJ which dealt with limitation), Geoffrey and Mary sought an inquiry in the following terms: (Relief, para 9):
9 Orders providing for:
(a) an inquiry to be held in order to identify (a) the current assets of the Partnership, including the proceeds from the sale of any of the properties, (b) the proceeds of the sale of the YS and WYT business and (c) the benefits obtained by the defendants through their ownership of the properties in the period since their acquisition; and
(b) the defendants to account for the benefits they have obtained through KST's breaches of the terms of the Partnership Agreement and breaches of fiduciary duty, including (but not limited to) their possession and use of the three properties since their acquisition.
352The final orders made by Gzell J are set out above at [100]. The relief granted against the appellants, included:
(1)proprietary relief in relation to the three properties which were found to be held on trust for the partnership (orders 3 and 4);
(2)declaratory and accounting relief in respect of 90% of any profits derived from the three properties since the date of acquisition (or in the case of Sunly and Gordon, since 7 November 2005), after just allowances, if any (orders 5 and 8);
(3)an inquiry to be held to identify what, if any, moneys Geoffrey and Mary are entitled to, and from whom, by way of an account of profits, after taking into account any just allowances (order 7).
353Notably no order was made for an account generally against either the Estate or F C Chow.
354However the terms of the inquiry which was directed to be held were not confined to the declaratory and accounting relief granted in orders 5 and 8. Although there was no express reference in order 7 to identifying the proceeds of sale of the WYT and YS businesses (Relief, paras 5, 6 and 9), the scope of the inquiry extended to ascertaining:
the current assets of the partnership;
the extent of the capital and loan contributions made to the partnership by KST;
the dealings and transactions between the partners (if any); and
the partners' respective entitlements to partnership assets as a result of such contributions, dealings and transactions.
355These aspects of the inquiry would require the taking of accounts between partners as an element of determining any just allowances to which the defendants should be entitled when giving an account of profits in respect of the benefits derived from the properties. That Gzell J had in mind the taking of accounts between partners may be seen from his observations at [206] and [232] GJ1.
356Having identified the final relief granted by Gzell J, I now turn to the circumstances in which ss 15 and 47 of the Limitation Act apply either directly or by analogy.
[66]
Claim for an account
357The question of whether the six year limitation period in s 15 was intended to apply to actions for account at common law or in equity was addressed in the report of the Law Reform Commission of New South Wales (LRC 3) of October 1967, which stated in [112]:
We have attempted to draw what we think is the right line in s 15 of the Bill. It will apply directly to an action, whether at law or in equity, for an account founded on a legal liability to account: it will be applicable by analogy to an action in equity for an account on an equitable liability to account.
358The circumstances in which equity acted by analogy to the statute are best described by Lord Westbury in Knox v Gye at 674-675:
The general principle was laid down as early as the case of Lockey v. Lockey (1719) Prec Ch 518, where it was held that where a Court of Equity assumes a concurrent jurisdiction with Courts of Law no account will be given after the legal limit of six years, if the statute be pleaded. If it could be doubted whether the executor of a deceased partner can, at Common Law, have an action of account against the surviving partner, the result will still be the same, because a Court of Equity, in affording such a remedy and giving such an account, would act by analogy to the Statute of Limitations. For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation. This is the meaning of the common phrase, that a Court of Equity acts by analogy to the Statute of Limitations, the meaning being, that where the suit in Equity corresponds with an action at Law which is included in the words of the statute, a Court of Equity adopts the enactment of the statute as its own rule of procedure. But if any proceeding in Equity be included within the words of the statute, there a Court of Equity, like a Court of Law, acts in obedience to the statute.
...
Where a Court of Equity frames its remedy upon the basis of the Common Law, and supplements the Common Law by extending the remedy to parties who cannot have an action at Common Law, there the Court of Equity acts in analogy to the statute; that is, it adopts the statute as the rule of procedure regulating the remedy it affords.
359In Paragon Millett LJ explained the position in relation to an action for an account as follows (at 415-416):
The law on this subject has been settled for more than a hundred years. An action for an account brought by a principal against his agent is barred by the statutes of limitation unless the agent is more than a mere agent but is a trustee of the money which he received: see Burdick v Garrick (1870) LR 5 Ch App 233; Knox v Gye and Re Sharpe, Re Bennett, Masonic and General Life Assurance Co v Sharpe [1892] 1 Ch 154. A claim for an account in equity, absent any trust, has no equitable element; it is based on legal, not equitable rights: see How v Earl Winterton [1896] 2 Ch 626 at 639 per Lindley LJ. Where the agent's liability to account was contractual equity acted in obedience to the statute: see Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 at 631 per Lord Redesdale. Where, as in Knox v Gye, there was no contractual relationship between the parties, so that the liability was exclusively equitable, the court acted by analogy with the statute. Its power to do so is implicitly preserved by s 36 of the 1980 Act (re-enacting in simpler terms the tortuous provisions of s 2(2) and (7) which were subjected to critical analysis by Megarry V-C in Tito v Waddell (No 2) [1977] Ch 106 at 250-252).
360Paragon may be taken to establish two matters. First, a claim for an account in equity, absent any trust, has no equitable element. It is based on legal, not equitable rights. Accordingly, where the liability to account is contractually based, equity acts in obedience to the statute of limitations. However, if there is no contractual relationship between the parties, and the liability is exclusively equitable, the Court acts by analogy with the statute.
361Secondly, there is a distinction between the liability of an agent to account and the liability of an agent for funds held as a constructive trustee. The same may be said in the case of partners. Thus the fact that someone is a fiduciary, that is, an agent or partner, does not make their failure to account a breach of fiduciary duty or make them liable to pay equitable compensation. This is because the simple duty to account is not a fiduciary duty: Coulthard v Disco Mix Club Ltd [1999] All ER 457 at 477-478 (Jules Sher QC).
362Accordingly, the limitation period in s 15 of the Limitation Act cannot be side stepped by describing a contractual duty to account, or the duty at law arising under s 29 of the Partnership Act, as a claim for breach of fiduciary duty. It is a claim to which s 15 of the Limitation Act applies directly. Where proceedings are brought in equity, equity acts in obedience to the statute and applies s 15 directly to such a claim for the taking of accounts.
363On the other hand, where the claim for an account involves a trust element it is a claim in equity's exclusive jurisdiction. In respect of such claims, two questions arise. First, does some limitation statute apply directly to the equitable claim? If so, one applies the statute. Secondly, if no limitation statute applies directly, does the equitable claim "correspond" to a legal claim to which a limitation statute applies? If so, equity will apply the time bar in the statute by analogy unless reliance by the defendant on the statute would in the circumstances be unconscionable.
364The last matter may be taken to have been established in this Court in Gerace v Auzhair Supplies Pty Ltd (Gerace) [2014] NSWCA 181. (An application for special leave to appeal to the High Court was dismissed on 10 December 2014: Auzhair Supplies Pty Ltd v Gerace [2014] HCASL 231). At [70] Meagher JA said (Beazley P and Emmett JA agreeing):
The authorities referred to above, and in particular R v McNeil [1922] HCA 33; 31 CLR 76, show that in purely equitable proceedings, where there is a corresponding remedy at law in respect of the same matter and that remedy is the subject of a statutory bar, equity will apply the bar by analogy unless there exists a ground which justifies its not doing so because reliance by the defendant on the statute would in the circumstances be unconscionable. They do not support the proposition that equity retains any broader discretion whether to apply the bar. The description of such a ground, or the conduct giving rise to or constituting it, as unconscionable or unconscientious leaves to be identified the principles according to which equity justifies that conclusion [citations omitted].
365Gerace may also be taken to establish (at [74]) that where a limitation statute applies by analogy, equity does not retain a general residual discretion to decline to apply it: cf Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497 at 509; The Duke Group Ltd (in liq) v Alamain Investments Ltd [2003] SASC 415. It follows that Smart AJ erred in taking the contrary approach (at [499] May Judgment) relying upon those authorities.
366At [35] in Gerace, Meagher JA observed that there are two classes of cases in which courts of equity have declined to apply limitation periods by analogy: one, claims by a beneficiary against a trustee for breaches of trust, the other, claims involving fraud or fraudulent concealment. It is the latter category which is potentially relevant in the present case.
367It is to be noted however that the equitable doctrine of concealed fraud is not an answer to the application of a limitation statute to a claim at law: Gerace at [43]. The relevant provision is s 55 of the Limitation Act itself, but, as already explained, Geoffrey and Mary cannot rely on s 55 as a new point on appeal.
368In equity, where the cause of action was one alleging fraud, or when fraud was an element in the cause of action, time did not run until the discovery of the fraud. Where the cause of action was one which did not involve fraud, but its existence was fraudulently concealed by the defendant, time did not begin to run until both the concealment was discovered and the cause of action ascertained: JD Heydon, MJ Leeming & PE Turner, Meagher, Gummow & Lehane's Equity: Doctrine & Remedies (5th ed. 2014 Lexis Nexis Butterworths) (Meagher, Gummow and Lehane) at [36-100].
369This latter category of cases included causes of action for unauthorised investments by company directors, and drawings by a partner in excess of that partner's share of profits. In these latter cases, "active concealment by the defendant must be shown": Re Lands Allotment Co [1894] 1 Ch 616 at 639. The authors of Meagher, Gummow and Lehane continue at [36-100]:
For a plaintiff to 'discover' such an action, the plaintiff must have either actual knowledge that a 'fraud' has been committed or actual knowledge of facts which give rise to such an action. The possessing of means of knowledge is not enough. The defendant is not allowed to say that the plaintiff ought diligently to have discovered the fraud, unless the defendant can prove that although the plaintiff's suspicions were aroused, the plaintiff deliberately refrained from inquiry. However the doctrine of imputed notice does apply; knowledge by an agent derived in the course of the agency is knowledge of the principle [citations omitted].
370If the equitable claim does not correspond to a legal claim to which a limitation statute applies, then no application by analogy is possible. In such circumstances the relevant question becomes whether some other defence such as laches, or estoppel or release, is available.
[67]
Claim to recover trust property
371The terms of s 47 have been set out above at [330]. The following observations may be made. First, the parties' submissions were largely directed to the potential application of s 47(1)(c), either directly or by analogy. It seems to have been assumed by the parties that a claim to recover profits from the trust property (whether income or an occupation rent) was also covered by this sub-section. No attention was given by the parties to the possible application of s 47(1)(b). This is addressed below at [393]ff.
372Secondly, s 47(1)(c) is concerned with claims against "a trustee or against any other person" to recover trust property or its traceable product.
373Thirdly, the words which immediately follow s 47(1)(d) are significant. They require identification of a cause of action "by a trustee of the trust or by a beneficiary under the trust or by a person claiming through a beneficiary under the trust". Geoffrey and Mary were not claiming as the trustee of a trust. The question whether a partner claiming to recover trust property on behalf of the partnership meets the description of either "a beneficiary under the trust" or "a person claiming through a beneficiary under the trust" is complicated by the nature of a partner's interest in partnership property: see above at [119]-[126].
374Here the beneficiary of the trust over the properties was declared by Gzell J to be the "partnership". However the partnership is not a person. Accordingly, the beneficiaries of the trust must be taken to be the partners themselves. Ordinarily until there has been a taking of accounts, an individual partner cannot claim a specific interest in partnership property. However, where an action for taking of accounts between partners is time barred by s 15 of the Limitation Act, it might be thought that a partner claiming to recover specific property held on trust for the partners, may meet the description of a beneficiary under the trust since the taking of accounts to ascertain a partner's share of the partnership assets is no longer possible, nor required.
375The Court received little assistance on this issue when it was raised with counsel during oral argument. None of the appellants' counsel addressed the matter directly. Counsel for Geoffrey and Mary suggested, without elaboration, that if s 47(1)(c) applied it was because Geoffrey and Mary were either a beneficiary under the trust, or a person claiming through a beneficiary under the trust (AT, 2/4/14 at 5, line 32 - 6, line 34 and 16, line 13 - 17, line 17).
376If s 47 does not apply in its terms, it remains the statutory provision closest in kind to the circumstances of the case and should apply by analogy. So much was accepted by counsel for Geoffrey and Mary (AT, 2/4/14 at 17, lines 9-17).
377With these principles in mind I turn to Geoffrey and Mary's claims for relief.
[68]
Application of principles
378It is appropriate to state the position both in relation to the relief which was claimed by Geoffrey and Mary and the final relief as ordered by Gzell J.
[69]
(a) Claim for taking of accounts
379So far as the claim involved the taking of a general account against the Estate and F C Chow, this claim was time barred. Section 15 of the Limitation Act applied directly. It was common ground that the cause of action for the taking of accounts accrued on the dissolution of the partnership: Noyes v Crawley (1878) 10 Ch D 31 at 39; Barton v North Staffordshire Railway (1887) 38 Ch D 458 at 463; The Pongola (1895) 73 LT 512 at 513; Hewitt v Henderson [2006] WASCA 233 at [27] (Buss JA; Steytler P and Pullin JA agreeing).
380Lindley and Banks on Partnership (19th ed, 2010, Sweet & Maxwell) at [23-33] notes that Lord Lindley stated the general principle thus:
So long ... as a partnership is subsisting, and each partner is exercising his rights and enjoying his own property, the statute of limitations has, it is conceived, no application at all; but as soon as a partnership is dissolved, or there is any exclusion of one partner by the others, the case is very different, and the statute begins to run.
....
It follows that a claim for an account by one or more partners against the other or others should properly never become time barred whilst the partnership is continuing.
381In the present case Gzell J erred, in my view, in concluding that the partnership was not dissolved prior to the commencement of the proceeding in November 2005. For the reasons given above under Issue B, the partnership was dissolved on or about 30 June 1989. The proceedings claiming a general account against the Estate and FC Chow were brought more than six years after that date. The fact that this claim was time barred has significance for limitation in terms of the inquiry ordered by Gzell J.
382So far as the claim involved an account of profits derived from the sale of the businesses, WYT and YS, this claim was also time barred against the Estate and the other partners. Again s 15 applied directly. Geoffrey and Mary were entitled to sue for an account on dissolution of the partnership. The account would have included any profits derived by KST from the sale of the businesses, WYT and YS. Where an action for an account is time barred, so is a claim for an account in respect of the individual items making up that account, at least where no trust element is involved: Knox v Gye at 672-673 (Lord Westbury), 677-678 (Lord Colonsay) and 687 (Lord Chelmsford); Marshall v Bullock; Paragon at 415-416.
383So far as the claim included an order for an inquiry to be held, the scope of the inquiry was not a limited inquiry, directed to the particular transactions concerning the acquisition of the three properties. That the inquiry envisaged some wider taking of accounts between partners is evident from the terms of order 7(a), (b), (c) and (d), the terms of which are set out above at [100]. Counsel for Geoffrey and Mary accepted so much in oral argument. However counsel sought to uphold the terms of the wider inquiry on the basis that it was "fair" to the appellants and the Estate, when claiming just allowances, to examine all the transactions and dealings between the partners and the contributions by KST to the partnership. It was also argued that it was necessary to take into account any contributions which Geoffrey and Mary made towards to the business (AT 1/4/14 at 54 line 23- 55, line 43). The latter contention may be doubted. The reference in order 7(d) to "such contributions" would seem to be a reference to the contributions by KST referred to in order 7(b).
384In any event, these submissions reflect a fundamental misunderstanding of the basis upon which a court will determine that it is appropriate to allow an errant fiduciary a proportion of the profits or to make an allowance in respect of skill, expertise, or other expenses, depending on the particular circumstances: Warman International Ltd v Dwyer [1995] HCA 18; 182 CLR 544 at 561-562. It does not involve the taking of a general account, or aspects of a general account, as between partners.
385There was no suggestion here of any trust element so far as the inquiry was directed to other transactions and dealings between the partners. Accordingly, the taking of an account between partners, beyond an account of the profits derived from the three properties, was time barred by s 15 directly as against the appellants, the Estate, and the other partners and by analogy as against Sunly and Gordon,
[70]
(b) Claims to recover trust property
386So far as the claim involved proprietary relief by way of imposition of a constructive trust over the three properties, the claim was purely equitable. In the absence of some sound analogy, a claim for equitable relief for breach of fiduciary duty is not subject to any period of limitation: Attorney-General v Cocke [1988] AC 414 at 421.
387If it were possible to ignore the claim by Geoffrey and Mary to recover trust property on behalf of the partnership and simply characterise their equitable claim as an account of profits, as Geoffrey and Mary contended, then the relevant analogy to be drawn would be between an action to account at law, to which s 15 applies a limitation period of six years, and an action to account at equity: Hewitt v Henderson at [26] (Buss JA; Steytler P and Pullin JA agreeing).
388However on the findings of Smart AJ, it would be unconscionable, in my view, to allow reliance on s 15 by analogy prior to November 2001. The action against the Estate is one alleging fraud against KST, and time would not run in equity until discovery of the fraud, which Smart AJ found did not occur before November 2001. Although this finding is challenged by the appellants, I conclude below that the challenge has not been made out. Accordingly, if equity applied s 15 by analogy, time would not start to run before November 2001. The proceedings were commenced within six years of this date, and the claim for equitable relief was not time barred.
389If however the equitable claim is properly characterised, as I think it should be, as an action to recover trust property, then applying s 47(1)(c), at least by analogy, the limitation period of 12 years applies, running from the date (on or about 29 November 2001) when Geoffrey and Mary first discovered the facts from which the misappropriation of funds by KST could have been identified. The proceeding claiming proprietary relief was commenced within 12 years of this date and the claim would not be time barred.
390I do not regard the above conclusion as being in conflict with the general principle that it is necessary to bring an action for an account if one partner is to recover from another. The general principle is subject to recognised exceptions including, where accounts have been finally settled, where an asset is unexpectedly recorded after a final settlement of accounts or where an account would serve no useful purpose: Marshall v Bullock. Moreover, the relief claimed here is not on the basis of a duty to account simply and only based on the relationship of partners: it is based on the claim that KST stole partnership funds, which became trust property in his hands.
391Since there has never been an account between partners, and an account at law is no longer possible in view of the time bar in s 15, the entitlement of Geoffrey and Mary in respect of specific assets the subject of a trust claim, cannot depend on ascertaining their share of the partnership assets. Rather, Geoffrey and Mary have a claim to a 20% interest in specific assets, subject to just allowances (if any).
392If an entitlement to proprietary relief by the partnership based on a Black v Freedman claim is made out by two of the partners, the absence of an account at law between partners to ascertain their shares of the partnership assets is not, in the circumstances of this case, an impediment to them recovering, directly for themselves and their former partners, trust assets in the hands of one of their former partners, KST, and any volunteer recipients.
[71]
(c) Claims to recover profits from trust property
393So far as the claim involved accounting relief in respect of profits derived from the three properties since the date of their acquisition, this claim was purely equitable. Section 47 is not limited to claims to recover trust property. It also applies to a claim for a remedy of the conversion to a person's own use of trust property received by a person while a trustee: s 47(1)(b). See Cassegrain v Gerard Cassegrain & Co Pty Ltd [2013] NSWCA 454; 97 ACSR 244 at [193] (Basten JA; Macfarlan JA agreeing).
394None of the appellants sought to argue that s 47(1)(b) did not apply to a constructive trustee who remains in occupation or uses trust property: cf Nolan v Nolan at [63] in relation to s 21(1)(b) of the English Limitation Act where "constructive trustee" does not include a trust arising by reason of the transaction impeached.
395However, counsel for Sunly and Gordon advanced a separate contention in relation to relief; namely, that they should not be liable to account for any benefits received as co-owners of Haig Street and Queen Street. Subject to that argument, the result under s 47(1)(b) is the same as for s 47(1)(c). Applying s 47(1)(b), at least by analogy, the limitation period of 12 years applies, running from the date (on or about 29 November 2001) when Geoffrey and Mary first discovered the facts from which the misappropriation by KST could be discovered.
[72]
No analogy with co-owner principles
396The separate argument of Sunly and Gordon relied on an analogy with the principle in Forgeard v Shanahan (1994) 35 NSWLR 206 at 221-224 (Meagher JA) that a joint owner of property is not liable to pay an occupation fee to his co-owners unless he has excluded or ousted them, constituted himself as bailiff, or claims an allowance from them for improvements he makes to the property.
397The suggested analogy with Forgeard v Shanahan is inapt in the case of use or occupation of trust property by a trustee, which is to be taken to include in s 47(1) a "constructive trustee".
398Re Howlett [1949] Ch 767 was a case involving an express trustee. There a husband was granted letters of administration to his wife's estate who had died intestate leaving property which comprised a wharf. The husband took, until he should die or remarry, an interest in half of the rents and profits of the wharf and, subject to that interest, the son was entitled absolutely. The husband remarried and notwithstanding that his interest in the wharf ceased, occupied and used the property for his own benefit until his death. Danckwerts J rejected the contention that the husband was only a bare trustee for the purpose of transferring the assets of the estate in due course. He found that the husband was in the position of an express trustee for the son (at 774).
399One of the questions raised was whether s 19(1)(b) of the English Limitation Act 1939 did not apply since the husband had not in fact received any rents or profits. The trustee had merely used property which was trust property for his own purposes. Section 19(1)(b) provided that there was no limitation period which applied to an action by a beneficiary under a trust to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his own use.
400Danckwerts J held that the trustee was chargeable for having received an occupation rent which he was treated as still having in his own pocket at the material date and therefore could not escape under the provisions of the English Limitation Act 1939. Danckwerts J said (at 778):
a trustee who remains in occupation of trust property for his own purposes ... cannot be heard to say that he has not received any rents or profits in respect of that property. Having received, therefore, in theory rents and profits, because he is chargeable with an occupation rent, he cannot discharge himself unless he can show that he has paid moneys away and therefore either discharged himself by proper payments or, perhaps escape under the Limitation Act having made improper payments.
401A similar conclusion was reached in the Tasmanian case of Stilbo Pty Ltd v MCC Pty Ltd [2003] TASSC 6; 11 Tas R 63 (Cox CJ and Underwood J) in relation to s 24 of the Limitation Act 1974 (Tas). Section 24 is in similar terms to s 19 of the English Limitation Act 1939. Cox CJ held (at [31]-[32]) that claims made against Ms Cameron and others in respect of funds in their hands or converted by them in contravention of their duties as constructive trustees or trustee de son tort were classified as an action to which s 24(1)(b) of the Limitation Act 1974 applied. This conclusion was reached by Cox CJ on the basis that the definition of "trust" and "trustee" included constructive trusts notwithstanding that the definition in the Tasmanian statute did not include the additional words found in s 11(1) of the New South Wales Limitation Act as referred to above.
402Underwood J referred (at [99]) to Re Howlett and said at [100] "that earnings from the trust property are just as much trust property as that which comprise the original trust, and if such earnings, or their proceeds, are still in possession of the trustee, or, he or she having received such earnings has converted them to his or her own use, those earnings fall within the provisions of the Act, s 24 in the same way as does the original trust property".
403In the present case, Gzell J ordered an account of profits by Sunly and Gordon only from 3 November 2005. This reflected the nature of the equitable obligation under a Black v Freedman claim, that the conscience of Sunly and Gordon was only bound from receipt of notice of the claim. For the reasons given above such claim was not statute barred, and there is no analogy with Forgeard v Shanahan.
404In these circumstances it is unnecessary to determine whether the views expressed by Meagher JA in Forgeard v Shanahan concerning the circumstances in which a co-owner in possession is not liable to account to other co-owners for an occupation fee, are in conflict with subsequent decisions in this Court in Ryan v Dries [2002] NSWCA 3 at [64]-[65] Hodgson JA; Sheller agreeing) and Callow v Rupchev [2009] NSWCA 148 at [62] (Beazley, Basten and Handley JJA).
405It is to be noted that this aspect of the limitation issues only arises if, contrary to my conclusion, Sunly and Gordon do not have the benefit of the indefeasibility defences. As already mentioned, counsel for Geoffrey and Mary accepted that there could be no personal liability to pay an occupation fee in respect of Haig Street if the indefeasibility defences were established.
[73]
Did Geoffrey and Mary have the requisite knowledge before November 2001?
406Smart AJ addressed the issue of Geoffrey and Mary's knowledge: at [496]-[507] May Judgment. He regarded the making available of the Administrator's draft report of November 2001 as important, because it set out significant facts. He found (at [497]) that Geoffrey and Mary did not have the requisite knowledge prior to November 2001 because:
497 ....
a) the plaintiffs could not reasonably have commenced proceedings until they knew it would be worth while to do so;
b) the plaintiffs were told that the businesses had incurred losses and there were no profits. They had effectively been kept at bay;
c) Geoffrey was contacted about the non-payment of rent of the business premises;
d) KST did not tell the plaintiffs of the moneys received from the sale of YS;
e) KST had not told the plaintiffs of his real estate investments and their purchase in cash;
(f) it was the size of KST's Estate and that it included his shares in the three properties mentioned, coupled with the realisation that the three properties had been acquired without the assistance of mortgage finance, that led the plaintiffs to commence legal proceedings. They realised, with the help of their legal advisors, that they had evidence to substantiate their case and that much of what they had been told as to the two businesses was untrue or did not represent the complete picture.
498 Geoffrey was concentrating on his lecturing duties and his other business interests and investments which he regarded as more profitable. He did not want to commence proceedings until the plaintiffs had sufficient evidence to establish their case. He realised that commencing and pursuing proceedings would be costly.
407Smart AJ recorded Geoffrey and Mary's contentions (at [503]):
503 It was further submitted that for the purposes of s 47(1)(e) the plaintiffs could not with reasonable diligence have discovered the existence of the three properties as partnership assets until details of KST's assets and income came to light after his death. It was submitted that Mary and Geoffrey were only put on inquiry of the facts giving rise to their cause of action after the first draft report of 29 November 2001 was given to them and that it was only then that they had credible evidence that partnership funds had been used to acquire the three properties.
408These contentions were accepted by Smart AJ (at [506]-[507]):
506 The plaintiffs developed suspicions about the acquisition of the Haig Street property in late 1978. Geoffrey sought advice from a solicitor and was told that the evidence he had was markedly insufficient and that a full audit would be needed. That would have been very costly, caused a family upheaval and it was not known what, of consequence, it would yield. It would not have been reasonable to pursue that line of inquiry and action.
507(a) The plaintiffs were not consulted by KST about the purchase of the Maroubra Road property in 1983, nor the Queen Street property in 1988. Business relations with KST since 1981 were almost negligible, if not a little strained. KST did not welcome enquiries as to how he was managing the finances of WYT and YS. The plaintiffs did not become aware that KST owned these until probably about 1995 during the course of preparation of KST's tax return for the year ended 30 June 1994.
(b) While Geoffrey probably considered where KST obtained the money to purchase these and suspected that the money may have come from the two businesses, he had no credible evidence on which he could act. The first draft report of November 2001 of Mr SD Pascoe, coupled with searches Geoffrey obtained or had obtained, resulted in the plaintiffs first discovering credible evidence of the facts giving rise to their cause of action as distinct from suspicions.
(c) Mary refers to Geoffrey and she considering Mr Pascoe's draft report of 29 November 2001 soon after receiving it (paragraph 65 of her affidavit of 7 December 2006). She also refers to considering his final report of May 2002. Mary said that she became aware after Geoffrey had done searches between 2001 and 2004 that KST had not been assisted by mortgage finance.
(d) Geoffrey in his affidavits refers to receiving a copy of the Administrator's report of 13 May 2002 and not expecting KST's Estate to be so substantial. The report of 13 May 2002 is in substantially the same terms as the draft.
(e) On receipt of the Administrator's report Geoffrey collated the title searches and copies of the transfers including both the dates and the amounts, analysed the reported figures for the WYT and YS businesses and attempted to work out the rental returns from the properties KST had acquired. He said that he learnt for the first time the prices for which KST had acquired the three properties and that they had been purchased in cash without any borrowing. It was the size of KST's Estate (and the nature of the assets and the circumstances of their acquisition) that was unexpected and led to Geoffrey's investigation. Geoffrey thought that KST must have had access to additional undisclosed income.
(f) Collating and analysing all the information and evaluating it and the conclusions which should be drawn would take some time. To begin such an onerous and detailed exercise the plaintiffs needed to be alerted that it was likely to be useful.
(g) Reasonable diligence would not have enabled the facts giving rise to their cause of action to be discovered earlier. In view of what the plaintiffs had been told about the losses incurred and the accounts prepared and submitted at the instigation of KST, the plaintiffs could not be expected to embark upon the heavy expense of requiring a full audit and the taking of accounts. This required more than reasonable diligence.
409The appellants contended that Smart AJ incorrectly took into account (at [506] and [507(f)]) the time at which a potential claimant understands not only their prospects of success (either by evidence gathering or otherwise) but whether such a proceeding would be profitable. It was said that Smart AJ adopted the wrong approach by taking into account irrelevant considerations, namely: (a) that the initiation of proceedings would be costly; (b) that collection and analysing information would be onerous and (c) the initiation of proceedings would cause family upheaval.
410The complaint that Smart AJ took into account irrelevant considerations mischaracterises the way in which Smart AJ approached the matter. At [506] his Honour was directing his attention to whether Geoffrey had exercised reasonable diligence to discover the facts when he first developed suspicions about the acquisition of Haig Street in late 1978. Smart AJ concluded that it would not have been reasonable for Geoffrey to pursue that line of inquiry and action at that time. His Honour took into account that Geoffrey had been advised by his solicitors that there was insufficient evidence and that a full audit of the partnership's affairs would be needed. It was in this context that Smart AJ observed that a full audit would have been very costly, caused a family upheaval, and the outcome was unknown.
411The cost of pursuing suspicions is undoubtedly relevant to whether Geoffrey exercised reasonable diligence to discover the facts at that time. Further, in the context of a partnership between family members, the likelihood of a family upheaval, where the outcome of a full audit was unknown, was also relevant to whether Geoffrey had exercised reasonable diligence to discover the facts in December 1978. Finally, there was no error in Smart AJ finding that, before undertaking the onerous task of collecting and analysing information, Geoffrey and Mary needed to be alerted that it was likely to be useful.
[74]
Conclusions on limitation
412On the assumption that the appellants do not have the benefit of the indefeasibility defences, the proprietary relief granted by Gzell J against the appellants in respect of the properties was not time barred by s 47(1)(c), which applied to this claim, at least by analogy. Nor was the accounting relief in respect of the benefits derived by the appellants from the properties time barred by s 47(1)(b) which applied to this claim, at least by analogy. As against the Estate, the conclusions on limitation are the same.
413However, so far as the terms of the inquiry ordered to be held by Gzell J involved the taking of accounts between partners, this relief was time barred by s 15 directly (as against the appellants, the Estate and the other respondents who are partners) and by analogy (as against Sunly and Gordon who were not partners).
[75]
Whether the plaintiffs' claim for relief by way of inquiry and account was barred as against KST's Estate, Margaret, Helen or Sunly & Gordon by laches, acquiescence or delay
414Laches is only available as a defence to equitable, not legal claims: Orr v Ford [1989] HCA 4; 167 CLR 316 at 340 (Deane J). Moreover, laches is confined to equitable claims which are subject to no statutory bar either expressly or by analogy: see Meagher, Gummow and Lehane at [36-090]; Green v Gaul [2006] EWCA Civ 1124; [2007] 1 WLR 591 at [39]-[40].
415In Crawley v Short [2009] NSWCA 410, Young JA (Allsop P and Macfarlan JA agreeing) identified (at [163]) the elements of the defence of laches as: "(i) knowledge of the wrong; (ii) delay; and (iii) unconscionable prejudice caused to the opponent by the delay". His Honour said (at [164]) that the key element is whether, in all the circumstances, "it would be practicably unjust to give a remedy" citing Lord Selborne LC in Lindsay Petroleum Co v Hurd (1873-4) LR 5 PC 221 at 239-240. Young JA continued (at [164]) "normally, that means that the defendant must show both delay and detriment suffered by the delay".
416In light of my conclusions above, laches has no application in the present case. However, against the possibility that the claims for proprietary and accounting relief are not subject to s 47, at least by analogy, I deal briefly with the issue of laches.
417It was not suggested that Smart AJ did not correctly identify the relevant principles by reference to Orr v Ford: at [511]-[513] May Judgment. The complaint made by the appellants was that his Honour failed to correctly apply these principles.
418The starting point in any case where laches is raised is the identification with precision of the substantive nature of the claim to which laches is said to constitute a defence: Orr v Ford at [342] (Deane J). Here the claim is to recover trust property acquired in the names of KST and the appellants using partnership moneys taken by KST without knowledge or consent of his co-partners. In Crawley v Short Young JA emphasised at [180] that the degree of knowledge, the type of transaction, and the prejudice to the defendant caused by the delay are all matters which need to be evaluated when assessing whether the defence of laches has been made out.
419The appellants failed to prove that Geoffrey and Mary had actual or inferred knowledge that KST had misappropriated partnership funds in acquiring the three properties prior to November 2001: Savage v Lunn [1998] NSWCA 203; BC9800548 (Handley, Sheller JJA and Sheppard AJA, 9 March 1998). There this Court repeated its earlier acceptance of the proposition that proof of laches "ordinarily" requires proof that the plaintiffs remain inactive after acquiring "sufficient knowledge of the facts": see Savage v Lunn citing Lindsay Petroleum Co v Hurd at 241 (Lord Selborne); Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1279 (Lord Blackburn); and Orr v Ford at 343 (Deane J).
420Sunly and Gordon contended before Smart AJ, and again on appeal, that from December 1978 Geoffrey and Mary knew facts which gave rise to a basis for inquiry as to whether they had a claim concerning Haig Street. This contention conflates suspicion with knowledge of relevant facts. Smart AJ correctly observed, in my view, that there is a major difference between evidence and suspicion and that it would not have been prudent to embark upon the costly exercise of taking account when it could not be accurately assessed what it would yield: at [548] May Judgment.
421Margaret and Helen contended before Smart AJ that it was the period of delay after the sale of YS in 1986 and the closure of WYT on about 30 June 1989 that constituted laches: at [539] May Judgment. They pointed to the interest shown by Geoffrey and Mary in obtaining searches of the three disputed properties in 1997.
422Smart AJ noted that there was a degree of overlap between the Limitation Act defences and the defence of laches. He found that the matters relied upon to defeat both defences arose, in part, from late disclosure of all the relevant material to Geoffrey and Mary: at [552] May Judgment. This was a reference to receipt of the draft Administrator's report of November 2001, when Geoffrey learnt for the first time the prices for which KST had acquired the three properties and that they had been purchased in cash without any borrowing. Further, Smart AJ found that it was the size of KST's Estate (and the nature of the assets and the circumstances of their acquisition) that was unexpected and led to Geoffrey's investigation after November 2001: at [507(b) and (e)] May Judgment. In my view, there was no error in his Honour's rejection of the appellants' contention that there had been disentitling delay: at [553] May Judgment.
423As to prejudice, the appellants pointed to prejudice arising from the absence of witnesses - F C Chow died in 1994 and KST died in 1997 - and the loss of documents. However the issue is not whether evidence may have been lost, but whether evidence which may have cast a different complexion on the matter has been lost: Orr v Ford at 330 (Wilson, Toohey and Gaudron JJ).
424Smart AJ found that the evidence of KST and F C Chow, which had been lost, did not affect their entitlement to relief although it may affect the amount payable to Geoffrey and Mary: at [554] May Judgment. That is, any evidence that KST or F C Chow may have been able to give would not have affected Geoffrey and Mary's claims that partnership moneys had been used to purchase the properties. This conclusion followed from his Honour's earlier findings, including that it could not be fairly disputed that the rental income of Wiley Park and Fairfield was insufficient to enable KST to purchase the three properties: at [519]; that the WYT and YS businesses received substantial portions of their income in cash: at [520]; and that it was highly improbable that the shortfall to purchase Maroubra Road and Queen Street could have come from unknown assets of KST or their realization: at [521]. The appellants did not establish error in his Honour's assessment of the asserted prejudice flowing from delay.
425There is one further matter to consider. The appellants contended that the time from which laches is to be assessed is the time from which the plaintiff suspects he or she has a claim. The appellants referred to Crawley v Short at [182] where Young JA said that "if a person strongly suspects that there has been unconscionable conduct perpetrated against him or her and does nothing either to obtain more detail nor to prevent the defendant going ahead on the basis that there is no challenge to his or her rights, then one is in the very territory that laches was designed to govern". A number of observations may be made in relation to this statement.
426First, it was made in the context of an oppression action, and thus it was significant in that context if a person "strongly" suspected unconscionable conduct, but did nothing either to obtain more detail or to prevent the defendant going ahead on the basis that there was no challenge to his or her rights.
427Secondly, the primary judge had found in Short v Crawley (No 30) [2007] NSWSC 1322 that the plaintiffs knew in 1997 all of the material facts upon which their claim to half of the benefits attaching to certain shares were based, that they commenced proceedings in 1998 in relation to other issues, but did not amend their claim until 2004 to challenge the transfer of shares.
428Thirdly, the present case is distinguishable. Smart AJ found that Geoffrey entertained suspicions about the acquisition of Haig Street in late 1978, but following advice from his solicitor was told that the evidence was markedly insufficient and that a full audit would be needed: at [506] May Judgment. Entertaining suspicions is not to be equated with "sufficient knowledge of the facts constituting the title to relief": Orr v Ford at 343.
429Smart AJ also found that Geoffrey probably had suspicions but no firm evidence when he noticed by about March 1995 that investment properties had been acquired in Maroubra Road and Queen Street: at [537] May Judgment. However, on his Honour's findings, Geoffrey did not "strongly" suspect that KST misappropriated partnership funds to acquire the three properties before he received the Administrator's report of November 2001.
430The grounds of appeal directed to the defence of laches should be rejected.
[76]
Whether the plaintiffs' claims for declaratory & accounting relief were barred on the ground of estoppel (whether conventional or otherwise, if open)
431In Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603 at [200], this Court approved the restatement of principles by Brereton J in Moratic Pty Ltd v Gordon [2007] NSWSC 5 at [32] that the elements of conventional estoppel are:
(a)the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant;
(b)the defendant has adopted the same assumption;
(c)both parties have conducted their relationship on the basis of that mutual assumption;
(d)each party knows or intends that the other will act on that basis; and
(e)departure from the assumption will cause detriment to one of them.
432The elements referred to in (a), (b) and (c) above had been encapsulated by the High Court in the single requirement that the parties conduct their relations with each other on the basis of agreed or assumed facts: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; 160 CLR 226 at 244.
433The doctrine of conventional estoppel precludes either party to a contract from denying an assumption which has formed the conventional basis of the relationship between them. It is for this reason that it is necessary to determine whether the parties have in fact adopted such an assumption as the conventional basis of their relationship. Here the conventional estoppel was based on the terms of the Settlement Deed entered into on or about 22 November 2002 between Mary, Helen, Sunly, Margaret, Gordon, and other children of KST.
[77]
Settlement Deed
434The Settlement Deed resolved disputes in the probate proceedings between the children of KST concerning the false will and the administration of KST's Estate.
435The recitals to the Settlement Deed included:
F. The parties have agreed to settle the matters referred to in the Statement of Claim and the Cross-Claim upon the terms and conditions set out in this Deed.
G. The parties acknowledge that no determination has been made as to the nature and extent of the assets of the Estate.
436The statement of claim which was referred to in recital F was that filed by Mary in the probate proceedings seeking a grant of letters of administration in KST's Estate in favour of the Public Trustee. The cross-claim referred to in recital F was that filed by Helen and Sunly in the probate proceedings seeking a declaration under s 18A of the Wills Probate and Administration Act 1898 (NSW) that the so-called "floral notebook" constituted the will of KST. Margaret, Gordon, and Stella supported that cross-claim (recital D).
437The probate proceedings were resolved in November 2002 on the basis that (a) the parties acknowledged and agreed that KST died intestate; (b) Helen and Sunly withdrew their cross-claim; and (c) the parties agreed that a grant of letters of administration of the Estate be made to Mr Pascoe. The parties also agreed on the distribution of KST's Estate.
438Clause 6.1 of the Settlement Deed provided for a release in the following terms:
"The parties to this Deed hereby forever release and discharge each other from all actions, suits, causes of action, claims and demands whatsoever both at law and in equity which each party now has or at any time heretofore had or at any time hereafter may have or but for the execution of this Deed could or might have had (either jointly or severally) in respect of the matters as expressly pleaded in the Statement of Claim and the Cross-Claim in the Proceedings."
[78]
Reasons of Smart AJ
439Smart AJ rejected the estoppel defence of Helen and Margaret as pleaded, which relied upon the release in cl 6.1: at [560]-[562] May Judgment. There is no challenge by Helen or Margaret to this finding.
440Smart AJ noted (at [35] May Judgment) that the agreed or assumed state of facts relied upon by Sunly and Gordon as the conventional basis of the relations between the parties was pleaded as follows:
"... the assets standing in the name of KST at his death would constitute the assets of his estate for the purposes of the deed and that the parties would respectively carry out their obligations in accordance with the deed and accept their entitlements under the deed in satisfaction of all their respective claims against the estate and against each other connected with property derived from KST or his estate, and that Mr Scott Pascoe was entitled to transfer to them severally such estates and interests as the deed provided, free from any claims by the plaintiffs of the nature advanced in these proceedings."
441Smart AJ rejected the conventional estoppel defence for two reasons. The first was that Geoffrey was not a party to the Settlement Deed: at [558] May Judgment. Accordingly it could not be said that he adopted any common assumption with the other parties that the affairs of the partnership, and any claims which might be made, would be governed by or controlled by the Settlement Deed.
442The second reason given was that by recital G to the Settlement Deed, the parties acknowledged, in effect, that the Estate's affairs and those of the partnership were kept separate. Smart AJ reasoned that this was the consequence of the parties' acknowledgement that no determination had been made as to the nature of the extent of the assets of the Estate, and no reference was made to the Agreement or the distribution of assets of the partnership: at [556] May Judgment.
[79]
Discussion
443Margaret did not plead or rely upon any defence of conventional estoppel at trial, nor on appeal.
444Sunly and Gordon contended that the only basis on which Smart AJ rejected their conventional estoppel defence was that Geoffrey was not a party to the Deed. This submission is incorrect. Smart AJ rejected the defence for the additional reason identified above, namely, that the terms of recital G were inconsistent with the basis of the conventional assumption of the parties relied upon to support the alleged estoppel. The second and independent reason given by Smart AJ has not been shown to be erroneous.
445Sunly and Gordon attempted to surmount the difficulty that Geoffrey was not a party to the Settlement Deed, by contending that his role in assisting Mary with the negotiations relating to the Settlement Deed, had the consequence that he was bound by a promissory estoppel of the type referred to by Brennan J in Waltons Stores (Interstate) Limited v Maher [1988] HCA 7; 164 CLR 387 at 428-9. This submission must be rejected.
446First, a defence of promissory estoppel based on Geoffrey's conduct was not pleaded. Such a defence raises factual questions, which could by any possibility have been met by evidence below, relating to issues of inducement and detrimental reliance. Sunly and Gordon, as well as Helen, should not be allowed to raise this new point on appeal: Metwally v University of Wollongong at 71.
447Secondly, the Court was not taken to any evidence of Sunly, Gordon or Helen which would establish detrimental reliance on any assumption or expectation, said to have been induced by Geoffrey, concerning the assets comprised in the Estate. The appellants therefore did not discharge the burden of proof in this respect: Sidhu v Van Dyke [2014] HCA 19; 308 ALR 232 at [55] and [61].
448There was no error by Smart AJ in rejecting the conventional estoppel defence.
[80]
Issue C: Declaratory & accounting relief as to the properties being held on trust for the partnership
[81]
Whether a constructive trust in favour of the partnership should have been recognised over, or imposed upon, 90% of any of the interests of KST's Estate, Margaret, Helen or Sunly & Gordon as registered proprietors of the properties.
449The appellants accepted on appeal that KST owed fiduciary duties to the partners, including Geoffrey and Mary. What was in contest were the findings of Gzell J that KST breached those duties by his alleged improper use of partnership funds to acquire the properties.
[82]
Reasons of Gzell J (in GJ1)
450His Honour found that KST breached his fiduciary duties in utilising partnership money in the purchase of the three properties at the expense of his co-partners without their full knowledge and consent: at [313]-[314]. However he also found that it was likely that KST had contributed some of his own funds towards the purchases rather than relying solely on the partnership businesses. Accordingly he concluded that KST mixed moneys of the partnership with his own moneys in acquiring the properties: at [239]-[240].
451Gzell J held (at [241]-[251]) that once it has been shown that an errant fiduciary had mixed trust funds with his own funds, the onus of proof shifts to the fiduciary to establish that it is inequitable to order that the fiduciary account for the whole of the property acquired with the mixed fund: Re Hallett's Estate (1879) 13 Ch D 696; Brady v Stapleton [1952] HCA 62; 88 CLR 322; Frith v Cartland (1865) 2 H & M 417; 71 ER 525 at 526; Vyse v Foster (1872) LR 8 Ch App 309 at 333; Hospital Products Ltd v United States Surgical Corporation (Hospital Products) [1985] HCA 64; 156 CLR 41 at 109-110 (Mason J); Warman International Ltd v Dwyer at 561-562.
452Gzell J rejected the appellants' submission that this approach to identification of trust property did not also apply to an innocent third party recipient: at [252].
453As the appellants held derivative interests under KST, Gzell J found that they had the onus of proof of establishing what were KST's interests in the three properties, and that they had failed to do so: at [253]-[254]. However he considered that it would be inequitable to hold that the transferees of the three properties held their entire interests on trust for the partnership: at [256]. He noted that there was no evidence of direct contribution of partnership funds or KST's own funds to the purchase of the three properties (at [257]) and concluded that equity should mould an appropriate order to do justice between the parties: at [259].
454Gzell J analysed the relative capacity of the partnership on the one hand, and KST (on his reported income) on the other, to contribute to the purchase price of the three properties. He concluded that KST had a capacity to contribute to the extent of $202,492. This was made up of KST's net cash for the period 1 August 1975 to 30 June 1988 of $127,780; interest on that amount of $48,355; net income for the period prior to 1 August 1975 of $7,727; interest on that amount of $2,630; and the sale price of the Hong Kong unit of $16,000: at [271]. Expressed as a percentage of the purchase prices of the three properties, the result was an 8.5% contribution by KST: at [272]. His Honour rounded this figure up slightly and held that 90% of the purchase price of the three properties was contributed from partnership funds: at [275].
[83]
Asserted errors of approach by Gzell J
455The appellants contended that the approach of Gzell J contained two errors. First it was said that his Honour applied the incorrect onus of proof as against the appellants.
456Secondly it was said that his Honour applied the incorrect standard of proof. The appellants complained that Gzell J did not take into account the seriousness of the allegations being made; the fact that the claim of alleged fraud had been made against a deceased person who was unable to defend himself; and that the proceedings were commenced over 30 years after most of the events in question. It was contended that no reasonable inferences could be definitely drawn and that Gzell J erred in finding that KST took money from the partnership to purchase the properties.
[84]
(a) Onus of proof
457None of the appellants contested the rule in equity that "if a man mixes trust funds with his own, the whole will be treated as trust property, except so far as he may be able to distinguish what is his own": Frith v Cartland (at 526). The rule, as stated by Sir William Page Wood VC in Frith v Cartland, was approved by the High Court in Brady v Stapleton at 336 (Dixon CJ and Fullagar J) and in Hospital Products at 109-110 (Mason J). Lord Millett also accepted the rule in Foskett v McKeown at 113C-D.
458Accordingly, as against the Estate, once it was demonstrated that KST had mixed partnership moneys with his own moneys in acquiring the properties, the onus of proof shifted to the Estate to establish that it was inequitable to order it to account for the whole of the property acquired with the mixed funds.
459The appellants' argument involved the proposition that a volunteer recipient of stolen funds is in a better position than the wrongdoer. No authority was cited in support of this contention. The appellants' contention is inconsistent with ordinary principles that a volunteer who derives title from a wrongdoer, otherwise than for value, is in no better position than the wrongdoer and is liable to suffer the same subordination of their interest to those of the claimant as the wrongdoer would have been: Foskett v McKeown at 132 (Lord Millett).
460As already mentioned, the constructive trust based on a Black v Freedman claim attaches immediately to the stolen moneys and its traceable product in the hands of the wrongdoer. The equitable obligation of the volunteer recipient to account for the fund or asset from the time he or she acquired notice, is to account for trust property in their hands at the time of acquiring notice of the claim. The volunteer obtains no better title to the fund or asset than the wrongdoer.
461In my view, Gzell J did not err in his approach to the onus of proof. It was for the appellants to establish what contribution KST had made from his own moneys to the acquisition of the three properties, once his Honour found that KST had mixed partnership moneys with his own moneys in acquiring the properties.
[85]
(b) Standard of proof
462The contention that Gzell J applied the incorrect standard of proof should also be rejected. Contrary to the appellants' submissions, his Honour expressly applied the Briginshaw standard (at [59]-[62]) having referred to s 140 of the Evidence Act and noted that this provision reflected the standard of proof discussed by Dixon J in Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 366 at 361-363 and later in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 67 ALJR 170 at 170-171; 110 ALR 449 at 449-450.
463In conformity with s 140 and Briginshaw, Gzell J concluded (at [64]) that where inferences were to be drawn, Geoffrey and Mary had to establish "that the circumstances appearing in the evidence give rise to a reasonable and definite inference and not merely to conflicting inferences of equal degrees of probabilities": CEPU v Australian Competition and Consumer Commissioner [2007] FCAFC 132; 162 FCR 466 at [38].
464It is convenient to turn now to the principles upon which stolen funds can be traced, when they have been used to acquire property.
[86]
Tracing of trust moneys
465The relevant principles concerning tracing have been discussed by this Court in a number of cases including Robb Evans, Heperu and also in the judgment of Campbell JA when a Judge of the Equity Division in Re Sutherland; French Caledonia Travel Service Pty Ltd [2003] NSWSC 1008; 59 NSWLR 361. It is sufficient to note the following.
466First, tracing has been said not to be a right or remedy, but a process of demonstration or proof of what has happened to property: Foskett v McKeown at 128; Rob Evans at [133]; Heperu at [89].
467Secondly, as Lord Millet pointed out in Foskett v McKeown at 128 (see also Lord Steyn (at 113)):
Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant's property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not affect or establish his claim.
468Thirdly, it is necessary to distinguish between the principles upon which stolen funds can be traced when they have been used to acquire property, and the available approach to fact finding based on the inferences drawn in the presence of fraud and the lack of explanation when plainly called for. As Allsop P stated in Toksoz v Westpac Banking Corporation (Hoeben JA and Sackville AJA agreeing):
[8] Money can be traced notwithstanding an inability of the follower to connect each link in the chain of accounts. Commonsense and reasonable inference play their part, especially if there is fraud involved and if there is a lack of explanation, when the circumstances cry out for honesty to be explained, if it can be.
[9] A number of cases reveal a sensible robust approach to the tracing of moneys from theft: R v Powell (1837) 7 Car & P 640 ; 173 ER 280; Harford v Lloyd (1855) 20 Beav 310 ; 52 ER 622; Black v S Freedman & Co; Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; El Ajou v Dollar Land Holdings Plc [1993] 3 All ER 717; and see the discussion in L D Smith, The Law of Tracing (Clarendon Press, 1997) at 263 and the other cases there cited. The expression "tracing by exhaustion" is sometimes used. Where the facts as proved are sufficient to permit the inference that moneys have been received or property bought without there being an honest source available to explain the wealth and the sums or value can be seen as referable to the following party's property wrongfully obtained, such that the inference is open that the wrongfully obtained funds were the source of the wealth, the funds can be so treated. One does not need to be able to show every link in the chain of accounts from and through which the money passed. Inferences will be more easily drawn, as here, in circumstances where the funds were stolen, the person who is said to have provided the funds was one of the thieves who stole money from the follower, when the recipient has an apparent close relationship with the thief, which recipient gave no value for it, has no personal source of income and gives no explanation as to the source or circumstances of the receipt of the money or any honest source of it.
[10] None of this is the expression of a principle of law. It is the expression of the available approach to fact finding in the presence of fraud and lack of explanation when plainly called for.
469In the present case it is not possible to trace, in the sense of identifying a causal chain, partnership moneys from a bank account in the partnership's name to the vendors of the three properties. Having regard to the lapse of time it is unsurprising that very few records existed at the time of trial. Thus, for example, there were no contracts of sale in evidence at trial. The evidence of acquisition of the properties was limited to the relevant memorandum of transfer signed by the parties, or on their behalf by their legal representatives.
470The appellants point to the absence of such records as a fatal flaw in Geoffrey and Mary's claim for proprietary relief. They argued at trial, and again on appeal, that there is simply no evidence from which a reasonable and definite inference can be drawn that KST used, let alone stole, partnership funds for the acquisition of the properties.
471Counsel for Sunly and Gordon accepted in oral argument that it might be possible "in an extreme case" to infer that partnership funds were used in the acquisition of the properties if it had been demonstrated that KST could not have purchased the properties in any other way than by use of partnership profits (AT 3/4/14 at 20, lines 5-14). Counsel contended that this was not such a case because there were other possible sources of funds available to KST including: rental from other properties (Fairfield and Wiley Park, as well as Maroubra Road, once acquired); assets in Hong Kong or elsewhere; drawings, wages and allowances payable to KST by the partnership; and income and assets of FC Chow.
472Gzell J rejected these contentions in GJ1. His Honour's careful and detailed analysis is contained at [91]-[238].
[87]
Findings by Gzell J
473In summary his Honour found that:
(1)there were cash sales by both WYT and YS that were not recorded in the financial records of those businesses and KST had access to the cash: at [103];
(2)an exercise conducted by Mr Hill, a chartered accountant who gave evidence for Geoffrey and Mary, established that KST used partnership funds to acquire the properties: at [108]. This exercise assumed that the entirety of the cash flows (after tax and living expenses) was used by KST to purchase the properties. To the extent that such funds were utilised for other purposes the shortfall increases: at [109];
(3)the exercise conducted by Mr Hill ignored rental cash flows from the Wiley Park and Fairfield before 1 August 1975: at [116]. The net rental income omitted from Mr Hill's exercise was $104,646: at [121]. Taking into account living expenses and tax, the result is $7,727 of funds were available to KST for investment prior to August 1975: at [149]. Taking into account interest of $2,630 this gave a total of $10,357 as at December 1978 when Haig Street was acquired: at [152].
(4)the income available to KST from rental properties in the period prior to 1 August 1975 (at [116]-[157]) still left a significant difference between funds available to KST and the purchase price of the properties. The money to make up that difference must have come from the unrecorded receipts of the partnership businesses and any independent investments of KST: at [158]-[159];
(5)none of the assets formerly held by KST in the Solomon Islands were a source of funds for the purchase of the properties: at [203];
(6)other than proceeds of sale of an apartment in Hong Kong of $16,000, Hong Kong assets were not utilised by KST in the purchase of the properties: at [204]-[205];
(7)any assets of FC Chow were not a source of funds utilised by KST to purchase the properties, as KST had no right to call upon them: at [198];
(8)KST's entitlement to wages and his capital and loan accounts with the partnership were not relevant as the source of funds used by KST to acquire the properties: at [206] and [216];
(9)Mr Murray, a chartered accountant who gave evidence for Sunly and Gordon, could only identify $32,000 withdrawn from WYT in October 1978 as money that could possibly have been utilised by KST towards the purchase of Haig Street: at [237] and said that it was not possible to identify whether the withdrawals by KST in December 1979 of $55,000 from WYT and $32,500 from YS were used towards the purchase of Maroubra Road in February 1983: at [238]; and
(10)On his reported income, KST had a capacity to contribute to the purchase of the three properties to the extent of $202,492 being 8.5% of the purchase prices: at [271]-[272]. Rounding that figure up slightly, 90% of the purchase price of the three properties was contributed from partnership funds: at [275].
[88]
Factually based challenges
474The findings of Gzell J in GJ1 which are challenged by the appellants may be grouped as follows:
(1)That there were cash sales of WYT and YS that were unreported in the financial records and which KST have access to.
(2)That Mr Hill's report established that KST used partnership funds to acquire the properties.
(3)That KST had insufficient personal assets to purchase the properties.
(4)That KST's entitlements from the partnership should be disregarded in determining KST's available sources of funds for acquisition of the properties.
[89]
Undisclosed and misappropriated cash sales
475Gzell J found that there were undisclosed cash earnings of the WYT and YS businesses to which KST had access and which he used to purchase the properties. The appellants contended that this finding was "implausible".
476The first complaint is that his Honour failed to apply the Briginshaw standard. As already mentioned, his Honour expressly applied this standard. There is no substance in this complaint.
477Next it was said that his Honour erred in finding that there were cash sales by both WYT and YS which were not recorded in the financial records of those businesses: at [103]. It was said that in reaching this finding Gzell J erred because he expressed a preference for the evidence of Mary to that of Margaret, but without making any credit finding.
478It was common ground that some customers paid in cash. Mary, Margaret, and Helen each gave different estimates of the number of customers who paid in cash. Geoffrey Williden, who worked as a butcher for YS from about 1980 to 1982 or 1983, and again from 1986 for the new owner of the business after it was sold, also gave an estimate of the number of customers each day and their approximate spending amount. He also indicated that most customers paid in cash and walk in customers always did so: at [98]. Mr Williden's evidence was generally consistent with that of Mary. As Gzell J observed, the direct conflict in the evidence of Mary and Margaret related to whether some suppliers were paid in cash: at [100]. Gzell J found that there were inconsistencies in Margaret's evidence concerning the number of customers during busy periods when she assisted at YS: at [101].
479The finding by Gzell J that there were cash sales that were not recorded in the financial statements was open on the evidence, taking into account the inconsistencies in Margaret's own evidence and the supporting evidence by Mr Williden.
480Next the appellants challenged the finding of Gzell J that KST had access to the cash generated by the businesses: at [103]. It was said that this finding did not establish that "undisclosed" cash existed, or that such cash was taken by KST.
481As to the first matter, Gzell J observed (at [235]) that Mr Murray said in his report that it was impossible to ascertain whether all cash received by the businesses had been accounted for within the financial statements or for income tax purposes. His Honour's subsequent conclusions in relation to the use of undisclosed cash by KST did not proceed upon an incorrect understanding of the evidence as suggested by the appellants.
482As to the second matter, there was no challenge to his Honour's finding (at [92]) that at the end of each day, the cash and cheques received by the businesses were delivered to KST. The inference which Gzell J drew that undisclosed cash was taken by KST and used in the acquisition of the properties was based on his Honour's acceptance of the shortfall between KST's known sources of income and the cash required to purchase the properties, taking into account the evidence of KST's other assets and his capacity to contribute to the purchase price of the three properties. The challenges to these aspects of his Honour's findings are dealt with below.
[90]
Mr Hill's report
483The appellants challenged the reliance placed by Gzell J on the report of Mr Hill in finding that there was a "shortfall" of $1.3 million between the cash available to KST from his known income sources and the cash he required to purchase the properties. His Honour used this evidence, together with evidence that KST did not have other sources of funds sufficient to make up the shortfall of $1.3 million, to find that KST had used partnership funds to purchase the properties.
484The appellants contended that Gzell J erred in accepting Mr Hill's evidence of a shortfall of $1.3 million, in circumstances where Mr Hill had assumed that the only non-partnership funds available to KST were the rental properties at Maroubra Road, Wiley Park, and Fairfield, and then only for a portion of the period of their operation (that is from 1 August 1975 for Wiley Park and Fairfield, and from February 1983 for Maroubra Road). It was also contended that Gzell J erred in adopting a "global" approach to the acquisition cost of the three properties based on Mr Hill's report. It was said that his Honour did not deal with the acquisition cost of each property individually.
485In my view, these contentions should be rejected. They ascribe to Gzell J a reliance on Mr Hill's report in a manner which is not borne out by a fair reading of his Honour's reasons.
486First, the evidence of the "shortfall" of $1.3 million between the cash available to KST from his known income sources and the cash he required to purchase the properties was just one part of the mosaic of evidence relied upon by Gzell J in finding that KST had used partnership funds to purchase the properties. As is clear from the summary of his Honour's findings, which are set out above at [473(3) and (4)], his Honour took into account that Mr Hill had ignored rental cash flows from the Wiley Park and Fairfield properties before 1 August 1975. His Honour calculated the income of the period prior to 1 August 1975 as being $7,727 and interest on that amount as $2,630.
487His Honour also separately addressed, in a section of his reasons headed "Other assets", whether KST had other assets to make up the shortfall. His Honour examined the evidence in relation to possible assets in the Solomon Islands and Hong Kong, moneys held by KST in a number of bank accounts and short-term investments which were closed in 1975 closely proximate to the time of purchase of the two businesses, and the substantial assets held at the time of KST's death. His Honour noted that Mr Hill did not include cash flows from Hong Kong and the Solomon Islands in his analysis of cash flows available to KST from known sources: at [209]. This was consistent with his Honour's findings, except for the amount of $16,000 realised on the sale of the Hong Kong apartment, which his Honour treated (favourably to the appellants) as a resource that was contributed to the purchase of Haig Street, notwithstanding that it was received two years before the purchase: at [204].
488His Honour found that on his reported income, KST had some capacity to contribute to the purchase of the three properties and made specific findings as to the amounts: at [271]. Contrary to the appellants' submissions, Gzell J did not rely on the report of Mr Hill to conclude that KST did not have other assets to make up the shortfall.
489Secondly, Gzell J did not simply adopt a "global" approach in determining what was available to KST over a 10 year period. His Honour observed that the exercise carried out by Mr Hill in arriving at a shortfall of $1.3 million was a "crude" one, because it agglomerated the three purchases brought at different times over a 10 year period: at [112]. Having made this observation, his Honour considered the evidence in Mr Hill's report of the estimated cash flows available to the partnership (and inferentially KST) as at the date of purchase of each of the properties: at [112]-[115]. That exercise demonstrated that the calculated cash flows available to the partnership at 30 November 1978 and 31 January 1983 were in excess of the purchase price for Haig Street and Maroubra Road respectively, but by 30 June 1988 the cash flows available to the partnership were well below the purchase price for Queen Street.
490His Honour found that it was inexorable that the only sources of funds that could have provided the purchase price for the three properties were the rental income and partnership receipts (which KST controlled): at [214] GJ1. To this may be added his Honour's favourable finding that he would treat the proceeds of sale of the apartment in Hong Kong of $16,000 received in 1976 as a resource that was contributed to the purchase of Haig Street in 1978: at [204].
491His Honour's findings calculating KST's capacity to contribute to the acquisition of three properties are set out at [271] and in the appendix attached to GJ1. It may be observed that as at December 1978 KST's known sources of income, as found by Gzell J, comprised: (a) net income of the period prior to 1 August 1975 of $7,727, plus interest on that amount which was de minimis; (b) the sale price of the Hong Kong unit of $16,000; and (c) net cash available to KST of $11,840 (comprising $8,470 (1976), negative $2,863 (1977), $4,293 (1978) and $1,940 (in respect of one half of the financial year ending 30 June 1979)). This was significantly less than the cost of acquiring Haig Street. Moreover, it was not demonstrated that any of this amount was actually used by KST in acquiring Haig Street.
492A similar exercise may be undertaken by reference to the appendix in GJ1 in relation to the acquisition of Maroubra Road in 1983 and Queen Street in 1988. In each case, KST's known reported income is significantly less than the purchase price for the properties and again it was not demonstrated that any of KST's moneys were actually used in acquiring these properties.
493In my view, Gzell J did not err in the manner in which he relied on Mr Hill's report.
[91]
Insufficient personal assets
494The appellants contended that Gzell J erred in finding that there was insufficient evidence from which an inference could be drawn that there were other assets available to KST to meet a portion of the purchase price of the properties, other than the proceeds of sale of the Hong Kong apartment of $16,000. The appellants advanced detailed arguments contending that KST "may" have been able to remove assets from the Solomon Islands to Hong Kong prior to late 1975, that the picture of KST's assets in Hong Kong was "incomplete", and that it was "likely" that KST maintained substantial assets in Hong Kong from 1975 up until the date of his death.
495The difficulty with these contentions is that they ignore which party had the onus of proof. Once it is accepted, as Gzell J found, that KST used some partnership money in acquiring the three properties, the appellants had the onus of proof of identifying KST's contribution from his own moneys to the acquisition of the three properties. Speculation and conjecture that KST "may" have or "likely" had other assets did not suffice. As Gzell J found, the appellants failed to establish KST's contributions from his own moneys to the acquisition of the three properties.
496The appellants also contended that Gzell J erred in finding that F C Chow's assets could not be considered as part of KST's assets when considering his capacity to contribute to the acquisition cost, because KST had no right to call upon those assets: at [198]. However it was not demonstrated that there was any error in this finding. The appellants accepted that little was known of F C Chow's individual assets. No attempt was made in the appellants' submissions to demonstrate how, even if such assets were available to KST, this could have made any significant impact on the "shortfall" of $1.3 million. Nor was it demonstrated that any of F C Chow's assets were actually contributed to the acquisition of the three properties.
[92]
KST's entitlements
497The appellants contended that Gzell J erred in failing to have regard to KST's entitlement to wages and his capital and loan accounts: at [206]. His Honour found that these matters were relevant to the taking of accounts or the quantification of equitable compensation and did not relate to the source of funds used by KST to acquire the three properties: at [206] and [217].
498The contentions in relation to KST's entitlements were based on a report by Mr Murray and it is convenient to address these contentions in the context of the factual challenges based on the Murray report.
[93]
Asserted error in relation to the Murray report
499Mr Murray was retained by Sunly and Gordon to provide an expert report in relation to the Green Journals, which were discovered by Sunly after the trial before Smart AJ. The Green Journals covered the period August 1975 to October 1980 for WYT and YS. Mr Murray provided a report dated 18 January 2011 (Blue 9/4044ff). The questions on which he was asked to provide an opinion included:
what did the Green Journals reveal about the financial performance of YS and WYT businesses in the period 1975 to 1988;
to what extent did the receipts recorded in the Green Journals accord with information in the tax returns; and
what did the business records of the two business indicate as to the moneys available to purchase the three properties?
500Sunly and Gordon relied on the Murray report at the fresh trial in a number of ways. First it was contended that the gross profit margins of WYT and YS were relatively consistent with ATO expected performance benchmark ratios for grocery and butchery businesses for the 2008 financial year. From this premise it was argued that the financial statements and accounts were likely to be at least substantially accurate and, accordingly, the cash takings received by KST had been properly recorded in the accounts.
501Secondly, it was contended that any use of partnership funds by KST must have come out of his entitlement to partnership assets, including his capital and loan accounts, which were said to be sufficient, in 1978 at least, to meet the acquisition cost of Haig Street.
502Gzell J analysed the Murray report: at [222]-[238]. He rejected the contention of Sunly and Gordon that all cash takings of the businesses were recorded in the financial statements. As already mentioned, Gzell J noted that Mr Murray acknowledged that it was impossible to ascertain whether all cash received by the businesses had been accounted for within the financial statements or for income tax purposes: at [235]. His Honour also observed that the ATO performance benchmarks were based on businesses surveyed, but would not include cash received but not recorded. Accordingly, for a cash business the published ratios were too low: at [227].
503As to KST's entitlements, Gzell J observed that Mr Murray had calculated KST's net position or entitlement to partnership assets for various years by combining what he calculated was KST's entitlements on capital and loan account: at [231]. He found that these matters were relevant on the taking of accounts but did not form a separate source of funds from that of the funds of the partnership: at [232]. The appellants challenged this finding and contended that his Honour ignored relevant evidence. In my view there is no substance in this contention.
504First, it needs to be borne in mind that his Honour was addressing the question of identification of the source of funds used to acquire the properties.
505Secondly, it may be accepted that if KST had drawn down on either his capital or loan account to the extent of his entitlement, there could be no breach of duty in doing so. However, the evidence in the Green Journals did not establish that this is what occurred when KST acquired the properties. Other than in the limited respects next referred to, there were no drawings by KST recorded on his capital or loan accounts in 1978 and 1979. The drawings that were recorded in the Green Journals in those years were insufficient to meet the cost of acquiring the properties.
506The limited exceptions, as Gzell J noted (at [236]), were Mr Murray's conclusions that:
(1)KST withdrew $32,000 described as "Private" expenditure from WYT in October 1978 (Blue 3/1384G), which Mr Murray said "could possibly" have been utilised by KST towards the purchase of Haig Street: at [237]; and
(2)KST withdrew amounts in December 1979 from WYT ($55,000) and YS ($32,500), being after the purchase of Haig Street. In the cash payments journal for WYT these payments to KST are categorised as "Private Explain" (Blue 3/1414F) and in the cash payments journal for YS, these payments are categorised as "Sundries" (Blue 3/1278E). Mr Murray could not identify if these funds were used towards the purchase of Maroubra Road in 1983, but said they would have been a resource otherwise available to KST: at [238].
507It was not established that the withdrawal in October 1978 related to the purchase of Haig Street in December 1978, or that the withdrawals in December 1979 related to the subsequent purchases of Maroubra Road or Queen Street. As Gzell J found, it was not possible to determine what use KST might have made of these funds in the years before the purchase of Maroubra Road in 1983: at [238].
508In my view there was no error by Gzell J in disregarding KST's entitlements. First, the balance of KST's combined loan accounts immediately prior to the purchase of Haig Street in December 1978, according to Mr Murray, was $73,900 (being the balance as at 30 June 1978 less the withdrawal of $32,000 on 19 October 1978: Blue 9/4060P and 4060M). This combined balance was less than the purchase price of $129,000. Secondly, the evidence does not support the conclusion that KST in fact drew down on his entitlements to purchase Haig Street. Thirdly, insofar as KST subsequently drew down on his loan accounts in December 1979 a total amount of $57,500, these withdrawals were not shown to relate to either the earlier purchase of Haig Street, or the subsequent purchases of Maroubra Road or Queen Street. Fourthly, the inference drawn by Gzell J that KST used some partnership funds, including unrecorded receipts, to acquire the three properties has not been shown to be erroneous. In utilising partnership funds in this manner, KST was not purporting to draw down on his entitlements from the partnership. He was taking partnership funds without authority. Both the appellants and the Estate failed to show at trial that there was an honest source of moneys available to KST to explain the "shortfall" between KST's reported income and funds available to him and the acquisition cost of the properties.
[94]
Conclusions on factually based challenges
509The appellants' factually based challenges have not been made out. No error has been demonstrated in the findings of Gzell J that 90% of the purchase price of the three properties was contributed from partnership funds and that in utilising partnership money in this manner KST breached his fiduciary duties to his co-partners: at [314].
510It is necessary to refer to one further matter. This relates to Margaret's alleged contribution to the acquisition of Maroubra Road.
[95]
Whether Gzell J erred in finding that Margaret had made no contribution to Maroubra Road?
511At trial Margaret claimed that she had contributed $100,000 to the purchase price of Maroubra Road in 1983 from a bank bill held in her name (which had been acquired in July 1981).
512Smart AJ found that Margaret likely built up savings over a number of years, and that the bank bill of $100,000 was probably her property. He considered the evidence insufficient to warrant a conclusion that Margaret held the whole or part of that sum on trust for KST or the partnership: at [422] May Judgment. He was not persuaded that any moneys given by KST to Margaret came from the partnership businesses. He viewed this as "no more than a possibility": at [423] May Judgment. He concluded that Margaret contributed her own money to the acquisition of Maroubra Road, amounting to about one sixth of the purchase price. He also found that it was probable that KST was prepared to treat Margaret as having a one fifth interest in the Maroubra Road property: at [424] May Judgment.
513On the fresh trial Gzell J did not receive oral evidence on the issue of Maroubra Road and relied solely on the evidence and transcript of the proceedings before Smart AJ. Gzell J made his own analysis and concluded that KST gave Margaret the money to buy the bank bill: at [85] GJ1. Accordingly, he found that Margaret had made no contribution to the purchase price of Maroubra Road: at [90] GJ1.
514On appeal Margaret challenged the finding of Gzell J and submitted that the conclusions of Smart AJ were far more persuasive. In light of my conclusion that Margaret has the benefit of indefeasible title with respect to her one fifth interest in Maroubra Road, it is unnecessary to determine this issue.
515It is to be noted also that the issue of Margaret's alleged contribution to Maroubra Road does not materially affect the calculations by Gzell J when assessing KST's own contributions to the acquisition of the three properties.
516On the assumption that Margaret contributed $100,000 to the acquisition of Maroubra Road, the consequence would be that the acquisition cost of the three properties provided by KST would be reduced from $2,382,258 to $2,282,258. Gzell J found that KST had a capacity to contribute to the purchase of the three properties to the extent of $202,492. Expressed as a percentage of the adjusted acquisition cost of the three properties, the result is 8.87%. As Gzell J rounded up the percentage (calculated by him) of 8.5% to 10%, there is no material difference for his Honour's finding that 90% of the purchase price of the three properties was contributed from partnership funds.
[96]
Issue D: Fresh trial issues
517In light of my conclusion that the appeals should be allowed and the declarations and orders made against the appellants should be set aside, it is unnecessary to address the grounds of appeal directed to establishing that the fresh trial should not have excluded the appellants' defences and that the trial before Gzell J miscarried.
[97]
What are the appropriate orders to reflect the findings and conclusions on appeal?
518So far as the appellants are concerned, the proprietary and accounting relief the subject of the final orders made by Gzell J should be set aside. I address separately, in Issue F, the question of costs on appeal and the need to revisit the costs orders below, other than the costs orders in favour of the appellants and the other defendants which should not be disturbed.
519So far as the Estate is concerned, the proprietary and accounting relief granted against the Estate should not be disturbed, however the terms of the inquiry should be varied to limit the scope of the inquiry to an account of profits derived by the Estate from the three properties, subject to just allowances (if any). Beyond this the Estate is not required to give an account with respect to any aspects of the partnership, as the claim with respect to this relief is time barred under s 15.
520So far as the other respondents are concerned (Janet and Stella, as the representative of FC Chow), the accounting relief ordered against them (order 7) should also be set aside for the same reasons as apply to Margaret and Helen. The inquiry directed to them to account as partners was time barred under s 15. It is to be noted that Gzell J did not make any costs orders against these respondents.
[98]
Should the order for accounts include provision for the benefit received by Geoff and Mary from the use of partnership moneys for the purchase of their home at Vaucluse?
521Sunly and Gordon contended that Gzell J erred in failing to consider, in formulating the appropriate accounting relief, the benefits received by Geoffrey and Mary from their use of partnership moneys ($25,500) in the purchase of their residential property at Vaucluse in about 1981. Sunly and Gordon raised this issue defensively, in the event that they failed to set aside the accounting relief granted by Gzell J in favour of Geoffrey and Mary.
522This issue does not require determination in light of my conclusion that Sunly and Gordon's indefeasibility defences should succeed and the orders for an accounting by them should be set aside. Moreover, since I have found that the partnership dissolved no later than 1 July 1989, any claim by Sunly and Gordon against Geoffrey and Mary for an account in respect of their alleged use of partnership moneys, absent any trust element, would be statute barred under s 15 of the Limitation Act.
[99]
Costs of the appeals
523As the appellants have been successful on appeal, costs should follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs: UCPR r 42.1. The Court has not had submissions on costs taking into account the outcome of the appeals. The parties should be given an opportunity to make such submissions if they cannot reach agreement on costs of the appeals.
[100]
Costs below
524In relation to the costs below, counsel for Geoffrey and Mary submitted in oral argument that if the appeals were allowed, the appellants should nonetheless pay the costs of the trial before Smart AJ because they had unsuccessfully contended that there was no partnership. It is not in dispute that the appellants failed on the partnership issue, but it needs to be kept in mind that the proceedings before Smart AJ concerned a number of other issues and the appellants have succeeded on some of them on appeal. The parties should be given the opportunity to make submissions on the costs below. The orders which I propose include directions in this regard. I also propose that the costs issues be dealt with on the papers.
[101]
2013/107940 (Sunly and Gordon)
(1)Appeal allowed.
(2)Set aside orders 3, 4(a)(ii) and (iii), (c)(iv) and (v), 5, 6, 7, 8, 9 and 11.
(3)In lieu thereof:
(i)Dismiss the proceedings against the fifth and sixth defendants.
(ii)Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.
(iii)Declare that 90% of any profits (if any) derived by the late Kut Sze Tu 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.
(iv)Direct that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
(v)Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu 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 (iv) above.
(vi)In these orders the reference to "Partnership Properties" has the same meaning as given to these words in order 1 made by Gzell J on 13 March 2013.
(4)Reserve all questions of costs in this Court and below.
(5)In default of agreement as to costs, direct:
(a)the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;
(b)the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;
(c)the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.
(6)Note that the Court will determine the issue of costs on the papers.
[102]
2013/107472 (Margaret)
(1)Appeal allowed.
(2)Set aside orders 3, 4(b)(ii) and (c)(ii), 5, 6, 7, 8, 9 and 11.
(3)In lieu thereof:
(i)Dismiss the proceedings against the second defendant.
(ii)Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.
(iii)Declare that 90% of any profits (if any) derived by the late Kut Sze Tu 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.
(iv)Order that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
(v)Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu 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 (iv) above.
(vi)In these orders the reference to "Partnership Properties" has the same meaning as given to these words in the order 1 made by Gzell J on 13 March 2013.
(4)Reserve all questions of costs in this Court and below.
(5)In default of agreement as to costs, direct:
(a)the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;
(b)the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;
(c)the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.
(6)Note that the Court will determine the issue of costs on the papers.
[103]
2013/108447 (Helen)
(1)Appeal allowed.
(2)Set aside orders 3, 4 (c)(iii), 5, 6, 7, 8, 9 and 11.
(3)In lieu thereof:
(i)Dismiss the proceedings against the third defendant.
(ii)Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.
(iii)Declare that 90% of any profits (if any) derived by the late Kut Sze Tu 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.
(iv)Order that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
(v)Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu 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 (iv) above.
(vi)In these orders the reference to "Partnership Properties" has the same meaning as given to these words in order 1 made by Gzell J on 13 March 2013.
(4)Reserve all questions of costs in this Court and below.
(5)In default of agreement as to costs, direct:
(a)the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;
(b)the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;
(c)the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.
(6)Note that the Court will determine the issue of costs on the papers.
[104]
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: 23 December 2014
way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
(v) Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu 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 (iv) above
(vi) In these orders the reference to "Partnership Properties" has the same meaning as given to these words in the order 1 made by Gzell J on 13 March 2013.
(4) Reserve all questions of costs in this Court and below.
(5) In default of agreement as to costs, direct:
(a) the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;
(b) the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;
(c) the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.
(6) Note that the Court will determine the issue of costs on the papers.
2013/108447 (Helen)
(1) Appeal allowed.
(2) Set aside orders 3, 4 (c)(iii), 5, 6, 7, 8, 9 and 11.
(3) In lieu thereof:
(i) Dismiss the proceedings against the third defendant.
(ii) Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.
(iii) Declare that 90% of any profits (if any) derived by the late Kut Sze Tu 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.
(iv) Order that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
(v) Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu 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 (iv) above
(vi) In these orders the reference to "Partnership Properties" has the same meaning as given to these words in order 1 made by Gzell J on 13 March 2013.
(4) Reserve all questions of costs in this Court and below.
(5) In default of agreement as to costs, direct:
(a) the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;
(b) the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;
(c) the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.
(6) Note that the Court will determine the issue of costs on the papers.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: EQUITY - Tracing - Onus and standard of proof - Where wrongdoer has mixed stolen moneys with own moneys - Black v Freedman claim attaches immediately to stolen money and its traceable product - Volunteer recipient of stolen funds, or traceable product, in no better position than the wrongdoer - Onus on wrongdoer and/or recipient to prove what contribution was from the wrongdoer's own moneys - Standard of proof in Briginshaw v Briginshaw and s140 Evidence Act applied
LIMITATION OF ACTIONS - Partnership - Action for an account - Cause of action arises upon dissolution of partnership - Application of s15 Limitation Act directly or by analogy - Laches will not be available as a further defence in circumstances where the claim is subject to a statutory bar
LIMITATION OF ACTIONS - Partnership - Action for an account of profits or to recover trust property -- Application of s 15 Limitation Act by analogy to an action for an account of profits in relation to trust assets - Application of s 47 Limitation Act directly or by analogy to an action to recover trust property or profits derived from trust property - When does time begin to run - When did the plaintiff first discover, or could have with reasonable diligence discovered, the facts giving rise to the cause of action and that the cause of action has accrued
PARTNERSHIPS AND JOINT VENTURES - Partnerships - Actions by and against partners - Partnership funds mixed with funds of a partner and used to purchase residential and investment properties - Black v Freedman claim - Institutional constructive trust over the partnership moneys (or their traceable product) - Equitable obligations imposed at the time of theft or, in the case of a volunteer recipient, from the time that they acquire knowledge of the theft - Whether indefeasibility defence under s 42 Real Property Act available for volunteer recipient where acquired registered title prior to being placed on notice of the theft - Fraud exception to s42 not pleaded - Fraud cannot be raised as a new point on appeal - Whether any in personam exception to indefeasibility applicable
PARTNERSHIPS AND JOINT VENTURES - Partnerships - Dissolution - Single adventure or undertaking - Whether a partnership operating two businesses can be considered a single venture - Whether separate termination dates for the businesses precludes the partnership being seen as a "single venture"
PARTNERSHIPS AND JOINT VENTURES - Partnerships - Partnership Property - Application of ss20(1) and 21 Partnership Act - Deeming of property bought with partnership funds to be partnership property "held in trust for the partnership" - Statutory provisions do not create a trust "in the strict sense" nor are they sufficient to make the land "trust property"
TRUSTS - General - Partnership funds mixed with funds of a partner and used to purchase residential and investment properties - Whether the moneys or the properties (as their traceable product) are subject to statutory, express, resulting, or constructive trusts - Whether proprietary and/or accounting relief available
Legislation Cited: Civil Procedure Act 2005 (NSW) ss 88 and 89
Conveyancing Act 1919 (NSW) s 23C
Evidence Act 1995 (NSW) ss 136 and 140
Evidence Act 1995 (Cth)
Limitation Act 1939 (England)
Limitation Act 1969 (NSW) ss 11, 15, 23, 24, 47, 48, 55, and 68A
Limitation Act 1980 (England)
Partnership Act 1898 (NSW) ss 1, 19, 20, 21, 22, 23, 29, 32, 33, s35, and 39
Real Property Act 1900 (NSW) s 42
Trustee Act 1925 (England)
Uniform Civil Procedure Rules 2005 (NSW) r 14.14, 15.3, and 42.1
Wills Probate and Administration Act 1898 (NSW) s 18A
Cases Cited: Agip (Africa) Ltd v Jackson [1990] Ch 265
Attorney-General v Cocke [1988] AC 414
Auzhair Supplies Pty Ltd v Gerace [2014] HCASL 231
Bahr v Nicolay [No 2] [1988] HCA 16; 164 CLR 604
Bailey v Federal Commissioner of Taxation [1977] HCA 11; 136 CLR 214
Banque Commerciale SA, En Liquidation v Akhil Holdings [1990] HCA 11; 169 CLR 279
Barnes v Addy (1874) LR 9 Ch App 244
Barton v North Staffordshire Railway (1887) 38 Ch D 458
Bathurst City Council v PWC Properties Pty Ltd [1999] HCA 59; 195 CLR 566
Black v S Freedman & Co (1910) 12 CLR 105
Bogdanovic v Koteff (1988) 12 NSWLR 472
Bolton v Federal Commissioner of Taxation [1965] ALR 481; (1964) 9 AITR 385
Boyd v Attorney-General of British Columbia (1917) 54 SCR 532
Brady v Stapleton [1952] HCA 62; 88 CLR 322
Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508
Breskvar v Wall [1971] HCA 70; 126 CLR 376
Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 366
Bryson v Bryant (1992) 29 NSWLR 188
Burdick v Garrick (1870) LR 5 Ch App 233
Butler v Madden (1941) 41 SR (NSW) 245
Callow v Rupchev [2009] NSWCA 148
Calverley v Green [1984] HCA 81; 155 CLR 242
Cameron v Murdoch (1986) 63 ALR 575; 60 ALJR 280 (PC)
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; 131 CLR 321
Carter Bros v Renouf [1962] HCA 67; 111 CLR 140
Cassegrain v Gerard Cassegrain & Co Pty Ltd [2013] NSWCA 454; 97 ACSR 244
Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd [2013] HCA 11; 247 CLR 149
CEPU v Australian Competition and Consumer Commissioner [2007] FCAFC 132; 162 FCR 466
Chahal v Mahal [2005] EWCA Civ 898
Charles Marshall Pty Ltd v Grimsley [1956] HCA 28; 95 CLR 353
Clay v Clay [2001] HCA 9; 202 CLR 410
Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; 220 CLR 592
Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12; [1965] AC 694
Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43; 242 CLR 508
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; 160 CLR 226
Coulthard v Disco Mix Club Ltd [1999] All ER 457
Coulton v Holcombe [1986] HCA 33; 162 CLR 1
Crawley v Short [2009] NSWCA 410
Creak v James Moore & Sons Pty Ltd [1912] HCA 67; 15 CLR 426
Damberg v Damberg [2001] NSWCA 87; 52 NSWLR 492
Darby v Darby (1856) 3 Drew 495
Drever v Drever (1936) ALR 446
D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; 223 CLR 1
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423
Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366
Duckett v Collector of Imposts (1927) 33 ALR 379; [1927] VLR 457
El Ajou v Dollar Land Holdings Plc [1993] 3 All ER 717
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 306 ALR 25
Ex parte Neale; In re Laurence (1861) 3 De G F & J 645; 45 ER 1029
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89
Finch v Finch (1808) 15 Ves Jun 43; 33 ER 671
Fitzgerald v Masters [1956] HCA 53; 95 CLR 420
Forgeard v Shanahan (1994) 35 NSWLR 206
Foskett v McKeown [2001] 1 AC 102
Frazer v Walker [1967] 1 AC 569
Frith v Cartland (1865) 2 H & M 417; 71 ER 525 at 526
Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181
Gerard Cassegrain & Co Pty Ltd v Cassegrain [2013] NSWCA 453; 305 ALR 612
Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22; 209 CLR 478
Giumelli v Giumelli [1999] HCA 10; 196 CLR 101
Green v Gaul [2006] EWCA Civ 1124; [2007] 1 WLR 591
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; 45 WAR 29
Harford v Lloyd (1855) 20 Beav 310 ; 52 ER 622
Harvey v Harvey [1970] HCA 11; 120 CLR 529
Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851; 59 NSWLR 312
Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230
Hewitt v Henderson [2006] WASCA 233
Hollins v Brierfield Coal & Iron Co 150 US 371 (1893)
Hospital Products Ltd v United States Surgical Corporation [1985] HCA 64; 156 CLR 41
Hovenden v Lord Annesley (1806) 2 Sch & Lef 607
How v Earl Winterton [1896] 2 Ch 626
Hurst v Bryk [2002] 1 AC 185
Inland Revenue Commissioners v Gray [1994] STC 360
John Alexander's Clubs Pty Ltd v White City Tennis Club [2010] HCA 19; 241 CLR 1
Kirkpatrick v Sime (1811) 5 Patterson's Scotch Appeal Cases 525
Knox v Gye (1872) LR 5 HL 656
Kuru v New South Wales [2008] HCA 26; 236 CLR 1
Laskar v Laskar [2008] EWCA Civ 347; 1 WLR 2695
Lau Siew Kim v Yeo Guan Chye Terence [2008] 2 SLR(R) 108; [2007] SGCA 54
LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; 26 WAR 517
Lindsay Petroleum Co v Hurd (1873-4) LR 5 PC 221
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548
Livingston v Commissioner of Stamp Duties (Qld) [1960] HCA 94; 107 CLR 411
Lockey v. Lockey (1719) Prec Ch 518
Lowe v Pascoe [2010] NSWSC 388; 5 ASTLR 1
Lowe v Pascoe (Supreme Court (NSW), Smart AJ, 25 June 2010, unrep)
Lowe v Pascoe [2012] NSWSC 151
Lowe v Pascoe [2012] NSWSC 740
Lowe v Pascoe (No 2) [2012] NSWSC 885
Lowe v Pascoe (No 3) [2011] NSWSC 192
Lowe v Pascoe (No 4) [2012] NSWSC 1493
Lowe v Pascoe (No 6) (Supreme Court (NSW), Gzell J, 13 March 2013, unrep)
Lurgi (Australia) Pty Ltd v Gratz [2000] VSC 278
McCaughey v Commissioner of Stamp Duties (NSW) [1914] HCA 45; 18 CLR 475
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133
Mamo v Surace [2014] NSWCA 58; 86 NSWLR 275
Marshall v Bullock [1998] EWCA Civ J0327-15
Martin v Martin [1959] HCA 62; 110 CLR 297
Mayer v Coe [1968] 2 NSWR 747
Metwally v University of Wollongong [1985] HCA 28; 60 ALR 68
Moratic Pty Ltd v Gordon [2007] NSWSC 5
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Napier v Public Trustee (WA) (1980) 55 ALJR 1; 32 ALR 153
National Westminster Bank Plc v Jones [2001] 1 BCLC 98
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Nelson v Nelson (1994) 33 NSWLR 740
Nolan v Nolan [2004] VSCA 109
Noyes v Crawley (1878) 10 Ch D 31
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Paulet v Stewart [2009] VSC 60
Pearl Milco Ltd v Ivy Tannery Co Ltd (1919) 1 KB 78
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Pettitt v Pettitt [1970] AC 777
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R v Powell (1837) 7 Car & P 640 ; 173 ER 280
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Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603
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Texts Cited: First Report on the Limitation of Actions (LRC 3, October 1967)
Jacobs' Law of Trusts in Australia (7th ed, LexisNexis Butterworths)
JD Heydon, MJ Leeming & PE Turner, Meagher, Gummow & Lehane's Equity: Doctrine & Remedies (5th ed, 2014, Lexis Nexis Butterworths)
KL Fletcher, The Law of Partnership in Australia, (9th ed, 2007, Thomson Law Book Co)
L D Smith, The Law of Tracing (1997, Clarendon Press)
Lindley and Banks on Partnership (19th ed, 2010, Sweet & Maxwell)
Peter Birks, "Equity in the Modern Law: An Exercise in Taxonomy" (1996) 26 U.W.A.L.R. 1
Snell's Equity ((1954), 24th Edition, Sweet & Maxwell)
Category: Principal judgment
Parties: 2013/107940
Shiu Shing Sze Tu (First Appellant)
Shiu How Sze Tu (Second Appellant)
Geoffrey Lowe (First Respondent)
Mary Lowe (Second Respondent)
Scott Pascoe as Trustee of the Estate of the Late Kut Sze Tu (Third Respondent)
Margaret Sze Tu (Fourth Respondent)
Helen Sze Tu (Fifth Respondent)
Janet McNamara (Sixth Respondent)
Stella Sze Tu as Trustee of the Estate of the Late Chow Fung Chun (Seventh Respondent)
2013/108447
Riley Grey-Spencer (Appellant)
First and Second Respondent (self-represented)
Rockwell Olivier Lawyers (Third respondent)
Holman Webb (Fourth respondent)
Sixth respondent (Self-represented)
Seventh respondent (Self-represented)
File Number(s): 2013/107940; 2013/107447; 2013/107472
Decision under appeal Jurisdiction: 9111
Citation: Lowe v Pascoe [2010] NSWSC 388 (7 May 2010)
Lowe v Pascoe (Supreme Court, Smart AJ, 25 June 2010, unreported)
Geoffrey Alan Lowe & Anor v Scott Pascoe & Ors [2012] NSWSC 151 (29 February 2012)
Lowe v Pascoe [2012] NSWSC 740 (29 June 2012)
Lowe v Pascoe (No 4) [2012] NSWSC 1493 (5 December 2012)
Lowe v Pascoe (No 6) (Supreme Court, Gzell J, 13 March 2013, unreported)
Date of Decision: 2013-03-13 00:00:00
Before: Smart AJ (7 May 2010 and 25 June 2010)
Bergin CJ in Eq (29 February 2012)
Gzell J (29 June 2012; 5 December 2012 and 13 March 2013)
File Number(s): 2005/262284
HEADNOTE
[This headnote is not to be read as part of the judgment]
This appeal concerns a partnership dispute between family members relating to events dating back to 1975 and extending from that year. The appellants, Shiu Shing Sze Tu (Sunly), Shiu How Sze Tu (Gordon), Margaret Sze Tu (Margaret), and Helen Sze Tu (Helen), are each children of the late Kut Sze Tu (KST). The active respondents were Mary Lowe (Mary), another of KST's children, and her husband, Geoffrey Lowe (Geoffrey). The other respondents were Scott Pascoe (the Administrator), as the representative of KST's Estate, Janet McNamara (Janet), another child of KST, and Stella Chung (Stella) as the representative of Chow Fung Chun's estate (F C Chow), who was KST's second wife; these respondents were not active on the appeal.
The dispute concerned an alleged partnership between KST, F C Chow, Geoffrey, Mary, Margaret, Helen, and Janet, to purchase and operate a grocery/general store business Wing Yuen Tai (WYT) and butchery store Yee Sing (YS). These two businesses were purchased by KST in about July 1975 and were operated as family businesses, which KST controlled. In 1986 the YS business was sold, and later, in about June 1989, the WYT business was closed down. Between 1978 and 1988 KST purchased three real properties which were registered in his name and several of his children (Haig St- KST 1/3, Sunly 1/3, Gordon 1/3; Maroubra Rd- KST 4/5, Margaret 1/5; Queen St- KST 6/10, Margaret 1/10, Sunly 1/10, Gordon 1/10, Helen 1/10). KST died intestate in 1997, and in the course of disputed probate proceedings the Administrator was appointed. In a draft interim report of November 2001 the Administrator reported that the three properties had been purchased without finance.
In November 2005 proceedings were commenced by Geoffrey and Mary alleging that the two businesses were operated pursuant to a partnership, that the three properties were purchased with partnership funds in breach of KST's fiduciary duties to his co-partners, and that the properties were impressed with trusts and held by the registered proprietors on behalf of the alleged partnership. They sought a declaration that a partnership existed, an order winding up the partnership, a declaration that the properties were held on trust for the partnership, an order for accounting to be undertaken in respect of the profits of the partnership, and claims for their share, as partners, of ownership of the three properties. The defendants contended that there was no partnership, or alternatively that any partnership was a "sham" partnership, and also that the claims were time barred, by reason of the Limitation Act 1969 (directly or by analogy), or were precluded by the defences of laches, conventional estoppel, and/or indefeasible title.
A separate hearing on liability in respect of eight issues commenced on 30 October 2008 before Smart AJ, who delivered reasons for judgment on 7 May 2010 and further reasons for judgment on 25 June 2010, in which he made the following findings:
A partnership existed from 1 August 1975, with KST, Geoffrey and Mary, Janet, Margaret, Helen, and F C Chow as partners, and that it operated the WYT and YS businesses pursuant to a written agreement dated 1 October 1975;
KST used at least some partnership funds in purchasing the properties;
Margaret had contributed $100,000 towards the purchase of Maroubra Rd;
KST, Margaret, Helen, Sunly and Gordon, each held their interests in the Haig St and Queen St properties subject to an express trust in favour of the partnership, and KST held his interest in Maroubra Rd subject to an express trust in favour of the partnership;
The claims were not defeated by any of the pleaded defences.
On 25 June 2010 Smart AJ made a declaration that the partnership existed and an order directing that a copy of the Judgment be sent to the Australian Tax Office for assessment, however no final orders were made. After the June Judgment, Sunly and Gordon located further discoverable documents, which were brought to the attention of the Court on 20 December 2010. A dispute arose as to whether the appellants should be given leave to re-open their case to rely upon this material. Before that application could be determined, Smart AJ suffered a serious illness and was unable to continue the trial.
A fresh trial limited to three issues (dissolution of the partnership; KST's fiduciary duties; and whether the properties were held on trust) was ordered by Bergin CJ in Eq and heard by Gzell J, who delivered reasons for judgment on 5 December 2012 and made final orders on 13 March 2013. The relevant findings of Gzell J were:
That KST had the capacity to contribute only 10% of the purchase price of the properties and the remaining 90% was taken by KST from partnership funds;
That by utilising partnership funds in this manner, KST breached the fiduciary duties he owed to the partnership;
That Margaret did not contribute $100,000 of her own funds to the acquisition of Maroubra Rd;
That 90% of KST, Margaret, Helen, Sunly and Gordon's interest in the three properties, or their net proceeds, were subject to an institutional constructive trust in favour of the partnership.
Gzell J made orders: a) that the partnership be dissolved pursuant to s 35 of the Partnership Act 1898 (NSW); b) that KST, Margaret, Helen, Sunly and Gordon, account to the partnership for profits received from their ownership, use, or possession of the properties since the date of their acquisition (in the case of KST, Margaret and Helen) or since 3 November 2005 (in the case of Sunly and Gordon); c) that an inquiry be held to identify what (if any) moneys the plaintiffs were entitled to (and from whom); and d) declarations regarding the trusts. Relevantly, although Gzell J characterised the plaintiffs' trust claim differently to Smart AJ, he did not revisit the defences pleaded by the defendants.
Sunly and Gordon, Margaret, and Helen lodged separate appeals, each challenging both the factual and legal premises of the trust based claims and reasserting the defences argued below. None of the appellants disputed on appeal that the partnership existed, however they contended that the partnership had dissolved in June 1989 when WYT was closed down.
The main issues on appeal were:
Judgment
1MEAGHER JA: I have had the privilege of reading in draft the judgment of Gleeson JA. I agree with those reasons and the orders proposed.
2BARRETT JA: I have had the advantage of reading in draft the comprehensive reasons prepared by Gleeson JA. I agree with those reasons and with the orders his Honour proposes. I wish to add just one short comment.
3In relation to the presumption of advancement and Gleeson JA's view that the ascribing of labels such as "weak" to recognised presumptions is a distraction, it is noteworthy that the Court of Appeal of Singapore shares that opinion and has eschewed the notion that the presumption should be characterised as inherently "weak" (or, for that matter, as having any particular degree of potency). In Lau Siew Kim v Yeo Guan Chye Terence [2008] 2 SLR(R) 108; [2007] SGCA 54, that court said (at [77], referring to Pettitt v Pettitt [1970] AC 777):
[W]e find that the strength of the presumption of advancement, whether in cases concerning spouses or otherwise, should not even be generally diminished as appeared to be suggested in Pettitt. Instead, it should only be where the present realities are such that the putative intention inherent in the presumption of advancement is not readily inferable from the circumstances of the case, that the presumption would be a weak one easily rebuttable by any slight contrary evidence.
4GLEESON JA:
whether the three properties were held on trust (statutory, express, resulting, or constructive) and, if so, whether relief was barred by any of the defences raised;
whether the partnership was dissolved in June 1989 and, if so, whether the claims for an inquiry and account were time barred;
whether KST had breached his fiduciary duties to his co-partners by using partnership funds in acquiring the three properties and, if so, who bore the onus of proof in relation to tracing money into the properties; and
whether the "fresh trial" before Gzell J miscarried.
Appeal allowed. The Court held (Gleeson JA, Meagher and Barrett JJA agreeing) that:
In respect of (1):
The respondents were not entitled to rely on a "statutory trust" claim based on ss 20(1) and 21 of the Partnership Act because this claim was not pleaded or argued below: at [135]-[140]. Even if the respondents were entitled to raise this new point on appeal, the "statutory trust" created under those provisions, by deeming property bought with partnership funds to be partnership property "held in trust for the partnership", is not a trust "in the strict sense" nor is it sufficient to make the three properties "trust property" as referred to in s 47 of the Limitation Act: at [112]-[127]
Applied: Water Board v Moustakas [1988] HCA 12; Suttor v Gundowda Pty Ltd [1950] HCA 35; Multicon Engineering Pty Ltd v Federal Airports Corporation [1997] NSWCA 214; Metwally v University of Wollongong [1985] HCA 28; Carter Bros v Renouf [1962] HCA 67; Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43; Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; Boyd v Attorney-General of British Columbia (1917) 54 SCR 532; Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; Clay v Clay [2001] HCA 9; Knox v Gye (1872) LR 5 HL 656
Smart AJ erred in finding that there was an express trust based on cl 20 of the partnership agreement. KST's actual intention when acquiring the properties was to acquire them on his own account (and for his children) as a family home and investment properties, not as an agent of the partnership: at [163]-[177]
In determining whether the presumption of advancement in favour of KST's children has been rebutted, for the purposes of the resulting trust claim, it is "the actual intention of the purchaser at the time of the purchase" which is relevant and, in particular, whether there is proof of a "definite intention" to retain beneficial title. The ascribing of labels such as "weak" to the presumption of advancement is a distraction. The materials relied upon here were not capable of demonstrating that KST's actual intention was contrary to the presumption: at [3], [178]-[208]
Applied: Napier v Public Trustee (WA) (1980) 55 ALJR 1; Nelson v Nelson (1994) 33 NSWLR 740; Calverley v Green [1984] HCA 81; Wirth v Wirth [1956] HCA 71; Martin v Martin [1959] HCA 62; Charles Marshall Pty Ltd v Grimsley [1956] HCA 28; Bryson v Bryant (1992) 29 NSWLR 188; Damberg v Damberg [2001] NSWCA 87; Lau Siew Kim v Yeo Guan Chye Terence [2008] 2 SLR(R) 108; Drever v Drever (1936) ALR 446; cf Pettitt v Pettitt [1970] AC 777; Laskar v Laskar [2008] EWCA Civ 347
A trust claim based on Black v Freedman gave rise to an institutional constructive trust over the partnership moneys (or their traceable product), which attached at the moment the money was stolen. Where such money, or its traceable product, is then gifted by the wrongdoer to a third party, that volunteer recipient is made amenable to equitable jurisdiction to account for the money or its traceable product from the time that they acquire knowledge of the theft, being the time that their conscience is bound. However the application of this trust claim against the appellants is subject to the availability of their defences: at [141]-[162]
Applied: Black v S Freedman & Co (1910) 12 CLR 105; Agip (Africa) Ltd v Jackson [1990] Ch 265; Port of Brisbane Corporation v ANZ Securities Ltd [2002] QCA 158; Lurgi (Australia) Pty Ltd v Gratz [2000] VSC 278; Heperu Pty Ltd v Belle [2009] NSWCA 252; Robb Evans of Robb Evans & Associates v European Bank Ltd [2004] NSWCA 82; Toksoz v Westpac Banking Corporation [2012] NSWCA 199; Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] NLJR 877; Muschinski v Dodds [1985] HCA 78; Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400; Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48
Smart AJ erred in finding that the respondents' trust based claims against the appellants gave rise to an in personam exception outside the indefeasibility provision in s 42 Real Property Act. There was no express or resulting trust over the properties in favour of the partnership: at [224]-[237].
Gzell J erred in failing to reconsider the indefeasibility defence in light of his different characterisation of the plaintiffs' trust claim. The appellants did not receive notice of this trust claim until after they had attained indefeasible title and it was not established that they were "primary wrongdoers" attempting to ignore an obligation to share or convey the land with or to the partnership: at [238]-[246], nor was it pleaded or contended at trial that they were liable to account, as a personal remedy, as constructive trustees under either limb of Barnes v Addy: at [256]-[261]. Each of the appellants was entitled to rely upon s 42 of the Real Property Act 1900 as a complete defence to the claim that they hold their interests in the properties on trust for the partnership: at [209]-[219], [262].
Applied: Stuart v Kingston [1923] HCA 17; Bahr v Nicolay [No 2] [1988] HCA 16; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851; Heperu Pty Ltd v Belle [2009] NSWCA 252; Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508; LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; Barnes v Addy (1874) LR 9 Ch App 244
The respondents did not plead, or argue below, that the fraud exception to indefeasibility applied against the appellants and cannot rely upon the fraud exception as a new point on appeal: at [220]-[223].
Applied: Metwally v University of Wollongong [1985] HCA 28
The fact that Margaret and Helen are partners does not prevent them from relying upon the defence of indefeasibility, as the properties were not relevantly "partnership property" or held for "partnership purposes" such that s22 of the Partnership Act would apply: at [247]-[255].
In light of the findings in respect of issue (2) below, the respondents' claim for a general account of the partnership, absent any trust element, must fail by reason of s15 Limitation Act (applying directly, in the case of the partners, or by analogy in the case of Sunly and Gordon), as it was brought more than 6 years after the partnership was dissolved: at [357]-[370], [379]-[385], [413]. The respondents did not plead or argue postponement of the limitation period by reason of fraudulent concealment of the cause of action under s55 Limitation Act, and cannot be permitted to raise a new point on appeal: at [340]-[343].
Applied: Knox v Gye (1872) LR 5 HL 656; Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400; Coulthard v Disco Mix Club Ltd [1999] All ER 457; Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181; Hewitt v Henderson [2006] WASCA 233
So far as the respondents' claim was to recover trust property or profits derived from trust property, the claim was not time barred. Section 47 of the Limitation Act applied, at least by analogy, however the time 12 year time period would only run from the discovery in November 2001 of the facts giving rise to the cause of action. Accordingly the proprietary and accounting relief ordered by Gzell J relating to the three properties was not time barred. However its application is only relevant to the claim against KST's Estate since Margaret, Helen, Sunly and Gordon had the benefit of the defence of indefeasible title: at [371]-[377], [386]-[395].
Applied: Attorney-General v Cocke [1988] AC 414; Hewitt v Henderson [2006] WASCA 233; Cassegrain v Gerard Cassegrain & Co Pty Ltd [2013] NSWCA 454
The inquiry ordered by Gzell J to identify what (if any) moneys the plaintiffs are entitled to was time barred under s 15 Limitation Act, directly or by analogy, insofar as the scope of the inquiry involved the taking of accounts between partners, absent any trust element, or the taking of accounts against Sunly and Gordon: at [406]-[412].
Smart AJ did not err in rejecting the laches defence. Laches is only available to equitable claims and only in circumstances where such claims are not subject to another statutory bar, and as such, prima facie, has no application here as the Limitation Act applies to the plaintiff's claims either directly or by analogy. Assuming, however, that laches were available, regard must be had to the degree of knowledge, the type of transaction, and the prejudice to the defendant caused by the delay in assessing whether laches is made out. Here, in circumstances where the respondents had no knowledge of the relevant facts prior to November 2001, there was no disentitling delay, nor was it established that prejudice had resulted to the appellants from the delay: at [414]-[430]
Applied: Orr v Ford [1989] HCA 4; Green v Gaul [2006] EWCA Civ 1124; Crawley v Short [2009] NSWCA 410
Smart AJ did not err in rejecting the defence based on conventional estoppel. It was not established that the parties had in fact adopted an assumption which one party later attempted to deny. Furthermore there was no evidence of any detrimental reliance: at [431]-[448]
Applied: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; Moratic Pty Ltd v Gordon [2007] NSWSC 5; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; Sidhu v Van Dyke [2014] HCA 19
In respect of (2):
The appellants were not entitled to rely upon a new point on appeal that the partnership was abandoned, to be inferred from the conduct of the partners after 30 June 1989, as this was not pleaded or argued below: at [308]-[317]. Nonetheless the appellants' submission that the partnership was dissolved, pursuant to s32(b) Partnership Act, should be accepted. There was a single venture which terminated when the WYT business closed on or about 30 June 1989: at [266]-[302], [318].
Applied: Ryder v Frohlich [2004] NSWCA 472; Chahal v Mahal [2005] EWCA Civ 898; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7;
In respect of (3)
Gzell J did not err in concluding that the onus of proof was upon the appellants to establish what contribution KST had made from his own moneys to the acquisition of the three properties, once it was concluded that KST had mixed partnership moneys with his own moneys in acquiring the properties. Furthermore, Gzell J did not apply an incorrect standard of proof- he expressly applied the Briginshaw and s140 Evidence Act standard: at [449]-[464]. The appellants' challenges to Gzell J's factual findings in relation to tracing of moneys were not made out. Additionally no error was demonstrated in Gzell J's finding that KST, by utilising partnership funds to purchase the properties, had breached his fiduciary duties to his co-partners: at [465]-[510]. In light of the indefeasibility defence, it is unnecessary to determine the conflict between Smart AJ and Gzell J's findings in relation to Margaret's alleged contribution to the acquisition of Maroubra Road: at [511]-[516]
Applied: Re Hallett's Estate (1879) 13 Ch D 696; Brady v Stapleton [1952] HCA 62; Frith v Cartland (1865) 2 H & M 417; Vyse v Foster (1872) LR 8 Ch App 309 at 333; Hospital Products Ltd v United States Surgical Corporation [1985] HCA 64; Warman International Ltd v Dwyer [1995] HCA 18; Foskett v McKeown [2001] 1 AC 102
In respect of (4):
Having regard to the findings in relation to issues (1)-(3) and the conclusion that the appeals should be allowed and the declarations and orders made against the appellants should be set aside, it is unnecessary to determine the fresh trial points: at [517]
Relief
The Court concluded that:
The proprietary and accounting relief ordered against the appellants by Gzell J should be set aside;
The proprietary and accounting relief ordered against KST's Estate by Gzell J should not be disturbed, however the terms of the inquiry to be held should be varied to limit the scope of the inquiry to an account of profits derived by the Estate from the three properties, subject to just allowances (if any);
The accounting relief ordered against the other partners (Janet, and Stella as the representative of the Estate of FC Chow) should be set aside;
The question of costs of the appeals, and in the court below, should be reserved, to be dealt with by written submissions.