Partnership—Dissolution—Assets—Partnership business conducted in leased premises—Agreement for new lease obtained by one partner before partnership affairs wound up—Whether held for benefit of partnership—Fiduciary relationship—Constructive trust—Partnership Act 1891 (S.A.), s. 38,39.
Decisions
GIBBS C.J. The facts of this case are fully stated in the judgment of my brother Deane which I have had the advantage of reading.
2. There can be no doubt that if the agreement to grant Dr Chan a lease of the partnership premises at Mansfield Park had been made before the partnership had been dissolved Dr Chan would have held any interest which he acquired under that agreement on a constructive trust for the partnership between himself and Dr Zacharia. It is firmly established by a line of authorities which includes Featherstonhaugh v. Fenwick (1810) 17 Ves 298, at p 311 (34 ER 115, at p 120); Clegg v. Fishwick (1849) 1 Mac &G 294, at pp 298-299 (41 ER 1278, at p 1280); Clegg v. Edmondson (1857) 8 De GM &G 787, at pp 806-807 (44 ER 593, at p 601); and In re Biss. Biss v. Biss (1903) 2 Ch 40, at pp 56-57 and 61-62, that a partner who, without the consent of his co-partner, obtains a renewal of a lease of the partnership premises in his own name, prima facie holds the lease on a constructive trust for the partnership. The expression "renewal" in this statement includes the grant of a new lease, whether or not there was a right of renewal of the lease originally held by the partners. The Court of Appeal in In re Biss. Biss v. Biss drew a distinction between two classes of cases - one (of which trustees form a notable example) whose members are absolutely incapable of retaining for themselves the benefit of a renewal, and the other (which includes partners) in which there is no more than a rebuttable presumption of fact that the person concerned is incapable of retaining that benefit. If, as the judgment of Romer L.J. in that case, at p.61, suggests, the second class consists of persons who do not clearly occupy a fiduciary position, it is difficult to see why partners should fall within it, since, as Dixon J. said in Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd. (1929) 42 CLR 384, at p 407: "The relation between partners is, of course, fiduciary." However, the distinction between the two classes is well recognized in the authorities and may be drawn, not between persons who owe a fiduciary duty and those who do not, but because of the nature of the particular fiduciary duty in question. That seems to be the view of so distinguished an equity lawyer as Parker J., who, in Griffith v. Owen (1907) 1 Ch 195 explained, at pp 203-204, very clearly the principles involved:
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Chan v Zacharia [1984] HCA 36
Case
[1984] HCA 36
Decision Date
CaseChat Overview and Summary
The High Court of Australia considered an appeal concerning the dissolution of a partnership between Chan and Zacharia. The partnership had conducted a medical practice from leased premises. Prior to the formal winding up of the partnership affairs, Chan, one of the partners, secured a new lease for the same premises in his own name. Zacharia contended that this new lease was obtained for the benefit of the partnership and that Chan held it on a constructive trust for the partnership.
The central legal issues before the High Court were whether Chan, by obtaining the new lease in his sole name before the partnership had been dissolved and its assets distributed, had breached his fiduciary duty to Zacharia. Specifically, the court had to determine if the benefit of the new lease was an asset of the partnership, and if so, whether Chan was accountable to the partnership for it. This involved an examination of the nature of the fiduciary obligations owed between partners during the dissolution of a partnership.
The High Court, by majority, held that partners owe fiduciary duties to each other not only during the continuance of the partnership but also during its winding up. Gibbs C.J. and Dawson J. found that the opportunity to obtain the new lease was a partnership asset, and Chan, by taking it for himself, had acted in breach of his fiduciary duty. Brennan and Deane JJ. agreed, reasoning that the lease was obtained by Chan in his capacity as a partner and therefore was held on constructive trust for the partnership. Murphy J. dissented, finding that the lease was not a partnership asset.