Chan v Zacharia

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.

The appeal was dismissed with costs.