Commissioner of State Revenue v Danvest Pty Ltd (ACN 096 067 006) and Bullhusq Pty Ltd (ACN 166 777 644)

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2017 0046

COMMISSIONER OF STATE REVENUE	Applicant
v
DANVEST PTY LTD (ACN 096 067 006)	First Respondent
and
BULLHUSQ PTY LTD (ACN 166 777 644)	Second Respondent

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JUDGES:	TATE, SANTAMARIA and McLEISH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	8 November 2017
DATE OF JUDGMENT:	20 December 2017
MEDIUM NEUTRAL CITATION:	[2017] VSCA 382
JUDGMENT APPEALED FROM:	[2017] VSC 125 (Croft J)

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PARTNERSHIP – Nature of partner’s interest in partnership property – Whether partner has proprietary interest in assets of partnership – Lord Sudeley v Attorney-General [1897] AC 11, Livingston v Commissioner of Stamp Duties (Qld) (1960) 107 CLR 411, Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321, Federal Commissioner of Taxation v Everett (1980) 143 CLR 440, United Builders Pty Ltd v Mutual Acceptance Limited (1980) 144 CLR 673, Watson v Ralph (1982) 148 CLR 646, Commissioner of State Taxation (SA) v Cyril Henschke Pty Ltd (2010) 242 CLR 508 and CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98 discussed.

TAXES AND DUTIES – Stamp duty – Purchase of units in partnership – Where partnership owns land – Whether transfer of dutiable property – Whether partner’s interest in partnership property an ‘interest in an estate in fee simple’ – Duties Act 2000 ss 3, 7 and 10 – Appeal dismissed.

WORDS AND PHRASES – ‘interest of partner in partnership property’ – ‘interest in an estate in fee simple’ – ‘beneficial interest’ – ‘equitable interest’ – ‘equitable chose in action’.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr P H Solomon QC with Mr C Young	Solicitor to the Commissioner of State Revenue
For the Respondents	Mr S H Steward QC with Mr D C Morgan	Norton Rose Fulbright Australia

TATE JA:

I have had the considerable benefit of reading, in draft form, the reasons of Santamaria JA and those of McLeish JA. I agree with their Honours, for the reasons they give, that a partner’s interest in a land-owning partnership is not an interest in an estate in fee simple in the land owned by the partnership; it is not ‘dutiable property’ within the meaning of ss 10(1)(a)(i) or 10(1)(ac) of the Duties Act 2000 (‘the Act’). Its transfer is thus not a transfer of dutiable property within the meaning of s 7(1)(a) or s 7(1)(b)(vi) of the Act attracting a liability to pay duty.

The interest a partner has in partnership property is an equitable right to a proportion of any surplus upon the dissolution of the partnership after the realisation of the assets and payment of the debts and liabilities of the partnership. I agree, for the reasons their Honours give, that this interest is a presently existing equitable chose in action which protects the partner’s future entitlement to a proportion of the surplus but is not, prior to dissolution, a proprietary interest in the assets of the partnership, including land owned by the partnership.[1]
[1]See the reasons of Santamaria JA [83], reasons of McLeish JA [164]–[165].

I agree that leave to appeal should be granted but the appeal dismissed.

SANTAMARIA JA:

The great variety of interests in our legal system makes it difficult to devise terms of fixed import so as to capture every interest accurately and exhaustively. Some terms, though in particular circumstances useful and indeed used to good effect by the layperson and the lawyer, are merely convenient labels for concepts which are complex and which cannot be properly understood without resort to the body of general law that underpins them. It is therefore unsafe to assume that certain terms may be used at all times and for all purposes and that common terms are used throughout the law in the same sense. This is especially so where the

concept sought to be expressed by a certain term must be properly understood in order to resolve a question of law.

The present case is a striking example. The Commissioner of State Revenue assessed the respondents to duty following their purchase of units in a land-owning partnership. Before both the primary judge and this Court, the Commissioner relied upon statements made in a line of High Court authority, which dates back some 70 years, to contend that the interest of a partner in partnership property is a presently existing, equitable, sui generis interest in each and every asset of the partnership which is proprietary in nature. He relied upon those statements to contend that such an interest therefore amounts to an ‘interest in an estate in fee simple’ within the meaning of ss 3, 7 and 10 of the Duties Act 2000 (‘the Act’). For the reasons that follow, this submission is misguided. It has no regard to the true nature of a partner’s interest in partnership property. Somewhat ironically, the true nature of this interest may be ascertained by examining the reasoning in the very authorities upon which the Commissioner relied. Once examined, that reasoning makes clear that such an interest is not an ‘interest in an estate in fee simple’. Rather, it is, for the duration of the partnership, an equitable chose in action which confers certain rights on each partner upon dissolution and after the realisation of the assets and payment of the debts and liabilities of the partnership — namely, a right to a proportionate share of any surplus. In my opinion, leave to appeal should be granted, but the appeal must be dismissed.

The reasons of McLeish JA summarise the factual background, the reasons of the primary judge and the submissions of the parties. I gratefully adopt those parts of the reasons of McLeish JA. I also do not see any difference between the statements of principle expressed in my reasons and those expressed in the reasons of McLeish JA. In particular, I agree with [164]–[165] of his reasons.

The issue

Broadly speaking, the issue in this appeal is whether the sale and purchase of the interests of two partners in a partnership constituted a ‘transfer of dutiable property’ within the meaning of s 7(1)(a) of the Act.

The issue may be recast with greater precision by reference to the terminology used in the relevant provisions of the Act, which are set out in the reasons of McLeish JA. Chapter 2 of the Act is entitled ‘Transactions concerning dutiable property’. Section 7 charges duty on certain transactions, including ‘a transfer of dutiable property’ (s 7(1)(a)) and ‘any other transaction that results in a change in beneficial ownership of dutiable property’ (s 7(1)(b)(vi)).[2] Relevantly, s 10(1) defines ‘dutiable property’ as ‘an estate in fee simple’ in land in Victoria (s 10(1)(a)(i)) and an interest in any dutiable property referred to in s 10(1)(a) other than certain exceptions which are immaterial for present purposes (s 10(1)(ac)).[3]
[2]Certain transactions are excluded. These are immaterial for present purposes. Relevantly, s 7(4) provides: ‘change in beneficial ownership includes, but is not limited to—(a) the creation of dutiable property; (b) the extinguishment of dutiable property; (c) a change in equitable interests in dutiable property; (d) dutiable property becoming the subject of a trust; (e) dutiable property ceasing to be the subject of a trust.’
[3]Section 3(1) of the Act defines ‘interest’ and ‘transfer’ as follows: ‘interest includes an estate or proprietary right; … transfer includes an assignment, a conveyance, an exchange and a buy-back of shares in accordance with Division 2 of Part 2J.1 of the [Corporations Act 2001 (Cth)]’.

Accordingly, the issue, reformulated, is whether the sale and purchase of the interests of two partners in a partnership constituted a transfer of an interest in an estate in fee simple. As I see it, the analysis begins and ends with the question whether the interests of the respondents are interests in an estate in fee simple.

The nature of a partner’s interest in partnership property

In support of his characterisation of a partner’s interest in partnership property, the Commissioner referred to dicta in several High Court cases which, to varying degrees, speak of the interest of a partner in partnership property. At a general level, that interest is referred to as a ‘beneficial interest’. However, as the following discussion makes clear, labelling the interest of a partner in partnership property a ‘beneficial interest’ in all the assets of the partnership leaves unanswered the question whether, under the Act, a transfer of a beneficial interest in a partnership is the transfer of an interest in an estate in fee simple.

The first case upon which the Commissioner relied is Sharp v Union Trustee Company of Australia Ltd.[4] In particular, the Commissioner drew attention to the following passage in the reasons of Rich J, who said:

Business partners own between them the whole of the partnership assets, and each partner has a proprietary interest in each and every item. But his interest 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, which at any given moment is in proportion to his share in the ultimate surplus coming to him if at that moment the partnership were wound up and its accounts taken (Ashworth v Munn; Marshall v Maclure; Manley v Sartori; In re Fuller’s Contract; Trustees Executors and Agency Co Ltd v Federal Commissioner of Taxation).[5]

[4](1944) 69 CLR 539 (‘Sharp’).

[5]Ibid 551 (citations omitted).

In that case, three partners carried on a business in partnership until the death of one partner. The will of the deceased partner granted an option to surviving partners to purchase the share of the deceased partner in the partnership property in certain circumstances. Following the death of one of the remaining two partners, it became necessary to construe the will of the first deceased partner to determine whether the option was extant. The Court (Latham CJ, Starke and McTiernan JJ, Rich and Williams JJ dissenting) held that the option lapsed on the death of the deceased partner on the basis that, on a proper construction of the will, it was conferred on the surviving partners jointly and as a personal right.

Rich J dissented in the result but not in the description of a partner’s interest in partnership property. In addition to the passage extracted above, Rich J said:

No doubt, as between himself and his partners, his interest in individual items is subject to their right to have all the assets of the partnership for the time being dealt with in accordance with the partnership agreement, but his interest in them is none the less real for that (In re Holland; Brethel v Holland; In re Fuller’s Contract).[6]

[6]Ibid.

The second case is Livingston v Commissioner of Stamp Duties (Qld).[7] The Commissioner relied upon the following passage in the reasons of Kitto J, who made an analogy between the interest of a residuary legatee in an unadministered estate and that of a partner in partnership property:

An analogy may be seen also in the case of a partner’s interest in the partnership assets. That he has a beneficial interest, which the law will recognize and enforce, in every piece of property which belongs to the partnership is clearly established: In re Holland; Brettell v Holland; Manley v Sartori; In re Fuller’s Contract; and none the less so because the nature of the interest is peculiar in that his share in the partnership, by virtue of which the interest in a given asset exists while the asset belongs to the partnership, consists not of a title to specific property but of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership: In re Ritson, Ritson v Ritson; Bakewell v Deputy Federal Commissioner of Taxation; that is to say, not a ‘definite’ share or interest in a particular asset, no ‘right to any part’ of it, but an interest which ‘can be finally ascertained only when the liquidation has been completed, and … consists of his share of the surplus’: Rodriguez v Speyer Brothers.[8]

[7](1960) 107 CLR 411 (‘Livingston’).

[8]Ibid 453 (citations omitted).

In order to place in context certain aspects of the reasoning of the members of the Court in Livingston, it is necessary first to consider the decision of the House of Lords in Lord Sudeley v Attorney-General,[9] which, as will be seen, was pivotal to the reasoning in Livingston in the High Court and subsequently on appeal in the Privy Council. At this point, it should be noted that, in substance, the primary issue for determination in both Sudeley and Livingston was the locality of the interest of a residuary legatee of an unadministered estate on the death of that legatee. In both cases, the question was approached by examining the precise nature of the interest of the legatee.
[9][1897] AC 11 (‘Sudeley’).

In Sudeley, a testator bequeathed various legacies and annuities and gave the residue of his real and personal estate to his executors to hold on trust for his wife for life. By a codicil, he gave one-fourth of his ‘said residuary and personal estate’ to his wife absolutely. His estate included mortgages on real property in New Zealand.

The testator died in 1892 domiciled in England. His will and codicil were proved in England by his executors who were domiciled in England. His wife died in 1893 and her will was also proved in England. At the time of her death (a) her husband’s personal estate had not been fully administered and was in the course of administration; (b) one legacy given by his will remained unpaid; and (c) no appropriation had been made of the New Zealand mortgages or of any securities (or parts thereof) to particular shares of the net ultimate residue. A question arose as to whether the one-fourth share in the value of the New Zealand mortgages was liable to probate duty under the Customs and Inland Revenue Act 1881 as part of the estate and effects of the wife.

The House of Lords unanimously held that the relevant interest, being a one-fourth share in the value of the New Zealand mortgages, was situate in England and therefore liable to probate duty.

Lord Halsbury LC, who delivered the first speech, held that the thing to which the legatee was entitled was the one-fourth share of a residuary estate.[10] His Lordship said that it would be a mistake to say that the legatee was entitled to a part of the New Zealand mortgages; had that been the case, the locality of the legatee’s interest would be New Zealand, and the interest would not be liable to probate duty. Lord Halsbury LC said that, until the residuary estate has been ascertained, it is uncertain of what it will consist and thus ‘the actual right capable of instant assertion does not exist’.[11]
[10]Ibid 15.
[11]Ibid.

In his speech, Lord Herschell agreed that the wife or the executors were not entitled to any part of the New Zealand mortgages as an asset of her estate.[12] The thing to which the legatee was (or her executors were) entitled was ‘what remains of his estate after satisfying debts and legacies’.[13] His Lordship continued:

It seems to me … that until the estate is fully administered it is impossible to say of what assets the residuary estate will consist; we do not know how much the amount of the debt remaining unpaid was in the present case, and there was only one legacy unpaid. But the argument would be precisely the same if there had been a large amount of debt and many legacies still unpaid, that could not have made any difference in point of legal effect. Well, in that case how would it be possible to say that any one of the residuary legatees could point to any part of the assets of the testator and say, ‘This is a part of my estate,’ when it depends entirely on the method of administration by the trustees in what form the residue becoming divisible will exist when the administration is at an end?[14]

[12]Ibid 18.

[13]Ibid.

[14]Ibid.

Lord Herschell described the interest of the legatee as a right ‘to require the executors of her husband to administer his estate completely, and she had an interest to the extent of one-fourth in what should prove to be the residuary estate of the testator’.[15] That interest — the right to require the proper administration of the estate — was situate in England and liable to probate duty.
[15]Ibid 19.

Lords Macnaghten, Shand and Davey were of the same opinion. Lord Davey, in particular, said that the right of the wife’s executors was ‘to have the administration completed and the residuary estate ascertained and realized, either wholly or so far as may be necessary for the purpose, and to have one-fourth of the proceeds paid to them’.[16]
[16]Ibid 21.

In Livingston, the testator was the husband of Mrs Coulson. At the time of his death in 1948, he was domiciled in New South Wales. He left a will appointing Mrs Coulson his executrix together with two other executors. He made a specific bequest to Mrs Coulson and left one-third of the residue of his estate on trust for Mrs Coulson absolutely. At the time of his death, the testator was a member of a partnership carrying on a grazing business in Queensland and was also entitled to a one-fourth share in some freehold and leasehold land in Queensland. He also left certain freehold and leasehold land in Queensland and substantial assets in New South Wales. Probate was granted in New South Wales in 1949 and resealed in Queensland in 1952. The executors and Mrs Coulson, until her death, were domiciled and resided in New South Wales. Mrs Coulson died intestate in 1950. Mr Livingston was the administrator of her estate. At the time of her death, duty was yet to be assessed. Crucially, other matters of administration also had to be performed before the residue of the estate could be ascertained.

In 1956, the Commissioner of Stamp Duties in Queensland issued notices of assessment of succession duty and administration duty under The Succession and Probate Duties Acts 1892 to 1952 (Qld) in respect of Mrs Coulson’s share of the Queensland assets on the ground that her death conferred a succession on those becoming entitled to her estate.[17] Relevantly, s 4 charged duty on, among other events, ‘every devolution by law of any beneficial interest in property’, which was deemed to confer on the person entitled by reason of such devolution a ‘succession’.[18] Section 2, in effect, charged succession duty in respect of all property within Queensland; that is, property actually situate or regarded in law as situate in Queensland.
[17]The Commissioner also required Mr Livingston to deliver an account of the estate of Mrs Coulson. Livingston later denied any liability to account.
[18]Section 55 imposed administration duty, relevantly, ‘in respect of every grant of probate or letters of administration made in respect of the estate of any person dying’.

Mr Livingston denied any liability to pay duty and claimed that, at the time of her death, Mrs Coulson had no proprietary right or interest in the specific assets in Queensland, comprised in the testator’s estate, but only a claim against his executors for the due administration of his estate, which was a chose in action or a chose in equity subsisting in New South Wales.

The Court held that Mrs Coulson’s estate was not liable to pay succession duty or administration duty. Each member of the majority (Fullagar, Kitto and Menzies JJ) delivered separate judgments.

Fullagar J recognised that the liability of Mr Livingston, as Mrs Coulson’s next of kin, to pay both succession duty and administration duty depended upon whether Mrs Coulson’s estate comprised assets locally situate in Queensland.[19] Fullagar J noted that, ‘when faced with a question of the locality of a right, the courts have examined the nature of the particular right, and have generally localized it in the place where it must be exercised or enforced, or would normally and naturally be exercised or enforced.’[20] Turning to the case before him, Fullagar J said:

Proceeding on this basis, the courts have consistently held in a large number of cases that the right of a residuary legatee or next of kin, before the administration of the estate is complete, is a right against the executors or administrators to have the estate duly administered, and the residue ascertained and disposed of according to the will or according to law. From the nature of the right it follows that it must be treated as situate in the place of administration, or the principal place of administration, of that estate—the place where the executors are, and where they must, or most naturally would, be sued. The locality, natural or artificially ascribed, of the assets comprising the estate is immaterial.[21]

[19]Livingston (1960) 107 CLR 411, 433.

[20]Ibid 435.

[21]Ibid 435–6.

As can be seen from his description of the manner of attributing locality, Fullagar J incidentally describes the nature of the interest of a residuary legatee in an unadministered estate: it is ‘a right against the executors or administrators to have the estate duly administered, and the residue ascertained and disposed of according to the will or according to law’.

In his judgment, Fullagar J fixed on the decision in Sudeley, which he regarded to be ‘the leading case on the subject’.[22] He cited the passage from the speech of Lord Herschell in which it was said that the right of the wife in Sudeley ‘was to require the executors of her husband to administer his estate completely, and she had an interest to the extent of one-fourth in what should prove to be the residuary estate of the testator’.[23] Having determined that Sudeley governed the case at hand,[24] Fullagar J said that the nature of Mrs Coulson’s interest was, as in Sudeley, ‘a single interest which is localized at the death of the testator, and cannot change its locality as investments are bought and sold in the course of administration.’[25]
[22]Ibid 437.
[23]Ibid 437–8, quoting Sudeley [1897] AC 11, 19.
[24]Livingston (1960) 107 CLR 411, 438.
[25]Ibid.

Fullagar J considered several cases which applied Sudeley in describing the nature of the interest of a residuary legatee in an unadministered estate.[26] In one such case, Re Smyth,[27] Romer J held that ‘[t]he right of the legatee as against the trustee was only to have the trusts of the will administered’[28] before considering the proper forum of administration, viz. ‘what place under existing circumstances was the natural and proper one in which the legatee should enforce his rights—in other words, what was the proper forum for deciding upon the legatee's claim’?[29] In another case, Re Rowe,[30] Dixon AJ said of a person whom Fullagar J described as ‘in the position of Mrs Coulson’s next of kin’ that ‘[h]e is entitled to have the assets applied in due course of administration; but he is not entitled to a legal or equitable interest in any specific asset’.[31] At the risk of some disorientation, I note that Dixon AJ in that case quoted Viscount Cave in Barnardo’s Homes v Special Income Tax Commissioners,[32] who said:

When the personal estate of a testator has been fully administered by his executors and the net residue ascertained, the residuary legatee is entitled to have the residue as so ascertained, with any accrued income, transferred and paid to him; but until that time he has no property in any specific investment forming part of the estate or in the income from any such investment, and both corpus and income are the property of the executors and are applicable by them as a mixed fund for the purposes of administration. This was fully explained in Lord Sudeley v Attorney-General.[33]

[26]Ibid 438–440.

[27][1898] 1 Ch 89.

[28]Ibid 94, quoted in Livingston (1960) 107 CLR 411, 438.

[29]Re Smyth [1898] 1 Ch 89, 94, quoted in Livingston (1960) 107 CLR 411, 439.

[30][1926] VLR 452.

[31]Ibid 454.

[32][1921] 2 AC 1 (‘Barnardo’s Homes’).

[33]Ibid 10 (citation omitted), quoted in Re Rowe [1926] VLR 452, 454.

In the event, Fullagar J concluded that the Commissioner in that case failed to establish a proprietary interest in specific assets in Queensland as to constitute an asset of her estate thereby giving rise to liability under The Succession and Probate Duties Acts. Fullagar J referred briefly to the judgment of Jordan CJ in McCaughey v Commissioner of Stamp Duties,[34] in which Jordan CJ disapproved of Sudeley in the following terms:

The idea that beneficiaries in an unadministered or partially administered estate have no beneficial interest in the items which go to make up the estate is repugnant to elementary and fundamental principles of equity.[35]

[34](1945) 46 SR (NSW) 192.

[35]Ibid 204 (citation omitted).

Fullagar J denied that Sudeley stood for the proposition that ‘beneficiaries in an unadministered or partially administered estate have no beneficial interest in the items which go to make up the estate’.[36] Rather, he explained, ‘[w]hat it does is simply to explain the nature of the interest of such beneficiaries, and to attribute a local situation to it accordingly’.[37]
[36]Livingston (1960) 107 CLR 411, 444.
[37]Ibid.

Kitto J reached the same conclusion as Fullagar J. In the first place, he said that Mrs Coulson’s rights as a residuary legatee under her deceased husband’s will may correctly be described in two ways. First, it may be said that ‘she was entitled to have the administration of the estate completed, and one-third of the residue, when ultimately ascertained, paid or transferred to her’.[38] Secondly, it may be said that ‘she was entitled at her death to have every individual asset which at that time was comprised in the estate dealt with in a due course of administration’.[39] Kitto J observed that both descriptions recognised that Mrs Coulson ‘was entitled to have a process carried out’.[40] He continued:

[B]ut while the one emphasizes the purpose of the process and its ultimate benefit to her, the other directs primary attention to the property presently available for the carrying out of the process. Which description is to be used on a given occasion is a question of appropriateness to the purpose in hand; but it is important always to remember that there is only the one set of rights that is being referred to.[41]

[38]Ibid 448.

[39]Ibid.

[40]Ibid.

[41]Ibid.

As to the second description of Mrs Coulson’s rights, Kitto J explained that ‘she had a right in respect of each individual asset of the Livingston estate that that asset should be dealt with, and dealt with only, in a due course of administration so that she might receive her share in the ultimate distribution’.[42] Based on this description, said Kitto J, it accords with the ordinary terminology of English law, and with the terminology of the statute, ‘to say that among the beneficial interests which devolved by law on Mrs Coulson’s death was a beneficial interest in the Queensland assets of [her husband’s] estate, and that that interest was property which belonged to her at her death’.[43] Evidently, Kitto J gave content to the term ‘beneficial interest’ by holding that Mrs Coulson had a right in respect of each individual asset of her deceased husband’s estate that such asset be dealt with for the purposes of the administration, with a view to ascertaining the net residue.
[42]Ibid 449.
[43]Ibid. The duty under consideration in this passage was administration duty. The reference to ‘belonging’ is contained in s 2 of the amending Act of 1935 (26 Geo. V No. 27), which provides, relevantly, that duties are payable in respect of any real property of a less tenure than an estate of freehold or any personal property whatever in Queensland or any interest therein ‘belonging to any person’ taken possession of or in any manner administered without the grant in Queensland of probate or administration or the reseal of a grant made elsewhere.

Like Fullagar J, Kitto J was mindful of the dangers of imprecise terminology. He found it unhelpful to classify the rights in question as rights in personam or rights in rem.[44] Instead, he said that a residuary legatee has a ‘beneficial interest in individual assets of the estate’, or ‘an interest in them as itself constitutes property’.[45] However, Kitto J accepted that ‘the existence of a beneficial interest is one thing, and the nature of it is another’;[46] the label of ‘beneficial interest’ said nothing about the nature of that interest.
[44]Livingston (1960) 107 CLR 411, 448.
[45]Ibid 449.
[46]Ibid.

Kitto J elaborated on the nature of Mrs Coulson’s interest by reference to Barnardo’s Homes, to which Fullagar J made reference in his judgment.[47] The reasoning in support of the conclusion that Mrs Coulson had a right in respect of (or in) each individual asset of her deceased husband’s estate, as opposed to a right to any asset in specie or to any property into which the assets may be converted, is apparent from the following passage:

The point which [Barnardo’s Homes] emphasizes is that the rights of residuary beneficiaries while administration is incomplete stop short of entitling them to any of the assets in specie, or to any of the income in specie, or to any property or any part or share of property into which either the assets or their income may be converted. The beneficiaries are entitled only to receive, eventually, a share of whatever turns out to be left when the administration is complete; and that may not include any of the existing assets or their income, or anything representing either, for conceivably an asset may be sold and its proceeds used up in the process of administration, and the income may be similarly absorbed. Of course the beneficiaries’ rights are rights with respect to, or ‘in’, or ad each specific asset for the time being in the estate; but the important point to notice is that each such asset is liable, in the very working out of those rights themselves, to disappear from the estate. In other words, the nature of the beneficiaries’ interests in the particular assets necessarily accords with the nature of their interests in the residue as a whole.[48]

[47]See [29] above.

[48]Livingston (1960) 107 CLR 411, 450–1.

Kitto J explained his understanding of the ratio in Sudeley as follows:

The interest of a residuary beneficiary in an asset of an unadministered estate, consisting as it does of rights with respect to that asset which form an integral part of the beneficiary’s rights with respect to the whole estate, possess most substantial connexion with the place of the appropriate forum for enforcing the due administration of the estate; and the law, if I understand it correctly, for that reason accords to the interest in the individual asset, no less than to the interest in the whole estate, a local situation at that place.[49]

[49]Ibid 451–2.

According to Kitto J, the deceased residuary beneficiary in Sudeley ‘had no proprietary interest’ in the individual assets of the head estate ‘if by that is meant such an interest that he might have said of any of the assets “This is mine. Hand it over to me”’.[50] Kitto J also considered that the right of an annuitant in a trust fund of inherently variable composition was ‘simply to have the fund properly administered’.[51] As extracted above, in a passage upon which the Commissioner in the present case relied, Kitto J made the following analogy with a partner’s interest in partnership property:

An analogy may be seen also in the case of a partner’s interest in the partnership assets. That he has a beneficial interest, which the law will recognize and enforce, in every piece of property which belongs to the partnership is clearly established: In re Holland; Brettell v Holland; Manley v Sartori; In re Fuller’s Contract; and none the less so because the nature of the interest is peculiar in that his share in the partnership, by virtue of which the interest in a given asset exists while the asset belongs to the partnership, consists not of a title to specific property but of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership: In re Ritson, Ritson v Ritson; Bakewell v Deputy Federal Commissioner of Taxation; that is to say, not a ‘definite’ share or interest in a particular asset, no ‘right to any part’ of it, but an interest which ‘can be finally ascertained only when the liquidation has been completed, and … consists of his share of the surplus’: Rodriguez v Speyer Brothers.[52]

[50]Ibid 452.

[51]Ibid 453, citing Favorke v Steinkopf [1922] 1 Ch 174.

[52]Livingston (1960) 107 CLR 411, 453 (emphasis added) (citations omitted).

It will be observed that Kitto J, having said that a partner has a ‘beneficial interest, which the law will recognize and enforce, in every piece of property which belongs to the partnership’, elaborates that a partner’s share ‘consists not of a title to specific property but of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership’. This explanation accords with the earlier description of the right of a residuary legatee of an unadministered estate or the right of an annuitant in a trust fund of inherently variable composition. Hence, in the case of an undissolved partnership, the partner’s interest is one which ‘can be finally ascertained only when the liquidation has been completed, and … consists of his share of the surplus’.

Menzies J was the third member of the Court in the majority. He held that, because Mrs Coulson’s interest ‘was in the totality of the estate’ of her deceased husband and she did not own any assets in Queensland, her interest was property situated in New South Wales.[53] He agreed with the survey of authorities by Fullagar J.[54] Relevantly, Menzies J described the right of Mrs Coulson as a right ‘to share in residue ascertained by administration in due course’, which, in his view, aligned with the decision in Sudeley.[55]
[53]Ibid 458.
[54]Ibid 459.
[55]Ibid 458.

In separate judgments, Dixon CJ and Windeyer J dissented in the result. It is unnecessary for present purposes to set out their reasoning in full, save to note that Dixon CJ recognised the existence of a residuary legatee’s beneficial interest in the unadministered assets of an estate at an earlier point in time than the completion of the duties of administration.[56] He said that a residuary legatee’s ultimate title to specific property in an unadministered estate was the basis of a continuing equitable interest. So it was that the right to have the estate properly administered and to receive payment of the net balance conferred an equitable interest in the totality and therefore in the assets of which it is composed.[57] ‘It is what equity calls property: a jus in personam ad rem.’[58] Dixon CJ held that Mrs Coulson was entitled at her death to an equitable interest in the Queensland property forming part of her deceased husband’s estate — ‘an equitable interest capable of description by reference to the rights which it gives to share in the residue after debts, death duties or other liabilities have been discharged or otherwise cleared.’[59] Dixon CJ added that such an equitable interest ‘is in or in respect of land and other property situate in Queensland’.[60] For this reason, there was a devolution on the death of Mrs Coulson upon her next of kin and, if he survived her for any interval of time, her husband.
[56]Ibid 423, 425.
[57]Ibid 425.
[58]Ibid 425 (citation omitted).
[59]Ibid 426.
[60]Ibid.

Windeyer J agreed with the reasoning of Dixon CJ. At the outset of his judgment, he expressed his conclusions as follows:

I think that if a person has an interest in Queensland land, of a kind recognized by the law of Queensland, then, for the purposes of Queensland law, that interest is in Queensland and is property there. It matters not, I think, what in juristic theory is the nature of the interest or by what name it is called. And similarly I think that an interest in the undertaking and assets of a partnership in a station in Queensland is, for the purposes of Queensland law, property in Queensland.
To go fully into all the matters argued in this case, and to discuss all the cases referred to would involve a consideration of the juristic nature of proprietary rights and equitable interests …[61]

[61]Ibid 461–2.

The Privy Council dismissed an appeal from the decision of the High Court in Livingston.[62] Viscount Radcliffe, who delivered the advice of the Judicial Committee, referred to s 4 of The Succession and Probate Duties Acts[63] and asked: ‘What, then, could be the “beneficial interest in property” that was charged by this Act as the subject of a succession on Mrs Coulson’s death?’[64]
[62]Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694.
[63]See [23] above.
[64]Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, 706.

Viscount Radcliffe said that, when she died, Mrs Coulson had the interest of a residuary legatee in the testator’s unadministered estate. The executor of the estate was essentially a trustee; while it may be impossible to state exhaustively what the relevant trusts are at any one moment, ‘they are trusts to preserve the assets, to deal properly with them, and to apply them in a due course of administration for the benefit of those interested according to that course’.[65] Until the administration was complete, ‘no one was in a position to say what items of property would need to be realised for the purposes of that administration or of what the residue, when ascertained, would consist or what its value would be’.[66]
[65]Ibid 707.
[66]Ibid 708.

His Lordship explained that, while the assets of the estate were in the hands of the executors during the course of the administration, Mrs Coulson had no beneficial interest in any of those assets; ownership was vested in the executors.[67] She had only a right to compel the executors to administer the estate properly and to seek relief from a court of equity for that purpose.[68] Such a right, being a chose in action which was capable of being invoked for any purpose connected with the proper administration of the estate’,[69] was situate in New South Wales, where her deceased husband had been domiciled and his executors resided and which constituted the proper forum of administration of his estate.[70] Viscount Radcliffe further explained that proceedings which are brought by a residuary legatee in these circumstances are done so on behalf of the estate, and such proceedings ‘assert the estate’s right of property, not the property right of creditor or legatee’.[71]
[67]Ibid 707–8.
[68]Ibid 699.
[69]Ibid 717.
[70]Ibid. Mrs Coulson’s interest was not directed to the enforcement of rights to property in Queensland and, thus, did not meet the description in the statute of a ‘beneficial interest’ in property in Queensland. This conclusion is to be compared with that of the majority of the High Court in Livingston, who held that there was no ‘beneficial interest’ for the purposes of the statute and situate in Queensland, though there may have been such an interest in New South Wales. See J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5^th ed, 2015) 109–10 [4–030].
[71]Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, 714.

In the event, the judgment of Lord Herschell in Sudeley was conclusive of the issue.[72] One of the criticisms of that judgment, identified by Viscount Radcliffe, was that the remarks of Lord Herschell apparently suggested that residuary beneficiaries have no interest of any kind in the individual assets of an unadministered estate.[73] In confronting this matter, Viscount Radcliffe said:

Criticisms of this kind arise from the fact that the terminology of our legal system has not produced a sufficient variety of words to represent the various meanings which can be conveyed by the words ‘interest’ and ‘property.’ Thus propositions are advanced or rebutted by the employment of terms that have not in themselves a common basis of definition. For instance, there are two passages quoted by the Chief Justice in his dissenting judgment in this case which illustrate the confusion. There is the remark of Jordan CJ in McCaughey’s case, ‘The idea that beneficiaries in an unadministered or partially administered estate have no beneficial interest in the items which go to make up the estate is repugnant to elementary and fundamental principles of equity.’ If ‘by beneficial interest in the items’ it is intended to suggest that such beneficiaries have any property right at all in any of those items, the proposition cannot be accepted as either elementary or fundamental. It is, as has been shown, contrary to the principles of equity. But, on the other hand, if the meaning is only that such beneficiaries are not without legal remedy during the course of administration to secure that the assets are properly dealt with and the rights that they hope will accrue to them in the future are safeguarded, the proposition is no doubt correct. They can be said, therefore, to have an interest in respect of the assets, or even a beneficial interest in the assets, so long as it is understood in what sense the word ‘interest’ is used in such a context.[74]

[72]Ibid 708.

[73]Ibid 712.

[74]Ibid 712–3 (citation omitted).

His Lordship’s call for precision in the above passage is relevant when determining the nature of the interest in the present case; it is necessary to bear in mind that strict language must be used to give content to the term ‘beneficial interest’.[75] The misleading nature of ‘words and names’ was explained by Fullagar J in Livingston in the following terms:

Probably no one would deny that Mrs Coulson here had an ‘equitable interest’ in the entire mass of the testator’s estate, and some may think it follows that she had an equitable interest in every part of that mass. We may call it a proprietary interest, if we wish, or equity may call it ‘property’ … but whether it should have this dignity conferred upon it seems to me to be little more than a matter of ‘words and names’, capable to leading to the kind of strife which moved Gallio to say that he ‘cared for none of these things’. To say that Mrs Coulson had an equitable interest in the estate is to say something that requires explanation and analysis …[76]

Thus, to adopt the language of Viscount Radcliffe, it may be said that a person has a beneficial interest in property, ‘so long as it is understood in what sense the word “interest” is used in such a context’.

[75]See Sudeley [1897] AC 11, 15–6 (Lord Halsbury LC).

[76]Livingston (1960) 107 CLR 411, 438.

On that footing, the description of the interest of a residuary legatee in an unadministered estate should not be adopted rigidly to describe the interest of a partner in partnership property; the interests arising in each situation are different. However, the analysis in cases dealing with the former are instructive in expounding the latter.[77]
[77]See generally J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5^th ed, 2015) 113 [4–065].

The third case upon which the Commissioner relied is Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd.[78] The Commissioner emphasised the following passage in the judgment of the Court:

The nature of a partner’s interest in the partnership property has often been explained. The partner’s share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realisation of assets and the payment of debts and liabilities. However it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a ‘beneficial interest’, notwithstanding its peculiar character.[79]

[78](1974) 131 CLR 321 (‘Canny Gabriel’).

[79]Ibid 327.

A financier agreed to finance certain contracts arranged by a concert promoter for public performances by two singers. The financier and the promoter entered into an agreement by which, in consideration of advances, the promoter agreed to assign to the financier ‘a one half interest in the contracts and to perform those contracts as a joint venture’. The advance was described as a ‘loan to the joint venture’ repayable prior to the distribution of profits, which were to be divided equally between the venturers. All policy matters relating to the venture were ‘to be agreed upon by the parties’. Box office proceeds were to be paid into an account in the financier’s name, and the account was to be operated in such manner as the financier saw fit. In the event of the ‘contract failing’, the advance was to be repaid ‘without deduction’. The day after entering into the agreement, the promoter granted an equitable charge over its undertaking, including its rights to the box office receipts, to an advertising agency. The issue was whether the financier’s interest, whatever that interest may be, ranked in priority to the advertising agency’s equitable charge.

The Court (McTiernan, Menzies and Mason JJ) held that the agreement between the financier and the promotor rendered the parties partners in the joint venture to which that agreement related.[80] That being so, the financier ‘acquired an equitable interest, as distinct from a mere equity, in the box office receipts’.[81] This equitable interest prevailed over the advertising agency’s equitable charge.
[80]Ibid 325.
[81]Ibid. It was not in dispute that, if there was a partnership and it created an equitable interest in the receipts, the declaration made by the primary judge that the interest of the financier ranked in priority to the interest of the advertising agency should be upheld (but not for the reasons given by the primary judge). On the appeal, the advertising agency had contended that the relationship was not a partnership and that, if it was, the interest of the financier was no more than a ‘mere equity’ and did not give rise to an equitable interest.

On the nature of a partner’s interest in partnership property, the Court said:

The partner’s share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realization of assets and the payment of debts and liabilities. However, it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a ‘beneficial interest’, notwithstanding its peculiar character.[82]

[82]Ibid 327.

The Court quoted the following passage from Re Fuller’s Contract:[83]

… as between the partners, the partnership property must be dealt with in a particular way, but so far as all the rest of the world is concerned, there is no limitation on the interests of the partners; the partners have the beneficial interest in the partnership assets, which are held together as an undivided whole, but they respectively have undivided interests in them.[84]

[83][1933] Ch 652.

[84]Ibid 656 (Luxmore J), quoted in Canny Gabriel (1974) 131 CLR 321, 328.

The Court acknowledged the similarity between the nature of a partner’s interest and that of a residuary legatee in an unadministered estate ‘in that the residuary legatee and the partner each have the right to insist upon due administration, the former of the estate and the latter of the partnership assets and liabilities, and the precise entitlement of each must await the due course of administration.’[85] The Court added:

Nevertheless we think that the interest of the partner in an asset of the partnership is sui generis (cf. Livingston v Commissioner of Stamp Duties (Q) (1960) 107 CLR 411, 453–4). It is, as we have said, recognized as a beneficial interest.[86]

[85]Canny Gabriel (1974) 131 CLR 321, 328.

[86]Ibid.

The Court rejected an argument that the interest of the financier was ‘a mere equity to set aside or rectify a transaction by means of a court order’,[87] referring to Latec Investments Ltd v Hotel Terrigal Pty Ltd.[88] Thus, the financier’s equitable interest prevailed over the equitable charge held by the advertising agency, despite the latter’s ignorance of the prior equitable interest at the time when the equitable charge was granted.[89]
[87]Ibid.
[88](1965) 113 CLR 265.
[89]Canny Gabriel (1974) 131 CLR 321, 328.

The fourth case is Federal Commissioner of Taxation v Everett.[90] The Commissioner relied upon the following statement from the joint judgment of Barwick CJ, Stephen, Mason and Wilson JJ, who said:

Although a partner has no title to specific property owned by the partnership, he has a beneficial interest in the partnership assets, indeed in each and every asset of the partnership.[91]

[90](1980) 143 CLR 440 (‘Everett’).

[91]Ibid 446.

The taxpayer, a solicitor, practised in partnership with three other solicitors. The document which regulated the rights of the partners provided that the taxpayer had a 13 per cent interest ‘in the capital and income of the firm’. The taxpayer and his wife executed a deed by which the taxpayer (defined as ‘the Vendor’), in consideration of $3,832.50, conveyed and assigned to his wife (defined as ‘the Purchaser’) ‘6/13ths of the Vendor’s share in the partnership … together with all those rights including the right to receive an appropriate share of the profits of the partner to which an assignee of a share in a partnership is entitled [under the Partnership Act 1892 (NSW)] as from the date of these presents to hold the same unto the Purchaser absolutely’. The deed declared that the taxpayer’s wife was not by reason of the deed or otherwise to become a member of the partnership or to be entitled to interfere in its business or affairs, or to require any account or to inspect the books of the partnership. Her sole entitlement was to receive the portion of the share of profits and other moneys to which the taxpayer would otherwise have been entitled had the assignment not been made. The other partners orally approved the deed and, shortly after it was executed, the taxpayer gave notice of the assignment to them. Thereafter, income in respect of the assigned interest was paid on the wife’s instructions usually to the credit of her current banking account but sometimes to the credit of the taxpayer’s account. The taxpayer was assessed for tax on the basis that his assessable income included the amount of partnership net profit paid to his wife or applied in accordance with her instructions.

The majority (Barwick CJ, Stephen, Mason and Wilson JJ) observed at the outset that the contention of the Commissioner in that case rested on the proposition that the right of the taxpayer as a partner to receive his proportion of partnership profits was a right separate and severable from his share in the partnership and that this right did not flow from, nor was it ‘the fruit of’, that share.[92] The majority rejected the Commissioner’s argument. It explained the nature of a partner’s interest in partnership property as follows:

Although a partner has no title to specific property owned by the partnership, he has a beneficial interest in the partnership assets, indeed in each and every asset of the partnership (Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd; Livingston v Commissioner of Stamp Duties (Q)). His share in the partnership consists of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership (Bakewell v Deputy Federal Commissioner of Taxation (SA); Bolton v Federal Commissioner of Taxation). Historically the interest of a partner in a partnership has been considered to be an equitable interest because it is a right or interest enforceable in equity and not at law (Bolton’s Case).
A partner’s interest in the partnership is a chose in action assignable in whole or in part (Hocking v Western Australian Bank). The better opinion seems to be that, though the interest of a partner is an equitable interest, it may be assigned [under the relevant statute].
The interest, being a chose in action, falls within the expression ‘debt or other legal chose in action’ because the section, in providing that notice shall be given to a trustee ‘as a person liable in respect of such debt or other legal chose in action’, appears to contemplate the assignment by a beneficiary of an equitable chose in action against a trustee. There would be no point in referring to a trustee if the section made provision only for the assignment by strangers to the trust of debts owing by, and choses against, persons who happen to be trustees. The expression ‘legal chose in action’ may be read as ‘lawfully assignable chose in action’.[93]

[92]Ibid.

[93]Ibid 446–7 (citations omitted).

In the result, the majority said that the assignment had effect as an equitable assignment; ‘the weight of authority is against the view that part of a debt or a chose in action can be assigned under that section’.[94]
[94]Ibid 447.

The majority in Everett adopted a familiar starting point in labelling a partner’s interest in partnership property: it is ‘a beneficial interest … in each and every asset of the partnership’. It is important, however, to recognise that the Court took the further step of describing the interest as consisting of ‘a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership’. The appellation ‘equitable interest’ denotes ‘a right or interest enforceable in equity and not law’. As will be seen below, the description accorded to the interest in Everett has carried significant weight in some of the decisions that have followed.

The fifth case is United Builders Pty Ltd v Mutual Acceptance Limited.[95] The Commissioner relied upon the following passage from the judgment of Mason J:

The [long established] principle [that a mortgage or charge over a partner’s share or interest in the partnership does not vest any interest in the assets of the partnership against the other partners] does not in my opinion deny the existence of a partner’s beneficial interest in each of the partnership assets, but this interest is of a special and non-specific kind.[96]

[95](1980) 144 CLR 673 (‘United Builders’).

[96]Ibid 687.

Two companies carried on a business in partnership. Pursuant to a deed of charge, one partner (‘UB’) granted a charge over its right, title and interest in the partnership in favour of the other (‘MA’) to secure a loan made for purposes not connected with the partnership. The charge was not registered under s 100 of the Companies Act 1961 (Qld), and, thus, if it was a floating charge, it was void. UB later borrowed other moneys from another lender and gave as security a mortgage debenture which created a floating charge. That charge was registered under s 100. Later, UB was wound up in insolvency. The issue was whether the mortgage debenture ranked in priority to the deed of charge: if the deed of charge was a fixed charge, it would prevail over the mortgage debenture.

Mason J, with whom Barwick CJ, Gibbs and Wilson JJ agreed, identified the vital question thus: ‘What rights passed to [MA] by virtue of the charge over [UB’s] right, title and interest in the partnership?’[97] If the charge was fixed and not floating, it did not need to be registered under s 100 and, thus, it would prevail over the later floating charge.
[97]Ibid.

Mason J held that, ‘according to long established principle, a mortgage or charge over a partner’s share or interest in the partnership does not vest any interest in the assets of the partnership against the other partners’.[98] The mortgage or charge conferred ‘an entitlement on the holder on dissolution of the partnership in relation to the partner’s share of the partnership assets’.[99] Mason J drew support from s 34 of the Partnership Act 1891 (Qld), which provided that a mortgagee is on dissolution entitled to receive the mortgagor’s share of the assets and that, for the purpose of ascertaining that share, he is entitled to an account from the other partners as from the date of dissolution. Mason J continued:

This principle does not in my opinion deny the existence of a partner’s beneficial interest in each of the partnership assets, but this interest is of a special and non-specific kind (Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd; Federal Commissioner of Taxation v Everett).[100]

[98]Ibid.

[99]Ibid.

[100]Ibid.

Mason J later added that ‘[t]he vital consideration is that the partner’s interest is in truth a chose in action, which, as Everett acknowledged, “consists of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership”’.[101] Relevantly, a mortgage or charge is considered to vest rights over that chose in action but it is not considered to carry any title to the specific assets until dissolution.[102] Mason J concluded:

A fixed charge is appropriate to create a security over a partner’s share. It gives rise to a present security over the chose in action which is the partner's share. Although it creates no specific interest in the partnership assets until dissolution, this is not because the charge is dormant; it is because the rights conferred by the charge relate to the existing chose in action and that the security over the chose in action confers no entitlement to the assets of the partnership until dissolution …[103]

In the result, the charge over UB’s interest in the partnership in favour of MA did not attach to the various assets of the partnership; rather, it attached to the equitable chose in action constituted by that interest and, therefore, was a fixed (not floating) charge which did not need to be registered under s 100.

[101]Ibid 688.

[102]Ibid.

[103]Ibid.

The reasoning of Mason J in United Builders warrants attention. Having acknowledged the existence of a partner’s ‘special and non-specific’ beneficial interest in each of the partnership assets, Mason J went further to expound the nature of such an interest: it is a chose in action which ‘consists of a right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership’.[104] The rights conferred by a mortgage or charge relate to the existing chose in action; ‘the security over the chose in action confers no entitlement to the assets of the partnership until dissolution’.[105] Viewed in this light, the primary judge was correct to describe the interest of a partner in partnership property as an equitable chose in action amounting to an expectancy.[106] It is not until the dissolution of the partnership and the subsequent realisation of assets and the payment of debts and liabilities that the interest of each partner, being a fractional interest in a surplus of assets over liabilities, can be ascertained finally.[107] For, as the primary judge noted,[108] there may never be a surplus of assets or future profits.
[104]Ibid 688 (emphasis added).
[105]Ibid.
[106]Danvest Pty Ltd v Commissioner of State Revenue [2017] VSC 125 [39], [78] (‘Reasons’).
[107]Livingston (1960) 107 CLR 411, 453. See also Commissioner of State Taxation (SA) v Cyril Henschke Pty Ltd (2010) 242 CLR 508, 517 [25]; Bolton v Federal Commissioner of Taxation [1965] ALR 481; (1964) 9 AITR 385, 389 (‘Bolton’).
[108]Reasons [95].

The same observations hold true when one turns to consider the sixth case upon which the Commissioner relied, Watson v Ralph.[109] The Commissioner referred to a part of the reasons of Gibbs CJ where he said that, notwithstanding that the property in question was partnership property at the time of her death, a testatrix ‘had an equitable interest in every asset of the partnership, including the land.’[110]
[109](1982) 148 CLR 646.
[110]Ibid 650.

At the time of her death, the testatrix and her husband were registered as joint proprietors of land. The land was an asset of a business which they had conducted in partnership. The will of the testatrix contained a trust: ‘if at the date of my death I shall be the owner of the freehold property … owned at the date hereof jointly by my said husband and myself to transfer and/or convey the same … to my daughters’. The daughters issued proceedings seeking, in substance, the determination of the question whether the interest of the testatrix in the land passed to them under the will.

Gibbs CJ, with whom Mason, Wilson and Brennan JJ agreed, said that it did not. Gibbs CJ first characterised the nature of the testatrix’s interest in the land. He said that, at the time of her death, the testatrix was neither the legal owner nor the sole beneficial owner of the land.[111] The land was then part of the property of the partnership of which the testatrix and her husband were members. Gibbs CJ then quoted Kitto J in Livingston in describing the nature of a partner’s interest in partnership assets.[112] In a passage upon which the Commissioner relied in his submissions, Gibbs CJ also said:

The testatrix accordingly had an equitable interest in every asset of the partnership, including the land: see also Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd; and Federal Commissioner of Taxation v Everett.[113]

[111]Ibid.

[112]Ibid. See [14] above.

[113]Watson v Ralph (1982) 148 CLR 646.

But the analysis did not stop there. Gibbs CJ then construed the terms of the will and, in particular, the words of the condition ‘if at the date of my death I shall be the owner of the freehold property’. He said that the words ‘the owner of the freehold property’, literally construed, were not satisfied as the testatrix was not ‘the owner’ of the land at the time of her death.[114] He further held:

The natural effect of the words of the condition is to make the trust in favour of the appellants depend upon a contingency which had not occurred at the date of the will — namely, that she had become the sole owner of land which at the date of the will was held jointly.[115]

[114]Ibid 650.

[115]Ibid 653.

Later in his reasons, Gibbs CJ said:

At the date of her death the testatrix was not the owner of the freehold property … It was then partnership property and she had in it the same interest as in any other partnership property, i.e. upon the dissolution of the partnership a half interest in the proceeds of sale of all the partnership property after payment of partnership debts, subject to any agreement between the partners as to distribution in specie.[116]

[116]Ibid 655.

Gibbs CJ observed that, by the distinction drawn between the situation prevailing at the date of the will (when there was a ‘freehold property … owned at the date hereof jointly by my said husband and myself’) and the contingent situation for which the testatrix was providing (that at the time of her death she would be ‘the owner of the freehold property’), the draftsperson had clearly recognised ‘the difference between the existing joint ownership and the possible future absolute ownership’.[117] Gibbs CJ concluded:

I have said that I find the words of the will clear and unambiguous. So far as material they deal with a contingency for which the testatrix desired to make provision, i.e. the contingency that she might become the ‘owner’ of the freehold property then jointly held with her husband …[118]

[117]Ibid 655–6.

[118]Ibid.

The reference to the interest of the testatrix as a contingency or, more aptly, one of ‘possible future absolute ownership’ is not only instructive, but evocative of the primary judge’s description of the interest as an equitable chose in action amounting to an expectancy. Such an interest is to be contrasted (as Gibbs CJ did) to the notion of presently existing ownership or (as Mason J did in United Builders) an interest which confers an entitlement to the assets of the partnership unless, of course, the partnership has been dissolved and a partner’s entitlement to a proportion of the surplus has been ascertained.

The final case that falls for consideration is Commissioner of State Taxation (SA) v Cyril Henschke Pty Ltd.[119] Four partners carried on a business in partnership. They executed a deed providing for one of them, Doris Henschke, to retire from the partnership and for the other three to continue the partnership without purchasing the interest of Ms Henschke and without the partnership being dissolved. The deed stated that the interest of Ms Henschke had ceased because the payment of an amount equivalent to the value of her proportionate share of the assets of the partnership was ‘full satisfaction’ of her claims against the partnership. The Commissioner of State Taxation in South Australia determined that the deed was a conveyance on sale within the meaning of s 60 of the Stamp Duties Act 1923 (SA) and was therefore assessable for stamp duty pursuant to s 4 of that Act. Section 60 defined ‘conveyance’ as including every instrument by which or by virtue of which or by the operation of which any personal property or any estate or interest in any such property was assured to, or vested in, any person. ‘Interest’ in property was defined as a legal or ‘equitable interest’ including ‘a potential, contingent, expectant or inchoate interest’.
[119](2010) 242 CLR 508 (‘Cyril Henschke’).

The Court (French CJ, Gummow, Hayne, Heydon and Kiefel JJ) held that the deed was a conveyance within the meaning of s 60 of the Stamp Duties Act 1923 (SA). As a starting point in its analysis, the Court said that the position 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’.[120] It added:

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). 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 Livingston. 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.’[121]

[120]Ibid 517 [25].

[121]Ibid 517 [25] (emphasis added) (citations omitted).

The Court explained the decision in Canny Gabriel. It said that the dispute in that case ‘turned on the proposition that, if the equities otherwise are equal, the first of two competing equitable interests prevails, but that, if the first be but a “mere equity” of the kind considered in Latec Investments Ltd v Hotel Terrigal Pty Ltd, it may not retain priority over the subsequent equitable interest.’[122] The Court continued:

The decision in Canny Gabriel was that the equitable interest of a partner in the assets before winding up was more than a ‘mere equity’ and thus retained priority over a subsequent equitable charge. That may be accepted but is not decisive of the present appeal, which does not concern the principles of priorities in equity.[123]

[122]Ibid 517–8 [26] (citation omitted).

[123]Ibid 518 [26].

The Court then set out the following passages from the judgment of Mason J in United Builders, which it described as ‘the established doctrine of the Court’:

[A]ccording to long established principle, a mortgage or charge over a partner’s share or interest in the partnership does not vest any interest in the assets of the partnership against the other partners. What the mortgage or charge does is to confer an entitlement on the holder on dissolution of the partnership in relation to the partner's share of the partnership assets …
The vital consideration is that the partner’s interest is in truth a chose in action, which, as [Everett] acknowledged, ‘consists of a right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership’.[124] A mortgage or charge is considered to vest rights over that chose in action but it is not considered to carry any title to the specific assets until dissolution.
… A fixed charge is appropriate to create a security over a partner’s share. It gives rise to a present security over the chose in action which is the partner's share. Although it creates no specific interest in the partnership assets until dissolution, this is not because the charge is dormant; it is because the rights conferred by the charge relate to the existing chose in action and that the security over the chose in action confers no entitlement to the assets of the partnership until dissolution.[125]

[124](1980) 143 CLR 440, 446.

[125]United Builders (1980) 144 CLR 673, 687–8, quoted in Cyril Henschke (2010) 242 CLR 508, 518 [27]–[28].

Applying these principles to the facts before it, the Court said:

The Retirement Deed operated with respect to the interest of [Ms Henschke], which was a presently existing equitable chose in action against the other partners to effect an accord and satisfaction, by her acceptance of the payment … in place of that chose in action against the other partners. The Retirement Deed further provided for the creation of a second partnership to conduct the business previously conducted … Pursuant to and by virtue of the provisions of the Retirement Deed, there were vested in the members of the second partnership the equitable choses in action representing their present partnership interests as described by Mason J in United Builders. As already stated, the Retirement Deed thus was a conveyance within the meaning of s 60 of the Act.[126]

[126]Cyril Henschke (2010) 242 CLR 508, 518–9 [28].

In the present case, the Commissioner contended that to accept the description in Cyril Henschke of a partner’s interest in partnership property would be to overrule the line of authority which preceded that case. I reject that contention. In my opinion, nothing in Cyril Henschke departs from earlier statements of the Court on the nature of a partner’s interest in partnership property. To describe the interest as a beneficial and sui generis interest in each and every asset of the partnership is plainly insufficient. More is required. The Court in Cyril Henschke, cognisant of the importance of precise identification of the interest in question, stressed that the position was ‘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’.[127] With that in mind, the Court affirmed the statement of Mason J in United Builders, referring to Everett, that the interest is a chose in action which ‘consists of a right to a proportion of the surplus after the realisation of the assets and payment of the debts and liabilities of the partnership’.[128] Indeed, ‘the interest of each partner can be ascertained finally only upon completion of the liquidation and the identification of any surplus share’.[129] Quite apart from the inexact description of the relevant interest in Canny Gabriel, one could reasonably surmise that the Court in Cyril Henschke sought to detach itself from the broad appellation ‘beneficial interest’ in favour of a description that not only was apposite to describe the interests of the partners in that case, but also reflected ‘the established doctrine of the Court’ set out by Mason J in United Builders.
[127]Ibid 517 [25].
[128]Ibid 518 [27], quoting United Builders (1980) 144 CLR 673, 687–8. See Everett (1980) 143 CLR 440, 446.
[129]Cyril Henschke (2010) 242 CLR 508, 517 [25] (emphasis added).

It is no coincidence that the description of a partner’s interest in partnership property as a presently existing equitable chose in action also coheres with the reluctance of equity to recognise the existence of any greater right or interest in that property unless it is necessary in order to give effect to its doctrines.[130] The point was illustrated in CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic).[131] There, the High Court rejected the notion that unit holders in a unit trust, where each unit conferred an equal interest in all property of the trust from time to time, were the owners of an equitable estate or interest in land for the purposes of the Land Tax Act 1958. The interests of the unit holders had to be determined by reference to the trust deed.[132] In that case, the unit holders had a right to receive ‘such if any income as may be derived’ from the product of the trustee applying gross receipts in various ways in accordance with the trust deed.[133] Moreover, until satisfaction of the trustee’s rights of recoupment or exoneration, ‘it was impossible to say what the trust fund in question was’.[134]
[130]Ibid 517 [25], quoting Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, 712. See also Barns v Barns (2003) 214 CLR 169, 197–8 [78] (Gummow and Hayne JJ). See generally Lavin v Toppi (2015) 254 CLR 459, 474–5 [52] (French CJ, Kiefel, Bell, Gageler and Keane JJ).
[131](2005) 224 CLR 98 (‘CPT Custodian’).
[132]CPT Custodian (2005) 224 CLR 98, 115 [34], 115–6 [36] (Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ). See also Kent v SS Maria Luisa(No 2) (2003) 130 FCR 12, 33 [60] (Tamberlin and Hely JJ).
[133]CPT Custodian (2005) 224 CLR 98, 116 [37], quoting Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue (Vic) (2002) 51 ATR 190, 205 [63] (Nettle J).
[134]CPT Custodian (2005) 224 CLR 98, 121 [51], citing Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226, 246 [48] (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ); Dodds v Tuke (1884) 25 Ch D 617, 619 (Bacon VC).

In much the same way, the manager of the partnership in the present case was the legal owner of the real property of the partnership and held that property on trust for the partners as an entirety. It is true that legal ownership was vested in the manager. But this did not mean that equitable ownership was vested in the partners or, for that matter, anyone else.[135] The effect of ss 24 and 26 of the Partnership Act 1958, which are set out in the reasons of McLeish JA, is that partnership property must be held and applied by the partners for the purposes of the partnership and that any land or any interest therein which is partnership property is treated as between partners as personal estate. There is no reason for equity to intervene in order to confer on an individual partner an interest greater than that conferred by the trust deed. Furthermore, until dissolution and the ascertainment of a partner’s interest following the realisation of assets and the payment of debts and liabilities, it is impossible to say what the available property, if any, of the partnership will be.
[135]Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, 712; Kent v SS Maria Luisa(No 2) (2003) 130 FCR 12, 32–3 [60]; Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592, 606 [30] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); CPT Custodian (2005) 224 CLR 98, 112 [25].

Evidently, the judicial statements upon which the Commissioner relied in his submissions were entirely abstracted from the context in which those statements were made or from broader reasoning that was necessary to traverse in order to understand the precise nature of a partner’s interest in partnership property. In both written and oral submissions, for instance, the Commissioner limited his treatment of the decisions in United Builders and Watson v Ralph to quoting passages which suggested that a person ‘had an equitable interest in every asset of the partnership, including the land’[136] or which referred to ‘the existence of a partner’s beneficial interest in each of the partnership assets … a special and non-specific kind’.[137] Yet, as is plain from the discussion above, understanding the broader reasoning in each case was critical to determining the nature of the interest in question. In the present case, the Commissioner’s description of the interest only begged the question.
[136]Watson v Ralph (1982) 148 CLR 646, 650.
[137]United Builders (1980) 144 CLR 673, 687.

Each of the dicta emphasised by the Commissioner uses the term ‘beneficial interest’. In every case, the adjective ‘beneficial’ is not used technically. Rather, it points to the circumstance that the legal owner of the property in question is subject to duties in respect of that property in favour of a third party (a partner or beneficiary). However, the fact that the legal owner owes such duties to a third party does not mean that the latter has an equitable interest in that property. It is a fallacy to hold that, because legal ownership is vested in one person, the equitable interest is vested in somebody else.[138]
[138]Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694, 712. See also F W Maitland, Equity: A Course of Lectures (Cambridge University Press, 2^nd revised ed, 1949). Maitland states: ‘Take the case of a trust. An examiner will sometimes be told that whereas the common law said that the trustee was the owner of the land, equity said that the cestui que trust was the owner … Of course the statement is an extremely crude one, it is a misleading and dangerous statement … Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust.’

Consistent with the analysis of the Court in Cyril Henschke and, indeed, the preceding authorities, the respondents did not acquire ‘an interest in an estate in fee

simple’ for the purposes of the Act. Rather, they acquired equitable choses in action embracing (a) a right to approach a court of equity to secure the proper administration of the partnership property by the partners or the manager of the partnership; and (b) a right to a proportion of the surplus after dissolution and the realisation of the assets and payment of the debts and liabilities of the partnership. Whilst such a chose in action may be an ‘interest’ in itself, it does not confer an interest ‘in’ any property (such as an estate in fee simple) for the purposes of the Act; nor does it effect any change in the beneficial ownership of that property. It may be described as an expectancy in so far as that term connotes that it is not until the dissolution of the partnership and the subsequent realisation of assets and the payment of debts and liabilities that the interest of each partner in the property, being a fractional interest in a surplus of assets over liabilities, can be ascertained finally.[139] Until then, any interest is indefinite and fluctuating[140] and comprises merely a personal right to secure the proper administration of those assets.[141]
[139]Cyril Henschke (2010) 242 CLR 508, 517 [25]; United Builders (1980) 144 CLR 673, 686–8; Everett (1980) 143 CLR 440, 446–7; Canny Gabriel (1974) 131 CLR 321, 327; Livingston (1960) 107 CLR 411, 453; Bolton [1965] ALR 481; (1964) 9 AITR 385, 389.

[190]See Partnership Act 1958, s 24.

[191]Canny Gabriel (1974) 131 CLR 321, 327–8 (citations omitted).

The applicant pointed out that in Re Fuller’s Contract, to which the Court referred, it was held that ‘partners have the beneficial interest in the partnership assets, which are held together as an undivided whole, but they respectively have undivided interests in them’.[192]
[192]In re Fuller’s Contract [1933] Ch 652, 656. The applicant also relied on the more recent English case of Inland Revenue Commissioners v Gray [1994] STC 360, 377, in which partners were said to have ‘proprietary interests’ in the partnership assets, and on Lindley & Banks on Partnership (2010, Sweet & Maxwell, 19^th ed) [19-02] which states that a partnership ‘will usually (but by no means necessarily) confer on each partner certain proprietary rights in respect of the partnership assets. Certainly, it is difficult to imagine a partnership which involves no proprietary rights whatsoever, even though the only partnership property may be of an intangible nature eg goodwill, or of negligible value’.

The respondents submitted that the reasoning in Canny Gabriel had been criticised for assuming a fixed meaning of the term ‘beneficial interest’. In any event, they submitted, it did not attempt to set out the features of a partner’s beneficial interest.[193]
[193]The respondents relied on criticism of the decision in Canny Gabriel, to the effect that it assumed the term ‘beneficial interest’ had a fixed meaning rather than one of infinite variety: R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis, 4^th ed, 2002) [4-040].

As explained below, Canny Gabriel must now be read in the light of the High Court’s later decision in Cyril Henschke. In the meantime, there were two further decisions upon which the applicant relied (Everett and United Builders) that again described partners as having a ‘beneficial interest’ in ‘the partnership assets’,[194] and a third (Watson v Ralph) describing the interest as ‘an equitable interest in every asset of the partnership, including the land’.[195] It is convenient to say something more about those decisions.
[194]Everett (1980) 143 CLR 440, 446 (Barwick CJ, Stephen, Mason and Wilson JJ), citing Canny Gabriel (1974) 131 CLR 321, Livingston (1960) 107 CLR 411; United Builders (1980) 144 CLR 673, 687 (Mason J) citing Canny Gabriel (1974) 131 CLR 321, Everett (1980) 143 CLR 440.
[195]Watson v Ralph (1982) 148 CLR 646, 650 (Gibbs CJ, Mason, Wilson and Brennan JJ agreeing).

Everett concerned the treatment for income tax purposes of an assignment of a partner’s share of future profits. It was held that the right to receive partnership profits was not separate and severable from the partner’s interest in the partnership and that the partnership interest was a chose in action capable of equitable assignment. The majority reasons of the Court held:

Although a partner has no title to specific property owned by the partnership, he has a beneficial interest in the partnership assets, indeed in each and every asset of the partnership. His share in the partnership consists of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership. Historically the interest of a partner in a partnership has been considered to be an equitable interest because it is a right or interest enforceable in equity and not at law.
A partner’s interest in the partnership is a chose in action assignable in whole or in part.[196]

[196]Everett (1980) 143 CLR 440, 446–7 (Barwick CJ, Stephen, Mason and Wilson JJ) (citations omitted).

This passage does not advance the present matter, because it employs the language of ‘beneficial interest’ which, as Kitto J and Viscount Radcliffe explained in Livingston, is imprecise, and because the reasons went on to state, as already noted, that ‘a partner’s entitlement to participate in profits is not separate and severable from the interest of the partner’, being the chose in action.[197]
[197]Ibid 450.

On the other hand, United Builders is of considerable importance to the resolution of the appeal. The issue was whether a charge over one partner’s interest in the partnership, given to the other partner, was a fixed or a floating charge. The charge in question charged ‘all [the partner’s] right title and interest in the partnership’. The chargor took a further loan secured by a subsequent mortgage debenture, which was registered as a floating charge. In the winding up of the chargor, the question arose which security had priority. It was held by the Full Court of the Supreme Court of Queensland that the charge was a fixed charge which prevailed over the subsequent debenture. On the appeal, it was argued that it was a floating charge void as against the liquidator for want of registration. Mason J explained the appellants’ argument in these terms:

The appellants argue that, although the deed of charge is silent upon the question whether it be a fixed or floating charge, the property which is the subject of the charge is such that the parties must necessarily have contemplated that the charge should operate as a floating security. In essence the argument consists of these propositions: (a) that, although a partner has no title to specific property owned by the partnership, he has a beneficial interest in each and every asset of the partnership; (b) that the deed of charge creates an equitable security over that beneficial interest; and (c) that the equitable security must operate by way of floating charge if the partnership business is to be carried on in a continuous and regular fashion.[198]

[198]United Builders (1980) 144 CLR 673, 685–6.

The argument failed at step (b). It is necessary to set out the reasoning of Mason J at some length:

If the subject of the present charge was the property and undertaking of United there would be no doubt that the charge was of the floating variety. Otherwise United would be unable to dispose of its assets in the ordinary course of its business and Mutual would not have the benefit of a charge on future assets.
But the problem here is that the property over which the charge has been given is not the undertaking, or any part of the general assets, of United, but its interest in the partnership. It is at this point that the appellants’ argument breaks down, for I do not agree with the appellants’ second proposition that the charge created an equitable security over United’s beneficial interest in each and every asset of the partnership.
…
The vital question is: What rights passed to Mutual by virtue of the charge over United's right, title and interest in the partnership? The answer to this question is that, according to long established principle, a mortgage or charge over a partner’s share or interest in the partnership does not vest any interest in the assets of the partnership against the other partners. What the mortgage or charge does is to confer an entitlement on the holder on dissolution of the partnership in relation to the partner’s share of the partnership assets. Section 34 of The Partnership Act specifically provides that a mortgagee is on dissolution entitled to receive the mortgagor’s share of the assets and that, for the purpose of ascertaining that share, he is entitled to an account from the other partners as from the date of dissolution.[199]
This principle does not in my opinion deny the existence of a partner’s beneficial interest in each of the partnership assets, but this interest is of a special and non-specific kind ([Canny Gabriel]; [Everett]). In Helmore v Smith [(1887) 25 Ch D 436], it was recognized that a sheriff under a writ of fi fa could sell a partner’s chattel interest in the partnership. But, as Lindley LJ pointed out, the purchaser ‘has to find out what he has really had assigned to him, and that he can only do by a partnership account’. This in itself will virtually ensure a dissolution of the partnership. It is significant that The Partnership Act now provides that a writ of execution shall not issue against any partnership property except on a judgment against the firm (s 26(1))[200] and that the court may by order charge a partner’s interest and his share of profits with payment of a judgment debt and by subsequent order appoint a receiver of that partner’s share of profits and of any other money which may be coming to him from the partnership (s 26(2))[201]. What is more, a partnership may at the option of the other partners be dissolved if any partner suffers his share of the partnership property to be charged under the Act for his separate debt (s 36(2)).[202]
The vital consideration is that the partner’s interest is in truth a chose in action, which, as Everett acknowledged, ‘consists of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership’. A mortgage or charge is considered to vest rights over that chose in action but it is not considered to carry any title to the specific assets until dissolution.
It follows that so long as the partnership business is carried on, its assets may be disposed of in the ordinary course of that business free of any claim to title by the holder of a mortgage or charge over a partner’s share in the partnership. ... A fixed charge is appropriate to create a security over a partner’s share. It gives rise to a present security over the chose in action which is the partner’s share. Although it creates no specific interest in the partnership assets until dissolution, this is not because the charge is dormant; it is because the rights conferred by the charge relate to the existing chose in action and that the security over the chose in action confers no entitlement to the assets of the partnership until dissolution. A fixed charge is equally appropriate to secure to a lender rights over a corporate partner’s share in a partnership.
In the result I consider that Mutual’s charge was a fixed charge and that it did not require registration.[203]

[199]See Partnership Act 1958, s 35.

[200]Ibid s 27(1).

[201]Ibid s 27(2).

[202]Ibid s 37(2).

[203]United Builders (1980) 144 CLR 673, 686–8 (emphasis added, some citations omitted).

The applicant was correct to point out that Mason J here repeated the statement found in the earlier authorities that a partner has a beneficial interest in each of the partnership assets. However, his reasoning elucidates, more precisely than was necessary in the earlier authorities, the nature of that interest. In particular, his conclusion that the appeal failed at the second proposition, namely that the charge created an equitable security over that beneficial interest, demonstrates the very limited nature of the beneficial interest. What was critical was that the partner’s interest is ‘in truth a chose in action’. As Mason J put it, a mortgage or charge vests rights over that chose in action ‘but it is not considered to carry any title to the specific assets until dissolution’.[204] As such, the assets could be freely disposed of notwithstanding the charge and it was not necessary to infer that the charge was a floating one in order to enable the partnership to carry on business.
[204]Ibid 688 (emphasis added).

Although Mason J attached significance to statutory provisions concerning enforcement of charges over a partner’s interest, it is clear that the above conclusion flowed from his analysis of the nature of that interest. Had the partnership interest conferred an interest in the assets of the partnership, a fixed charge over the partnership interest would have prevented those assets being freely disposed of and the result would have been different. Both the reasoning and the result in United Builders are therefore at odds with the applicant’s submission that a partner enjoys a presently existing proprietary interest in the assets of the partnership.

The applicant referred also to Watson v Ralph.[205] That case concerned the operation of a testamentary trust created over certain freehold property if the testatrix was ‘the owner’ of that property at the date of her death. The testatrix and her husband had been joint proprietors of land which was an asset of a business they conducted in partnership. The High Court held that the trust did not extend to that land. In the course of analysing the nature of the interest of the testatrix in the land, Gibbs CJ cited Kitto J in Livingston, as well as Canny Gabriel and Everett, for the proposition that the testatrix had ‘an equitable interest in every asset of the partnership, including the land’.[206] The nature of her interest was not the subject of further examination, the issue for the Court instead being whether the terms of the will were properly construed so as to describe the interest of the testatrix in the land. It was held that they were not. The decision does not take the issue for resolution in the present case any further.

The decision in Cyril Henschke

[205](1982) 148 CLR 646.

[206]Ibid 650.

We come then to Cyril Henschke. In that case one of four partners retired, which the Court held gave rise to the dissolution of the partnership and the creation of a new one in its place. The partnership owned assets other than real property. The deed by which the partner retired also provided that the remaining partners continued the partnership without purchasing the interest of the retiring partner. The question was whether the deed was a ‘conveyance’ for stamp duty purposes. The legislation defined ‘conveyance’ to include every instrument by which any personal property or any estate or interest in such property was assured to or vested in any person. The word ‘interest’ was defined as a legal or equitable interest including a potential, contingent, expectant or inchoate interest.

The High Court held that the deed was a conveyance because it vested in the members of the new partnership the equitable choses in action representing their present partnership interests. After referring to earlier authority, the High Court said:

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]. 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,[207] and exemplifies a proposition expressed by Viscount Radcliffe upon the further appeal in Livingston. 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.

The controversy in Canny Gabriel turned on the proposition that, if the equities otherwise are equal, the first of two competing equitable interests prevails, but that, if the first be but a ‘mere equity’ of the kind considered in Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liquidation) [(1965) 113 CLR 265], it may not retain priority over the subsequent equitable interest. The decision in Canny Gabriel was that the equitable interest of a partner in the assets before winding up was more than a ‘mere equity’ and thus retained priority over a subsequent equitable charge. That may be accepted but is not decisive of the present appeal, which does not concern the principles of priorities in equity.[208]

[207]See Partnership Act 1958, s 43.

[208](2010) 242 CLR 508, 517–8 [25]–[26].

The Court then set out extracts from the reasons of Mason J in United Builders which it described as ‘the established doctrine of the Court’. It concluded that this reasoning supported the conclusion that there was a conveyance:

Pursuant to and by virtue of the provisions of the Retirement Deed, there were vested in the members of the second partnership the equitable choses in action representing their present partnership interests as described by Mason J in United Builders. As already stated, the Retirement Deed thus was a conveyance within the meaning of s 60 of the Act.[209]

[209]Ibid 518–9 [28].

The applicant submitted that Cyril Henschke concerned only the application of the statutory phrase ‘personal property or any estate or interest in any such property’[210] and not any wider issue about the nature of a partner’s interest. It was submitted that Cyril Henschke left the earlier cases about the nature of a partner’s beneficial interest in partnership property undisturbed. Reliance was placed in particular upon the following passage in the reasons, which was said to confirm that the partners held a proprietary interest in the partnership assets; the applicant submitted that it was not necessary for the Court to go further and decide whether that interest extends to specific assets:

The Commissioner submits that it follows that the Retirement Deed was an instrument, in the terms of the definition of ‘conveyance’ in s 60 of the [Stamp Duties Act 1923 (SA)], by which, or by virtue of which, or by the operation of which, personal property vested in the members of the second partnership. That submission should be accepted.[211]

[210]Ibid 515 [17]: from the definition of ‘conveyance’ in s 60 of the applicable legislation in that case, the Stamp Duties Act 1923 (SA).

[211]Ibid 516 [20].

The respondents submitted that Cyril Henschke made it clear that a partner’s interest is not a proprietary right in each item of partnership property, but rather an interest that ensures a legal remedy in the event of that property being dealt with improperly. They pointed to the following passages as confirming that the partners had no interest in partnership assets, only an interest ‘with respect to’ those assets:

[The] foundation for the engagement of equitable doctrines and concomitant remedies has given rise to judicial consideration of the nature of the interest conferred by equity upon each partner with respect to partnership assets as they exist from time to time and in advance of a ‘general’ dissolution under the control of a court of equity. Neuberger LJ recently described as ‘conceptually somewhat opaque’ the concept of a partner’s share in the partnership assets as understood in the earlier English authorities. However, the matter has received attention in a series of decisions in this Court.

Any such interest with respect to partnership assets was described by Dixon CJ as: ‘a right in respect of assets but ... a right, or a congeries of rights, growing out of the partnership articles.’ As Windeyer J indicated in Bolton v Federal Commissioner of Taxation [(1965) ALR 481, 485, 491], the 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’. In [Canny Gabriel], McTiernan, Menzies and Mason JJ said that the interest of the partner is sui generis.[212]

[212]Ibid 516–7 [23]–[24] (citations omitted).

In my opinion, the analysis in Cyril Henschke demonstrates that references in the case law to partners having a ‘beneficial interest’ in partnership assets must not be read too literally. That convenient label, almost always carrying with it the qualification that the interest is ‘sui generis’ or ‘peculiar’, masks a range of more nuanced potential meanings. As the Court said in Cyril Henschke, however, the ‘property’ which the partners have in the partnership assets is in fact ‘the equitable choses in action representing their present partnership interests as described by Mason J in United Builders’.[213] Contrary to the applicant’s submission, it is that chose in action, not any proprietary interest in the partnership assets, which comprised the personal property that vested in members of the second partnership so as to constitute a dutiable conveyance in Cyril Henschke.
[213]Ibid 519 [28].

The respondents also submitted that the fact that the High Court in Cyril Henschke extracted only parts of the reasoning of Mason J in United Builders and described it the ‘established doctrine’ of the Court indicates that the omitted passages were not so approved. Among those passages were sentences on which the applicant relied, including: ‘This principle does not in my opinion deny the existence of a partner’s beneficial interest in each of the partnership assets, but this interest is of a special and non-specific kind’.[214] The respondents submitted that omitting this sentence is consistent with what the Court had said earlier, namely that:

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]. 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.[215]

[214]United Builders (1980) 144 CLR 673, 687.

[215]Cyril Henschke (2010) 242 CLR 508, 517 [25] (citations omitted); Reasons [57].

The respondents’ submission as to the significance of the Court’s partial quotation of passages from the reasons of Mason J in United Builders is misconceived. In truth, the passages were simply not essential to an understanding of the point being made in Cyril Henschke. The omission of the passages in question does not indicate any disapproval of them. On the contrary, the whole reasons of Mason J provide a more extensive explanation of what the Court called its ‘established doctrine’.

The better point for the respondents, which they also advanced, is that the passages in United Builders upon which the applicant alighted, like those in earlier decisions, need to be read in context. The statement that partners have a beneficial interest in the partnership assets cannot properly be understood without having regard to the nature of that interest. Both United Builders and Cyril Henschke show that the ‘interest’ is simply a right to enforce the partner’s equitable chose in action, rather than any title to specific assets prior to dissolution.

Supreme Court authority

The applicant finally relied on three Supreme Court decisions describing a partner’s interest, variously, as the ‘beneficial interest or equitable interest of a partner in each and every asset of a partnership’ ‘in the nature of a proprietary interest’ in Connell,[216] as ‘equitable, sui generis and of a non-specific kind’ in Hancock Prospecting,[217] and as ‘an undivided interest in the whole of the partnership property’ in Sze Tu.[218]
[216]Connell (1992) 8 WAR 352, 373.
[217]Hancock Prospecting (2012) 45 WAR 29, 45 [42]. The High Court refused an application for special leave to appeal: Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2013] HCA Trans 222 (12 September 2013).
[218]Sze Tu (2014) 89 NSWLR 317, 341 [122]. The High Court refused an application for special leave to appeal: Lowe v Sze Tu [2015] HCA Trans 179 (7 August 2015).

The applicant submitted, in particular, that since Hancock Prospecting and Sze Tu were decided after Cyril Henschke, it was not open to the trial judge to decline to recognise the ratio of those cases on the character of a partnership interest.[219] Nor was any proper basis identified by the trial judge for determining that the cases were in error.
[219]Reasons [65].

The respondents submitted that these statements could be reconciled with the decision in Cyril Henschke by acknowledging, as the trial judge did, that the description of a partner’s interest in the partnership property as a ‘beneficial interest’ is merely a general descriptor rather than one that informs the nature of such an interest.[220]
[220]Ibid [86].

The short answer to the applicant’s reliance on these authorities is that, if the law as stated in United Builders and Cyril Henschke is different to that in the later cases, it was the responsibility of the trial judge, as it is of this Court, to follow the decisions of the High Court.

But in any event, these decisions do not assist the applicant. In Hancock, the treatment of the authorities by McLure P, preparatory to resolving the issues of construction to which the point related, described a partner’s share in the property of the partnership as a present equitable chose in action, citing Cyril Henschke and noting that partners are not entitled in their individual capacity to exercise proprietary rights over any partnership asset.[221] In Sze Tu, Gleeson JA set out with approval part of the summary of McLure P and went on to explain that a partner has only an undivided interest in the whole of the partnership property.[222] He went on to hold that the assets of a partnership are not held on trust for the partners.

Conclusion

[221]HancockProspecting (2012) 45 WAR 29, 45–6 [41]–[42].

[222]Sze Tu (2014) 89 NSWLR 317, 341 [121]–[122].

The authorities reveal the following position regarding the nature of the interest of a partner in the partnership assets, flowing from the fact that a partnership involves a collection of rights as among the partners which are held with respect to property devoted to the purposes of the partnership, which rights will be enforced by equity without the need for recognition of any proprietary interest in specific assets of the partnership at any time before its dissolution:

(a)a partner has no title or entitlement to specific property owned by the partnership;[223]
[223]Livingston (1960) 107 CLR 411, 453 (Kitto J); Canny Gabriel (1974) 131 CLR 321, 327; Everett (1980) 143 CLR 440, 446 (Barwick CJ, Stephen, Mason and Wilson JJ).

(b) a partner’s interest in the partnership is an equitable chose in action;[224]
(c)by that chose in action, a partner has a ‘beneficial interest’ in each and every asset of the partnership;[225]

(d) that interest is of a special and non-specific kind;[226]
(e)it consists of an equitable right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership;[227]
(f)it does not consist of any title to partnership assets prior to dissolution of the partnership.[228]

[224]Everett (1980) 143 CLR 440, 447 (Barwick CJ, Stephen, Mason and Wilson JJ); United Builders (1980) 144 CLR 673, 688 (Mason J, Barwick CJ, Gibbs and Wilson JJ agreeing); Cyril Henschke (2010) 242 CLR 508, 518–9 [27]–[28].

[225]Livingston (1960) 107 CLR 411, 453 (Kitto J); Canny Gabriel (1974) 131 CLR 321, 327.

[226]Canny Gabriel (1974) 131 CLR 321, 327–8; United Builders (1980) 144 CLR 673, 687 (Mason J, Barwick CJ, Gibbs and Wilson JJ agreeing).

[227]Canny Gabriel (1974) 131 CLR 321, 327; Everett (1980) 143 CLR 440, 446 (Barwick CJ, Stephen, Mason and Wilson JJ); United Builders (1980) 144 CLR 673, 688 (Mason J, Barwick CJ, Gibbs and Wilson JJ agreeing); Cyril Henschke (2010) 242 CLR 508, 518 [27]–[28].

[228]United Builders (1980) 144 CLR 673, 688 (Mason J, Barwick CJ, Gibbs and Wilson JJ agreeing); Cyril Henschke (2010) 242 CLR 508, 518 [27]–[28].

These propositions show that the interest which a partner has in the assets of the partnership is not accurately described as presently existing, if by that is meant that a partner has a proprietary interest in those assets prior to dissolution. The equitable chose in action which the partner enjoys is rather directed to, and commensurate with, the protection of a future entitlement to a share of surplus assets. In other words, the partner has a presently existing equitable chose in action which does not, prior to dissolution, represent a proprietary interest in partnership assets.

This conclusion suffices to dismiss the appeal. The property the subject of the transaction in the present case consisted of the equitable choses in action of the partners rather than any interests in the land held by the partnership. The applicant did not contend that an interest falling short of a presently existing proprietary interest in partnership assets was an ‘interest in’ those assets for the purposes of s 10(1)(ac) of the Act.[229]

Notice of contention

[229]As Mason J put it in Toohey (1982) 158 CLR 327, 342: ‘No one who has a merely personal right in relation to land can be said to have an “estate or interest” in that land’.

It remains to refer to the argument advanced by the respondents by way of notice of contention, albeit that it does not strictly need to be decided in light of the above conclusion. The premise of the notice of contention was that s 10 of the Act requires the identification of a right in rem in the land in question. The respondents submitted that, even if the applicant were correct to submit that a partner has a proprietary interest in the assets of the partnership, that interest is only an interest ‘in respect of’ the assets, rather than an interest ‘in’ the assets within the meaning of s 10.

If the matter had arisen for consideration, I would have upheld the respondents’ submission for the following briefly stated reasons. Even if, contrary to the foregoing analysis, the partners held a proprietary interest either in the totality of the partnership assets or in ‘each and every asset’ of the partnership, the very nature of that interest would be such that it could not be said to extend to any particular asset prior to dissolution of the partnership. Instead, as the authorities make clear, it would be an interest of an indefinite and fluctuating kind in a pool of assets rather than an interest in any fixed proportion of each asset. It would stretch the language of s 10(1)(ac) unacceptably to regard an interest of that kind in the undifferentiated collection of partnership assets as ‘an interest in’ any one or more of those assets specifically, at least prior to the dissolution of the partnership. It would at most be an interest ‘in respect of’ the assets. That is the character of the unique interest which a partner has in partnership assets.

If there is not ‘an interest in’ any of the individual assets, for the reasons set out above, then even a transfer of the proprietary interest in the totality of the assets cannot amount to a transfer of interests in each of those assets. It is still not possible to say that such a transfer takes effect as a transfer of ‘an interest in’ any given asset or as a change in the beneficial ownership of ‘an interest in’ any given asset.

As a result, even if the partnership share amounted to a proprietary interest in the assets of the partnership, the purchase of that share did not involve a transfer of an ‘interest in’ the three properties.

For the above reasons, while leave to appeal should be granted, the appeal must be dismissed.

Since writing the above I have had the benefit of reading in draft form the reasons of Santamaria JA. I do not discern any difference in the conclusions he has reached, and I agree in particular with what he says at [83] of his reasons.

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[2017] VSCA 382

20 December 2017