Harvey v Harvey

[1970] HCA 11

HIGH COURT OF AUSTRALIA

Barwick C.J., Menzies and Walsh JJ.

HARVEY v. HARVEY

(1970) 120 CLR 529

21 April 1970

Partnership

Partnership—Assets of partnership—Grazing partnership—Pastoral property owned by one partner used for partnership business—Whether land became a partnership asset—Improvements effected by partners—Accounts on dissolution—Whether allowance for value of improvements—Partnership Act 1891 (Tas.), s. 34.

Decisions

April 21.
The following written judgments were delivered:-
BARWICK C.J. This is an appeal from a decretal order of the Supreme Court of Tasmania made in a consolidated action whereby it was declared:-
(1) that from March 1946 to June 1967, the appellant and the members for the time being of a firm known as "H. L. Harvey &Sons" of whom the respondents at the date of the order were the sole survivors, carried on the business of pastoralists and farmers on a property in Tasmania known as "Fonthill" in equal shares between the appellant on the one hand and the said firm on the other, and that the said partnership was dissolved on 30th June 1967;
(2) that the property "Fonthill" with its farm house and farm buildings became an asset of the partnership notwithstanding that the legal title thereto remained in the appellant and that the respective beneficial interests of the appellant and of the respondents therein were as follows:-
(a) Harold Hastie Harvey
(i) The Property "Fonthill" as improved to 3rd March 1946. (ii) A one half share in all capital improvements (whether consisting of extension and improvement of pastures or of improvements to

the farm house and buildings or otherwise) effected to

"Fonthill" by the partnership or by "H. L. Harvey &Sons"

personally during the subsistence of the partnership and during the carrying on of the business for the purpose of winding up the partnership.

(b) Horace David Harvey and Gerald Harvey A one quarter share each in all such capital improvements so effected to "Fonthill".

and whereby it was ordered: - (1) that accounts be taken in the winding up of the capital and profits of the partnership during its subsistence and since its dissolution and that what should be certified to be due by either party to the other be paid or if an order for sale of the property "Fonthill" be thereafter made the accounts so certified should be paid out of the proceeds of sale to the party or parties entitled;
(2) that in taking the accounts, (a) the present market value of "Fonthill" as improved up to 3rd March 1946 be treated as part of the appellant's capital in the
business together with the present market value of 1,600 sheep of the standard that the appellant contributed to the partnership and the present value of the farm equipment he initially contributed; (b) the present market value of all capital improvements effected to "Fonthill" by the partnership or by H. L. Harvey &Sons personally during the subsistence of the partnership

and during the carrying on of the business for the purpose of winding up the partnership be treated as part of the capital of the several partners in the following propositions, namely (i) one half share to the appellant (ii) one quarter share to each of the respondents;

(3) that an inquiry be had as to what part of the work done by the partnership or by H. L. Harvey &Sons personally in certain respects other than those improvements referred to in the preceding order consisted of reasonable maintenance and repair to the said property and what part of such work added to the capital value of that property;
(4) that in taking the said accounts and making the said inquiries the members of the firm of H. L. Harvey &Sons for the time being be allowed as against the partnership all sums paid out by that firm or any of its members in respect of a list of items which included all the improvements referred to in the second order as set out above and all the work referred to in the third order set out above and that they be further allowed reasonable amounts for the use of that firm's farm equipment for the purposes of the partnership but not including any amounts for wages of any member of the said firm;
(5) that since the 30th June 1967 the respondents have carried on the partnership business for the purpose of winding up the affairs of the partnership and that the parties are entitled to share in the net profits and liable for any losses made in carrying on the business in the same proportions as before and that accounts be taken of such profits and losses. (at p539)

2. The Court fixed the value for the purposes of the accounts of the improvements mentioned in the second order above set out. It also declared that an agreement dated 3rd September 1953 which purported to be made between the appellant and the firm of H. L. Harvey &Sons was not binding on the respondents. (at p540)

3. The specific grounds of appeal notified by the appellant were that the learned trial judge was in error in holding: - 1. That the agreement of the 3rd September 1953 did not bind the respondents. 2. That in equity "Fonthill" became a partnership asset.
3. That to the extent to which the value of the land was improved through the business activities of the partnership the partners are entitled to share equally in the increase in the capital value of that asset.
4. That the respondents are entitled to receive credit in the accounts for one half of the value of improvements to "Fonthill" totalling $80,090.00. (at p540)

4. The facts deposed to by witnesses who were accepted by the learned Chief Justice of Tasmania who tried the action were as follows: (at p540)

5. The appellant prior to 1946 had carried on the business of a pastoralist upon a property he owned known as "Fonthill" in Oatlands, Tasmania. In 1946 it carried about 1,600 sheep and was in a run-down condition. The appellant in that year fell ill and found himself unable to carry on his business. He decided to sell the property. But his brother, H. L. Harvey, already, it would seem, a successful grazier with three adult sons, advised him against selling, pointing out that he, the appellant, had a son, Robin, then aged six, who might need the property when he was grown up. The brother suggested that as his sons were looking for a property, he and his sons should lease "Fonthill": but the appellant turned down that proposal. There was then a conversation as a result of which, according to the appellant who in this respect was believed by the trial judge,

". . . it was decided . . . at that meeting we were to go in it together. I was to pay half the expenses and they were to pay half the expenses. We were to divide the profits up - half to me and half to the firm. H. L. Harvey and his three sons were in a firm at the time. I said I would throw in the sheep as part of it . . . I think he did mention the implements and I said they could go in too . . . H. L. Harvey said to me instead of selling the place keep it on - it'll do my boys a lot of good because they will become established and when Robin is ready to go back it will be ready for him". (at p540)

6. H. L. Harvey and his three sons carried on business as pastoralists in partnership under the firm of H. L. Harvey &Sons. In due course H. L. Harvey &Sons "took over" the property on a walk-in walk-out basis, pursuant to the abovementioned arrangement. That a partnership was then constituted between the appellant and his brother's firm, H. L. Harvey &Sons, is, in my opinion, undeniable: and indeed it was so conceded on behalf of the appellant at the trial. On this appeal, counsel for the appellant sought to retract this admission and to argue that the proper conclusion from all the evidence is that nothing more than the relationship of licensor and licensee was then created or subsequently existed between the appellant and the firm of H. L. Harvey &Sons. But his arguments, in my opinion, were without substance and need no elaborate refutation. The parties clearly intended a partnership in which the appellant should be a dormant partner. They also contemplated, in my opinion, that the partnership should continue at least until Robin was of an age when a decision could be made as to whether or not he should commence business as a pastoralist on the property. But in law only a partnership at will resulted. (at p541)

7. The actual management of the business carried on on the property by the partnership was assigned to Horace David Harvey (David) who has run it until now. The appellant has not at any time taken any part in that management, and indeed has rarely visited the property in the intervening years. But he has known in a general way of the partnership's activities upon and with respect to the property. (at p541)

8. Between 1946 and 1951 apparently the partnership was engaged in bringing the existing improvements into condition, though some additional improvements were made. In 1951 in order to carry out the major improvements on and to the land then contemplated by the managing partners the purchase of large mechanical equipment was in contemplation. The appellant was consulted and agreed to the purchase of such equipment as a partnership activity. (at p541)

9. On 3rd September 1953 an agreement was signed by the appellant and his brother, H. L. Harvey, which was expressed to be for a term of seven years from 1951 and which purported amongst other things to regulate the payment of compensation by the appellant to the firm of H. L. Harvey &Sons for improvements effected by the firm to "Fonthill". It also dealt with the purchase and use of the large mechanical equipment then purchased. The agreement was made on the footing that no partnership between the appellant and the firm of H. L. Harvey &Sons then existed or would in the future exist. It provided that if the appellant terminated the agreement within the seven years against the will of the firm, compensation should be paid by the appellant for the improvements effected to "Fonthill" but otherwise not. (at p542)

10. H. L. Harvey died in December 1963 but the firm was carried on by the respondents, the relationship between them and the appellant continuing to be the same as that which had already obtained with H. L. Harvey &Sons. (at p542)

11. On 14th March 1967 the appellant gave notice to terminate the agreement of 3rd September 1953 and on 24th May 1967 the respondents gave notice to dissolve the partnership as on 30th June 1967. (at p542)

12. The Supreme Court found a partnership to exist and that the agreement of 3rd September 1953 was not binding on the respondent for lack of authority in H. L. Harvey to make it on behalf of the firm of H. L. Harvey &Sons. (at p542)

13. The learned Chief Justice by his decretal order has treated the appellant as having contributed to the partnership a fluctuating sum of money equivalent to the value from time to time of the land in its 1946 condition but presumably never less than its value at the inception of the partnership. He has thus treated the increment in value of the land due to causes other than the efforts and expenditures of the partnership as part of the appellant's capital to be returned on dissolution before any distribution of profit. He treated the land itself and therefore any increment in value due to any cause including partnership effort and expenditure as an asset of the partnership. He reflected his conclusion that the land was contributed to the partnership in the accounts on dissolution by crediting the appellant in his capital account in addition to the value of the land as I have already mentioned with one half of the added value resulting to the land from the expenditure of partnership money and effort and the respondents in their capital accounts each with one quarter of that added value. He treated the land as available for sale in the course of realizing the property of the partnership for distribution between the parties on the dissolution. (at p542)

14. Though there clearly was a partnership between the firm and the appellant throughout, i.e. between 1946 and 1967 two major questions arise in relation to its terms - first, what constituted the property of the partnership and, second, what did the business or purpose of the partnership comprise? Though two questions, they react on one another, the answer to the second having a considerable bearing on the answer to the former. (at p542)

15. I should here refer to the written agreement relied upon by the appellant. The Chief Justice held that the agreement of 3rd September 1953 was not binding upon the respondents for lack of authority in the partner H. L. Harvey to make it on behalf of the firm of H. L. Harvey &Sons. But whether binding upon them or not, by its express term the agreement expired in 1958. The notice given by the appellant in 1967 to terminate the agreement was therefore abortive. Further the conditions which the agreement fixed for the non-payment of compensation by the appellant for the improvements made by the firm of H. L. Harvey &Sons were not capable of being fulfilled in 1967 nor were they fulfilled. Thus there is actually no need, in my opinion, to resolve the question of the authority of H. L. Harvey to make the agreement on behalf of the firm of H. L. Harvey &Sons. But I would observe that the making of such an agreement did not fall within the ordinary course of business of that firm, and that there clearly was no holding out by the respondents of any authority in their partner to make any such agreement. There remains the possibility of an actual authority implied from a course of conduct on the part of the firm. But I should find it impossible myself to conclude from the available material that there was any relevant and sufficient course of conduct with respect to the subject matter of the agreement out of which to infer actual authority to make such an agreement as that of 3rd September 1953. Consequently, I would find no warrant for disturbing the conclusion of the trial judge. Indeed, in my opinion, he was correct in holding that the agreement was not binding on the respondents. Thus both because of the fact that it expired in 1958 and in any case was not binding upon the respondents, I would dismiss the agreement from the case, except as indicating that the appellant and H. L. Harvey had become aware of the situation which had arisen with respect to improvements to "Fonthill" effected by the partnership. They sought to solve the difficulty they saw first by denying the existence of any partnership and then by assuming that a return of profits over seven years would be adequate compensation to the firm of H. L. Harvey &Sons, not in the role of partner, but in the role of a person improving the property of another by his own expenditure of time and money and paying but half of the profits derived from the property as the price of what presumably was a licence to use the land. Whether they realized it or not, this would have been a radical departure from the rights that then and during the contemplated seven years had and would have obtained with respect to improvements effected by the partnership. (at p543)

16. I shall now deal first with the second of the two questions which remain for disposal. The learned Chief Justice found and, in my opinion, rightly, that "the physical working of the land itself and its capital improvement is an essential part of the partnership business". Consequently, "all the improvements were carried out in the course of the business of the partnership and it follows that Harold Harvey" (the appellant) "must be taken to have authorized them". (at p544)

17. There can be no doubt that it was the intention of the parties that the property should be brought into better condition and developed by the making of substantial improvements. The property was not then in any condition to support more than a family which did not employ any labour. If it were to be worked in partnership to produce an income divisible in significant sums amongst four or five people, the property of necessity had to be developed and improved, first by bringing existing improvements into condition and then by extensive further improvements. (at p544)

18. Had it not been for the reference to Robin in the initial conversations, I do not think there would have been any difficulty in concluding that the appellant brought the whole property into the partnership, land, sheep, implements and all, against the contribution of the labour and skill of his brother and his brother's three sons. The property was then worth, according to the valuer's evidence, $38,000. It was run down and beyond the then capacity of the appellant to run it. It was contemplated, as I have indicated, that the labour and skill of the brother and his sons should be available over a very considerable number of years. The capital value of the advantage of that labour and skill over such a period was scarcely less than the then value of the land. If the appellant were regarded as contributing $38,000 plus the value of the sheep and implements so that in the partnership accounts on dissolution he would be credited first with that sum and receive it in priority in distribution, there would be nothing unusual, in my opinion, in treating the land itself as having passed to the partnership even though it was a partnership at will liable to early termination. But there is the evidence that it was contemplated that the property should be available for Robin, if required, upon his maturity, but whether merely as a motive for the creation of the partnership or as a contractual fact conditioning that partnership is somewhat of a question. I shall return to this aspect in a moment. (at p544)

19. It is not suggested that anything done by way of improvements to "Fonthill" in the years the partnership subsisted was unnecessary or beyond what a reasonable pastoralist, placed as was the partnership, would have done. The trial judge so found. Consequently a comparison of the principal features of the property at the initiation of the partnership and as at the date of its dissolution will indicate in a broad way what was necessary by way of improvement for the furtherance of the purposes of the partnership. (at p545)

20. In 1946 the area of the paddocks - cleared land grassed for depasturing stock - was about seventy-one acres. Another thirty acres had been ploughed. The property carried 1,600 sheep producing about forty bales of wool. "Not much" cropping had been done. (at p545)

21. By 1967 an additional 1,160 acres had been cleared and cultivated: of that area, 190 acres had been sown to pasture and 120 sown to annual crop. A further 120 acres had been cleared. Two additional dams, one a concrete dam, had been constructed, with piping reticulation: three bores had been sunk and brought into use and between one and a half and two miles of netting fence erected. The property produced 127 bales of wool in 1967. (at p545)

22. The cost of the improvement of the 1,160 acres was approximately the same as the value of the improvement, namely $65,280. The cost and value of the other improvements was very considerable though it cannot be ascertained from the evidence how much of the "cost" of the improvements was contributed by the personal labour of any of the members of the firm. (at p545)

23. In my opinion, it may thus fairly be concluded that the business of the partnership included the extensive improvement of the property by the expenditure thereon of money, skill and labour. So far as the skill and labour was that of any one of the firm of H. L. Harvey &Sons, it had to be contributed gratis as that firm's capital contribution to the partnership. Thus the business of the partnership was not merely the use of the existing land in its existing condition so as by that use to make divisible profits. Its business was to improve the land itself and to use it in its improving and improved state to make divisible profits. In fact the partnership did effect all the improvements to "Fonthill" in the course of a part of the partnership business. (at p545)

24. I return now to the question as to what were the assets of the partnership. Of course, it is true enough that one partner may allow the partnership business to be carried on on a property or on premises which are and are to remain exclusively his: and the property will not merely by that circumstance become a partnership asset. If in the course of carrying on the partnership business, which does not include the betterment of that property itself as a purpose of the partnership, the partner's property is improved, the partnership will have no claim upon him either in respect of the expense of making the improvement or in the added value which the improvement has brought to the property. But what if the improvement of that property is a purpose of the partnership business? Undoubtedly the cost of the work which effects the improvement is then an expense of the partnership to be borne by the partners in their partnership proportions like any other expense of carrying on the partnership business. As to that, I can feel no doubt. Indeed for that proposition there is, in my opinion, a precise decision in Burdon v. Barkus (1862) 4 De GF &J 42, at p 50 (45 ER 1098, at p 1101) . Turner L.J. with the concurrence of Knight Bruce L.J. in that case upheld an order for an inquiry on a dissolution of a partnership

". . . whether, having regard to the terms of the partnership and to the purposes for which the works at the pit called the 'Meadow Pit' were erected, made and formed, and are now used and capable of being used, and the circumstances under which the expenses of the said works were discharged and defrayed, any and what sum ought to be allowed in respect of such expenses".

The partnership had been formed to work a seam of coal on the land of one partner and when that seam was exhausted, the managing partner proceeded to sink a new pit being the Meadow Pit referred to in the order for the inquiry so as to gain access to another seam of coal on the same land. Moneys were borrowed on the partnership account which along with other moneys of the partnership derived from its profits were expended in this work. The partner owning the land was aware of the activity and did not appear to make any objection to it: and of course stood to benefit thereof by the receipt of his share of the additional profits which working the seam would bring the partnership. The Lord Justices thought that though the partnership had acquired no interest in the land, upon a dissolution the partner not owning the land could not be deprived of the share of the profit of the partnership which had been expended in the work of constructing the pit. Turner L.J. said:

"Then when the pit is completed, or nearly completed, he gives notice to dissolve the partnership, and the effect of the dissolution is that all the benefit to be derived from the pit will belong to him, and the defendant will lose all his share of the profit which has been expended in making the pit. It is to meet this manifest injustice the inquiry we are now considering has been directed, and in my opinion has been rightly directed. This is not the case of a mere tenant at will laying out money on the land which he occupies, it is not even the case of an ordinary partnership carried on upon property belonging to one of the partners, and of the partnership profits being laid out upon the property. In such cases the expenditure is not necessary but is voluntary, and the party who makes or concurs in the expenditure, knowing the limit of his interest, may well be said to so do at his own peril. But this is a case of a partnership for working a mine, in which case, if the partnership is to continue at all, the expenditure is necessary and not voluntary, and it can hardly be that where money is necessarily expended for the benefit of a partnership, the partner expending it is not entitled to be repaid out of the partnership assets. It is true that, expenditure being out of the partnership profits, it falls upon the plaintiff no less than upon the defendant, and if, therefore, no profit can result to the defendant it may not be just that he should be charged with it; but the inquiry leaves this question open"

(1862) 4 De GF &J, at p 51 (45 ER, at p 1102)

His Lordship seemed to place the equity to such an inquiry generally upon the need to prevent an injustice as between the partners but particularly on "the general doctrine of this Court" (i.e. the Court of Equity) "with reference to parties standing by and encouraging expenditure". If I may say so, I would myself prefer to express the particular ground upon which an inquiry of the kind in question should be justified by saying that the construction of the pit had become part of the partnership business, so that expenditure upon it was a partnership expense. But however that may be, the purpose of equity to prevent injustice remains as a overriding consideration in the taking of the partnership accounts. (at p547)

25. As in this case the improvement of the property was part of the partnership business, the making of the improvements was "necessary" to carry on that business and not "voluntary" in the sense of those words in the quotation I have just made. Consequently, the cost of effecting the improvements which qualified as being done in the course of the partnership business and for its purposes must be met by the partnership. If one of the partners has so far borne that expense, the other must reimburse him his share of that expenditure. (at p547)

26. If the value which the improvements added to the value of the land (spoken of in the evidence as the value of the improvements) was precisely the same as the cost of effecting those improvements exclusive of the personal labour of any of the members of the firm of H. L. Harvey &Sons, the conclusion at which I have arrived as to the cost of effecting those improvements would suffice to dispose of the matter of substance in issue between these parties. But as I have indicated, it is not known whether in the figure of the cost of the improvements used for the purpose of valuing them any amount is allowed for the personal labour of any member of the firm. Consequently, it is necessary to consider the question whether the land became itself an asset of the partnership so that by reason of that proprietorship the improvements themselves are partnership property. Further, if it be decided that the land did not become a partnership asset, the question remains whether the appellant nevertheless is accountable to the partnership to any extent for the increased value of the property which has accrued to the land by reason of the improvements thus "necessarily" effected by the partnership. (at p548)

27. His Honour formed the view that because of the nature of the business of the partnership, the land must itself be regarded as a partnership asset. But he took the view that the appellant's capital contribution by reason of the land becoming the equitable property of the partnership should be rated at the value of the land from time to time in its state and condition when contributed to the partnership by the appellant. Of course, at times of little or no inflation by changes in the purchasing power of money, and otherwise of stable land values, to credit a partner in capital account with the value of the land at the date of its contribution to the partnership will be enough to reflect the contribution of the land to the partnership venture. But where land values are likely to change due to circumstances outside the activities of the partnership it may be too simple a view to say that the land either becomes unqualifiedly an asset of the partnership or it does not. The realities of a situation may require that the sum to represent the land brought into the partnership in the partner's capital account should reflect changes in value of the land unassociated with partnership activity. I see no reason why the partner contributing his land to the partnership should not stipulate, expressly or impliedly, to retain for himself and not contribute to the partnership the increment in value of the land which does not come from any activity of the partnership. He could stipulate for a fluctuating sum to be credited to him to be equal to the value from time to time of what he contributed, on the assumption that no changes in the land had been made by the partnership. Such an arrangement would call for no more than the adjustment of the capital account at the time of distribution, unless of course the partnership agreement should provide for the payment by the partnership of interest upon the capital accounts of partners. In that case annual changes might be necessary in the partner's capital account. (at p549)

28. Of course the answer to the question whether or not the land itself has been brought into the partnership as distinct from a mere licence to use it for partnership purposes, must ultimately depend on the agreement which the partners have made. But in this case we have no express agreement to which reference can be made to resolve the question. All we have is the conversation I have quoted and the conduct of the parties, including their evident purposes in forming the partnership. The appellant declined an arrangement by which a licence or tenancy in the land should be given to the firm of H. L. Harvey &Sons. Instead they "were to go in it together". The "it", in my opinion, was the business of improving and working the land. The appellant was to "throw in the sheep as part of it". Again the "it" was the venture of improving and working the land. There being no express agreement, what is the proper inference to be drawn as to what the appellant brought into the partnership, bearing in mind that what is inferred must be something to which it can be said that the firm of H. L. Harvey &Sons also agreed. (at p549)

29. Given that that firm was contributing the skill and labour of four persons, is it likely that they would have agreed that the appellant only contributed a licence to use the land with no prospect on their part of participation in the considerable increase in the value of the land to result from its extensive improvement to be effected by their skill and labour. And on the other hand, was the appellant placed as he was, and seeing the advantage to himself of sharing in the prospect of an improved property, likely to have stipulated for a contribution by himself of no more than a licence or tenancy at will in the land ? No doubt the partnership bears the onus of establishing that the land the title to which remained in the appellant's name became partnership property. That means that in this suit the respondents bear that burden. But notwithstanding the reference to the appellant's son, Robin, I think it is difficult to avoid the conclusion that the partnership acquired the beneficial interest in the land. Not merely were there no express reservations on the part of the appellant but the very nature of the business required, in my opinion, that the land should become the property of the partnership, even if the appellant was credited with the fluctuating sum to which I have referred to represent the land he had contributed to the partnership. As I have indicated the trial judge seemed to regard it as an implied term of the partnership arrangements that the appellant should be so credited. I am not so convinced that his Honour was wrong in this conclusion that I would feel entitled to set aside what he has done. In any case there is no cross appeal on that question. (at p550)

30. It seems to me most difficult to agree that the partnership shall, as a partnership activity, effect substantial changes to the land itself without at the least making the result of those changes partnership property. If the improvements so effected are partnership property, produced by the expenditure of partnership money and effort in carrying out the purposes of the partnership, it seems to me the more natural conclusion that the land itself was brought into the partnership so that those improvements might be made as a necessary part of the partnership venture. There is little in the decided cases to assist in forming a conclusion, though I would think that the reasoning in Waterer v. Waterer (1873) LR 15 Eq 402, at p 406 points towards the conclusion I would draw from the nature of the partnership business. If the land then becomes in equity partnership property it, of course, becomes subject to realization in the adjustment of partnership accounts on dissolution. (at p550)

31. But what of the contemplation of the parties that the appellant's son, Robin should at maturity or some time thereafter be able to take over the land. I have felt the considerable force of this circumstance. But, in the light of the fact that the partnership business was to effect substantial improvements of the kind in fact made, I have come to the conclusion that what was said with respect to Robin was no more than a motivating circumstance telling against immediate realization of the property and towards its improvement and use by the partnership. The arrangements were being made within the family then apparently on amicable terms with each other. No doubt the two brothers who negotiated the partnership thought that in some way which they didn't pause to consider or to particularize they would by some family rearrangement in the future reorganize relationships so as to make the farm available for Robin, if that course were deemed advisable by the appellant. Thus the property was not to be sold but kept, as it were in the family. After a great deal of reflection I have come to the conclusion that what was said about Robin in the conversations in 1946 does not stand in the way of what I consider to be the correct conclusion as to the land in relation to the partnership. After all, the appellant himself said nothing about that matter. He merely recalls that his brother used it as an argument against immediate sale. (at p550)

32. In my opinion, the learned Chief Justice was right in concluding that, because of the particular purposes of this partnership in relation to the improvement of the land, it became an asset in equity of the partnership. Kenny's Patent Button-Holeing Co. Ltd. v. Somervell and Lutwyche (1878) 38 LT (NS) 878 is an illustration of how an interest may be created in one partner in the property of another because of the nature of the partnership business and the relationship of that property to the purposes of that business. His conclusion that its value from time to time as affected upwards by matters unconnected with the expenditure of partnership money and effort should be regarded as having been contributed by the appellant as part of his capital in the partnership should not be disturbed. (at p551)

33. However, even if the land did not become the equitable property of the partnership, the appellant in my opinion is accountable to the partnership for any benefit which he would have as the beneficial proprietor of the land and which is the creation or product of partnership expenditure of money or effort. Let it be supposed that the land remained throughout the legal and equitable property of the appellant, yet the partnership business - in which as a partner the appellant was inevitably involved - was to improve that land by the expenditure of money and effort. That expenditure did effect improvements which, on the assumption made, accrue to the appellant as owner of the land. As I mentioned earlier, it could not be concluded that the respondents had agreed that the partnership should have no claim in respect of these improvements. Whilst the improvements cannot be separated from the land and separately sold, the benefit to the land which they represent is clearly identifiable and measurable in terms of money. It seems to me both a sound and an undeniable principle of partnership law that no partner can retain for his sole benefit the product of the necessary expenditure of partnership money and effort in the conduct of the partnership business, see generally Lindley on Partnership, 12th ed. (1962), pp. 344 et seq. Necessary expenditure in this connexion is in contrast with voluntary expenditure as the words were used in Burdon v. Barkus (1862) 4 De G F &J 42 (45 ER 1098) . Here the appellant on the assumption made would have as owner of the land the added value brought to it by the improvements effected by the partnership as a necessary part of the carrying on of the partnership business at partnership expense. As partner, he is, in my opinion, accountable to the partnership for that added value. It would be inequitable, unjust and a breach of the good faith required between partners for him to retain the full benefit of the added value created in the stated circumstances. Therefore whether or not the land became a partnership asset, the appellant in the taking of the accounts ought, in my opinion, to be debited with half the added value of the land brought to it by the improvements effected by the partnership in the carrying on of the partnership business. His Honour has achieved this result by the capital accounts of the partners which he has directed. (at p552)

34. It only remains for me to consider whether the orders made by the Supreme Court effect the results which, in my opinion, should flow from the dissolution of this partnership. (at p552)

35. During the course of the partnership the appellant was paid his share of profits of the partnership whilst the firm allowed its share to remain in the business, undrawn. Further, moneys were spent by the firm out of its own funds, and plant and machinery belonging to the firm were used, in carrying out the improvements, or some of them, to the land. In some instances records of the expenditure and estimates of the cost of improvements were made and recorded : but in other instances none were made. Even where the expenditure and costs were recorded, there were instances where the firm had not carried these into the accounts of the partnership. Thus the share of profits received by the appellant was greater than it should have been and to correct the position in the taking of accounts on dissolution, credits would have to be made in favour of the respondents. Therefore, half the amount which the firm of H. L. Harvey &Sons contributed to the cost of the improvements, not being the value of the personal labour of any of the members of the firm and not having been in any manner recouped by them, should be paid to them by the appellant by appropriate credit and debit in the partnership accounts. In my opinion, the fourth order that the Supreme Court made in relation to the taking of accounts is appropriate, if its effect is to return to the firm of H. L. Harvey &Sons one half of the expenditures and value of the use of farm equipment which the order describes as having been outlaid or used in the partnership business. In form the order contemplates the debit to the partnership of the whole of such expenditures and value. No doubt in the accounts of the partnership the firm would bear its half share of such expenditures and value. (at p552)

36. With this understanding of the fourth order, I am of opinion that the declarations and order of the Supreme Court were right and that this appeal should be dismissed. (at p553)

MENZIES J. The Chief Justice has in his judgment, which I have had the advantage of reading, stated all the relevant circumstances here making it possible for me to go directly to the various matters for determination on the basis, which I have no doubt is correct, that there was a partnership between H. H. Harvey and H. L. Harvey &Sons for the running of "Fonthill". (at p553)

2. It appears to me that the most difficult question to be decided is one of principle. This question of principle is whether, when partnership activity improves the property of one of the partners used for the purposes of the partnership business, and does so pursuant to the partnership agreement and not merely accidentally or incidentally, the additional value of the property, by reason of the improvements made to it, is to be regarded as an asset of the partnership divisible among the partners at the determination of the partnership. (at p553)

3. Where the partnership agreement itself makes provision for such an eventuality, that is an end of the matter, but where the partnership agreement is silent, as here, the problem can, I think, only be determined by the application of general principles. (at p553)

4. There is authority which shows that where property, contributed by one partner as a partnership asset and for which that partner is credited in the capital account of the partnership, is improved, so that upon the dissolution of the partnership the sale price exceeds the value fixed at the time when the property became a partnership asset, the excess is divisible as profits of the partnership business ; e.g. Robinson v. Ashton (1875) LR 20 Eq 25 . This rule would apply here if, as his Honour the learned Chief Justice of the Supreme Court of Tasmania found, "Fonthill" did become in equity an asset of the partnership constituted by H. H. Harvey and H. L. Harvey &Sons. The reason for this is not far to seek. The whole value of the asset at any time belongs to the partnership and the partner who contributes the asset is entitled to no more than his capital credit and his share of the difference between that amount and the sale price of the asset. (at p553)

5. With great respect to the Chief Justice, however, I cannot agree with his finding that "Fonthill" did in equity become an asset of the partnership. One thing that seems to me to be clear is that "Fonthill" was to be retained by H. H. Harvey as his own. The partnership agreement was for the working of "Fonthill" but there was never any question that H. H. Harvey should retain it and that, at the end of the partnership, it should be available for his son, Robin, who, when the partnership was established, was a boy of six. This understanding was at the basis of the partnership and to treat "Fonthill" as a partnership asset would destroy it altogether. Were "Fonthill" a partnership asset it would, in the absence of some new agreement, have to be sold upon the determination of the partnership and the proceeds made available for distribution in the course of the winding up of the partnership. Furthermore although H. H. Harvey did, as his Honour found, agree "to throw into" the partnership 1,600 sheep and some implements which thereupon became partnership assets, the very terms of the arrangement that were found to be agreed to by H. H. Harvey with his brother H. L. Harvey negatived an implication that H. H. Harvey was "throwing in" "Fonthill" as well. Here I think it is convenient to set out in full that part of his Honour's reasons for judgment which deals with this matter:

"Harold Harvey purchased 'Fonthill' in 1926. He took possession of it in 1927 and carried on business on it as a pastoralist on his own account until 1946. He encountered difficulties in running it during the war years and had what he described as a 'nervous breakdown'. He contemplated selling 'Fonthill' but his brother Horace Lionel Harvey approached him and suggested that Horace's three sons Horace David, Gerald and Lionel Bruce (since deceased)) who were looking for a farm might rent 'Fonthill' and take over the sheep at a nominal price. Harold Harvey did not agree to this proposal. He stated in evidence: '. . . it was decided at that meeting we were to go in it together - I was to pay half the expenses of running the place and they were to pay half the expenses. We were to divide the profits up - half to me and half to the firm. H. L. Harvey and his three sons were in a firm at that time - I was not in a very good condition at that time - I had just suffered a nervous breakdown. I think he did mention the implements and I said they could go in too. My son Robin was about 6 at that time. H. L. said to me instead of selling the place keep it on - it'll do my boys a lot of good because they will become established and when Robin is ready to go back it will be ready for him. H. L. Harvey and sons took over 'Fonthill' about March 1946 pursuant to that agreement. H. L.'s sons were David, aged 24-25 ; Bruce was a couple of years younger and Gerald I think was over 21.' Horace Lionel Harvey is now deceased, so that the only evidence of the oral agreement made in 1946 comes from Harold Harvey. For reasons which hereafter appear I regard him as an unreliable witness and I have rejected certain parts of his evidence where it was in conflict with that of his nephews. However I have no reason to doubt that the substance of the discussion between Harold and Horace Lionel Harvey was as stated by Harold Harvey. There was therefore a bare agreement that the 'firm' (consisting of Horace, Lionel, David and Gerald Harvey) and Harold Harvey would carry on the business of pastoralists on 'Fonthill' as partners in equal shares and that Harold would 'throw in' the sheep and implements. It was implicit in the circumstances that Harold would be a dormant partner and take no active part in the business. The substance of the agreement is plain enough. Harold was to provide the whole of the assets necessary to carry on the business. Horace and his three sons were to contribute their labour and skill but no capital ; the net profits were to be divided equally as between Harold and the 'firm'. No period for the partnership was set but no doubt the parties contemplated that the partnership would continue until Harold Harvey wanted 'Fonthill' for his son Robin (then aged 6)." (at p555)

6. To treat "Fonthill" as an asset of the partnership would defeat the intention that it should be kept on by H. H. Harvey to be available for Robin. (at p555)

7. Moreover, everything that happened in the course of the partnership supports the conclusion that "Fonthill" did not become an asset of the partnership. No account of the partnership shows "Fonthill" as a partnership asset or credits H. H. Harvey for contributing it to the partnership and such accounts as there are relating to the capital of the partnership - i.e. accounts subsequent to 1st July 1956 and agreed to by all parties - treat it as outside the partnership. (at p555)

8. Moreover, although his Honour's order declared that "Fonthill" became in equity an asset of the partnership, the directions which follow for the taking of accounts indicate that his Honour was not willing to give full effect to that declaration. Thus it was directed that "the present market value of 'Fonthill' as improved up to 3rd March 1946 (i.e. the date of the commencement of the partnership) be treated as part of Harold Hastie Harvey's capital in the business". This direction is not consistent with the finding that "Fonthill" became an asset of the partnership on 3rd March 1946 because, had that been the case, H. H. Harvey's capital must, in the absence of some special agreement, have been its value as of that date. The evidence affords no basis for any special agreement and his Honour found none. If "Fonthill" became a partnership asset, therefore, the partners as a whole, not H. H. Harvey by himself, were entitled to any increase in the value of "Fonthill" between 1946 and the date of the dissolution of the partnership, regardless of what brought about the increase. The order indicates that it is a view about the divisibility of the value of improvements that led to the conclusion that "Fonthill" became in equity a partnership asset rather than that the latter conclusion led to the conclusion that improvements belonged to the partnership. (at p556)

9. Not being able to agree with the Chief Justice that "Fonthill" became in equity a partnership asset, and the evidence satisfying me that it remained the property of H. H. Harvey, I return to the question of principle already stated, acknowledging that it was part of the partnership business to improve "Fonthill" and deferring consideration of any allowance to be made for the expense of improving "Fonthill". (at p556)

10. It is necessary, I think, to recall the nature of improvements to a property. They constitute additions to the property, not something separable therefrom ; they cannot be owned separately from the property itself ; they cannot be sold because they have become part of the property ; they are not divisible ; while their cost can be ascertained and their effect upon the value of the property estimated, it is only upon realization of the property that anything which could possibly be regarded as a profit could arise, i.e. the profit - the extent to which the sale price of the property is higher than it would otherwise have been simply because of the improvements effected by the partnership - would be ascertained for the first time. (at p556)

11. In Pettitt v. Pettitt (1970) AC 777 , the House of Lords had occasion to consider the difficulty of making allowance for improvements made by one person to the property of another. This difficulty arises from the nature of improvements. However, when as here, by virtue of the very agreement which was made, all that the partners were entitled to receive falls within the description of a share of profits, for the court to direct an allowance for the value of improvements to "Fonthill" would be going further than making a new agreement which the partners did not make for themselves ; it would be to depart altogether from the agreement which the partners did make. (at p556)

12. In the absence of an express agreement, the only way in which improvements could possibly be regarded as profits divisible among partners would be upon the sale of the improved property. In a case where a property does not become an asset of the partnership but is intended to be retained by one partner after the determination of the partnership it follows that there can be no basis for treating the difference between the value of the property as it was when it was made available for partnership use, and the higher value of the property at the end of the partnership due merely to improvements made by the partnership as a profit divisible among the partners. There can be no profit realized without sale and, in the circumstances, sale is negatived. Accordingly, the agreement to divide the profits half and half could have no application to improvements made to "Fonthill". (at p557)

13. The position, as I see it, was that the partnership was formed to carry on the business of pastoralists on "Fonthill" for what was expected to be a period of at least fifteen years, i.e. until Robin could take over the care and management of "Fonthill". It was intended that "Fonthill" should be improved during that time so that the partnership itself would be more profitable. It was agreed that the expenses of "running the place" - including the making of improvements to "Fonthill" - should be borne half and half. No express agreement was made concerning any increase of the value of "Fonthill" arising from the making of the improvements intended to be made and there is no need to imply any agreement as to this matter. The improvements would not only increase the value of "Fonthill", they would improve the partnership profits. At what point improved profits would exceed the cost of the improvements is a matter of speculation, but no doubt it was present to the minds of H. H. Harvey and H. L. Harvey when they made their agreement. When experienced men can reasonably think it unnecessary to make any express provision about improvements it is not for the court to supplement their agreement. I can imagine "an officious bystander" saying to H. H. Harvey and H. L. Harvey in 1946, "But you have not made any provision about what should happen in the event of 'Fonthill' being improved by the partnership" and being told that this was unnecessary for it was anticipated that the partnership would last long enough for the profits to take care of the expense of making the improvements. (at p557)

14. At this point it is convenient to refer to a document of 3rd September 1953 purporting to be an agreement between H. H. Harvey and H. L. Harvey &Sons which was signed by H. H. Harvey and H. L. Harvey for and on behalf of H. L. Harvey &Sons. This document records that H. H. Harvey and H. L. Harvey &Sons "have heretofore been carrying on the business of pastoralists on 'Fonthill'" and purports to record the relationship between the partners with regard to that business. Except as to two matters the terms of the partnership as recorded do not differ materially from those agreed to in 1946. The document does, however, contain special provisions about a bulldozer purchased by the partnership in 1951. It also fixes the expiration of the partnership as at the end of seven years from 6th December 1951, i.e. 6th December 1958, and it provides that if H. H. Harvey should decide to sell "Fonthill" before 6th December 1958 it should be offered first to H. L. Harvey &Sons. If in the event "Fonthill" should be sold otherwise than to the firm, provision is made relating to the cost of improvements upon "Fonthill". The effect of these provisions is that if "Fonthill" should be sold after 6th December 1958 H. H. Harvey should have it, with all improvements, and without any payment for the improvements, but if it should be sold before 6th December 1958 H. H. Harvey should pay as compensation one half of the costs of "permanent improvements of a capital nature effected while the partners have been or shall now carry on the said business at 'Fonthill'". His Honour found that H. L. Harvey did not have the authority of the firm of H. L. Harvey &Sons to sign this agreement on their behalf and this is not a finding with which I think this Court can interfere. Had the agreement bound H. D. Harvey and Gerald H. Harvey, the sons of H. L. Harvey and the parties to these proceedings, it would, of course, have negatived altogether any suggestion that "Fonthill" became partnership property and there would have been some express provision about some matters now in dispute. As it is, however, these proceedings must be decided on the footing that the agreement did not bind H. D. Harvey and Gerald H. Harvey. I see no reason, however, why the agreement should not be regarded as a declaration against interest by H. L. Harvey - who died before these proceedings began - and used to support the conclusion which, apart altogether from the agreement, I think I am obliged to draw, viz. that "Fonthill" was not an asset of the partnership. (at p558)

15. As has already been observed, the original partnership agreement made in 1946 did provide for the running of "Fonthill" and the sharing of the expenses of so doing in equal shares - half to H. H. Harvey and half to the partnership H. L. Harvey &Sons. Disregarding, as I do, the document of 1953 as affecting the partnership agreement, the original agreement continued to govern the relationship of the partners up to the termination of the partnership. (at p558)

16. If, as appears to me to be clearly the case, the improvements made to "Fonthill" were part of running the place, then, in accordance with the agreement, the expenses of those improvements should be borne half by H. H. Harvey and half by the partnership of H. L. Harvey &Sons. Independently, however, of what I regard as an express agreement, I would have thought that the same result would have been arrived at in accordance with general principle and that the cost to a partnership of improving the property of one of the partners upon which partnership business was carried on, and doing so for the purpose of the partnership should, in the absence of some special circumstance, be borne by the partnership; see Burdon v. Barkus (1862) 4 De G F &J 42 (45 ER 1098) and Pawsey v. Armstrong (1881) 18 Ch D 698 . At this point it is, I think, convenient to say that I do not regard these cases as affording any support for the conclusion that "Fonthill" should be regarded as a partnership asset or as authority for making any allowance for improvements made by partners to the property of one of them otherwise than by treating the expense of making such improvements as an outgoing of the partnership in appropriate circumstances. In Pawsey v. Armstrong (1881) 18 Ch D 698 , for instance, Kay J. having held that mill property belonging to one partner had been improved by the partnership, upon dissolving the partnership, directed that the mill property should be excluded from sale, made no reference to the value of the improvements thereto but directed that in taking accounts there should be an inquiry

" . . . whether, having regard to the terms of the partnership and the purposes for which the expenditure upon the mill and other buildings was made, any and what sum should now be allowed to the partnership in respect of such outlay" (1881) 18 Ch D, at p 710

Kay J. had earlier stated the basis of this last direction as follows:

"Then comes the question what is to be done as to the expenditure on the property, both on the Cumberland Mills and upon this additional property; and in order to make the inquiry which I think myself bound to direct upon that subject plain, and in order to prevent as far as I can any difficulty arising in the working out that inquiry, I wish to explain distinctly the grounds upon which I am going to direct that inquiry. If this money was expended out of what would otherwise have been divided as partnership profits, prima facie the effect of that would be to diminish the amount of profits to be divided. If it did diminish the amount of profits to be divided, then the extent to which it diminished Mr. Pawsey's profits may be treated as having been expended out of Mr. Pawsey's money. But it does not follow, even then, that Mr. Pawsey is entitled to get that money back. It may be that the expenditure has been practically exhausted, that the partnership had the full benefit of it, and that nothing remains now to be divided or to be recovered in respect of that expenditure. It may be that it was expended with Mr. Pawsey's full consent, as he admits, and with his eyes open to the fact that his interest would be a determinable interest, and it may be that having permitted the expenditure to be made, knowing precisely what his interest was, that he is not now entitled to get back any part of it. I do not mean to prejudice even that question. On the other hand, it may be that he looked to the partnership continuing much longer than it has in fact continued. The expenditure may have been so large that it is not an exhausted improvement even now, and it may be fair and right, looking to all the circumstances of the case, that he should have some portion of the money paid back to him in respect of that amount of profit which would otherwise have come to his share, and which has been expended upon these mills and cannot be treated as having been exhausted; and it is in order not to prejudice that, and to give him any advantage which he is fairly entitled to upon that last head, that I shall direct an inquiry upon the subject" (1881) 18 Ch D, at pp 707-708. (at p560)

17. It now turns out that the partnership of H. L. Harvey &Sons, for reasons of their own which may have had something to do with a taxation advantage, did not - except in particular instances - from year to year charge the expenses of improvements at "Fonthill" to the partnership. It was argued that the extent to which H. L. Harvey &Sons had not, from year to year, debited H. H. Harvey with half of the expenses of improvements H. D. Harvey and Gerald Harvey should not now be permitted to do so, but I have not found any basis in law for so deciding. It is not possible to conclude that their failure to debit H. H. Harvey annually with a share of the expenses properly payable by him amounted in law to an abandonment of a right to a full accounting at the close of the partnership and this is so notwithstanding that H. H. Harvey may, having regard to taxation, have been better off had he been debited annually in accordance with the agreement. Moreover, against any taxation advantage that H. H. Harvey may have suffered, it must be borne in mind that he has had the use of money which ought not ot have been distributed but should have gone to pay partnership expenses. Mr. Fullagar, who advanced the argument of detriment to H. H. Harvey as a reason for not attributing to him now his proper share of expenses expressly disavowed any case of estoppel, but it seems to me that it is only on the basis of estoppel that H. D. Harvey and Gerald Harvey could be held to the annual accounts. I should perhaps add that no case of accounts settled was made at the trial. I think therefore that, in accordance with the original partnership agreement, H. H. Harvey must bear one half of the expenses of improving "Fonthill". (at p561)

18. One further matter requires consideration. The learned Chief Justice had before him evidence that the value of the improvements upon "Fonthill" was roughly the same as the cost of effecting them and a value was put upon the improvements. I do not think, however, that, in the view which I take, any reliance can be placed upon this evidence. H. D. Harvey and Gerald Harvey were not entitled to debit H. H. Harvey with the cost of the improvements to "Fonthill" taking everything into account; they were entitled to no more than to debit H. H. Harvey for half the expenses of the partnership in making the improvements, i.e. payments made by or on behalf of the partnership, payments properly made by H. L. Harvey &Sons as part of the expenses of the improvements, and an appropriate allowance for the use by H. L. Harvey &Sons of their own machinery in effecting the improvements. To the extent to which the members of the firm of H. L. Harvey &Sons worked to effect the improvements - and this seems to have been substantial - they did so pursuant to the partnership agreement to provide their labour and skill and were not entitled to credit themselves or to debit H. H. Harvey in the partnership accounts. (at p561)

19. Accordingly, I would allow the appeal and vary the order appealed against by discharging the declaration that "Fonthill" became in equity an asset of the partnership and the orders for an account consequent upon that declaration, i.e. the directions in paragraphs three to seven inclusive in the order. I think in substitution for the part of the order to be discharged there should be a declaration that "Fonthill" is, and has at all times material been, the property of H. H. Harvey and that, upon the dissolution of the partnership, he became entitled to possession thereof. Accounts between the parties should be taken on this footing and disregarding the value of improvements to "Fonthill". It should also be directed that, upon the taking of accounts, H. H. Harvey should be debited with one half of the expenses of the partnership in making improvements to "Fonthill", that such expenses should include moneys paid by H. L. Harvey &Sons and an appropriate allowance for machines belonging to H. L. Harvey &Sons used in making the improvements, but should not include any allowance for any work done by any of the partners. I would remit the proceedings to the Supreme Court of Tasmania to give such further directions as are necessary to carry out this order. (at p561)

20. I agree with the order proposed by Walsh J. (at p562)

WALSH J. I agree with the conclusions reached by Menzies J. upon the questions which require consideration in this appeal and with his reasons for judgment. I wish to add some observations on some of the questions which are in contest between the parties. (at p562)

2. The learned Chief Justice of the Supreme Court of Tasmania decided that the property called "Fonthill" became in equity an asset of the partnership. He cited a passage from Lindley on Partnership, 12th ed. (1962), pp. 366, 367, to which I shall refer again. He referred to the cases of Burdon v. Barkus (1862) 4 De G F &J 42 (45 ER 1098) , Pawsey v. Armstrong (1881) 18 Ch D 698 and Miles v. Clarke (1953) 1 WLR 537 as illustrating "the broad equitable approach the Courts have taken in adjusting the rights of partners on a dissolution of partnership". His Honour pointed out that in none of those cases did the Court hold that the land itself became a partnership asset in equity. His Honour then stated that the present case is not one merely of a firm carrying on business on property belonging to one member and partnership moneys being outlaid on the property, but a case where the property itself is the very asset which produces the partnership profits. He said also "The land itself was physically involved in the business and therefore an asset of the business". But, with respect, I cannot agree that it follows from the fact that land is the asset which produces the partnership profits and is physically involved in the business that it is an asset of the partnership. It is common for agreements to be made, particularly amongst members of a family, for the use by a partnership of land which belongs to one of the partners. By such an agreement, unless a different intention is expressed or is to be inferred from the circumstances, the partnership acquires a right to have the use of the land so long as the partnership continues but no greater right or interest in it either at law or in equity than a right to use the land, a right which may be regarded as arising either from a tenancy or from a licence. Subject to that right the ownership of the property remains with its former owner. This type of arrangement is illustrated by the case of Munro v. Commissioner of Stamp Duties (1934) AC 61 , in which transfers by way of gift by the owner of the land, upon which under an earlier verbal agreement the business of graziers had been carried on by the owner and his children in partnership, were considered to be gifts of "the property shorn of the right which belonged to the partnership" (1934) AC, at p 67 (at p562)

3. It is true, of course, that just as money may be brought into the partnership assets by way of a contribution by one partner to the capital of the partnership, so also land may be brought in as a contribution to capital. But in any particular case in which there is no formal agreement putting the matter beyond doubt, it must be decided upon a consideration of the circumstances whether it should be concluded that this has been done or whether the partnership has acquired no more than a right to the use of the land. In the present case it may be that the fact that it was contemplated that the land would be improved and that its improvement was one of the purposes of the partnership, could be regarded, if there were no other circumstances relevant to the question, as justifying the conclusion that the land itself was brought in as an asset of the partnership. But in my opinion the other circumstances of the case require the conclusion that it was not. These have been discussed by Menzies J. and I need not set them out. A consideration of the findings of Burbury C.J. concerning the initial arrangements and of the subsequent conduct of the parties has brought me to the opinion that the land did not become an asset of the partnership. (at p563)

4. A further important question arises out of the conclusion that the land did not become an asset of the partnership. If it had done so then the land in its present state would belong to the partnership. The members would be entitled to share in the proceeds of its sale or alternatively, if the members so agreed, its present value could be taken into account in the working out of the respective rights of the members of the partnership. It is contended that if it be found that the land remained the property of the appellant, he is nevertheless required to account to the other partners, in accordance with their shares in the partnership, for a proportion of the amount by which the value of the land has been increased by the improvements. The question raised by this contention is distinct from the question of what adjustments are needed in the taking of the accounts of the partnership in respect of moneys expended upon the making of improvements in the course of carrying on the partnership. In relation to the latter question I am of opinion that to the extent that any of such expenditure was in fact met by some of the partners only, they are entitled to an adjustment in the accounts on the footing that the expenditure is charged against the partnership. It has been argued that the respondents should not now be permitted to require the appellant to make good his share of any expenditure on improvements which should have been, but was not, debited against the partnership. For the reasons given by Menzies J. I do not accept this argument. But it is necessary to consider also whether this is a case in which upon the dissolution of the partnership an inquiry should be directed in respect of expenditure on improvements, going beyond the making of such adjustments as are necessary to ensure that the burden of partnership expenditure is made to fall upon the partnership. In some cases where the money expended came from partnership profits or funds, so that there was no need for such adjustments as I have last mentioned, it has been held that it may be proper to recoup to one partner, who by reason of expenditure on property which belongs solely to another partner has received less as his share of profits than he would otherwise have received, all or part of the sum which for that reason he has not received. Cases in which inquiries have been directed to ascertain whether or not it is proper to allow a recoupment of this kind include Burdon v. Barkus (1862) 4 De G F &J 42 (45 ER 1098) and Pawsey v. Armstrong (1881) 18 Ch D 698 . But in my opinion the present case is not one in which an inquiry for that purpose should be directed. It was in my opinion part of the agreement that the expenses which were to be shared by the partners should include the costs of improvements to the property, subject to the condition that the labour of the members of the firm of H. L. Harvey &Sons should not be a charge against the partnership. In my opinion the events which happened do not require that notwithstanding that agreement the respondents should be held to have a right to call upon the appellant to repay to them all or part of what was expended by the respondents' firm as their share of the expenses to which they were obliged by that agreement to contribute. If the appellant had exercised his right to determine the partnership at such a time and in such a manner that any benefit, which might have been expected to come to the respondents' firm by way of increased profits from the land resulting from the improvements, was thereby taken from them and the whole of the benefit therefore accrued to the appellant, I think that in those circumstances probably an inquiry of the kind directed in a somewhat similar situation in Burdon v. Barkus (1862) 4 De G F &J 42 (45 ER 1098) would have been proper. But in my opinion this is not a case where this is required. The parties agreed to share the profits and to share the expenses. It was contemplated that improvements would be made and it must have been expected that this would add to the expenses but would also increase the profits of the business. It was contemplated that the agreement would go on for a substantial period in fact it did so. (at p564)

5. I return to a consideration of the separate claim that the respondents are entitled to share in such enhancement of the value of the property as may be found to be attributable to the making of the improvements. In my opinion this claim is not warranted. There is a paragraph in Lindley on Partnership, 12th ed. (1962), which gives some support to the claim and I think this should be quoted in full. It is stated (pp. 417-418):

"Not only may one partner make outlays or advances for the benefit of the firm, but the firm may make advances and outlays to or for the benefit of one partner. Under ordinary circumstances such advances and outlays will be equivalent to a loan by the firm to him, and must be treated accordingly in taking the partnership accounts. But occasionally considerable difficulty arises, e.g., where there has been an outlay by the firm on property belonging exclusively to one of the partners, but used by the firm for partnership purposes. In the absence of all evidence of any agreement upon the subject, justice seems to require that in taking the partnership accounts the owner of the property in question should not be allowed exclusively to gain the benefit of the outlay, but that the improved value of his property should be treated as a partnership asset, and be shared between him and his co-partners accordingly."

In a footnote there is a reference to Miles v. Clarke (1953) 1 WLR 537 and a reference to p. 366 of the text. When one goes to p. 366 it is seen that the question with which the text and the cases there discussed are concerned is really the different question which I have mentioned above, that is, whether money laid out on property can be considered as a charge on it or whether the owners obtain the benefit of the outlay. Immediately after the paragraph which I have quoted the text refers (at p. 418) to Burdon v. Barkus (1862) 4 De G F &J 42 (45 ER (1098) and to Pawsey v. Armstrong (1881) 18 Ch D 698 . It is not asserted that these two cases lay down the rule which according to the author "justice seems to require" and upon examination they do not support it. In Pawsey v. Armstrong (1881) 18 Ch D 698 a declaration was claimed that the premises belonging to the defendant were subject to a charge in favour of the partnership for all moneys of the partnership laid out thereon for the purposes of the partnership business, together with interest. It does not appear that a claim was made for a share in the increased value of the property and no relief of that kind was granted. The basis upon which Kay J. thought that it was possible, but by no means certain, that the plaintiff was entitled to get back some of the money expended, which otherwise he would have received as a share of profits, was explained in the judgment (1881) 18 Ch D, at pp 707, 708 . The case gives no assistance to the respondents in the present case, in respect of their claim to receive a share of the increased value. Nor does the case of Miles v. Clarke (1953) 1 WLR 537 where Pawsey v. Armstrong (1881) 18 Ch D 698 was mentioned and a similar inquiry was directed. (at p566)

6. In Burdon v. Barkus (1862) 4 De G F &J 42 (45 ER 1098) the facts were that a new pit was sunk and profits of the partnership which had been formed for the purpose of working the colliery were applied in sinking the pit and in repaying money borrowed for that purpose. At about the time that the pit was completed the plaintiff, who was lessee of the seams of coal, sought to dissolve the partnership. The defendant contended that it was a term of the agreement that the partnership should continue during the whole term of the lease but this was resolved against him and it was held that the plaintiff was entitled to a dissolution of the partnership. It was contended for the defendant that because of the course of dealing between the parties the colliery had been made partnership property and that the assets should be sold, including the leasehold interest in the seams. It was held that the defendant could not claim any interest in the seams. The decree which had been made by the Vice Chancellor did not require the plaintiff to give up to the defendant any part of the value of the plaintiff's leasehold interest, resulting from the work which had been done just before the dissolution of the partnership by him against the will of his partner. But it did direct an inquiry

". . . whether, having regard to the terms of the partnership and to the purposes for which the works at the pit called the Meadow Pit were erected, made and formed, and are now used and capable of being used, and the circumstances under which the expenses of the said works were discharged and defrayed, any and what sum ought to be

allowed in respect of such expenses" (1862) 4 De G F &J, at p

50 (45 E.R., at p. 1101).

At the beginning of his judgment in an appeal brought by the defendant, Turner L.J. (1862) 4 De G F &J, at p 47 (45 ER, at p 1100) observed that "the decree was well calculated to do substantial justice between the parties". Later he gave his reasons for holding that the inquiry had been properly directed. It is central to those reasons that he thought that without such an inquiry there might be manifest injustice. The object of that inquiry was that if upon examination of the circumstances this seemed proper, the defendant should receive all or some part of his share of the profits which had gone into the sinking of the pit. I have already stated that in the circumstances of the present case an inquiry of that kind is not warranted. For present purposes the significant feature of Burdon v. Barkus (2) and of other similar cases is that they have not recognized a general principle that a partner whose property has been increased in value by the expenditure of partnership money is bound to allow the other partner or partners to have a share in the increased value, even where the expenditure is "necessary" and not "voluntary" in the sense in which those words were used in Burdon v. Barkus (1862) 4 De G F &J, at p 51 (45 ER, at p 1102) . (at p567)

7. The general principle that a partner is not allowed to retain for himself a private advantage at the expense of the firm has been embodied in legislation. See the Partnership Act 1891 (Tas.), s. 34, which is in the same terms as s. 29 of the Partnership Act 1890 (U.K.), set out in Lindley on Partnership, 12th ed. (1962), at p. 344. It seems clear that that provision does not apply so as to impose upon the appellant in this case an obligation to account to the firm for a benefit consisting of an increase in the value of his own property resulting from work which, as was intended by the partners, was carried out by the partnership. Nor is it possible in my opinion to say that there was an implied term in the partnership agreement that all the partners were to have a share in any increase in capital value so produced. It cannot be said that it is evident that if the parties had applied their minds to the making of an express bargain on this question they would have agreed that this increase in value would be shared. The express bargain which was made in 1953 between two of the parties, although it is not operative contractually to determine the question, is sufficient to show that the suggested implied term is not one to which all the parties would undoubtedly have agreed. (at p567)

8. It is not necessary to decide that in no circumstances falling short of express agreement could a partner become liable to account for a share in an increase in the value of his property produced by partnership effort. It is sufficient to say that in my opinion there is no general principle that he must do this unless it can be established that there was an agreement to the contrary. In my opinion the circumstances of the present case do not require or warrant a finding that the appellant is liable to such an account. (at p567)

9. In my opinion the appeal should be allowed and the declarations and orders made by the Supreme Court of Tasmania should be varied in the manner set out below. (at p567)

10. If those orders are made by this Court the appellant will have a substantial degree of success in the appeal but will fail in his contentions that there was no partnership, that the agreement of 1953 is binding upon the respondents, and that there should be no adjustment in the accounts in respect of money paid out for improvements by the respondents' firm but not as yet charged against the partnership. In the circumstances, I am of opinion that the respondents should pay one half of the costs of the appellant of the appeal. As to the costs of the proceedings in the Supreme Court the order made by that Court that the costs of the consolidated action be reserved should stand. (at p568)

11. In my opinion this Court should order:-
(1) That the appeal be allowed.
(2) That the declarations and orders made in the Supreme Court should be varied as follows:
(a) by deleting pars. 3 to 7 inclusive and par. 9 thereof; (b) by inserting in lieu thereof the following declarations and orders:
(i) declare that the property "Fonthill" did not become and is not an asset of the said partnership;
(ii) declare that upon the dissolution of the said partnership the appellant became entitled to possession of the said property and

order that possession thereof be given up to him by the respondents at such time and upon such terms as may be fixed (in default of agreement by the parties) by the Supreme Court of Tasmania upon application made to it for that purpose;

(iii) order that accounts be taken by the Master in the winding up of the partnership (so far as may be necessary) of the

capital and profits of the partnership during its subsistence and since its dissolution and that whatever amount shall be certified upon taking the said accounts to be due from any of the parties to the other or others of them shall be paid within three months of the date of the Master's certificate by the party or parties from whom to the party or parties to whom it shall have been certified to be due;

(iv) order that in the taking of the said accounts of the capital of the partnership-

(a) the present market value of 1,600 sheep of the standard that Harold Hastie Harvey initially contributed to the partnership and the present value of the implements and farm equipment he initially contributed, shall be treated as part of his capital in the business;

(b) no allowance shall be made in favour of Horace David Harvey or Gerald Harvey for or in respect of the value or cost of labour or skill expended by them or either of them or by

former members of the firm of H. L. Harvey &Sons upon the

making to or on "Fonthill" of any capital improvements, whether consisting of extension of pastures by bringing land under cultivation or of improvement of pastures or of improvements to the farm house and buildings or otherwise;

(v) order that in the taking of the said accounts of the profits of the partnership there shall be allowed to Horace David Harvey and

Gerald Harvey between them an amount equal to one half, and to Harold Hastie Harvey an amount equal to one half, of all sums of money actually paid by Horace David Harvey or Gerald Harvey or by

the firm of H. L. Harvey &Sons or by Harold Hastie Harvey

respectively for or in respect of the carrying on of the partnership business, including the improvement or maintenance of the property "Fonthill", and that in taking such accounts such sums as are found to be proper to be allowed in respect of the use in the improvement or maintenance of the said property or in the carrying on of the said business of machinery and equipment

belonging to the firm of H. L. Harvey &Sons shall be treated as

expenses of the partnership business and debited against the partnership.

(3) That subject to the foregoing orders the declarations and orders of the Supreme Court of Tasmania be confirmed. (4) That the consolidated action be remitted to the Supreme Court of Tasmania for the making of all such orders and inquiries as to it may seem proper for giving effect to this judgment and to the declarations and orders already made by that Court as varied as aforesaid and for the winding up of the said partnership and for securing the payment by the appellant of any amounts which may be due by him to the respondents.
(5) That the respondents pay one half of the costs of the appellant of this appeal. (at p569)

Orders

(1) That the appeal be allowed.

(2) That the declarations and orders made in the Supreme Court be varied as follows:

(a) by deleting pars. 3 to 7 inclusive and par. 9 thereof; (b) by inserting in lieu thereof the following declarations and orders: (i) declare that the property "Fonthill" did not become and is not an asset of the said partnership; (ii) declare that upon the dissolution of the said partnership the appellant became entitled to possession of the said property and order that possession thereof be given up to him by the respondents at such time and upon such terms as may be fixed (in default of agreement by the parties) by the Supreme Court of Tasmania upon application made to it for that purpose; (iii) order that accounts be taken by the Master in the winding up of the partnership (so far as may be necessary) of the capital and profits of the partnership during its subsistence and since its dissolution and that whatever amount shall be certified upon taking the said accounts to be due from any of the parties to the other or others of them shall be paid within three months of the date of the Master's certificate by the party or parties from whom to the party or parties to whom it shall have been certified to be due; (iv) order that in the taking of the said accounts of the capital of the partnership - (a) the present market value of 1,600 sheep of the standard that Harold Hastie Harvey initially contributed to the partnership and the present value of the implements and farm equipment he initially contributed, shall be treated as part of his capital in the business; (b) no allowance shall be made in favour of Horace David Harvey or Gerald Harvey for or in respect of the value or cost of labour or skill expended by them or either of them or by former

members of the firm of H. L. Harvey &Sons upon

the making to or on "Fonthill" of any capital improvements, whether consisting of extension of pastures by bringing land under cultivation or of improvement of pastures or of improvements to the farm house and buildings or otherwise; (v) order that in the taking of the said accounts of the profits of the partnership there shall be allowed to Horace David Harvey and Gerald Harvey between them an amount equal to one half, and to Harold Hastie Harvey an amount equal to one-half, of all sums of money actually paid by Horace David Harvey or Gerald

Harvey or by the firm of H. L. Harvey &Sons or by

Harold Hastie Harvey respectively for or in respect of the carrying on of the partnership business, including the improvement or maintenance of the property "Fonthill", and that in taking such accounts such sums as are found to be proper to be allowed in respect of the use in the improvement or maintenance of the said property or in the carrying on of the said business of machinery and equipment belonging to the firm of H. L.

Harvey &Sons shall be treated as expenses of the

partnership business and debited against the partnership.

(3) That subject to the foregoing orders the declarations and orders of the Supreme Court of Tasmania be confirmed.

(4) That the consolidated action be remitted to the Supreme Court of Tasmania for the making of all such orders and inquiries as to it may seem proper for giving effect to this judgment and to the declarations and orders already made by that Court as varied as aforesaid and for the winding up of the said partnership and for securing the payment by the appellant of any amounts which may be due by him to the respondents.

(5) That the respondents pay one half of the costs of the appellant of this appeal.