Kingsmill v Lyne - [1910] HCA 57

13 CLR 292

KINGSMILL AND ANOTHER

DEFENDANTS, LYNE

ON APPEAL FROM THE SUPPEME COURT OF Trust-Partnership-Sal - by mortgagee of partnership property - Purchase by

member of partnership- - Uberrima fides.

K., M. and L. were partners in the pastoral industry, and had mortgaged PERTH,

their land to the Bank of New South Wales as collateral security for a cash October 21,

credit in a current account secured by a joint and several guarantee. The bank closed the account and demanded payment of the advances. L. communicated with K. and M., and offered to pay one-third of the overdraft if they would each pay one-third, but they refused. The property was advertised for sale by auction under the mortgage, K. and M. purchased the land. L. sought a declaration that they must be taken to have purchased as trustees for the partnership.

13 CLR 293

Held, in the absence of any evidence of collusion or conspiracy with the bank, that K. and M. were acting within their rights and there was no trust.

Decision of the Supreme Court of Western Australia reversed, and decision

APPEAL from the Supreme Court of Western Australia.

The respondent brought an action against the appellants for a declaration that the appellants were trustees for him and them- selves of certain land which had been purchased by public auction at a mortgagee's sale. At the hearing McMillan J. gave judgment for the defendants and the Full Court reversed that decision.

The facts appear from the judgments hereunder. Draper, for the appellants. The defendants were perfectly justified in purchasing the partnership land at the mortgagee's sale by auction, and no suspicion or trace of misconduct can attach to them in doing SO. Perens v. Johnson 1 is clearly distinguishable.

Keenan K.C., and Hearden, for the respondent. The partner- ship was a contract uberrimae fidei, and it was the duty of each respondent to disclose all facts within his knowledge material to the partnership interests. On the evidence that high standard of good faith and honour has not been exhibited by the appellants to the respondent which the law requires. It is not necessary establish fraud, but it is sufficient to show that in their dealings with the respondent the appellants were not actuated by that standard of honour which, between partners, must prevail if their transactions are to receive the sanction of a Court of justice. [They referred to Perens v. Johnson (1); Blisset v. Daniel 2; Jack v. Smail 3 Featherstonhaugh v. Fenwick 4.]

Draper, in reply, referred to Heslin v. Fay 5.

Cur. adv. vult. The following judgments were read :-

GRIFFITH C.J. This is an action brought by the respondent

13 Sm. &G., 419. 210 Ha., 493. 32 C.L.R., 684. 417 Yes., 298. 515 L.R. Ir., 431.

13 CLR 294

against the appellants for a declaration that they are trustees

for him and themselves of certain Crown lands held under lease which they acquired as purchasers…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Kingsmill v Lyne

Details

AGLC: Kingsmill v Lyne [1910] HCA 57
Case: [1910] HCA 57
Decision Date: 26 October 1910

CaseChat Overview and Summary

This case concerned an appeal from the Supreme Court of Western Australia regarding a dispute between three partners, Kingsmill, Maley, and Lyne, in the pastoral industry. The partnership's land, which was mortgaged to the Bank of New South Wales, was advertised for sale by auction under the mortgage after the bank closed the partnership's account and demanded payment. Lyne offered to pay one-third of the overdraft if his partners did the same, but they refused. Kingsmill and Maley subsequently purchased the land at the auction. Lyne sought a declaration that Kingsmill and Maley had purchased the land as trustees for the partnership.

The central legal issues before the High Court of Australia were whether Kingsmill and Maley, as partners, had breached their duty of utmost good faith to Lyne by purchasing the partnership's mortgaged property at a mortgagee's sale, and whether they had acted in collusion with the bank to oust Lyne from the partnership. The Supreme Court's Full Court had reversed the trial judge's decision, finding that the appellants had not exhibited the required standard of good faith.

The High Court, in allowing the appeal, reasoned that there was no evidence to support the claim that Kingsmill and Maley had instigated the bank's decision to close the account or to sell the property. The bank manager's letter indicated that the demand for payment was due to Lyne's private mortgage over his interest, and the decision to sell was made on the advice of the bank's solicitors. The Court held that partners are not obligated to contribute further capital beyond their agreed contributions, even if it would save the partnership. The Court found that Kingsmill and Maley were within their rights to purchase the property at the auction, as there was no evidence of collusion or conspiracy with the bank to exclude Lyne. The legal principle applied was that a partner's duty of good faith does not compel them to act at their own expense to save a partnership business, and a partner is entitled to purchase partnership property at a mortgagee's sale unless there is evidence of fraud or collusion.

The High Court reversed the decision of the Supreme Court of Western Australia, restoring the judgment of the trial judge, McMillan J. Accordingly, the appeal was allowed, the order of the Full Court was discharged, and the respondent was ordered to pay the costs of the appeal.

Orders