Sze Tu v Lowe - [2014] NSWCA 462

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Sze Tu v Lowe [2014] NSWCA 462
Hearing dates: 27 - 28, 31 March, 1 - 3 April 2014
Decision date: 23 December 2014
Before: Meagher JA at [1];
Barrett JA at [2];
Gleeson JA at [4]
Decision:
2013/107940 (Sunly and Gordon)
(1) Appeal allowed.
(2) Set aside orders 3, 4(a)(ii) and (iii), (c)(iv) and (v), 5, 6, 7, 8, 9 and 11.
(3) In lieu thereof:
(i) Dismiss the proceedings against the fifth and sixth defendants.
(ii) Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.
(iii) Declare that 90% of any profits (if any) derived by the late Kut Sze Tu from the Partnership Properties after just allowances (if any) since the date of their acquisition were and are held on constructive trust for the Partnership.
(iv) Direct that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
(v) Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu obtained through his ownership, possession and/or use of the Partnership Properties since their acquisition as may be found to be due pursuant to the inquiry referred to in order (iv) above
(vi) In these orders the reference to "Partnership Properties" has the same meaning as given to these words in order 1 made by Gzell J on 13 March 2013.
(4) Reserve all questions of costs in this Court and below.
(5) In default of agreement as to costs, direct:
(a) the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;
(b) the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;
(c) the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.
(6) Note that the Court will determine the issue of costs on the papers.
2013/107472 (Margaret)
(1) Appeal allowed.
(2) Set aside orders 3, 4(b)(ii) and (c)(ii), 5, 6, 7, 8, 9 and 11.
(3) In lieu thereof:
(i) Dismiss the proceedings against the second defendant.
(ii) Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.
(iii) Declare that 90% of any profits (if any) derived by the late Kut Sze Tu from the Partnership Properties after just allowances (if any) since the date of their acquisition were and are held on constructive trust for the Partnership.
(iv) Order that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
(v) Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu obtained through his ownership, possession and/or use of the Partnership Properties since their acquisition as may be found to be due pursuant to the inquiry referred to in order (iv) above
(vi) In these orders the reference to "Partnership Properties" has the same meaning as given to these words in the order 1 made by Gzell J on 13 March 2013.
(4) Reserve all questions of costs in this Court and below.
(5) In default of agreement as to costs, direct:
(a) the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;
(b) the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;
(c) the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.
(6) Note that the Court will determine the issue of costs on the papers.
2013/108447 (Helen)
(1) Appeal allowed.
(2) Set aside orders 3, 4 (c)(iii), 5, 6, 7, 8, 9 and 11.
(3) In lieu thereof:
(i) Dismiss the proceedings against the third defendant.
(ii) Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.
(iii) Declare that 90% of any profits (if any) derived by the late Kut Sze Tu from the Partnership Properties after just allowances (if any) since the date of their acquisition were and are held on constructive trust for the Partnership.
(iv) Order that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.
(v) Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu obtained through his ownership, possession and/or use of the Partnership Properties since their acquisition as may be found to be due pursuant to the inquiry referred to in order (iv) above
(vi) In these orders the reference to "Partnership Properties" has the same meaning as given to these words in order 1 made by Gzell J on 13 March 2013.
(4) Reserve all questions of costs in this Court and below.
(5) In default of agreement as to costs, direct:
(a) the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;
(b) the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;
(c) the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.
(6) Note that the Court will determine the issue of costs on the papers.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: EQUITY - Tracing - Onus and standard of proof - Where wrongdoer has mixed stolen moneys with own moneys - Black v Freedman claim attaches immediately to stolen money and its traceable product - Volunteer recipient of stolen funds, or traceable product, in no better position than the wrongdoer - Onus on wrongdoer and/or recipient to prove what contribution was from the wrongdoer's own moneys - Standard of proof in Briginshaw v Briginshaw and s140 Evidence Act applied
LIMITATION OF ACTIONS - Partnership - Action for an account - Cause of action arises upon dissolution of partnership - Application of s15 Limitation Act directly or by analogy - Laches will not be available as a further defence in circumstances where the claim is subject to a statutory bar
LIMITATION OF ACTIONS - Partnership - Action for an account of profits or to recover trust property -- Application of s 15 Limitation Act by analogy to an action for an account of profits in relation to trust assets - Application of s 47 Limitation Act directly or by analogy to an action to recover trust property or profits derived from trust property - When does time begin to run - When did the plaintiff first discover, or could have with reasonable diligence discovered, the facts giving rise to the cause of action and that the cause of action has accrued
PARTNERSHIPS AND JOINT VENTURES - Partnerships - Actions by and against partners - Partnership funds mixed with funds of a partner and used to purchase residential and investment properties - Black v Freedman claim - Institutional constructive trust over the partnership moneys (or their traceable product) - Equitable obligations imposed at the time of theft or, in the case of a volunteer recipient, from the time that they acquire knowledge of the theft - Whether indefeasibility defence under s 42 Real Property Act available for volunteer recipient where acquired registered title prior to being placed on notice of the theft - Fraud exception to s42 not pleaded - Fraud cannot be raised as a new point on appeal - Whether any in personam exception to indefeasibility applicable
PARTNERSHIPS AND JOINT VENTURES - Partnerships - Dissolution - Single adventure or undertaking - Whether a partnership operating two businesses can be considered a single venture - Whether separate termination dates for the businesses precludes the partnership being seen as a "single venture"
PARTNERSHIPS AND JOINT VENTURES - Partnerships - Partnership Property - Application of ss20(1) and 21 Partnership Act - Deeming of property bought with partnership funds to be partnership property "held in trust for the partnership" - Statutory provisions do not create a trust "in the strict sense" nor are they sufficient to make the land "trust property"
TRUSTS - General - Partnership funds mixed with funds of a partner and used to purchase residential and investment properties - Whether the moneys or the properties (as their traceable product) are subject to statutory, express, resulting, or constructive trusts - Whether proprietary and/or accounting relief available
Legislation Cited: Civil Procedure Act 2005 (NSW) ss 88 and 89
Conveyancing Act 1919 (NSW) s 23C
Evidence Act 1995 (NSW) ss 136 and 140
Evidence Act 1995 (Cth)
Limitation Act 1939 (England)
Limitation Act 1969 (NSW) ss 11, 15, 23, 24, 47, 48, 55, and 68A
Limitation Act 1980 (England)
Partnership Act 1898 (NSW) ss 1, 19, 20, 21, 22, 23, 29, 32, 33, s35, and 39
Real Property Act 1900 (NSW) s 42
Trustee Act 1925 (England)
Uniform Civil Procedure Rules 2005 (NSW) r 14.14, 15.3, and 42.1
Wills Probate and Administration Act 1898 (NSW) s 18A
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Auzhair Supplies Pty Ltd v Gerace [2014] HCASL 231
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Barnes v Addy (1874) LR 9 Ch App 244
Barton v North Staffordshire Railway (1887) 38 Ch D 458
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Black v S Freedman & Co (1910) 12 CLR 105
Bogdanovic v Koteff (1988) 12 NSWLR 472
Bolton v Federal Commissioner of Taxation [1965] ALR 481; (1964) 9 AITR 385
Boyd v Attorney-General of British Columbia (1917) 54 SCR 532
Brady v Stapleton [1952] HCA 62; 88 CLR 322
Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508
Breskvar v Wall [1971] HCA 70; 126 CLR 376
Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 366
Bryson v Bryant (1992) 29 NSWLR 188
Burdick v Garrick (1870) LR 5 Ch App 233
Butler v Madden (1941) 41 SR (NSW) 245
Callow v Rupchev [2009] NSWCA 148
Calverley v Green [1984] HCA 81; 155 CLR 242
Cameron v Murdoch (1986) 63 ALR 575; 60 ALJR 280 (PC)
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; 131 CLR 321
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Cassegrain v Gerard Cassegrain & Co Pty Ltd [2013] NSWCA 454; 97 ACSR 244
Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd [2013] HCA 11; 247 CLR 149
CEPU v Australian Competition and Consumer Commissioner [2007] FCAFC 132; 162 FCR 466
Chahal v Mahal [2005] EWCA Civ 898
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Crawley v Short [2009] NSWCA 410
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Damberg v Damberg [2001] NSWCA 87; 52 NSWLR 492
Darby v Darby (1856) 3 Drew 495
Drever v Drever (1936) ALR 446
D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; 223 CLR 1
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Ex parte Neale; In re Laurence (1861) 3 De G F & J 645; 45 ER 1029
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89
Finch v Finch (1808) 15 Ves Jun 43; 33 ER 671
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Forgeard v Shanahan (1994) 35 NSWLR 206
Foskett v McKeown [2001] 1 AC 102
Frazer v Walker [1967] 1 AC 569
Frith v Cartland (1865) 2 H & M 417; 71 ER 525 at 526
Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181
Gerard Cassegrain & Co Pty Ltd v Cassegrain [2013] NSWCA 453; 305 ALR 612
Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22; 209 CLR 478
Giumelli v Giumelli [1999] HCA 10; 196 CLR 101
Green v Gaul [2006] EWCA Civ 1124; [2007] 1 WLR 591
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; 45 WAR 29
Harford v Lloyd (1855) 20 Beav 310 ; 52 ER 622
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Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851; 59 NSWLR 312
Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230
Hewitt v Henderson [2006] WASCA 233
Hollins v Brierfield Coal & Iron Co 150 US 371 (1893)
Hospital Products Ltd v United States Surgical Corporation [1985] HCA 64; 156 CLR 41
Hovenden v Lord Annesley (1806) 2 Sch & Lef 607
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John Alexander's Clubs Pty Ltd v White City Tennis Club [2010] HCA 19; 241 CLR 1
Kirkpatrick v Sime (1811) 5 Patterson's Scotch Appeal Cases 525
Knox v Gye (1872) LR 5 HL 656
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Lockey v. Lockey (1719) Prec Ch 518
Lowe v Pascoe [2010] NSWSC 388; 5 ASTLR 1
Lowe v Pascoe (Supreme Court (NSW), Smart AJ, 25 June 2010, unrep)
Lowe v Pascoe [2012] NSWSC 151
Lowe v Pascoe [2012] NSWSC 740
Lowe v Pascoe (No 2) [2012] NSWSC 885
Lowe v Pascoe (No 3) [2011] NSWSC 192
Lowe v Pascoe (No 4) [2012] NSWSC 1493
Lowe v Pascoe (No 6) (Supreme Court (NSW), Gzell J, 13 March 2013, unrep)
Lurgi (Australia) Pty Ltd v Gratz [2000] VSC 278
McCaughey v Commissioner of Stamp Duties (NSW) [1914] HCA 45; 18 CLR 475
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Mamo v Surace [2014] NSWCA 58; 86 NSWLR 275
Marshall v Bullock [1998] EWCA Civ J0327-15
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Mayer v Coe [1968] 2 NSWR 747
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Texts Cited: First Report on the Limitation of Actions (LRC 3, October 1967)
Jacobs' Law of Trusts in Australia (7th ed, LexisNexis Butterworths)
JD Heydon, MJ Leeming & PE Turner, Meagher, Gummow & Lehane's Equity: Doctrine & Remedies (5th ed, 2014, Lexis Nexis Butterworths)
KL Fletcher, The Law of Partnership in Australia, (9th ed, 2007, Thomson Law Book Co)
L D Smith, The Law of Tracing (1997, Clarendon Press)
Lindley and Banks on Partnership (19th ed, 2010, Sweet & Maxwell)
Peter Birks, "Equity in the Modern Law: An Exercise in Taxonomy" (1996) 26 U.W.A.L.R. 1
Snell's Equity ((1954), 24th Edition, Sweet & Maxwell)
Category: Principal judgment
Parties:
2013/107940
Shiu Shing Sze Tu (First Appellant)
Shiu How Sze Tu (Second Appellant)
Geoffrey Lowe (First Respondent)
Mary Lowe (Second Respondent)
Scott Pascoe as Trustee of the Estate of the Late Kut Sze Tu (Third Respondent)
Margaret Sze Tu (Fourth Respondent)
Helen Sze Tu (Fifth Respondent)
Janet McNamara (Sixth Respondent)
Stella Sze Tu as Trustee of the Estate of the Late Chow Fung Chun (Seventh Respondent)

2013/107472
Margaret Sze Tu (Appellant)
Geoffrey Lowe (First Respondent)
Mary Lowe (Second Respondent)
Scott Pascoe as Trustee of the Estate of the Late Kut Sze Tu (Third Respondent)
Helen Sze Tu (Fifth Respondent)
Janet McNamara (Sixth Respondent)
Stella Sze Tu as Trustee of the Estate of the Late Chow Fung Chun (Seventh Respondent)
2013/108447
Helen Sze Tu (Appellant)
Geoffrey Lowe (First Respondent)
Mary Lowe (Second Respondent)
Scott Pascoe as Trustee of the Estate of the Late Kut Sze Tu (Third Respondent)
Margaret Sze Tu (Fourth Respondent)
Janet McNamara (Sixth Respondent)
Stella Sze Tu as Trustee of the Estate of the Late Chow Fung Chun (Seventh Respondent)
Representation:
Counsel:
2013/107940
D L Williams SC with J D Little (Appellants)
C Withers with A Hochroth (First and Second Respondents)
J Stoljar SC (Third Respondent)
T G R Parker SC with R Yezerski (Fourth Respondent)
D Lloyd (Fifth Respondent)
Sixth Respondent (Self-represented)
Seventh Respondent (Self-represented)

2013/107472
T G R Parker SC with R Yezerski (Appellant)
C Withers with A Hochroth (First and Second Respondents)
J Stoljar SC (Third Respondent)
D Lloyd (Fifth Respondent)
Sixth Respondent (Self-represented)
Seventh Respondent (Self-represented)

2013/108447
D Lloyd (Appellant)
C Withers with A Hochroth (First and Second Respondents)
J Stoljar SC (Third Respondent)
T G R Parker SC with R Yezerski (Fourth Respondent)
Sixth Respondent (Self-represented)
Seventh Respondent (Self-represented)
Solicitors:
2013/107940
CLS Legal (Appellants)
First and Second Respondent (self-represented)
Rockwell Olivier Lawyers (Third respondent)
Holman Webb (Fourth respondent)
Riley Grey-Spencer (Fifth respondent)
Sixth respondent (Self-represented)
Seventh respondent (Self-represented)

2013/107472
Holman Webb (Appellant)
First and Second Respondent (self-represented)
Rockwell Olivier Lawyers (Third respondent)
Riley Grey-Spencer (Fifth respondent)
Sixth respondent (Self-represented)
Seventh respondent (Self-represented)
2013/108447
Riley Grey-Spencer (Appellant)
First and Second Respondent (self-represented)
Rockwell Olivier Lawyers (Third respondent)
Holman Webb (Fourth respondent)
Sixth respondent (Self-represented)
Seventh respondent (Self-represented)

File Number(s): 2013/107940; 2013/107447; 2013/107472
Decision under appeal

Jurisdiction:

9111

Citation:

Lowe v Pascoe [2010] NSWSC 388 (7 May 2010)
Lowe v Pascoe (Supreme Court, Smart AJ, 25 June 2010, unreported)
Geoffrey Alan Lowe & Anor v Scott Pascoe & Ors [2012] NSWSC 151 (29 February 2012)
Lowe v Pascoe [2012] NSWSC 740 (29 June 2012)
Lowe v Pascoe (No 4) [2012] NSWSC 1493 (5 December 2012)
Lowe v Pascoe (No 6) (Supreme Court, Gzell J, 13 March 2013, unreported)

Date of Decision:

2013-03-13 00:00:00

Before:

Smart AJ (7 May 2010 and 25 June 2010)
Bergin CJ in Eq (29 February 2012)
Gzell J (29 June 2012; 5 December 2012 and 13 March 2013)

File Number(s):

2005/262284

HEADNOTE

[This headnote is not to be read as part of the judgment]

This appeal concerns a partnership dispute between family members relating to events dating back to 1975 and extending from that year. The appellants, Shiu Shing Sze Tu (Sunly), Shiu How Sze Tu (Gordon), Margaret Sze Tu (Margaret), and Helen Sze Tu (Helen), are each children of the late Kut Sze Tu (KST). The active respondents were Mary Lowe (Mary), another of KST's children, and her husband, Geoffrey Lowe (Geoffrey). The other respondents were Scott Pascoe (the Administrator), as the representative of KST's Estate, Janet McNamara (Janet), another child of KST, and Stella Chung (Stella) as the representative of Chow Fung Chun's estate (F C Chow), who was KST's second wife; these respondents were not active on the appeal.

The dispute concerned an alleged partnership between KST, F C Chow, Geoffrey, Mary, Margaret, Helen, and Janet, to purchase and operate a grocery/general store business Wing Yuen Tai (WYT) and butchery store Yee Sing (YS). These two businesses were purchased by KST in about July 1975 and were operated as family businesses, which KST controlled. In 1986 the YS business was sold, and later, in about June 1989, the WYT business was closed down. Between 1978 and 1988 KST purchased three real properties which were registered in his name and several of his children (Haig St- KST 1/3, Sunly 1/3, Gordon 1/3; Maroubra Rd- KST 4/5, Margaret 1/5; Queen St- KST 6/10, Margaret 1/10, Sunly 1/10, Gordon 1/10, Helen 1/10). KST died intestate in 1997, and in the course of disputed probate proceedings the Administrator was appointed. In a draft interim report of November 2001 the Administrator reported that the three properties had been purchased without finance.

In November 2005 proceedings were commenced by Geoffrey and Mary alleging that the two businesses were operated pursuant to a partnership, that the three properties were purchased with partnership funds in breach of KST's fiduciary duties to his co-partners, and that the properties were impressed with trusts and held by the registered proprietors on behalf of the alleged partnership. They sought a declaration that a partnership existed, an order winding up the partnership, a declaration that the properties were held on trust for the partnership, an order for accounting to be undertaken in respect of the profits of the partnership, and claims for their share, as partners, of ownership of the three properties. The defendants contended that there was no partnership, or alternatively that any partnership was a "sham" partnership, and also that the claims were time barred, by reason of the Limitation Act 1969 (directly or by analogy), or were precluded by the defences of laches, conventional estoppel, and/or indefeasible title.

A separate hearing on liability in respect of eight issues commenced on 30 October 2008 before Smart AJ, who delivered reasons for judgment on 7 May 2010 and further reasons for judgment on 25 June 2010, in which he made the following findings:

1. A partnership existed from 1 August 1975, with KST, Geoffrey and Mary, Janet, Margaret, Helen, and F C Chow as partners, and that it operated the WYT and YS businesses pursuant to a written agreement dated 1 October 1975;

2. KST used at least some partnership funds in purchasing the properties;

3. Margaret had contributed $100,000 towards the purchase of Maroubra Rd;

4. KST, Margaret, Helen, Sunly and Gordon, each held their interests in the Haig St and Queen St properties subject to an express trust in favour of the partnership, and KST held his interest in Maroubra Rd subject to an express trust in favour of the partnership;

5. The claims were not defeated by any of the pleaded defences.

On 25 June 2010 Smart AJ made a declaration that the partnership existed and an order directing that a copy of the Judgment be sent to the Australian Tax Office for assessment, however no final orders were made. After the June Judgment, Sunly and Gordon located further discoverable documents, which were brought to the attention of the Court on 20 December 2010. A dispute arose as to whether the appellants should be given leave to re-open their case to rely upon this material. Before that application could be determined, Smart AJ suffered a serious illness and was unable to continue the trial.

A fresh trial limited to three issues (dissolution of the partnership; KST's fiduciary duties; and whether the properties were held on trust) was ordered by Bergin CJ in Eq and heard by Gzell J, who delivered reasons for judgment on 5 December 2012 and made final orders on 13 March 2013. The relevant findings of Gzell J were:

1. That KST had the capacity to contribute only 10% of the purchase price of the properties and the remaining 90% was taken by KST from partnership funds;

2. That by utilising partnership funds in this manner, KST breached the fiduciary duties he owed to the partnership;

3. That Margaret did not contribute $100,000 of her own funds to the acquisition of Maroubra Rd;

4. That 90% of KST, Margaret, Helen, Sunly and Gordon's interest in the three properties, or their net proceeds, were subject to an institutional constructive trust in favour of the partnership.

Gzell J made orders: a) that the partnership be dissolved pursuant to s 35 of the Partnership Act 1898 (NSW); b) that KST, Margaret, Helen, Sunly and Gordon, account to the partnership for profits received from their ownership, use, or possession of the properties since the date of their acquisition (in the case of KST, Margaret and Helen) or since 3 November 2005 (in the case of Sunly and Gordon); c) that an inquiry be held to identify what (if any) moneys the plaintiffs were entitled to (and from whom); and d) declarations regarding the trusts. Relevantly, although Gzell J characterised the plaintiffs' trust claim differently to Smart AJ, he did not revisit the defences pleaded by the defendants.

Sunly and Gordon, Margaret, and Helen lodged separate appeals, each challenging both the factual and legal premises of the trust based claims and reasserting the defences argued below. None of the appellants disputed on appeal that the partnership existed, however they contended that the partnership had dissolved in June 1989 when WYT was closed down.

The main issues on appeal were:

1. whether the three properties were held on trust (statutory, express, resulting, or constructive) and, if so, whether relief was barred by any of the defences raised;

2. whether the partnership was dissolved in June 1989 and, if so, whether the claims for an inquiry and account were time barred;

3. whether KST had breached his fiduciary duties to his co-partners by using partnership funds in acquiring the three properties and, if so, who bore the onus of proof in relation to tracing money into the properties; and

4. whether the "fresh trial" before Gzell J miscarried.

Appeal allowed. The Court held (Gleeson JA, Meagher and Barrett JJA agreeing) that:

In respect of (1):

1. The respondents were not entitled to rely on a "statutory trust" claim based on ss 20(1) and 21 of the Partnership Act because this claim was not pleaded or argued below: at [135]-[140]. Even if the respondents were entitled to raise this new point on appeal, the "statutory trust" created under those provisions, by deeming property bought with partnership funds to be partnership property "held in trust for the partnership", is not a trust "in the strict sense" nor is it sufficient to make the three properties "trust property" as referred to in s 47 of the Limitation Act: at [112]-[127]

Applied: Water Board v Moustakas [1988] HCA 12; Suttor v Gundowda Pty Ltd [1950] HCA 35; Multicon Engineering Pty Ltd v Federal Airports Corporation [1997] NSWCA 214; Metwally v University of Wollongong [1985] HCA 28; Carter Bros v Renouf [1962] HCA 67; Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43; Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; Boyd v Attorney-General of British Columbia (1917) 54 SCR 532; Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; Clay v Clay [2001] HCA 9; Knox v Gye (1872) LR 5 HL 656

2. Smart AJ erred in finding that there was an express trust based on cl 20 of the partnership agreement. KST's actual intention when acquiring the properties was to acquire them on his own account (and for his children) as a family home and investment properties, not as an agent of the partnership: at [163]-[177]

3. In determining whether the presumption of advancement in favour of KST's children has been rebutted, for the purposes of the resulting trust claim, it is "the actual intention of the purchaser at the time of the purchase" which is relevant and, in particular, whether there is proof of a "definite intention" to retain beneficial title. The ascribing of labels such as "weak" to the presumption of advancement is a distraction. The materials relied upon here were not capable of demonstrating that KST's actual intention was contrary to the presumption: at [3], [178]-[208]

Applied: Napier v Public Trustee (WA) (1980) 55 ALJR 1; Nelson v Nelson (1994) 33 NSWLR 740; Calverley v Green [1984] HCA 81; Wirth v Wirth [1956] HCA 71; Martin v Martin [1959] HCA 62; Charles Marshall Pty Ltd v Grimsley [1956] HCA 28; Bryson v Bryant (1992) 29 NSWLR 188; Damberg v Damberg [2001] NSWCA 87; Lau Siew Kim v Yeo Guan Chye Terence [2008] 2 SLR(R) 108; Drever v Drever (1936) ALR 446; cf Pettitt v Pettitt [1970] AC 777; Laskar v Laskar [2008] EWCA Civ 347

4. A trust claim based on Black v Freedman gave rise to an institutional constructive trust over the partnership moneys (or their traceable product), which attached at the moment the money was stolen. Where such money, or its traceable product, is then gifted by the wrongdoer to a third party, that volunteer recipient is made amenable to equitable jurisdiction to account for the money or its traceable product from the time that they acquire knowledge of the theft, being the time that their conscience is bound. However the application of this trust claim against the appellants is subject to the availability of their defences: at [141]-[162]

Applied: Black v S Freedman & Co (1910) 12 CLR 105; Agip (Africa) Ltd v Jackson [1990] Ch 265; Port of Brisbane Corporation v ANZ Securities Ltd [2002] QCA 158; Lurgi (Australia) Pty Ltd v Gratz [2000] VSC 278; Heperu Pty Ltd v Belle [2009] NSWCA 252; Robb Evans of Robb Evans & Associates v European Bank Ltd [2004] NSWCA 82; Toksoz v Westpac Banking Corporation [2012] NSWCA 199; Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] NLJR 877; Muschinski v Dodds [1985] HCA 78; Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400; Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48

5. Smart AJ erred in finding that the respondents' trust based claims against the appellants gave rise to an in personam exception outside the indefeasibility provision in s 42 Real Property Act. There was no express or resulting trust over the properties in favour of the partnership: at [224]-[237].

6. Gzell J erred in failing to reconsider the indefeasibility defence in light of his different characterisation of the plaintiffs' trust claim. The appellants did not receive notice of this trust claim until after they had attained indefeasible title and it was not established that they were "primary wrongdoers" attempting to ignore an obligation to share or convey the land with or to the partnership: at [238]-[246], nor was it pleaded or contended at trial that they were liable to account, as a personal remedy, as constructive trustees under either limb of Barnes v Addy: at [256]-[261]. Each of the appellants was entitled to rely upon s 42 of the Real Property Act 1900 as a complete defence to the claim that they hold their interests in the properties on trust for the partnership: at [209]-[219], [262].

Applied: Stuart v Kingston [1923] HCA 17; Bahr v Nicolay [No 2] [1988] HCA 16; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851; Heperu Pty Ltd v Belle [2009] NSWCA 252; Break Fast Investments Pty Ltd v Giannopoulos [2011] NSWSC 1508; LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; Barnes v Addy (1874) LR 9 Ch App 244

7. The respondents did not plead, or argue below, that the fraud exception to indefeasibility applied against the appellants and cannot rely upon the fraud exception as a new point on appeal: at [220]-[223].

Applied: Metwally v University of Wollongong [1985] HCA 28

8. The fact that Margaret and Helen are partners does not prevent them from relying upon the defence of indefeasibility, as the properties were not relevantly "partnership property" or held for "partnership purposes" such that s22 of the Partnership Act would apply: at [247]-[255].

9. In light of the findings in respect of issue (2) below, the respondents' claim for a general account of the partnership, absent any trust element, must fail by reason of s15 LimitationAct (applying directly, in the case of the partners, or by analogy in the case of Sunly and Gordon), as it was brought more than 6 years after the partnership was dissolved: at [357]-[370], [379]-[385], [413]. The respondents did not plead or argue postponement of the limitation period by reason of fraudulent concealment of the cause of action under s55 Limitation Act, and cannot be permitted to raise a new point on appeal: at [340]-[343].

Applied: Knox v Gye (1872) LR 5 HL 656; Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400; Coulthard v Disco Mix Club Ltd [1999] All ER 457; Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181; Hewitt v Henderson [2006] WASCA 233

10. So far as the respondents' claim was to recover trust property or profits derived from trust property, the claim was not time barred. Section 47 of the Limitation Act applied, at least by analogy, however the time 12 year time period would only run from the discovery in November 2001 of the facts giving rise to the cause of action. Accordingly the proprietary and accounting relief ordered by Gzell J relating to the three properties was not time barred. However its application is only relevant to the claim against KST's Estate since Margaret, Helen, Sunly and Gordon had the benefit of the defence of indefeasible title: at [371]-[377], [386]-[395].

Applied: Attorney-General v Cocke [1988] AC 414; Hewitt v Henderson [2006] WASCA 233; Cassegrain v Gerard Cassegrain & Co Pty Ltd [2013] NSWCA 454

11. The inquiry ordered by Gzell J to identify what (if any) moneys the plaintiffs are entitled to was time barred under s 15 Limitation Act, directly or by analogy, insofar as the scope of the inquiry involved the taking of accounts between partners, absent any trust element, or the taking of accounts against Sunly and Gordon: at [406]-[412].

12. Smart AJ did not err in rejecting the laches defence. Laches is only available to equitable claims and only in circumstances where such claims are not subject to another statutory bar, and as such, prima facie, has no application here as the Limitation Act applies to the plaintiff's claims either directly or by analogy. Assuming, however, that laches were available, regard must be had to the degree of knowledge, the type of transaction, and the prejudice to the defendant caused by the delay in assessing whether laches is made out. Here, in circumstances where the respondents had no knowledge of the relevant facts prior to November 2001, there was no disentitling delay, nor was it established that prejudice had resulted to the appellants from the delay: at [414]-[430]

Applied: Orr v Ford [1989] HCA 4; Green v Gaul [2006] EWCA Civ 1124; Crawley v Short [2009] NSWCA 410

13. Smart AJ did not err in rejecting the defence based on conventional estoppel. It was not established that the parties had in fact adopted an assumption which one party later attempted to deny. Furthermore there was no evidence of any detrimental reliance: at [431]-[448]

Applied: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; Moratic Pty Ltd v Gordon [2007] NSWSC 5; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; Sidhu v Van Dyke [2014] HCA 19

In respect of (2):

14. The appellants were not entitled to rely upon a new point on appeal that the partnership was abandoned, to be inferred from the conduct of the partners after 30 June 1989, as this was not pleaded or argued below: at [308]-[317]. Nonetheless the appellants' submission that the partnership was dissolved, pursuant to s32(b) Partnership Act, should be accepted. There was a single venture which terminated when the WYT business closed on or about 30 June 1989: at [266]-[302], [318].

Applied: Ryder v Frohlich [2004] NSWCA 472; Chahal v Mahal [2005] EWCA Civ 898; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7;

In respect of (3)

15. Gzell J did not err in concluding that the onus of proof was upon the appellants to establish what contribution KST had made from his own moneys to the acquisition of the three properties, once it was concluded that KST had mixed partnership moneys with his own moneys in acquiring the properties. Furthermore, Gzell J did not apply an incorrect standard of proof- he expressly applied the Briginshaw and s140 Evidence Act standard: at [449]-[464]. The appellants' challenges to Gzell J's factual findings in relation to tracing of moneys were not made out. Additionally no error was demonstrated in Gzell J's finding that KST, by utilising partnership funds to purchase the properties, had breached his fiduciary duties to his co-partners: at [465]-[510]. In light of the indefeasibility defence, it is unnecessary to determine the conflict between Smart AJ and Gzell J's findings in relation to Margaret's alleged contribution to the acquisition of Maroubra Road: at [511]-[516]

Applied: Re Hallett's Estate (1879) 13 Ch D 696; Brady v Stapleton [1952] HCA 62; Frith v Cartland (1865) 2 H & M 417; Vyse v Foster (1872) LR 8 Ch App 309 at 333; Hospital Products Ltd v United States Surgical Corporation [1985] HCA 64; Warman International Ltd v Dwyer [1995] HCA 18; Foskett v McKeown [2001] 1 AC 102

In respect of (4):

16. Having regard to the findings in relation to issues (1)-(3) and the conclusion that the appeals should be allowed and the declarations and orders made against the appellants should be set aside, it is unnecessary to determine the fresh trial points: at [517]

Relief

The Court concluded that:

1. The proprietary and accounting relief ordered against the appellants by Gzell J should be set aside;

2. The proprietary and accounting relief ordered against KST's Estate by Gzell J should not be disturbed, however the terms of the inquiry to be held should be varied to limit the scope of the inquiry to an account of profits derived by the Estate from the three properties, subject to just allowances (if any);

3. The accounting relief ordered against the other partners (Janet, and Stella as the representative of the Estate of FC Chow) should be set aside;

4. The question of costs of the appeals, and in the court below, should be reserved, to be dealt with by written submissions.

Judgment

MEAGHER JA: I have had the privilege of reading in draft the judgment of Gleeson JA. I agree with those reasons and the orders proposed.

BARRETT JA: I have had the advantage of reading in draft the comprehensive reasons prepared by Gleeson JA. I agree with those reasons and with the orders his Honour proposes. I wish to add just one short comment.

In relation to the presumption of advancement and Gleeson JA's view that the ascribing of labels such as "weak" to recognised presumptions is a distraction, it is noteworthy that the Court of Appeal of Singapore shares that opinion and has eschewed the notion that the presumption should be characterised as inherently "weak" (or, for that matter, as having any particular degree of potency). In Lau Siew Kim v Yeo Guan Chye Terence [2008] 2 SLR(R) 108; [2007] SGCA 54, that court said (at [77], referring to Pettitt v Pettitt [1970] AC 777):

[W]e find that the strength of the presumption of advancement, whether in cases concerning spouses or otherwise, should not even be generally diminished as appeared to be suggested in Pettitt. Instead, it should only be where the present realities are such that the putative intention inherent in the presumption of advancement is not readily inferable from the circumstances of the case, that the presumption would be a weak one easily rebuttable by any slight contrary evidence.

GLEESON JA:

Introduction and overview

These three appeals, which were heard together, concern a partnership dispute between family members in relation to events going back to 1975 and extending from that year. The existence or enforceability of the partnership was disputed by the appellants at trial. However, it is now common ground that the partnership commenced on 1 August 1975 and operated a grocery business and a butchery business, located in close proximity to each other, in Haymarket in Sydney.

The dispute centres on the conduct of the late Kut Sze Tu (KST), the family patriarch and managing partner. It is alleged that he stole money belonging to the partnership and used it to acquire in his own name, and in the names of some of his children, three real properties - at Haig Street, Maroubra in 1978 (Haig Street), at Maroubra Road, Maroubra Junction in 1983 (Maroubra Road), and at Queen Street, Campbelltown in 1988 (Queen Street). By June 1989 the businesses the subject of the partnership had been sold or closed at the direction of KST. No accounting in respect of the partnership was ever provided by KST, nor had it been sought by the other partners prior to his death on 20 October 1997.

On 7 November 2005 a proceeding by two of the partners was commenced against KST's Estate, the other partners, and a number of family members. By this proceeding claims were made regarding KST's conduct in relation to the use of money belonging to the partnership and the title of KST's Estate, and of other family members, as registered proprietors of the three properties. The relief sought included declarations that the three properties were held on trust for the partnership and an account of profits to the partnership in respect of those properties.

As will be seen, the proceeding had an unfortunate procedural history. After a lengthy trial on eight identified issues on liability, the primary judge (Smart AJ) was unable to continue due to ill health. A "fresh trial" before another judge was subsequently ordered by the Chief Judge in Equity, limited to three issues which had not been determined by Smart AJ - namely, the dissolution of the partnership; the existence of fiduciary duties, if any, owed by KST to the partners and breaches of any of those duties; and whether the three properties were held on trust.

The second judge (Gzell J), before whom the fresh trial took place, characterised the plaintiffs' trust claim differently to the conclusion reached by Smart AJ. Whereas Smart AJ seems to have found an express trust, Gzell J found an institutional constructive trust. He did not however revisit certain defences to the plaintiffs' claim which had been determined by Smart AJ adversely to the defendants.

Gzell J held that each of the three properties was acquired by KST using partnership funds (as to 90% of the purchase price) and thus KST had breached the fiduciary duties he owed to the partnership, including to the plaintiffs. His Honour made declarations that (a) 90% of the interest of the appellants and KST's Estate in the three properties, or their net proceeds of sale (as two of the properties had since been sold), were held on trust for the partnership; and (b) 90% of any profits from the three properties, after just allowances (if any) since the date of their acquisition, were held on constructive trust for the partnership. His Honour ordered that the partnership be dissolved pursuant to s 35 of the Partnership Act 1898 (NSW). He also ordered that an inquiry be held to identify what moneys the plaintiffs were entitled to (and from whom) by way of an account of profits. The appellants were ordered to pay the plaintiffs' costs of the proceeding, including the proceeding before Smart AJ, except in two limited respects: Lowe v Pascoe (No 6) (Supreme Court (NSW), Gzell J, 13 March 2013, unrep) (GJ2).

Many of the issues at trial were raised again and debated in written and oral submissions on the appeals. Some of the parties also sought to raise new points on appeal. Unsurprisingly this drew strong objection from the opposing parties. The multitude of issues on the appeals reflected, in part, the fact that the proceeding had been vigorously contested at trial and no issue seems to have been left unturned.

As will be seen, the appeals may be disposed of without deciding all of the issues which have been raised. Before outlining the factual background it is convenient to identify the parties to the appeals and the general nature of the case.

The parties to the appeals

The active parties to the appeals, in the order in which they were argued on the hearing, were the appellants Shiu Shing Sze Tu (Sunly) and Shiu How Sze Tu (Gordon) in the first appeal, Margaret Sze Tu (Margaret) in the second appeal, and Helen Sze Tu (Helen) in the third appeal. Geoffrey Lowe (Geoffrey) and his wife, Mary Lowe (Mary), as first and second respondents to each appeal (and plaintiffs below), were the only active respondents at the hearing. It is convenient to use the parties' first names, and in doing so I intend no disrespect.

The third respondent to each appeal, Scott Pascoe (Administrator), is the administrator of the Estate of the late Kut Sze Tu (Estate). The Administrator did not appeal against the decision below. Nonetheless he filed written submissions on two issues: first, the defence of laches; and secondly, various accounting errors said to have been made by Gzell J in drawing the inference that only 10% of the total cost of acquiring the three properties represented KST's own moneys.

The Administrator's standing to challenge factual findings of Gzell J in the absence of an appeal against the decision below was challenged by Geoffrey and Mary. Senior counsel for the Administrator appeared at the commencement of the appeals and stated that he did not seek to be heard, as the matters raised in the Administrator's written submissions were otherwise to be addressed by the appellants. Counsel for the Administrator accepted that, to the extent that the Administrator's submissions were not advanced by the other appellants, then they were not pressed by the Administrator. In these circumstances the Administrator's submissions may be put aside and attention needs only to be given to the submissions of the appellants.

The sixth respondent, Janet McNamara (Janet), filed a submitting appearance and did not appear on the hearing of the appeals. This was also her position at trial, after leave had been given for her to withdraw her defence.

The seventh respondent, Stella Sze Tu (Stella), is the representative of the Estate of the late Chow Fung Chun (F C Chow), the second wife of KST. Stella appeared in person, but did not advance any written or oral submissions on the appeals. At trial Stella had filed a submitting appearance.

It should be observed that neither Janet nor F C Chow is a registered proprietor of any of the three properties the subject of the dispute. Their joinder to the proceedings arose solely from their interest as a partner in the family partnership.

The nature of the case

Geoffrey and Mary characterised the dispute as a simple case. They contended that KST had used partnership funds to buy the three properties for himself and four of his children, that they found out about this, at the earliest, in November 2001, and that the properties were held on trust by the Estate and the relevant appellants for the partnership. They also said that the partnership had not been dissolved prior to the commencement of the proceeding in November 2005, and that the partnership was entitled to an account of profits in the form of the proprietary and accounting relief ordered by Gzell J. They said that these were purely equitable remedies which were not barred by any defence of delay based on the Limitation Act 1969 (NSW), or the equitable defence of laches, acquiescence, or delay, or by any conventional estoppel, which the appellants had relied upon at trial.

The appellants disputed both the factual and legal premises of the trust based claims in respect of the properties. In addition to the defences mentioned in the previous paragraph, their primary defence was that of indefeasible title under s 42 of the Real Property Act 1900 (NSW). Smart AJ rejected the defence under s 42 as well as the defences based on the Limitation Act, delay, and conventional estoppel.

Broadly speaking there can be seen to be four parts to these appeals. First, questions relating to whether the claim against the Estate and the other appellants was one to recover trust property of the partnership "in the strict sense". This is primarily relevant to the indefeasible title defences raised by the appellants who were volunteers. It is also relevant to the alternative defences as regards limitation.

Secondly, questions relating to the proper characterisation of Geoffrey and Mary's claims for relief and whether they are barred by the provisions of the Limitation Act, either directly or by analogy, or by the equitable defences of laches, acquiescence, or delay.

Thirdly, questions relating to whether, in the absence of direct evidence, it should be inferred that KST in fact used some partnership funds and, if so, to what extent, and whether dishonestly or otherwise, in the acquisition of the three properties, including whether partnership funds could be traced into the acquisition of the three properties.

Fourthly, questions relating to whether the proceedings below miscarried, having regard to the manner in which the part-heard trial before Smart AJ was continued as a fresh trial before another judge (Gzell J) upon limited issues only, following the illness of Smart AJ.

In addition there are a myriad of other complaints, including challenges made by the appellants regarding various factual findings below. It is unnecessary to say anything further about these matters at this stage.

The trust based claims

Before describing the factual background to the proceeding, it is convenient to outline the trust based claims which featured at the forefront of the appeals. The main argument which Geoffrey and Mary advanced on appeal, seeking to uphold the relief granted by Gzell J, was that the properties were acquired by KST using partnership funds, and accordingly they were deemed by s 21 of the Partnership Act to be acquired on account of the partnership and therefore they were held on trust by the registered proprietors on behalf of the partnership. This case was described as the "statutory trust claim". This was not the approach taken by either Smart AJ or Gzell J.

Alternatively, Geoffrey and Mary sought to uphold the approach taken by Gzell J that partnership funds were misappropriated by KST and used to acquire the properties in breach of his fiduciary duties to the partnership. Accordingly the funds, and ultimately the properties (as the traceable product), were found by Gzell J to be held on constructive trust on behalf of the partnership from the date of misappropriation of the funds. This was described as the "institutional constructive trust claim", relying upon the principle in Black v S Freedman & Co (Black v Freedman) (1910) 12 CLR 105 at 110.

Although not raised in their written submissions served in advance of the appeals, in oral argument Geoffrey and Mary also sought to uphold the orders of Gzell J on the grounds of either an express trust, as found by Smart AJ (which relied upon cl 20 of a written partnership agreement), or a resulting trust in respect of the three properties.

The premise of the express trust claim was that KST had acquired the three properties in his own name as agent for the partnership. It was properly acknowledged by counsel that the premise of the express trust claim is inconsistent with the institutional constructive trust found by Gzell J.

The premise of the resulting trust claim is also inconsistent with the institutional constructive trust found by Gzell J. It was said that KST's intention was that the properties were to be owned by the partnership but held in his name and that of his children. The presumption of advancement by KST in favour of the appellants as his children was said to have been rebutted, although Smart AJ made no findings to this effect. Counsel argued that this Court could make the necessary findings without needing to remit the matter.

The appellants accepted on appeal that KST owed fiduciary duties to his co-partners, but challenged the factual findings of both Smart AJ and Gzell J that KST had used "some" partnership funds in the acquisition of the three properties. The findings of Smart AJ in Lowe v Pascoe [2010] NSWSC 388; 5 ASTLR 1 (the May Judgment) were expressed somewhat tentatively at [445] and [573]-[574]. His Honour indicated that he was inclined to declare that five sixths of Maroubra Road and the whole of Queen Street were acquired by KST using moneys of the partnership. In relation to Haig Street his Honour's view "provisionally, and subject to argument" was that about 45% of Haig Street was acquired using moneys of the partnership.

In Lowe v Pascoe (Supreme Court (NSW), Smart AJ, 25 June 2010, unrep) (the June Judgment), Smart AJ discussed his earlier findings in relation to the three properties. His Honour accepted (at [7]) that he had misunderstood some of the accounting evidence in relation to Maroubra Road, and indicated that an inquiry would need to be held to determine the amount of partnership moneys used in the purchase of the three properties (at [8]-[9] and [14]-[15]).

Ultimately this inquiry was not ordered. Gzell J analysed the evidence and made his own findings in the course of the fresh trial. He inferred that KST had the capacity to contribute only 8.5% of his own moneys towards the acquisition of the three properties, but rounded this figure up to 10%. In reaching this finding, Gzell J adopted the approach that the Estate and the appellants bore the onus of proof of demonstrating how much of KST's own moneys were contributed to the acquisition cost of the three properties. His Honour considered that this approach was required by the principle that where a wrongdoer mixes part of his own moneys with another person's money, the wrongdoer bears the onus of proof of establishing how much of his own money was contributed to the acquisition of the asset. The appellants challenged the correctness of applying this approach in the present case.

Apart from the factually based challenges, the appellants also raised a number of fundamental challenges to Geoffrey and Mary's trust based claims.

First, the appellants said that the statutory trust claim was not pleaded or argued below and ought not to be permitted to be advanced for the first time on appeal. Alternatively they disputed the premise of this claim - it was said that even if the terms of s 21 of the Partnership Act were engaged on the facts, no trust of partnership property arises under s 21 on its proper construction.

Secondly, the appellants argued that Gzell J mischaracterised the constructive trust claim against the appellants as being a claim for trust property "in the strict sense". They said that this characterisation does not apply to moneys derived from the operation of a partnership which are dealt with in breach of fiduciary duty. It was contended that the appellants may only be made constructive trustees of their interests in the properties if the circumstances of the case were such so as to warrant the granting of the equitable remedy of a constructive trust. The grant of this remedy was said to be affected by discretionary considerations including the potential impact on innocent third parties from the imposition of a constructive trust. The appellants pointed to the absence of any case against them pleading some kind of knowledge or conduct on their part which binds their conscience.

Alternatively the appellants said that Gzell J erred in accepting the institutional constructive trust claim in light of the defences which had been raised, but wrongly rejected by Smart AJ, and not re-considered by Gzell J. As already mentioned, Gzell J regarded these defences as having been determined by Smart AJ (adversely to the interests of the appellants). The appellants said that the failure by Gzell J to address these defences is one of the reasons why the fresh trial miscarried.

Thirdly, the appellants disputed the premise of the express trust claim. They contended that the terms of cl 20 of the written partnership agreement were not engaged, because KST did not acquire the properties in his own name as an agent for the partnership.

Fourthly, the appellants disputed the premise of the resulting trust claim. They pointed to the absence of any relevant findings by Smart AJ that the presumption of advancement in favour of the appellants as KST's children was rebutted by evidence that KST had a contrary intention that the properties be owned by the partnership.

Geoffrey and Mary's response to the appellants' indefeasibility defences included that the fraud exception to indefeasibility applied in respect of the appellants' registered interests. The appellants complained that this involved a new point which had not been pleaded or raised below and therefore ought not to be permitted on appeal.

Geoffrey and Mary's response to the appellants' defences based on limitation and delay included seeking to uphold the favourable findings made by Smart AJ in relation to the application of s 47 of the Limitation Act by analogy, namely that reasonable diligence would not have enabled the facts giving rise to their cause of action to recover trust property to be discovered earlier than November 2001.

Factual background

The following summary, which is highly abbreviated, will be sufficient to understand the principal issues in dispute.

KST and his family

KST had seven children by two different wives. KST married his first wife, Tang Fung, in 1933. They had four daughters - Mary, Janet, Margaret, and Helen. They also had an adopted son, John. In 1956, KST took a second wife, F C Chow, in a traditional Chinese marriage ceremony in Hong Kong. They had three children - Stella, Gordon, and Sunly.

From about the early 1950s, KST conducted general stores and maintained other assets in the British Solomon Islands.

From about 1964 KST sent his children to boarding school in Sydney - first Mary, then Janet, and later Margaret, John, and Helen.

In June 1969 KST purchased a three-bedroom unit in Coogee Bay Road, Randwick for approximately $19,350. The registered proprietors were KST, John, and F C Chow, each as to one third share. Also in June 1969 KST purchased a block of eight residential units in Wiley Park for $68,000. The registered proprietors were KST, John, F C Chow, and Mary. John and Mary agreed to hold 25% of the Wiley Park property in trust for KST pursuant to a deed of trust. Around 1969 or 1970 KST started spending more time in Australia. In 1972 KST purchased a block of 12 residential apartments at Harris Street, Fairfield for $168,000. The registered proprietors were Tang Fung, Mary, Margaret, Helen, Stella, Gordon, and Sunly.

KST came to Australia in about mid 1974 with his first wife, Tang Fung. In December 1974 KST's daughter Mary married Geoffrey Lowe.

It seems that KST's affairs may have come to the attention of the revenue authorities in the Solomon Islands as early as 1972. In May 1975 Margaret visited the Solomon Islands at the request of KST. She completed the sale of KST's island trader boat for $12,000 and returned to Sydney on 21 May 1975 with a cheque for that sum. In August 1975 KST was issued with a tax assessment by the Inland Revenue Branch of the Solomon Islands for $160,000.

Purchase of two businesses - July 1975

In about July 1975 KST acquired two businesses in the Haymarket area of Sydney. The first was a general store or grocery business known as Wing Yuen Tai (WYT) for $57,500. The second was a butchery business known as Yee Sing Butchery (YS) for $30,000. He took possession of these businesses on 1 August 1975. Settlement occurred some weeks later, after what appears to have been a trial period. A finance facility in the amount of $145,000 was made available by the Commonwealth Bank, either to acquire, or as working capital for, one or both of the businesses. Smart AJ found that the full $145,000 was probably not drawn down but that a lesser figure probably was. A Commonwealth Bank account in the names of KST and F C Chow showed withdrawals on 1 August 1975 of $50,000 and $10,000; a withdrawal of $25,000 in September 1975; and a withdrawal of $36,000 in December 1975. Smart AJ held that these withdrawals probably related to payments by KST for the two businesses and stock, or the provision of working capital, although this could not be affirmatively established. His Honour rejected Geoffrey's evidence that he contributed $25,000 to the purchase of the businesses.

In August 1975 Margaret again travelled to the Solomon Islands, staying there for approximately one month. It seems that she completed the sale of one of KST's branch stores. Margaret did not say whether she received payment of any proceeds of the sale or money for completing this task.

On 24 September 1975 a meeting took place at the offices of Clayton Utz & Co, solicitors, attended by KST, various members of his family, and a representative of GT Hartigan & Co, KST's accountants. The meeting related to KST's taxation difficulties in the Solomon Islands. The matters discussed included whether KST was liable to face extradition and whether his Australian assets could be seized by the Solomon Island authorities. Clayton Utz obtained the opinion of senior counsel. Advice was also given in relation to possible steps which might be taken to protect KST's Australian assets including the establishment of a discretionary trust (which KST could control as settlor). Ultimately it seems that a discretionary trust structure was not pursued by KST. Instead he pursued a course of establishing a partnership with family members and buying real estate in his name and that of various family members.

Agreement dated 1 October 1975

KST and certain members of his family (Geoffrey and Mary, Janet, Margaret, Helen, and F C Chow) entered into a written partnership agreement dated 1 October 1975 (the Agreement). It recited that KST had purchased the business of WYT for $57,500 for, and on behalf of, the partnership. Clause 1 provided that KST, Geoffrey, Mary, Margaret, Janet, and F C Chow "will become and remain partners as and from 1 August 1975 and shall continue as partners until the partnership shall be determined". No point was taken that Helen was not mentioned in this clause. She was stated to be one of the partners in cl 3 and was one of the parties to the Agreement.

In cl 2, the name of the partnership was stated to be WYT but, as Smart AJ observed for the purposes of the proceedings, YS was included when WYT was referred to: at [95] May Judgment. Clause 19 provided that KST was to be the managing partner of the partnership. Other significant provisions of the Agreement will be referred to below where relevant.

Smart AJ found that these family members were partners from 1 August 1975 and operated the WYT and YS businesses pursuant to a partnership in the shares stated in cl 3 of the Agreement: at [325] and [573] May Judgment.

Notably Smart AJ did not accept the contention of Geoffrey and Mary that the scope of the partnership included investment in real property. His Honour rejected Geoffrey's evidence that KST made a representation to him in about August or September 1975 in the terms alleged in para 19 of the further amended statement of claim, that "'we' will continue to reinvest the profits in property": at [77], [81] and [86] May Judgment.

In January 1976 KST divorced his first wife and married F C Chow, again in Hong Kong, so that his second marriage would be legally recognised in Australia to meet immigration requirements. He wanted to bring her and their three children - Stella, Gordon, and Sunly - to Australia.

In February 1976 a warrant was issued attaching to KST's real property in the Solomon Islands. In about mid 1976 KST's second wife, F C Chow, and their children arrived in Australia. Initially they all lived with KST's first wife, Tang Fung, and her daughters, Margaret and Helen, at Coogee Bay Road. Subsequently, KST, his second wife, and their three children lived at Janet's home in Bondi.

Later in 1976 KST sold his apartment in Hong Kong for $16,000.

In March 1977 a dispute arose between Geoffrey and KST relating to distribution of the profits of the partnership businesses. KST rejected Geoffrey's demand for a share of profits. On 25 March 1977 Geoffrey wrote to Mr Wong, the accountant for the partnership, and copied his letter to "our solicitors" Clayton Utz & Co, and to Yee & Co, the solicitors for KST. Smart AJ inferred that Geoffrey was seeking to call in aid Mr Wong, his solicitors and those of KST in order to obtain a distribution of profits of the partnership: at [195] May Judgment.

Haig Street - 1978

In December 1978 KST purchased the first of the three properties which are at the centre of this dispute - Haig Street for $129,000 - in the names of KST, Gordon, and Sunly, as to one third each. No finance was used in the purchase of this property. Haig Street was purchased to provide a home for KST's second wife (F C Chow) and family - Stella, Gordon, and Sunly. Smart AJ found that due to the size of the purchase price, it is probable that a substantial portion of the moneys required to complete the purchase of Haig Street came from the two businesses and that there was a mixing of the funds of KST and those businesses: at [360] May Judgment.

To a substantial extent, the businesses received income and paid expenditures in cash. It seems that around the time of the purchase of Haig Street, Geoffrey suspected defalcations by KST from the partnership. In December 1978 Geoffrey consulted his then solicitors, Slattery Thomson. Geoffrey sought advice as he suspected that some of the cash being received by the businesses was not being accounted for. Slattery Thomson provided written advice to Geoffrey which included:

We note also your advice that you do not at the present time propose to deal with the company's problems otherwise than on an internal family basis and we confirm our advice that on the scant evidence that is available to you at the present time no other course is feasible.

In late December 1978 Geoffrey raised his concerns with KST. Geoffrey told KST that he could not have purchased Haig Street from the rental income available to KST from the Wiley Park and Fairfield properties. He accused KST of using moneys from the partnership to acquire Haig Street. KST denied that he had used partnership funds and otherwise refused to discuss the matter with Geoffrey.

Following the birth of Geoffrey's son in January 1981, Geoffrey made another request of KST for a distribution of profit from the two businesses. He told KST that he wanted a distribution to enable him to purchase a new home. On 4 March 1981 KST provided Geoffrey with a cheque for $25,500. There was a dispute at trial as to whether this amount was a repayment of money, which Geoffrey claimed he had lent the business in 1975, or a loan from the partnership. Smart AJ was unable to say which competing version was correct: at [212] May Judgment. Geoffrey contended that any loan from the partnership had been repaid by 1984, because his loan account for an identical amount ($25,500) was shown in the partnership accounts as having been repaid by this date.

It seems that from at least early-mid 1981 Geoffrey ceased to have any active involvement in the businesses.

Maroubra Road - 1983

On 14 February 1983 KST and Margaret purchased the Maroubra Road property for $585,000. KST had a four fifths share and Margaret had a one fifth share, as tenants in common. Maroubra Road is the second property the subject of this dispute. Again, no finance was used in this purchase.

Smart AJ found that Margaret contributed $100,000 from a bank bill held in her name towards the acquisition of her one fifth share of Maroubra Road and that her share in this property was not held on trust for the partnership. However, Gzell J later found on the fresh trial that Margaret made no contribution towards the acquisition of Maroubra Road, and that it was purchased by KST with mixed moneys of the partnership and his own.

Queen Street - 1988

On 1 July 1988 KST purchased the property at Queen Street for $1,850,000 in the names of KST (six tenths) and Margaret, Sunly, Gordon, and Helen (each had a one tenth share as tenants in common). Queen Street is the third property the subject of this dispute. Again no finance was used in the purchase of this property.

Sale and closure of partnership businesses

During 1986 the YS business was sold. The sale price is unknown. Geoffrey and Mary were aware of the sale at the time or shortly thereafter. Smart AJ rejected their evidence that they were not aware of this sale until some years later: at [306] May Judgment.

In about June 1989 the WYT grocery business was closed by KST after its lease expired. It seems that this business was losing money.

Events of 1994

On 11 January 1994 KST's second wife, F C Chow, died intestate.

On 16 July 1994, KST turned 80. A family gathering was held to celebrate this occasion. Geoffrey accepted at the trial that he was told on this occasion that the YS and WYT businesses had been sold. He also accepted that around this time he was aware that KST had acquired both the Maroubra Road and Queen Street properties.

KST dies intestate - 1997

On 20 October 1997 KST died intestate aged 83. At the time of his death he had funds exceeding $1,300,000 in bank accounts and bank deposits. The source of these funds was unclear.

Dispute in relation to false "will"

Following KST's death, some of the appellants (Sunly, Margaret and Helen), together with others, dishonestly prepared a false will in the name of KST and sought to obtain (and were initially granted) probate of his Estate with that document. A dispute ensued between the family members about the authenticity of the "will".

In 2000, proceedings for revocation of the grant of probate were commenced by Mary. In the course of the probate proceedings, Mr Pascoe was appointed Administrator of KST's Estate, on 22 November 2002, having earlier been appointed interim receiver on 26 March 2001.

Administrator's interim report - November 2001

On 29 November 2001 Mr Pascoe issued a draft interim report which disclosed to Geoffrey and Mary that the three properties had been purchased without finance. There was a dispute at trial as to whether Geoffrey and Mary were already aware of that fact. Smart AJ found that reasonable diligence would not have enabled the facts giving rise to Geoffrey and Mary's cause of action to be discovered earlier than November 2001: at [507(g)] May Judgment.

Settlement Deed - November 2002

The probate proceedings were subsequently resolved. In November 2002 a Deed of Family Arrangement (Settlement Deed) was entered into between the family members which recorded an agreement as to the distribution of KST's Estate. Geoffrey was not a party to that Deed. Mr Pascoe commenced administering the Estate.

On 8 June 2004 the Administrator sold KST's one third interest in Haig Street to Sunly and Gordon for $367,000. The consideration was treated as having been paid by Sunly and Gordon by a notional distribution of their entitlement to KST's Estate. On 15 September 2005 the Administrator sold KST's four fifths interest in Maroubra Road to an unrelated third party for $1,992,145.88. In November 2005 the Administrator sold KST's six tenths interest in Queen Street to Margaret (as to two thirds) and Helen (as to one third) for $1,000,000.

Proceedings commenced - November 2005

Following further investigations after November 2002, Geoffrey and Mary determined that the three properties had been purchased by KST using partnership funds. In November 2005 they commenced a proceeding claiming that the businesses of WYT and YS were operated pursuant to a partnership, that the three properties were purchased with partnership funds, and that the properties therefore did not form part of KST's Estate (except to the extent of KST's partnership share). The relief sought by Geoffrey and Mary was their share, as partners, of ownership of the three properties and an accounting in respect of profits of the partnership.

Procedural history of the litigation

It is convenient to now briefly refer to the procedural history of the litigation. This provides the context for many of the issues raised by the appeals.

The trial commenced before Smart AJ on 30 October 2008. On 6 November 2008, his Honour ordered a separate hearing on liability in respect of eight issues: (a) the existence of a partnership between the plaintiffs and the defendants or any predecessors; (b) the dissolution of the partnership; (c) the fiduciary duties, if any, owed by KST to the plaintiffs and the breaches of any of those duties; (d) whether the three properties are held on trust; (e) the defences of laches, including gross laches and acquiescence; (f) the defences based on the Limitation Act 1969 (sections 15, 47, 48, and 68A); (g) the defences based on estoppel; and (h) the defences based on indefeasibility of title.

The hearing on liability occupied 25 days. Each of Geoffrey and Mary, their son Jason Lowe, Janet, Mr Wong (the family accountant), Mr Pascoe, Mr Hill, Mr McMurran and Mr Williden, as well as Margaret, Helen, Sunly and Gordon, gave evidence and were cross-examined.

Smart AJ reserved his decision on 9 October 2009. On 7 May 2010, Smart AJ delivered lengthy reasons for judgment (in the May Judgment) in which he indicated the relief he was inclined to consider relating to the declaration of a partnership, an order winding up the partnership under the direction of the Court, and declarations in relation to the properties and consequential orders.

At [573]-[574] his Honour said:

573 I am inclined to consider at this stage:

1. A declaration that Geoffrey Lowe and Mary Lowe, the late Kut Sze Tu, the late Chow Fung Chun, Margaret Sze Tu, Helen Sze Tu and Janet McNamara were partners as from 1 August 1975 and operated the businesses of Wing Yuen Tai (WYT) and the Yee Sing Butchery (YS) pursuant to a partnership in the following shares:

a. the late Kut Sze Tu as to a 20 per cent share;

b. Geoffrey Lowe as to a 10 per cent share;

c. Mary Lowe as to a 10 per cent share;

d. Margaret Sze Tu as to a 10 per cent share;

e. Helen Sze Tu as to a 10 per cent share;

f. Janet McNamara as to a 10 per cent share;

g. the late Chow Fung Chun as to a 30 per cent share.

2. An order winding up the partnership under the direction of the Court. (In practical terms this may necessitate the appointment of a Receiver and Manager. It should not be assumed that the Court would attend to the many matters of details that may arise. If a Receiver and Manager is not appointed this may raise questions whether such an order should be made.)

3. A declaration that five-sixths of the Maroubra Road property and the whole of the Queen Street property were acquired by the late Kut Sze Tu using moneys of the partnership.

4. A declaration that the legal interests of each of the first to seventh defendants (or the estates they represent) in five sixths of the Maroubra Road property and the whole of the Queen Street property were held on trust for the partnership.

574 I do not propose to make a declaration as to portion of the Haig Street property because that portion has not been defined. Provisionally, and subject to argument, I had in mind that on a broad assessment about $60,000.00 or about 45 per cent of the cost of purchasing the Haig Street property probably came from partnership funds.

After identifying certain taxation issues which required attention, Smart AJ indicated (at [583]) the consequential orders which he was contemplating might be made. However, apart from ordering that a copy of the judgment be sent to the Australian Taxation Office (ATO) for a taxation review, his Honour made no other orders on this occasion.

On 25 June 2010, Smart AJ delivered further reasons for judgment (in the June Judgment) and made a declaration that the partnership existed and as to the shares of such a partnership. No final orders were made. The proceedings were listed for further directions on 23 September 2010.

After the June Judgment, Sunly located further discoverable documents and gave discovery of cash payments journals for WYT for the period 1 August 1975 to 7 October 1980, and for YS from 1 August 1975 to 3 October 1980 (the Green Journals).

On 20 December 2010 the Green Journals were bought to the attention of the Court. Sunly and Gordon indicated that they wished to tender these documents. Smart AJ ordered that an expert report be filed and served by Sunly and Gordon. An expert report of Mr Jason Murray, a director of Murray Consulting Group, was subsequently served.

On 31 January 2011 the appellants sought to rely upon the Green Journals on the basis that the matter was part-heard and final orders had yet to be entered that disposed of the proceedings. Geoffrey and Mary opposed reliance on this new material, amongst other reasons, on the basis of an objection to jurisdiction, namely that Smart AJ had concluded his consideration of the matter. On 1 February 2011, Smart AJ made orders and gave directions for the further conduct of this aspect of the matter.

In March 2011 Smart AJ heard the jurisdictional objection over three days and later delivered his reasons for judgment on 24 March 2011: Lowe v Pascoe (No 3) [2011] NSWSC 192. The objection to jurisdiction was overruled. Smart AJ ruled that he had not completed his consideration of the controversy.

In April and July 2011 the trial continued for seven days to determine whether the appellants should be given leave to re-open their evidence to tender the Green Journals and the report of Mr Murray, and whether Smart AJ should revisit some of the findings in the May Judgment.

In August 2011, Smart AJ suffered a serious illness and was unable to continue the trial.

At a directions hearing on 25 August 2011, Bergin CJ in Eq made orders that the proceedings before Smart AJ be terminated and invited the parties to attempt to agree as to the manner in which the proceedings could be concluded. No agreement was reached. Geoffrey and Mary made application for final orders based upon the May and June Judgments. The appellants countered seeking a fresh trial before a new judge pursuant to ss 88 and 89 of the Civil Procedure Act 2005 (NSW) (the Act). These applications were heard by Bergin CJ in Eq on 28 October 2011.

On 29 February 2012, Bergin CJ in Eq delivered reasons for judgment in which she found that there should be a fresh trial before a judge to be nominated by the Chief Justice pursuant to s 88 of the Act: Lowe v Pascoe [2012] NSWSC 151 (the s 88 Judgment).

Bergin CJ in Eq held that certain of the "defences" had been decided by Smart AJ by virtue of the May Judgment. Accordingly, the fresh trial before the new trial judge would be limited to three questions which her Honour identified as not having been decided by Smart AJ. These were: the dissolution of the partnerships; the fiduciary duties, if any, owed by KST to the partners and breaches of those duties; and whether the three properties were held on trust. Further, her Honour stated that the first matter to be decided in the fresh trial was to determine the "part-heard application" of the appellants upon which Smart AJ was embarked at the time he fell ill.

As to the first matter, Gzell J observed (at [235]) that Mr Murray said in his report that it was impossible to ascertain whether all cash received by the businesses had been accounted for within the financial statements or for income tax purposes. His Honour's subsequent conclusions in relation to the use of undisclosed cash by KST did not proceed upon an incorrect understanding of the evidence as suggested by the appellants.

As to the second matter, there was no challenge to his Honour's finding (at [92]) that at the end of each day, the cash and cheques received by the businesses were delivered to KST. The inference which Gzell J drew that undisclosed cash was taken by KST and used in the acquisition of the properties was based on his Honour's acceptance of the shortfall between KST's known sources of income and the cash required to purchase the properties, taking into account the evidence of KST's other assets and his capacity to contribute to the purchase price of the three properties. The challenges to these aspects of his Honour's findings are dealt with below.

Mr Hill's report

The appellants challenged the reliance placed by Gzell J on the report of Mr Hill in finding that there was a "shortfall" of $1.3 million between the cash available to KST from his known income sources and the cash he required to purchase the properties. His Honour used this evidence, together with evidence that KST did not have other sources of funds sufficient to make up the shortfall of $1.3 million, to find that KST had used partnership funds to purchase the properties.

The appellants contended that Gzell J erred in accepting Mr Hill's evidence of a shortfall of $1.3 million, in circumstances where Mr Hill had assumed that the only non-partnership funds available to KST were the rental properties at Maroubra Road, Wiley Park, and Fairfield, and then only for a portion of the period of their operation (that is from 1 August 1975 for Wiley Park and Fairfield, and from February 1983 for Maroubra Road). It was also contended that Gzell J erred in adopting a "global" approach to the acquisition cost of the three properties based on Mr Hill's report. It was said that his Honour did not deal with the acquisition cost of each property individually.

In my view, these contentions should be rejected. They ascribe to Gzell J a reliance on Mr Hill's report in a manner which is not borne out by a fair reading of his Honour's reasons.

First, the evidence of the "shortfall" of $1.3 million between the cash available to KST from his known income sources and the cash he required to purchase the properties was just one part of the mosaic of evidence relied upon by Gzell J in finding that KST had used partnership funds to purchase the properties. As is clear from the summary of his Honour's findings, which are set out above at [473(3) and (4)], his Honour took into account that Mr Hill had ignored rental cash flows from the Wiley Park and Fairfield properties before 1 August 1975. His Honour calculated the income of the period prior to 1 August 1975 as being $7,727 and interest on that amount as $2,630.

His Honour also separately addressed, in a section of his reasons headed "Other assets", whether KST had other assets to make up the shortfall. His Honour examined the evidence in relation to possible assets in the Solomon Islands and Hong Kong, moneys held by KST in a number of bank accounts and short-term investments which were closed in 1975 closely proximate to the time of purchase of the two businesses, and the substantial assets held at the time of KST's death. His Honour noted that Mr Hill did not include cash flows from Hong Kong and the Solomon Islands in his analysis of cash flows available to KST from known sources: at [209]. This was consistent with his Honour's findings, except for the amount of $16,000 realised on the sale of the Hong Kong apartment, which his Honour treated (favourably to the appellants) as a resource that was contributed to the purchase of Haig Street, notwithstanding that it was received two years before the purchase: at [204].

His Honour found that on his reported income, KST had some capacity to contribute to the purchase of the three properties and made specific findings as to the amounts: at [271]. Contrary to the appellants' submissions, Gzell J did not rely on the report of Mr Hill to conclude that KST did not have other assets to make up the shortfall.

Secondly, Gzell J did not simply adopt a "global" approach in determining what was available to KST over a 10 year period. His Honour observed that the exercise carried out by Mr Hill in arriving at a shortfall of $1.3 million was a "crude" one, because it agglomerated the three purchases brought at different times over a 10 year period: at [112]. Having made this observation, his Honour considered the evidence in Mr Hill's report of the estimated cash flows available to the partnership (and inferentially KST) as at the date of purchase of each of the properties: at [112]-[115]. That exercise demonstrated that the calculated cash flows available to the partnership at 30 November 1978 and 31 January 1983 were in excess of the purchase price for Haig Street and Maroubra Road respectively, but by 30 June 1988 the cash flows available to the partnership were well below the purchase price for Queen Street.

His Honour found that it was inexorable that the only sources of funds that could have provided the purchase price for the three properties were the rental income and partnership receipts (which KST controlled): at [214] GJ1. To this may be added his Honour's favourable finding that he would treat the proceeds of sale of the apartment in Hong Kong of $16,000 received in 1976 as a resource that was contributed to the purchase of Haig Street in 1978: at [204].

His Honour's findings calculating KST's capacity to contribute to the acquisition of three properties are set out at [271] and in the appendix attached to GJ1. It may be observed that as at December 1978 KST's known sources of income, as found by Gzell J, comprised: (a) net income of the period prior to 1 August 1975 of $7,727, plus interest on that amount which was de minimis; (b) the sale price of the Hong Kong unit of $16,000; and (c) net cash available to KST of $11,840 (comprising $8,470 (1976), negative $2,863 (1977), $4,293 (1978) and $1,940 (in respect of one half of the financial year ending 30 June 1979)). This was significantly less than the cost of acquiring Haig Street. Moreover, it was not demonstrated that any of this amount was actually used by KST in acquiring Haig Street.

A similar exercise may be undertaken by reference to the appendix in GJ1 in relation to the acquisition of Maroubra Road in 1983 and Queen Street in 1988. In each case, KST's known reported income is significantly less than the purchase price for the properties and again it was not demonstrated that any of KST's moneys were actually used in acquiring these properties.

In my view, Gzell J did not err in the manner in which he relied on Mr Hill's report.

Insufficient personal assets

The appellants contended that Gzell J erred in finding that there was insufficient evidence from which an inference could be drawn that there were other assets available to KST to meet a portion of the purchase price of the properties, other than the proceeds of sale of the Hong Kong apartment of $16,000. The appellants advanced detailed arguments contending that KST "may" have been able to remove assets from the Solomon Islands to Hong Kong prior to late 1975, that the picture of KST's assets in Hong Kong was "incomplete", and that it was "likely" that KST maintained substantial assets in Hong Kong from 1975 up until the date of his death.

The difficulty with these contentions is that they ignore which party had the onus of proof. Once it is accepted, as Gzell J found, that KST used some partnership money in acquiring the three properties, the appellants had the onus of proof of identifying KST's contribution from his own moneys to the acquisition of the three properties. Speculation and conjecture that KST "may" have or "likely" had other assets did not suffice. As Gzell J found, the appellants failed to establish KST's contributions from his own moneys to the acquisition of the three properties.

The appellants also contended that Gzell J erred in finding that F C Chow's assets could not be considered as part of KST's assets when considering his capacity to contribute to the acquisition cost, because KST had no right to call upon those assets: at [198]. However it was not demonstrated that there was any error in this finding. The appellants accepted that little was known of F C Chow's individual assets. No attempt was made in the appellants' submissions to demonstrate how, even if such assets were available to KST, this could have made any significant impact on the "shortfall" of $1.3 million. Nor was it demonstrated that any of F C Chow's assets were actually contributed to the acquisition of the three properties.

KST's entitlements

The appellants contended that Gzell J erred in failing to have regard to KST's entitlement to wages and his capital and loan accounts: at [206]. His Honour found that these matters were relevant to the taking of accounts or the quantification of equitable compensation and did not relate to the source of funds used by KST to acquire the three properties: at [206] and [217].

The contentions in relation to KST's entitlements were based on a report by Mr Murray and it is convenient to address these contentions in the context of the factual challenges based on the Murray report.

Asserted error in relation to the Murray report

Mr Murray was retained by Sunly and Gordon to provide an expert report in relation to the Green Journals, which were discovered by Sunly after the trial before Smart AJ. The Green Journals covered the period August 1975 to October 1980 for WYT and YS. Mr Murray provided a report dated 18 January 2011 (Blue 9/4044ff). The questions on which he was asked to provide an opinion included:

what did the Green Journals reveal about the financial performance of YS and WYT businesses in the period 1975 to 1988;
to what extent did the receipts recorded in the Green Journals accord with information in the tax returns; and
what did the business records of the two business indicate as to the moneys available to purchase the three properties?

Sunly and Gordon relied on the Murray report at the fresh trial in a number of ways. First it was contended that the gross profit margins of WYT and YS were relatively consistent with ATO expected performance benchmark ratios for grocery and butchery businesses for the 2008 financial year. From this premise it was argued that the financial statements and accounts were likely to be at least substantially accurate and, accordingly, the cash takings received by KST had been properly recorded in the accounts.

Secondly, it was contended that any use of partnership funds by KST must have come out of his entitlement to partnership assets, including his capital and loan accounts, which were said to be sufficient, in 1978 at least, to meet the acquisition cost of Haig Street.

Gzell J analysed the Murray report: at [222]-[238]. He rejected the contention of Sunly and Gordon that all cash takings of the businesses were recorded in the financial statements. As already mentioned, Gzell J noted that Mr Murray acknowledged that it was impossible to ascertain whether all cash received by the businesses had been accounted for within the financial statements or for income tax purposes: at [235]. His Honour also observed that the ATO performance benchmarks were based on businesses surveyed, but would not include cash received but not recorded. Accordingly, for a cash business the published ratios were too low: at [227].

As to KST's entitlements, Gzell J observed that Mr Murray had calculated KST's net position or entitlement to partnership assets for various years by combining what he calculated was KST's entitlements on capital and loan account: at [231]. He found that these matters were relevant on the taking of accounts but did not form a separate source of funds from that of the funds of the partnership: at [232]. The appellants challenged this finding and contended that his Honour ignored relevant evidence. In my view there is no substance in this contention.

First, it needs to be borne in mind that his Honour was addressing the question of identification of the source of funds used to acquire the properties.

Secondly, it may be accepted that if KST had drawn down on either his capital or loan account to the extent of his entitlement, there could be no breach of duty in doing so. However, the evidence in the Green Journals did not establish that this is what occurred when KST acquired the properties. Other than in the limited respects next referred to, there were no drawings by KST recorded on his capital or loan accounts in 1978 and 1979. The drawings that were recorded in the Green Journals in those years were insufficient to meet the cost of acquiring the properties.

The limited exceptions, as Gzell J noted (at [236]), were Mr Murray's conclusions that:

(1) KST withdrew $32,000 described as "Private" expenditure from WYT in October 1978 (Blue 3/1384G), which Mr Murray said "could possibly" have been utilised by KST towards the purchase of Haig Street: at [237]; and

(2) KST withdrew amounts in December 1979 from WYT ($55,000) and YS ($32,500), being after the purchase of Haig Street. In the cash payments journal for WYT these payments to KST are categorised as "Private Explain" (Blue 3/1414F) and in the cash payments journal for YS, these payments are categorised as "Sundries" (Blue 3/1278E). Mr Murray could not identify if these funds were used towards the purchase of Maroubra Road in 1983, but said they would have been a resource otherwise available to KST: at [238].

It was not established that the withdrawal in October 1978 related to the purchase of Haig Street in December 1978, or that the withdrawals in December 1979 related to the subsequent purchases of Maroubra Road or Queen Street. As Gzell J found, it was not possible to determine what use KST might have made of these funds in the years before the purchase of Maroubra Road in 1983: at [238].

In my view there was no error by Gzell J in disregarding KST's entitlements. First, the balance of KST's combined loan accounts immediately prior to the purchase of Haig Street in December 1978, according to Mr Murray, was $73,900 (being the balance as at 30 June 1978 less the withdrawal of $32,000 on 19 October 1978: Blue 9/4060P and 4060M). This combined balance was less than the purchase price of $129,000. Secondly, the evidence does not support the conclusion that KST in fact drew down on his entitlements to purchase Haig Street. Thirdly, insofar as KST subsequently drew down on his loan accounts in December 1979 a total amount of $57,500, these withdrawals were not shown to relate to either the earlier purchase of Haig Street, or the subsequent purchases of Maroubra Road or Queen Street. Fourthly, the inference drawn by Gzell J that KST used some partnership funds, including unrecorded receipts, to acquire the three properties has not been shown to be erroneous. In utilising partnership funds in this manner, KST was not purporting to draw down on his entitlements from the partnership. He was taking partnership funds without authority. Both the appellants and the Estate failed to show at trial that there was an honest source of moneys available to KST to explain the "shortfall" between KST's reported income and funds available to him and the acquisition cost of the properties.

Conclusions on factually based challenges

The appellants' factually based challenges have not been made out. No error has been demonstrated in the findings of Gzell J that 90% of the purchase price of the three properties was contributed from partnership funds and that in utilising partnership money in this manner KST breached his fiduciary duties to his co-partners: at [314].

It is necessary to refer to one further matter. This relates to Margaret's alleged contribution to the acquisition of Maroubra Road.

Whether Gzell J erred in finding that Margaret had made no contribution to Maroubra Road?

At trial Margaret claimed that she had contributed $100,000 to the purchase price of Maroubra Road in 1983 from a bank bill held in her name (which had been acquired in July 1981).

Smart AJ found that Margaret likely built up savings over a number of years, and that the bank bill of $100,000 was probably her property. He considered the evidence insufficient to warrant a conclusion that Margaret held the whole or part of that sum on trust for KST or the partnership: at [422] May Judgment. He was not persuaded that any moneys given by KST to Margaret came from the partnership businesses. He viewed this as "no more than a possibility": at [423] May Judgment. He concluded that Margaret contributed her own money to the acquisition of Maroubra Road, amounting to about one sixth of the purchase price. He also found that it was probable that KST was prepared to treat Margaret as having a one fifth interest in the Maroubra Road property: at [424] May Judgment.

On the fresh trial Gzell J did not receive oral evidence on the issue of Maroubra Road and relied solely on the evidence and transcript of the proceedings before Smart AJ. Gzell J made his own analysis and concluded that KST gave Margaret the money to buy the bank bill: at [85] GJ1. Accordingly, he found that Margaret had made no contribution to the purchase price of Maroubra Road: at [90] GJ1.

On appeal Margaret challenged the finding of Gzell J and submitted that the conclusions of Smart AJ were far more persuasive. In light of my conclusion that Margaret has the benefit of indefeasible title with respect to her one fifth interest in Maroubra Road, it is unnecessary to determine this issue.

It is to be noted also that the issue of Margaret's alleged contribution to Maroubra Road does not materially affect the calculations by Gzell J when assessing KST's own contributions to the acquisition of the three properties.

On the assumption that Margaret contributed $100,000 to the acquisition of Maroubra Road, the consequence would be that the acquisition cost of the three properties provided by KST would be reduced from $2,382,258 to $2,282,258. Gzell J found that KST had a capacity to contribute to the purchase of the three properties to the extent of $202,492. Expressed as a percentage of the adjusted acquisition cost of the three properties, the result is 8.87%. As Gzell J rounded up the percentage (calculated by him) of 8.5% to 10%, there is no material difference for his Honour's finding that 90% of the purchase price of the three properties was contributed from partnership funds.

Issue D: Fresh trial issues

In light of my conclusion that the appeals should be allowed and the declarations and orders made against the appellants should be set aside, it is unnecessary to address the grounds of appeal directed to establishing that the fresh trial should not have excluded the appellants' defences and that the trial before Gzell J miscarried.

Issue E: Relief

What are the appropriate orders to reflect the findings and conclusions on appeal?

So far as the appellants are concerned, the proprietary and accounting relief the subject of the final orders made by Gzell J should be set aside. I address separately, in Issue F, the question of costs on appeal and the need to revisit the costs orders below, other than the costs orders in favour of the appellants and the other defendants which should not be disturbed.

So far as the Estate is concerned, the proprietary and accounting relief granted against the Estate should not be disturbed, however the terms of the inquiry should be varied to limit the scope of the inquiry to an account of profits derived by the Estate from the three properties, subject to just allowances (if any). Beyond this the Estate is not required to give an account with respect to any aspects of the partnership, as the claim with respect to this relief is time barred under s 15.

So far as the other respondents are concerned (Janet and Stella, as the representative of FC Chow), the accounting relief ordered against them (order 7) should also be set aside for the same reasons as apply to Margaret and Helen. The inquiry directed to them to account as partners was time barred under s 15. It is to be noted that Gzell J did not make any costs orders against these respondents.

Should the order for accounts include provision for the benefit received by Geoff and Mary from the use of partnership moneys for the purchase of their home at Vaucluse?

Sunly and Gordon contended that Gzell J erred in failing to consider, in formulating the appropriate accounting relief, the benefits received by Geoffrey and Mary from their use of partnership moneys ($25,500) in the purchase of their residential property at Vaucluse in about 1981. Sunly and Gordon raised this issue defensively, in the event that they failed to set aside the accounting relief granted by Gzell J in favour of Geoffrey and Mary.

This issue does not require determination in light of my conclusion that Sunly and Gordon's indefeasibility defences should succeed and the orders for an accounting by them should be set aside. Moreover, since I have found that the partnership dissolved no later than 1 July 1989, any claim by Sunly and Gordon against Geoffrey and Mary for an account in respect of their alleged use of partnership moneys, absent any trust element, would be statute barred under s 15 of the Limitation Act.

Issue F: Costs

Costs of the appeals

As the appellants have been successful on appeal, costs should follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs: UCPR r 42.1. The Court has not had submissions on costs taking into account the outcome of the appeals. The parties should be given an opportunity to make such submissions if they cannot reach agreement on costs of the appeals.

Costs below

In relation to the costs below, counsel for Geoffrey and Mary submitted in oral argument that if the appeals were allowed, the appellants should nonetheless pay the costs of the trial before Smart AJ because they had unsuccessfully contended that there was no partnership. It is not in dispute that the appellants failed on the partnership issue, but it needs to be kept in mind that the proceedings before Smart AJ concerned a number of other issues and the appellants have succeeded on some of them on appeal. The parties should be given the opportunity to make submissions on the costs below. The orders which I propose include directions in this regard. I also propose that the costs issues be dealt with on the papers.

Proposed orders

I propose the following orders:

2013/107940 (Sunly and Gordon)

(1) Appeal allowed.

(2) Set aside orders 3, 4(a)(ii) and (iii), (c)(iv) and (v), 5, 6, 7, 8, 9 and 11.

(3) In lieu thereof:

(i) Dismiss the proceedings against the fifth and sixth defendants.

(ii) Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.

(iii) Declare that 90% of any profits (if any) derived by the late Kut Sze Tu from the Partnership Properties after just allowances (if any) since the date of their acquisition were and are held on constructive trust for the Partnership.

(iv) Direct that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.

(v) Order that the first defendant pay to the plaintiffs 20% of the amount of the benefits the late Kut Sze Tu obtained through his ownership, possession and/or use of the Partnership Properties since their acquisition as may be found to be due pursuant to the inquiry referred to in order (iv) above.

(vi) In these orders the reference to "Partnership Properties" has the same meaning as given to these words in order 1 made by Gzell J on 13 March 2013.

(4) Reserve all questions of costs in this Court and below.

(5) In default of agreement as to costs, direct:

(a) the appellants to file and serve within 35 days of the date of delivery of judgment their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages;

(b) the first and second respondents to file and serve their proposed short minutes of order on the issue of costs in this Court and below together with written submissions not to exceed 8 pages within 14 days after service on them of the appellants' submissions contemplated by the previous order;

(c) the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.

(6) Note that the Court will determine the issue of costs on the papers.

2013/107472 (Margaret)

(1) Appeal allowed.

(2) Set aside orders 3, 4(b)(ii) and (c)(ii), 5, 6, 7, 8, 9 and 11.

(3) In lieu thereof:

(i) Dismiss the proceedings against the second defendant.

(ii) Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.

(iv) Order that an inquiry be held to identify what (if any) moneys the plaintiffs are entitled to from the late Kut Sze Tu by way of an account of profits after taking into account any just allowances, in respect of the benefits (if any) obtained by the late Kut Sze Tu through his ownership, possession and/or use of his respective interests in the Partnership Properties since their acquisition.

(vi) In these orders the reference to "Partnership Properties" has the same meaning as given to these words in the order 1 made by Gzell J on 13 March 2013.

(4) Reserve all questions of costs in this Court and below.

(5) In default of agreement as to costs, direct:

(c) the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.

(6) Note that the Court will determine the issue of costs on the papers.

2013/108447 (Helen)

(1) Appeal allowed.

(2) Set aside orders 3, 4 (c)(iii), 5, 6, 7, 8, 9 and 11.

(3) In lieu thereof:

(i) Dismiss the proceedings against the third defendant.

(ii) Declare that the partnership, being the partnership declared by Smart AJ on 25 June 2010 (the Partnership), was dissolved on 1 July 1989.

(vi) In these orders the reference to "Partnership Properties" has the same meaning as given to these words in order 1 made by Gzell J on 13 March 2013.

(4) Reserve all questions of costs in this Court and below.

(5) In default of agreement as to costs, direct:

(c) the appellants to file and serve any written submissions in reply not to exceed 4 pages within 10 days after receiving the first and second respondents' submissions.

(6) Note that the Court will determine the issue of costs on the papers.

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Decision last updated: 23 December 2014