Sze Tu v Lowe

Case [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…

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AGLC
Sze Tu v Lowe [2014] NSWCA 462
Case
[2014] NSWCA 462
Decision Date

CaseChat Overview and Summary

The appeal concerned disputes arising from a partnership, where partnership funds were allegedly mixed with a partner's personal moneys and used to purchase residential and investment properties. The primary legal issues before the Court of Appeal were whether the partnership had been dissolved and, if so, when, and the extent to which profits derived from properties acquired using partnership funds were held on constructive trust for the partnership. The court also considered the application of tracing principles, the onus of proof in mixed fund scenarios, and the availability of equitable remedies, including constructive trusts, in light of statutory provisions and potential defences.

The Court of Appeal, comprising Meagher, Barrett, and Gleeson JJA, allowed the appeals. The court declared that the partnership was dissolved on 1 July 1989. It further declared that 90% of any profits derived from the partnership properties after their acquisition, after just allowances, were held on constructive trust for the partnership. An inquiry was directed to determine the specific amounts to which the plaintiffs were entitled by way of an account of profits, taking into account any benefits obtained by the late Kut Sze Tu from his interests in the partnership properties. The first defendant was ordered to pay the plaintiffs 20% of the benefits found to be due from the inquiry. The court also dismissed proceedings against certain defendants.

Orders

Orders of the court

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.]

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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