Sew Hoy v Sew Hoy

IN THE COURT OF APPEAL OF NEW ZEALAND

CA48/00
CA96/00

BETWEEN	JUSTIN SEW HOY
First Appellant

AND	JOYCE SEW HOY
Second Appellant

AND	DONALD SEW HOY
Third Appellant

AND	JENNIE SEW HOY
Fourth Appellant

AND	PETER HERBERT CHRISTOPHER SEW HOY AND PETER WING HO CHIN
Respondents

Hearing:	26 September 2000
Coram:	Keith J Blanchard J McGrath J
Appearances:	R J Asher QC for Appellants D J More for Respondents
Judgment:	6 November 2000

JUDGMENTS OF THE COURT

Judgments

Paras No

Keith J  [1]
Blanchard J  [2] – [51]
McGrath J  [52] – [73]

KEITH J

I have had the advantage of reading in draft the judgments prepared by Blanchard J and McGrath J. I agree with them both and with the result and order set out in the judgment of Blanchard J.

BLANCHARD J

This appeal relates to an offer made by the Crown to members of the Sew Hoy family in 1992 pursuant to s40 of the Public Works Act 1981. Land which had been taken under the Public Works Act 1928 was no longer required by the Crown for a public work. In terms of s40(2) the Crown was obliged to offer to sell it by private contract “to the person from whom it was acquired or to the successor of that person” (i.e. to the person entitled to the land under the will or intestacy of that person (subs(5)). The “person” from whom the land was acquired was a family partnership which had long since been dissolved. The issue on this appeal is whether in such circumstances any fiduciary duties were owed to one another by the former partners or their successors in relation to the Crown’s offer.
The appeal is against a decision of Chisholm J in the High Court at Dunedin on 9 February 2000 refusing relief to the appellants for the actions of the trustees of the estate of a deceased former partner in taking up the offer under s40 without fully consulting the appellants and without revealing certain information about the land. That information (a valuation and a letter concerning zoning from the local authority) related to its potential for subdivision and showed that the land might be worth much more than the Crown’s offer price.

Background

In 1973 three Sew Hoy brothers, Justin, Duncan and Donald, and their respective wives, Joyce, Shirley and Jennie, purchased approximately 70 ha of land at Cromwell as tenants in common in equal shares. It is accepted that the Sew Hoys held the land in partnership. It was the only asset of that partnership. Three years later the Crown compulsorily acquired the land for works associated with the Clutha Valley hydro development. Title to the land passed to the Crown in 1976 upon the registration of a proclamation.
One of the partners, Shirley Sew Hoy, died in 1977. That event dissolved the partnership in accordance with s36 of the Partnership Act 1908. Shirley’s son, Dr Peter Sew Hoy, the firstnamed respondent, and a solicitor, Peter Chin, the secondnamed respondent, were the executors and trustees of her estate.
The final compensation payment was not made by the Crown to the former owners until 4 February 1982. By then the Public Works Act 1981 had come into force and the former owners, including Shirley Sew Hoy’s estate, all became entitled to the benefit of the statutory offer back rights conferred by s40 of that Act. There had been no comparable rights in the 1928 Public Works Act.
The working lives of the three brothers had been spent in the merchant and clothing firm, Sew Hoy & Sons Limited and associated companies in Australia and the United States. Unfortunately, this long-established family company encountered severe financial problems and in 1989 was placed in receivership. Subsequently it went into liquidation. Liabilities greatly exceeded assets. The three brothers faced millions of dollars in liability on personal guarantees. They were trying to negotiate a compromise with the holders of the guarantees and the liquidator who was claiming that family members had received voidable preferences.
In 1992 the Crown decided that approximately 26 ha of the land taken in 1976 was surplus to its requirements, and proceeded to make an offer in accordance with s40:
40 Disposal to former owner of land not required for public work-
(1) Where any land held under this or any other Act or in any other manner for any public work-
(a) Is no longer required for that public work; and
(b) Is not required for any other public work; and
(c) Is not required for any exchange under section 105 of this Act-
the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority, as the case may be, shall endeavour to sell the land in accordance with subsection (2) of this section, if that subsection is applicable to that land.
(2) Except as provided in subsection (4) of this section, the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority, unless-
(a) He or it considers that it would be impracticable, unreasonable, or unfair to do so; or
(b) There has been a significant change in the character of the land for the purposes of, or in connection with, the public work for which it was acquired or is held-
shall offer to sell the land by private contract to the person from whom it was acquired or to the successor of that person-
(c) At the current market value of the land as determined by a valuation carried out by a registered valuer; or
(d) If the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority considers it reasonable to do so, at any lesser price.
…
(5) For the purposes of this section, the term "successor", in relation to any person, means the person who would have been entitled to the land under the will or intestacy of that person had he owned the land at the date of his death; and, in any case where part of a person's land was acquired or taken, includes the successor in title of that person.
The offer was open for acceptance for a 40 day period. It was channelled through solicitors who had previously acted for the Sew Hoy family. Because initially the trustees of Shirley Sew Hoy’s estate were not told about the offer, Dr Peter Sew Hoy’s father, Duncan Sew Hoy, provided him with a copy of the Crown’s offer. After considering the offer, Dr Peter Sew Hoy informed the Crown agent that his mother’s estate should have been included as an offeree and would probably be interested in purchasing.
Dr Sew Hoy employed a valuer and made inquiries about the land with the Central Otago District Council. The valuer’s report and those inquiries revealed that the land had the potential to be very profitable if developed. Consequently, Dr Peter Sew Hoy, as trustee of his mother’s estate, expressed to the Crown his interest in purchasing the land. He did not inform other family members except his father, Duncan, about the report or the information given to him by the local authority. None of the other members of the family responded to the Crown before the 40-day deadline. Following expiry of the deadline, the Crown entered into a contract for the sale of the land to the respondents as trustees of the estate of Shirley Sew Hoy. The respondents acted as agent for three trusts established by Peter Sew Hoy and his brother and sister.
Four of the other former owners (that is, two brothers, Justin and Donald, and their wives, Joyce and Jennie) have brought these proceedings against the respondents, claiming they breached a fiduciary duty owed to the appellants in two respects: first, by failing to pass all relevant information on to the plaintiffs; and secondly, by pursuing the individual interest of Shirley Sew Hoy’s estate at the expense of the group interest (that is, the group of six former owners including Duncan and the estate).

The decision below

Resolving conflicts in the evidence, Chisholm J found that all parties except Joyce Sew Hoy had received the Crown’s offer when it was sent by the solicitors, but that, because of an incomplete facsimile transmission, Joyce’s husband, Justin, had not received the part of the offer stating that it was open for only 40 days. However, the Judge concluded that Justin had become aware of the deadline before its expiry. Chisholm J accepted Dr Sew Hoy’s evidence that he genuinely believed that his uncles and aunts were fully aware of the offer, and did not see any reason to discuss that matter with them. He held also that Dr Sew Hoy did not attempt to shut out the other offerees, and that if the other branches of the family had decided to take up the offer, Dr Sew Hoy would have accepted, although not welcomed, their participation. None of these findings is disputed on this appeal.
The Judge also found that none of the appellants would have accepted the offer even if it had been properly communicated to them. The appellants say, however, that they would have participated in the purchase if Dr Sew Hoy had told them about the valuation and the advice from the local authority.
For the purposes of analysis, Chisholm J assumed that a partnership had existed between the six owners of the Cromwell land prior to its compulsory acquisition by the Crown in 1976. Any such partnership was, however, dissolved in 1977 by operation of law, as a result of the death of Shirley Sew Hoy. Dissolution triggered s41 of the Partnership Act, which provides as follows:
41 Continuing Authority of Partners for Purposes of Winding Up-
After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue (notwithstanding the dissolution) so far as may be necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise:
The Judge held that the compulsory acquisition of land by the Crown represented a transaction which was incomplete at the time of dissolution because compensation payments were not completed by the Crown until 1982. Therefore, the obligations of the partners continued so far as was necessary to complete this transaction. However, the Judge said, the offer by the Crown pursuant to s40 of the Public Works Act was a new transaction. The right to have the land offered back was not a partnership asset: it was not definite that the land would ever be offered back. Any other interpretation would give rise to the “extraordinary situation” that partnerships whose land had been taken under the Public Works Act would effectively linger indefinitely.
In the absence of continuing duties of partnership, Chisholm J could not find any basis for the appellants’ claim that the respondents owed them a fiduciary duty to disclose all relevant information relating to the land. There was nothing fiduciary in the relationship of co-owners. While there had been a history of co-operation and a degree of mutual reliance between the three Sew Hoy families, the evidence indicated to Chisholm J that this was no longer continuing at the time the Crown made its offer pursuant to s40 of the Public Works Act. None of the appellants relied on the respondents for information or advice. It was Dr Sew Hoy’s prerogative to obtain information about the land, and there was no evidence that he had assumed a position which required him to share this information with the others. So long as all former owners had an equal and fully informed opportunity to purchase, a purchase by only some of them could occur.
Even if he was wrong in his conclusions as to fiduciary duty, Chisholm J said that he was of the opinion that there was no sound justification for granting the relief sought, given his finding that none of the appellants would have taken advantage of the Crown’s offer regardless of whether they had been fully informed about it.

The appellants’ submissions

The appellants submitted that the right to buy back land under s40 of the Public Works Act is a pre-emptive right, or an inchoate right akin to an option. Until it is exercised or comes to an end, the affairs of the partnership are not wound up, and the transaction (in the sense of a “piece of commercial business”) under the Public Works Act is not completed. For that reason, the partnership obligations and fiduciary duties continued until the land was offered back in 1992.
This interpretation of the relevant provisions would not, contrary to the views of the Judge, lead to a partnership lingering indefinitely. The right (and therefore the partnership) would come to an end if and when the land was finally offered back. The fact that the partnership would continue to subsist for a period of time until this happened was said not to be a sufficient reason for the rejection of this submission.
In any event, submitted the appellants, there was an ongoing fiduciary duty, arising from the close family relationship and former common ownership. Whether the duties arose in this context or as a result of the continuing partnership, they imposed on the respondents the obligation to disclose information obtained about the land.
In considering the consequences of any breach of the alleged fiduciary duty, the Judge had focused only on whether the appellants would have taken up the offer had they been given notice of it. He did not refer to the fact that Dr Sew Hoy obtained information relating to prospective zoning changes and therefore the likelihood of substantial profits which he did not disclose. If there had been full disclosure of this information, counsel for the appellants submitted that the appellants would have taken up the offer, either directly or through their family interests. In any event, it was not necessary for them to prove that they would have taken up the opportunity if the respondent had not acted in breach of a fiduciary duty. In the event of a breach of fiduciary duty, a restitutionary approach is appropriate, to deter breaches of trust and confidence (Bank of New Zealand v New Zealand Guardian Trust Co [1999] 1 NZLR 664, 681).

The respondents’ submissions

The respondents submitted that the partnership was wound up when the final compensation payment was made by the Crown in 1982. This extinguished the interests of the partners in the land. Section 40 does not preserve any inchoate right for former owners of land; it merely grants an option to those former owners to purchase if and when the conditions precedent set out in the section arise. Unless and until those conditions are satisfied, the former owners have no interest in the land. (Indeed, those conditions may never be satisfied.) Therefore, the offer back by the Crown was not an undistributed partnership asset at winding up, and attracted no partnership obligations or fiduciary duties. Any offer by the Crown pursuant to s40 of the Public Works Act must represent the beginning of a new transaction, as any resulting purchase of the land would be a new bargain or contract requiring significant expenditure.
The respondents submitted that in any event there was no breach by them of any fiduciary obligations. All the former owners were given an equal opportunity of joining in the purchase. Dr Sew Hoy had no obligation other than to satisfy himself that the others were aware of the offer. This he had done. All information obtained by Dr Sew Hoy was acquired only after he was advised of the offer back. The appellants could have made similar inquiries, had they been interested in accepting the offer. Dr Sew Hoy did not shut out any former partners from the offer. He had done nothing unconscionable.
By 1992 family relationships had deteriorated to the extent that members of the various branches of the family were not reposing substantial trust or confidence in each other. There was therefore no obligation on Dr Sew Hoy to share the information he had obtained with the appellants.
His Honour had made a specific finding of fact that the appellants made a conscious decision not to take up the offer. In any event, because of their financial position, neither Justin Sew Hoy nor Donald Sew Hoy could have taken up the offer in their own names. The liquidator of Sew Hoy & Sons Ltd was pursuing a very substantial claim against them. If either of the two brothers had shown an interest in the Cromwell land in the statement of assets and liabilities which they produced to him in that connection, he would have required the land to be sold and profits accounted for. Therefore, they have personally suffered no loss. In oral argument Mr More conceded that there was difficulty in making the same argument on behalf of the wives, Joyce and Jennie Sew Hoy who had access to the necessary funding ($13500 each) from their own resources or those of their children.
Finally the respondents submitted that the appellants themselves have not done equity, nor have they clean hands. Neither Justin nor Donald made any attempt to advise Peter Sew Hoy of the offer, even though they would have been aware that his mother’s estate was originally excluded from the offer. In the absence of equitable behaviour by the appellants, relief should be denied.

Rights and obligations under s41 Partnership Act

The partnership was dissolved in 1977 on Shirley Sew Hoy’s death. Title to the land had already passed to the Crown. Section 23 of the Public Works Act 1928 provided for the fee simple to be vested “absolutely” in the Crown upon the registration of a proclamation, which occurred in 1976, “discharged from all claims, estates or interests of what kind soever”. (Added to this, vendors’ liens were abolished by s28 of the Property Law Act 1952.) The Sew Hoys therefore retained no interest in the land. There was at that time no equivalent of s40 of the 1981 Act. Thus it was not until the 1981 Act commenced, three days before the final payment was made, that the Sew Hoys could ever have had any expectation of being offered back the land if the Crown no longer required it for a public work.
Even when s40 was enacted, it seems to me that the Sew Hoys gained no more than an expectation or hope (spes) that at an indefinite future time, which might be decades or, theoretically, even hundreds of years hence, the conditions in subs(1) of s40 might be satisfied. Even then, the chief executive of the department in question might consider that it would in terms of subs(2)(a) be impracticable, unreasonable or unfair to comply with that subsection. If so, the chief executive is not obliged to offer the land back.
Lord Hoffman, in the course of delivering the advice of the Board in Attorney General v Horton [1999] 2 NZLR 257, 261, expressed a view on the nature of a s40 right:
The proceedings have therefore been conducted throughout on the basis that (subject to the possibility of reconsideration) a finding that at some point in time after 31 March 1988 the land was no longer required for mining would mean that the trustees thereupon became entitled to repurchase. This right has sometimes been described as a right of preemption, although Their Lordships think it bears a closer resemblance to an option: the purchaser’s right is not dependent upon the vendor choosing to sell but arises as soon as the land is no longer required. Hammond J described it as an inchoate right which an owner of land taken by the Crown preserved throughout the latter’s ownership and which came to fruition when the land was no longer required. It has been said in a number of cases to be the expression of a strong legislative policy to preserve the rights of an owner subject only to the continuing needs of the state.
Nevertheless, as a right in private law analogous to an option, it has some curious features. It is subject to defeasance by the exercise of the discretionary power conferred by s40(2)(a). Furthermore, the existence of the right may well remain unknown to the owner for some considerable time.

And at p262 his Lordship said:

If s40 confers an enforceable right to buy, then Their Lordships consider that when the conditions upon which it comes into existence have been satisfied, it must vest subject only to those grounds of defeasibility expressly stated in the statute.

Viewed in this way, all that existed when the last payment of compensation was made in 1982 was an “inchoate right” having some analogy to an option. That was not in my view a right of a kind contemplated by s41 of the Partnership Act. Being inchoate, it was unenforceable, and remained so until 1992.
In that condition it was, I think, not something capable of being assigned. The Crown was required, if the conditions were met, to make the offer to the persons from whom the land was acquired or their successors, meaning the persons who would have been entitled to the land under the will or intestacy of a person from whom the land was acquired had the latter owned the land at date of death. That does not permit the Crown to make an offer to an assignee of such a person. Although it does not necessarily follow from non-assignability that a contractual right cannot be a partnership asset (Don King Productions Inc. v Warren [1999] 2 All ER 218, 233-4), the former partners’ inability to assign or otherwise deal with a “right” of this character provides some support for the view that it is not of a nature falling within the compass of s41.
The evident purpose of s41 is to enable the winding-up of the dissolved partnership. Rights and obligations of former partners continue “so far as may be necessary to wind up the affairs of the partnership” and “to complete transactions begun but unfinished”, which Lord Reid described as “unfinished operations necessary to fulfil contracts of the firm which were still in force when the firm was dissolved” (Inland Revenue v Graham’s Trustees (1971) SLT 46, 48).
The rights and obligations of former partners do not continue for other purposes (“but not otherwise”). In this case it was neither necessary nor possible in order to complete the winding up of the partnership to deal with the chance that there might be a future offer by the Crown under s40. There was no transaction then unfinished in relation to the land. The mere possibility of a future offer back did not leave the sale to the Crown unfinished. If the s40 offer occurred and it was accepted that would give rise to an entirely new venture involving only those who chose to accept, and it would require of them substantial expenditure. This is not something contemplated by s41. In Graham’s Trustees Lord Reid said that it was clear that surviving partners had no right to bind the assets of the firm by making new bargains. In my view the same would apply to successors of a former partner. Even if everyone to whom an offer was properly addressed had joined in the acceptance, the transaction arising would have been an event quite distinct from an incident of a winding up. It would have been something done by the choice of the former partners and their successors, not an act of the dissolved partnership permitted under s41. No partner could have had any continuing authority under that section to bind the others to an acceptance of the Crown’s offer.
The facts of this case are very different from those cited on behalf of the appellants. In Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 All ER 1239 the lease was indisputably an undistributed asset of the former partnership. The premises were occupied in reliance on the lease by a company controlled by one of the former partners, Mr Heaton, and his wife. After Mr Heaton’s death, his executors disputed occupation with the other former partner. The executors in these circumstances caused the company to purchase the freehold reversion on the lease and later sold it at a profit. It was held that as the lease was an asset of the former partnership both former partners were precluded from acquiring the reversion for their own benefit without giving the other an opportunity of coming in on the reversion. The executors or the company were held accountable for half the net profits. Pennycuick V-C quoted with approval a passage from Lindley & Banks on Partnership (see now 17th ed (1995) at para 25-54(5)) as follows:
That, for the purposes of winding up, the partnership is deemed to continue; the good faith and honourable conduct due from every partner to his co-partners during the continuance of the partnership being equally due so long as its affairs remain unsettled; and that which was partnership property before, continuing to be so for the purpose of dissolution, as the rights of the partners require.
The Judge then observed that where the property of a dissolved partnership includes a leasehold interest
…subject to any other arrangement which may be made between the partners concerning that interest, each of the former partners owes the same obligation to the other former partners in respect of that interest as he did while the leasehold interest remained the partnership property and, accordingly, he is under the same limitations with regard to the purchase of the reversion as he would have been had the partnership still been subsisting. (p1249)
These statements were recently approved by the English Court of Appeal in Don King Productions Ltd v Warren (p238). There can be no doubting them, but in my view they have no application in the present case. The opportunity afforded by the s40 offer was not, for the reasons already given, an asset of a kind falling within s41 of the Partnership Act.
Even if it were an asset of that kind, I consider that, at most, the respondents’ equitable obligation would have extended no further than refraining from doing anything preventing or hindering the appellants from participating in that opportunity, which was what occurred in Chan v Zacharia (1984) 154 CLR 178. There a valuable lease of premises from which a medical practice was carried on in partnership by the parties contained an option to renew. A few months before the renewal date Dr Chan gave notice of dissolution of the partnership. He refused to join with Dr Zacharia in renewing the lease but, before the affairs of the partnership had been wound up, obtained in his sole name a new lease of the premises. The High Court of Australia confirmed the view of the lower courts that in these circumstances the new lease was an asset of the former partnership and was thus held by Dr Chan upon constructive trust for the partnership.
In the leading judgment Deane J, with the concurrence of Brennan and Dawson JJ, held that each partner remained subject to a fiduciary obligation to cooperate in and act consistently with the agreed procedure for the realisation, application and distribution of partnership property. The doctors were both trustees of the legal rights under the lease, including the option, and they were also members of the former partnership of which the beneficial interest in those rights was an asset. Each of those roles was a fiduciary one. After stating general principles of equity pursuant to which fiduciaries must account for their benefits or gains, Deane J referred to the strict rule that a trustee of a lease who obtains a renewal of it holds the interest as part of the trust estate (Keech v Sandford (1726) Sel Cas t King 61; 25 ER 223). Deane J said that there is an irrebuttable presumption of law “that the lease was obtained by the use of the position of advantage which the trustee enjoyed as the tenant at law, that is to say, by the use by the trustee of his fiduciary position” (p201). Where the fiduciary is not a trustee, the Judge said, the presumption appeared, at least ordinarily, to be rebuttable (In re Biss [1903] 2 Ch 40). Whichever of these presumptions applied in the case before the Court, there was no possible basis on the facts for a finding that it could be rebutted.
Gibbs CJ expressed the view that it was the duty of each partner to join in exercising the renewal in order to enable that asset of the partnership to be realised, assuming it was of value and that the other party required it. A refusal by one party meant that an asset of value was lost to the partnership (p183). In contrast, Brennan J remarked that although Dr Chan was not bound to join in the exercise of the option, he could not take advantage of his refusal to secure the benefit of the renewal for the partnership in order to secure the benefit for himself (p186). With respect to the Chief Justice, it seems to me that on this point the view of Brennan J is to be preferred. It does not appear correct that a former partner is to be obliged to undertake fresh liabilities in order to preserve an asset for the partnership. But, on the hand, it is unconscientious behaviour for him then to seek for himself the advantage which he has denied to the partnership.
The situation in Chan v Zacharia was far removed from the present. There was an existing interest in land – the option to renew the lease. There was conduct by the former partner which denied the partnership the ability to exercise that present right. And there was advantage taken of the ensuing situation by the former partner to acquire the interest to the exclusion of the other partner. None of these features exists in the case now before the Court.
Accordingly, I am confirmed in the view that the partnership came to an end in 1982 upon receipt and distribution of the final compensation payment. Consequently, 10 years later the Shirley Sew Hoy trustees did not owe the fiduciary duties of a partner to the appellants when the offer back was received from the Crown.

The family relationships

Then it is said for the appellants that, aside from the relationship alleged to have existed because of the former partnership, there was a fiduciary duty owed by the respondents arising out of the closeness of the family members and the way in which family affairs had been conducted for many years. Chisholm J rejected this argument of continuing “mutual reliance”, alleged to have involved an element of trust. He said that the evidence indicated to him that that type of close relationship did not subsist after the collapse of the Sue Hoy enterprise in 1989:
Thereafter there were no more group ventures and to some extent Justin began to distance himself from his two brothers. An element of mutual reliance remained to the extent necessary to enable the brothers to deal with issues arising from the company collapse, but in other respects each of the three families became more independent. Moreover, I gained the clear impression that once Peter Sew Hoy had stepped into the shoes of his mother there was never the same element of closeness with the other branches of the family.
Mr Asher QC argued that the evidence did not support this finding and that there had been little evidence of any real deterioration in the close family relationship by 1992. But it was of course for the appellants as plaintiffs to satisfy the Judge that Peter Sew Hoy owed a fiduciary obligation to his aunts and uncles to disclose to them what his investigations about the land had revealed. Having considered the evidence as a whole, I am not persuaded that the Judge, who heard and saw the witnesses, could not properly have reached the conclusion which he did. Whilst in past years before the Sew Hoy & Sons Ltd became insolvent the three brothers had certainly conducted group enterprises with an allocation of roles for each of them, there was a marked absence of evidence indicating that after the death of Shirley Sew Hoy this ever involved her estate or Dr Peter Sew Hoy and his siblings. Peter Sew Hoy said that although he had been a trustee of his mother’s estate since her death, he had never had business dealings with his uncles “other than some involvement at meetings following the collapse of the Sew Hoy companies”. He had never discussed the business dealings of his part of the family with his uncles. In fact there was evidence of a lack of cooperation by Justin. Peter and his siblings had made available two properties as security for a loan to assist one of the overseas associated companies which employed Justin’s children, but Justin refused to re-arrange the borrowings when Peter’s sister, Rita, needed funds to buy a house after the break-up of her marriage.
After 1989 the mutual dealings even between the brothers had been confined to the offshore associated companies, in which only members of Justin’s branch of the family were employed and which had become a cause of dissension, according to Mr Chin, the solicitor, because Justin wanted to buy out the interests of his brothers. The brothers were endeavouring to avoid civil and criminal liability arising out of the affairs of the collapsed company. Faced with enormous debts and, in the case of two of the brothers, a significant Customs prosecution, they were simply not embarking on new joint enterprises. All the appellants seem to have been preoccupied, very understandably, with their own financial problems. In trying to make a living they were going their own ways. New ventures were undertaken separately by each branch of the family, as indeed had frequently occurred before the insolvency. For instance, Shirley Sew Hoy had had her own property investments.
Those of the appellants who were aware of the Crown’s offer appear to have displayed a lack of interest in taking it up. None of them seems to have made any assumption that Peter Sew Hoy would act on their behalf or to have reposed any trust or confidence in him in relation to the transaction.
Mr Asher submitted that although fiduciary duties do not generally arise from common ownership of property, they may do so where an advantage is obtained by one of the co-owners utilising a right attaching to the property to the exclusion of the others. That proposition can be accepted but in this case, on the findings made by the Judge, all the respondents did was to accept an offer from the Crown which was open for acceptance by the appellants as well. The respondents bore no responsibility for the decisions of the appellants not to accept the offer. They did nothing which prevented the appellants from accepting it and joining in the purchase. They did not act to the exclusion of the others. The estate was not responsible for any breakdown in communications between the Crown and any of the appellants.
I can see no basis upon which this Court could properly disturb Chisholm J’s findings concerning the family relationships.

Appeal on costs

In the High Court the appellants also sued the firm of solicitors who had undertaken to transmit the Crown’s offer to the appellants. That claim was unsuccessful and was not pursued on appeal. The respondents had also brought a cross-claim against the solicitors seeking indemnity if the respondents were held liable to the appellants. They were ordered to pay costs of $3,000 to the solicitors in respect of that cross-claim. The quantum of that award is accepted by the respondents but they have appealed against the Judge’s refusal to require the appellants to reimburse them for that amount.
It has not been shown that in this respect the Judge erred in the exercise of his discretion. It was not shown that the cross-claim would have succeeded if it had been necessary for the respondents to rely upon it. Furthermore, the respondents were not obliged to bring the cross-claim in order to defend themselves against the claim made by the appellants.

Result

The Court being unanimous, the appellants’ appeal is dismissed, as is the respondents’ appeal concerning costs.
The appellants must pay the respondents’ costs on the appellants’ appeal in the amount of $5,000 together with their reasonable disbursements, including travel and accommodation costs of counsel, which are to be fixed by the Registrar in the absence of agreement. No order is made in respect of the respondents’ appeal.

McGRATH J

I am in agreement with the judgment of Blanchard J which I have read in draft. I adopt what he says in relation to the facts. I wish however to set out some supplementary views as to the meaning of s41 of the Partnership Act 1908 and its application in this case.
Mr Asher QC submitted on behalf of the appellants that, at the date of dissolution of the Sew Hoy family’s partnership, what he described as “the right to have the land offered back under s40 of the Public Works Act 1981 ” remained. On his argument s41 of the Partnership Act preserved the partnership, following dissolution, so far as was necessary to wind up its affairs and complete unfinished transactions which included that right.
The High Court Judge had rejected this contention. Section 41, he held, had the narrow purpose of preserving partnership obligations only until the dissolved partnership could be wound up and incomplete transactions finalised. He also observed that the indefinite continuation of the partnership, in a dormant state, to accommodate an offer back was a proposition difficult to reconcile with that specific purpose in the words of the section.
Section 41 of the Partnership Act provides as follows:
41 Continuing Authority of Partners for Purposes of Winding Up-
After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue (notwithstanding the dissolution) so far as may be necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise:
Whether the prospective right to have the land offered back once the 1981 Act came into force was part of “the affairs of the partnership”, or “a transaction begun but unfinished”, is a question of interpretation. The meaning of those words under s41 must be ascertained by reference to their statutory as well as their historical context. Section 41 is one of a group of sections in the Partnership Act dealing with “Dissolution of Partnership and its Consequences” provides. Section 42, also in that group, provides that, on dissolution, every partner is entitled against the other partners to have the property of the partnership applied in payment of debts and liabilities of the firm, and to have the surplus assets applied in payment of what is due to the partners after deducting what may be due from them as partners of the firm. The focus of this core provision, as to partners’ rights on dissolution, is on partnership property.
Section 23 of the same Act, which appears in the group of sections headed “Relations by Partners to One Another”, defines “Partnership property”. The term covers “all property and rights and interests in property originally brought into the partnership stock or acquired…..on account of the firm or for the purposes and in the course of the partnership business…..” Under s23 “partnership property….must be held and applied by the partners exclusively for the purposes of the partnership…”. In the words of Lord Lindley “it is everything to which the firm…. can be considered to be entitled to as such”. Lindley & Banks on Partnership (17ed 1995) para 18.02.
Together, ss23 and 42 accordingly indicate that “the affairs of the partnership” to be wound up in terms of s41 comprise partnership rights and interests in the nature of property. They also indicate that interests of a lesser or more nebulous character are not partnership property, and accordingly not part of the “affairs of the partnership” which are protected by s41. In my view the words “the affairs of the partnership” in s41 are to be interpreted accordingly.
In relation to the words: “transactions begun but unfinished” we have the considerable assistance of the speech of Lord Reid in Inland Revenue v Graham’s Trustees [1971] SLT 46. He said at p48:
What is meant by transactions begun but unfinished when the partnership was dissolved? If the common law had been clearly settled before 1890, I would interpret this section in light of the earlier law. But it appears that there was then little authority on this matter. So this section should if possible be construed so as to reach a reasonable result. It was argued that “transactions” means bargains. But that would deprive this provision of all content, for it is clear that surviving partners have no right to bind the assets of the dissolved firm by making new bargains or contracts. In my view this must mean that the surviving partners have the right and duty to complete all unfinished operations necessary to fulfil contracts of the firm which were still in force when the firm was dissolved.
Otherwise the position would be intolerable. Suppose the firm was employed to build a bridge and the bridge was half finished when the firm was dissolved. The surviving partners must be bound to finish the work, for otherwise they could hold the employer to ransom by refusing to proceed unless he made a new contract more favourable to them, and conversely the employer could refuse to allow the work to proceed unless the surviving partners made a new contract more favourable to him. That could not be right.

Lord Reid clearly saw s41 as very much a residual provision. It did no more, in relation to “transactions begun but unfinished”, than to require that unfinished contractual operations be completed under conditions that would have applied had the contract under which they were taking place still existed. Commercial necessity required as much. But it did not require more. Consistent with this, surviving partners had no right to bind the assets of the dissolved firm by making new bargains.
Prior to enactment of the Partnership Act 1890 (U.K.) the extent of each partner’s authority to bind his co-partners following a dissolution was in doubt. Lord Lindley’s view was that a partner had “implied authority to bind the firm so far as may be necessary to settle and liquidate existing demands, and to complete transactions begun, but unfinished, at the time of dissolution.” Lindley & Banks on Partnership para 13.63. The provision that is s41 in the New Zealand Act gave legislative effect to these views.
Section 41 accordingly makes no major intrusion on the general policy of the Act that a dissolved partnership’s affairs should be promptly wound up and the partners discharged from their residual continuing authority and obligations. On that basis I consider the nature of the prospective right conferred by s40 of the Public Works Act 1981:
40. Disposal to former owner of land not required for public work
(1) Where any land held under this or any other Act or in any other manner for any public work-
(a) Is no longer required for that public work; and
(b) Is not required for any [other public] work; and
(c) Is not required for any exchange under section 105 of this Act--
the [chief executive of the department within the meaning of section 2 of the Survey Act 1986] or local authority, as the case may be, shall endeavour to sell the land in accordance with subsection (2) of this section, if that subsection is applicable to that land.
….
Both counsel focussed their arguments concerning the nature of the prospective right to buy back under s40 on its characterisation, in various recent decisions, as a right of pre-emption, an option or an inchoate right. The judgment of the Privy Council in Attorney-General v Horton [1999] 2 NZLR 257 was subjected to close analysis in relation to what were said to be indications in Lord Hoffman’s speech as to the nature of the rights of former owners under s40 and when they came into existence. However the focus of the Privy Council in Horton was on the legal position once the conditions giving rise to the duty to offer back were in place, and I do not consider the members of the Judicial Committee had in mind the nature of a former owner’s interest at an earlier stage. Nor in my view is resolution of the present case assisted by the various qualified characterisations of the s40 right in terms of comparisons with property law concepts. As this Court observed in a similar context in Attorney-General v Hull [2000] 3 NZLR 62 in this case it is better simply to allow the provisions of s40 to speak for themselves in their context.
Looking at s40(1), it is clear that the interest of a landowner whose land has been taken for a public work is contingent, until such time as the land is no longer required for the public work. The factual conditions on which the right depends may never be satisfied. I agree with Blanchard J that until they do a prospective right under s40 is in the nature of an expectancy.
On the meaning I attribute to “the affairs of the partnership” in s41, a mere expectancy is not covered because an expectation of a benefit, even if well founded, does not amount to “property”. In Perpetual Executors and Trustees Association of Australia Ltd v FCT (1948) 77 CLR 1,27 Dixon J said of “property” in an estate duty context:
No doubt this expression is of the widest character and covers every form of personal property recognised at law or in equity, every possible interest including all choses in action. But it cannot be satisfied unless some right cognisable at law or in equity exists in the deceased. An expectation, however well founded in fact, and however well warranted by political or business considerations, will not do, if it is devoid of legal title.

See also Re McDonald (deceased) [1972] NZLR 845 Quilliam J, and Adams and Richardson’s Law of Estate and Gift Duties (5th edition 1978) para 7/8.

The prospect of an offer back under s40, can only be founded on a prediction as to the outcome of governmental consideration under s40(1)(a) of whether the land continues to be required for a public work and under s40(2)(a) of whether the discretionary power not to offer it back can and should be exercised. In terms of Dixon J’s principle that prospect does not amount to property until those factual conditions have been satisfied. Accordingly the prospective right under s40 cannot in my view amount to property of a dissolved partnership which is part of the affairs of the partnership to be wound up in terms of s41.
Nor can prospective rights under s40 be characterised as “a transaction begun but unfinished” within the meaning I have attributed to those words in s41. If rights under s40 are eventually exercised, on the authority of Inland Revenue v Graham’s Trustees, the outcome will be a new bargain reached outside of the partnership to which continuing obligations under s41 of the Partnership Act do not apply.
Seen in this light both the two principal authorities relied on by Mr Asher are distinguishable in that in each case the assets in dispute were unquestionably partnership property. Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 WLR 605 concerned a lease held to be an asset of the dissolved partnership and part of its affairs in the winding up. The partners’ continuing obligations pending winding up precluded one partner acquiring the reversion of the lease without giving the other the opportunity to participate. Likewise in Chan v Zacharia (1984) 154 CLR 178 the right of renewal of the lease of the dissolved partnership’s premises was an asset of value which the receiver sought to revise. The continuing fiduciary obligation in that case required the former partners to act, in relation to the right of renewal, consistently with the interests of the dissolved partnership. When one partner declined to participate in exercise of the right of renewal, and secured a new lease for himself, the High Court of Australia held the new lease was held on constructive trust for those entitled to the property of the dissolved partnership.
The right of renewal had been held to be partnership property on the principle of Keech v Sandford (1726) Sel Cas t King 61; 25 ER 223. The rationale of that principle is that a right of renewal of a lease is regarded as a graft on the original lease interest and subject to the same trusts and duties. Griffith v Owen [1907] 1 Ch 195. That case is cited in Chan v Zacharia by Gibbs CJ at p181 and Deane J at p201, for the proposition that the principle in Keech v Sandford depends partly on the nature of lease property. A prospective right to buy back land under s40 of the 1981 Act cannot be equated with a right of renewal of a lease because of the prospective right under s40 is not sourced directly from the prior ownership interest but depends on independent factors including, as previously discussed, the outcome of governmental consideration and decision on whether to exercise discretionary power. Thus approach is consistent also with Bevan v Webb [1905] 1 Ch 620.
In summary where it is shown that an interest is property of a dissolved partnership s41 will apply and duties of good faith between partners will continue in relation to dealings with the property during the winding up including completion of unfinished contracts. But for the reasons given prospective buy back rights under s40 are not of that character.
In the present case, once the final payment of compensation was made to the dissolved partnership and a final accounting followed, which took place in 1982, the winding up was complete. Neither partnership property nor anything which could properly be regarded as a partnership remained. Section 41 was spent and could not be the basis of continuing obligations. When the offer back was made in 1992 it was to the former partners as individuals. The ground of appeal based on s41 of the Partnership Act 1908 accordingly fails.
I have already indicated my general agreement with the judgment delivered by Blanchard J. In particular I agree that the appeal, and the cross-appeal against the High Court’s order as to costs, should be dismissed and that the order should be made as to costs in this Court that is set out in the judgment of Blanchard J.

Solicitors

Ross Dowling Marquet Griffin, Dunedin for Appellants
Anderson Lloyd, Dunedin for Respondents

[2000] NZCA 314

6 November 2000