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Duty of fiduciary

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Lowe v Pascoe (No 4) [2012] NSWSC 1493. Gzell J.

17 KST is alleged to have breached a fiduciary duty. If he took moneys from the partnership to buy the properties he breached such a duty.

 18 In Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 407-408 Dixon J said: 

"The relation between partners is, of course, fiduciary. Indeed, it has been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners.
'Their mutual confidence is the life-blood of the concern. It is because they trust one another that they are partners in the first instance; it is because they continue to trust one another that the business goes on' (per Bacon V.C. in Helmore v. Smith [(1886) 35 Ch. D. 436 at 444]).
The relation is based, in some degree, upon a mutual confidence that the partners will engage in some particular kind of activity or transaction for the joint advantage only.
In some degree it arises from the very fact that they are associated for such a common end and are agents for one another in its accomplishment.
Lord Blackburn found in this consideration alone sufficient reason for the fiduciary character of the partnership relation (Cassels v. Stewart [(1881) 6 App. Cas. 64 at 79])." 

19 In Kak Loui Chan v Zacharia (1984) 154 CLR 178 a doctor's partnership was conducted from leased premises. One of the doctors dissolved the partnership but before its affairs were wound up the other doctor obtained an agreement to grant him a new lease of the premises. It was held that the agreement for the new lease was held upon constructive trust for those entitled to the property of the dissolved partnership. At 199 Deane J said: 

"Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of a conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain, or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it.
Any such benefit or gain is held by the fiduciary as constructive trustee: see Keith Henry & Co. Pty. Ltd. v Stuart Walker & Co. Pty. Ltd.
That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received that it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed. In some, perhaps most, cases, the constructive trust will be consequent upon an actual breach of fiduciary duty: e.g., an active pursuit of personal interest in disregard of fiduciary duty or a misuse of fiduciary power for personal gain.
In other cases, however, there may be no breach of fiduciary duty unless and until there is an actual failure by the fiduciary to account for the relevant benefit or gain: e.g., the receipt of an unsolicited personal payment from a third party as a consequence of what was an honest and conscientious performance of a fiduciary duty.
The principle governing the liability to account for a benefit or gain as a constructive trustee is applicable to fiduciaries generally including partners and former partners in relation to their dealings with partnership property and the benefits and opportunities associated therewith or arising therefrom: see Birtchnell v Equity Trustees; Consul Development Pty. Ltd. v D.P.C. Estates Pty. Ltd."

20 The most fundamental fiduciary duty that a partner owes to co-partners is to display complete good faith to them. In the 17th edition of Lindley & Banks on Partnership (1995) Sweet & Maxwell at 483, the learned editor quotes from the 5th edition of Lindley on Partnership in which his Lordship said: 

"The utmost good faith is due from every member of a partnership towards every other member; and if any dispute arise between partners touching any transaction by which one seeks to benefit himself at the expense of the firm, he will be required to show, not only that he has the law on his side, but that his conduct will bear to be tried by the highest standard of honour." 

21 In addition to the general duty of good faith, a partner owes co-partners a duty to be honest in dealings not only between partners but also with third parties (Carmichael v Evans [1904] 1 Ch 486). 

22 The duty of good faith means that a partner must not obtain a private advantage at the expense of co-partners without their full knowledge and consent, a duty now enshrined in the Partnership Act 1892, s 29(1)

"Every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership, or for any use by the partner of the partnership property, name, or business connexion." 

23 To steal from one's partners is a gross breach of each of those fiduciary duties. It infringes the interest in partnership assets that co-partners enjoy. Partners have an equitable interest in each partnership asset (Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321). 

24 There is no allegation that Margaret, Sunly, Gordon or Helen (Active Defendants) breached a fiduciary duty. 

25 Mr Williams submitted that while there are various categories of constructive trust, the type sought to be imposed by Geoffrey and Mary was a remedial constructive trust over property held by third parties, namely, the Active Defendants. 

26 Ordinarily, such claims against third parties are made under one or other of the limbs in Barnes v Addy (1874) LR 9 Ch App 244 at 251-252, the first limb involving knowing receipt and the second limb involving knowing assistance (Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at 140-141 [111]-[112]).

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