Supreme Court New South Wales Medium Neutral Citation: Lowe v Pascoe (No 4) [2012] NSWSC 1493 Hearing dates: 13-15, 17, 21 August 2012 Decision date: 05 December 2012 Jurisdiction: Equity Division Before: Gzell J Decision: Parties to be heard on suitable declarations and orders, costs and directions for the taking of accounts. Catchwords: PARTNERSHIP - Actions by and against partners - partnership funds mixed with funds of a partner and used to purchase residential investment properties - fresh trial under Civil Procedure Act 2005, s 88(1) - evidence at first trial admitted without need to recall witnesses under s 89(2)(a) - cash businesses - unreported cash sales - trust property in strict sense followed into hands of persons other than bona fide purchasers for value without notice - institutional constructive trust in favour of partners - onus of proof - withdrawal of election for equitable compensation rather than account of profits - equity to mould suitable relief - partner entitled to a percentage interest in properties in proportion to his capacity to contribute to the purchase prices. Legislation Cited: Civil Procedure Act 2005 (NSW) Partnership Act 1892 (NSW) Evidence Act 1995 (NSW) Income Tax Act 1968 (Cth) Income Tax Act 1969 (Cth) Income Tax Act 1972 (Cth) Income Tax (Rates) Act 1976 (Cth) Income Tax (Rates) Act 1982 (Cth) Income Tax Rates Act 1986 (Cth) Uniform Civil Procedure Rules Cases Cited: Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 Barclays Bank Plc v Boulter [1999] 1 WLR 1919 Barnes v Addy (1874) LR 9 Ch App 244 Bathurst City Council v PWC Properties Pty Ltd (1998-1999) 195 CLR 566 Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 Blatch v Archer (1774) 1 Cowp 64, 98 ER 969 Brady v Stapleton (1952) 88 CLR 322 Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 Carmichael v Evans [1904] 1 Ch 486 Cassels v. Stewart (1881) 6 App Cas 64 at 79 CEPU v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 Chan v Zacharia (1984) 154 CLR 178 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Frith v Cartland (1865) 2 Hem & M; 71 ER 525 Giumelli v Giumelli (1998) 196 CLR 101 Gordon v Gonda [1955] 1 WLR 885 Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 Helmore v. Smith (1886) 35 Ch. D. 436 at 444 Hospital Products Ltd v United States Surgical Corporation (1985) 156 CLR 41 In re Sharpe [1980] 1 WLR 219 Lissenden v CAV Bosch Ltd [1940] AC 412 Lowe v Pascoe [2012] NSWSC 151 Lowe v Pascoe (No 2) [2012] NSWSC 885 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Porter v Macedon Ranges Insurance Agency (1996) 66 IR 195 Re Nisbet and Potts' Contract [1905] 1 Ch 391 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Scarf v Jardine (1882) LR 7 App Cas 345 Strang v Owens (1925) 42 WN (NSW) 183 United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 Vyse v Foster (1872) LR 8 Ch App 309 Warman International Ltd v Dwyer (1995) 182 CLR 544 Texts Cited: J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed (2006) LexisNexis Butterworths R Meagher, D Heydon and M Leeming, Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th ed (2002) LexisNexis Butterworths R Banks (ed), Lindley & Banks on Partnership, 17th ed (1995) Sweet & Maxwell Category: Separate question Parties: Geoffrey Alan Lowe (First Plaintiff) Mary Lowe (Second Plaintiff) Scott Pascoe (First Defendant) Margaret Sze Tu (Second Defendant) Helen Sze Tu (Third Defendant) Janet McNamara (Fourth Defendant) Shiu Shing (Sunly) Sze Tu (Fifth Defendant) Shie How (Gordon) Sze Tu (Sixth Defendant) Stella Sze Tu (Seventh Defendant) Representation: Counsel: C R C Newlinds SC/ C H Withers (Plaintiffs) J Stoljar SC (First defendant) In person (Second and third defendants) D Williams SC/ J D Little (Fifth and sixth defendants) Solicitors: Holding Redlich (Plaintiffs) Argyle Lawyers (First defendant) CLS Legal (Fifth and sixth defendants) File Number(s): SC 2005/262284 Judgment Introduction 1This case concerns the acquisition by the late Kut Sze Tu (KST) of three properties. One at Haig Street, Maroubra (Haig Street), was purchased for $129,000 in December 1978; one at Maroubra Road, Maroubra Junction (Maroubra Road), was purchased for $585,000 in February 1983; and one at Queen Street, Campbelltown (Queen Street), was purchased in July 1988 for $1,580,000. Each was a cash purchase. No loan was required. 2Before his untimely illness that prevented him from completing the hearing of this matter, Smart AJ declared that a partnership was formed as from 1 August 1975 that operated the Wing Yuen Tai grocery business (WYT) and the Yee Sing butchery business (YS). 3KST was the father of Mary Lowe (Mary), the second plaintiff, Margaret Sze Tu (Margaret), the second defendant, Helen Sze Tu (Helen), the third defendant, Janet McNamara (Janet), the fourth defendant, Shiu Shing Sze Tu (Sunly), the fifth defendant, Shie How Sze Tu (Gordon), the sixth defendant and Stella Sze Tu (Stella), the seventh defendant. 4Mary is married to Geoffrey Alan Lowe (Geoffrey), the first plaintiff. KST's second wife, Chow Fung Chun (FC Chun), predeceased him. Scott Pascoe (Scott), the first defendant, is the administrator of the estate of KST. Sunly is the administrator of the estate of FC Chun. Stella is the representative for the purpose of these proceedings of the estate of FC Chun. 5Smart AJ found that each of Geoffrey, Mary, Margaret, Helen and Janet held a 10% share in the partnership; KST held a 20% interest and FC Chun held a 30% interest. 6Smart AJ separated the determination of liability from the determination of quantum and ordered the separate hearing before the rest of the proceedings of eight questions on liability. 7Bergin CJ in Eq analysed the various judgments delivered by his Honour and concluded that of the eight questions, his Honour had determined five. The three remaining questions were the dissolution of the partnership; the fiduciary duties, if any, owed by KST to Geoffrey and Mary and breaches of any of those duties; and whether the three properties at Haig Street, Maroubra Road and Queen Street were held on trust (Lowe v Pascoe [2012] NSWSC 151). 8In accordance with the Civil Procedure Act 2005, s 88(1) the Chief Justice appointed me as the judicial officer before whom the proceedings were to be listed for trial. In accordance with s 89(2)(a), I directed that all the evidence before Smart AJ be taken as evidence in the fresh trial without the need for the witnesses to be recalled. I directed that any further evidence and any examination and cross-examination of witnesses in the fresh trial were limited to the resolution of the three questions not determined by Smart AJ. 9Scott sold Maroubra Road and Queen Street and the proceeds of those sales have been preserved pending the determination of these proceedings. Scott also transferred KST's one-third interest in Haig Street to Sunly and Gordon such that their shares in that property became 50% interests. 10Mr Stoljar SC appeared for Scott. He sought and obtained leave to withdraw. Margaret appeared in person, as did Helen. Janet had entered a submitting appearance as had Stella. Mr Newlinds SC with him Mr Withers appeared for Geoffrey and Mary and Mr David Williams SC with him Ms Little appeared for Sunly and Gordon. The Claim 11Geoffrey and Mary claim that KST acquired Haig Street, Maroubra Road and Queen Street by using moneys of the partnership. Their case is inferential. They say that KST had no source of funds enabling him to pay the purchase prices. They say that WYT and YS were cash businesses and their books and records understated their turnover and profitability. KST managed the businesses. Geoffrey and Mary allege that the businesses were the source of the funds used by KST to purchase the three properties. 12KST held an interest in a property at Wiley Park and an interest in a property at Fairfield. Both properties generated income. Helen said that Wiley Park had 8 residential units and Fairfield had 12 such units. 13Geoffrey and Mary seek declarations that each of Haig Street, Maroubra Road and Queen Street, or their proceeds of sale, are held on trust for the partnership; that KST breached his fiduciary obligations to his partners and profited from the sale of WYT and YS. They seek an inquiry and an account of profits rather than equitable compensation. They seek declarations and orders in support of these claims. 14Geoffrey and Mary submit that they should succeed if the court finds that WYT and YS generated significant cash income that was not recorded in the books and records of the businesses and, taking into account cash flows available to KST from Wiley Park and Fairfield, KST had insufficient funds available to him to acquire the three properties without using partnership funds. Constructive Trust 15Mr Williams raised a number of preliminary points. The first concerned the nature of the trust claimed by Geoffrey and Mary to exist over Haig Street, Maroubra Road and Queen Street in favour of the partnership. 16Haig Street was held by KST, Sunly and Gordon. Maroubra Road was held by KST as to a four-fifths interest and by Margaret as to a one-fifth interest. Queen Street was held by KST as to a six-tenth interest and by Margaret, Sunly, Gordon and Helen as to a one-tenth interest each. 17KST is alleged to have breached a fiduciary duty. If he took moneys from the partnership to buy the properties he breached such a duty. 18In 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])." 19In 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." (References omitted) 20The 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." 21In 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). 22The 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." 23To 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). 24There is no allegation that Margaret, Sunly, Gordon or Helen (Active Defendants) breached a fiduciary duty. 25Mr 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. 26Ordinarily, 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]). 27Mr Williams submitted that Geoffrey and Mary must fail because knowledge by any of the Active Defendants of any breach of fiduciary duty by KST was neither pleaded nor established by the evidence. 28But Geoffrey and Mary invoke another principle. Where trust property is transferred into the hands of a person other than a bona fide purchaser for value without notice, it may be followed into that person's hands. 29The principle only applies to "trust property in the strict sense". In United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 the appellant, United States Surgical Corporation (USSC), manufactured and marketed surgical stapling instruments and disposable loading units in the United States of America and elsewhere. Hospital Products International Pty Ltd (HPI) set up its own business manufacturing and marketing a similar surgical product. It was appointed exclusive Australian distributor of USSC's product and sold both that product and its own until it terminated the distributorship. HPI transferred its assets to Hospital Products Ltd (HPL) and effected a reverse takeover of it. 30It was held that HPL was to be taken as acquiring the assets with knowledge that rendered it accountable to USSC as a constructive trustee. 31The Court of Appeal said at 247 that a question it had formulated contemplated the conclusion that HPL held the assets acquired from HPI on a constructive trust for USSC and continued: "It assumes that those assets, at the time they were assigned, would have been held to be subject to such a trust in appropriate proceedings; but it ignores the possibility that they were trust property in the strict sense. If they were, then HPL would have received trust property (in the strict sense) and would be bound by the trusts affecting the same, unless it took as a bona fide purchaser for value without notice." 32The court went on to contrast that situation with that which exists if the party sought to be made accountable does not take trust property in the strict sense. At 258 the court said: "However, the doctrine of bona fide purchase[r] for value without notice had no direct application to a case such as the present where, as we have at least assumed, the party sought to be made accountable did not take trust property in the strict sense. Here, the plaintiff seeking to make good an equitable right must, in our opinion, prove that the adversary acquired the property in suit with knowledge of that right. As we have endeavoured to show, this requirement may be satisfied if the evidence establishes facts which, to a reasonable man, would demand inquiry, and the absence of that inquiry." 33An appeal to the High Court, Hospital Products Ltd v United States Surgical Corporation (1985) 156 CLR 41, was allowed on the basis that there was no fiduciary relationship between the parties. 34But as McMurdo J points out in Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd [2003] QSC 253; (2003) 21 ACLC 1,665 at 1,668 [8] the consideration by the Court of Appeal of this question was unaffected. 35Southern Cross had an agreement with Ensham Resources for the supply and maintenance of a dragline at the Ensham mine. Foots Pty Ltd and another held 51% of the Southern Cross shares. All the shares were transferred to Little Digger Mining Ltd in consideration of the allotment of shares in it. Foots Pty Ltd transferred approximately 60% of its Little Digger shares to Mrs Foots. 36An application to join Mrs Foots in the proceedings succeeded on the basis that there was an arguable case that Foots Pty Ltd had participated in breaches of fiduciary duty in becoming the holder of Southern Cross shares and that it held those shares as a constructive trustee for Ensham. That property could then be traced into the shares held by Foots Pty Ltd in Little Digger. 37Having referred to the purchaser for value without notice principle, McMurdo J went on to say at 1,668: "However, in a case such as the present, the relevant shares when held by Foots Pty Ltd were not trust property in the strict sense: it was at most a constructive trustee. Foots Pty Ltd was a constructive trustee only if the circumstances of the case warranted the grant of the equitable remedy of a constructive trust. The grant of this remedy is affected by such considerations as the potential impact upon the interests of innocent third parties from the imposition of a constructive trust, and whether there is another remedy which is adequate: Bathurst City Council v PWC Properties Pty Ltd (1998-1999) 195 CLR 566 at 584-585; Giumelli v Giumelli (1998) 196 CLR 101 at 111-114." 38The requirement of trust property in the strict sense was restated in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at 417 [562]: "When trust property in the strict sense is transferred into the hands of a person other than a bona fide purchaser for value without notice, little difficulty arises in following the property into that person's hand and in tracing it into other property which is its substitute. The antecedent entitlement of the trust beneficiaries will in the usual case permit both following and tracing because it will establish the required property base in the asset in the recipient's hands." 39The argument is that if KST took partnership moneys, he did not take trust property in the strict sense. In those circumstances he might have become a constructive trustee, but there was no certainty that this would happen because the imposition of a remedial constructive trust depends upon such other considerations as the effect on innocent third parties, whether there is another remedy that is adequate and whether it would be unconscionable to hold the property free of interests where the transferee takes with knowledge or notice of those interests. 40But if a partner steals partnership cash or other assets he becomes at that moment a trustee of the property for himself and his co-partners. An institutional constructive trust arises when the relevant events occur (In re Sharpe [1980] 1 WLR 219 at 225). In this case, if KST took partnership moneys to purchase Haig Street, Maroubra Road and Queen Street, an institutional constructive trust arose each time he took the money. 41The proposition is stated by Lord Evershed MR in Gordon v Gonda [1955] 1 WLR 885. There a partnership in equal shares between the plaintiff, a resident of Hungary, and the defendant, a resident of the United Kingdom, was dissolved by the extension of the provisions of the Trading with the Enemy Act 1939 (UK) to Hungary. The defendant sold the partnership assets in consideration of the allotment of fully paid shares in the purchaser. It was held that the defendant was a trustee of one moiety of the shares. At 894 his Lordship said: "Of course, so long certainly as a partnership continues and until it has been wound up, one partner has no specific interest in any particular asset; but it seems to me that where, as in the present case, the partnership has been dissolved by the impact of the Trading with the Enemy legislation and where, as it appears, the active partner in this country has used partnership assets in this way, that he has exchanged them for some other asset which had been vested in his name, it would be going very much too far to say that the partner who so acts is not a trustee for the partnership of the asset which has come into his hands in exchange for the assets of the partnership which he gave for it. One could well imagine examples when it would (I should have thought) be impossible to resist the view that a partner who, by using partnership moneys or partnership assets, acquired some asset in his name, would not be held to be a trustee for the firm-that is, for himself and his co-partner-of the asset which he had thus obtained." 42If KST took moneys from the partnership to purchase Haig Street, Maroubra Road and Queen Street, the money constituted trust property in the strict sense and can be traced into the interests of KST and the Active Defendants in the three properties. They remained subject to the constructive trust for the partners because the Active Defendants were not purchasers for value without notice. 43The principles governing the right of a claimant to trace property into the hands of a third party are summarised in Jacobs' Law of Trusts in Australia, 7th ed (2006) LexisNexis Butterworths at [2711] thus: "The principles governing the right of a claimant to trace property into the hands of a third party may be summarised as follows: (1) If the property has been transferred to someone who has taken the legal estate for value without notice of the claim then the property cannot be followed. (2) If the transfer is to a volunteer who takes without notice and there is no question of mixing, then the property is held on behalf of the true owner whose equitable right persists." 44The third category is of special rules that apply where there is a transfer of money to a volunteer who innocently mixes it with money of his or her own. That category is not relevant to these proceedings. 45As authority for the second category, Strang v Owens (1925) 42 WN (NSW) 183 is cited. That was a case in which the plaintiff deposited moneys in a bank account in the joint names of herself and another who wrongfully withdrew some of the moneys and deposited them in the joint names of himself and his son, the defendant. Owens senior died. The suit was brought against Owens junior for a declaration that he was a trustee for the plaintiff of the money. 46The moneys had come from the conduct of an illegal and immoral business. The plaintiff was the owner of a disorderly house and a sly grog shop. It was held that the defendant could not rely upon these findings for the plaintiff's cause of action relied simply upon deprivation. At 184 Street CJ said: "Now, in the present case we start with the facts that the money was earned by the plaintiff while carrying on a business which was both illegal and immoral, and that she was assisted in carrying on that business by John Maxwell Owens. But the business was hers, not his. The case is not one in which she is asserting rights against him arising out of an illegal contract or agreement between them. Her cause of action is not founded upon any immoral or illegal act, and the manner in which she acquired the money which the defendant is withholding from her was not something which she had to prove in order to establish her cause of action. No matter how she had earned it, she had the money. All that she had to prove was that she had handed it to a trustee for her, and that he had parted with it to the defendant in circumstances in which the latter could not claim to have acquired a right to it as against her." Joinder of Sunly and Gordon 47Mr Williams submitted that Sunly and Gordon should not have been joined as defendants in the proceedings because they were not partners and no breach of fiduciary duty was alleged against them. 48But for the reasons expressed above they are amenable to the tracing of partnership funds into the interests they held in Haig Street and Queen Street if KST used partnership funds to acquire those properties. Absence of Partnership Suit 49The partners together seek no relief in these proceedings. Geoffrey and Mary do, but the other partners are defendants and seek no relief. 50It was submitted that Geoffrey and Mary must establish any entitlement to relief on their own behalf and not on behalf of the partners they sue. 51But the joinder of the co-partners of Geoffrey and Mary was appropriate and was required by the Uniform Civil Procedure Rules Pt 6, r 6.20 which provides for the joinder of non-consenting partners as defendants. It is in the following terms: "(1) Unless the court orders otherwise, all persons jointly entitled to the same relief must be joined as parties in any claim for that relief that is made by any one or more of them. (2) Unless the court orders otherwise, any other such person is to be joined: (a) as a plaintiff, if he or she consents to being a plaintiff, or (b) as a defendant, if he or she does not consent to being a plaintiff." 52Although there is no formal evidence of a lack of consent, it may be inferred. These parties were at loggerheads before the proceedings were commenced. Onus of Proof 53While there is some authority to the contrary, the better view is that the bona fide purchaser for value without notice is a single defence to be proved by the legal owner (Equity Doctrines and Remedies, 4th ed (2002) LexisNexis Butterworths at [8-300]). 54Thus in Re Nisbet and Potts' Contract [1905] 1 Ch 391 at 402, Farwell J said: "But the plea of purchaser for value without notice is a single plea, to be proved by the person pleading it; it is not to be regarded as a plea of purchaser for value, to be met by a reply of notice." 55And in Barclays Bank Plc v Boulter [1999] 1 WLR 1919 at 1924, Lord Hoffmann said: "[T]hat rule depends upon the fact that the land is burdened with an equitable proprietary interest. Prima facie, a purchaser cannot obtain a better title than his vendor was able to convey. The defence of purchaser in good faith for value without notice enables the purchaser to defeat a prior interest which burdened the title. It is therefore for him to establish that defence." 56Mr Williams submitted that the doctrine of bona fide purchaser for value without notice did not apply in this case if it was established that KST used partnership funds to purchase the three properties because trust property in the strict sense was not involved. It was up to Geoffrey and Mary, in making good an equitable right, to prove that the interests in the three properties were acquired by parties other than KST with knowledge of his utilisation of partnership funds. 57As I have found that the money if taken was trust property in the strict sense, this argument fails and the onus lay on the Active Defendants to prove that they were purchasers for value without notice, which they did not do. 58It follows that if it is proven that KST used partnership funds to acquire the three properties, Geoffrey and Mary along with their co-partners had the right to trace the money into the interests in the three properties that are held on behalf of the partners whose equitable rights persist. Standard of Proof 59Section 140 of the Evidence Act 1995 (NSW) prescribes the standard of proof in civil proceedings as the balance of probabilities and provides that the court may take into account in deciding whether it is so satisfied, the nature of the cause of action or defence, the nature of the subject matter of the proceedings and the gravity of the matters alleged. 60This provision reflects Dixon J's discussion of the quality of persuasion required for this purpose in Briginshaw v Briginshaw (1938) 60 CLR 336. In that case, the High Court held that, on a petition for divorce on the ground of adultery, the standard of proof was not that of proof beyond reasonable doubt. 61Dixon J said at 361-362 that when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. In civil matters, the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal: "The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency." 62To similar effect is the statement of the majority of the High Court in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450. 63The seriousness of the nature of the cause of action and the gravity of the matters alleged must be taken into account in deciding whether facts have been proved on the balance of probabilities (Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 at 29-30 [146]-[148]). This means that, ordinarily, the more serious the consequences of what is contested in litigation, the more a court will have regard to the strength and weakness of evidence before it in coming to a conclusion (CEPU v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 at 480 [30]). 64That means that if inferences are to be drawn, Geoffrey and Mary have to establish that the circumstances appearing in the evidence give rise to a reasonable and definite inference and not merely to conflicting inferences of equal degrees of probability (CEPU at 482 [38]). Margaret's Claim 65While KST paid for the purchase of Haig Street, Maroubra Road and Queen Street, Margaret claimed that she paid for a one-fifth share in Maroubra Road. 66Margaret said she had a conversation with KST in early 1983 when she was looking to buy an investment property. According to Margaret, KST said he knew she had saved up some money and she should draw it out and it would be her share of the ownership of Maroubra Road. Margaret said she told KST that she probably could buy a one-fifth interest and he said that he would top it up if she was short. She said she had about $100,000 saved up. 67This evidence was challenged. From 1975 to January 1981 Margaret had worked as a TAFE teacher, part of the time as a trainee teacher. She claimed she had no recollection of what she was paid by TAFE. 68Geoffrey was also a TAFE teacher during that period and said that a trainee teacher earned about $8,000 per annum that could increase to $12,000 by salary increments for a teacher. A modest base from which to put away savings. 69During that same period, Margaret said she worked at WYT for two and a half days a week. Again, she claimed she had no recollection of what she was paid by WYT in that period. 70Salaries were paid in cash. The figures included in the accounts as salaries were given to the accountant, Benjamin Wong, by KST. No salary was recorded for Margaret until the year ended 30 June 1981 when an amount of $2,711 was recorded by WYT. Margaret was paid a salary of $9,175 according to the tax return of YS for the 1981 year. 71Margaret said that when she took over Mary's duties in January 1981 she was given the same wage as Mary, and that was her sole source of income. Mary's wage was $187.40 per week, equivalent to $9,744.80 per annum before tax. Again, an insufficient base for savings of the order Margaret claimed. 72Margaret said in cross-examination that her mother made gifts of money to her from time to time. This was not mentioned in any of her affidavits and was not quantified in her oral evidence. I reject the evidence. 73Margaret said that when she worked full time at WYT and YS, KST gave her $400 to $500 in cash per week as her salary. 74Janet, Mary, Helen, Margaret and FC Chun were all paid in cash for work at WYT from 1975 until 1980 and, with the exception of Mary, they continued to be paid cash wages until the closure of WYT in 1989. 75Margaret had been advised that it was an offence not to fully disclose her income when making a taxation return. When it was put to her that a wage of $400 to $500 was not disclosed in the accounts of the business or in her tax returns, Smart AJ warned her that she did not need to answer the question and she claimed privilege against self-incrimination. 76A salary of $400 to $500 per week equates to $20,800 to $26,000 per annum and for an unskilled retail worker it is far in excess of the advertised salaries being paid for more highly skilled positions as deposed to by Alice Turkington. For example, a qualified accountant's position was advertised at $14,923 and a private secretary to the Minister for Housing and Construction was sought at $18,300 to $19,039. 77Another line of attack on Margaret's evidence that she saved $100,000 was based upon Margaret's disclosed interest income in her 1980 tax return. 78Interest was earned on a joint account with KST, half of which at $3,015 Margaret disclosed as her income. There were three further interest items totalling $1,772 giving a grand total of $4,786. 79When Margaret was asked whether she was honestly disclosing her interest income, Smart AJ told her she did not have to answer if the answer might tend to incriminate her and she did not answer the question. 80Margaret said that the moneys in the joint account with KST were his, so that the only interest she had earned was the $1,772. The investment required to produce that figure at 8% was $22,137.50. It was put to Margaret that she had no more than $22,000 saved by 30 June 1980. Margaret said she may have disclosed further interest in her returns for the 1981 and 1982 years and there was no reason for her not to declare the interest as KST paid her tax. She thought she had savings of more than $20,000 in June 1980 but she did not know how much more. 81Margaret mentioned a commercial bill. She was asked if there was any income earned from bank bills as interest income from the bank bills was a matter that had to be disclosed in her tax return. Smart AJ warned her again that she did not have to answer the question and she said she would not. 82Margaret's reference to a commercial bill was to a bank bill of $100,000 payable on 13 October 1981, which she bought in her name for $96,585.12 on 16 July 1981. That was shortly before bills totalling $110,000 maturing on 19 October 1981 were purchased in the name of KST and Margaret for $106,118.67 on 22 July 1981. 83Margaret said she could not give any detail as to any of her savings leading up to the purchase of Maroubra Road in February 1983. She adduced no evidence as to how she managed to save the purchase price for the bank bill, or how she managed to save $100,000 for a one-fifth share of Maroubra Road. 84Margaret denied that the $100,000 bank bill was her father's property and insisted that the money was hers. 85But the only inference to be drawn from the implausibility of her generating savings of $74,585.12 between 30 June 1980 and 16 July 1981 must be that KST gave her the money to buy the bank bill. 86KST was in the habit of putting his investments partly in the names of his children. The investment in the bank bills for $110,000 was no exception. I conclude that the investment in the $100,000 bank bill in the name of Margaret alone was an extension of his practice. 87After being given a warning, Margaret declined to answer the question that the only way she could have had funds of $96,585.12 on 16 July 1981 was if she had not disclosed all of her savings in her tax return for 1980. 88I find that between January 1981 and the purchase of Maroubra Road in February 1983, Margaret could not have saved $100,000. 89Geoffrey and Mary submitted that I should find that Maroubra Road was purchased by KST using partnership funds and the allegations of Margaret that she contributed $100,000 to its purchase should be rejected. 90I find that Margaret made no contribution to the purchase price of Maroubra Road and that it was purchased by KST. The question of partnership funds will be addressed later in these reasons. Cash Businesses 91KST managed the businesses. Clause 19 of the partnership agreement provided that he should be managing partner during the continuance of the partnership. 92At the end of each day, the cash and cheques received by the businesses were delivered to KST. 93Whenever customers came into WYT to pay an invoice Mary recorded the receipt in a receipt book. This was limited to account customers and regular walk-in customers. It did not record cash sales to one-off customers or small takeaway retailers. Some payments were also made in cash. 94Mr Wong lodged income tax returns identifying sales and cost of sales from information provided to him by KST. He was told by KST that customers of WYT and YS paid in cash. He said it was not unusual for customers of Chinese businesses to pay in cash. 95YS sold to the retail trade and a lot of people in the butcher shop paid by cash. Credit card facilities were not available at WYT or YS. Payments by cheque were not ordinarily accepted unless the customer was known to the business or had an account. Suppliers were frequently paid in cash. 96There was a conflict of evidence as to the number of customers who paid in unrecorded cash. 97Mary said that on a weekday approximately 50 walk-in customers came to WYT in the period from 1975 to 1981. They spent on average $15 to $20. On Saturdays the number increased to 65 to 70 spending approximately $30 to $35. At festival time, Mary said more than 110 customers per day spending about $30 to $35 attended WYT. 98Jeffrey Williden worked as a butcher for YS from about 1980 to about 1982 or 1983 and again from 1986 when he was told the business had been sold to Mr Lam for whom he worked until Mr Lam sold the business in about 1991. His estimate was that about 60 to 80 customers a day bought meat at YS spending approximately $15 to $20. He said most customers paid in cash and walk-in customers always did so. 99Margaret's evidence was that, except when she received money from housewives at WYT, all cash and cheques received were recorded in her notebooks. She said that on weekdays approximately 5 to 10 walk-in customers purchased goods at WYT ranging from a couple of dollars to about $10 to $15. On Saturdays there were probably 50 or more walk-in customers. Margaret said WYT was more a wholesaler than a retailer and the retail trade had never been significant. She said the cash was used to pay petty cash and wages and some was banked. She said that Helen was in charge of money at YS. 100Margaret said that no creditors of WYT or YS were paid in cash. This was in direct conflict with Mary's detailed evidence as to the payment of some suppliers in cash. 101Margaret said that when she was at YS very small amounts of meat were sold to retail customers. This is in conflict with her own evidence that during busy periods she assisted at YS when there were a considerable number of customers. 102Helen said that on Mondays to Thursdays there were about 15 to 20 walk-in customers and on Fridays and Saturdays it tended to be a little busier with close to 30 walk-in customer sales. She said that such customers would spend $2 to $10 to $15 in cash. She said that YS mostly delivered to restaurant customers who paid by cheque. Helen said that when YS was sold in 1986 it was a much better business than in 1980. 103Whichever estimate is accepted, and I prefer that of Mary to that of Margaret, there were cash sales by both WYT and YS that were not recorded in the financial records of those businesses and KST had access to the cash. Hill Report 104Michael Hill, a chartered accountant, gave evidence at the original trial. He was asked to estimate the annual and total profit and cash flows generated by WYT and YS; to estimate the annual total profit and cash flows of the rental properties acquired by KST; to estimate the annual total profit and cash flows of the partnership; to estimate the total funds likely to be available to KST; and if possible to determine the source of funds used to purchase the rental properties acquired by KST during the relevant period, being 1 August 1975 to 30 June 1988. 105Mr Hill estimated cash flows from WYT and YS in that period to be $843,644. For this purpose he used the amounts disclosed in the tax returns and financial accounts of the partnership. He made no estimate of unrecorded cash sales. He estimated the rental cash flows from Haig Street, Maroubra Road and Queen Street to be $323,722 giving a total of $1,167,366. Mr Hill estimated the cash flows available to KST from Wiley Park and Fairfield at $590,262, lifting the total cash flows to $1,757,628. 106From this figure Mr Hill deducted income tax and an estimate for living expenses and then added interest. In a supplementary report Mr Hill increased the amount of interest and arrived at a net cash flow figure during the period of $1,088,162. 107The cost of acquisition of Haig Street, Maroubra Road and Queen Street totalled $2,382,308. There was a shortfall on Mr Hill's figures of $1,294,146. 108The exercise established, and I so find, that KST used partnership funds to acquire Haig Street, Maroubra Road and Queen Street. 109The exercise assumed that the entirety of the cash flows after tax and living expenses was used by KST to purchase the properties. To the extent that such funds were utilised for other purposes the shortfall increases. 110Mr Hill concluded that there was enough money available to KST to purchase Haig Street and Maroubra Road but not enough to purchase Queen Street. 111Geoffrey and Mary submitted that the shortfall was made up of cash receipts not recorded in the financial records, Mr Hill's calculation of cash flows from the businesses being based upon the figures in the accounts and in the tax returns. 112It was submitted that the exercise carried out by Mr Hill was a crude one. Haig Street was bought in December 1978, Maroubra Road in February 1983 and Queen Street in July 1988. It was said that agglomerating the three purchases excluded an analysis of relevant cash flows at or about the time of each purchase. 113But Mr Hill did estimate cash flows at about the time of each purchase. He calculated cash flows available to the partnership at 30 November 1978 at $214,137 well in excess of the purchase price for Haig Street of $131,410. 114Mr Hill calculated cash flows as at 31 January 1983, after deducting the purchase price for Haig Street, at $601,926, which is in excess of the purchase price of Maroubra Road at $598,505. 115Having deducted the purchase price for Maroubra Road, Mr Hill calculated cash flows available to the partnership at 30 June 1988 of $437,450 well below the purchase price for Queen Street of $1,652,390. 116The period chosen as the relevant one ends on 30 June 1988 shortly before the purchase of Queen Street. But choosing as the starting date 1 August 1975, the date the partnership commenced, ignores rental cash flows from Wiley Park and Fairfield before that date. 117Wiley Park was purchased on 2 June 1969 and Fairfield on 1 December 1972. To estimate the net income from those properties from the time of their acquisition, an exercise on behalf of Sunly and Gordon averaged the net income earned from Wiley Park in the 1976, 1977 and 1978 years and derived a range with a discount to account for an assumption of increasing rents over the period. 118An exercise on behalf of Mary and Geoffrey took the net income in 1976 and applied it to the periods in question. I prefer that approach. It is generous in the sense that it takes no account of lower rents during the early period. 119There are some mistakes in the mathematics, however. In the analysis that appears below all amounts are rounded to the nearest dollar. The exercise adjusts Mr Hill's figures for the income from Wiley Park and Fairfield prior to 1 August 1975, assumed to remain constant at $9,882 per annum for Wiley Park and $16,406 per annum for Fairfield. 120The period from 2 June 1969, when Wiley Park was purchased, to 31 July 1975, the day before the start of the relevant period, is 74 months. The 1976 net income was $9,882, which equates to $823 per month, giving a total net rental during that period of $60,902. 121The period from 1 December 1972 to 31 July 1975 with respect to Fairfield is 32 months. The net rent in 1976 was $16,406, which equates to $1,367 per month, giving a total of $43,744 for that period. In total Mr Hill's exercise omitted net rental income of $104,646 on the assumptions as to net rental levels. 122But the entirety of the net income from Wiley Park and Fairfield would not generate interest income. Income tax and living expenses need to be deducted. 123In estimating the tax payable, Mr Hill was criticised for appropriating income to partners and non-partners. 124This criticism is misconceived. For tax purposes a resident trust estate is transparent and the partner's share of net income of the partnership is included in his or her assessable income. There is an extended definition of a partnership to include persons in receipt of income jointly. 125Mr Hill appropriated the net income of WYT and YS to the partners according to their interests in the partnership. And he apportioned rental income from Wiley Park equally between KST, John Sze Tu (John), Mary and FC Chun, they being the persons who took the transfer of that property. 126Likewise, he apportioned the net rental income of Fairfield to KST and the nine family members who took the transfer of that property. 127But Wiley Park and Fairfield belonged to KST. There was no suggestion that any member of the family contributed to their purchase. The net rental income during the missing period of $104,646 was his and should be so treated in determining an income tax liability. 128The net income of Wiley Park for the period from 1 June 1969 to 30 June 1969 would thus have been $823. 129In each of the years ended 30 June 1970 through to 30 June 1975 the net income would have been $9,882. 130And in the final period from 1 July 1975 to 31 July 1975 the net income would have been $823. 131A similar exercise needs to be done with respect to Fairfield for the period from 1 December 1972 to 31 July 1975. 132The first period from 1 December 1972 to 30 June 1973 is a period of seven months. At $1,367 per month the net income would have been $9,569 in addition to the $9,882 from Wiley Park giving a total for that year of $19,451. 133For the years ended 30 June 1974 and 30 June 1975 the amount from Fairfield would have been $16,406 together with the $9,882 from Wiley Park, a total of $26,288. 134And in the one month from 1 July 1975 to 31 July 1975 a further $1,367 from Fairfield and $823 from Wiley Park would have been earned totalling $2,190. 135The tax rates for the year ended 30 June 1969 are set out in a schedule to the Income Tax Act 1968 (Cth). For each year thereafter until 1976 there was an annual Income Tax Act. 136The tax rates for the year ended 30 June 1977 and "all subsequent financial years" are set out in a schedule to the Income Tax (Rates) Act 1976 (Cth). Thereafter until 1982 there were annual amendments of that Act. 137The tax rates for the year ended 30 June 1983 and "subsequent financial years" are set out in the Income Tax (Rates) Act 1982 (Cth). Thereafter until 1985 there were annual amendments of that Act. 138The tax rates for the year ended 30 June 1987 and "subsequent financial years" are set out in a schedule to the Income Tax Rates Act 1986 (Cth). Since then there have been annual amendments of that Act. 139The applicable tax rates for the year ended 30 June 1969 were 0.4 cents in the dollar of taxable income not exceeding $200, 1.2 cents in the dollar of taxable income from $201 to $300, 2.9 cents in the dollar on the excess up to $400, 4.5 cents per dollar up to $500, 6.1 cents per dollar up to $600, 8.2 cents per dollar up to $800 and 10.8 cents in the dollar of taxable income not exceeding $1,000. 140KST would have had a tax bill of $34 on rental earnings of $823 in the first period of one month, from 1 June 1969 to 30 June 1969. 141Applying the rates in the Income Tax Act 1969 (Cth) to the net rent of $9,882 for the year ended 30 June 1970, KST would have had a tax bill of $3,342. 142Likewise in the years ended 30 June 1971 and 30 June 1972 KST's tax bill would have been $2,969 and $3,007 respectively. 143In the year ended 30 June 1973 the net income from Wiley Park would have been $9,882 and $9,569 for the seven months from 1 December 1972 from Fairfield would have lifted the net income to $19,451. 144Applying the rates in the Income Tax Act 1972 (Cth) to that net income would have created a tax bill of $7,771. 145In the years ended 30 June 1974 and 30 June 1975 the net income from Wiley Park would have been $9,882 and from Fairfield would have been $16,406 giving a total of $26,288. The tax bills in those two years would have been $12,141 and $12,444 respectively. 146In the final period of one month from 1 July 1975 to 31 July 1975 the tax on $1,367 from Fairfield and $823 from Wiley Park totalling $2,190 would have been $451. 147The total tax bill during the period missing from Mr Hill's exercise would have been $42,159. 148Mr Hill calculated KST's living expenses in 1976 at $8,878, which equates to $740 per month, which for 74 months results in a deduction for living expenses of $54,760. 149When this figure and the tax bill of $42,159 are deducted from the missing income of $104,646 the result is but $7,727 of funds available for investment. 150Sunly and Gordon's exercise resulted in a range of additional funds available for investment of $108,000 to $127,000. I reject the exercise. 151Sunly and Gordon submitted that a simple interest calculation at 10% assuming rent of $8,000 per annum for Wiley Park and $13,000 per annum for Fairfield would add a further $35,400. 152When that exercise is applied to the above figures, interest of only $2,630 eventuates giving a total for principal and interest of $10,357. 153In the month to 30 June 1969 income of $823 less tax of $34 and less living expenses of $740 gives a figure of $49. If that sum were invested at 10% simple interest over 74 months, the result is $30 of interest. 154In the periods ended 30 June 1970, 30 June 1971 and 30 June 1972 the net income was less than the tax and living expenses. 155For the year ended 30 June 1973, net income of $19,451 less tax of $7,771 and living expenses of $8,878 gave $2,802 which invested at 10% simple for 37 months gives interest of $864. 156Similar exercises for the years ended 30 June 1974 and 30 June 1975 calculate interest at $1,098 and $538 respectively. One month's interest to 31 July 1975 is calculated at $100. 157This exercise demonstrates that de minimus figures are involved and it is not worth carrying out an income tax calculation on the interest receipts. 158There remains a significant difference between funds available and the purchase price of Haig Street, Maroubra Road and Queen Street. And that raises the question from where did the additional moneys come? 159The answer must be from the unrecorded receipts of the partnership businesses and any independent investments of KST. And those receipts must not only have been equivalent to the adjusted shortfall. They must have been greater for not all the partnership cash receipts could have been utilised, for that would have spelt detection of what KST was doing. Other Assets 160KST held land and conducted a number of businesses in the Solomon Islands. He held 5,000 shares in Solomon's Delite Bakery Limited, which he acquired in January 1973. KST had his main store in the Solomon Islands in Honiara. There were two branch stores in the Malaita Islands and a fourth branch store in Vanikoro in the outer islands. In 1975 Margaret went to the Solomon Islands and negotiated the sale of one of the branch stores in Malaita. 161KST was the subject of an investigation by the Ministry of Finance Inland Revenue Branch in 1975. He was asked about movements on bank accounts he held in the Solomon Islands. In December 1975 the Commissioner of Income Tax served a statement of claim for in excess of $168,000. In February 1976 a warrant issued attaching his real property. 162KST took steps from 1972 to 1975 to move his assets out of the Solomon Islands. 163In 1966 KST had invested $12,000 on a term deposit on account of Plantation Hong Kong Bros Ltd. The money was rolled over from time to time, but it was withdrawn in 1972. Of this amount $8,000 was paid to AH and E Young Ltd, which it can be inferred, was a company in which KST had some interest or control. 164In similar fashion KST had invested in a term deposit of $25,000 in 1971, which was withdrawn in 1972 by bank cheque. 165The investigation by the Ministry of Finance identified drafts in Hong Kong dollars drawn on KST's Honiara accounts in 1972 and 1973. 166There were in evidence two cheques drawn in his favour on Honiara bank accounts he controlled in April 1975. One was for $2,269.02, the other was for $6,000. 167In May 1975, Margaret went to the Solomon Islands and sold a vessel, the "Halamon", for $12,000, which she brought back to Australia. 168The pattern of withdrawal of funds from KST's bank accounts from 1972 indicates a deliberate repatriation of funds from the Solomon Islands. The shops, worth about $80,000, could not be sold because of the warrant. 169There are no records now in existence to indicate where the moneys went. But since a substantial amount went to Hong Kong it cannot be inferred that any amount in excess of $12,000 was used by KST to purchase Haig Street, Maroubra Road or Queen Street. 170And the timing of the sale of the Halamon suggests that its proceeds were more likely to have been used in the purchase of WYT and YS on 30 July 1975, and I so find. 171The parties are ad idem with respect to the purchase of WYT and YS. KST's funds were used to purchase YS for $30,000 plus stock of $2,400 but his loan account was credited with only $22,400, $10,000 being classified for accounting purposes as the original contribution of capital on behalf of all the partners 172Likewise with WYT, KST advanced $93,500 but is credited with $83,500, the balance of $10,000 again being classified as the original contribution of capital on behalf of all the partners. Stock was purchased for $57,181. 173KST drained funds from his bank accounts to purchase the businesses, but could not meet the entire purchase price in cash. He paid what he could from time to time and the Commonwealth Bank of Australia (CBA) made $60,000 available for WYT and $10,000 available for YS in September 1976. 174KST was a man who acquired property both real and personal for cash. If he had additional readily saleable assets in the Solomon Islands and readily saleable assets in Hong Kong, he would have liquidated them to pay for the businesses. 175When KST left the Solomon Islands he lived with FC Chun, Sunly and Gordon in Hong Kong until they moved to Australia and joined the other part of KST's family in about 1974. In 1976 he sold his Hong Kong apartment for $16,000. He had a bank account or bank accounts in Hong Kong and he owned the issued capital of Plantation Hong Kong Bros Ltd. 176Geoffrey said his firm discovered $430,000 in a Citibank account in Hong Kong in 2002 that was distributed to Margaret, Helen, Sunly and Gordon. It was not a source of funds for the purchase of Haig Street, Maroubra Road or Queen Street. 177Mr Williams submitted that it is likely that KST continued to maintain substantial assets in Hong Kong from 1975 up until the date of his death. He was able to send all his children to boarding school in Australia. 178But, again, there is insufficient evidence from which I could infer that Hong Kong assets were available to KST to defray portion of the purchase price of Haig Street, Maroubra Road or Queen Street. 179It was submitted that Mr Hill had omitted income from Fairfield in the period 1 July 1978 to 30 November 1978. It was said that if Mr Hill had included that rental income it would have added $10,000 to $15,000 to available funds. But Mr Hill did include rental income for that period in his Table 19 and Appendix H. 180In Appendix J Mr Hill calculated income tax that would have been incurred by members of KST's family and paid by him. For that purpose income was attributed to KST each year during the relevant period. That income totalled $584,360. That figure has not been included in Mr Hill's calculation of funds available to KST. It was submitted that it should have been. 181But Appendix J attributes a notional distribution of net profits of the partnership and net income of the investment properties to KST's family members and calculates the tax on those notional attributions. 182To include the $584,360 in the re-worked Appendix N, which calculates the cash available from the net profits of the businesses and the rental income from the investment properties would be to double count. The net profit has already been taken into account in the re-worked Appendix N and its notional attribution to the members of KST's family is not an additional source of funds. 183Furthermore, the tax on the $584,360 apportioned to KST was $240,533 reducing the notional share of net profits of the partnership after tax to $343,827. But that calculation was made on the basis that members of KST's family held interests in Wiley Park and Fairfield. The tax liability for that rental income treated as KST's liability would have been so much greater. 184KST had, from time to time, investments in building societies, mortgage underwriters, cash deposits, bank bills and bank accounts. Margaret said that her father kept several interest bearing deposits both before and after the purchase of the businesses. 185KST had an account with RSL Permanent that he closed on 5 August 1975 with a balance of $2,951.64. He had another account with Margaret at RSL Permanent that he closed on the same day with a balance of $5,080.16. He had an account with NSW Permanent of $10,650 with Janet that he closed on 1 October 1975 in the amount of $10,727.21. He had an investment account with Australia and New Zealand Savings Bank with Margaret that he closed for $1,052.52. He had another investment account with Australia and New Zealand Banking Group Limited (ANZ) with Mary that he closed with $12,122.48 in it. He held an account with Permanent of Australia Building Society Limited with Mary that he closed on 1 August 1975 with $8,458.09. He had a savings investment account with CBA with Mary that was paid out on 25 September 1975 in the amount of $5,595.48. He had another savings investment account with Mary that was paid out on 3 October 1975 in the amount of $8,296.96. He had another savings investment account with CBA with Margaret that was paid out on 6 August 1975 in the amount of $5,494.60. He had an account with NSW Permanent Building Society Limited with Mary that was paid out on 31 July 1975 in the amount of $12,150. He had an ANZ interest bearing deposit that he purchased for $10,925.44 in his name and that of Mary to mature on 12 June 1975 when he received $11,444.38. He had another interest bearing deposit with Mary in ANZ to mature on 7 May 1975 when he received $5,237.50. 186The above investments total $97,811.07. The fact that they were cashed out in 1975 means that they were unlikely to have been a source of the purchase price for Haig Street which was purchased three years later. 187The figures also reveal that the investments were all reasonably short term. Most of them were acquired earlier in 1975. As KST had only recently arrived in Australia it is reasonable to infer that the source of these funds were investments in Hong Kong. 188Since the purchase prices of WYT and YS were considerably in excess of $97,811.07, KST must have liquidated other assets in the Solomon Islands or Hong Kong to meet the purchase prices. And as he needed the CBA loan, it is reasonable to infer that he had drained all his readily saleable assets in those countries. 189At the time of his death KST held $31,514.80 in a CBA account; $120,236.19 in a St George Bank account; $117,519.19 in another St George Bank account; $287,138.34 in a St George Bank interest bearing term deposit; and $346,721.67 in a Citibank term deposit. 190These investments fall into the same category as the $430,000 Citibank deposit in Hong Kong. They were investments after the event of acquisition of Haig Street, Maroubra Road and Queen Street. 191But they do demonstrate substantial holdings by KST in bank accounts. What they do not establish is how those moneys were generated. 192Apart from the real property interests in Haig Street, Maroubra Road, Queen Street, Coogee Bay Road (which was a residential acquisition), Wiley Park and Fairfield, at the time of his death, KST held 40,000 shares in Normandy Mining Limited. 193The report of the administrator of May 2002 indicated that the 40,000 Normandy Mining Limited shares were in the possession of Sunly. They were not a source of funds for the acquisition of Haig Street, Maroubra Road or Queen Street 194I have already mentioned the commercial bills for $100,000 and $110,000 maturing in October 1981. As they matured well after the purchase of Haig Street and well before the purchase of Maroubra Road there is nothing to connect them with those acquisitions or with the much later purchase of Queen Street. 195They fall into that category of investment in short term bank instruments that characterises KST's investment strategies. But the evidence does not reveal the sources from which the purchase price of the commercial bills was drawn. Having liquidated readily saleable assets in Hong Kong and the Solomon Islands when he came to Australia, the only obvious answer apart from the $16,000 for the sale of the apartment in Hong Kong is Wiley Park, Fairfield and the partnership businesses. 196And the only obvious source of funds to acquire the assets other than Wiley Park and Fairfield held by KST at death, including the $430,000 in Hong Kong, were Wiley Park, Fairfield, Maroubra Road, Queen Street and the partnership businesses. 197FC Chun received monthly payments from KST. She also profited from purchasing grocery items on consignment, purchases of jade, profits from trading blue chip shares and in trading currency. She held bank accounts and shares. 198I reject FC Chun's assets as a source of funds utilised by KST to purchase Haig Street, Maroubra Road and Queen Street. KST had no right to call upon them. 199KST obtained an opinion from Priestley QC in October 1975. Clayton Utz instructed Mr Priestley that KST had assets worth something like $80,000 in the Solomon Islands. But that figure included the land that had been frozen by the warrant. 200The instructions were also that KST had assets in Australia worth in excess of $400,000. That must have been an estimate of the value of WYT and YS, and KST's interest in Wiley Park and Fairfield. It may be an overestimate. KST held no other investments in Australia at that stage as he had drained all his bank accounts to purchase the businesses and they had only commenced to operate in August 1975. 201That is the extent of the evidence proffered by Sunly and Gordon of other sources of funds available to KST for the purchase of Haig Street, Maroubra Road and Queen Street. 202No additional sources of funds have been identified. Scott lists the real estate of KST at death and there are no other properties in the list. KST's individual tax returns included no other rental income than that from Maroubra Road, Queen Street, Wiley Park and Fairfield. 203I find that none of the assets formerly held by KST in the Solomon Islands was a source of funds for the purchase of Haig Street, Maroubra Road or Queen Street. 204The proceeds of sale of the apartment in Hong Kong of $16,000 were received two years before the purchase of Haig Street. But I will treat it as a resource that was contributed to that purchase. 205I find that Hong Kong assets other than the $16,000 were not utilised by KST in the purchase of Haig Street, Maroubra Road or Queen Street. 206Geoffrey and Mary were criticised for ignoring KST's entitlement to wages and his capital and loan accounts. But those are matters that relate to the taking of accounts or the quantification of equitable contribution. They do not relate to the source of funds used by KST to acquire Haig Street, Maroubra Road and Queen Street. 207Sunly and Gordon identified five principal problems with drawing an inference that partnership profits were involved in the purchase of Haig Street, Maroubra Road and Queen Street. 208First, it was submitted that Mr Hill's report was of little utility because he did not purport to investigate the source of moneys by which the properties were purchased and, further, he assumed the critical issue that there were no funds other than rental property receipts and the partnership profits available to KST. 209Mr Hill identified cash flows available to KST from known sources, the partnership and the investment properties at Maroubra Road, Queen Street, Wiley Park and Fairfield. He did not include cash flows from Hong Kong and the Solomon Islands but I have found that, with the exception of the $16,000 on the sale of the Honk Kong apartment, whatever assets in the Solomon Islands and Hong Kong that were available to KST were not used to purchase Haig Street, Maroubra Road or Queen Street. 210Mr Hill did not include moneys invested with financial institutions. But I have found that the resources that KST had when he moved to Australia were invested in the purchase of WYT and YS. Thereafter, he had the proceeds of sale of the unit in Hong Kong of $16,000. The only other sources of funds for investment in financial institutions were the partnership businesses, Wiley Park, Fairfield, Maroubra Road and Queen Street. 211The second problem identified by Sunly and Gordon was their submission that there was no evidence to support the significant amount of partnership profit that would have had to be generated and misappropriated for the three properties to have been purchased wholly or substantially with partnership profits. 212Reference was made to Blatch v Archer (1774) 1 Cowp 64, 98 ER 969. It is authority for the proposition that in determining whether a case has been proved on the balance of probabilities, evidence is to be weighed according to the proof which it was in the power of one party to produce and in the power of the other to contradict. 213But in this case the lapse of time meant that few documents are available and neither party was in a position to adduce more evidence than it did. 214The shortfall is substantial but it is inexorable that the only sources of funds that could have provided the purchase price of Haig Street, Maroubra Road and Queen Street were the rental income and partnership receipts, and KST controlled the receipts of WYT and YS. 215It was submitted, thirdly, that there was considerable evidence of other assets and moneys available to KST. I have dealt with that matter. 216Fourthly, it was said that Geoffrey and Mary had failed to differentiate between the moneys generated by the partnership and those to which they were entitled by way of profit share. It was said that credit was not given to KST for his loan account and moneys advanced for the purchase of the partnership businesses. Nor, it was said, did they give credit for wages received or just allowances that would be allowed to KST on the taking of partnership accounts. 217And that is the point. It is appropriate that these matters be considered in quantifying equitable compensation or in the taking of accounts. 218Partnership profits were taken into account by Mr Hill. They would have been so much the less and the shortfall would have been so much greater if amounts for wages, profits and loan accounts were subtracted from the cash flows. The cash flows of the partnership having been calculated by Mr Hill, KST's entitlements were not a separate source of moneys available for the purchase of Haig Street, Maroubra Road or Queen Street. 219Mr Hill carried out his exercise on the basis that KST had been repaid his contributions towards the acquisition costs of WYT and YS prior to the purchase of Haig Street. That was an assumption in favour of the Active Defendants. If those costs were left as debts of the partnership in Mr Hill's exercise it would have reduced the disclosed funds available to the partnership with consequent increase in the shortfall. 220Fifthly, it was said that Geoffrey and Mary treated the three properties and the available funds on a global basis. I have already dealt with that matter. The Murray Report 221Jason J Murray prepared a report with respect to the cash payment journals the subject of discussion in Lowe v Pascoe (No 2) [2012] NSWSC 885. 222The cash payments journals recorded payments appropriated to various expense headings. They also contained monthly bank reconciliation statements. Mr Murray saw no bank statements but the bank balances in the reconciliation statements for the months ended 30 June 1976, 1978 and 1980 agreed with the bank account position as disclosed in the financial statements. He was unable to verify the apportionment to expense items as a significant number of payments had been classified as purchases or sundries. 223While Mr Murray had access to the cash payments journals of WYT for 1 August 1975 to 7 October 1980 and the journals for YS from 1 August 1975 to 3 October 1980 he only had access to income tax returns and financial statements for the years ended 30 June 1976, 1978 and 1980. 224Mr Murray found disbursements to KST in the years ended 30 June 1978 and 1980. He was able to reconcile those transactions to arrive at the balance of KST's loan account as disclosed in the financial statements. 225For the 1976, 1978 and 1980 financial years Mr Murray used performance benchmarks published by the Australian Taxation Office (ATO) indicating industry specific cost of goods sold ratios. From the derived cost of sales Mr Murray derived gross profit margins. He compared these ratios with the performance benchmark ratios for gross profit margins produced by the ATO and found that the imputed gross profit margins adduced for WYT and YS were within the range produced by the ATO. 226Mr Murray used the ATO benchmarks applicable in the year ended 30 June 2008. He had no statistical data for the 1976, 1978 or 1980 financial years. 227The ATO benchmarks are obviously based on figures returned by the businesses surveyed. They would not include cash received but not recorded. For a cash business, therefore, the published ratios are far too low. 228As Mr Murray observed, the ratios need to be amended to reflect appropriate allowances for reasonable salaries for those partners who worked in the business and that would have the effect of lowering the ratios, possibly to figures below the published benchmarks. 229The bank reconciliation statements in the cash payments journals contained a monthly receipt figure. It was not dissected. It was an in globo figure. But for the 1976, 1978 and 1980 financial years the revenue disclosed in the financial statements and the income tax returns was greater than the cash receipts recorded in the bank reconciliation statements in the cash payments journals. 230Mr Murray derived the funds paid by KST for the purchase of WYT and YS. His figures are the same as those derived by Geoffrey and Mary on the one hand and Sunly and Gordon on the other. 231Mr Murray derived a balance of KST's loan account in the 1976, 1978 and 1980 financial years. He also calculated KST's net position or entitlement to partnership assets by combining his entitlements in his capital account with the amounts owed or owing to him pursuant to his loan account. 232As I have said, these are matters that will be analysed in the account of profits or the determination of equitable compensation. As I have explained, they do not form a separate source of funds from that of the funds of the partnership. 233Mr Murray looked at any record of payment of wages and drawings to various partners and discovered that an amount had been allocated and described as salaries to individual partners in the year ended 30 June 1976 for WYT. For KST the figure was $1,000, but Mr Murray could find no further allocation of salary in the financial statements and income tax returns of both businesses. Again, this is a matter to be determined in the quantum hearing. 234Mr Murray's assumption that KST was entitled to an annual salary may be subject to arguments to the contrary. Geoffrey and Mary point out that KST had an additional 10% of the partnership over the other partners apart from FC Chun and profits were divided according to each partner's share. They submit that that was KST's compensation for his role as managing partner. 235Mr Murray said 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. 236Mr Murray concluded that KST withdrew $32,000 from WYT in October 1978 and $55,000 in December 1979. In December 1979 he also withdrew $32,500 from YS. But as I have already pointed out, this is a matter for determination in the taking of accounts or determination of equitable compensation. 237Mr Murray said that he could only identify the $32,000 withdrawn from WYT in October 1978 as money that could possibly have been utilised by KST towards the purchase of Haig Street. 238Of the withdrawals in December 1979, over three years before the purchase of Maroubra Road, Mr Murray said that it was not possible to identify whether these funds were used towards the purchase of Maroubra Road. But on the basis they were repaid to KST, Mr Murray said they would have been a resource that was otherwise available to him to complete the purchase of Maroubra Road. But it was not possible to determine what use KST might have made of the funds in the years before the purchase of Maroubra Road. Mixing of Trust Moneys 239KST had his own funds from rental income from Wiley Park and Fairfield. For the reasons discussed above he needed partnership moneys to purchase Haig Street, Maroubra Road and Queen Street. It is likely that he contributed his own funds to the purchases of those properties rather than relying solely on the partnership businesses. 240This leads me to the conclusion that KST mixed moneys of the partnership with his own moneys. 241The leading case on this topic is Re Hallett's Estate (1879) 13 Ch D 696. A solicitor sold two parcels of bonds and deposited the proceeds in his own account where they were mixed with his moneys. From time to time the solicitor drew cheques upon, and made deposits to, the account. The first parcel was held by him for a client, the second was an asset of his marriage settlement that the trustees had placed under his control. Upon the death of the solicitor a creditor brought an action and part of the credit in the solicitor's account was paid into court. The solicitor's client and the trustees of the settlement applied for payment out of court. There was a sufficient amount in court to satisfy both claims in full. 242Jacobs' Law of Trusts in Australia at [2706] explains the decision of the Court of Appeal thus: "The Court of Appeal held that: (1) both the client and the trustees were entitled to the tracing remedy, the former on the basis of the solicitor-client fiduciary relation (the status of the trustees was not disputed presumably because the course of dealing with the solicitor had rendered him a trustee of the assets coming within his control); (2) the fund was to be treated as containing the proceeds wrongly paid in, although there had between that date and the date of death been deposits of other moneys and withdrawals; (3) this was so because whatever the actual order of events the withdrawals by the solicitor (which apparently had been dissipated) were to be treated as representing deposits of his money and the moneys of the claimants were to be treated as withdrawn only after the exhaustion of those deposits; (4) the reason for allocating withdrawals to the solicitor's deposits was that wherever an act 'can be done rightfully, [a fiduciary] is not allowed to say, against the person entitled to the property or the right, that he has done it wrongfully'; and (5) in these circumstances the rule in Clayton's case, whereby it is assumed that, in the absence of evidence to the contrary, a person intends to draw from his account money in the order of payments in, was not applicable." (References omitted) 243For present purposes, it is the first of these holdings that is significant. 244In Brady v Stapleton (1952) 88 CLR 322, a soon to become bankrupt with intent to defraud his creditors transferred 32,280 fully paid shares in a company to A who already held 1,300 shares in that company. All of the 33,580 shares were of the same denomination and carried the same rights. A knew that the transfer was made with intent to defraud. After sequestration, but before any proceedings were instituted by the trustee in bankruptcy, A transferred 17,000 of the shares to B who also had notice of the intention to defraud. 245It was held that the transfer from A to B included the 1,300 shares that could not be affected by any trust arising out of the fraudulent transfer. The trustee in bankruptcy was entitled to elect to have 32,280 shares transferred to him in lieu of any other available remedy. 246At first instance the impossibility of identification of which of the shares were the subject of the trust led to a refusal to make the orders ultimately made by the High Court. Of this identification Dixon CJ and Fullagar J said at 336: "The view that impossibility of precise identification of trust shares precludes the making of an order for a transfer of shares seems really to amount to something like an inversion of the true position. In the present case its practical effect seems to be to place the burden of identification upon the wrong shoulders." 247In Frith v Cartland (1865) 2 Hem & M; 71 ER 525 at 526 Sir W Page Wood VC said: "If a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own." 248In Vyse v Foster (1872) LR 8 Ch App 309 at 333 James LJ said that a court gives full compensation for any loss or damage through failure of some equitable duty but it had no power of punishing anyone and the court never charged a trustee with more than he actually received or ought to have received. 249In Hospital Products at 109-110 Mason J referred to these cases and to Brady. His Honour said: "The proposition which I have stated based on the observations of James LJ needs to be modified in order to take account of the situation where the fiduciary has so mixed an indeterminate profit with his own property as to render the identification of the gain impossible. There '... the whole will be treated as trust property, except so far as he may be able to distinguish what is his own': Brady v Stapleton, quoting Page Wood VC in Frith v Cartland. The proposition may also need to be modified to take account of a profit acquired by a fraudulent fiduciary through a combination of trust property and his own property or efforts. It may well be that equity in such circumstances will not seek to apportion the gain." (References omitted) 250In Warman International Ltd v Dwyer (1995) 182 CLR 544 it was said that in assessing profits to which a plaintiff was entitled against an errant fiduciary, a distinction should be drawn between those cases in which a specific asset is acquired by the fiduciary and those in which a business is acquired and operated. It was held that the party to whom the fiduciary duty was owed was entitled to an account of profits made by a new company in its first two years of operation less an appropriate allowance for expenses, skill, expertise, effort and resources contributed by the defendants. The court having said so much continued at 561-562: "It is for the defendant to establish that it is inequitable to order an account of the entire profits. If the defendant does not establish that that would be so, then the defendant must bear the consequences of mingling the profits attributable to the defendant's breach of fiduciary duty and the profits attributable to those earned by the defendants' efforts and investment, in the same way that a trustee of a mixed fund bears the onus of distinguishing what is his own." (References omitted) 251For the last proposition the court referred with approval to the above passages from Brady and Hospital Products. 252Sunly and Gordon submitted that Brady and Warman were directed to the errant fiduciary and their rationale did not apply to the conscience of the innocent third party recipient. The submission ignores the fact that an absence of good faith is immaterial as Deane J observed in the above passage from Chan (at [19]). And it ignores the fact that the members of the family to whom Haig Street, Maroubra Road and Queen Street were transferred were volunteers who did not establish that they were purchasers for value without notice. 253The Active Defendants held derivative interests under KST. The question is what part of the interests in Haig Street, Maroubra Road and Queen Street were KST's and what part he held in trust for the partnership. 254It was for the Active Defendants to establish what were KST's interests. They failed to do so. What was established was the net cash available to KST from the partnership and his investment properties, Wiley Park, Fairfield, and Maroubra Road up to 30 June 1988 when Queen Street was about to be purchased. 255In those circumstances, the question is whether the entirety of the interests in Haig Street, Maroubra Road and Queen Street held by the estate of KST and the members of his family are held on trust for the partners in accordance with the authorities on mixing trust property with the trustee's own property. Capacity to Contribute 256It would be inequitable in this case, in my view, where contributions to the purchase price of Haig Street, Maroubra Road and Queen Street cannot be determined to hold that the transferees of those properties hold their entire interests on trust for the partnership. 257This is not a case in which the contribution of partnership funds and the contribution of KST's funds to the purchase of Haig Street, Maroubra Road and Queen Street can be established. There is no evidence of direct contribution. 258But I have no doubt that KST contributed to the purchase of Haig Street, Maroubra Road and Queen Street and I have no doubt that partnership funds were used as well. 259Equity should mould an appropriate order in these circumstances to do justice between the parties. 260The court did so in Warman when it drew a distinction between the acquisition of a business and the acquisition of a specific asset by an errant fiduciary and awarded an account of profits made by the new company in its first two years of operation less an appropriate allowance for expenses, skill, expertise, effort and resources contributed by the defendants. 261In this case what can be determined is the relative capacity to contribute to the purchase price of Haig Street, Maroubra Road and Queen Street of the partnership on the one hand and KST on his reported income on the other. 262The first exercise in the Appendix to these reasons, covering the same period as in the Hill report, 1 August 1975 to 30 June 1988, works out KST's reported net income. 263Net income from Wiley Park and Fairfield is included as these investments were KST's. No one asserted to the contrary. The numbers were taken from Table 18 in the Hill report because the income tax liability is based on net income and not cash flows. 264The net income figures for Maroubra Road are taken from Table 10 in the Hill report. 265 And the net income figure for the partnership is 20% of the figures in Table 7. No adjustments for capital account, loan account or entitlement to a salary are included for the reasons discussed above. 266The first exercise in the Appendix calculates KST's net income at $1,084,977. 267The second exercise in the Appendix calculates the individual incomes of the members of KST's family. That is relevant to the suggestion that KST paid the tax liabilities of all members of his family. The total family income figure of $1,753,617 accords with the figure in Table 21 in the Hill report. 268The third exercise in the Appendix applies the tax rates set out in Appendix J to the Hill report to the individual incomes of family members. It shows that KST had a tax liability of $530,813 and the total tax debt of the family was $698,415. It shows that if KST paid the entire family's tax debts he would have been in a loss situation on his declared income, and unreported cash must have been utilised. 269The final exercise in the Appendix is to determine KST's net cash position. It takes his reported net income of $1,084,977, subtracts his tax liability of $530,813 and subtracts his living expenses of $426,384. The living expense figures come from Table 23 of the Hill report. His net cash over the period totalled $127,780. 270An interest calculation similar to that for the missing income of Wiley Park and Fairfield, with interest payable annually in arrears at 10%, yields a further $48,355. 271On his reported income, KST had a capacity to contribute to the purchase of Haig Street, Maroubra Road and Queen Street to the extent of $202,492 made up of the net cash for the period 1 August 1975 to 30 June 1988 of $127,780, interest on that amount of $48,355, net income of the period prior to 1 August 1975 of $7,727, interest on that amount of $2,630 and the sale price of the Hong Kong unit of $16,000. 272Expressed as a percentage of the purchase prices of Haig Street, Maroubra Road and Queen Street, the result is 8.5% 273I see no reason to depart from those figures. The exercises in the Appendix are a reasonable approach to an apportionment of interests in Haig Street, Maroubra Road and Queen Street given the paucity of financial information. 274KST, his estate and his family must come to equity with clean hands. Having nominated his net income, KST should be held to it, especially when this exercise is aimed at ameliorating the position that would arise if the entirety of the interests in Haig Street, Maroubra Road and Queen Street were in trust for the partnership. 275Rounding the figure up slightly, I hold that 90% of the purchase price of Haig Street, Maroubra Road and Queen Street was contributed from partnership funds. 276I hold that 90% of the KST family interests in Haig Street and in the proceeds of sale of Maroubra Road and Queen Street is held on trust for the partners in proportion to their interests in the partnership. Election 277On 18 July 2011, Geoffrey and Mary's then counsel made an election for equitable compensation. The transcript reveals this exchange: "HIS HONOUR: Mr Henskens, there was one matter I was going to raise with you. Bearing in mind the time constraints, I think the time has come to make an election as to whether you want damages, or equitable compensation, or accounts. HENSKENS: I agree with that. We will be seeking equitable compensation." 278Geoffrey and Mary's present counsel seeks to resile from that determination and elect the taking of accounts. 279The general proposition that a person may not withdraw an election between inconsistent things is stated by Lord Blackburn in Scarf v Jardine (1882) LR 7 App Cas 345 at 360: "that where a man has an option to choose one or other of two inconsistent things, when once he has made his election it cannot be retracted, it is final and cannot be altered." 280Mason J explained the common law meaning of election in Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 655: "A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for the fundamental breach - in each instance the alternative right to insist on performance creates a right of election." 281His Honour went on to say, at 656, that consequent upon communication to the other party by words or conduct of the choice made, it cannot be retracted: "No doubt this rule has been adopted in the interests of certainty and because it has been thought to be fair as between the parties that the person affected is entitled to know where he stands and that the person electing should not have the opportunity of changing his election and subjecting his adversary to different obligations." 282A party may be required to elect between alterative equitable remedies, as for example, where both an account of profits and equitable compensation are available against a fiduciary. 283In Warman the trial judge awarded a sum as an account of the profits. The Court of Appeal awarded equitable compensation. The High Court acknowledged Warman's preference for an account of profits and moulded an order to suit the circumstances. At 569-570 the Court said this: "As has been mentioned, however, Dwyer, B.T.A. and E.T.A. did not argue in this Court or in the Court of Appeal that the respective orders made in the courts below should not have been made against the three of them jointly. In the absence of any such argument, it has effectively been common ground that any orders made should be against all three. That being so, the question arises whether Warman should, at this stage, be given the opportunity to elect between an order for equitable compensation or an order for an account of profits or whether it has already made an election in favour of an account of profits if, as we have found, it is otherwise entitled to such an order. The case been argued in this Court on the footing that Warman seeks an account of profits in preference to the order for equitable compensation made by the Court of Appeal. The material before the Court would seem to indicate that the order for an account of profits which we have found Warman to be entitled to is a more favourable one from its point of view. In these circumstances, the appropriate course would seem to be to delay the making of final orders for seven days to give the appellants (Warman and Peko-Wallsend) the opportunity of seeking to retain the order for equitable compensation made by the Court of Appeal in preference to the order for an account for profits. If no such application is made within that period, the final orders providing for an account of profits should be made." 284It did not concern the High Court that an election in favour of an account of profits might have already been made. It effectively provided for an election at the conclusion of the appeal. 285As the learned authors of Meagher, Gummow and Lehane's Equity Doctrines and Remedies point out at [39-025] the election between an account of profits or equitable compensation is distinct from the election at common law because the election arises as an element of the relief in the particular case and that notwithstanding that in an appropriate case both remedies may be ordered. 286As Viscount Maugham pointed out in Lissenden v CAV Bosch Ltd [1940] AC 412 at 418, the equitable doctrine of election is distinct from the common law doctrine of election: "It is perhaps well to observe here that the equitable doctrine of election has no connection with the common law principle which puts a man to his election (to give a few instances only) whether he will affirm a contract induced by fraud or avoid it, whether he will in certain cases waive a tort and claim as in contract, or whether in the case of wrongful conversion he will waive the tort and recover the proceeds in an action for money had and received. These cases mainly relate to alternative remedies in a court of justice. The history of the common law rules, the principles that apply to them, and the effect of the election are all very different from those which prevail where the equitable principle is in question." 287Being an element of relief an election between an account of profits and equitable compensation need not be made at any particular time in the litigation. An electing party may await the conclusion of the evidence before making the election. 288And being an element of relief, common law stringency for finality, which requires that once made, a common law election may not be withdrawn, does not have the same basis in the other party being entitled to know the case to be met. 289Being an element of relief the election is quite different from an election that forms the basis for the Australian Industrial Relations Commission conducting an arbitration and which prevents the matter being referred to the court (Porter v Macedon Ranges Insurance Agency (1996) 66 IR 195 at 197). 290I am of the view that in the absence of prejudice to another party an equitable election can be withdrawn if it be in the interests of justice to do so. 291In this case the short answer is that the trial was not completed and I am hearing a fresh trial in which none of the parties is bound by Smart AJ's findings of law and fact with respect to the three issues he did not conclude. In these fresh proceedings Geoffrey and Mary are entitled to an election and they have elected an account of profits. 292If I be wrong in that view, those circumstances are material to the question whether leave should be given to withdraw the election made in the original trial. 293The Active Defendants are not prejudiced by the new election. The evidence before Smart AJ is before me. They had the opportunity, and exercised it, of cross-examination of witnesses in the fresh trial. 294The issue of damages has been postponed and it is in that forum that the Active Defendants will have the opportunity to contest amounts in the taking of accounts. 295Another matter of relevance to the question whether the election before Smart AJ should be withdrawn is the fact that the election was made upon the assumption that Smart AJ's reasons were determinative for the purpose of the proceedings and that assumption has proved to be erroneous and could not have been foreseen. 296Sunly and Gordon say that Smart AJ's reasons have not had a change of status. They remain with respect to the five issues he decided. And at the time the election was made Smart AJ's reasons were the subject of an application to clarify them or to reconsider them so that Geoffrey and Mary were aware that the reasons could be changed at some time in the future. 297I do not think that answers the proposition. What was not foreseen was the replacement of Smart AJ's reasons by a fresh trial and a fresh set of reasons. 298Geoffrey and Mary submitted that the cash payments journals that I let into evidence occurred after the election had been made with no anticipation that the journals would be produced and taken into evidence. 299Sunly and Gordon point out, however, that the journals were served on Geoffrey and Mary's solicitors in December 2010 and the election was made on 18 July 2011. 300Finally, Geoffrey and Mary submitted that there was no submission by Sunly and Gordon before Bergin CJ in Eq that Geoffrey and Mary had made a binding election. Her Honour's conclusion that one of the three remaining questions for the fresh trial was whether Haig Street, Maroubra Road and Queen Street are held on trust may not have been made, it was submitted, if her Honour was aware of an election in favour of equitable compensation. 301Sunly and Gordon respond that it was for Geoffrey and Mary to raise this matter before her Honour. I need not decide this controversy, as it is not of great significance. 302In the circumstances of this case I am of the view that Geoffrey and Mary may withdraw the election made by their then counsel before Smart AJ. Geoffrey and Mary are entitled to an account of profits less an appropriate allowance for expenses, skill, expertise, effort and resources contributed by the Active Defendants. 303In relation to the matter in general, Geoffrey and Mary and Sunly and Gordon made submissions as to the credit of their opponents. I prefer, however, to base my judgment on the financial information available, limited though it be. Dissolution of Partnership 304The first issue in this fresh trial is whether or not the partnership should be dissolved. 305Sunly and Gordon submit that no order for dissolution is necessary. They rely on s 32(b) of the Partnership Act. It provides that, subject to any agreement between the partners, a partnership is dissolved if entered into for a single adventure or undertaking, by the termination of that adventure or undertaking. They rely upon the sale of YS in May 1986 and the closure of WYT on 30 June 1989. 306But there is no single date on which an adventure or undertaking was terminated. As the provision deals with a single adventure or undertaking, it presupposes that there will be but one date of termination. 307Besides, there is no evidence that the partnership was for a single adventure or undertaking. The evidence is to the contrary. The business the subject of the partnership agreement was WYT. The partnership agreement did not provide that it was the only business the partnership could acquire and YS was purchased subsequently. 308Clause 20 of the partnership agreement provided that all property purchased or acquired, or contracts, or leases entered into by a partner in his own name as agent for the partnership should become partnership property and all such property and assets so purchased and acquired should be held by such partner in trust for the partnership. 309Mr Williams had an alternative submission that the partnership was dissolved on 20 October 1997 when KST died. Reference was made to s 33(1) of the Partnership Act. It provides that subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner. 310But cl 16 of the partnership agreement provided that the death of a partner should not dissolve the partnership. 311Geoffrey and Mary seek an order that the partnership be dissolved. I will make that order. Fiduciary Duties Owed by KST and Breaches of Them 312The second issue in the new trial is whether KST owed any fiduciary duties and whether he breached any of them. 313I have found that KST owed to his co-partners a duty of good faith, a duty of honesty and a duty not to obtain a private advantage at the expense of co-partners without their full knowledge and consent. 314I have also found that in utilising partnership money in the purchase of Haig Street, Maroubra Road and Queen Street, KST breached each of those duties. Whether Properties are Held on Trust 315This is a case of an errant fiduciary stealing trust money and mixing it with his own. 316I have found that since KST took money from the partnership and it was trust money, it can be traced into his family's interests in Haig Street, Maroubra Road and Queen Street and into the proceeds of sale of Maroubra Road and Queen Street. 317I have held that partnership funds accounted for 90% of the purchase price of Haig Street, Maroubra Road and Queen Street. 318And I have held that 90% of the KST family interests in Haig Street and in the proceeds of sale of Maroubra Road and Queen Street is held on trust for the partners in proportion to their interests in the partnership 319I will hear the parties on appropriate declarations and orders with respect to this determination of liability and directions as to the taking of accounts. I will hear the parties on costs. ********** Appendix DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 December 2012