COMPANIES AND PARTNERSHIP LAW

Companies and Partnership Law



Companies and Partnership Law

Part 1

There can be no doubt that if the agreement to grant Dr Chan a lease of the partnership premises at Mansfield Park had been made before the partnership had been dissolved Dr Chan would have held any interest which he acquired under that agreement on a constructive trust for the partnership between himself and Dr Zacharia. It is firmly established by a line of authorities which includes Featherstonhaugh v. Fenwick (1810) 17 Ves 298, at p 311 (34 ER 115, at p 120); Clegg v. Fishwick (1849) 1 Mac & G 294, at pp 298-299 (41 ER 1278, at p 1280); Clegg v. Edmondson (1857) 8 De GM & G 787, at pp 806-807 (44 ER 593, at p 601); and In re Biss. Biss v. Biss (1903) 2 Ch 40, at pp 56-57 and 61-62, that a partner who, without the consent of his co-partner, obtains a renewal of a lease of the partnership premises in his own name, prima facie holds the lease on a constructive trust for the partnership.

The expression "renewal" in this statement includes the grant of a new lease, whether or not there was a right of renewal of the lease originally held by the partners. The Court of Appeal in In re Biss. Biss v. Biss drew a distinction between two classes of cases - one (of which trustees form a notable example) whose members are absolutely incapable of retaining for themselves the benefit of a renewal, and the other (which includes partners) in which there is no more than a rebuttable presumption of fact that the person concerned is incapable of retaining that benefit. If, as the judgment of Romer L.J. in that case, at p.61, suggests, the second class consists of persons who do not clearly occupy a fiduciary position, it is difficult to see why partners should fall within it, since, as Dixon J. said in Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd. [1929] HCA 24; (1929) 42 CLR 384, at p 407: "The relation between partners is, of course, fiduciary." However, the distinction between the two classes is well recognized in the authorities and may be drawn, not between persons who owe a fiduciary duty and those who do not, but because of the nature of the particular fiduciary duty in question. That seems to be the view of so distinguished an equity lawyer as Parker J., who, in Griffith v. Owen (1907) 1 Ch 195 explained, at pp 203-204, very clearly the principles involved: "The principle of Keech v. Sandford (Sel Cas 61; 2 W & T 7th ed. p 693) is primarily applicable to renewal of leases, and depends partly on the nature of leasehold property and partly on some fiduciary relationship or duty existing on the part of the person whom it is sought to declare a trustee towards the persons who seek to have the trust ...