Cypjayne Pty Ltd v Sverre Rodskog

Cypjayne Pty Ltd v Sverre Rodskog - [2009] NSWSC 301 - NSWSC 2009 case summary — Zoe

[12]

1494/09 Cypjayne Pty Limited & ors v Sverre Rodskog & anor JUDGMENT 1 HIS HONOUR: The plaintiffs Cypjayne Pty Limited, B & L Trading Pty Limited, D & C Properties Pty Limited, Maurice Tulich, Curtis Jack Mann and David Brodie, and the defendants Sverre Rodskog and Paul Edwin Cayzer, are the parties to a Deed of Partnership, entitled the Blue Hills Partnership Agreement, dated 20 May 2004. Cypjayne, B&L, D&C, Mr Rodskog and Mr Cayzer are the partners. Mr Tulich, Mr Mann and Mr Brodie respectively guarantee the obligations of Cypjayne, D&C and B&L, each being the principal of the corresponding company. Mr Tulich and Mr Mann are also, by the Partnership Deed, appointed the Chief Executive Officers of the Blue Hills Partnership, in which capacity they are given extensive powers of management. The Partnership Deed provided that the Partnership Assets (of which a retirement village development at Prestons, called Blue Hills Village, is the main one) could be used to secure borrowings for the development or acquisition of other retirement villages by some or all of the Partners (or their Associated Persons), provided that all the partners were given an opportunity to participate in that development or acquisition. Bonvale Pty Limited, a company in which all of the Partners other than Mr Rodskog have a direct or indirect interest, is developing a retirement village near Menangle, called Durham Green Village. In these proceedings, the plaintiffs (pursuant to a Summons filed on 12 February 2009, as subsequently amended), claim: 1. A declaration that on the true construction of the Deed dated 20 May 2004 between the Plaintiffs and the First Defendant … ("the Partnership Deed") the First Defendant is obliged to permit the Partnership Assets (as defined in the Partnership Deed) to be furnished as security for the finance facilities specified in the letter of offer dated 4 December 2008 from the Adelaide Bank to the Directors of Bonvale Enterprises Pty Limited ("the Facilities").

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31 Accordingly, in my view, clause 17.4, properly construed, does not require that Mr Rodskog be given an opportunity to participate in any relevant development or acquisition; but if it does, he was given such an opportunity in respect of both the Durham Green and the Mayfield developments. All the other partners are participants. The requirements of clause 17.4 are satisfied. 32 Clause 17.3. For Mr Rodskog, it was submitted that clause 17.3, in limiting the use of Partnership Assets as security under clause 17 to "the acquisition or development of other retirement villages", was not satisfied if the security was to refinance existing facilities in respect of such a village. 33 The concept of "development or acquisition of other Retirement Villages" is one that is used repeatedly throughout relevant parts of the Partnership Deed, apparently compendiously to describe an activity in which it was anticipated that the Partners (except Mr Rodskog) would engage: Recitals C(b), D, Clauses 17.1(a), (b), 17.3, 17.4. As already mentioned, the Partners cannot then have been blind to the circumstance that they had already embarked upon the Mayfield and Durham Green developments; indeed those must have been at the forefront of their minds when contemplating the requirement for use of Partnership Assets as security. What was contemplated by the phrase "security for the acquisition or development of other retirement villages" was that the assets in question be used as security for financial accommodation for the purpose of the acquisition or development of other retirement villages. Development is an ongoing activity, and includes holding the property during the period of development. Moreover, the concept of securing financial accommodation for a particular purpose in my view extends to securing financial accommodation that replaces existing facilities for those purposes, by way of refinance. 34 For all those reasons, I do not accept that the proposed facilities are not "for the acquisition or development of other retirement villages" within clause 17.3. 35 However, a question also arose as to whether Bonvale was one of the "Partners", or an "Associated Person of some or all of the Partners", within clause 17.3.

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37 "Associated Person" is defined by clause 1.1(a) as having the same meaning as in the Dictionary to the Duties Act, 1997. In that Dictionary, its meanings include: (a) persons are associated persons if they are related persons, … 38 In turn, the definition of "related person" includes: (e) a private company and a trustee are related persons if the company, or a majority shareholder or director of the company, is a beneficiary of the trust … of which the trustee is a trustee. 39 Mr Tulich and Mr Mann are the directors of Bonvale. Mr Mann is the first named "beneficiary" in the trust deed of a discretionary trust, of which B&L is the trustee, and as such is one of the class of persons to whom income and capital of the trust may at the trustee's discretion be distributed. Similarly, Mr Tulich is the first named "beneficiary" of a discretionary trust, of which Cypjayne is the trustee, and as such is one of the class of persons to whom income and capital of the trust may at the trustee's discretion be distributed. Whether Bonvale and Mr Mann, and Bonvale and Mr Tulich, are related persons within the definition and, it follows, Associated Persons within the meaning of the Partnership Deed, depends upon whether an object of a discretionary trust is within the meaning of "beneficiary" in the definition of "related person" in the Duties Act. For the following reasons, I have concluded that it is not. 40 First, in principle, a member of a class of persons in whose favour a trustee may exercise a discretion to appoint trust property is not strictly speaking a beneficiary, and even though it is common drafting practice to describe such persons as "beneficiaries" in the trust deed, this cannot change their true character as objects of a trust power into beneficiaries properly so-called. A "discretionary trust" such as those in question here is a trust coupled with a special power of appointment: the beneficiaries are not determined at the moment of creation of the trust - either as to identity or quantum of interest - and the choice of beneficiary, or determination of the extent of his or her interest, or both, is left to the trustee to decide [Jacob's Law of Trusts in Australia, 5th ed, 736 [2916]]. In Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226; (1998) 151 ALR 1; [1998] HCA 4, the High Court explained (at [8]) that the meaning of the term "discretionary trust" was a matter of usage rather than of doctrine, and the usage was descriptive rather than normative; a "discretionary trust" is not a component of the doctrinal divisions by which there is determined the formal and essential validity of trusts. This reflected what had been written by Gummow J in the Federal Court in FCT v Vegners (1989) 90 ALR 547, where his Honour wrote (at 551-2): There was some discussion by counsel of the term "discretionary trust" and related terms. A fixed trust is used to describe a species of express trust where all the beneficiaries are ascertainable and their beneficial interest are fixed, there being no discretion in the trustee or any other person to vary the group of beneficiaries or the quantum of their interests. The expression "discretionary trust" is used to identify another species of express trust, one where the entitlement of beneficiaries to income, or to corpus, or both, is not immediately ascertainable. Rather, the beneficiaries are selected from a nominated class by the trustee or some other person and this power may be exercisable once or from time to time. The power of selection is a special or hybrid power; a power exercisable in favour of any person including the donee of the power would be a general power and thus would be tantamount to ownership of the property concerned, whilst the objects of a special power would be limited to some class, and the objects of a hybrid power would be such that the donee might appoint to anyone except designated classes or groups.

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