David & Ros Carr Holdings Pty Ltd v Ritossa

Background to cl 2 of the Trust Deed

1. It was not in dispute that the reason for the inclusion of cl 2 was to enable the Trust to qualify as a 'fixed trust' for land tax purposes. Where a trust owning land is a fixed trust, it will not be a 'special trust' and therefore the trustee will be entitled to claim the tax-free threshold under Part 2 of Schedule 13 of the Land Tax Act 1956 (NSW).
2. The provisions of the Land Tax Management Act 1956 (NSW) (LTMA), setting out when a trust will be a fixed trust are ss 3A(2), (3), (3A) and (3B) which provide as follows: (2) For the purposes of this section, a trust is a fixed trust if the equitable estate in all of the land that is the subject of the trust is owned by a person or persons who are owners of the land for land tax purposes (disregarding section 25 (3)). (3) For the purpose of determining whether a trust is a fixed trust under this section, any equitable interest of the trustee as trustee of the trust is to be disregarded. (3A) If a trust satisfies the relevant criteria, the persons who are beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land that is the subject of the trust and, accordingly, the trust is taken to be a fixed trust. Note - Under section 25, owners of an equitable estate or interest in land are liable in respect of land tax as if they were legal owners of the land. Owners of an equitable estate in land are treated as secondary taxpayers. (3B) For the purposes of this section, the relevant criteria are as follows - (a) the trust deed specifically provides that the beneficiaries of the trust - (i) are presently entitled to the income of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust, and (ii) are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property, (b) the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed, (c) if the trust is a unit trust - (i) there must be only one class of units issued, and (ii) the proportion of trust capital to which a unit holder is entitled on a winding up or surrender of units must be fixed and must be the same as the proportion of income of the trust to which the unit holder is entitled.
3. The context of these provisions is that land tax is payable on the taxable value of all land in New South Wales which is not exempt, by the 'owner' of the land at midnight on 31 December immediately preceding the land tax year. The term 'owner' is defined in s 3(1) of the LTMA to include, relevantly, every person who jointly or severally whether at law or in equity is entitled to the land for an estate of freehold in possession. Where land is owned by the trustee of a fixed trust, the trustee is liable to tax as if it was beneficially entitled to the land (s 24) and the beneficiaries of the trust are also liable to land tax, as secondary taxpayers, as if they were the legal owner of their interest in the land, but subject to a deduction to prevent double taxation (s 33).
4. The current definition of 'fixed trust' was introduced in 2006 to overcome the decision in CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) [2005] HCA 53; (2005) 224 CLR 98. This is apparent from the Second Reading Speech for the State Revenue Legislation Amendment (Tax Concessions) Bill 2006 (NSW) which introduced it, which states (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 17 October 2006 at 2751): In September 2005 the High Court ruled that in most unit trusts a unit holder is not the owner of the land held by the trust. This decision means that the unit trust, and not the unit holder, is liable for land tax at the flat rate applying to special trusts with no entitlement to the threshold. Measures were announced in the 2006-2007 budget to provide relief for certain family unit trusts and for unit trusts that restructure into fixed trusts. The amendments in this bill implement these measures with effect from the 2006 land tax year. The amendments set out the eligibility criteria for family unit trusts to continue to receive the benefit of the tax-free threshold. The amendments also allow unit trusts that elect to restructure into fixed trusts to do so without incurring State taxes on the restructuring transactions.
5. CPT Custodian concerned a similar definition of 'owner' in the Land Tax Act 1958 (Vic). The issue in that case was whether two companies which held units in unit trusts, the trustees of which were the registered proprietors of land in Victoria, were subject to land tax on the basis that they were entitled to an estate of freehold in possession in the land. The High Court held that none of the unit holders had such an entitlement because under the terms of each unit trust deed, while the beneficial interest in the fund as a whole was divided into units, no unit conferred any particular interest in any part of the assets of the fund, in contrast to the trust deed at issue in Charles v Federal Commissioner of Taxation (1954) 90 CLR 598; [1954] HCA 16: see [20] and [29]-[40]. As a consequence, the only person liable to land tax in respect of the land held in each unit trust was the trustee.
6. In CPT Custodian, it was also held that the position was no different in the case of those unit trusts which had a single unit holder because the rights of the trustee to indemnity and exoneration for the discharge of liabilities incurred in the administration of the trust meant that the unit holder could not bring the trust to an end under the 'rule' in Saunders v Vautier: see [49]-[51].
7. The High Court stated at [47] that the modern formulation of the rule in Saunders v Vautier is as follows: There is a further consideration. The facts of the present cases do not, in any event, answer the modern formulation of the rule in Saunders v Vautier, stated as follows in Thomas on Powers: Under the rule in Saunders v Vautier, an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation. Lightman J said in Don King Productions Inc v Warren that the rule only applies if, as was not so there, the beneficiaries were entitled to wind up the trust and require the trustee to assign to them the subject-matter of the trust.
8. It may be noted that the last part of this observation in CPT Custodian conforms closely to the words of the second limb of s 3A(3B)(a)(ii) of the LTMA referred to above.
9. The High Court in CPT Custodian went on to recognise at [47]-[51] a qualification in the operation of the rule in Saunders v Vautier which is that it will not apply where the trustee has rights of reimbursement and exoneration in respect of the trust property which are unsatisfied. In CPT Custodian itself, the trustee had an unsatisfied right of reimbursement and exoneration for its fees, which mean that it was impossible to say what the trust fund in question was, and consequently the rule in Saunders v Vautier did not apply. It may be noted that this aspect of the decision in CPT Custodian is not relevant to whether the Trust is a fixed trust due to s 3A(3) of the LTMA: see Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111 at [18].
10. Prior to the 2006 amendment, the expression 'fixed trust' was defined in s 3A(2) to mean a trust under which 'the equitable estate in all the land that is the subject of the trust is owned by a person or persons who would … be considered to be owners of the land for land tax purposes'. In light of the decision in CPT Custodian, many unit trusts would not satisfy this definition because the unit holders would not be regarded as owners of any equitable estate or interest in the land.
11. Section 3(3A) overcomes this problem by deeming the persons who are beneficiaries of a trust which satisfies the 'relevant criteria' to be the owners of an equitable estate in the land, so that the trust will qualify as a fixed trust.
12. In Sayden, Gzell J (Meagher JA and Tobias AJA agreeing) after setting out the terms of s 3(3A) and (3B) made the following observations: [15] Present entitlement to income is a well-known concept in taxation law. In Harmer v FCT [1991] HCA 51 ; 173 CLR 264 at 271 the High Court said: The parties are agreed that the cases establish that a beneficiary is "presently entitled" to a share of the income of a trust estate if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment. (references omitted) [16] The passage was cited with approval in Commissioner of Taxation v Bamford [2010] HCA 10 ; 240 CLR 481 at [37]. [17] By contrast, present entitlement to capital is novel. Presumably it means an interest in the trust property vested in interest and in possession in that there is no other interest in the property that precedes it, together with a present legal right to demand division of the trust property or its proceeds among the beneficiaries. [18] Any interest of the trustee under its right of indemnity is not relevant in this context because s 3A(3) of the Management Act requires any equitable interest of the trustee to be disregarded. [19] If a trust deed specifically provides that the beneficiaries are presently entitled to the income subject to payment of the trustee's proper expenses and they are presently entitled to the capital of the trust and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property, the trust satisfies the relevant criteria and by reason of s 3A(3A) of the Management Act, the beneficiaries are taken to be the owners of an equitable estate in the land the subject of the trust and the trust is a fixed trust.
13. Gzell J did not make any further observations regarding the proper construction of ss 3A(A) and 3A(B). The focus of the remainder of his Honour's reasons was the question whether the appeal panel had erred in concluding that the trust deed at issue in that case had failed to comply with the relevant criteria in s 3A(3B).
14. The relevant clause of the trust deed before the Court in Sayden was in the following terms: 2(c) Notwithstanding any other provision of this Deed, the Trustee hereby admits that the Registered Holders: (i) are presently entitled to a fixed proportion of any distribution of income or capital of the trust, made by the Trustee, based on the proportion of income or capital units which each person owned in the Trust; and (ii) are presently entitled to all of the income and capital of the Trust, subject to the payment of the expenses properly incurred by the Trustee in the authorized administration of the Trust; and (iii) may require the Trustee to wind up the Trust and distribute either the land or the net proceeds of the sale of the land; and (iv) the Trustee shall not remove, restrict or otherwise affect by the exercise of any discretion, or by a failure to exercise any discretion, paragraphs (i), (ii) and (iii) of this sub-clause.
15. Immediately after setting out this clause, Gzell J made the following general observations about it at [32]-[33]: Apart from cl 2(c)(i) of the Deed, the provisions mirror s 3A(3A) and s 3A(3B) of the Management Act. The additional provision defines a registered holder's present entitlement to a fixed proportion of income and capital by reference to the proportion of income or capital units held by the registered holder. And it adds further protection to that provided by cl 2(c)(iv) by also providing that the provisions of cl 2(c) stand, notwithstanding any other provision of the Deed. The entitlement under cl 2(c)(iii) of the Deed of a registered holder to require that the Unit Trust be wound up and distributed by necessary implication includes a grant of power to the trustee to do each of those things.
16. Consistently with that last statement, his Honour said at [44] that the effect of cl 2(c)(iii) was as follows: A registered holder may require the trustee to wind up the Unit Trust and distribute either the land or the net proceeds of the sale of the land. All that is required is that the registered holder make the requirement known to the trustee.
17. His Honour explained the reasoning for that conclusion at [54]-[57] as follows: The reference in cl 2(c) of the Deed is to registered holders, but cl 1(l) of the Deed provides that words importing the singular shall include the plural and vice versa. The reference to registered holders in cl 2(c) of the Deed is best understood as a reference to each of them because cl 2(c)(i) and cl 2(c)(ii) describe entitlements that are held and enjoyed separately. It follows that any registered holder could require the trustee to wind up the Unit Trust under cl 2(c)(iii). That enables a realisation of the value of a unit in circumstances in which a request for redemption under cl 9 is refused or hedged around with conditions. It would hamper the ability to gain access to the capital represented by a unit if distribution upon a winding up was only available upon a request by a majority of, or all, the registered holders. That could not have been the presumed intention of the parties to the Deed and its amendment.
18. I agree with the defendants' submission that Sayden was essentially a decision regarding the proper construction of a different trust deed to the one in the present case. However, aspects of the reasoning in Sayden on the construction of the trust deed in that case will be referred to below.
19. One further point may be noted regarding the structure of the specification of the 'relevant criteria' in s 3A(3B). The provision has three elements: sub-paragraph (a) requires the trust deed to specifically provide that 'the beneficiaries' have the particular entitlements specified; sub-paragraph (b) then requires that those entitlements are entrenched in the trust deed; and sub-paragraph (c) then sets out a further requirement which must be satisfied if the trust is a unit trust.
20. In so far as sub-paragraph (a) of s 3A(3B) is concerned, on its face it will be satisfied if the beneficiaries collectively have the relevant entitlements. That view is supported by the fact that the second limb of sub-paragraph (a)(ii) (commencing 'and may require …') is directed to whether the rule in Saunders v Vautier applies, which confers a right on the beneficiaries acting collectively, rather than individually. It would be an odd use of language if the first limb of sub-paragraph (a)(ii) (commencing 'are presently entitled …') were read differently as requiring that the beneficiaries should have the present entitlement to capital individually and severally rather than collectively.

Construction of cl 2 and 16 of the Trust Deed

1. The plaintiffs contend that DRCH is entitled to require the Trustee to wind up the Trust by distributing the trust property or the net proceeds of the trust property to unit holders in proportion to the unit holdings by virtue of cl 2.1(b) of the Trust Rules, or alternatively, that DRCH can call for 50% of the trust capital pursuant to cl 16.1. The defendants contend that the rights conferred on unit holders by cl 2.1(b) and cl 16 are conferred on them collectively and not severally.
2. There was no dispute between the parties regarding the approach to be taken on the proper construction of the Trust Deed (including the Rules). It is to be construed in accordance with the principles which apply to the construction of contracts: Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [17], [53]-[55], [59] and [102]-[105]. Those principles include relevantly the following: 1. The meaning of each provision of the Trust Deed is to be determined objectively, by reference to what a reasonable person would have understood the provision to mean having regard to the text, context and purpose of the deed: Mount Bruce Mining Pty Ltd v Wright Prospecting (2015) 256 CLR 104; [2015] HCA 37 at [46]. 2. The words of the Trust Deed should be given their natural and ordinary meaning unless they had a special or technical meaning, or the context or purpose suggests otherwise: Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93 at [21]. 3. The Trust Deed should be construed as a whole, since the meaning of any one part of it may be revealed by the other parts, and the words of every provision should if possible be construed so as to render them all harmonious one with another: Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109. Consistently with that principle, a contract which gives a congruent operation to the various components of the whole instrument is to be preferred to one that does not: Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [16]. 4. A construction which avoids a capricious, unreasonable, inconvenient or unjust result is to be preferred to one that does not where the provisions of the instrument permit: Australian Broadcasting Commission at 109; Onley v Catlin Syndicate Ltd as Underwriting member of Lloyd's Syndicate 2003 (2018) 360 ALR 92; [2018] FCAFC 119 at [33].

(a) s 181 of the Conveyancing Act

1. The plaintiffs' submission is that through the operation of s 181 of the Conveyancing Act, the words 'the unit holders' in cl 2 are to be understood as a reference to each of the unit holders (not them acting together unanimously or by majority): Defendants' Opening Submissions [39]. In effect, this requires that cl 2 be read as: 'The Unit Holders or each Unit Holder are or is: (a) presently entitled to the income of the trust…; (b) presently entitled to the capital of the trust and may require the trustee to wind up the trust…'.
2. There are a number of difficulties with this argument. First, s 181 permits a reading of 'the unit holders' in cl 2 (and also in cll 9, 15 and 16) as including the singular but not the reworking of the provisions so that it refers to unit holders in the singular and not in the plural. As was said by Russell J in Re A Solicitors' Arbitration [1962] 1 WLR 353 in relation to s 61 of the Law of Property Act 1925 (UK) which is in the same terms as s 181, it is a provision merely designed to shorten the drafting of deeds by avoiding verbosity and not to enlarge the party's rights and obligations: Re A Solicitors' Arbitration at 356-357; AIB Group (UK) Ltd v Martin and Another [2001] UKHL 63 at [8] per Lord Millett. Further, it would create a commercial nonsense in that, without the addition of further words to cl 2, the provision would entitle each unit holder to the income and capital of the trust without any qualification as to the proportion of the entitlement. Treating the expression 'the unit holders' in cl 2 as a reference to the unit holders collectively avoids that issue because cl 15.2 and cl 16.1 identify the proportionate entitlement to income and capital of each unit holder.
3. Second, as submitted by the defendants, the Rules carefully delineate between a unit holder and the unit holders. Where the Rules intend to refer to a single unit holder the reference is to 'any unit holder' (cll 6.2, 11.26, 11.27, 11.30, 11.31, 14.1, 14.4, 14.10 and 19.3), 'a unit holder' (cll 6.3, 7.1, 11.28, 11.29, 14.6, 18.1 and 19.3) or 'the unit holder' (cll 7.3, 14.7, and 19.3). In contrast, where the Rules intend to refer to the unit holders collectively, the reference is to 'unit holders' (cll 6.1 and 14.1), 'the unit holders' (cll 2.1, 3.1, 3.2, 6.1, 9.2, 11.9, 13.1, 14.2 and 14.3) or 'every unit holder' (cl 6.1). The different references to the singular and the plural appear to be deliberate and designed to indicate when a reference to the unit holders individually or collectively is intended. That, of itself, is a strong indication of a contrary intention so that s 181 does not apply.

(b) Decision in Sayden

1. As noted above, Gzell J in Sayden construed a clause in another trust deed having a similar purpose to cl 2.1 of the Rules to confer a right on the unit holders individually on the basis that the reference to 'registered unit holders' was a reference to each of them. The plaintiffs' reliance on this aspect in the decision of Sayden is in my view misplaced.
2. First, as the defendants submitted, the decision in Sayden regarding the proper construction of the trust deed in that case is of no precedential value in determining the proper construction of the Trust Deed and the Rules: Dreamstreet Lending Pty Ltd v Weiss (No 2) [2023] FCA 684 at [155].
3. Second, the trust deed before the Court in Sayden was subtly different to the Trust Deed and the Rules here in a number of respects. The structure of cl 2(c) differed from cl 2 of the Rules both in the division of the rights into separate subparagraphs and the inclusion in cl 2(c)(i) of an express reference to the proportionate entitlement of registered unit holders to income and capital (in contrast to the Rules where this is dealt with separately in cll 15 and 16). Further, important to the reasoning of Gzell J was that cl 1(1) of the deed before the Court in that case 'provides that words importing the singular shall include the plural and vice versa' (see [54]). His Honour does not say that the clause contained a qualification that its operation would be subject to a contrary intention (in contrast to s 181 of the Conveyancing Act). It cannot be assumed that the clause did contain such a qualification given that his Honour makes no mention of it. It is not uncommon for interpretation clauses to operate without such a qualification e.g., Callide Power Management Pty Ltd v Callide Coalfields (Sales) Pty Ltd (No 5) [2016] QSC 199 at [87].
4. The absence of any discussion of the question whether there was a contrary intention in the trust deed before the Court in Sayden makes the decision distinguishable, particularly as the Trust Deed and the Rules here contain the various indications of a contrary intention referred to earlier.

(c) Clause 2.1 intended to implement the relevant criteria

1. While it is not in dispute that cl 2 of the Rules is intended to implement the relevant criteria in s 3A(3B) of the LTMA, for the reasons explained above, in my view the relevant criteria do not require that unit holders each have an individual right to call for their share of the capital of the Trust. A trust deed will comply with s 3A(3B) if the unit holders collectively are presently entitled to the capital to the Trust. In any event, if I am wrong in that view, this would not be relevant to the proper construction of the Trust Deed which must be undertaken before the determination of whether the Trust Deed satisfies the relevant criteria.

(d) Role of cl 2.3 of the Rules

1. While cl 2.3 of the Rules gives cll 2.1 and 2.2 primacy, it only does so to the extent that another provision of the Rules is contrary to cll 2.1 and 2.2 properly construed. In my view, once cll 2.1 and 2.2 are properly construed, there is no inconsistency which engages cl 2.3

(e) Trust loss rules

1. The plaintiffs point out that in order for the Trust to be able to carry forward a loss for tax purposes, the Trust Deed needed to be drafted so as to comply with the requirements for a 'fixed trust' for the purposes of the trust loss rules in Schedule 2F of the Income Tax Assessment Act which turns on whether the unit holders have a fixed entitlement to all the income and capital of the Trust, being a vested and indefeasible interest in income and capital: Sch F, ss 272-5. However, as is clear from the passage from Harmer quoted in Sayden at [147] above, having a vested and indefeasible interest in income and capital is but one of two requirements for a unit holder to have a present entitlement to income and capital. In any event, whether the Trust is a fixed trust for income tax purposes does not assist with the proper construction of cl 2.1 and the associated provisions dealing with the entitlements of the unit holders to income and capital.
2. For these reasons, none of the contentions raised by the plaintiffs require the conclusion that cl 2.1(b) and/or cl 16.1 confer an entitlement on each unit holder to call for its proportionate share of capital or to wind up the Trust.
3. A critical provision of the Trust Deed which the plaintiffs did not address is cl 17.1 which provides that the trust property is held on trust for the unit holders 'as tenants in common in proportion to the number of units held'.
4. The expression 'tenants in common' has a legal meaning and it is presumed that it is used in its legal sense there being no indication of a contrary intention: Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Lawbook Co) at [20.60]. The nature of a holding of property as tenants in common was explained by the High Court in Nullagine Investments Pty Ltd v Western Australia Club Incorporated (1993) 177 CLR 635; [1993] HCA 45. Brennan J said at pp 643-644 (footnotes omitted): The share or interest which a tenant in common has in land is an "undivided" share, that is to say, "a distinct share in property which has not yet been divided among the co-tenants". A division of the property is repugnant to the nature of a tenancy in common, for it is an essential characteristic of a tenancy in common that each of the tenants has a right to occupy the whole of the property in common with the others. Like joint tenants, tenants in common have a unity of possession; unlike joint tenants, they need not have a unity of interest, nor a unity of title, nor need there be a unity in the time when the interests of the co-owners vest. Each tenant in common has a separate and individual title to the property, limited according to the estate or term granted to or acquired by the tenant… And thus, at common law, a tenant in common who wished to sell his interest in land was constrained to sell subject to the right of any co-tenant to remain in possession of the whole of the land. The vendor could neither seek a division of the land among the co-tenants nor compel the other co-tenants to join in a sale of the land. In 1539 and in 1540, the first statutes were enacted to authorize the issuing of writs of partition. These statutes were the forerunners of s. 126(1) [of the Property Law Act 1969 (WA)]. Presently it will be necessary to consider the effect of that provision, but for the moment it is sufficient to note that the right to seek partition is a right conferred by statute on a tenant in common: it is not a common law incident of a tenancy in common. See also pp 656 per Deane, Dawson and Gaudron JJ to similar effect.

Conclusion

1. In my opinion, for the above reasons, DRCH is not entitled to call for its proportionate share of the capital of the Trust or to wind up the Trust under cl 2.1(b) and/or cl 16.

General principles

1. Section 232 of the Corporations Act provides: The Court may make an order under section 233 if: (a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
2. The orders which may be made under s 233 include an order that the company be wound up and an order for the purchase of any shares by any member.
3. Section 53 of the Corporations Act provides that for the purposes of, relevantly, s 232 and s 233, the 'affairs of a body corporate' include: (a) the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body; (b) in the case of a body corporate … that is a trustee (but without limiting the generality of paragraph (a)) - matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust; and (c) the internal management and proceedings of the body …
4. The persons who have standing to apply for an order under s 233 are set out in s 234 and are limited to, relevantly, a shareholder in the company. Hence, the only plaintiff with standing to seek relief under s 233 is Mr Carr.
5. Section 232(d), which concerns conduct which is contrary to the interests of the members as a whole, operates independently of s 232(e), and consequently is not limited to conduct involving commercial unfairness: Turnbull v National Roads and Motorists Association Ltd [2004] NSWSC 577 at [32]. Whether conduct of a company's affairs is contrary to the interests of the members as a whole is to be determined objectively, having regard to accepted standards of corporate behaviour and how reasonable directors would act when attending to the affairs of the company: Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640 at [41]. The focus is on the interests of an individual hypothetical member and not the actual members for the time being: Goozee at [42].

Pleaded case of oppression

1. The plaintiffs' pleaded case in paras 43-44 of the Amended Points of Claim (APOC) is as follows (excluding the words in bold): 43. Since December 2019, the conduct of the affairs of Darbalara Holdings, including its affairs as trustee of DPT have been contrary to the interests of the members as a whole, or oppressive to, unfairly prejudicial to, or unfairly discriminatory against the Plaintiffs as either a member of Darbalara Holdings and/or in relation to the capacity as a unit holder in DPT (including Mr Carr's indirect interest in DPT) with the meaning of those terms as used in section 232 of the Corps Act. Particulars i. Darbalara Holdings has two shareholders, one being the First Plaintiff, Mr David Carr, the other being the First Defendant, Mr Ivan Ritossa. ii. Darbalara Holdings has four directors, that is the Carrs and the Ritossas. iii. The said directors are deadlocked in regard to numerous matters concerning the future affairs of Darbalara Holdings and DPT as referred to in paragraphs 21 to 23, 35 and 36 above. iv. The plaintiffs believe that the assets of Darbalara Holdings held pursuant to the Trust Deed and Trust Rules ought be realised and distributed to the unit holders in proportion to the units held. The Ritossas believe that no steps should be taken to wind up the affairs of Darbalara Holdings and that DPT should continue to trade indefinitely. v. The plaintiffs believe the real property at Brungle Road, held by Darbalara Holdings as potential residential accommodation for staff of DPT, ought be sold and the Ritossas disagree that it should be sold. vi. The Carrs, on the one side, and the Ritossas, on the other, are unable to agree on the substantial long-term goals of Darbalara Holdings and its trust assets. vii. Mutual trust and confidence between the Carrs, of the one side, and the Ritossas, on the other, has irretrievably broken down and they are engaged in the litigation constituted by these proceedings. 44. By virtue of Mr Carr's shareholding in Darbalara Holdings, and further and in the alternative, the membership of DRCH, as trustee for CFT, of DPT, the Plaintiffs, or some or one of them, are entitled to apply for relief under section 233 of the Corps Act in consequence of the conduct described in the preceding paragraph (section 234(a) of the Corps Act).
2. In closing submissions, Senior Counsel for the plaintiffs' applied to amend para [43] by adding the words included above in bold. The application was opposed by Counsel for the defendants. I indicated that I would rule on the amendment in this judgment.

Deadlock as to the affairs of Darbalara Holdings

1. In relation to the long-term goals of DPT, the Carrs say that there has been a disagreement on this issue because the Ritossas see or saw the strategy of DPT as being to acquire further properties with further equity injections by the unit holders, whereas the Carrs do not wish DPT to make any further acquisitions.
2. While it is true that up to December 2019, there were discussions between Mr Carr and Mr Ritossa regarding the purchase of further properties by DPT, there is no suggestion in the evidence that either the Carrs or the Ritossas wish to make further acquisitions through DPT. Mrs Ritossa gave evidence in cross-examination that she did not anticipate DPT in the future seeking to expand and purchase any further properties, and had not looked at any further properties for purchase in the last two years and Mr Ritossa said in cross-examination that it would be a legitimate strategy for DPT to continue on indefinitely into the future with just The Junction and Bogolara (T354). The disagreement on strategy appears now to be that the Carrs wish to wind up DPT by selling all of its assets, whereas the Ritossas wish to keep DPT as a long-term investment. This disagreement is dealt with below.
3. In my view, there is no deadlock over the strategy for DPT. As Mr Ritossa said, DPT can continue its operations with just two farms, The Junction and Bogolara. In any event, the decision whether to expand the operation of DPT, should it arise in the future, is a matter of business judgment for the directors of Darbalara Holdings at the time.
4. In relation to the Brungle Road property, this was originally purchased in June 2019, for use to provide staff accommodation. Once it became vacant in April 2021, the Carrs formed the view that it should be sold as it was surplus to the requirements of DPT's business. The Ritossas initially resisted selling it because they wanted to wait until a new asset manager was appointed. Ultimately on 17 January 2024, the Ritossas finally agreed to the sale on the basis that 'the proceeds of sale be used to address any shortfall to trade creditors and if there is any money left over, it should be used to try to improve the profitability of the business'.
5. In my view, the question of whether the Brungle Road property should be sold, and the delay in resolving that question falls into the category of a legitimate difference of opinion on a matter of business judgment. Each party acted in good faith in relation to the resolution of that issue.

Whether the Trust should be wound up

1. It is clear that since late December 2019, the Carrs and the Ritossas have been in disagreement as to whether DPT should be wound up (as the Carrs desire) or continue indefinitely (as the Ritossas desire).
2. The Carrs point to what they say is Mr Ritossa's erratic and contradictory attitude to winding up the Trust, in that in August 2019 he 'insisted' that DPT should sell all its assets and be wound up only to turn around in December 2019 and inform Mr Carr that he wished DPT to continue but with a new farm asset manager in place of CACM. The Carrs say that they are now in the invidious position where their equity is 'locked up' in DPT in circumstances where: 1. There is no present prospect of DRCH receiving distributions of income or repayments of unit holder loans other than at the discretion of the Ritossas, contrary to the pre-2019 practice of DPT; 2. There is no real prospect of DRCH's units in DPT being sold to a third party for a value commensurate with the realisable market value of the assets of the Trust; 3. There is no real prospect of DRCH's units in DPT being redeemed by Darbalara Holdings for a fair value commensurate with the realisable market value of the assets of DPT; 4. Should DRCH seek to sell its 50% interest in DPT by a sale of its units, this would be at a significant discount to the net asset value of DPT's assets (as shown by the valuation evidence) and the Ritossas have a right of pre-emption which they have not waived, which will allow them to acquire DRCH's 50% interest at that discounted price.
3. There are a number of difficulties with this submission. First, the question of whether the Trust should be wound up or continue is a matter for the unit holders and not the Trustee: see cl 9.1 of the Trust Rules.
4. Second, the proposition in (1) is not correct for the reasons explained under the next heading.
5. Third, the proposition in (2) is a consequence of the structure adopted by the parties to hold their interest in the assets of DPT, (that is by way of a unit holding in the unit trust), rather than a direct 50% interest in the underlying assets of the Trust. That choice of structure was made by the parties, and the resulting disadvantage in value does not involve oppressive conduct. Hence, the complaint by the Carrs that the Ritossas have refused to buy DRCH's units in DPT for the price offered by DRCH (which reflected a percentage of the value of the net assets of the Trust) is not surprising or relevant to any question arising under s 232. The Ritossas have no obligation to purchase DRCH's units for a price other than that reflecting the market value of the units.

Disagreement regarding payments to unit holders

1. It is not in dispute that prior to 2019, DPT made three payments to unit holders by way of repayment of unit holder loans: in 2014, $90,000 per family; in 2016, $250,000 per family; and in 2017, $300,000 per family. The Carrs say that since December 2019 there has been an intractable disagreement between them and the Ritossas as to whether any distribution of income or repayment of unit holder loans should be made by Darbalara Holdings to unit holders.
2. The Carrs also say that Mr Ritossa behaved erratically on this issue because he had originally raised with Mr Carr in November 2019 that each family should withdraw their unit holder's equity by borrowings from ANZ. Mr Ritossa accepted in cross-examination that a strategy of 'de-risking' the Trust was wrong and that he completely 'muddled myself up' in suggesting that (T374).
3. The outstanding balance of unit holder loans for DPT as at 30 June 2019 was $1,870,733 for each unit holder. There has been no increase or reduction in the amount of the unit holder loans since that time, with the financing requirements of DPT being met by borrowings from ANZ.
4. The borrowings from ANZ include drawdowns of $430,000 on 9 April 2024 and $230,000 on 5 July 2024.
5. It is clear that under the terms of the Subordination Deed, no unit holder is entitled to the repayment of any part of a debt owing to it by Darbalara Holdings to that unit holder without the prior written consent of ANZ: Subordination Deed, cl 3.2. There is no evidence that ANZ has given that consent. Without it, a payment in reduction of a unit holder loan would be a breach of the Subordination Deed by both the unit holder and Darbalara Holdings, and would constitute an event of default under the ANZ facility: ANZ Letter of Offer dated 19 July 2018, Sch 4, para (a). The decision by the directors of DPT not to reduce unit holder loans cannot, in these circumstances, be oppressive conduct.
6. In so far as the plaintiffs suggest that there has been a refusal to pay income distributions to unit holders, this again is not supported by the evidence. A unit holder is presently entitled to its share of the income of the Trust: Trust Rules, cll 2.1, 15.1 and 15.2.
7. The financial statements for DPT are in evidence for the financial years to and including the year ended 30 June 2023. These disclose that the net distributable income for DPT for the 2020 to 2023 financial years was as follows: (a) 2020 year, $695,396, which was applied to the reduction of the accumulated loss at the beginning of the year of $1,114,293 leaving an accumulated loss of $418,897; (b) 2021 year, $98,877, which was applied against the accumulated loss to leave a carry forward loss of $320,020; (c) 2022 year, loss of $6,262; (d) 2023 year, a loss of $736,723. Given that the financial statements record no distributable income in any of these years, the unit holders had no present entitlement to income for each year. Consequently, the failure of Darbalara Holdings to make income distributions to the unit holders since December 2019 simply reflects the operation of the business of DPT and the provisions of the Trust Deed.

Mutual trust and confidence has broken down

1. The mere fact that the mutual trust and confidence between two shareholders of Darbalara Holdings (Mr Carr and Mr Ritossa) has broken down does not constitute oppression: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 at [89]. As the defendants submitted, relief under s 233 is not available where the parties merely have irreconcilable differences, as the remedy does not provide for 'no fault divorce': O'Neill v Phillips [1999] 2 All ER 961 at 972-973. Importantly, the working relationship between the Carrs and the Ritossas has not broken down as indicated by the many decisions which have been made by the board of Darbalara Holdings, despite the breakdown of the personal relationship between the directors.
2. There is no doubt that, as a consequence of the breakdown in the relationship the Carrs have failed to get their own way on a number of matters, the most significant of which was the termination of the role of CACM as farm asset manager. However, as the defendants submit, it is not oppressive for a non-controlling shareholder to not get their own way. This has been recognised in many cases where the person claiming oppression is a minority shareholder: Re M Dalley & Co Pty Ltd v Sims (1968) 1 ACLR 489 at 493; Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tax) Pty Ltd (No 3) [2015] NSWSC 1639 at [94]; Shelton at [24]. In the present case Mr Carr is not a minority shareholder, but rather a 50:50 shareholder with Mr Ritossa under a structure chosen by each of them to protect their interests through the right of veto which each has over the other. This comes about because the parties chose a structure of a unit trust with a corporate trustee, the shares of which were held by Mr Carr (one share) and Mr Ritossa (one share), each representing their respective families, and the directors of which have always been Mr and Mrs Ritossa and Mr Carr, together with his father until he was replaced by Mrs Carr in 2015.
3. By resolution made by the directors in 2017, no decisions at the board level can be made unless all directors agree. It is the inevitable consequence of this structure that there will be occasions when each shareholder will not get his way, but through the right of veto each is protected against decisions adverse to the interests of the family group which each member represents.

Conclusion

1. The genesis of the present dispute was a disagreement over whether CACM should continue in its role as asset manager of the Trust, the source of which was a disagreement as to CACM's management of the drought leading to the Ritossas having a lack of confidence in CACM's expertise as asset manager. That disagreement was over a matter of business judgment, and has been resolved by the appointment of a new independent manager, SouthernAg. The disagreement and its resolution did not involve commercial unfairness to Mr Carr, as a member or otherwise. The only area of pleaded deadlock which remains unresolved is whether DPT should be wound up. That will be resolved by the outcome of this proceeding because, ultimately, it is a question which turns on the proper construction of the trust instrument. The position now reached is that, if the Carrs fail on that issue (which for the reasons given above, in my opinion, they do) they will only be able to exit the Trust by a sale of their units, which potentially the Ritossas will acquire through the exercise of their pre-emption right.
2. In my opinion, that outcome, while unfortunate from the Carrs' perspective, does not involve commercial unfairness to Mr Carr. Rather, it involves the natural working out of a commercial arrangement which the Carrs agreed to when the Trust was established, with advice which drew their attention to the risks of not having an exit strategy, beyond a transfer of the units. Further, the Carrs are not forced sellers - DRCH can remain in the Trust as a 50% unit holder which can veto any proposal by the Ritossas with which they disagree. If the Carrs wish to cease to be directors of Darbalara Holdings, they can appoint two new directors to take their place.
3. For the above reasons, in my view, the plaintiffs have not established oppression under either ss 232(d) or (e).

Fourth issue: Appointment of a receiver

1. The plaintiffs seek an order that a receiver be appointed pursuant to s 67 of the Supreme Court Act or the inherent power of the Court, to realise the assets of DPT, discharge DPT's liabilities and distribute the balance to the unit holders. Section 67 of the Supreme Court Act provides that the Court may, at any stage of the proceedings, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient to do so.
2. The pleaded basis for appointing a receiver is that (APOC [26]): The irretrievable breakdown of the friendship, the continuing dispute between the parties, the Ritossas' refusal to agree to terminate the joint venture, and the inability of the Carrs and the Ritossas to work together cooperatively, make the ongoing management and operation of the joint venture unworkable and thereby puts in jeopardy the assets held by Darbalara Holdings on trust for DPT warranting the appointment of a receiver to DPT and ancillary orders.
3. The evidence relied on for this claim is the same as for the oppression claim.
4. It is not in dispute that the Court does not have a general power to order the winding up of a trust. In Re Gaydon [2001] NSWSC 473, Barrett J said (at [29]): Order 4 is framed upon some implicit assumption that the Court may, by order, dissolve a trust in the same way as it may, for example, dissolve a partnership (Partnership Act 1892, s35). Any such assumption is, of course, unwarranted. It is the duty of the Court to uphold and protect trusts, not to destroy them, although where the terms of the trust envisage, in certain circumstances, realisation of property, winding up of the trust's affairs and final payments to beneficiaries, the Court will, naturally enough, give effect to those "winding-up" provisions. There are no such provisions in the instrument governing the Crane Trust.
5. In Baba v Sheehan [2019] NSWSC 1281, after quoting the above passage, Parker J said (at [75]-[76]): The way in which the orders are formulated in this case appears to involve the same error. The Court has no power to order the "winding up" of the Trust on some sort of "just and equitable" ground. The Court can appoint a receiver, but only as an interlocutory step for the purpose of getting in and preserving assets so that they may be dealt with in accordance with the parties' rights. The appointment of the receiver to liquidate the business and (even more obviously) then to distribute the assets of the Trust would not be in accordance with principle.

Conclusion

1. For the above reasons, I have concluded: 1. The alleged Representation and Ongoing Representations were not made, and accordingly the plaintiffs have not established the alleged oral agreement or estoppel case. 2. The plaintiffs' construction of cll 2 and 16 of the Trust Rules is not correct. Accordingly, DRCH is not entitled to require the Trustee to wind up the Trust or to call for its proportion of the capital of the Trust. 3. The plaintiffs have not made out their case that the conduct of the affairs of Darbalara Holdings has been conducted oppressively, and no order should be made under s 233 of the Corporations Act. 4. The plaintiffs have not established that a receiver should be appointed to the Trust property and sell it and distribute the net proceeds to the unit holders.
2. The parties did not make submissions on costs. As the defendants have been wholly successful, it seems to me that the appropriate costs order is that the plaintiffs pay the defendants' costs, on the ordinary basis as agreed or assessed. However, I propose to give an opportunity to the parties to make further submissions as to the appropriate order as to costs within seven days. I will also give the parties liberty to apply on 3 days' notice in the event that an issue arises from this judgment which needs to be raised with the Court.
3. Accordingly, the Court will make the following orders: 1. The Amended Summons is dismissed. 2. Unless an application for a different order is made in writing to my Associate within 7 days, the plaintiffs are to pay the defendants' costs of the proceedings on the ordinary basis, as agreed or assessed. 3. Liberty to apply on 3 days' notice.

Amendments 05 September 2024 - Correction to paragraph [167]. 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: 05 September 2024