David & Ros Carr Holdings Pty Ltd v Ritossa

Supreme Court of NSW|2024-07-25|Before: Richmond J

Background to cl 2 of the Trust Deed

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).
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.
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).
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.
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.
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].
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.
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.
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].
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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

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.
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].
It was also not in dispute that the Trust Deed is properly regarded as a commercial contract, reflecting the fact that it was entered into between the Trustee and the two unit holders (the first plaintiff and the defendants) for a commercial purpose of acquiring rural properties for business purposes. As a commercial contract, it is necessary to consider the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the Trust Deed; appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating; the Court is entitled to approach the task of giving the Trust Deed a business like interpretation on the assumption that the parties intended to produce a commercial result, and it is to be construed so as to avoid making commercial nonsense or working commercial inconvenience: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35].
The starting point in the construction of cl 2.1 is that it should be read together with cll 9, 15 and 16 which expand on the concepts dealt with by cl 2.1 in the following way: 1. Clause 2.1(a) provides that the unit holders are presently entitled to the income of the trust subject to the payment of the Trustee's proper expenses. 2. Clause 15 amplifies the right conferred by that clause in two ways: (a) by clarifying that it is an entitlement which arises in respect of the income of each income year (cl 15.1) and (b) by stating the proportion of the income to which the unit holders are entitled (cl 15.2). Both are important aspects of the present entitlement which are not dealt with in cl 2.1(a). It is made clear in both cl 2.1(a) and cl 15.2 that the present entitlement of the unit holders is subject to (i.e., arises after allowance for) the payment of the Trustee's proper expenses. It may be noted that such a qualification does not deny to a beneficiary a present entitlement to income of the Trust for the purposes of s 97(1) of the Income Tax Assessment Act 1936 (Cth) and hence is entirely orthodox: see Federal Commissioner of Taxation v Totledge Pty Ltd [1982] FCA 64 (1982); (1982) 82 ATC 4168 at 4173-4175; Cajkusic v Commissioner of Taxation (No 2) [2006] FCAFC 164 at [37]. 3. Clause 2.1(b) contains, like s 3A(3B)(a)(ii) of the LTMA, two limbs. The first limb provides that the unit holders are presently entitled to the capital of the trust. Cl 16 amplifies this right in three ways: (a) cl 16.1 states what each unit holder's proportionate entitlement to capital is; (b) cl 16.2 confers a power on the Trustee to distribute capital to unit holders in proportion to their unit holding prior to determination of the Trust, and (c) cl 16.3 states that when the Trust ends, capital will be distributed under cl 9. 4. The second limb of s 2.1(b) states that the unit holders may require the Trustee to wind up the trust, which is a matter dealt with in some detail in cl 9. Two aspects of cl 9 are important. First, cl 9.1 states that the Trust continues until it is resolved by unit holders to end it. The word 'until' recognises that the Trust Deed contains no vesting date consequently it will continue indefinitely unless and until the unit holders unanimously agree to terminate it. Second, cl 9.1 is an express recognition of the rule in Saunders v Vautier which as noted earlier requires unanimity of the beneficiaries, but differs from it in that the qualification to the beneficiaries' entitlement under the rule in Saunders v Vautier identified in CPT Custodian would not apply to the right conferred by cl 9.1. This is because the Trustee is entitled under cl 19.2 to implement the winding up of the Trust by realising the trust property and distributing the net proceeds (ie. after allowing the trustees right of indemnity and exoneration) to the unit holders.
To construe 2.1 in conjunction with cll 9, 15 and 16 does not conflict with the requirement of cl 2.3 to give cl 2.1 and 2.2 paramountcy. There is nothing in cl 9, 15 and 16 looked at in this way which is contrary to anything stated in cl 2.1 and 2.2.
Critical to the competing arguments in the present case as to the operation of cl 2.1 is the meaning to be given to the expression 'the unit holders' in the chapeau of cl 2.1 and at the beginning of cl 15.1 and 16.1.
The Rules do not include a provision that the singular includes the plural and vice versa (in contrast to the trust deed at issue in Sayden, as noted by Gzell J at [54]). However, s 181(1) of the Conveyancing Act 1919 (NSW) provides: (1) In all deeds, contracts, wills, orders, and other instruments (whether relating to property or not), and in any rules or regulations under this Act executed or made after the commencement of the Conveyancing (Amendment) Act 1930, unless the contrary intention appears - (a) The masculine includes the feminine and vice versa. (b) The singular includes the plural and vice versa. (c) "Person" includes a corporation. (d) "Month" means calendar month.
The plaintiffs contend that cl 2.1(b) and/or cl 16.1 confer an entitlement on each unit holder to call for its proportionate share of the capital of the Trust at any time. It was submitted that this construction of those clauses was supported by five considerations. First, it was contended that s 181 of the Conveyancing Act applies so that the plural 'unit holders' should be read as including the singular 'each unit holder' in each clause. Second, it was said that the plaintiff's construction was supported by the approach taken in Sayden to the trust deed before the Court in that case, noting that Gzell J applied a clause in that trust deed similar in effect to s 181: see Sayden at [54]. Third, it was contended that the heading to cl 2 and the congruence between cl 2 and s 3A(3B) of the LTMA indicate that cl 2 is intended to implement the 'relevant criteria' in s 3A(3B). This is a further reason for construing cl 2 in the same way as the similar clause in the trust deed before the Court in Sayden. Fourth, cl 2.3 gives paramountcy to cl 2.1 and cl 2.2 and to the extent that cl 9 is inconsistent it will fall away. Fifth, the Trust Deed appears to have been intended to make the Trust a 'fixed trust' for the purposes of the trust loss rules in Schedule 2F of the Income Tax Assessment Act.
I will address each of these contentions in turn.

(a) s 181 of the Conveyancing Act

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…'.
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.
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.
Third, to construe cl 2.1(b) as conferring a present entitlement to capital on each unit holder severally is difficult to reconcile with provisions of the Rules dealing with the transfer of units (which is subject to a pre-emptive rights regime) and the winding up of the Trust (which requires unanimity). Each would be essentially otiose if a unit holder could, acting individually, call for the Trust to be wound up under cl 2.1(b).

(b) Decision in Sayden

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.
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].
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].
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.

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

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

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.
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.
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'.
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.
I note that the plaintiffs do not seek a partition or sale of the land held by the Trust under s 66G of the Conveyancing Act, on the basis that the unit holders are equitable tenants in common in that land.
It is apparent from cl 17.1 that each unit holder has an undivided 50% share in the assets (ie corpus) of the Trust, but not an entitlement to any particular part of any asset (or corpus) of the Trust. The entitlement of a beneficiary of a trust with such an interest was summarised by Walton J in Stephenson v Barclays Bank Trust Co Ltd [1975] 1 WLR 882 at 889-890: When the situation is that a single person who is sui juris has an absolutely vested beneficial interest in a share of the trust fund, his rights are not, I think, quite as extensive as those of the beneficial interest holders as a body. In general, he is entitled to have transferred to him (subject, of course, always to the same rights of the trustees as I have already mentioned above) an aliquot share of each and every asset of the trust fund which presents no difficulty so far as division is concerned. This will apply to such items as cash, money at the bank or an unsecured loan, Stock Exchange securities and the like. However, as regards land, certainly, in 890all cases, as regards shares in a private company in very special circumstances (see In re Weiner [1956] 1 W.L.R. 579) and possibly (although the logic of the addition in fact escapes me) mortgage debts (see In re Marshall, [1914] 1 Ch. 192, 199 per Cozens-Hardy M.R.) the situation is not so simple, and even a person with a vested interest in possession in an aliquot share of the trust fund may have to wait until the land is sold, and so forth, before being able to call upon the trustees as of right to account to him for his share of the assets.
Hence, a unit holder has no entitlement to call for the Trustee to account to it for its share of any land, and in the case of personal property which is divisible the entitlement is subject to the Trustee's right of indemnity and exoneration for liabilities incurred by it in execution of the Trust: see Beck v Henley [2014] NSWCA 201 at [37]-[39].
It is necessary to construe cl 2.1(b) and cl 16.1 in a coherent manner with cl 17.1 and this can be done by reading cl 2.1(b) and cl 16.1 as conferring a collective right on the unit holders to the capital of the Trust and to wind up the Trust. This does not contravene cl 2.3 because it is entirely consistent with the construction of cl 2.1(b) suggested by the other matters referred to above.
This approach does not cut across the present entitlement of a unit holder to the distributable income under cl 2.1(a) and cl 15. The distributable income is not properly characterised as an asset of the Trust; it is separate from the trust corpus and the unit holders have a right to demand payment of their proportionate share of it as it arises at the end of a financial year. That is a right which they each hold severally (cl 15.2).

Conclusion

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

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.
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.
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 …
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.
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].
In relation to s 232(e), the phrase 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' is to be viewed as a compound expression, rather than identifying discrete alternatives and is directed at whether there has been conduct which is commercially unfair: Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168 at [75]. The relevant principles to be applied in relation to s 232(e) were summarised by Stevenson J in Munstermann v Rayward [2017] NSWSC 133 at [22]: (1) The test of oppression is an objective one of unfairness (Wayde v NSW Rugby League Ltd (1985) 180 CLR 459 at 472-473 (Brennan J) (as his Honour then was); Re Quest (1992) 6 ACSR 659 at 669 (Mackenzie J)). (2) The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly (Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; NSWCA 95 at [362] (Young CJ in Eq) (as his Honour then was); Cassegrain v CTK Engineering Pty Ltd [2005] NSWSC 495 at [84] (White J)). (3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director (Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 at [49] (Barret J) (as his Honour then was)). (4) Conduct of a company's affairs may be oppressive even though the conduct is otherwise lawful (Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; HCA 25 at [176] (Gummow, Hayne, Heydon and Kiefel JJ)). (5) Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole (Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; NSWCA 95 at [185] (Basten JA)). (6) A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used (Patterson v Humfrey [2014] WASC 446 at [52]-[53] (Le Miere J). (7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; NSWCA 97 at [159] (Spigelman CJ)). (8) The discretion under s 233 is wide as to the appropriate remedy (Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd(2004) ALR 136 at [70] (Wilcox, Marshall and Jacobson JJ) citing United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514; [2003] NSWCA 910 at [34]-[38] (Campbell J)). (9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive (Re Enterprise Gold Mines NL (1991) 9 ACLC 168 at 174 (Murray J), United Rural Enterprises Pty Ltd v Lopmand Pty Ltd at [26] citing Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; NSWSC 413 at 742 (Young J)). (10) The aim of any order under s 233 must be to put an end to the oppression (Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343 at [125] (Barrett J) (as his Honour then was)). (11) The court should only look to wind up an otherwise solvent company as a "last resort" (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; NSWSC 413 at 742 (Young J) (as his Honour then was)). (12) As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party (Re a company; ex parte Shooter (No 2) [1991] BCLC 267 (Harman J); Re Brenfield Squash Racquets Club Ltd [1996] 2 BCLC 184 (Rattee J)). (13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances (Smith Martis Cork at [71] (Wilcox, Marshall and Jacobson JJ)).
The objective test of 'commercial unfairness' can be expressed in a variety of ways. In Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, Young J at 704 said that the question was whether the conduct, viewed objectively by a commercial bystander, 'is so unfair that reasonable directors who consider the matter would not have thought the decision fair'. In Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332 at [178], Black J said that the concept of 'commercial unfairness' is directed at 'a departure from the standards of fair dealing, or where a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair'.
As Black J noted in Re Ledir at [182] whether particular conduct is commercially unfair must be assessed in the context of the particular relationship in issue and will not infrequently involve a balancing exercise between competing considerations. His Honour quoted with approval the following observations of Richardson J in Thomas v HW Thomas Ltd [1984] 1 NZLR 686 at 694-695: Fairness cannot be assessed in a vacuum or simply from one member's point of view. It will often depend on weighing conflicting interests of different groups in the company. It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and sec 209 [the NZ provision] in particular; thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that sec 209 is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member's interests arising from the acts or conduct of the company in that way is justifiable.
The Court must also exercise caution when determining an application under s 232 not to take on 'an unwarranted assumption of the responsibility for management of a company': Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 467. As Emmett J said in HNA Irish Nominees Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228 at [507]: The mere fact that a decision by directors might affect the interests of a shareholder adversely is not of itself sufficient, assuming good faith, to render the decision oppressive, unless it was one that no reasonable directors could have made: see John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63 at 67 (John J Starr). The court will not interfere with the traditional roles of directors and shareholders in managing and controlling a company, as provided for in its constitution, unless appropriate cause is shown. One assumes that action that is in accordance with the provisions of the constitution is not unfair, absent some other basis for complaint…
The mere breakdown of the relationship between the members and a loss of trust between them is not, of itself, sufficient to establish oppression but may be of several matters leading to the conclusion that there has been oppression: Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 at [199]; (2011) 288 ALR 310. For example, if the breakdown of the relationship between the members is accompanied by a consequential inability to manage the company's affairs in the proper manner, that may constitute oppression: Beaumont v Peel [2018] NSWSC 95 at [13]; Re Wyndham Park Estate Pty Ltd [2019] VSC 92 at [35]-[37].
The purpose of granting relief under s 233 is to bring oppressive conduct to an end: Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 at 620. Consistently with that principle, if the oppressive conduct has ceased that would be a matter weighing against the exercise of the discretion under s 233: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [182]; Re Ledir at [183]; Exton v Extons Pty Ltd (2017) 53 VR 520; [2017] VSC 14 at [34].
Each case must be considered on its own facts and circumstances and by reference to the conduct as a whole: Re Ledir at [184].

Pleaded case of oppression

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).
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.
Mr Wood submitted that the amendment should be refused due to its lateness and the prejudice to the defendants. In their defence, the defendants had denied paras 43 and 44 and in their opening outline of submissions had put the plaintiffs on notice that paras 43 and 44 were defective in that only Mr Carr had standing to seek relief under s 233 of the Corporations Act. The plaintiffs raised for the first time in their closing written submissions that they relied on oppression of Mr Carr in his capacity both as a member of Darbalara Holdings and also as a discretionary object of the CFT.
The defendants suffered prejudice in a number of ways, including: (a) they would have sought discovery of documents to establish whether there had been any distributions from the CFT to Mr Carr (or any other discretionary object) during the period from 2010 to date to test whether Mr Carr had been adversely affected in his capacity as an object of CFT; (b) the cross-examination of Mr Carr and Mrs Carr had been framed on the basis of the pleaded case, in particular, no questions were directed to whether Mr Carr was affected in some capacity other than as a member; and (c) had Mr Carr's other capacity been at issue, the defendants may well have called Mr Tim Pilkington as a witness whose evidence was potentially relevant to the propriety of the conduct of Mr Carr, which was a relevant matter to the exercise of the discretion to grant relief under s 233 because the plaintiff must come to the Court with clean hands: see eg. Morgan at 706.
In my view, the amendment should not be allowed. It is important that the alleged oppression be clearly pleaded so that the defendant knows the case it has to meet: Shelton v National Roads & Motorists' Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393 at [24]. The plaintiffs are solely responsible for the failure to plead, in a timely fashion, the dual capacity sought to be relied on in respect of Mr Carr, the only plaintiff who is a member of Darbalara Holdings. I am satisfied that the defendants will potentially suffer prejudice in each of the ways identified and that prejudice could have been cured only by an adjournment with attendant cost and delay. In all the circumstances, taking into account ss 56-59 of the Civil Procedure Act 2005 (NSW), allowing the amendment would not be in the interests of justice.
It is not in dispute that ss 232(d) and (e) can apply to the affairs of a company which is a trustee: see Tzavaras at [62].
I will proceed on the basis that this is the correct approach. The fact that Darbalara Holdings is a trustee will be relevant to how the question of oppression is approached (as well as the choice of appropriate remedy under s 233 if s 232 is satisfied) because a company which acts as a trustee has obligations both under the trust instrument and the general law which bind the manner in which it operates, which do not apply to a company which is not a trustee. In particular, by virtue of assuming the role of a trustee, it has the obligation to get in the trust property, protect it and vindicate the rights attached to it (subject to the terms of the trust instrument): CGU Insurance Ltd v One.Tel Ltd (in liq) (2010) 242 CLR 174; [2010] HCA 26 at [36]. That obligation includes the irreducible core obligation to perform the trust honestly and in good faith for the benefit of the beneficiaries: Armitage v Nurse [1998] Ch 241 at 253-254.
The defendants say Mr Carr's standing is limited to alleged oppression of him in his capacity as a member of Darbalara Holdings and none of the pleaded matters have any oppressive effect on him as a member; in particular the realisation of the value of the units in DPT has no effect on Mr Carr as a member of the trustee, Darbalara Holdings. I do not agree that merely because Mr Carr's standing is limited to oppression of him qua member of the trustee, none of the pleaded instances of alleged oppression could enliven s 232. For example, deadlock in the management of the trustee which meant that the trustee could not properly function to discharge its duties as trustee would be oppressive of Mr Carr qua member because Darbalara Holdings was established to perform the role of trustee of DPT. Mr Carr's capacity as a member should take into account that his role as a member is to protect the interests of the entity which holds the 50% interest of his family in DPT. I propose to address each of the various pleaded instance of oppression, and consider the question of standing should it become necessary to do so.
The difficulty for the plaintiffs is the lack of clarity in the drafting of para 43 where it refers to 'as either a member of Darbalara Holdings and/or in relation to the capacity as a unit holder in DPT' and, in para 44, 'and further and in the alternative the membership of DRCH, as trustee for CFT, of DPT'. The words 'as either a member of Darbalara Holdings and/or in relation to the capacity as a unit holder in DPT' indicate that the relevant capacity of the plaintiffs is being identified, but in fact only one plaintiff (Mr Carr) is a member of Darbalara Holdings; it is only in his capacity as such a member that he is identified because he is not a unit holder in DPT.
Second, the reference to 'the membership of DRCH, as trustee for CFT, of DPT' does not assist the plaintiffs because if the expression 'the membership of DRCH, as trustee for CFT, of DFT' refers to the 50% unit holding which DRCH has in DPT, then, again, that is irrelevant to s 232 and s 233 because they are concerned with persons who are members of the relevant company, here Darbalara Holdings. The inadequacy in the drafting of paras 43 and 44 of the APOC ought to have been apparent to the plaintiffs before the hearing commenced.
The pleaded instances of oppression in paras 43-44 of the APOC, read with the affidavits of the Carrs of September 2020, which are identified in para 21 of the APOC as providing details of the disputes over management of DPT and the plaintiffs' oral closing submissions, can be conveniently grouped as follows: 1. Since December 2019, the directors of Darbalara Holdings have been deadlocked regarding the following matters: (a) the long-term goals of DPT; (b) whether the Brungle Road property should be sold; (c) the conduct of board meetings; (d) CACM's role as farm manager and finding a replacement farm manager; (e) the Carrs having sole control of Darbalara Holdings' bank accounts; (f) the use to be made of the Homestead property; (g) finalising the 2020-2021 budget; (h) staff communications and stability. 2. The Carrs believe that the assets of DPT ought to be realised and distributed to the unit holders in proportion to the units held, whereas 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. 3. A disagreement between the Carrs and the Ritossas as to whether Darbalara Holdings should repay unit holder loans and make income distributions to unit holders. 4. The mutual trust and confidence between the Carrs and the Ritossas has irretrievably broken down.
I will deal with each of the alleged areas of oppression in turn.

Deadlock as to the affairs of Darbalara Holdings

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.
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.
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.
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'.
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.
In relation to the conduct and cost of board meetings, the complaint of the Carrs is that in the period from inception of DPT until December 2019, the decisions of Darbalara Holdings were made informally by Mr Carr and Mr Ritossa following discussions between them, including by telephone, email and text with no formal board meetings being held. This changed following the falling out which occurred in December 2019, and since February 2020 formal board meetings have been held either monthly or every six weeks. The Carrs find the board meetings unpleasant and stressful.
The Carrs sought to reduce the frequency of board meetings, but the Ritossas refused. Under the Constitution of Darbalara Holdings, any director can call a meeting on giving reasonable notice to the other directors and a quorum for a meeting is two directors. Hence, if the Ritossas call a directors' meeting and the Carrs do not attend, the meeting could proceed and make decisions in the absence of the Carrs, if they did not attend. However, there is no evidence that this has occurred and on the one occasion where the Carrs failed to attend a meeting, the Ritossas did not proceed to propose or pass any resolutions. The meeting was reconvened on 13 October 2021.
In relation to the costs of the board meetings, this relates to the expense incurred in having the company's accountant, who was the secretary of Darbalara Holdings, attend the meetings. When the Carrs asked that this practice cease due to the costs, the Ritossas agreed, and this practice ceased in around June 2020.
From the time of the first board meeting on 28 February 2020, all directors' meetings have been recorded and transcripts of the meetings are in evidence. While at various times the Carrs have objected to the meetings being recorded, the practice of recording the meetings was proposed by Mrs Carr to the Ritossas on 25 February 2020, stating 'we agree to holding the meeting electronically by Skype but, in the interests of certainty, only if the meeting can be fully recorded'. The practice of recording meetings, while unusual, is explained by the fractious nature of the relationship between the Carrs and the Ritossas from early February 2020 and also that they were from late 2020 involved in these proceedings.
I have read the transcripts of the meetings. While it is apparent that the Carrs find the meetings unpleasant, as they say in their evidence, looked at objectively they indicate an attempt by the directors to resolve the various issues which arose, the most significant of which was the replacement of CACM as farm asset manager. In relation to that issue, it is clear that the Carrs found the discussions unpleasant because there was much discussion involving the Carrs' reporting on the management activities of CACM on behalf of DPT, and answering questions by the Ritossas. Following the replacement of CACM with SouthernAg in June 2023, it is Mr Pilkington, on behalf of SouthernAg, who attends board meetings, reports and answers questions in a management role.
While it is clear that many of the discussions over the period from February 2020 to date have been tense and may well have involved unpleasantness from the perspective of each of the participants, they do not indicate that the board was unable to function. To the contrary, all of the issues which came before the board in this period have been resolved, apart from the Carrs' proposal that the trust be wound up, and the Carrs' wish for repayment of unit holder loans and distributions of income to unit holders, which are dealt with separately below.
In relation to the role of CACM, the Ritossas informed the Carrs that they wished CACM to cease acting as farm manager at the meeting on 7 December 2019. This followed advice given by Mr Bert Glover as to the state of The Junction and Bogolara and CACM's performance. The Carrs resisted CACM being replaced and Mr Carr explains in his affidavit that he resisted the replacement of CACM because he did not accept the criticisms made by Mr Glover and had grave reservations about appointing an external manager to run the properties (particularly in light of problems with external managers retained by Darbalara Holdings in the past) and his view that it was beneficial to have a manager with an ownership stake in the business (i.e., CACM).
Ultimately, the Carrs agreed to have CACM replaced in June 2020 and this occurred in June 2023 when SouthernAg was appointed. The substantial delay in finding a replacement cannot be blamed on the Ritossas as the Carrs rejected each of the three candidates put forward by Mr Lucas, who was the Carrs' preferred search consultant (T133), before finally accepting SouthernAg.
As already noted, it is clear that CACM's role as farm asset manager has been a significant cause of the tension between the Carrs and the Ritossas at board meetings in the period from February 2020 to June 2023. However, the question whether CACM should be replaced as farm asset manager and who the replacement should be are matters falling into the category of a legitimate difference of opinion as to a matter of business judgment. Each of the Carrs and the Ritossas held different views on that topic, but each acted in good faith in seeking to resolve the dispute and in fact did so. It is clearly appropriate that a business of the significance of that being operated by DPT have an external farm asset manager (as was the position prior to CACM's appointment) and the decision to replace CACM and appoint a new manager in its place falls within the category of a legitimate difference of opinion on a matter of business judgment.
One of the three candidates recommended by Mr Lucas was Mr Bert Glover of Impact Ag. The Ritossas wanted to act on that recommendation, but the Carrs objected to him because he had been separately retained by the Ritossas to provide them with advice generally in relation to the operations of the farms.
Ultimately, the Carrs' objection to Mr Glover acting as farm asset manager was accepted by the Ritossas. In these circumstances, the consideration of Mr Glover as a potential farm asset manager cannot be regarded as oppressive of Mr Carr, and in any event, it was matter of business judgment over which the Carrs and the Ritossas simply had a legitimate difference of opinion.
In relation to Darbalara Holdings' bank accounts, prior to December 2019, the Carrs were the sole signatories to the bank accounts held by Darbalara Holdings with ANZ. In December 2019, Mr Ritossa requested joint control of the bank accounts and in early 2020 there were discussions (principally between Mrs Ritossa and Mrs Carr) to arrange for the Ritossas to become co-signatories to the accounts. Mrs Carr resisted this initially and, on a fair reading of the communications and discussions on this topic, this was because she felt that the Ritossas did not trust the Carrs (bearing in mind that at this stage CACM was still the farm asset manager).
Ultimately, the matter was resolved by the Ritossas becoming joint signatories and a process was established for a member of each family to review and approve certain expenses rather than this simply being done by the Carrs. This agreement was reached by early August 2020. Again, this matter is properly seen as a legitimate disagreement on a matter of business judgment.
In relation to the use of the Darbalara Homestead, this property had been purchased by DPT in November 2019 for a cost of $2.1 million. The purchase occurred during the period that Mr Carr and Mr Ritossa were discussing the sale of the assets of DPT, and they agreed that DPT should go ahead with the purchase as it could either help with the sale of The Junction or with DPT's business (if the sale did not proceed) by allowing the farm manager to occupy it.
At the board meeting on 6 April 2020, the Carrs and the Ritossas agreed that Mr Scott Dunn, the farm manager at The Junction and his family could occupy the Homestead.
In early June 2020, Mr Carr sent the Ritossas a copy of a draft lease agreement for the Homestead and this was discussed at the board meeting on 9 June 2020. There were disagreements between the Carrs and the Ritossas regarding some provisions of the draft lease, but ultimately, they reached agreement on the form of the lease and on 31 July 2020 the Ritossas signed a circular resolution to enter into the Homestead lease. The lease was not signed by Mr Dunn until 9 April 2021, but it is apparent from the evidence that the delay was not caused by the Carrs or the Ritossas.
Ultimately, Mr Dunn and his family lived in the Homestead until he resigned as farm manager for The Junction on 6 May 2022. The directors agreed at the board meeting on 20 January 2023, that the replacement for Mr Dunn as manager of The Junction, Mr James Shubbert and his family, should move into the Homestead. I am satisfied that the few disagreements that there were in relation to the form of the lease fall within the category of a legitimate disagreement about a matter of business judgment and do not constitute the oppression of Mr Carr.
In relation to the disagreement of the directors concerning a budget for the financial year 30 June 2021, in so far as there was a disagreement on this topic it was resolved at the board meeting on 27 July 2020 when the directors did agree a budget for capital expenditure. Following the appointment of SouthernAg as farm asset manager, it has responsibility for proposing a budget to the board and the directors were able to agree a budget for the financial year ended on 30 June 2023 at the board meeting on 2 August 2022.
In relation to staff, in their affidavits of September 2020, Mr and Mrs Carr deposed that the deadlock between the directors affected staff stability, with particular reference to the delay in providing a lease to Mr Dunn of the Homestead. While there was a delay in the lease to Mr Dunn being entered into, it is clear that it was not entirely the fault of Darbalara Holdings. Further, Mr Dunn remained as farm manager at The Junction until 6 May 2022. As Mrs Carr accepted in her evidence, Darbalara Holdings has been able to retain staff despite the disputes between the directors. In my view, this complaint is not made out.

Whether the Trust should be wound up

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).
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.
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.
Second, the proposition in (1) is not correct for the reasons explained under the next heading.
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.
Fourth, the proposition in (3) may be correct, but it would be a matter for the directors of Darbalara Holdings at the time of a redemption request to determine whether it was appropriate to redeem the units of DRCH at their net realisable value. No doubt a relevant matter would be whether a new unit holder was prepared to subscribe for units for an amount equal to the proposed redemption amount. I note there is no evidence that any such proposal for redemption of DRCH's units has been put forward for consideration by the directors.
Fifth, in relation to (4), Mr Ritossa gave evidence that the reason he has not waived the right of pre-emption conferred under the Trust Rules is that he wants to have control over who comes in as a 50% co-owner with the Ritossas in DPT. I accept that evidence. However, I note that a decision not to waive the pre-emption right is not oppressive conduct because it is a decision of the unit holder, not conduct of Darbalara Holdings to which s 232 could apply.
There is no evidence to suggest that the Ritossas are seeking to force the Carrs out of DPT and secure a 50% interest (held through DRCH) at a discount. In particular, the Carrs have significant other assets and are not forced sellers for financial reasons. Their desire to sell comes about, on their case, because they no longer wish to be in business with the Ritossas. However, as already indicated, while the personal relationship between the Carrs and the Ritossas appears to have broken down, the working relationship has not.
Part of the complaint made by the Carrs in relation to the Ritossas' unwillingness to wind up the Trust is that the Carrs say it is inconsistent with Mr Ritossa's insistence during the period between 31 August 2019 to 7 December 2019 that the assets of DPT be sold and DPT be wound up. In my view, the evidence does not support the proposition that Mr Ritossa insisted on DPT's assets being sold or that the Carrs purchase his half share.
In Mr Ritossa's email of 4 September 2019, he explains why he wants to sell his interest and then goes on to say: 'I'm happy for you to buy my half share if we can agree on a price. Is that something you would consider and able to do?'. There followed further discussions about a possibility of the Carrs purchasing the Ritossas' half share, although the Carrs' preference was that The Junction would be sold, and the Carrs would purchase Bogolara.
Ultimately, Mr Ritossa changed his mind and informed Mr Carr of this in December 2019. He explains in his evidence the reason for changing his decision to sell his interest in DPT. In my view, Mr Ritossa's change of approach to selling his interest in DPT has no bearing on the disagreements which arose from December 2019 regarding the management of DPT's farm assets and Mr Ritossa's decision not to agree to wind up DPT. It is to be explained by his decision that with a change of farm asset manager, the operations of DPT would be likely to improve.

Disagreement regarding payments to unit holders

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.
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).
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.
The borrowings from ANZ include drawdowns of $430,000 on 9 April 2024 and $230,000 on 5 July 2024.
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.
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.
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.
Accordingly, in my view, no oppression has been established in relation to this matter.

Mutual trust and confidence has broken down

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.
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.
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.
I have carefully considered all the evidence regarding the dealings between the directors since December 2019, in particular the transcripts of the meetings of directors in that period, and do not consider that the breakdown in the personal relationship has led to any deadlock or caused Darbalara Holdings to cease to function properly. To the contrary, the board has functioned properly, albeit sometimes after vigorous debate on the issues before it.

Conclusion

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.
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.
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

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.
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.
The evidence relied on for this claim is the same as for the oppression claim.
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.
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.
See also Rosenbaum v Baidarman (No 2) [2021] NSWSC 574 (Williams J) at [93] to the same effect.
The Court does have power to appoint a receiver on the application of a beneficiary where that is required to ensure the safety of the trust property: see Yunghanns v Candoora (No 2) [2000] VSC 300 at [64]-[76], [84] (Warren J) and Mir v Mir [2023] NSWSC 408 at [130]-[139] (Ball J). In the former case Warren J (as her Honour then was) said (at [84]): First, the courts will appoint a receiver of trust property (on an interlocutory and/or permanent basis) where that property is in jeopardy through misconduct, waste, improper disposition, breach of the trustee's duty or the unsuitable character of the trustee. Second, the case in favour of appointment of a receiver must be a strong one but in assessing the risk to the trust the courts will apply a qualitative judgment. Third, a receiver will be appointed to preserve the benefit of a person who has an interest in trust property.
In my opinion, there is no evidence that the trust property is in jeopardy. In particular, the directors of the Trustee have agreed on the appointment of a new manager, SouthernAg, and there is no support in the evidence that it is not performing that role satisfactorily. Nor, picking up the third of the matters mentioned by Warren J in the above passage, is the appointment of a receiver necessary to preserve the benefit of a person with an interest in the trust property.
Recognising the difficulties presented by these authorities, the plaintiffs rely on a line of authorities which Dr Birch SC described in opening as supporting the proposition that an order can be made to wind up a trust where 'there is a relationship that might be described as akin to a partnership arrangement, where mutual trust and confidence is necessary for the operation of the arrangement or structure, then equity ought to intervene when that substratum has failed, and it ought not to matter whether the formal structure is a corporation, a partnership between individuals or, as in this case, a unit trust' (T4). The authorities relied on are Basecove Pty Ltd v Dolores Lavin Management Ltd [2009] NSWSC 1315; Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86 and Capelli v Shepard (2010) 29 VR 242; [2010] FSCA 2. In my view the authorities relied on do not support the appointment of a receiver in the present case.
The first, Basecove, was an ex tempore judgment of Brereton J (as his Honour then was), which concerned the relationship between two individuals who were the sole directors of the trustee and also controlled each of the two unit holders. The trustee was in deadlock and the financial position of the trust was tenuous at best. It was common ground that some step needed to be taken to resolve the deadlock that had arisen, and the dispute between the parties was whether that step should be the appointment of receivers and managers with a view to winding up the trust or the appointment of a new trustee (at [6]). Brereton J held (at [11]) that a number of factors were decisive in favour of the appointment of a receiver, including that the relevant entities if not technically insolvent then were subject to a substantial deficiency of funds and trading at losses; despite the trust and corporate structure involved, the arrangement between the parties was really that of a quasi-partnership, and the relationship between them had broken down; and there was no guarantee that the regime under the trust deed for one unit holder to transfer his units to the other would succeed in breaking the deadlock. His Honour concluded (at [12]) that in the circumstances it was 'just and equitable, in the conventional sense, that the relationship between these parties be brought to an end, rather than requiring one party, against its will, to leave its assets in jeopardy while the position progressively deteriorates'.
In Mir v Mir at [131], Ball J explained the decision in Basecove as one where a receiver was appointed because the trust assets were in jeopardy. I agree, and note that it is clear that a key matter in Basecove was that the trust assets were in jeopardy, even though the nature of the relationship between the parties was described as being that of a quasi-partnership. In a later case, Re Austec Wagga Wagga Pty Ltd (in liq) [2018] NSWSC 1476, the same judge who decided Basecove observed that an order or declaration that a trust be wound up or terminated misconceived the nature of a trust.
Basecove is distinguishable from the present case for at least two reasons. First, the trust property is not in jeopardy. Second, the directors of the trustee are not, for the reasons already given, in deadlock and, in any event, there is a process under the Trust Deed for resolving any deadlock (being for the transfer of units through the regime contained in the Trust Rules).
In Accurate Financial Consultants the principal issue was whether the appellants, who were minority unit holders in a unit trust, could restrain the trustee (a company controlled by the majority unit holder) from acting on a notice to compulsorily acquire their units. One of the arguments for the appellants was that, on the basis of the principles in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, there was a fiduciary relationship between the investors said to justify an injunction restraining the exercise of the power to compulsorily acquire the minority's units (at [108]).
Dodds-Streeton JA (Ashley JA and Forrest AJA agreeing) noted at [109] that the argument was 'novel' and then after discussing Ebrahimi said: [120] In the present case, if the parties were, in essence, partners who envisaged continuing personal participation in the conduct of the business, mutual fiduciary duties would apply independently of Ebrahimi principles, and indeed, the intended transfer of shares to the minority investors never occurred. [121] Whether within a corporate structure or not, the underlying relationship, rights and obligations of partnership or quasi-partnership would be recognised. In either case, somewhat ironically perhaps, the remedy of restraining the exercise of a legal power to expel a person is typically granted in the context of his or her application to wind up the association. [122] As his Honour found, the invocation of Ebrahimi (or the partnership principles which informed it) was inapposite where, as in the present case, the dissolution of the parties' association was not sought. [123] In the context of their Ebrahimi argument, the appellants at trial, and in written submissions on appeal, contended that the parties were partners or quasi-partners. The respondent disputed that. Before us, the appellants ultimately did not press the contention that the parties were partners or quasi-partners. Further, counsel made clear that the appellants did not seek to continue their personal participation in the management or conduct of the business, but simply to maintain their investment.
The reference in [120] above to the intended transfer of shares to the minority investors appears to be a reference to the fact that the original arrangement had been that the appellants would receive shares in the corporate trustee (at [94]).
It is clear from [123] that the 'novel' argument based on Ebrahimi was not ultimately pressed. The observations of Dodds-Streeton JA at [120]-[122], which are obiter dictum, appear to be no more than a recognition that mutual fiduciary duties can apply, on the facts of the particular relationship, between persons who are investors in a unit trust notwithstanding that the structure they have chosen is a unit trust, rather than a partnership.
The plaintiffs have not pleaded that the relationship between the Carrs and the Ritossas was a fiduciary relationship. Nor would such an argument be open on the evidence. A fiduciary relationship requires the assumption of responsibility to act for, or on behalf of, the interests of another, in the exercise of any power of discretion affecting the interests of the principal in a legal or practical sense: Commissioner of State Taxation v Cyril Henschke Pty Ltd (2010) 242 CLR 508; [2010] HCA 43 at [21]. The evidence does not support the suggestion that the Ritossas assumed such a responsibility to the Carrs, or vice versa. Further, the Carrs and Ritossas expressly rejected the use of a partnership in May 2010 and cl 3.1 of the Trust Rules disclaims a partnership relationship.
The observations of Dodds-Streeton JA also need to be read in light of the decision in Ebrahimi itself, which concerned an application to wind up a company on the just and equitable ground (found in the Australian context in s 461 of the Corporations Act). The case concerned a small private company which conducted a business which had previously been conducted by a partnership between the appellant (a minority shareholder) and one of the majority shareholders. After the appellant was removed as a director by the majority, he brought a petition to wind up the company on the just and equitable ground and succeeded.
Lord Wilberforce said (at 379) that it is impossible to set out exhaustively the circumstances in which, on the just and equitable ground, the exercise of legal rights will be subject to equitable considerations but said that typically there will be one or more of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be 'sleeping' members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.
Lord Wilberforce then added (at 379-380): It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves. To refer, as so many of the cases do, to "quasi-partnerships" or "in substance partnerships" may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist: the words "just and equitable" sum these up in the law of partnership itself. And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure. But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.
The application of these principles directly to the present case is not open because the plaintiffs have not brought an application to wind up Darbalara Holdings on the just and equitable ground under s 461 of the Corporations Act. Had they done so, and an order was made to wind up the company, there would have been an argument available to them that a receiver should be appointed to the trust property under s 67 of the Supreme Court Act or the inherent jurisdiction of the court relying on the principles stated in Ebrahimi: see Re Admiral Cove Pty Ltd [2023] VSC 537 at [65]; Re Munja Bakehouse Pty Ltd [2024] NSWSC 6 at [30]; cf Mir v Mir at [121].
Accurate Financial Consultants was referred to in Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 at [17] in the context of a discussion of the circumstances in which a court will make a winding up order under s 461 on Ebrahimi principles, and does not support the plaintiffs' present submission.
In Capelli v Shepard, the third case relied on by the plaintiffs, the Court made an order to wind up a managed investment scheme under s 601ND(1)(a) of the Corporations Act which permits such an order where 'the Court thinks it is just and equitable to make the order'. The primary judge made the order because the managed investment scheme was insolvent and this conclusion was affirmed on appeal: see [2010] VSCA 2 at [101], [104].
The Court of Appeal (Dodds-Streeton and Mandie JJA, Byrne AJA) considered that the case law on the winding up of companies on the just and equitable ground informs the application of s 601ND(1)(a) and said (at [109], footnotes omitted): The winding up of schemes on the "just and equitable" ground in s 601ND(1)(a) of the Act is derived from a traditional ground for winding up in corporations law. Although the just and equitable ground in corporations law originally tended to be confined to categories established by precedent, the House of Lords' decision in Ebrahimi v Westbourne Galleries Ltd established its broad and ambulatory character. It confers a very wide discretionary power, which is applicable both in established and novel contexts. The situations which have characteristically invoked the application of the just and equitable ground in corporations law include (relevantly to the present case) the breakdown of the parties' fundamental trust and confidence in a corporate quasi-partnership; the exercise of powers in a way entirely outside the parties' original contemplation; deadlock; and failure of the substratum of the enterprise, in the sense of conduct entirely outside the general intention and common understanding of the members when they became members.
Those observations, directed as they are to s 461 and s 601ND of the Corporations Act, provide no assistance to the plaintiffs' application for the appointment of a receiver under a different statute or the inherent jurisdiction of the Court.
For these reasons, in my opinion this is not a case in which the Court can or should appoint a receiver to in effect wind up DPT.

Conclusion

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.
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.
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

Land Tax Act 1958(Vic)

CLR 481; [2010] HCA 10 Dreamstreet Lending Pty Ltd v Weiss (No 2) [2023] FCA 684 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 Exton v Extons Pty Ltd (2017) 53 VR 520; [2017] VSC 14 Federal Commissioner of Taxation v Totledge Pty Ltd [1982] FCA 64; (1982) 82 ATC 4168 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640 HNA Irish Nominees Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228 John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 Mir v Mir [2023] NSWSC 408 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Mount Bruce Mining Pty Ltd v Wright Prospecting (2015) 256 CLR 104; [2015] HCA 37 Munstermann v Rayward [2017] NSWSC 133 Nullagine Investments Pty Ltd v Western Australia Club Incorporated (1993) 177 CLR 635; [1993] HCA 45 O'Neill v Phillips [1999] 2 All ER 961 Onley v Catlin Syndicate Ltd as Underwriting member of Lloyd's Syndicate 2003 (2018) 360 ALR 92; [2018] FCAFC 119 Re A Solicitors' Arbitration [1962] 1 WLR 353 Re Austec Wagga Wagga Pty Ltd (in liq) [2018] NSWSC 1476 Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 Re Gaydon [2001] NSWSC 473 Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332 Re M Dalley & Co Pty Ltd v Sims (1968) 1 ACLR 489 Re Wyndham Park Estate Pty Ltd [2019] VSC 92 Saunders v Vautier (1841) 41 ER 482 Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111 Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93 Shelton v National Roads & Motorists' Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393 Stephenson v Barclays Bank Trust Co Ltd [1975] 1 WLR 882 Thomas v HW Thomas Ltd [1984] 1 NZLR 686 Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 at [199]; (2011) 288 ALR 310 Turnbull v National Roads and Motorists Association Ltd [2004] NSWSC 577 Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168 Watson v Foxman (1995) 49 NSWLR 315 Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 Yunghanns v Candoora (No 2) [2000] VSC 300 Texts Cited: AJ Oakley (Ed), Trends in Contemporary Trust Law (1996, Oxford: Clarendon Press) New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 17 October 2006 at 2751 Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Lawbook Co) Scott, The Law of Trusts (3rd ed, 1967, Little, Brown and Company) Category: Principal judgment Parties: David & Ros Carr Holdings Pty Ltd (ACN 630 141 909) in its personal capacity and as trustee for the Carr Family Trust (First Plaintiff) David Carr (Second Plaintiff) Rosalind Carr (Third Plaintiff)

General principles

In John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 Hammerschlag J (as his Honour then was) said: [94] Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, 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 of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319. [95] The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is.
Where the existence and terms of an oral contract is in issue, consideration of the surrounding circumstances including the history of the relationship between the parties and their conduct prior to and at the time the alleged contract was entered into is permissible, as well as post-contractual conduct: Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 at [47]-[50]; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25].
In view of the fallibility of human memory, it is recognised that where the events (including conversations) relied upon took place many years ago, 'the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities together with the documentation tendered in evidence': Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 at [15]-[16]; ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [25]-[29] (and cases there cited).
Finally, I note that in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, Dixon J emphasised that when the law requires the proof of any fact the Court must feel an actual persuasion of its occurrence or existence before it can be found, and 'it cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality' (at 361).

At a glance

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Judgment (18 paragraphs)

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Cases Cited (82)