Galati v Deans & Ors

Court of Appeal (NSW)|2022-09-20|Before: Macfarlan JA, White JA, Ward CJ

Background circumstances

The proceedings arose from a proposed redevelopment of the Sydney Fish Markets and surrounding areas at Blackwattle Bay, Ultimo. As the trial judge explained in her opening: "7 The proposed redevelopment was contemplated to be in the order of some $1.6 billion. It was envisaged that there would be significant profits flowing through to the parties involved in the redevelopment were it to come to fruition (which it did not); the 'worst case' scenario contemplated in some of the documents in evidence being a $100 million profit to be shared between the parties in varying proportions. Perhaps unsurprisingly, therefore, there appear to have been any number of people keen to share in the anticipated profits of the proposed development or to earn commissions or fees either in the course of the redevelopment project or after its completion."

Findings of trial judge

It was not in dispute that the shares held by Dahua No 2 were transferred to, and registered in the name of, TRHS. The evidence suggested that TRHS was the trustee of a unit trust. However, no trust document was produced or tendered, nor was there any evidence of units having been issued. There was no evidence as to what property (if any) was held by the trust (if a trust had been established).
It was also not in dispute that ECJ, introduced by Mr Galati, provided some $24m in funds, the bulk of which ($21.6m) constituted the purchase price for the Bidvest Land. A further amount of some $535,785 (plus GST) was provided, being the purchase price of the Felan's Fisheries' shareholding pursuant to the option given by Dahua No 2. Other smaller amounts included $250,000 provided for Felan's Fisheries' anticipated litigation costs, in circumstances where Felan's Fisheries had been required by SFM to forfeit its licence or lease within the Market on the basis that it had not operated since mid-2015. Unless the proceedings were successful, Felan's Fisheries' shareholding in SFM would have to be sold.
Fundamental to Mr Galati's claims was the relationship between him and Mr Deans (including by reference to their respective corporate vehicles). At trial, Mr Galati claimed that there was a partnership. That claim was rejected by the trial judge and has not been repeated. Nevertheless, she accepted that they had embarked on a joint venture and that each owed fiduciary obligations to the other with respect to the carrying on of the joint venture. [8]
Those findings derived partly from the oral evidence of the parties, but primarily from certain key documents. The key findings in this respect appear in the following passages in the primary judgment: "574 In the present case, the Agreement Principles document appears to have reserved to Mr Deans the right to make the final decisions but, from a practical point of view, it is clear that at least once the Call Options were entered into it was necessary for there to be a joint decision (if nothing else then at least as to the nomination of a purchaser of the land and other assets the subject of the option rights); and I accept that there was a practice of consultation in relation to the decisions made in respect of the proposals put to the prospective investors (so, for example, it was recognised that Mr Deans' consent to the Abacus deal was necessary). (See also the requirement in the Agreement Principles document for communication and liaison on all 'strategy, deals & tactics', and agreement before the same are enacted; in which context it might be said that what Mr Deans was being given was in effect a casting vote - but there is an element of inconsistency in this regard.) … 576 In my view there was clearly a 'joint venture' or joint endeavour between Mr Deans and Mr Galati (and their respective companies) but I am not persuaded that this amounted to a partnership as at the time that they entered into the 20 November 2015 Nomination Agreement. Rather, I consider that the partnership that the parties were contemplating (when using the term 'joint venture partner' for example) was the entry into a partnership or partnership structure to undertake the redevelopment proposal itself (not a 'partnership' to find a re-development partner or investor simply to acquire the Bidvest Land). Hence, the discussion and agreements as to the sharing of profits focussed on profits of the ultimate redevelopment project. I consider that the activities prior to that time were being undertaken with a view to some form of partnership down the track. … 581 I am satisfied that by the time of the Agreement Principles document (and indeed most likely from an earlier point, namely at the time of entry into the October 2014 Equity Funding Agreements, as the defendants' submissions themselves concede), the relationship between Mr Deans and Mr Galati (and their respective companies) was a fiduciary one, in that the parties were joint venturers working towards a common end and their relationship was based on mutual confidence. At the very least, Mr Deans was placing trust in Mr Galati when he gave Mr Galati the responsibility, on behalf of the joint venture, for liaising with proposed investors and financiers for the project (armed with confidential information in relation to the project and the strategic decision-making reached between the respective interests). 582 I therefore consider that the relationship between the Deans interests and the Galati interests gave rise to the fiduciary duties considered in UDC v Brian, namely that 'each participant was under a fiduciary duty to refrain from pursuing, obtaining or retaining for itself or himself any collateral advantage in relation to the proposed project without the knowledge and informed assent of the other participants'."
The primary judge identified the issues raised before her in the following terms: "584 Mr Galati says that (by reason of the secrecy or anonymity that he and Mr Deans agreed was required with regard to the ownership of the shares in Felan's Fisheries) a unit trust (the TRHS Unit Trust) was agreed to be deployed to represent their interests in the Felan's Fisheries shares; i.e., that there was an agreement to use an existing unit trust to hold the beneficial interest in the Felan's Fisheries shares for the benefit of the interests of Mr Galati and Mr Deans. Mr Galati's complaint is that Mr Galati has not been issued any units in the TRHS Unit Trust and that Mr Deans contests Mr Galati's entitlement in this regard (see T 472.9). 585 However, there is a distinction between an agreement or expectation that Mr Galati would become a unitholder of the TRHS Unit Trust (consistent with the assertion made by his lawyers in the correspondence in June 2016) and the trusts here sought to be recognised by way of the declaratory relief for which Mr Galati contends. 586 Mr Galati also submits that Mr Deans and Fishbank should be estopped from denying that: TRHS holds the Felan's Fisheries shares on trust for Mr Galati on the one hand and Mr Deans and Fishbank on the other in equal shares; or that Fishbank holds 50% of the shares in TRHS on trust for Mr Galati and Trading Australia. 587 Mr Galati accepts that the agreement to use a unit trust structure (i.e., that which was said to be put in place through TRHS) might obviate the need for equity to impose a remedial constructive trust in order to make good the breach of fiduciary duty here alleged (or even as to the alleged estoppel - see below). However, Mr Galati says that the more practical view is that, now that there is no need for anonymity as to the ownership of the shares in Felan's Fisheries, the whole unit trust structure can be abandoned (as can TRHS) and Mr Galati can be declared to be the owner of half the shares in Felan's Fisheries, leaving the other half owned by TRHS, which is under Mr Deans' control."
The agreement between the parties extended, as the trial judge found, beyond the acquisition of the Bidvest Land and the shareholding; rather, its purpose was participation in the redevelopment of the larger site, with the profits of the redevelopment to be distributed in specified proportions, depending upon the amount involved (namely whether greater than or less than $150m). The joint venture agreement did not address what might happen if the redevelopment did not proceed, or proceeded without the involvement of the Galati and Deans interests. In relation to the financing obtained from ECJ, part of the agreement with ECJ involved ECJ paying 10% of the net profit of the redevelopment to the Galati and Deans interests. However, although ECJ provided funds which paid for the taking up of the option in respect of the shareholding by TRHS, there was no agreement as to what should happen to that shareholding.
The judge's critical findings were expressed as follows: "615 As to the rights to acquire the shares in Felan's Fisheries, the relevant Call Option document makes clear that these were jointly held by Fishbank and Trading Australia; so that, on exercise of the option, the two entities would jointly have acquired those shares (and I accept that, in the absence of any express agreement to the contrary, they would have done so as tenants in common - see s 26 of the Conveyancing Act). 616 Senior Counsel for the Deans interests candidly accepted that, if all one had was the Nomination Agreement, then it might be concluded … (by default) that each party had an interest in half of the shares. However, it is said that a trust must be inferred from all the documents and that the overriding circumstances by mid-2015 (on Mr Galati's evidence) is that the parties had finished as a team. Therefore, it is submitted that the so-called default position no longer applies - that there is no reason for the holding of the shares as property for a joint venture the underlying premise of which has failed. Hence, it is said that when the nomination of TRHS as the shareholder was made there is nothing to say that it was intended that TRHS hold those shares on trust for the respective interests; and that such evidence is necessary to make a finding of trust. 617 Thus, while it appears to be accepted by the Deans interests that the Nomination Agreement in isolation might suggest an agreement or understanding that the shares in Felan's Fisheries would be held jointly (and to my mind this is the high point of Mr Galati's claim to an interest in the shares), the difficulty is that what happened, instead, was that Fishbank and Trading Australia appear jointly to have nominated TRHS to be registered as the owner of the shares (indeed, they must have done so in order for this to have occurred, as there is certainly no dispute that TRHS is the registered holder of the shares), without any concluded agreement as to the interest it was anticipated that Trading Australia would have in the TRHS unit trust. 618 It is clear that this was in an attempt to disguise the involvement of at least Mr Deans (and seemingly also Mr Galati) in the shareholding of Felan's Fisheries for "political reasons" related to the then ongoing disputes with the SFM Board. However, I am not satisfied that there was any express agreement between the parties as to the basis on which TRHS was to hold the shares (rather the evidence appears to suggest that it was understood by Mr Galati that it would do so in its capacity as trustee for the unit trust in which he later asserted he had an ownership interest). In my opinion, the most likely conclusion is that the parties informally agreed that the shares would be acquired by TRHS as the trustee of a unit trust (units in which would at some stage be issued to Mr Galati in a proportionate amount then still to be agreed - and assuming that the project was to proceed at that stage). 619 I have no doubt that (for 'political reasons') it was intended that the Felan's Fisheries shares were to be held by TRHS (most probably as the trustee for the TRHS Unit Trust) for the benefit and purposes of the overall joint venture (i.e., the redevelopment project) proposed to be progressed; and in that sense for the benefits of the respective interests ultimately pursuing the proposed joint venture. However, the Deans and Galati interests chose to nominate TRHS as the shareholder for this purpose. I am not persuaded that there was a separate trust in respect of the shares in that company. … 620 In the absence of a trust in respect of the Felan's Fisheries shares, and in the absence of an agreement as to what was to happen in the event that the joint venture did not proceed, I am left to conclude that TRHS retains the legal ownership of the shares in Felan's Fisheries as trustee for the TRHS Unit Trust (and that, as Mr Deans controls TRHS, he retains the indirect benefit or control of the Felan's Fisheries shares; albeit for the benefit of the unitholders of the TRHS Unit Trust - of which, due to the failure of the parties to reach agreement on this, Mr Galati is not one)."

Claims on appeal

On appeal, Mr Galati initially contended that there was an express trust established whereby either Mr Deans held his shares in TRHS as to 50% in trust for Mr Galati or, in the alternative, that TRHS held the Felan's Fisheries' shares as to 50% on trust for Mr Galati. That submission challenged the judge's finding that there was no such agreement. As the submissions continued, the exercise of the call options on 20 November 2015 "necessarily implies that the purpose of the joint venture had not failed but was (at that time) continuing". [9] Accepting that to be so, it does not follow that property acquired in the course of the joint venture and placed in the ownership of one person, with an expectation that it would be deployed for the purposes of the redevelopment, was agreed to have been the subject of an express trust with the relevant interests of the parties identified. The judge found there was no such agreement, a finding which must be accepted.
In the alternative, the appellant contended that, upon the failure of the joint venture, property acquired as a collateral benefit in the course of carrying out the joint venture, would be held by the legal owner on a constructive trust for each of the joint venturers in equal shares, in the absence of any agreement to the contrary. On this approach, the judge's finding that "the joint property seems to me to be the option rights" [10] started with the proposition that the option rights were joint venture property immediately prior to the exercise of the option. The nomination of TRHS as the purchaser of the shareholdings in circumstances where the whole of the consideration was provided by the joint venturers, with finance provided by ECJ, was said to rebut any implication that TRHS was intended to be the beneficial owner of the shares. The arrangement between ECJ and the joint venturers meant that the funds obtained from ECJ were for the benefit of the joint venturers and ECJ obtained no interest by way of a resulting trust in the property on which the funds were expended and which it did not seek to acquire. However, the moneys applied by the joint venturers to the purchase of the shareholding provided a foundation for a resulting trust of the property held by TRHS.
The respondent's written submissions noted that the primary submissions of the appellant did not address authority, nor the requirements for the imposition of a constructive trust in respect of a breakdown of a relationship without attributable blame. The submissions continued: [11] "The requirements were set out in Muschinski v Dodds [12] by Deane J, with whom Mason J agreed, and were approved in Baumgartner v Baumgartner [13] by Mason CJ, Wilson and Deane JJ who stated that 'the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do.'"
The respondent suggested that the necessary elements for the imposition of a constructive trust had not been pleaded, were not argued at trial but, in any event, did not exist. They did not exist, it was submitted, because Mr Galati had destroyed the substratum of the joint relationship, which had not failed without attributable blame. Further, it was suggested that as the Dahua options had been brought in by Mr Deans it would not be unconscionable for him to retain ownership of the product of the options.
The trial judge did not accept that the relationship had been destroyed by Mr Galati. True it was that he had sought to retain for himself a commission obtained from ECJ for arranging the finance, but the judge accepted that at the time the commission was obtained, the joint venture remained on foot. It was therefore on foot when the option was exercised. It was also true that both parties were unhappy with the performance of the other, but in fact the venture did not fail for that reason, but because the redevelopment did not go ahead.
By a notice of contention, the respondents submitted that there was "no pleaded claim for breach of fiduciary duty". However, it is clear that the case run at trial depended upon the existence of a fiduciary duty owed by each party to the other and that allegations as to its breach went to the heart of the matter. So much appears from the discussion in the judgment at [616]-[620] set out above. As the appellant submitted in his reply, the imposition of a constructive trust over the Felan's Fisheries' shares as a remedy for breach of fiduciary duty was canvassed in submissions and addressed by the judge at [587], set out above.

Express trust

Although, as noted below, the appellant's case was put in various ways at different stages of the appeal, the first claim posited an express trust. However, as noted above, I agree with the trial judge that no such declaration of trust can be found on the evidence. The judge's conclusion that the parties at that time of acquisition in the name of TRHS gave no consideration to beneficial interests in the shares, because they did not then need to, is persuasive. I am not satisfied that the court should uphold an express trust.

Resulting trust

The second way it was put in oral submissions was a claim for a resulting trust where the underlying purpose for which the property was acquired had failed. After addressing the submission that there was an express trust, senior counsel for the appellant continued: [14] "The second way we put the argument is a resulting trust…. Let it be assumed that there is simply insufficient evidence for an inference to be drawn that there is an express trust of the kind that we seek, and on that assumption there's not a basis to draw an inference of an express trust. There is, in our submission, at that point a presumption that TRHS was intended to hold the shares on trust for Trading Australia and Fishbank, and that's because the nomination of TRHS was in substance a transfer of those shares to TRHS for no consideration. It wasn't in form a transfer, but equity [is] not normally troubled by that. It was in substance a transfer of the shares from where they would have sat, Trading Australia and Fishbank Development, to where they ultimately sat, TRHS for no consideration."
In Wirth v Wirth [15] Dixon CJ stated at [235]: "Where a purchase was made in the name of a stranger who provided none of the purchase money the law was clear from a very early time that a resulting trust was presumed and the stranger could take beneficially only if he proved affirmatively that it was so intended." The exercise of a power of nomination in an option works in relevantly the same manner as a transfer without consideration passing from the purchaser.
Counsel referred to Napier v Public Trustee (WA), [16] where Aickin J stated (with the agreement of Gibbs, Mason, Murphy and Wilson JJ): "The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be." The presumption may be rebutted, but there was no relevant basis for rebuttal on the evidence in the present case.
The trial judge correctly emphasised that the joint venture between Fishbank and Trading Australia conferred benefits on the parties according to the outcome of the development. The judge was correct to emphasise that the purpose of the joint venture was a completed redevelopment of the Sydney Fish Market site. From that it was readily inferred that the parties gave no thought to the beneficial ownership of property obtained in the course of carrying out the venture. The value to the joint venture of ownership of the Felan's Fisheries' shares was the opportunity, as the judge noted, to influence SFM in its consideration of any proposal for redevelopment of the site. For that reason, it was deemed expedient by Mr Deans and Mr Galati that the public record would not disclose their control of the relevant shares. As senior counsel for the appellant submitted, if the purpose of the nomination of a third party to hold the shares was to conceal the true ownership, the underlying premise was that Mr Deans and Mr Galati had a common interest in the shares that needed to be concealed. It was concealment of that interest, rather than an intention to transfer ownership of the shares from one person to another, that underlay the nomination of TRHS to hold the shares. [17]
That inference was supported by the fact that Mr Deans and Mr Galati agreed that each should nominate one director to the board of TRHS. That occurred, on 23 November 2015 (three days after the Nomination Agreement was executed - see below), each naming a person who, it seems, was not directly associated with his business. [18]
A further factor relied upon by the appellant was the fact that the options granted by Dahua No 1 and Dahua No 2 each identified Fishbank and Trading Australia "together" as the buyer or grantee of the option. They, together, were given the power to nominate another person to become the registered owner of the shares but they would remain liable for completing their obligations under the option, regardless of any act or omission of the nominee. It was for that reason that the judge identified the holding of the option as relevant joint venture property, rather than the shares the subject of the option.
Fishbank and Trading Australia entered into a "Nomination Agreement" with ECJ on 20 November 2015 with respect to the purchase of the Bidvest Land. Pursuant to that agreement, they nominated the property purchaser, EJC. That deed was relevant for two reasons. First, it confirmed that as at 20 November 2015, Fishbank and Trading Australia were acting jointly in pursuit of the joint venture. Secondly, it provided for the nomination of EJC as the purchaser of the Bidvest Land, but not of the shares. The deed identified the "Share Purchaser" as "[t]he person/s whom the Grantee nominates pursuant to the Share Option Deed to be the buyer of the Shares, or where the Grantee does not make a nomination, the Grantee". That aspect was relied upon by the appellant to rebut any suggestion that EJC was entitled to hold the shares on a resulting trust, in the event that the development did not occur. It also provided support for the inference that the funds obtained by the joint venturers would be used by them to purchase, in whatever name they thought fit, the shareholding the subject of the Dahua No 2 option.
There was evidence that the money provided by EJC to the joint venturers was made available by them by way of a loan to TRHS for payment to Dahua No 2. That inference was derived from the existence of a loan agreement and a "General Security Deed", the latter being executed by Mr Deans on behalf of Fishbank, by Mr Galati on behalf of Trading Australia and by Andrew Schultz, identified as the sole director and secretary of TRHS; the deed was dated 20 November 2015. The deed was said to give security for payment of amounts owing by TRHS to "the Secured Party", the latter being identified as Fishbank and Trading Australia. The joint venturers were described as the "lender" and TRHS as the "borrower". TRHS was able to obtain legal title to the shares, as a result of the provision of funds by the joint venturers.
It is true that generally a third-party financier will not obtain an equitable interest in a property purchased with funds it lends to the purchaser. However, the joint venturers were not third-party financiers but the parties entitled to purchase the property pursuant to the option agreement with the vendor. The fact that in exercising the option they nominated a third party (which one of them controlled) to which they supplied the funds to complete the purchase, for the acknowledged purpose of concealing their interests, provides an analogous situation to that of the purchaser who provides no consideration for the transfer.
The appellant noted the reasoning of the trial judge, adopted by the respondent, at [616] (set out above in full) that by mid-2015 Mr Galati believed that the parties "had finished as a team", so that "there is no reason for the holding of the shares as property for a joint venture the underlying premise of which has failed."
Accepting for the purpose of argument the factual premise that Mr Galati believed that the joint venture had collapsed in mid-2015, the appellant submitted that it would be absurd to infer that, some five months later, Mr Galati was content to abandon a significant asset of the joint venture, namely the option to purchase the shares, by making a gift to Mr Deans. Further, the appellant submitted that this involved a misunderstanding of the reasoning of the trial judge, because the judge found that in late 2015 Mr Galati was in breach of his fiduciary duty in retaining the commission paid by ECJ which constituted an asset of the joint venture.
The fact that, in November 2015, the Nomination Agreement with ECJ expressly provided for a payment of 10% of the net profit of the redevelopment to the joint venturers supports the inference that the arrangement with ECJ was intended to be part of the joint venture, but that no thought was given to the beneficial ownership of the shares in Felan's Fisheries, should the project collapse. The shares were not being acquired in order to operate stalls at the fish market; rather, they were being acquired so that they could be used by the joint venturers to promote the proposed redevelopment. Consistently with the principles stated in Muschinski v Dodds, affirmed in Baumgartner, this was a case in which a joint venture collapsed leaving one party as the legal owner of a major asset, in circumstances where it would be unconscionable for the legal owner to deny any beneficial interest on the part of the other joint venturer.
As a further element of joint activity, in 2015 Mr Galati and Mr Deans each nominated a director of TRHS. On 26 February 2016 the director of TRHS nominated by Mr Galati was removed, at Mr Deans' instigation. [19] That left Mr Deans in sole control of TRHS. Although in a legal sense TRHS may have held 50% of the beneficial interest in the Felan's Fisheries shareholding for Fishbank, as that was also a Deans' company, nothing turned on that in a practical sense. However, TRHS having obtained the shareholding with funds provided by the joint venturers, it should be declared that it holds those shares on trust for the joint venturers equally.

Common intention constructive trust

A third possible approach, raised by the Court in the course of argument and adopted by the counsel for the appellant in reply, was that the Court could find a "common intention constructive trust". The basis for such a trust is said to derive from principles found in such cases as Grant v Edwards [20] and Green v Green. [21] The relevant elements were set out by Ward CJ in Eq in Bassett v Cameron, [22] where the Chief Judge further identified a claim based on a joint enterprise which failed, as seeking "to invoke the so-called 'joint endeavour' constructive trust of the kind identified in Baumgartner at 148, namely, where equity intervenes to restore to a party 'contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them'." [23]
However, as explained by White J in Shepherd v Doolan, [24] the existence of an agreement or "common intention" referrable to the beneficial enjoyment of the property is one to be determined on the evidence. In my view, such a determination in the present case would be inconsistent with the findings of fact made by the trial judge as to which the appellant eschewed any challenge. The law does not impute a presumed intention. [25] Further, it is said that the claimant must demonstrate that it acted to its detriment in reliance upon the common intention, although "a less stringent test applies to the requirement of detriment once the common intention has been established". [26] That element supports the doubts expressed by Leeming JA in Bijkerk Investments v Bikic, [27] noted by this Court in Koprivnjak, as to whether there is available under Australian law a "common intention constructive trust" which may be found in circumstances where no estoppel arises. In the present case, the trial judge expressly rejected a claim in estoppel [28] and the appellant eschewed any reliance on estoppel at the hearing of the appeal. [29]
Once it is accepted that the ultimate provider of the funds, ECJ, disclaimed any interest in obtaining the shares, pursuant to the Nomination Agreement, the relevant source of funds was the joint contribution of the joint venturers, who were otherwise entitled to obtain the transfer of the property to themselves on payment to the seller.
In these circumstances, the appellant's claim to a 50% interest in the shareholding in Felan's Fisheries transferred to TRHS should be accepted. There should be a declaration to that effect.

Conclusion

I agree with the reasons of White JA with respect to other matters raised by the appellant. Accordingly, the orders proposed by White JA should be made.

Endnotes

Galati v Deans [2021] NSWSC 1094 ("primary judgment").
Primary judgment at [12].
Primary judgment at [3].
Primary judgment at [13].
Primary judgment at [68].
Call Option Deeds, 19 December 2014, identification of "the Grantee".
Primary judgment at [438]-[440].
Primary judgment at [579]-[581].
Appellant's written submissions, 21 June 2022, par 27.
Primary judgment at [575].
Respondent's written submissions, 17 August 2022, par 44.
(1985) 160 CLR 583 at 620; [1985] HCA 78.
(1987) 164 CLR 137 at 148; [1987] HCA 59.
CA Tcpt, p 16(28).
(1956) 98 CLR 228; [1956] HCA 71.
(1980) 55 ALJR 1 at 3F, col 2.
CA Tcpt, 20/09/22, p 12(5)-(10).
Primary judgment at [252], [272].
Primary judgment at [411]-[414].
[1986] 6 Ch 638.
(1989) 17 NSWLR 343.
[2021] NSWSC 207 at [564]-[565].
Ibid at [567].
[2005] NSWSC 42 at [37].
Shepherd at [34].
Koprivnjak v Koprivnjak [2023] NSWCA 2 at [24(3)] (Griffiths AJA, Leeming and Mitchelmore JJA agreeing) citing Green v Green (1989) 17 NSWLR 343 at 357 (Gleeson CJ, Priestley JA agreeing).
[2020] NSWSC 1336 at [116]ff.
Primary judgment at [621].
CA Tcpt, p 21(44).

Amendments 20 February 2023 - Typo in citation par [6] corrected 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: 20 February 2023

Solicitors: Harris Friedman Lawyers (Appellant) FCB Workplace Law (First to Fourth Respondents) File Number(s): 2021/264875 Decision under appeal Court or tribunal: Supreme Court of NSW Jurisdiction: Equity General Citation: Galati v Deans [2021] NSWSC 1094 Date of Decision: 01 September 2021 Before: Ward CJ in Eq File Number(s): 2016/360462

HEADNOTE [This headnote is not to be read as part of the judgment] In or around 2014, the appellant, Mr Dominic Galati, and the first respondent, Mr Robert Deans, embarked on a joint venture to redevelop certain lands in Blackwattle Bay (including the land upon which the Sydney Fish Markets are situated). That joint venture was carried on by a company controlled by Mr Galati, Trading Australia Pty Ltd ("TA"), and a company controlled by Mr Deans, Fishbank Development Corporation Pty Ltd ("Fishbank"). From around 2002, Mr Deans had been exploring opportunities for such redevelopment, having procured an agency agreement with a company, Bidvest Australia Pty Ltd ("Bidvest"), owing land adjoining and shares in the Sydney Fish Markets. As part of the joint venturers' plans to redevelop (and profit from) the selected sites, a plan was made to acquire and on-sell land adjoining the Sydney Fish Markets, and to obtain shares in a company, Felan's Fisheries Pty Ltd ("Felan's Fisheries"), that had an indirect shareholding in the corporate lessee of the Sydney Fish Markets. Having insufficient funds themselves, the joint venturers contracted with a third party, Dahua Group Pty Ltd ("Dahua Group"). Dahua Group incorporated two special purpose vehicles to acquire the Bidvest land and shares in Felan's Fisheries, and granted call options to TA and Fishbank for the acquisition of each at a fixed price, in addition to costs and interest. TA and Fishbank subsequently found a purchaser interested in the land, but not the shares. The joint venturers agreed to acquire the shares through a nominee company, TRHS Pty Ltd ("TRHS"), to hold in its capacity as trustee of a unit trust, for the purposes of the joint venture. The price the purchaser paid for the land was more than was needed for the price payable under the option granted by Dahua Group and the surplus was more than sufficient to pay the price payable under the option to acquire the shares in Felan's Fisheries. Before TA could be allocated units in the unit trust, Mr Galati had a falling out with Mr Deans. Mr Galati and TA subsequently instituted proceedings, seeking, among other things, a declaration that TRHS held 50% of its shareholding in Felan's Fisheries on trust for TA as a tenant in common in equal shares with Fishbank. TA's claim was continued after its liquidation by Mr Galati, as the assignee of its right to sue the respondents in respect of the shares. The primary judge (Ward CJ in Eq) dismissed Mr Galati's and TA's claims to entitlement to half of TRHS' shares in Felan's Fisheries, and upheld a cross-claim by which Mr Deans and Fishbank asserted that Mr Galati and TA were liable to account to them for secret commissions wrongfully received and retained during the joint venture. The primary judge awarded a sum of $899,910.48 against the appellant, either as damages for the tort of deceit, for which an additional sum of $100,000 as exemplary damages was imposed, or as equitable compensation. On appeal, the issues before the Court were: (i) Whether the primary judge had erred in refusing to declare that TRHS holds 50% of its shares in Felan's Fisheries on trust for Mr Galati, whether in his own right or as the assignee of TA, as a tenant in common with Fishbank; (ii) Whether the primary judge had erred in failing to find that Mr Deans, by reason of his company's antecedent agency agreement with Bidvest, had received a secret commission in breach of his fiduciary duty to the joint venture; and (iii) If Mr Deans had so breached his fiduciary duty, the appellant's quantum of damages for the tort of deceit, or equitable compensation, should be reduced by the commission received from Bidvest. The Court (Macfarlan JA, White JA and Basten AJA), allowing the appeal in part, held: As to issue (i) per Macfarlan JA and Basten AJA (1) The primary judge had erred in refusing to declare a trust over TRHS's shares in Felan's Fisheries in favour of Mr Galati, but not on the basis that any such trust was express or constructive in nature. Instead, the evidence established that, in circumstances where TRHS has been appointed as nominee for the exercise of the call option without consideration, and the substratum of TA and Fishbank's commercial relationship had then failed, a presumed resulting trust attached to TRHS's shares: [1] (Macfarlan JA), [134]-[147] (Basten AJA). Wirth v Wirth (1956) 98 CLR 228; [1956] HCA 71; Napier v Public Trustee (WA) (1980) 55 ALJR 1, applied. Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78; Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59, cited. (2) The primary judge's findings as to a lack of common intention referable to the beneficial enjoyment of property evinced no error for appellate intervention. Moreover, there is some doubt, arising from the necessity to prove detrimental reliance in cases of proprietary estoppel and common intention constructive trusts alike, as to whether a finding of a common intention constructive trust can be made where a claim for proprietary estoppel is rejected: [1] (Macfarlan JA), [148]-[149] (Basten AJA). Shepherd v Doolan & Anor; Est. Doolan [2005] NSWSC 42; Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336; Koprivnjak v Koprivnjak [2023] NSWCA 2, discussed. Grant v Edwards [1986] Ch 683; Green v Green (1989) 17 NSWLR 343; Bassett v Cameron [2021] NSWSC 207, cited. As to issue (i) per White JA: (3) The evidence establishing that TA and Fishbank had advanced moneys to TRHS for the acquisition of shares under the call option by way of loan, rather than as direct payment for the acquisition of the shares, was sufficient to negative the presumption of a resulting trust in the circumstances: [51]-[52] (White JA). Calverley v Green (1984) 155 CLR 242; [1984] HCA 81, applied. Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353; [1956] HCA 28, cited. (4) The primary judge had erred in finding that TRHS did not hold 50% of its shares in Felan's Fisheries on trust for Mr Galati, as the assignee of TA's rights. The character of that trust was not, as Mr Galati had initially contended, express, but rather a common intention constructive trust, generated from TA and Fishbank's shared intention that TRHS (as their nominee) should hold the shares beneficially for the purposes of the joint venture: [48]-[56], [73]-[78] (White JA). Grant v Edwards [1986] Ch 638; Maharaj v Chand [1986] AC 898; Austin v Keele (1987) 10 NSWLR 283; Green v Green (1989) 17 NSWLR 343; Shepherd v Doolan & Ors; Shepherd v Doolan & Anor; Est. Doolan [2005] NSWSC 42, considered. Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78; Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59; Bosanac v Commissioner of Taxation [2022] HCA 34, cited. (5) Though there is a resemblance between a common intention constructive trust and proprietary estoppel it had not been submitted that, in Australian law, the latter has subsumed the former. Existing authority was to the contrary. Although the appellant did not challenge the primary judge's rejection of his claim for equitable or conventional estoppel, this is not a matter that need be decided: [57]-[61] (White JA). Austin v Keele (1987) 10 NSWLR 283; Green v Green (1989) 17 NSWLR 343; Parsons v McBain [2001] FCA 376; 109 FCR 120; Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336, considered. As to issue (ii) (6) There was no error in the primary judge's conclusion that Mr Deans had not breached any fiduciary duty owed to the joint venture by virtue of receipt and retention of a commission made pursuant to his company's agency agreement with Bidvest. Quite aside from the fact that the commission was paid to a company related to Mr Deans, rather than Mr Deans himself, the agency agreement was antecedent to, and unconnected with, the joint venture: [1] (Macfarlan JA), [96]-[105] (White JA), [152] (Basten AJA). As to issue (iii) (7) Given that Mr Deans was not liable for breach of fiduciary duty, the challenge to the primary judge's assessment of the quantum of damages or equitable compensation payable by Mr Galati did not arise: [1] (Macfarlan JA), [17] (White JA), [152] (Basten AJA).

Primary judge's reasoning on trust claim

The primary judge rejected Mr Galati's claim to a 50% beneficial interest in TRHS's shareholding in Felan's Fisheries for the following reasons: [615] As to the rights to acquire the shares in Felan's Fisheries, the relevant Call Option document makes clear that these were jointly held by Fishbank and Trading Australia; so that, on exercise of the option, the two entities would jointly have acquired those shares (and I accept that, in the absence of any express agreement to the contrary, they would have done so as tenants in common - see s 26 of the Conveyancing Act). [616] Senior Counsel for the Deans interests candidly accepted that, if all one had was the Nomination Agreement, then it might be concluded that (by default) that each party had an interest in half of the shares. However, it is said that a trust must be inferred from all the documents and that the overriding circumstances by mid-2015 (on Mr Galati's evidence) is that the parties had finished as a team. Therefore, it is submitted that the so-called default position no longer applies - that there is no reason for the holding of the shares as property for a joint venture the underlying premise of which has failed. Hence, it is said that when the nomination of TRHS as the shareholder was made there is nothing to say that it was intended that TRHS hold those shares on trust for the respective interests; and that such evidence is necessary to make a finding of trust. [617] Thus, while it appears to be accepted by the Deans interests that the Nomination Agreement in isolation might suggest an agreement or understanding that the shares in Felan's Fisheries would be held jointly (and to my mind this is the high point of Mr Galati's claim to an interest in the shares), the difficulty is that what happened, instead, was that Fishbank and Trading Australia appear jointly to have nominated TRHS to be registered as the owner of the shares (indeed, they must have done so in order for this to have occurred, as there is certainly no dispute that TRHS is the registered holder of the shares), without any concluded agreement as to the interest it was anticipated that Trading Australia would have in the TRHS unit trust. [618] It is clear that this was in an attempt to disguise the involvement of at least Mr Deans (and seemingly also Mr Galati) in the shareholding of Felan's Fisheries for "political reasons" related to the then ongoing disputes with the SFM Board. However, I am not satisfied that there was any express agreement between the parties as to the basis on which TRHS was to hold the shares (rather the evidence appears to suggest that it was understood by Mr Galati that it would do so in its capacity as trustee for the unit trust in which he later asserted he had an ownership interest). In my opinion, the most likely conclusion is that the parties informally agreed that the shares would be acquired by TRHS as the trustee of a unit trust (units in which would at some stage be issued to Mr Galati in a proportionate amount then still to be agreed - and assuming that the project was to proceed at that stage). [619] I have no doubt that (for "political reasons") it was intended that the Felan's Fisheries shares were to be held by TRHS (most probably as the trustee for the TRHS Unit Trust) for the benefit and purposes of the overall joint venture (i.e., the redevelopment project) proposed to be progressed; and in that sense for the benefits of the respective interests ultimately pursuing the proposed joint venture. However, the Deans and Galati interests chose to nominate TRHS as the shareholder for this purpose. I am not persuaded that there was a separate trust in respect of the shares in that company. Rather, I consider that the parties were at that stage yet to agree what interest in the TRHS Unit Trust was to be acquired by Mr Galati or the Galati interests as part of the proposed joint venture (a conclusion reinforced by the Fraser Clancy Lawyers letter to which I have already referred, in which it was noted that the extent of the interest was uncertain) - and it remained undecided as to what that interest would be. Moreover, the purpose of the proposed joint venture has come to an end - since it is abundantly clear that whatever the prospects of a proposed redevelopment it will not be pursued by a joint venture between the Galati and Deans interests respectively. [620] In the absence of a trust in respect of the Felan's Fisheries shares, and in the absence of an agreement as to what was to happen in the event that the joint venture did not proceed, I am left to conclude that TRHS retains the legal ownership of the shares in Felan's Fisheries as trustee for the TRHS Unit Trust (and that, as Mr Deans controls TRHS, he retains the indirect benefit or control of the Felan's Fisheries shares; albeit for the benefit of the unitholders of the TRHS Unit Trust - of which, due to the failure of the parties to reach agreement on this, Mr Galati is not one)."

(2003) 30 Fam LR 524

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Cases Cited (25)

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