Plaintiffs v Defendants

TRUSTS - Trustee Act 1958 - s 63 - Whether investigation and potential litigation a "transaction" under the Act - Whether "expedient" for the Court to make orders under the Act - Not a transaction - Not expedient.

1 The plaintiffs are various entities associated with Graham Gniel ("Gniel") and Tony Boniello ("Boniello") who together hold approximately 49% of the units in the Lingamaneni Momentum Melbourne Unit Trust ("the Trust").

2 Gniel is a director and secretary of the first plaintiff, Gniel Nominees Pty Ltd ("Nominees"). He is a director and secretary of the second plaintiff, Gniel Investments Pty Ltd ("Gniel Investments"). He is a director and secretary of the third plaintiff, Kelniel Developments Pty Ltd ("Kelniel Developments"). He has held these positions since 1996.

3 Boniello is the sole director and secretary of the fourth plaintiff, Boniello Enterprises Pty Ltd ("Boniello Enterprises"). He has held that position since 2004. He is also a director and secretary of the fifth plaintiff, Boniello Investments Pty Ltd ("Boniello Investments"). He has held that position since 2008.

4 The first defendant, Sexton Pty Ltd ("Sexton"), is the other unitholder in the Trust and holds 51% of the units in the Trust. Paul Huggins ("Huggins") is the sole director, secretary and shareholder of Sexton.

5 The second defendant, Graeme Still, ("the Replacement Trustee") was appointed trustee by orders of this Court dated 22 July 2022 with effect from 2 September 2022.

6 The Trust is governed by a written deed ("Trust Deed"). On 20 April 2023, Sexton, through his solicitor, relied upon clause 74 of the Trust Deed to serve on the Replacement Trustee a notice which purported to terminate the Trust. The main question in this case is whether that termination notice is valid.

7 Gniel and Huggins met in 1992 when they were both operating financial planning businesses out of the same office in Doncaster. Boniello moved his financial planning business to the same office in 1995. The three men developed a friendship and pursued investment opportunities jointly.

8 In 2005, Gniel and Huggins jointly purchased a financial planning franchise called "RetireInvest" in Wantirna. Later that year, Boniello merged his financial planning business into the RetireInvest franchise and worked in the business as office manager.

9 In February 2008, Huggins and Gniel discussed a joint venture opportunity with Mercedes Benz Doncaster to redevelop a property in Doncaster into a multi-level residential complex including a commercial ground floor which could be sold for profit ("the Doncaster Development"). Huggins had discussions with each of Gniel and Boniello regarding investment in the Doncaster Development. Huggins wanted to raise $10 million in capital for the acquisition of the land and to fund pre-development costs.

10 To hold the Doncaster Development, Huggins established the Trust, in which each investor would receive units in the Trust proportionate to their contributions. He also incorporated Lingamaneni Momentum Melbourne Pty Ltd ("the Former Trustee") to act as the trustee of the Trust. Both were established around 6 June 2008.

11 Gniel and Boniello invested in the Doncaster Development through their unitholding vehicles, namely, the first to fifth plaintiffs. Huggins held his interest in the Doncaster Development through Sexton.

12 Around 28 September 2009, the Former Trustee in its capacity as trustee of the Trust, acquired the land for the purpose of undertaking the Doncaster Development. The Former Trustee undertook the Doncaster Development which reached practical completion in May 2012.

13 Around September 2018, RetireInvest changed its licence to an Australian financial services ("AFS") licence that was owned by Sexton and controlled by Huggins. Boniello was appointed the Responsible Manager under the AFS licence and was appointed director of Momentum Wealth Management Corporation Pty Ltd.

14 On 18 December 2020, the Gniel and Boniello unitholders issued a proceeding in this Court ("the Replacement Proceeding") against the Former Trustee and Sexton seeking inter alia an order pursuant to s 48 of the Trustee Act 1958 (Vic) ("Trustee Act") that a new trustee be appointed to the Trust in place of the Former Trustee. This proceeding settled in July 2022 with the parties agreeing upon the appointment of the Replacement Trustee with effect from 2 September 2022. The Replacement Proceeding was dismissed on 5 September 2022.

15 On 11 October 2022, the Replacement Trustee wrote to Sexton demanding remittance of $688,942.13 being the outstanding amount which it owed to the Trust. Sexton disputed this amount and claimed it was entitled to certain set-offs.

16 On 2 February 2023, the Replacement Trustee wrote to the unitholders in the Trust regarding preliminary investigations which he had conducted into the assets and liabilities of the Trust. Based on his preliminary investigations, the Replacement Trustee considered that the Trust had a net asset deficiency and that the deficiency would increase after taking into account costs of realising the Trust assets to pay outstanding creditors. The Replacement Trustee considered that further investigations into potential claims would come at a significant cost and the Replacement Trustee was not willing to incur those costs in circumstances where there were insufficient trust assets to meet those costs. Accordingly, the Replacement Trustee proposed to apply to the Court for a receiver to be appointed.[1]

17 On 30 March 2023, the Replacement Trustee issued a proceeding in this Court ("the Replacement Trustee's Application") seeking orders inter alia that a receiver and manager be appointed to the Trust and that the receiver have the powers prescribed by s 420 of the Corporations Act 2001 (Cth) as if the Trust were a corporation.

18 On 19 April 2023, two days before the hearing of the Replacement Trustee's Application, Sexton advised the Replacement Trustee that it opposed his application.

19 By notice dated 20 April 2023, Sexton purported to terminate the Trust with effect from 27 April 2023. It relied upon clause 74 of the Trust Deed. On the same day, Sexton and the Former Trustee filed and served affidavit material and submissions in the Replacement Trustee's Application, relying in part upon Sexton's purported termination to oppose the relief sought in the Replacement Trustee's Application. Although the Replacement Trustee and the plaintiffs asked Sexton to withdraw the notice terminating the Trust, it refused to do so.

20 The further hearing of the Replacement Trustee's Application has been adjourned sine die pending the hearing and determination of the current proceeding before me ("the Notice Proceeding").

21 The clauses of central significance in this case are clauses 74 and 75 of the Trust Deed. Those clauses read as follows:

74 THAT the Trust may be determined at such time before the Vesting Day as any Unitholder by not less than seven (7) days written notice to the Trustee directs and such determination shall take effect from the time as so directed unless the notice is withdrawn.

75 THAT upon the termination of the Trust as aforesaid or otherwise but subject to contrary agreement the Trustees shall proceed as follows:-

(a) Unless otherwise authorised by Special Resolution of the Unit Holders the Trustees shall sell by Public auction all property and investments constituting the Trust Fund and any Unit Holder may bid at such auction.

(b) Subject to any special rights or restrictions which apply to or in relation to Units of any class the Trustees shall from time to time and as soon as is practicable distribute the cash available in the Trust Fund to the Unit Holders proportionally to their holdings until the assets of the Trust Fund have been completely turned into cash and distributed to Unit Holders PROVIDED ALWAYS that the Trustees shall retain full provision for all costs and disbursements commissions brokerage fees expenses claims and advertising costs and demands incurred or expected by the Trustees in the liquidation of the Trust.

(c) Every distribution pursuant to sub-clause (b) hereof shall be made only against production of the relevant Unit Certificates accompanied by a request for payment in such form as the Trustees require.

(d) The Trustees shall endorse Unit Certificates with a notice of the payment made of any interim distribution and for the final distribution such Unit Certificates shall be surrendered to the Trustees.

22 In the Notice Proceeding, the plaintiffs contended that Sexton owed fiduciary duties to them that were specific to the exercise of the power conferred by clause 74 of the Trust Deed. The plaintiffs did not allege that the unitholders were in a fiduciary relationship generally, for example, as if there were partners. The fiduciary duty alleged was limited to clause 74. They submitted that such duties arose from the relationship between the plaintiffs and Sexton whereby the plaintiffs reposed trust and confidence in Sexton and were in position of vulnerability vis-à-vis Sexton.

23 In the alternative, the plaintiffs claimed that Sexton's purported exercise of clause 74 constituted a fraud on the power. They contended that the purpose of this clause was to permit the unitholders to trigger the early vesting of the Trust but only in circumstances where there has been a full accounting for the trust, resolution of creditor claims and a resolution of all unit holder disputes including as to unit certificates. Accordingly, the plaintiffs alleged that, irrespective of whether a fiduciary duty is found to exist between the unitholders and Sexton, the purported termination by Sexton was an invalid exercise of the power conferred by clause 74.

24 Further, the plaintiffs also made a claim for orders under s 63 of the Trustee Act.[2] This issue only arises if the Trust were validly determined. In that case, the plaintiffs sought orders which confer additional powers on the Replacement Trustee to investigate and prosecute claims to the extent it is found that the clause 75 power is deficient or does not extend to those matters.

25 Sexton alleged that the critical purpose of the Notice Proceeding is to purportedly protect the plaintiffs' interest in maintaining and prosecuting potential claims against the Former Trustee, Sexton and Huggins. These potential claims concerned alleged breaches of trust by the Former Trustee, Sexton's and Huggins' knowing participation in those breaches and their receipt of trust property they knew to have been procured in breach of trust ("the Breach and Recipient Claims"). Sexton submitted that, but for the claimed necessity to protect the plaintiff's interest in the Breach and Recipient Claims, there is no point to this Notice Proceeding, and that it could not be contended that the Breach and Recipient Claims will in any way benefit the only other unitholder, Sexton.

26 Sexton further contended that, having regard to the "overarching purpose" under the Civil Procedure Act 2010 (Vic) ("CPA")[3], the plaintiffs should consider withdrawing their present claim in the Notice Proceeding.

27 The parties have filed a list of issues which they agree that the Court must determine.

1. Did Sexton owe fiduciary duties to the plaintiffs in relation to the exercise of the right to determine the Trust contained in clause 74 of the Trust Deed?
2. If yes to issue 1, in the circumstances, did Sexton breach any fiduciary duty owed to the plaintiffs when it issued the notice under clause 74?
3. If there was a breach of a fiduciary duty, does that give rise to the relief sought, namely, a declaration that the notice determining the Trust is wholly void?
4. Does the doctrine of fraud on the power operate to curtail Sexton's exercise of the right under clause 74 of the Trust Deed?
5. What is the purpose of clause 74 and, in particular, is it properly to be construed to mean it can only be exercised to determine the Trust in circumstances where there has been a final accounting for the Trust, resolution of creditor claims, and a resolution of all unitholder disputes, as the plaintiffs contend?
6. Did Sexton, by issuing the notice, act contrary to the proper purpose of clause 74?
7. If Sexton is found to have acted contrary to the proper purpose of clause 74, does that give rise to the relief sought, namely, a declaration that the notice determining the Trust is wholly void?
8. If the Court finds that the notice was valid and the Trust is determined, the operation of clause 75 of the Trust Deed is enlivened. In these circumstances, issues regarding s 63 of the Trustee Act arise namely:
   1. Is the potential investigation, pursuit and/or recovery of sums in respect of the Breach and Recipient Claims (including by potential litigation) a "transaction" in the management or administration of trust property vested in the Replacement Trustee, for the purposes of s 63 of the Trustee Act?
   2. If so, is it nevertheless expedient for the Court to make orders conferring on the Replacement Trustee all of the powers contained in s 420 of the Corporations Act as if the Trust were a corporation, to empower the Replacement Trustee to investigate, pursue and/or recover sums in respect of the Breach and Recipient Claims (including by potential litigation)?
9. Were or are the plaintiffs prevented (by Sexton having issued the Notice to determine the Trust under clause 74 of the Trust Deed) from directly investigating, pursuing and/or recovering sums in respect of the Breach and Recipient Claims (even where, by reason of the Trust being determined by the Notice, the Replacement Trustee might itself be so prevented)?
10. Is the resolution of this issue relevant to issues 2, 6 and 8(b)?

Issue 1: Did Sexton owe fiduciary duties to the plaintiffs in relation to the exercise of the right to determine the Trust contained clause 74 of the Trust Deed?

28 The evidence in this trial was tendered through the witness statements of Gniel and Boniello, neither of whom was cross-examined. Sexton did not put on any evidence. Accordingly, the evidence of the plaintiffs as to the nature of the relationship between the parties is uncontested and I have treated it as such.

29 Gniel first had a conversation with Huggins about participating in a joint venture with Mercedes Benz Doncaster in early 2008. At this time, Gniel and Huggins had known each other for about 15 years. They had previously conducted business together and had an ongoing business venture together in two separate RetireInvest businesses. Gniel considered Huggins a friend and he trusted him.

30 Huggins advised that the proposed Doncaster Development would involve construction of a multi-level residential complex and a commercial ground floor for a Mercedes Benz showroom. Huggins planned to contribute approximately half of the $10 million in capital needed to acquire the site and to fund pre-development costs.[4] He was looking for investors to fund the other half. When asked by Huggins whether he was interested in investing in the Doncaster Development and managing it with him, Gniel told Huggins that he was. The pair briefly discussed the proposed structure whereby the Doncaster Development would be owned by a unit trust, with each investor owning units in the trust. The trust would be managed by a corporate trustee of which Huggins would be a director. Huggins organised the corporate vehicle and unit trust. Gniel and Boniello had no input into these matters or into the documentation used to establish the Doncaster Development structure.

31 Given their friendship and ongoing business relationship, Gniel and Boniello trusted Huggins to establish and manage the corporate structure through which the Doncaster Development was to be held.

32 Gniel made a contribution of $1.5 million towards the Doncaster Development by a series of transactions in July 2008. After doing so, Gniel asked either Huggins or Huggins' personal assistant, Jan Walsh ("Walsh"), when he could expect to receive unit certificates reflecting his contribution. He was told they would be provided soon. Gniel routinely made enquiries about his unit certificates and was told he would receive them once all investors had satisfied their contributions.

33 Boniello invested $1 million (through the fourth and fifth plaintiffs) into the Doncaster Development in July 2008. He trusted Huggins' judgement as to the structure of the Doncaster Development given the pair had been business partners for several years. Boniello's brother-in-law, Robin Knaggs ("Knaggs"), also invested $1 million in the Doncaster Development.

34 Shortly after making his contribution, Gniel had a conversation with Huggins in which Huggins told him that he had also made his contribution to the Doncaster Development, without specifying the amount to Gniel. Huggins also informed Gniel that a new investor, a company from India called LEPL Projects ("LEPL"), had also made an investment, again without specifying the amount, but which would "make up the difference". Through separate discussions with Boniello, Gniel also knew that Boniello and Knaggs were each investing $1 million.

35 Similarly to Gniel, Boniello made enquiries of Huggins and Walsh as to receipt of his unit certificates. Given their friendship and ongoing business together, Boniello trusted Huggins and was confident the unit certificates would be provided eventually. However, despite two different Boniello entities investing in the Doncaster Development, Boniello only ever received one unit certificate.

36 In February 2010, upon request from Walsh, Gniel provided the details of his entities and their financial contributions for the purpose of arranging the unitholding documents. However, he never received any unit certificates. Gniel's evidence was that he was not overly concerned that he had not received any unit certificates given his friendship and business involvement with Huggins and his trust and confidence in him to look after his interests.

37 Huggins and Gniel had ongoing discussions about the Doncaster Development. However, the nature of these discussions seems to have been one-directional. That is, Huggins would generally relay information to Gniel, often after the fact. For example, in the years after Gniel's investment, Huggins informed Gniel of relevant updates including:

• his successful negotiation in late 2008 with Mercedes Benz such that they withdrew from the Doncaster Development;
• following Mercedes Benz's withdrawal from the Doncaster Development, the fact that the planning permit could be amended to allow for construction of more apartments;
• the exchange of the contract of sale for the acquisition of the development land in September 2009;
• the feasibility study which was sent in December 2009; and
• the letter from Westpac in February 2010 stating that the equity required to provide funding for the construction phase for the development was $15 million (i.e. there was a shortfall of $5 million in equity funding which needed to be met to access the Westpac debt funding).

38 Following the receipt of the letter from Westpac in February 2010, Gniel, Boniello and Huggins had discussions as to how they would fund the $5 million equity shortfall. It was agreed that each of the current unitholders would be given the opportunity to make a further equity investment, with the initial intention that each unitholder would maintain its proportionate share in the development. However, around September 2010, Huggins informed Gniel (who informed Boniello) that LEPL would not be contributing further equity to cover its share of the $5 million shortfall. Ultimately in 2010, Gniel made three further equity contributions totalling $1.05 million, while Boniello and Knaggs contributed a further $500,000 and $750,000 in equity respectively.

39 To make up the remainder of the $5 million equity shortfall, Boniello also agreed to lend $150,000 to Huggins, which Huggins would invest as equity into the Trust, on the understanding that Huggins would repay him with interest in early 2011. He was repaid, with interest, in March 2011. Knaggs also lent Huggins $300,000 for the same purpose.

40 In December 2010, Gniel prepared a document which summarised the agreement between the unitholders as to the funding of the $5 million shortfall ("Equity Document"). The Equity Document was based on information provided orally by Huggins. Gniel and Boniello were reliant upon and trusted what Huggins told them about the amounts of contributions from Sexton and LEPL. They did not receive any financial documents from the Trust to verify these figures.

41 Huggins managed the Former Trustee's day-to-day dealings regarding the Doncaster Development. Construction commenced around August 2010, practical completion occurred around May 2012 and settlements on the sale of the apartments commenced in May 2012.

42 In early 2012, Huggins told Gniel that he had arranged for a number of additional investors as they were needed to provide extra funding. When Gniel sought further details, Huggins assured him the additional investors had covered part of Huggins' own capital contribution requirement and Gniel need not worry about it.

43 At the end of May 2012, the unitholders associated with Gniel received a combined $2.55 million from the Former Trustee representing a repayment of their total capital contributions.

44 In mid-2013, Huggins informed Gniel of a dispute between LEPL and the Former Trustee regarding the payment of their profit entitlement from the Doncaster Development. LEPL alleged it had contributed $5 million, not $2.5 million as previously stated by Huggins.

45 By way of email dated 21 January 2014, Gniel complained to Huggins about having been misled regarding LEPL's capital contribution and asked for an updated spreadsheet of allocations, units remaining and current bank balances. Huggins' reply on 22 January 2014 explained inter alia that LEPL had not invested $5 million, that he would be parting ways with them and that Gniel and Boniello still held 17% and 10% respectively of the units. Huggins told Gniel "[d]on't ever question the operation of this project, you are entitled as per above. I'm fed up carrying everyone and in future people will just have to listen to me in regards to operation of our businesses."[5]

46 Huggins shared some correspondence with Gniel regarding the dispute between the Former Trustee and LEPL but Gniel's knowledge of the dispute was limited to the information he received from Huggins. Gniel suggested that the financial accounts already prepared would be insufficient in any future litigation with LEPL. At Huggins' request and with his approval, Gniel arranged for the financial accounts to be reviewed by Greg Walch ("Walch"), his personal accountant. Shortly thereafter, Walch was appointed to be the accountant for the Trust.

47 In March 2014, Walch raised several issues he had identified in conducting his review of the financial accounts. He sent an email to Gniel, copying in Huggins, asking several questions about matters in the financial accounts which concerned him.

48 Huggins informed Gniel of a settlement agreement reached between the Former Trustee and LEPL in December 2014. In order to pay LEPL $4 million pursuant to the settlement agreement, the Former Trustee needed to borrow $1.66 million from Westpac secured against unsold apartments in the Doncaster Development. Gniel was later informed that the dispute between the Former Trustee and LEPL was ultimately not resolved until 2016 and LEPL had in fact contributed $5 million to the Doncaster Development.

49 After the LEPL dispute was settled, Gniel understood that the activities of the Trust were limited to letting the remaining unsold apartments and that this income was being used by the Former Trustee to pay off the $1.66 million borrowed from Westpac. During this time, however, Gniel became aware of several issues with the Former Trustee's management of the Trust. For example, without Gniel's knowledge or consent:

• Huggins made variations to the Trust Deed in 2010 and 2011;
• Sexton received a capital contribution repayment in excess of its actual capital contribution;
• Lot 1 in the Doncaster Development was transferred to Sexton;
• rental income from several unsold apartments was directed to Sexton;
• Huggins resided in Lot 114 of the Doncaster Development rent-free for approximately seven years, depriving the Trust of approximately $171,080 in rental income; and
• despite an agreement between Gniel and Huggins as to a management fee which Huggins would charge, Huggins had received from the assets of the Trust an additional amount of $363,855.

50 Furthermore, Huggins did not provide tax returns and financial statements of the Trust to the unitholders on a regular basis.

51 In around mid-2020, given the deterioration of Gniel and Boniello's relationship with Huggins, Gniel and Boniello jointly engaged solicitors to assist them with the separation of their shared business interests from Huggins. In December 2020, the pair issued the Replacement Proceeding to seek the appointment of a new trustee of the Trust.

52 On 8 October 2021, without prior notice, Huggins removed Boniello as a director of Momentum Wealth Management Corporation Pty Ltd and as Responsible Manager of the company under its AFS licence. On 20 October 2021, Boniello was, without notice or warning, locked out of the office of Momentum Wealth Management Wantirna. His IT systems were also shut down. On 21 October 2021, Boniello was advised that he had been made redundant.

53 On 20 April 2023, by email sent from its solicitors to the Trustee, Sexton purported to terminate the Trust pursuant to clause 74 of the Trust Deed with effect from 27 April 2023.

54 The plaintiffs alleged that the relationship between the Gniel/Boniello unitholders and Sexton was one characterised by mutual trust and confidence giving rise to a fiduciary relationship and a fiduciary duty with respect to the exercise of the termination power conferred by clause 74.

55 Sexton contended that no fiduciary relationship existed between the unitholders to prevent Sexton from issuing the termination notice under clause 74.

56 A fiduciary stands in a position of trust and confidence vis-à-vis another such that the fiduciary (in matters within the scope of the fiduciary relationship) is bound to place the interests of the other before their own personal interests. The categories of fiduciary relationship are not closed.[6] There is no comprehensive statement of the criteria by reference to which the existence of a fiduciary relationship may be established.[7] Rather, this area of the law has developed on a case by case basis with the courts looking to the essence or characteristics of the relationship.[8]

57 The principles governing whether a relationship will be recognised as giving rise to fiduciary obligations were summarised by the Victorian Court of Appeal in Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd,[9] as follows:[10]

• There is no single test for determining whether a fiduciary relationship exists in any particular case.
• The essence of a fiduciary relationship is that the fiduciary is obliged to act in the best interests of the other party. This obligation of loyalty effectively excludes the self-interest of the fiduciary.
• Various circumstances can point towards the existence of a fiduciary relationship. However, none of them, individually or collectively determines that a fiduciary relationship exists. These circumstances include: the existence of a relationship of confidence; inequality of bargaining power; an undertaking by one party to perform a task or fulfil a duty in the interests of the other party; the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another; a dependency or vulnerability which causes one party to rely on another.
• There are long established relationships which the law accepts as giving rise to a fiduciary relationship: trustee and beneficiary; company and director; agent and principal; solicitor and client; partners inter se. The categories of fiduciary relationships are not closed.
• The critical feature of a fiduciary relationship is that the fiduciary undertakes or agrees to act for or on behalf of, or in the interests of, another person in exercising a power or discretion which will affect the interests of that other person in a legal or practical sense.
• The relationship gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of the other person. Accordingly, they are vulnerable to the fiduciary's abuse of their position.
• Usually commercial transactions which were negotiated at arm's length between self-interested and sophisticated parties on an equal footing do not give rise to fiduciary duties.
• Equity will not lightly impose fiduciary duties in a well-defined contractual relationship where the parties have set out in detail their rights and obligations. Such cases normally do not involve questions of loyalty, dependency and vulnerability, matters which are more associated with the existence of a fiduciary duty.
• Where a commercial relationship is governed by a contract, the ordinary rules of construction apply when determining the existence of a fiduciary relationship and the scope of any fiduciary obligations. The contract is critical because its terms regulate the rights and obligations of the parties. Any fiduciary relationship must, if it exists, accommodate itself to the contract so that it conforms to its terms and is consistent with them. The fiduciary relationship cannot be superimposed on a contract in such a way that it alters its intended operation as appears from the proper construction of the contract.
• Vulnerability of itself cannot determine the existence of a fiduciary relationship.
• Fiduciary relationships are rarely fiduciary for all purposes. Most fiduciary relationships, especially those which arise in the context of a commercial relationship are fiduciary only in part. The fiduciary aspect may well be only a small part of a larger arrangement which exists for the individual benefit of the participants.

58 As shown by the authorities, there is no single test for determining whether a fiduciary relationship exists. Equity is less concerned with the classification of the relationship between the parties than with the substance of the relationship.[11] The New South Wales Court of Appeal in News Limited distinguished 'vertical' relationships, such as principal and agent, employer and employee from collaborative, 'horizontal' relationships such as partnerships or joint ventures. A horizontal relationship, such as a joint venture, is more likely to involve an undertaking, actual or imputed, that the parties act only for their mutual advantage.[12] Whether or not the relationship between joint venturers is fiduciary will depend on the particular rights and obligations in question and the course of dealings between the parties.[13] The Court in News Limited held that, despite the reluctance of the majority in Hospital Products to apply fiduciary principles to "purely commercial transactions", business relationships can attract fiduciary obligations.[14]

59 In News Limited, the Court cited Professor Finn to summarise that an important question, if not the question, is whether:[15]

[t]he actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement.

60 In Coonwarra,[16] Nichols J addressed the significance of vulnerability when determining whether a relationship is fiduciary in nature. Her Honour stated:[17]

Vulnerability is not by itself a touchstone for the recognition of a fiduciary relationship, and nor is the reposing by one person in another, of trust and confidence. Equity does not, by the imposition of a fiduciary relationship, protect against misplaced trust. The reposing of trust is relevant 'where one party is in a position of reliance upon the other because of the nature of the relationship and not because of a wrong assessment of character or reliability'.

61 The plaintiffs relied upon the case of United Dominions[18] in which the High Court unanimously determined the relationship between the joint venture participants in that case to be a fiduciary one. Dawson J noted that:

Although the relationship between participants in a joint venture which is not a partnership will be governed by the particular contract rather than extrinsic principles of law, the relationship may nevertheless be a fiduciary one if the necessary confidence is reposed by the participants in one another. Of course, in a partnership the parties are agents for each other and this may constitute a separate reason for the fiduciary character of a partnership. There may be no such agency between participants in a joint venture but, as Dixon J. pointed out in Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd., even in a partnership it is really the mutual confidence between partners which imposes fiduciary duties upon them and the same confidence may, in appropriate circumstances, be found to exist between participants in a joint venture.[19]

62 The element of mutual trust and confidence was highlighted by Gibbs CJ[20] and the plurality of Mason, Brennan and Deane JJ.[21] The plurality also noted elements of the relationship in that case which, in their view, made it fiduciary:[22]

Under the agreement, the participants were joint venturers in a commercial enterprise with a view to profit. Profits were to be shared. The joint venture property was held upon trust. The participants indemnified the managing participant ... against losses. The policy of the joint enterprise was ultimately a matter for joint decision.

63 The plurality held that, by applying the property the subject of the joint venture to their own collateral purposes, in a manner which involved the obtaining of a collateral advantage for themselves and which was destructive of the whole interest of the other joint venturers without their knowledge or consent, the appellants acted in breach of their fiduciary duty to the other joint venture participants.

64 The critical issue in United Dominions was whether the appellant stood in a fiduciary relationship to the first respondent on the date when the second respondent gave the appellant a mortgage containing a "collateralisation clause". The agreement between the relevant parties was executed approximately nine months after the mortgage was given. The agreement used the term "joint venture" to describe the parties' relationship but the Court found that the agreement was plainly a partnership agreement.

65 Gibbs CJ noted that the obligation to act in good faith extends to persons who might be negotiating a partnership but between whom no partnership yet exists. His Honour said that a person who is negotiating for themselves and their future partners as an agent for an intended partnership, and who clandestinely receives an advantage for themselves, must account for that advantage to the partnership when it is formed. This principle was stated generally in the case of Directors, etc. of Central Railway Co. of Venezuela v Kisch:[23]

It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterize their published statements.

66 The plaintiffs contended that the relationship between Sexton and the Gneil and Boniello unitholders was one characterised by mutual trust and confidence. They submitted that this gave rise to a fiduciary relationship and a fiduciary duty with respect to the exercise of the power conferred under clause 74. They contended that there is no reason in principle why there cannot be a fiduciary relationship that overlays the rights of the unitholders as set out in the Trust Deed. They further submitted that a fiduciary relationship can exist in a joint venture and can persist until the completion of the joint venture.

67 The plaintiffs pointed to a number of features of the relationship which led the Court in United Dominions[24] to find that a fiduciary relationship existed. In particular, the plaintiffs contended that the parties committed themselves to a joint endeavour or venture namely, the Doncaster Development, in pursuit of a joint or common interest being the generation of profits. It was agreed that the profits were to be shared between the parties according to their relative holdings in the Trust. The agreement required mutual financial contribution to the acquisition of the land the subject of the Doncaster Development which was then held on trust for the benefit of the parties pursuant to the terms of the Trust Deed. Huggins requested that Giel manage the development with him. The plaintiffs contended that this shows that the policy of the Doncaster Development was to be a matter for joint decision.[25]

68 The structure of the relationship was determined solely by Huggins. He was the only director of the Former Trustee and solely determined the terms of the Trust Deed. The plaintiffs contended that these matters inherently required the Gniel and Boniello unitholders to repose trust and confidence in Huggins. They submitted that the Gniel and Boniello unitholders were vulnerable to Huggins and his entities in that they had no visibility or control over the conduct of the development or the expenditure of trust funds. They depended upon Huggins providing them with information about such matters.

69 Gniel never attended any unitholder meetings throughout his involvement in the Doncaster Development, nor was he aware of any such meetings being held. He said that many decisions with respect to the Trust were made by Huggins, often without consultation. Huggins would often advise Gniel of decisions or changes after the fact.

70 Similarly, Boniello also said that Huggins would make decisions on behalf of the Trust without informing him. For example, in 2010 Boniello was told there was a shortfall in the funds required for the Doncaster Development but that it had been covered by the unitholders (and reflected in their stake in the development). However, around the time of completion of the Doncaster Development in May 2012, Boniello found out that additional unitholders were introduced into the Trust in 2010. When he questioned Huggins about this, his questions were dismissed and he was told that Huggins got people involved using part of Huggins' allotment.

71 The plaintiffs submitted that the trust and confidence reposed by the Gniel and Boniello unitholders in Huggins is properly to be regarded as also having been reposed in Sexton. They relied upon the fact that Huggins is the sole director, secretary and shareholder of Sexton; that Sexton held Huggins' interest in the Doncaster Development; and that Sexton is a related entity of the Former Trustee.[26]

72 The power conferred by clause 74 gives one unitholder scope to unilaterally exercise a power which may affect the rights and interests of the other unitholders. The plaintiffs contended that this fact points towards an overarching fiduciary duty.[27] The plaintiffs submitted that whilst expressed in general terms, clause 74 should be construed in line with an assumption that the parties intended to produce a commercial result. That is, that the power conferred under clause 74 is solely for the purpose of furthering the joint interest in the development, not one unitholder's individual interest. Further, they submitted that clause 74 should be read in line with the constraints placed on the role and powers of the Trustee by clause 75 such that clause 74 permits an early vesting of the Trust only in circumstances where there has been full accounting for the trust, resolution of creditor claims and a resolution of all unitholder disputes including as to unit certificates. To read it otherwise, on the plaintiffs' view, would be to create a commercial nonsense.

73 Accordingly, the plaintiffs contended that the nature of the relationship and the construction of clause 74 indicate that Sexton owed the Gniel and Boniello unitholders a fiduciary duty not to exercise the clause 74 power unless it was in the best interests of the Trust and in the joint interest of all the unitholders, was for a proper purpose, and was not exercised in order to obtain a collateral benefit for itself or related entities at the expense of the joint interest.

74 In general terms, Sexton denied the propositions put by the plaintiffs. Sexton argued that it was well within its rights to terminate the Trust as it did because there was no fiduciary relationship between the unitholders.

75 Sexton distinguished the fiduciary relationship which may exist between a trustee and unitholders from the relationship simply as between unitholders. It contended that there is no obligation of loyalty as between unitholders. Further, here, there is no undertaking or agreement on the part of Sexton to act for or on behalf of the other unitholders.[28] The involvement of the investor unitholders in the Doncaster Development is said to be commercial and self-interested.

76 On Sexton's submission, the clause 74 power is available to any unitholder and does not require consent of the other unitholders nor reasons for its exercise. Sexton submitted that the alleged fiduciary duty cannot be superimposed on a commercial contract in such a way as to alter the operation which the contract was intended to have according to its true construction.[29] It said that whilst determination of the Trust under clause 74 might have commercial consequences, the exercise of the power conferred by this clause does not amount to a commercial nonsense in the manner alleged by the plaintiffs.

77 Finally, Sexton contended that the plaintiffs did not plead how a positive duty (nor a fiduciary duty) arises. In particular, at paragraph 32(a) of the further amended statement of claim, the plaintiffs pleaded that Sexton owed a duty to exercise the powers available to it under the Trust Deed in the best interests of the Trust and its unitholders for a proper purpose. Sexton submitted that this does not constitute a fiduciary duty. It said the plaintiffs have not alleged that a fiduciary duty arises by virtue of their reliance on Sexton or any vulnerability to Sexton, nor have they alleged that the fiduciary duty arises out of the construction of clause 74. Accordingly, Sexton contended that the plaintiffs must establish a relationship of mutual trust and confidence in order to substantiate their claims that a fiduciary duty existed.

78 In considering this matter, the Court needs to examine the relationship between the plaintiffs and Sexton and the surrounding circumstances.

79 The plaintiffs and Sexton are all unitholders in the Trust. The unitholders established the Trust as the vehicle through which to undertake the Doncaster Development.

80 The operation of the Trust was conducted by the Former Trustee who acquired the land and undertook the Doncaster Development. As a trustee, the Former Trustee owed a duty to the unitholders to execute the Trust in accordance with the terms of the Trust Deed. That is, the Former Trustee owed fiduciary duties to the plaintiffs and to Sexton as unitholders to inter alia exercise its powers and discharge its duties appropriately. At all material times, Huggins was the sole director, secretary and shareholder of the Former Trustee.

81 Given their friendship and ongoing business relations, which extended beyond the Doncaster Development, Gniel and Boniello trusted Huggins. They assumed and expected (whether naively or not) that Huggins would look after their best interests. Gniel and Boniello accepted without question Huggins' proposal on how the investment should be held. Until the dispute arose between the Former Trustee and LEPL, they largely accepted Huggins' representations as to the contributions to, and funding of, the Doncaster Development.

82 Gniel and Boniello relied upon Huggins to provide them with information as to the activities and performance of the development project. Huggins relayed to the plaintiffs matters such as Mercedes Benz's withdrawal from the project, amendments to the planning proposal, repayment of unitholders' capital contributions and the dispute which arose with the LEPL unitholder.

83 On several occasions, Gniel and Boniello made enquiries of Huggins as to the whereabouts of their unitholding certificates and the capital contributions by other unitholders. Huggins was often slow to respond and appeared to treat their queries as unimportant.

84 Huggins did not inform Gniel and Boniello about matters regarding the Trust and the Doncaster Development on a regular basis. Huggins relayed information to Gniel and Boniello from time to time, including after the event. To that extent, the plaintiffs claimed they were vulnerable because they were reliant on Huggins for information and, generally speaking, were only aware of the matters about which he informed them.

85 The parties' history in relation to the Doncaster Development shows that Gniel and Boniello had various complaints about Huggins' conduct of the project: he made the decision about the structure of the project and the mechanics of the Trust Deed; he did not keep them abreast of relevant changes to unitholdings or moneys raised as the changes occurred; he did not hold regular unitholder meetings; he made decisions about the development without consulting the other unitholders. These complaints related primarily, if not exclusively to the period 2008-2012. This underlines that the plaintiffs' dissatisfaction with, or complaints about, Huggins and his conduct concerned his role as sole director and shareholder of the Former Trustee. The complaints concerned his performance in this capacity and not as a unitholder in the Trust. To the extent that the plaintiffs were reliant upon Huggins and vulnerable in relation to the development, I consider that such reliance and/or vulnerability was associated with Huggins' role as director of the Former Trustee and, in effect, the manager of the development on behalf of the Trust.

86 I accept that Huggins was, through Sexton, a unitholder in the Doncaster Development project and that he was the sole director and shareholder of Sexton. But the fact that Huggins was simultaneously the sole director and shareholder of both the Former Trustee and Sexton does not establish some form of common liability as between the two companies**.** So much is clear from the decision of Croft J in Clarke v Great Southern Finance Pty Ltd.[30]

87 In Clarke's case, the plaintiffs in a group proceeding alleged that critical knowledge on the part of company A could be inferred on the basis of the knowledge of company B by reason of there being some common directors. The plaintiffs argued that A knew of relevant matters in relation to allegations of statutory breaches by B. The knowledge was imputed to A because A and B had two directors in common. Hence, it was said that the two companies were subject to "common control." The plaintiffs also alleged that, by reason of the common control of A and B, A was knowingly concerned and involved in, or alternatively, aided and abetted B's contraventions of the Corporations Act. Further, the plaintiffs argued that due to the common control of A and B and the fact that B issued the allegedly contravening document, A gave its consent to the document or did not withdraw its consent to the document.

88 Croft J summarised the position as one in which the plaintiffs made a general allegation of common control of A and B as a basis of consent. The plaintiffs submitted that the effect of the common control was to establish common knowledge in all relevant respects between A and B. The basis for the knowledge was the common directorships between the two companies.

89 His Honour rejected the plaintiffs' submissions on the point. He said that the mere fact of common directorships did not establish common knowledge, common control or common liability. He said that the law was as set out in the judgment of Gordon J in BHP Billiton Finance Ltd v Federal Commissioner of Taxation[31] where Her Honour made the following points:

• the mere fact that corporate boards overlap is insufficient to defeat the presumption of separate existence;
• it is a well-established principle of corporate law that directors holding positions with a parent and a subsidiary can and do change hats to represent the two corporations separately;
• a significant degree of overlap between directors and officers of a parent and its subsidiary does not establish an alter ego relationship;
• there is a general presumption that directors are wearing their subsidiary hats, and not their parent hats when acting for the subsidiary. As a result, dual office holding alone is not enough to establish liability.

90 However, even assuming Gniel and Boniello were largely reliant upon Huggins for information, that does not mean that they were the beneficiaries of a fiduciary obligation owed by Huggins or, more particularly, Sexton. Sexton is a separate legal entity. Sexton submitted, correctly, that the corporate veil will only be lifted in cases where it is shown the corporation has been created as a sham or that it was for the purpose of evading fiduciary liability.[32] Such circumstances do not arise here.

91 On balance, I consider the better view is that there was no fiduciary relationship between the unitholders in the Trust regarding the operation of clause 74 of the Trust Deed. I have reached this view for several reasons.

92 First, while the categories of fiduciary relationship remain open and not closed, the relationship of unitholders inter se does not fall within one of the established categories recognised by law. The cases and textbooks speak of the fiduciary relationship between partners, a company and its directors, solicitor and client, principal and agent and trustee and beneficiary. However, relationships between unitholders are not so described. The parties did not refer me to any authority which conferred fiduciary status upon unitholders in their dealings with one another.

93 Secondly, to the extent that there might be a fiduciary relationship involving the unitholders in a unit trust, it is the relationship between the trustee and the unitholders as a whole. However, on the existing case law, what applies to the trustee does not necessarily apply to the unitholders when regulating affairs between themselves.

94 Thirdly, the unitholders made an arrangement whereby they established the Trust with a view to building the Doncaster Development. In doing this, the controlling minds of the unitholders decided to create a trust and become bound by a trust deed which set out the legal structure within which their commercial relationship would operate. Each of the controlling minds, Gniel, Boniello and Huggins, had extensive experience in financial matters. Each of them had operated financial planning businesses for some years. They were familiar not only with the world of financial planning but also the business of conducting such a practice.

95 Given the context, it was significant that they agreed upon a unit trust structure as the vehicle for the Doncaster Development. They chose this particular structure for their commercial venture. This is important in several respects: the parties intentionally chose to frame their legal relationship and the concomitant rights and obligations in relation to the Doncaster Development in a trust deed; equity is slow to impose fiduciary duties in the context of a detailed commercial agreement which embodies the rights and obligations of the parties, each of whom is controlled by an experienced businessman;[33] if there is to be a fiduciary relationship, it should conform to the terms of the deed and be consistent with it.[34] In this case, if the power granted by clause 74 is subject to a fiduciary obligation whereby one unitholder can exercise the power only for the benefit of, and in the best interests of, the other unitholders, then the fiduciary relationship would restrict and be inconsistent with the operation of the clause.

96 Usually, commercial agreements which are negotiated at arms' length between sophisticated and self-interested parties on an equal footing and without pressure do not give rise to fiduciary duties. This is because the critical feature is missing. As described by Mason J in Hospital Products Limited v United States Surgical Corporation,[35] the critical feature of a fiduciary relationship is that the fiduciary undertakes or agrees to act for or on behalf of, or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense.[36] From this power or discretion comes the duty to exercise the same in the interests of the person to whom it is owed.[37] Here, the unitholders were experienced businesspeople and acted freely and without pressure to join in a development project.

97 Fourthly, the terms of the Trust are more consistent with the absence of a fiduciary relationship between unitholders. Clause 3 of the Trust Deed reads as follows:

3. THAT nothing in this deed shall constitute or shall be deemed to constitute or give rise to:-

(a) the relationship of principal and agent between the Trustees and the Unit Holders;

(b) the relationship of partners as between:-

(ii) the Trustees and the Unit Holders;

(ii) the Unit Holders inter se;

(c) any association between the Unit Holders inter se.

This clause means that the unitholders have agreed that there is no partnership between the Trustee and the unitholders, or between the unitholders inter se, and there is no association between the unitholders inter se. I infer that subparagraph (c) refers to the absence of any "association" which does not fall within the express terms of the Trust Deed. The parties specifically included this clause in the Trust Deed and the Court should give it full effect. The reference to both "partnership" and "association" suggests that the parties were aiming to restrict their legal relations to the terms of the Trust Deed. They sought to narrow rather than expand the range of possible legal relations between them.

98 The Trust Deed is also notable for what it does not include. There is no reference to unitholders owing a duty to other unitholders. Nor is there any requirement of any unitholder having to act for or on behalf of the interests of another unitholder when exercising any power or discretion which will affect the interests of the other unitholders.

99 Fifthly, on a proper construction of the Trust Deed, the power granted under clause 74 is one which is available to any unitholder and can be exercised for the benefit of a unitholder without the requirement to have regard to the interests of the other unitholders. It is not a situation in which the plaintiffs as unitholders are entitled to "the single-minded loyalty"[38] of Sexton (or any other unitholder). This characteristic of single-minded loyalty is said to be "a fundamental and inflexible feature of a fiduciary relationship".[39] The fact that the clause by its terms confers on unitholders a power or right to exercise for their own benefit and best interests is inconsistent with, and different from, a power or right to which a fiduciary obligation attaches.[40]

100 Finally, Gniel and Boniello are experienced businessmen. While they and Huggins were friends, the creation of the Trust was for the commercial purpose of undertaking the Doncaster Development. They trusted Huggins and relied upon him. The evidence suggests that they were happy to allow him to manage the running of the development. Gniel and Boniello took no strong measures to assert their interest or entitlements in relation to the development and the manner of its management.

101 Even if Gniel and Boniello were vulnerable in one sense, that alone is not a basis to find a fiduciary relationship. Nor is the reposing by one person of trust and confidence in another.[41] Equity will not impose a fiduciary relationship to protect against misplaced trust. Reposing trust is relevant where one party relies upon another because of the nature of the relationship and not because of a wrong assessment of character or reliability.[42]

102 As Dawson J said in Hospital Products, the relationship must be one which of its nature requires one party to rely upon the other.[43] It is not enough that, in fact, one person does this in a particular case. In business transactions, parties dealing with each other commonly have confidence in each other. The confidence is not always justified and deals can founder or a party breach an agreement or act in a manner which is misleading or deceptive. But because A reposes confidence in B when, had A known more about B or assessed more accurately B's trustworthiness, A would not have done so, does not mean that B owes a fiduciary duty to A.

103 In my opinion, the relationship between Gniel, Boniello and Huggins was not one where Gniel and Boniello had no option but to rely upon and trust Huggins. Given the amounts that they invested, they could have taken a more pro-active attitude to their investment in the Trust and the Doncaster Development. They did not conscientiously seek to assert or protect their rights as unitholders in relation to the matters now complained of. For example, they could have, but did not, seek to call an extraordinary general meeting of the Trust to ventilate issues of concern at the time they occurred. I think that the situation is one more akin to where the plaintiffs have shown misplaced trust in Huggins' character or reliability rather than being forced to trust him due to the nature of the relationship between the men.

104 Further, as noted earlier in paragraph 85, even if the plaintiffs were vulnerable in relation to the creation, management and operation of the Trust and the beneficiaries of a fiduciary relationship, that relationship was with the Former Trustee and not Sexton as another unitholder.

105 The crucial relationship in the present context is between the unitholding companies and not the individual men. The plaintiffs need to show reliance upon and mutual trust in Sexton as a unitholder, not in Huggins as an individual or as the director and shareholder of the Former Trustee. I am not satisfied on the evidence that they have done this.

106 The plaintiffs pleaded that Sexton as a unitholder and "joint venture partner" with the plaintiffs owed them fiduciary duties, including a positive duty to exercise its powers under the Trust Deed in the best interests of the Trust and its unitholders and for proper purposes. The fiduciary duties were said to arise by law from the relationship of mutual trust and confidence between Sexton and the plaintiffs as joint venture partners. The plaintiffs relied upon the fact, or at least the analogy, of a partnership even though they did not allege the relationship created by the Trust Deed was partnership. The plaintiffs did not plead that a fiduciary obligation arises from reliance by the plaintiffs upon Sexton or the vulnerability of the plaintiffs to Sexton or from the construction of clause 74 of the Trust Deed. In the absence of such allegations and evidence to create the relevant link between the plaintiffs and Sexton, this aspect of the plaintiffs' claim is unsustainable.

107 In relation to Sexton owing the plaintiffs a fiduciary duty, the plaintiffs placed considerable reliance upon the High Court decision in United Dominions Corporation Ltd v Brian Pty Ltd.[44] That case concerned several parties who were joint venturers in a property development scheme. The development was largely financed through a loan from one of the venturers, United Dominions Corporation Ltd ("United Dominions Corporation"). The development made a substantial profit but Brian Pty Ltd ("Brian") did not receive repayment of its capital contributions or its agreed share of the profit. United Dominions Corporation claimed that it was entitled to retain all the profits from the venture. The basis for this claim was a mortgage granted to United Dominions Corporation by Security Projects Ltd ("Security Projects"), one of the other venturers, before Brian entered into the development agreement. Unknown to Brian, the mortgage contained a collateralisation clause whereby the mortgage secured all amounts lent by United Dominions Corporation to Security Projects on any account whatsoever and whether advanced to Security Projects alone or jointly with another person. Due to amounts owing by Security Projects not under the joint venture development but on unrelated borrowings, United Dominions Corporation claimed the profits to which Security Projects, Brian and the other venturers would have been entitled but for the collateralisation clause. At the time of the litigation, Security Projects had been wound up. Brian sued United Dominions Corporation claiming its share of the profit withheld due to the collateralisation clause. Brian lost at first instance, won in the Court of Appeal and then again in the High Court.

108 The High Court held that United Dominions Corporation as a joint venturer owed a fiduciary duty to its co-venturers because the relationship between them was one of partnership. Thus, United Dominions Corporation couldn't obtain a benefit for itself without the informed consent of the other parties. Accordingly, it could not rely upon the collateralisation clause to deprive Brian of its profit share.

109 In the present case the plaintiffs argued that important elements of United Dominions regarding the fiduciary relationship were:

• the joint venturers participated in a commercial venture to make a profit;
• the profits were to be shared;
• the joint venture property was held on trust;
• the joint venture indemnified the managing participant against loss;
• the policy of the joint venture was ultimately a matter for joint decision.

110 In United Dominions, the High Court said that, although the documentation referred to a joint venture, the relationship of the participants under the agreement exhibited all the indicia of, and plainly was, a partnership. Thus, the Court based its finding on the ground that the relationship between the parties was in fact a partnership. Partners owe fiduciary duties to one another. Also, partners are agents for one another and this is another basis upon which to find a fiduciary duty.

111 In my opinion, United Dominions is distinguishable from the present case. First, the plaintiffs did not argue that the unitholders were partners or agents for one another. Secondly, the reports of the case do not suggest that the joint venture agreement contained a clause similar to clause 3 of the Trust Deed. Thirdly, United Dominions involved a joint venture between the participants and not a unit trust. The choice of a unit trust is significant. The plaintiffs did not choose a more general commercial agreement in which the participants simply agreed to contribute money or skill in order to obtain a share of the profits or the product of the joint venture.

112 For the reasons outlined above, I am not satisfied that Sexton owed a fiduciary duty to the plaintiffs in respect of the exercise of the termination power under clause 74.

Issue 2: If yes to issue 1, in the circumstances, did Sexton breach any fiduciary duty owed to the plaintiffs when it issued the notice under clause 74?

113 Given the finding I have made in relation to issue 1, I do not need to answer this question. However, if I am wrong about this I will consider whether or not Sexton's notice constituted a breach of a fiduciary duty.

114 If a fiduciary duty existed between Sexton and the plaintiffs, the plaintiffs submitted that Sexton has breached this duty. They contended that the exercise of the power was not in the interests of the Trust and all the unitholders but was used for a collateral purpose to obtain a collateral benefit for Sexton and the Former Trustee.

115 The timing of Sexton's decision to exercise its power under clause 74 is interesting. On the plaintiffs' reading of clause 74, this termination power ought not be exercised in circumstances where there is an ongoing unresolved dispute about trust fund moneys. Sexton purported to terminate the Trust on 20 April 2023 with effect from 27 April 2023. On the same day, Sexton and the Former Trustee filed and served affidavit material and submissions in the Replacement Trustee's Application, relying in part upon Sexton's purported termination to oppose the relief sought in the Replacement Trustee's Application. Sexton knew that the Replacement Proceeding involved allegations of breach by the Former Trustee, that there was a settlement agreement pursuant to which the Trust was continuing under the administration of the Replacement Trustee, and that the Replacement Trustee had made a demand of Sexton for repayment and had communicated potential claims available to the Trust which may require litigation. Sexton exercised its power abruptly on the day before the hearing of the Replacement Trustee's Application, without giving notice to the Gniel/Boniello unitholders, and then relied upon the purported termination in its response to the application.

116 The plaintiffs contended that, in light of this conduct, I should infer that Sexton's intention and purpose in exercising the power under clause 74 was not for any proper purpose but that it was done to frustrate the Replacement Trustee's Application. The exercise of the clause 74 power was said to deprive the Trust and unitholders of any further investigation into the potential claims available to the Trust. Accordingly, the plaintiffs submitted, the exercise of the clause 74 power was not in the best interests of the Trust and the unitholders

117 Furthermore, the plaintiffs asked the Court to draw a Jones v Dunkel[45] inference in relation to Sexton's decision not to call Huggins as a witness, the inference being that his evidence would not have assisted its case.

118 Sexton submitted that, if a fiduciary duty is found to exist between the plaintiffs and Sexton in relation to the exercise of clause 74, the fiduciary duty is limited to one to avoid conflict and such a breach has not occurred.

119 It said that the Notice Proceeding has only been brought by the plaintiffs to protect their interest in the Breach and Recipient Claims and that the plaintiffs' submissions regarding the stifling of the Replacement Trustee's ability to investigate claims are unwarranted. Sexton noted that the plaintiffs have always had, and retain, the ability to pursue the Breach and Recipient Claims. It said that it is not the case that the beneficiaries only have a right to come to court and ask the Court to force the Trustee to sue. The beneficiaries have the right to do it themselves.[46] Sexton submitted the plaintiffs cannot simply foist the responsibility, cost and risk of running the Breach and Recipient Claims to the Replacement Trustee.

120 If I had found that Sexton owed the plaintiffs a fiduciary duty, then traditionally Sexton would have had two obligations namely, a duty not, without the beneficiaries' informed consent, to:

(a) put itself in a position of conflict of interest;

(b) profit for itself or any third party from its position as a fiduciary.

Under the current law as set out by the High Court in Chan v Zacharia[47] and Breen v Williams,[48] there is no positive duty imposed upon fiduciaries. For this reason, the plaintiffs' allegations in the further amended statement of claim dated 31 July 2023 that Sexton owed the plaintiffs a fiduciary duty to exercise powers available to it under the Trust Deed in the best interests of the Trust and its unitholders and for proper purposes lack legal substance. The alleged duty cannot constitute a fiduciary duty.[49]

121 In the present case, the plaintiffs appeared to contend that Sexton breached its fiduciary duty by obtaining a collateral benefit for itself, namely, the termination of the Trust with the resultant frustration of the application to appoint a receiver who might investigate Sexton's conduct. This allegedly constituted a conflict of interest which destroyed the interest of the other unitholders in pursuing their application to have a receiver appointed.[50]

122 While a consequence of the termination of the Trust was the inability of the Replacement Trustee's Application to proceed, that will not necessarily create any significant disadvantage for the other unitholders. The authorities are clear that a beneficiary can sue:

(a) a trustee for a breach of trust;

(b) a third party recipient of trust property who has notice of the breach of trust. Where a trustee transfers trust property in breach of trust to a third party who knowingly participates in the breach by receiving the property, a beneficiary has a right of action against the third party and the trustee.[51]

123 Given the various allegations raised by the plaintiffs against the Former Trustee, Huggins and Sexton in the Breach and Recipient Claims, it seems to me that the plaintiffs as beneficiaries under the Trust would have the necessary standing to bring such an action. Assuming that to be so, there would be no legal impediment to the plaintiffs pursuing such a case.

124 Another point to note is whether Sexton exercised the power in clause 74 for an improper purpose. As discussed later in the judgment, the purpose of clause 74 was to enable a unitholder to terminate the Trust before the Vesting Day. Sexton used the power for exactly this purpose. This was the very thing which the clause permitted. The fact that other consequences flowed from the exercise of the power in relation to the Replacement Trustee's Application cannot make Sexton's action on this point unlawful or improper. The situation is similar in principle to the position faced by Beach J in the case of AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd.[52] His Honour found there that the fact that Mercedes' use of the non-renewal power led to other consequences, namely the creation of new agency agreements between Mercedes and car dealers in Australia, did not impugn the exercise by Mercedes of its power under the dealership agreement to serve a non-renewal notice.

125 As referred to subsequently, clause 74 conferred a right upon each unitholder to terminate the Trust before the Vesting Day. Accordingly, Sexton was entitled to act as it did and did not breach any fiduciary duty. Because Sexton was entitled to pursue its own best interests in connection with the Trust, no conflict arose between any duty owed and its personal interest.

126 In short, I do not consider that Sexton breached any fiduciary duty by issuing the notice under clause 74.

Issue 3: If there was a breach of a fiduciary duty, does that give rise to the relief sought, namely, a declaration that the notice determining the Trust is wholly void?

127 The plaintiffs contended that a breach of the fiduciary duty gives rise to a declaration that the purported termination is wholly void. Sexton said the breach would give rise to a conventional claim for damages, which, on Sexton's submission, there are none.

128 Had I found that Sexton's notice was a breach of its fiduciary duty to the plaintiff unitholders, I have the power to declare the notice of purported termination to be void.

Issue 4: Does the doctrine of fraud on the power operate to curtail Sexton's exercise of the right under clause 74 of the Trust Deed?

129 The doctrine of fraud on the power means that the donee of the power must exercise the power bona fide for the proper purposes for which the donor created the power.

130 In examining this question, the Court needs to have regard to the proper construction of the agreement. This will assist in determining the meaning of the Trust Deed and the purpose served by clauses 74 and 75 and whether Sexton acted contrary to that purpose. Accordingly, I will first address the issue of construction before moving to the broader question of fraud on a power.

131 The applicable legal principles are not disputed.

132 The same rules of interpretation apply to trusts as they do to contracts. The Court is to interpret the Trust Deed objectively with reference to the text, context and purpose of the subject provision. The Court will identify and interpret the express terms of the Trust Deed before looking, if necessary, to any possible inferred or implied terms.[53]

133 As held by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,[54] a person who signs a contractual document conveys a representation to a reasonable reader that the person has approved its terms or is willing to take the chance of being bound by its contents.[55] If a document on its face appears to be a complete contract, it will contain the whole of the contractual terms.[56] Extrinsic evidence cannot be adduced to subtract from, add to, vary or contradict those terms, except in limited circumstances.[57]

134 In the case of Adaz Nominees Pty Ltd & Ors v Castleway Pty Ltd & Anor[58] Whelan JA and Riordan AJA held that to construe the terms of a commercial contract:[59]

[T]he Court asks 'what a reasonable businessperson would have understood those terms to mean.' To answer that question, 'the reasonable businessperson [is] placed in the position of the parties', and the Court applies the following principles:

(ll) The terms are construed objectively, and the subjective intentions of the parties are irrelevant.

(mm) The objective approach requires reference to the text and its ordinary meaning, together with:

(i) the context, being the entire text of the contract including matters referred to in the text; and

(ii) the purpose.

These matters will ordinarily be identified by reference to the contract alone, but evidence of mutually known objective background circumstances relevant to the purpose is admissible 'no matter how clear the "ordinary meaning" of the words'. Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.

(nn) Unless a contrary intention appears in the contract, the court is entitled to approach the task of interpretation on the assumption that the parties intended to produce a commercial result, and should construe it so as to avoid a commercial nonsense. However, the court does not weigh the commerciality of the agreement, and business common sense is a topic on which reasonable minds may differ.

(oo) If, after completion of this process, the language used in the contract 'is ambiguous or susceptible of more than one meaning', then evidence of surrounding circumstances external to the contract is admissible to assist with interpretation of the language in question.

(pp) However, 'evidence of the parties' statements and actions reflecting their actual intentions and expectations' is inadmissible. Although evidence of prior negotiations is admissible to establish objective background facts known to both parties and the subject matter of the contract, evidence of negotiations reflective of actual intentions and expectations is not receivable.

(qq) Post-contractual conduct is inadmissible to construe the terms of the contract. However, the parties' subsequent communications may be relevant to determine whether the parties intended to enter into a binding contract.

135 As to the construction of the Trust Deed, the plaintiffs submitted that clauses 74 and 75 must be read together such that the termination power in clause 74 should not be exercised unless the procedure contemplated under clause 75 was available. On the plaintiffs' reading, clause 75 contemplates a simple procedure available at the end of the development when it is possible to convert the remaining unsold property into cash and then distribute it to the unitholders. They said it would be a commercial nonsense to think that any unitholder, at any point in the construction process, could "blow up" the whole enterprise by exercising the clause 74 power earlier.

136 The plaintiffs also submitted that the perpetuity provision in clause 2 should be read with clauses 74 and 75 such that the termination powers were intended to be exercised only at the very end of the development. To do otherwise would be to use the power for an improper purpose. They further submitted that clause 3 of the Trust Deed does not preclude a fiduciary relationship from arising from dealings between the parties.

137 When applying these legal principles to the facts, the plaintiffs contended that clause 74 enabled one unitholder in the Trust to unilaterally exercise a power which could imperil the rights and interests of the other unitholders in the Trust.[60] They said that this factor suggested that the exercise of the power was subject to an overarching fiduciary duty. While acknowledging that clause 74 was framed in general terms, they argued that it would effect a commercial nonsense if the Court construed the clause as allowing any unitholder in the Trust to determine the Trust on seven days' written notice at any time. They said the Court should approach the task of interpretation on the assumption that the parties intended to produce a commercial result.

138 They submitted further that clause 74 should be construed cognisant of the substantial constraints placed upon the Trustee by clause 75. They said that clause 74 is to be construed as having been conferred for the purpose of allowing an early vesting of the Trust only where there has been a full accounting for the Trust, resolution of creditor claims and a resolution of all unitholder disputes.[61]

139 They argued that Sexton owed the other unitholders a fiduciary duty not to exercise the power given under clause 74 unless:

• it was in the best interests of the Trust and in the joint interest of all unitholders;
• it was for the proper purpose and circumstances for which the power was conferred;
• it was not to obtain a collateral benefit for Sexton or related entities at the expense of the joint interest and the interest of the other unitholders without their informed consent.

140 They contended that Sexton breached the duty because Sexton acted to obtain a benefit for itself and the Former Trustee rather than a benefit for the unitholders as a whole.

141 Sexton accepts that the fraud on a power doctrine is distinct from the question of whether a fiduciary obligation exists in relation to clause 74.

142 Sexton said that the doctrine does not operate in the present context. It argued that the apparent purpose of the clause is its true purpose, namely, to permit any unitholder to determine the Trust. It said that the Trust Deed should be construed consistently with the words used in the Trust Deed.

143 The construction of the Trust Deed will affect the question of whether Sexton's actions in serving the notice under clause 74 constituted fraud on a power.

144 The Trust Deed is a unit trust deed which sets out the rights and obligations of the unitholders between themselves. Clauses 74 and 75 are the only clauses in the section of the Trust Deed headed "Duration and Termination of the Trust".

145 Clause 74 enables any unitholder on at least 7 days' written notice to determine the Trust before the Vesting Day. The Vesting Day is the 79th anniversary of the date of the Trust Deed, namely, 6 June 2008. Clause 2 of the Trust Deed states that the perpetuity period applicable to the trusts declared by the Trust Deed is 80 years commencing from the date of execution. The termination takes effect from the time directed in the notice unless the unitholder withdraws the notice. There was no requirement that the unitholder give any reason or grounds for their action. Nor was there any explicit refence to clause 75 and how that might affect the exercise of the unitholder's entitlement to serve notice upon the Trustee.

146 Clause 75 spells out how the Trustee should proceed once the Trust is terminated "as aforesaid" by operation of clause 74 (or otherwise but subject to contrary agreement). The Trustee is:

• to sell the property and investments comprising the Trust Fund (unless otherwise authorised by special resolution of the unitholders);
• from time to time and as soon as practicable to distribute the cash in the trust fund to the unitholders in proportion to their holdings until the assets of the trust fund have been completely turned into cash and distributed. Such distribution is subject to two things: first, any special rights or restrictions which apply to certain units; secondly, the Trustee retaining full provision for all costs, disbursements, expenses and demands incurred or expected in the liquidation of the Trust;
• every distribution made under this provision is to be made against production of the relevant unit certificate accompanied by a request for payment in a form required by the Trustee;
• the Trustee shall endorse the unit certificates with notice of the payment made of any interim distribution. Upon final distribution, the unitholder shall surrender the unit certificate to the Trustee.

147 The plaintiffs contended that clause 74 should be construed as being conferred for the purpose of allowing an early vesting of the Trust only where there has been a full accounting for the Trust, resolution of creditor claims and a resolution of all unitholder disputes.[62]

148 But the terms of clause 75 do not include these preconditions or limitations. The terms of clause 75 contemplate that the Trustee will have to act in the future after termination of the Trust to liquidate the trust fund and distribute it. It does not seem to me that, as a matter of construction or implied terms (although this was not argued by the plaintiffs) that the plaintiffs' preconditions can be asserted or introduced to affect the operation of clause 74. Even if the Trust were to continue uninterrupted until the Vesting Day, I do not consider that one can guarantee at that date that all disputes between unitholders or claims by creditors will have been resolved.

149 The plaintiffs assert that to allow a unitholder to rely upon clause 74 will effect a commercial nonsense. In my opinion, for a unitholder to exercise the right given under cause 74 does not effect a commercial nonsense. I accept that, because the giving of notice under clause 74 triggers the operation of clause 75, the liquidation of the Trust will follow and the nett assets of the Trust (after costs and expenses incurred in connection with the liquidation) will be distributed to unitholders. I also accept that depending upon the precise time at which a unitholder gives the notice, the amount ultimately returned to a unitholder could be affected. For example, if notice were given when the Doncaster Development was incomplete, the process of selling the Trust assets and distributing the proceeds could well have been more protracted, complicated and slow. This might result in a unitholder being disappointed. However, this outcome is not a commercial nonsense. First, the commercial agreement, which the unitholder freely entered into and which constituted the agreed framework within which the Doncaster Development was to be pursued, expressly allowed for this possibility. A unitholder cannot fairly complain that an outcome expressly contemplated by the governing agreement amounts to a commercial nonsense. Secondly, as a consequence of the notice, the unitholder receives one or more distributions from the Trustee in proportion to their unitholdings. This is consistent with the unitholder's rights and entitlements under the Trust Deed.

150 In these circumstances, I reject the plaintiffs' characterisation of Sexton's conduct as potentially imperilling the rights and interests of the other unitholders.[63] Each unitholder has the rights and interests set out in the Trust Deed. Each unitholder enjoys the same powers under clause 74. And the unitholders will receive distributions consistent with their unitholdings once the Trust Fund is liquidated.

151 As a matter of construction, I consider that clause 74 should be interpreted as allowing any unitholder in the Trust to give written notice to terminate the Trust before the Vesting Day. This represents an objective reading of the words used by the parties in making their agreement. It reflects the ordinary meaning of the words used. The apparent purpose of clause 74 was to create a mechanism whereby any unitholder could, for their own reasons terminate the Trust before the Vesting Day. While at the outset of the project the unitholders might have expected to complete the Doncaster Development, this was never guaranteed. As a matter of fact, it seems that the parties did complete the project and the unitholders received their capital contributions back by 2012.

152 From the trial, including the written and oral submissions made by the plaintiffs, it appears that their major complaint about Sexton's conduct in serving the termination notice is the effect it might have on potential claims against Sexton and Huggins. The plaintiffs' material contains a number of allegations against the Former Trustee, Sexton and Huggins as the sole director and shareholder of both the Former Trustee and Sexton. These allegations are the Breach and Recipient Claims referred to earlier.[64] The plaintiffs appear to be concerned that if the defendants succeed in terminating the Trust, then the plaintiffs will be unable to prosecute their applications to have appointed to the Trust a receiver with the powers contained in s 420 of the Corporations Act. I infer that the plaintiffs wanted the Trust to remain in existence so that any receiver appointed with such powers could investigate and pursue any claims against Sexton and Huggins.

153 I note in passing that if the plaintiffs' current application fails, that will not necessarily mean that the Breach and Recipient Claims will be stultified. As noted earlier, the authorities indicate that the plaintiffs as unitholders and beneficiaries of the Trust retain a direct entitlement to sue both the Former Trustee for breach of trust and third parties who knowingly receive trust property in breach of trust or participate in such breaches.[65]

154 The equitable doctrine of fraud on the power expresses an equitable limitation, on the exercise of a power. The donee of a limited power must exercise it bona fide for the end designed by the donor that is, the power can be exercised only in favour of the objects of the power and in furtherance of the purpose for which it was conferred. The donee 'must act with good faith and sincerity, and with an entire and single view to the real purpose and object of the power.'[66] Although the 'good faith' and 'proper purpose' requirements are invariably associated with each other, they are not synonymous. A blatant exercise of a power for an improper purpose may be made in good faith. Moreover, whilst an obligation of 'good faith' will generally only apply as between fiduciaries, the 'proper purpose' rule applies to both fiduciaries and non-fiduciaries[67] and the doctrine of fraud on the power applies to fiduciary and non-fiduciary powers alike.[68]

155 The term fraud does not necessarily denote any conduct amounting to fraud in the common law meaning of the term or any conduct which could be properly termed dishonest or immoral.[69] It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of, or not justified by, the instrument creating the power.[70]

156 There are two main elements in a fraudulent exercise of a power. First, a disposition beyond the scope of the power by the donee and second, a deliberate breach of the implied obligation not to exercise that power for an ulterior purpose. The first is common to both excessive and fraudulent execution of a power. However, while an excessive execution of power generally turns on a question of construction, a fraudulent execution turns on the true intention or real motive of the donee of the power. If there is some "ulterior purpose" or "collateral purpose", a "deliberate defeating"[71] of the donor's intention, there is a fraud on the power.[72]

157 The doctrine was referred to by Austin J in LGSS v Egan:[73]

106 The equitable doctrine of fraud on a power imposes a limit on certain kinds of powers, even when they are expressed in general terms. There is a discussion of the scope of the equitable doctrine in Commonwealth v The Colonial Combing, Spinning and Weaving Company Ltd... His Honour points out... that the term "fraud" does not necessarily denote, in this context, conduct amounting to fraud in the common law sense, but merely means that the power has been exercised for a purpose, or with an intention, beyond the scope or not justified by the instrument creating the power...

107 When a power is vested in a fiduciary such as a trustee, the limitation is more extensive than in a case where the holder of the power is not otherwise in a fiduciary position. In such cases the power is sometimes referred to as a "fiduciary power" ... The exercise of such a power is open to review if it is in bad faith ... or not on a real and genuine consideration ... or not for proper purposes ... or for expressed reasons that are bad ... The doctrine of fraud on a power, where it applies to the exercise of a power by a non-fiduciary, authorises intervention where the power is exercised for bad faith or for purposes foreign to the power, but not on the other grounds just stated.

158 His Honour continued by explaining that the critical issue is to determine the proper purposes for which the power may be exercised. This is a question of interpretation of the instrument conferring the power.[74] If a power is conferred by a trust instrument or will, its purpose and scope will generally be ascertained by reference only to the terms of that instrument or will. However, in appropriate circumstances, the Court can have consideration of parol or extraneous evidence in order to discern the purpose of a trust power.[75]

159 In Lancedale Holdings Pty Ltd v Heath Group Australia Pty Ltd,[76] Bryson J stated:

It is very common to find that the manner of exercise of powers is limited by requiring that they be exercised in good faith and for the purposes for which they were conferred; sometimes this is a limitation imposed in Equity on the conduct of trustees or other persons with fiduciary responsibilities who deal with rights which exist only in Equity; and sometimes a control of that kind is implied in the terms of the instrument creating the power. Similar implications are usual for powers in public law.[77]

160 The Court in Mandie v Memart Nominees[78] noted that it is not necessary that the improper purpose be the only or dominant purpose for the exercise of the power. The improper purpose will constitute a fraud on the power if it is an operative or actuating purpose, one without which it cannot be said the appointment would have been made.[79]

161 Where fraudulent execution of a power is established, the execution is wholly void.[80]

Plaintiffs' submissions regarding fraud on a power

162 The plaintiffs submitted that the doctrine arose in equity. They argued that:

• the doctrine imposes a limit on certain powers even when they were expressed in general terms;
• in the context, fraud does not mean fraud in the common law sense but means that the power was exercised for a purpose or with an intention beyond the scope or not justified by the instrument creating the power;
• where the power is vested in a fiduciary, the limitation is more extensive than where the donee of the power is not in a fiduciary position. A fiduciary's power is reviewable if it is exercised in bad faith or not on a real and genuine consideration or not for proper purposes;
• the exercise of the power by a non-fiduciary is reviewable where the power is exercised for bad faith or purposes foreign to the power;
• the critical issue is to determine the proper purposes for which the power may be exercised

Sexton's submissions regarding fraud on a power

163 Sexton contended that where the doctrine arises in a contractual sense, its operation is qualified by principles relevant to the construction and implication of terms, specifically the implication of obligations of good faith and/or co-operation. Whilst implied terms of co-operation might exist in most commercial contracts, Sexton contended that it is not necessarily common or usual to imply a term of good faith into commercial contracts. This is especially true of termination clauses in a commercial document like the Trust Deed in this case. Further, Sexton noted that insofar as there may be a contractual basis for the doctrine to apply, the relevant contract and the relevant exercise of the right is as between the unitholders and the Trustee, not as between the unitholders themselves.

164 As outlined above at paragraph 142, Sexton contended that the ostensible purpose of the power is its true purpose. The plaintiffs have not identified an alternative purpose.

165 I am satisfied that the doctrine of fraud on the power can apply to both fiduciary and non-fiduciary relationships. Whilst I have found that no fiduciary relationship exists between the plaintiffs and Sexton, the doctrine of fraud on the power can still apply in this case. Whether the doctrine operates to curtail Sexton's exercise of the clause 74 power requires an assessment of the purpose of the clause 74 power.

166 My view is that the doctrine does not apply to curtail the exercise of Sexton's rights under clause 74. This is so for several reasons.

167 First, as discussed, as a matter of construction, clause 74 should be interpreted as giving each of the unitholders in the Trust the entitlement to terminate the Trust in accordance with the clause. The right can be exercised any time before the Vesting Day.

168 Secondly, as noted by Austin J in LGSS v Egan,[81] if the holder of a power is a trustee, it is usually clear that the trustee owes duties to the beneficiaries in relation to the exercise of the power. But where the power is conferred on a beneficiary, the power is more likely to be conferred on that person for their personal benefit and not for the benefit of other beneficiaries too. Here, the fact that each of the unitholders has the same power suggests that they can serve their individual interests in deciding whether or not to issue a termination notice.

169 Thirdly, to the extent that the plaintiffs questioned the good faith of Sexton in exercising the power under clause 74 when and as it did, it is difficult to discern a want of good faith in the exercise of a power by a donee where the power can serve only the interests of the party upon whom it is conferred. In these circumstances, the ostensible purpose of the exercise of a power will almost invariably be the true purpose.

170 In AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd,[82] the plaintiffs who were Mercedes Benz car dealers sued the company for appropriating their goodwill and customer relationships for either no, or no adequate, compensation. The defendant served on the dealers non-renewal notices which brought to an end the then-current relationship which existed under the dealer agreements. The plaintiffs said that the implementation of the process by which the notices were given was not a genuine process conducted in good faith. The dealers sought to invalidate the process.

171 There was no dispute that the defendant had the power to issue non-renewal notices without cause. The dealers complained that the defendant issued the notices for various improper purposes. They said the proper purpose of the non-renewal notice was to end a dealership when a dealer failed to meet performance targets or did not carry out agreed improvements. Thus, the purpose was to end the relationship, not to continue it, albeit on different terms unilaterally imposed by the defendant. The plaintiffs failed in their allegations.

172 In considering the plaintiffs' contentions, Beach J made a number of observations. His Honour noted that a term in the contract between the parties expressly empowered the company to give dealers a non-renewal notice. The defendant exercised this power solely for its own strategic interests. Given that the power conferred by the clause was for the sole benefit of the defendant car manufacturer, it was permissible for the company to act as it did.

173 Secondly, the power to give the non-renewal notice was, like a power of termination, a power to end the dealership relationship then existing between the parties. This is exactly what the defendant did - the power to give the non-renewal notice to dealers was used to achieve the direct end of terminating the dealer agreements.[83] The fact that other consequences flowed as a result of sending the non-renewal notices did not impugn the exercise of the power.

174 Thirdly, save for a good faith requirement which arose from the franchising code or the express or implied terms of the agreement, there were no specific conditions or limitations on the exercise of the power granted to the defendant.[84] His Honour expressly noted that it was difficult to have a want of good faith in the existence of a power which can serve only the interests of the party upon whom it is conferred. In such a situation, the ostensible purpose of the exercise of such a power will almost invariably be the true purpose of the power. A good faith obligation cannot operate to restrict or interfere with the legitimate interests of the party upon whom a contractual power or benefit is conferred where the power exists only to advance the interests of that party.[85] The duty of good faith cannot impose an obligation which is inconsistent with other terms of the contract. His Honour referred to cases both in Australia and England where courts had not allowed any assumed duty of good faith to restrict or circumscribe an express term entitling a party to terminate an agreement without cause.

175 In my opinion, the Mercedes-Benz case supports the notion that if there were a good faith obligation binding Sexton regarding the exercise of the power conferred by clause 74 of the Trust Deed (which I do not accept), then Sexton exhibited no lack of good faith when exercising the power to advance its own interests. By using clause 74 as it did to terminate the Trust, Sexton exercised a right conferred on each of the unitholders for the very purpose for which the entitlement was conferred.

176 Further, I note that the plaintiffs did not explain the proper scope and purpose of clause 74 and how Sexton's conduct in terminating the Trust was contrary to that true purpose.

177 In my view, the doctrine of fraud on a power did not operate to curtail Sexton's exercise of the right under clause 74 of the Trust Deed.

Issue 5: What is the purpose of clause 74 and, in particular, is it properly to be construed to mean it can only be exercised to determine the Trust in circumstances where there has been a final accounting for the Trust, resolution of creditor claims, and a resolution of all unitholder disputes, as the plaintiffs contended?

178 I have already outlined, above,[86] the principles regarding the interpretation of contracts. Such principles apply equally to the interpretation of trusts. The Court is to interpret the Trust Deed objectively with reference to the text, context and purpose of the subject provision. These matters will ordinarily be identified with reference to the document alone but evidence of mutually known objective background circumstances relevant to the purpose is admissible 'no matter how clear "the ordinary meaning" of the words.'[87] Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.[88]

179 The critical issue is to determine the proper purpose for which the power may be exercised. Unless a contrary intention is indicated, the Court can assume that the parties intended to produce a commercial result and should construe the clause so as to avoid a commercial nonsense.

180 The plaintiffs contended that the Court should read clause 74 in line with clause 75 such that the termination power under clause 74 was only available when the Trust was ready to be vested and the process envisaged under clause 75 could be carried out. They submitted that it would be a commercial nonsense if any unitholder could "blow up" the Doncaster Development at any time and that the termination of the Trust was a decision for the Trustee. Accordingly, they contended that the power was not to have been exercised unless the clause 75 process was available.

181 Sexton contended that the Court should construe clause 74 in line with the plain words of the Trust Deed. The power under clause 74 is a power available to all unitholders and there is no basis to suggest that it was a fraud on the power for Sexton to do exactly what the clause permits. Sexton submitted that the plaintiffs have failed to show what the supposedly proper scope and purpose of clause 74 was and how Sexton's exercise of the power was contrary to the true purpose.

182 It further submitted that where a power is conferred not on a trustee but on the beneficiary of a trust, the power is more likely to be conferred on the beneficiary for its own benefit and not that of the other beneficiaries.

183 In my opinion the purpose of clause 74 is to enable a unitholder to terminate the Trust at any time before the Vesting Day. As earlier stated, the power conferred by clause 74 is not to be exercised only where there has been a final accounting for the Trust and both unitholder disputes and creditors' claims have been resolved.[89] I consider it likely that in liquidating the Trust, the Trustee could well face claims or demands which might affect the distribution of cash to unitholders. The Trustee may or may not contest the claims. But it is entirely possible that the Trustee will have to address and resolve claims and that some claims will have a financial effect upon the resources of the Trust which are available for distribution. In my view, it is neither correct as a matter of construction nor appropriate in a practical sense to treat the exercise of the clause 74 power as subject to preconditions that there has been a full accounting for the Trust and that all unitholder and creditor claims have been resolved.

Issue 6: Did Sexton, by issuing the notice, act contrary to the proper purpose of clause 74?

184 The plaintiffs contended that Sexton's exercise of the clause 74 power was not for any proper purpose but rather for a collateral purpose, being the frustration of the Replacement Trustee's Application. When Sexton exercised the clause 74 power, Sexton knew:

• that the Replacement Proceeding had involved the Former Trustee breach allegations;
• that under the settlement agreement, the Trust was continuing under the administration of the Replacement Trustee;
• of the Replacement Trustee's demand on Sexton for repayment of $688,942.13;
• of the Replacement Trustee's communication which referred to potential claims being available to the Trust which may require litigation; and
• of the impending Replacement Trustee's Application in which orders are sought for the appointment of a receiver to the Trust with all the powers prescribed by s 420 of the Corporations Act, including the power to bring proceedings.

185 Further, Sexton exercised the power abruptly, on the day before the hearing of the Replacement Trustee's Application, without notice or explanation. On the same day, Sexton filed and served an affidavit and outline of submissions in opposition to the Replacement Trustee's Application, relying in part upon the purported termination of the Trust pursuant to clause 74 and stating that, by reason of the termination, the Replacement Trustee must now undertake his role pursuant to clause 75. The plaintiffs submitted that, in the circumstances, it can be readily inferred that Sexton intended to frustrate the Replacement Trustee's Application.

186 In circumstances where the Replacement Trustee has stated his unwillingness to continue to act as Trustee of the Trust, and the substantial constraints otherwise placed on the role and powers of the Trustee when clause 75 is triggered, the plaintiffs contended that any frustration of the Replacement Trustee's Application would impact further investigations by the Trust into the conduct of the Former Trustee and/or Sexton and the pursuit of any proceedings against them.

187 Accordingly, the plaintiffs contended that Sexton's exercise of the clause 74 power constituted a fraud on the power as it was exercised in bad faith and with an intention and for a purpose that was improper, ulterior or collateral to and beyond the scope of the purpose and object of the power.

188 Further, the plaintiffs asked the Court to draw a Jones v Dunkel inference in relation to Huggins' conduct. They submitted that Sexton's failure to call Huggins should give rise to an inference that his evidence would not have assisted Sexton's case, particularly in relation to the purpose of exercising the power.

189 Sexton said that no such inference should be drawn due to the fact that Sexton did not call Huggins to give evidence. Sexton submitted that Huggins' evidence would not have been relevant to the issues before the Court. In particular, Sexton reiterated its position that the true purpose of clause 74 is its ostensible purpose. It said this issue raises a question of construction of clause 74, not of Sexton's (or Huggins') motive.

190 On Sexton's case, the purpose of clause 74 is simply to allow the unitholders to determine the trust before the Vesting Day. The purpose is not to empower the Trustee to investigate or pursue claims nor is to allow the Trustee to appoint a receiver to do so. Accordingly, Sexton said its exercise of this power was done in accordance with the terms of clause 74. Furthermore, even if the purpose is as the plaintiffs contend, Sexton submitted that motive is irrelevant. If the purpose of clause 74 is that it is only to be exercised when the Trust is ready to be vested then Sexton's exercise of the clause prematurely would be contrary to the proper purpose, but his reasons for exercising the termination clause, his motive or intention, would not be relevant.

191 Given the finding I have made as to the purpose of clause 74,[90] I prefer the defendant's submissions and accept that Sexton's exercise of this power was in accordance with its proper purpose. The plain words of the clause are clear and give each unitholder the power to terminate the Trust at any time before the Vesting Day upon the giving of notice. This is what Sexton did. The Trust Deed does not impose limitations regarding the reasons or motivations a unitholder might have for exercising the power.

Issue 7: If Sexton is found to have acted contrary to the proper purpose of clause 74, does that give rise to the relief sought, namely, a declaration that the notice determining the Trust is wholly void?

192 Given my findings above, this issue does not arise. However, had I found that Sexton's notice was contrary to the proper purpose of clause 74, the fraud on the power doctrine would have operated to curtail this exercise of the power and Sexton's notice given pursuant to clause 74 would be wholly void.

Issue 8: If the Court finds that the notice was valid and the Trust is determined, the operation of clause 75 of the Trust Deed is enlivened. In these circumstances, issues regarding s 63 of the Trustee Act arise namely:

Issue 8(a): Is the potential investigation, pursuit and/or recovery of sums in respect of the Breach and Recipient Claims (including by potential litigation), a "transaction" in the management or administration of trust property vested in the Replacement Trustee, for the purposes of s 63 of the Trustee Act?

193 The plaintiffs seek the intervention of the Court pursuant to s 63 of the Trustee Act to empower the Replacement Trustee with all the powers, being the powers of a receiver, prescribed under s 420 of the Corporations Act. In particular, the plaintiffs seek that the Replacement Trustee's powers to sell trust property and distribute funds to unitholders pursuant to clause 75 be supplemented with a broader suite of powers so that the Replacement Trustee may investigate and, if appropriate, pursue potential claims.

194 The plaintiffs contended that the word "transaction" can be interpreted broadly such that it could entail the bringing of a proceeding and the investigation which is incidental to the proceeding.

195 Sexton submitted that the threshold jurisdictional requirements for relief to be granted under s 63 are not satisfied because the following criteria, required under the Trustee Act are not met:[91]

• identification of the proposed "sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure or transaction" for which the power is needed;
• whether the proposed dealing is one that "cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust";
• whether a question has arisen "in the management or administration of any property vested in trustees"; and
• whether the proposed dealing, in the court's opinion, is "expedient" in the management or administration of any property vested in the trustee.

Accordingly, Sexton contended that the s 63 jurisdiction is not enlivened and that it is improper, inexpedient and unjustifiable to bring and maintain this proceeding so as to force upon the Trustee the responsibility, cost, expense and risk of running the Breach and Recipient Claims when doing so, at the expense of the Trust, would only be in the interests of the plaintiff unitholders (not all the unitholders).

196 Sexton submitted that while the word "transaction" can be interpreted broadly, it does not authorise the Court to confer every conceivable power on the Trustee.[92] In particular, it should not be interpreted to permit variations to the Trust Deed[93] or to alter the beneficial interests thereunder.[94]

197 Section 63 of the Trustee Act reads as follows:

(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.

(2) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order.

(3) An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.

198 The court's discretion to confer power on a trustee under s 63 arises where the expenditure or transaction is (a) in the management or administration of property vested in trustees; (b) expedient; and (c) not otherwise able to be affected because of an absence of power.[95] The High Court has interpreted "expedient" as meaning "advantageous", "desirable", "suitable to the circumstances of the case."[96] The question of expediency must be determined by reference to the interests of the beneficiaries and the benefit of the trust property as a whole.[97]

199 Royal Melbourne Hospital v Equity Trustees Ltd[98] involved an appeal from a trial judge's decision to only grant the trustees a power limited in scope and time to affect a partial sale of the remaining trust property. The power was limited by the trial judge so as to enable the trustees to effect sufficient sales to meet liabilities expected within the following 18 months. The Court of Appeal considered s 63 in this context and allowed a power of managed sale of trust property but would not adopt a course that interfered with the beneficial interests under the trust. Bell AJA stated that "the power in s 63(1) is for the expedient management of trust property, not the alteration of the beneficial interests it creates".[99]

200 In Re Dion Investments Pty Ltd,[100] the trustee sought orders under s 81 of the NSW Act conferring on it a power to amend the trust deed, including by adding a clause allowing the trustee to unilaterally alter the terms of the trust. The Court of Appeal upheld the trial judge's decision to decline to confer on the trustee the power to vary the trust. The Court of Appeal accepted that "transaction" is a word of wide import but that the relevant section under the NSW Act does not authorise the Court to confer every conceivable power on a trustee.[101] Rather, the section empowers the Court to confer on a trustee the necessary power to engage in two classes of dealing:[102]

• "any sale, lease, mortgage, surrender, release or disposition." Dealings of this first class are, by nature, dealings engaged in by an owner of property or, trustees in whom property is vested; and
• "any purchase, investment, acquisition, expenditure or transaction." Putting "transaction" aside, the other words in this second class are principally concerned with ways of deploying money.

201 "Transaction" of itself does not imply an outlay of money and no such limitation should be imposed. Barrett JA, with whom Beazley P and Gleeson JA agreed, said that both transactions involving outlays of money and transactions that do not are contemplated by the legislation. However, His Honour noted that despite the wide import of the word, the power for a trustee to effect a particular "transaction" may be supplied by the Court only if the transaction is "expedient." Expediency might mean expedient "in the interests of the beneficiaries"[103] or "advantageous", "desirable" or "suitable to the circumstances of the case"[104] but it will always be tied to the management or administration of the trust.

Variation of the terms of a trust (including by way of conferral of some new power on the trustee) is not something within the ordinary and natural province of a trustee. It is not something that it is "expedient" that a trustee should do; nor, fundamentally, is it something that is done "in the management or administration of" trust property. A trustee's function is to take the trusts as it finds them and to administer them as they stand. The trustee is not concerned to question the terms of the trust or seek to improve them. I venture to say that, even where the trust instrument itself gives the trustee a power of variation, exercise of that power is not something that occurs "in the management or administration of" trust property. It occurs in order that the scheme of fiduciary administration of the property may somehow be reshaped....

203 His Honour agreed with the primary judge in noting that the post-1997 decisions (including James N Kirby Foundation Ltd v Attorney General (NSW)[106]) that proceeded on the basis that variation of the terms of a trust is, of itself, a "transaction" within the contemplation of the legislation rest on an unsound foundation. His Honour stated:

The court is not empowered by the section to grant power to the trustee to amend the trust instrument or the terms of the trust. It may only grant specific powers related to the management and administration of the trust property, being powers that co-exist with (and, to the extent of any inconsistency, override) those conferred by the trust instrument or by law.[107]

204 As helpfully stated by McMillan J in W E Pickering Nominees Pty Ltd v Pickering:[108]

It is clear that the Court of Appeal [in Re Dion] held that conferring on the trustee power to vary the terms of the trust is neither expedient nor in the management or administration of trust property. It is less clear whether the Court held that varying the terms of the trust can be a 'transaction' within the meaning of s 81. It is sufficient to note that Re Dion is authority for the principle that varying the terms of the trust does not fall within the composite phrase 'transaction expedient in the management or administration of trust property'.

205 In Royal Melbourne, Bell AJA explored the meaning of "management or administration" in the context of s 63. His Honour stated:[109]

The words "management or administration" in s 63(1) are, I think, of wide import and pick up everything that a trustee may need to do in practical or legal terms in respect of trust property. Thus, as to the English provision, it has been held the words refer to "the managerial supervision and control of trust property on behalf of beneficiaries." As to the similar New South Wales provision, it has been held the words refer to "both the manner in which trust property is managed, administered, handled, directed or controlled and the actual carrying out of those functions." As to the Victorian provision, in general terms, "management" has been taken to include commercial and practical matters and "administration" all the legal powers and duties that a trustee may need. The words management and administration largely overlap, but the linking word is "or". It was inserted to ensure that an unduly narrow interpretation was not adopted.

The section requires the dealing to be "in" the management or administration of "property vested in trustees", not in the management or administration of something else. That the dealing must be in the "management or administration of any trust property" is a limiting requirement: the purpose of the section is to allow the authorisation of that kind of dealing, not a dealing that regulates or varies the trust or alters the beneficial interests to which it gives rise.

206 The aim of s 63 is to enable a trustee, when managing or administering trust property, to dispose of trust property or to engage in a transaction which the Court regards as expedient but which the trustee lacks the power to perform.

207 In Royal Melbourne, Bell AJA said that the words "management or administration" in s 63 are of wide import and encompass everything which a trustee may need to do in practical or legal terms in respect of trust property. In Victoria, "management" has been interpreted as including commercial and practical matters and "administration" as all the legal powers and duties which a trustee might need.

208 The plaintiffs argued that if the Trust has been terminated due to the operation of clause 74, this triggered clause 75. Under this provision, the powers of the Replacement Trustee are limited to the sale of trust property and the distribution of the sale proceeds.[110] The plaintiffs want the Replacement Trustee to have broader powers so that he can investigate and, if appropriate, pursue potential claims which are identified on behalf of the Trust. The investigation and recovery of trust assets is a transaction said to be in the management and administration of the property vested in the Trust.[111] The plaintiffs said that the granting of the extra powers sought is expedient because it would benefit all beneficiaries in the Trust.[112]

209 In my opinion, the Court should not use the power granted by s 63 to broaden the powers available to the Replacement Trustee. I say this for several reasons.

210 First, I consider that, because a unitholder has exercised its entitlement under clause 74, the Trust is terminated. As a result, while the Replacement Trustee might retain some residual power in order to facilitate the orderly termination of the Trust in accordance with clause 75 of the Trust Deed, it would not have the power to undertake an investigation into the prior dealings between the Former Trustee, Sexton as a unitholder and Huggins as the sole director and shareholder of those two entities. Nor could the Replacement Trustee initiate legal proceedings in order to pursue whatever claims it considered appropriate arising from that investigation. This means that there is no utility in granting the application even if it were otherwise appropriate to do so.

211 Secondly, while "transaction" has been treated as a word of wide import, s 63 does not authorise a court to confer every conceivable power on a trustee. Some authorities have decided that the Court cannot allow a trustee to alter beneficial entitlements in a trust deed or to permit certain variations of trust.[113] The plaintiffs, who have the onus of establishing their case, did not refer me to any authority which supported the proposition that enabling a trustee, after a trust has terminated, to investigate potential claims and then litigate them constituted a transaction for the purposes of s 63.

212 Thirdly, when read in the context of s 63(1), I consider there is a good argument that the word "transaction" should be interpreted in such a way that its meaning is governed by the words preceding it, namely, "any purchase, investment, acquisition, expenditure or other". Each of these words connotes a person engaging in conduct which results in them obtaining real or personal property. Such property would include land, chattels, choses in action and shares. They also require some form of interaction between at least two parties: the purchaser and vendor; the acquiror and the disposer; the person expending money and the person receiving it. Generally, this will involve the payment or expenditure of money. Whether or not money changes hands, it is necessary that the parties to the particular transaction exchange something which at least one participant considers to be of value - whether that be money or some form of property which the recipient considers valuable, desirable or suitable to meet their needs or wants.

213 The current scenario is different because, if granted the power, the Replacement Trustee would be authorised to undertake unilateral action whereby he investigates the conduct of certain persons or entities with a view to possibly suing them. The Trustee, in doing this, will not necessarily buy anything from another party, make an investment, spend money or exchange something of value. This kind of conduct is qualitatively different from that comprehended by the section.

214 Next, I consider that the contemplated transaction is not expedient in the sense of advantageous or suitable to the circumstances of the case. The question of expediency is to be determined by reference to the interests of the beneficiaries and the benefit of the trust property as a whole.[114] The High Court in Riddle said that "expedient" was to be treated as a broad and flexible term. Anything which benefited the trust as a whole would be expedient.[115] In Re Sykes,[116] Helsham J melded comments by Dixon CJ and Williams J in Riddle when he said that the touchstone was expediency for the trust as a whole, that is to say, expediency in the interests of the beneficiaries.[117] Thus, the authorities make clear that the transaction must be expedient not for the benefit of one beneficiary only but for the benefit of the whole trust; it must be expedient in the interests of all the beneficiaries.[118]

215 In the present case, the only beneficiaries likely to profit from the contemplated exercise would be those plaintiffs who are unitholders in the Trust. To grant the Replacement Trustee the power sought by the plaintiffs would expose Sexton to the investigations which the Replacement Trustee would make into the affairs of the Trust and whether Sexton, Huggins and the Former Trustee engaged in wrongdoing.

216 The powers conferred by s 420 of the Corporations Act appear to exceed the powers which a trustee might otherwise have to address such matters. Also, not only would Sexton face the potential costs of defending itself against the investigations and litigation undertaken by the Replacement Trustee, as a unitholder it would face a situation in which the Trustee would bear the costs associated with such investigation and any consequential litigation and then, in all likelihood, seek indemnity from the Trust assets. But if, as they would be legally able to do, the plaintiff unitholders pursued possible claims against the Former Trustee for breach of trust and possible Barnes v Addy type claims against Sexton and Huggins, those plaintiffs would bear the costs of such action, not the Trustee.

217 In short, for the reasons set out I do not consider that the investigation of claims against Sexton, Huggins and the Former Trustee and, if deemed appropriate, the pursuit of litigation against those parties constitutes a transaction in the management or administration of the trust property as required by s 63 of the Trustee Act.

Issue 8(b): If so, is it nevertheless expedient for the Court to make orders conferring on the trustee all of the powers contained in s 420 of the Corporations Act as if the Trust were a corporation, to empower the Replacement Trustee to investigate, pursue and/or recover sums in respect of the Breach and Recipient Claims (including by potential litigation)?

218 As is clear from my answer to issue 8(a) above, I do not consider it expedient for the Court to empower the Replacement Trustee to investigate, pursue and/or recover sums in respect of the Breach and Recipient Claims (including by potential litigation). This would not be in the best interests of the Trust or all the beneficiaries.

Issue 9: Were or are the plaintiffs prevented (by Sexton having issued the Notice to determine the Trust under clause 74 of the Trust Deed) from directly investigating, pursuing and/or recovering sums in respect of the Breach and Recipient Claims (even where, by reason of the Trust being determined by the Notice, the Replacement Trustee might itself be so prevented)?

219 Sexton contended, as outlined above,[119] that the only reason the plaintiffs brought this Notice Proceeding is to protect their interest in the Breach and Recipient claims. It said the proceeding was brought unnecessarily given the plaintiffs, as beneficiaries, have the right to make direct claims against the Trustee or any third party. Such rights are not derivative rights which must be exercised through the Trustee but are direct rights that they hold as beneficiaries.

220 Sexton relied upon the case of Morlea Professional Development Services Pty Ltd v Richard Walker Pty Ltd[120] in which the effect of the exercise of the termination power was not to remove entirely all powers of the trustee. The trustee was still able to wind up the trust in accordance with a clause equivalent to clause 75 here. However, given the beneficiaries were able to sue on their own behalf, the trust had been determined and the trustee only had limited power, the Court found that the trustee was effectively functus officio.

221 Sexton emphasised the fact that beneficiaries have a right to sue, separate from that of their right to compel the trustee to do so. It said that the plaintiffs have alleged or purported causes of action in relation to the Breach and Recipient Claims and, as in Morlea, it is neither necessary nor appropriate for the Replacement Trustee to investigate or institute legal proceedings in respect of those claims.

222 The plaintiffs compared clause 74 in this case to the termination clause in Morlea in which there are words indicating a lack of constraint. The relevant clause in that case reads:

The trustee may at any time, for any reason whatsoever and without any obligation to disclose the reason - terminate the trust.

No such detail exists in clause 74 here. Clause 74 is simpler, merely stating that the Trust may be terminated by notice. Furthermore, the notice is to be given by the unitholder whereas in Morlea it is to be given by the trustee itself.

223 Further, the plaintiffs contended that the fact that they might have causes of action themselves is no answer to the issues in this proceeding.

224 I cannot see any reason why the plaintiffs would be prevented from directly investigating and pursuing claims and/or seeking to recover compensation in respect of the Breach and Recipient Claims. The authorities on the point are clear and the plaintiffs themselves seem to accept that this is the case.[121]

Issue 10: Is the resolution of this issue relevant to issues 2, 6 and 8(b)?

225 Issue 2 concerns the question of whether Sexton breached any fiduciary duty when it issued the notice. Issue 6 deals with the question of whether Sexton acted contrary to the proper purpose of clause 74 by issuing the notice. And issue 8(b) is about empowering the Replacement Trustee to investigate and pursue claims and/or seek to recover compensation in respect of the Breach and Recipient Claims (including by potential litigation). The question of whether the plaintiffs would be prevented from directly investigating and pursuing claims and/or seeking to recover compensation in respect of the Breach and Recipient Claims has no bearing on the resolution of issues 2, 6 and 8(b).

226 Whether or not the plaintiffs can seek relief by other means is irrelevant in deciding whether a fiduciary duty was breached,[122] whether the notice was contrary to the proper purpose of clause 74,[123] or whether the Replacement Trustee has the power to investigate and pursue claims and/or seek to recover compensation in respect of the Breach and Recipient Claims.[124] Each of these issues must be (and has been) decided by applying the relevant legal principles to the facts of this case. The fact the plaintiffs can directly investigate and pursue certain claims has no bearing on deciding how these other issues should be resolved.

(a) Sexton does not owe a fiduciary duty to the other unitholders regarding the power in clause 74 of the Trust Deed;

(b) the doctrine of fraud on a power did not operate to curtail Sexton's exercise of the right under clause 74 of the Trust Deed;

(c) the Court should not make the order sought by the plaintiffs under s 63 of the Trustee Act.

228 I direct that the parties confer about these reasons for judgment with a view to agreeing upon the final orders to be made giving effect to the judgment including orders for costs. If the parties cannot agree, then they should file:

(a) any affidavit material on which they rely together with an outline of submissions by noon on 21 February 2025;

(b) any reply material and submissions by noon on 25 February 2025.

The submissions are limited to five A4 pages, and the reply submissions are limited to two A4 pages. Each set of submissions should have a minimum 12-point typeface, 1.4 spacing and 40mm margins on either side of the page. Unless I consider it otherwise necessary, I will decide the issue of costs and the form of final order on the papers.

KELNIEL DEVELOPMENTS PTY LTD (ACN 074 708 339) as trustee for the Kelniel Developments Unit Trust

BONIELLO ENTERPRISES PTY LTD (ACN 108 247 678) as trustee for the Boniello Family Trust

as trustee for the Boniello Superannuation Fund

GRAHAM STEWART STILL (in his capacity as trustee

of the Lingamaneni Momentum Melbourne Unit Trust)

[2] I note that [97] of the further amended statement of claim dated 31 July 2023 refers to both s 63 and s 63A of the Trustee Act 1958. However, at the hearing, counsel advised the Court that the claim under s 63A was not pressed. See T 43/21-2.

[3] See s 7 of the CPA.

[4] Huggins initially contributed $4 million.

[6] Tufton v Sperni [1952] 2 TLR 516 at 522; English v Dedham Vale Properties Ltd [1978] 1 All ER 382 at 398.

[7] Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 at 96 per Mason J ('Hospital Products').

[9] [2017] VSCA 326; (2017) 54 VR 625 ('Adventure Golf').

[10] Ibid at [119]-[127], [129] (citations omitted).

[11] News Limited v Australian Rugby Football League Limited [1996] FCAFC 870; (1996) 64 FCR 410 at 538 ('News Limited').

[13] United Dominions Corporation Limited v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 11 ('United Dominions').

[15] News Limited at 541 citing PD Finn, 'The Fiduciary Principle' in TG Youdan (ed), Equity, Fiduciaries and Trusts (Carswell, 1989) 1 at 46.

[16] Coonwarra Pty Ltd v CornoNero Pty Ltd [2023] VSC 781 ('Coonwarra').

[17] Ibid at [503] citing John Alexander's Clubs Pty Ltd v White City Tennis Club [2010] HCA 19; (2010) 241 CLR 1 at 34 [87] ('John Alexander's Clubs') and Hospital Products at 147.

[18] [1985] HCA 49; (1985) 157 CLR 1.

[19] Ibid at 16 citing Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd [1929] HCA 24; (1929) 42 CLR 384 at 407-408.

[23] [1867] UKLawRpHL 7; (1867) LR 2 HL 99 at 113.

[24] [1985] HCA 49; (1985) 157 CLR 1.

[25] There was no mention of Boniello being involved in managing the development.

[26] By reason of their common sole director, secretary and shareholder.

[27] Noted in Breen v Williams [1995] HCA 63; (1996) 186 CLR 71 at 107 per Gaudron and McHugh JJ as one of several circumstances that points towards, but does not determine, the existence of a fiduciary relationship.

[28] See Hospital Products at 96-7 per Mason J.

[30] [2010] VSC 473.

[31] [2009] FCA 276; (2009) 72 ATR 746 at [100].

[32] Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254 at 267 referring to Gilford Motor Co v Horne [1933] Ch 935.

[34] Ibid at [127] and cases cited therein.

[35] [1984] HCA 64; (1984) 156 CLR 41.

[40] See also the broader discussion of the construction of clause 74 later in this judgment at [143]ff.

[41] Coonwarra at [503] citing John Alexander's Clubs at [87].

[42] Coonwarra at [503] citing Hospital Products at 147.

[43] [1984] HCA 64; (1984) 156 CLR 41 at 142.

[44] [1985] HCA 49; (1985) 157 CLR 1.

[45] [1959] HCA 8; (1959) 101 CLR 298.

[46] See Young v Murphy [1996] 1 VR 279 at 281 per Brooking J ('Young v Murphy'); Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd [1999] FCA 1820; (1999) 96 FCR 217 at [54]- [55], [65] ('Morlea').

[47] [1984] HCA 36; (1984) 154 CLR 178, 198-9 per Deane J.

[48] [1995] HCA 63; (1996) 186 CLR 71, 113 per Gaudron and McHugh JJ.

[49] See also the discussion in Hoh & Ors v Frosthollow Pty Ltd & Ors [2014] VSC 77 at [61]- [71] and cases cited therein per Derham AsJ.

[50] See plaintiffs' submissions at [13], [29] and [32].

[51] Morlea at [54]-[55] and [57] and the cases cited therein.

[52] (2023) 303 FCR 479.

[53] Realestate.com.au Pty Ltd v Hardingham & Ors [2022] HCA 39; (2022) 277 CLR 115.

[56] See Realestate.com.au Pty Ltd v Hardingham & Ors [2022] HCA 39; (2022) 277 CLR 115 at [44] per Gordon J citing Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133 at 143-144; Maybury v Atlantic Union Oil Co Ltd [1953] HCA 89; (1953) 89 CLR 507 at 517 and referencing Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382 at 401 [90(1)-(2)].

[57] See for example Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at 484 [36].

[58] [2020] VSCA 201 ('Adaz Nominees').

[60] Plaintiffs' submissions at [25].

[62] Plaintiffs' submissions at [27].

[63] See plaintiffs' submissions at [25].

[65] See Young v Murphy at 281 per Brooking J; Morlea at [54]-[55], [65].

[66] Duke of Portland v Topham [1864] EngR 339; (1864) 11 HLC 32 at 54 per Lord Westbury LC.

[67] See Geraint Thomas, Thomas on Powers (Oxford University Press, 2nd edition, 2012) at 399-400 [9.01].

[68] See Geraint Thomas, Thomas on Powers (Oxford University Press, 2nd edition, 2012) at 404 [9.05].

[69] Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425 at 438.

[70] Arakella Pty Ltd v Paton (As Representative of the Unitholders of GNS Trading Trust) [2004] NSWSC 13 at [119] referring to Vatcher v Paull [1915] AC 372 at 378.

[71] Re Dick [1953] Ch 343 at 360.

[72] See Geraint Thomas, Thomas on Powers (Oxford University Press, 2nd edition, 2012) at 400-01 [9.02].

[73] [2002] NSWSC 1171 at [106] and [107] (citations omitted).

[75] Accurate Financial Consultants v Koko Black [2008] VSCA 86; (2008) 66 ACSR 325 at [105] per Dodds-Streeton JA (with whom Ashley JA and Forrest AJA agreed).

[76] [1999] NSWSC 609.

[78] [2020] VSCA 281; (2020) 62 VR 528.

[79] Ibid at [183] citing Curwen v Vanbreck Pty Ltd [2009] VSCA 284; (2009) 26 VR 335 at 352 [42].

[80] Re Marsden's Trust [1859] EngR 676; (1859) 4 Drew 594; Cloutte v Storey [1910] UKLawRpCh 127; [1911] 1 Ch 18 cited in Geraint Thomas, Thomas on Powers (Oxford University Press, 2nd edition, 2012) at 456 [9.90].

[81] [2002] NSWSC 1171 at [113] referring to AW Scott and WF Fratcher, Scott on Trusts (Little, Brown and Company, 4th edition, 1988) vol 2A, [185].

[82] [2023] 303 FCR 479.

[83] [2023] 303 FCR 479 at [196].

[87] Adaz Nominees at [70] (citations omitted).

[91] See University of NSW v AG for NSW [2018] NSWSC 550 at [33] per Sackar J referring to the equivalent provision in the New South Wales legislation.

[92] WE Pickering Nominees v Pickering [2016] VSC 71 at [73] per McMillan referring to the New South Wales Court of Appeal decision in Re Dion [2014] NSWCA 367; (2014) 87 NSWLR 753 at [87] and [89]-[92].

[93] WE Pickering Nominees v Pickering [2016] VSC 71 at [74], [76] and [77].

[94] Ibid at [89] referring to Royal Melbourne Hospital v Equity Trustees Ltd [2007] VSCA 162; (2007) 18 VR 469 ('Royal Melbourne').

[95] Riddle v Riddle [1952] HCA 12; (1952) 85 CLR 202 at 214 per Dixon J ('Riddle'). The Court considered s 81 of the Trustee Act 1925 (NSW), which is the equivalent of s 63 of the Victorian Act.

[96] Ibid at 221-222 per Williams J; Ibid at 227 per Fullagar J.

[98] [2007] VSCA 162; (2007) 18 VR 469.

[100] [2014] NSWCA 367; (2014) 87 NSWLR 753 ('Re Dion').

[105] Re Dion at [94] per Barrett JA.

[106] [2004] NSWSC 1153; (2004) 62 NSWLR 276.

[108] [2016] VSC 71 at [77].

[109] Royal Melbourne at [150]-[151] per Bell AJA (citations omitted).

[110] Plaintiffs' submissions at [38].

[111] Plaintiffs' submissions at [39].

[113] Defendants' submissions at [38].

[115] Ibid at 222; Royal Melbourne at [154]-[156].

[116] [1974] 1 NSWLR 597.

[118] Perpetual Trustee Co Ltd v Godsall [1979] 2 NSWLR 785 at 790; Hornsby v Playoust [2005] VSC 107; (2005) 11 VR 522 at [22]- [23].

[120] [1999] FCA 1820; (1999) 96 FCR 217.

[121] See Young v Murphy at 281 per Brooking J; Morlea at [54]-[55], [65].