Coffee and a Case Note

"Pay the trust's funds to the estate!"

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A Tee was the trustee of a trust with about $2.8m in assets. The trust had two beneficiaries, Spouse 1 and Spouse 2: [2], [8]

Spouse 1 died in 2014 bequeathing their estate entirely to Spouse 2: [2], [11]

The Tee lost the trust deed: [2]

While general law dictated some of the terms of the trust, having lost the trust deed the Tee has no certainty about the beneficiaries of the trust (aside from Spouse 1 and Spouse 2): [3]

The Tee was incorporated in 1982 and some evidence suggesting a deed settling the trust was entered into at or around that time: [5], [6]

ATO records showed the trust was used for investment activity and that it distributed income to Spouse 1 and Spouse 2, and no one else: [10]

Spouse 2 died in 2022 and an interim administrator of their estate was appointed: [12]

At the time of their death, Spouse 2 was sole dir and shareholder in the Tee, which was also trust of the Spouses’ SMSF: [13]

An independent IP was appointed director of the Tee: [14]

The IP gave evidence of numerous searches and enquiries conducted in relation to the trust deed, which did not lead to its being found: [15]

This case was distinguished from usual trust deed cases (which sometimes deal with a photocopied deed, an unsigned deed, or a deed relied upon in relation to a very similar trust) noting that there was no evidence of any deed at all. Nor was there any evidence of the deed’s terms: [16]

The Court found that without the deed, the trust’s benefs could not be identified meaning (without certainty of object) the trust failed. A resulting trust arose in favour of Spouse 1. Spouse 2, as Spouse 1’s benef, stood to take in those circs: [17]

The Court accepted as common knowledge of the general practice that a trust deed for a “family” trust will inevitably include more members of that family than the “main beneficiaries”, typically the relevant spouses: [20, [21]

Having taken judicial notice of this, the Court considered that there would be more beneficiaries of the trust than Spouse 1 and Spouse 2 but - due to the absence of the deed - there could be no certainty as to who those beneficiaries might be.Whether due to their status as (likely) settlor of the trust or the conclusion that Spouse 1 did not intend to divest themselves of the assets in the corpus of the trust then - the trust having failed for uncertainty - a resulting trust arises in favour of Spouse 1: [25] - [27]

The Court advised that (Spouse 1 having died, and Spouse 2 being sole benef of Spouse 1’s estate) the Tee would be justified in paying the corpus of the trust into Spouse 2’s estate: [30]

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“Hey! You can’t transfer your shopping centre stake to them!”

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Two contracts governed the relationship between co-owners of a large, suburban shopping centre: [1]

In 2012 the co-owners were P as to 50%, and two other entities in the same group for 25% each: [2]

The arrangement contained rights regarding share transfers; the breach of which allowed the non-breaching party to automatically buyout the breaching party’s stake: [5]

In 2014, after some compliant share transfers, the ownership structure became 50/50: [7], [8]

In 2022, following a restructure of middling complexity (to this humble litigator!), P’s co-owner transferred its shares to another entity in that group: [10], [25] - [34]

Crucially the transferee (who was one of the Ds) did not fall within the relevant definition “Related Corporation”: [35]

P said this transfer was a breach and triggered P’s rights to buy their co-owners out of the property: [11]

The operation of the clauses dealing with transfers of interests were considered closely: [13] - [24]

P and the Ds exchanged (chiefly by emails between their solicitors) corro with the Ps asserting the transfer was a Prohibited Disposal (as defined) and pressing for a sale at $830m: [40] - [54]

The sale did not proceed. P commenced proceedings: [55]

The Ds resisted, including on the basis of the operation of technical parts of the documents, the structure of the transactions, and the service requirements in relation to the relevant notices: [61]

The Court briefly restated the principles that applied to commercial contractual construction; congruence, the avoidance of commercial inconvenience, avoiding a capricious outcome etc: [70]

The Court found that the a co-owner performing a Prohibited Disposal, and thereby being in default, exposed the entirety of its interest (and not merely, say, a severable proportion) to being bought out: [95]

Regarding notice, notice in writing including email was sufficient - with no additional formal or ceremonial requirement: [103], [106]

From the time the Ds received the notice from their lawyers, compliant notice was provided to the Ds: [109]

Further in relation to the notice question, the Court found that an estoppel contended for by P did not arise whereby giving notice to the Ds’ lawyers was sufficient to comply with the contract was not made out: [115], [116]

(However, as mentioned, relevant notice requirements were complied with.)

The Court found P was entitled to specific performance of the contract for P’s purchase of the relevant D’s interest in the shopping centre: [117]

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“The partnership’s book is a liability, not an asset!”

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A and R operated an insolvency practice in partnership. Like many such businesses, it would build up “WIP” in a matter and that WIP would be paid (or not) over time: [3], [4], [6]

The business was profitable: [49]

In September 2014, A ended the partnership electing to go out on their own with most of the business’s book of work: [7] - [10]

A number of pieces of litigation followed. Some led to orders for an account of the partnership to be taken: [5], [14]

This process included the valuation of the partnership’s book *after* the September 2014 dissolution: [12]

A relied on two experts: [19]

The primary judge took little value from A’s experts’ evidence: [20]

Further: the experts gave no evidence of market transactions [22]; it was unlikely that a purchasing IP could demand a “discount” for purchasing the book [23]; and it was unlikely an outgoing IP would pay a purchaser a “discount” sum for taking on the administrations when the outgoing IP could simply resign: [24], [25]

A appealed.

A did so on 5 grounds: (i) a “discount” payment might be available and so should be borne in mind in a valuation [27]; (ii) the nature of the valuation - a hypothetical sale on complicated terms - meant a criticism for a lack of evidence of similar market transactions was inappropriate [28], [29]; (iii) the judge erred in not accepting the evidence of A’s experts [30], [31]; (iv) the judge erred in finding the Court’s power to appoint a replacement IP meant a discount would never be payable [32]; (v) and a failure on the part of the judge to evaluate individually each administration to then determine whether a discount would arise: [36]

The dispute put another way might be that A argued the book was a liability, where R argued it was an asset: [38]

RE (i): After reviewing IPs’s professional obligations, the CoA concluded no hypothetical purchaser of the book could require or accept a “discount” payment without breaching them: [61]

RE (ii): Similarly, this ground was not sufficient to disturb the primary judge’s finding: [66]

RE (iii) and (iv): A’s experts failed to grapple with an IP’s ability to resign from unfunded administrations. Elaborate analysis of the evidence was not required due to this failure to address the real issues: [68], [79], [80]

RE (v): a vendor would not pay a “discount” to a purchaser for buying the IP business, first, because it would be a breach of their professional obligations and, second, (noting the opportunity they have to retire) it would make no financial sense as it would be cheaper to just resign from unwanted administrations: [73]

The position was similar in relation to the bankruptcy trustee appointments: [77], [78]

A’s appeal was dismissed: [1], [81], [82]

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"Is it the tree that's held in trust, or just the fruit?"

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The Ps came to Court arguing that one D - a trustee, DTee - held shares in the other D, a Co, on trust for the Ps: [1], [3], [4]

The Ps further sough for the shares be transferred to the Ps: [2]The Co’s defence essentially put the Ps to proof - a “non admission”: [5]

DTee took a more expansive approach: [5] - [8]

After particulars of its defence were sought, DTee asserted that if the Ps were benefs of a trust including shares in the Co, the Ps were entitled only to the “benefit” of those shares (e.g. dividends and franking credits) rather than the shares themselves: [9], [14], [15]

The assets underpinning the structure related to property development: [10]

Evidence suggested the Ps had made some financial contribution, despite opacity as to the structure of the transaction: [11]

In 2023, the parties entered into Declarations of Trust: [20]

DTee pointed to evidence suggesting that a unit trust was contemplated by the parties abrogating the need for trust decs. The Court found that even if the trust decs were illogical or unnecessary, they bound the parties and would need to be considered: [18]

Dividend statements suggesting dividends and franking credits passed to the Ps were referred to, absent an explanation as to how this was possible noting the Ps were not shareholders: [19]

The trust decs and the Co’s conduct were consistent with the shares, and not merely the “benefit” of the shares, being held on trust for the Ps: [21] - [23]

That is: the corpus of the trust included the tree, and not merely the fruit of the tree: [20]

The Ps said the trust decs unambiguously referred to the shares, and now called for their transfer whether pursuant to Saunders v Vautier or the terms of the decs themselves: [25], [26]

After considering the application principles of construction, the Court founds the trust decs were clear and that (i) they extend to a trust over the shares themselves (not merely the “benefit” of them); and (ii) create a covenant to transfer the shares on demand: [29]

DTee queried whether the corpus of the trust was sufficiently certain, noting DTee held a “pool” of shares and that none of the shares in the pool could be attributed precisely to an individual P: [30], [34]

The Court disagreed, finding that a beneficiary could have a beneficial interest in a specified number of a larger parcel of shares: [31] - [34]

Having so found, the Court considered orders transferring the shares back to the Ps (whether pursuant to Saunders v Vautier or the terms of the trust decs) were appropriate: [35]

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“We need to *wind up* the trust and sell the farms!”

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The Ps and the Ds each owned 50% of the units in a unit trust: [1]

TCo owned substantial real property - farms. The Ps sought to have the trust ended and distribute the assets. The Ds took the opposite view: [5]

The Ps said: 1. there was an agreement or estoppel that if one party wanted to exit, the assets would be sold; 2. the trust deed allowed a unit holder to terminate; 3. the TCo’s conduct was oppressive; and 4. a receiver should be appointed to trust assets: [7]

The Ps and Ds were bankers who, after a time, resolved to add valuable farmland to their portfolio: [15] - [18]

They sought advice on structuring: [19] - [30]

TCo was incorporated and established as trustee, with Ps and Ds funding TCo’s purchase of the land: [31], [32]

A unit holders agreement was considered but not signed: [33] - [36]

Once commenced, the parties considered: which farm management services Co was best, the possible acquisition of further properties by TCo, the Ds frustration with the Ps’ acquisition of a farm themselves and not for TCo, and the looming threat of drought: [39] - [53]

As the drought intensified, arguments arose about: (i) whether to de-stock or borrow to buy feed: [54] - [65], (ii) the Ps stretching their finances to make their own acquisitions thereby depriving TCo of a source of funds to buy land, and (iii) the Ps standing in the way of the Ds buying some land for themselves: [54] - [72]

The relationship deteriorated.In 2021 and 2022 the Ps put purchase offers to the Ds. The Ds accepted neither: [87] - [89]

Later in 2022, the Ps served a notice purporting to “wind up” the trust: [90]

Re 1., the Ps said there was an agreement, or representations founding an estoppel, that each party could unilaterally terminate the JV on notice: [107], [109]

The Court found no evidence of a “one out / all out” arrangement: [122]

Re 2., the unit holders has a present entitlement to trust capital; a position adopted for land tax purposes: [126], [136]

The Ps failed on this point; incl because the Deed did not give rise to a present entitlement for *each unit holder separately* rather than the unit holders together: [168], [184]

Re 3., the Court accepted oppression can occur with a trustee Co, with the relevant member protecting their family’s beneficiary interest: [202] - [204]

None of the pleaded oppression bases was made out: [209] - [255]

Ps’ complaints arose from disagreements re management of the farms through drought, and the lack of an exit strategy - neither proved commercial unfairness: [256] - [258]

Re 4., the trust property was not in jeopardy and TCo appeared to be performing satisfactorily: [266]

The Court was not moved by the Ps’ analogies to partnerships or s461 applications, leaving no basis for the appointment of a receiver: [267] - [283]

The Ps’ application was dismissed: [286]

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“Some of these debts are trivial… do I still have to pay the really small ones?”

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2,653 clients deposited money with a Co, who was a trustee. Only 74 of those beneficiary clients had a balance worth over $100: [2], [3]

A liquidator, P, was appointed to the Co: [1]

P approached the Court seeking advice as to whether (i) the benefs with a <$100 balance could be treated as having no right to participate in the dist'n of funds, and (ii) the balance could be distributed to the remaining 74 pro rata: [4]

Advice was sought pursuant to both s90-15 and s63: [6]

None of the notified <$100 beneficiaries raised objections or appeared at the hearing: [8]

When operational, the Co engaged in various foreign currency related financial dealings. In 2019 it was placed into liquidation. As part of the liquidation, an investigation found that around $50K was held by the Co on trust for the Co’s (former) clients: [9] - [29]

The liquidator did not have banking details of the benefs: [31]

In order to make payment to each benef the liquidator (by their staff) would have to find and confirm payment details of each of them. Costs would arise from this process: [32]

A proportionality issue.By way of example, the liquidator pointed to 48 benefs whose shared claim was $26.10; the highest individual claim from that group being $1.34: [33]

The Court traversed the relevant law relating to s90-15 and s63 applications noting the breadth of the Court’s power to give advice: [38] - [43]

P drew particular attention to authority that suggested Courts in such proceedings (which are, of course, ex parte) sometimes had to do “rough justice” with benefs’ rights which might be affected on the basis of evidence that would not necessarily sustain a claim in contested litigation: [44]

The Court gave the P the advice they sought I.e. that they would be justified in distributing only to the >$100 benefs. This was because (i) the very small sums held for the other benefs, (ii) the practical steps required to distribute to all benefs, and (iii) the cost of distributing to all benefs: [53]

The Court found it was significant that P had notified all creditors whose details they had, and that having done so there were no objections: [59]

P applied to have their costs paid from the outstanding balances. The Court acceded, ordering that this was justified in part because what P was doing was essentially administering a trust i.e. the order having been made, P would be indemnified from the property of the trust they were acting as trustee of: [64]

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“Bring the company back from the dead so we can go to Court!”

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P approached the Court to seek the reinstatement of a deregistered Co: [1]

In 2010 the Co was incorporated. Shortly afterwards P and D1 - who were siblings - were the 2 Dirs and 2 equal shareholders: [4], [5]

P said that at about this time P and D1 agreed the Co would purchase some property, each funding 50% of the purchase, each owning a 50% share, and each entitled to 50% of the rent. The property was tenanted by D1: [7]

Shortly after this, the Co became the registered proprietor of the property: [8]

In 2012 (leaving aside the parties’ confusion as to whether the Co was a trustee) forms were lodged with ASIC recording P’s retirement as director. (P could not recall consenting or not.) From this time D1 managed the property for the Co: [9], [10]

In 2021 terse emails were exchanged between P and D1. P sought information. D threatened to “transfer out” some of the Co’s assets: [11]

In 2022 the Co transferred the property to OtherCo with nil consideration recorded on the transfer. OtherCo’s directors and shareholders were D1 and their spouse: [12], [13]

Shortly after, in 2022, D1 paid to P half the purported net proceeds of a sale of the property which D1 said was sold for $1.7m: [14], [15]

Some evidence showed that in August 2021 D1 had emailed P a valuation for the property at ~$2.4m and then attempted to recall that email; re-sending it with a valuation of $1.7m to $2.0m: [16]

In August 2022 D1 caused the de-registration of the Co, with P alleging P had no knowledge of D1 doing so: [17], [18]

P alleged the Co ought to have received around $1.6m in rental income over the period the Co owned the property. P said P had seen only $91K of this: [19]

All Ds consented to the Co’s reinstatement pursuant to s601AH: [20], [21]

The Court considered the relevant principles relating to an application brought by a “person aggrieved” by reregistration: [23], [24]

Where reinstatement is sought to bring legal proceedings, the Court need not forensically scrutinise the claim. There must be “some level of arguability” by the threshold is “very low”: [26]

P said they met this threshold as the Co’s deregistration prevented both an oppression claim and a derivative suit against D1 in the name of the Co: [28]

The Court agreed: [29]

In the normal course, D1 would be Dir upon reinstatement. D1 agreed to immediately retire on reinstatement: [31]

The parties consented to P and P’s nephew being appointed Dirs on reinstatement: [33] - [35]

The Co was reinstated, P and nephew were appointed Dirs, and the costs of the application were reserved to the contemplated oppression and / or derivative action proceedings: [39]

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“Valuation is art not science; so let the partnership’s receiver sell it.”

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10 partners - 5 family members and their spouses - planned to run a blueberry farming and forestry business on land owned by the partnership: [2], [5]

8 partners, the Ps, sued the other 2, the Ds: [3]

In 2007 the partners purchased the Property and entered into a deed: [4], [6]

The deed required that forestry profits and losses be shared equally; but that each partner would take berry farming profits and bear losses in relation to their own plots on the Property: [12]

It was agreed partners would contribute equally to a partnership bank account for mortgage payments, rates, water, bills etc. Each partner agreed to pay for their own stock and machinery: [15]

Over time, the partners did not contribute equally to this account: [16]

Disputes began early about plot allocation, apparently excessive use of water by some partners etc: [17]

The partnership did not sell blueberries (each partner did, with those blueberries having been grown on their own plot). No forestry business was ever operated: [18], [19]

In 2020 the relevant regulator found the dams on the Property to be unlawfully large. Remediation works reducing dam capacity were done. From this time the Ps gave up farming the Property. The Ds continued: [22]

The Ps commenced proceedings seeking the dissolution of the partnership and the appointment of a receiver. The Ds cross-claimed seeking to buyout the Ps for $1.5m, but later resiled from this position: [23], [24], [29]

The Ps amended their claim their claim to propose two Ps buy the partnership assets for $2m: [26]

There was no dispute that the partnership should be dissolved, that the Property was a partnership asset, or that the final distribution ought to account for the unequal contributions of each partner to the bank account: [32] - [34]

The principal issue was: should the Ps’ $2m buyout order be made?: [45]

The Property was valued at ~$1.85m and the timber on it valued at ~$150K, those figures underpinning the Ps’ proposal: [47] - [51]

The Ps emphasised the saving in agent’s fees that would be made, and the “purchasing Ps” longstanding relationship with the Property: [52]

The Court noted its broad discretion on how a sale of partnership property should be effected: [54]

The Court did not make the Ps’ requested buyout: [56]

The valuation evidence before the Court was 15 months old. Neither valuer was required for XX, but the Court was not bound to accept the evidence: [61]

The Court had no evidence about property or timber prices in the ensuing 15 months meaning it could have no real confidence that the $2m sale price was beneficial to all partners: [62], [63]

(The Court noted “valuation is an art, not a science”: [62])

The Court appointed a receiver who would be best placed to realise the full value of the partnership assets: [66], [75]

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“You changed the business I sold you so you could underpay me!”

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By deed P sold their shares in an online retail business to D.P was to receive $20M, some shares in D, and the Earn Out Amount (“EOM”): [3]

According to the deed, the EOM was the Base EOM of $10M plus the Additional EOM: [6]

The Additional EOM was the rounded difference between the Base EOM (I.e. $10M) and “Earnings”: [7]

“Earnings” meant EBITDA over the relevant year. The deed contained a mechanism for D send a proposed Earnings calculation (as part of a P and L), for P to make a reply including setting out “Contested Matters”, for the parties to negotiate the contested matters in good faith, and for the matter to be referred to an expert if negotiations failed: [10] - [14]

D sent a P and L suggesting Earnings were ~$6M (making the Additional EOM zero): [16]

P sent a reply calculating Earnings at ~$15M (taking the Additional EOM to its maximum possible figure) and raising Contested Matters: [17]

Following unsuccessful good faith negotiations, the matter was referred to an expert: [18]

How was the expert to calculate Earnings?: [19]

Cll 2.1 and 2.2 of the deed required Earnings to be calc’d disregarding revenues or expenses not part of the Co’s ordinary business including: costs relating to the share sale, restructure costs, certain related party transactions, and the costs of kicking off any new business: [21]

Cl 2.3 of the deed noted the parties’ agreement that Earnings were to be calc’d as if the Co’s business were run the same way post-purchase as it had been pre-purchase; and that D would not make big changes to the Co’s business (or, if D did make big changes, the EOM would be normalised to exclude those changes’ impact): [21]

P sued, seeking declarations that the expert determine Earnings in accordance with all of the above. D resisted: [25] - [27]

The Court found for the P: [28]

The well-known principles regarding contractual interpretation were (respectfully) helpfully restated at [29] - [33]

The Court noted the parties’ explicit agreement on the mandatory language in Cl 2.3; that Earnings *must* be calculated that way: [48] - [50]

The proper construction was found to be on that basis: [54]

P’s pressed for their Contested Matters to be referred to the expert.P said Earnings had to be adjusted due to D failing to implement a new website, leading to lower website traffic. The Court accepted this Contested Matter was appropriately dealt with by the expert: [63] - [77]

Similarly: P’s complaint regarding D’s failure to implement P’s logistics proposal was to be properly dealt with by the expert: [78] - [82]

Again similarly: P’s complaint that D’s marketing efforts wrongly focussed on conversion rather than branding was properly dealt with by the expert: [83] - [86]

The expert was required to value Earnings as P proposed, and to deal with P’s Contested Matters: [87]

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