Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd - [2017] SASC 137

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BLONG UME NOMINEES PTY LTD & ORS v SEMWEB NOMINEES PTY LTD & ORS
[2017] SASC 137
Judgment of The Honourable Justice Parker
25 September 2017
EQUITY - GENERAL PRINCIPLES - FIDUCIARY OBLIGATIONS - PARTICULAR CASES - JOINT VENTURER
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS - DURATION OF CONTRACT
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT - WHAT CONSTITUTES - GENERALLY
This matter arose out of a disagreement between the parties about the operation of a joint venture. The joint venture in question was established in 2002 to provide office accommodation for the professional practices of Nicholas Orfanos, Michael Michaels and Willem Ouwens (collectively, the ‘Three Principals’). Orfanos Nominees Pty Ltd, Melrob Investments Pty Ltd and Ouwens Corporate Services Pty Ltd (‘OCS’) are the respective corporate vehicles of the Three Principals. Blong Ume Pty Ltd is the alleged successor to Orfanos Nominees.
Orfanos Nominees, Melrob, OCS and Semweb Nominees Pty Ltd (‘Semweb’) are the parties to the relevant joint venture deed (‘JVD’). The JVD records their agreement to purchase, hold and manage the subject property. Semweb holds the subject property pursuant to a Trust Deed. The Three Principals are the directors of Semweb and each hold a one third interest in Semweb and the Trust.
After a series of disagreements between the parties, Orfanos Nominees purported to terminate the joint venture in 2012. This was rejected by Melrob and OCS. The plaintiffs now seek to realise their interest in the subject property and have sought a variety of remedies from this Court.
In doing so, the plaintiffs contend that:
1. the joint venture gave rise to a partnership pursuant to the Partnership Act 1891 (SA);
2. the JVD contains an implied right to terminate upon the giving of reasonable notice;
3. the JVD contains an implied right to terminate upon breach by any of the joint venturers;
4. the Property should be realised pursuant to s 69(2) of the Law of Property Act 1936 (SA);
5. Mr Michaels and Mr Ouwens breached the Trust Deed, JVD and the fiduciary duties they owed to both Semweb (as its directors) and the other joint venturers;
6. The Trust should be revoked and its assets distributed pursuant to s 36 and s 59C of the Trustee Act 1936 (SA) because Semweb breached its fiduciary duty to the beneficiaries of the Trust and the terms of the Trust Deed;
7. the conduct of Mr Ouwens and Mr Michaels was oppressive and unfairly prejudicial pursuant to s 232(e) of the Corporations Act 2001 (Cth) and constituted a breach of their statutory duties to Semweb pursuant to s 181 and s 182 of that Act; and
8. Semweb should be wound up pursuant to the just and equitable ground in s 461(1)(k) of the Corporations Act.
Held (Parker J):
1. The joint venture does not give rise to a partnership. There is no basis to depart from the statement in cl 10 of the JVD that the joint venture is not a partnership, at [256].
2. A right to terminate the joint venture upon the giving of reasonable notice cannot be implied into the JVD. The proposed term contradicts the requirement for agreement by all three joint venturers under cl 3.2 of the JVD, is not necessary to give business efficacy to the agreement and is not so obvious that it goes without saying, at [289].
3. If a right to terminate the joint venture for breach were to be implied into the JVD, any such term would also be subject to an obligation to give notice of the breach and allow reasonable time for rectification, at [297]. The termination notice provided by Orfanos Nominees did not identify any purported breach of the JVD, at [298].
4. The claim under s 69(2) the Law of Property Act must be dismissed because the JVD has not been validly terminated, at [301]-[303].
5. Messrs Michaels and Ouwens owe fiduciary duties to Semweb and the other participants in the joint venture. The fiduciary duties they owe to the other participants are limited to conduct with respect to the management of the subject property, at [496]. However, breaches of the said duties did not occur because the allegation that less than market rent was paid to Semweb has not been established on the balance of probabilities, at [412]. For the same reason, the breaches of the JVD and the Trust Deed alleged against Messrs Michaels and Ouwens have not been established, at [501].
6. The breaches of fiduciary duty and the Trust Deed alleged against Semweb must also be rejected in light of the finding with respect to market rent, at [481]. For that reason there is no basis to grant relief under s 36 and s 59C of the Trustee Act, at [500].
7. There has been no oppression of Mr Orfanos under the Corporations Act. It has not been shown that more comprehensive inquiries would have produced a result that was more favourable to Mr Orfanos in terms of setting a higher rent, at [422]. Further, it is unnecessary to consider the breach of statutory duties because the plaintiffs did not pursue any remedy by way of civil penalty, at [485].
8. Semweb is not dysfunctional and should not be wound up pursuant to s 461(1) of the Corporations Act. There is no evidence to suggest the affairs of Semweb have not been managed effectively, at [474].
The plaintiffs are not entitled to any of the relief sought.
Partnership Act 1891 (SA) s 1, s 2, s 32, s 35; Law of Property Act 1936 (SA) s 69; Corporations Act 2001 (Cth) s 236, s 237, s 233, s 232, s 461, s 53, s 250N; Trustee Act 1936 (SA) s 36, s 59C, referred to.
BP Refinery (Westernport) Pty Ltd v Hasting Shire Council (1977) 180 CLR 266; LPD Holdings (Aust) Pty Ltd v Phillips and Others (2013) 281 FLR 227, applied.
Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] AC 173; Australian Blue Metal Ltd v Hughes [1963] AC 74; Llanelly Railway & Dock Co v London & North Western Railway Co (1875) LR 7 HL 550; Woolworths (SA) Pty Ltd v Basetone Pty Ltd (1977) 180 CLR 266; Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438; Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286; Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321; United Dominion Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; Lancini Properties Pty Ltd v Savills (Qld) Pty Ltd [2009] QSC 323; Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1; Keith Murphy Pty Ltd v Custom Credit Corporation Ltd (1992) 6 WAR 332; Auag Resources Ltd v Waihi Mines Ltd [1994] 3 NZLR 571; Hospital Products Ltd v United States Surgical Co (1984) 156 CLR 41; Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165; Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569; Briginshaw v Briginshaw (1938) 60 CLR 336; International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368; Thomas v Mackay Investments Pty Ltd (1994) 13 ACSR 368; Ebrahimi v Westbourne Galleries Ltd (1996) 22 ACSR 294; Accurate Financial Consultant Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86; Malos v Malos (2003) 44 ACSR 511; Re Catombal Investments Pty Ltd (2012) 30 ACLC 12-031; LPD Holdings (Aust) Pty Ltd v Phillips and Others (2013) 281 FLR 227; Foss v Harbottle (1843) 67 ER 189, considered.

BLONG UME NOMINEES PTY LTD & ORS v SEMWEB NOMINEES PTY LTD & ORS
[2017] SASC 137
Contents
Background
The parties
Purchase of the land
Semweb
The Trust Deed
The Joint Venture Deed
Lease arrangements
Difficulties arise in the relationship
Standing of Blong Ume Nominees Pty Ltd
The role of Semweb in these proceedings
Derivative action
Documentary evidence
The evidence of Mr Orfanos
The evidence of Mr Ouwens
The evidence of Mr Michaels
The evidence of Ms McLean
The OCS2 joint venture
Whether there was a partnership
Implied right to terminate on notice
Legal principles
Findings of fact
Consideration
Implied right to terminate for breach
Consideration
Sale and partition
The claim for underpayment of rent
Valuation evidence
The evidence of Mr Smithson
The evidence of Mr Taormina
The evidence of Mr Harry

Consideration of valuation evidence
Oppression and winding up
Fiduciary and statutory duties of the joint venturers and of Semweb
Conclusion
Prayer for relief
Civil

PARKER J: This is a commercial dispute between three plaintiffs and four defendants and arises out of what may broadly be described as a disagreement between the parties about the management and operation of a joint venture. The joint venture was established in 2002 primarily to provide office accommodation for three professional practices at 147 Frome Street, Adelaide.
While in essence the plaintiffs seek to realise their interest in the subject property, the remedies they have sought are wide-ranging.[1] They include a declaration, an order for winding up under the Corporations Act 2001 (Cth), orders for the termination of a trust, the sale of land and the distribution of proceeds, orders regulating the affairs of a company in the future including the sale of its land and the distribution of the proceeds, an order for the dissolution of a partnership, equitable compensation for breach of fiduciary duty, orders for an account or an enquiry as to profits and payment of monies, an indemnity, costs and interest.
Background
[1] Strictly speaking, the interest is held by the second plaintiff, Orfanos Nominees Pty Ltd.
The parties
The third plaintiff, Nicholas Orfanos, is a chartered accountant by profession and has practised for many years as a liquidator. He conducts his practice through Orfanos Corporate Services Pty Ltd. He ceased to conduct his practice from the subject premises in December 2007. Mr Orfanos is also a director of the second plaintiff, Orfanos Nominees Pty Ltd, and the sole director of the first plaintiff, Blong Ume Nominees Pty Ltd (“Blong Ume”).[2] The standing of Blong Ume to institute these proceedings is disputed by the defendants (other than the first defendant).
[2] Pronounced “Belong You Me”.
The fourth defendant, Michael Michaels, is also a chartered accountant. He conducts his practice under the aegis of Sims Richmond Pty Ltd at the subject premises. Mr Michaels is a shareholder in and the sole director of Melrob Investments Pty Ltd (“Melrob”), the second defendant.
The fifth defendant, Willem (Bill) Ouwens, has practised for over forty years as a solicitor. His firm is Ouwens Lawyers. He is a director of and a shareholder in the third defendant, Ouwens Corporate Services Pty Ltd (“OCS”). The directors of that company comprise Mr Ouwens, his wife Sue, his daughter Karina (a solicitor) and his son Alex (a real estate agent).
Mr Ouwens is the Honorary Consul for the Netherlands in South Australia and the Northern Territory. He conducts his legal practice and also the work of the consulate from the subject premises. OCS is paid by the Government of the Netherlands for the processing of passport and visa applications and other consular work.
The first defendant, Semweb Nominees Pty Ltd (“Semweb”), is the trustee of a trust that was settled under a trust deed dated 25 November 2002 (“the Trust”) entered into by Semweb, Orfanos Nominees, Melrob and OCS. Semweb is the registered proprietor of the relevant land and holds it subject to the Trust.
Only three shares have been issued in Semweb. One share is held by each of Mr Orfanos, Mr Michaels and Mr Ouwens (for brevity I will collectively refer to them where relevant as “the Three Principals”). The Three Principals are the only directors of Semweb.
In many instances the correspondence exchanged by the Three Principals referred to a natural person when the legal rights under discussion were actually vested in a body corporate, e.g. an email message might refer to “Nick” when the holder of the legal interest was actually Orfanos Corporate Services. In other cases reference was made to an incorrect body corporate, e.g. Orfanos Corporate Services when the relevant legal entity was actually Orfanos Nominees. Loose identification of this type is commonplace between persons who know each other well and where the body corporate is controlled by the named person. It appears the parties sometimes only took care to identify the person or entity correctly when they engaged in formal transactions. The references I make to entities or natural persons when referring to the contents of correspondence will replicate the description of the entity or person used in the relevant document. In no case was there any uncertainty about the identity of the person or entity being referred to in the documents.
Purchase of the land
Up until 2002 the Three Principals conducted their separate professional practices in rented premises at 99 Frome Street, Adelaide. Prior to their departure from that site Orfanos Corporate Services and OCS were sub-tenants of Sims Richmond, which was in turn a sub-tenant of an accounting firm, Horwath Chartered Accountants. Because Horwath had indicated that it would not be renewing its head lease, Mr Michaels was actively looking for new premises.
In about July or August 2002 the Three Principals became aware of the forthcoming sale by auction of 147 Frome Street (“the Property”). The building was erected in about 1883. It is listed in the South Australian Heritage Register. Extensions and refurbishment were undertaken in 1992 to form a two-story, horseshoe-shaped building. The Three Principals determined that the building was suitable as professional offices and they agreed to bid for the Property at auction.
The Three Principals agreed that a company should be used to hold the Property for their benefit. They decided to use an existing shelf company, Semweb. They also agreed that a joint venture would be formed. Mr Michaels provided a precedent joint venture agreement and trust deed which Mr Ouwens then modified.
There is an issue as to whether or not there was agreement that the acquisition of the Property was to be a short to medium term investment or a long term investment. The plaintiffs submit that it was the former, while the defendants submit that it was the latter.
The bid of $1,310,000 for the Property made on behalf of the Three Principals or their nominees at auction on 26 September 2002 was successful.
Each of Melrob, OCS and Orfanos Nominees contributed $48,033 towards the deposit on the purchase price and a further $155,273.24 to complete the purchase and in payment of stamp duty, fees and charges. The balance of $920,000 was obtained by way of a loan from the Westpac Banking Corporation (“Westpac”). That loan was secured by a registered first mortgage. The Three Principals also personally provided a limited several guarantee to Westpac in the sum of $307,000 each. While the interest on the Westpac loan has been paid as it fell due, no payment has ever been made against the principal. I will return to that issue at paragraph [445]-[446].
The Three Principals agreed that Orfanos Nominees and OCS would lease the first floor and Sims Richmond would lease the ground floor. At the time of the purchase, Mr Orfanos was a sole practitioner and did not employ any support staff. That remained the case throughout his tenure in the Property. OCS comprised Mr Ouwens and his daughter, Karina Ouwens (also a solicitor), and some other staff. Sims Richmond comprised Mr Michaels and about eight employees. It was agreed that any space not required by the Three Principals would be let to sub-tenants on a serviced accommodation basis.
In February 2005, each of Melrob, OCS and Orfanos Nominees was paid the sum of $142,800 by Semweb as a part repayment of their respective loan accounts. Semweb borrowed $300,000 from two private lenders to enable it to make those payments.
In December 2005, with the agreement of Melrob, OCS and Orfanos Nominees, the borrowings secured against the Property were increased to $1,242,000. The personal limited guarantee provided to Westpac by the Three Principals was increased at that time to $414,000 each. Semweb used the additional funds borrowed from Westpac to repay the $300,000 to the two private lenders.
Semweb
Semweb was first incorporated in 1995 on the instructions of Mr Michaels as a “shelf” company. It had not traded and had no liabilities prior to the decision by the Three Principals to use it as the vehicle to hold the Property on trust. As already noted, each of the Three Principals is a director of Semweb and they each hold one of the three issued shares. The articles of association (constitution) of Semweb do not contain any unusual features. However, the operation of the alternate director provision contained in cl 12.8 of the Semweb constitution is an issue in these proceedings and requires closer consideration. This issue is discussed at paragraphs [428]-[434].
The Trust Deed
On 25 November 2002, Semweb, Orfanos Nominees, Melrob and OCS entered a trust deed (the “Trust Deed”). Orfanos Nominees acted in its capacity as trustee of the Stables Trust, Melrob as trustee of the Michaels Family Trust 2 and OCS as trustee of the OCS Trust.
Recital A to the Trust Deed describes Orfanos Nominees, Melrob and OCS as the beneficiaries and records their intention to purchase the Property for the sum of $1,310,000. Recital B states that in its capacity as trustee, Semweb has agreed to purchase the Property and to hold it on trust thereafter for the beneficiaries as tenants in common. Semweb declares in cl 2 that each of the three beneficiaries is entitled to a one third interest in the Property as a beneficiary of the trust. The effect of cl 3 is that the three beneficiaries indemnify Semweb in relation to the purchase of the Property and holding or dealing with the Property. Clause 4 provides that Semweb shall not sell, transfer, assign, dispose or otherwise deal with the Property or any interest therein other than as agreed in writing between Semweb and the three beneficiaries. Those are the only provisions in the Trust Deed.
The Joint Venture Deed
The Joint Venture Deed (JVD) was also entered on 25 November 2002 between Orfanos Nominees, Melrob, OCS and Semweb. The recitals refer to the proposed purchase of the Property and the fact that Semweb was to hold the Property on trust for Orfanos Nominees, Melrob and OCS (collectively described as the “joint venturers”). Those entities each hold their interest in the joint venture as trustees of the respective family trusts of the Three Principals.
Clause 3.1 of the JVD provides that the sole purpose of the joint venture was to acquire and hold the Property as an investment in the manner mutually agreed between the joint venturers from time to time and, if agreed, to develop the Property further. Clause 3.2 is of central importance in these proceedings. It provides as follows:
This Agreement shall be for a term commencing on the Commencement Date and expiring on such date as shall be mutually agreed in writing between the joint venturers.
The commencement date was defined to be 25 November 2002.
Clause 3.4 provides that, unless otherwise mutually agreed in writing between the joint venturers, the Three Principals shall each hold one third of the issued shares in Semweb.
Clause 3.5.1 appoints the Three Principals as the only directors of Semweb. Clause 3.5.2 requires any change to the directors during the period of the joint venture to be unanimously agreed in writing by the Three Principals and none of them shall be entitled to appoint or nominate any director without the prior written agreement of the others.
The interaction between cl 3.5.2 of the JVD and cl 12.8 of the Semweb constitution is discussed at paragraph [428]-[434].

Clause 3.6.1 provides that the directors (i.e. the Three Principals) shall have full and unfettered management and control of Semweb and shall at all times act in the best interests of the joint venturers and shall keep the joint venturers fully informed of all matters involving the company and the ownership of the Property.
Clause 5.1 stipulates that the net income of Semweb and the net proceeds of the sale of the Property are to be distributed equally between the joint venturers. Clause 5.2 also requires them to contribute equally to any liabilities of Semweb, including interest payable on the monies borrowed to purchase the Property.[3]
[3] I note the Trust Deed contains two clauses numbered “5.2”. To avoid uncertainty, I note I am referring to the clause 5.2 titled “Liabilities”.
The effect of cl 5.4 is that each of the joint venturers indemnifies the others and also Semweb in respect of any liability arising from a breach or default by them.
Clause 8.1 provides that if the market value of the Property needs to be determined, it must be done by a licensed valuer nominated by the President of the Australian Institute of Valuers or its successor. I note that this clause does not purport to apply to the fixing of rent for the Property.
Clause 9 operates as a pre-emptive rights provision in the event that one or more of the Joint Venturers wishes to dispose of their interest in the Property. Clause 9.1 requires a retiring joint venturer to give notice in writing to the other joint venturers of their intention to sell their interest in the Property. The notice must set out the purchase price and other terms and conditions for the proposed sale. The other joint venturers shall have the right of first refusal to purchase the interest of the retiring joint venturer at the price and upon the terms and conditions set out in the notice. The notice is deemed by cl 9.2 to be an offer to sell the interest of the retiring joint venturer. The effect of cl 9.3 is that the offer to sell comprised by the notice given under cl 9.1 is an irrevocable offer.
Clause 9.6.2 stipulates that if the continuing joint venturers reject the offer to sell then the retiring joint venturer may sell its interest within three months from the date of rejection, or deemed rejection, to any third party at a price not less than that stated in the notice and on terms and conditions not otherwise more favourable to the third party than those contained in the notice. The sale to a third party is conditional upon their entry into a deed with the continuing joint venturers and with Semweb, whereby the third party covenants to observe and perform all the obligations of the retiring joint venturer.
Clause 9.6.2 provides that if the retiring joint venturer fails to enter into a legally binding and enforceable contract for the sale of their interest to a third party within three months then their right to sell lapses. However, they may repeat the process of giving further notice under cl 9.1.
Clause 10 governs the nature of the relationship between the joint venturers. It provides as follows:
Nothing contained in this Agreement shall be construed so as to constitute any of the parties hereto a party, agent or representative of the other or to create any trust or commercial partnership or their partnership with any company or corporate or commercial entity for any purpose whatsoever.
Clause 11 contains an acknowledgment that the duties, rights and obligations under the JVD are personal to the joint venturers and are not capable of assignment by the parties to any other person, firm or corporation “save as herein expressly provided”. The latter phrase can only refer to the provisions of cl 9 governing the proposed sale of an interest.
Lease arrangements
In October 2002, Mr Michaels suggested to Mr Ouwens and Mr Orfanos the proposed terms for the lease of the ground floor and the first floor of the Property. The proposal in relation to the ground floor fixed the gross rent at $75,000 per annum with a rent free period of three months as a rental incentive. The term of the lease was to be five years with a right of renewal for five years. The rent was to be adjusted annually in accordance with movements in the consumer price index (CPI) and a market review was to be conducted at the beginning of the second term. A range of works was to be conducted by way of fitout and the tenancy was to commence upon the completion of those works. Three car parks were to be made available at a rental of $140 per car park per month. The tenant was to be responsible for the cost of cleaning, electricity, air-conditioning and all utilities relating to the ground floor. A proportionate arrangement was also proposed in relation to maintenance of the telephone system.
The arrangements proposed by Mr Michaels in relation to the first floor tenancy were in essentially the same terms. However, the gross rent was to be fixed at $60,000 per annum and two car parks were to be supplied for a charge of $140 per car park per month.
It had initially been proposed by Mr Michaels that his firm should occupy the first floor with Mr Ouwens and Mr Orfanos moving into the ground floor. However, the parties ultimately agreed that Mr Michaels would take up the ground floor tenancy and the other two parties the first floor.
There was no documentation of the terms of the respective leases other than the proposals prepared by Mr Michaels. The evidence of Mr Orfanos was that he and Mr Ouwens had accepted the terms proposed by Mr Michaels. There was a rent-free period of three months and rent became payable from 1 April 2003. The first sub-tenant moved into the first floor in June 2003.
Difficulties arise in the relationship
As I have already indicated, Mr Michaels’ firm, Sims Richmond, occupied the ground floor of the Property while the firms conducted by Mr Ouwens and Mr Orfanos occupied the first floor. The accommodation on the first floor exceeded the needs of Mr Orfanos and Mr Ouwens and the excess space was let to various sub-tenants at different times.
The companies controlled by Mr Ouwens and Mr Orfanos (i.e. OCS and Orfanos Corporate Services) entered a separate joint venture agreement in relation to the first floor tenancy. This was known as OCS².[4] There was no formal agreement governing the OCS² joint venture. The precise terms of the OCS² joint venture are disputed between Mr Orfanos and Mr Ouwens. I have considered that issue under the heading “The OCS²joint venture” below.
[4] This joint venture was variously referred to by the parties as OCS² or OCS2. The name was selected as the joint venturers were Orfanos Corporate Services and Ouwens Corporate Services and thus OCS squared.
There is no claim made in these proceedings that directly arises from the OCS² joint venture. However, the defendants (other than Semweb) rely on the conduct of Mr Orfanos connected with the termination of the OCS² joint venture as a basis for the Court to refuse relief on discretionary grounds. The difficulties that arose between Mr Orfanos and Mr Ouwens following the decision by Mr Orfanos to terminate the OCS² joint venture also place much of what followed in context. While the issues surrounding the OCS² joint venture are not central to the proceedings, they occupied much time at trial. It is also unavoidable that a substantial part of this judgment deals with those issues.
Standing of Blong Ume Nominees Pty Ltd
Blong Ume, as first plaintiff, plead that it is the lawful successor to Orfanos Nominees in its capacity as trustee of the Stables Trust. The basis of that contention is as follows. Clause 11 of the Stables Trust deed authorises a trustee to resign at any time by registered deed and to appoint a successor by registered deed. Orfanos Nominees and Blong Ume entered a deed dated 25 November 2011 whereby Orfanos Nominees resigned as trustee of the Stables Trust and appointed Blong Ume as its successor. That deed was registered in the General Registry Office on 25 September 2013. On 25 November 2011, Blong Ume advised Mr Michaels, in his capacity as manager of the joint venture, that there had been a change in the trustee.
The plaintiffs plead that as a result of these arrangements, Blong Ume became the lawful successor to Orfanos Nominees and thus a party to the JVD. They also contend the effect of the deed of retirement was that the interest of Orfanos Nominees and the real and personal property of the Stables Trust vested in Blong Ume. Thus, Blong Ume had validly assumed the interest of Orfanos Nominees in a relation to the Trust Deed, the JVD and the equitable ownership of the Property. The plaintiffs contend that Semweb, Melrob and OCS consented to or acquiesced in the appointment of Blong Ume as the lawful successor to Orfanos Nominees.
The defendants, including Semweb, deny that Blong Ume is a party to the Trust Deed and the JVD. They also deny that Blong Ume has an interest in the Property, or the joint venture, or that it is a beneficiary of the trust created by the Trust Deed.
Counsel for the plaintiffs acknowledges that the beneficial interest in the trust property held by Orfanos Nominees had not been vested in Blong Ume. That would need to be effected by way of a deed. Additionally, the consent of Melrob and OCS to the transfer of the beneficial interest had not been obtained as required by cl 11 of the JVD.
For these several reasons counsel concedes that the proper plaintiff in respect of any beneficial interest was Orfanos Nominees. However, counsel also suggests that Blong Ume had an interest in the matter on the basis that it may take over the beneficial interest of Orfanos Nominees in the future. Given the concession on behalf of the plaintiffs, it is not necessary to further consider the claims made by Blong Ume. Thus, my collective references to the plaintiffs refer only to Mr Orfanos and Orfanos Nominees.
The role of Semweb in these proceedings
Semweb was named as the first defendant in these proceedings and a defence was filed on its behalf. Semweb had resolved at a meeting attended by Mr Michaels and Mr Ouwens to instruct solicitors to defend the proceedings. The tender documents include a notice dated 25 June 2013 advising that a meeting of Semweb was to be held on 3 July 2013 to consider the appointment of solicitors to defend the proceedings. Mr Ouwens stated that he had been advised by Mr Michaels that notice of the meeting had been sent to Mr Orfanos. However, Mr Orfanos stated that he did not believe he had received that notice and also stated that he had not received a copy of the minutes of the meeting held on 3 July 2013. Mr Michaels was not asked whether he had actually sent the notice of the meeting and the minutes to Mr Orfanos.
It was not necessary for me to resolve whether the solicitors acting for Semweb were appointed at a validly conducted meeting of the company. That was because at the commencement of the trial an undertaking was given on behalf of Semweb to abide the decision of the Court. After the giving of that undertaking, Semweb took no further part in the proceedings.
Derivative action
All defendants, with the exception of Semweb, have pleaded that the claim made against Semweb is in the nature of a derivative action and is therefore incompetent. The defendants note that ordinarily it is the company, rather than any of its members, that is the proper plaintiff to bring proceedings in respect of a right, power or privilege which belongs to the company. That is because the company is the injured party. The common law exceptions to the rule in Foss v Harbottle[5] have been abolished by s 236(3) of the Corporations Act. However, s 236(1) of that Act provides that, amongst others, a member or officer of the company may bring proceedings on behalf of a company if they have been granted leave under s 237. The defendants (other than Semweb) complain that the plaintiffs have not sought leave under s 237 to bring the action against Semweb. They also complain that the plaintiffs have not given Semweb 14 days’ notice of their intention to join it as a defendant in accordance with s 237.
[5] (1843) 67 ER 189.
The following causes of action and supplementary claims were said by counsel for OCS to be derivative:
·that Semweb owed the joint venturers a fiduciary duty;
·that Semweb owed the beneficiaries of the trust a fiduciary duty;
·that Semweb had breached its fiduciary duties;
·that Semweb had breached the Trust Deed;
·that Mr Michaels and Mr Ouwens owed Semweb a fiduciary duty; and
·that Mr Michaels and Mr Ouwens owed Semweb statutory duties.
In my view, only the last two of the listed causes of action are derivative from Semweb’s rights. The preceding four matters are claims that may be brought directly against Semweb.
The relevant defendants advance various arguments in support of their contention that leave to bring a derivative action under s 237 of the Corporations Act should not be granted. It is not necessary to consider those arguments because the plaintiffs acknowledge in their closing submissions that leave was not sought under s 237. The plaintiffs explain this on the basis that they are not seeking to enforce any duty owed to Semweb. They are instead asserting that Orfanos Nominees and Mr Orfanos seek to enforce duties owed personally to them.
The plaintiffs submit that as an alternative to seeking leave to bring a derivative action against Semweb, they are entitled to submit that when the Court assesses under the Corporations Act whether the conduct of Mr Ouwens and Mr Michaels was oppressive and unfairly prejudicial to Mr Orfanos it may take into account whether they breached the fiduciary and statutory duties they owed to Semweb. The plaintiffs contend that the alleged breach by Mr Ouwens and Mr Michaels of the fiduciary and statutory duties they owed to Semweb was an indication that Mr Orfanos was being oppressed. The plaintiffs contend that it was open to them to either seek leave to bring a derivative action or to proceed in the manner to which I have referred.
In support of that contention the plaintiffs rely upon the decision of the Supreme Court of Queensland in LPD Holdings (Aust) Pty Ltd v Phillips and Others.[6] Philip McMurdo J held that s 233 of the Corporations Act empowers the Court to grant relief in the nature of compensation to a company in an action under s 232 arising from facts on which a derivative action could have been brought under s 236. His Honour also held that a court has power to award compensation under s 233 to a company whose affairs are in question, notwithstanding the availability of a derivative action. Proceedings brought by a member under s 232 are not brought on behalf of the company. That remains the case even if an order is made that benefits the company. A member of a company may seek that compensation be paid to the company in proceedings under s 232 and s 233, notwithstanding the availability of a derivative action.[7] However, the court has a discretion as to whether the claim for compensation in favour of the company should be permitted to proceed. It is not open to a court to award compensation directly to a member for a claim under s 232 and s 233. Philip McMurdo J also held that, “in principle, there can be no objection to an order that directors who have conducted the affairs of the company in a way which engages s 232, should make a payment to compensate an oppressed shareholder for a loss which is distinct rather than derivative from a loss of the company.”[8]
[6] (2013) 281 FLR 227.
[7] See also Patterson v Humfrey [2014] WASC 446 at [56].
[8] (2013) 281 FLR 227 at [58].
I accept the submission of the plaintiffs that when the Court assesses under the Corporations Act whether the conduct of Mr Ouwens and Mr Michaels was oppressive and unfairly prejudicial to Mr Orfanos it may take into account the allegations that they had breached the fiduciary and statutory duties owed to Semweb, even though the plaintiffs have not sought leave to bring a derivative action.
Documentary evidence
A great deal of the evidence in this matter comprises documentary evidence of communications that passed between the parties, particularly by way of email message. While the volume of that evidence is very large, it is necessary to set out that material at length.
On 5 May 2006, Mr Ouwens sent an email message to Mr Orfanos about the OCS² joint venture. He confirmed that Mr Orfanos had advised him orally on 29 April 2006 that from 1 July 2006 Mr Orfanos did not intend to continue the arrangement whereby Orfanos Corporate Services and OCS leased the first floor of the Property from Semweb. Mr Ouwens noted that Mr Orfanos had stated that it was a matter for Mr Ouwens to decide whether Orfanos Corporate Services paid the rent for its office space to Semweb or to OCS.
Mr Ouwens asserted that the unilateral action taken by Mr Orfanos had repudiated and breached their agreement. His daughter, Karina Ouwens, and Mr Michaels agreed there had been a repudiation. Nevertheless, both Mr Michaels and Mr Ouwens intended to abide by the agreement. Mr Ouwens noted that Mr Orfanos had requested Ms McLean to calculate the expected income and expenses for OCS² up to 30 June 2006 so as to assist Mr Orfanos wind down affairs. Mr Ouwens stated that OCS did not wish to assist Mr Orfanos in his repudiation of their agreement. Therefore, Ms McLean had been instructed not to provide assistance in the manner sought by Mr Orfanos.
Mr Ouwens also noted the statement by Mr Orfanos that he was not willing to provide funds to OCS² to meet the expenses currently due to OCS for Ms McLean’s services until she provided the calculations that he had requested. Mr Ouwens said that there was no relationship between that calculation and with Mr Orfanos’ refusal to provide money to OCS². Mr Ouwens asked Mr Orfanos to advise him within several days when he would make funds available to OCS² to allow it to pay OCS in respect of the debt that had accrued over the previous 16 months without the knowledge of Mr Ouwens.
On 30 June 2006, Mr Orfanos responded to Mr Ouwens’ message dated 5 May 2006. Mr Orfanos asserted that there was no enforceable agreement covering the first floor tenancy, nor was there any enforceable partnership or joint venture agreement between him and Mr Ouwens in relation to the first floor. He also asserted that the OCS² joint venture had never had an agreed timeframe. The OCS² joint venture had been set up to collect rent and out of pocket expenses from each tenant for payment to Semweb or service providers.
Mr Orfanos reiterated that because the joint venture was not working he had advised Mr Ouwens on 29 April 2006 that it was to cease on 30 June 2006. He had suggested two options when he met with Mr Ouwens on 29 April 2006. First, he would pay the rent to Mr Ouwens who would then pay Semweb or, alternatively, he would pay Semweb directly. Secondly, the value of the assets of the OCS² joint venture should be split between them and Mr Orfanos would finalise OSC² matters with the ATO and the bank.
Mr Orfanos noted that Mr Ouwens had rejected these proposals in his email message of 5 May 2006. Mr Orfanos said that he had spoken to Mr Ouwens on 10 May 2006 about meeting to resolve the OCS² issues. However, Mr Ouwens had deferred the matter and then gone overseas for several weeks. Mr Orfanos proposed that he would pay rent and electricity charges to Semweb fixed by reference to the percentage of the space on the first floor that he occupied and would also pay an agreed amount towards out of pocket expenses and disbursements. He did not require any administrative services. He would advise the ATO that the joint venture was finalised and that the 2006 GST and income tax returns are final. He would instruct the bank not to permit any further payments to be made out of the OCS² bank account after 30 June 2006 unless both he and Mr Ouwens had signed. The assets of the joint venture should be divided or sold.

On 4 July 2006, Mr Ouwens responded to Mr Orfanos’ proposal. He stated that OCS was not interested in the proposal and would continue to respect the agreements that had been made. He said that Mr Michaels agreed.
On 5 July 2006, Mr Michaels responded to the messages from Mr Ouwens and Mr Orfanos. He said that when the building had been purchased he had advanced two proposals for occupation of the ground and first floors. Because they had proceeded on these proposals he believed that he had an agreement with Semweb for occupation of the ground floor and Mr Ouwens and Mr Orfanos had a joint agreement to occupy the first floor on the terms set out in his proposals. While no formal lease agreement had been signed, they had each acted in accordance with the intention of the original proposals and, in his view, there were agreements in place. He was not privy to the arrangements for occupation of the first floor involving OCS² but, in his view, Mr Orfanos and Mr Ouwens had a joint commitment to occupy the first floor. Semweb should not be drawn into the OCS² arrangement which needed to be resolved between Mr Ouwens and Mr Orfanos. He requested that Mr Orfanos pay 50% of the July rent due for the first floor. Delays in payment were unfair to him as he had always paid his rent on time and, at times, had been required to cover shortfalls because the OCS² account had not been paid by the sub-tenants. Mr Michaels also said that he was reviewing his practice of not charging a fee for the management of the property, payment of accounts and accounting work. He concluded by saying that “what’s occurring upstairs I don’t believe will be conducive to the general atmosphere of the entire building” and asked that Mr Orfanos and Mr Ouwens resolve the matter urgently.
On 7 July 2006, Mr Michaels advised Mr Orfanos that there was no agreement between Mr Orfanos and Semweb for him to pay 22.41% of the rent and expenses relating to the first floor tenancy. That message was sent in response to Mr Orfanos having provided a cheque for payment of rent and electricity that represented 22.41% of the amount payable for occupation of the first floor. Mr Michaels repeated his views in an email message to Mr Orfanos sent on 10 July 2006.
Mr Orfanos advised Mr Michaels and Mr Ouwens by email on 10 July 2006 that the first floor agreement concerned only him and Mr Ouwens and not Semweb. While he was happy to hear suggestions, he was unwilling to continue the first floor joint venture for several reasons. He stated his reasons in an email sent to Mr Ouwens on 19 July 2006, thus:
·He had been financially disadvantaged by arrangements made by Mr Ouwens with sub-tenants;
·Mr Ouwens had withdrawn funds for his own benefit from the joint account without the knowledge or approval of Mr Orfanos;
·He had not been provided with invoices relating to those transactions;
·The OCS² books and records had been moved from their usual place presumably to deny him access; and
·Mr Ouwens or his staff had removed brochures from the reception area other than those of Mr Ouwens’ firm and the Consulate but had added the business card of Mr Ouwens’ son (a real estate agent).
Mr Orfanos also complained in his email of 19 July 2006 that when the first floor cost sharing arrangements were initially made, Mr Ouwens’ firm comprised three persons (including himself) but now there were six persons. Thus, costs were disproportionately shared by other tenants. When the contribution towards the cost of Ms McLean’s services was set, Mr Ouwens had not mentioned that she would using her time to directly earn revenue for Mr Ouwens. A proportion of that revenue had not been accounted for so as to reduce the reimbursement required by Mr Orfanos or the sub-tenants.
Mr Orfanos recommended the following to Semweb to resolve the situation:
·A property expert should review the current allocation of direct “unallocated” floor space to enable it to be allocated on a more equitable basis recognising the percentage use basis (i.e. on the pay principle);
·All tenants of the building enter into written leases, to better secure tenants’ obligations, for the remainder of the five year term;
·That the provision of space for a receptionist be done away with– a bell or telephone could be provided for visitors to announce their arrival; and
·The expenses of the building will be met and managed by Semweb and on-charged to each tenant in an equitable manner.
Mr Orfanos also stated that he would inform the two sub-tenants “of the current status of OCS²” and that they should make their own lease arrangements with Semweb. He suggested “we as landlords” needed to sort out the appropriate rental contribution. He would advise one of the sub-tenants that he should pay $541.67 per month direct to Mr Ouwens as a contribution towards the employment of Ms McLean. He would also advise this sub-tenant that he should pay $50.10 per month to each of Mr Ouwens and Mr Orfanos for hire of office furniture. He would give the sub-tenant the option to acquire Mr Orfanos’ interest in the furniture. Mr Orfanos concluded his message with the observation that he was open to any constructive proposal that Mr Ouwens may put forward.
On 24 July 2006, Mr Ouwens responded to Mr Orfanos’s message of 19 July 2006. He stated that he and Mr Michaels continued to respect the agreements that had been made between the parties and suggested that Mr Orfanos should also do so and immediately pay the “July balance” said to be owed by him to Semweb. Mr Ouwens noted that Mr Orfanos had told him that his insolvency practice had been underperforming for the last several months and he badly needed more work. Mr Ouwens suggested that these financial difficulties should not cause Mr Orfanos to resist his financial obligations.
Mr Ouwens also contended in the message of 24 July 2006 that, if the assertion by Mr Orfanos that there was no enforceable agreement between him and Semweb was correct, there was no basis for him to occupy the building. Mr Orfanos’ investment in Semweb did not provide a right of occupancy. Mr Ouwens also stated that he and Mr Michaels would not agree to Semweb making alternative arrangements with Mr Orfanos or with any of the first floor sub-tenants. Any attempt by the first floor tenants to pay direct to Semweb would be rejected as this action would be contrary to the agreements. Mr Ouwens also rejected the various assertions that had been made by Mr Orfanos relating to the proposed arrangements with the sub-tenants.
Mr Ouwens stated in his message of 24 July 2006 that the arrangement in relation to Ms McLean was that OCS received a fee of $812.50 per month from OCS² as compensation for the services provided by her to the first floor tenants (apart from Mr Kurauskas). That fee was a minor proportion of the total employment costs incurred by OCS for Ms McLean and other staff who provided services to OCS² sub-tenants. Mr Ouwens said that he had taken possession of the OCS² records to become familiar with them and would administer OCS² now that Mr Orfanos had ceased to do so. Mr Orfanos could inspect the records on request but had not done so. The sum of $812.50 payable to OCS in respect of Ms McLean’s services for May and June 2006 had been withdrawn from the OCS² account in accordance with their agreement. That payment was not contingent on the amount received from OCS² tenants. Invoices had been rendered for this purpose. It is unclear whether the reference by Mr Ouwens to invoices having been rendered related only to the May and June 2006 charges or whether the comment also covered earlier liabilities.
Mr Ouwens concluded his message by stating that a result of the failure by Mr Orfanos or his firm to make payment to OCS² in respect of the services of Ms McLean a debt of $13,000 had arisen in the 16 months leading up to 30 April 2006. This liability had arisen without the knowledge of either Mr Ouwens or Ms McLean while Mr Orfanos was administering the OCS² accounts. It had been necessary for Mr Ouwens to send an email to Mr Orfanos to prompt payment. Mr Ouwens rejected the complaints made by Mr Orfanos about the removal of brochures.
On 1 August 2006, Mr Michaels sent an email message to both Mr Orfanos and Mr Ouwens. He noted that Mr Ouwens had paid the 50% share of the rent for the first floor for July 2006 but Mr Orfanos had not paid in full. He attached tax invoices for the amounts allegedly due being $6,674.77 and $6,667.73, of which one half was payable by Mr Orfanos.
On 29 September 2006, a solicitor, Ian Edgley, wrote to Mr Ouwens on behalf of Mr Orfanos. Mr Edgley disputed the motive that Mr Ouwens had advanced as the explanation for Mr Orfanos’ decision to terminate the OCS² joint venture. He also stated that Mr Orfanos had validly terminated the OCS² joint venture with effect from 30 June 2006. He sought confirmation that the Business Activity Statements (BAS) and income tax returns had been lodged by Mr Ouwens as Mr Orfanos was no longer the registered tax agent for the OCS² joint venture. Mr Edgley went on to say that he had advised his client that all existing tenancies for the building should be reviewed at some stage. He also disputed the explanation given by Mr Ouwens relating to one of the sub‑tenancies. Mr Edgley concluded with the statement that any payment due to OCS for services it had provided to OCS² was subject to pre-conditions, namely that the relevant party had provided a tax invoice and payment had been received from that party. Neither of those pre-conditions had been satisfied at the time Mr Ouwens had made payment to himself for the May and June 2006 fees.
Mr Michaels wrote to Mr Orfanos on 9 October 2006 on behalf of Semweb. He stated that in the period from 1 July 2006 Mr Orfanos had provided cheques to Semweb in the sum of $1,478.08, $1,518.98 and $1,498.32. These payments were not based upon any tenancy agreement that existed between Orfanos Corporate Services and Semweb. These payments were to be treated as part payment of the 50% share of the rent for the first floor due from Mr Orfanos. Mr Michaels stated that Mr Orfanos was not entitled to change unilaterally the terms of the tenancy from 1 July 2006 without the agreement of Mr Ouwens and Mr Michaels. As far as Semweb was concerned there was an agreement between Mr Ouwens and Mr Orfanos whereby they were to be jointly responsible for the first floor tenancy. Semweb would not accept any more part payments of rent based on Mr Orfanos’ calculations. In future only full payment would be accepted from both Mr Orfanos and Mr Ouwens. Payment of $5,525.90 was requested in relation to the shortfall of rent for July, August and September 2006. A cheque dated 7 October 2006 for $1,451.76 was returned to Mr Orfanos. Mr Michaels concluded by stating that it was not Semweb’s concern what arrangements existed between OCS² and the sub-tenants on the first floor. Semweb was only concerned with receiving 100% of the rent due from Mr Orfanos and Mr Ouwens.
On 20 October 2006 Mr Orfanos sent an email message to an Adelaide solicitor, Michael Janus, offering to sell to him his interest in Semweb. Mr Orfanos provided the following explanation to Mr Janus:
One of the JV has a five years lease of the ground floor and the other two have a joint and several lease of the first floor for the same period of time. Apart from a “heads of agreement” no written lease has been entered into. The 5 year will expire in December 2007.
Orfanos Corporate Services and Ouwens Corporate Services lease the first floor in its entirety and have sub-leased it to two other tenants. No one has a written lease and the two tenants can be viewed as having a monthly lease.
The rent and outgoings were collected by OCS² (a joint venture between Orfanos Corporate Services and Ouwens Corporate Services) and used to pay outgoings and the rent to Semweb. This ceased as at 30^th June 2006 as I did not wish to continue with the arrangement.
Mr Orfanos went on to state that Orfanos Corporate Services had leased approximately 40m² on the first floor. He would offer to sell his share in the joint venture and to assign his rights and equity in the fixed assets of OCS² to the continuing joint venturers for $285,000 plus or minus any surplus or deficiency in all of the assets of the joint venture other than the Property. The $285,000 represented a mixture of capital appreciation of the Property, recovery of the depreciation and building allowances claimed annually plus a return of funds provided to finance the acquisition of the Property. The purchaser would be required to provide Westpac with a guarantee to replace the guarantee provided by Mr Orfanos.
On 13 November 2006, Mr Orfanos, on behalf of Orfanos Nominees, provided notice to the other two joint venturers under cl 9 of the JVD. He offered on behalf of Orfanos Nominees to sell its interest in the joint venture for $286,000. That represented one third of the difference between the value of the Property (being $2,100,000) and the debt owing to Westpac ($1,242,000) plus or minus one third of the other net assets or liabilities as at the date of settlement. Settlement was to be effected on 15 December 2006. The offer was made on the basis that any responsibility of Orfanos Corporate Services in respect of the first floor tenancy would end and that Mr Orfanos would no longer be a guarantor to Westpac. Orfanos Corporate Services would continue to occupy its existing space on a monthly basis at a mutually agreed rate and would also be compensated for the assets it acquired in the OCS² joint venture with OCS.
On 30 January 2007, Mr Michaels wrote on behalf of Semweb to Mr Orfanos returning cheques for $1,498.32 that had been provided by Mr Orfanos to Semweb as rent for the months from October 2006 to January 2007.
On 19 February 2007, Mr Orfanos sent a letter to Semweb (addressed to Mr Michaels) in response to Mr Michaels’ letter of 30 January 2007. He noted that Mr Michaels had acknowledged that the rent for the first floor was a joint responsibility between him and Mr Ouwens. Mr Michaels had banked the contributions made by Mr Ouwens and also those made by Mr Orfanos for the period from July 2006 to September 2006. He said that he did not understand why Mr Michaels had returned the subsequent cheques as that had denied Semweb the use of those funds. He therefore returned the cheques to Mr Michaels together with his contribution for February 2007. Mr Orfanos suggested that, to the extent there was an overall shortfall, Mr Michaels should request OCS² (which was the party being billed) to make up the difference. OCS² had sufficient funds to meet any shortfall. Mr Orfanos reiterated that the OCS² joint venture between him and Mr Ouwens had been terminated on 30 June 2006 and Mr Ouwens had taken over the administration of the bank account. Mr Orfanos concluded by asserting that by returning the cheques to him, Semweb had acknowledged that he did not have any liability to Semweb in respect of the first floor other than as a joint tenant with Mr Ouwens. Therefore, Semweb must request the payment of any shortfall from OCS². By paying half the amount due, Mr Ouwens had not extinguished his liability to Semweb for the rent payable for the first floor. He also complained that neither Mr Michaels nor Mr Ouwens had responded to his offer to sell his interest in the joint venture to them. He was currently in discussion with a third party who may be interested in taking over the sub-lease of his office or buying his interest in the Property on the same basis as he had offered to the other two joint venturers.
Mr Michaels and Mr Ouwens jointly responded to Mr Orfanos on 23 February 2007 on behalf of Semweb. They stated that the facts were simply that Orfanos Corporate Services, in lieu of meeting its agreed liability to Semweb, had sought to prescribe the rental terms for the space it occupied at a rent it determined without agreement from Semweb. They noted that Mr Orfanos had failed to assert the existence of any rental agreement with Semweb for the space that Orfanos Corporate Services had occupied. They said that as the facts were clear and the issues had been exhaustively canvassed in previous correspondence, they did not view it as productive to enter into any further detailed correspondence. As there was no agreement with respect to the amounts that Mr Orfanos had tendered, his cheques for the period from October 2006 to February 2007 were returned. In response, on 1 March 2007, Mr Orfanos paid funds to a total of $8,886.45 covering the period from October 2006 to March 2007 into the Semweb bank account.
On 15 March 2007, Mr Ouwens and Mr Michaels, on behalf of Semweb advised Mr Orfanos that the payments he had made would be treated as an advance by Orfanos Corporate Services. Alternatively, they were prepared to return the money on request.
On 7 April 2007, Mr Orfanos wrote to Mr Michaels and Mr Ouwens in his capacity as a director of Semweb. He stated that he believed that invoices for rent had not been issued to him, Orfanos Corporate Services, Mr Ouwens or OCS. The invoices had been issued in the name of OCS². He said that Mr Michaels and Mr Ouwens will agree that the rental obligation is that of OCS². He went on to state that he believed that OCS² had not made any payments to Semweb for rental of the first floor. He also noted the previous statement that Mr Ouwens and/or OCS had been making payments and Semweb had treated these as rent payments. On that basis he asked why Mr Ouwens’ and/or OCS’ payments had been treated as contributions towards the rent due on the first floor but his payments had been rejected. He asserted that if Orfanos Corporate Services was in default then OCS must also be in default. He was treating his payments as contributions to the overall rent due from OCS² to Semweb. He suggested that it was obvious, and it must also be obvious to them, that either OCS or Mr Ouwens was operating the first floor through OCS². He suggested that an example of this fact was that the cleaning contract had been cancelled without any notice to him some time in February 2007 and a new contract introduced that excluded the area that he occupied. Thus, he had now made his own cleaning arrangements. He also noted that the rent being received from the two sub-tenants on the first floor was being accumulated in the OCS² account and no payment was being made to Semweb for the space occupied by those sub-tenants. Thus, OCS² was in default. He was attempting to mitigate the financial effect of that default upon Semweb. He concluded by enclosing a cheque for $1,544.77 as Orfanos Corporate Services’ contribution towards the rent due for April 2007 which had been invoiced to OCS².
Mr Michaels and Mr Ouwens responded to Mr Orfanos on behalf of Semweb on 13 April 2007. They asserted that Mr Orfanos was well aware that OCS and Orfanos Nominees were liable to Semweb for the first floor rent. OCS² was not a legal entity but simply a name notified to Semweb as describing both Orfanos Nominees and OCS. The latter had paid one half of the first floor invoices rendered since 1 July 2006. Orfanos Nominees had failed to meet its liability for its half of the rent during that period. Instead, Mr Orfanos had elected to pay only for the space occupied by Mr Orfanos. Further, Mr Orfanos had not asserted that there was any rental agreement with Semweb for the space occupied by Mr Orfanos. Semweb was not concerned as to how the first floor was administered in terms of collecting rent from sub-tenants or payment of overheads and nor was Semweb concerned that Orfanos Nominees had refused to participate in that process since July 2006. They asserted that Mr Orfanos was well aware that one of the underlying reasons for the structure of the rental agreements was to ensure that these issues would not be of concern to Semweb. The cheque for $1,544.77 that had been supplied by Mr Orfanos was returned as it was unsolicited and there was no rental agreement with Semweb relating to that matter.

Mr Orfanos advised Mr Michaels and Mr Ouwens by email dated 4 August 2007 that he did not intend to be a tenant after December 2007 when the initial five year tenancy agreement expired. It was therefore necessary for Semweb to determine the tenancies and to decide whether it was necessary to appoint a real estate agent to commence the search for new tenants.
On 25 October 2007, Mr Orfanos, in his capacity as a director of Semweb, gave notice to Mr Michaels and Mr Ouwens as directors that he was convening a directors’ meeting for 8 November 2007 in accordance with cl 12.2.1 and cl 12.3 of the Semweb constitution to be held in a particular hotel. The following day Mr Orfanos advised his fellow directors that he was resigning as the company secretary of Semweb with immediate effect.
On 5 November 2007, Mr Orfanos advised his fellow Semweb directors that they had not responded to his email message of 4 August 2007 concerning renewal of leases. He proposed to put to the directors at the meeting to be held on 8 November 2007 that a leasing manager be appointed to manage the renewal of the current leases and to search for new tenants.
Mr Ouwens and Mr Michaels responded on behalf of Semweb to Mr Orfanos by letter dated 7 November 2007. They repeated their earlier claims that Orfanos Nominees was continuing to fail to meet its rental obligations following the unilateral change to the tenancy terms made by Mr Orfanos from 1 July 2006. That change had been based on the assertion that there was no commitment or enforceable agreement between Orfanos Nominees, OCS and Semweb concerning the occupation of the first floor and nor was there any agreement between Sims Richmond and Semweb with respect to the ground floor. That assertion was contrary to the clear commitment that had been made by all tenants to Semweb and observed by all parties, including Orfanos Nominees, up to 1 July 2006. Despite requests that he do so, Mr Orfanos had not asserted that there was an agreement between Orfanos Nominees and Semweb in relation to the rent that he had been tendering to Semweb each month. They asked when Orfanos Nominees would meet its agreed rental commitment as they wished to resolve the matter as soon as possible, particularly as Orfanos Nominees would not be an occupier after December 2007. They stated that as the building had been purchased with the objective of owner occupation, both Sims Richmond and OCS intended to remain as tenants. They were prepared to pay the market rent and to that end they would seek an independent rental valuation. They also stated that the date of the directors’ meeting called by Mr Orfanos was not convenient to them. They suggested that he provide a clear answer as to his intentions concerning the rental obligations of Orfanos Nominees. Once he responds they will convene a directors’ meeting to discuss issues of concern, including the issue of rent arrears.
Also on 7 November 2007, Mr Orfanos gave notice by email message to Mr Michaels and to Mr Ouwens that in accordance with cl 12.8 of the Semweb constitution he had appointed Mr Ian Edgley as his alternate director.
Mr Edgley responded to Mr Michaels and Mr Ouwens on behalf of Mr Orfanos on 14 November 2007. Mr Edgley stated that it was not clear from the letter they had sent on 9 November 2007 whether they were responding on behalf of Semweb or jointly as directors. If their response was on behalf of Semweb, some of the decisions that they had made needed to be decided at a company meeting. Mr Orfanos had not received notice of any such meeting. Furthermore, they had failed to attend the directors’ meeting called by Mr Orfanos. Instead, they had stated that they will convene a meeting once another legal entity (i.e. Orfanos Nominees) provided a response. That did not affect the fact that they had breached their duty as directors by boycotting a properly convened meeting. Mr Orfanos demanded that the meeting be reconvened at the earliest possible time. Failure to comply with this demand would be taken as further evidence of the fact that the board of directors of Semweb had become dysfunctional and was no longer able to properly discharge its duties.
Mr Ouwens and Mr Michaels responded to Mr Edgley on 10 December 2007 on Semweb’s letterhead. They noted that while Mr Edgley’s letter had been dated 14 November 2007 it was postmarked 29 November 2007 and received on 30 November 2007. They stated that their letter of 7 November 2007 had been a further attempt to provide Mr Orfanos with an opportunity to state the intention of Orfanos Nominees with respect to payment of its rental obligations. That company had met its rental obligations until June 2006 but had thereafter, without the agreement of Semweb, prescribed its own rental terms. They wanted Mr Orfanos to address this issue prior to holding a board meeting at a date, time and place convenient to all parties. They hoped that Mr Orfanos would finally accept that Orfanos Nominees had acted inappropriately by setting its own weekly rental terms. Such an acknowledgement would avoid the matter having to be dealt with at a board meeting on the basis of a resolution that Orfanos Nominees was in default of the joint venture terms.[9] The suggestion that it was inappropriate to seek an answer from Orfanos Nominees before conducting a board meeting on the basis that it concerned “another legal entity” was disingenuous. The fact that Mr Orfanos is a director of Semweb was the sole and exclusive reason why Orfanos Nominees is a party to the joint venture formed in 2002 under the JVD. Accordingly, Mr Orfanos and Orfanos Nominees were inextricably linked.
[9] In context, this appears to be a reference to the 2002 joint venture under the JVD and not the OCS²joint venture.
Mr Michaels and Mr Ouwens also asserted in the letter of 10 December 2007 that the action taken by Mr Orfanos in changing the rental terms was clearly not in the best interests of Semweb and contrary to the agreed OCS² joint venture terms. It was appropriate to seek a clear answer concerning this matter so as to avoid a resolution being proposed concerning the default of Orfanos Nominees which would create “consequential increased adversarial circumstances”.
In the latter context Mr Michaels and Mr Ouwens referred to the assertion by Mr Orfanos that the Semweb board had become dysfunctional. They asserted that it was clear that Mr Orfanos had taken provocative action by setting his own rental terms and then unsuccessfully attempting to sell his interest in Semweb. They suggested that his failure to sell his interest was a consequence of his price being unacceptable to the limited market available for the purchase of a minority interest in a private property holding trust. They suggested that Mr Orfanos had characterised the Semweb board as being dysfunctional to achieve a better sales outcome for his interest and in the hope of seeking court intervention. They proposed that the directors’ meeting should be held on either 18 December or 19 December 2007. They asked if these times and dates were convenient to Mr Orfanos, or Mr Edgley if he was to attend as an alternate director.
On 14 December 2007, Mr Edgley advised Mr Ouwens and Mr Michaels that he would attend the board meeting as an alternate director but the times proposed were not convenient to him. He proposed two alternative dates.
Mr Michaels and Mr Ouwens responded to Mr Edgley on 19 December 2007 under Semweb’s letterhead. They observed that Mr Edgley had not indicated whether Mr Orfanos was unable to attend at the meeting times they had proposed or at the alternative times suggested by Mr Edgley. They said that an alternate director could only act when a director was unable to attend a board meeting. They would have been prepared to consent to Mr Edgley attending a single meeting but their written consent was required for his appointment as a director under the terms of the joint venture deed. They had not provided any such consent. They suggested that Mr Orfanos was unwilling personally to attend a board meeting for the purpose of avoiding the discharge of his duties as a director. That was unacceptable to them. They said that by persistently failing to provide an answer about his rental obligations and unilaterally setting his own terms, Mr Orfanos was engaging in inappropriate behaviour that was not in the best interests of Semweb and contrary to the terms of the joint venture. Thus, they suggested that Mr Orfanos was failing to exercise his duties as a director. They asked that Mr Orfanos nominate a date and time in early 2008 for a board meeting that he would attend personally to discharge his duties as a director.
Mr Edgley did not respond to that letter until 26 February 2008. He denied that Mr Orfanos had any intention of avoiding his duties as a director. His attempts to discharge his responsibilities had been frustrated by the conduct of Mr Michaels and Mr Ouwens. He noted that cl 12.8.1 of the Semweb constitution empowered a director to appoint a person to be their alternate director for such period as they thought fit. The joint venture deed did not deal with the appointment of alternate directors. Mr Orfanos had appointed Mr Edgley as his alternate director so that the issues that needed to be addressed by Semweb could be dealt with purely on legal and business principles rather than coloured by emotion. He contended that the comments made by Mr Michaels and Mr Ouwens concerning the non-payment of rent related to the OCS² entity and not to Mr Orfanos. However, that issue needed to be discussed. He nominated two further times for meetings in early March 2008.
It was not until 17 March 2008 that Mr Michaels and Mr Ouwens responded to Mr Edgley’s letter, again they used Semweb’s letterhead. They repeated their assertion that Mr Orfanos was not acting in accordance with his duty to act in the best interests of Semweb. Instead, he had acted in his own best interests by ignoring the rental agreement with Semweb and unilaterally setting his own rental terms for a period of 18 months. They also asserted that because Mr Orfanos had not made any payment of rent for December 2007 he had elected not to comply with his own self-prescribed rental terms. For these reasons they suggested that Mr Orfanos was not attempting to discharge his duties as a director of Semweb. They also stated that he was well aware that there was no OCS² entity.
Mr Michaels and Mr Ouwens asserted that the later and specific terms of the joint venture deed prevailed over the earlier articles of association of Semweb to the extent of any inconsistency. For that reason they asserted that the requirement in the joint venture deed that written consent be provided for the appointment of a Semweb director prevailed over the right under the Semweb constitution to appoint an alternate director without consent. On that basis they repeated their invitation for Mr Orfanos to attend the board meeting in person.
On 26 May 2008, Mr Edgley responded on behalf of Mr Orfanos to the letter that had been sent by Mr Michaels and Mr Ouwens on 17 March 2008. He stated that Mr Orfanos had paid to Semweb his contribution towards the rent payable by OCS². He expected that Mr Ouwens would pay the rent for the space that he occupied as well as the rent he collected from the two sub-tenants. Mr Edgley indicated that it appeared that the rent collected from the sub-tenants remained in the OCS² bank account and had not been paid to Semweb. Mr Edgley suggested that Mr Ouwens may have breached his duties as a director of Semweb by failing to make payments. He further suggested that both Mr Ouwens and Mr Michaels may have breached their duties by failing to collect monies held in the OCS² bank account. He suggested that the refusal to accept the payments tendered by Mr Orfanos for the space that he occupied had caused Semweb to incur unnecessary additional interest costs. Mr Edgley stated that Mr Orfanos had on many occasions given verbal assurances to Mr Michaels that to the extent that there was any overall shortfall of rent arising from a vacancy on the first floor he would meet his contribution to that shortfall. However, the extent of any such shortfall could not be determined because Mr Ouwens had withheld rental monies from Semweb and also failed to provide information about money received and money owing. He sought an accounting from Mr Ouwens for the financial year ended 30 June 2006 followed by the opportunity to finalise all matters between his client and Mr Ouwens.
Mr Edgley also stated that he had been instructed to request that a board meeting be called to determine the unsatisfactory situation where no tenants appear to have formal leases. This issue and the commercial value of the rent needed to be rectified urgently at a proper and formal board meeting. He rejected the contention that Mr Orfanos was not entitled to appoint him as an alternate director. He asked the company secretary to convene a board meeting. He also suggested that because Mr Ouwens wanted Mr Orfanos to attend personally, Mr Orfanos now assumed that Mr Ouwens was willing to speak to him. When Mr Orfanos received notice of the meeting he would decide, having regard to all the circumstances, whether he should attend or whether Mr Edgley should do so as his alternate.
Mr Ouwens and Mr Michaels responded to Mr Edgley on 9 July 2008 using Semweb’s letterhead. They stated that there was no agreement between Semweb and Mr Orfanos with respect to the payments that he had tendered since July 2006. Up to that time he had been paying one half of the first floor rent as had been agreed. He remained liable for that payment until December 2007 when the five year agreement expired. Any concerns held by Mr Orfanos concerning collection of the rent from the first floor sub-tenants was not an issue that concerned Semweb. Any concerns that he held about the first floor rental collection issues or the operation of the OCS² bank account should be taken up with OCS. The latter company had been paying Semweb for its one half share of the first floor rental obligation and had not been making payment by reference to the area that it leased or occupied. They remained concerned by the continuing failure of Mr Orfanos to comply with the rental agreement since July 2006, his prescription of his own rent for a period of 18 months, his failure to comply with those self-prescribed terms and his making of erroneous assertions in his attempts to defend his unilateral actions taken in breach of the rental agreement. They also expressed concern that Mr Orfanos was equivocal as to his willingness to attend a board meeting in person. They required that he give a full account of his actions at such a meeting as they were prepared to do the same. They repeated their invitation to Mr Orfanos to nominate a time and date for a board meeting that he would personally attend. They continued to assert that he was not entitled to appoint an alternate director.
On 14 July 2008, Mr Edgley wrote again to Mr Michaels and Mr Ouwens on behalf of Mr Orfanos. He complained that he had still not been provided with information about the outstanding rent due for the first floor tenancy. He also requested that they notify convenient dates and times for a directors’ meeting.
On 26 August 2008, using Semweb’s letterhead, Mr Ouwens and Mr Michaels advised Mr Edgley that the amount due as rent and electricity charges for the first floor for the period from July 2006 to December 2007 was $120,664.29. They asserted that Mr Orfanos was liable for one half of that amount. They again requested Mr Orfanos to nominate a convenient time and date for a board meeting that he would personally attend.
On 3 September 2008, Mr Edgley again wrote to Mr Michaels and Mr Ouwens. He questioned whether the sum of $120,664.29 referred to in the earlier letter was owed to Semweb. He noted that the company accounts for the years ending 30 June 2007 and 30 June 2008 showed the amounts owing to Semweb as $23,876 and $35,313 respectively. He also asked whether these accounts had been adopted as Mr Orfanos had not received notice of any meeting to adopt the accounts.
Mr Ouwens and Mr Michaels responded to that letter on 10 October 2008 under Semweb’s letterhead. They said that the amount of $120,664.29 was not intended to reflect the amount outstanding in the financial statements. In preparing these financial statements it had been considered reasonable to treat the payments made by Mr Orfanos as a set off against the amount due despite the absence of any agreement relating to those payments. The calculation that had been provided was simply to show the liability and amount charged for the period from July 2006 to December 2007.
Westpac wrote to Semweb on 26 August 2009 to point out that the interest only period on the loan had expired on 29 December 2008. Semweb was asked whether payments against principal were to commence immediately or whether an extension of the interest only period was to be sought. A written response was to be provided to the bank by 11 September 2009. If not, default interest rates would be applied to the loan. After the exchange of several letters, the Three Principals agreed that a one year interest free period should be negotiated with Westpac.
In August 2010, Mr Orfanos received appraisals from Mr Phillip Rundle of CB Richard Ellis (CBRE) and from Mr Jamie Guerra of Jones Lang LaSalle as to the likely market value of the Property. Mr Orfanos then wrote to Mr Ouwens and Mr Michaels on 29 October 2010 offering to sell his interest in the Property to them. The starting point for his offer was the average of the value suggested in the two appraisals on a capitalisation of net rental basis. The average value under that approach was $3,115,748. After deduction of 2% for realisation costs and the $1,242,800 owed to Westpac and the inclusion of $100,000 held by Semweb as cash or owed by debtors he suggested that the net value of the company was $1,910,633. Thus, a one third interest had a suggested value of $636,878. He offered to sell his interest to Mr Ouwens and Mr Michaels for $575,000 (plus GST if applicable). He sought a response within 30 days and proposed that settlement should occur by 20 December 2010.
Mr Ouwens and Mr Michaels, on behalf of OCS and Melrob respectively, rejected the offer by Mr Orfanos on 29 November 2010. They stated that the offer was of no interest to them. They also indicated that the appraisals by CBRE and Jones Lang LaSalle were not consistent with the advice they had received. They also stated that Mr Orfanos was now at liberty to sell his interest to any third party and they wished him well with such a sale. They also said that if there was any assistance they could provide to facilitate the sale of his interest he should let them know.
On 20 January 2012, Mr Orfanos sent an email message to Mr Michaels to propose a meeting/coffee as he was now in a position to pursue his exit from the property. He also asked what had happened in relation to the extension of the Westpac loan as he had not seen any documentation. Mr Michaels responded by email the same day. He said that he had not seen any Westpac documentation but would follow the matter up when he came back from a holiday with his children. In this context I note that Mr Michaels’ wife had recently passed away.
On 19 March 2012, Mr Orfanos wrote to Mr Ouwens and Mr Michaels and suggested that for the reasons set out at length in the letter the joint venture agreement had not met its sole purpose and had been constructively terminated by them. He therefore requested that the assets of the joint venture should be realised and the proceeds distributed. He sought a response by 31 March 2012.
Mr Orfanos stated that the basis for his opinion that the joint venture agreement had been constructively terminated was as follows:
·His offer to sell his one third interest had been rejected.
·There were no written lease agreements in relation to the property.
·The current lease arrangements had not been discussed with him nor approved by him.
·Mr Ouwens and Mr Michaels had a conflict of interest in giving each other verbal leases on terms that had not been approved by him.
·The assessment of the market rental provided by CBRE and Jones Lang LaSalle was significantly higher than that being paid by Mr Ouwens and Mr Michaels.
·Mr Ouwens and Mr Michaels had entered into financial arrangements with Westpac without his approval or consent.
·He had been advised that the joint venture deed was defective because it did not provide a mechanism to allow a member to bring the joint venture to an end. Thus, it may be necessary to seek a court order.

Apart from limited inquiries in 2006, Mr Orfanos has taken no further action to secure an outside purchaser for his interest. He has not advertised his interest for sale, nor has he engaged an agent to find a purchaser. Due to the inadequacy of the action taken by Mr Orfanos to find a purchaser for his interest, the Court cannot be satisfied that he is unable to sell his interest if Mr Ouwens and Mr Michaels remain unwilling to buy. While Mr Orfanos may need to substantially discount the price so as to secure a purchaser for his partial interest, this is simply a consequence of the contract he made in 2002.
The limited efforts made by Mr Orfanos to sell his interest lend considerable force to the submission by the defendants that he has sought the intervention of the Court because he is dissatisfied with the bargain he made in 2002.
In Re Catombal Investments Pty Ltd, Brereton J held that:
…the rationale behind many of the grounds referred to in the decided cases, particularly in the context of corporate quasi-partnerships, is that a shareholder who has invested in a company on the basis that it will undertake a certain activity is entitled to recover his or her contribution if the activity becomes impossible. Similarly, a shareholder who has invested in a company on the basis of mutual understandings and arrangements as to how the affairs of the company will be managed is entitled to recover his or her contribution if these understandings and arrangements are falsified – for example, by exclusion of a shareholder who was intended originally to be involved in management from management. On the other hand, it is not enough merely that the majority has lost trust and confidence in the minority, or vice versa.[84]
[84] (2012) 30 ACLC 12-031; [2012] NSWSC 775 at [22].
I do not consider that the observations made by Brereton J in Re Catombal Investments are applicable. The activity that led Mr Orfanos to invest in Semweb has not become impossible to perform. As I have already noted, Semweb still provides office accommodation for two of the joint venturers who have elected to remain in the Property and the Property still serves as an investment vehicle for all three joint venturers. Furthermore, it has not been established that the expectations Mr Orfanos held when he entered the arrangement have been falsified by his exclusion from management or otherwise. Mr Orfanos could still seek to participate in management by requesting that meetings of the Semweb directors are conducted and attending those meetings. While he may be outvoted, that has not been shown to be a certain outcome. In any event, being outvoted is not, of itself, enough to justify an order for winding up.
The latter observation is also relevant to the failure by Mr Ouwens and Mr Michaels to consult Mr Orfanos in February 2013 before they decided not to obtain the Saville’s valuation. While I firmly consider that Mr Orfanos should have been consulted before the decision was made and informed about the outcome, I do not regard these failings, of themselves, as being sufficient to warrant winding up of Semweb. It has not been established that the decision not to proceed with the Saville’s valuation had any material effect on the interests of Mr Orfanos.
The difficulties that have arisen in the relationship between Mr Orfanos and Mr Ouwens have not affected the ability of Mr Orfanos to exercise his right to sell his interest in the Property to Mr Ouwens and Mr Michaels, or to a third party if they are unwilling to buy. In making that observation I have no regard to the offer made by Mr Ouwens on 22 July 2015 to purchase the interest of Mr Orfanos, as there is no information before the Court to indicate whether or not that offer might be renewed.
In all of the circumstances I do not consider that there is a proper basis for the Court to make an order for the winding up of Semweb under the just and equitable ground. It is possible for Mr Orfanos sell his interest, albeit that it may be necessary to significantly discount the price so as to secure a sale. The difficulties between Mr Orfanos and Mr Ouwens, the failure of Semweb to hold meetings, the failure to reduce the Westpac loan balance or to distribute capital and the failure to inform Mr Orfanos of the decision not to proceed with the Savilles valuation have not affected the exercise of the rights that Mr Orfanos contracted for in 2002. To borrow the words used by Young J in International Hospitality Concepts, the venture has not “come to a frustrating event”.
However, it is worth noting I may have taken a very different view on the availability of the remedies under the Corporations Act, and more generally, if it had been established on the balance of probabilities that the entities associated with Mr Ouwens and Mr Michaels had occupied the Property at significantly less than the market rent to the financial detriment of Mr Orfanos.
Fiduciary and statutory duties of the joint venturers and of Semweb
It is convenient to restate that Semweb is the registered proprietor of the Property. Semweb is also the trustee of the Trust established for the benefit of Orfanos Nominees, Melrob and OCS. The Three Principals have been the directors of Semweb since 2002. Mr Orfanos was the company secretary of Semweb until his resignation in 2007 when he was replaced by Mr Michaels.
While Semweb is the first defendant and filed a defence, it took no part in the trial after its solicitor gave an undertaking that it would abide the decision of the Court.
The defendants, other than Semweb, allege that certain causes of action could only be pursued as derivative actions with leave of the Court under s 237 of the Corporations Act. The plaintiffs say they have not applied for leave as they were not seeking to enforce duties owed to Semweb, but rather duties owed personally to Orfanos Nominees and Mr Orfanos. The plaintiffs assert that the duties owed by Mr Michaels and Mr Ouwens to Semweb are identical to the duties they owed personally to Orfanos Nominees and Mr Orfanos. I have accepted the plaintiffs’ contention that they did not need leave to bring a derivative action at paragraphs [57].
The plaintiffs allege that as trustee, Semweb owed fiduciary duties to the beneficiaries of the Trust. It has long been recognised that a trustee owes fiduciary duties to the beneficiaries of a trust.[85] I also accept that, in its capacity as trustee, Semweb was under a duty to obtain a reasonable market rent for the property, unless the beneficiaries collectively waived that right.[86]
[85] Keech v Sandford (1726) Sel Cas T King 61; 25 ER 223.
[86] Cowan v Scargill [1985] Ch 270 at 287-289; Byrnes v Kendle (2011) 243 CLR 253 at [67] and [119].
The plaintiffs contend that the fiduciary duties of Semweb as trustee required it to act with utmost good faith and in the best interests of the beneficiaries of the Trust. As such, it was under a duty not to exploit any commercial opportunities connected with the Trust to the exclusion or detriment of the beneficiaries. It was required to preserve and protect the property of the Trust, including both income and capital. It was also required to avoid any conflict of interest or substantial possibility of a conflict in relation to the affairs of the Trust and refrain from conferring an advantage upon one beneficiary at the expense of another. I accept that the contentions advanced by the plaintiffs are well settled principles of trust law. The issue is whether those duties have been breached by Semweb.
The plaintiffs also allege that Semweb failed to comply with cl 4 of the Trust Deed, which requires it to refrain from selling, transferring, assigning, disposing or otherwise dealing with the Property or any estate or interest therein other than as agreed in writing between Semweb and the beneficiaries. The substance of the complaint is that Mr Ouwens and Mr Michaels allowed their firms to remain in occupation of the Property without consulting Mr Orfanos. All defendants (other than Semweb) declined to plead to this allegation on the basis that the claim could only be advanced against Semweb. The only defence by Semweb was filed at an early stage in the proceedings before the plaintiffs amended their statement of claim to include the alleged breach of cl 4 of the Trust Deed. Thus, Semweb did not respond to the allegation in its defence. The allegation was also not referred to in the written and oral submissions made on behalf of the plaintiffs. Mr Orfanos acknowledged in cross examination that he had never complained to Mr Michaels or Mr Ouwens that they were acting contrary to cl 4 of the Trust Deed by remaining in occupation of the Property. While there may have been a technical breach of cl 4, in my view that issue would only have substance if it had been proven that the Property was occupied at less than the market rent. As that has not been established to my satisfaction, it is unnecessary to further consider the allegation of non-compliance with cl 4.
The plaintiffs additionally allege that Mr Michaels and Mr Ouwens were required to exercise their powers as directors of Semweb for a proper purpose, not to put themselves in a position of conflict between duty and interest, not to gain an advantage for themselves at the expense of the joint venture or to the detriment of any joint venturer and were required to exercise their powers with care and diligence.
The plaintiffs also allege that Mr Michaels and Mr Ouwens, in their capacity as directors of Semweb, owed fiduciary duties to Semweb in the same terms as those referred to in the previous paragraph. I accept that directors are under a fiduciary duty to the company. A director cannot exercise their powers to profit personally and must not allow a conflict to arise between the interests of the company and their own interests.[87]
[87] Furs Ltd v Tomkies (1936) 54 CLR 583 at 592, Latham CJ.
The plaintiffs observe that Semweb has never held an annual general meeting and has held very few board meetings. They also refer to the alleged failure to give notice of board meetings to each director.[88] I have considered the failure to hold meetings at paragraphs [441]-[442] in the context of the claims made for remedial orders or the winding up of Semweb under the Corporations Act. The present relevance of these claims is that they lend support to the allegation that, after Mr Orfanos moved out of the Property, Mr Michaels and Mr Ouwens effectively took over the operations of Semweb and managed its affairs in their own interests, to the detriment of Mr Orfanos.
[88] I note that the only Semweb meeting where there is any uncertainty about issue of notice of meetings relates to that held on 3 July 2013. While notice of the meeting appears in the tender documents, Mr Orfanos said that he did not receive the notice. Mr Ouwens said Mr Michaels told him he sent the notice but Mr Michaels was not asked about this. (See paragraph [49] above).
The plaintiffs also allege that Mr Ouwens and Mr Michaels, as directors of Semweb, owed statutory duties to Semweb under s 181 of the Corporations Act to exercise their powers and discharge their duties in good faith in the best interests of Semweb and for a proper purpose. Additionally, by virtue of s 182 of the Corporations Act the plaintiffs allege they were required not to improperly use their position to gain an advantage for themselves or someone else or to cause detriment to Semweb. Both s 181 and s 182 are civil penalty provisions. The Corporations Act establishes a specific enforcement regime for civil penalty provisions.[89] The plaintiffs have not sought any of the remedies provided under that regime. Thus, I do not need to consider whether there was a breach of either s 181 or s 182 by Mr Michaels or Mr Ouwens. In any event, if their conduct was such as to breach either s 181 or s 182 it seems very likely they would also have breached the fiduciary duties they owed to Semweb as directors.
[89] Section 1317E of the Corporations Act provides for the making of a declaration in relation to a breach of a civil penalty provision while s 1317H empowers the Court to order the payment of compensation to the company on account of a breach.
The plaintiffs also contend that Mr Ouwens and Mr Michaels have failed to meet the obligation allegedly imposed by cl 3.6.1 of the JVD to ensure that Semweb acted in the best interests of the joint venturers and also in the best interests of the beneficiaries of the Trust.
The plaintiffs contend that even if the joint venture does not constitute a partnership, the joint venturers nevertheless owed fiduciary duties to each other. The plaintiffs assert that those fiduciary duties required the joint venturers to act with utmost good faith and in the best interests of the joint venture, not to put a joint venturer in a position of conflict between duty and interest and not to gain an opportunity or advantage for their own benefit to which the other joint venturers were jointly entitled. The plaintiffs also allege that Mr Michaels and Mr Ouwens breached the fiduciary duties they are said to owe personally to Orfanos Nominees.
Counsel for the plaintiffs acknowledges that the basis for the contention that fiduciary duties owed to the plaintiffs have been breached relates solely to the allegation that Mr Ouwens and Mr Michaels had permitted OCS and Melrob to benefit by paying less than the market rent to Semweb. That is also clearly the foundation for the alleged breaches of statutory duty and duties under the JVD and the Trust Deed.
The allegation about payment of less than the market rent has not been proven to the satisfaction of the Court. Thus, it is not necessary for me to consider whether the fiduciary and other duties upon which the plaintiffs rely actually arose. Nevertheless, for completeness, I will briefly consider the question of fiduciary duties.
I have found that the joint venture did not constitute a partnership. The question therefore is whether fiduciary duties arose despite the lack of a partnership. In a number of cases it has been found that a joint venture that is not a partnership may give rise to a fiduciary relationship. Amongst other authorities, I refer to Noranda Australia Ltd v Lachlan Resources NL;[90] Keith Murphy Pty Ltd v Custom Credit Corporation Ltd;[91] and Auag Resources Ltd v Waihi Mines Ltd.[92]
[90] (1988) 14 NSWLR 1.
[91] (1992) 6 WAR 332.
[92] [1994] 3 NZLR 571.
If there is a fiduciary relationship between joint venturers, the relationship must be consistent with and conform to the terms of the contract between the parties.[93] The fiduciary duties that apply between parties to a joint venture that is not a partnership should be limited to activities in relation to which the parties had mutual trust and confidence in each other.[94]
[93] Hospital Products Pty Ltd v United States Surgical Co (1984) 156 CLR 41 at 97, Mason J (as he then was).
[94] Ibid at 97, 102 and 123; Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 at 17; Schipp v Cameron [1999] NSWSC 997 at [729]-[731].
The defendants contend that cl 10 of the JVD precludes the existence of any fiduciary duties. That clause is headed “nature of relationship” and states that nothing in the agreement shall be construed so as to constitute any of the parties an agent or representative of another, nor to create any trust or partnership. Clause 10 does not exclude fiduciary duties. Such duties may exist where there is no trust or partnership relationship.
The plaintiffs submit that the parties to the joint venture were under an obligation, within the scope of the joint venture, not to promote their personal interests or to pursue a gain or benefit in circumstances where there was a conflict, or a real or substantial possibility of a conflict, between their personal interests and those of the other parties. Those duties are said to be supported by the judgment of Mason J (as he then was) in Hospital Products Ltd v United States Surgical Co[95] and by Pilmer v The Duke Group Ltd (in liq).[96]
[95] (1984) 156 CLR 41 at 103.
[96] (2001) 207 CLR 165 at 199.
It is clear that in their capacity as directors the Three Principals owed fiduciary duties to Semweb. They could not prefer their own interests to those of Semweb. It is equally clear that Semweb owed fiduciary duties to the three beneficiaries of the Trust. Thus, Semweb could not prefer its own interests (if it had any) to the beneficiaries. There is also no doubt that decisions made (or not made) by Semweb in its capacity as trustee may indirectly affect the financial interests of OCS, Melrob and Orfanos Nominees as beneficiaries of the Trust. Thus, the question is whether the Three Principals were each under an individual fiduciary duty not to promote their own interests to the detriment of their fellows.
The Full Federal Court in Gibson Motorsport Merchandise Pty Ltd v Forbes held that a joint venture may give rise to fiduciary obligations where the participants have associated for a common end and the relationship between them is based upon a mutual confidence that they will engage in the particular activity or transaction only for their joint advantage.[97] French J also noted in Gibson Motorsport that the mere fact a relationship is dependent upon cooperation between the parties does not, of itself, give rise to fiduciary duties.[98] While the parties may have agreed to cooperate, the nature of the relationship may be such that they are permitted to act in their own advantage to the exclusion of others.[99] Moreover, a relationship may be fiduciary in some respects but not in others.[100]
[97] (2006) 149 FCR 569 at [76], Sundberg and Emmett JJ (French J agreeing).
[98] Ibid at [16]-[17].
[99] News Ltd v Australian Rugby Football League Ltd (1996) 139 ALR 193.
[100] Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97-98.
I consider that a fiduciary duty arose because an objective observer would conclude that each of the Three Principals had trust and confidence in their colleagues to the extent that they would exercise their powers over the management of the Property only for their joint advantage. To put the matter another way, I consider that the nature of the arrangement was such that each of the Three Principals was entitled to expect that his colleagues would not exercise their powers in relation to the management of the Property to their own advantage and to the detriment of their colleagues.
For these reasons Mr Orfanos was entitled to expect that Mr Ouwens and Mr Michaels would not act so as to benefit themselves and cause disadvantage to him in relation to the setting of the rent for the office accommodation. When all Three Principals occupied the Property and paid rents they had mutually agreed, the issue of a possible breach of fiduciary duty did not arise. However, the issue did arise when Mr Orfanos left the Property while Mr Ouwens and Mr Michaels continued in occupation under an informal arrangement that had not been endorsed by Mr Orfanos or by Semweb.
For completeness, I also note that in some circumstances the Three Principals were entitled to prefer their own individual interests. Thus, when considering under cl 9 of the JVD an offer by one of the other joint venturers to sell their interest each of the Three Principals were clearly entitled to prefer their own interest to that of their colleagues. In that situation the joint venture clearly did not require them to sacrifice their own commercial interests. Accordingly, that matter was outside the scope of the fiduciary duty.
My finding that Mr Ouwens and Mr Michaels owed Mr Orfanos a fiduciary duty in relation to the setting of the rent at the market rate is academic in that it has not been established that OCS and Sims Richmond were paying less than the market rent after December 2007.
The plaintiffs have also sought orders under s 36 and s 59C of the Trustee Act 1936 (SA) that the Trust be revoked and its assets distributed. Clearly, those remedies are dependent upon a finding that Semweb breached its duties as trustee due to the alleged failure to ensure that the market rent was paid by OCS and Sims Richmond. As that allegation has not been made out, there is no basis to grant relief under the Trustee Act.
Conclusion

My findings may be summarised as follows:
(a)The joint venture did not give rise to a partnership. Thus, the remedies under the Partnership Act are not available;
(b)A right to terminate the joint venture upon the giving of reasonable notice cannot be implied into the JVD;
(c)A right to terminate the joint venture for breach cannot be implied into the JVD. However, a right to terminate for repudiation can be implied. However, Mr Orfanos did not rely upon a breach or repudiation when he gave notice on 10 September 2012 of the termination of the joint venture;
(d)The claim for partition and sale of the Property under the Law of Property Act must also be dismissed because the joint venture remains on foot and Mr Orfanos still has the option to exercise his right to sell the Property in accordance with cl 9 of the JVD;
(e)The claim that OCS and Sims Richmond paid less than the market rent for their office accommodation in the Property after December 2007 has not been established on the balance of probabilities;
(f)While the participants in the joint venture owed each other fiduciary duties, the breaches of duty alleged by the plaintiffs are entirely dependent upon the contention that Mr Ouwens and Mr Michaels had exercised their power over Semweb so as to permit Sims Richmond and OCS to pay less than the market rent. As the allegation that Sims Richmond and OCS were paying less than the market rent has not been established to the satisfaction of the Court, there has been no breach of fiduciary duty;
(g)For the same reason, the breaches of trust alleged against Semweb and also the breaches of the JVD and the Trust Deed alleged against Mr Michaels and Mr Ouwens have not been established;
(h)The conduct of Mr Orfanos in relation to the termination of the OCS² joint venture would not have provided a basis to refuse relief on discretionary grounds if the plaintiffs had otherwise made out their claim for relief connected with or arising from the alleged underpayment of rent;
(i)The plaintiffs were entitled to proceed in respect of the duties said to be owed to Mr Orfanos and Orfanos Nominees by Mr Michaels and Mr Ouwens, even though they had not sought leave from the Court to bring a derivative action against Semweb in respect of the cognate duties said to be owed to Semweb by Mr Ouwens and Mr Michaels; and
(j)the claims for relief on various grounds under the Corporations Act have not been made out.
The result of my findings is that Mr Orfanos remains entitled to sell his interest in the joint venture in accordance with cl 9 of the JVD. Thus, the contractual rights he obtained in 2002 when he entered the joint venture remain available to him. The fact that the sale price for a partial interest in the Property may be less than the value of a proportionate interest in the Property is a consequence of the JVA.
My findings in relation to the prayer for relief contained in the plaintiffs’ third statement of claim are as follows.
Prayer for relief
The plaintiffs seek 13 remedies in addition to interest and costs.
It is unnecessary to decide the claim for a declaration that the first plaintiff, Blong Ume nominees, is the lawful successor to the second plaintiff, Orfanos Nominees. That claim was not pursued at trial.
The plaintiffs seek an order for the winding up of Semweb pursuant to s 233 or s 461(1) (e), (f), (g) or (k) of the Corporations Act. They also seek orders pursuant to s 233 regulating the affairs of Semweb in the future, including orders for the sale of the Property and distribution of the sale proceeds to the beneficiaries of the Trust. I have found that there is no basis to make orders under the Corporations Act either on the ground of oppression and related grounds or on the basis that it is considered by the Court to be just and equitable to do so.
I also reject the applications by the plaintiffs for orders terminating the Trust and for the sale of the Property and the distribution of the sale proceeds under s 36 or s 59C of the Trustee Act. That claim fails because it has not been proven that OCS and Sims Richmond paid less than the market rent for the office accommodation they occupied in the Property after December 2007.
The plaintiffs seek a declaration to the effect that a term could be implied into the JVD entitling a joint venturer to give reasonable notice of the termination of the joint venture. Because of my finding that such a term could not be implied, the application for a declaration must be refused.
I have found that a term cannot be implied into the JVD to the effect that Semweb and the joint venturers would do all things reasonably necessary to achieve the purposes of the joint venture. An implied term to that effect would have an uncertain operation. Accordingly, I refuse the application for a declaration giving recognition to such an implied term.
I have found that the joint venture was not in the nature of a partnership. Thus, the notice given by Mr Orfanos and Orfanos Nominees purporting to terminate the joint venture with effect from 31 December 2012 did not have the effect of dissolving a partnership. As there was not a partnership, the application for orders dissolving the partnership under s 35 of the Partnership Act and requiring the taking of accounts must also be refused.
The plaintiffs seek a declaration that the effect of the notice given by Mr Orfanos and Orfanos Nominees on 10 September 2012 was to terminate the joint venture under cl 3.1 of the JVD on the basis that this clause authorised Mr Orfanos to withdraw his agreement to continue the joint venture. I have found that cl 3.1 required the written consent of all three joint venturers to effect a termination. Thus, the declaration must be refused.
The plaintiffs concede that if the joint venture has not been validly terminated its continuing existence operates as a discretionary bar to the making of an order for the sale of the Property and the distribution of the proceeds pursuant to s 69(2) of the Law of Property Act. Due to my finding that the joint venture has not been validly terminated, and as Mr Orfanos may still exercise his right to sell his interest, the application under the Law of Property Act must be dismissed.
As a consequence of the finding that it has not been established that the rent paid by OCS and Sims Richmond after 1 December 2007 was less than the market rate there is no basis for the Court to find that Mr Ouwens and Mr Michaels have breached their statutory, contractual or fiduciary duties. There is also no basis to find that Semweb has breached its duties as trustee. Accordingly, the orders for an account or an inquiry as to profits or for payment of monies to either Semweb or to the plaintiffs must be refused.
I will make orders dismissing the plaintiffs’ claims in in all respects. I will hear the parties as to costs