Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (No 2)

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BLONG UME NOMINEES PTY LTD & ORS v SEMWEB NOMINEES PTY LTD & ORS (No 2)
[2021] SASC 22
Judgment of the Honourable Chief Justice Kourakis

EQUITY - TRUSTS AND TRUSTEES - APPOINTMENT, REMOVAL AND ESTATE OF TRUSTEES - RETIREMENT AND REMOVAL - REMOVAL BY THE COURT - JURISDICTION AND POWERS
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION
Messrs Orfanos, Michaels and Ouwens, referred to as ’the three principals’, formed a joint venture comprising of their respective corporate vehicles, of which they were the principals, Orfanos Nominees Pty Ltd (Orfanos Nominees), Melrob Investments Pty Ltd (Melrob) and Ouwens Corporate Services Pty Ltd (OCS). Under the joint venture, the joint venture company, Semweb Nominees Pty Ltd (Semweb), of which each of the three principals was a director, was to purchase and hold an office building as trustee from which the three principals could operate their respective practices.
Semweb leased, on a five-year term expiring in December 2007, part of the building to Sims Richmond Pty Ltd (Mr Michaels) and part of it to OCS (Mr Ouwens) and Orfanos Corporate (Mr Orfanos) through a joint venture between OCS and Orfanos Corporate. In December 2007, Mr Orfanos vacated the property after falling into dispute with Mr Ouwens. In the years which followed, Mr Orfanos raised, on two occasions, complaints that Semweb did not lease the property on market terms and conditions.
At trial, the Judge found that Messrs Ouwens, Michaels and Orfanos owed fiduciary duties to themselves and their associated joint venturers and that the joint venturers owed duties to each other. However, the Judge dismissed the action, in all respects, on the grounds that the plaintiff had not proved that the rent collected by Semweb was less than the market rent.
On appeal, the Full Court overturned the trial Judge's decision, finding that Semweb breached its fiduciary and equitable duties it owed to the joint venturers as beneficiaries and that a landlord exercising reasonable skill and diligence would have taken steps to obtain a market rental income from the property and made orders for an account and inquiry as to the shortfall in rental income to be paid to the plaintiffs.
The Full Court ordered two residuary issues be remitted for rehearing in relation to the plaintiffs’ claims for the removal of the first defendant as trustee or the winding up of the trust under ss 36 and 59C of the Trustee Act 1936 (SA) (the Trustee Act), and the plaintiffs’ claim for relief on the basis of oppressive conduct under ss 232, 233 and 461 of the Corporations Act 2001 (Cth) (the Corporations Act).
Held (Kourakis CJ):
1.      The spirit of the trust extends to, and includes, the commercial purposes of the joint venture to accommodate the beneficiaries’ interests in the property as an investment and as office accommodation for their related professional practices.
2.      The objectives and purposes underlying the joint venture and the trust have largely been achieved and the balance of considerations weighs strongly in favour of the termination of the trust.
3.      Mr Michaels and Mr Ouwens have attempted to take advantage of Mr Orfanos's personal circumstances by insisting on a ‘minority discount’. The approach is unreasonable and a breach of the underlying spirit of the trust arrangement. It is inconsistent with the duties of good faith and fairness inherent in the arrangement.
4. It is unnecessary to determine the scope of the power under s 233 of the Corporations Act, nonetheless, that power to wind up Semweb would have been exercised if an alternative remedy were not available.
5. A wide interpretation should be taken when considering the availability of remedies under s 59C of the Trustee Act and s 233 of the Corporations Act. There is a public interest in ensuring that a remedy is available when the legal structures adopted for business ventures involving multiple parties are used oppressively or become unworkable.
Trustee Act 1936 (SA) ss 36, 59C; Corporations Act 2001 (Cth) ss 53, 232, 233, 461; Law of Property Act 1936 (SA) s 62, referred to.
Retail Employees Superannuation Pty Ltd v Pain (2016) 115 ACSR 1; HEST Australia Ltd v Inkley [2018] SASC 127; Westpac Securities Administration Ltd v Cooper [2016] SASC 122, applied.
Trust Company Ltd v Noosa Venture 1 Pty Ltd (2010) 80 ACSR 485, not followed.
Benzija v Adriatic Fisheries Pty Ltd (1984) 37 SASR 545; Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Vigliaroni v CPS Investment Holdings Pty Ltd (2009) 4 BFRA 90; Hamex Corporation Pty Ltd v Latrobe Street Ventures Pty Ltd [2019] FCA 1717; Wain v Drapac [2012] VSC 156, discussed.
Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2019) 135 SASR 385; Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2017) 123 ACSR 19; Re Polyresins Pty Ltd (1998) 28 ACSR 671; McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244; Ciccarello, Re Adelaide Property Development Pty Ltd v Cubelic [2008] FCA 141, considered.

BLONG UME NOMINEES PTY LTD & ORS v SEMWEB NOMINEES PTY LTD & ORS (No 2)
[2021] SASC 22

KOURAKIS CJ: This judgment determines certain residual issues remitted by the Full Court for hearing and determination after allowing the appeal in Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd.[1]
[1] (2019) 135 SASR 385.
In November 2002, Nicholas Orfanos and Michael Michaels, who were chartered accountants, and Willem Ouwens, a solicitor, referred to at trial as the three principals, agreed to purchase a building on Frome Street, Adelaide (the property), from which to operate their respective practices.
They agreed that a company incorporated some years earlier by Mr Michaels, Semweb Nominees Pty Ltd (Semweb), would purchase the property as trustee for three corporate beneficiaries: Orfanos Nominees Pty Ltd (Orfanos Nominees) of which Mr Orfanos was the principal, Melrob Investments Pty Ltd (Melrob) of which Mr Michaels was the principal and Ouwens Corporate Services Pty Ltd (OCS) of which Mr Ouwens was the principal.
Orfanos Nominees, Melrob and OCS (the corporate beneficiaries/joint venturers) entered into a Joint Venture Deed (JVD) with Semweb reflecting the arrangement made by the three principals to operate their professional practices from a building in which they had invested. Pursuant to the JVD and on the same day as its execution, the joint venturers entered into a Deed of Trust (the Trust Deed). Save in one respect, neither the JVD nor the Trust Deed make provision for the termination of either the contractual or equitable relationships between the parties to them. Clause 9.1 of the JVD requires a retiring joint venturer to give notice to the remaining joint venturers of an intention to sell its interest under the JVD and Trust Deed, so that they may have the opportunity of exercising an option to purchase the retiring joint venturer’s interest at no more than the amount of the proposed sale to an outsider. For obvious reasons, there is not a strong market for a joint venturer’s interest in an arrangement of this kind. Clause 9 is primarily a mechanism to protect the continuing joint venturers from being forced into contractual and equitable relationships requiring close cooperation with a person who is not of their choosing, in the event that the retiring partner does find a purchaser.
Each of the professional practices of the three principals took five year leases over, and occupied almost all of, the property. Mr Michaels’ corporate practice, Sims Richmond Pty Ltd (Sims Richmond), occupied all of the ground floor. The practice of Mr Ouwens, Ouwens Corporate Services Pty Ltd (Ouwens Corporate), and Mr Orfanos’ practice, Orfanos Corporate Pty Ltd (Orfanos Corporate) occupied the first floor on which there was with some surplus space to sublet to others.
In December 2007, Orfanos Corporate vacated the property after Mr Orfanos fell into dispute with Mr Ouwens. In the years which followed, Mr Orfanos twice made complaints that Semweb was not leasing the property to the remaining corporate practices on market terms and conditions. No steps were taken by Semweb to procure written leases or to ensure that a market rent was paid by the occupants of the property. Later, Mr Orfanos, Orfanos Nominees, Blong Ume Nominees Pty Ltd (Blong Ume) (collectively, the plaintiffs), brought an action seeking remedies for Semweb’s failure to do so (Blong Ume had succeeded or was intended by Mr Orfanos to succeed Orfanos Nominees). The remedies they sought included declarations, an order for the winding up of Semweb, an order regulating the affairs of Semweb and an order that Semweb, Melrob, OCS and Messrs Michaels and Ouwens pay them equitable compensation. The Judge dismissed the action on the grounds that the plaintiffs had not proved that the rent collected by Semweb was less than the market rent.[2]
[2] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2017) 123 ACSR 19 at 107.
The plaintiffs’ appeal against the dismissal of their claim was successful. The issues determined on the appeal are summarised in the following paragraphs of the judgment of the Full Court:[3]
[5] We allow the appeal. Semweb breached its duty as a trustee by failing to take any steps to ensure that the property was leased at market rates. For the reasons which follow, the Judge erred in his assessment of the market rent. The market rent of the ground floor on 1 December 2007 was $113,164 per annum, and on 1 December 2012 was $132,553.50. The market rent for the first floor on 1 December 2007 was $71,421 and on 1 December 2012 was $84,189.
[6] We would order that Semweb restore the difference between the rents received by it and the market rent adjusted by such CPI increases as may be necessary. We would make an order that Messrs Michaels and Ouwens pay a sum by way of equitable compensation to Orfanos Nominees to the extent that is necessary to ensure that it does not bear any loss arising out of the order made against Semweb. We will hear the parties on the calculation of the quantum of those orders and interest and on the costs of the trial and appeal.
[3] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2019) 135 SASR 385.
Sims Richmond and Ouwens Corporate have continued to occupy office space in the property and wish to continue to do so. Accordingly, on 24 December 2019 the Full Court remitted for hearing the following specific issues:
2.3 There be an account and inquiry as to:
2.3.1The market rent payable in respect of the ‘ground floor’ premises and the ‘first floor’ premises in the Frome Street building, including the respective associated car parks, for the period 1 December 2017 and thereafter; and
2.3.2The amount of rent received by the first defendant for those premise for the period 1 December 2017 and thereafter,
with the proceedings to be adjourned before a Justice of the Court for further consideration as to the orders to be made after the taking of the accounts.
…
3.1 The plaintiffs’ claims for the removal of the first defendant as trustee of the Trust and/or winding up of the Trust pursuant to ss 36 and 59C of the Trustee Act 1936 (SA); and
3.2 The plaintiffs’ claims for remedies under ss 232, 233 and 461 of the Corporations Act 2001 (Cth),
with the parties being permitted to tender further evidence at the rehearing limited to facts and circumstances that have occurred since the completion of the trial in these proceedings.
4The account and inquiry in paragraph 2.3 above and the rehearing in paragraph 3 above be conducted concurrently by the same Justice of the Court.
…
The parties have reached agreement on the issue of market rent and consent to orders that Semweb is bound to recover, from Sims Richmond and Ouwens Corporate Services, $53,262.28 in respect of the period 1 December 2017 to 31 October 2020. That amount is the difference between an underpayment of $65,708.06 including interest in respect of the ground floor tenancy and an overpayment of $12,443.83 in respect of the first floor tenancy. The consent order reflects agreements as between the parties to this litigation, and their corporate practices, on the market rent of the premises.
The parties remain in dispute on the remaining two remitted issues. Both issues raise the underlying question of whether there are proper grounds on which to release Orfanos Nominees from the JVD and the Trust Deed, on terms that it receives one third of the equity in the property at its market value. The question is to be determined against the factual background that the joint venture engaged in by the corporate beneficiaries, for most of the two decades of its existence, has been marred by disputation and litigation, and at a time when Mr Orfanos, who is aged 74, now practices from home, and wishes to fully retire.
Section 59C of the Trustee Act 1936 (SA) (the Trustee Act) empowers this Court, relevantly to the issues in this matter, to revoke a trust and distribute the trust property in such manner as the Court considers just, or resettle the trust property upon such terms as the Court thinks fit.[4] The Court must be satisfied that, relevantly, the proposed revocation and ancillary orders would be in the interests of beneficiaries of the trust and that the proposed exercise of the powers would not disturb the trust beyond what is necessary to give effect to the reasons justifying the exercise of the powers which must accord as far as reasonably practicable with the spirit of the trust.[5]
[4] Trustee Act 1936 (SA) s 59C(1).
[5] Trustee Act 1936 (SA) s 59C(3).
The immediate object of the Trust Deed is to give effect to the JVD, that the premises be held on a trust by an independent corporate trustee for the benefit of each joint venturer equally. However, the spirit of the trust extends to, and includes, the commercial purposes of the JVD. Those purposes are to procure reasonable, secure and sustainable accommodation for the professional practices of the three principals, and to allow for capital growth in the investment of the joint venturer/beneficiaries under favourable taxation conditions arising out of the leases to the corporate practices. It is inherent in the nature of an investment that the, hopefully augmented, capital ultimately will be realised. Plainly, there is a tension between the objectives of securing office accommodation on the one hand, and recouping the capital in the investment on the other, if there is not unanimous agreement on when to do so. A high degree of goodwill and cooperation is therefore required by the arrangement, because the professional, financial and personal circumstances of the principals may diverge over time. The tension may be resolved by the remaining corporate practices negotiating leases with the potential purchaser at the time of sale or by the remaining joint venturers/beneficiaries purchasing the property, or the retiring joint venturer’s interest, themselves. As my reasons explain, the Trust Deed provides a flexible mechanism to accommodate those potentially competing purposes if the tension is not resolved in those, or any other, ways.
The first objective of the underlying arrangement, accommodating the related professional practices, has run its course for both Mr Orfanos and Mr Ouwens, who are close to retirement. Even though Mr Michaels’ practice will continue for some time, it has enjoyed stable office accommodation in the property for two decades. The joint venturers/beneficiaries have benefitted from a substantial increase in the value of the building and from collateral taxation advantages for many years. The incidence of taxation now operates differentially on them and is a cause of friction. The JVD and the Trust Deed have subsisted for long enough, and the value of the property has increased sufficiently, so that the sale costs will be a relatively small proportion of the capital growth. I find that the time has come when the balance of the competing purposes of the joint ventures weigh strongly in favour of its termination.
I also find that Mr Michaels and Mr Ouwens have attempted to take advantage of Mr Orfanos's personal circumstances to purchase his interest for less than one third of the market value of the property by insisting on a ‘minority discount’. The minority discount from which they wish to benefit arises because independent third parties will be reluctant to bind themselves to an investment of this kind which is dependent on a high level of cooperation and good faith on the part of the joint venturers. Forcing a minority discount on Mr Orfanos after this length of time is not a legitimate interest of Melrob and OCS under the JVD, or the Trust Deed, having regard to the purpose of the former and the spirit of the latter. The conduct of Mr Ouwens and Mr Michaels, as principals of their respective joint venturers, in attempting to procure a minority discount gives good reason to exercise the discretion conferred by s 59C of the Trustee Act.
I propose to revoke the trust, direct the sale of the property and order the distribution of the proceeds equally to all three beneficiaries. However, I will first allow Melrob and OCS an opportunity to negotiate in good faith to purchase the interest of Orfanos Nominees/Blong Ume, pursuant to Clause 9 of the JVD before final orders are made. I would hear the parties as to how much time should be allowed for that purpose and as to the precise form of any order distributing the trust property or re-settling the property.
It is therefore unnecessary for me to consider the other alternative remedies sought by the plaintiffs under s 233 of the Corporations Act 2001 (Cth) (the Corporations Act). Nonetheless, I indicate that I would have exercised powers to wind up Semweb, with consequential orders to the same effect as I have just proposed, if the power conferred by s 59C of the Trustee Act were not available.
I elaborate on my reasons below.
The Joint Venture Deed and the Trust Deed
The purpose of the joint venture is described by the JVD to be 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 further develop the Property’. It is in the very nature of an investment that it will return an income and that the capital will appreciate in value, so that it may be realised in the future when its value has optimised, and/or the capital is required for another purpose.
Clause 3.1 of the JVD provides that the manner in which the property is held, and indeed whether it continues to be held, is a matter which will be ‘mutually agreed between the Joint Venturers from time to time’. It anticipates, therefore, that the way in which the property is held, or dealt with, might change over time. The stipulation of ‘mutual agreement’ contemplates that all of the joint venturers must reach agreement on how to deal with the investment. It does not contemplate that decisions will be made by a majority. Moreover, the agreement of the joint venturers must be a dynamic one if the very purposes of the investment are to be achieved. At the very least, the stated purpose shows, and exposes, that the operation of the joint venture will require cooperation and negotiation in good faith. So too with respect to the very term and period of the joint venture which by Clause 3.2 expires ‘on such date as shall be mutually agreed in writing between the Joint Venturers’.

It is only superficially attractive to say, as Mr Michaels and Mr Ouwens contend, that the mutual agreement to purchase the property for office space for the corporate practices of all three principals, two decades ago, remains extant, and continues to bind Orfanos Nominees, unless and until all three joint venturers agree on a different proposal. The fact is that there is no longer mutual agreement on the manner in which the investment should be held within the meaning of Clause 3.1 of the JVD.
The JVD provides that the shareholders of Semweb will be each of the principals unless the joint venturers, (Orfanos Nominees, Melrob and OCS) ‘otherwise mutually agree in writing’. The JVD does not provide a dispute resolution procedure in the event of the death, incapacity or retirement from practice of one of the principals, or should another person succeed one of the principals as a director of or related joint venturers without the agreement of the other joint venturers. It is not surprising that no such provision was made. The property was purchased both as an investment and to accommodate the corporate practices of the principals. It was therefore contemplated that, for the duration of the arrangement embodied in the JVD, the directors of Semweb would be Messrs Michaels, Ouwens and Orfanos, unless a sale to another was permitted pursuant to Clause 9.
Clause 5.6 of the JVD provides:
The Joint Venturers hereby mutually acknowledge and agree that the proceeds of sale or any other income in respect of or accruing from the Property shall be appropriated in the following order of priority:-
5.6.1 Firstly in the event that such income shall arise on the sale of the Property it shall be applied in meeting the cost of effecting and completing such sale;
5.6.2 Secondly in and towards repayment of the Borrowings, and all interest accrued thereon and all outgoings payable in respect of the Property;
5.6.3 Thirdly in and towards repayment of the Principle Sum and all interest accrued thereon; and
5.6.4 Fourthly as to the balance then remaining from time to time in distribution to the Joint Venturers in the Specified Percentages.
I will return to this clause in the context of a dispute between the joint venturers as to how the additional income, accruing to Semweb as a result of the orders of the Full Court that Semweb recover a market rent from Sims Richmond and Ouwens Corporate, should be applied.
Clause 9 of the JVD confers on the remaining joint venturers a right of first refusal in the event that a joint venturer gives notice of an intention to retire and dispose of its interest in the property. Only on the rejection, or deemed rejection, of the offer is the retiring joint venturer free to offer to sell its interest to an outsider. However, the offer must not be on terms more favourable to the third party than the terms and conditions offered to the continuing joint venturers. Prior to the transfer or sale, the retiring joint venturer must procure the execution by the third party of a deed whereby the third party covenant with the continuing joint venturers and Semweb, to duly and functionally observe and perform all of the obligations to be observed and performed by the retiring joint venturer. Clause 9 is a negative stipulation preventing a retiring joint venturer from imposing on the continuing joint venturers a party with whom they may need to share accommodation in the property and co‑operate in the performance of the JVD. It ensures that any third party to whom the retiring joint venturer’s interest is sold, is bound by those same clauses.
The Trust Deed recites that the three principals, wishing to purchase the property, have requested Semweb to do so and ‘thereafter to hold [it] on trust for the Beneficiaries as tenants in common’. No provision is made by the Trust Deed for the vesting of the beneficial interest in the property as at a particular time. Vesting is therefore governed by s 62 of the Law of Property Act 1936 (SA) (Law of Property Act). The Trust Deed provides, by Clause 2, that the property is to be held for the beneficiaries as tenants in common in equal third shares. By Clause 4 of the Trust Deed, Semweb acknowledges and agrees not to ‘sell transfer assign dispose of or otherwise deal with the [property] or any part thereof other than as agreed in writing between the Trustee and the Beneficiaries from time to time’. It follows that both the leasing and sale of the property are matters which require the agreement of all three beneficiaries. It is plain that the Trust Deed, too, is premised on a high degree of co‑operation between the parties. It is a necessary implication of Clause 4 that the beneficiaries must consider, in good faith, a proposal put by any one or more of them that the property be dealt with in any particular way, because it confers on each of the joint venturer beneficiaries the power to control the exercise of Semweb’s duty, as a trustee, to the beneficiaries. The Trust Deed thereby provides a flexible mechanism by which the competing purposes of the investment can be accommodated and managed equitably. It would, for example, be an act of bad faith on the part of one joint venturer/beneficiary to withhold consent to the sale of the property to a third party in order to force the sale at a discount of the interest of a joint venturer/beneficiary whose principal reasonably wishes to retire from professional practice after the purpose of the JVD and Trust Deed have been largely achieved.
The Trustee Act
Section 36 of the Trustee Act provides:
36—Power of the Court to appoint new trustee
(1) The Supreme Court may, on the application of a person referred to in subsection (1c), make—
(a)     an order removing one or more of the trustees of a trust; or
(b)     an order replacing one or more of the trustees of a trust; or
(c)     an order appointing a trustee or trustees, or an additional trustee or trustees, of a trust; or
(d)     any other order that in its opinion is necessary or desirable.
(1a) The Court may make the order if it is satisfied that the order is desirable—
(a)     in the interests of the persons (whether identified or not) who are to benefit from the trust; or
(b)     to advance the purposes of the trust.
(1b) There is no need for the Court to find any fault or inadequacy on the part of the existing trustees before making an order under this section.
(1c) The following persons may apply for an order under this section:
(a)     the Attorney-General; or
(b)     a trustee of the trust; or
(c)     a beneficiary of the trust; or
…
(2) An order under this section, and any consequential vesting order or conveyance shall not operate further or otherwise as a discharge to any former or continuing trustee than an appointment of new trustees under any power for that purpose contained in any instrument would have operated.
(3) Nothing in this section shall give power to appoint an executor or administrator.
Section 59C of the Trustee Act provides:
59C—Power of Court to authorise variations of trust
(1)The Supreme Court may, on the application of a trustee, or of any person who has a vested, future, or contingent interest in property held on trust—
(a)     vary or revoke all or any of the trusts; or
(b)     where trusts are revoked—
(i)distribute the trust property in such manner as the Court considers just; or
(ii)resettle the trust property upon such trusts as the Court thinks fit; or
(c)     enlarge or otherwise vary the powers of the trustees to manage or administer the trust property.
…
(3)Before the Court exercises its powers under this section, the Court must be satisfied—
(a)     that the application to the court is not substantially motivated by a desire to avoid, or reduce the incidence of tax; and
(b)     that the proposed exercise of powers would be in the interests of beneficiaries of the trust and would not result in one class of beneficiaries being unfairly advantaged to the prejudice of some other class; and
(c)     that the proposed exercise of powers would not disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the powers; and
(d)     that the proposed exercise of powers accords as far as reasonably practicable with the spirit of the trust.
(4)An order made by the Supreme Court in the exercise of powers conferred by this section is binding upon all present and future trustees and beneficiaries of the trust.
…
(6)This section does not derogate from any other power of the Supreme Court to vary or revoke a trust, or to enlarge or otherwise vary the powers of trustees.
Section 62 of the Law of Property Act should also be noted. It is intended to ensure that property held on trust vests within 80 years of the date of disposition. It relevantly provides:
62—Court may order vesting of interests
(1)If, 80 years or more after the date of a disposition of property, there remain interests in the property that have not vested, the court may, on application under this section, vary the terms of the disposition so that the interests vest immediately.
(2)The court may, on application under this section, vary the terms of a disposition of property so that interests that cannot vest, or are unlikely to vest, within 80 years after the date of the disposition, will vest within that period.
(3)If a disposition provides for the accumulation, or partial accumulation, of income from property over a period that will or may terminate 80 years or more after the date of the disposition, the court may, on application under this section, vary the terms of the disposition so that both capital and income will vest within 80 years from the date of the disposition.
(4)In varying the terms of a disposition under this section the court should give effect to the spirit of the original disposition insofar as that is possible given that interests are to vest earlier than contemplated by the person who made the disposition.
…
A fractious relationship
Proceedings in this matter were commenced in this Court in 2013. The decision of the trial Judge was handed down on 25 September 2017 and the decision of the Full Court on 10 December 2019.
On 23 December 2019, Mr Michaels paid into Semweb’s bank account the sum of $345,354.84 in part payment of the shortfall in rental income as found by the Full Court. On 28 January 2020, Mr Michaels paid in a further amount of $36,650.55. Mr Ouwens paid in the sum of $3,450.97 on 23 December 2019 and a further sum of $366.12 on 28 January 2020. Together, the total of $385,822.48 comprised the rental shortfall to 30 November 2017 and interest to 24 December 2019. The amount paid in was capable of discharging most of Semweb’s loan.
An application for special leave to appeal to the High Court, brought by Melrob, Ouwens Corporate, Mr Michaels and Mr Ouwens, was dismissed on 3 July 2020. Their primary contentions on that application were that Semweb was not required to procure a market rent from Sims Richmond and Ouwens Corporate, and that Mr Ouwens and Mr Michaels were not obliged to account for the shortfall between the market rent of the office space their practices occupied and the payments actually made to Semweb. That Mr Michaels and Mr Ouwens held that view, strongly enough to incur the expense of an application for special leave to appeal to the High Court, does not portend well for a good faith relationship which requires a significant degree of cooperation and collaboration.
Moreover, their position on the application continued the high level of conflict which had characterised their relationship before and after the trial before Parker J. The former is set out in the judgments of Parker J and the Full Court. I summarise below the disputation which continued in the period between the two judgments.
On 6 February 2018, a statutory demand for costs in the sum of $13,200 of the trial before Parker J was served on Blong Ume. Mr Michaels and Mr Ouwens did not contact Mr Orfanos directly to give him an opportunity to pay the amounts before serving the statutory demand. Nor was Mr Orfanos given notice of the meeting of directors called for the purpose of resolving to appoint solicitors to issue the demand.
There were no communications between Mr Orfanos and Mr Ouwens in relation to the conduct of the trust or the management of the property from the commencement of the trial before Parker J in September 2015 to 21 August 2020.
On 31 December 2018, Mr Orfanos enquired of Mr Michaels why there had been a reduction in the Westpac loan facility to the extent of $588,317. Mr Michaels advised that, on a change in the facility some 18 months earlier, money had been transferred from a cash management account to reduce the loan account. Mr Michaels informed Mr Orfanos that he understood that an officer from Westpac had explained the change in facility to him. However, neither Mr Michaels nor Mr Ouwens consulted Mr Orfanos before the decision was made.
On 3 October 2019, the Semweb financial statements and tax returns for the year ending June 2019 were provided to Mr Orfanos by Ms Cobbledick, an employee of Sims Richmond. The financial statements also disclosed that the rent paid by Ouwens Corporate and Sims Richmond for office space in the property had increased approximately in accordance with the consumer price index.
In October 2019, Mr Orfanos was informed by Ms Cobbledick that an amount of $12,000 net of GST was recovered by Semweb in the 2018 financial year on account of legal fees incurred in the Supreme Court proceedings.
Semweb’s business loan was due for review in December 2019. On 11 November 2019, Mr Orfanos received an email from an officer of Westpac informing him that the other joint venturers had requested a reduction in the loan facility of $700,000 and an extension for six months on an interest only basis. Mr Orfanos was not consulted by Mr Michaels or Mr Ouwens on that proposal. Nonetheless, Mr Orfanos accepted that if he had been approached by Mr Michaels and Mr Ouwens he would have agreed to their proposal. Mr Michaels deposed that he believed that Mr Orfanos had been informed of the proposed change by an officer of Westpac.
On 12 December 2019, Mr Orfanos’s solicitor, Mr Pedler, sought information on the leasing arrangements made by Semweb with Sims Richmond and Ouwens Lawyers.
As of 17 December 2019, Mr Orfanos had not received notice of any meeting of Semweb’s directors or of any general meeting of Semweb since the commencement of the trial. His communications were primarily with an employee of Sims Richmond and concerned the preparation of the financial accounts and tax returns relating to the Semweb joint venture.
On 31 January 2020, Mr Michaels wrote to Mr Orfanos enquiring whether he agreed to applying $400,000 paid into Semweb’s bank account to make good the shortfall in rent to reduce its loan on the property. Mr Orfanos responded on 4 February 2020 opposing the proposal on the ground that unless a cash distribution was made to his related beneficiary, he would not have funds to meet the significant tax liability which would be incurred. Mr Orfanos therefore suggested that only $130,000 be paid off the loan and that the remaining balance be held, for eventual distribution to the corporate beneficiaries, in order to meet their tax liabilities. Mr Michaels rejected that proposal, contending that it was inconsistent with Clause 5.6 of the JVD.
An amount of $518,682.54 remains outstanding on Semweb’s bank loan as at 15 June 2020 with an interest rate as at 12 June 2020 of 1.50 percent.
On 19 March 2020, Mr Orfanos sought updated information on the trust from Mr Michaels.
On 9 April 2020, Mr Michaels sought a review of the rent paid by Sims Richmond, because of a COVID-19 related downturn in its business. On 30 April 2020, Mr Michaels notified Mr Orfanos that he proposed to hand back the south wing of the ground floor of the premises, and he suggested that Semweb’s directors hold a board meeting. The requests made by Mr Michaels highlight the divergence in the interests of Mr Michaels and Mr Ouwens, whose practices remained in occupation of the property, on the one hand, and those of Mr Orfanos, who had removed his practice from it. If the related corporate practices of all three principles remained as tenants, a reduction in rent paid by all three corporate practices would not advantage any one beneficiary over the other. Differences of this kind are likely to be a source of continuing disputation.
On 15 May 2020, Mr Orfanos requested supporting documentation for Mr Michaels’ claim to rent relief. Mr Michaels replied on the same day, attaching notification from the Australian Taxation Office regarding his entitlement to JobKeeper and proposing a 15 percent reduction in rent from April to June. Mr Orfanos did not accept the Australian Taxation Office position and asked Mr Michaels for a detailed report of time charges to allow a comparison of charges between the period March to April 2019, and the period March to April 2020. Again, Mr Michaels quickly responded on the same day asserting that the time charges were not relevant. A rejoinder from Mr Orfanos followed by email just five minutes later. The email exchanges continued on 26, 27 and 28 May 2020. Mr Orfanos again raised the issue on 9 June 2020.
On 26 June 2020 Mr Michaels called a meeting of directors for 6 July 2020. The attached notice proposed resolutions that Mr Nick Bell of Knight Frank value the property and that there be a mediation of Sims Richmond’s request for a rental reduction. It also proposed the appointment of an agent to lease the south wing, and the transfer of $400,000 from Semweb’s business account to pay down the loan secured in the property.
Mr Pedler wrote to Mr Michael’s Solicitor, Mr Stewart-Rattray, on 1 July 2020, suggesting an adjournment of the meeting. He indicated that Mr Orfanos intended to obtain a report from Mr Bell but had not yet done so, deciding instead to wait until the outcome of the application to obtain leave to appeal against the judgment of the Full Court. Mr Pedler communicated Mr Orfanos’s consent to the proposed mediation. Mr Pedler objected to the proposal to find a long-term tenant for the south wing when the two major tenants were on monthly tenancies. As to the pre-payment of the loan, the email noted that the surplus in Semweb’s account comprised largely the funds paid pursuant to the orders of the Full Court. It proposed that the payment of the money in reduction of the Westpac loan should be left until the outcome of the High Court proceedings because Westpac might not allow a redraw of the funds if the Full Court decision were overturned. Mr Pedler also raised the prospect of a tax liability in respect of which Mr Orfanos would seek a partial distribution.
On 2 July, Mr Michaels wrote to Mr Pedler informing him that Mr Stewart‑Rattray had not been instructed on matters concerning Semweb’s board meetings and asked that correspondence be redirected through him. Mr Michaels indicated, however, that he was happy to postpone the meeting for another 14 days.
After the refusal of special leave on Friday 3 July 2020, Mr Pedler wrote to Mr Michaels, contending that the status quo on all matters affecting Semweb should be maintained and that the proposed meeting should now be cancelled. Mr Michaels agreed to the cancellation of the meeting.
By his affidavit affirmed on 7 September 2020 and received in the proceedings before me, Mr Michaels abandoned his claim for a rental reduction. He also abandoned his claim to hand back the south wing of the ground floor rental until the current market effective rent is determined. Mr Michaels commented that ‘the limited communication between the joint venturers [was] unsurprising because there [was] little need to confer’ because the business of renting the property was not an active one. Nonetheless, he suggested the appointment of a managing agent to manage the property, and indicated that he believed that Mr Ouwens supported that proposal. He was prepared to have Sims Richmond enter into a five-year lease.

Mr Ouwens, in his affidavit evidence, assented to the proposals put by Mr Michaels. He welcomed meetings of the directors and said that he had no reason not to attend them. He supported the proposal for the appointment of a managing agent. He, too, was prepared to have Ouwens Corporate enter into a five-year lease.
Mr Orfanos gave evidence that he was generally not included in the discussions about changes in Semweb’s banking facilities. He testified that they were first arranged by Mr Michaels and Mr Ouwens who left it to Westpac’s officers to inform him and procure his signature for the necessary documentation after the event. The arrangements were presented to him as a ‘fait accompli’. He explained why he had never proffered an alternative financing proposal as follows:
But if I can finish, it was a bit late to put the alternative proposal when you are being asked to sign something that was already agreed by two of the three joint venturers. That wasn’t going to change the issue.
Mr Orfanos explained that he never suggested alternative leasing arrangements for the premises because he ‘had already started the process of trying to extricate [himself]’ from the joint venture.
Mr Orfanos explained that the dispute over the paying down of the Semweb loan was related to Semweb’s potential taxation liability once the leasing of the premises had become profitable. The point had been reached at which either Semweb would retain the profit and thereby attract a taxation liability, or distribute it so that it was taxable in the hands of the beneficiaries. Mr Orfanos understood that Mr Michaels was likely to be in a position to offset that liability against a reduction in the taxation of his corporate practice, brought about by its payment of the underpaid rent. Mr Orfanos’s concern was that without a cash distribution, he would be forced onto his own financial resources to pay the tax liability. For that reason, he opposed using all of the accumulated funds to pay down of Semweb’s loan. Mr Orfanos’s proposal was that:
… based on what I thought the taxable income would be of the trust, that we could probably pay down, I think I might have it in here, about $130,000 on the mortgage and the balance retained until such time the determination of how much tax was to be paid by all of us and then release [the remainder to the Joint Venturers to pay that liability].
It is to be noted, therefore, that the legal effect of both proposals was that there be a distribution to the beneficiaries. To that extent, both proposals contemplated a different priority to that required by Clause 5.6 of the JVD. Mr Michaels’ proposal was that there be a distribution, but that the joint venturers/beneficiaries apply it to Semweb’s loan and pay, from their own funds, any taxation liability they incurred. Mr Orfanos’s proposal was that there be a distribution but that it be partly in cash to the beneficiaries and partly in reduction of the loan. If there were no distribution, the taxation burden would fall on Semweb.
Mr Michaels testified that he had recently engaged in without prejudice discussions with Mr Orfanos in an attempt to resolve their differences and to discuss a purchase of Mr Orfanos’s interest. He gave evidence that he was prepared to purchase Mr Orfanos’s interest for one third of the value of $3.1 million, determined by Westpac’s valuer. However, that valuation is not accepted by Mr Orfanos. Expert evidence on the market value of the property was not adduced before me.
In the trial, Mr Ouwens was asked if he wanted to ‘lock Nick Orfanos into his interest in the building’. Mr Ouwens replied, ‘No, be delighted if he was to sell his interest’. Mr Ouwens acknowledged that he had considered purchasing Mr Orfanos’s interest, but that he was not prepared to accept Mr Orfanos’s price. Mr Ouwens’ position was that Mr Orfanos’s offer was not reasonable because ‘fundamentally it failed to take into account a discount for a minority holding’.
In cross-examination, Mr Ouwens accepted that he had put an offer based on a 22 percent discount for the minority holding. He explained that Mr Orfanos’s was free to sell on the market at any value but that he was not prepared to purchase the share without a reduction in the order of 22 percent to reflect his minority holding.
The present professional circumstances of the principals
Mr Orfanos turned 56 in 2002 when he entered into the joint venture arrangement and is now 74. He had intended to retire at age 65. He explained why he has continued to operate a downsized practice:
I was obviously wanting to or would have retired. Unfortunately, circumstances are such that I couldn’t stop but it was never my intention that I would be a landlord until the grave. It was an investment and like any investment you review it, you look at it, you keep all this up.
Mr Michaels is 52. He testified that Mr Ouwens had informed him earlier this year that he intended to pass his practice on to his daughter. Mr Ouwens had mentioned the proposal in general terms and had not put anything specific as to the form of the assignment or transaction. He had indicated that he wished to continue rent office accommodation in the property, but that his daughter would take over the legal practice.
Consideration
Blong Ume seeks an order pursuant to s 36 of the Trustee Act removing Semweb as trustee, and, in the alternative, an order pursuant to s 59C of the Trustee Act revoking the trust.
The pre-conditions of the exercise of the power to remove a trustee pursuant to s 36 of the Trustee Act are that the removal is in the interests of the beneficiaries, or necessary or desirable, in order to advance the purposes of the trust. In this case, the appointment of an independent trustee, either a natural person or a corporate trustee, would serve very little purpose. Far from bringing an end to disputation it would simply change its character. If the underlying tension between the joint venturers remains unresolved, an independent trustee is likely to find itself regularly seeking directions from the Court on how to resolve their competing demands. Moreover, the appointment of an independent trustee must come at a cost. I would not make an order removing Semweb as trustee.
Section 59C of the Trustee Act was enacted in response to the recommendation of Justice Zelling in his capacity as Chairman of the Law Reform Committee. The concern of the Committee was that there was no express power to vary or revoke a trust when it was without legal capacity to consent to that course. Plainly, cases like this do not fall within that concern. The provision is broadly expressed, a feature which provoked some Parliamentary debate.[6] However, it is trite to observe that once enacted the scope and meaning of a provision is for the Courts to determine.
[6] Hansard 27 February 1980 and 5 June 1980 Legislative Council, pp 1252 – 1253, 2302-2303.
Bollen J considered the scope of s 59C of the Trustee Act in Benzija v Adriatic Fisheries Pty Ltd,[7] in the context of a joint venture to operate a prawn fishing vessel, the Barameda C. The joint venturers were the Benzija, Cubelic and Matulic families. Adriatic Fisheries Pty Ltd undertook the prawn fishing operations as trustee on their behalf. When the families fell into dispute the Benzija family sought orders pursuant to s 59C of the Trustee Act revoking the Trust.
[7] Benzija v Adriatic Fisheries Pty Ltd (1984) 37 SASR 545.
Bollen J considered when the power might be exercised in the following passages:[8]
There is no present authority dealing with this section. The section is difficult to interpret. It is difficult to know when to use it. There are no positive criteria stating the possible circumstances in which orders may be made. There are stated circumstances in which the Court should not exercise powers given by the section. One is that the exercise of the powers must not “disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the power”. Yet there is no hint in the section of what reasons Parliament might think adequate for the exercise of the jurisdiction.
…
I think that there is no need for me to attempt any general statement about the width of s. 59c. I think that there is no doubt that I have power on the application of these applicants to vary or revoke the trusts before me. Equally I think, as I have said, that there must be some weighty reasons proved before I contemplate varying or revoking. Even if weighty reasons exist I must still consider the matters mentioned in s. 59c(3). The power to vary or revoke is discretionary. I must exercise that discretion judicially. …
[8] Benzija v Adriatic Fisheries Pty Ltd (1984) 37 SASR 545 at 559.
Bollen J was not satisfied that any of the grounds in subparagraphs (a) to (c) for the removal of the trustee or revocation of the trust had been made out:[9]
I think that an exercise of the powers given by the section would not be in the interest of all the beneficiaries. I think it in the interests of all that the vessel should, under the direction of the trustees, continue operating [sic] I think that the continuation of it is likely to produce good profits to all concerned. Moreover, I think that a revocation and distribution of the property would, as Mr. Lunn suggests, unduly advantage the Benzijas to the detriment of the Cubelics. The Cubelics would no doubt receive more than the Benzijas. But the Cubelics would suffer a greater loss of expected income from fishing. Perhaps they could invest the capital they receive in any distribution more advantageously than could Benzija as they would eventually have more to invest. But apart from anything else it would take time (see s. 59c(3) (b)).
There are no reasons justifying the exercise of the powers given the Court. The application fails at the first hurdle and s. 59c(3)(c) does not apply.
[9] Benzija v Adriatic Fisheries Pty Ltd (1984) 37 SASR 545 at 562.
As to subparagraph (d), Bollen J observed:[10]
I find s. 59c(3) (d) very hard to follow. However, in this case I do not think an exercise of powers would accord as far as reasonably practical with the spirit of the trust. The spirit of the trust is that a vessel should be used to fish to the profit of the beneficiaries. That has happened and bids fair to continue. I repeat. I dismiss the application under s. 59c on the ground that no reason for granting it has been established. The application fails at the first hurdle. Moreover, a consideration of all and any of the matters mentioned in s. 59c(3) (b), (c) and (d) result in the failure of the application.
(Citations omitted)
[10] Benzija v Adriatic Fisheries Pty Ltd (1984) 37 SASR 545 at 563.
In Retail Employees Superannuation Pty Ltd v Pain,[11] s 59C of the Trustee Act was applied in circumstances well beyond those which prompted its enactment on an application to vary an industry superannuation fund. Blue J expanded the approach taken by Bollen J and held that good reasons to vary or revoke a trust under s 59C must be determined by considering the purpose and effect of the variation or revocation, having regard to the purpose and effect of the Trust Deed and the relevant surrounding circumstances.[12]
[11] (2016) 115 ACSR 1.
[12] Retail Employees Superannuation Pty Ltd v Pain (2016) 115 ACSR 1 at [168]-[170].
On applications to vary superannuation fund trust deeds, in Westpac Securities Administration Ltd v Cooper,[13] and in HEST Australia Ltd v Inkley,[14] Blue J elaborated on the preconditions to the application of s 59C(1):[15]
[13] [2016] SASC 122 at [38].
[14] [2018] SASC 127.
[15] HEST Australia Ltd v Inkley [2018] SASC 127 at [21].
[21]This Court’s jurisdiction and power to vary a trust is conditioned on satisfaction of eight prerequisites:
1     An application is made by a trustee of a trust (or a person with a vested, future, or contingent interest in property held on trust).
2     The interests of all actual and potential beneficiaries are represented in the proceeding.
3     The application is not substantially motivated by a desire to avoid or reduce the incidence of tax.
4     There is good reason to make the proposed variation.
5     The proposed variation would be in the interests of beneficiaries.
6     The proposed variation would not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class.
7     The proposed variation accords as far as reasonably practicable with the spirit of the trust.
8     The proposed variation would not disturb the trust beyond what is necessary to give effect to the reasons justifying the exercise of the powers.
(Citations omitted)
The negative criterion of s 59C(3)(a) of the Trustee Act can immediately be excluded. There is no evidence that the purpose of the revocation of the Trust Deed pursued by Mr Orfanos is to avoid tax.
In the circumstances of this case the primary consideration is the proper interests of the single class of beneficiaries of the trust administered by Semweb. The purposes and objectives of the JVD and the Trust Deed inform the identification of those interests. For the reasons given in [25] above, the purposes and objectives of both were to accommodate, in a flexible way, the interests of the joint venturers/beneficiaries in the property as an investment and as office accommodation for their related professional practices.
The purpose of Clause 9 of the JVD is, as I explain in [24] above, to prevent the assignment of interest to an outsider without first giving the continuing partners an opportunity to purchase. Clause 9 would assume greater importance as a reason for not to revoke the Trust Deed if a retiring partner wished to sell so soon after the property was purchased that the contemplated benefits of the purchase, both to the joint venturers/beneficiaries and their related professional practice entities, would be thrown away. In those circumstances, the retiring joint venturer/beneficiary is likely to carry the burden of finding an acceptable assignee of its interest.
However, in the 18 years since the property was purchased, Mr Orfanos has substantially reduced the size of his practice and has worked from home for four years longer than the common age of retirement. But for the disputation which has plagued the relationship of the joint venturers, he had hoped to have retired already. Mr Ouwens is a similar age and is also considering retiring from practice and passing on his practice to his daughter.
The essence of the submission advanced on behalf of Melrob and OCS is that they are entitled to expect Orfanos Nominees to adhere to the contractual bargain they had made. I acknowledge that that commercial arrangement embodied in the JVD is a relevant and important consideration in the exercise of the powers conferred by s 59C of the Trustee Act, but it cannot exclude its operation nor the totality of the considerations which are relevant to the exercise of the power it creates. Moreover, the JVD and the powers conferred on Semweb by the Trust Deed are premised, as I have earlier observed, on the ongoing mutual agreement of the joint venturers on how to deal with and manage the property.
Counsel for Mr Ouwens and Mr Michaels submitted that it would be unfair to make an order for the distribution of the trust property and to thereby give Mr Orfanos a more beneficial outcome than that to which he is contractually entitled. The proposition is generally persuasive, and indeed may be determinative, in a dispute between shareholders of a corporation which engaged in a stand‑alone ongoing commercial enterprise. In those circumstances, an investment in the equity of the company, as a minority shareholder, carries with it certain commercial consequences which are a reflection of the legal incidents of that shareholding. However, that proposition does not address the dual and competing purposes of the JVD which were to both provide an investment for the joint venturers and accommodation for the professional practices of their respective principals. Nor does it address the necessary implication in Clause 4 of the Trust Deed.
The position taken by Melrob and OCS would allow a majority of the joint venturers/beneficiaries to profit from the vulnerability of the principal who first reaches retirement age. The approach is both unreasonable and a breach of the underlying spirit of the trust arrangement. It is inconsistent with the duties of good faith and fairness inherent in the arrangement. Counsel for Mr Orfanos submitted that the JVD and Trust Deed cannot properly be used to force a ‘minority discount’ on the value of the interest of Orfanos Nominees/Blong Ume. I accept that proposition.
I find that the parties have failed to come to workable arrangements and that they have engaged in protracted and expensive litigation, because:
(a)the relationship between the parties has completely broken down and is dominated by their strong animadversion for each other; and
(b)Mr Ouwens and Mr Michaels have taken advantage of the practical difficulty Mr Orfanos would have in finding a buyer of his interest in the open market in the hope of obtaining a discount on the one third share of the value of the property to which Orfanos Nominees/Blong Ume is entitled as a beneficiary.
It is not in Mr Orfanos’ interest to be locked into the investment aspect of the JVD and Trust Deed when he has effectively retired. Nor is it a proper interest, for the purposes of s 59C(3)(b) of the Trustee Act, of the beneficiaries, OCS and Melrob, to extract a minority discount from Orfanos Nominees, having regard to the underlying purpose of the JVD and the Trust Deed, when Mr Orfanos, quite reasonably, wishes to retire from practice. On the contrary, it is in the interests of all of the beneficiaries, as a class, that they be protected from predatory conduct of that kind. It is therefore not in the spirit of the arrangement, for the purposes of s 59C(3)(d), that Orfanos Nominees be forced to sell its interest at a discount. An order revoking the Trust Deed is within the spirit of the arrangement if it is necessary to do so to prevent Mr Ouwens and Mr Michaels extracting that discount.
Neither Mr Ouwens nor Mr Michaels have put a case that this is an inopportune time to sell the property. The availability of very low interest rates would facilitate a purchase of the building by the continuing joint venturers/beneficiaries if they wished to purchase it for themselves. I have not received any evidence that a sale of the building and revocation of the trust will have adverse taxation consequences.
I am satisfied that it is in the interests of the beneficiaries, viewed holistically, to revoke the trust because:
(a)the expectations of the parties in entering into the JVD and the Trust Deed by and large have been met;
(b)the relationship between the parties has been fraught for many years and there is no reason to suspect that it will improve in the future;
(c)the point has been reached at which the interests of the joint venturers are likely to differ over the nature of any tenancies which should be granted, on whether or not, and when, the investment should be realised, and the way in which, and timing, of distributions having regard to their taxation implications.
(d)alternative mechanisms (like appointing an independent trustee or property manager) in order to manage their fraught relationship is unlikely to be successful and would add a burdensome cost to the investment.
Oppression
Section 232 of the Corporations Act 2001 (Cth) (the Corporations Act) relevantly provides:
The Court may make an order under section 233 if:
(a)the conduct of a company’s affairs; or
(b)an actual or proposed act or omission by or on behalf of a company; or
(c)a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d)contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.

Section 233 of the Corporations Act relevantly provides:
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)     that the company be wound up;
…
(c)     regulating the conduct of the company’s affairs in the future;
…
(i)    restraining a person from engaging in specified conduct or from doing a specified act;
(j)    requiring a person to do a specified act.
Order that the company be wound up
(2)If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply:
(a) as if the order were made under section 461; and
(b)     with such changes as are necessary.
…
Section 461 of the Corporations Act relevantly provides:
(1)The Court may order the winding up of a company if:
…
(e)     directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or
(f)     affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or
(g)     an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole; or
…
(k)     the Court is of opinion that it is just and equitable that the company be wound up.
Section 53 of the Corporations Act defines the affairs of a body corporate for the purposes of the above, and other provisions, to include the dealings with property held as a trustee.[16]
[16] Corporations Act 2001 (Cth) s 53(b).
In Kizquari Pty Ltd v Prestoo Pty Ltd,[17] Young J held that beneficiaries of a trust were not entitled to remedies for oppressive conduct of a corporation’s powers as a trustee.[18] In that case, a family business was operated by a corporate trustee. The trust deed made provision for the units of these beneficiaries who wished to retire to be redeemed at a fair and reasonable price. A family member who was both a beneficiary of the trust and a director of the corporate trustee, claimed that the other directors had paid excessive salaries to certain employees in the course of running the business. Young J ordered that the directors pay the excess back into the trust but made no winding up order because the value of the shares, in the trustee, was not affected by that conduct. Young J held that the oppression provision and associated remedies should not be used to circumvent the provisions of the trust. The decision in Kizquari has been followed on numerous occasions.[19]
[17] (1993) 10 ACSR 606.
[18] Kizquari Pty Ltd v Prestoo Pty Ltd (1993) ACSR 606 at 612.
[19] Re Polyresins Pty Ltd (1998) 28 ACSR 671 (Chesterman J); McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244 (Young CJ in Eq); Ciccarello, Re Adelaide Property Development Pty Ltd v Cubelic [2008] FCA 141 (Mansfield J); Trust Company Ltd v Noosa Venture 1 Pty Ltd (2010) 80 ACSR 485 (Windeyer J).
However, a different approach was taken by Davies J in Vigliaroni v CPS Investment Holdings Pty Ltd[20] relying on s 53 of the Corporations Act:[21]
[68] These cases, properly considered, do not, in my view, place limitations on the kind of orders that I “consider appropriate in relation to the [CPS] company[ies]”, having regard to the particular circumstances before me. The point that I have to consider was not dealt with in Kizquari or any of the other cases mentioned above. None of those cases considered the scope of the oppression power and jurisdiction of the Court to grant relief having regard to s 53, although s 53 appeared in the legislation at the time those cases were decided in terms similar to the provision as it now appears. It would appear that s 53 was not brought to the attention of the Courts in those cases. Section 53 has been brought to my attention and I must decide in light of s 53 whether my powers are circumscribed so that I cannot make an order under s 233 in respect of a trustee company. In my view, s 53 puts beyond any doubt that the Court’s jurisdiction and powers under the statutory oppression provisions are not circumscribed in respect of a trustee company and accordingly I conclude that I should depart from the view expressed by Young J in Kizquari and the cases which have supported that view, in view of s 53. I would also respectfully disagree with the view that Chesterman J expressed in Re Polyresins Pty Ltd which Young JA cited with approval in McEwan that the equitable interests in the trust cannot be dealt with by the Court under s 233. The only limitation imposed on the Court on the kind of order that it can make under s 233 is the requirement for the order to be one that that the Court considers appropriate “in relation to the company”. The phrase “in relation to” requires a rational and discernible link between the remedy and the company in which the oppression has occurred. In other words, any remedy granted under s 233 must not be extraneous to achieving the object of relieving the oppression and must be appropriate to putting an end to the causes of oppression, including where the company acts as trustee and the oppression relates to the affairs of the trust. In appropriate cases the remedy may include orders dealing with the equitable interests in the trust, in my view.
[20] (2009) 4 BFRA 90.
[21] Vigliaroni v CPS Investment Holdings Pty Ltd (2009) 4 BFRA 90 at [68].
I add here that oppression for the purposes of s 232(e) of the Corporations Act extends to oppression of a member in his or her capacity as such or in any other capacity.
In Trust Company Ltd v Noosa Venture 1 Pty Ltd (Noosa Venture),[22] Windeyer AJ drew a distinction between orders in relation to a company and orders in relation to its affairs and observed that he would not have followed the decision in Vigliaroni if it had been necessary for his Honour to decide the issue:[23]
[103]I should add that what is sought is not only an order that VCML purchase the shares of ACPL in NV1 as could be made under s 233(i)(d) of the Act but an order that VCML purchase the units in the trust held by ACPL. The shares would of course have no real value as NV1 does not own any assets beneficially. The order sought in respect of the units could only be made if it were permitted under s 233(1)(j) of the Act or if some other order were appropriate under s 233(1). In either case to comply with s 233 any order would have to be an order “in relation to the company”, the company being NV1. I hesitate to embark on this enquiry but do so in case I am incorrect about oppressive conduct. I should add that counsel for the defendants has very fairly stated that in light of conflicting authority the better view is that there is power to make the buy out order sought.
[104]Until the decision of Davies J in Vigliaroni v CPS Investment (2009) 74 ACSR 281 cases dealing with s 232 and s 233 powers relating to trustee companies have held that the powers are not available or in some cases should not be used to deal with oppression in a company which holds all its assets in trust and in particular are not available to make orders in respect of the assets of the trust or the interests in the trust held by the beneficiaries under the trust. See Kizquari Pty Limited v Prestoo Pty Limited (1993) 10 ACSR 606; McEwen v Combined Coast Cranes Pty Limited (2002) 44 ACSR 244 at para 46; Re Polyresins Pty Limited [1999] 1 QdR 599 at 614. In the last decision the discussion was obiter and not necessary to the findings in that case. None of those cases referred to the definition of “affairs of a body corporate” in s 53 of the Act or its predecessor Acts. It was because the earlier cases did not consider s 53 that Davies J in Vigliaroni felt at liberty to depart from those decisions as she did not think they gave effect to legislative intention: Vigliaroni para [69]. In doing so Davies J referred to the statement of the Chief Justice of the High Court in Campbell v Back Office Investments Pty Limited (2009) 238 CLR 304 at paragraph 72 when he said in referring to ss 232 and 233: “the imposition of judge-made limitations on their scope is to be approached with caution”.
[105]With respect to the decision of Davies J and accepting the requirement for coherence in corporations law I find it difficult to accept that an order “in relation to the company” includes an order in relation to the affairs of the company because if that were the legislative intention it would have been easy enough to insert the words “or the affairs of the company” after the words “the company” in the commencement part of s 233(1) of the Act. It is a question of power not scope. It follows that if it were necessary for me to decide this question I would not have felt bound to follow the decision in Vigliaroni in preference to the earlier decisions though accepting so far as those earlier decisions are concerned that at least their judgments do not appear to have given consideration to s 53 of the Act or its predecessors in earlier Acts. Thus I would not consider it within power to make an order requiring one trust beneficiary to buy out the interest of the other trust beneficiary. Such an order would, I think, be an order in relation to the trust not to the company.
[22] (2010) 80 ACSR 485.
[23] Trust Company Ltd v Noosa Venture 1 Pty Ltd (2010) 80 ACSR 485 at [103]-[105].
The observations of Windeyer AJ, although not binding, warrant close consideration. However, I respectfully observe that the particular orders authorised by s 233(1)(c), (i) and (j) as falling within the generality of the expression orders ‘in relation to the company’ will generally affect the conduct of the affairs of the company and therefore deny the distinction on which his Honour relied.
In Wain v Drapac,[24] Ferguson J, as her Honour then was, after considering the remarks Windeyer AJ in Noosa Venture, nonetheless followed and applied the decision of Davies J in Vigliaroni:[25]
[287] The words “in respect of” have a very wide meaning. Bearing this in mind, and with respect, in my opinion Windeyer AJ’s construction of the legislation is too narrow. Were that interpretation to be accepted, then in cases such as the present, where there is a complex corporate structure that is a mixture of companies and trusts but in a real sense only one business is conducted by the corporate group, the legislation would be rendered virtually useless to remedy the real harm that has been caused by the oppressive conduct. It would strike me as odd if the Court could take into account oppressive or unfair conduct in the company’s affairs in determining whether relief may be granted but then could not give effective relief to redress the harm caused by that conduct. That this is not intended is, I think, clear from the terms of s 233 in respect of at least one form of order for which specific provision is made. In this regard, the section provides that the Court may make any order that it considers appropriate in relation to the company including an order regulating the conduct of the company’s affairs in the future. As noted above, the company’s affairs includes its business, transactions and dealings with others. In my view, it is clear that the legislative intent was to include the power to grant relief provided that (in the words of Davies J) there is a “rational and discernible link between the remedy and the company in which the oppression has occurred.” In a complex corporate structure (such as the Drapac Group) there is such a link between the companies and the relevant trusts which together operate the business. In my opinion there is power to grant the relief sought and consideration needs now to be given to whether, as a matter of discretion, it should be given.
(Citations omitted)
[24] [2012] VSC 156.
[25] Wain v Drapac [2012] VSC 156 at [287].
In both Vigliaroni and Drapac, orders were made which, in effect, required the purchase of the shares and units at the underlying value of the assets of the trust.
In South Australia the remedy of s 59C of the Trustee Act fills, to some extent, the gap in regulatory powers which Ferguson J, as her Honour then was, was concerned would be left if a narrow construction of s 233 of the Corporations Act were taken. However, and in respect of the construction and application of both provisions, I would emphasise the public interest in ensuring that a remedy is available when the legal structures adopted for business ventures involving multiple parties are used oppressively or become unworkable.
A cautious approach to s 233 of the Corporations Act has been taken in the Federal Court. In Ciccarello, in the matter of Adelaide Property Development Pty Ltd v Cubelic,[26] Mansfield J said:[27]
[28]The preponderance of authority is to the effect that, where oppression has occurred in a company which is a bare trustee so that all its assets are held in trust, relief under s 232 and s 233 of the Corporations Act is inappropriate. Oppressive conduct by the trustee does not result in diminution in the value of the shares in the trustee company. See Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244; Surf Road Nominees Pty Ltd v Tass James [2004] NSWSC 61. It does not follow, as was suggested by counsel for the defendants, that if ultimately the only appropriate source of relief (if the plaintiffs establish an entitlement to relief) is the Trustee Act, that the Court does not have jurisdiction to grant such relief. It is not said that the plaintiffs’ claims under the Corporations Act are contrived so as to create jurisdiction in the Court. In my view the Court has jurisdiction to resolve the whole matter: see Moorgate Tobacco Company Ltd v Phillip Morris Ltd (1980) 145 CLR 457. That would include, if APD as trustee or the Cubelics as two of its directors are found not to have acted in accordance with their respective obligations, holding them to account in equity: Barnes v Addy (1874) LR 9 Ch App 244.
[26] [2008] FCA 141.
[27] Ciccarello, in the matter of Adelaide Property Development Pty Ltd v Cubelic [2008] FCA 141 at [28].
In Hamex Corporation Pty Ltd v Latrobe Street Ventures Pty Ltd,[28] Charlesworth J was cautious about the application of s 233 of the Corporations Act to corporate trustees:[29]
[123] There is force in the argument that where participants in a venture have structured their affairs in a trading trust it is the terms of the trust deed and not the oppression provisions of the Corporations Act to which they should have recourse. For a more comprehensive analysis of the principles see Emmett, the Hon AR, AO QC and Williams H, “Equity’s childbearing years: the proposed extension of shareholder oppression remedies to the beneficiaries of trading trusts” (2018) 10 (July) Butterworths Corporation Law Bulletin. That principle must apply with all the more force in a case in which the shareholder claiming oppression holds no beneficial interest in the assets of the trust company, as is the case here.
[28] [2019] FCA 1717.
[29] Hamex Corporation Pty Ltd v Latrobe Street Ventures Pty Ltd [2019] FCA 1717 at [123].
It is not strictly necessary for me to form a concluded view on the scope of the power of s 233 of the Corporations Act because of the view I have taken of the power conferred on this Court by s 59C of the Trustee Act. However, if it were necessary for me to decide, I would exercise the power conferred by s 233 of the Corporations Act to fashion similar orders to those I would make pursuant to s 59C of the Trustee Act.
Conclusion
I would hear the parties as to any interim directions or orders which should be made before making an order revoking the Trust Deed and distributing the trust property.

[2021] SASC 22

1 January 2021