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Compass Resources Ltd v Sherman

Compass Resources Ltd v Sherman

Case [2010] WASC 41 5 March 2010

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JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: COMPASS RESOURCES LTD -v- SHERMAN [2010] WASC 41

CORAM: BEECH J

HEARD: 19 FEBRUARY 2010

DELIVERED : 5 MARCH 2010

FILE NO/S: CIV 2614 of 2009

BETWEEN: COMPASS RESOURCES LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS & MANAGERS APPOINTED) (ACN 010 536 820)
Plaintiff
AND
STEVEN JOHN SHERMAN AS LIQUIDATOR OF COMPASS MINING PTY LTD (IN LIQUIDATION) (ACN 099 550 259)
DARREN GORDON WEAVER AS LIQUIDATOR OF COMPASS MINING PTY LTD (IN LIQUIDATION) (ACN 099 550 259)
MARTIN BRUCE JONES AS LIQUIDATOR OF COMPASS MINING PTY LTD (IN LIQUIDATION) (ACN 099 550 259)
First Defendants
HUNAN NONFERROUS METALS CORPORATION LIMITED
Second Defendant
HNC (AUSTRALIA) RESOURCES PTY LTD (ACN 124 647 829)
Third Defendant
RANDAZZO INVESTMENTS PTY LTD (ACN 009 614 877)
Fourth Defendant

Catchwords:

Equity and trusts - Loan facility agreement - Term of agreement that at least 70% of loan funds must be used for stated purposes - Whether creates 'Quistclose trust' - Test for necessary intention to create a trust - Whether necessary intention established

Legislation:

Nil

Result:

Declaration that no trust was created

Category: A

Representation:

Counsel:

Plaintiff:     Ms K F Banks-Smith
First Defendants           :     Mr M J Hardy
Second Defendant         :     Mr B Dharmananda
Third Defendant           :     Mr B Dharmananda
Fourth Defendant          :     Mr J C Yeldon

Solicitors:

Plaintiff:     Freehills
First Defendants           :     Hardy Bowen
Second Defendant         :     Allens Arthur Robinson
Third Defendant           :     Allens Arthur Robinson
Fourth Defendant          :     Jarman McKenna

Case(s) referred to in judgment(s):

Ausintel Investments Australia Pty Ltd v Lam (1990) 19 NSWLR 637
Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Barclays Bank Ltd v Quistclose Investments Ltd [1970] 1 AC 567
Commonwealth v Booker International Pty Ltd [2002] NSWSC 292
General Communications Ltd v Development Finance Corp of New Zealand Ltd [1990] 3 NZLR 406
Jessup v Queensland Housing Commission [2001] QCA 312; [2002] 2 Qd R 270
McManus RE Pty Ltd v Ward [2009] NSWSC 440
Peter Cox Investments Pty Ltd (in liq) v International Air Transport Association [1999] FCA 27; (1999) 161 ALR 105
Quince v Varga [2008] QCA 376
Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491
Re Global Finance Group Pty Ltd (in liq); Ex parte Read [2002] WASC 63; (2002) 26 WAR 385
Re Goldcorp Exchange Ltd [1995] 1 AC 74
Salvo v New Tel Ltd [2005] NSWCA 281
Twinsectra Ltd v Yardley [2002] 2 AC 164
Walker v Corboy (1990) 19 NSWLR 382

BEECH J:

Introduction

The plaintiff (Compass) seeks a declaration in relation to funds it holds in a bank account. Those funds were paid to it by the second defendant (HNC) pursuant to a convertible note facility agreement (the Facility Agreement) made between Compass and HNC. By cl 6 of the Facility Agreement, Compass agreed to use at least 70% of the loan funds for specified purposes. The issue is…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Compass Resources Ltd v Sherman

Details

AGLC: Compass Resources Ltd v Sherman [2010] WASC 41
Case: [2010] WASC 41
Decision Date: 5 MARCH 2010

CaseChat Overview and Summary

In the case of Compass Resources Ltd v Sherman, the Federal Court of Australia was asked to determine whether a loan facility agreement between the parties created a 'Quistclose trust'. The dispute arose when Sherman, as the lender, claimed that Compass Resources, the borrower, failed to use at least 70% of the loaned funds for the stated purposes outlined in the agreement. This led to a legal battle over the interpretation and implications of the agreement's terms.

The primary legal issue before the court was whether the term in the loan facility agreement, which required Compass Resources to use at least 70% of the loan funds for stated purposes, created a trust akin to a Quistclose trust. The court needed to ascertain whether this term established a necessary intention to create a trust, as required by the established legal principles. Additionally, the court had to determine if the necessary intention was present in this context, which would lead to the creation of a trust.

The court examined the established principles for determining whether a trust is created, focusing on the necessary intention to create a trust. It held that for a Quistclose trust to be established, there must be a clear intention to create a trust and a corresponding settlor's intention that the trust assets be used for a specific purpose. The court found that the loan facility agreement did not contain the necessary intention to create such a trust. The term regarding the use of the loan funds was more indicative of a condition precedent to the borrower's entitlement to receive the funds, rather than an intention to create a trust.

The court's decision concluded that the term in the loan facility agreement did not create a Quistclose trust. Therefore, Sherman's claim that Compass Resources failed to use the funds for the stated purposes did not result in a breach of trust. The court dismissed Sherman's claim, and no further orders were made.

Orders