David & Ros Carr Holdings Pty Ltd v Ritossa

[2025] NSWCA 108

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

David & Ros Carr Holdings Pty Ltd v Ritossa [2025] NSWCA 108

Hearing dates:

10, 11 April 2025

Decision date:

23 May 2025

Before:

Leeming JA at [1];
Stern JA at [258];
Griffiths AJA at [259]

Decision:

1. Appeal dismissed.

2. Appellants to pay the respondents’ costs.

Catchwords:

EQUITY – trusts and trustees – two couples established unit trust for purpose of making property investments – equal division of units – equal board representation on corporate trustee – equal shareholdings in trustee – no provision to resolve deadlocks – trust deed contained clause based on s 3A(3B) of Land Tax Management Act 1956 (NSW) deeming it to be a fixed trust – clause provided that unit holders may require the trustee to wind up the trust and distribute the trust property – whether individual unit holder entitled to wind up trust

PRECEDENT – appellate decision on similar clause in trust deed, in unit trust where one person held all units, construed to entitled unit holder to wind up trust – whether earlier decision authority for clause authorising one of a number of unit holders individually to wind up trust – decisions only authority for what was decided – Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111 distinguished

CORPORATIONS – members’ rights and remedies – oppression – construction and background to Corporations Act 2001 (Cth), s 232 and 233 – whether applicable to members of trustee companies – whether member’s capacity as person with indirect interest in trust assets relevant – trustee conducted agricultural business – whether ongoing disputes concerning management of business amounted to oppression – whether deadlock as to whether trust should be wound up amounted to oppression

RECEIVERS – so-called “principle in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360” relied on to appoint receiver to wind up trust – nature of principle – whether principle of equity or statutory construction – nature of receivership – whether remedy interlocutory or final – differences between companies and trusts – court’s function to preserve trusts – equitable doctrines directed to preservation of trusts

Legislation Cited:

Companies Act 1862 (UK), s 79

Companies Act 1948 (UK), s 222

Conveyancing Act 1919 (NSW), ss 26, 66G, 181

Corporations Act 2001 (Cth), ss 6, 53, 58AA, 201K, 232, 233, 234, 461, 601GA, 601ND

Corporations Law 1990 (Cth), ss 246AA, 260

Income Tax Assessment Act 1936 (Cth), ss 95A, 95B, 97

Income Tax Assessment Act 1997 (Cth)

Joint Stock Companies Winding Up Act 1848 (UK)

Judicature Act 1873 (UK), s 25

Land Tax Act 1956 (NSW)

Land Tax Management Act 1956 (NSW), s 3A

Partnership Act 1890 (UK)

Partnership Act 1892 (NSW), s 35(f)

Supreme Court Act 1970 (NSW), ss 23, 66, 67

Cases Cited:

Accurate Financial Consultants Pty Ltd v Koko-Black Pty Ltd [2008] VSCA 86

Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39

Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; [2004] NSWSC 13

Arinson Pty Ltd v City of Canada Bay Council [2015] NSWCA 199

Baba v Sheehan [2019] NSWSC 1281

Baba v Sheehan [2021] NSWCA 58

Banque Commerciale SA (en liq) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11

Barron v Potter [1914] 1 Ch 895

Basecove Pty Ltd v Dolores Lavin Management Ltd [2009] NSWSC 1315

Beck v Henley [2014] NSWCA 201

Biogen Inc v Medeva plc [1997] RPC 1; [1996] UKHL 18

Bose v Bose [2013] NSWSC 327

Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95; 66 ACSR 359

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Capelli v Shepard (2010) 29 VR 242; [2010] VSCA 2

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18

Carr v Carr [2022] NSWSC 166; 21 ASTLR 511

Chen v Ng (British Virgin Islands) [2017] UKPC 27

Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184; 106 ATR 151

Chilcotin Pty Ltd v Cenelage Pty Ltd [1999] NSWCA 11

Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960

Cisera v Cisera Holdings Pty Ltd (2018) 98 NSWLR 747; [2018] NSWCA 286

Commissioner of Taxation v Bamford; Bamford v Commissioner of Taxation (2010) 240 CLR 481; [2010] HCA 10

Cowan v Scargill [1985] Ch 270

CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98; [2005] HCA 53

Davis v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2023) 279 CLR 1; [2023] HCA 10

Delehunt v Carmody (1986) 161 CLR 464; [1986] HCA 67

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360

Equititrust Ltd v Franks [2009] NSWCA 128; 258 ALR 388

Equity Trust (Jersey) Ltd v Halabi [2023] AC 877; [2022] UKPC 36

Esso Petroleum Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49; [1999] HCA 67

Federation Insurance Ltd v Wasson (1987) 163 CLR 303; [1987] HCA 34

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413; 28 ACSR 688

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; 37 ACSR 672

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Garnham v PC [2012] JRC 050

Gartside v Inland Revenue Commissioners [1968] AC 553

Haertsch v Whiteway (2020) 102 NSWLR 386; [2020] NSWCA 133

Harris Health Care Pty Ltd (receivers and managers appointed) (in liq) v Hayes [2024] NSWCA 301

Hill v Zuda Pty Ltd (2022) 275 CLR 24; [2022] HCA 21

Holmes v Millage [1893] 1 QB 551

Horwath Corporate Pty Ltd v Huie [1999] NSWSC 583

House v The King (1936) 55 CLR 499; [1936] HCA 40

Howard-Smith Ltd v Ampol Petroleum Ltd [1974] AC 821

In re Baden’s Deed Trusts [1971] AC 424

In re Hazeldine’s Trusts [1908] 1 Ch 34

In the Estate of William Just deceased (No 1) (1973) 7 SASR 508

In the matter of Cupit & Aboud as trustees of the Australian Trust [2020] NSWSC 1715

Jabbcorp (NSW) Pty Ltd v Strathfield Golf Club [2021] NSWCA 154

Jaken Properties Australia Pty Ltd v Naaman (2023) 112 NSWLR 318; [2023] NSWCA 214

JBS Australia Pty Ltd v SafeWork NSW [2024] NSWCCA 209

Kay v KRM (Vic) Pty Ltd; Classic Bet (NSW) Pty Ltd v Kay [2020] NSWCA 92

Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606

Knox v Nile [2022] NSWSC 195; 160 ACSR 357

Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344

Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; [2008] HCA 27

Massey v Wales; Massey v Cooney (2003) 57 NSWLR 718; [2003] NSWCA 212

Melrob Investments Pty Ltd v Blong Ume Nominees Pty Ltd (2022) 141 SASR 1; [2022] SASCA 29

Menz v Wagga Wagga Show Society Inc (2020) 103 NSWLR 103; [2020] NSWCA 65

Miller v Cameron (1936) 54 CLR 572; [1936] HCA 13

Millsave Holdings Pty Ltd v Connective Group Pty Ltd (2023) 75 VR 239; [2023] VSCA 326

Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30

Mir v Mir [2023] NSWSC 408

MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494; [1999] HCA 51

Naaman v Jaken Properties Australia Pty Ltd [2025] HCA 1

Owners of Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404; [1994] HCA 54

Palmer v Ayres (2017) 259 CLR 478; [2014] HCA 5

Pini v Roncoroni [1892] 1 Ch 633

PMT Partners Pty Ltd (in liq) v Australian National Parks & Wildlife Service (1995) 184 CLR 301; [1995] HCA 36

R v Khazaal (2012) 246 CLR 601; [2012] HCA 26

Re Admiral Cove Pty Ltd [2023] VSC 537

Re Austec Wagga Wagga Pty Ltd (in liq) [2018] NSWSC 1476

Re Gaydon [2001] NSWSC 473

Re Junior Academy ELC Pty Ltd (No 3) [2019] VSC 161

Re Munja Bakehouse Pty Ltd [2024] NSWSC 6; 384 FLR 176

Re Stacks Managed Investments Ltd [2005] NSWSC 753; (2005) 54 ACSR 466

Rosenbaum v Baidarman (No 2) [2021] NSWSC 574

Saunders v Vautier (1841) Cr & Ph 240; 41 ER 482

Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111

Seven Network Ltd v News Ltd [2007] FCA 1062

Sky v Body (1970) 92 WN (NSW) 934

Sons of Gwalia v Margaretic Pty Ltd (2007) 231 CLR 160; [2007] HCA 1

Templeton v Leviathan Pty Ltd (1921) 30 CLR 34; [1921] HCA 55

The Owners - Strata Plan 87003 v Raysons Constructions Pty Ltd [2025] NSWSC 66

Thomas v Williams (No 2) (1883) 24 Ch D 558

Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; 288 ALR 310

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44

Trust Company Ltd v Noosa Venture 1 Pty Ltd [2010] NSWSC 1334; 80 ACSR 485

Trustees of the Sydney Grammar School v Winch (2013) 83 NSWLR 80; [2013] NSWCA 37

Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168

Van Sandau v Moore (1826) 1 Russ 441; 38 ER 171

Vanderstock v Victoria [2023] HCA 30; 98 ALJR 208

Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282

Wain v Drapac [2012] VSC 156

Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12

Waters v Taylor (1807) 15 Ves 10; 33 ER 658

Waters v Taylor (1813) 2 V & B 299; 35 ER 333

Wayde v NSW Rugby League Ltd (1985) 180 CLR 459; [1985] HCA 68

Wharton v Masterman [1895] AC 186

White v Tyndall (1888) 13 AC 263

Whitton v ACN 003 266 886 Pty Ltd (Controller Appointed) (in liq) (1996) 42 NSWLR 123

Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666

Yunghanns v Candoora No 19 Pty Ltd (No 2) [2000] VSC 300; 35 ACSR 34

Zong v Lin [2022] NSWCA 136

Texts Cited:

N Angelakis, “The Intersection of Deadlock and Oppression: A ‘No-fault Divorce’ for the Members of Closely Held Corporations” (2020) 37 C&SLJ 512

A Black, Development of Corporations Law (paper presented to Francis Forbes Society for Australian Legal History, 26 October 2016)

F Callaway, The Just and Equitable Ground, (Law Book Company, 1978)

D Clarry, The Supervisory Jurisdiction over Trust Administration (Oxford University Press, 2018)

Corporations and Markets Advisory Committee, “Managed Investment Schemes” (Report, July 2012)

N D’Angelo, Transacting with Trusts and Trustees (LexisNexis 2020)

Daniell’s Chancery Forms (4th ed, 1885)

Lord Evershed (ed) Atkin's encyclopaedia of court forms in civil proceedings (2nd ed) vol 41

L Gower, Principles of Modern Company Law (Stevens & Sons 1954)

P Herzfeld and T Prince, Interpretation (3rd ed, Thomson Reuters, 2024)

N Lindley, A treatise on the law of partnership: including its application to joint-stock and other companies (1860, 1st ed)

N Lindley, A Treatise on the Law of Partnership (1893, 6th ed)

T Robinson and P Walton (eds), Kerr on Receivership and Administration (24th ed, 2024, Sweet & Maxwell)

L Tucker et al, Lewin on Trusts (Sweet & Maxwell, 20th ed, 2020)

R W White, “Trusts – An Australian Perspective” (Speech, Higher Courts Seminar, Auckland, 24 May 2010)

P Young, C Croft and M Smith (eds) On Equity (LawBook, 2009)

Category:

Principal judgment

Parties:

David & Ros Carr Holdings Pty Ltd (First Appellant)
David Leslie Carr (Second Appellant)
Rosalind Harriet Carr (Third Appellant)
Ivan Ritossa (First Respondent)
Marina Ritossa (Second Respondent)
Darbalara Holdings Pty Ltd (Third Respondent)

Representation:

Counsel:
C Birch SC, T Di Francesco, S Blackman (Appellants)
P M Wood, T E O’Brien (Respondents)

Solicitors:
Long Saad Woodbridge Lawyers (Appellants)
Arnold Bloch Leibler (Respondents)

File Number(s):

2024/356404

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Citation:

[2024] NSWSC 1125

Date of Decision:

05 September 2024

Before:

Richmond J

File Number(s):

2020/00272031

HEADNOTE

[This headnote is not to be read as part of the judgment]

In 2010, Mr and Ms Carr and Mr and Ms Ritossa constituted Darbalara Holdings Pty Ltd as the corporate trustee of a unit trust – the Darbalara Property Trust – for the management of farmland near Gundagai, NSW. The two families are equal unit holders. Each of the Carrs and the Ritossas are directors of Darbalara Holdings. Clause 2 of the trust deed provided that “The Unit Holders are presently entitled to the Income [and Capital] of the Trust” and “may require the Trustee to wind up the Trust and distribute the Trust property or the net proceeds of the Trust property”. In 2019, disagreements emerged between the Carrs and the Ritossas, and they had a falling out in a meeting in December 2019. The Carrs expressed an intention to terminate the trust relationship; the Ritossas wished to continue their investment.

In 2020, the Carrs commenced proceedings in the Equity Division seeking the winding up of the trust relationship on the basis that (a) clause 2 of the trust deed allowed a unit holder to unilaterally call for a winding up, (b) the corporate trustee’s conduct was oppressive so as to justify orders under s 233 of the Corporations Act 2001 (Cth), and (c) a receiver should be appointed to wind up the trust given jeopardy to the trust assets.

The primary judge held that cl 2 of the trust deed did not entitle a unit holder to unilaterally call for a winding up. The primary judge found that the evidence did not establish deadlock. Even if there was deadlock, that would not be a sufficient basis for a realisation of the trust assets under s 233. Because the primary judge found that the assets were being adequately managed in monthly board meetings between the directors, there was no jeopardy to the trust assets justifying the appointment of a receiver to liquidate the trust assets and make final distributions to unit holders.

On appeal, the appellants submitted that the primary judge erred in failing to find that (a) cl 2 entitled each unit holder unilaterally to bring the trust to an end (Ground 1), (b) there was a series of deadlocks in the management of Darbalara Holdings Pty Ltd such that the conduct of the corporate trustee, including its failure to allow a redemption of units when requested, was oppressive to the Carrs and contrary to the interests of members as a whole (Grounds 2-8), and (c) a receiver could be appointed, either under s 67 of the Supreme Court Act 1970 (NSW) or in the Court’s inherent jurisdiction over trusts, to “wind up” the trust where there was an irretrievable breakdown in mutual trust and confidence between unit holders who were “quasi-partners” (Ground 9).

The Court (Leeming JA, Stern JA and Griffiths AJA agreeing) held, dismissing the appeal:

As to Ground 1:

1. On its proper construction, cl 2’s reference to unit holders being “presently entitled” to require the trustee to wind up the trust means the unit holders collectively, rather than individually. The purpose of including the clause was only to make the unit holders owners of an equitable estate under a fixed trust, and thereby eligible for the tax-free threshold under s 3A(3B) of Land Tax Management Act 1956 (NSW). It did not have the effect of allowing a unit holder unilaterally to wind up the trust and claim their own interest: [66]-[93] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111, distinguished.

CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98; [2005] HCA 53; Davis v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2023) 279 CLR 1; [2023] HCA 10; Vanderstock v Victoria [2023] HCA 30; 98 ALJR 208, considered.

As to Grounds 2-8:

2. There is no basis to exclude from the scope of “the conduct of a company’s affairs” the conduct of a corporate trustee in the management of the trust or to exclude from the scope of orders “in relation to the company” an order concerning the interests of the trust beneficiaries: [105]-[112] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Trust Company Ltd v Noosa Venture 1 Pty Ltd [2010] NSWSC 1334, disapproved.

Melrob Investments Pty Ltd v Blong Ume Nominees Pty Ltd [2022] SASCA 29; Wain v Drapac [2012] VSC 156, approved.

3. Mr Carr as a discretionary object of the Carr Family Trust, which was one of the unit holders of the trust, did not have standing to complain of any oppression: [135]-[139] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

4. Mere deadlock in the operation of the corporate trustee or a breakdown in the relationship between its managers does not constitute “oppression” under s 232. The deadlock must be one which leads to further consequences in order to reach the evaluative judgment required by s 233. Mere differences in opinion as to the sale of investments, the unpleasantness of board meetings, and delays in the finalisation of leases, are insufficient: [113], [159]-[177] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

As to Ground 9:

5. The principle in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 concerns the scope of the statutory power to wind up a company, rather than a proposition at general law that a trust can be terminated where there has been a breakdown in an original relationship of mutual trust and confidence. No such general law proposition can be developed by analogy with statute: [215]-[236] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

6. Because the purpose of the inherent jurisdiction is to preserve trusts and not destroy them, a receiver cannot be appointed in the court’s inherent jurisdiction over trusts to terminate the trust merely because there has been a breakdown in mutual trust and confidence. The position is not otherwise under section 67 of the Supreme Court Act 1970 (NSW): [237]-[254] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

Mir v Mir [2023] NSWSC 408; Baba v Sheehan [2019] NSWSC 1281; Re Austec Wagga Wagga Pty Ltd (in liq) [2018] NSWSC 1476, approved.

Table of contents

Leeming JA - paragraph 1

Background - paragraph 6

The decision to acquire The Junction - paragraph 7

Consideration of exit rights and the choice of a unit trust - paragraph 10

The establishment of the unit trust and further consideration of exit rights - paragraph 16

The way in which the investments were held - paragraph 22

The acquisition of Bogolara - paragraph 26

The Carrs acquire Gilla Willa - paragraph 28

SouthernAg becomes manager of the properties - paragraph 29

The financial position of the Darbalara Property Trust - paragraph 30

The disputes between the parties - paragraph 33

The legal consequences of the structures established by the Carrs and the Ritossas - paragraph 36

Ground 1 – the construction of cl 2 - paragraph 47

Primary judge’s construction - paragraph 55

Appellants’ submissions - paragraph 63

Respondents’ submissions - paragraph 64

Cl 2 of the Trust Rules - paragraph 66

Section 3A of the Land Tax Management Act - paragraph 80

Sayden - paragraph 86

Clause 9 of the Trust Rules - paragraph 90

Section 181 of the Conveyancing Act - paragraph 91

Grounds 2-8 – oppression - paragraph 94

Resolving two issues where there has been a divergence of authority - paragraph 105

The evaluative judgment in s 232(d) and (e) - paragraph 113

The grounds going to oppression - paragraph 125

Grounds 4 and 5 – the pleading which went to trial - paragraph 127

Grounds 6, 7 and 8 – particular findings of fact - paragraph 142

Ground 2 – the failure to find oppression based on the findings made - paragraph 159

Ground 3 – further findings the primary judge failed to make - paragraph 178

Ground 9: The application of the doctrine referred to in Ebrahimi v Westbourne Galleries Ltd to trusts - paragraph 185

Submissions at trial - paragraph 188

Reasons of the primary judge - paragraph 193

Submissions in this Court - paragraph 200

Consideration - paragraph 213

(a) the Ebrahimi “doctrine” or “principle” - paragraph 215

(b) the inherent jurisdiction - paragraph 237

Conclusion and orders - paragraph 255

Stern JA - paragraph 258

Griffiths AJA - paragraph 259

JUDGMENT

1. LEEMING JA: The second and third appellants, Mr David Carr and Ms Rosalind Carr, and their company, the first appellant David & Ros Carr Holdings Pty Ltd (DRCH), appeal from the dismissal of proceedings brought by them and heard over eight days in the Equity Division of this Court. The appeal is opposed by Mr Ivan Ritossa and Ms Marina Ritossa, the first and second respondents. The third respondent, Darbalara Holdings Pty Ltd, is the trustee of a unit trust known as the “Darbalara Property Trust”, the units in which were originally issued to the Carrs and the Ritossas in equal shares. Subsequently, the Carrs and the Ritossas have continued, directly or indirectly, each to own or control 50% of the units. All four of the Carrs and the Ritossas are directors of Darbalara, and Mr Carr and Mr Ritossa each own one of its two ordinary shares.

1. In 2010, the Carrs and the Ritossas agreed to acquire agricultural property through the Darbalara Property Trust, which was established for that purpose. The first major purchase was a property called “The Junction” near Gundagai, to which was added in 2017 “Bogolara”, a property located between Gundagai and Yass around an hour’s drive away. Substantial numbers of cattle and sheep graze on both properties. Darbalara is a typical example of the trustee of a trading trust, that actively conducts commercial operations with a view to achieving a profit; this is common in Australia and New Zealand but much less so in the United Kingdom: Equity Trust (Jersey) Ltd v Halabi [2023] AC 877; [2022] UKPC 36 at [95]. Since around 2019, the Carrs and the Ritossas have disagreed on a number of issues. Many concerned the operations of the agricultural business, and were eventually resolved. However, the couples are at an impasse concerning the future of their investment. In short, the Carrs would like to realise their one half interest in the properties. There is a mechanism under the trust deed for this to occur (broadly speaking, one unit holder cannot sell without first offering the units to the others at the proposed price), but the Carrs have not invoked it, presumably because they have located no purchaser of their one half interest who is prepared to pay what they say is one half of the value of the net assets of the trust. Hence they seek orders which will have the effect of “winding up” the trust, which is to say, selling the trust assets, discharging trust liabilities and distributing the surplus to the unit holders (as will be seen, this description is somewhat elliptic).

2. This appeal advances three bases on which, so it is said, the trust should be wound up. They are (1) the construction of cl 2 of the Rules of the Darbalara Property Trust, (2) statutory oppression contrary to s 232(d) or (e) of the Corporations Act 2001 (Cth), and (3) the appointment of a receiver to the assets of the trust on the basis of, or by analogy with, the principles in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360.

3. The first basis (ground 1) turns on construction. The second (grounds 2-8) is factual, and challenges the conclusion by the primary judge that the disaffection between the Carrs and the Ritossas fell short of conduct amounting to statutory oppression. The third (ground 9) is a concededly novel proposition of law. For the reasons which follow, I would accept none of those arguments, with the result that the appeal should be dismissed.

4. These reasons take the same course as the parties’ written and oral submissions, and deal with the three bases in order. It is most efficient to provide a streamlined overview of the factual background which is sufficient for the purposes of resolving the submissions advanced in respect of the first and third bases (which are questions of law) before giving more detail in order to address the factual submissions advanced in support of the second basis. In an appeal where the issues are considerably narrower than was the case at trial, it will not be necessary to summarise the entirety of his Honour’s reasons of 287 paragraphs, delivered on 5 September 2024, some six weeks after the conclusion of an eight day trial.

Background

6. Mr Carr and Mr Ritossa met in 1987 when both worked for Bankers Trust in Sydney. They became friends in 2007, when the men held senior roles at different banks in Singapore. The Darbalara Property Trust was established in 2010, after Mr Ritossa told Mr Carr that he was interested in diversifying his investment portfolio and Mr Carr suggested Australian rural property.

The decision to acquire The Junction

7. On 10 March 2010, Mr Carr emailed Mr Ritossa about the possibility of purchasing two rural properties, located side by side, one of which was The Junction, saying it presented “the chance for good returns and good gains”. He added:

I cannot afford them by myself so my thought is to try and get a couple of like minded thinking people to pool together and buy them. Not sure of how to put that agreement together but it cannot be that hard. We would get the properties professionally run by Growth Farms (I told you about them previously) they run my farm now. Hold them for 5yrs plus and see what happens! I know we spoke roughly about this previously so if you are potentially interested then this is genuinely a good opportunity to look at in my opinion…

8. In April 2010, Mr Carr sought and obtained advice from his accountants about structures through which property could be held. He provided their advice to Mr Ritossa. The advice included a document headed “Comparison of structures” which compared various features of a private company, discretionary trust, unit trust and partnership.

9. On 7 May 2010, the vendor sent Mr Carr a draft contract of sale, for a price of $7,250,000, on the basis that contracts needed to be exchanged by 12 May so that the auction already scheduled could be cancelled. Events over the next five days proceeded rapidly, and were uncontroversially summarised by the primary judge at [22]-[31]. Notwithstanding the speed, a deal of attention was given to the possibility that one investor might wish unilaterally to exit.

Consideration of exit rights and the choice of a unit trust

10. Mr Carr’s email to the Ritossas on 7 May expressed concern about a company acquiring the property and “what we would do if either of us wanted to sell at a time when the other didn’t, and the new owner had to be integrated”. An email from Mr Carr to his accountant the following day introduced her to the Ritossas’ accountant, and included the statement:

We are intending to be long term holders and to extract an income from the farming business, however should either of us need to exit the deal then please consider this for the structure.

11. The Ritossas’ accountant proposed a unit trust structure, stating:

Acquire the property through a unit trust which will also run the business. Unit trusts are the most common structure for joint property investment by separate parties.

Normally the unit trust would be established with a company as trustee

● This would enable access to the CGT discount

● It may allow access to small business CGT concessions on the future sale of the property (although full benefit of concessions may not be able to be achieved).

● Interest should be deductible to the unitholder against the business income flowing from the trust, and losses can be carried forward or offset against other income.

● If not using debt, or if debt paid down in future, it would allow flow through of all income to enable you or Ivan to utilise losses.

● It would allow another party to come in in the future, and would also allow units to be transferred between the parties without requiring the title to be transferred (although full stamp duty rates may still be payable).

12. On the morning of 10 May 2010 (2 days before the date on which contracts had to be exchanged to prevent an auction), Mr Carr’s accountant responded to his email of 8 May 2010, expressing concern about the short time frame required and making the following suggestion:

We will call [the Ritossas’ accountant] to have an initial conversation and suggest that a telephone conference with all parties (ie. the Ritossas, yourselves, us and the solicitor) is absolutely essential to gather all the necessary information, determine everyone’s requirements, discuss various “exit” outcomes etc etc to then determine the most appropriate Ownership and Operating structure.

13. Instead of the telephone conference with all parties, Mr Carr responded later that day asking her to speak directly with the Ritossas’ accountant. His email concluded:

The contract is agreed, the deposit has been paid and the finance is sorted. So we just need resolution around stamp duty and the most efficient structure for the deal for Ros and I [sic] which works for Ivan and Marina.

14. Mr Carr’s email of 11 May included the following:

Briefly, the choice of Corporate Unit Trust vs Personal ownership & operation of the farm will depend on a few things:

● Is the farm likely to be profitable?

● How likely you or Ivan will return to Australia? (you will not be able to deduct losses against Australian salaries anymore due to new rules)

● Individual ownership in land stronger legal title in the event of dispute

● Individual ownership cheaper to establish & operate but far more complex if another party introduced down the track

● Conversely, Corporate U/T more expensive to establish & operate but much easier to introduce new parties down the track…so, how likely will it be that you introduce another party?

● Corporate U/T more flexible in relation to distribution of profits

● One entity owning & operating the farm is simpler

I am leaning towards Corporate U/T (which Andrew agrees with) however you will need a VERY STRONG unitholders agreement to very thoroughly deal with all issues in the event of a dispute so if you go down this track, you should employ a very good lawyer to assist in this regard.

15. There was no direct testimonial evidence on what occurred immediately thereafter, but there was no challenge to the inference drawn by the primary judge at [30] that it was decided that a unit trust be used.

The establishment of the unit trust and further consideration of exit rights

16. Mr Damian Scroope of Sydney Business Lawyers was retained to draft a trust deed. The deed was executed on the morning of 12 May 2010, and later that day contracts were exchanged.

17. At 2.49pm on the afternoon of 12 May 2010, Mr Scroope wrote to the accountants for the Carrs and the Ritossas. His email included the following:

Unit holders agreement

The unit trust has been set up without consideration of the many issues that relate to equal co-ownership of an asset (albeit through a trust). I feel that it is important that David and Ian consider those issues and whether or not they would like a more detailed unit holders agreement (akin to a shareholders or partnership agreement).

We are able to assist you with the preparation of such an agreement if it is considered necessary and David and Ian don’t have lawyers that they would use for that purpose. At the very least, if David and Ivan don’t want to use such an agreement, it is important that they make an informed decision about the problems that can arise without the safety net of an agreement.

Attached is our questionnaire that we use to take instructions for the preparation of a unitholders agreement. Whether we are asked to prepare the agreement or not, the questionnaire may be a useful reference point for you in your discussions with David and Ivan about whether or not they should have such an agreement. It is a one size fits all document so some of it will most likely not apply to David and Ivan’s situation.

18. The questionnaire addressed matters which might be included in a unit holders agreement, including the following:

Exit strategy - Some would say the most important thing to get right when entering into a unit holders agreement is the “exit strategy”. …

Voluntary exits – Can a unitholder simply exit the trust on the basis that the other unitholders have to buy out their interest? If so, on what terms?

19. On 14 May 2010 there was a further exchange between Mr Carr and his accountant concerning a unit holders agreement. She forwarded to Mr Carr the email and questionnaire which had been sent to her by Mr Scroope and said “The unit holders agreement should be put in place now, Damien Scroope can assist you with this”.

20. The issue resurfaced more than a year later, when the accountant reminded Mr Carr of the earlier advice. She re-sent the questionnaire to Mr Carr. He forwarded it to Mr Ritossa by email on 16 October 2011, saying:

Please also see the Unit Holders Agreement recommended by Sydney Business Lawyers for us. I think this makes sense in principal [sic] particularly if we expand the business. Are you guys OK with this please? If so then we should both fill it in.

21. However, so far as the evidence adduced at trial goes, neither man filled in the questionnaire and the matter went no further. No unit holders agreement was executed.

The way in which the investments were held

22. Darbalara Holdings was appointed as trustee of Darbalara Property Trust on 16 November 2010, replacing the initial trustee (which had only been intended to act temporarily in that role).

23. At all material times, Mr Carr and Mr Ritossa have each owned one of the two issued shares of Darbalara Holdings, and at all times they have been two of the four directors of that company. The other directors have been, since 12 May 2015, Ms Carr and Ms Ritossa (in the years prior to 12 May 2015, Mr Carr’s father was a director instead of Ms Carr). At all times, the board of Darbalara Holdings has comprised four directors, with two from each family.

24. Initially, the Carrs and the Ritossas each held 10 units of the Darbalara Property Trust. In order to purchase The Junction, further units were issued to the Carrs and the Ritossas such that both sides became owners of 3,827,149 units. In the case of the Carrs, the units were owned by the Carrs as trustees of the Carr Family Trust, and later they were transferred to DRCH when it became trustee of that trust. In the case of the Ritossas, 106 units were owned by the Ritossas jointly, and the remaining 3,827,043 units were owned by Mr Ritossa in his own name.

25. In December 2013, Mr and Ms Carr returned to live in Australia after Mr Carr retired from banking. The primary judge found that from this time Mr Carr took a more immediate role in the management of his family farm, Warralong. In late 2015, Mr Carr proposed to Mr Ritossa that Carr Agricultural Capital Management Pty Ltd (CACM), a company established in June 2015 and owned and controlled by Mr and Ms Carr, take over the management of the Darbalara Property Trust’s properties, including The Junction. Mr Ritossa agreed. CACM took over in December 2015 and was paid a monthly flat fee. There was no formal written agreement between Darbalara Holdings and CACM.

The acquisition of Bogolara

26. On 16 December 2016, Darbalara Holdings entered into a contract to purchase another rural property, “Bogolara” for $5.7 million. Mr Ritossa lent Darbalara Holdings some $6.8 million for the purchase of the land, together with stamp duty, plant and livestock, financed from funds borrowed by him from Standard Chartered Bank and documented by a loan agreement executed by Mr Ritossa and Darbalara Holdings in August 2017. The purchase settled in February 2017. CACM managed Bogolara on the same basis as The Junction.

27. Darbalara Holdings’ loan from Mr Ritossa was refinanced in September 2018. Darbalara Holdings, as trustee, entered into a loan facility agreement with ANZ Bank on 3 August 2018 for loans up to a maximum amount of $4.9 million. The security comprised (a) first registered mortgages over The Junction and Bogolara; (b) a general security agreement granting a security interest over the present and after acquired property of the trust; and (c) a subordination deed which gave priority to ANZ over all amounts owed to the unit holders. In early September 2018, $3.8 million was advanced by ANZ under this facility to Darbalara Holdings and each unit holder made a loan of $1,676,233 to enable Mr Ritossa’s loan to be repaid and provide further funding for the business. The unit holder loans were not formalised in a loan agreement and are interest-free.

The Carrs acquire Gilla Willa

28. On 28 November 2018 DRCH (as trustee for the Carr Family Trust) entered into a contract to purchase a rural property called Gilla Willa for a total price of $13.8 million. The purchase settled on 18 December 2018. The acquisition was financed by debt. The Carrs borrowed $12.8 million from ANZ and the remainder from Mr Carr’s Singapore pension fund. The significance of this acquisition is that the Ritossas alleged that it placed significant financial strain upon the Carrs, explaining their subsequent desire to pay “dividends” to unit holders despite the absence of profits (because of drought) and their eventual desire to sell their interest in the trust assets.

SouthernAg becomes manager of the properties

29. In 2023, CACM was replaced by Benview Farms Pty Ltd, trading as Southern Ag Management (SouthernAg), which remains the current farm manager. The replacement of CACM by SouthernAg was one of the issues of disagreement between the Carrs and the Ritossas.

The financial position of the Darbalara Property Trust

30. In 2014, 2016 and 2017 distributions were made to unit holders: (a) $180,000 on 21 April 2014 ($90,000 to each family); (b) $500,000 on 15 June 2016 ($250,00 to each family); and (c) $600,000 on around 26 March 2017 ($300,000 to each family). Although Mr Carr and Mr Ritossa referred in some email correspondence to these payments as “dividends”, that was loose language. The distributions were recorded in the trust’s financial statements as a reduction in each unit holder’s loan account.

31. From around mid-2017 until mid-2020 The Junction and Bogolara were affected by drought. The profit and loss statement for the unit trust for the year ended 30 June 2020 showed a net operating profit of $695,396, substantially attributable to some $2,313,080 in sales of livestock. But there had been accumulated losses of some $1,114,293 in previous years, against which that profit was offset. No distributions were made in those years.

32. The balance sheet for the unit trust for the year ended 30 June 2020 showed assets of just over $19 million, of which more than $15 million was The Junction, Bogolara and a homestead located on one of the properties. Livestock on hand were valued at less than $300,000 and there was about $950,000 cash at bank. There were liabilities of $7,994,451 to ANZ and $1,870,733 to each of the Ritossas and the Carr Family Trust, leaving net assets of just over $7 million. However, it is necessary to bear in mind that the properties were recorded at their acquisition price; other evidence which will be mentioned below suggests the properties had appreciated in value by the time of the trial.

The disputes between the parties

33. There was a dramatic falling-out between the families on 7 December 2019. All four of Mr and Ms Carr and Mr and Ms Ritossa gave evidence about a meeting at breakfast. The primary judge said at [83] that it was not necessary to determine whose account, if any, was most reliable. It was common ground that there was a heated argument, during which Mr Ritossa used coarse language and walked out of the room. Thereafter the Carrs stated they wished to sell.

34. As will be seen below, there were various other disputes (concerning the appointment of a manager, the time when that manager and his family could live in accommodation which was also a trust asset and various other operational issues) which were contentious but which were eventually resolved. This is most apparent because from around 28 February 2020, directors’ meetings were recorded. Hundreds of pages of transcripts were tendered at trial. Unsurprisingly, both sides having retained lawyers and knowing that they were parties to litigation in which what was said might be tendered, the transcripts disclose at least the semblance of reasonableness and cooperation.

35. The issue on which there was no resolution was whether the trust should be wound up.

The legal consequences of the structures established by the Carrs and the Ritossas

36. First, the Carrs implemented their economic aim of co-investing with the Ritossas not as joint owners, not as partners, not as shareholders in a company which owned the real property, but through a structure which distanced them from the real property in which they were investing. The Junction and Bogolara were held as assets of a unit trust, with the units of the trust being held as assets of a discretionary family trust. That evidently was done advisedly. It may have had the consequence that investment income, if any were generated, could be distributed readily to persons and entities who were discretionary objects of the Carr Family Trust in a tax effective way.

36. Secondly, the differences in legal structures matter, as they do in every case. The fact that the Carrs and the Ritossas sometimes styled themselves as “partners” and sometimes referred to “dividends” does not mean that their relationship ceased to be governed by the formal documents executed by them, on the basis of which accounts and (it may be presumed) taxation returns were prepared. The question of whether the Carrs can “exit” the investment cannot be meaningfully addressed without close consideration of the particular facts and circumstances of the case, and in particular, without consideration of the structure chosen to implement the investment: see for example Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; [2008] HCA 27 at [126]-[127].

37. Thirdly, the fact that the assets of the Darbalara Trust were deployed commercially, with a view to achieving a profit, does not alter the position. Parties may combine as partners or unincorporated joint venturers or through a company or through a trust in order to operate a business. The fact that in all cases the goal is to operate a commercial enterprise does not detract from the proposition that the different structures carry with them quite different ways in which the parties’ interests may be separated.

38. Fourthly, it was not suggested that the documents did not bear their ordinary legal meaning. There was no suggestion that there was a sham, and in truth there was a partnership between the Carrs and the Ritossas. In light of the second and third points mentioned above, that was the only proper approach to take. I mention the point because some of the Carrs’ submissions, which deployed the language of partnership and indeed “winding up”, might distract from the relevant question, which is the circumstances in which the trustee of a trading trust may be compelled to cease its operations, discharge its debts, realise its assets and distribute them to its unit holders, with all personal and proprietary rights coming to an end. As will be seen when addressing ground 9, the appellants disavowed any suggestion that, contrary to the documents executed by them and on the basis of which their financial and taxation affairs had been conducted for many years, they were partners or owed each other fiduciary duties.

39. Fifthly, putting to one side the submissions based on cl 2, the structures selected by the Carrs stood in the way of the unilateral decision of one of the co-investors bringing the investment to an end. This occurred on two levels. The ordinary remedies of s 66G of the Conveyancing Act 1919 (NSW), or of dissolving a partnership, or of applying to wind up a company, were not available to a unit holder of a unit trust (subject to the “novel” submissions in support of ground 9). Further, the Carrs’ choice for “their” 50% of the units to be held as assets of their discretionary family trust, coupled with their decision to have a company controlled by them as the trustee of that trust, meant that not only did they not own the units beneficially, but they ceased even to own the legal title to the units. It is thus a little inexact to describe the 50% of units owned by DRCH as “their” units, although it is true that the Carrs controlled DRCH and could cause it to distribute those units to any discretionary object including themselves. Significantly for present purposes, those choices meant that the words of extension in s 234 of the Corporations Act “even if the application relates to an act or omission that is against (i) the member in a capacity other than as a member” were inapplicable, at least on their ordinary meaning.

40. It is wrong to regard the Carrs as beneficial owners of the units, or as having a “beneficial interest” in the units. To the contrary, “[t]he use of terms such as ‘beneficial interest’ is apt to mislead when applied to beneficiaries’ interests in a discretionary trust”: MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494; [1999] HCA 51 at [34]. In Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184; 106 ATR 151 at [114], Sackville AJA writing for this Court said:

In Gartside, Lord Wilberforce explained the nature of a discretionary object’s interest:

“No doubt in a certain sense a beneficiary under a discretionary trust has an ‘interest’: the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion ‘fairly’ or ‘reasonably’ or ‘properly’ that indicates clearly enough that some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes. But that does not mean that he has an interest which is capable of being taxed by reference to its extent in the trust fund’s income: it may be a right, with some degree of concreteness or solidity, one which attracts the protection of a court of equity, yet it may still lack the necessary quality of definable extent which must exist before it can be taxed.”

This passage was quoted with approval in Kennon v Spry.

42. Sixthly, one of the central differences between the various modes by which the beneficial interest in property may be co-owned is the availability, or non-availability, of individual co-owners to bring to an end the legal relations between them. For many centuries, equity has sought to uphold trusts, and, as will be seen below when dealing with ground 9, many of its doctrines are directed to ensuring that trusts will survive.

43. Indeed, there is reason to think that this informed some of the choices made by the Carrs at times prior to the breakdown of friendly relations with the Ritossas. On 21 August 2017, a circular resolution was passed to ensure that there would always be equality of voting power at the board level between the Carrs and Ritossas, including that in the event one director died, his or her spouse would receive an additional vote to ensure parity between the families. They also agreed that there would be no chairperson with a casting vote at board meetings. The primary judge stated at [46] that those decisions “were based on legal advice received on 20 January 2017 driven by a concern raised by the Ritossas that the Ritossa Loan, which was unsecured, exposed the Ritossas to increased risk if DPT’s business failed”. The finding was uncontroversial so far as the appeal was concerned. The legal advice does not appear to have been included in the appeal books. However, an email from Mr Ritossa to Mr Carr dated 14 February 2017 commenced:

Good news on getting the Constitution of the Trust changed. This now protected both of us in case of death of one – which is what I think we both wanted for the voting rights etc on the Trust to always be equal.

44. Finally, it is essential to bear steadily in mind the difference between the process of winding up an investment – ie selling the assets, discharging all liabilities and distributing any surplus to the investors – from the sale of a co-investor’s interest in the investment. The former destroys the structure, while under the latter the structure is preserved.

45. The difference matters because it impacts value. A co-owner who lacks control is apt to find that the value of an investment is less than that co-owner’s ratable proportion of the net realisable assets. That is because the market accords a value to control. Thus it is trite that a minority shareholder in a private company will typically only be able to sell that parcel of shares at a discount to the proportion of the net value of the company’s assets. It is also trite that the sale of a majority interest in shares in a private company will often attract a “control premium”.

46. In light of those principles applicable to the Darbalara Property Trust, it is convenient to address the construction of cl 2 of the Trust Rules.

Ground 1 – the construction of cl 2

47. By ground 1 of their Notice of Appeal, the appellants challenge the primary judge’s rejection of their contention that cl 2 of the Trust Rules entitles any individual unit holder to require the trustee to wind up the trust. They add that if their construction of cl 2 is correct, the respondents’ refusal to permit a winding up contrary to their entitlements under the trust deed is a further matter giving rise to oppression and thus enlivening the range of statutory remedies in the Corporations Act 2001 (Cth).

48. The trust deed recited that the Carrs and the Ritossas had each agreed to take up 10 units for an issue price of $10, and then stated in cl 1.1 that a company whose sole director was the Carrs’ accountant “must hold all the property acquired by it in its capacity as trustee of the Trust created by this deed (Fund) on the trusts set out in this Deed and in the attached rules”. Clause 1.2 provided that “The Fund must be held upon trust for the Unit Holders absolutely in proportion to the number of units held by them”. Aside from naming the trust and stating that “The attached rules have effect as part of this deed”, that was the entirety of the deed. No point was taken that the deed was ineffective to create a trust, notwithstanding that the deed on its face was wholly executory.

49. Clause 2 of the “Trust Rules” – which were deemed by the deed to have effect as if they were part of the deed – provided as follows:

2. Present entitlement – relevant criteria as a fixed trust

2.1 The Unit Holders are:

(a) presently entitled to the Income of the Trust, subject only to payment of proper expenses by and of the Trustee relating to the administration of the Trust;

(b) presently entitled to the capital of the Trust and may require the Trustee to wind up the Trust and distribute the Trust property or the net proceeds of the Trust property.

2.2 The entitlements referred to in sub clause 1 of this clause cannot be removed, restricted or otherwise affected by the exercise of any discretion or by failure to exercise any discretion, conferred on a person by the Trust Deed.

2.3 Sub clauses 1 and 2 of this clause operate despite anything else that is contrary to them in this deed.

50. “Income” was defined in cl 1.2 to mean “the income of the Trust as determined in the Trustee’s absolute discretion”, but failing such determination meant assessable income less all deductions allowed in accordance with the Income Tax Assessment Acts 1936 and 1997.

51. In essence, the dispute between the parties is whether the opening words of cl 2.1 (“The Unit Holders”) denote the unit holders collectively, or instead refer to each unit holder individually. If the former, the entitlements set out in paragraphs (a) and (b) are conferred only on the unit holders acting collectively. If the latter, those entitlements are conferred on each unit holder individually.

52. Both constructions are available as a matter of syntax. English is decidedly imprecise in this respect. The two sentences “Directors are entitled to receive notice of a board meeting”, and “Directors are entitled to approve a circulating resolution” have identical syntax, but regard to meaning makes it clear that the former refers to an entitlement that each director enjoys individually, while the latter refers to something which can only occur collectively (precisely how will turn on the company’s constitution). The difficulty posed by the imprecision of the English language when applied to co-owners of property or rights is familiar. Common law and equity have long had rules governing the effect of a conveyance to co-owners. Those rules diverged, and now s 26 of the Conveyancing Act 1919 (NSW) favours the approach in equity: see Delehunt v Carmody (1986) 161 CLR 464 at 472-473; [1986] HCA 67, although it does not always apply: Equititrust Ltd v Franks [2009] NSWCA 128; 258 ALR 388 at [54]-[56] and [84]-[85]. Likewise, the common law has developed principles of construction in order to determine whether a promise in a contract is joint: see White v Tyndall (1888) 13 AC 263 and Federation Insurance Ltd v Wasson (1987) 163 CLR 303; [1987] HCA 34. Even where drafters attend to the ambiguity of English plurals, there may be difficulties. In Kay v KRM (Vic) Pty Ltd; Classic Bet (NSW) Pty Ltd v Kay [2020] NSWCA 92 the contract included the words “collectively and individually, as the case may be”, which qualified a reference to a defined term denoting the three parties to a contract, and gave rise to an issue whether one of the three incurred a particular liability.

53. A further aspect in which English is imprecise is that if a group of people is entitled to do something, it is not clear whether that means by acting unanimously or by majority. The default position is that directors (subject to the corporate constitution) act by majority but trustees (subject to the trust deed) can only act unanimously: see Sky v Body (1970) 92 WN (NSW) 934 and In the Estate of William Just deceased (No 1) (1973) 7 SASR 508. This does not arise in the present case. However, there would be a large difference in the individual rights of each of Mr and Ms Carr and Mr and Ms Ritossa if instead of being directors of a trustee company, they were instead co-trustees of the unit trust. (I shall return to this when dealing with what was meant by “deadlock”.)

54. The reason for dwelling on these features of language is that they reveal that the construction of cl 2 cannot be resolved by grammar or syntax alone. Instead, as will be apparent from the reasons of the primary judge and the parties’ submissions, it will be determined by context and purpose and the semantic content of the competing constructions.

Primary judge’s construction

55. The primary judge noted, and it was not in dispute, that the purpose of cl 2 was to ensure the characterisation of the trust as a “fixed trust” pursuant to s 3A of the Land Tax Management Act 1956 (NSW), for the purposes of claiming a tax-free threshold under the Land Tax Act 1956 (NSW). Section 3A relevantly provides as follows:

3A Special trust—meaning

(1) For the purposes of this Act, a trust is a special trust if—

(a) the trust property includes land, and

(b) the trustee of the trust is the owner of the legal estate in the land, and

(c) the trust is not a fixed trust.

(2) For the purposes of this section, a trust is a fixed trust if the equitable estate in all of the land that is the subject of the trust is owned by a person or persons who are owners of the land for land tax purposes (disregarding section 25 (3)).

(3) For the purpose of determining whether a trust is a fixed trust under this section, any equitable interest of the trustee as trustee of the trust is to be disregarded.

(3A) If a trust satisfies the relevant criteria, the persons who are beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land that is the subject of the trust and, accordingly, the trust is taken to be a fixed trust.

Note.

Under section 25, owners of an equitable estate or interest in land are liable in respect of land tax as if they were legal owners of the land. Owners of an equitable estate in land are treated as secondary taxpayers.

(3B) For the purposes of this section, the relevant criteria are as follows—

(a) the trust deed specifically provides that the beneficiaries of the trust—

(i) are presently entitled to the income of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust, and

(ii) are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property,

(b) the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed,

(c) if the trust is a unit trust—

(i) there must be only one class of units issued, and

(ii) the proportion of trust capital to which a unit holder is entitled on a winding up or surrender of units must be fixed and must be the same as the proportion of income of the trust to which the unit holder is entitled.

56. It will be seen that s 3A(3B)(a)(i) and (ii) very closely approximate cll 2.1(a) and (b), while s 3A(3B)(b) very closely approximates cl 2.2 – down to the choice and order of the verbs “remove”, “restrict” and “otherwise affect”.

57. The primary judge observed that the definition of “fixed trust” in sub-sections (3A) and (3B) was inserted into s 3A as a response to CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98; [2005] HCA 53. His Honour noted the amendments to the definition of “fixed trust” were intended to deem those beneficiaries who satisfy “relevant criteria” to be owners of the equitable estate in the land, and thus to be beneficiaries under a fixed trust eligible for the tax-free threshold.

58. The primary judge said of s 3A(3B)(a) that it would be satisfied if beneficiaries collectively had the relevant entitlements, as the second limb of subparagraph (ii) was directed to whether the “rule” in Saunders v Vautier applied, and it would be “an odd use of language” if the first limb were read differently as requiring that the beneficiaries have the present entitlement to capital individually and severally.

59. His Honour said, however, that the starting point for construing cl 2.1 was that it should be read together with cll 9, 15 and 16, which his Honour considered expanded upon the concepts in cl 2.1. His Honour said that this approach was not precluded by cl 2.3 which mandated the paramountcy of cll 2.1 and 2.2, because there was nothing in cll 9, 15 or 16 that conflicted with cll 2.1 or 2.2. Those clauses are as follows:

9. Ending the Trust

9.1 The Trust continues until it is resolved by a Unanimous Resolution to end it.

9.2 On termination of the Trust the Trustee must wind up the trust and:

(a) distribute the Trust property; or

(b) realise all the assets constituting the Fund and distribute the net proceeds; or

(c) distribute some of the Trust property and realise the balance of it and distribute the net proceeds,

to the Unit Holders in proportion to the number of Units held by them.

…

15.   Distribution of Income

15.1 The Unit holders are presently entitled to the Income of a Year of Income.

15.2   The Trustee must pay all of the Income of a Year of Income to Unit Holders in proportion to their unit holding subject only to the payment of the proper expenses by and of the Trustee relating to the administration of the Trust.

16.   Distribution of capital

16.1 The Unit Holders are presently entitled to the capital of the Trust in proportion to the number of Units held by them.

16.2   Prior to the end of the Trust, the Trustee may distribute part of the capital to the Unit Holders in proportion to the number of Units held by them.

16.3   When the Trust ends, the capital of the Trust will be distributed under clause 9.

60. His Honour considered that cl 15 amplified the unit holders’ present entitlement to income in cl 2.1(a), that cl 16 amplified their present entitlement to capital in the first limb of cl 2.1(b), and that cl 9 dealt with the winding up referred to in the second limb of cl 2.1(b). Clause 9, by use of the word “until”, provided that the trust would continue indefinitely until a unanimous agreement to terminate, expressly recognising the Saunders v Vautier right without the qualification recognised in CPT Custodian as to the trustee’s right of indemnity.

61. His Honour then proceeded to consider, and reject, the arguments propounded by the appellants, as follows.

1. The appellants submitted that their construction of “[t]he Unit Holders” was supported by s 181(1) of the Conveyancing Act 1919 (NSW), which relevantly provides that in all deeds, “unless the contrary intention appears … The singular includes the plural and vice versa”. In his Honour’s view, that provision did not allow a construction of cl 2 whereby “[t]he Unit Holders” referred to unit holders in the singular but not the plural, and further, said that this would create a “commercial nonsense” as it would entitle each unit holder to the entirety of the income and capital of the trust. The Rules also distinguished, apparently deliberately, between unit holders in the singular and the plural which was a sufficient contrary intention that s 181(1) did not apply. Finally, the provisions of the Rules dealing with the transfer of units and rights of pre-emption, and the winding up of the trust upon unanimous resolution, would be “essentially otiose” if an individual unit holder could call for a winding up pursuant to cl 2.1(b).

1. His Honour noted that a clause in a trust deed which purported to satisfy ss 3A(3A) and 3A(3B), and which was similar to cl 2 of the Trust Rules here under consideration, had been construed by Gzell J (with whom Meagher JA and Tobias AJA agreed) in Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111. In that case, Gzell J considered that that clause conferred rights on individual unit holders. The primary judge rejected the appellants’ reliance on Sayden, distinguishing it on the basis that it concerned the proper construction of a different trust deed that was “subtly different” from the deed here under consideration.

2. Although the appellants submitted that cl 2.1 was intended to implement the relevant criteria in s 3A(3B) of the LTMA, the primary judge considered that those criteria did not require that unit holders have individual rights to call for their share of the capital and that even so, the trust deed must be construed before determining whether it satisfied the criteria.

3. In respect of the primacy provision in cl 2.3, the primary judge said there was no inconsistency between cll 2.1 and 2.2 and any other provision, and thus cl 2.3 was not engaged.

4. The primary judge rejected the appellants’ contention that their construction should be upheld so as to allow the trust to be able to carry forward a loss for income tax purposes. His Honour said that the characterisation of a trust for income tax purposes would not assist with the proper construction of cl 2.1.

5. The primary judge added that cll 2.1(b) and 16.1 should be construed so as to cohere with cl 17.1, which provided that trust property was held for the unit holders as tenants in common. This clause revealed that each unit holder had an undivided 50% share in the assets but not an entitlement to any particular part of any asset of the trust, and no entitlement to call for the trustee to account to it for its share of land, relying on Beck v Henley [2014] NSWCA 201. His Honour noted that the appellants did not seek a partition or sale of the land under s 66G of the Conveyancing Act. Clauses 2.1(b) and 16.1 could be read consistently with cl 17.1 by reading the former as conferring collective rights.

62. Thus, the primary judge concluded that cl 2.1(b) did not entitle the appellants to call for a winding up without the agreement of the other unit holders.

Appellants’ submissions

63. The appellants advanced six arguments in support of their construction:

1. The appellants criticised the primary judge’s reasoning in respect of the plural “Unit Holders” in the chapeau of cl 2.1, submitting that it did include the singular and did not require unanimity, on the basis of the plain English meaning of the words and s 181 of the Conveyancing Act. In oral submissions, the appellants noted that it would be odd to describe the unit holders as being “presently entitled” if that entitlement depended on a unanimous resolution. The appellants also said that their construction would not render otiose the provisions of the trust dealing with the transfer of units and winding up (for example, cl 9.1), and that the primary judge should not have sought to read cl 2.1 consistently with cl 9.1 given cl 2.3, which provided for the paramountcy of cl 2.1 in the event of any inconsistency. In oral address, the appellants said that while cl 2.3 would only be engaged where there was a conflict, the provisions of the trust deed and Rules should be given their plain meaning rather than being read down to avoid a conflict, and that cl 2.3 would determine any conflict that did exist. To read down cl 2 to avoid conflict with cl 9 would undermine the drafter’s intention. The appellants further accepted that on their construction of cl 2, there may be few occasions where a unanimous resolution is passed pursuant to cl 9, but submitted that this was merely the result of a proper construction of the trust deed.

2. The appellants relied on s 3A(3B) of the LTMA as necessitating their construction. They submitted that because the objective intention of the drafter of the trust deed was to implement the criteria in the statute, that statute should be construed first, as a guide to the deed’s meaning. The primary judge had thus erred in construing the deed prior to the statute.

3. They relied on Sayden, submitting that the relevant clause there was “only subtly different” from cl 2 and the decision thus should have been accorded precedential value. They further said that Gzell J was determining whether the criteria had been incorporated into the deed, rather than simply construing the deed, and thus his Honour’s reasoning should have been applied. The appellants submitted that it ought not be a weighty consideration that their propounded construction would have the consequence that a 1% unit holder could call for a winding up, as this merely reflected the language of the LTMA and the precedent set in Sayden. There had been no finding by the primary judge that the trust was to be a long-term investment.

4. Fourthly, the appellants submitted that the primary judge erred in relying on the principles in CPT Custodian and Beck v Henley to construe cl 17.1 and to “read down” cl 2.1; they submitted that those common law principles had been overridden by the trust deed.

5. Fifthly, the appellants said that the primary judge’s construction of cl 2 left no function for that clause that was separate from that of cl 9.

6. Sixthly, they said that the primary judge implied that they could have sought a partition or sale of the real property held by the trust under s 66G of the Conveyancing Act, and that his Honour criticised them for not having addressed cl 17, both of which criticisms the appellants challenged.

Respondents’ submissions

64. The respondents provided five reasons in support of the primary judge’s construction of cl 2:

1. It was consistent with the natural meaning of the text.

2. Only the unit holders collectively were entitled to the entire income and capital of the trust, which were the other present entitlements in cl 2.

3. The primary judge’s construction was in harmony with cl 9 and the mechanisms for transfer of units, which would otherwise be rendered otiose.

4. It was consistent with the commercial objective of the trust being a long-term investment, noting that it would be uncommercial for a single unit holder to be able to call for a winding up.

5. It was consistent with the position at general law, enunciated in Beck v Henley, where unanimity is required for absolutely entitled beneficiaries to call for the distribution of non-fungible trust assets such as land.

65. In response to the appellants’ arguments, the respondents relevantly submitted that s 181 did not apply in the way contended for by the appellants, as the plural “Unit Holders” could not be changed to include the singular without changing the nature of the rights in cl 2. Clause 2.3 was not engaged as cl 9 was not in conflict with cl 2. In oral address, the respondents relied on Jabbcorp (NSW) Pty Ltd v Strathfield Golf Club [2021] NSWCA 154 in support of the proper approach to the interpretation of paramountcy clauses such as cl 2.3, which they said was to interpret the relevant clauses and to apply cl 2.3 only in the event of conflict. Further, the respondents submitted that the Land Tax Management Act did not require an individual entitlement on the part of unit holders to call for a winding up, and in any event, the requirements of the statute could not alter the proper construction of cl 2.1, which had to be construed prior to determining whether the statutory criteria were satisfied. Sayden was not concerned with interpreting the Land Tax Management Act, did not decide that the Act required individual entitlements to wind up a trust, and was distinguishable. The primary judge’s construction would not render cl 2.1 otiose, as the purpose of the clause was to ensure the trust met the “relevant criteria” in s 3A(3B).

Cl 2 of the Trust Rules

66. Six points may be noted immediately about cl 2 of the Trust Rules.

67. First, cl 2.1 confers three distinct entitlements or powers on “[t]he Unit Holders”: first, a “present[] entitle[ment]” to the income of the trust, subject to the payment of the trustee’s proper expenses (cl 2.1(a)); secondly, a “present[] entitle[ment]” to the capital of the trust (limb 1 of cl 2.1(b)); and thirdly, a power to “require” the trustee to wind up the trust and distribute the property or net proceeds (limb 2 of cl 2.1(b)).

68. Secondly, a “present entitlement” to income of a trust estate is a familiar concept, by reference to ss 95A, 95B and 97 of the Income Tax Assessment Act 1936 (Cth) and corresponding provisions in the 1997 Act. In Commissioner of Taxation v Bamford; Bamford v Commissioner of Taxation (2010) 240 CLR 481; [2010] HCA 10 at [37] the High Court explained:

The language of present entitlement is that of the general law of trusts, but adapted to the operation of the 1936 Act upon distinct years of income. The effect of the authorities dealing with the phrase “presently entitled” was considered in Harmer v Federal Commissioner of Taxation, where it was accepted that a beneficiary would be so entitled if, and only if,

“(a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment.”

69. However, “present entitlement” to the capital of the trust is much less familiar. That said, the distinction between income and capital of a trust is basic. In Bamford at [17], the High Court endorsed what had been said by Stone and Perram JJ in the Court below at [67]:

The law of trusts’ interest in the topic of income emerges from the longstanding conundrum facing trustees who have to distribute income and apportion expenses between successive equitable estates. However, the interstices of those rules, which take the form of presumptions about the intention of the settlor, always yielded to the terms of the trust.

70. In the present trust deed, the trustee has a power to distribute part of the capital to unit holders in proportion to the number of units held by them (cl 16.2), and an obligation to distribute income (cl 15.2).

71. Thirdly, whatever meaning be given to “presently entitled”, it is clear enough that cl 2.1 applies in relation to the whole of the “Income of the Trust” and the whole of the “capital of the Trust”. Each individual unit holder cannot individually be presently entitled either to all of the trust’s “Income”, or to all of its capital. Individual unit holders can only be presently entitled to the unit holders’ shares, proportionate to their unit holdings, of the income or capital of the trust. All of the unit holders may collectively be presently entitled to all of the trust’s income or capital, but not individually. That is a powerful semantic consideration supporting the construction upheld by the primary judge, that “The Unit Holders” in cl 2.1 is a reference to the unit holders collectively, rather than individually.

72. Fourthly, the constructions propounded by the appellants and the respondents are both open on the face of the text. “The Unit Holders” could, as a matter of plain English, refer to either a group comprised of unit holders, or could refer to each unit holder severally. However, in respect of the first two of the entitlements in cl 2.1 (the entitlements to income and capital), the phrase “[t]he Unit Holders” can only be sensibly construed as referring to the unit holders collectively, in light of the previous paragraph; each unit holder cannot be individually entitled to the entirety of the income and capital of the trust. Against this, the appellants said that the phrase could be interpreted in respect of those present entitlements as conferring on individual unit holders an entitlement to the income and capital in proportion to the units held, consistently with cl 17.1, which provides that the trust property is held on trust for the unit holders “as tenants in common in proportion to the number of units held”. But rather than encourage a construction of cl 2.1 that reads in the words “in proportion to the number of units held” into the present entitlements conferred, which would at the very least be an unnatural reading of the clause, cl 17.1 merely confirms that the first two entitlements conferred by cl 2.1 must be conferred on the unit holders as a group, rather than individually. That means that the appellants’ construction necessitates a distributive reading of cl 2.1, in that “[t]he Unit Holders” must denote a collective group for the first two entitlements, but individuals for the final power conferred by the clause. That is not prohibitive of their propounded construction, but weighs against it.

73. Fifthly, it is readily apparent — and it was not in dispute — that the language of cl 2.1, including the notion of “present[] entitle[ment]”, is taken from s 3A(3B) of the LTMA, and that the purpose of cl 2 is to ensure that the trust satisfies the relevant criteria in that subsection to allow the trust to qualify as a fixed trust for land tax purposes. That has consequences for the proper construction of cl 2.

74. This Court’s task is to construe the trust deed, and in particular, to decide whether cl 2 confers an individual entitlement on unit holders. But that constructional task must necessarily be undertaken by reference to the intention to be imputed to the drafters of the deed, and where that intention was to satisfy the requirements of a statutory provision, it can be reasonably presumed, subject to contrary indication, that it was effective and that the meaning of the deed reflects the requirements of the statutory provision. That presumption is particularly strong where, as here, the language of the deed is almost identical to the language employed by the statute. To that extent, then, the construction of cl 2 is coloured by the construction of s 3A(3B) of the LTMA. This approach is simply a manifestation of the general purposive approach to construction of deeds, and so does not treat the statutory task as logically anterior to the construction of the deed.

75. That position was exemplified in the following exchange:

STERN JA: Before we move on, can I just ask, so do you say that what the objective intention that would be inferred to the parties is that cl 2 simply means whatever someone finds the Land Tax Management Act clause to mean, as opposed to that they actually addressed the question of construction in any way?

BIRCH: Your Honour, what I'm saying is you still have to construe cl 2, and in a logical sense, the construction of the deed is a separate step from the construction of the statute. So one can’t simply construe the statute and say therefore, that resolves cl 2. What I’m saying though is that one must objectively presume the drafter of the deed's intention was to have the effect that the statute prescribed and has used similar language, and it would only be if there was something in the deed that was incorrigibly against attributing the same meaning to the deed language that you would conclude it had a different meaning.

76. That approach to construction will, of course, only have the consequence contended for by the appellants if their construction of s 3A(3B) is correct. That question is considered below.

77. Sixthly, cl 2.3 provides for the continued operation of cl 2.1 “despite anything else that is contrary … in this deed”. That is a provision directed to resolving inconsistency where it exists, and directs a particular resolution of that inconsistency. P Herzfeld and T Prince, Interpretation (3^rd ed, Thomson Reuters, 2024) says of such clauses at [22.100] that:

… Absent an express definition of “inconsistency”, references to inconsistency in an express clause are no broader than the common law concept. Clauses are not inconsistent merely because one qualifies or modifies the effect of the other; to be inconsistent it must be impossible to read the clauses fairly together…

… It is doubtful that the inclusion of the express clause really acknowledges the likelihood of provisions being inconsistent. It is more likely that the clause was included for the avoidance of doubt – to clarify what the court should do to resolve inconsistency if it exists. For example, it is clear that the presence of words such as “Notwithstanding any other clause” merely indicates which clause is to prevail in the event of inconsistency, not whether there is an inconsistency in the first place.

78. That is consistent with the approach adopted in Jabbcorp (NSW) Pty Ltd v Strathfield Golf Club at [36] in respect of a definition commencing with “Notwithstanding any other clause”, which words were found to “only indicate the clause which prevails in the event of conflict, and say nothing as to whether there is a conflict in the first place”.

79. Clause 2.3 merely provides that cl 2.1 will prevail if there is inconsistency, but is silent as to whether that inconsistency exists. Clause 2.3 does not detract from something more fundamental about the construction of the deed, namely, the ordinary position that the deed and rules must be construed as a whole, harmoniously, with a presumption against surplusage, which is a step anterior to the engagement of cl 2.3. To the extent that the appellants’ submission, to the effect that the primary judge erred by “reading down” cl 2.1 so as to read it harmoniously with cl 9, is contrary to that position, that submission must be rejected. More is said in relation to cl 9 below, but what emerges from the above is that the proper starting point is s 3A(3B) of the LTMA.

Section 3A of the Land Tax Management Act

80. The legislative history and purpose of ss 3A(3A) and (3B) is set out above. That said, it is difficult to identify a purpose, other than to ensure that a certain class of trust instruments would be, for the purposes of the assessment of land tax, regarded as fixed trusts. Although CPT Custodian prompted the provision, it is far from clear what aspect of that decision caused difficulty. In order to explain this, it is necessary to return to what CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) actually held.

81. Simplifying the four appeals slightly, assessments for land tax had been served upon the owners of 100% and 50% of the units of unit trusts of land on which certain shopping centres were constructed. Plainly the individual trustees were liable to pay land tax, but as the High Court indicated at [5] the Commissioner had served notices on the unit holders “for ease of collection of the revenue”. The question was one of statutory construction. It was whether each unit holder was an “owner” of land under the Victorian legislation, and exclusive reliance was placed on the definition that an “owner” included “every person entitled to any land for any estate of freehold in possession”. At first instance, Nettle J had held that none of the unit holders were “owners” under this definition. The Court of Appeal had held that a unit holder with less than 100 per cent of the units was not, but the owner of 100 per cent of the issued units was, such an owner. The joint judgment of the High Court affirmed the entirety of the result reached by Nettle J.

82. The particular unit trusts resembled those in the present case, save for the absence of cl 2, and the fact that the trustee was entitled to substantial fees in respect of which it enjoyed a right of reimbursement or exoneration from trust assets secured by a lien.

83. The High Court addressed the consequences of the “rule” in Saunders v Vautier at [41]-[52], this being the basis of some of the appeals being allowed by the Court of Appeal. One strand of the reasoning focussed on the fact that the “unrealised potential” of the sole owner of all issued units to bring the trust to an end did not mean that that sole owner of units was entitled to any estate of freehold in possession, for the purposes of a statutory definition in a tax act: see at [42] and [52]. Another was that the unsatisfied trustee’s right of indemnity was a charge upon the assets of the trust, and until the rights of reimbursement and exoneration were satisfied, it was not possible to say what the trust fund was: at [50]-[51]. This was on the basis of a reading of Wharton v Masterman [1895] AC 186 to the effect that the rule in Saunders v Vautier could not apply if, by reason of the charging of legacies on the fund and accumulations, the persons seeking to put an end to the accumulations were “only entitled to an undetermined and uncertain surplus (if any) which might be left of the fund after payment of the legacies”. A third was more conceptual. At [46], the joint judgment observed that the trusts were drawn conferring individual rights attached to each unit. Although all units might be held by the same unit holder, the joint judgment said that even so the units were not drawn “to provide a single right of a cumulative nature so that the whole differed from the sum of the parts” and there “could be no such single right unless held jointly or in common, but the Deed was not cast in such terms”. The position was as Lord Reid stated in Gartside v Inland Revenue Commissioners [1968] AC 553 at 605-606:

224. More fundamentally, companies and trusts are very different. One is a legal person, the other is a relationship. Companies are capable of perpetual existence, while in contrast, private trusts “do not and cannot live forever”, as is emphasised by N D’Angelo, Transacting with Trusts and Trustees (LexisNexis 2020) p 371. In part the mortality of private trusts is because a trust is a relationship, rather than a legal entity, and in part it is because of the rule against perpetuities and its statutory modifications. A private trust must vest, and it is perfectly open to the settlor of a trust to insert a power of revocation. Indeed, if the trust is to be deployed as a managed investment scheme, then it must make adequate provision for winding up the scheme: Corporations Act, s 601GA(1)(d). But it is also perfectly open to a settlor of a trust not intended to be a managed investment scheme not to include a power of revocation. A trust is a very flexible institution, as Deane J observed in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 147; [1988] HCA 44.

225. It is true that the appellants’ submissions were quite subtle, and well-attuned to the difficulties attending a simple translation of winding up of a company to the winding up of a trust. Thus it was said:

We understand that winding up in the usual company law sense does not apply to a trust, and I’ve certainly been in courts when judges have hounded counsel who have talked about winding up trusts. It is in one sense a kind of confusion of concepts, but that does not mean though that there cannot be something which is the equitable equivalent, and that is the appointment of a receiver to realise the assets of the trust and then distribute them to the beneficiaries.

227. But even so, for the reasons given above, I do not think that appointing a receiver in order to perform “the equitable equivalent” of winding up is an appropriate development of principle. I think it is contrary to principle.

228. Capelli v Shepard (2010) 29 VR 242; [2010] VSCA 2 does not assist the appellants. That decision concerned the construction of the phrase “just and equitable” under the express statutory power to wind up a managed investment scheme under section 601ND of the Corporations Act. That provision emphasises that in the class of structure which most resembles a company, namely a managed investment scheme, the legislature has insisted that the trust make adequate provision for winding up and has conferred a special power for that to occur, replicating the position with companies. But the Darbalara Property Trust is not a managed investment scheme, and there is nothing in the Corporations Act which undercuts from parties advisedly choosing to participate in a structure perceived to have tax or other advantages for them but which is outside the scope of managed investment schemes.

229. Indeed, the development of the law which this Court is invited to make would lead to incoherence with statute. The Australian Law Reform Commission considered in the 1990s whether the bases for a winding up should be carried into the trust relationship. That proposal was only enacted in limited circumstances, in respect of some managed investment schemes: see s 601ND of the Corporations Act and Re Stacks Managed Investments Ltd [2005] NSWSC 753; (2005) 54 ACSR 466 at [46]. In the CAMAC Report into Managed Investment Schemes, it was said that “under general trust law, there is no such thing as the formal winding up of a trust. The trust simply comes to an end in certain circumstances and the property is distributed among the beneficiaries”. Statute intervened to change that, but only for certain trusts: Corporations and Markets Advisory Committee, “Managed Investment Schemes” (Report, July 2012) at 29-30. Justice White, writing extra-judicially, made the same points (R W White, “Trusts – An Australian Perspective” (Speech, Higher Courts Seminar, Auckland, 24 May 2010)):

Statute may intervene to confer power on the court to wind up a trust. For instance, Chapter 5C of the Corporations Act 2001 (Cth) which governs managed investment schemes, empowers the court to wind up the scheme in various circumstances and upon certain procedures being complied with. That the court’s power to wind up is founded in statute highlights that it is not an inherent power.

230. There is another aspect of Ebrahimi – quite different from what has been mentioned so far – which bears upon the appellants’ submissions, and perhaps underlay their invocation of the “principle” or “doctrine” in that appeal. Equity can intervene to prevent the exercise of powers in circumstances that amount to fraud or are contrary to conscience. Lord Wilberforce said at 379:

there is room in company law for recognition of the fact that behind [the corporate structure], or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The “just and equitable” provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.

231. That is the limited sense in which the Victorian Court of Appeal’s reference to “the Ebrahimi principle” in Koko-Black should be understood. In Koko-Black, minority unit holders sought an injunction to restrain the corporate trustee from acting on a notice to compulsorily acquire their units. The appellants there contended that the trial judge erred in denying relief “on the basis of the principle of Ebrahimi, on which they relied to invoke a fiduciary duty between the investors inter se, said to justify…an injunction restraining the exercise of the power compulsorily to acquire their units”. Dodds-Streeton JA said at [112] that where there is a relationship of quasi-partnership, “it would not be equitable to permit one party to make use of his legal rights to the prejudice of his associate”. Her Honour also held, at [121], that, “whether within a corporate structure or not, the underlying relationship, rights and obligations of partnership or quasi-partnership would be recognised.”

232. Because termination for want of mutual trust and confidence was said to be one of the “rights and obligations of partnership”, the appellants submitted that this “suggested” that the relief they seek by appointment of receiver is an “available avenue”. That is to say, the decision in Koko-Black appeared to favour the proposition that breach of a fundamental understanding of mutual cooperation between the parties could “lead to the dissolution of the association”.

233. The decision does not support the appellants’ submissions. The relief sought by the minority unit holders in Koko-Black was not the dissolution of the trust but a restraint on the exercise of a power. As much was made clear at [122]-[123]:

As his Honour found, the invocation of Ebrahimi (or the partnership principles which informed it) was inapposite where, as in the present case, the dissolution of the parties’ association was not sought.

In the context of their Ebrahimi argument, the appellants at trial, and in written submissions on appeal, contended that the parties were partners or quasi-partners.  The respondent disputed that.  Before us, the appellants ultimately did not press the contention that the parties were partners or quasi-partners.  Further, counsel made clear that the appellants did not seek to continue their personal participation in the management or conduct of the business, but simply to maintain their investment.

234. Concerned as they are with the doctrine of fraud on a power, the “equitable considerations” flowing from the subsisting fiduciary relationship that were mentioned by Lord Wilberforce and picked up by the Victorian Court of Appeal provide only for restraints on the exercise of a particular power by a director or some other fiduciary (a topic to which Lord Wilberforce returned some months later, in Howard-Smith Ltd v Ampol Petroleum Ltd [1974] AC 821) not the dissolution of the trust relationship.

235. It is also telling that Ebrahimi itself adopted no such general “Ebrahimi principle”, divorced from the English equivalent counterparts to the power to wind up a company on the just and equitable ground. Lord Wilberforce indicated that the “doctrine” of “quasi-partnership” could not be a sufficient premise at general law, by analogy only with statute, to furnish relief that has the effect of “winding up” a fiduciary relationship involving the management of assets:

In re K/9 Meat Supplies (Guildford) Ltd [1966] 1 WLR 1112 there was a company of three shareholder/directors one of whom became bankrupt; the petitioner was his trustee in bankruptcy. It was contended that the company was a quasi-partnership and that since section 33 of the Partnership Act 1890 provides for dissolution on the bankruptcy of one of the partners a winding up order on this ground should be made. Pennycuick J rejected this argument on the ground that, since the ‘partnership’ had been transformed into a company and since the articles gave no automatic right to a winding up on bankruptcy, bankruptcy of one member was not a ground for winding up of itself. He then proceeded to consider whether the just and equitable provision should be applied. In my opinion, this procedure was correct and I need not express an opinion whether, on the facts, it was right to refuse an order.

236. That is to say, the arrangement was either a partnership or it was not. If it was a partnership, the aggrieved partner could avail itself of the dissolution remedy in the Partnership Act 1890 (UK). If it was not, it could not rely on an analogy at general law with the statutory ground of winding up for the bankruptcy of a partner based only on a loose characterisation of the relationship as a “quasi” partnership. In that situation, the only opportunity would be for the aggrieved party to satisfy the court that a dissolution would be “just and equitable” within the meaning of s 222(f) of the Companies Act 1948 (UK). That binary “procedure” of reasoning was evidently endorsed by Lord Wilberforce. The reasoning which the appellants invite this Court to adopt, purportedly based on Ebrahimi, is in fact contrary to Lord Wilberforce’s own reasons.

(b) the inherent jurisdiction

237. The appellants also invoke the “inherent jurisdiction” of courts of equity over trusts: “Fundamental to the law of trusts is that Equity Courts have jurisdiction to supervise, and in appropriate circumstances intervene in, the administration of a trust”. So much may be accepted. But it does not follow that the appointment of a receiver to wind up the trust is, or has ever been, an aspect of that jurisdiction, and it is not difficult to appreciate why that is so. Indeed, some of what follows is implicit in, or overlaps with, what has been said above concerning Ebrahimi and development of principle by analogy.

238. The appellants’ application for the appointment of a receiver to wind up the trust is flawed for three fundamental reasons.

1. First, the appointment of a receiver does not free the receiver, or the trust assets over which the appointment extends, from the rights and obligations of the trust.

2. Secondly, the appointment of a receiver is ordinarily a remedy in aid of some other right. Thus, if there were a power of revocation, there might be a proper basis for the appointment of a receiver in aid of that right. But the appellants seek the appointment of a receiver in order to bring the trust to an end.

3. Thirdly, the foundational equitable principle is that equity preserves trusts, rather than destroying them. To that end it may remove a trustee, or appoint a new trustee, or indeed (albeit only in rare cases) administer the trust.

239. In truth, the appellants’ submission is inconsistent with the nature of the inherent jurisdiction. Where there is a deadlock such that the trustee cannot act or the trustees cannot act unanimously to make a particular decision, the response is not to wind up the trust, but to appoint a receiver to exercise the power, or direct how it should properly be exercised or, in exceptional cases, for the Court itself to execute the power: In re Baden’s Deed Trusts [1971] AC 424 at 451-452 (Lord Wilberforce); Cowan v Scargill [1985] Ch 270 at 297 (Sir Robert Megarry V-C). Exceptionally, there could be a suit for administration of the trust. Even so, an administration is for the continuation, not the destruction of the trust relationship and the trust powers are not extinguished as a result: Thomas v Williams (No 2) (1883) 24 Ch D 558 at 563. That is to say, the inherent jurisdiction is to execute, not extinguish, the terms of the trust. Hence the usual form of such an order, which commences, “It is ordered that the Trusts be performed and carried into execution”: Lord Evershed (ed) Atkin's encyclopaedia of court forms in civil proceedings (2^nd ed) vol 41, p 265; Daniell’s Chancery Forms (4^th ed, 1885) 108. It is no part of the court’s inherent jurisdiction to dissolve trusts in the absence of some express power in the trust instrument to do so. In Templeton v Leviathan Pty Ltd (1921) 30 CLR 34 at 56, 65 and 70; [1921] HCA 55, three members of the High Court endorsed the statement of Farwell LJ in In re Hazeldine’s Trusts [1908] 1 Ch 34 at 40-41 that,

if the trustees cannot do it, neither can the Court, for, as Lord Chancellor Law says in Fitzpatrick v Waring: “In the exercise of its jurisdiction for the administration of trusts this Court, I apprehend, has no power to make or authorize any leases or other dispositions of the trust property which the trustee could not have made himself. The Court, in such a case, whether it assumes the place of the trustee, or guides him in the discharge of his duties, is still confined within the limits of the trust as constituted by its author, and has no authority to go beyond those limits. Its business is to execute the trusts, not to alter them.”

240. Thus it is said in one text that there is no inherent power to destroy a trust relationship: Young, Croft and Smith (eds) On Equity (LawBook, 2009) p 502. As Barrett J explained in Re Gaydon [2001] NSWSC 473 at [29],

Order 4 is framed upon some implicit assumption that the Court may, by order, dissolve a trust in the same way as it may, for example, dissolve a partnership (Partnership Act 1892, s35). Any such assumption is, of course, unwarranted. It is the duty of the Court to uphold and protect trusts, not to destroy them, although where the terms of the trust envisage, in certain circumstances, realisation of property, winding up of the trust’s affairs and final payments to beneficiaries, the Court will, naturally enough, give effect to those “winding-up” provisions. There are no such provisions in the instrument governing the Crane Trust.

… in the absence of applicable statutory powers, it is no business of the Court to act so as to put an end to a trust.

241. That statement has since been endorsed in Rosenbaum v Baidarman (No 2) [2021] NSWSC 574 at [93] (Williams J), In the matter of Cupit & Aboud as trustees of the Australian Trust [2020] NSWSC 1715 at [23] (Ward CJ in Eq); Baba v Sheehan [2019] NSWSC 1281 at [74] (Parker J; an appeal was dismissed, with the claim for the appointment of a receiver not pressed on appeal: Baba v Sheehan [2021] NSWCA 58 at [51]); Bose v Bose [2013] NSWSC 327 at [15]-[17] (Gzell J), and by D Clarry, The Supervisory Jurisdiction over Trust Administration (Oxford University Press, 2018), pp 193-194.

242. Brereton J said in Re Austec Wagga Wagga Pty Ltd (in liq) [2018] NSWSC 1476 at [13]:

In the absence of provision in the trust instrument, a trust cannot be wound up in the same way as a company. A trust is not a legal entity, as a company is. There is no statutory right or power to wind up or terminate a trust, and generally speaking it is unconventional to speak of “winding up” a trust. Moreover, courts do not normally make declarations to resolve hypothetical issues, or in the absence of a contradictor. The application for an order or declaration that the trust be wound up or terminated misconceives the nature of a trust. Counsel was unable to identify any jurisdictional basis for such an order. (citation omitted)

The fact that a private trust is not a legal entity, but a series of relations between trustees, trust property and beneficiaries or discretionary objects, exposes the elision in the appellants’ goal of “winding up” as a process of selling assets, discharging liabilities and distributing the surplus. Critically, it is necessary to consider how the personal and proprietary relations which are central to the trust relationship are brought to an end.

243. The foregoing illustrates that the primary concern of the “inherent jurisdiction” which the appellants invoke is with the performance, not the destruction, of the trust.

244. In New South Wales, there is no power to vary the trust so as to permit its revocation. The inherent jurisdiction was described in Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; [2004] NSWSC 13 at [93]-[96] and Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960 at [20] to the effect that (a) courts had no general power to alter the terms of a trust on the ground that it appeared likely to advantage the beneficiaries, although (b) in a small number of tightly confined situations courts could sanction action by a trustee which was beyond power or even contrary to the terms of the trust, but (c) even in such situations it was usually insufficient merely that such action would be advantageous – something more, usually some form of emergency, was required. This Court said in Cisera v Cisera Holdings Pty Ltd (2018) 98 NSWLR 747; [2018] NSWCA 286 at [68]-[70]:

the reasoning and effect of the decision in Re Dion Investments is not confined to the particular matter primarily in issue in that case as to whether s 81(1) authorised the making of an order giving the trustee a general power of amendment of the trust deed. Rather, this Court disapproved of decisions which had found in s 81 an authority to alter the trusts on which trust property was held which would have been beneficial to the interests of the beneficiaries, or to the fulfilment of the trust purpose, but which were not concerned with the management or administration of the trust assets.

… For whatever reason, or perhaps for no reason except pressure of other Parliamentary business, New South Wales did not adopt the Variation of Trusts Act 1958 (UK) that substantially broadened the jurisdiction of courts to vary trusts, although such legislation was passed in all other Australian States and New Zealand (s 63A Trustee Act 1958 (Vic); s 95 Trusts Act 1973 (Qld); s 59C Trustee Act 1936 (SA); ss 13 and 14 Variation of Trusts Act 1993 (Tas); s 90 Trustees Act 1962 (WA); s 64A Trustee Act 1956 (NZ)).

P M Wood in his article “Variation of Trusts in New South Wales” (1990) 13(2) UNSW Law Journal 359 stated at 368-369:

“The position therefore is that whilst s 81 may be invoked to vary, in effect, the provisions of a trust in terms of the facultative powers for management or administration it cannot be availed of to produce substantive changes to the provisions of or beneficial interests under the trusts ...”

245. Contrary to the tenor of the appellants’ submissions, the power to appoint a receiver does not reveal any more expansive view. As the respondents neatly put it, one cannot achieve what otherwise cannot be achieved by being “powered by the back door through the appointment of a receiver”. That is why none of the above is doubted by the proposition from Palmer v Ayres (2017) 259 CLR 478; [2014] HCA 5 at [85] and invoked by the appellants that

Supervision of administration is also an apt description of the role of a court administering equity in relation to "one of the oldest remedies" in the Court of Chancery – the appointment of a receiver, who as an officer of the court and subject to its direction is “to take possession of, get in, or recover, property for the benefit of the persons who are ultimately determined to be entitled to it”.

246. In truth, the starting point that the Court in its “supervision of administration” of trusts is to uphold, not destroy, the trust informs any analysis of the scope of the power to appoint a receiver, whether in the inherent jurisdiction, or where “just and convenient” under s 67 of the Supreme Court Act. In part that is because the appointment of a receiver is ordinarily interlocutory, not final, relief made in aid of the ultimate exercise of some power to wind up a company or judicial sale or some other entitlement: Yunghanns v Candoora No 19 Pty Ltd (No 2) [2000] VSC 300; 35 ACSR 34 at [70], [84], [92]. Hence the words “interlocutory order” in s 67.

247. In partnership cases, the appointment of a receiver is not an end in itself, but is only in aid of the exercise of some independent power to order the dissolution of a partnership, ordinarily by service of a notice under the terms of the partnership: T Robinson and P Walton (eds), Kerr on Receivership and Administration (24th ed, 2024, Sweet & Maxwell) at 69-70; Pini v Roncoroni [1892] 1 Ch 633. The appointment is only “to restrain the dissentient partners from executing securities in the name of the firm, and from receiving the partnership debts” to prevent frustration of the primary orders for a dissolution and an account: N Lindley, A treatise on the law of partnership: including its application to joint-stock and other companies (1860, 1^st ed) at 189. All of this, not to mention the fact that s 67 speaks of appointment “by interlocutory order” is inconsistent with the order sought by the appellants. The facility for the appointment of a receiver cannot be used as a substitute for the absence of some independent power to order the dissolution of a trust. Hence the point made by Parker J in Baba v Sheehan [2019] NSWSC 1281 at [75]:

The Court has no power to order the “winding up” of the Trust on some sort of “just and equitable” ground. The Court can appoint a receiver, but only as an interlocutory step for the purpose of getting in and preserving assets so that they may be dealt with in accordance with the parties’ rights. The appointment of the receiver to liquidate the business and (even more obviously) then to distribute the assets of the Trust would not be in accordance with principle.

248. Although in Brereton J’s ex tempore judgment in Basecove, where a receiver was appointed to dissolve the unit trust, reference was made to the fact that the “arrangement between the parties is really that of a quasi-partnership in which the relationship between them has broken down”, it was also significant that “a financial disaster [was] looming from the deficiency of funds and ongoing losses” in the management of the unit trust: Basecove Pty Ltd v Dolores Lavin Management Pty Ltd [2009] NSWSC 1315 at [11]. No such finding was made in this case. And the absence of such a finding was not challenged in this appeal.

249. It is true that s 67 of the Supreme Court Act is worded very broadly. It provides “The Court may, at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do”. The same breadth may be seen in ss 23 and 66(4) of the same statute. But just as the latter sections do not confer power to order injunctions without regard to equitable principle, s 67 does not permit the jettisoning of basic principles outlined above. To the contrary, the true position is that those generally worded provisions are construed in light of equitable principle. As decisions like Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 illustrate, principle may be developed over time. But acceptance of the appellants’ submission would not be a development of principle, so much as a subversion of principle.

250. Lindley LJ explained in Holmes v Millage [1893] 1 QB 551 at 556-557 that what is now s 67 of the Supreme Court Act was a Judicature provision (s 25(8) of the Judicature Act 1873), and that while “receivers are appointed more readily than they were before the passing of the Judicature Acts, and some inconvenient rules formerly observed have been very properly relaxed, yet the principles on which the jurisdiction of the Court of Chancery rested have not been changed”. His Lordship, in setting aside the novel appointment of a receiver to a judgment debtor’s future income, also observed at 555:

It is an old mistake to suppose that, because there is no effectual remedy at law, there must be one in equity. But the mistake, though old and often pointed out, is sometimes inadvertently made even now. Courts of equity proceeded upon well-known principles capable of great expansion; but the principles themselves must not be lost sight of.

251. Much the same applies to this ground of the present appeal.

252. Ultimately, the appellants invite this Court to create a concededly novel principle which will detract from the parties’ autonomy, insofar as they chose to make their property investment through the structure of a trust rather than a company or partnership. It is also contrary to basal aspects of the law of trusts and the role of courts in that area. There is no principled basis for the development of the law by analogy as the appellants submit; the contrary is the case. The fact that statute has intruded in some areas – in a certain class of trusts (see ss 601GA and 601ND), and in some other Australian jurisdictions, but not in New South Wales in relation to the Darbalara Property Trust – and the fact that to wind up a company in the circumstances described in Ebrahimi is an intrinsically statutory power, reinforce the conclusion that if the law is to be changed, it is the task of a Legislature rather than this Court.

253. Finally, and separately from all of the above, the parties agreed to a structure which does make provision for an “exit” when one unit holder wishes to sell. The relief sought by the appellants reflects their preference for a different, and more favourable, mechanism in the same circumstance. If contrary to all of the above there were such a power, no sound reason has been put forward to entitle the Carrs to the benefit of, and to subject the Ritossas to the burden of, a different mechanism to dissolve the trust relationship. The appellants respond by saying they are unaware of any authority limiting the availability of “the Ebrahimi doctrine” to cases where no express provision has been made for the revocation of the trust. But that submission carries no weight in circumstances where there is no authority for the extension of anything that was said in Ebrahimi to the winding up of trusts. The significance of the pre-emption rights in the Darbalara Property Trust is that they emphasise that in addition to the posited “Ebrahimi doctrine” being contrary to equitable principle, it would directly undermine the parties’ autonomy if applied to the present facts.

254. For those reasons, grounds 9(a), 9(b) and 9(c) of the appeal should be dismissed.

Conclusion and orders

255. The theme recurring in all of the grounds of appeal is a dissatisfaction on the part of the Carrs with the position which they would have been in had their property investment with the Ritossas been conducted through a partnership or company. But those ways of structuring their investment were expressly proposed in 2010 and rejected. The appellants are bound by the consequences of their original decision.

256. For the reasons, all grounds of the appeal should be dismissed. So far as appears from the appeal books, there is no reason for costs not to follow the event.

257. I propose that the appeal be dismissed with costs.

258. STERN JA: I agree with Leeming JA.

259. GRIFFITHS AJA: I have had the considerable benefit of reading Leeming JA’s comprehensive reasons in draft. I consider, respectfully, that they are a tour de force. I entirely agree with them and with the orders proposed by his Honour.

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Amendments

26 May 2025 - 'Sayden' italicised in table of contents.

26 May 2025 - [219] - changed 'been permitted' to 'occurred'.

26 May 2025 - [245] - removed paragraph formatting error.

26 May 2025 - added Waters v Taylor (1807) 15 Ves 10; 33 ER 658 to list of cases.

26 May 2025 - [219] - added '3' to end of Waters v Taylor (1813) 2 V & B 299; 35 ER 333.

Decision last updated: 26 May 2025