David & Ros Carr Holdings Pty Ltd v Ritossa

[2024] NSWSC 1125

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

David & Ros Carr Holdings Pty Ltd v Ritossa [2024] NSWSC 1125

Hearing dates:

15–19, 23–25 July 2024

Date of orders:

05 September 2024

Decision date:

05 September 2024

Jurisdiction:

Equity

Before:

Richmond J

Decision:

See [287]

Catchwords:

EQUITY — Trusts and trustees — Unit trusts — Construction of trust deed — Whether individual unit holder had right to terminate the trust — Whether individual unit holder had right to trust capital

CORPORATIONS — Members’ rights and remedies — Oppression — Standing — Whether conduct was oppressive to, unfairly prejudicial to, or unfairly discriminatory against member — Deadlock as to the affairs of the company — Breakdown in mutual trust and confidence — Whether the trust should be wound up

CONTRACTS — Formation — Whether an agreement was reached or representations were made founding an estoppel that if one party sought to exit the trust, the underlying assets of the trust would be sold

CIVIL PROCEDURE — Appointment of receiver — Whether the Court should appoint a receiver to the trust pursuant to s 67 of the Supreme Court Act 1970 (NSW) or the inherent jurisdiction of the court

CIVIL PROCEDURE — Pleadings — Amendment — Late application for amendment — Tendency to cause prejudice to the defendant

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Conveyancing Act 1919 (NSW)

Corporations Act 2001 (Cth)

Income Tax Assessment Act 1936 (Cth)

Land Tax Act 1956 (NSW)

Land Tax Management Act 1956 (NSW)

Law of Property Act 1925 (UK)

State Revenue Legislation Amendment (Tax Concessions) Bill 2006 (NSW)

Supreme Court Act 1970 (NSW)

Cases Cited:

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

AIB Group (UK) Ltd v Martin and Another [2001] UKHL 63

Armitage v Nurse [1998] Ch 241

Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99

Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tax) Pty Ltd (No 3) [2015] NSWSC 1639

Baba v Sheehan [2019] NSWSC 1281

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

Beaumont v Peel [2018] NSWSC 95

Beck v Henley [2014] NSWCA 201

Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26

Cajkusic vCommissioner of Taxation(No 2) [2006] FCAFC 164

Callide Power Management Pty Ltd v Callide Coalfields (Sales) Pty Ltd (No 5) [2016] QSC 199

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

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

CGU Insurance Ltd v One.Tel Ltd (in liq) (2010) 242 CLR 174; [2010] HCA 26

Charles v Federal Commissioner of Taxation (1954) 90 CLR 598; [1954] HCA 16

Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457

Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43; (2010) 242 CLR 508

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

Dreamstreet Lending Pty Ltd v Weiss (No 2) [2023] FCA 684

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360

Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24

Exton v Extons Pty Ltd (2017) 53 VR 520; [2017] VSC 14

Federal Commissioner of Taxation v Totledge Pty Ltd [1982] FCA 64; (1982) 82 ATC 4168

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97

Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640

HNA Irish Nominees Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

Mir v Mir [2023] NSWSC 408

Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692

Mount Bruce Mining Pty Ltd v Wright Prospecting (2015) 256 CLR 104; [2015] HCA 37

Munstermann v Rayward [2017] NSWSC 133

Nullagine Investments Pty Ltd v Western Australia Club Incorporated (1993) 177 CLR 635; [1993] HCA 45

O’Neill v Phillips [1999] 2 All ER 961

Onley v Catlin Syndicate Ltd as Underwriting member of Lloyd’s Syndicate 2003 (2018) 360 ALR 92; [2018] FCAFC 119

Re A Solicitors’ Arbitration [1962] 1 WLR 353

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

Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588

Re Gaydon [2001] NSWSC 473

Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332

Re M Dalley & Co Pty Ltd v Sims (1968) 1 ACLR 489

Re Wyndham Park Estate Pty Ltd [2019] VSC 92

Saunders v Vautier (1841) 41 ER 482

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

Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93

Shelton v National Roads & Motorists’ Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393

Stephenson v Barclays Bank Trust Co Ltd [1975] 1 WLR 882

Thomas v HW Thomas Ltd [1984] 1 NZLR 686

Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 at [199]; (2011) 288 ALR 310

Turnbull v National Roads and Motorists Association Ltd [2004] NSWSC 577

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

Watson v Foxman (1995) 49 NSWLR 315

Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459

Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17

Yunghanns v Candoora(No 2) [2000] VSC 300

Texts Cited:

AJ Oakley (Ed), Trends in Contemporary Trust Law (1996, Oxford: Clarendon Press)

New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 17 October 2006 at 2751

Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Lawbook Co)

Scott, The Law of Trusts (3rd ed, 1967, Little, Brown and Company)

Category:

Principal judgment

Parties:

David & Ros Carr Holdings Pty Ltd (ACN 630 141 909) in its personal capacity and as trustee for the Carr Family Trust (First Plaintiff)
David Carr (Second Plaintiff)
Rosalind Carr (Third Plaintiff)

Ivan Ritossa (First Defendant)
Marina Ritossa (Second Defendant)
Darbalara Holdings Pty Ltd (Third Defendant)

Representation:

Counsel:
C Birch SC / A Di Francesco / S Blackman (Plaintiffs)
PM Wood / TE O’Brien / A Chowdhury (Defendants)

Solicitors:
Long Saad Woodbridge Lawyers (Plaintiffs)
Arnold Bloch Leibler (Defendants)

File Number(s):

2020/00272031

Publication restriction:

Nil

JUDGMENT

Claims

Issues

Approach to evidence

Factual background

(a) Establishment of DPT

(b) Operation of DPT from 2010 to mid-2019

(c) Issues between Mr Carr and Mr Ritossa in around mid-2019

(d) The falling out on 7 December 2019

Expert valuation evidence

Evidence valuing the underlying assets in DPT

Evidence valuing the units in DPT

The financial performance of DPT from 2011 to 2024

First issue: Oral agreement or estoppel

General principles

Consideration

Second issue: DRCH’s rights under the Trust Deed

Relevant provisions of the Trust Deed

Background to cl 2 of the Trust Deed

Construction of cl 2 and 16 of the Trust Deed

(a) s 181 of the Conveyancing Act

(b) Decision in Sayden

(c) Clause 2.1 intended to implement the relevant criteria

(d) Role of cl 2.3 of the Rules

(e) Trust loss rules

Conclusion

Third issue: Oppression

General principles

Pleaded case of oppression

Deadlock as to the affairs of Darbalara Holdings

Whether the Trust should be wound up

Disagreement regarding payments to unit holders

Mutual trust and confidence has broken down

Conclusion

Fourth issue: Appointment of a receiver

Conclusion

JUDGMENT

1. These proceedings concern a unit trust known as the Darbalara Property Trust (DPT or the Trust) set up by the second and third plaintiffs, Mr David Carr and Mrs Rosalind Carr (the Carrs), and the first and second defendants, Mr Ivan Ritossa and Mrs Marina Ritossa (the Ritossas). The Carrs (through the first plaintiff, David and Ros Carr Holdings Pty Ltd (DRCH)) and the Ritossas each hold 50% of the units in DPT and are directors of Darbalara Holdings Pty Ltd (Darbalara Holdings), the trustee of DPT. DPT was established in 2010, when the Carrs and the Ritossas were friends, as a vehicle through which the families would purchase ‘The Junction’, a rural property in Darbalara, near Gundagai, New South Wales. In early 2017, DPT purchased an additional rural property, ‘Bogolara’, which is about one hour’s drive from The Junction and conducts a significant farming business on the two properties.

2. From the middle of 2017 until March 2020, the Gundagai area (where the properties are located) faced varying degrees of drought, which has affected the profitability of the business of DPT. The drought precipitated a series of disagreements commencing around mid-2019 between the Carrs and the Ritossas about the management of the farms by Carr Agriculture Capital Management Pty Ltd (CACM) a company of which the Carrs were the directors and shareholders. This led to Mr Ritossa expressing a desire in late August 2019 to sell the assets of DPT, and around the same time he engaged an external adviser, Mr Bert Glover, to provide an independent appraisal of CACM’s management of the farms.

3. Following a meeting with Mr Glover in which he made criticisms of CACM’s management of the drought, the Carrs and Ritossas had a falling out on 7 December 2019 and the Carrs stated that they wished to terminate their business relationship with the Ritossas and exit the Trust. Mr Ritossa said that he no longer wanted to sell DPT. A heated argument ensued. This event marked a significant deterioration in the relationship, both personal and professional, between the Carrs and the Ritossas.

4. In February 2020, Mr Ritossa initiated the first formal board meeting of Darbalara Holdings. From this point onwards, the decisions of Darbalara Holdings have largely been made through formal monthly meetings (where previously they were made through informal communications between Mr Carr and Mr Ritossa). The Carrs maintain their desire to exit the business relationship, while the Ritossas seek to continue their investment, which has culminated in these proceedings.

5. The plaintiffs now seek to bring DPT to an end by the sale of its assets and after the discharge of its debts, have the net proceeds distributed to the two unit holders on a 50:50 basis in accordance with their unit entitlements. The defendants seek to maintain their investment in DPT, arguing that the plaintiffs are free to sell their units in accordance with the terms of the trust instrument, but are not entitled to unilaterally terminate the trust and sell its assets. The sale of the units in DPT is not as attractive to the plaintiffs as a mode of exiting their investment, because the market value of DRCH’s 50% unitholding is significantly less than the value of a 50% interest in the net assets of the Trust.

Claims

6. The plaintiffs seek declarations and orders for the realisation of the assets of DPT, discharge of the Trust’s liabilities, payment of its expenses, the distribution of net assets of the Trust to unit holders and the termination of the Trust. The plaintiffs seek a declaration that the Trust is terminable on reasonable notice by either the Carrs or the Ritossas, and that the Carrs have given such notice. In the alternative the plaintiffs contend that the affairs of Darbalara Holdings have been conducted oppressively and seek orders under ss 232 and 233 of the Corporations Act 2001 (Cth) for the winding up of that company and the Trust. The plaintiffs also seek, in the further alternative, the appointment of a receiver to DPT pursuant to s 67 of the Supreme Court Act 1970 (NSW) or the inherent jurisdiction of the Court.

Issues

7. These proceedings raise four issues:

1. Whether an agreement was reached or representations were made founding an estoppel, that if one party sought to exit the Trust, the underlying assets of the Trust would be sold?

2. Whether cl 2 and cl 16 of the Trust Deed, properly construed, provide a right for any individual Unit Holder to terminate the Trust or, alternatively, to call for a distribution of 50% of the capital of the Trust?

3. Whether the conduct of the Darbalara Holdings board constitutes oppression against Mr Carr pursuant to ss 232 of the Corporations Act, allowing for orders to be made under s 233 of the Corporations Act?

4. Whether the Court should appoint a receiver to the Trust property to sell and distribute the net proceeds to the unit holders pursuant to s 67 of the Supreme Court Act or the inherent jurisdiction of the Court?

8. As there is some overlap between the issues for determination, it is convenient to set out first the factual narrative in more detail.

Approach to evidence

9. The Carrs and the Ritossas each gave evidence by affidavit and were cross-examined. Each of Mrs Carr and Mr and Mrs Ritossa struck me as being an honest witness who tried to answer the questions he or she was asked to the best of their recollection.

10. Although I accept that Mr Carr was an honest witness, there were a number of areas where his recollection of events conflicted with contemporaneous documents. The following are three examples.

11. First, in his third affidavit Mr Carr disputed that he ever told Mr Ritossa in mid-2019 that the Carrs were under tremendous financial stress due to Warralong Pastoral Trust (WPT), a trust established by the Carrs which ran their personal farming properties, having budgeted to make $1 million profit, but in fact having lost $1 million. However, the financial statements in evidence for WPT disclose that it did make a loss of $913,000 for the 2019 financial year and during cross-examination Mr Carr changed his evidence and accepted that this conversation took place (T75). That the Carrs were under financial pressure around this time is also confirmed by Mr Carr’s email of 27 May 2019 referred to below.

12. Second, Mr Carr said during cross-examination that there was a ‘standing permission’ from ANZ Bank that DPT could repay the unit holder loans (T110). I reject that evidence because it is contrary to the express terms of the Subordination Deed referred to below and would, if correct, make the Subordination Deed nugatory. Further, there is no evidence about such a ‘standing permission’ in any of Mr Carr’s affidavit evidence, there is no documentary evidence to support it, and it is inconsistent with a resolution proposed by the Carrs at the meeting of the board of Darbalara Holdings on 2 August 2022 that ‘subject to the ANZ’s approval, the unit holder loans be partially repaid in the amount of $450,000 each …’.

13. Third, there are a number of inconsistencies between Mr Carr’s evidence of his conversation with Mr Ritossa which founds the alleged oral agreement dealt with in issue one below, and the contemporaneous records concerning the establishment of DPT.

14. In light of these matters, and my concern that Mr Carr’s recollection of events is influenced by his interest in the outcome of the proceedings, I have relied primarily on the contemporaneous documents where there is a contest in his evidence and that of the other witnesses. There is extensive evidence in the form of emails, and texts in the period from 2010 to early 2020 and also transcripts of the directors’ meetings of Darbalara Holdings since February 2020, which provide the best evidence of the relevant events occurring over the period from 2010 to date. I have relied primarily on these documents, rather than the witnesses’ recollection of the relevant conversations or events, bearing in mind the well-known observations of McLelland CJ in Eq regarding the fallibility of human memory in Watson v Foxman (1995) 49 NSWLR 315 at 318:

… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consider­ation of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Factual background

(a)   Establishment of DPT

15. The establishment of DPT came about as a result of discussions in late 2009 to early 2010 between Mr Carr and Mr Ritossa when they were each working for different banks in Singapore. Mr Carr and Mr Ritossa first met in 1987, when they were both working at Bankers Trust in Sydney. They became friends in around 2007 while both were working in Singapore.

16. In 2009, Mr Ritossa told Mr Carr that he was interested in diversifying his investment portfolio and sought Mr Carr’s suggestions. Mr Carr suggested that he consider investing in rural property in Australia. At that time, Mr Carr was Global Head of Sales, Financial Markets at Standard Chartered Bank and Mr Ritossa was in a senior role at Barclays Capital, including as head of the foreign exchange department of the bank. Mr Carr owned his family’s farm, Warralong, at Coolac near Gundagai in New South Wales, on which he grew up and purchased from his father in 2001. During the period he lived in Singapore, he used an experienced farm manager, Growth Farms Pty Ltd, to manage the property.

17. On 10 March 2010, Mr Carr sent an email to Mr Ritossa about the possibility of purchasing two rural properties, located side by side, one of which was The Junction. Mr Carr described the purchase as presenting ‘the chance for good returns and good gains’ and 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…

18. On 26 March 2010, Mr Carr emailed Mr Ritossa sending him a link to the real estate agent’s website regarding The Junction, and stating ‘This is that property I was talking about. Like you I am looking for a coupon after getting so much bank stock, but this is a hell of a nice place’. On 6 April 2010, Mr Ritossa replied ‘should we be bidding on this?’. Mr Carr responded by an email the following day attaching more detailed information regarding the property and then went on:

In answer to your question about ‘should we be bidding on it?’, well I would love to bid on it with you!. However I am keen to ensure that you have good idea of what we are getting in to. It is a blue ribbon asset in a prime agricultural location. It is also good diversification in your asset portfolio, and doing it with me and using a professional management firm is also a good way to do it. (for both of us)

I would only want to do it if we used Growth Farms Australia (GFA) to run it for us as I think they are very professional and very capable of running a venture like this. I would also strongly recommend that we spend half an hour next week with John Harpley (who is the regional area manager equivalent to Charles Hood for your Berri property) who currently runs my farm as [well] as David Sackett who is the company CEO. This is so that you know them, and so we can hear their views on this and on rural property in general, and to get their ideas on the value and if we had it what they recommend that we do with it. They gave (sic) had a very close look at this place.

Sorry to sound so serious but I think we need to be a bit educated before we jump. I am really excited about the whole opportunity though and doing it with you is exciting and makes good sense I think.

What do you think?

A conversation ensued to get further information about the property and work out the details of the purchase, including how to structure the transaction.

19. On 15 April 2010, Mr Carr sent an email to Ms Casey Ryan of Custom Accounting (CA), the accounting firm he used for his farm Warralong, seeking advice on the appropriate investment structure for the purchase of The Junction, which included:

Thoughts I have around the entity include;

●    It may provide us with a better tax outcome as I guess the entity (company?) tax rate will be lower than our personal levels? I am unsure how we would be taxed on disbursements from it though?

●   If we want to expand and buy other properties then it would be easier to bring in new shareholders than if it were just co owned?

●   If one partner wanted to exit then it may be easier to do as we could possibly find another partner to buy in which may be logistically and financially easier (stamp duty etc) to do so through a separate entity?

20. On 20 April 2010, Ms Ryan responded to each of the questions Mr Carr had raised (her responses are shown in italics) as follows:

Obviously we can only advise on what is suitable for you and not for your potential partner as we are not aware of their circumstances and as such I have commented briefly on your thoughts below:

{DC} It may provide us with a better tax outcome as I guess the entity (company?) tax rate will be lower than our personal levels? I am unsure how we would be taxed on disbursements from it though? {CA} Companies are taxed at a flat rate of 30% as compared to the marginal rates applied to individuals. Generally amounts paid out of the company would be paid as Dividends. As long as the company is making taxable profits these amounts would be fully franked and whilst you are a Non – Resident for tax purposes would not be included in your personal return. Once you return to AUS, the dividends would be included in your return and taxed at the rate of approximately 25% (assuming you are in the highest marginal tax bracket).

{DC} If we wanted to expand and buy other properties then it would be easier to bring in new shareholders than if it were just co owned? {CA} If it is likely that this would be the case, a company may be more favourable. New investors would be issued shares at a determined value and in line with ownership percentages. The problem with partnerships is that for every new partner or exiting partner, a new partnership would be required to be established

{DC} If one partner wanted to exit then it may be easier to do as we could possibly find another partner to buy in which may be logistically and financially easier (stamp duty etc) to do so through a separate entity? {CA} Under a company structure, if shareholder (partner) wanted to exit, this could be done by either selling the shares to an existing or new shareholder or via a Share Buy Back. Stamp Duty would be payable on the transfer of shares from one shareholder to another. However the land is owned by the company and therefore a change in shareholdings would not trigger stamp duty liability on the land held

21. Attached to the email was a document headed ‘Comparison of structures’ which compared particular features of a private company, discretionary trust, unit trust or partnership structure for the investment. Mr Carr forwarded the email and its attachment to Mr Ritossa.

22. On Friday, 7 May 2010, the vendor’s solicitor sent to Mr Carr a draft contract for sale of the property for a price of $7,250,000 with a requirement that contracts be exchanged by the following Wednesday, 12 May 2010, so that the auction scheduled for the next day could be cancelled. The Carrs and the Ritossas had still not decided on the appropriate entity to own the property. Later, on 7 May 2010, Mr Carr sent the Ritossas an email which attached the draft contract and included the following (emphasis added):

The ownership on the title is also something we need to sort. Please see attached an email conversation with my accountant about this for your reference. My thinking is that we should form a company and that will be the purchaser and we be shareholders. The other way is to have joint title and then form a company to run the business. With the latter, I would be concerned about 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. I think the former is easier for that, but I would very glad for some alternative advice on this.

23. Later that day, Mrs Ritossa responded to Mr Carr on the question of ownership by an email which stated:

I’ve had a couple of discussions with our accountant and his view was we should buy either in individual names, or in a unit trust, and then have the business run as a partnership, or by a company. Would it be best if our respective accountants talked and worked out what was best for both of us? That would be faster in the end and they could work out what works best.

24. Shortly afterwards, Mr Carr responded by email that he agreed that their respective accountants should be put in touch with each other, and then added:

I am wary of forming a partnership as the tax rate for partnerships is at the personal tax rates where as for companies or trusts it is at the company rate which is 30% and moving to 28%, this is a saving that we should try to capture in my opinion. Also dividend distribution is more efficient and tax effective thru a trust or company as we can add shareholders (like kids) to maximize tax again. Let’s get [the accountants] talking though I fully agree!

25. On Saturday, 8 May 2010, Mr Carr sent emails to the following:

1. CA, his accountants, giving the contact details of the Ritossas’ accountant and stating (emphasis added):

The purchasing parties are Ivan and Marina Ritossa and David and Rosalind Carr. However, we need your advice on how best to structure the purchase so that we maximise [sil: minimise] income tax, capital gains tax and (if necessary) succession please. 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. We both currently live overseas, however we may both live in Australia at some stage in the future. (no fixed plans) We are all Australian citizens, and both have children who could possibly be beneficiaries of any trust or company formed in the future. If for any [sic: reason] either of us need to sell our share of the investment then we would like to ensure that the selling party offers last right of refusal to the remaining party. How do we embed this into the agreement please?

2. The solicitor acting for the families on the purchase (copying in the Ritossas), stating that (emphasis added):

The four of us (David Leslie Carr, Rosalind Harriet Carr, Marina Ritossa and Ivan Ritossa) are purchasing the property however we are unsure of who the actual purchaser will be for settlement at this stage. We are taking advice on the best way to structure ownership considering income tax, capital gains tax and succession.

3. Growth Farms (with a copy to the Ritossas) seeking a proposal from that company to manage the property, and stating that ‘we are intending to be long term investors, and are looking forward to receiving an investment yield as we go.’

26. Also on 8 May 2010, Mr Andrew Blackwell (the Ritossas’ accountant) sent an email to the Ritossas in which he advised against the use of a company and recommended a unit trust as the entity to acquire the property and run the business. Mr Blackwell subsequently sent an email in materially the same form to Mr Carr early on Monday, 10 May 2010 prefaced by the statement ‘I would like to discuss the structure for The Junction with you and/or your accountant’. The email included the following under the heading ‘Option 1 – Unit Trust’, which was the option he recommended:

Acquire the property through a unit trust which will also run the business. Unit trust’s 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)

27. At 11:29am on 10 May 2010, Ms Stephanie O’Connor of CA responded to Mr Carr’s email of 8 May 2010 stating her concern about the short time frame required and making the following suggestion to progress the decision on structure:

We will call [Mr Blackwell] 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.

28. Mr Carr did not take up this suggestion and instead responded by email later that day asking Ms O’Connor to speak directly to Mr Blackwell. The 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 which works for Ivan and Marina.

We are under a lot of time pressure now as it has to exchange by Wed this week or the property will go to auction. So if you could speak to Andrew asap, then I would appreciate it.

29. Mr Blackwell and Ms O’Connor had discussions about the appropriate structure later that day and during the morning of Tuesday, 11 May 2010 following which she sent an email to Mr Carr which stated (emphasis added):

Andrew is waiting for a further call from me so if you can please call me to discuss a few things.

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.

I look forward to hearing from you ASAP.

30. Mr Carr does not give any evidence about any discussions he had with Ms O’Connor after this email, but I infer from the emails which passed between the parties later on 11 May 2010 that it was decided that a unit trust structure would be adopted, and Mr Damian Scroope of Sydney Business Lawyers was engaged to draft the trust deed for immediate execution by the parties, which he did.

31. During the morning of 12 May 2010, the trust deed to establish DPT was executed (Trust Deed). The Carrs and Ritossas also signed applications for units in DPT. Later on that day, contracts were exchanged for the purchase of The Junction with the trustee of DPT as purchaser for $7.5 million. Settlement occurred on 23 June 2010.

32. The Carrs and the Ritossas initially held 10 units each in DPT. In order to contribute equally to the purchase price of The Junction, both families purchased additional units, such that they each became the holders of 3,827,149 fully paid units, amounting to a holding of 50% of the units respectively. Mr and Mrs Ritossa hold 106 units jointly and Mr Ritossa holds 3,827,043 in his own name. The Carrs acquired their units as trustees of the Carr Family Trust (CFT). In November 2018, the first plaintiff, DRCH, became the trustee of CFT and the units in DPT were transferred to it in that capacity. Mr and Mrs Carr own all the shares in DRCH and are its directors.

33. At 2:49pm on 12 May 2010 (which was shortly after the exchange of contracts for the purchase), Mr Scroope sent an email to the Carrs and the Ritossas recommending that a unit holders agreement be entered into (consistently with the advice previously given by Ms O’Connor to Mr Carr). His email stated:

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.

34. The questionnaire attached to the email went into some detail about the sorts of matters which might be included in a unit holders’ agreement, including questions relating to different types of ‘exit strategy’. The questionnaire noted presciently that ‘some would say the most important thing to get right when entering into a unit holders agreement is the exit strategy’. Neither family engaged with this request from Mr Scroope.

35. On Friday, 14 May 2010, Ms O’Connor of CA sent an email to Mr Carr saying: ‘Let me know if I can help with the unit holders agreement (which is really important) in conjunction with Damian Scroope or using Ivan’s lawyer’. Mr Carr responded to this by email the same day which said: ‘Re the unit holders agreement, I will need help with that thank you. When do we have to do that please? Who initiates it?’ Ms O’Connor responded by email on the following Tuesday stating ‘The unit holders agreement should be put in place now, Damien Scroope can assist you with this.’ She attached to her email a copy of the questionnaire, and gave Mr Carr the contact details for Mr Scroope.

36. The matter came up again in October 2011 when Ms Ryan of CA reminded Mr Carr of the earlier advice from Mr Scroope that it was important to have a unit holders agreement as ‘a safety net’ for dealing with all issues in the event of a dispute. She re-sent the questionnaire to Mr Carr. He forwarded it to Mr Ritossa by email on 16 October 2011, but neither of them filled in the questionnaire and the matter went no further. In Mr Carr’s covering email to Mr Ritossa he said:

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

37. Darbalara Holdings, the third defendant, was appointed as trustee of DPT on 16 November 2010 replacing the initial trustee which was an entity provided by CA and was only intended to act temporarily in that role.

38. At all relevant times, Mr Carr and Mr Ritossa have been the sole shareholders of Darbalara Holdings, with one share each and they have at all relevant times been directors of the company. On 31 October 2011, Mrs Ritossa and Mr Carr’s father were each appointed as directors of Darbalara Holdings (Mr Carr’s father was replaced by Mrs Carr on 12 May 2015). At all times since 12 May 2015, the sole directors of DRCH have been the Carrs and the Ritossas.

(b)   Operation of DPT from 2010 to mid-2019

39. Between 2010 to 2019, most decisions regarding Darbalara Holdings were made informally through emails, messages and telephone conversations between Mr Carr and Mr Ritossa. Mr Carr and Mr Ritossa lived in different countries (the former in Singapore and then Australia from late 2013, the latter in London throughout the relevant period). From 2010 to January 2020, there were no formal meetings of directors or shareholders of Darbalara Holdings.

40. Between late 2010 and 30 June 2015, each of the unit holders lent Darbalara Holdings $834,000 to assist with the operation of The Junction (unit holder loans). The unit holder loans were not subject to any written agreement and were interest free.

41. Initially, DPT appointed Growth Farms as the manager of The Junction. In early October 2012, DPT appointed another third-party farm management company, Customised Farm Management Pty Ltd (CFM) to replace Growth Farms.

42. In December 2013, Mr Carr retired from his banking career and Mr and Mrs Carr returned to live in Australia. From this time Mr Carr took a more immediate role in the management of his family farm, Warralong.

43. In late 2015, Mr Carr proposed to Mr Ritossa that CACM, a company established by Mr Carr in June 2015 and owned and controlled by Mr and Mrs Carr, take over the management of DPT’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. In 2023, CACM was replaced by Benview Farms Pty Ltd, trading as Southern Ag Management (SouthernAg), which remains the current farm manager.

44. On 16 December 2016, DPT entered into a contract to purchase another rural property, ‘Bogolara’, at Berremangra, New South Wales, and its livestock, plant and equipment for $5.7 million (which had been in discussion since 10 November 2016). Bogolara is also located in the Gundagai area. Mr Ritossa lent DPT around $6.8 million for the purchase of Bogolara, financed from funds borrowed by him from Standard Chartered Bank in Singapore (the Ritossa Loan) on the terms of a loan agreement executed by Mr Ritossa and Darbalara Holdings in August 2017. The purchase settled in February 2017. Mr Ritossa and Mr Carr agreed to CACM managing Bogolara on the same basis as for The Junction.

45. From 1 June 2017, the Gundagai area was classified as ‘drought affected, intensifying’.

46. 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, their 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. These 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.

47. In June 2018, the Gundagai area was classified as ‘in drought’.

48. The Ritossa Loan was refinanced in September 2018. Darbalara Holdings (as trustee of the DPT) entered into a loan facility agreement with the 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 DPT; and (c) a subordination deed which gave priority to the ANZ over all amounts owing by DPT to the unit holders in DPT (Subordination Deed). In early September 2018, $3.8 million was advanced by ANZ Bank under this facility to DPT and each unit holder made a loan of $1,676,233 to DPT to enable the Ritossa 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.

39. On 27 September 2018, Mr Carr sent an email to Mr Ritossa informing him that he had purchased ‘Mingay Bridge’, a small block neighbouring the Carr’s family farm, Warralong, through WPT. Mr Carr also mentioned that he was looking at another larger neighbouring property, ‘Gilla Willa’, but was not sure if he could afford it. The Carrs and Ritossas had previously inspected both properties on 1 January 2011 but had decided not to proceed in purchasing them. Mr Ritossa replied to Mr Carr saying, ‘Happy to go halves on both of them’.

40. Mr Carr and Mr Ritossa exchanged emails about whether the properties should be purchased for DPT, rather than by the Carrs through WPT. Mr Ritossa informed Mr Carr in an email sent on 6 September 2018, that he believed Mr Carr’s planned purchase created four conflicts of interest for Mr Carr because while he understood it was a good property for WPT, it was also a good property for DPT. He added: ‘In the spirit of partnership, we should have had a discussion as to how to resolve the conflict. Particularly given you say you are not sure you can afford it, because DPT definitely can’. In a subsequent email, Mr Ritossa asked ‘if for whatever reason you are unable to purchase the property, will you offer it to DPT?’ Mr Carr responded that he wanted to purchase the property because of its proximity (and strategic importance) to his other property Warralong and would purchase it if he could through WPT and not DPT.

41. It is clear from the email correspondence over the period from 30 September to 2 October 2010 that Mr Ritossa was annoyed with Mr Carr because he had decided to purchase Gilla Willa without first discussing the purchase with Mr Ritossa and offering it to DPT, and because it had the potential to limit the Carrs’ ability to contribute to the purchase of other farming properties through DPT. Mr Carr admitted that he should have discussed the matter with Mr Ritossa beforehand, but ultimately proceeded with the purchase. This was the first time there had been any conflict in the relationship between the two men about the affairs of DPT.

42. On 28 November 2018 DRCH (as trustee for the Carr Family Trust) entered into a contract to purchase Gilla Willa for a total price of $13.8 million. The purchase settled on 18 December 2018 which the Carrs intended to finance wholly through debt. The Carr’s borrowed $12.8 million from ANZ bank and the remainder from Mr Carr’s Singapore pension fund. The defendants allege that this purchase put the Carrs under significant financial strain, which explained their subsequent desire to pay ‘dividends’ from DPT despite the drought and eventually, their desire to sell DPT’s assets.

43. In 2014, 2016 and 2017 DPT made ‘distributions’ to unit holders as follows: (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 in some of the email correspondence, Mr Carr and Mr Ritossa referred to the distributions as a ‘dividend’, they were recorded in the financial statements of DPT in each case as a reduction in each unit holder’s loan account. This is consistent with the fact that DPT has never had income available for distribution to unit holders: see [106] below.

(c)   Issues between Mr Carr and Mr Ritossa in around mid-2019

54. Three issues emerged during the discussions between Mr Carr and Mr Ritossa in the period from May to August 2019.

55. The first concerned the depletion of DPT’s cash reserves as a result of the worsening drought, in particular the high cost of paying for the feed of the cattle and sheep at The Junction and Bogolara.

56. In February 2019, Mr Ritossa emailed Mr Carr noting that DPT was spending $23,500 per week, $101,790 per month amounting to $1.22 million a year on feed and that there was a trade-off between: (a) running the stock down to save on feed, but paying higher prices to re-stock in the future, (b) keeping the same head count and feed costs as currently, and (c) buying more stock at these lower prices, but incurring more feed cost. He adds that it was ‘hard to say which one is optimal as we don’t know how long the drought will last’, but then went on to ask Mr Carr how much cash DPT had left to fund the situation before it ran out.

57. In a text exchange in March 2019, Mr Carr said the options for DPT included, ‘de-stocking part or all of our animals, not spending money to put a crop in this year or sell some land?’

58. On 23 June 2019, Mr Carr emailed Mr Ritossa raising with him the need to borrow $150,000 from ANZ Bank to fund feed bills for the stock, due to poor cash flow. There followed a series of emails between them in which Mr Ritossa said that he did not support DPT borrowing to fund day to day operations, including feeding livestock essentially because it was uncertain when the drought would break.

59. Mr Ritossa said in an email on 24 June 2019 that it was important to bear in mind that ‘our strategy has always been to take advantage of the drought to buy quality properties at fair prices. That’s how we are going to build long term wealth’. Mr Carr responded by an email on the same day saying that while he would prefer to avoid borrowing to fund day to day operations, it was necessary, for the reasons he gave, to do so. He concluded the email by saying:

I continue to spend time looking at properties but I am not seeing any properties at drought inspired prices, in fact prices keep going higher. The place I saw today would be the most expensive in the district at the prices they are asking and it is nowhere near the best farm in the district. We are not sure about looking to buy more land when we cannot afford to run what we have? On top of that these types of events really stress us and put pressure on our relationship.

Please understand that we have kept our stock in drought lots/confinement or sacrifice paddocks, they do not roam freely to “overgraze the property”. We have done this for most the drought, it is not pretty, it is boring, and they hate it, but we are doing it to protect the land. Not many people do this.

If this is too disappointing for you then I am not sure what else we can offer? If this is too hard and you want to sell the farms then we will accept that. We need to pay the monthly accounts though.

60. On 25 June 2019, Mr Ritossa emailed Mr Carr about the ‘3 levers’ farmers have to manage a drought, which he identified as ‘feed, stock and cash’ and explained why he was against borrowing to fund the cost of feeding the stock which was summed up by his observation: ‘We are long stock short feed and short cash. This is an unsuitable position the longer the drought lasts. Farmers and businesses in general, go bust because they run out of cash’.

61. Mr Ritossa told Mr Carr that his preference was to fund the cash requirements by unit holder loans rather than borrowing from ANZ Bank. Mr Ritossa’s view that stock levels should be decreased as the drought worsened was informed by discussions he had with other land owners in the district, one of whom (Mr Alasdair MacLeod) had recommended to Mr Ritossa the services of Mr Bert Glover from ImpactAg. Mr Ritossa suggested to Mr Carr that he speak to Mr Glover in an email sent on 23 June 2019.

62. In contrast, Mr Carr’s view was that the best strategy was to hold onto and feed the bulk of the core breeding stock through the drought and continue to breed and sell livestock, rather than sell the herd and try to restock when the drought broke, because this would avoid the difficulties and costs associated with restocking, and also allow DPT to earn revenue from the livestock during and following the drought.

63. Mr Carr did recognise in November 2019 that there was a need to reduce stock levels during the drought. In an email of 7 November 2019 to Mr Ritossa he referred to The Junction having recently run 5,000 ewes and 460 cows but he was in the process of reducing this down to 3,000 ewes and between 150 and zero cows by the end of January 2020. In another email he sent to Mr Ritossa on 14 November 2019 he said he was ‘running down head count’.

64. I do not regard these November 2019 emails as being contrary to Mr Carr’s evidence as to his strategy (as the defendants submitted), because the key element of Mr Carr’s strategy was maintenance of the core breeding stock during the drought.

65. However, the essential point is that there was a genuine disagreement on a matter of business judgment between Mr Ritossa and Mr Carr about the extent to which the stock (sheep and cows) should be retained during the drought. Mr Ritossa considered that a much greater reduction was required than did Mr Carr.

66. The second issue concerned the strategy for acquiring new properties in DPT. Both Mr Carr and Mr Ritossa had been in broad agreement since the inception of DPT that its strategy, as Mr Carr expressed it in an email to Mr Ritossa on 2 September 2019, was to exploit price and production opportunities in the market by buying cheaper land and hedging the finishing risk of livestock production by developing The Junction to be a fodder and finishing property, and then taking stock from DPT’s breeding farms to the fattening block for finishing and sale directly to processors, eg. Coles.

67. Mr Ritossa agreed that that was the strategy, but added that the biggest issue for DPT by mid-2019 was that it had very limited capacity, irrespective of the drought, to acquire further land ‘large enough to spread [DPT’s] running costs over a reasonable amount of acres’ (email of 3 September 2019).

68. Mr Carr had looked at over 30 properties in the period from inception of DPT to September 2019, and it had become clear to both Mr Carr and Mr Ritossa that the cost of acquiring a further property of the size and capacity that they were looking at would be very high (estimated in one email to be in the order of $17-21 million). One such property was ‘Bundarbo’, a large property in the Gundagai region.

69. However, in an email sent on 27 May 2019, Mr Carr told Mr Ritossa that the Carrs’ financial position was ‘stretched’ due to interest on the debt to fund their recent purchase of Gilla Willa and the enormous unbudgeted expense of having to hand feed all the animals on Warralong caused by the drought. This led Mr Ritossa to consider the purchase of Bundarbo himself, and not through DPT.

70. In mid-2019, DPT did make two relatively small acquisitions. In June 2019, DPT purchased a cottage at Brungle Road, Gundagai for use as employee accommodation for $172,500. The purchase was financed through DPT drawing down on its ANZ loan facility. In July 2019, DPT entered into a contract to purchase a parcel of land containing the original Homestead of The Junction (Homestead) for $2.1 million, funded through drawing down on the ANZ facility. The sale completed in November 2019. The Ritossas had expressed a desire to purchase the Homestead in their names, but the Carrs thought it was better for DPT to do so because it would improve the value of the Junction property, and ultimately that is what was decided.

71. The third issue concerned, the manner in which Mr Carr had handled the purchase of the Homestead. This caused some tension in the relationship between him and Mr Ritossa, because the Ritossas had initially wished to purchase the property themselves as a potential base in the district. Mr Ritossa expressed irritation in an email dated 31 August 2019, that Mr Carr had vetoed the Ritossas’ suggestion that they would buy it, rather than DPT, without a proper discussion of the idea beforehand, given that he perceived that Mr Carr had gone ahead with the purchase of Gilla Willa over Mr Ritossa’s objections in 2018. As Mr Ritossa put it in an email of 31 August 2019, ‘You vetoed me buying it in favour of DPT buying it. I feel I did WPT a favour at the expense of DPT. I was hoping for some reciprocity, that’s all.’

72. Mr Carr recognised that he had handled the purchase of the Homestead poorly and apologised in an email on 2 September 2019.

73. These three issues came to a head in late August 2019. Mr Carr deposes that in late August 2019, Mr Ritossa told him in a telephone conversation ‘I think we should be selling. The market is good. Commodity prices are high, property prices are high’. Mr Ritossa does not dispute that this conversation occurred. On 30 August 2019, Mr Ritossa, by email, asked Mr Carr if he had further thoughts about ‘the quickest and most profitable way to sell DPT’. Mr Carr said he had spoken to various people about it, and suggested that six months would be the minimum amount of time, and that a three or four-year plan would be more profitable. While Mr Carr deposed that he was ‘completely shocked and disappointed by [Mr Ritossa’s] request to sell the properties’, it is something which Mr Carr had himself raised in his email of 24 June 2019 as an outcome which he would accept.

74. In an email sent on 2 September 2019, Mr Carr discussed what he thought DPT’s strategy had been and concluded by saying ‘We are disappointed but accepting to sell DPT, but we do not want to abruptly sell it at fire sale prices.’ He said that it would be ideal to sell in 2-3 years when the farms were fully developed. Mr Ritossa responded on 3 September 2019, discussing strategy but stating that his desire to sell DPT had ‘nothing to do with strategy’ and instead concerned ‘DPT’s ability to fund its growth at a time when the drought is bringing growth opportunities’. Mr Carr replied, ‘Ros and I have discussed and agreed that we will work to try and sell DPT asap’.

75. During September 2019, Mr Carr and Mr Ritossa had discussions about the appropriate strategy to adopt to sell DPT’s properties, which included obtaining a valuation from CBRE of The Junction and Bogolara. On 1 October 2019, CBRE provided an estimate of the total value of The Junction and Bogolara of $33-35 million and a recommendation that the properties should not be marketed for sale until, at the earliest, the autumn of 2020.

76. At the same time that Mr Carr and Mr Ritossa were discussing options for selling DPT’s assets, in mid-September Mr Ritossa raised with Mr Carr again the possibility of engaging Mr Glover of ImpactAg to provide a review of DPT’s operations. In early October, Mr Ritossa met with Mr Glover in London (during the course of a visit to London by Mr Glover for other business) and engaged him, with Mr Carr’s approval, to undertake that review. As noted earlier, Mr Glover had been recommended to Mr Ritossa by a friend (Mr Alasdair MacLeod) who had worked with Mr Glover in relation to a beef operation he conducted in New South Wales.

77. In late October 2019, Mr Ritossa told Mr Carr that he was willing to reconsider the sale of DPT’s assets. In an email to Mr Carr on 4 November 2019, Mr Ritossa said he was keen ‘to de-risk DPT by taking out as much equity as possible’. By this he meant that DPT could drawdown under the ANZ facility to fund payments to the unit holders, including in reduction of their unit holder loans. This idea went no further, and Mr Ritossa accepted in cross-examination that his thinking on this had been muddled and incorrect.

78. In November 2019, it was arranged for Mr Glover to provide an audit of the operations of DPT, and one of the matters which Mr Carr asked Mr Glover to address was DPT’s drought strategy. Ultimately, it was agreed that the Carrs and the Ritossas would meet with Mr Glover in early December 2019 when the Ritossas were planning to visit the properties, at which time Mr Glover would provide his report on the business. Mr Ritossa said in an email to Mr Carr on 18 November 2019 that: ‘Once we review the business we will have a better view on sell or don’t sell’.

79. In around September or October 2019, Mr Ritossa started to reconsider his desire to sell DPT’s assets although he did not inform Mr Carr of this until the meetings with Mr Glover and the Carrs in December 2019. He deposed that he changed his view because, based on Mr Glover’s advice he decided that The Junction and Bogolara were good properties, and that the problem was with the way CACM was managing them and not with the properties themselves.

80. In November 2019, the Gundagai area was classified as ‘drought affected’.

(d)   The falling out on 7 December 2019

81. On 5 and 6 December 2019, the Carrs, the Ritossas and Mr Glover inspected The Junction, Bogolara and the Homestead. On 6 December 2019, Mr Glover presented his review of the operations at the two properties to the Carrs and Ritossas. During this meeting, Mr Glover made observations which were critical of CACM’s approach to managing the farms, including the need to destock during a drought, which Mr Carr disagreed with.

82. In particular, Mr Glover observed that the stocking rate on the land did not match its carrying capacity and expressed his view that DPT had too much stock, and should be adjusting its stock level (or head count) in line with rainfall, with a strategy (which Mr Carr did not agree with) that ‘if it doesn’t rain for a period of three months, you should start selling’. Mr Glover said that ‘if it doesn’t rain by March 2020, you will have run out of money and will have to let go of your stock’. Mr Glover also observed that DPT would need a significant amount of capital and operational expenditure over the coming two to four years (approximately $4 million in total).

83. On 7 December 2019, the Carrs and Ritossas met at breakfast. In their affidavit evidence they each gave differing versions of what occurred, but ultimately it is not necessary to determine which is correct. Mr Carr was offended and did not agree with the assessment of Mr Glover, and felt he had been ambushed by the presentation. Mr Ritossa was of the view that the farms were in a bad state, including as a consequence of over stocking, and that Mr Glover had made a number of good suggestions to improve the farms which appeared to be sensible, but Mr Carr was intent on ignoring that advice. It is likely that both of them expressed these views to the other in the meeting. Mr Carr and Mr Ritossa got into a heated argument. Mr Carr told the Ritossas that the Carrs would like to end their business relationship and sell DPT. Mr Ritossa indicated that he no longer wanted to sell DPT.

84. On 23 December 2019, Mrs Carr arranged for the payment from DPT’s bank account of $295,000 to each of the Carrs and the Ritossas which she described in an email to Mr Ritossa as a ‘dividend’. Mrs Carr deposed that she understood Mrs Ritossa as having agreed to the payment based on a phone conversation they had on 22 December 2019.

85. Mrs Ritossa denies that she agreed to the payment, and this is supported by a contemporaneous file note she made of the conversation. I accept her evidence. In my opinion, it is likely that Mrs Carr’s belief that Mrs Ritossa had agreed to the payment was due to a misunderstanding on Mrs Carr’s part. All previous distributions had been arranged by Mr Carr and Mr Ritossa, and it is unlikely that Mrs Ritossa would have agreed to such a large payment without discussing it with Mr Ritossa first, particularly given the presentation by Mr Glover earlier that month. Ultimately, Mr Ritossa objected to it in an email to Mrs Carr and each family repaid the amount on 27 December 2019.

86. On 18 February 2020, Mr Ritossa sent the Carrs a Notice of Meeting of the Directors of Darbalara Holdings for 28 February 2020, which was the first board meeting called for Darbalara Holdings.

87. In March 2020, the drought broke.

88. In November 2021, Mr Carr received an offer from a third party to purchase The Junction for $30 million. He passed this on to Mr Ritossa who indicated that he did not wish to sell any of DPT’s assets. In late 2022, an offer of $35 million was received from another third party for the Junction. Mr Carr raised this with Mr Ritossa and received the same response.

89. In April 2022, the Carrs sent a buy-sell open offer to the Ritossas, being an offer to purchase the Ritossas’ units or sell the DRCH’s units for $21.5 million (on the basis that the unit holder loans be paid out by DPT). Another similar buy-sell offer for $23.25 million was sent by the Carrs in March 2023. Each offer was rejected. There have also been two separate offers for DRCH’s units from third parties known to the Ritossas, but in each case for amounts less than $8 million, which the Carrs rejected as the prices offered were not acceptable to them.

81. On 14 April 2022, the Carrs sent a Wind Up Notice which stated:

David and Ros Carr Holdings Pty Limited (as trustee for the Carr Family Trust), as unitholder of 50% of the units in DPT, is presently entitled to the capital of DPT trust and pursuant to clause 2 of the rules of unit trust of DPT hereby requires the Trustee, that is Darbalara Holdings Pty Limited, to wind up the DPT trust and distribute the property of that trust or the net proceeds of the property of that trust.

Expert valuation evidence

91. The parties relied upon two types of expert valuation evidence. The first was evidence as to the value of the underlying assets of DPT, and the second was evidence as to the value of the units in DPT.

Evidence valuing the underlying assets in DPT

92. Both parties relied on expert evidence as to the market value of the underlying assets of DPT. The plaintiffs tendered three reports by Mr Daniel Thomas (formerly of CBRE and now LAWD). In his first report, Mr Thomas’ opinion as to the market value of The Junction (including the Homestead) as at 1 September 2020 was $24,450,000 and Bogolara was $10,700,000. Mr Thomas then updated the report as at 24 November 2021, when he appraised the market value of The Junction (including the Homestead) to be $30,230,000 and Bogolara to be $12,810,000. Finally, Mr Thomas has updated his valuations as at 11 May 2024, at which time he appraises the market value of The Junction as $38,350,000, and Bogolara as $17,000,000.

93. The plaintiffs also relied on the following valuation evidence:

1. The expert report of Mr Cameron Rosser, a livestock agent who assessed the value of DPT’s livestock at The Junction, Bogolara and Myora as at 1 September 2020 to be $2,350,150 and as at 31 October 2021 to be $2,437,405. On 1 July 2024, Mr Rosser provided an updated annexure to his first report, with the values of the livestock of DPT as at 15 May 2024 in a total amount of $1,192,670.

2. The expert report of Mr Tim O’Mara valuing the plant and equipment of DPT. As at 21 June 2024, the farm equipment and vehicles of The Junction and Bogolara combined were assessed to be worth $448,400 at fair market value or $331,000 at forced liquidity value.

94. The defendants tendered a report by Mr John Ewing of Donoghue Property Valuations. Mr Ewing’s opinion was that the market value as at 29 May 2024, of The Junction was $36,000,000 and Bogolara was $15,450,000.

95. During the course of the trial, Mr Ewing and Mr Thomas held an experts’ conference and on 16 July 2024 reached consensus as to the values to be given to The Junction and Bogolara, provided in the form of two Joint Property Valuation Reports of 19 July 2024, in which they agreed that The Junction should be valued at $36,600,000 and Bogolara at $15,900,000. These are the figures which this judgment adopts.

Evidence valuing the units in DPT

96. Turning now to the value of the units, the only expert evidence provided to the court on that issue is the reports of two experts called by the defendants, Ms Wright and Mr Waters of FTI Consulting. Ms Wright and Mr Waters prepared two Joint Reports dated 26 October 2021 and 5 July 2024, to which Ms Wright then provided an Addendum Report on 17 July 2024 adjusting her figures from the 5 July report.

97. Ms Wright was initially instructed to provide an expert opinion on the fair market value of 50% of the units in DPT as at 1 September 2020 (the 26 October 2021 report). Her assessment of fair market value is based on the price that a hypothetical willing buyer would pay for 50% of the units in DPT. Ms Wright adopts a ‘net assets’ valuation methodology, rather than a ‘discounted cash flow’ approach, as DPT was asset rich but had limited earnings history to enable an earnings-based approach and lacked forecasts.

98. In each report, Mr Waters assessed the value of the livestock of DPT, and Ms Wright used this valuation to derive the value of the net assets of DPT. As at 1 September 2020, Mr Waters concluded that the value of the livestock of DPT was in the range of $1.5 million to $2.8 million. Mr Waters’ assessment of the livestock value was based on average sale prices at the time, without complete details as to the specific breed, age, or weight of all livestock. As such Mr Waters provides a lower and upper range of values, noting that auction prices can be quite variable depending on the qualities of the livestock and the market at the time. Taking this into account, Ms Wright assessed the value of the net assets of DPT to be between $27.3 million and $28.6 million as at 1 September 2020. Ms Wright’s calculations were based on a balance sheet as at 30 June 2020 to which she made certain adjustments. Ms Wright then applied two main discounts to the net asset value of DPT to reach her final valuation. The discounting factors raised in the 2020 report remained the same as those raised in the 2024 reports and are outlined below. Following these calculations, Ms Wright’s opinion as to the fair market value of 50% of the units in DPT as at 1 September 2020 was in the range of $6.1 million to $8.2 million.

99. Ms Wright was then instructed to provide an updated valuation of 50% of the units in DPT as at 30 April 2024. Mr Waters adopted the first livestock valuation undertaken by Mr Rosser, which he deemed to be reasonable. Ms Wright took into account property valuations undertaken in the interim by Mr Ewing and Mr Thomas. As at 29 May 2024, based on adjustments made to the reported net assets, Ms Wright assessed the value of the net assets of DPT to be approximately $42 million (adopting Mr Ewing’s valuations) or $46 million (adopting Mr Thomas’ valuations). In Ms Wright’s opinion, after discounting, the value of 50% of the units in DPT adopting Mr Ewing’s valuations was in the range of $9.35 million to $11.96 million, while if Mr Thomas’ valuations were adopted, it was in the range of $10.23 million to $13.01 million.

100. During the trial, Ms Wright was provided with the Joint Property Valuation Report of Messrs Ewing and Thomas, as well as Mr O’Mara’s report as to the value of plant and equipment of 21 June 2024. Based on this new information, Ms Wright provided an Addendum Report of 17 July 2024, updating her valuation in the 5 July 2024 report as to the net assets of DPT, including the book values of the water licence, property and land assets and property improvements recorded in its balance sheet. It was not necessary for Mr Waters to update his portion of the report. Ms Wright found that the adjusted net assets of DPT as at 30 April 2024 were in the range of $42,127,991 to $42,308,689. Ms Wright then applied the following discounts (consistently with her earlier reports):

1. A discount for minority interest of 5-10%: This discount is for the fact that a purchase of a 50% unitholding in DPT would not provide voting control over DPT. Ms Wright noted that it was a generally accepted valuation principle that all else being equal, participants would generally prefer to have control over a subject asset than not. As a 50% unitholding in DPT gave neither party control, Ms Wright considered that an appropriate discount was within the range of 5% to 10%.

2. A discount for lack of marketability of 40-50%: This second discount is for the lack of marketability of DPT. Marketability reflects the concept that when comparing otherwise identical assets, a readily marketable asset would have a higher value than an asset with a long marketing period or restrictions on the ability to sell the asset. Marketability can be defined as the relative ease and promptness with which an ownership interest can be bought or sold or otherwise be monetised and refers to the ability to quickly convert property to cash at minimal cost. In Ms Wright's opinion an appropriate discount for the lack of marketability based on the characteristics of the business was between 40% and 50%.

101. Ms Wright provided essentially four reasons for the large marketability discount. First, the business did not have a historical track record of profitability. Second, the business required significant capital expenditure which was difficult to fund in the context of a lack of profitability and the potential for decision-making deadlock. Ms Wright noted that neither the Trust Deed nor the Constitution of Darbalara Holdings contained any mechanism for resolving a decision making 'deadlock' between each block of unit holders. Third, the pool of potential investors in a privately owned unit trust with a lack of limited liability, and in circumstances where the other 50% unitholding was a 'family group', was limited as compared to other structures, such as a purchase of shares in a company. Fourth, clause 7 of the Trust Deed states that Unit Holders may only transfer their units to a person approved by the Trustee and the Trustee can refuse approval without providing a reason, which could impose a significant obstacle on the marketability of the units. Further, the non-adjacent locations of the two farms may be a negative feature. In Ms Wright's opinion this could further increase the discount required because it reduced the range of hypothetical market participants who may be interested in DPT.

102. Taking all these discounting factors into account and the updated valuations as to the underlying assets in DPT, Ms Wright ultimately concluded in her Addendum Report that the value of a 50% unitholding in DPT as at 30 April 2024 was in the range of $9.48 million to $12.06 million. This range of figures has been accepted by both the plaintiffs and defendants and as such, is used as a reference point in this judgment.

103. It follows that there is a significant discrepancy between the value of the net assets of DPT and the value of a 50% unit holding in DPT at the relevant time or times. Taking the position as at 30 April 2024 as illustrative, and adopting the mid-point of the range of values given by Ms Wright in the Addendum Report, on that date the value of a 50% interest in the net assets of DPT was around $21.1 million whereas the value of a 50% unit holding in DPT was around $10.8 million.

The financial performance of DPT from 2011 to 2024

104. It is clear from the valuation evidence referred to above that the value of the two key assets of DPT has increased significantly since their purchase. The net value of DPT’s assets on each of the dates addressed by the valuation evidence indicates that DPT following the end of the drought in 2020, was and is in a strong financial position. However, as noted in Ms Wright’s reports, the activities of DPT to date have not been profitable.

105. The following has been extracted from the financial statements for DPT for the financial years ended 30 June 2010 to 30 June 2023 inclusive:

Financial year ended 30 June	Net operating profit/(loss) ($)	Total available for distribution/(loss) ($)
2011	(165,328)	(167,433)
2012	(186,277)	(353,710)
2013	(207,512)	(561,222)
2014	(130,668)	(691,890)
2015	31,317	(660,573)
2016	339,490	(321,134)
2017	(140,942)	(462,075)
2018	54,273	(407,802)
2019	(706,491)	(1,114,293)
2020	695,396	(418,897)
2021	98,877	(320,020)
2022	(6,262)	(326,282)
2023 *	(743,645)	(1,069,927)

* Draft accounts only (Ex 4, pp 265-268).

106. The significance of the final column in the above table is that the accounts for DPT record that for each financial year up to and including the 2023 year, DPT has not had a distributable income to which a unit holder could be presently entitled: Commissioner of Taxation v Bamford (2010) 240 CLR 481; [2010] HCA 10 at [45]. While in some years there was a profit for that financial year, it was offset by the carry forward loss which as at 30 June 2023 stood at $1,069,927. The relevant provisions of the Trust Deed are referred to in the discussion of issue two below.

First issue: Oral agreement or estoppel

107. The plaintiffs contend that there was an oral agreement between Mr Carr and Mr Ritossa, or representations to the same effect founding an estoppel, that each of the Carrs and the Ritossas would be entitled to unilaterally terminate the joint venture constituted by DPT by reasonable notice to the other.

108. More particularly, the plaintiffs contend that the Court should find that:

1. On or about 8 May 2010, Mr Carr and Mr Ritossa had a conversation in which Mr Ritossa said words to the effect that if either the Ritossas or the Carrs wanted to end the joint venture then the property would be sold (the Representation), to which Mr Carr agreed.

2. Between May 2010 and December 2019, the Ritossas represented to the Carrs, by their words and conduct the following (collectively, the Ongoing Representations):

1. they would work together cooperatively in the management of the joint venture;

2. if either the Carrs or the Ritossas wished to end the joint venture, they could do so on reasonable notice; and

3. if the Carrs or the Ritossas gave reasonable notice of their desire to terminate the joint venture, the others would work co-operatively to terminate it.

109. The Representation referred to in (1) above is founded on Mr Carr’s evidence that he had a conversation with Mr Ritossa on or about 8 May 2010 to the following effect:

Mr Carr:   We will need to set up a structure for the purchase. I think the key details of the structure are the 50/50 split and we need liquidity and succession.

Mr Ritossa:   I agree. If one of us wants out, then we should sell the property.

Mr Carr:   We should take advice on it. I will speak to my accountant.

110. Mr Ritossa denies that any such conversation ever occurred.

General principles

111. In John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 Hammerschlag J (as his Honour then was) said:

[94] Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319.

[95] The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is.

112. Where the existence and terms of an oral contract is in issue, consideration of the surrounding circumstances including the history of the relationship between the parties and their conduct prior to and at the time the alleged contract was entered into is permissible, as well as post-contractual conduct: Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 at [47]–[50]; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25].

113. In view of the fallibility of human memory, it is recognised that where the events (including conversations) relied upon took place many years ago, ‘the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities together with the documentation tendered in evidence’: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 at [15]-[16]; ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [25]–[29] (and cases there cited).

114. Finally, I note that in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, Dixon J emphasised that when the law requires the proof of any fact the Court must feel an actual persuasion of its occurrence or existence before it can be found, and ‘it cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality’ (at 361).

Consideration

115. I prefer Mr Ritossa’s evidence on the alleged conversation to that of Mr Carr for the following reasons.

116. First, the alleged conversation occurred over 10 years before Mr Carr made his affidavit. As noted earlier, the human memory is unreliable as to events occurring that long ago, which is illustrated by Mr Carr’s own evidence. In the same affidavit he deposed that he was surprised when he received Mr Ritossa’s email of 6 April 2010 stating ‘Should we be bidding on this’, because he had not thought about the possibility of Mr Ritossa being interested in buying something jointly with him until the 6 April 2010 email was received. He could not have been surprised because he had made the very suggestion of a joint investment to Mr Ritossa in his email of 10 March 2010 referred to above.

117. Second, there is no mention in any of the contemporaneous emails in the period from 10 March 2010 to 12 May 2010 of any understanding or arrangement of the kind referred to in the alleged conversation (which can be referred to as a ‘one out/all out’ arrangement), which would corroborate that the alleged conversation occurred. Indeed, to the contrary, the email correspondence referred to earlier suggested that no thought was given by Mr Carr as to what would happen if one party wanted to exit other than that there should be a right of first refusal for the remaining party. Particularly telling are:

1. Mr Carr’s email to CA on 8 May 2010 quoted at [25] above, because it refers to each party having the right of first refusal if the other party wished to sell its share of the investment (which is in fact contained the Trust Rules). Had there also been a ‘one out/all out’ arrangement then one would expect it to have been mentioned in the emails.

2. Mr Carr’s email to Mr Ritossa of 16 October 2011 makes no mention of it. Had Mr Carr already agreed with Mr Ritossa that there was to be a ‘one out/all out’ arrangement, it would be expected that he would have raised it as a reason for a unit holders’ agreement being necessary to document that arrangement.

3. Mr Carr’s version of the conversation states that the next step was for him to speak to his accountant, but there is no evidence that he did so (in particular, it is not mentioned in the contemporaneous emails to and from his accountant, CA).

118. Third, Mrs Carr makes no mention of any discussion with Mr Carr at any time of a ‘one out/all out’ arrangement.

119. Fourth, when the dispute arose between Mr Carr and Mr Ritossa in December 2019 about whether DPT should be brought to an end because the Carrs could no longer work with the Ritossas, Mr Carr did not in any of the correspondence or conversations about which he gives evidence, refer to the existence of a ‘one out/all out’ arrangement.

120. Fifth, Mr Ritossa’s explanation for why he would not have agreed to a ‘one out/all out’ arrangement, which is that he considered this to be a long-term investment and wanted to have control over when he exited it, is coherent. A key difficulty with the ‘one out/all out’ concept is that at any time, one party could require the Trust to come to an end without the consent of the other, irrespective of the financial consequences for that other party in doing so. Having read the extensive correspondence between Mr Carr and Mr Ritossa over the entire period of the investment and observed Mr Ritossa during his lengthy cross-examination, I consider it to be highly unlikely that he would have agreed to a ‘one out/all out’ arrangement.

1. There is no present prospect of DRCH receiving distributions of income or repayments of unit holder loans other than at the discretion of the Ritossas, contrary to the pre-2019 practice of DPT;

2. There is no real prospect of DRCH’s units in DPT being sold to a third party for a value commensurate with the realisable market value of the assets of the Trust;

3. There is no real prospect of DRCH’s units in DPT being redeemed by Darbalara Holdings for a fair value commensurate with the realisable market value of the assets of DPT;

4. Should DRCH seek to sell its 50% interest in DPT by a sale of its units, this would be at a significant discount to the net asset value of DPT’s assets (as shown by the valuation evidence) and the Ritossas have a right of pre-emption which they have not waived, which will allow them to acquire DRCH’s 50% interest at that discounted price.

235. There are a number of difficulties with this submission. First, the question of whether the Trust should be wound up or continue is a matter for the unit holders and not the Trustee: see cl 9.1 of the Trust Rules.

236. Second, the proposition in (1) is not correct for the reasons explained under the next heading.

237. Third, the proposition in (2) is a consequence of the structure adopted by the parties to hold their interest in the assets of DPT, (that is by way of a unit holding in the unit trust), rather than a direct 50% interest in the underlying assets of the Trust. That choice of structure was made by the parties, and the resulting disadvantage in value does not involve oppressive conduct. Hence, the complaint by the Carrs that the Ritossas have refused to buy DRCH’s units in DPT for the price offered by DRCH (which reflected a percentage of the value of the net assets of the Trust) is not surprising or relevant to any question arising under s 232. The Ritossas have no obligation to purchase DRCH’s units for a price other than that reflecting the market value of the units.

238. Fourth, the proposition in (3) may be correct, but it would be a matter for the directors of Darbalara Holdings at the time of a redemption request to determine whether it was appropriate to redeem the units of DRCH at their net realisable value. No doubt a relevant matter would be whether a new unit holder was prepared to subscribe for units for an amount equal to the proposed redemption amount. I note there is no evidence that any such proposal for redemption of DRCH’s units has been put forward for consideration by the directors.

239. Fifth, in relation to (4), Mr Ritossa gave evidence that the reason he has not waived the right of pre-emption conferred under the Trust Rules is that he wants to have control over who comes in as a 50% co-owner with the Ritossas in DPT. I accept that evidence. However, I note that a decision not to waive the pre-emption right is not oppressive conduct because it is a decision of the unit holder, not conduct of Darbalara Holdings to which s 232 could apply.

240. There is no evidence to suggest that the Ritossas are seeking to force the Carrs out of DPT and secure a 50% interest (held through DRCH) at a discount. In particular, the Carrs have significant other assets and are not forced sellers for financial reasons. Their desire to sell comes about, on their case, because they no longer wish to be in business with the Ritossas. However, as already indicated, while the personal relationship between the Carrs and the Ritossas appears to have broken down, the working relationship has not.

241. Part of the complaint made by the Carrs in relation to the Ritossas’ unwillingness to wind up the Trust is that the Carrs say it is inconsistent with Mr Ritossa’s insistence during the period between 31 August 2019 to 7 December 2019 that the assets of DPT be sold and DPT be wound up. In my view, the evidence does not support the proposition that Mr Ritossa insisted on DPT’s assets being sold or that the Carrs purchase his half share.

242. In Mr Ritossa’s email of 4 September 2019, he explains why he wants to sell his interest and then goes on to say: ‘I’m happy for you to buy my half share if we can agree on a price. Is that something you would consider and able to do?’. There followed further discussions about a possibility of the Carrs purchasing the Ritossas’ half share, although the Carrs’ preference was that The Junction would be sold, and the Carrs would purchase Bogolara.

243. Ultimately, Mr Ritossa changed his mind and informed Mr Carr of this in December 2019. He explains in his evidence the reason for changing his decision to sell his interest in DPT. In my view, Mr Ritossa’s change of approach to selling his interest in DPT has no bearing on the disagreements which arose from December 2019 regarding the management of DPT’s farm assets and Mr Ritossa’s decision not to agree to wind up DPT. It is to be explained by his decision that with a change of farm asset manager, the operations of DPT would be likely to improve.

Disagreement regarding payments to unit holders

244. It is not in dispute that prior to 2019, DPT made three payments to unit holders by way of repayment of unit holder loans: in 2014, $90,000 per family; in 2016, $250,000 per family; and in 2017, $300,000 per family. The Carrs say that since December 2019 there has been an intractable disagreement between them and the Ritossas as to whether any distribution of income or repayment of unit holder loans should be made by Darbalara Holdings to unit holders.

245. The Carrs also say that Mr Ritossa behaved erratically on this issue because he had originally raised with Mr Carr in November 2019 that each family should withdraw their unit holder’s equity by borrowings from ANZ. Mr Ritossa accepted in cross-examination that a strategy of ‘de-risking’ the Trust was wrong and that he completely ‘muddled myself up’ in suggesting that (T374).

246. The outstanding balance of unit holder loans for DPT as at 30 June 2019 was $1,870,733 for each unit holder. There has been no increase or reduction in the amount of the unit holder loans since that time, with the financing requirements of DPT being met by borrowings from ANZ.

247. The borrowings from ANZ include drawdowns of $430,000 on 9 April 2024 and $230,000 on 5 July 2024.

248. It is clear that under the terms of the Subordination Deed, no unit holder is entitled to the repayment of any part of a debt owing to it by Darbalara Holdings to that unit holder without the prior written consent of ANZ: Subordination Deed, cl 3.2. There is no evidence that ANZ has given that consent. Without it, a payment in reduction of a unit holder loan would be a breach of the Subordination Deed by both the unit holder and Darbalara Holdings, and would constitute an event of default under the ANZ facility: ANZ Letter of Offer dated 19 July 2018, Sch 4, para (a). The decision by the directors of DPT not to reduce unit holder loans cannot, in these circumstances, be oppressive conduct.

249. In so far as the plaintiffs suggest that there has been a refusal to pay income distributions to unit holders, this again is not supported by the evidence. A unit holder is presently entitled to its share of the income of the Trust: Trust Rules, cll 2.1, 15.1 and 15.2.

250. The financial statements for DPT are in evidence for the financial years to and including the year ended 30 June 2023. These disclose that the net distributable income for DPT for the 2020 to 2023 financial years was as follows: (a) 2020 year, $695,396, which was applied to the reduction of the accumulated loss at the beginning of the year of $1,114,293 leaving an accumulated loss of $418,897; (b) 2021 year, $98,877, which was applied against the accumulated loss to leave a carry forward loss of $320,020; (c) 2022 year, loss of $6,262; (d) 2023 year, a loss of $736,723. Given that the financial statements record no distributable income in any of these years, the unit holders had no present entitlement to income for each year. Consequently, the failure of Darbalara Holdings to make income distributions to the unit holders since December 2019 simply reflects the operation of the business of DPT and the provisions of the Trust Deed.

251. Accordingly, in my view, no oppression has been established in relation to this matter.

Mutual trust and confidence has broken down

252. The mere fact that the mutual trust and confidence between two shareholders of Darbalara Holdings (Mr Carr and Mr Ritossa) has broken down does not constitute oppression: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 at [89]. As the defendants submitted, relief under s 233 is not available where the parties merely have irreconcilable differences, as the remedy does not provide for ‘no fault divorce’: O’Neill v Phillips [1999] 2 All ER 961 at 972-973. Importantly, the working relationship between the Carrs and the Ritossas has not broken down as indicated by the many decisions which have been made by the board of Darbalara Holdings, despite the breakdown of the personal relationship between the directors.

253. There is no doubt that, as a consequence of the breakdown in the relationship the Carrs have failed to get their own way on a number of matters, the most significant of which was the termination of the role of CACM as farm asset manager. However, as the defendants submit, it is not oppressive for a non-controlling shareholder to not get their own way. This has been recognised in many cases where the person claiming oppression is a minority shareholder: Re M Dalley & Co Pty Ltd v Sims (1968) 1 ACLR 489 at 493; Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tax) Pty Ltd (No 3) [2015] NSWSC 1639 at [94]; Shelton at [24]. In the present case Mr Carr is not a minority shareholder, but rather a 50:50 shareholder with Mr Ritossa under a structure chosen by each of them to protect their interests through the right of veto which each has over the other. This comes about because the parties chose a structure of a unit trust with a corporate trustee, the shares of which were held by Mr Carr (one share) and Mr Ritossa (one share), each representing their respective families, and the directors of which have always been Mr and Mrs Ritossa and Mr Carr, together with his father until he was replaced by Mrs Carr in 2015.

254. By resolution made by the directors in 2017, no decisions at the board level can be made unless all directors agree. It is the inevitable consequence of this structure that there will be occasions when each shareholder will not get his way, but through the right of veto each is protected against decisions adverse to the interests of the family group which each member represents.

255. I have carefully considered all the evidence regarding the dealings between the directors since December 2019, in particular the transcripts of the meetings of directors in that period, and do not consider that the breakdown in the personal relationship has led to any deadlock or caused Darbalara Holdings to cease to function properly. To the contrary, the board has functioned properly, albeit sometimes after vigorous debate on the issues before it.

Conclusion

256. The genesis of the present dispute was a disagreement over whether CACM should continue in its role as asset manager of the Trust, the source of which was a disagreement as to CACM’s management of the drought leading to the Ritossas having a lack of confidence in CACM’s expertise as asset manager. That disagreement was over a matter of business judgment, and has been resolved by the appointment of a new independent manager, SouthernAg. The disagreement and its resolution did not involve commercial unfairness to Mr Carr, as a member or otherwise. The only area of pleaded deadlock which remains unresolved is whether DPT should be wound up. That will be resolved by the outcome of this proceeding because, ultimately, it is a question which turns on the proper construction of the trust instrument. The position now reached is that, if the Carrs fail on that issue (which for the reasons given above, in my opinion, they do) they will only be able to exit the Trust by a sale of their units, which potentially the Ritossas will acquire through the exercise of their pre-emption right.

257. In my opinion, that outcome, while unfortunate from the Carrs’ perspective, does not involve commercial unfairness to Mr Carr. Rather, it involves the natural working out of a commercial arrangement which the Carrs agreed to when the Trust was established, with advice which drew their attention to the risks of not having an exit strategy, beyond a transfer of the units. Further, the Carrs are not forced sellers – DRCH can remain in the Trust as a 50% unit holder which can veto any proposal by the Ritossas with which they disagree. If the Carrs wish to cease to be directors of Darbalara Holdings, they can appoint two new directors to take their place.

258. For the above reasons, in my view, the plaintiffs have not established oppression under either ss 232(d) or (e).

Fourth issue: Appointment of a receiver

259. The plaintiffs seek an order that a receiver be appointed pursuant to s 67 of the Supreme Court Act or the inherent power of the Court, to realise the assets of DPT, discharge DPT’s liabilities and distribute the balance to the unit holders. Section 67 of the Supreme Court Act provides that the Court may, at any stage of the proceedings, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient to do so.

260. The pleaded basis for appointing a receiver is that (APOC [26]):

The irretrievable breakdown of the friendship, the continuing dispute between the parties, the Ritossas’ refusal to agree to terminate the joint venture, and the inability of the Carrs and the Ritossas to work together cooperatively, make the ongoing management and operation of the joint venture unworkable and thereby puts in jeopardy the assets held by Darbalara Holdings on trust for DPT warranting the appointment of a receiver to DPT and ancillary orders.

261. The evidence relied on for this claim is the same as for the oppression claim.

262. It is not in dispute that the Court does not have a general power to order the winding up of a trust. In Re Gaydon [2001] NSWSC 473, Barrett J said (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.

263. In Baba v Sheehan [2019] NSWSC 1281, after quoting the above passage, Parker J said (at [75]-[76]):

The way in which the orders are formulated in this case appears to involve the same error. 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.

264. See also Rosenbaum v Baidarman (No 2) [2021] NSWSC 574 (Williams J) at [93] to the same effect.

265. The Court does have power to appoint a receiver on the application of a beneficiary where that is required to ensure the safety of the trust property: see Yunghanns v Candoora (No 2) [2000] VSC 300 at [64]-[76], [84] (Warren J) and Mir v Mir [2023] NSWSC 408 at [130]-[139] (Ball J). In the former case Warren J (as her Honour then was) said (at [84]):

First, the courts will appoint a receiver of trust property (on an interlocutory and/or permanent basis) where that property is in jeopardy through misconduct, waste, improper disposition, breach of the trustee's duty or the unsuitable character of the trustee. Second, the case in favour of appointment of a receiver must be a strong one but in assessing the risk to the trust the courts will apply a qualitative judgment. Third, a receiver will be appointed to preserve the benefit of a person who has an interest in trust property.

266. In my opinion, there is no evidence that the trust property is in jeopardy. In particular, the directors of the Trustee have agreed on the appointment of a new manager, SouthernAg, and there is no support in the evidence that it is not performing that role satisfactorily. Nor, picking up the third of the matters mentioned by Warren J in the above passage, is the appointment of a receiver necessary to preserve the benefit of a person with an interest in the trust property.

267. Recognising the difficulties presented by these authorities, the plaintiffs rely on a line of authorities which Dr Birch SC described in opening as supporting the proposition that an order can be made to wind up a trust where ‘there is a relationship that might be described as akin to a partnership arrangement, where mutual trust and confidence is necessary for the operation of the arrangement or structure, then equity ought to intervene when that substratum has failed, and it ought not to matter whether the formal structure is a corporation, a partnership between individuals or, as in this case, a unit trust’ (T4). The authorities relied on are Basecove Pty Ltd v Dolores Lavin Management Ltd [2009] NSWSC 1315; Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86 and Capelli v Shepard (2010) 29 VR 242; [2010] FSCA 2. In my view the authorities relied on do not support the appointment of a receiver in the present case.

268. The first, Basecove, was an ex tempore judgment of Brereton J (as his Honour then was), which concerned the relationship between two individuals who were the sole directors of the trustee and also controlled each of the two unit holders. The trustee was in deadlock and the financial position of the trust was tenuous at best. It was common ground that some step needed to be taken to resolve the deadlock that had arisen, and the dispute between the parties was whether that step should be the appointment of receivers and managers with a view to winding up the trust or the appointment of a new trustee (at [6]). Brereton J held (at [11]) that a number of factors were decisive in favour of the appointment of a receiver, including that the relevant entities if not technically insolvent then were subject to a substantial deficiency of funds and trading at losses; despite the trust and corporate structure involved, the arrangement between the parties was really that of a quasi-partnership, and the relationship between them had broken down; and there was no guarantee that the regime under the trust deed for one unit holder to transfer his units to the other would succeed in breaking the deadlock. His Honour concluded (at [12]) that in the circumstances it was ‘just and equitable, in the conventional sense, that the relationship between these parties be brought to an end, rather than requiring one party, against its will, to leave its assets in jeopardy while the position progressively deteriorates’.

269. In Mir v Mir at [131], Ball J explained the decision in Basecove as one where a receiver was appointed because the trust assets were in jeopardy. I agree, and note that it is clear that a key matter in Basecove was that the trust assets were in jeopardy, even though the nature of the relationship between the parties was described as being that of a quasi-partnership. In a later case, Re Austec Wagga Wagga Pty Ltd(in liq) [2018] NSWSC 1476, the same judge who decided Basecove observed that an order or declaration that a trust be wound up or terminated misconceived the nature of a trust.

266. Basecove is distinguishable from the present case for at least two reasons. First, the trust property is not in jeopardy. Second, the directors of the trustee are not, for the reasons already given, in deadlock and, in any event, there is a process under the Trust Deed for resolving any deadlock (being for the transfer of units through the regime contained in the Trust Rules).

267. In Accurate Financial Consultants the principal issue was whether the appellants, who were minority unit holders in a unit trust, could restrain the trustee (a company controlled by the majority unit holder) from acting on a notice to compulsorily acquire their units. One of the arguments for the appellants was that, on the basis of the principles in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, there was a fiduciary relationship between the investors said to justify an injunction restraining the exercise of the power to compulsorily acquire the minority’s units (at [108]).

268. Dodds-Streeton JA (Ashley JA and Forrest AJA agreeing) noted at [109] that the argument was ‘novel’ and then after discussing Ebrahimi said:

[120] In the present case, if the parties were, in essence, partners who envisaged continuing personal participation in the conduct of the business, mutual fiduciary duties would apply independently of Ebrahimi principles, and indeed, the intended transfer of shares to the minority investors never occurred.

[121] Whether within a corporate structure or not, the underlying relationship, rights and obligations of partnership or quasi-partnership would be recognised. In either case, somewhat ironically perhaps, the remedy of restraining the exercise of a legal power to expel a person is typically granted in the context of his or her application to wind up the association.

[122] 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.

[123]    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.

273. The reference in [120] above to the intended transfer of shares to the minority investors appears to be a reference to the fact that the original arrangement had been that the appellants would receive shares in the corporate trustee (at [94]).

274. It is clear from [123] that the ‘novel’ argument based on Ebrahimi was not ultimately pressed. The observations of Dodds-Streeton JA at [120]-[122], which are obiter dictum, appear to be no more than a recognition that mutual fiduciary duties can apply, on the facts of the particular relationship, between persons who are investors in a unit trust notwithstanding that the structure they have chosen is a unit trust, rather than a partnership.

275. The plaintiffs have not pleaded that the relationship between the Carrs and the Ritossas was a fiduciary relationship. Nor would such an argument be open on the evidence. A fiduciary relationship requires the assumption of responsibility to act for, or on behalf of, the interests of another, in the exercise of any power of discretion affecting the interests of the principal in a legal or practical sense: Commissioner of State Taxation v Cyril Henschke Pty Ltd (2010) 242 CLR 508; [2010] HCA 43 at [21]. The evidence does not support the suggestion that the Ritossas assumed such a responsibility to the Carrs, or vice versa. Further, the Carrs and Ritossas expressly rejected the use of a partnership in May 2010 and cl 3.1 of the Trust Rules disclaims a partnership relationship.

276. The observations of Dodds-Streeton JA also need to be read in light of the decision in Ebrahimi itself, which concerned an application to wind up a company on the just and equitable ground (found in the Australian context in s 461 of the Corporations Act). The case concerned a small private company which conducted a business which had previously been conducted by a partnership between the appellant (a minority shareholder) and one of the majority shareholders. After the appellant was removed as a director by the majority, he brought a petition to wind up the company on the just and equitable ground and succeeded.

277. Lord Wilberforce said (at 379) that it is impossible to set out exhaustively the circumstances in which, on the just and equitable ground, the exercise of legal rights will be subject to equitable considerations but said that typically there will be one or more of the following elements:

(i) an association formed or continued on the basis of a personal relationship, involving mutual confidence — this element will often be found where a pre-existing partnership has been converted into a limited company;

(ii) an agreement, or understanding, that all, or some (for there may be ‘sleeping’ members), of the shareholders shall participate in the conduct of the business;

(iii) restriction upon the transfer of the members’ interest in the company — so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.

278. Lord Wilberforce then added (at 379-380):

It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves. To refer, as so many of the cases do, to “quasi-partnerships” or “in substance partnerships” may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist: the words “just and equitable” sum these up in the law of partnership itself. And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure. But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.

279. The application of these principles directly to the present case is not open because the plaintiffs have not brought an application to wind up Darbalara Holdings on the just and equitable ground under s 461 of the Corporations Act. Had they done so, and an order was made to wind up the company, there would have been an argument available to them that a receiver should be appointed to the trust property under s 67 of the Supreme Court Act or the inherent jurisdiction of the court relying on the principles stated in Ebrahimi: see Re Admiral Cove Pty Ltd [2023] VSC 537 at [65]; Re Munja Bakehouse Pty Ltd [2024] NSWSC 6 at [30]; cf Mir v Mir at [121].

280. Accurate Financial Consultants was referred to in Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 at [17] in the context of a discussion of the circumstances in which a court will make a winding up order under s 461 on Ebrahimi principles, and does not support the plaintiffs’ present submission.

281. In Capelli v Shepard, the third case relied on by the plaintiffs, the Court made an order to wind up a managed investment scheme under s 601ND(1)(a) of the Corporations Act which permits such an order where ‘the Court thinks it is just and equitable to make the order’. The primary judge made the order because the managed investment scheme was insolvent and this conclusion was affirmed on appeal: see [2010] VSCA 2 at [101], [104].

282. The Court of Appeal (Dodds-Streeton and Mandie JJA, Byrne AJA) considered that the case law on the winding up of companies on the just and equitable ground informs the application of s 601ND(1)(a) and said (at [109], footnotes omitted):

The winding up of schemes on the “just and equitable” ground in s 601ND(1)(a) of the Act is derived from a traditional ground for winding up in corporations law. Although the just and equitable ground in corporations law originally tended to be confined to categories established by precedent, the House of Lords’ decision in Ebrahimi v Westbourne Galleries Ltd established its broad and ambulatory character. It confers a very wide discretionary power, which is applicable both in established and novel contexts. The situations which have characteristically invoked the application of the just and equitable ground in corporations law include (relevantly to the present case) the breakdown of the parties’ fundamental trust and confidence in a corporate quasi-partnership; the exercise of powers in a way entirely outside the parties’ original contemplation; deadlock; and failure of the substratum of the enterprise, in the sense of conduct entirely outside the general intention and common understanding of the members when they became members.

283. Those observations, directed as they are to s 461 and s 601ND of the Corporations Act, provide no assistance to the plaintiffs’ application for the appointment of a receiver under a different statute or the inherent jurisdiction of the Court.

284. For these reasons, in my opinion this is not a case in which the Court can or should appoint a receiver to in effect wind up DPT.

Conclusion

285. For the above reasons, I have concluded:

1. The alleged Representation and Ongoing Representations were not made, and accordingly the plaintiffs have not established the alleged oral agreement or estoppel case.

2. The plaintiffs’ construction of cll 2 and 16 of the Trust Rules is not correct. Accordingly, DRCH is not entitled to require the Trustee to wind up the Trust or to call for its proportion of the capital of the Trust.

3. The plaintiffs have not made out their case that the conduct of the affairs of Darbalara Holdings has been conducted oppressively, and no order should be made under s 233 of the Corporations Act.

4. The plaintiffs have not established that a receiver should be appointed to the Trust property and sell it and distribute the net proceeds to the unit holders.

286. The parties did not make submissions on costs. As the defendants have been wholly successful, it seems to me that the appropriate costs order is that the plaintiffs pay the defendants’ costs, on the ordinary basis as agreed or assessed. However, I propose to give an opportunity to the parties to make further submissions as to the appropriate order as to costs within seven days. I will also give the parties liberty to apply on 3 days’ notice in the event that an issue arises from this judgment which needs to be raised with the Court.

287. Accordingly, the Court will make the following orders:

1. The Amended Summons is dismissed.

2. Unless an application for a different order is made in writing to my Associate within 7 days, the plaintiffs are to pay the defendants’ costs of the proceedings on the ordinary basis, as agreed or assessed.

3. Liberty to apply on 3 days’ notice.

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Amendments

05 September 2024 - Correction to paragraph [167].

Decision last updated: 05 September 2024