Davy Jones Locker (WA) Pty Ltd as trustee for the Davy Jones Trust v Fremantle, Kwinana and Cockburn Sound Pilots Pty Ltd
[2021] WASC 177
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: DAVY JONES LOCKER (WA) PTY LTD as trustee for THE DAVY JONES TRUST -v- FREMANTLE, KWINANA & COCKBURN SOUND PILOTS PTY LTD [2021] WASC 177
CORAM: MASTER SANDERSON
HEARD: 18 MAY 2021
DELIVERED : 4 JUNE 2021
PUBLISHED : 4 JUNE 2021
FILE NO/S: CIV 2177 of 2020
BETWEEN: DAVY JONES LOCKER (WA) PTY LTD as trustee for THE DAVY JONES TRUST
Plaintiff
AND
FREMANTLE, KWINANA & COCKBURN SOUND PILOTS PTY LTD
Defendant
Catchwords:
Trusts and trustees - Unit trusts - Whether plaintiff's units carried right to distribution during relevant time period - Whether defendant paid full entitlement for plaintiff's units - Turns on own facts
Legislation:
Port Authorities Act 1999 (WA)
Result:
Originating summons dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | D J Pratt |
| Defendant | : | G M Slattery |
Solicitors:
| Plaintiff | : | Zafra Legal |
| Defendant | : | Squire Patton Boggs |
Case(s) referred to in decision(s):
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASC 112
MASTER SANDERSON:
John Simon Hoogerwaard, his partner Ms Hubbard and their children are the beneficiaries of the Davy Jones Trust. The defendant operates a marine pilotage business under the name 'Fremantle Pilots'. It provides marine pilotage services on behalf of the Fremantle Port Authority to commercial and naval vessels going into and out of Fremantle, Kwinana and Cockburn Sound ports. The defendant carries on business solely in its capacity as trustee of the Pilot's Unit Trust.
The terms of the Pilot's Unit Trust are set out in a deed dated 1 February 1994. A copy of that deed appears as Attachment JSH8 to an affidavit of Mr Hoogerwaard sworn 29 January 2021. (Certain amendments have been made to the Pilot's Unit Trust since 1994. Those amendments are not relevant to this application. The plaintiff's counsel provided a consolidated version of the Pilot's Unit Trust Deed during the course of the hearing. Counsel for the defendant indicated he had not had sufficient time to satisfy himself the document provided was in all respects accurate. It was, on that basis, received as an aide memoire. For the purposes of this application, I have worked off the version of the trust deed attached to Mr Hoogerwaard's affidavit).
Pilots employed by the defendant, or their associated entities, are allotted units in the Pilot's Unit Trust. Pilots employed by the defendant are paid a salary and unitholders in the Pilot's Unit Trust receive monthly and quarterly distributions of income in accordance with the trust deed. There is evidence to the effect that usually an amount of $15,000 per month and $40,000 per quarter are paid to the pilots. For the purposes of this application, the quantum of the payments is irrelevant.
Mr Hoogerwaard was employed by the defendant as a trustee marine pilot pursuant to an employment agreement dated 10 December 2013. On 28 May 2015, Mr Hoogerwaard obtained approval as an unrestricted marine pilot under s 96 of the Port Authorities Act 1999 (WA). Subsequently, the plaintiff was allocated one special unit in the Pilot's Unit Trust on or around 1 July 2015 and one ordinary unit in the Pilot's Unit Trust on or around 1 June 2016. It is common ground the plaintiff held these units until at least 15 October 2020, although the plaintiff contends that in fact he held them until 22 October 2020. Mr Hoogerwaard and the defendant fell into dispute in relation to matters related to his employment. By letter dated 20 March 2020, Mr Hoogerwaard resigned with effect from 19 April 2020 citing concerns in relation to the way in which a grievance process initiated by him had been handled. Prior to and certainly since his resignation, Mr Hoogerwaard and the defendant have had an acrimonious relationship. That acrimonious relationship seems to be what has given rise to this application.
On 15 October 2020, the defendant issued a Repurchase Notice to purchase the plaintiff's units for the sum of $144,459.45. That sum was paid on 22 October 2020. During the period between Mr Hoogerwaard's resignation on 19 April 2020 and the repurchase of the units on 22 October 2020, distributions of income continued to be made to unitholders, but not to the plaintiff. The plaintiff contends it was entitled to receive its proportionate share of income distributions to the unitholders during the relevant period. The defendant contends that upon Mr Hoogerwaard's resignation, the plaintiff's units no longer carried the right to distribution and consequently the plaintiff has been paid his full entitlement.
For reasons which follow, I am satisfied the defendant's position is to be preferred.
Before dealing with the provisions of the trust deed, I should say something of the applicable legal principles. There was no difference between the parties on this issue. Reference was made to the Court of Appeal decision in Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42] and JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASC 112 per Buss P and Vaughan JA [67] ‑ [72].
In pars 19 and 20 of his written submissions, counsel for the plaintiff provided a clear and concise analysis of the principles which arise from these two decisions. Those paragraphs read as follows:
19.The following principles are of particular relevance here:
19.1The construction of a contract involves determination of the meaning of the words of the contract by reference to its text, context and purpose.
19.2There are important limits on the extent to which evidence of surrounding circumstances (when admissible) can influence the proper construction of an instrument. Reliance on surrounding circumstances must be tempered by loyalty to the text of the instrument. Reference to background facts is not a licence to ignore or rewrite the text. The search is for the meaning of what the parties said in the instrument, not what the parties meant to say.
19.3There are also limits on the kind of evidence which is admissible as background to the construction of a contract, and the purposes for which it is admissible. Insofar as such evidence establishes objective background facts known to the parties or the genesis, purpose or objective of the relevant transaction, it is admissible. Insofar as it consists of statements and actions of the parties reflecting their actual intentions and expectations it is inadmissible. Such statements reveal the terms of the contract which the parties intended or hoped to make, and which are superseded by, or merged into, the contract.
19.4An instrument should be construed so as to avoid it making commercial nonsense or giving rise to commercial inconvenience. However, it must be borne in mind that business common sense may be a topic on which minds may differ. Nevertheless it is accepted that, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, even though the construction adopted is not the most obvious, or the most grammatically accurate.
19.5An instrument should be construed as a whole. A construction that makes the various parts of an instrument harmonious is preferable. If possible, each part of an instrument should be construed so as to have some operation.
19.6Definitions do not have substantive effect. A definition is not to be construed in isolation from the operative provision(s) in which the defined term is used. Rather, the operative provision is ordinarily to be read by inserting the definition into it.
19.7It is not legitimate to use anything which the parties said or did after a written instrument was made as an aid to the construction of it.
20.Further to the principle in paragraph 19.6:
20.1There is no rule of law or of construction of an instrument which requires a court to apply a definition where to do so would be at variance with a context or with a general intent to be gathered from the whole of the instrument.
20.2It is not the rule that defined terms inevitably bear every aspect of their defined meaning.
The Pilot's Unit Trust operates as a typical unit trust. The beneficial interest in the trust is divided into units and is vested in the unitholders for the time being: cl 5(a). A person who becomes registered as a unitholder is deemed to become a party to the trust deed and is entitled to the benefit and bound by the conditions of it: cl 5(b). A registered unitholder is entitled, together with all of the other registered unitholders, to a beneficial interest in the Trust Fund but is not entitled to any particular property comprised in the Trust Fund: cl 5(c). The defendant may distribute income of the Trust Fund for an income year to or for the benefit of the unitholders in proportion to the number of units for which they are registered as holders at the last day of that year of income: cl 22(a). The defendant may also make interim distributions of the distributable income of the Trust Fund to unitholders in respect of the units for which they are respectfully registered at the date of each interim distribution: cl 22(c).
Both parties agree the key feature which determines the entitlement to income distribution is registration as a unitholder at the relevant date of distribution.
The applicable provisions under the Pilot's Unit Trust Deed for the repurchase of units, consequent upon someone ceasing to be an approved pilot, operate in the following way. An 'approved pilot' is someone who has been approved under the relevant legislation and is employed by the defendant. Upon an individual unitholder ceasing to be an approved pilot, or in the case of a corporate unitholder, a shareholder ceasing to be an approved pilot, the unitholder is to request the defendant repurchase their units. The defendant must then repurchase their units. Really, the key to the definition of 'approved pilot' is the employment of the individual by the defendant. If, as in the case of Mr Hoogerwaard, a person resigns from employment with the defendant, he does not cease to be a pilot under the relevant legislation. But he does cease to be an 'approved pilot' under the Deed. The definition of 'approved pilot' is somewhat clumsy but clear enough in its terms.
The trigger mechanism for repurchase of the units by virtue of cl 13, requires further analysis. The clause reads as follows:
13.UNIT HOLDER CEASING TO BE AN APPROVED PILOT
(a)In the event that a Unit Holder:
(i)being an individual, ceases to be an Approved Pilot;
(ii)being a joint holder, a joint holder ceases to be an Approved Pilot;
(iii)being a company, a shareholder in that company ceases to be an Approved Pilot or a shareholder who is an Approved Pilot no longer holds at least 50% of the issued shares of the company
Then the Unit Holder shall immediately request the Trustee to repurchase and the Trustee shall repurchase all the Units held by the Unit Holder. The provisions of Clause 15 shall apply to the request for repurchase as if the request for repurchase was made by the Unit Holder under that Clause.
(b)Each of the Unit Holders irrevocably appoints the Trustee as the agent and attorney of the Unit Holder to sign and lodge the request for repurchase pursuant to this Clause.
The clause makes it clear that, once a person ceases to be an 'approved pilot', the repurchase of the units is automatic. Although the clause speaks in terms of the unitholder making a 'request for repurchase', in fact cl 13(b) takes the matter out of the unitholders' hands. Furthermore, the request for repurchase operates immediately an individual ceases to be an 'approved pilot'. In this case, that would be 19 April 2020. Mr Hoogerwaard gave notice of his resignation in March 2020, but it did not take effect until April 2020. So as of the date of the termination of his employment, he had, consistent with the terms of the unit trust deed, requested repurchase of his units.
Clause 15 deals with 'repurchase and cancellation of units'. It is in the following terms:
15.REPURCHASE AND CANCELLATION OF UNITS
(a)The Trustee may in the Trustee's discretion at the request in writing of Unit Holder and upon compliance with the following provisions repurchase any Unit referred to in that request and the purchase price payable by the Trustee for that Unit will be as determined in accordance with Clause 17 or such other price as the Unit Holders may on each occasion determine by unanimous resolution.
(b)A request pursuant to this clause:
(i)must be accompanied by the relevant Unit Certificate;
(ii)may refer to more than one Unit and in that case will operate as a separate request in respect of each of those Units; and
(iii)is not revocable in respect of any Unit the Trustee elects to repurchase pursuant to this clause.
(c)If the Trustee elects to comply with the request then within thirty (30) days (or such further time as the Trustee reasonably requires to enable a price to be determined) after the receipt of the request the Trustee must furnish to the Unit Holder a statement in writing specifying which of the Units specified in the request the Trustee has elected to repurchase and the price of each Unit as determined in accordance with Clause 17 or as determined by the unanimous resolution of all the Unit Holders as the case may be.
(d)Within thirty (30) days after furnishing the statement referred to in paragraph (c) the Trustee must repurchase the Unit which the Trustee has elected to repurchase for the price of that Unit set out in that statement.
(e)Upon a repurchase by the Trustee pursuant to this clause the Trustee may:
(i)realise or release sufficient portions of the Trust Fund (in cash or investments) to provide the repurchase price;
(ii)raise or borrow sufficient sums to provide the repurchase price; or
(iii)effect a combination of the powers set out in sub‑paragraphs (i) and (ii).
Clause 15(a) provides two ways in which a value can be placed on the units. Either resort will be had to cl 17, or the unitholders may determine the price by unanimous resolution. In this case, there was no resolution by the unitholders and determination of the value was undertaken in accordance with cl 17. Subclauses (c) and (d) set out a timeframe for repurchase. A notice of valuation is to be provided within 30 days, and 30 days thereafter, the price specified in the notice is to be paid. Given that the Notice of Repurchase issued under cl 13 operates immediately upon an individual ceasing to be an 'approved pilot', it would appear payment for the units must be made 60 days thereafter.
Clause 17 is headed 'Valuation'. It reads as follows:
17.VALUATION
(a)Subject to any rights privileges or limitations attaching to any particular class of Units the price of a Unit for the purposes of paragraph 6(b) and Clause 15 and the value of a Unit for the purpose of sub-paragraph 22(d)(v) is the sum arrived at by dividing:
(i)in the case of Clause 15 the number of Units issued at the Relevant Date; and
(ii)in the case of paragraph 6(b) and sub-paragraph 22(d)(v) the number of units issued at the Relevant Date and the number of Units proposed to be issued
Into such sum as is ascertained and fixed by the Trustee as the value of the Trust Fund at the Relevant Date.
(b)The value of the Trust Fund at the Relevant Date shall be the combined total of the Market Value of the real and personal property comprised in the Trust Fund at that time and of the amount of all trading Income interest distributions and dividends received accrued or due and payable on the day prior to the Relevant Date less:
(i)an amount not exceeding THREE per centum (3%) of that combined totals the Trustee considers would reasonably be required to meet the costs and disbursements commissions brokerage and other usual fees which would have been incurred on the sale or disposal of the real and personal property comprised in the Trust Fund on the Relevant Date if that property had been sold or disposed of on that date;
(ii)the amount of all moneys owing by the Trust Fund whether due and payable or not; and
(iii)an amount the Trustee thinks necessary or desirable to provide for any contingent liability.
The mechanism for valuing the units in cl 17 is to determine the value of the Trust Fund at the relevant date, being the date of request for repurchase: see cl 2. That sum is then divided by the number of units on offer at the relevant date. The defendant's valuation of the unit under cl 17 is final and binding on all parties: cl 18. Upon the units being repurchased, the defendant is to cancel the relevant unit certificates and amend the register of unitholders accordingly: cl 16(a).
Against that background, the plaintiff's originating summons relevantly seeks the following:
1.A declaration that, on a proper construction of the Deed of Trust dated 1 February 1994 (Trust Deed) for the Pilot Unit Trust (Trust), the Plaintiff:
1.1ceased to be a unit holder of the Trust on 22 October 2020; and
1.2is entitled to be paid its proportionate share of all interim distributions of Distributable Income (as that term is used in the Trust Deed) made by the trustee of the Trust during the period 1 April 2020 to 22 October 2020.
The plaintiff frames the question in this way. What has to be determined is whether the plaintiff ceased to be a unitholder when its units were repurchased pursuant to cl 15, or upon Mr Hoogerwaard ceasing to be employed by the defendant. The plaintiff says the mechanism for repurchase of the units draws a distinction between the relevant date for the purpose of valuation, being the date of request for repurchase, and the date of repurchase which triggers the obligation on the part of the defendant to cancel the repurchased units and amend the register of unitholders. That means the rights and entitlement of the unitholder only cease upon the repurchase and cancellation of registration as a unitholder.
The defendant answers the plaintiff's claim by making three points. First, the mere fact of holding a unit certificate in the trust or being noted on the trust to register as holding a unit certificate, does not, without more entitle a person to all the rights and benefits of a unitholder under the trust deed. When a right is specified as applying to a unitholder, it is only when a person meets the defined elements of a unitholder at the time in question that they become entitled to the rights and benefits reserved for unitholders under the trust deed.
Second, the defendant may only make distributions of distributable income to a unitholder. The plaintiff ceased to be a unitholder on 19 April 2020.
Third, the plaintiff's case relies upon the court not applying the define meaning of unitholder in multiple clauses of the trust deed simply on the basis that, on the plaintiff's case, it is a preferable and more commercial interpretation not to apply that definition. The defendant says there is no principle of construction that supports ignoring the defined meaning of a term in these circumstances.
In my view, the defendant's submissions are to be preferred. The definition of 'Unit Holder' requires that such a party be an 'approved pilot'. Once a party ceases to fall within the definition of 'approved pilot', then they are no longer are unitholder. It follows then, distribution is not possible. It is the case the Unit Trust Deed embodies a mechanism for repurchase of the units. The mechanism provides for the former approved pilot to be compensated for units which they no longer hold. But that does not alter the fact the units are no longer held and there is no entitlement to a distribution. Focus must necessarily be upon 'unitholders' because it is only unitholders who are entitled to a distribution.
Both in his written submissions and his oral submissions, counsel for the plaintiff referred to the plaintiff's position as being akin to Schrodinger's cat. This reference is to the paradox in quantum mechanics when in certain given conditions, a cat can apparently be both dead and alive at the same time. What counsel was saying was that the defendant's position would have the plaintiff alive (as holder of the units) but at the same time dead (not entitled to a distribution as holder of the units). With respect to counsel, it was a clever analogy which does in some way capture the inconsistencies of the defendant's position. That said, the famous physicist Richard Feynman once said:
I think I can safely say that nobody understands quantum mechanics.
As part of its argument, the defendant submitted that this was not a case where the plaintiff could obtain the declaration it was seeking. Counsel in his written submissions put the position this way:
The court should refuse to make the unit holder Declaration as for the purposes of o 58 r 10 of the Rules of theSupreme Court 1971 (WA) it is not a question of construction arising under an instrument or a declaration of the rights flowing from a question of construction any written document. Further, the unit holder Declaration seeks declaratory relief in respect of a question which is purely hypothetical and academic and because of this the relief will not quell any controversy between the parties, and it ought to be refused on that basis.
With respect, this seems to me to be precisely the sort of case for which the originating summons process was designed. There are no issues of fact between the parties. There are two competing - and in my view, reasonably open - interpretations of the unitholders deed. The plaintiff properly brought these proceedings seeking a declaration as to his entitlement.
The plaintiff's originating summons will be dismissed. If the parties cannot agree as to costs, short submissions on that issue ought be filed within 7 days of the publication of these reasons.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to Master Sanderson
4 JUNE 2021
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