Daylien Pty Ltd v Cordil Holdings Pty Ltd - [2002] WASC 188

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: DAYLIEN PTY LTD -v- CORDIL HOLDINGS PTY LTD & ANOR [2002] WASC 188

CORAM: ROBERTS-SMITH J

HEARD: 19 JULY 2002

DELIVERED : 19 JULY 2002

FILE NO/S: CIV 1985 of 2002

BETWEEN: DAYLIEN PTY LTD
Plaintiff
AND
CORDIL HOLDINGS PTY LTD
First Defendant
BERNICE MAC PTY LTD
Second Defendant

Catchwords:

Interlocutory injunction - Windingup of trust - Principles to be applied - Application granted on filing of personal undertaking by applicant

Legislation:

Trustees Act 1962 (WA), s 90

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff:     Mr P H Pope
First Defendant             :     Mr A P Rumsley
Second Defendant         :     Mr S J Blyth

Solicitors:

Plaintiff:     Hammond Worthington
First Defendant             :     McKie & Associates
Second Defendant         :     Lewis Blyth & Hooper

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

Glenister v Glenister [2002] WASC 133
Mott v Mount Edon Gold Mines (Aust) Ltd & Ors (1994) 2 ACLC 319

Case(s) also cited:

Nil

ROBERTS-SMITH J: By notice of motion for interlocutory injunction dated 18 July 2002 and filed that day the applicant ("Daylien") seeks orders including, in particular, that the first defendant as trustee of the Mac Unit Trust ("the Trust") be restrained and an injunction be granted restraining it from acting upon the resolution of the unit holders of the Trust dated 17 April 2002 as varied by a resolution of the unit holders of the Trust dated 27 June 2002 to commence the winding‑up of the Trust on 14 July 2002.
Daylien commenced an action in this matter by originating summons for an order pursuant to s 90 of the Trustees Act 1962 (WA) ("the Trustees Act") filed on 12 July 2002. That summons sought, principally, an order approving a variation of the Trust Deed of the Trust such that the trustee be empowered to make an in specie distribution of the assets of the Trust to unit holders.
According to the originating summons, the grounds upon which the plaintiff would rely in seeking that and associated orders are as follows:
(1)the unit holders of the Trust have resolved that it should be wound up;
(2)at present the trustee does not have power to make an in specie distribution of the assets of the Trust to unit holders upon a winding‑up of the Trust or otherwise;
(3)the plaintiff will be severely prejudiced and will lose his (sic) primary source of income if the assets of the Trust have to be sold in order to effect a winding‑up of the Trust; and
(4)the other unit holders of the Trust will not be prejudiced in any way by a variation of the Trust Deed as sought by the plaintiff.
Daylien's solicitors, Hammond Worthington, have filed a certificate in accordance with the practice direction of 22 March 1990 as to the urgent nature of this application, and Daylien has filed the usual undertaking as to damages dated 17 July 2002. Events seem somewhat to have overtaken the ex parte nature of the application for the interim injunction insofar as there have been appearances both for the trustee, Cordil Holding Pty Ltd, the first defendant, and for the second defendant, Bernice Mac Pty Ltd, and in addition to that there has been an affidavit filed on behalf of the second defendant.
Four affidavits have been filed in support of the application. They are:
(1)that of William Bernard McSharer sworn on 11 July 2002;
(2)the affidavit of Janette Elizabeth McSharer sworn on 11 July 2002;
(3)a further affidavit of William Bernard McSharer sworn on 17 July 2002; and
(4)an affidavit of Matthew Paul Ellis sworn on 18 July 2002.
As I have indicated, just prior to the hearing this morning, Lewis Blyth and Hooper, the solicitors for the second defendant, filed an affidavit on behalf of the second defendant from Mrs Bernice McSharer ("Mrs B McSharer"), sworn today.
I shall first briefly address the principles to be applied on an application of this nature. The application is made under O 52 of the Rules of the Supreme Court. The general principles applying to applications for interim or interlocutory injunctions, were enunciated by Owen J in Mott v Mount Edon Gold Mines (Aust) Ltd & Ors (1994) 2 ACLC 319 at 321. They may be summarised in these terms:
(1)the applicant must first satisfy the Court there is a serious question to be tried;
(2)if there is a serious question to be tried, an injunction will not be granted if common law damages would be an adequate remedy;
(3)if there is a serious question to be tried, and damages would not be an adequate remedy, the Court must then consider whether the balance of convenience lies in favour of granting or refusing the relief sought;
(4)when considering the balance of convenience, it is appropriate for the Court to take into account the relative strengths and weaknesses of the applicant's case; and
(5)at such a hearing the Court should not attempt to decide factual conflicts that arise from the affidavit material and nor should it determine difficult questions of law which require detailed argument.
I turn to the factual situation as it may be gleaned from the affidavit material before me. It is convenient to begin with the affidavit of William Bernard McSharer, to whom I will refer for convenience as Bill McSharer. He is a director of Daylien, which is a trustee of the W.B. McSharer Family Trust, and is the holder of just over 372,000 units in the Trust.
The other unit holders are the second defendant as trustee for the McSharer Family Trust, which holds 372,000 plus units in the Trust, that being a number some 100 or so short of the number of units held by Daylien, and Janette McSharer, who holds 10 units in the Trust. Mrs B McSharer is a director of the second defendant.
As I have indicated, Cordil Holdings Pty Ltd is the trustee for the Trust. The directors of the trustee are Bill McSharer, Mrs B McSharer and Edward Thacker. That last is the chairman of the board of directors and was appointed in that capacity by a resolution of shareholders dated 19 November 1999. I am informed from the bar table that the reason for Mr Thacker's appointment was because by that time differences had arisen between the other two directors and it was becoming - or had become - difficult, if not impossible, to arrive at an agreement. His appointment was apparently made to provide a means of breaking such deadlocks.
According to Bill McSharer's affidavit dated 17 July, the most significant assets of the Trust are:
(1)149 sea‑zone rock lobster pot entitlements currently valued at between $25,000 and $30,000 per pot;
(2)a fishing boat, LFBG97, "Kate Mac", valued at between $350,000 and $400,000 (his estimation of the value in his first affidavit was that it was approximately $400,000); and
(3)plant, equipment and cash at hand to a value of between $150,000 and $250,000 (again, in his first affidavit he stated that the value was approximately $250,000).
Daylien is contracted with the Trust to operate the crayfishing business pursuant to a share‑fishing agreement, a copy of which is annexed to Bill McSharer's affidavit of 11 July. He deposes that he is a licensed crayfisherman and has been since 1977 and, through Daylien, runs the operations of the Trust crayfishing business. Janette McSharer is his wife.
Since about March 2002 Mrs B McSharer (his mother) and he have been in discussions about the prospect of winding up the Trust. He deposes that on 17 April this year the three of them reached agreement in broad terms that they would have an in specie distribution of the Trust assets and would wind up the Trust. He goes on to say that from his own perspective Daylien would never have agreed to wind up the Trust were it not for this in‑principle agreement between the parties for an in specie distribution of the assets.
This particular proposition is strongly contested in the proceedings before me today. For the second defendant, it is said that there was never any such agreement and that Mrs B McSharer has never agreed to an in specie distribution, whether in‑principle nor otherwise.
To return to Bill McSharer's affidavit, he deposes that originally the parties set 1 July as the date to commence the winding-up of the Trust because there was a need to consider their respective positions and take advice as to the taxation and other implications of the distribution. It seems to be common ground that the parties went their own way and obtained their own legal advice and taxation advice in relation to the possible outcomes.
Before passing further I should, I think, refer to the resolution of 17 April 2002. This appears as annexure WBM3 to Bill McSharer's first affidavit. It was a resolution of the unit holders of the Trust, they being Mrs B McSharer, Bill McSharer and Janette McSharer. The resolution was that in the absence of any other unanimous agreement of the unit holders, the Trust be wound up at 1 July 2002 provided, however, that the assets of the Trust not be sold at public auction. It is apparent from what I have said there is no reference in the resolution to a distribution in specie and indeed the clear implication is that the assets of the Trust are to be sold.
Bill McSharer, in his affidavit, deposes that there had been extensive negotiations between the parties as to how the Trust should be wound up and he annexes to the affidavit letters from a series of correspondence to and from the respective solicitors. It seems to be common ground that in the end no agreement was reached between the parties and indeed that is why the matter became the subject of the originating summons and further, how it came to be the subject of the application presently before me.
There was a meeting of the trustee on 19 June 2002 and the outcome or discussion in the course of that meeting is reflected in the unsigned minutes of the meeting which are annexed to Bill McSharer's affidavit. Under the heading "Wind-up of Trust", the minutes show that Bill McSharer moved that the trustee resolve to amend the Trust Deed dated 25 March 1987 to provide for a capacity to distribute in part or in whole in specie any interest held in the Trust. The motion was seconded by Mr Thacker but Mrs B McSharer voted against it.
Bill McSharer then moved the trustee convene a unit holders' meeting in accordance with the provisions of the Trust document for the unit holders to consider a number of motions. The first was to vary the Trust Deed in terms similar to those I have just mentioned or, in the alternative, that the resolution for the winding-up of the Trust dated 17 April 2002 be set aside or, in the alternative again, that the effective date for the winding‑up of the Trust in accordance with the resolution of 17 April be set aside until the matters described in the foregoing motions were resolved by the unit holders or determined by this Court, and finally, that the unit holders consider the appointment of an auditor for the years 2000 to 2002 inclusive.
Again the motion was seconded by Mr Thacker. Mrs B McSharer abstained on the grounds that there was a resolution before the trustee already. Bill McSharer moved that the resolution adopted by the trustee in its meeting of directors on 31 May 2002 describing the procedures to undertake the winding‑up be set aside until the matters the subject of the foregoing motions were determined. Both Mr Thacker and Mrs B McSharer are shown as voting against that motion. Bill McSharer then moved that the trustee make application to this Court for orders that the winding‑up of the Trust pursuant to the unit holders resolution of 17 April be set aside until the issues outlined above were determined.
Again Mr Thacker and Mrs McSharer voted against the motion. The minutes show that at that point Bill McSharer noted that Daylien intended to forthwith apply to this Court for a variation to the Trust Deed to provide the trustee with capacity to undertake an in specie distribution of the Trust interest if so requested by that unit holder. He further stated that Daylien was prepared to resolve the matter without going to this Court if it was possible to arrange for an in specie distribution to Daylien which would not disadvantage the second defendant in any way and the matter could be resolved by 31 July 2002.
There was some discussion about the potential costs of an ongoing legal battle about these matters. Under the heading "Other Business" the minutes record there was significant discussion between Bill McSharer and Mrs B McSharer, during which an in‑principle agreement was reached on an in specie distribution to both parties. Once again, there then followed correspondence between the parties' solicitors.
Bill McSharer, in his affidavit dated 17 July, deposes that a meeting of unit holders of the Trust took place on Friday, 12 July 2002, at which time he, on behalf of Daylien, moved a resolution that the deed be varied to provide the trustee with the capacity to distribute the assets of the Trust in specie, in part or in whole. That resolution required the unanimous vote of the unit holders and it was not passed. Subsequently at the same meeting an ordinary resolution was passed in the following terms:
"Resolved that the effective date for the winding (sic) of the Mac Unit Trust in accordance with the resolution of unit holders dated 17 April 2002, be suspended until either:
(a)The Mac Unit Trust Deed dated 25 March 1987 is varied to provide a capacity to distribute in part or whole any species in interest held within the trust; or
(b)The resolution for the winding up of the Mac Unit Trust dated 17 April 2002 be set aside; or
(c)The matters as described in (a) or (b) above are resolved by the unit holders or determined by the Supreme Court of Western Australia.
whichever comes first."
Once again there was subsequent correspondence. I think for present purposes it is sufficient to say that it generally reflects ongoing negotiations which in the end did not result in any agreement and evidenced ultimately a desire on the part of Mrs B McSharer - I should say an intention, rather, on the part of Mrs B McSharer and the second defendant, to compel the trustee to proceed in accordance with the resolution of 17 April 2002 on the basis that the subsequent ordinary resolution could not override it and the trustee was under an obligation to comply with the resolution of 17 April.
So far as is presently pertinent, Mr Bill McSharer's affidavit concludes at pars 26 and 27 that if the winding‑up were to proceed on 14 July 2002 (which of course is now otiose - the apprehension is that it will proceed following a meeting on Monday next week), without the trustee having the power to make an in specie distribution, he will be severely prejudiced.
He states that he is a crayfisherman and this is his primary source of income. He has worked as a crayfisherman for his livelihood since 1977. An in specie distribution from the Trust would mean that he would take the crayfishing licences and craypots and would be allowed to continue actively fishing. If the assets are sold and he receives a cash distribution he will in effect (he states), be deprived of the means of earning his livelihood. Bill McSharer's position is essentially supported by his wife Janette McSharer in her brief affidavit sworn 11 July.
As I have indicated, Mrs B McSharer makes it clear in her affidavit that so far as she and the second defendant are concerned, no agreement in principle nor otherwise was arrived at to amend the Trust Deed to provide for an in specie distribution of the Trust assets.
Her understanding of the outcome of the meeting at which that was said to have happened, namely, 17 April 2002, was that the parties had agreed to each seek their own tax and legal advice as to the effect of a winding‑up of the Trust and the sale of its assets. It was furthermore her understanding that in the absence of a unanimous agreement between the unit holders as to how the assets of the Trust would be disposed of, it would be wound up in accordance with the resolution of 17 April.
She refers to cl 58(2) of the Trust Deed, which provides that a deed of variation made pursuant to that clause shall not take effect until it is ratified within 60 days thereafter by a unanimous resolution of all the unit holders, and if it is not so ratified within that period, it shall be null and void. She deposes, against that background, that she has no intention of voting in a manner which would result in any unanimous resolution providing for the varying of the Trust Deed to allow for an in specie distribution of Trust assets.
Furthermore, she deposes at par 5(y) that if the Trust Deed is varied granting the trustee power to effect an in specie distribution of Trust assets, then the trustee could either purposely or inadvertently cause her severe financial detriment. An in specie distribution may result, she says, in one or other of the unit holders effectively becoming liable for a capital gains tax liability in that after the distribution of assets to one unit holder, the trustee and thereafter the remaining unit holder will bear the capital gains tax liability.
She goes on to say that on the basis of the taxation advice given to her, the tax liability to which she may be exposed in that circumstance, (which would otherwise be the liability of Daylien), could be in the order of $800,000. She states that the appropriate way to effect a winding‑up of the Trust is to sell the assets, to have the trustee pay any tax liability in respect of the sale of the assets and to distribute the net proceeds of sale to the unit holders, thus resulting in the unit holders bearing equally any taxation liability that may arise.
She deposes that Daylien may receive a distribution in the order of not less than approximately $1.5 million, if the assets were realised and the proceeds distributed, then that would enable the purchase of an alternate fishing vessel, craypots and licences. A further compelling reason, she says, why the Trust should be wound up and the assets sold is because it is patently apparent now that the unit holders no longer have an amicable relationship, or, to put it in her words, they "cannot get on".
There is clearly a very high degree of animosity between the parties and indeed she states that notwithstanding the fact that Bill McSharer is her son, their relationship is so strained that she is unable to civilly speak with him face to face about any matter and has thus engaged solicitors for discussions on her behalf. Finally, she reiterates that it remains her position, and thus of the second defendant, that she wishes the trustee to proceed with the sale of the assets, and that should now happen as the agreed date for the winding-up has passed.
At par 7 of Mrs B McSharer's affidavit she refers to the undertaking as to damages filed by Daylien and deposes that to the best of her knowledge, information and belief Daylien is a trustee company holding no assets in its own right and that the undertaking thus granted is of no value.
So far as Daylien's undertaking as to damages is concerned, the only evidence as to the worth of that comes from Mrs B McSharer. I appreciate that late notice was given of that and Daylien has not had an opportunity to respond. Nonetheless, I am prepared to say at this stage that I would not grant injunctive relief without a further undertaking from Bill McSharer personally, an undertaking which I understand from Mr Pope that he is prepared to provide.
I come first then to the issue whether there is a serious question to be tried. The question Daylien seeks to have tried in the proceedings is whether the Trust Deed should be varied to empower the trustee to make an in specie distribution on the ground that Daylien will be severely prejudiced and lose its primary source of income if the Trust assets have to be sold.

There are a number of considerations here. The first I think is whether the application has any foundation in law. It purports to be made under s 90 of the Trustees Act. That section provides as follows:
"(1) Without limiting any other powers of the Court, it is hereby declared that, where any property is held on trusts arising under any will, settlement or other disposition, or on the intestacy or partial intestacy of any person, or under any order of the Court, the Court may, if it thinks fit, by order approve on behalf of -
(a)any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who, by reason of infancy or other incapacity, is incapable of assenting; or
(b)any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being, at a future date or on the happening of a future event, a person of any specified description or a member of any specified class of persons; but this paragraph does not include any person who would be of that description or a member of that class, if that date had fallen or that event had happened at the date of the application to the Court; or
(c)any unborn or unknown person; or
(d)any person, in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined,
any arrangement (by whomever proposed, and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts."
Subsection 1(a) does not apply. Daylien is obviously not a person incapable of assenting by reason of infancy or other incapacity. Subsection 1(b) does not apply because this is not a situation in which Daylien is a person who may become entitled to an interest under the trusts in the deed at a future date or on the happening of a future event. Subsection 1(c) does not apply. Daylien is not an unknown or unborn natural person.
Finally, there is I think some doubt whether Daylien could bring itself within the description in subs 1(d) as being a person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined, although without having had an opportunity to consider that, I accept it may well be arguable. For the purposes of this application I proceed on the basis that Daylien may be able to bring itself within subs 1(d).
Next, Mr Pope submits there is a serious question to be tried because if the Trust is wound up by the sale of the assets and payment out to unit holders it will be seriously prejudiced, whereas there will be no prejudice to the second defendant if there is in specie distribution.
I accept that the Court may approve a proposal to vary a Trust if it is proposed in order to gain a taxation advantage (see Hasluck J in Glenister v Glenister[2002] WASC 133).
It would also follow that a variation could properly be made where the lack of it would result in serious prejudice to a beneficiary. It is to be expected that such an application would often involve a weighing of competing interests and that a variation would not be approved where the making of it would likely cause serious prejudice to other beneficiaries or be futile.
In the present case there is competing evidence from the plaintiff and the second defendant on the question of prejudice which would flow from the refusal or approval of the variation. There is also considerable evidence about the negotiations between the parties and their solicitors leading up to their present intractable positions. Whether that would be relevant to the exercise by the Court of its discretion under s 90 is itself a question.
In my view, there is a serious question to be tried. It cannot be said the application is frivolous or wholly lacking in prospects of success. I expressly make no finding about whether the application has merit or not beyond that which I am required to make on an application for an interim injunction. In that context I am prepared to say the application is at least arguable, and I turn to the question whether damages would be an adequate remedy.
The central proposition underlying the action by Daylien is that if the Trust assets are sold rather than distributed in specie, Daylien will lose its capacity to earn a livelihood, in essence, for Bill McSharer. In that circumstance it seems to me damages would not be an adequate remedy. Even with the money, were the assets to be sold and the money distributed, Daylien could not compel any new owner to sell the particular assets to Daylien. There is no evidence before me as to Daylien's and Brian McSharer's prospects of continuing to generate income from fishing other than the assertion in his affidavit that it would be lost.
I turn to the balance of convenience - by that, I refer to the injury or loss the respondent would suffer if the injunction is granted measured against that which the applicant might suffer if the injunction were refused. If the injunction is not granted and the winding‑up proceeds on the basis that the Trust assets are sold and the money distributed, the whole action initiated by the originating summons would be made nugatory. It would be wholly defeated at the outset. A consequence is also said to be that Daylien would lose its capacity to provide that livelihood for itself and to Bill McSharer.
On the other hand, what the second defendant and Mrs McSharer want is sale of the assets and distribution of the cash. If in the end result Daylien's action were to fail, then even if the interim injunction were granted in the meantime, that is exactly what they would get - the proceeds of sale. Mr Blyth submitted that if the sale were delayed by reason of an interim injunction, Mrs McSharer could potentially lose up to $100,000 interest per annum, and if the variation were made and the Trust winding‑up were to proceed by an in specie distribution, then she, through the second defendant, could potentially have a capital gains tax liability in the order of $800,000 which she would not otherwise have had.
The first of those could be met by calling on the plaintiff's undertaking. That is the very purpose for which such undertakings are required. The second, it seems to me, is a consideration which, if properly founded in evidence of the trial on the originating summons, would be a significant factor in the Court determining whether to approve the variation or not. If it were not approved because of that potential consequence, the problem would not arise. If the variation were to be approved, that would presumably only be on the basis the Court was not satisfied the problem would arise at all or, not to the extent suggested.
Finally on this aspect, I accept Mr Pope's submission that it has not been shown the second defendant would suffer undue prejudice immediately from the granting of the interim injunction as opposed to what may flow in due course from a variation of the Trust Deed, were that approved. Injunctive relief is a discretionary remedy. I mention that here specifically because of the submission made on behalf of the second defendant, that to grant the injunction would be futile because the approval of the variation would be futile. That is said to be so because the second defendant is completely opposed to a distribution in specie, has opposed it in the past and will continue to do so. The importance of that position is that even if the variation were made, the trustee could not act on it to effect a distribution in specie unless there was unanimous agreement of the shareholders, which, it is said, there would not be.
That submission has given me pause. In the end I have come to the conclusion it is a consideration which should bear upon the discretion of the Court asked to determine the primary application. Furthermore, it is apparent from the limited material before me that the second defendant and Mrs McSharer have engaged in negotiations in the past which contemplate distribution in specie but it does not reveal in any clear nor detailed way what their reasons are for having arrived at a rejection of that idea. They may possibly change. I would not decline to grant injunctive relief on that ground. The injunction itself, in my view, would not be a futile exercise.
For the above reasons I shall grant the application for an interim injunction, but only on the filing of a personal undertaking in the usual form from William Bernard McSharer.