Financial Ombudsman Services Ltd v Utopia Financial Services Pty Ltd
[2016] WASC 55
•24 FEBRUARY 2016
FINANCIAL OMBUDSMAN SERVICES LTD -v- UTOPIA FINANCIAL SERVICES PTY LTD [2016] WASC 55
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 55 | |
| Case No: | CIV:1312/2013 | 7 & 8 MAY 2015 | |
| Coram: | LE MIERE J | 24/02/16 | |
| 31 | Judgment Part: | 1 of 1 | |
| Result: | Action by plaintiff successful Counterclaim dismissed | ||
| B | |||
| PDF Version |
| Parties: | FINANCIAL OMBUDSMAN SERVICES LTD UTOPIA FINANCIAL SERVICES PTY LTD SHELLEY CRADDOCK |
Catchwords: | Contracts Breach of contract Specific performance Clean hands Contracts Meaning of determination Implied term Wednesbury unreasonableness Agreement to arbitrate Terms of reference Presumption of regularity Turns on own facts |
Legislation: | Corporations Act 2001 (Cth) Superannuation Industry (Supervision) Act 1993 (Cth), s 109 |
Case References: | Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd [2014] VSCA 179; (2014) 288 FLR 374 Darley Australia Pty Ltd v Walfertan Processes Pty Ltd [2012] NSWCA 48; (2012) 188 LGERA 26 Knox County v Ninth National Bank 147 US 91 (1893) McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835 Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185; (2012) 36 VR 456 Patersons Securities Ltd v Financial Ombudsman Service Ltd [2015] WASC 321 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
UTOPIA FINANCIAL SERVICES PTY LTD
First Defendant
SHELLEY CRADDOCK
Second Defendant
Catchwords:
Contracts - Breach of contract - Specific performance - Clean hands
Contracts - Meaning of determination - Implied term - Wednesbury unreasonableness - Agreement to arbitrate - Terms of reference - Presumption of regularity - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth), s 109
Result:
Action by plaintiff successful
Counterclaim dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr M Wise
First Defendant : Mr S Owen-Conway QC & Mr C Slater
Second Defendant : No appearance
Solicitors:
Plaintiff : Arslan Lawyers
First Defendant : Morgan Alteruthemeyer
Second Defendant : No appearance
Case(s) referred to in judgment(s):
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223
Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd [2014] VSCA 179; (2014) 288 FLR 374
Darley Australia Pty Ltd v Walfertan Processes Pty Ltd [2012] NSWCA 48; (2012) 188 LGERA 26
Knox County v Ninth National Bank 147 US 91 (1893)
McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835
Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185; (2012) 36 VR 456
Patersons Securities Ltd v Financial Ombudsman Service Ltd [2015] WASC 321
- LE MIERE J:
Summary
1 The plaintiff, Financial Ombudsman Services Limited (FOS), is a company that provides an external dispute resolution service for the financial services industry. The first defendant, Utopia Financial Services Pty Ltd (Utopia), is a company that carries on a financial services business and is a member of FOS. The provisions of the FOS Constitution and its relevant Terms of Reference form a binding contract between Utopia and FOS.
2 The second defendant, Dr Craddock, lodged a complaint with FOS about inappropriate financial advice given to her by Utopia and Utopia's conflict of interest in giving the advice. On 12 March 2012, an FOS Panel issued a written determination with respect to Dr Craddock's complaint (the Determination). On 8 May 2012, the FOS Panel issued a supplementary determination in respect to the complaint (the Supplementary Determination). I will refer to the Determination and Supplementary Determination collectively as the Determinations. By the Determinations, the FOS Panel upheld Dr Craddock's complaint and directed Utopia to pay compensation in relation to the investment of Dr Craddock and her self-managed superannuation fund (SMSF) in the St Hilda's Friends Property Trust (SHF Property Trust), interest on the loan used for the acquisition of units in the SHF Property Trust and fees incurred in relation to the SMSF together with interest. The Determinations further directed Dr Craddock, upon payment of compensation, to assign to Utopia all of the rights and interests in respect of SHF Property Trust within 14 days of receiving a request from Utopia. Utopia has not paid the compensation.
3 FOS seeks an order for specific performance of its contract with Utopia requiring Utopia to pay compensation to Dr Craddock or her account in her nominated superannuation fund in accordance with the Determinations. Utopia submits that the court should refuse an order for specific performance because FOS has not made a determination within the meaning of an implied term of its contract with Utopia that the exercise of the contractual power to adjudicate Dr Craddock's complaint is not unreasonable in the Wednesbury sense and not the subject of an error of law. Utopia says that the unreasonableness or error of law arises because Dr Craddock cannot effect the assignment of all relevant rights and interests in the SHF Property Trust because she is not in a position as the owner of the relevant trust units free of the relevant pre-emptive conditions, nor an owner entitled to call for the units to be transferred to her. Utopia counterclaims for declarations that the Determination and the Supplementary Determination were directions which no reasonable tribunal could have properly come to on the evidence or alternatively were directions made when the FOS Panel made an error of law and would therefore be invalid or not capable of being enforced by orders of this court in the nature of specific performance or ought not be enforced by specific performance orders in the exercise of the court's discretion. Utopia says that the court should exercise its discretion not to award specific performance for two reasons. First, Dr Craddock cannot transfer the units in the SHF Property Trust to Utopia. Secondly, the transfer by Benchtop Productions Pty Ltd (Benchtop), the trustee of Dr Craddock's SMSF, to Dr Craddock of her SMSF's units in the SHF Property Trust was in breach of s 109 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).
4 Dr Craddock is joined to the proceeding as the party affected by the relief sought against Utopia but FOS seeks no relief against her and she has played no part in the proceedings. Before addressing the issues before this court, I will outline the determinations made by the FOS Panel and the events leading to those determinations.
5 For the reasons which follow I find that a reasonable tribunal could find on the evidence before the Panel that Dr Craddock was the owner of the units in the SHF Property Trust and was able to assign the rights and interest in respect of the SHF Property Trust to Utopia. Utopia has not established that the decision of FOS is a decision which no reasonable person could properly make on the evidence before the Panel and hence has failed to establish that FOS has not made a determination in accordance with the contract between Utopia and FOS.
6 For the reasons which follow I find that Utopia has not established that Dr Craddock is not the owner of the units in the SHF Property Trust and is not able to assign to Utopia all the rights and interest in respect of the SHF Property Trust and has failed to establish that it would be an inappropriate exercise of the court's discretion to order Utopia to specifically perform the contract between Utopia and FOS by requiring Utopia to perform the directions in the Determinations on the ground that to do so would facilitate a contravention of the SIS Act.
7 I find that Utopia has breached its contract with FOS and it is appropriate, in the exercise of the court's discretion, to order that Utopia specifically perform the contract by making the payments directed in the Determinations.
Dr Craddock's complaint
8 In November 2006, Dr Craddock sought advice from Ms Whiting, an authorised representative of Utopia. At the time Dr Craddock was aged 55. She was a qualified medical practitioner who, due to illness, had ceased to practice medicine. Dr Craddock's main source of income was an income protection insurance policy. Her taxable income was $34,661 in 2006 and $20,352 in 2007. Dr Craddock had a superannuation account with an industry fund with a balance of $59,887.71. Ms Whiting recommended that Dr Craddock set up a SMSF, rollover her current superannuation balance from the industry fund, borrow money to contribute to the SMSF and invest in a private trust which had a proposal to redevelop a strata titled development in Cottesloe. At the time Ms Whiting was a director of Finetime Holdings Pty Ltd, the corporate trustee of Sea Pines Investment Trust which held the units in the Sea Pines Property Trust which was the owner and developer of the Cottesloe property. Dr Craddock established a SMSF, the Shelley Craddock Superannuation Fund, with Benchtop Productions Pty Ltd as trustee. Benchtop paid $50,000 to acquire 50,000 of the 400,000 issued units in the SHF Property Trust of which Christopher Peter Hammersley was trustee. Dr Craddock's SMSF later acquired a further 640 units in the SHF Property Trust. The units in the SHF Property Trust were held by a group of friends, or entities controlled by them. The SHF Property Trust invested in the Sea Pines Property Trust by purchasing units in the Sea Pines Investment Trust. By acquiring units in the SHF Property Trust which acquired units in the Sea Pines Property Trust, the unit holders in the SHF Property Trust were able to make the investment without complying with the sophisticated investor requirements.
9 The Cottesloe development was delayed by difficulties in acquiring all the necessary strata units and an inability to borrow funds as result of the global financial crisis which peaked in September 2008. Dr Craddock wished to exit her SMSF's investment in the Sea Pines Investment Trust through the SHF Property Trust but was unable to find anyone to purchase her SMSF's units. On 15 June 2010, Dr Craddock caused Benchtop to transfer to her the units in the SHF Property Trust held by Benchtop as trustee of the Shelley Craddock Superannuation Fund for $5,064.
10 Dr Craddock delivered to FOS a dispute form in which she complained of the financial advice given to her by Ms Whiting on behalf of Utopia and Ms Whiting's conflict of interest. On 3 September 2010, FOS informed Utopia of Dr Craddock's letter of dispute and informed Utopia that if it was unable to resolve the dispute directly with Dr Craddock within 21 days, Utopia was required to provide FOS with a detailed written response to the dispute, which response should be sufficiently detailed to act as a submission if the dispute was referred to a determination by a panel. There was subsequently correspondence between FOS and Utopia in which Utopia asserted that FOS did not have jurisdiction to determine the dispute and put forward submissions concerning the merits of the dispute.
11 On 4 April 2011, FOS informed Utopia that as the dispute remained unresolved, FOS was referring the dispute to a panel for further investigation and decision. On 4 July 2011, FOS informed Utopia that Dr Craddock's complaint had been referred to the Panel for determination. FOS informed Utopia of the background to Dr Craddock's complaint and the issues for the Panel to consider. FOS requested that Utopia provide specified information and documents and requested that Utopia provide its detailed response to the allegations of Dr Craddock. FOS invited Utopia to provide any other comments for the Panel to consider about the background and issues in dispute and informed Utopia that that may be its last opportunity to provide comments for the Panel. On 19 August 2011, Utopia responded. There was further correspondence between FOS and Utopia in which Utopia was invited to provide any further comments in relation to the dispute. On 19 September 2011, Utopia made further written submissions to FOS.
The Determination
12 On 16 March 2012, the FOS Panel delivered its determination. The Panel found that Utopia had breached its obligations under the Corporations Act 2001 (Cth) in relation to advice given to a client. The Panel found that Utopia gave to Dr Craddock inappropriate advice by recommending the establishment of a SMSF and the purchase of units in the SHF Property Trust for investment in the Sea Pines Investment Trust, gave inappropriate advice for Dr Craddock's SMSF to acquire an interest in the Sea Pines Investment Trust and breached its duty to avoid a conflict of interest that it owed Dr Craddock. The Panel found that Dr Craddock suffered loss as a result of Utopia's breach of its obligations under the Corporations Act.
13 The FOS Panel directed that by way of compensation Utopia pay:
(a) Dr Craddock the sum of $5,064 being her investment in SHF Property Trust, together with interests on that amount;
(b) Dr Craddock's SMSF the sum of $44,936, being Dr Craddock's SMSF's investment in SHF Property Trust, together with interest;
(c) Dr Craddock the sum of $15,059.03 being that part of the interest on her loan used for the acquisition of the units in the SHF Property Trust together with interest; and
(d) Dr Craddock the sum of $16,202.40 on account of the fees incurred by Dr Craddock in relation the establishment, running and winding up of the SMSF, together with interest.
The Panel further directed Dr Craddock and her SMSF, upon payment of the compensation, to assign to Utopia all of the rights and interests in respect of the SHF Trust within 14 days of receiving a written request from Utopia.
Supplementary Determination
14 After the Panel had delivered the Determination, Dr Craddock informed FOS that her SMSF was closed, she was no longer a trustee of her SMSF as the account was closed and if compensation was paid to her in her previous capacity as trustee of the SMSF that would create problems. Dr Craddock informed FOS of her new superannuation fund and gave details of that fund.
15 FOS wrote to Utopia informing it of the situation in relation to Dr Craddock's SMSF and stating that the view of the Panel Chair is that upon Dr Craddock accepting the Determination FOS should made the payments of compensation directed in the Determination to Dr Craddock's nominated superannuation fund. Utopia responded stating that prior to the Determination, Utopia had disputed the jurisdiction of FOS to make any determination in the matter and Utopia had now referred the matter to its legal representatives to commence an action against FOS in the Supreme Court of Western Australia to set aside the Panel Determination. Utopia stated that without prejudice to the court action and regardless of the outcome of the action, Utopia will not agree to any proposal to make any payment to Dr Craddock's retirement fund.
16 The Panel delivered a Supplementary Determination on 8 May 2012. The Panel stated that it had power to make a further direction under its Terms of Reference. The Panel directed that the compensation, directed in the Determination to be paid to Dr Craddock's SMSF, instead be paid to Dr Craddock's account in her nominated superannuation fund. The Panel stated that the direction that Dr Craddock and her SMSF, upon payment of the compensation, assign to Utopia all of the rights and interest in respect of the SHF Property Trust has no effect so far as it relates to Dr Craddock's SMSF but continues to apply to Dr Craddock. The direction that upon payment of the compensation Dr Craddock assign to Utopia all of the rights and interest in respect of the SHF Property Trust is sometimes referred to by the parties as the Assignment Direction, and I will sometimes use that description.
17 The Terms of Reference provide that a complainant must elect whether or not to accept a decision of the Panel within one month of the date of receiving the decision. Where a complainant elects to accept the decision of the Panel, the complainant is bound by all aspects of that decision. The Terms of Reference provide that where the complainant accepts the decision of the Panel, then subject to cl 36, which provides for circumstances in which a panel determination may be reopened, the member must implement the decision as soon as practicable after being informed the complainant has accepted it.
18 On 5 April 2012 and 11 May 2012, Dr Craddock accepted the Determination and the Supplementary Determination respectively. FOS informed Utopia that Dr Craddock had accepted the Determinations. Utopia has not paid to Dr Craddock the compensation directed to be paid by the Determinations or otherwise complied with the Determinations.
FOS' case
19 FOS' case is that by failing to pay to Dr Craddock any part of the compensation ordered to be paid in the Determinations, and informing FOS that it does not intend to do so, Utopia has breached its contract with FOS. FOS says that it is entitled to an order that Utopia specifically perform the contract by making the payments directed in the Determinations.
Utopia's case
20 Utopia denies that it is obliged to implement the directions in the Determinations because the Determination, as amended by the Supplementary Determination, is a decision which no reasonable person could properly make on the evidence before the Panel. The basis of that assertion is that either a term is implied in the contract between FOS and Utopia that the Panel would not make a decision that no reasonable person could make on the evidence or alternatively that the power of the court to supervise tribunals allows it to intervene on that ground.
21 FOS agrees that its decision is of no force and effect and cannot be enforced if it was a decision which no reasonable person could make on the evidence before it. Although, it is not strictly necessary to decide the conceptual basis on which the decision of FOS is void if it is a decision which no reasonable person could make on the evidence before it, in my opinion the obligation arises from an implied term of the contract between FOS and Utopia. I will consider that obligation later in these reasons.
22 Utopia says the directions made by the FOS Panel in the Determinations are directions which no reasonable tribunal could properly make on the evidence for the following reasons. The SHF Property Trust Deed provided a comprehensive process for transferring the units. By cl 6.10 of the SHF Property Trust Deed, no transfer of units is permitted unless the specified procedure is followed. The procedure includes the trustee offering the units to all the unitholders in proportion to their respective holdings. Dr Craddock's SMSF did not follow the mandated transfer procedure required by cl 6.10. In particular, the trustee of the SHF Property Trust did not take the steps in cl 6.10 of the Trust Deed to offer the units to the other unitholders. Accordingly, Dr Craddock was not the registered holder of the units and was not in a position to require the trustees to register her as the registered holder of the units. Therefore, Dr Craddock had no right, title or interest in the units and was incapable of complying with, and giving effect to, the Assignment Direction.
23 Utopia says that if the Determination is valid and otherwise able to be enforced the court should not exercise its discretion to order specific performance of the contract by ordering Utopia to perform the Determinations for two reasons. First, Dr Craddock is not the owner of the units in the SHF Property Trust and therefore is not able to transfer them to Utopia and it would be unfair to order the Determinations to be performed by Utopia in those circumstances. Secondly, if the SMSF transferred the units in the SHF Property Trust to Dr Craddock, that transfer contravened s 109 of the SIS Act and the court would be facilitating or acting upon a transaction that was unlawful if it were to order specific performance of the Determinations.
24 In its defence, Utopia pleaded that the FOS Panel erred in law in making the Assignment Direction, in that the Panel failed to take into account circumstances which it was bound to take into account in deciding whether or not Dr Craddock was entitled to the Assignment Direction. The circumstances referred to are that the transaction whereby Dr Craddock purported to purchase the units in the SHF Property Trust from her SMSF was contrary to s 109 of the SIS Act. However, in oral submissions, senior counsel for Utopia stated that Utopia did not press that ground as a ground on which it alleged that the Determinations were void, invalid or unenforceable but confined its submissions based upon the alleged contravention of the SIS Act to the submission that the court should not exercise its discretion to order Utopia to specifically perform the contract between Utopia and FOS by requiring Utopia to perform the directions because to do so would facilitate a contravention of the SIS Act.
The Terms of Reference
25 The FOS Terms of Reference (TOR) are terms of the contract between FOS and Utopia. Clause 5 of the TOR provides that in dealing with a complaint under the TOR, FOS must deal with the complaint on its merits and do what, in its opinion, is fair in all the circumstances, having regard to matters including 'any applicable legal rule or judicial authority'. Clause 33.2A provides that a panel may award compensation for any financial or economic loss for damages which is a direct result of any act or omission in respect of which a complaint is upheld up to the relevantly maximum amount of $150,000. Clause 36.2 provides that a determination of a panel is final and cannot be reopened except as provided for in cl 36.3 to cl 36.9, which are not presently relevant. Clause 38.1 provides that where the complainant accepts the decision of the Panel, then subject to cl 36, which is not presently relevant, the member must implement the decision as soon as practicable after being informed the complainant has accepted it. Clause 39 provides that FOS may take any necessary action, including legal action, to enforce a decision of the Panel that the complainant has elected to accept. This may include seeking specific performance of the agreement to abide by the TOR.
The obligation not to make a determination no reasonable tribunal could make
26 Utopia says that FOS was under an obligation not to make a determination which no reasonable tribunal could properly make on the evidence. Utopia says that the obligation arises either as an implied term of the contract between FOS and Utopia or as a part of the general law, as part of the court's power to supervise tribunals.
27 In Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd [2014] VSCA 179; (2014) 288 FLR 374 (Cromwell), the Victorian Court of Appeal considered its power to review a decision of FOS. Warren CJ and Osborn JA held that:
As the authorities we address below make clear, the power of a court to review the decision of a body such as FOS may be seen as deriving as a matter of law from the necessity for the attainment of justice in respect of the functions of tribunals of the general type in question, or it may be seen as deriving as a matter of fact from the necessity to give business efficacy to the particular contract in issue. In the present case, the contract contemplates that FOS will undertake an independent arbitral function in a rational manner, potentially giving rise to such an implication [62].
28 In Cromwell, the court adopted the standard in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 and Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185; (2012) 36 VR 456 (Mickovski) and held that in cases where the parties have contracted into an arbitral process, the court would only intervene 'where the decision is plainly unjust'. In Mickovski, the Victorian Court of Appeal held that the court should only intervene where the decision is one 'to which no reasonable tribunal could properly come on the evidence': (2012) 36 VR 456, 468 at footnote 26. However, the court noted that a positive duty to act reasonably should not be implied as this 'would defeat the intention of the contract and potentially play havoc with a scheme that is meant to be efficient, cost effective and informal' [93]. The Victorian Court of Appeal held that despite FOS having made an error in its reasoning which resulted in an erroneous conclusion, the decision was not reviewable. There would need to be evidence of fraud, prejudice or bad faith in order for the decision to be reviewed. It was held that the decision was made 'within the ambit of decision-making power conferred' upon FOS: [51].
29 Strictly speaking, the Victorian Court of Appeal's decision in Cromwell is not authority for the principle referred to. That is because the parties to the appeal accepted that, as a minimum, review could be undertaken by the court on grounds of Wednesbury unreasonableness: [63] (Warren CJ & Osborn JA). The point for decision was whether the contractual arrangement involved in that case had implied into it an obligation to act reasonably as opposed to the Wednesbury standard of not being so unreasonable that no reasonable decision-maker could have made the relevant decision. The majority held that the relevant decision was not unreasonable in the Wednesbury sense and that an obligation to act reasonably could not be implied. An application for special leave to appeal to the High Court was dismissed.
30 The issue was recently considered by Mitchell J in Patersons Securities Ltd v Financial Ombudsman Service Ltd [2015] WASC 321. After referring to the decision of the Victorian Court of Appeal in Cromwell, his Honour said:
Noting this general approach to the construction of relevant contracts, the question remains whether what has been done by the person or body making the independent decision is authorised by the particular contract. The answer to this question ultimately turns on the proper construction of the contract which enables the dispute to be referred to independent determination [82].
- Mitchell J referred to cl 8.2 of the relevant terms of reference in that case which required FOS when deciding a dispute and whether a remedy should be provided to do 'what in its opinion is fair in all the circumstances, having regard to', amongst other things, legal principles. His Honour said:
That FOS is to do what in its opinion is fair means that its decisions will rarely be open to successful curial challenge on their merits. The standard applied in determining what is fair is not exclusively legal. As the decision in Mickovski illustrates by reference to the former terms of reference, even errors of construction of the terms of the contract going to the 'jurisdiction' of FOS need not be reviewable.
I accept that, either as a matter of fact or law, it is implicit that the opinion referred to in par 8.2 must be an honest opinion at which a reasonable person could honestly arrive in a bona fide and rational exercise of the function conferred by the contract for the purpose of deciding the dispute. Reasonableness is to be assessed in the manner described by the Victorian Court of Appeal in Cromwell. In assessing the reasonableness of the opinion, it must be kept in mind that the subject of the opinion is not the existing legal rights, duties and liabilities of the parties. Rather, the subject of the opinion is what is fair in all the circumstances.
In the present case FOS has not been shown to have acted dishonestly, for an improper purpose or otherwise than in accordance with the procedure set out in par 8 of the terms of reference. In those circumstances, the question for the court is whether a reasonable person, acting rationally and with regard to the matters specifically referred to in pars 8(a) - (d), could have formed an opinion that it was fair in all the circumstances that Patersons pay the SMSF and MDVR the specified amounts to compensate them for direct financial loss or damage. If an affirmative answer can be given to that question, the decision of the panel will be a Determination as defined in the contract, which will be final and binding on the parties [94] - [96].
Pleading point
32 In the course of his submissions, Senior Counsel for Utopia, Mr Owen-Conway QC, submitted that Dr Craddock cannot transfer the units in the SHF Property Trust to Utopia for two reasons. The first is that Dr Craddock is not the owner of the units. The second is that if she is the owner of the units, Dr Craddock cannot transfer the units without complying with the transfer procedure in the SHF Property Trust Deed which includes the pre-emptive right provisions. Counsel for FOS, Mr Wise, submitted that the second reason is not pleaded and therefore it is not open to Utopia to make that submission. Utopia sought to amend to plead the point. FOS opposed leave to amend. FOS submitted that the point was not pleaded and was not raised in Utopia's opening written submissions. Utopia says that the point is pleaded in par 14 of its defence.
33 Paragraph 14 of the defence pleads in answer to par 14 of the statement of claim. Paragraphs 9 to 13 of the statement of claim plead the directions made by the FOS Panel in the Determinations, that Dr Craddock accepted the Determinations and that FOS informed Utopia that Dr Craddock had accepted the Determinations. Paragraph 14 of the statement of claim then pleads that by reason of the matters in pars 9 to 13, Utopia was obliged to implement the directions of the Panel as soon as practicable.
34 In answer to par 14 of the statement of claim, Utopia pleads relevantly as follows. In par 14(a) Utopia denies that it was obliged to implement the directions in the Determinations (the Directions). In par 14(b) Utopia says that the FOS Panel made the Directions, which no reasonable tribunal could properly make on the evidence by reason of the facts and matters set out in the sub-pars which follow. Paragraph 14(c) pleads that further or in the alternative the FOS Panel erred in law by making the findings that the rights and interests in the units in the SHF Property Trust had been acquired by Dr Craddock from her SMSF and the finding implicit in the Directions that the Assignment Direction would preserve the position of Utopia having paid to Dr Craddock the whole of the purchase price and interest for their units in the SHF Property Trust. Paragraph 14(d) pleads that further or in the alternative the FOS Panel erred in law in making the Assignment Direction in that the FOS Panel failed to take into account the circumstances set out, which the Panel was bound to take account of, in deciding whether or not Dr Craddock was entitled to the Assignment Direction which circumstances disentitle Dr Craddock from relief sought by way of restitution in the form of the Assignment Direction. Paragraph 14(e) pleads further in the alternative that the matters referred to in pars 14(a) - (d) were matters to which this court should have regard in the exercise of its equitable jurisdiction when considering whether to grant orders for specific performance as sought by FOS, or at all, and which circumstances disentitle FOS and Dr Craddock from the relief sought in the nature of orders for specific performance.
35 Mr Owen-Conway says that par 14(b)(ii)(C) pleads that by cl 6.10(2) of the Trust Deed, subject to an exception that is not applicable, no transfer of units is permitted unless the procedure set out in sub-clause (i) - (vi) is followed. That procedure includes the pre-emptive rights provisions. Then in par 14(b)(ii)(G) Utopia pleads that no reasonable tribunal would or could make the Assignment Direction because Dr Craddock could not assign the rights and interests for the reasons then set out. Those reasons include the plea at (ii) that Dr Craddock's SMSF did not follow the mandated transfer procedure required by cl 6.10(2) of the Unit Trust Deed for the SHF Property Trust. Utopia gives particulars of that failure to follow the mandated procedure. The particulars are that Dr Craddock's SMSF did not give a transfer notice and the trustees of the SHF Property Trust did not embark upon or sufficiently comply with the transfer procedure in cl 6.10(2). Clause 14(b)(ii)(J) then concludes that in the premises, Dr Craddock had no right, title or interest in the units and was incapable of complying with and giving effect to the Assignment Direction.
36 In my view the defendant did not plead that Dr Craddock cannot comply with the Assignment Direction because she cannot transfer the units without complying with the transfer procedure in the SHF Property Trust Deed which includes the pre-emptive right provisions for the following reasons.
37 The scheme of cl 14(b) of the defence is as follows. Clause 14(b)(ii) pleads that the SHF Property Trust Deed provided a process for transferring units. That process is pleaded at par 14(ii)(C). Paragraph 14(b)(ii)(E) pleads that the FOS Panel found that Dr Craddock continued to hold the units as an investment in the SHF Property Trust as a result of purchasing the units from her SMSF. Paragraph 14(b)(ii)(F) pleads that the FOS Panel directed Dr Craddock, upon payment of the compensation, to assign to Utopia all the rights and interests in respect of the units in the SHF Property Trust (the Assignment Direction).
38 Paragraph 14(b)(ii)(G) then pleads that no reasonable tribunal would or could make the Assignment Direction as Dr Craddock could not assign the rights and interests for the reasons then stated. Those reasons are, relevantly, at (ii) that Dr Craddock's SMSF did not follow the mandated transfer procedure required by cl 6.10(2) of the unit trust deed for the SHF Property Trust. That is, the pleading is not that Dr Craddock cannot now comply with the Assignment Direction because she cannot transfer the units to Utopia without going through the transfer process in the SHF Property Trust Unit Deed. The plea is that Dr Craddock cannot transfer the units because she did not go through the transfer process in causing her SMSF to transfer the units to her. That is made clear by par 14(b)(ii)(H) which pleads that Dr Craddock was not the registered holder of the units and was not in a position at law to require the Trustee to register her as the registered holder of the units in the SHF Property Trust. The plea in par 14(b)(ii)(J) that Dr Craddock was incapable of complying with and giving effect to the Assignment Direction is a plea that Dr Craddock is incapable of complying with and giving effect to the Assignment Direction because she holds no right, title or interest in the units because, amongst other things, she did not comply with the transfer process provisions of the SHF Property Trust Unit Deed in causing her SMSF to transfer the units to her.
39 The case that Dr Craddock cannot now transfer the units without complying with the transfer procedure in the SHF Property Trust Deed, which includes the pre-emptive right provisions, is not pleaded. Nor was that case put in Utopia's opening submissions. The argument was advanced by Utopia for the first time in the oral submissions of its senior counsel after the evidence was concluded and after counsel for the plaintiff had completed his submissions.
Utopia's application to amend its defence
40 Utopia has applied for leave to amend its defence and counterclaim by pleading new paragraphs 14(b)(K) and 14(b)(L):
(K) Alternatively, if Dr Craddock did hold any rights or interests in the Units on or before 15 July 2010 (which is denied):
(i) Dr Craddock is unable to give effect to the Assignment Direction in the First Determination and the Supplementary Determination without first complying with the mandated transfer procedure required by clause 6.10(2) of the Unit Trust Deed for the SHF Property Trust.
(ii) Dr Craddock has not complied with the mandated transfer procedure required by clause 6.10(2) of the Unit Trust Deed for the SHF Property Trust prior to or following the date of the First Determination or the Second Determination.
(iii) Dr Craddock has not obtained the consent of the trustee and all of the other unit holders as required by clause 6.10(2)(l) of the Unit Trust Deed for the SHF Property Trust to a variation of the mandated transfer procedures in clause 6.10(2) of the Unit Trust Deed for the SHF Property Trust, so as to authorise and validate an assignment of the Units to Utopia.
(L) By reason of the matters pleaded in (K) above, Dr Craddock was and remains incapable of complying and giving effect to the Assignment Direction so as to authorise and validate an assignment of the Units to Utopia.
41 FOS opposes leave to amend being granted. I refuse the application for leave to amend for the following reasons.
42 In determining an application for leave to amend the court must have regard to the objects of promoting the just determination of litigation and disposing efficiently of the business of the court. Relevant considerations include the nature and importance of the new case Utopia wishes to advance, the stage the determination of the case had reached when the amendment was sought and the explanation for any delay in seeking to present the new case: See Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175.
43 The application to amend was made at a very late stage. The new case Utopia wishes to advance was not referred to in opening and was referred to for the first time in closing submissions by Senior Counsel for Utopia. That was after FOS had closed its case and presented its closing submissions. Utopia has given no explanation for its failure to have pleaded or raised in its opening submissions the matter now sought to be relied upon. FOS might have led additional evidence, or conducted the case differently, if the amendment and new argument had been raised earlier. FOS may have investigated whether the other unitholders in the SHF Property Trust agreed to vary the procedure under clause 6.10 of the SHF Property Trust Deed to enable Dr Craddock to transfer the units to Utopia with a view to leading evidence to that effect.
44 Furthermore, FOS submits, and I accept, that the proposed amendment is based upon a misconception of the scope of the Assignment Direction and how it might operate in practice. The Assignment Direction relevantly requires Dr Craddock, upon payment of the compensation, to assign to Utopia 'all of the rights and interests in respect of the [SHF Property Trust] within 14 days of receiving a written request from [Utopia]'. The words 'all of the rights and interests in respect of' the SHF Property Trust describe the bundle of rights and interests that are carried with the units. The direction by the Panel recognises that those rights and interests are subject to the terms of the SHF Property Trust Deed including any limitation on those rights. The Panel did not direct Dr Craddock to 'assign the units'. The rights and interests in respect of the SHF Property Trust held by Dr Craddock are subject to the terms of the SHF Property Trust Deed. Those include the pre-emptive rights given to the other unitholders under clause 6.10(2). The Assignment Direction contemplates that whatever pre-emptive rights flow from the assignment from Dr Craddock to Utopia should operate in accordance with the terms of the SHF Trust Deed. FOS submits, and I accept, that upon an assignment from Dr Craddock to Utopia the following occurs:
(a) Upon notice of the assignment being given to the Trustee of the SHF Property Trust, Dr Craddock ceases to enjoy any rights to the benefits attached to those units, and Utopia becomes so entitled.
(b) Absent having obtained the consent of the Trustee to the assignment, upon executing the assignment, Dr Craddock is deemed to have given a transfer notice pursuant to clause 6.10(2)(a) of the SHF Trust Deed (see clause 6.10(2)(m)). This is so because an assignment is plainly a 'disposition of Units'.
(c) The transfer notice operates to constitute the Trustee agent of Dr Craddock for the sale of the units by the Trustee at a price equal to the fair value thereof (see clause 6.10(2)(c)). If the assignment document states no price (as would be the case in an assignment pursuant to the Assignment Direction) under this clause, the Trustee would be bound to obtain 'fair value'.
(d) The pre-emptive rights process permitting the other unitholders or some other suitable person nominated by the Trustee to purchase those units at fair value is carried through pursuant to clause 6.10(2)(d) to (j).
(e) If that process results in a purchase, then, as a consequence of the assignment, the price (representing fair value of the Units) would be required to be paid to Utopia.
(f) If that process did not result in a purchase, then the assignment from Dr Craddock to Utopia would take effect in accordance with its terms (see clause 6.10(2)(k).
- This process results in Utopia receiving either the units or the fair value of the units. In those circumstances, a panel acting rationally and with regard to the relevant matters could have formed an opinion that it was fair in all the circumstances that Utopia pay Dr Craddock and her SMSF the specified compensation and Dr Craddock, upon payment of the compensation, assign to Utopia all of the rights and interests in respect of the SHF Property Trust upon a written request from Utopia. Furthermore, the Determinations, including the Assignment Direction, do not cause any relevant hardship or unfairness to Utopia such that the court should in the exercise of its discretion refuse to order that Utopia specifically perform the contract by making the payments directed in the Determinations.
The transfer of units by Benchtop to Dr Craddock
45 Utopia says that the Determinations are of no force and effect and cannot be enforced because no reasonable tribunal would or could make the Assignment Direction as Dr Craddock could not assign the rights and interests in respect of the SHF Trust because Dr Craddock's SMSF did not follow the transfer procedure required by cl 6.10(2) of the SHF Property Trust Deed. The question for the court is whether a reasonable person, acting rationally and with regard to the matters specified in cl 5 of the TOR, including any applicable legal rule or judicial authority, could have formed the opinion that it was fair in all the circumstances that Utopia pay Dr Craddock the specified amounts to compensate her for direct financial loss or damage and that she assign to Utopia all of the rights and interests in respect of the SHF Property Trust upon request from Utopia.
46 Utopia also relies upon its assertion that the transfer of the units by Benchtop to Dr Craddock was ineffective as a reason why the court should, in the exercise of its discretion, not order Utopia to specifically perform the contract by making the payments directed in the Determinations. That argument raises the issue whether, as a matter of fact and law, the transfer of the units by Benchtop to Dr Craddock was effective and Dr Craddock is the owner of the units or entitled to be registered as the owner of the units.
47 For the reasons which follow I find that it was open to the Panel to find on the evidence before it that Benchtop transferred the units in the SHF Property Trust to Dr Craddock and Dr Craddock was the owner of those units or entitled to be registered as the owner of the units. The decision of the Panel was not a decision which no reasonable person could properly make on the evidence before the Panel. On the evidence before this court I find that, as a matter of fact and law, Benchtop did transfer the units to Dr Craddock and Dr Craddock is the owner of the units or entitled to be registered as the owner of the units.
48 Clause 6 of the SHF Property Trust Deed deals with the transfer of units. Clause 6.10(2) provides that except as provided in cl 6.9, which is not presently relevant, no transfer of units shall be permitted unless the following procedure is followed. The procedure includes the following steps:
(a) A unit holder proposing to transfer any units (the proposing transferor) shall give notice in writing to the Trustees (a transfer notice) that it desires to transfer the units specified in the notice and it shall specify in the notice the price per unit which it fixes as the fair value thereof ...
...
(c) The service of a transfer notice shall be deemed to constitute the Trustees the agent of the proposing transferor for the sale of the units therein specified to a purchaser to be nominated by the Trustees as hereafter provided at a price equal to the full value thereof.
(d) Units comprised in a transfer shall in the first instance be offered by the Trustees by notice in writing to all the unit holders (except the proposing transferor) as nearly as may be in proportion to their respective holdings of units ...
(e) The offer to unit holders shall state that if the same is not accepted in whole or in part within 21 days from its receipt it shall be deemed to be declined and such offer shall also require any unit holder who desires to purchase units in excess of his said proportion to state how many additional units he desires to purchase at the fair value. The offer shall also request the unit holders to state whether they desire the fair price of the units to be fixed by valuation as hereinafter provided.
...
(g) Any unit comprised in the transfer notice which has not been accepted for sale as aforesaid may be offered by the Trustees to any unit holder or other person selected by the Trustees as one whom it is desirable in the interests of the Trust to admit as a unit holder and who is willing to purchase the unit at the fair value.
(h) Within 30 days after being served with a transfer notice the Trustees shall by notice in writing to the proposing transferor nominate one or more unit holders or other persons whom in the opinion of the Trustees it is desirable in the interests of the Trust to admit as unit holders (in this clause hereafter being called a purchaser) and who wished to purchase all or any of the units comprised in the transfer notice as purchaser or purchasers of such unit whereupon the proposing transferor shall be bound upon payment of the fair value of the units to transfer the units to the purchasers as set out in the said notice in writing.
(i) The Trustees shall if so required by the purchaser or purchasers of the majority of the units to be purchased by the same notice as it referred to in subclause (h) of this clause (2) require the fair value of the units to be fixed by valuation in lieu of the fair value fixed in the transfer notice. In such event the auditor of the Trust or if there shall be no auditor of the Trust for the time being then a disinterested and competent accountant as shall be appointed by the Trustees (and at the Trustees expense) shall make a valuation of the units to be purchased and such sum determined by the valuation shall be deemed to be the fair value and such valuer shall be considered to be acting as an expert and not as an arbitrator and accordingly the Commercial Arbitration Act shall not apply provided always that in the event of the fair value so fixed by valuation exceeding the fair value fixed in the transfer notice the Trustees shall forthwith give notice thereto to the purchasers and all or any of such purchasers may by notice in writing to the proposing transferor not later than 14 days after the determination elect not to continue with the purchaser.
...
(k) If at the expiration of 30 days after being served with the transfer notice the Trustees shall not have a unit holder or person selected as aforesaid willing to purchase any units mentioned in the transfer notice the proposing transferor shall be entitled at any time within one month after the expiration of the said period of 30 days to sell and transfer those units to any person at a price not less than the price fixed by him in the transfer notice.
(l) The Trustees may with the consent of all the unit holders vary the foregoing procedure to meet the circumstances of any particular case and in particular may give any person or persons a preferential right to acquire any units.
(m) If any unit holder without the consent of the Trustees executes a mortgage of units or if the unit holders executes a deed of trust or other disposition of units in favour of any person that unit holder shall be deemed to have served a transfer notice pursuant to paragraph (a) hereof in respect of those units on the date on which the Trustees became aware of such mortgage deed or trust or other disposition.
49 On 15 June 2010 Benchtop and Dr Craddock executed an instrument entitled 'Transfer of Units' by which Benchtop as trustee for the Shelley Craddock Superannuation Fund for the consideration of $5,064 transferred its units in the SHF Property Trust to Dr Craddock. On 21 June 2010 the acting trustee of the SHF Property Trust, Mr Hammersley, wrote to Dr Craddock stating:
As acting Trustee for the SHF Property Trust I agree to the transfer of the following units you have requested and outlined below.
- Mr Hammersley then set out the terms of the Transfer of Units instrument executed by Benchtop and Dr Craddock on 15 June 2010.
50 I infer from Mr Hammersley's letter that the Transfer of Units instrument was served on him. In accordance with cl 6.10(2)(m), by executing the Transfer of Units Benchtop, as trustee of the Shelley Craddock Superannuation Fund, is deemed to have served a transfer notice in respect of all units owned by it. There is no direct evidence that the trustee did or did not offer the units to the other unit holders in accordance with the provisions of cl 6.10(2). There is no direct evidence that the trustees, with the consent of all the unit holders, did or did not vary the transfer procedure in cl 6.10(2) in accordance with cl 6.10(2)(l). FOS says that it is to be inferred from Mr Hammersley's letter, and in accordance with the principle of the presumption of regularity, that either Mr Hammersley followed the required procedure of offering the units to the other unit holders who declined to purchase them and Mr Hammersley exercised his discretion not to offer the units to any other person and Benchtop was entitled to transfer the units to Dr Craddock in accordance with cl 6.10(2)(k), or alternatively Mr Hammersley, with the consent of all the unit holders, varied the procedure to give Benchtop the right to transfer the units to Dr Craddock.
51 Utopia says that the required transfer procedure could not have been followed because insufficient time elapsed between the execution of the Transfer of Units and Mr Hammersley's letter. That is incorrect. Clause 6.10(2)(e) does not require 21 days to expire from the time of the offer to unit holders before they may decline the offer. They may decline the offer immediately upon it being made. Similarly, cl 6.10(2)(k) does not require 30 days to elapse between the trustee being served with the transfer notice and the trustee informing the transferor that he has not found a unit holder or person willing to purchase any of the units. The trustee may exercise his discretion not to offer the units to any other person immediately after the other unit holders have declined the offer to purchase the units and thereupon inform the transferor.
52 Senior counsel for Utopia submitted that a presumption of regularity could not apply in these circumstances. I do not agree. The rule has been put quite broadly. In McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835, 850 the High Court quoted Knox County v Ninth National Bank 147 US 91 (1893):
Where an act is done which can be done legally only after the performance of some prior act, proof of the latter carries with it a presumption of the due performance of the prior act [97].
- In Darley Australia Pty Ltd v Walfertan Processes Pty Ltd [2012] NSWCA 48; (2012) 188 LGERA 26, the New South Wales Court of Appeal was concerned whether the Council had given development consent. McColl JA, with whom Macfarlan and Whealy JJA agreed, said that the question whether development consent has been given is one of fact that is capable of proof by evidence of express consent by the responsible authority or by conduct evidencing consent, and the latter method of proof invokes the presumption of regularity [113]. Her Honour said:
The presumption of regularity has also been described as one which 'arises from the ordinary course of business', being 'a rule of very general application, that where an act is done which can be done legally only after the performance of some prior act, proof of the later carries with it a presumption of the due performance of the prior act': McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835 (at 850) per Griffith CJ (Barton and O'Connor JJ agreeing), citing Knox County v Ninth National Bank 147 US 91 (1893). In Minister for Natural Resources v NSW Aboriginal Land Council (1987) 9 NSWLR 154 at 164, McHugh JA explained its operation in the public law context as follows:
'Where a public official or authority purports to exercise a power or to do an act in the course of his duties, a presumption arises that all conditions necessary to the exercise of that power or the doing of that act have been fulfilled.'
In deciding whether the presumption of regularity is rebutted, the inference from the ordinary course of human affairs carries some weight which may vary according to the proved circumstances: Hill v Woollahra Municipal Council (2003) 127 LGERA 7 [52]. In this respect, in my view, Windeyer J's remarks in Brickworks Ltd v Warringah Corporation remain cogent:
'The giving or refusing of a consent, as required by the Ordinance, was an important discretion entrusted to the Council as the "responsible authority". It is not to be assumed that the Council and its officers neglected their duties or discharged them in a perfunctory manner.' [115] - [116]
53 In this case, the trustee did not merely acknowledge receipt of the Transfer of Units, he agreed to the transfer. It should not be assumed that he was unaware of the terms of the Trust Deed or that he ignored them before stating his agreement to the transfer of the units. To the contrary, I infer from Mr Hammersley's email of 11 September 2014 to a solicitor and representatives of the unitholders and to Ms Whiting that he was aware of the provisions of the SHF Property Trust Deed relating to the transfer of units. In my opinion the presumption of regularity applies and it is to be presumed, in the absence of evidence to the contrary, that the trustee complied with the required procedure. There is no, or no sufficient, evidence to rebut the presumption. The only evidence pointed to by Utopia is contained in the minutes of meeting of trustee Christopher Peter Hammersley dated 30 June 2010 and minutes of meeting of trustee Christopher Peter Hammersley dated 30 June 2011 attached to the SHF Property Trust financial statements for the years ended 30 June 2010 and 30 June 2011 respectively. In each of those minutes, it states that income and capital gains has been paid or applied for the benefit of the beneficiaries listed below and the list includes Benchtop as the trustee for the Shelley Craddock Superannuation Fund.
54 There is no income statement or profit and loss statement attached to either the 2010 or 2011 financial statements. The balance sheet and notes show that the accumulated losses brought forward are the same in the 2011 year, 2010 year and 2009 year. From that, it may be inferred that there was no income or capital gains applied for the benefit of any beneficiaries in those years. The 2012 and 2013 financial statements do not contain any list of income distributions. However, the 2013 financial statements include a note of a resolution by the trustee to set aside the income for the trust for that year for the benefit of the beneficiaries and there is attached a 'Current Schedule of Unitholders SHF Property Trust' which includes Benchtop as the trustee for the Shelley Craddock Superannuation Fund. Little, if any, weight may be attached to those documents. No income was distributed in any of those years. Benchtop had been deregistered. The documents and resolutions follow the same form as in every year from 2007.
55 On 11 September 2014, the trustee of the SHF Property Trust, Mr Hammersley, sent an email to a solicitor and representatives of the unitholders and to Ms Whiting of Utopia in which he stated:
I have polled all other unitholders in the St Hilda's Friends Property Trust. As of 9 September 2014, all have declined the opportunity to purchase Dr Craddock's unit parcel at or above $1.00 per unit. The offer is now closed. Dr Craddock may now properly sell her unit parcel to any party at or above $1.00 per unit. Hence, there is no need for you to draw up an amendment or variation to the Trust Deed.
- I infer from that email that the trustee, Mr Hammersley, considered Dr Craddock to be the holder of units in the SHF Property Trust, not Benchtop. It is open to infer, and I do infer, that the schedule of unitholders attached to the 2013 financial statements was copied from earlier financial years going back to at least 2007 without the trustee considering whether Benchtop was still the holder of the relevant units or whether they had been transferred to Dr Craddock. I find that Utopia has not rebutted the presumption that the trustee complied with the required procedure under cl 6.10(2) of the SHF Property Trust before consenting to Benchtop transferring the units to Dr Craddock.
56 If, contrary to my finding, the presumption of regularity does not apply to the trustee's consent to the transfer of units from Benchtop to Dr Craddock, then the matter must be decided without regard to any presumption of regularity. In that event, the only relevant evidence is the trustee's letter of 21 June 2010, the SHF Property Trust financial statements to which I have referred and the trustee's email of 11 September 2014 to which I have referred. I infer from Mr Hammersley's letter of 11 September 2014 that he was aware of the provisions of the SHF Property Trust Deed in relation to the transfer of units. In the absence of any evidence to the contrary I infer that Mr Hammersley was aware of those provisions in June 2010. The inference I draw from the trustee's letter of 21 June 2010 is that he considered he was entitled to, and did, consent to the transfer of the units from Benchtop to Dr Craddock. I infer that Mr Hammersley had offered the units to the other unitholders in accordance with the provisions of cl 6.10(2) or had, with the consent of all the unitholders, varied the transfer procedure in cl 6.10(2) to permit the transfer of the units to Dr Craddock. The inference I draw from the trustee's email of 11 September 2014 is that he considered the units had been transferred from Benchtop to Dr Craddock. I do not place any weight on the pro forma minutes attached to the financial statements to which I have referred. I find that the units have been transferred from Benchtop to Dr Craddock and Dr Craddock is entitled to be registered as the holder of the units.
57 Insofar as Utopia says that it is not obliged to implement the directions in the Determinations because the FOS decision is a decision which no reasonable person could properly make on the evidence before the Panel, that ground is not made out. Mr Hammersley's email of 11 September 2014 was not before the Panel. However, it was open to the Panel to infer from Mr Hammersley's letter of 21 June 2010 that the units had been lawfully transferred to Dr Craddock and she was the owner of the units. It is not sufficient for Utopia to establish that the Panel made an error of fact in finding, or implicitly finding, that the units had been lawfully transferred to Dr Craddock. A reasonable panel acting rationally and with regard to the matters referred to in cl 5 of the TOR, could have decided that Dr Craddock was the owner of the units in the SHF Property Trust or entitled to be registered as the owner of those units and that it was fair to direct that Utopia pay the specified compensation to Dr Craddock and Dr Craddock assign to Utopia all of the rights and interests in respect of the SHF Property Trust upon the request of Utopia.
58 Insofar as Utopia says that the court should not, in the exercise of its discretion, order Utopia to specifically perform the contract by making the payments of compensation to Dr Craddock in accordance with the Determinations because Dr Craddock is not the owner of the units in the SHF Property Trust and therefore not able to effect the Assignment Direction, that ground is not made out. The units were transferred to Dr Craddock and Dr Craddock is the owner of the units. In any event, the burden of proof is on Utopia to prove that the required procedures under cl 6.10(2) of the Trust Deed were not complied with and the units have not been transferred from Benchtop to Dr Craddock. Utopia has failed to discharge that burden. Utopia has failed to establish that Dr Craddock is not the owner of the units in the SHF Property Trust, or entitled to be registered as the owner of the units and has therefore failed to make out that ground of its case that the court should not, in the exercise of its discretion, order Utopia to specifically perform the contract with FOS by making the payments to Dr Craddock in accordance with the Determinations.
Alleged contravention of the SIS Act s 109
59 Utopia says that the transfer of the units from Benchtop to Dr Craddock, if it was effective, was in breach of s 109 of the SIS Act. Utopia says that the court should not condone a breach of the SIS Act by making an order of specific performance which includes the transfer of the units by Dr Craddock to Utopia.
60 In general, s 109(1) provides that a trustee must not invest, which includes selling, unless the trustee and the other party to the transaction are dealing with each other at arm's length or both the trustee and the other party to the transaction are not dealing with each other at arm's length and the terms and conditions of the transaction are no more favourable to the other party than those which it is reasonable to expect would apply if the trustee were dealing with the other party at arm's length in the same circumstances. FOS admits that Benchtop, as trustee for the Shelley Craddock Superannuation Fund, and Dr Craddock were not dealing with each other at arm's length. Therefore, Benchtop contravened s 109 by selling the units in the SHF Property Trust to Dr Craddock if the terms and conditions of the transaction are more favourable to Dr Craddock than those which it is reasonable to expect would apply if Benchtop were dealing with Dr Craddock at arm's length in the same circumstances.
61 Utopia says that the units in the SHF Property Trust sold by Benchtop to Dr Craddock were worth more than $5,064 and hence the transaction was more favourable to Dr Craddock than if it had been at arm's length.
62 Utopia submits that there is no evidence that the sale of the units at $5,064 was for market value, that the onus is on Dr Craddock to obtain a valuation in order to satisfy the arm's length transactional requirements under s 109 of the SIS Act and she has failed to do so. I do not accept that argument. It is Utopia that claims that Benchtop breached SIS Act s 109 by selling the units to Dr Craddock for $5,064. It is Utopia which asserts that the market value of the units was more than $5,064 and hence the terms of the transaction were more favourable to Dr Craddock than if it had been at arm's length and therefore Benchtop breached SIS Act s 109. The burden is on Utopia to prove those assertions.
63 I am not satisfied that the market value of the units was more than $5,064. Utopia relied upon three matters to establish the value of the units. First, Dr Craddock at one time claimed that the units were worth $55,000. That assertion by Dr Craddock should properly be disregarded. Firstly, it was merely an assertion made in the context of attempting to realise the value of the units. Secondly, Dr Craddock has no relevant expertise or qualifications. Thirdly, the apparent methodology adopted by Dr Craddock was to ascertain the value of the SHF Property Trust by dividing the value of the Sea Pines Property Trust by the proportion of units held by the SHF Property Trust and then ascertain the value of the Shelley Craddock Superannuation Fund's units by dividing the value of the SHF Property Trust by the proportion of units held by the Shelley Craddock Superannuation Fund. Dr Craddock estimated the value of the Sea Pines Property Trust by inflating the historic cost of the land and buildings acquired by the Property Trust. That methodology is entirely inappropriate and fails to offer any indicator of the value of the units held by the Shelley Craddock Superannuation Fund in the SHF Property Trust. Applying an inflator to the historic cost of land and buildings acquired by the Sea Pines Property Trust does not provide a valuation of the assets of the Sea Pines Property Trust. Furthermore, Dr Craddock's SMSF's units in the SHF Property Trust are twice removed from the assets of the Sea Pines Property Trust. The value of Dr Craddock's SMSF's units cannot properly be ascertained by the method adopted by Dr Craddock.
64 Utopia submitted that the balance sheet for the Sea Pines Property Trust for the year ended 30 June 2009 gives an indication of the value of units in the SHF Property Trust. That balance sheet shows assets of $11,705,853 and net assets and total trust funds of $10,360,678. However, the value of Dr Craddock's SMSF's units in the SHF Property Trust cannot be inferred from those figures for a number of reasons. First, the principal asset of the Sea Pines Property Trust is land and buildings of $11,246,892. The financial report is based on historic costs and does not take into account current valuations of non-current assets, which includes the land and buildings. There is no evidence of current values. It cannot be inferred that the current or market values were at least equal to historic cost values. For example, Ms Whiting is recorded as having informed a meeting of investors that there had been a 25% drop in values in Cottesloe. Secondly, the value of five of the 19 strata units comprising the land and buildings is the amount of the deposit paid on a contract which had been entered into but which had not been completed. If the trust could not raise the necessary funds and could not complete the purchases, the deposits might be lost. Thirdly, if the trust could not raise the necessary funds or acquire the remaining strata units to complete the project, the trust might not be able to realise the value of the land and buildings it had acquired. Fourthly, the value of units in the Sea Pines Property Trust cannot be ascertained by simply dividing the net assets of the trust by the number of units. A unitholder can only realise the value of his or her unit by selling it and to do that requires a willing buyer. Fifthly, Dr Craddock's SMSF did not hold units in the Sea Pines Property Trust, it held units in the SHF Property Trust and was locked into that investment unless it could find a willing buyer for its units.
65 Utopia also sought to rely upon an offer to purchase the units in the SHF Property Trust by Lesdean Pty Ltd as trustee for the Capelli Family Trust. There is evidence that Dean Capelli, on behalf of Lesdean, offered to buy the units in the SHF Property Trust 'for 70 cents in the dollar up to a maximum of 500,000 units for $350,000'. That is no evidence of the market value of units in the SHF Property Trust for a number of reasons. First, the offer was for the purchase of all the units in the SHF Property Trust. The value of a unitholder's units in the SHF Property Trust is not the same as the value of all the units divided by the unitholder's proportionate share of the units. That is because a purchaser of all of the units would thereby become the holder of units in the Sea Pines Investment Trust and, subject to the terms of that Trust, able to realise those units. The holder of units in the SHF Property Trust is locked into that investment and only able to realise their value if there is a willing buyer for those units. Secondly, the offer was conditional on the unitholders signing a full release and agreeing to take no action against Sea Pines Property Trust, Sea Pines Investment Trust, the trustees, former trustees, or unitholders and any entity associated with Dean Capelli or Debra Whiting for any loss or costs incurred in relation to the unitholders' investment in the SHF Property Trust. Further, any complaints to any regulatory bodies were required to be withdrawn and no further complaints made. Further, the unitholders had to agree to commence no action against, and to withdraw any action against, SHF Property Trust unitholders or trustees present or past after the liquidation of their units. The unitholders were to continue to recognise the obligation to indemnify the trustee for the trustee's services and actions and expenditures that occurred prior to and until the liquidation of that unitholding.
66 In December 2010 Ms Whiting asserted to Dr Craddock that the transaction by which Dr Craddock's SMSF sold the units in the SHF Property Trust to Dr Craddock would if audited by the ATO, be found to be 'non-complying'. Dr Craddock referred the matter to Grant Priest, an accountant advising her. By email of 28 December 2010 Mr Priest said:
As for the transfer value, at the time of transfer some eight months ago the best information that was available was the transfer price used. The Sea Pines fund is/was being sued for breach of several purchase contracts, cannot/could not afford to pay off its debts to OSR, is insolvent and was at the time could not raise any funds on any terms. The transfer value used at the time was when no-one wanted to buy the Sea Pines units and it appeared that the Sea Pines Trust would fall into administration. I am quite comfortable as to the transfer value used at the time and happy to cover it off with the ATO if need be.
- Mr Priest's opinion is not a valuation. It is the opinion of an accountant familiar with the relevant investments shortly after the relevant transaction. It is a more reliable guide to the value of the units in the SHF Property Trust held by Dr Craddock's SMSF than the matters referred to by Utopia. The burden is on Utopia to establish that the sale by Dr Craddock's SMSF to Dr Craddock of the units and the SHF Property Trust was on terms more favourable to Dr Craddock than if the transaction had been at arm's length. Utopia has not discharged that burden.
67 Utopia has not established any breach of s 109 of the SIS Act. It is therefore strictly unnecessary to consider what effect, if any, such a breach should have on the exercise of the court's discretion to order specific performance. However, in case the matter should go on appeal, I will set out in summary form my findings on the assumption that Benchtop contravened s 109 of the SIS Act by selling the units to Dr Craddock for $5,064.
68 The first thing to observe is that a contravention of s 109(1) of the SIS Act does not affect the validity of the transaction: s 109(3). Therefore the sale of the units by Benchtop to Dr Craddock passed property in the units to Dr Craddock notwithstanding any contravention of SIS Act s 109(1) by Benchtop. There is no good reason why the court should refuse to order Utopia to specifically perform a contract which involves the transfer of the units from Dr Craddock to Utopia. To do so would, in effect, deny the validity of the transaction by which Dr Craddock became the holder of the units. The court should not take such a step because it would, in effect, be to deny the validity of the transaction contrary to SIS Act s 109(3).
69 Specific performance will be refused if the plaintiff has acted unfairly or dishonestly. The equitable principle is that the plaintiff must come to equity with clean hands. The clean hands defence exists not so much for the benefit of the defendant who will directly benefit if the defence is successful in blocking a plaintiff's claim for equitable relief, but is rather to preserve the integrity of the judiciary. An equity court should decline to lend its aid to either party to a transaction that offends concepts of proprietary and fair dealing. For the defence of unclean hands to operate at all, the impropriety complained of must have an immediate and necessary relation to the equity sued for: Heydon JC, Leeming MJ, Turner M: Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed, 2014) [3-115]. If the relationship to the cause of action relied on by the plaintiff is indirect, it is irrelevant. In this case, there is insufficient nexus between the conduct of FOS, or Dr Craddock, and the Assignment Direction. If the nexus threshold is met then, as a matter of discretion, I would not refuse specific performance because, as I have said, s 109(3) of the SIS Act provides that a contravention of s 109(1) does not affect the validity of a transaction.
Conclusion
70 Utopia has breached its contract with FOS by failing to pay to Dr Craddock any part of the compensation ordered to be paid in the Determinations. Utopia has not established that the Determination, as amended by the Supplementary Determination, is a decision which no reasonable person could properly make on the evidence before the FOS Panel. Utopia has not established that FOS breached the contract between FOS and Utopia by making the Determination as amended by the Supplementary Determination. The defences advanced by Utopia in answer to the claim for specific performance are not made out. Utopia has not established that specific performance of the Determination, as amended by the Supplementary Determination, would cause hardship or unfairness to Utopia. Utopia has not pleaded and is not entitled to rely upon the argument that specific performance of the Determinations would cause hardship or unfairness to Utopia because Dr Craddock cannot transfer the units in the SHF Property Trust to Utopia because of the pre-emptive right provisions of the SHF Property Trust Deed. In any event, Utopia has not established that Dr Craddock cannot transfer the units in the SHF Property Trust to Utopia. Further, the application of the pre-emptive rights provisions of the SHF Property Trust would result in Utopia receiving the units or the fair value of those units as a result of an assignment of the units by Dr Craddock to Utopia.
71 It is appropriate that the court exercise its discretion to order Utopia to specifically perform its contract with FOS by paying to Dr Craddock the compensation directed to be paid by the Determinations.
72 Utopia should specifically perform its contract with FOS by paying:
(a) to Dr Craddock the sum of $5,064 together with interest on that amount at 5% compound per annum from 2 July 2007 until the date of payment;
(b) to Dr Craddock's account in the Superannuation Fund nominated in an email to FOS dated 4 April 2012, which FOS forwarded to Utopia under cover of a letter dated 5 April 2012, the sum of $44,936 together with interest on that amount at 5% compound per annum from 2 July 2007 until the date of payment;
(c) to Dr Craddock the sum of $15,059.03 together with interest on that amount at 5% compound per annum from 2 July 2007 until the date of payment;
(d) to Dr Craddock the sum of $16,202.40 together with interest on that amount at 5% compound per annum from the date of the lodgement of the complaint with FOS on 15 December 2009 until the date of payment;
(e) further, Utopia should pay to FOS $4,495 in respect of the invoice rendered by FOS to Utopia for the Panel Fee.
73 Utopia's counterclaim should be dismissed.
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