Fred It Group Pty Ltd v Corum Systems Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2023 0056

FRED IT GROUP PTY LTD (ABN 68 109 546 901)	Applicant
v
CORUM SYSTEMS PTY LTD (ACN 091 519 603)	Respondent

S EAPCI 2023 0057
FRED IT GROUP PTY LTD (ABN 68 109 546 901)	Applicant
v
PHARMX PTY LTD (ACN 117 870 434)	Respondent

---

JUDGES:	KENNEDY, MACAULAY and ORR JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	30 May 2024
DATE OF JUDGMENT:	8 August 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 176
JUDGMENT APPEALED FROM:	S EAPCI 2023 0056: [2023] VSC 208 (M Osborne J) S EAPCI 2023 0057: [2023] VSC 209 (M Osborne J)

---

CONTRACT – Breach of contract – Trial judge held that failure to immediately give notice of ‘Change of Control’ was a breach of a ‘once and for all’ obligation which did not continue – First breach statute barred – Trial judge held that giving notice six years late was a further breach – Applicant contends that giving notice late could not constitute further breach –Respondent concedes error – Appeal allowed.

LIMITATION OF ACTIONS – Postponement of limitation period – Fraudulent concealment – Whether right of action can be fraudulently concealed where defendant is ‘wilfully blind’ to right of action – Contention of wilful blindness foreclosed by factual findings.

TRUSTS – Construction of trust deed – Whether former unitholder entitled to distribution of income – Leave to appeal refused.

Limitation of Actions Act 1958 s 27.

Larking v Great Western (Nepean) Gravel Ltd (in liq) (1940) 64 CLR 221; Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664; Seymour v Seymour (1996) 40 NSWLR 358.

---

Counsel
Applicant:		Mr CM Caleo KC with Ms GSJ Berlic
Respondents:		Mr PH Wallis KC with Mr SJH Ure
Solicitors
Applicant:	SBA Law
Respondents:	Mangioni Biggs + Co

KENNEDY JA
MACAULAY JA
ORR JA:

Introduction

These applications for leave to appeal raise two broad issues. The first concerns the circumstances that are capable of enlivening s 27(b) of the Limitation of Actions Act 1958 (the ‘Limitation Act’), which relevantly provides that where a right of action is concealed by the fraud of the defendant, a period of limitation prescribed by the Act for the action shall not begin to run until the plaintiff has discovered the fraud. The second concerns the proper construction of a clause of a trust deed governing the distribution of income to holders of units in a unit trust. Both issues arise in the context of a joint venture.
The joint venture involved four vendors of point of sale (‘POS’) software to pharmacies, who formed a company known as PharmX Pty Ltd (‘PharmX’) in 2006. PharmX subsequently commenced operating an electronic ordering gateway that facilitated the transmission of product orders and related documents between pharmacy POS software and suppliers of pharmacy products. PharmX derived income from subscription fees paid monthly by suppliers in respect of each account a pharmacy held with that supplier that was connected to the PharmX gateway.
The four vendors who formed PharmX were Corum Systems Pty Ltd (‘Corum’); an entity that later became Fred IT Group Pty Ltd (‘Fred’); Mountaintop Systems Pty Ltd (‘Mountaintop’); and Simple Retail Pty Ltd (‘Simple Retail’).
Each of Corum, Fred, Mountaintop and Simple Retail acquired units in the PharmX Unit Trust (the ‘Trust’), which was established by a deed of trust on 27 February 2006 (the ‘Deed’), with PharmX as the trustee. Corum and Fred each initially held 30 units and Mountaintop and Simple Retail each initially held 20 units.
Each unitholder also acquired a corresponding shareholding in PharmX and entered into a ‘stapled securities’ agreement with PharmX on 27 February 2006 (the ‘SSA’).
The SSA restricted the circumstances in which each of the stapled security holders could sell their stapled securities.[1] It also imposed obligations on each of the stapled security holders in the event that any of them experienced a ‘Change of Control’. Relevantly, cl 15 of the SSA provided as follows:
[1]Clause 14.
15.1 Defined term
In clause 15, Change of Control means, in relation to a Stapled Security Holder, a change in the holding of Voting Shares of the Stapled Securities Holder by a Relevant Person so that:
(a)the Relevant Person acquires a Relevant Interest in more than 50% of the Voting Shares of the Stapled Securities Holder; and
(b)by reason of that acquisition, the Relevant Person also acquires a Relevant Interest in the Voting Shares of the Trustee or Units in the Trust held by the Stapled Security Holder.
15.2Relevant Interest
A person has a relevant interest in shares or units if they:
(a)are the holder of the shares or units; or
(b) have power to exercise, or control the exercise of, a right to vote attached to the shares or units; or
(c)have power to dispose of, or control the exercise of a power to dispose of, the shares or units.
It does not matter how remote the relevant interest is or how it arises. If two ore [scil, or] more people can jointly exercise of [sic] these powers, each of them is taken to have the power.
…
15.5Mandatory Transfer
If there is a Change of Control in a Stapled Security Holder, the Stapled Security Holder (Seller):
(a)must immediately give notice to the Trustee of the Change of Control; and
(b) if the Stapled Security Holders holding 40% or more of the Stapled Securities on issue that are not owned by the Seller agree, the Seller is taken to have given an irrevocable Transfer Notice to each other Stapled Security Holder under clause 14.3 on the earlier of:
(i)the date it gives notice of the Change of Control to the Trustee; or
(ii)the date the Trustee becomes aware that the Change of Control has occurred,
for all Stapled Securities held by it (Sale Securities) at a cash price per Stapled Security determined in accordance with Schedule 6.
Clauses 14.1(b), 14.2 and 14.4 to 14.13 apply with necessary changes to any Transfer under this clause 15.5.
On 30 September 2013, Telstra Corporation Ltd (‘Telstra’) acquired 50 per cent of the issued shares in Fred. Fred notified PharmX of this fact soon after. It did not give notice of a Change of Control. It had received legal advice in August 2013 that an agreement to sell 50 per cent of its voting shares would not result in a Change of Control. However, that legal advice did not consider the terms or effect of a shareholders’ agreement that was entered into by the new shareholders of Fred upon the completion of the Telstra acquisition (the ‘Fred Shareholders’ Agreement’).[2]
[2]Corum Systems Pty Ltd v Fred IT Group Pty Ltd [2023] VSC 208, [209] (‘Corum Claim Reasons’).
Following the Telstra acquisition, Fred continued to receive distributions of income from PharmX under the Trust.
From April 2016, Mountaintop and Daleflag Pty Ltd (‘Daleflag’), to which Simple Retail transferred its stapled securities in 2015, raised concerns about whether the Telstra acquisition had given rise to a Change of Control in Fred. Mountaintop and Daleflag sought documentation from Fred in relation to the acquisition, including any shareholders’ agreement. Fred did not provide the requested documentation. The Fred Shareholders’ Agreement obliged each party to keep confidential the Fred Shareholders’ Agreement and the terms of the Telstra acquisition.[3]
[3]Clause 14.2.
In November 2018, following decisions by PharmX to not distribute income for the 2017 or 2018 financial years, Fred instituted a proceeding in the Supreme Court in which it sought payment by PharmX of its distributions for each of those financial years. In the course of that proceeding, PharmX obtained orders requiring the provision of documentation in relation to the Telstra acquisition. That documentation was provided to PharmX under cover of a letter dated 18 January 2019.
On 21 February 2019, PharmX commenced a proceeding in the Supreme Court seeking judicial advice, including as to whether the Telstra acquisition had given rise to a Change of Control in Fred.
On 21 November 2019, Lyons J delivered judgment in the judicial advice proceeding.[4] Lyons J determined that, as a result of the Fred Shareholders’ Agreement, Fred had undergone a Change of Control in 2013, and that it had failed to provide the notice required by the SSA. On 13 December 2019, the Court made declarations to that effect.
[4]PharmX Pty Ltd v Fred IT Group Pty Ltd [No 3] [2019] VSC 748 (‘Judicial Advice Reasons’).
On the same date, Fred gave notice of the Change of Control by reason of the Telstra acquisition (the ‘2019 Notice’). Corum, Mountaintop and Daleflag elected to treat Fred as having given notification of an irrevocable transfer of Fred’s stapled securities. A dispute arose as to the application of the formula in the SSA for the calculation of the price of the transferred securities. The dispute concerned whether the formula required the price to be calculated by reference to the last two completed financial years before the 2019 Notice (as Fred contended) or the last two completed financial years before the Change of Control occurred in 2013 (as Corum, Mountaintop and Daleflag contended).
Fred transferred its shares and units in PharmX to Corum, Mountaintop and Daleflag, in their respective proportions, effective from 2 April 2020, for $1,831,397.58. This figure was calculated by reference to the two financial years prior to the 2019 Notice. Corum, Mountaintop and Daleflag paid the price on a ‘without admission’ basis and expressly disputed the basis of the calculations. It was agreed that if the proper construction of the SSA required the price to be calculated by reference to the two financial years preceding the Change of Control in 2013, the price would have been $637,444.
Corum subsequently acquired all of Mountaintop and Daleflag’s interests in the Trust.
In June 2020, Corum commenced a proceeding in the Supreme Court against Fred, claiming the difference between the price paid for Fred’s securities (by Corum, Mountaintop and Daleflag) and the price payable if the price was calculated by reference to the two completed financial years before the Change of Control occurred in 2013 (the ‘Overpayment Claim’). Corum also claimed the amount of distributions paid to Fred during the period from 2013 to 2019 (the ‘Wrongful Distributions Claim’). In support of these claims, Corum alleged that:
(1)the proper construction of the SSA required the price to be calculated by reference to the two years preceding the Change of Control;
(2)alternatively, Fred’s failure to give notice of the Change of Control in a timely fashion breached the SSA;
(3)alternatively, the giving of notice of the Change of Control late, by the 2019 Notice, constituted a separate breach of the SSA;
(4)further, Fred’s failure to provide it with documentation with respect to the Telstra acquisition constituted a breach of implied terms of the SSA obliging Fred to cooperate and act in good faith; and
(5)further, Fred’s conduct at various times during the period from the Change of Control to the giving of the 2019 Notice constituted misleading or deceptive conduct.[5]
[5]Corum Claim Reasons, [15].
On 4 September 2020, PharmX approved the payment of distributions of income of the Trust for the financial year ended 30 June 2020 as follows:
(1)Corum — $2,438,326;
(2)Mountaintop — $193,812;
(3)Daleflag — $279,826.
In May 2021, Fred commenced a proceeding in the Supreme Court against PharmX, seeking unpaid distributions in respect of the financial year ending 30 June 2020 in the amount of $1,313,121.05. Fred’s claim was put on two bases — as a ‘money had and received’ claim (the ‘Debt Claim’) and as a claim for breach of trust (the ‘Breach of Trust Claim’). The key issue in both claims was whether Fred was entitled to a distribution under the Deed for the financial year ended 30 June 2020, in circumstances where it had ceased to hold any units in the Trust before the end of that financial year. It was agreed that if Fred was so entitled, the application of the formula for the calculation of distributions in the Deed would have resulted in an entitlement in the amount of $1,313,121.05.
The proceeding brought by Corum in respect of the Overpayment Claim and the Wrongful Distributions Claim and the proceeding brought by Fred in respect of the Debt Claim and the Breach of Trust Claim were tried together over nine hearing days. Corum’s witnesses included David Clarke, its chief financial officer; David Wenham, a director and owner of Mountaintop; and Kevin James-New, the owner and controller of Simple Retail until February 2016. Fred’s principal lay witnesses were Paul Naismith, Fred’s CEO since its incorporation and Anthony Johnston, Fred’s financial controller.
At trial, it was common ground that Fred had undergone a Change of Control on 30 September 2013 as a result of the Telstra acquisition. Corum did not suggest that Fred knew that this was the result of the Telstra acquisition at any time prior to 21 November 2019, when Lyons J handed down the Judicial Advice Reasons.[6]
[6]Corum Claim Reasons, [8].
In respect of Corum’s Overpayment Claim and Wrongful Distributions Claim, the trial judge held that:
(1)the value of the stapled securities transferred by Fred was to be calculated by reference to the last two completed financial years before the transfer, being the 2018 and 2019 financial years;[7]
(2)cl 15.5 of the SSA obliged Fred to immediately notify PharmX upon the occurrence of the Change of Control;[8]
(3)Fred breached this clause on or around 30 September 2013, by failing to give notice of the Change of Control that occurred on that date, and a cause of action accrued at this time;[9]
(4)Corum was not entitled to damages for this breach because the cause of action was statute barred pursuant to s 5(1)(a) of the Limitation Act;[10]
(5)cl 15.5 of the SSA did not give rise to a continuing obligation to give notice of the Change of Control that occurred on 30 September 2013, so no further cause of action accrued to Corum each day that Fred failed to give notice following the Change of Control;[11]
(6)however, Fred further breached cl 15.5 of the SSA in 2019 when it gave late notice of the Change of Control, and Corum was entitled to damages for this breach;[12]
(7)although this entitlement to damages for the breach that occurred in 2019 meant that it was unnecessary to decide whether Corum was entitled to rely upon s 27(b) of the Limitation Act in respect of the breach that occurred in 2013, Fred’s conduct fell ‘well short of conduct of the character necessary to enliven’ that provision;[13]
(8)Fred was not required as an incident of its performance of a duty to cooperate or as an incident of good faith performance of the SSA to provide the requested documentation in relation to the Telstra acquisition;[14]
(9)Fred had not engaged in misleading or deceptive conduct by failing to notify the Change of Control;[15] and
(10)Fred’s breach of the SSA by late performance resulted in an award of damages of $1,134,255 in respect of the Overpayment Claim and $3,999,446 in respect of the Wrongful Distributions Claim.[16]
[7]Corum Claim Reasons, [153]–[164].
[8]Corum Claim Reasons, [181].
[9]Corum Claim Reasons, [189], [258].
[10]Corum Claim Reasons, [189], [258].
[11]Corum Claim Reasons, [182]–[189].
[12]Corum Claim Reasons, [190]–[194], [259].
[13]Corum Claim Reasons, [237]–[257].
[14]Corum Claim Reasons, [198]–[218], [260].
[15]Corum Claim Reasons, [219]–[236], [260].
[16]Corum Claim Reasons, [529].
The trial judge ordered Fred to pay Corum the judgment sum of $5,133,701, together with interest and costs.
In a separate judgment, the trial judge dismissed Fred’s Debt Claim and Breach of Trust Claim, finding that:
(1)Fred was not entitled under the SSA to a distribution of income in respect of the financial year ending 30 June 2020, because PharmX had made no determination to distribute income to Fred for that financial year prior to the date on which Fred ceased to hold units in the Trust;[17] and
(2)PharmX’s determination to distribute income only to Corum, Mountaintop and Daleflag on 4 September 2020 was in accordance with the Deed because the Deed provided for undistributed income to be paid to those who were unitholders on 30 June 2020.[18]
[17]Fred IT Group Pty Ltd v PharmX Pty Ltd [2023] VSC 209 (‘Fred Claim Reasons’), [17].
[18]Fred Claim Reasons, [18].

First application for leave to appeal: Corum’s Overpayment Claim and Wrongful Distributions Claim

Fred seeks leave to appeal the orders made by the trial judge in respect of Corum’s Overpayment Claim and Wrongful Distributions Claim on the following four proposed grounds:
1.In circumstances where the learned trial judge concluded that:
(a)Fred IT breached cl 15.5(a) of the Stapled Securities Agreement (SSA) on or soon after 30 September 2013 when it failed to give notice of the Change of Control; and
(b)the obligation to give notice imposed on Fred IT by cl 15.5(a) of the SSA was a ‘once and for all’ obligation and not a continuing obligation,
the learned trial judge erred in concluding that, by giving notice pursuant to cl 15.5 of the SSA on 13 December 2019 (the 2019 Notice), Fred IT breached cl 15.5 of the SSA by late performance.
2.The learned trial judge ought to have concluded that Fred IT did not commit a breach of contract by late performance when it gave the 2019 Notice.
3.Alternatively, the learned trial judge erred in concluding that the breach of contract by late performance comprising giving the 2019 Notice caused loss and damage to Corum in the amount of $5,133,701.00.
4.The learned trial judge ought to have concluded that the breach by late performance comprising giving the 2019 Notice did not cause any loss and damage to Corum, alternatively did not cause loss and damage in the amount ordered.
In its written case filed prior to the hearing, Corum indicated that it did not oppose a grant of leave to appeal the orders made in respect of the Overpayment Claim and the Wrongful Distributions Claim, but contended that the appeal should be dismissed. Shortly prior to the hearing, Corum’s position changed. It informed the Court that subject to the determination of certain grounds in its notice of contention, to which we will shortly turn, it no longer ‘resisted’ any of the proposed grounds of appeal.
At the hearing, Corum advised the Court that if it was unsuccessful on its notice of contention, then it consented to the Court making orders allowing the appeal, setting aside the orders made by the trial judge and in lieu thereof, dismissing the proceeding. It conceded that there were errors as alleged by the four proposed grounds. However, it indicated that it wished to be heard on costs, both of the appeal and of the proceeding below.
As to the errors alleged by the four proposed grounds, we had the benefit of detailed written cases prepared by Senior Counsel for Fred and Corum, which we have considered. In respect of proposed grounds 1 and 2, Fred submitted that, in making the finding of further breach of the SSA identified at paragraph 21(6) above, the trial judge erred in a number of respects. In short compass, Fred submitted that the trial judge failed to recognise that, given he had already held that the obligation in cl 15.5(a) was a ‘once and for all’ obligation which did not continue, that no separate breach of that obligation could subsequently occur in 2019. Fred’s submission is supported by authority, including Larking v Great Western (Nepean) Gravel Ltd (in liq).[19]
[19](1940) 64 CLR 221; [1940] HCA 37 (‘Larking’).

In Larking, a licensee agreed to pay royalties on a quarterly basis to the licensor, and to build a fence on the land. The licensee never built the fence. The licensee continued to accept payments of royalties. Later the licensor sought to terminate the agreement on the basis that the licensee had not built the fence. The licensee contended that the licensor had, by accepting payments of royalties, waived its right to terminate. A critical question was whether the obligation to build the fence was ‘once and for all’ or continuing. If it was continuing, accepting a payment of royalties would only waive the right to terminate up until the time of the payment — such that the licensor would be entitled to terminate for any failure to build the fence after the payment of royalties. If the obligation was ‘once and for all’, a waiver of the right to terminate for breach of it would be effective for all time. The High Court held that the obligation was ‘once and for all’.
Rich ACJ said:
The obligation to erect the fence was an obligation ‘to do an act of solitary performance’ and to do it within a reasonable time. It is not a continuing covenant and breaches of it are not continuing breaches so that a right of action accrues toties quoties when and as often as damage actually arises from breach of it. When a reasonable time elapses the rights and obligations of the parties are crystallized and set for all time.[20]
[20](1940) 64 CLR 221, 228; [1940] HCA 37 (emphasis added) (citations omitted).
Starke J said:
The learned judge was of opinion that the breach of the covenants to erect fences and a gate were not of a continuing nature and that each was completely and effectively broken ‘once for all’ when the time for doing the work in accordance with the agreement lapsed, which, as no time was mentioned, was a reasonable time from the commencement of the agreement. For example, there can only be one breach of a covenant to put premises in good and tenantable repair; whilst in covenants to repair and keep in repair, to insure, or to cultivate, the breach is of a continuing nature. … .
In my judgment, the learned judge was right in his construction of the present agreement. It required a definite act, namely, the erection of the fences and the gate at specified points and, in the case of the fences, of a particular construction. It also required the erection for particular purposes, namely, the access of the appellant’s stock to the river and to prevent them straying. All this points to an obligation that should be performed completely and effectively within a limited time, which, as the agreement is silent, is within a reasonable time having regard to all the circumstances of the case.[21]
[21](1940) 64 CLR 221, 230–1; [1940] HCA 37 (emphasis added) (citations omitted).
And Dixon J said:
Upon these facts, the first question for consideration is whether the covenants … operated to impose a continuing duty upon the respondent company so that a failure to fence involved new breaches for every day of default, thus including the period after 31^st October 1939. If a covenantor undertakes that he will do a definite act and omits to do it within the time allowed for the purpose, he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach of his covenant. His duty is not considered as persisting and, so to speak, being for ever renewed until he actually does that which he promised. On the other hand, if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided.
…
If the covenant names a time for the doing or completion of a definite act, it is clear that failure to do the act within the time involves a breach once for all, and … the same conclusion will follow where no time is limited but a specified thing is to be done and a reasonable time elapses for the performance of the covenant.
…
The distinction between a covenant to do a definite act capable only of a breach once for all and a continuing covenant has consequences not only in relation to waiver but also … in the effect of lapse of time under statutes of limitation … .[22]
[22](1940) 64 CLR 221, 236–8 (emphasis added) (citations omitted); [1940] HCA 37.
It can be seen from these statements that an obligation that has been characterised as ‘once and for all’ (as the trial judge correctly characterised the obligation imposed by cl 15.5 of the SSA) can only be breached once. Upon breach of such an obligation, the rights and obligations of the parties are crystallised and set for all time. The trial judge’s finding that Corum’s giving of notice in 2019 constituted a second breach of the obligation imposed by cl 15.5 of the SSA for which a measure of damages was recoverable (which measure would have differed from that for the breach in 2013) was inconsistent with Larking. And it negated the effect of the statute of limitations, which Dixon J appears to have contemplated would operate in respect of claims on ‘once and for all’ obligations.
For these reasons, and in the light of the concessions of error by Corum (which was represented by Senior Counsel), we are satisfied that there is an appellable error[23] on the unchallenged basis identified in Fred’s written case in support of proposed grounds 1 and 2. It is otherwise unnecessary to consider proposed grounds 3 and 4.
[23]Bellman v Peters [2020] VSCA 143, [1]–[3] (Tate, Kyrou and McLeish JJA).

Corum’s notice of contention

By its notice of contention, Corum contended that the trial judge’s judgment should be affirmed on three grounds that were said to have been erroneously decided by the trial judge. Shortly prior to the hearing, Corum abandoned the first of these grounds. That left the following two grounds:
2.The learned trial judge ought to have found that Corum’s cause of action arising from Fred’s breach of cl 15.5(a) of the SSA on or about 30 September 2013 was not barred by s 5(1)(a) of the Limitation of Actions Act 1958 (Act) because that cause of action was ‘concealed by fraud’, within the meaning of s 27(b) of the Act.
3.The learned trial judge ought to have held that s 27(b) of the Act is capable of applying in circumstances where the fraudulent concealment begins after the limitation period has commenced to run.
At the hearing, Corum conceded that it needed to succeed on both ground 2 and ground 3, which it described as a ‘subset’ of ground 2.
As a result of the position Corum adopted in relation to Fred’s proposed grounds of appeal, only these two grounds of the notice of contention require resolution in respect of the trial judge’s determination of Corum’s Overpayment Claim and Wrongful Distributions Claim.

Second application for leave to appeal: Fred’s Debt Claim and Breach of Trust Claim

Fred also seeks leave to appeal the orders made by the trial judge dismissing Fred’s Debt Claim and Breach of Trust Claim. At the hearing, Fred abandoned its proposed grounds of appeal challenging the trial judge’s determination of the Breach of Trust Claim. The remaining proposed grounds of appeal concern the trial judge’s determination of the Debt Claim. They are:
1. The learned trial judge erred in concluding that Fred IT did not acquire a vested and infeasible interest in the income of the Trust for the Trust Year ended 30 June 2020 in the amount of $1,313,121.05.
2. Notwithstanding that Fred IT ceased to be a holder of units in the Trust on 2 April 2020, the learned trial judge should have concluded that, on the proper construction of clause 27.3 of the Trust Deed, Fred IT had:
(a) a present entitlement to the sum of $1,313,121.05; and
(b) a vested and indefeasible interest in the sum of $1,313,121.05.

Consideration of first application for leave to appeal: s 27(b) of the Limitation Act

We commence our consideration of the issues raised by these two applications for leave to appeal with the remaining grounds of Corum’s notice of contention in the first application for leave to appeal. These grounds seek to support the trial judge’s order requiring Fred to pay damages to Corum in respect of its Overpayment Claim and Wrongful Distributions Claim by reference to s 27(b) of the Limitation Act.

Limitation Act

Part I of the Limitation Act is titled ‘Periods of limitation’. It includes ss 4 and 5.
Section 4 provides:
4 Application of Act
The provisions of this Part have effect subject to the provisions of Part II.
Section 5 relevantly provides:
5 Contracts and torts
(1)The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued —
(a)… actions founded on simple contract … .
Part II is titled ‘Extension of limitation periods’. It includes s 27, which relevantly provides:
27 Postponement of limitation periods in case of fraud or mistake
Where, in the case of any action for which a period of limitation is prescribed by this Act —
(a)the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or
(b)the right of action is concealed by the fraud of any such person as aforesaid; or
(c)the action is for relief from the consequences of a mistake —
the period of limitation shall not begin to run until the plaintiff has discovered the fraud … or could with reasonable diligence have discovered it … .

The trial

Corum pleaded that the effect of s 27(b) was that the period of limitation in respect of its claim that Fred had breached cl 15.5 of the SSA by failing to notify the Change of Control in 2013 did not begin to run until January 2019, when Fred’s lawyers provided the Fred Shareholders’ Agreement. It alleged that by refusing to provide the Fred Shareholders’ Agreement to PharmX and each of the other stapled security holders in the period of approximately three years prior to that date, Fred had unconscionably concealed its breach of cl 15.5 of the SSA.
As we have noted above, because the trial judge concluded that Corum’s breach of contract claim was made out by reason of the late giving of notice by Fred in 2019, it was not necessary for him to consider whether Corum was entitled to rely upon s 27(b) of the Limitation Act in respect of the breach that occurred in 2013. However, the trial judge proceeded to consider Corum’s submission about s 27(b) ‘in case I am wrong in that conclusion’.[24]
[24]Corum Claim Reasons, [237].
The trial judge observed that although s 27(b) refers to a period of limitation not beginning to run where a right of action is ‘concealed by the fraud’ of a person, it would be sufficient if the essential elements of the cause of action were ‘concealed by conduct that is unconscionable, having regard to the relationship between the parties’. Citing Skrijel v Mengler,[25] his Honour described unconscionability in this context as involving ‘a consciousness that what is being done is wrong or that to take advantage of the situation involves wrongdoing’.[26]
[25][1998] VSC 71, [46] (Eames J) (‘Skrijel’).
[26]Corum Claim Reasons, [240].
The trial judge said that because the cause of action for breach of cl 15.5 of the SSA had arisen on or about 30 September 2013, and the concealment that Corum relied on did not occur until 2016, Corum was in effect seeking ‘not a postponement of the commencement of the relative [scil, relevant] limitation period but its suspension once the limitation period has already commenced’.[27]
[27]Corum Claim Reasons, [242]–[243].
The trial judge described the question of whether s 27(b) permitted the suspension of a limitation period once it had commenced, rather than the postponement of its commencement, as controversial. His Honour referred to academic commentary about the issue of ‘subsequent concealment’. His Honour also referred to two English decisions,[28] as well as two decisions of single judges of this Court,[29] which the trial judge said endorsed the approach taken in one of the English decisions, Sheldon.[30] In Sheldon, the House of Lords had held that where deliberate concealment of facts relevant to a cause of action occurs after the cause of action has arisen, the running of the limitation period is nevertheless postponed.[31]
[28]Tito v Waddell[No 2] [1977] Ch 106 (‘Tito’); Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] AC 102 (‘Sheldon’).
[29]CE Heath Underwriting & Insurance (Australia) Pty Ltd v Daraway Constructions Pty Ltd (Supreme Court of Victoria, Batt J, 3 August 1995) (‘CE Heath’); Skrijel [1998] VSC 71.
[30][1996] AC 102. Corum Claim Reasons, [243]–[250].
[31][1996] AC 102, 140–1 (Lord Keith), 142–5 (Lord Browne-Wilkinson), 154–5 (Lord Nicholls).
Fred submitted that the trial judge should not follow the two Victorian decisions, and that Sheldon could be distinguished given the different wording of the limitation statute under consideration in that case. Ultimately, the trial judge found it unnecessary to determine this submission, because even if s 27(b) permitted time to be suspended once it has commenced to run, he was not satisfied that Fred had unconscionably concealed any matters relevant to the ascertainment of Corum’s cause of action.[32]
[32]Corum Claim Reasons, [251]–[252].
His Honour said:
I do not accept that Fred’s failure to provide the documentation took place in circumstances where Fred had a consciousness that what it was doing was wrong or that it consciously sought to take advantage of a situation involving wrongdoing.
First, as noted above, Fred had received advice from solicitors in August 2013 that no change of control event arose as a consequence of the Telstra acquisition; secondly, Mr Naismith informed the other holders of the fact of the Telstra acquisition at the time that it occurred, which disclosure was met with equanimity if not approval from those holders; thirdly, it was never put to any of Fred’s witnesses and nor do I accept, that Fred later came to the view that a change of control event had occurred at any time prior to the determination made in the Judicial Advice Proceeding; fourthly, the request for provision of the Telstra documentation took place in circumstances where the disclosure of the fact of the transaction had been made by Fred some 3 years earlier, and against the background of a deteriorating relationship between Fred, Simple Retail/Daleflag and Mountaintop, prompted initially by Fred’s unhappiness that Mr James-New had sold Simple Retail to MediSecure, one of Fred’s competitors in another business line without full disclosure of the circumstances accompanying the request to approve the correlated transfer of units from Simple Retail to Daleflag. Additional relevant circumstances include the failure of Mr James-New and Mr Wenham as nominees of Daleflag and Mountaintop to vote in favour of distributions to Fred and Corum and a general lack of alignment between the interests of the smaller holders (Simple Retail and Mountaintop) who preferred a sale of PharmX as a whole and the larger holders Fred and Corum.
In that context, Fred’s failure to provide the Telstra documentation amounted to nothing more than an unwillingness to provide documentation that it was contractually precluded (by the Fred Shareholders’ Agreement) from providing, about a matter which Fred honestly considered did not give rise to a change of control within the meaning of clause 15.5 of the SSA, in respect of an event which had occurred 3 years earlier and been disclosed at the time and met with apparent assent. It also took place in a context where Fred believed, rightly or not, that Mr James-New had not been entirely transparent in his dealings with the rest of the PharmX board and where Mr James-New and Mr Wenham were refusing to vote in favour of distributions made from the Trust to its unitholders, which included Fred.
In that context, Fred’s unwillingness to provide copies of the documentation falls well short of conduct of the character necessary to enliven the operation of s 27(b) of the Limitations Act.[33]
Submissions on appeal
[33]Corum Claim Reasons, [253]–[256].

By the first of the two remaining grounds in its notice of contention (ground 2), Corum contends that the trial judge ought to have found that Corum’s cause of action for breach of the SSA in 2013 was ‘concealed by fraud’ within the meaning of s 27(b), and therefore not statute barred. Corum says that in assessing whether Fred’s conduct was unconscionable, the trial judge focused too narrowly on Fred’s state of mind, which was not decisive. The ultimate question was ‘whether in all the circumstances there has been conduct by Fred such that it would be against conscience for Fred to avail itself of the lapse of time before Corum commenced its proceeding’. Corum said that this ‘broader test’ called for ‘a consideration of the relationship between Fred and Corum and the other holders and therefore the position of them relative to each other’.
Corum contends that Fred was ‘wilfully blind’ to the question of whether the Telstra acquisition had resulted in a Change of Control, and that this state of mind is sufficient to establish an unconscionable concealment of Corum’s cause of action. In support of the proposition that wilful blindness can constitute unconscionability, it relies on a passage from the decision of the Supreme Court in Finance & Guarantee Company Pty Ltd v Auswild.[34] In that passage, Riordan J referred to the decision of the New South Wales Court of Appeal in Seymour v Seymour, concerning a New South Wales analogue of s 27(b).[35] Relevantly, Mahoney ACJ, with whom Meagher JA and Abadee AJA agreed, said:
In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrongdoing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who ‘closes his eyes to wrong’ or is so lacking in conscience that he is not conscious of his own lack of proper standards.)[36]
[34][2019] VSC 664 (‘Auswild’).
[35][2019] VSC 664, [304], quoting (1996) 40 NSWLR 358, 372 (Mahoney ACJ, Meagher JA agreeing at 373, Abadee AJA agreeing at 373).
[36](1996) 40 NSWLR 358, 372 (Meagher JA agreeing at 373, Abadee AJA agreeing at 373).
Corum concedes that it did not ask the trial judge to find that Fred’s conduct was unconscionable on the basis that it was ‘wilfully blind’ to whether there had been a Change of Control. But it says that this was implicit in its submission that Fred knew that there was a real question whether it had undergone a Change of Control, and chose not to take action to resolve that question.
Corum was clear that it does not seek to overturn any finding of fact made by the trial judge. Instead, it contends that the trial judge gave too much weight to the finding that Fred did not know that it had undergone a Change of Control and no weight to evidence that Fred knew that there was uncertainty about whether it had undergone a Change of Control.
Corum makes five points about what the evidence established, which it says required the trial judge to find that Fred’s conduct was unconscionable in the requisite sense:
(1)Clause 15.5(a) of the SSA imposed a positive duty on Fred to give notice of a Change of Control, and it was therefore not entitled to stay silent.
(2)Fred knew there was a real question whether the Telstra acquisition had effected a Change of Control, to which it chose to close its eyes.
(a)Fred was a party to the Fred Shareholders’ Agreement, which contained provisions giving Telstra rights to control the disposal of shares in Fred and gave Telstra control over voting on Fred’s board. Under cl 5.3 of the Agreement, Telstra could appoint the chairman of Fred’s board, and the chairman had a casting vote. Under cl 16, Telstra was granted pre-emptive rights to acquire shares that another shareholder wanted to sell. The Agreement had a ‘drag along option’ to require other shareholders to sell their shares to a third party in certain circumstances, and a right to vet third party transferees, under cls 18 and 20.2(b) respectively.
(b)It knew from the date of the Telstra acquisition that there was uncertainty about whether a Change of Control had occurred, which could only be resolved by careful consideration of the transaction documents by lawyers. It did not engage lawyers to resolve this question.
(c)The legal advice it had received prior to the date of the acquisition was short and generic. It did not consider the Fred Shareholders’ Agreement, which was not available at the time the advice was provided. Further, the advice contained a specific warning that the concept of ‘Relevant Interest’ made it ‘necessary to look beyond the share/unit register’ so as to focus on ‘matters of substance, not form’.
(d)In correspondence in 2016, Daleflag had articulated how the Telstra acquisition might constitute a Change of Control, and had called for PharmX to require Fred to confirm whether a shareholders’ agreement existed.
(e)Fred’s response wrongly denied that a Change of Control had occurred and did not disclose the existence of the Fred Shareholders’ Agreement. Instead, it referred to Telstra’s 50 per cent shareholding, ignored the issue of ‘Relevant Interest’, and referred to the different definition of control for the purposes of consolidation of financial accounts.
(f)Despite the 2016 correspondence from Daleflag, Fred sought no further legal advice on the question.
(3)At the first PharmX board meeting following the Telstra acquisition, Fred disclosed that Telstra had acquired 50 per cent of Fred’s shares but did not disclose the critical further fact that Telstra had obtained control of Fred’s board. It allowed an incomplete account of the transaction to go uncorrected.
(4)Fred knew that the other stapled security holders did not have access to the Fred Shareholders’ Agreement, which was critical to evaluating whether there had been a Change of Control. It had ‘exclusive access’ to the documents requested by the other security holders and ‘steadfastly refused’ to supply them, in circumstances where they required the documents to ascertain whether they had a cause of action. It put forward ‘disingenuous excuses’ and had ‘effectively stonewalled all enquiries and requests for the documents over a period of about three years’. Its conduct was said to be ‘deliberately aimed’ at keeping Corum in the dark.
(5)By refusing to produce the documents until it was ordered to do so by the Supreme Court, Fred obtained valuable benefits, namely income distributions in the amount of approximately $6.5 million and the accrual of value in its stapled securities.

The other ground of Corum’s notice of contention (ground 3) contends that s 27(b) of the Limitation Act can apply where fraudulent concealment begins after the limitation period has begun to run. Corum contends that the effect of s 4 of the Limitation Act is that the provisions of pt I (which includes s 5) operate subject to the provisions of pt II (which includes s 27). Section 5 operates not by prescribing a limitation period, but rather by prohibiting the bringing of an action after a certain time (‘The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued’). That prohibition is subject to s 27, which prescribes circumstances in which ‘the period of limitation shall not begin to run’. Relying on these words, Corum says that the proper analysis was not, as the trial judge had said, whether s 27(b) ‘permits time to be suspended once it has commenced to run’.[37]
[37]Cf Corum Claim Reasons, [252].
Corum contends that s 27(b) is a beneficial provision, and should not be construed to prevent a plaintiff from availing itself of its protection merely because a defendant’s concealment of the cause of action did not begin immediately. It says the terms of s 27(b) do not require that the concealment be co-extensive with the limitation period.
In support of this construction of s 27(b), Corum relies on the two single judge Victorian decisions to which we have referred above,[38] as well as the decision of the House of Lords in Sheldon.[39] It says that the remarks of Megarry V-C in the other English case of Tito that ‘If time has already begun to run, I do not think that a supervening fraudulent concealment will start time running again’,[40] were obiter and should not be followed. Corum also suggested that Tito could be distinguished on the basis that in that case, the information relevant to the cause of action was in the public domain, which was not the case here. In this regard it focused on Megarry V-C’s words, ‘Furthermore, I think that it would require altogether exceptional circumstances to establish a case of fraudulent concealment in relation to a transaction in the public domain’.[41]
[38]CE Heath (Supreme Court of Victoria, Batt J, 3 August 1995); Skrijel [1998] VSC 71.
[39][1996] AC 102.
[40][1977] Ch 106, 245.
[41][1977] Ch 106, 246.
Accordingly, Corum submits, notwithstanding that Fred’s fraudulent concealment did not begin until 2016 and the breach of contract occurred in 2013, Corum can avail itself of s 27(b) in relation to that breach.
We turn to Fred’s contentions in response. In relation to ground 2 of the notice of contention, Fred contends that Corum’s allegation that Fred unconscionably concealed its breach of cl 15.5 of the SSA expressly drew attention to Fred’s state of mind about whether there had been a Change of Control. It emphasises that having pleaded a case based on this state of mind, Corum did not advance a case that Fred knew or otherwise was aware that a Change of Control had arisen at any time prior to the delivery of the Judicial Advice Reasons.[42] Indeed, the trial judge found, as a matter of fact, that Fred believed there had been no Change of Control.[43] Fred’s principal submission in relation to ground 2 of the notice of contention is that it is foreclosed by that finding of fact, which Corum does not seek to overturn.
[42]Corum Claim Reasons, [8], [176], [209].
[43]Corum Claim Reasons, [255].
Fred also relies on the trial judge’s findings about the legal advice that it received in August 2013 that the proposed Telstra acquisition would not give rise to a Change of Control. The trial judge found that there was no suggestion nor any evidence that the relevant officers of Fred considered it significant that the solicitor who gave the legal advice had not been provided with the Fred Shareholders’ Agreement, or that this in some way undermined the legal advice.[44]
[44]Corum Claim Reasons, [209].
Fred submits that Corum’s contention that Fred was wilfully blind to whether a Change of Control had occurred, so as to enliven the operation of s 27(b) of the Limitation Act, cannot succeed in the light of these unchallenged factual findings. Fred submits that the honest belief that the trial judge found it held is inconsistent with wilful blindness. In any event, it says that the paragraphs Corum relied on from Auswild[45] make no reference to wilful blindless, and the proposition that wilful blindness is sufficient to enliven s 27(b) is unsupported by authority.
[45][2019] VSC 664, [304], [311]–[312] (Riordan J).
Finally, Fred says that Corum’s contention that the trial judge erred in his approach to unconscionability by failing to consider the broader relationship between the parties must be rejected. It relies on the trial judge’s express reference to the need to consider the relationship between the parties: ‘it is sufficient if the essential elements of the cause of action are concealed by conduct that is unconscionable, having regard to the relationship between the parties’.[46] It couples that statement with various findings by the trial judge about the relationship between the parties (including a finding about ‘the background of a deteriorating relationship’ between Fred, Mountaintop and Simple Retail/Daleflag), which were expressed to be part of the ‘context’ for the ultimate finding that Fred’s conduct fell short of conduct of the character necessary to enliven the operation of s 27(b).[47]
[46]Corum Claim Reasons, [240] (emphasis added).
[47]Corum Claim Reasons, [254]–[256].
As to ground 3 of the notice of contention, Fred contends that as a matter of construction, s 27(b) provides for a postponement of the start of the limitation period. It says that if time has already begun to run, then the right of action cannot ‘by definition’, be concealed. It urges the Court to adopt the obiter reasoning of Megarry V‑C in Tito,[48] given that the provision there under consideration was in the same form as s 27(b). Fred says that the reasoning of the House of Lords in Sheldon[49] should not be followed because it concerned a differently worded provision, and CE Heath, one of the Victorian decisions said to endorse the position in Sheldon, should also not be followed.[50]

Consideration: ground 2 of the notice of contention

[48][1977] Ch 106.

[49][1996] AC 102.

[50]Supreme Court of Victoria, Batt J, 3 August 1995. Fred observed that in the other Victorian decision, Skrijel [1998] VSC 71, Eames J did not consider that the issue really arose in the case: at [69].

We agree with the trial judge that ‘unconscionability’ in the context of s 27(b) of the Limitation Act involves a consciousness that what is being done is wrong, or that to take advantage of the situation involves wrongdoing.[51]
[51]Corum Claim Reasons, [240], citing Skrijel [1998] VSC 71, [46] (Eames J).
In those circumstances, we accept Fred’s submission that ground 2 of Corum’s notice of contention is foreclosed by the trial judge’s findings of fact, which Corum does not seek to overturn.
The trial judge’s findings of fact included the following:
(1)‘Fred believed that no change of control event had occurred’;[52]
(2)‘I do not accept that Fred’s failure to provide the documentation took place in circumstances where Fred had a consciousness that what it was doing was wrong or that it consciously sought to take advantage of a situation involving wrongdoing’;[53] and
(3)‘Fred’s failure to provide the Telstra documentation amounted to nothing more than an unwillingness to provide documentation … about a matter which Fred honestly considered did not give rise to a change of control within the meaning of clause 15.5 of the SSA’.[54]
[52]Corum Claim Reasons, [223].
[53]Corum Claim Reasons, [253].
[54]Corum Claim Reasons, [255].
As Fred pointed out, the trial judge also found that there was no evidence (or suggestion) that the relevant officers of Fred considered that the fact that their legal adviser provided advice on the Change of Control issue without the benefit of the Fred Shareholders’ Agreement was significant, or that this in any way undermined the legal advice.[55]
[55]Corum Claim Reasons, [209].
These factual findings cannot be reconciled with Corum’s contention that the trial judge ought to have found that Fred ‘unconscionably’ concealed its breach of the SSA by refusing to provide the Fred Shareholders’ Agreement. Nor can they be reconciled with many of the other matters that Corum says are established by the evidence, referred to in paragraph 54 above. Fred cannot have honestly believed that there had been no Change of Control — and therefore no breach of the SSA — and at the same time been unconscionably concealing its breach of the SSA. Nor can Corum’s contention that the trial judge failed to consider the broader relationship between Fred and the other stapled security holders be reconciled with the trial judge’s references to that relationship as part of his assessment of the character of Fred’s conduct.
Corum’s contention that the necessary mental element to establish unconscionability for the purpose of s 27(b) could be supplied by ‘wilful blindness’ also does not assist it. First, we do not regard the passage in Seymour v Seymour[56] that was referred to by Riordan J in Auswild[57] as providing support for that proposition. Secondly, when consideration is given to the other facts found by the trial judge, the evidence relied on by Corum does not establish that any blindness on Fred’s part was ‘wilful’. Finally, Corum did not run its case before the trial judge on the basis that Fred’s refusal to provide the Fred Shareholders’ Agreement was an unconscionable concealment of its breach because Fred was ‘wilfully blind’ about whether a Change of Control had occurred.
[56](1996) 40 NSWLR 358, 372 (Mahoney ACJ, Meagher JA agreeing at 373, Abadee AJA agreeing at 373).
[57][2019] VSC 664, [304].
Ground 2 of the notice of contention must be rejected.

Consideration: ground 3 of the notice of contention

Given our conclusion on ground 2, it is not necessary to consider ground 3 of the notice of contention. Interesting as the question about the proper operation of s 27(b) of the Limitation Act where a fraudulent concealment does not occur until after a cause of action has accrued may be, the resolution of that question will not assist Corum. We have concluded the trial judge was correct to find that Fred’s conduct did not enliven s 27(b).

Conclusion

Corum’s notice of contention must fail. We will therefore make the orders sought in relation to the first application for leave to appeal. The application for leave to appeal will be granted and the appeal will be allowed. We will set aside the orders made by the trial judge and in lieu thereof, dismiss the claims made by Corum in proceeding S ECI 2020 02683.

Consideration of second application for leave to appeal: construction of cl 27.3 and sch 2 of the Deed

We turn to the second application for leave to appeal. As the proposed grounds of appeal in this proceeding concern the proper construction of the Deed, we commence by setting out the relevant clauses.

The Deed

The key parts of the Deed are cl 27 and sch 2. Clause 27 relevantly provides:
27.     Distributions
27.1     Cash distributions
(a)During the period in which the Stapled Securities Agreement is in force the Trustee may at any time determine that:
(i)an amount of Income be distributed to the Holders (Distributable Income); and
(ii)any amount of capital be distributed to a Holder pro rata to the number of Units held in the Trust as at a time determined by the Trustee,
provided that only cash is distributed.
(b)Where the Trustee makes a determination under clause 27.1(a)(i), the amount to be distributed to an individual Holder is the amount calculated in accordance with Schedule 2.
…
27.3     Holders’ interest in Income
Each Holder is presently entitled as at the end of each Trust Year to a share of Income for that Trust Year, if any, which has not previously been distributed:
(a)during the period in which the Stapled Securities Agreement is in force, which is an amount equal to the amount calculated in accordance with Schedule 2, as if the Income were Distributable Income … .
…
Each Holder has a vested and indefeasible interest in all amounts of Income to which that Holder becomes entitled in accordance with the operation of this clause.
Clause 1.1 contains relevant defined terms, which include:
Holder means a holder of a Unit or Units.
Income in respect of any financial year (or any other period determined by the Trustee) means the net income of the Trust for that period (being an amount calculated after deducting expenses of the Trust) determined according to generally accepted accounting principles and approved accounting standards … .
…
Special Majority Approval means a resolution of Holders passed or given by Holders who together represent Holders holding 70% or more of the Units on issue.
…
Trust Year means a year or other period in relation to which taxable income of the Trust for purposes of the Tax Act[58] must be determined.
Unit means a unit in the Trust.
[58]The ‘Tax Act’ is defined in cl 1.1 to mean ‘the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997, or both of them’.
Schedule 2 provides:
Schedule 2 — Calculation of amount of Trust distributions and dividends (clause 27)
The amount of Distributable Income to be distributed to a Holder under clause 27.1(a) is an amount equal to the aggregate of the amounts calculated in respect of that Holder for each Supplier (as defined below), in accordance with the following formula:
A x B x D
C E
where:
A is the Distributable Income;
Bis the revenue from the particular Supplier earned by the Trust as determined by the auditors of the Trust and based on the audited accounts for the most recent financial year;
Cis the total revenue from all Suppliers earned by the Trust as determined by the auditors and based on the audited accounts for the most recent financial year;
Dis the number of purchaser order lines to the particular Supplier registered by PharmX’s ordering gateway software from the relevant Holder during the last financial year; and
Eis the total number of purchaser order lines to the Supplier registered by PharmX’s ordering gateway software from all Holders during the last financial year.
In this schedule, Supplier means any manufacturer, wholesaler or distributor of products to pharmacists which pay a fee or other income to the Trust for the use of its electronic ordering gateway.
Other relevant clauses are cls 2.2, 14, 17 and 31.1, as well as sch 1.
Clause 2.2 provides:
2.2 Benefit of Trust
The Trust is constituted for the benefit of persons who, by subscription or otherwise in accordance with this deed, and the Stapled Securities Agreement, become Holders.
Clause 14 provides:
14.Direction of Holders
The Trustee must act according to the Holders’ directions (including exercising any discretion given to the Trustee under this deed or by law) to the maximum extent legally permitted. However, the Trustee has day to day control of the operation of the Trust.
Clause 17 relevantly provides:
17.1Establish and maintain unit register
The Trustee must initially establish and keep a unit register in Victoria and may change the location of the Register to a location determined by the Trustee from time to time in its absolute discretion.
…
17.3 Registered Holder is owner
The Trustee may treat the registered Holder as the absolute owner of Units registered in that Holder’s name and is not bound to take notice of any trust or equity affecting any Unit. Entry on the Register is conclusive evidence of a Holder’s title to Units.
Clause 31.1 provides:
31. Meetings
31.1 Convening and conduct of Meetings
The Trustee may call a Meeting in the manner provided in Schedule 1 and the Meeting must be conducted in accordance with Schedule 1.
Schedule 1 relevantly provides:
Schedule 1 — Meetings of Holders
1.       Notice
1.1     Calling of Meetings
(a)The Trustee may at any time call and arrange a Meeting.
(b)The Trustee must call and arrange a Meeting at the written request of Holders with 10% of the issued Units.
…
3.       Voting
3.1     Show of hands
(a)A resolution put to the vote of a Meeting must be decided on a show of hands except if a poll is demanded.
…
3.2     Poll
(a)A poll may only be demanded by:
(i)the chairperson; or
(ii)in writing by one or more Holders present in person, by proxy or by authorised representative and holding or representing 5% of the issued Units.
(b)A poll may only be demanded before or on the declaration of the result of the show of hands.
(c)If a poll is duly demanded it is to be taken in the manner the chairperson may direct and the result of the poll is deemed to be the resolution of the Meeting at which the poll was demanded.
…
3.4     Number of votes
(a)On a show of hands, each Holder who is present in person, by attorney, by proxy or by authorised representative has one vote.
(b)On a poll, each Holder who is present in person, by attorney, by proxy or by authorised representative has one vote for every Unit of which the Holder is the registered holder.
…
3.7     Resolutions
Subject to this deed and any Special Majority Approval, a resolution of the Holders is carried if a majority of the votes cast on the resolution of Holders is in favour of the resolution.
…
5.       Decision making
5.1     Simple majority decision
Subject to paragraph 5.2, decisions must be made by a simple majority vote.
5.2     Special Majority Approval
The following may only be done by Special Majority Approval:
(a)any modification or compromise or any arrangement in respect of Holders’ rights against the Trustee;
(b)any modification, alteration, cancellation, amendment or addition to this deed; and
(c)termination of the Trust under clause 22.1.
6.       Holders bound
A resolution passed at a Meeting duly convened and held in accordance with this Schedule binds each Holder whether the Holder was present at the Meeting and each Holder must give effect to the resolution.

The trial

It was not in dispute at trial, nor before us, that Fred ceased to hold any units in the Trust on 2 April 2020. On that date, Fred executed unit transfers and was removed from the register of unitholders.[59]
[59]Fred Claim Reasons, [11].
At trial, Fred contended that properly construed, cl 27.3 of the Deed did not require it to hold units at 30 June 2020 in order for it to be entitled to a share of Income for the Trust Year ending on that date.
The trial judge rejected Fred’s construction of cl 27.3. The trial judge construed ‘Holder’ in cl 27.3 to mean a holder of units as at the end of the Trust Year, namely 30 June 2020. Because Fred did not hold any units at this date (and no resolution of PharmX to distribute to Fred had been made whilst Fred was a unitholder), Fred had derived no present entitlement to a share of the Income not previously distributed. The absence of any such entitlement meant that Fred had not acquired a vested and indefeasible interest in the undistributed income that would facilitate the making of its claim for money had and received.[60]
[60]Fred Claim Reasons, [16]–[17].
Accordingly, Fred was not entitled under cl 27.3 to any Income for the Trust Year ending 30 June 2020, and its Debt Claim failed.[61]
[61]As we have mentioned, Fred’s Breach of Trust Claim also failed, but it no longer presses the proposed grounds of appeal in relation to that claim.
We observe that in addressing Fred’s alternative Breach of Trust Claim, the trial judge said that Fred’s submission that the amount of distributions the subject of the 4 September 2020 resolution did not comply with sch 2 was based on a misapprehension of the application of the formula set out in sch 2. The trial judge said that Fred’s submission wrongly assumed that integer E of the formula in sch 2 incorporated purchaser order lines registered by PharmX’s gateway from Fred during the financial year ending 30 June 2020, with the consequence that there is an undistributed component of income to which Fred has an entitlement. But, the trial judge said, Fred’s purchaser order lines were not to be so incorporated, because it was not a Holder as at 30 June 2020. The trial judge said the revenue generated by the Trust from orders placed by Fred’s ordering software was no different to revenue generated by the Trust from orders placed by the ordering software of any other third party vendor.[62]

Submissions on appeal

[62]Fred Claim Reasons, [20]–[22]. Third party vendors of POS software were able to connect their POS software to the PharmX gateway. PharmX provided a monthly ‘rebate’ to such vendors, calculated by reference to the number of orders transmitted from the vendor’s POS software via the PharmX gateway: Corum Claim Reasons, [3].

By way of background, Fred says that its action for money had and received was framed by reference to the analysis of cl 27.3 by Lyons J in the Judicial Advice Reasons. In the context of deciding that Special Majority Approval (as defined) was not required for the payment of any amounts to which Holders are entitled under cl 27.3, Lyons J said that ‘there is an obligation on a trustee to pay to a beneficiary his or her income entitlement, including one to which the beneficiary is entitled, without demand’. His Honour further said that ‘in respect of any payment, if there is nothing more for the Trustee to do or the Trustee has acknowledged the amount due, a claim for money had and received at common law would lie’.[63]
[63]Judicial Advice Reasons, [194].
Fred acknowledges that Lyons J did not address the question of the proper construction of ‘Holder’ as used in cl 27.3. It contends that the trial judge’s construction of this term was wrong. While the entitlement pursuant to cl 27.3 arises ‘as at the end of’ each Trust Year, those words do not qualify ‘Holder’. The term ‘Holder’ in cl 27.3, it contends, means a Holder of units at any time during the relevant Trust Year, for three reasons.
First, the term ‘Holder’ should be construed consistently wherever it appears in the Deed, and in particular, consistently with its meaning in sch 2. In sch 2, the relevant timeframe used to calculate integer D and integer E in the formula for determining the amount of Distributable Income is a complete financial year. Crucially, integer E is ‘the total number of purchaser order lines … from all Holders during the last financial year’. Fred says that the trial judge’s construction of ‘Holder’ in cl 27.3 disregards the use of this language in sch 2.
Secondly, Fred contends that the trial judge mischaracterised Fred’s case when he said (in addressing Fred’s Breach of Trust Claim), that Fred ‘assumed’ that integer E incorporated purchaser order lines registered from Fred’s POS software during the financial year. Rather, that was the proper construction of the term, and the trial judge failed to undertake the task of construing the term ‘Holder’ in sch 2.
Thirdly, Fred contends that construing ‘Holder’ as someone who holds units at the end of the financial year produces an uncommercial and perverse result. At the hearing, this point was described as the ‘nub of [Fred’s] submission’. By way of example, Fred said, if it had ceased holding units on 29 June 2020, it would not be entitled to any Income from the financial year, and the remaining unitholders would obtain a windfall by virtue of the increase in their share of the Distributable Income. In support of its submission, Fred pointed at the hearing to parts of the trial judge’s reasons that it said demonstrated the trial judge appeared to have misunderstood how the Trust earned income, such that he ‘was not conscious of the argument that we advanced to the effect that the result is so uncommercial’.
In response, PharmX contends that Fred’s construction of ‘Holder’ as the term is used in cl 27.3 requires the additional words ‘at any time during the relevant Trust Year’ to be read into the term. There is, it says, no basis for doing so, in circumstances where the term is expressly defined in cl 1.1 of the Deed to mean ‘a holder of a Unit or Units’. Indeed, it says that there are a number of good reasons for not implying such words into the term.
First, it, like Fred, submitted that the term should be construed consistently wherever it appears in the Deed. If ‘Holder’ was construed so as to include the words ‘at any time during the relevant Trust Year’ elsewhere in the Deed, the Deed would be rendered unworkable. For example, such a construction would oblige the Trustee to act in accordance with the directions of a person who had held units at any time during the Trust Year, even after it had disposed of its units (cl 14). Such a person would also be entitled to participate in meetings of Holders for the remainder of the Trust Year pursuant to cl 31 and sch 1 of the Deed, together with the new unitholder who had acquired its units.
Secondly, PharmX contended that no sufficient basis can be found in cl 27 for the term ‘Holder’ taking a meaning other than that expressly given in cl 1.1. If Fred’s construction were accepted, cl 27.1 would authorise the Trustee to distribute Income to persons who did not hold units in the Trust at the time of the determination. PharmX submits that that would be a surprising result, especially because cl 2.2 of the Deed provides that the Trust is ‘for the benefit of persons who, by subscription or otherwise in accordance with this deed, and the Stapled Securities Agreement, become Holders’. In this connection, PharmX also refers to cl 17.3 of the Deed, which authorises the Trustee to treat entry on the unit register of the Trust as conclusive evidence of a Holder’s title to units.
Thirdly, PharmX said that Fred’s construction of the term ‘Holder’ in cl 27.3 is not required by the language of the formula in sch 2. The question of entitlement to a distribution (under cl 27) cannot be controlled by the formula for calculating the amount of any distribution (sch 2). If there were any inconsistency between cl 27 and sch 2, the formula for calculating the amount (sch 2) should yield to the provision controlling the entitlement (cl 27). There is, however, no such inconsistency, says PharmX. Schedule 2 is capable of rendering a calculation of Distributable Income even where ‘Holder’ takes the express meaning given to it in cl 1.1. As to Fred’s contention that the meaning of the term ‘Holder’ in Integer E is governed by the words ‘all’ and ‘during the last financial year’, PharmX submits that those words, properly read, condition the effect of the term ‘Holder’ as it operates in integer E, rather than infusing the term with a different meaning.
Finally, PharmX said that an ordinary reasonable businessperson would not understand the term ‘Holder’ in cl 27.3 to require the additional words. The ordinary reasonable businessperson would consider it a normal condition of an entitlement to a distribution of income that a security holder be registered as a holder of the security at the time of distribution. In oral submissions, PharmX said that if Fred wished to receive a distributable amount of Income for the Trust Year, its options were either to dispose of its units after the end of the Trust Year, or to procure the making of an interim dividend by agreement with the other unitholders prior to disposing of its units before the end of the Trust Year.

Consideration

We accept PharmX’s (and the trial judge’s) construction of cl 27.3 and the term ‘Holder’.
The chapeau to cl 27.3 reads, ‘Each Holder is presently entitled as at the end of each Trust Year to a share of Income for that Trust Year’.
The starting point for the meaning of ‘Holder’ must be the definition in cl 1.1. ‘Holder’ is there defined to mean ‘a holder of a Unit or Units’. The definition is expressed in the present tense, by virtue of there being no words of any other tense. It does not refer to former unitholders. We accept PharmX’s submission that Fred’s construction requires the term ‘Holder’ to be read as implicitly including words to the effect of ‘at any time during the relevant Trust Year’. There is no basis for any such implication.
The primary matter relied on by Fred in support of such an implication is the language used in sch 2. But, as PharmX submitted, using the language of sch 2 to construe the meaning of ‘Holder’ in cl 27.3 would result in the question of entitlement to a distribution (under cl 27.3) being controlled by the formula for calculating the amount of any distribution (in sch 2). In our view, it makes more sense that the question of entitlement should be anterior to that of amount.
In any event, the language in sch 2 does not assist Fred. It will be recalled that Integer E of the formula for calculating the amount of a distribution is defined as ‘the total number of purchaser order lines to the Supplier registered by PharmX’s ordering gateway software from all Holders during the last financial year’.
(a)First, it is more likely that the word ‘all’ is not intended to alter the meaning of the word ‘Holders’ (given that ‘Holder’ is a defined term in cl 1.1). Rather, the word ‘all’ emphasises the proportional nature of the component of the formula that is integer D divided by integer E. Integer D is the ‘number of purchaser order lines … from the relevant Holder’. Integer E is the ‘number of purchaser order lines … from all Holders’. The words ‘all Holders’ invites a contrast with the words ‘the relevant Holder’, emphasising that integer D divided by integer E yields the proportion of purchaser order lines attributable to a particular Holder.
(b)Secondly, even if Fred’s construction were accepted, the word ‘all’ would do no work. If cl 27.3 is intended to grant an entitlement to anyone who has held units in the financial year, then the words ‘Holders during the last financial year’ would be capable of conveying that meaning, without the need for the word ‘all’. Thus, the contention that the trial judge’s construction disregards the word ‘all’ cuts both ways. It does not advance Fred’s case.
(c)Thirdly, the words ‘during the last financial year’ play an important role in the trial judge’s construction. They provide the timeframe in which purchaser order lines are counted for the purposes of the calculation of integers D and E.
As PharmX submitted, on the trial judge’s construction, the formula in sch 2 remains capable of rendering a calculation of Distributable Income. On that construction, purchaser order lines from Fred are not included in integers D and E. As the trial judge said, in this respect, Fred would be just like any other third party vendor not entitled to a share of Income. The trial judge’s construction produces no inconsistency with sch 2.
The inconsistencies raised by PharmX, on the other hand, are persuasive. If ‘Holder’ in cl 27.3 meant all persons who had held units at some point in the Trust Year, the application of that meaning where ‘Holder’ is used in other parts of the Deed would yield anomalous results. PharmX would be bound by cl 14 to follow the directions of former unitholders. Former unitholders could attend meetings of Holders and vote on resolutions by a ‘show of hands’ (sch 1 cl 3.4(a))). Former unitholders would also be bound by resolutions passed at such meetings, whether or not they attended (sch 1 cl 6).
We reject Fred’s submission that the trial judge allowed the words ‘as at the end of each Trust Year’ to alter the term ‘Holder’ in cl 27.3. Applying the definition of ‘Holder’ in cl 1.1, the natural reading of cl 27.3 is that only those who hold units have a present entitlement to Income. The words ‘as at the end of each Trust Year’ refer to the time that entitlement arises.
As for Fred’s contention that the trial judge mischaracterised Fred’s case when he said that Fred ‘assumed’ that integer E incorporated purchaser order lines from Fred’s POS software, we note that this observation was made in the context of the trial judge’s adjudication of the Breach of Trust Claim, and that the proposed grounds of appeal in relation to the Breach of Trust Claim were abandoned.
That leaves the contention that the trial judge’s construction produced an uncommercial result. We are not persuaded by this submission. As PharmX submitted, it will typically be open to a unitholder to wait until the Trust Year has ended to dispose of its units, or to seek to negotiate an interim distribution. True it is that Fred will not receive a distribution under cl 27.3 despite having held units for nine months of the Trust Year. But, as PharmX submitted, it is not an unusual commercial outcome for the holder of a capital asset to derive income from that asset only for so long as their capital is tied up in owning it.
For these reasons, the application for leave to appeal from the trial judge’s dismissal of Fred’s Debt Claim and Breach of Trust Claim must be refused.

Conclusion

In the first application for leave to appeal, which concerns the proceeding brought by Corum in respect of the Overpayment Claim and the Wrongful Distributions Claim, leave to appeal will be granted and the appeal will be allowed. We will also make an order setting aside the trial judge’s orders and an order in lieu dismissing the proceeding.
In the second application for leave to appeal, which concerns the proceeding brought by Fred in respect of the Debt Claim and the Breach of Trust Claim, leave to appeal will be refused.

[2024] VSCA 176

8 August 2024