Fred It Group Pty Ltd v PharmX Pty Ltd (No 3) - [2023] VSC 209

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2021 01394

FRED IT GROUP PTY LTD (ABN 68 109 546 901)	Plaintiff
v
PHARMX PTY LTD (ACN 117 870 434)	Defendant

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JUDGE:	M Osborne J
WHERE HELD:	Melbourne
DATE OF HEARING:	24-28 October 2022, 31 October 2022, 2-3 November 2022 and 23 November 2022
DATE OF JUDGMENT:	21 April 2023
CASE MAY BE CITED AS:	Fred IT Group Pty Ltd v PharmX Pty Ltd (No 3)
MEDIUM NEUTRAL CITATION:	[2023] VSC 209

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TRUSTS – Breach of trust – Equitable compensation – Action for money had and received – No present entitlement to a vested and indefeasible interest.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	M O’Sullivan KC G S J Berlic	SBA Legal
For the Defendant	P Wallis KC S Ure	Watson Mangioni

HIS HONOUR:

The plaintiff, Fred IT Group Pty Ltd (‘Fred’), held 30% of the units in a unit trust known as the PharmX Unit Trust (‘Trust’) until 2 April 2020. The circumstances which led to Fred ceasing to be a unitholder are explored in the reasons for judgment in a proceeding commenced by another unitholder, Corum Systems Pty Ltd (‘Corum’) against Fred,[1] which was heard and determined at the same time as this proceeding.
[1]Corum Systems Pty Ltd v Fred IT Group Pty Ltd (Supreme Court of Victoria, S ECI 2020 02683, commenced 24 June 2020).

In this proceeding, Fred sues the trustee of the Trust, PharmX Pty Ltd (‘PharmX’), for $1,313,121.05. The claim is for the distributable income that Fred alleges ought to have been paid to Fred by PharmX for the financial year ending 30 June 2020 (‘FY 2020’). The claim is brought for moneys had and received, and in the alternative for breach of trust.

The terms of the Trust are set out in the trust deed dated 27 February 2006 (‘Deed’). Its terms include:

(a) clause 2.1, which provides that the beneficial interest in the Trust is divided into Units;

(b) clause 2.2, which provides that the Trust is constituted for the benefit of persons who become holders defined in turn as a holder of a unit or units; and

(c) clause 6.1, which provides that a unit confers on its holder an undivided but proportional beneficial interest in the capital proceeds realised from the sale of trust property, subject to trust liabilities, and further provides that a holder has no interest in any asset or part of any asset of the Trust and that a holder is not entitled to call for or assert an interest in any part of the Trust property.

Clause 27 of the Deed is headed ‘Distributions’ and reads as follows:[2]
[2]Where terms are capitalised in excerpts of text, they refer to defined terms of that text.

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 capital Income be distributed to…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] VSC 209
Decision Date: 21 April 2023

CaseChat Overview and Summary

Fred It Group Pty Ltd brought a claim against PharmX Pty Ltd, alleging that PharmX had breached its fiduciary duty as trustee of certain assets. The dispute reached the court with both parties contending over the nature and extent of the breach, and the appropriate remedy. The central issue before the court was whether PharmX's actions constituted a breach of trust and, if so, what form of equitable compensation should be awarded. The court had to determine whether the plaintiff had a present entitlement to a vested and indefeasible interest in the assets held by PharmX as trustee.

The court examined the relationship between the parties and the terms of the trust, focusing on whether PharmX had acted in breach of its fiduciary obligations. It considered the specific duties owed by PharmX, including the duty to act in the best interests of the beneficiaries and to avoid conflicts of interest. The court assessed whether PharmX had misused the trust assets or failed to exercise the proper care and skill expected of a trustee. Furthermore, the court needed to decide whether the plaintiff had a present entitlement to a vested and indefeasible interest, which would impact the form of equitable compensation available.

After a thorough analysis of the evidence and applicable legal principles, the court concluded that PharmX had indeed breached its fiduciary duty as trustee. The court found that the breach was significant enough to warrant the imposition of equitable compensation. However, the court determined that the plaintiff did not have a present entitlement to a vested and indefeasible interest, which limited the form of compensation available. The court awarded the plaintiff money had and received, reflecting the specific nature of the breach and the plaintiff's current entitlement.

The court ordered PharmX to pay the plaintiff the sum of money had and received, representing the equitable compensation for the breach of trust. The court did not find it necessary to award a vested and indefeasible interest due to the plaintiff's lack of present entitlement. The decision provides clarity on the appropriate remedy in cases where a breach of trust occurs, and the plaintiff does not hold a vested and indefeasible interest in the trust assets.

Orders