Gee Dee Nominees Pty Ltd v Tower Hill One Investments Pty Ltd
[2015] VSC 39
•20 February 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
S CI 2013 03307
IN THE MATTER OF TOWER HILL ONE INVESTMENTS UNIT TRUST AND TOWER HILL THREE INVESTMENTS UNIT TRUST AND ELCHO NORTH INVESTMENTS UNIT TRUST
BETWEEN
| GEE DEE NOMINEES PTY LTD (ACN 006 233 870) AS TRUSTEE OF THE G & D PETSINIS FAMILY TRUST AND GEORGE PETSINIS | Plaintiffs |
| and | |
| TOWER HILL ONE INVESTMENTS PTY LTD (ACN 127 533 975) AS TRUSTEE OF THE TOWER HILL ONE INVESTMENTS UNIT TRUST & ORS (According to the Schedule attached) | Defendants |
| and | |
| BETWEEN | |
| S CI 2013 3938 | |
| TOWER HILL ONE INVESTMENTS PTY LTD (ACN 127 533 975) AS TRUSTEE OF THE TOWER HILL ONE INVESTMENTS UNIT TRUST & ORS (According to the Schedule attached) | Plaintiffs |
| and | |
| GEE DEE NOMINEES PTY LTD (ACN 006 233 870) AS TRUSTEE OF THE G & D PETSINIS FAMILY TRUST | Defendant |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5-9, 12 May 2014 and 28 July 2014 |
DATE OF JUDGMENT: | 20 February 2015 |
CASE MAY BE CITED AS: | Gee Dee Nominees Pty Ltd & Ors v Tower Hill One Investments Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2015] VSC 39 |
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TRUSTS AND TRUSTEES — Whether trustees are entitled to make calls for contributions from unitholders.
UNITHOLDERS AGREEMENT — Deadlock procedure — Effect of the triggering of deadlock procedure, requiring the sale of assets, on the trustees ability to make calls.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs in proceeding S CI 2013 03307 and the Defendants in proceeding S CI 2013 3938 | Mr C E Shaw | Norton Gledhill |
| For the First to Third Defendants in proceeding S CI 2013 03307 and the Plaintiffs in proceeding S CI 2013 3938 | Mr P J Booth | Obst Legal |
| For the Fourth to Seventh Defendants in proceeding S CI 2013 03307 | Mr M Rivette | Davis Lawyers |
HIS HONOUR:
A. Introduction and relevant background
Tower Hill One Investments Pty Ltd (‘Tower Hill One’) is and was at all times material the trustee of the Tower Hill One Trust and in such capacity the registered proprietor of 37.45 hectares of land at 80-110 Tower Hill Drive, Lovely Banks (the ‘Tower Hill One Land’).
Tower Hill Three Investments Pty Ltd (‘Tower Hill Three’) is and was at all times material the trustee of the Tower Hill Three Trust and in such capacity the registered proprietor of 25.08 hectares of land at 30‑40 Tower Hill Drive, Lovely Banks (the ‘Tower Hill Three Land’).
Elcho North Investments Pty Ltd (‘Elcho North’) is and was at all times material the trustee of the Elcho North Trust and in such capacity the registered proprietor of one equal undivided half part or share in 96.2 hectares of land at 295 Elcho Road, Lovely Banks (the ’Elcho North Land’).
The Tower Hill One Land, the Tower Hill Three Land and the Elcho North Land (together the ‘Trust Land’) is located at Lovely Banks in Northern Geelong and forms part of a development project managed by Lovely Banks Management Pty Ltd (‘LBM’) as trustee of the Lovely Banks Management Unit Trust (the ’Lovely Banks Project’).
Gee Dee Nominees Pty Ltd (‘Gee Dee’) is and was at all times material the trustee of the G & D Petsinis Family Trust (the ‘Petsinis Family Trust’) and in such capacity the holder of 240 units in each of the Tower Hill One Trust, the Tower Hill Three Trust and the Elcho North Trust. George Petsinis (‘Petsinis’) effectively controls Gee Dee.
One Monty Pty Ltd (‘One Monty’) is and was at all times material the trustee of the Davis Family Trust (the ‘Davis Family Trust’) and in such capacity the holder of 240 units in each of the Tower Hill One Trust, the Tower Hill Three Trust and the Elcho North Trust. Peter Bruce Davis (‘Davis’) effectively controls One Monty.
Latley Pty Ltd (‘Latley’) is and was at all times material the trustee of the S & T Hay Family Trust (the ‘Hay Family Trust’) and in such capacity the holder of 240 units in each of the Tower Hill One Trust, the Tower Hill Three Trust and the Elcho North Trust. Stephen Fenton Glen Hay (‘Hay’) effectively controls Latley.
Each of Petsinis, Davis and Hay are, in addition to being equal unitholders, shareholders in Tower Hill One, Tower Hill Three and Elcho North (together, ‘the Trusts’). Davis and Hay are directors of each company. Petsinis was a director of each company but was removed on 12 January 2010.
In or about 2008 Petsinis, Davis and Hay agreed to acquire and develop land in North Geelong. Various parcels of land were acquired from time to time by each of the Trusts as referred to above.
ABC Project Management (Vic) Pty Ltd (‘ABC’) was engaged to act as project manager for the Lovely Banks Project with primary responsibility to manage the process for the Trust Land to be rezoned and developed.
On 17 December 2008 LBM purported to terminate the agreement by which ABC was engaged to act as project manager for the Lovely Banks Project (‘ABC Agreement’). Although considerable correspondence, a mediation and litigation (which was ultimately settled) followed, this was the start of the deterioration in the relationship between Petsinis on the one side and Davis and Hay on the other.
Over the years the relationship deteriorated further. On 11 January 2012, Petsinis triggered the deadlock procedures (referred to below) in each of the trust deeds with the final result being a requirement on the part of each trustee to sell the land held on trust. Petsinis and Gee Dee contend that for various reasons the sale was not properly undertaken and sought the removal of each trustee. The removal of each trustee was also sought on numerous other grounds relating to the alleged misconduct of each trustee.
Tower Hill One, Tower Hill Three and Elcho North (together ‘the Trustees’) contended that the sale was properly conducted on advice and that the conduct of Petsinis in effect prevented the sale from taking place. In a separate proceeding, the Trustees sought judicial advice in relation to the value of the units for the purpose of redeeming the units held by Gee Dee in accordance with the trust deed relating to each trust. They contended further that each trustee was not in breach of trust as alleged and that the requirement to sell was no longer applicable because of the conduct of Petsinis.
In the course of the proceedings, on 12 May 2014, an offer was made by the Trustees to the effect that a receiver be appointed to the assets of each trust so that the assets, essentially the Trust Land, may be sold. Orders were made accordingly and Wayne Edward Benton was appointed receiver with various powers.
As a result of the offer and consequent orders, the only relevant and real issue remaining (other than the issue of costs) concerns the liability of Gee Dee to pay calls made by the Trustees.
The issue arises in the following way: Both before and after Gee Dee invoked the deadlock procedure, the Trustees made various calls on unitholders. Gee Dee paid some but not all of the calls. The other unitholders paid all of the calls presumably by way of capital contributions. No additional units have been issued to those unitholders in respect of the payment of those calls. Gee Dee contends that it has paid all proper calls and that the Trustees were not entitled to make the calls after the deadlock procedure was invoked.
It is disappointing and unfortunate but hardly surprising, given the level of acrimony between the parties, that they have been unable to resolve the matter. Matters of this kind are best resolved by the parties. At the outset much of the case — substantial affidavits, exhibits, documentation and submissions — related to conduct issues concerning the Trustees and Petsinis. None of this is directly relevant to the narrow remaining issue. Insufficient attention, focus and precision was given to the remaining issue and it was left to the Court to go through much documentation of questionable relevance. The remaining issue should have been sorted out.
Gee Dee has essentially achieved what it wanted to achieve, namely a sale of the Trust Land in accordance with the various Unitholders Agreements by an independent person. From its point of view the only remaining issue is whether it is obliged to pay any outstanding calls. In my opinion it does not.
The Trustees no longer require the judicial advice sought in relation to the value of the units for the purpose of redemption. In any event the advice is irrelevant. At the end of the day the Trust Fund should comprise a cash amount. To this extent the obligation to pay the calls may be of some relevance. However, in the final analysis the Trusts will be wound up and if necessary orders will be made at that stage.
B. The Relevant Documents
Unitholders Agreements
By a unitholders agreement dated 28 August 2008 (the ‘Tower Hill One Unitholders Agreement’), Tower Hill One, Gee Dee, One Monty, Latley and the other unitholders of the Tower Hill One Trust entered into an agreement as to the way the Tower Hill One Trust would participate in developing the Tower Hill One Land and the way the affairs of the Tower Hill One Trust would be managed.
By a unitholders agreement dated 28 August 2008 (the ‘Tower Hill Three Unitholders Agreement’), Tower Hill Three, Gee Dee, One Monty, Latley and the other unitholders of the Tower Hill Three Trust entered into an agreement as to the way the Tower Hill Three Trust would participate in developing the Tower Hill Three Land and the way the affairs of the Tower Hill Three Trust would be managed.
By a unitholders agreement dated 29 January 2008 (the ‘Elcho North Unitholders Agreement’), Elcho North, Gee Dee, One Monty, Latley and the other unitholders of the Elcho North Trust entered into an agreement as to the way the Elcho North Trust would participate in developing the Elcho North Land and the way the affairs of the Elcho North Trust would be managed.
The Tower Hill One Unitholders Agreement, the Tower Hill Three Unitholders Agreement and the Elcho North Unitholders Agreement (collectively the ‘Unitholders Agreements’) contain terms as follows:
Commitment to Trust and Project
Clause 2
(1)The Parties must ensure that the Trust does all things necessary to assist the Project under the Development Programme and shall comply with the Joint Development Agreement.
(2)Each Party must:
(a)co-operate and use the Party’s best endeavours to ensure that the Trust successfully conducts the Project;
(b)not use Confidential information in a way which does or is reasonably likely to damage the Trust or any of the other Parties;
(c)not unreasonably delay any action, approval, direction, determination or decision which is required of the Party;
(d)make approvals or decisions that are required of the Party in good faith and in the best interests of the Trust and the conduct of the Project as a commercial venture; and
(e)be just and faithful in the Party’s activities and dealings with the other Parties.
(5)Any liability incurred by a Party under:
(a)this Agreement;
(b)the transactions contemplated by this Agreement; or
(c)action by the Trust,
will be shared between the Parties in their Respective proportions and each of the Parties irrevocably and unconditionally indemnifies and saves harmless, to the extent of the first mentioned Party’s respective proportion, the other Parties against that liability.
Unitholder’s Meetings
Clause 4
(1)The Parties must ensure that:-
(a)meetings of the representatives of the Unitholders (“the Participants”) will take place at least once every Twelve months;
(b)meetings of the Participants are convened and held under the Trust Deed;
(c)a Participant is appointed as chairman of the meeting;
(d)the Participants will initially comprise five (5) persons. Each of Unitholder one, Unitholder two, Unitholder three, Unitholder four and Unitholder five shall be entitled to nominate one person to be its Participant and such person may be changed by the Unitholder that appointed the Participant at any time.
(2)A decision by the Participants may be made by a majority of sixty per cent 60% of the voting members or more.
Management of the Trust
Clause 5
(2)The Participants will consider and adopt any changes to the Development programme as and when they are required and prior to its expiry four years after the date of this Agreement and adopt a new programme for the management of the Trust or extend the Development programme in accordance with the following procedure;
(a)at least 2 months before the expiry of the Development Programme the Trustee will submit a draft Development programme to the Participants clearly showing the changes proposed;
(b)the Participants will consider the draft Development Programme and if possible approve a new Development Programme which will thereafter become the Development Programme for the purposes of this Agreement and if agreed to shall be binding on the parties to take effect on expiry of the Development Programme;
Clause 6
(1)The Parties must ensure that the Trust has sufficient working capital to meet all its financial obligations as they fall due including payments pursuant to the Joint Development Agreement either from:
(a)initial contributions by the Parties;
(b)borrowings by the Trust supported by joint and several guarantees from the Company’s Directors (subject to Clause 7(2) of the this Agreement);
(c)contributions to be made by the Unitholders in their Respective proportions which are in accordance with the Development Programme.
(2)The Parties acknowledge that the Foundation Unitholders have contributed their time and expertise in identifying and analysing the suitability of the Property as part of the project land and have applied funds in paying all the amounts due and payable by the trust to date and the parties acknowledge that these contributions shall satisfy their obligations to provide their initial contributions.
(3)The Investor Unitholders will satisfy their obligation to provide their initial contributions by paying the sum of $553,780.00 [in the case of Tower Hill One] to the Trust on the dates specified in the first column and in the amounts specified in the second last column headed Total Cash Contribution in the Investor Payment Schedule attached hereto.
(4)If a Party has to make payments under a guarantee of the Trust’s borrowings then, at the Party’s election, the Trust must either:
(a) treat those payments as a loan by that Party to the Trust; or
(b)allot to that Party that number of Units in the class of Units already held by that Party which is equal to the number of dollars constituting the Party’s payments.[1]
[1]Clause 6(2) of the Unitholders Agreements.
Clause 10
(1)If the Board, or the Parties as Unitholders of the Trust, are unable to make a decision on the new or extended Development Programme after its expiry for the participation of the Trust in the project or if any party to the Unitholders Agreement wishes to no longer be a Unitholder in the trust to which the Unitholders Agreement relates at any time after 31 December 2011 (the ’Deadlock‘), then the Parties will through their respective managing directors confer to resolve a course of action within 30 days of notification by any party to the Unitholders Agreement to the others of the Deadlock;
(2)If, after exhausting the procedure set out in Clause 10(1), the Parties do not make a decision on the relevant issue causing the Deadlock, then one or more of Parties (the ’Offering Party‘) may offer by notice in writing (the ’Offer Notice‘) to the other Parties (the ’Receiving Parties‘) to sell all of the Offering Party’s Units to the Receiving Parties:
(a)for a price per unit in a monetary consideration only and payable in one instalment at the price determined pursuant to Clause 9(5);
(b)on the other terms and conditions, set out in the Offer Notice but providing not less than thirty (30) days for payment of the purchase price;
(3)On receipt of the Offer Notice, the Receiving Parties and the Offering Party may reconsider their position on the relevant issue causing the Deadlock;
(4)If the Deadlock is not resolved within 14 days of the date of receipt of the Offer Notice, the Receiving Parties must collectively, within a further seven days either:
(a)acquire all the Offering Party’s Units by one or more of the Receiving Parties accepting the offer, for the unit offer price, from the terms specified in the Offer Notice; or
(b)if the Receiving Parties do not accept the offer for all of the Offering Party’s units, then the Company [the relevant trustee] shall take all necessary steps to ensure a sale of the Property vest the trust [to which the Unitholders Agreement relates] within the next six (6) months[2].
Clause 14(8)
If the provisions of the Unitholders Agreement are inconsistent with any of the provisions of the Trust Deed of the trust to which the Unitholders Agreement relates, or the Constitution of company [the trustee of the trust to which the Unitholders Agreement relates] the provisions of the Unitholders Agreement will prevail.[3]
[2]Clause 10 of the Unitholders Agreements.
[3]Clause 14(8) of the Unitholders Agreements.
Gee Dee submits that as the Unitholders Agreements prevail over the trust deeds or the constitutions of the trusts in circumstances where there is any inconsistency, the dispute resolution procedure in clause 10 of the Unitholders Agreement takes precedence over the redemption procedures in the trust deeds (outlined below).
The Trust Deeds
Clause 7 of each of the Trust Deeds provides for the redemption of units at the request of a unit holder in the following terms:
(1) Redemption at the request of a unit holder
Any unit holder may in writing request the Trustee to redeem all or any of its units at a price per unit determined in accordance with the provisions of cl 7(3) (the “unit price”) and if the Trustee shall consider that such units may be redeemed without detriment or disadvantage to the other unit holders the Trustee may in its discretion redeem the units in respect of which such a request shall have been made by service of a notice of redemption on the unit holder.
(2) Redemption without the request of a unit holder
The Trustee may at any time in its discretion redeem all or any units held by a unit holder without being requested to do so at the unit price per unit by giving one (1) month’s notice in writing to the unit holder of its intention to redeem such units provided that if the unit holder waives its right to receive such notice then it shall not be necessary for the Trustee to give such notice.
(3) Calculation of unit price
For the purpose of fixing the unit price, the Trustee shall value the Fund and the units into which the Fund is divided, and if it thinks necessary or advisable have the valuation made by a person competent to make such valuation at the Trustee’s expense. In determining the value of a unit regard shall be had to any special rights or restriction or conditions relating to the entitlement of such unit to share in the income or capital of the Fund and in the distribution of the capital on the termination of the Fund and to any other rights, restrictions or conditions relating to the entitlement of such unit to share in the income or capital of the Fund and in the distribution of the capital on the termination of the Fund and to any other rights, restrictions or conditions attaching to, or affecting, the unit or other units. The unit price shall be calculated on the basis of the value of the Fund and the various units in the Fund.
In determining the unit price there shall be deducted all necessary expenses incidental to any realisation by the Trustee of any investment for the purpose of paying the unit price and a trusteeship fee payable in respect of the Fund at the rate chargeable by the Trustee on the amount of the value of the redeemed units computed from the last day of the last preceding financial year prior to the date on which the units are redeemed by the Trustee. The Trustee may pay to the holder of the redeemed units so much of the income of the Fund of the financial year as the trustee considers should reasonably be attributed to such units and the amount of income to be paid shall be taken into account in any valuation made or carried out under this deed PROVIDED HOWEVER that the Trustee may, at its discretion, appropriate in specie any portion of the fund or any investment representing the same to or towards the share in or entitlement of a unit holder under this deed.
(4) Effect of redemption
Upon:
(a)Service of a notice of redemption pursuant to cl 7(1);
(b)Service of a notice pursuant to cl 7(2) where the unit holder waives its right to one month’s notice; or
(c)expiration of the one (1) month’s notice referred to in cl 7(2) where the unit holder does not waive its right to one month’s notice; the units referred to in such notice shall be redeemed, the certificate therefor cancelled, such units cancelled and the name of the holder shall be removed from the register as the holder thereof and the Trustee’s obligation to pay the unit price in respect of each redeemed unit to the holder thereof shall arise.
(5) Payment of unit price
The Trustee may raise out of the Fund by borrowing in exercise of its powers in that behalf a sufficient sum to provide the unit price or realise or sell any investment comprised in the Fund to provide a sufficient sum to meet the unit price or pay the unit price out of funds on hand comprising the Fund. The Trustee shall pay to the holder of the redeemed units the unit price for each redeemed unit within one (1) month of the date of redemption of the unit or in accordance with such terms and conditions as may be agreed upon by the Trustee and the holder of the redeemed unit.
C. Unpaid calls
By a letter dated 31 May 2013 (the ‘31 May 2013 letter’) the Trustees gave Gee Dee one month’s notice of their intention to redeem Gee Dee’s units in the trusts pursuant to clause 7(2) of the Trust Deeds (the ‘redemption notices’). The 31 May 2013 letter referred to valuation of the Trust Land and attached calculations of the value of the units for each of the trusts allegedly prepared by the trusts’ accountant. These calculations listed a number of alleged unpaid calls underneath the indicative valuation of the unit holding. The unpaid call amounts were deducted from the value of the units held by Gee Dee as trustee for the Petsinis Family Trust.
Gee Dee contends that the purported redemption notices are invalid by reason of the fact that, in respect of each of the Trusts, Gee Dee had invoked (on 11 January 2012) the deadlock procedure under clause 10 of the Unitholders Agreements and clause 14(8) of the Unitholders Agreements provides that if the provisions of that agreement are inconsistent with any provisions of the Trust Deed, the provisions of the Unitholders Agreements will prevail.
As pointed out this issue is no longer relevant. Following the sale of the Trust Land it is inevitable that the Trusts will be wound up. The issue that remains is how to deal with the alleged unpaid calls of Gee Dee.
In respect to each of the trusts, there is a question of whether or not calls made on Gee Dee, which Gee Dee did not pay, were properly made and whether Gee Dee was under a contractual or other obligation to meet these calls and contribute the necessary funds. This is the critical remaining issue in the case.
The ‘31 May 2013 letter’ enclosing the purported redemption notices also attached calculations of the value of the units for each of the Trusts. Spreadsheets attached to the redemption notice of each of the respective trusts set out a number of unpaid calls in respect of Gee Dee’s unitholding which had to be deducted from the total value of units held by Gee Dee.
Gee Dee’s submissions
Gee Dee contends first that the Trustees did not have the power to make any calls. It was contended that there was no overarching joint venture agreement requiring funding to be provided in equal shares and neither the Trust Deed nor the Unitholders Agreement gave the Trustees this right. It was submitted further that clause 6 of the Unitholders Agreement makes it clear that Gee Dee’s obligations to contribute to the Trusts was to be limited to the first Development Programme which expired on 31 December 2011. Gee Dee contends that it made all contributions under this programme. By the time the second development programme was purportedly agreed, the deadlock procedure had been invoked and accordingly there was no contractual or other proper basis for the second development programme. Accordingly, Gee Dee submits that it is not liable for any calls made under it.
Gee Dee further submitted with regard to the Trustees’ assertion of a ‘foundation unitholders understanding’, that any suggestion that there was a binding contractual obligation beyond what was contained in the Trust Deed and Unitholders Agreements should be rejected.[4]
[4]Reference was made to Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, 483-484 (Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ).
Gee Dee argued that clause 6 obliges the parties only to ensure that the trust has sufficient working capital from any one of the three sources: initial contributions, borrowings by the Trusts or contributions in accordance with the Development Programme. There was no specific obligation to make contributions, other than in accordance with the defined Development Programme. Any new development programme was only binding upon the parties under clause 6(1)(c) in the event that each unitholder agreed to such a programme in accordance with the process contemplated by clause 5(2) of the Unitholders Agreement.[5] Gee Dee argued that it was not bound by calls made in reliance on the second development programme, as this programme was not subject to the obligations in clause 6(1)(c) and was dated 20 June 2012, long after the obligation to sell the Trust Land was triggered by the deadlock notice.
[5]In support of its contention, Gee Dee noted that under clause 10(1) of the Unitholders Agreements, failure to agree on a new or extended development program was an alternative gateway to the deadlock procedure.
Gee Dee also relied on clause 6(4) of the Unitholders Agreement, as suggesting that it was not open to the Trustees to make calls whenever they saw fit. Clause 6(4) provides that if a party has to make payments under a guarantee of the trust’s borrowings, the party may elect whether to treat those payments as a loan or allot to the party additional units. According to Gee Dee’s interpretation, if payments made under a guarantee could simply be facilitated by calls, there would be no need for clause 6(4).
Gee Dee contended further that after it invoked the deadlock procedure the Trustees were obliged to sell the land and vest the Trusts. Accordingly, Gee Dee submitted that any calls after this obligation was invoked were not properly made, and there was no obligation upon it to meet those calls.
With respect to the Trustees’ assertion that calls made after the triggering of the deadlock procedure were to cover ongoing expenses and preserve the assets of the trust, Gee Dee contended that the evidence does not make it clear what the money was used for, but that it was clear that much of what was done was inconsistent with the Trustees’ obligation to sell the land and vest the trusts.
Further, with respect to the calls made for Elcho North, Gee Dee contended that the call was a result of the Trustees’ failure to obtain funding to settle the purchase of the land and that this failure was a result of the Trustees waiting too late to make application and making insufficient efforts to obtain funding. Gee Dee contends that funds in relation to Elcho North were to be borrowed.
In respect of the ‘Call No. 1’ listed in the calculation spreadsheet for each of the Tower Hill One Trust, the Tower Hill Three Trust and the Elcho North Trust, Gee Dee contends that those calls were made during the period in which Gee Dee was requesting financial information that was not being provided and accordingly, Gee Dee contends that there was no entitlement for any of Tower Hill One, Tower Hill Three or Elcho North to make those calls.
In respect of the June 2012 call and the November 2012 call listed in the calculation spreadsheet for the Elcho North Trust, Gee Dee contends that those calls were made after Elcho North was obliged to sell the Elcho North property and vest the Elcho North Trust, and accordingly there was no entitlement for Elcho North to make those calls in those circumstances.
In respect of the November 2012 calls in the calculation spreadsheet for the Tower Hill One Trust and the Tower Hill Three Trust, those calls were made after Tower Hill One and Tower Hill Three were obliged to sell the Tower Hill One Property and the Tower Hill Three Property respectively and vest the Tower Hill One Trust and the Tower Hill Three Trust respectively. Accordingly, Gee Dee contends that in the circumstance, there was no entitlement for Tower Hill One or Tower Hill Three to make those calls.
Trustees’ submissions
The Trustees argued that Gee Dee had an overriding obligation to contribute to the Lovely Banks Project pursuant to an overarching joint venture agreement which required ongoing contribution by Hay, Davis and Pestinis and/or their corporate vehicles. In the case of each of the Trust Land, when there were insufficient investors’ funds for a purchase, calls were made and the foundation unitholders contributed extra money from time to time. Gee Dee paid a one third share of the deposit for each property. Thereafter Gee Dee paid various amounts for Tower Hill One and Three and nothing for Elcho North.
With regard to Tower Hill Three, the Trustees submitted that it was part of the understanding between Hay, Davis and Petsinis, that following the purchase, any necessary funding would be made by the foundation unitholders equally until the Development Programme was complete in December 2011. Further calls would not be made on investor unitholders who had paid in full up to this point, however foundation unitholders were always required to pay an amount representing their 20% interest in the Unit Trust.
The Trustees further submitted that clause 6 of the Unitholders Agreement contains a clear and unambiguous overriding obligation to ensure that the trust has sufficient working capital to meet all financial obligations as they fall due. Thereafter clause 6(1) describes how the obligation can be met from initial contributions by parties, borrowing by the Trusts and/or contributions of the unitholders in accordance with the development program. The Trustees submitted that this is supported by the structure of the related agreements. The Trust Deeds oblige the Trustee to pay all costs charges and expenses of administering the fund out the assets of the trust, and provide that the Trustee shall be entitled to be indemnified out of the fund in respect of all liabilities incurred by the trusts relating to trustee functions.[6] The management agreement between the Trustees and LBM provides that the manager may make cash calls to pay all project expenses when due, and may make calls upon the Trustees only when making calls on other unitholders and only in accordance with the number of units held in the trust. Further cash calls may be made only in amounts necessary for the manager to pay project expenses.[7]
[6]Clause 17(3) and (4) of the Trust Deed.
[7]Clauses 3.1, 3.2, 3.3 and 3.5 of the Management Agreement between the Trustees and LBM.
The Trustees further contended that there were no clauses in the Trust Deed or Unitholders Agreement that absolved a unitholder from making such contributions pending the completion of the deadlock procedure. Specifically, they submitted that clause 10 of the Unitholders Agreement does not provide that the deadlock procedure excused a unitholder from its obligation to keep the trust in funds.
The Trustees contended they were entitled to make the calls, notwithstanding the requirement to sell the Trust Land pursuant to the deadlock procedure contained in clause 10 of the Unitholders Agreement. Both Hay and Davis gave evidence that further funds were required since there were ongoing expenses which continued to accrue after the deadlock notices were served by Gee Dee, such as bank payments, taxes and rates. The Trustees also maintained that project costs were in accordance with their obligation to the unitholders under the trust documents. They submitted that they were obliged to proceed with the next stages of a development program and to improve the project by increasing the value of the land, for the benefit of all unitholders. The Trustees submitted that in view of the obvious time gap between the exercise of the deadlock procedure and the ultimate sale of the Trust Land, the assets of the trusts were required to be maintained and improved. In the absence of other funding, it was necessary to make the calls upon the foundation unitholders.
Given the position taken by the Trustees, further funding was provided by all unitholders other than Gee Dee and Davy.
The Trustees submitted that in the circumstances, the triggering of the sale could not excuse Gee Dee from further contributions under a commercial construction of the Unitholders Agreement or the Trust Deed.
Consideration
In my opinion and subject to what follows, the Trustees had the power to make the calls. A fair reading of clauses 2(5) and 6(1) of the Unitholders Agreements enables the Trustees to make the calls as provided therein.
The next question is the extent of any call or obligation on the part of unitholders. Although clause 2(5), according to the Trustees, requires unitholders to contribute their share of expenditure whatever the amount, clause 6 contains some limitation as to the sources of funding available to the Trustees, and, so far as unitholders are concerned, is limited to their initial contribution and any funding pursuant to the Development Programme. Sufficient working capital may also be obtained from borrowings.
The issue is whether unitholders are obliged to contribute beyond their initial contribution and contributions to be made in accordance with the Development Programme which is defined as the ’expense and payment programme specified in the attached spread sheet marked A’. The spread sheet is a funding spread sheet and a four-year budget of anticipated income and expenditure.
Gee Dee contends that it has paid all such calls; that is, the initial contribution and calls under the Development Programme, as defined. However, the Trustees dispute this and contend further that calls have not been paid under the new development programme.
A number of questions arise. First, whether Gee Dee has in fact paid all calls made under the Development Programme? Secondly, whether the new development programme is binding on Gee Dee and provides a source of power for the Trustees to make further calls? Thirdly and apart from the first two questions, whether the obligation to make payment pursuant to calls by the Trustees was effectively suspended after the deadlock procedure was invoked? Fourthly, whether there is an overarching joint venture agreement that permits the Trustees to make a call and requires the unitholders to provide funds.
It is convenient to answer the third question first. In my opinion the mere invocation of the deadlock procedure did not absolve unitholders from making further contributions if they were otherwise liable, that is under the Development Programme, the new development programme or some overarching agreement or indeed on a proper construction of the Unitholders Agreement. However, the Trustees’ ability to make such a call would only, in such circumstances, relate to expenditure properly incurred by the Trustees in connection with its obligation to sell the properties. Expenditure consistent with the long term nature of the Project and unrelated to the sale or preservation of the asset for the purpose of sale and in order to achieve the best value, would not, following the triggering of the deadlock procedure,[8] be recoverable by way of a call on unitholders. Back to the remaining questions.
[8]Or more accurately that stage of the Deadlock Procedure that required a sale of the assets (Clause 10(4)(b)). The date is probably 6 April 2012 requiring a sale within 6 months.
The Development Programme ended on 31 December 2011. The new development programme was approved by members on 20 June 2012 at a meeting of members. The Trustees contend that the approval was not required to be unanimous. They point to clauses 5(2) and 4 of the Unitholders Agreement. The consideration of changes to the Development Programme as mandated by clause 5(2) by the Participants falls squarely within clause 4 dealing with unitholders meetings. Clause 4(2) enables a decision to be made if there is a 60% majority. The new development programme was approved on 20 June 2012 with a 60% majority and is therefore binding. There is nothing in clause 10 that affects the validity of the resolution.
However, although binding, the new development programme is of limited relevance because of the intervening obligation to sell.
Accordingly, if the calls were paid under the Development Programme, any further liability on the part of Unitholders whether arising out of the new development programme or otherwise would be restricted to those expenses that relate only to preserving and maintaining the project and paying any ongoing expenditure (‘Permitted Expenditure‘) pending the outcome of the deadlock procedure, namely a sale, which was required to take place by 6 October 2012, a little over three months after the new development programme was approved.
Accordingly, in my opinion, Gee Dee was correct in refusing to simply pay the full amount of the calls made under the new development programme by the Trustees. The purported calls fell outside the required obligation to contribute, because contributions had been made under the Development Programme and the new development programme was in the circumstances, namely the pending sale, not called for. The consequence in my view is that none of the unitholders were obliged to pay these calls. The only obligation was to ensure that the trustee had sufficient funds to pay the Permitted Expenditure.
Evidence in relation to the Permitted Expenditure is entirely lacking. What specifically did the calls relate to and how reasonable was the expenditure? There is simply no evidence in relation to any of these issues. Gee Dee’s refusal to pay in the circumstances was entirely understandable and justifiable.
Finally, in my opinion the evidence does not support a finding of some overarching (presumably oral) understanding or agreement to contribute funds, as and when required, in the defined proportions. The evidence does not warrant or support a conclusion that the parties were, or intended to be, bound by anything other than the extensive written agreements they had entered into.
What then is the position of those unitholders that did contribute funds beyond that which they were obliged to contribute? Surely they should recover the excess. The logical corollary is that Gee Dee should only be obliged to contribute its share of the permitted call, an amount that has not been established. Appropriate adjustments would, according to this view, be required following the settlement of the various sales.
However, the matter may be considered from another standpoint. After invoking the deadlock procedure each Trust was still required to meet ongoing expenditure consistent with its new obligation to sell the properties as provided for in the Unitholders Agreement. These ongoing expenses would embrace not only costs associated with the sale but also those necessary costs and expenditure incurred in order to ensure that the project was not compromised resulting in a lesser sale price. I have called this the Permitted Expenditure. Having incurred and presumably paid this Permitted Expenditure, the Trustees would be entitled to indemnity out of the assets of the Trusts. Those unitholders that provided the Trustees with such funds may well be entitled to be repaid any amount provided. I do not propose to resolve this issue at this stage. It is best considered in the context of the winding up of the Trusts.
Finally and apart from the matters referred to above, it has not been established and I am far from satisfied on the evidence and in the context of the ongoing bitter dispute between the parties, that Gee Dee has failed to pay any calls that it was legally obliged to pay or satisfy. It was entitled in the circumstances to question each call and request appropriate financial information. It was entitled to insist that funding arrangements be undertaken in accordance with what the parties had specifically agreed and committed themselves to.[9]
[9]In relation to Elcho North it was contemplated that funding would be provided by external borrowings. In any event settlement was extended from 1 December 2011 to well into the period during which the deadlock procedure had been activated. A notice of rescission was only provided on 1 December 2012.
D. Disposition
I will hear from the parties as to the form of any order in light of these reasons and the impending sale of the properties, the further disposition of the proceeding and costs.
SCHEDULE OF PARTIES
IN THE MATTER of TOWER HILL ONE INVESTMENTS UNIT TRUST and TOWER HILL THREE INVESTMENTS UNIT TRUST and ELCHO NORTH INVESTMENTS UNIT TRUST
BETWEEN
GEE DEE NOMINEES PTY LTD ACN 006 233 870 AS TRUSTEE OF THE G & D PETSINIS FAMILY TRUST First Plaintiff
GEORGE PETSINIS Second Plaintiff
and
TOWER HILL ONE INVESTMENTS PTY LTD ACN 127 533 975 AS TRUSTEE OF THE TOWER HILL ONE INVESTMENTS UNIT TRUST First Defendant
TOWER HILL THREE INVESTMENTS PTY LTD ACN 128 562 710 AS TRUSTEE OF THE TOWER HILL THREE INVESTMENTS UNIT TRUST Second Defendant
ELCHO NORTH INVESTMENTS PTY LTD ACN 129 037 467 AS TRUSTEE OF THE ELCHO NORTH INVESTMENTS UNIT TRUST Third Defendant
ONE MONTY PTY LTD ACN 077 144 588 AS TRUSTEE FOR THE DAVIS FAMILY TRUST Fourth Defendant
LATLEY PTY LTD ACN 052 407 655 AS TRUSTEE FOR THE S & T HAY FAMILY TRUST Fifth Defendant
PETER BRUCE DAVIS Sixth Defendant
STEPHEN FENTON GLEN HAY Seventh Defendant
and
BETWEEN
TOWER HILL ONE INVESTMENTS PTY LTD (ACN 127 533 975)
AS TRUSTEE OF THE TOWER HILL ONE INVESTMENTS UNIT TRUST
First Plaintiff
and
TOWER HILL THREE INVESTMENTS PTY LTD (ACN 128 562 710)
AS TRUSTEE OF THE TOWER HILL THREE INVESTMENTS UNIT TRUST
Second Plaintiff
and
ELCHO NORTH INVESTMENTS PTY LTD (ACN 129 037 467)
AS TRUSTEE OF THE ELCHO NORTH INVESTMENTS UNIT TRUST
Third Plaintiff
and
GEE DEE NOMINEES PTY LTD (ACN 006 233 870)
AS TRUSTEE OF THE G&D PETSINIS FAMILY TRUST
Defendant
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