Hamer v Parity Partners Pty Ltd
[2022] QSC 232
•25 October 2022
SUPREME COURT OF QUEENSLAND
CITATION:
Hamer & Anor v Parity Partners Pty Ltd [2022] QSC 232
PARTIES:
ADAM GLEN HAMER
(first applicant)
AND
KATHRYN LISE HAMER
(second applicant)
AND
KNIGHTSHALL PTY LTD (ACN 646 226 020)
(third applicant)v
PARITY PARTNERS PTY LTD
(respondent)
FILE NO/S: 5399 of 2022
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court
DELIVERED ON:
25 October 2022
DELIVERED AT:
Brisbane
HEARING DATES:
13 May, 20 June, and 31 August 2022, with further written submissions supplied on 2 and 12 September 2022
JUDGE:
Freeburn J
ORDER:
1. The application for the appointment of a receiver is dismissed.
2. The parties be heard on the form of the orders and costs.
CATCHWORDS:
PRACTICE AND PROCEDURE – REMOVAL OF RECEIVER – APPOINTMENT OF RECEIVER OF TRUST ASSETS AND UNDERTAKINGS - POWERS OF RECEIVER – where there is ongoing litigation whether trust assets in disarray or at risk – where the applicants alleges that the trustee is incompetent - where the applicants seek for a receiver to be appointed, without security, of all assets held or purportedly held by the present trustee – whether the trustee is unfit to manage the trust – whether an independent and experienced receiver ought to be appointed to preserve the trust’s assets pending the determination of the investors’ rights and entitlements
Civil Proceedings Act 2011 (Cth), s 12
Australian Securities and Investment Commission v Cassimatis (No 8) [2016] FCA 1023, considered
Fordyce v Ryan [2017] 2 Qd R 240, considered
Martyniuk v King [2000] VSC 319, considered
Singh v Brisbane Sikh Temple (Gurdwara) Inc [2022] QSC 151, consideredCOUNSEL:
Mr G Handran KC and Mr MJ Downes (applicant)
Mr JW Peden KC and Mr DC Clarry (respondent)SOLICITORS:
Davey Associates (applicant)
RH Law (respondent)
REASONS
The three applicants, Mr and Mrs Hamer and Knightshall Pty Ltd, are sophisticated or wholesale investors. In March 2021, they decided to invest in an unregistered managed investment scheme (the Fund). The object of the scheme was to acquire land at Beresfield in New South Wales and to fund the construction on that land of a cold store distribution facility. The objective was to lease the completed cold store to BDD Australia Pty Ltd, a company related to the Bega group (producers of Bega cheeses, Vegemite and Vitasoy products).
Mr and Mrs Hamer invested $500,000 as trustees for their family trust. Knightshall Pty Ltd, as trustee of the Ian E Yeo Family Investment Trust, also invested $500,000. Various other investors contributed funds totalling approximately $3m.
To say the least, the applicants are disappointed in their investment. They describe the project as a “monumental failure”. They seek to remove the trustee of the Fund, Parity Partners Pty Ltd. On an interlocutory basis they seek to install a court appointed receiver in place of the trustee.
It is common ground that the project has failed. Whilst land was acquired, and some construction was commenced, for various reasons the project cannot continue. What remains to be done is to sell one of the two blocks of land (Lot 1) – one block already having been sold (Lot 2).
Nevertheless, the applicants seek to place the winding up of the Fund under the control of a court appointed receiver in place of the trustee. The applicants put their case without any dilution:
Prima facie, the trustee has: demonstrated prolonged and inexcusable incompetence; a patent inability to keep trust records which are true and correct; an unwillingness to get in trust property it contends was misappropriated; appropriated funds to a related party without apparent cause; failed to comply with production orders of this Court; a deep and ongoing reluctance to share vital or timely information with beneficiaries; a desire to prolong and obstruct any meeting of unitholders; and a willingness to deal with property that is subject to an undertaking given to this Court.[1]
[footnotes omitted, emphasis added]
[1]Applicants’ Outline (filed 13 May 2022) at [3].
In their outline the applicants said:
The Fund is (and remains) in jeopardy so long the Respondent (trustee) controls it. Its sole director, Mr Garden, is untrustworthy or incompetent, or both; he (and therefore the trustee) is an unsuitable character.
The Project has been a monumental failure. The trustee has resisted every attempt by the applicants and other unitholders to obtain information from trust accounts and trust documents. But for their strenuous efforts they would remain in the dark. The evidence they have forced to the surface establishes that, whilst the Fund was under Mr Garden’s sole control, the trustee inter alia: (a) ignored the terms of the Fund; (b) was remiss in its core and fundamental duties; (c) was noncompliant and untruthful with the Court; (d) has and continues to mislead unitholders. Furthermore, many of Mr Garden’s explanations stretch credulity too far.[2]
[footnotes omitted, emphasis added]
[2]Applicants’ Outline (dated 17 June 2022) at [2], [3].
In their more recent supplementary outline the applicants said:
Despite the passage of time, the Fund remains in a state of disarray and in the hands of a trustee that represents a real and ongoing danger to the interests of the unitholders.[3]
[3]Applicants’ Supplementary Outline (31 August 2022) at [1].
The application to remove the trustee is made by sophisticated investors who have made what they perceive to be a poor investment in an unregistered managed investment scheme which is controlled by a trustee they no longer trust with their investment.
The Complaints
The application started in the Applications List on 13 May 2022. It has occupied a number of hours since then. Mr Garden, the sole director of the respondent company was cross-examined.
At the conclusion of the first hearing day on 13 May 2022, I asked the parties to, by way of a list, identify the misconduct alleged against the trustee, and the trustee’s responses. That resulted in a list of 33 allegations of misconduct. There was little or no narrowing of the case so as to identify the real issues. An example is the last allegation of misconduct:
Redacting bank statements to obscure payee of $10 on 31 August 2021 despite no units being issued in respect of that sum.
Particulars
There are no Units recorded in the Register.
The response to that item is:
The payment is not in respect of the issue of units but was made by a unitholder and the unitholder’s identification has been redacted.
It is unclear why an item with a substantive value of $10 was a basis for removal of a trustee, even if in combination with other complaints. Also obscured is any proper articulation of the precise allegation or the response to the allegation. For example, there is no explanation as to why the applicants were entitled to the identity of the payee for that sum. The assumption seems to be that the only valid basis for resisting disclosure is if units were issued.
By the time of the last hearing day, 31 August 2022, the list of 33 complaints had expanded to 43 complaints. Thus, the court is asked to decide 43 separate issues of fact, on an interlocutory basis and based on affidavits which run to hundreds of pages.
The Legal Principles
The applicants seek the appointment of a receiver pursuant to s 12(2) of the Civil Proceedings Act 2011 (Qld). Under that section the court has a discretion to appoint a receiver whenever it is just and convenient.
Recently, in Singh v Brisbane Sikh Temple (Gurdwara) Inc[4] Applegarth J summarised the cautious approach to the exercise of the discretion:
(a)Before the jurisdiction to appoint a receiver is exercised, the court must be satisfied that the case in favour of appointment is strong.[5]
(b)The appointment of a receiver is a drastic remedy to be exercised with care and great caution.[6]
(c)Consistent with this approach, it has been said that “no court will make such an order unless convinced of its necessity”.[7]
(d)This requires consideration of the adequacy and effectiveness of other remedies. The exercise of the jurisdiction to appoint a receiver rests upon the principle that no other remedy exists or is appropriate to protect the relevant right or interest of parties. In such a case, the court should intervene by the special remedy of a receiver.[8]
[4][2022] QSC 151 at [21]-[24]. This was a case where the applicant sought, unsuccessfully, to have the court appoint a receiver to an association.
[5]National Australian Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386 at 539 –541.
[6]Ibid.
[7]Bernard Henricus Lamers (as trustee for the Ben and Debra Lamers Family Trust) v Arvind Pty Ltd [No 2] [2019] WASC 491 at [13].
[8]McLean v McKinlay [2004] WASC 2 at [35].
And, the nature of the remedy was explained by Jackson J in Fordyce v Ryan:[9]
It is trite that the court has wide reaching powers to appoint a receiver. The powers are sourced in the inherent power of the court and in statute. Section 12(1) Civil Proceedings Act 2011 now contains the statutory power that “[t]he court may, at any stage of a proceeding, make an interlocutory order appointing a receiver if it considers it just or convenient”.
However, the appointment of a receiver is made for a purpose, often to protect the property in dispute in a proceeding or to facilitate the sale and realisation of property for a particular purpose or for winding up of a partnership. In particular, the statutory power is recognised as interlocutory and not final in character. As is said in Meagher Gummow and Lehane’s Equity Doctrines and Remedies, “[t]he appointment of a receiver by the court is necessarily an interim measure”.
[9][2017] 2 Qd R 240 at [59], [60].
There is wide jurisdiction to appoint a receiver where it is ‘just or convenient’ to do so.[10] The jurisdiction is commonly invoked where the property the subject of the action may be injuriously affected or dissipated before trial unless a receiver is appointed to preserve it. There are certain categories of cases where, in appropriate cases, the court will appoint a receiver.[11] One of those categories is to protect the assets of a deceased estate or a trust.[12] Such an appointment may be made where the trust is in a state of disarray.[13] As to that category of case Warren J said:[14]
The general legal principle is that if misconduct, waste, or improper disposition of assets or that a trust is in a state of disarray can be shown, or if it appears that the trust property has been improperly managed, or is in danger of being lost or if it can be satisfactorily established that parties in a fiduciary position have been guilty of a breach of duty there is a sufficient foundation for the appointment of a receiver: Kerr on Receivers, 17th Ed at p13-p14. It is further observed in Kerr (at 5):
"Object of appointment. A receiver can only be properly appointed for the purpose of getting in and holding or securing funds or other property, which the court at the trial, or in the course of the action, will have the means of distributing amongst, or making over to, the persons or person entitled thereto. The object sought by such appointment is therefore the safeguarding of property for the benefit of those entitled to it."
[footnotes omitted]
[10]See s 12(2) of the Civil Proceedings Act 2011 (Qld). See also University of Western Australia v Gray (No 6) [2006] FCA 1825 (French J): “The power of the court to appoint a receiver is statutory. It has its origins, however, as an equitable remedy…The class of circumstances in which such power may be exercised is not closed. Nor are the purposes for which a receiver may be appointed and the powers and conditions attaching to such an appointment”.
[11]See the discussion in Meagher Gummow and Lehane’s Equity: Doctrines and Remedies 5th edition at [29-050].
[12]A court may appoint a receiver to a trust in order to protect trust property: University of Western Australia v Gray (No 6) [2006] FCA 1825 (French J).
[13]Martyniuk v King [2000] VSC 319 at [14] (Warren J).
[14]Ibid.
However, where what is alleged against the trustee amounts merely to ‘indiscretion’, a receiver will be refused. But an appointment will be made against a trustee whose misconduct justifies removal. In such a case the appointment will often be made pending the removal and replacement of the trustee.[15] The question is whether there is a manifest abuse of trust, or a wasting of the property, or a habitual and speculative course of dealing which brings the property into danger.[16]
[15]Ibid at [29-095].
[16]Ibid.
It is not a proper ground for the appointment of a receiver that to do so would enhance the plaintiff’s chances of recovery if successful in the action, although an order restraining the threatened disposal of assets may be made.[17] And, no authority suggests that the court’s wide jurisdiction to appoint a receiver arises where the risks of the investment have materialised or where it can be established that the entity entrusted with the investment has performed poorly or incompetently. The court’s role does not extend to underwriting investments, even where the investment vehicle is a unit trust.
[17]See the summary in Halsbury’s Laws of Australia at [325-2860].
The applicants relied on Parbery v QNI Metals Pty Ltd[18] to argue that it was necessary for me to have regard to all of the evidence and to form a view on whether the applicants have sufficiently discharged their burden of establishing that there existed a sufficiently serious risk of the dissipation of assets. It was argued that assessment involved a qualitative evaluation of the evidence and the court’s approach should be similar here. That is accepted, but the analogy with cases concerning interlocutory freezing orders is of rather limited assistance.[19] Nevertheless, in exercising its discretion, the court takes into account the circumstances and facts of the case, the presence of conditions and grounds justifying the relief, the ends of justice, and the rights of all the parties interested in the controversy and subject matter.[20]
[18][2018] QSC 107 (Bond J). The passages relied on were [39], [71]-[75], [115], [193], and [262]-[267]. Also relied on was the Court of Appeal’s decision dismissing the appeal against that decision: Palmer v Parbery (2019) 136 ACSR 26 at [116]-[122].
[19]For freezing orders, in the context of a good arguable case, the court is required to consider the risk or likelihood that the defendants’ assets will be dealt with in such a way that a prospective judgment in the plaintiffs’ favour will be wholly or partially unsatisfied: see Parbery v QNI Metals Pty Ltd [2018] QSC 107 at [9].
[20]Dal Pont, Equity and Trusts in Australia, 7th edition at [36.90].
On that last point, it is worth noting that the applicants represent three of ten investors and roughly one-third of the invested capital.[21] The applicants submit that the three known investors support their application. As will be explained, a meeting of unitholders in June 2022 suggests that the majority do not support the appointment of a receiver.
[21]The precise position is not particularly clear. There were two classes of units issued – ordinary and subordinated units. Some 11 separate unit certificates were issued to different investors. Certificates 1 and 4 were issued to the applicants here. The total of the ordinary certificates issued was $3.32m. That figure compares with the applicants’ submissions which refer to $3.2m.
It is necessary to examine each of the 43 complaints. In doing so, in respect of each complaint, it is necessary to a undertake a qualitative evaluation of the evidence to see if there is a serious case of misconduct. As was explained by Jackson J in Fordyce v Ryan the remedy is interlocutory in nature, so that the applicants are not required to conclusively prove misconduct as would be the case at a trial. That said, when it comes to assessing all of the evidence, it is necessary to bear in mind the principles stated by Applegarth J in Singh v Brisbane Sikh Temple (Gurdwara) Inc to the effect that the appointment of a receiver is a drastic remedy to be exercised with care and great caution.
Complaints 1 & 2: Non-Compliance with the Constitution
The first two allegations of misconduct involve allegations of breach of the Constitution of the Trust Fund and are characterised by the applicants as “mismanagement by the trustee, including of a critical condition of the Fund, and a concomitant ignorance of, or unwillingness to follow, the very terms which were supposed to bind the Fund.”[22] It is said that Parity Partners was “recklessly indifferent” to the terms of the trust.[23]
[22]Applicant’s Outline, 13 May 2022 at [17].
[23]Response to List of Trustee’s Alleged Misconduct.
Clause 2.1 of the Constitution of the trust provides that the Fund commences on the date subordinated units are first issued in accordance with clause 3.1. Clause 3.1 specifies that the first units issued by the trustee are subordinated units.
In fact, the Fund commenced operating in March 2021. On 3 March 2021, the Constitution was executed, and an Information Memorandum was issued, and Parity Partners contracted to purchase the Beresfield property. Funds were raised from 22 March 2021.
And so, whilst the commencement of the trust was specified to be the day when subordinated units were issued, which did not occur until 7 January 2022, the practical reality is that the Fund commenced in March 2021. However, there is no suggestion that:
(a)any funds received by Parity Partners before January were not regarded as valid investments in the trust;
(b)any acts taken before January 2022 were not properly acts performed in the course of the trust;
(c)the problem with the commencement date has put any assets of the trust in jeopardy.
In short, the problem was a timing problem. The trustee proceeded with the trust without realising that the Constitution envisaged that the first act of the trust, and its date of commencement, was to be the date that subordinate units were issued.
The applicants’ complaint seems to assume that, because Parity Partners undertook certain tasks, such as issuing ordinary units to investors before the subordinated units were issued, and therefore before the designated commencement date under clause 2.1, Parity Partners was acting in breach of trust. It is doubtful that is accurate. The objective of clauses 2.1 and 3.1 is merely to specify a date of commencement. The fact that the date of commencement may not have arrived does not mean that the trust was not in existence. On the proper interpretation of the Constitution, the date designated as the date for commencement of the trust had no particular significance. The trust was established on the execution of the Constitution on 3 March 2021. At that point, the trustee agreed to act as trustee, and it was declared that the trustee held the assets on trust for the unitholders on the terms contained in the Constitution.[24] In fact, even the issue of the subordinated units by the trustee required that the trust exist and that the trustee commence its role and take the step of issuing the units.
[24]See clauses 2.2 and 2.3 of the Constitution.
And so, as at 3 March 2021, the substantive position was that the trust instrument was signed, the trust was formed, there were the certainties of intention, subject matter and object, and the trustee commenced performing the trust. Thus, it is doubtful there was a breach of trust and, if there was a breach of trust, it was a technical rather than substantive breach. Certainly, the evidence does not demonstrate mismanagement, unwillingness to abide by the terms of the trust, or a reckless indifference to the terms of the trust. This allegation of misconduct provides no support for the drastic step of appointing a receiver.
Another problem with these complaints is that the Constitution gives the trustee a wide discretion to determine whether to exercise, and if so, the manner, mode and time of exercise of its duties, powers and discretions in its absolute discretion.[25]
[25]Clause 11.3 of the Constitution.
The second complaint is similar. The applicants say that the trustee, Parity Partners, purported to issue ordinary units and issued unit certificates to third parties without any resolution of the trustee to do so. The applicants say that is a breach of clause 4.8 of the Constitution. Clause 4.8 is in these terms:
4.8 Date Units issued
(a)Units are taken to be issued on the date the Trustee records them in the Register having accepted the relevant application for Units and the Investment Amount required to be paid by the Applicant for the Units in that Class has been paid in accordance with clause 4.2. The date recorded in the Register must be no later than the date the Units were actually issued.
(b)However, Units issued on a reinvestment pursuant to clause 16 are taken to be issued under an application which is deemed to have been received on the day the distribution is applied in payment for the Units.
Nothing in that clause requires a resolution of the trustee to issue units. In fact, subject to the fulfilment of the preconditions,[26] clause 4.8 of the Constitution identifies two relevant dates:
(a)the date the units are recorded as having been issued; and
(b)the date the units are actually issued.
[26]The preconditions are the acceptance of the relevant application for units and payment of the investment amount.
The date of (a) must be not later than (b). In other words, the date recorded in the register cannot postdate the actual date of issue of the units. However, that leaves open the possibility that the units could be issued in May but be recorded in the register as having been issued in April. Presumably that tolerance of the ‘backdating’ of the register enables the trustee to later correct the register to ensure that investors interests are protected given that the period over which the units were held is relevant to the value of the units.[27]
[27]See, for example, clause 6.2 of the Constitution.
It follows that no breach of trust has been shown and this is not misconduct. Even if clause 4.8 were capable of the interpretation urged by the applicants, it is doubtful that a mere failure to make a resolution would qualify as misconduct of the kind justifying removal of the trustee.
Complaint 3: Failure to Keep and Maintain an Up-to-Date Register
The applicants contend that Parity Partners failed to keep and maintain an accurate up-to-date register.
It can be accepted that Parity Partners was obliged to keep proper records.[28] Parity Partners argued that s 286 of the Corporations Act2001 (Cth) does not apply to unregistered corporations. However, that section does apply to companies. And it is the duty of a trustee to keep proper accounts.[29]
[28]Corporations Act2001 (Cth) s 286; clause 8.1 of the Constitution (the Trustee must maintain the Register).
[29]See, for example, Jacobs’ Law of Trusts in Australia (7th ed) at [1712].
It is plain that there were some errors in the register. However, Parity Partners contends that those errors have been corrected. There does not appear to be a serious dispute about that.[30]
[30]Indeed, as explained above, the Constitution itself contemplates that some backdating of the register may be necessary.
Incidentally, the nature of the errors alleged are as follows:
(a)The subordinated units were said to have been issued before the company that held them had been incorporated;
(b)The number of ordinary units issued on 27 April 2021 did not correspond with the application money paid in August and September 2021; and
(c)The subordinated units did not appear on the company’s balance sheet.
Those errors, which are now corrected, can be characterised as clerical rather than, as the applicants contend, deliberate, or as mismanagement, or unwillingness to abide by the terms of the trust, or a reckless indifference to the terms of the trust.
Complaint 4: Issue of Subordinated Units
The fourth complaint is a claim that Parity Partners has issued subordinated units without any application, and without payment of application money, and without any verification of identity.
However, as Parity Partners point out, an application for units can take whatever form the trustee requires or approves,[31] and the form of verification is subject to the absolute discretion of the trustee.[32] The subordinated units were issued to Blueball Highlands Pty Ltd, an entity related to Parity Partners. Thus, verification may well have been pointless and not required by the trustee. The units were issued to satisfy a debt. The existence and validity of the debt is not challenged.
[31]Constitution clause 4.1.
[32]Constitution clause 4.1.
It follows that this complaint does not assist the applicants’ argument that a receiver should be appointed.
Complaint 5: Deliberately False and Misleading Statements
The fifth complaint of misconduct is in these terms:
Further to (complaints [3] and [4]) making entries, or causing entries to be made, in the Register which were false and misleading, and known to be so.
That is a strong claim. It is a claim of falsity with knowledge of the falsity. The particulars alleged are as follows:
The falsity and knowledge of such is evinced by or is to be inferred from the following:
(a) Mr Garden being the sole director of the trustee.
(b) Mr Garden (as sole director) being the party who resolved for the trustee to issue units on 30 June 2021 and 7 January 2022.
(c) In the knowledge of the matters recorded in those resolutions, Mr Garden not making appropriate entries or correcting, or causing appropriate entries to be made or corrected in, the Register.
(d) The allocation of units made by and recorded in each such resolution bearing different dates in the ‘Date of Issue’ in the Register.
(e) The ‘Date of Issue’ of the Subordinated Units is before the unitholder was registered as a company under the Act.
(f) Mr Garden is the sole director of the unitholder of the Subordinated Units.
It can be seen immediately that it is difficult to infer deliberate, false, or misleading statements from that collection of allegations.
Parity Partners respond to this allegation as follows:
1. See responses to Items 1 to 4 above.
2. Any errors in the Register were typographical and have been identified and corrected.
3. Mr Garden did not cause any entries to be made in the Register knowing them to be false or misleading.
In his second affidavit, Mr Garden explained the errors in this way:
33.As part of the Documents Proceeding and this proceeding, I came to learn that there were some errors in the dates recorded in the Register as follows:
(a)the Unitholder that was issued certificate number 10, holding 250,000 units, was recorded as becoming a Unitholder on 27 April 2022 when in fact the payments were made to Parity’s bank account as follows:
(i)two deposits of $100,000 on 3 September 2021; and
(ii)a deposit of $50,000 on 6 September 2021;
(b)Bluebell Highlands Pty Ltd was recorded as becoming the holder of Subordinated Units on 22 November 2021, being certificate number 12, before the unit holder was incorporated.
34.I do not know any reason why these errors were made. As already deposed at paragraph 117(c) of the First Garden Affidavit, I did not instruct anyone to backdate the entries, or insert any date other than the date payment was received in full.
35.I have caused the Register to be corrected. Exhibited at page 17 of Exhibit “JDG-2” is a corrected Register, redacted to remove confidential information of unitholders other than the applicants in this proceeding and the Documents Proceeding.
Of course, if Parity Partners had made deliberately false or misleading statements that would be a cause for serious concern.
The problem is that there is really no evidence of deliberate falsehood. No contrary evidence was filed. As serious as the allegation was, the applicants’ submissions did not return to the issue. Mr Garden was cross-examined for approximately 60 minutes. He was not cross-examined on that topic. It was not put to him that these were deliberately false entries.
There is no basis upon which the court could safely conclude that these were deliberate false entries. No reason is proffered as to why Mr Garden would be motivated to do so. Nor do the errors seem to be attributable to anything other than careless bookkeeping. Certainly, no person who was entitled to units appears to have been denied units, and there is no allegation that any person’s rights were substantively affected.
As explained above, the nature of the remedy sought by the applicants is interlocutory in character. A qualitative evaluation of the evidence said to support this serious complaint does not establish even an arguable case of deliberately false entries.
Complaint 6: Inaccurate Records & Failure to Correct Errors
The sixth complaint is that the trustee failed to keep and maintain accurate accounts or, further or alternatively, failed to correct errors. The particulars alleged are:
(a)The 30 June 2021 balance sheet records a loan from Parity Developments Pty Ltd for “Land Deposit Reimbursement” of $60,000.
(b)Parity Developments issued two invoices (Invoice no. 33 dated 1 July 2021 in the amount of $20,000 for “Partial Reimbursement for deposit to purchase land for Beresfield Cold Storage Development”, and Invoice no. 35 dated 20 July 2021 in the amount of $40,000 for “Final Reimbursement for deposit to purchase land for Beresfield Cold Storage Development”.
(c)Both invoices were paid, on 1 July 2021 and 20 July 2021 respectively.
(d)The 31 December balance sheet still records a loan from Parity Developments Pty Ltd for “Land Deposit Reimbursement” of $60,000.
(e)Separately, Parity Developments Pty Ltd also issued invoice no. 31 on 24 June 2021 in the amount of $100,000 (and was paid that amount that same day) for “Partial Reimburstment [sic] of Land Deposit”.
The response to that complaint is that the deposit under the purchase contract for the Beresfield Property was $160,000. That deposit was paid by a related company, Parity Developments Pty Ltd. The transactions record the debt owing by the trustee, Parity Partners to Parity Developments on account of Parity Developments payment of the deposit on Parity Partners’ behalf. Parity Partners also say that no overpayment was made by the trustee to Parity Developments. They say that the draft financial statements are being finalised and will record the repayment of the deposit by the trustee to Parity Developments.
That seems to be a logical explanation. Curiously, the complaint is not further pursued in submissions or in the evidence. Nor has it been withdrawn.
Thus, the complaint appears to be adequately explained and does not establish a serious case of misconduct.
Complaint 7: Failing to keep or maintain a schedule of trust property
This complaint is: “failing to keep or maintain a schedule of trust property.” The particulars are simple: “Duty at general law.”
In response, Parity Partners points out that the trust was established for the sole purpose of developing the Beresfield property and that, following the sale of one of the two blocks, Lot 1 is the last remaining real property of the trust, and that the Constitution does not require the trustee to keep a schedule of trust property.
Certainly, the trustee has these relevant obligations:
(a)To adhere to and carry out the terms of the trust;[33] and
(b)To keep proper accounts and be ready to render them when called upon.[34]
[33]See Jacobs’ Law of Trusts in Australia, 7th edition at [1704]
[34]Ibid at [1713].
But those are not absolute obligations. In each case, an important issue is what the trust instrument requires. Here, the Constitution does require the provision of financial accounts and tax details,[35] and has provisions about meetings of unitholders,[36] but it does not require the trustee to keep a schedule of trust property.
[35]Clause 13 of the Constitution.
[36]Clause 23 of the Constitution.
No arguable case of a breach of duty has been shown.
Complaint 8: Backdated Unit Certificates
The applicants’ eighth complaint is “Issuing backdated Unit Certificate to Mr & Mrs Hamer.” The particulars refer, without any elaboration, to “s. 286 of the Act”[37] and to “Failing to keep proper records.”
[37]Presumably this is a reference to s 286 of the Corporations Act 2001 (Cth).
It is a mystery as to why a complaint of misconduct, said to justify the removal of a trustee, is expressed in such an oblique way. That said, the substance of the complaint appears to be that the unit certificate issued to Mr and Mrs Hamer was backdated. First, as explained above, backdating of the unit certificate would seem to be consistent with the Constitution. The Constitution ensures that unitholders are not prejudiced by forward-dating of the register and, presumably, certificates.
Second, Mr Garden deposes that the certificate issued to Mr and Mrs Hamer for 500,000 units is dated 23 March 2021.[38] That appears to be correct. The certificate exhibited to Mr Hamer’s first affidavit is marked as “Date of Issue: 23 March 2021”.[39] That same date was the day the payment was made for the units and the date shown in the register as the day of issue of the units.
[38]Mr Garden’s second affidavit at [67].
[39]Mr Hamer’s affidavit at AGH-1 page 251.
The applicants have not pursued this further in the evidence,[40] or in submissions, but the allegation of misconduct has not been withdrawn and remains as an issue for the court to decide. For the reasons stated, the allegation has not been made out.
[40]Mr Garden’s second affidavit was filed on 13 June 2022.
Complaints 9, 10 & 11: Non-Completion of Financial Reports etc
The ninth complaint is: “Failure to finalise financial reports for FY21.” The particulars specified are: “Clause 13.1(b) of the Constitution.”
There is a disconnect between the obligation in clause 13.1(b) which relates to books of account relating to classes of unitholders and the alleged breach which relates to financial reports. There is no obligation in the Constitution for the financial reports to be finalised by a particular date. In any event, Mr Garden explains the delays in the preparation of the financial statements – which are partly attributable to this litigation.[41]
[41]Mr Garden’s second affidavit at [71]-[74].
The tenth complaint is: “Failure to lodge tax returns for FY21 by 31 October 2021.” The particulars specified are: “Clause 13.2(a) of the Constitution.”
Clause 13.2(a) of the Constitution does not require FY21 tax returns to be lodged by 31 October 2021.[42] Nevertheless the tax regulations impose their own obligations on the trustee to lodge returns in time. For that reason, Mr Garden has instructed the trust’s accountant to ensure that the ATO is aware of the delay in finalising the returns and an extension has been sought. In any event, once again, Mr Garden explains the delays – which are partly attributable to this litigation.[43] Those explanations are not challenged.
[42]It is possible that the person who drafted this complaint has confused the obligations in clause 13.2(a) and (b). They are different obligations. The first relates to the trust’s tax returns. The second relates to a statement of necessary details for the purposes of each individual unitholder’s tax return (see complaint 11). There is no express time requirement for the first. The latter is required no later than 4 months after the end of the financial year (i.e. by 31 October 2021 for FY21).
[43]Mr Garden’s second affidavit at [75]-[79].
The eleventh complaint is similar. The complaint is articulated in this way:
Failure to provide unitholder tax statement to Mr & Mrs Hamer, and it is to be inferred from such failure to any other Unitholder, contrary to cl. 13.2(b) of the Constitution and despite repeated requests spanning more than 8 months.
Particulars
Email A. Hamer dated 9/9/21, 6/10/21, 13/10/21, 20/10/21.
This complaint does have substance. Clause 13.2(b) requires the unitholder statements “as soon as practicable after the end of the Financial Year, but by no later than four months after the last day of the Financial Year” [emphasis added]. Plainly the intention is that the unitholders have sufficient information from the trustee so that the unitholders can themselves discharge their own tax return obligations.
As to the “repeated requests” for the unitholder tax statements, the sequence of emails commences with Mr Hamer making an email request for the tax statement on 9 September 2021. Mr O’Dwyer, on behalf of Parity Partners’ director, responded saying that he had spoken to the accountant who told him that the tax statement was possible by the end of September 2021. On 5 October 2021, Mr Hamer chased up the tax statement and complained about the absence of a distribution in July. Mr O’Dwyer replied on the same day saying that he understood that the trustee was in the process of preparing an update and the financials for all unitholders. Mr O’Dwyer copied in Mr Fenton and Mr Daniel, who were described as associates of the trustee. On the same day Mr Hamer replied saying he was disappointed with the response. In an email also sent to Mr Fenton and Mr Daniel he asked: “Where is my money? Where are the monthly or quarterly statements? Where are the annual statements?”[44] He said: “while we are at it can you please provide an update on the current status of the investment.”
[44]Punctuation was added.
On 6 October 2021, Mr Fenton responded in this way:
Thanks for the follow up. You are welcome to also give me a call at any time.
Your funds have been invested as intended and the distribution payment for August and September 2021 was paid last week. I am finalising the next investor update that should be released this week.
In terms of the annual financial statements for FY21, I recently inherited this and am waiting on a (sic) some information to get this finalised. I appreciate the urgency in getting this done.
It will be noticed that these latest emails refer to ‘annual statements’ and ‘annual financial statements’. It is difficult to know whether these are intended to reference the unitholder tax statements, or whether they refer to the financial statements for the trust, or whether the reference is to financial statements more generally because the preparation of those is a necessary prerequisite to the preparation of the unitholder tax statements.
In any event, Mr Hamer was not placated. His email on the same day said that he was ‘out of patience’ with this investment. He listed a number of failings, principally a lack of communication, and requested a meeting of unitholders to require the trustee to adhere to its legal obligations as trustee. On 12 October 2021, Mr Hamer escalated the dispute in an email to Mr Fenton:
It has been nearly 6 days now since I requested you arrange a unit holders meeting, I had provided 5 days for you to arrange this meeting. I have received no communication from you or advice that this is in play so I have written to Keystone Private as the holders of the Financial services licence advising them of your shortcomings as a trust manager and also advising we will be seeking to lodge a complaint against them as well. Further I have escalated the matter to our lawyers, ASIC and the AFSA.
Please provide me with the contact details of all unit holders in the fund so I can arrange the meeting myself. I draw your attention to your obligations as trustee to supply me this information as set out in the trust deed/constitution.
On 13 October 2021, two things happened. First, there was conversation between Mr Hamer and Mr Fenton. In an email sent a short time later Mr Hamer referred to his loss of trust in the management team for this investment. He said his preference was for a refund of his investment. He said that, if a refund was not possible, then he was seeking a unitholders meeting and answers to 15 questions at the meeting.
Second, Parity Partners published an investor update which explained to all investors some bad news, including that the builder had left the site and there were slim prospects of having the builder return to site. They said that Bega remained committed despite the anticipated delays. The investor update also said that the work to prepare the income tax return for FY21 was underway and was expected to be completed by 31 October 2021.
There were then a series of email exchanges, including some answers to the 15 questions.
The applicants characterise this exchange of emails as a request for the unitholder tax statements. The emails started in that way, but they quickly escalated to a wider complaint and an ultimatum that Mr Hamer’s investment should be refunded and that, if it was not, he would arrange a unitholders meeting and, presumably, proceed with his various complaints.
Before leaving this group of complaints, it is worth noting that in Mr Garden’s third affidavit, filed on 17 June 2022, Mr Garden deposes that, on 16 June 2022, he had a conversation with Mr Jackson of Keystone Private Wealth Pty Ltd about finalising the tax return for the fund as well as providing unitholders with the information needed by them to complete their tax returns. Mr Jackson said he would do the work and estimated that it would take approximately three weeks.[45] No update suggests that the task has been completed. In any event, the delay is extraordinary and not properly explained.
[45]Mr Garden’s third affidavit filed 17 June 2022 at [17] and [18].
Complaints 12, 13 & 14: Third Party Signatory
The twelfth complaint is: “Permitting a third party to unilaterally control, as sole signatory, the trust bank account, despite that party having no authority to withdraw funds without Mr Garden's approval.” The particulars are specified as: “The third party was James O'Dwyer. O'Dwyer was not a director of the Respondent.”
Of course, a corporate entity may well give a third-party authorisation rights for a bank account. The rights need not be held by a director or by any particular person. Frequently an accountant may hold those rights, sometimes an independent accountant or even a separate entity.[46] The fact that a third party holds the authorisation rights to a trust bank account is not, by itself, a legitimate complaint. Much depends upon two things: the provisions of the trust instrument and the protections that are in place to ensure the funds are appropriately secure.
[46]For example, specialist corporate trustees and fund administration services are often provided to even large financial institutions, banks and fund managers.
Here, the applicants do not put their complaint on the basis that there were no proper protections in place, and so Parity Partners has not explained the procedures for authorising payments from the trust account.
As to the trust instrument, Parity Partners explain that, in reality, James O'Dwyer was not a disinterested third party. He was the sole director of Protean Investments Pty Ltd, a 50% shareholder in the trustee. Protean was the entity responsible for raising equity capital through investors, and responsible for the accounting for the Fund until late 2021. Parity Partners also explain that, pursuant to clause 11.2(f) of the Constitution, the trustee may authorise any person to act as its agent or delegate to perform any act or exercise any discretion within the trustee's power on terms the Trustee thinks fit.
It follows that this complaint does not form a basis for removal of the trustee.
The thirteenth complaint is expressed in these terms:
Leaving the same third party as sole signatory to the trust bank account for a period after Mr Garden discovered that the third party had transferred $600,000 without authority.
Particulars
The unauthorised transfer was made on 3 May 2021.
When the transfer occurred there had only been a few payments from the trust bank account and that account only had $600,000 in credit, such that the identification of the $600,000 transfer on 3 May 2021 was something which was obvious to Mr Garden.
Mr Garden discovered the transfer “in May” 2021.
Mr Garden subsequently required join [sic] signatories for any transactions.
The Respondent, by McInnes Wilson, wrote to Mr O'Dwyer by letter dated 14 October 2021.
Parity Partners’ response to the complaint is:
1.The account authorisations were directed to be changed the same day to require joint signatures while the matter was investigated.
2.This is not a case of Mr O'Dwyer stealing $600,000 and the Trustee doing nothing about it. The payment was in partial repayment of an amount of $2,000,000 advanced from Devmin International Pty Ltd (Devmin) for the benefit of the Project. Whilst aspects of the transaction are the subject of a dispute between the Trustee and Devmin, the Trustee has always acknowledged that the $2,000,000 advanced by Devmin was received for the benefit of the Project. The Trustee has paid Devmin $2,000,000 on account of the monies advanced for the benefit of the Project, which includes the $600,000 paid by Mr O'Dwyer to Devmin.
[footnotes omitted]
And so, the primary allegation here is that an unauthorised transfer from the trust account occurred on 3 May 2021, and Mr Garden discovered the transfer sometime in May 2021, and only subsequently required the account to be operated by joint signatures. Mr Garden says that, in fact, he responded to require joint signatures on the day the transfer was discovered – on 5 May 2021.[47] That was done whilst the issue was investigated. That response is not contested.
[47]See Mr Garden’s second affidavit at [95].
There is no basis upon which the court could find that Mr Garden’s evidence is untrue or inaccurate. In the circumstances, there is no basis for this misconduct allegation.
The fourteen complaint is nearly identical. In reality it merely adds a complaint about Mr O’Dwyer’s alleged refusal to deliver up the trust accounts:
Leaving the same third party as a signatory to the trust bank account for about 6 months after that party had transferred $600,000 without authority and had refused to deliver up trust accounts, despite request.
Particulars
Mr Garden did not remove Mr O'Dwyer as a signatory until 2 November 2021.
Parity Partners’ response adds this:
1. While it took some time to get all of the accounting records from Mr O'Dwyer, he did not refuse to give the records.
2. Mr O'Dwyer was not left as a sole signatory on the trust bank account. After Mr Garden discovered the $600,000 payment, joint signatures were required.
Again, Mr Garden has provided detail in his affidavits,[48] and says that there was no refusal to give up the accounts, and that is where the evidence rests.
[48]See Mr Garden’s first affidavit at [78]-[83] and second affidavit at [92]-[102].
Complaint 15: Insufficient Capital
The fifteenth complaint is as follows:
Proceeding with the Project, including the acquisition of the Land, without the Minimum Offer Amount or sufficient capital.
Particulars
The Minimum Offer Amount was $3.2 million.
The amount required to complete the purchase was $3.6 million.
The total contributions from investors before the purchase was $2 million.
The total funds available to purchase the Land from contributions made by Unitholders or purported Unitholders was $1.45 million.
The trustee accepted a further payment from Devmin International Pty ltd, as loan funds or, alternatively, without first agreeing terms, and in any case without issuing units.
Title to the Land was transferred on 12 April 2021.
The trustee, by Gadens, knew from in or about May 2021 that the cash-at-bank of the trust bank account stood at $320,000.
The trustee admits there was an insufficiency of capital raised for the acquisition, construction, and development of the Project by stating words to that effect in a letter from McInnes Wilson to Jamie O'Dwyer, Holistic Property Group Pty Ltd.
Parity Partners’ answer is to this effect:
1. There was no requirement to raise the Minimum Offer Amount before the Project could proceed.
2. The Trustee executed the purchase contract on the basis of assurances by Mr O'Dwyer and his related entities that sufficient capital would be in place to complete the purchase and carry out the development.
3. The loan from Devmin was with Protean, or another entity associated with Mr O'Dwyer, with the funds to then be made available to Parity at Protean's cost until such time as they had raised the equity. The loan between Devmin and Protean was made after the purchase contract had been signed on the basis that Mr O'Dwyer and his related entities had not satisfied his assurances that sufficient capital to complete would be raised.
4. Mr Garden has over 30 years' experience in property development, with work both in Australia and internationally, and the decision to proceed at that time was soundly based and the funding arrangements not unusual.
This complaint has the appearance of a negligence claim. What is alleged is that, in the circumstances, Parity Partners should not have proceeded with the development unless it had $3.2m or $3.6m in capital. However, the court is not in a position to assess that. No evidence has been adduced as to what the minimum capital was, or whether the project could proceed if the capital fell short of $3.2m or $3.6m, or whether the assurances as to further capital or loans were reasonably relied on by Parity Partners.
Contrary to the applicant’s assumption, the project was always envisaged as requiring both equity subscribed by unitholders, as well as borrowings from external financiers.[49] Borrowings come with risks.[50] The investment had risks, many of which were notified to investors in the Information Memorandum. Of course, the risk that materialised in this case was not a lack of initial capital but rather the repudiation of the building contract by the builder after the building was roughly 20% complete.
[49]See, for example, the Information Memorandum at Chapter 6 (Mr Hamer’s affidavit at page 111 of the AGH-1).
[50]Ibid.
It is also important to bear in mind that the development was not static. From the time the Constitution was signed on 3 March 2021, funds were being raised, costs were being incurred and the contract to purchase the land was being negotiated and signed. As the project proceeded, and as the funds were raised, the costs of terminating and the costs wasted by terminating were likely to increase. Thus, if Parity Partners made a business decision not to proceed, that would have had financial consequences for the investors. On the other hand, if Parity Partners proceeded there were development risks. That business judgment is not easily assessed by the courts. In a similar context, Edelman J considered allegations of breach of duties by directors and trustees in Australian Securities and Investments Commission v Cassimatis (No 8)[51] His Honour took the approach that the relevant assessment as to whether the decision-maker has exercised a reasonable degree of care and diligence can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question.
[51][2016] FCA 1023 at [486]-[487]. His Honour followed that approach in Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552 at [395]. See also Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449-450.
Here, it is impossible, even in a summary way, to conduct that balancing exercise. The applicants do not say when the decision not to proceed ought to have been taken. Neither party has adduced any reliable evidence, let alone expert evidence, which would enable the court to properly balance, at the relevant date, the risks and potential benefits of terminating as against the risks and potential benefits of continuing with the project. Certainly, there is no evidence which would enable the court to conclude even on an interlocutory basis that the business decision to proceed was an unreasonable one, let alone a decision that put the trust assets in peril.
Complaint 16: Failure to Report
The applicants’ sixteenth complaint relates to Parity Partners’ alleged failure to report:
Failure to keep the beneficiaries (investors) reasonably informed about the administration of the trust or trusts, or in relation to matters which affected or may affect the interests and entitlements of those beneficiaries.
Particulars
The trustee has failed to report to all investors that Ordinary Units were purportedly issued before the Fund commenced and, further or alternatively, without any resolution to do so.
The obligation to report to the beneficiaries about those matters is at general law.
The answer from Parity Partners’ is: “Again, as stated in response to Items 1 to 4, the Fund commenced at least by the issue of the first units. There was nothing of this kind to report.”
Thus, the point of the complaint appears to be that Parity Partners failed to report the misconduct alleged in complaints 1 to 4 (above) to the ordinary unitholders. The short answer here is that these are not breaches of the Constitution, and no provision of the Constitution requires the trustee to report alleged breaches to the ordinary unitholders.
Complaint 17: Failure to Arrange a Meeting
The applicants’ seventeenth complaint is: “Failure to ensure meeting of Unitholders held within 2 months of request by unitholders.” The particulars are: “Clause 23(a) of the Constitution.”
There is no clause 23(a) of the Constitution. Clause 23.1 provides that the trustee may call a meeting of unitholders at any time. The trustee must do so if required by the Act. The trustee may also, in its discretion, and at any time, postpone any meeting of unitholders.
That clause does not assist the applicants.
Of more assistance is Clause 23.2(a) which provides that the trustee must call and arrange a meeting of unitholders to consider and vote on a proposed resolution on the request of unitholders possessing at least 15% of the vote. When he requested a unitholders meeting in October 2021 it is likely that Mr and Mrs Hamer held at least 15% of the units. However, Mr Hamer does not appear to have ever proposed a resolution. He proposed that the trustee answer 15 questions at a meeting. But he did not propose, for example, a resolution that the trustee take any particular action.
By 10 November 2021, though that problem had been remedied, the applicants joined with some other unitholders to request five different resolutions, including that the trustee resign. On 1 December 2021, the trustee called a meeting for 10 January 2022. The trustee noted that some of the resolutions may be invalid.
On 7 January 2022, some three days before the proposed meeting, the trustee exercised the right to postpone the meeting. In doing so, the trustee explained that some of the unitholders had requested a postponement, some of the resolutions may be invalid, and stated that the trustee intended calling a general meeting in March 2022 and proposed that further information be provided by those who contended for the resolutions.
Eventually, a general meeting of unitholders was held on 14 June 2022. This meeting was chaired by an independent chairperson, Ms Caroline Snow. Four of five resolutions were passed, but each were different from those that had been proposed in December. The resolutions passed were to the effect that the remaining lot (Lot 1) be sold by the trustee, that the trustee continue to oppose the appointment of a receiver in this litigation, the trustee consider declaring a dividend amount, and that the trustee specify a date for termination and winding up of the Fund.
And so, whilst there was a significant delay, the voice of the unitholders was eventually heard. It is notable that the majority of the unitholders supported the trustee’s resistance to the present application.
Complaint 18: Failure to Keep Proper Accounts
The eighteenth complaint is that:
Bank statements reveal $1,336,973.96 paid to Parity Developments Pty Ltd between May 2021 and November 2021, but all invoices produced pursuant only total $569,451.42, leaving $767,522.54 in explained payments to a related entity of the trustee.
Parity Partners’ response is that:
1.All amounts are explained and relate to project costs.
2.The relevant invoices from Developments are accompanied by invoices and progress claims issued by contractors engaged by Developments in respect of the Project.
Mr Garden’s explains the invoices in his affidavit.[52] The invoices there total $767,522 which matches the discrepancy alleged by the applicants.[53]
[52]Mr Garden’s Second Affidavit at [127]-[129]. The invoices there total $767,522.
[53]At the hearing there was a discrepancy of a few dollars or cents, but I ignore that for present purposes.
The applicants’ supplementary submissions then continue the complaint:
…After the hearing on 13 May 2022, the trustee then produced some further supporting invoices for some of the unexplained payments, but even the trustee’s belated explanation does not deal with all of the unexplained payments, nor does the explanation it purports to give for some of the unexplained payments adequality [sic] or satisfactorily explain those payments. Further the trustee does not even bother trying to explain why it failed to produce those invoices in the first place, how it was able to so readily produce them after (and during) the 13 May hearing, or why it has still failed to produce all the missing invoices despite orders compelling him to do so, and Mr Garden swearing two verification affidavits previously, is completely and utterly unexplained.[54]
[footnote omitted]
[54]Applicants’ Supplementary Outline at [14].
An underlying presumption in this complaint is that the applicants were entitled to a full explanation for each transaction in the course of the development. Counsel for Parity Partners conceded that the beneficiaries are entitled to an account. But it is to be doubted that on an application to appoint a receiver, the applicants, who comprise some of the beneficiaries, are entitled to demand explanations for various payments with a view to identifying breaches of trust sufficient to require replacement of the trustee.
In any event, the explanations are largely satisfactory. Mr Garden explains the relevant invoices at paragraphs [127] to [129] of his second affidavit. In response, the applicants’ solicitor has deposed that:
(a)One of the invoices, invoice 72, is dated 10 November 2021 but the list which accompanies it includes an invoice dated 23 November 2021;
(b)When items 87 and 106 in the list are corrected to reflect the actual amounts of the invoices, the list does not tally $370,000 but rather $374,596.78;
(c)Item 29, comprising a Ronan Fox Lawyers’ invoice for $4,015, which is one of more than 100 invoices, has not been produced;
(d)Three other invoices have not been provided;
(e)There are queries in relation to the invoice for item 70;
(f)There is a $200 discrepancy in the total of the invoices provided ($767,722.54 and $767,522.54);
(g)There are a number of other queries raised by the documents.[55]
[55]Affidavit of Mr Davey filed 17 June 2022 at [16]-[22].
Given the time and effort spent on scrutiny of the transactions, the discrepancies that remain appear to be relatively minor. At worst, the trustee’s bookkeeping is less than ideal. However, it should not be forgotten that this particular inquiry started with an allegation that $767,522.54 in payments was unexplained. That challenge has been met, except for some relatively minor further details.
The complaint numbered (e) complains that the material sent to unitholders was sent too late. It was sent at 4.44pm the previous day. This complaint assumes that Parity Partners was obliged to send the material. Nothing in the Constitution required that disclosure. Even if it was sent late, as counsel for Parity Partners points out, there is not suggestion that any unitholder asked for more time to consider the material.
Conclusions: Appointment of a Receiver?
As explained at the outset, it will be just and convenient to appoint a receiver where, absent such an appointment, the trust property is imperilled. A receiver may also be appropriate where the trust is in a state of disarray, or where the trust property has been improperly managed, or where the misconduct or breaches of duty of the trustee places the trust assets in danger.[79]
[79]This is intended only as a broad summary of the principles stated earlier.
As can be seen, the applicants have levelled every possible criticism they can at Parity Partners. The applicants have trawled through all of the email, the documents they have obtained, and all transcripts of this proceeding and related proceedings in order to demonstrate the misconduct of Parity Partners. The allegations made have spanned a range from very serious allegations to a quite trifling claim.[80] That trawling exercise has yielded very little. Only one of the 43 complaints has demonstrated substance. That is complaint 11 comprising a failure to provide unitholder tax statements. Some other complaints reveal some lack of attention and errors.[81] More importantly, there is no substance to the large number of serious complaints.[82]
[80]See complaint 33.
[81]For example, complaints 1, 2, 3 and 21.
[82]For example, complaints 5, 18 to 22, 24, 18A to 23A, 23B and 23C.
That limited yield illustrates the overall impression which is of an unregistered managed investment scheme which is likely to have failed because of problems with the builder. Attempts to sell the property and to wind-up the trust have also met with problems, one of which is that the trustee has been under siege from the applicants.
The applicants prosecuted all 43 complaints. They also submitted that, looking at the totality of the complaints, there was a serious case that the misconduct and breaches of Parity Partners was of such a character as to place the trust assets in danger. That submission is not accepted. None of the more significant complaints has been shown to have any substance. To the limited extent that a serious case was shown, it was limited to errors and poor bookkeeping.
In the circumstances I am not satisfied that:
(a)the case in favour of appointment is strong;
(b)applying appropriate care and caution, the drastic remedy of appointing a receiver is inappropriate;
(c)there is no convincing case that a receiver is necessary.[83]
[83]See the discussion above in paragraph [15].
Other remedies are likely to be perfectly adequate and effective. Only one parcel of land needs to be sold in order to liquidate the assets of the trust. The accounts will need to be attended to. Parity Partners has offered to consent to orders which would involve two additional directors being appointed in place of Mr Garden and for the parties to give cross-undertakings.[84]
[84]This offer was treated by the applicants as a tacit concession that a receiver was appropriate: see the applicants’ reply to the respondent’s supplementary outline. I do not interpret the offer in that way. It is a recognition that further steps are required to wind up the trust and a genuine attempt to progress that process.
In the circumstances, it is not appropriate to appoint a receiver. The appropriate order would seem to be that, upon Parity Partners and Mr Garden undertaking that two directors be appointed in place of Mr Garden, the application be dismissed.
I will hear the parties on the form of the orders and on costs.
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