Hendry and Anor v E F Hendry Pty Ltd and Ors No. Scciv-02-1777

HENDRY AND ANOR V E F HENDRY PTY LTD AND ORS
[2003] SASC 157

JUDGE BURLEY. The plaintiffs have applied by summons for a declaration that since 5 July 1995 the first defendant (the company) has held Marine Scalefish Fishery Licence No M210 upon trust for the plaintiffs as tenants in common. The action proceeded on affidavits rather than pleadings. The plaintiffs contend that at all material times they were the beneficial owners of the licence. In July 1995 the licence was placed in the name of the first defendant but it has never been shown in the company’s accounts as being an asset of the company. The second and third defendants, in affidavits filed by them, claimed that they were each entitled to a 10 per cent interest in the licence, but when the matter was called on for trial on 10 March 2003, counsel for the second and third defendants indicated that they did not wish to pursue their counterclaim and would tender no evidence on either the claim or counterclaim.
The first defendant was separately represented. The plaintiffs are the sole shareholders of the first defendant. They are also directors of the first defendant together with the second and third defendants. It is common ground that the four directors are evenly split on the question of whether or not the plaintiffs are entitled to the declaratory relief sought in the summons. The plaintiffs, of course, contend that they have been at all material times the beneficial owners of the licence. The second and third defendants in their capacity as directors do not share that view. I have been informed by counsel for the first defendant that he has taken instructions from all of the directors of the first defendant and that he has been instructed to take a neutral position in relation to the claim made by the plaintiffs. In other words his instructions are neither to oppose nor to consent to the application made by the plaintiffs. Each member of the board of directors has thereby sought to avoid any conflict that might otherwise arise in the company giving instructions to legal advisers on behalf of the company.
The relevant facts are not in dispute. The following narrative sets out my findings based on the affidavits tendered by Mr Roder, counsel for the plaintiffs, and by Mr Lambert, counsel for the first defendant, and on the documentary material tendered by Mr Roder (Exhibit P1).
The affidavits are as follows:
·Mr R F Hendry sworn 2 December 2002 (Document 2).
·Mr E H Hendry sworn on 29 November 2002 (Document 3).
·Mr E H Hendry sworn on 5 February 2003 (Document 11).
·Mr K C Kelly sworn on 2 December 2002 (Document 5).
·Mr R A Stevens sworn on 7 March 2003 (Document 13).
·Mr L Twelftree sworn on 29 November 2002 (Document 4).
·Mrs W Hendry sworn on 7 February 2003 (Document 9).
·Mr R N Hendry sworn on 7 February 2003 (Document 10).
·Mr H Lambert sworn on 7 February 2003 (Document 8).
·Mr H Lambert sworn on 10 March 2003 (Document 14).
I shall refer to the various members of the Hendry family by the names used by each of them in respect of the others. The plaintiffs Ron and Ern are brothers. Ron is 66 years of age and Ern is 68 years of age. Their father, Ernest Frederick Hendry, was a professional fisherman. Ern started working as a fisherman with his father in 1948. In 1950 the plaintiffs and their father formed a partnership. There was no written partnership agreement. They traded under the name “E F Hendry and Sons”.
The plaintiffs’ father died on 18 February 1961. Initially his share was taken over by his widow but later John Hendry, a brother of the plaintiffs, bought his mother’s share in the partnership and remained a partner in E F Hendry and Sons until about 1974 or 1975. When John Hendry left the partnership his share was effectively acquired by the plaintiffs, who allowed John to take with him a boat called “Our Glenn” which belonged to the partnership. Thereafter the plaintiffs each held a fifty per cent interest in the partnership between them which continued to trade as E F Hendry and Sons. Both of the plaintiffs possessed Class A fishing licences.
In about 1974 the partnership between the plaintiffs operated one boat called the “Para Star”. An aircraft was also used for spotting fish. Ern had a pilot’s licence. He would fly the aircraft and Ron was master of the fishing boat.
By letter dated 30 May 1974 from the Fisheries Department, the plaintiffs were each advised that departmental policy allowed only one fishing licence to be issued in respect of each vessel. The letter then stated:
“Therefore, in order that the issue of a fishing licence for the year ending 30 June, 1975 may be considered, you are requested to determine who is to operate the said vessel and advise this Office as soon as possible.”
The plaintiffs discussed the letter and decided that Ron should hold the licence because Ern was flying the spotter aircraft. The Fisheries Department was notified that the fishing licence was to be renewed for the relevant financial year in the name of Ron and that took place. As part of that process Ern wrote to the Fisheries Department in the following terms:
“I Ernest Hurtle Hendry wish to relingwish [sic] my fishing licence to my brother Ronald Frederick Hendry of Box 1 Warooka 5577.
I now pilot the plane and my brother is on the boat.
Yours faithfully”
Ron, in his affidavit, stated in relation to the new licence issued to him:
“We considered it to be the partnership’s licence, but it was in my name.”
Ern said in his affidavit:
“We considered the licence which was issued in Ron’s name to be the partnership’s licence. Ron and I continued to run the business.”
In about 1984, Wendy Hendry, who is the wife of Ern, and their son, Randy Hendry, started working in the business. In 1987, Ern and Ron agreed that they would admit Randy and Wendy to the partnership giving them each a ten per cent share. A partnership agreement was drawn up and signed on 15 July 1987. The two plaintiffs held a forty per cent share each and Wendy and Randy held ten per cent each.
The capital of the partnership is referred to in paragraph 5 of the partnership agreement. It consisted of those items of plant and equipment set out in the schedule annexed to the agreement. The fishing licence was not referred to in that schedule, nor was a factory, jointly owned by the plaintiffs, referred to in that schedule. In that regard Ron said in his affidavit:
“Ern and I did not change the ownership of the fishing licence, which continued to be in my name, nor the ownership of the factory that he and I had built. That continued to be owned by Ern and I [sic] equally.”
Ern said:
“The new partnership arrangements were drawn up by the accountant and our solicitor. We listed the property that was to be partnership property. That did not include the licence. Ron and I knew that the licence had to be in his name and that he held it for the two of us. The licence was not transferred to the new partnership.”
In her affidavit Wendy referred to the partnership agreement of July 1987. The major asset of the partnership referred to in the agreement was the fishing vessel, the “Para Star”. That was built in 1973. Wendy said:
“23Since its construction, the Para Star has been and remains an asset of the partnership of E H Hendry & Sons. When I joined the partnership in 1987, I did not regard the fishing licence as ‘property’ which was separable from the boat and I did not think that it had any value other than as part of the documentation necessary to maintain the Para Star as a fishing vessel.
24For that reason, I thought that the listing of the Para Star as an asset of the partnership necessarily included the licence to operate it as a fishing vessel. Although I did not think that Ron and Ern would ever have considered selling the Para Star at that time (or for that matter, at any time since) I believed that if the Para Star had been sold then the licence would have had to have been sold with it. I further believed that I would have a 10% interest in the sale of the Para Star and the licence because I had a 10% interest in all of the assets of the partnership.
25It was some time after 1987 when I, and Ron and Ern and Randy, began to consider that the licence had ‘value’ at least amongst ourselves. The reason for this was that we had become aware of some inheritance rules that the Department of Fisheries had passed regarding Marine Scale licences. So far as the rules affected us I understood that, because the licence was still held in Ron’s name at that time, it would pass to his son Adam upon his death. This did not suit the partnership as Adam was not a partner of E H Hendry & Sons nor was he working in the business at that time. I understood that, in the event of Ron’s death, it would be necessary for the licence to be transferred to one of the remaining partners of E H Hendry & Sons so that it could continue to run the fishing business.
26In about 1993 or 1994 Mr Twelftree [the partnership accountant] started to talk to me about the benefits of incorporating a company to carry on the fishing business. This was at a time when the business was relatively profitable and Mr Twelftree advised me that setting up a company would secure further tax advantages and also have the added benefit of providing the protection of limited liability.”
The partners took up the advice of Mr Twelftree and on 7 March 1994 the first defendant was incorporated. Six shares were issued - two to each of the plaintiffs and one to each of the second and third defendants. (This shareholding was subsequently changed so that each of the plaintiffs held fifty per cent of the issued shares. This was done apparently on the advice of the company’s accountant.) The company then commenced to operate the fishing business formerly operated by the partnership. According to Wendy, the assets of the partnership were not transferred to the company. Those assets remained assets of the partnership E H Hendry and Sons. After the incorporation of the first defendant, the relevant fishing licence remained in the name of Ron because, among other things, without Ministerial approval, a company was not permitted to hold a fishing licence.
There were subsequent discussions between the plaintiffs and the second and third defendants about seeking the approval of the Minister to have the licence in the name of the first defendant. Wendy said in her affidavit:
“29Once the Company had been established, Ron, Ern, Randy and I began talking about having the Department of Fisheries record the fishing licence as being held in the Company’s name rather than Ron’s. The reasons for seeking to make this change were as follows:
(a) If the licence was not recorded as being in Ron’s name it would overcome the problems identified in paragraph 25 [set out at page 4 of these reasons] arising out of the inheritance rules of the Department of Fisheries;
(b) Documents regarding the preservation of the licence were required to be signed from time to time. It was very difficult to obtain Ron’s signature on occasions as he was often away from Point Turton fishing on the Para Star and even when he returned home it was difficult to arrange for him to sign documents as he lived at Edithburgh, some 65 kilometres from Point Turton.
30Ron, Ern, Randy and I agreed that it would be much more convenient if the licence was held in the name of the Company and eventually that was achieved by way of an exemption from the provisions of Section 36 of the Fisheries Act 1982, and Regulation 12 of the Scheme of Management (Marine Scalefish Fisheries) Regulations, 1984 which was published in the South Australian Government Gazette on 13 July 1995.”
The proclamation is as follows:
“FISHERIES ACT, 1982: SECTION 59
TAKE notice that E F Hendry Pty Ltd, PO Box 1, Warooka, SA 5577 (hereinafter referred to as the ‘fisher’) is exempted from the provisions of section 36 of the Fisheries Act, 1982, and Regulation 12 of the Scheme of Management (Marine Scalefish Fisheries) Regulations, 1984, subject to the conditions contained in the schedule.
THE SCHEDULE
1This exemption applies to Marine Scalefish Fishery Licence No M210 (hereinafter referred to as the licence).
2The licence may be held by E F Hendry Pty Ltd and operated by a nominated master.
3This exemption is valid only while salmon quota is held by Licence No M210. In the event of the quota being disposed of by the fisher, the licence will revert to Ron N Hendry, and will be subject to management arrangements that apply at that time.
4The fisher must not contravene or fail to comply with the Fisheries Act, 1982, or any regulations under that Act, except where specifically exempted by this notice.
Dated 5 July 1995.”
In his affidavit, Randy also stated that he understood that at the time of the formation of the partnership in 1987 the licence became an asset of the partnership and that, notwithstanding the fact that the licence was renewed in the name of the company pursuant to the Ministerial exemption referred to above, the licence was actually owned by the partnership.
As I understand it, it is on the basis of this understanding that both Wendy and Randy assert that they each have a ten per cent interest in the licence. In this way, it has been argued, there exists a dispute between the plaintiffs on the one hand and the second and third defendants on the other as to who owns the licence. Those four individuals each happen to be directors of the first defendant. In their capacity as directors they instructed Mr Lambert, counsel for the first defendant, that the first defendant was neither to consent to nor oppose the declaratory relief sought by the plaintiffs. The second and third defendants, insofar as they remain members of the partnership formed in 1987 and insofar as they contend that the licence has remained the property of the partnership, dispute that the plaintiffs are entitled to the declaratory relief sought.
The other affidavits relied upon by the plaintiffs by and large confirm aspects of matters referred to in the various affidavits of the two plaintiffs and the second and third defendants. The affidavits of Mr Lambert, solicitor for the first defendant, contain no direct evidence of the matters referred to by the members of the Hendry family but, taken in combination, they serve to confirm the position of the first defendant that it does not dispute the facts as deposed to by the various members of the Hendry family.
During the course of the hearing on 10 March 2003 and a further hearing brought on at my suggestion on 16 April 2003, counsel put submissions on the nature of the declaratory relief and when it might or might not be granted. I was concerned to ensure that the parties had the proper opportunity to put to me submissions on the questions of whether or not the evidential material established that there was an actual dispute that needed to be determined and that the proceedings were not being used as a substitute for proceedings under revenue legislation whereby taxes or duties were assessed.
Having reviewed the evidence and the submissions of counsel, I am now satisfied that a real, as opposed to hypothetical, dispute has arisen between the parties in relation to the ownership of the licence. For the purposes of this aspect of the case, I am prepared to assume that the licence constitutes property which is capable of being held on trust. I shall deal with that question in more detail later in these reasons.
In my view, the question of whether or not there exists a real dispute between the parties is linked to the question of whether or not any of the defendants have standing to dispute the plaintiffs’ contentions that, since the licence was put into the first defendant’s name, it was held on trust by the first defendant for the plaintiffs as tenants in common and that when the licence was put into the name of the first defendant, it has been held in trust by the first defendant on behalf of the plaintiffs.
There is no doubt that the first defendant has standing and has been properly joined as a defendant because the fishing licence is in the name of the first defendant. As to the second and third defendants, I consider that they also have standing and have been appropriately joined as defendants because they each contend that, when the new partnership was formed in 1987, the licence became part of the partnership property, they thereafter held a ten per cent interest in the licence and that that position remained unchanged even though the licence was subsequently put in the name of the first defendant.
In arriving at this conclusion I have derived assistance from the text (at para 203) of Declaratory Orders, P W Young QC, 2nd Edition. The learned author said:
“In his article ‘Declaratory Judgments in Theoretical Cases: The Reality of the Dispute’, A A Hudson in (1997) 3 Dalhousie LJ 706 ff, reviews the tests of when there is an actual controversy. He takes Zamir’s five classes of cases which have been regarded as being not real, namely, cases where there is no dispute in existence, cases where the dispute is not attached to facts, cases where the dispute is based on hypothetical facts, cases where the dispute has ceased to be of practical significance and cases where the declaration can be of no practical consequence, and says (p 709): ‘A common characteristic of the cases where the dispute was held to be unreal appears to be that, if the declaration sought had been granted, it could not have been immediately and effectively available to resolve the dispute between the parties.’ ”
In having regard to “Zamir’s five classes of cases”, none of those five instances applies to this case. In my view, the facts disclose that there is a dispute of practical significance and that the declaration, if made, would have practical consequences.
There is, in addition, some suggestion in the cases that the Court will not entertain a suit for declaratory relief in substitution for procedures under revenue legislation whereby tax or duties may be assessed and whereby those assessments may be reviewed. However, as Mr Roder contended, those cases do not apply to this matter because they involve the question of whether or not the relevant revenue authority consents to be joined as a party to the proceedings. If the authority does so consent and a declaration is made, the declaration is binding upon that revenue authority. However, if there is no consent and the revenue authority is not joined as a party, it is not bound by the decision: see Re Vandervell’s Trusts [1971] AC 912.
I now turn to the question of whether or not the licence is property which is capable of being held on trust. I commence by examining the nature of the licence. Mr Roder referred in some detail to the relevant legislation. There have been two Fisheries Acts during the relevant period: the 1971 Act and the 1982 Act. The 1982 Act came into force on 1 July 1984. Regulations were made under each of the two Acts.
The 1971 Act created two types of licence: Class A and Class B. The Class A licence was issued to persons whose principal business was commercial fishing. The B Class licence applied to commercial fishing of a seasonal nature. There is no provision in the 1971 Act for the transfer of the licences. However, according to the affidavit of Mr Richard Stevens sworn on 7 March 2003 there was an administrative procedure which enabled licences to be transferred. Mr Stevens said:
“1I was Director of Fisheries in the State of South Australia between the years 1980 and 1987. I had previously been Executive Officer of the Australian Fishing Industry Council (SA) Inc, between 1977 and 1979.
2In my capacity as Director I was responsible for the administration of the South Australian Fisheries Act 1971 (‘the Act’).
3The Act did not provide for the transfer of ownership of fishing licences. In order to give effect to the South Australian Government Policy for allowing the transfer of fishing licences in South Australia the administrative practice within the Department of Fisheries was to cancel an existing licence and issue a new licence to give effect to the said transfer.”

The licences under both Acts are annual and are renewed from year to year.
The 1982 Act introduced a new scheme for fisheries. It introduced the concept of a “fishery” which was defined to mean a class of fishing activity declared by regulation to constitute a fishery under Division 1 of Part IV of the Act. A licence was required in respect of each fishery. Subject to the Act and the regulations made hereunder, licences could be transferred. Section 38(5) of the 1982 Act deals with the devolution of the licence when the holder of the licence which is transferable dies. The sub-section provides that the licence “shall pass to and become vested in the personal representatives of the deceased”.
One of the requirements of Section 38 of the 1982 Act is that the scheme of management in respect of a particular fishery provides that licences issued in respect of that fishery be transferable. That requirement has been satisfied in this case.
A fishery licence issued pursuant to the provisions of the 1982 Act was considered by the Full Court in Pennington v McGovern (1987) 45 SASR 27. In that case the Full Court held that a licence issued pursuant to the provisions of the 1982 Act was a proprietary interest which was capable of being held on trust and capable of being transferred. King CJ, having reviewed the legislation (at page 30) said that the abalone licence, the subject matter of those proceedings, was “no mere personal inalienable right”. The Chief Justice said (at 31):
“I have no difficulty in reaching the conclusion that the rights conferred by a licence are proprietary in character. All forms of property may be the subject of a trust unless the policy of the law or any statutory enactment has made particular property inalienable, R P Meagher and W M C Gummow, Jacobs Law of Trusts in Australia (5th ed 1986), p 657. The property in question in this case is not, in my opinion, inalienable in the relevant sense. The licence itself can be transferred only with the consent of the Director, but the regulations clearly contemplate that the licence may be held by a person who has entered into an arrangement by which the exercise of the licence is to be subject to the directions and instructions of another. No consent is required to such an arrangement. I do not see the requirement that the transfer of the licence itself is subject to consent as an obstacle to a licence and the right conferred by it being the subject matter of a trust.”
In my view, the principles enunciated in that case apply with equal force to the type of licence under consideration in this matter.
In Kelly v Kelly (1990) 92 ALR 74, the High Court considered an abalone licence issued pursuant to the provisions of the 1971 Act. The Court held that the “abalone authority” was property capable of forming part of partnership property.
Both Pennington v McGovern and Kelly v Kelly were followed in Edwards and Anor v Olsen and Ors (1996) 67 SASR 266 (Full Court).
The cases just referred to, in my view, provide ample authority for the propositions that fishing licences issued pursuant to the provisions of both the 1971 and 1982 Fisheries Acts are property which is capable of being held on trust and which is capable of forming part of partnership property.
It is now necessary to consider the beneficial ownership of the relevant licences issued successively pursuant to the provisions of the two Acts.
It is clear that when Ern and Ron each were the holders of separate Class A licences, they were both the legal and beneficial owners of those licences. It was submitted by Mr Roder that when the two plaintiffs were required by the Fisheries Department to make a choice as to who would surrender a Class A licence, the dealings between the two brothers were such that, when agreement was reached that Ern would surrender his licence and Ron would retain his, the understanding of both of them was that Ron would hold the licence on behalf of himself and Ern. The evidence supports this contention. The two brothers continued to operate the fishing business in partnership using the one vessel. They both considered the licence to be part of the partnership property and they both operated on that assumption.
In Kelly v Kelly (supra) the High Court had to consider whether an authority to take abalone attached to a fishing licence became part of the property of a partnership consisting of the appellant and respondent who were respectively de facto husband and wife. The parties lived together from 1969 to 1984. They carried on a business of fishing for abalone from 1 July 1973. At that time the respondent had a fishing licence to which was attached an abalone permit. The permit was never brought into the books of the partnership. In 1980 the relevant regulations were amended so that those who wished to fish for abalone were required to obtain an authority to do so. The abalone permit was replaced, as a matter of course, by an abalone authority. That authority was never included in the partnership accounts as an asset.
The case necessarily involved an examination of the provisions under the 1971 Act because the partnership was dissolved on 30 June 1984, the day before the Fisheries Act 1982 came into operation. It was common ground between the parties that if the respondent held his rights under the abalone authority for the partnership, then the licence which replaced the authority under the Fisheries Act 1982 must likewise be held by him for the benefit of the partnership.
The High Court, having determined that the authority attached to the respondent’s fishing licence was property capable of being held by the partnership, then considered whether or not the authority became partnership property. In their joint judgment their Honours said (at 78):
“Whether the rights arising from the abalone authority in this case did become part of the assets of the partnership or remained the separate property of the respondent ultimately depends upon the agreement between the partners. Where no express agreement has been reached between partners, agreement may be inferred from the manner in which the affairs of the partnership have been conducted.”
Their Honours ultimately held (at 80) that there was “nothing upon which to found an inference that the parties intended the abalone authority to be held by the respondent on behalf of the partnership”. I understand their Honours to have meant by that passage that if the authority were to have formed part of the partnership property, it was to be regarded as having been held by the partner in whose name the authority was issued on behalf of himself and the appellant. In other words, the authority would be held on trust by the respondent on behalf of himself and the appellant.
Applying these principles to the present case, it must follow from my finding that in 1974 both the plaintiffs, who were then the only partners in the partnership, intended that the Class A fishing licence held by Ron should be partnership property, that once Ern surrendered his licence and the two plaintiffs continued the partnership business pursuant to the licence held in Ron’s name, Ron must be taken in equity to hold his interest in the licence on his own behalf and on behalf of Ern. In addition, because it became partnership property their joint interest in equity in the licence must be taken to be a joint interest as tenants in common.
I turn now to the position of the licence when the new partnership was formed in 1987 and the second and third defendants were introduced as partners. By then the Fisheries Act 1982 was in force. Prior to the creation of the new partnership, the plaintiffs had carried on business in partnership pursuant to a licence that had been obtained pursuant to the provisions of the 1982 Act. Although the High Court in Kelly v Kelly did not deal directly with the point, the members of the Court did not quarrel with the assumption made by both the appellant and respondent in that case (referred to at p77 line 44) that if a licence held under the 1971 Act was replaced by a licence under the 1982 Act that fact did not bring to an end any trust that had arisen in respect of the licence issued under the 1971 Act.
In view of the conclusions set out above, it may be stated that immediately prior to signing the agreement that evidenced the commencement of the new partnership in mid-July 1987, the licence then held in Ron’s name which had been issued and renewed from time to time under the provisions of the 1982 Act was held by him on behalf of himself and his brother, Ern. Contrary to the understanding of Wendy and Randy, the licence did not form part of the property of the new partnership and consequently, it could not be said that they each acquired a 10 per cent share in the beneficial interest in the licence.
The final question to be decided is whether or not, when the licence was put in the name of the first defendant, that altered the position in equity whereby the plaintiffs each held a 50 per cent share in the licence. Mr Roder submitted that only the legal interest in the licence was transferred to the first defendant and that the plaintiffs retained the beneficial interest in the licence in equal shares. He argued that because no consideration was given by the first defendant for the transfer of the licence into its name, a resulting trust arose in favour of those who held the beneficial interest at the time of the transfer. (I use the expression “transfer” as a matter of convenience. The reality is that the name of the holder of the licence was changed from the name of the first plaintiff into the name of the first defendant pursuant to a Ministerial exemption granted for that purpose.)
There is ample authority to support the proposition that there is a presumption of a resulting trust in favour of a transferor of personal property to a stranger who does not give valuable consideration: see Charles Marshall Pty Ltd and Others v Grimsley and Another (1956) 95 CLR 353 at 364-365. This is particularly so where the property produces income.
Although the presumption is rebuttable, the evidence in this case is all one way. It is common ground that no consideration was given by the first defendant for the transfer of the licence and it is also common ground that the licence has not been included as an asset in the books of the company. All of the evidence suggests in a convincing way that the licence has been held by the company as a matter of convenience and that when the licence was put into the name of the first defendant, none of the parties took the view that the beneficial interest in the licence would thereby be vested in the company. In those circumstances, I have come to the conclusion that the first defendant has only ever held the legal interest in the licence and that the beneficial interest resides with the two plaintiffs.
For the above reasons, there will be a declaration that since 5 July 1995 the first defendant has held Marine Scalefish Fishery Licence No M210 upon trust for the plaintiffs as tenants in common.

[2003] SASC 157

11 June 2003