Karri Country Produce Pty Ltd as trustee for the Franceschi Trust v Advance Packing & Marketing Services Pty Ltd as trustee for the Apms Unit Trust [No 4]
[2024] WASC 377
•16 OCTOBER 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: KARRI COUNTRY PRODUCE PTY LTD AS TRUSTEE FOR THE FRANCESCHI TRUST -v- ADVANCE PACKING & MARKETING SERVICES PTY LTD AS TRUSTEE FOR THE APMS UNIT TRUST [No 4] [2024] WASC 377
CORAM: HOWARD J
HEARD: 11 JULY 2024 & LAST SUBMISSIONS 6 SEPTEMBER 2024
DELIVERED : 16 OCTOBER 2024
FILE NO/S: CIV 3076 of 2019
BETWEEN: KARRI COUNTRY PRODUCE PTY LTD AS TRUSTEE FOR THE FRANCESCHI TRUST
Plaintiff
AND
ADVANCE PACKING & MARKETING SERVICES PTY LTD AS TRUSTEE FOR THE APMS UNIT TRUST
Defendant
Catchwords:
By earlier reasons and orders, Court found that a Trustee Redemption Notice was ineffective and plaintiff remained a Unitholder - Claims by beneficiary against trustee for non-payment of distributed trust income - Character of distributions of trust income - Whether trustee indebted to specified beneficiary - Whether specified beneficiary presently entitled to share of trust income - Whether repayable on demand - Costs - Indemnity costs - Special costs orders - Reduction in costs awarded - Calderbank offer - Unreasonable rejection of offer - Complexity of the matter - Inadequacy of scale item
Legislation:
Corporations Act 2001 (Cth) s 9, s 286(1), s 292, s 1305(1)
Legal Profession Uniform Law Application Act 2022 (WA) s 141(3)
Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (WA)
Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2022 (WA)
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr L A Warnick SC and Mr S G Stewart |
| Defendant | : | Ms K R Lendich SC and Mr T J Langdon |
Solicitors:
| Plaintiff | : | Johnson Winter & Slattery - Perth |
| Defendant | : | HWL Ebsworth Lawyers (Perth) |
Case(s) referred to in decision(s):
Calderbank v Calderbank [1975] 3 All ER 33
Chianti Pty Ltd v Leume Pty Ltd [2007] WASCA 270; (2007) 35 WAR 488
Federal Commissioner of Taxation v Carter [2022] HCA 10; (2022) 274 CLR 304
Fischer v Nemeske Pty Ltd [2016] HCA 11; (2016) 257 CLR 615
Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1
Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [No. 2] [2023] WASCA 108 (S)
In the matter of Fixed Interest Pty Limited [2017] NSWSC 1872
Karri Country Produce Pty Ltd as Trustee for the Franceschi Trust v Advance Packing & Marketing Services Pty Ltd as trustee for the Apms Unit Trust [No 3] [2024] WASC 151
Murphy v Nationwide News (No. 2) [2021] FCA 432
Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516
Value Constructions Pty Ltd v Badra (No 2) [2024] NSWCA 212
Warwick Entertainment Centre Pty Ltd v Silkchime Pty Ltd [No. 2] [2012] WASC 275
HOWARD J:
During the oral closing submissions at trial, I indicated that I would be assisted by further submissions on, effectively, the form of the final orders which ought be made if the Court were to make a declaration to the effect that KCP remained a Unitholder. The following were then filed:
1.KCP's further written submissions filed on 18 March 2024; and
2.APMS's further written submissions filed on 28 March 2024.
On 1 May 2024, I published reasons in this matter (earlier reasons).[1] Perhaps optimistically, I considered that with them the parties ought to be able to agree final orders.[2]
[1] Karri Country Produce Pty Ltd as Trustee for the Franceschi Trust v Advance Packing & Marketing Services Pty Ltd as trustee for the Apms Unit Trust [No 3] [2024] WASC 151
[2] [724].
Subsequently, by agreement, I made the following two substantive Orders on 16 May 2024:
1. IT IS DECLARED that the document described as a 'Trustee Redemption Notice' issued by the defendant to the plaintiff on or about 6 May 2019 was beyond the power of the defendant as Trustee of the APMS Unit Trust and is invalid and of no effect.
2. IT IS DECLARED the plaintiff remains the holder of 300 units in the APMS Unit Trust and is entitled to be, and to have been since 6 May 2019, registered in the register of unitholders of the APMS Unit Trust as holder of those units.
The agreeing of the final orders and costs has not otherwise been possible. These reasons deal with those two matters.
On 16 May 2024 I also made Orders for further written submissions to be filed in respect of costs and the final orders to be made.
Then:
1.KCP filed written submissions in relation to final orders on 7 June 2024; and
2.APMS filed written submissions in relation to final orders on 21 June 2024.
The matter came back for further oral submissions on 11 July 2024 as to both final orders and as to costs.
As a result of submissions made in Court on 11 July 2024, I made further Orders on 19 July 2024 which ordered:
1.the Trustee to provide KCP with certain, specified documents; and
2.further written submissions on the final orders to be made.
Then:
1.KCP filed written submissions on 23 August 2024; and
2.APMS filed written submissions in response on 6 September 2024.
In these reasons I have adopted defined terms and abbreviations from the earlier reasons. These reasons should be read with the earlier reasons.
Final orders
Introduction
As per the earlier reasons,[3] on 10 May 2019 the Trustee paid to KCP:
1.$412,500 for the redemption of KCP's units (Redemption Sum); and
2.$2,065,990.77 for the 'repayment of KCP's Unitholder loan' (Payment Sum).[4]
[3] [227].
[4] I have included this in quotation marks as it will be seen that I do not now consider KCP was owed a Unitholder loan at the time.
Under Issue 13 in the earlier reasons, (which most directly went to the form of the final orders), I said:
[707]Even accepting that KCP had, as it contended, a present legal entitlement to be repaid its Unitholder loan in 2018 and 2019, the facts make it plain that the Trustee did not repay that loan at any point prior to 10 May 2019.
[708]Whether the Trustee made that repayment because of a mistake of law (in its understanding of its obligations under cl 6.7(b)(iii) of the Unitholders' Agreement or not) I consider that there is a clear factual connection between the redemption and the repayment because the latter would not have happened without the former.
[709]In all of those circumstances, I consider that if KCP were granted its primary relief then as a matter of equity it should repay both the redemption sum and the repayment of its loan.
[710]I do not accept that before equity would grant KCP its remedy (consequential orders on the declaration that it effectively remained a Unitholder) it would require KCP to repay the two amounts it received on 10 May 2019.
[711]That is, in circumstances where a further consequence of such orders would be that the Trustee has to account for the distributions which it ought, but has not, made to KCP.
[712]I consider, rather, the true position (subject to pars [716], [717] below) to be that equity would allow either of the two 'matchings' I set out above.[5] That is the consequential orders on KCP being recognised as a remaining Unitholder would or could deal with the repayment by KCP of the two amounts (paid to it on 10 May 2019) at the same time as the reckoning of the distributions it ought to have received.
[5] The two 'matching scenarios' were set out in the earlier reasons [700].
As can be seen from those paragraphs of the earlier reasons I proceeded on the basis that:
1.the Trustee paid the Payment Sum to repay a loan owed to KCP; and
2.the loan was only repaid, factually, because KCP's units were (purportedly) redeemed.
I now consider that to be based on the misapprehension that KCP was owed a loan amount by the Trustee at 6 and 10 May 2019.
For reasons I will set out, I consider that the true position is that at the time of the Trustee Redemption Notice and the Trustee's payments to KCP on 10 May 2019:
1.the last books of the Trustee showed KCP's Beneficiary Account as being in credit of $2,065,990.78; and
2.that credit balance was not a loan owed to KCP, but, rather, derived from distributions which the Trustee had determined to be made to KCP over a number of financial years.
It is now common ground between the parties that since the Trustee Redemption Notice:
1.APMS declared distributions in the 2019, 2020 and 2022 financial years; and
2.if KCP remained a Unitholder (as found in the earlier reasons) then it would have received distributions in the total of $917,526.58 (Distributions Sum).
Another fact which is common ground is that in May 2019 the other Unitholders each 'advanced' the sum of $826,162.59 to the Trustee. That sum was recorded in the minutes of the Unitholders' meeting on 6 May 2019 as being advanced 'in order to fund the monies payable to [KCP] pursuant to the redemption and also its loan account balance …'.[6]
[6] Ex 176 TB 1481.
While it was not a particular focus at trial, the focus after delivery of the earlier reasons has been on:
1.whether and when KCP must repay the Redemption and Payment Sums, and whether by accounting entries;
2.whether the Trustee must pay the Distributions Sum and whether by an accounting entry; and
3.whether KCP's Claimed Present Entitlement (defined in [42] below) is owing and is now to be paid, and whether by an accounting entry.
Those issues came out of my reasoning under Issue 13 in the earlier reasons as quoted in [12] above.
I consider that if the matter of KCP's final relief is approached without the misapprehension I identified above, then the issues to be decided are somewhat simplified. That is because a consideration of the Payment Sum falls away (which is consistent with the pleadings and the way the parties started the trial) for the reasons set out below.
It is helpful to first re-visit the pleadings and the parties' cases at trial.
The case at trial and at the publication of earlier reasons
The earlier reasons used the description, or an equivalent, of KCP's 'Unitholder's loan' throughout to describe the Payment Sum. That reflected the language used by KCP in the SOC: see, for example, in the Particulars to SOC [34].
KCP's prayers for relief included those at CAB, CAC, CC and CD,[7] which are:
CAB.A declaration that KCP is entitled to one quarter of the income of the Trust in the financial years ended 30 June 2019, 30 June 2020, 30 June 2021, 30 June 2022 and 30 June 2023.
CAC.An order that the Defendant pay one quarter of the income of the Trust in the financial years ended 30 June 2019, 30 June 2020, 30 June 2021, 30 June 2022 and 30 June 2023 to KCP.
…
CC.Full and proper account of the Trustee's dealings with the Trust since 6 May 2019 and of what is due to KCP from the Trustee in respect of the Trust, ascertained on the footing of the above declarations and orders, pursuant to paragraphs 55B, 60A, 63B and 63D above.
CD.An order for payment by the Trustee of all sums found to be due from the Trustee to KCP on the taking of the account under CC above pursuant to paragraphs 55B, 60A, 63B and 63D above.
[7] I had noted these in the earlier reasons: [683] and [684].
Prayers CC and CD referred to SOC [55B], [60A], [63B], and [63D]. Without setting them out, each of those paragraphs pleaded that the Trustee had failed to account to KCP for distributions made in the period after 6 May 2019, i.e. those which became the Distributions Sum.
APMS, by its defence, denied that KCP remained a Unitholder and denied that it had any obligation to account to KCP. Accordingly, the Trustee globally denied that KCP was entitled to the relief claimed or to any relief.[8]
[8] Defence [84]; see also, for example, Defence [69BB], [69B] and [69D].
The Trustee more specifically pleaded at Defence [68] - [69] (and this was the genesis of Issue 13):
68. In further answer to paragraphs 1 to 62, KCP has refused to repay the $412,500 paid to it by the Trustee pursuant to the Trustee Redemption Notice in circumstances where:
(a) KCP asserts that it remains a Unitholder in the Trust;
(b) KCP is unable to identify the amount to which it asserts it would have been entitled had it made submissions to the Valuer, nor the submissions it asserts it would have made; and
(c) KCP has disposed of the sum of $412,500 paid to it by the Trustee pursuant to the Trustee Redemption Notice.
69. By reason of the matters pleaded in paragraph 68 of this defence, KCP is not entitled to relief in equity in respect of the matters alleged in paragraphs 1 to 62 on the basis that KCP has refused to do equity by retaining the sum of $412,500 paid to it pursuant to the Trustee Redemption Notice it asserts to be invalid, and KCP is unable to do equity as it has disposed of that sum and lacks the financial resources to repay it.
It may be noted that at the end of the trial APMS sought, and was granted, leave to file and rely on a fifth further amended defence.[9] In that final iteration of its defence, [68] and [69] remained in the form quoted above. The fifth further amended defence made no plea concerning the Payment Sum.
[9] Filed 5 March 2024.
KCP's written opening submissions did not refer to the Payment Sum. Rather, they addressed the pleas made by the Trustee at Defence [68] and [69].[10]
[10] KCP's outline of written opening submissions filed 22 January 2024 [157] - [168].
The Trustee's written opening submissions,[11] (consistently with its defence), focused relevantly on whether KCP could succeed without first paying the Redemption Sum as a condition of the relief it sought.[12]
[11] Filed 5 February 2024.
[12] Trustee's outline of written opening submissions filed 5 February 2024 [141] - [159]; especially [146] and [159] which refer to KCP having to 'repay the redemption price' of $412,500.
So, at the commencement of the trial the issues as to payments between the parties (if the Court found that KCP ought to have remained a Unitholder), were limited to:
1.how (including, when) KCP should be ordered to repay the Redemption Sum; and
2.what distributions the Trustee was obliged to make to KCP, and how they should be made.
That is, it was no part of either party's case that there should be some Court order as to the Payment Sum if KCP were found to still be a Unitholder.
In its oral opening submissions, KCP initially described the payment of the Payment Sum, by reference to the Unitholders' Agreement, in the following way:
WARNICK, MR: So the amended version [clause 6.7(b)(iii)] requires unit holder loans to be paid out when a unit holder exits the trust. I don't think there's any controversy about that. It's a compulsory legal incident of exercise of the compulsory redemption power. The trustee is going to have to pay up the loan balance of the exiting unit holder.[13]
[13] ts 69.
Further, in KCP's oral opening submissions, the following relevant exchanges occurred:
HOWARD J: So if you're going to undo the compulsory redemption, is it your submission the plaintiff doesn't have to undo the repayment of that loan under the unitholder agreement?
WARNICK, MR: Well, it is, your Honour. It has never been raised against us. It's a claim for the repayment of a debt which, you know, immediately – if it's paid back, it will be claimed again. There just doesn't seem to be any point, and that's probably why it hasn't been pleaded against us.
…
HOWARD J: … And what you say is you're under no obligation to address the loan?
WARNICK, MR: Well, we haven't had to address it because it wasn't pleaded, but, your Honour, there is then clearly a set off because it was a presently and immediately payable debt which they were just choosing not to pay, but then they got trapped into having to pay it because they redeemed the units.[14]
…
WARNICK, MR: Well, on the question that your Honour is raising, which hasn't been raised before – but if that's the proposition, that [$]2.1 million has to go back, then part of the accounting process will take into account not only the distributions for the intervening years but also the unpaid present entitlement that existed at the time of redemption.[15]
[14] ts 116 - 117.
[15] ts 118.
KCP was clear in its oral opening submissions that if it succeeded in its main claim then it would have to repay the Redemption Sum: the question, rather, in KCP's submission was whether it had to repay the Redemption Sum before being entitled to an order setting aside the Trustee's Redemption Notice.[16]
[16] ts 118 - 119.
In its oral opening submissions, APMS, referring to the above exchange about the loan repayment in KCP's oral opening the day before,[17] submitted:
1.all the other Unitholders had identical beneficiary loan accounts to KCP;[18]
2.KCP was the only one to have been paid out;[19]
3.KCP had had the benefit of over $2 million for some years and APMS did not know whether that sum 'still existed';[20] and
4.an analysis of the redemption documents would inextricably link the redemption process with repayment of the loan.[21]
[17] ts 139.
[18] ts 139.
[19] ts 139.
[20] ts 139 - 140.
[21] ts 140 - 141.
APMS further submitted that the question of the loan was not something that it had to separately plead because it was connected to the question of KCP's relief.[22] That last submission was made without reference to what APMS had pleaded in its defence at [68] - [69].
[22] ts 141.
As recorded in the earlier reasons,[23] until KCP's oral closing submissions, the trial was conducted on the basis that the repayment of KCP's 'Unitholder loan' was made to KCP pursuant to cl 6.7(b)(iii) of the Unitholders' Agreement.[24] Then in oral closing, KCP (differently) contended that it was not repaid its Unitholder loan pursuant to the operation of cl 6.7(b)(iii) of the Unitholders' Agreement.[25] But, nonetheless, KCP submitted that the payment of the $2,065,990.77 was a repayment of KCP's Unitholder loan.
[23] [688].
[24] That clause was set out in the earlier reasons at [18].
[25] Earlier reasons [689] - [690]; ts 521 - 522.
In this way, KCP submitted that the Payment Sum was not part of the redemption process and so did not need to be repaid as part of the undoing of the redemption of its units.[26]
[26] Earlier reasons [691].
I made the findings in the earlier reasons (as quoted in [12] above) as to the 'necessity' of KCP repaying both the Redemption and the Payment Sums.
In oral submissions on 11 July 2024, following the delivery of the earlier reasons, KCP for the first time submitted that:
… It is actually not a loan at all. It's a distribution amount … which has been placed to the credit of unit holders in the books of the trust … So there's no loan feature of it at all.[27]
[27] ts 548 - 549.
The degree of shift in KCP's contentions from the Repayment Sum being a loan to it being distributions owing might be neatly enough illustrated by the following. The clauses concerning determinations by the Trustee on which much of the debate has focused after the earlier reasons - namely cll 9.3 and 9.5 of the Trust Deed - were not included in Annexure A to the earlier reasons which sought to capture the provisions of the Trust Deed relevant to the matters in dispute as I understood them to be.
KCP's position
While KCP accepts that it must repay the Payment Sum by virtue of the earlier reasons, it now claims the same amount 'back' on the basis that it is, and was on 6 and 10 May 2019, presently entitled to that sum from the Trustee. Although it is the same amount as the Payment Sum, I refer to it as now claimed by KCP as the Claimed Present Entitlement.
The final position[28] taken by KCP is that orders should be made to the effect that:
1.KCP is to repay the Redemption Sum ($412,500) to APMS as per [709] of the earlier reasons;
2.KCP is to repay the Payment Sum ($2,065,990.78) to APMS as per [709] of the earlier reasons;
3.the Trustee is to pay KCP the Distributions Sum ($917,526.58); and
4.the Trustee is to pay KCP, now, the Claimed Present Entitlement ($2,065,990.78).
[28] That is after the steps set out in [6] - [9] above.
KCP submits this 'accounting' is to be done at the same time and should lead, in effect, to an order that APMS pay the net amount of $505,026.70 to KCP now (and not through a crediting of that amount to a beneficiary account of KCP's with the Trustee).
APMS's position
The Trustee submits[29] that the effect of the earlier reasons is that KCP must pay the Payment and Redemption Sums (totalling $2,478,026.77) to the Trustee. And, that those repayments should be an actual repayment and not by accounting entries to KCP's beneficiary account.
[29] That is after the steps set out in [6] - [9] above.
The Trustee submits that the effect of the earlier reasons is that it must credit to KCP's Unitholder/beneficiary account the Payment Amount and the Distributions Sum (totalling $2,983,053.40).
The Trustee further says[30] that:
1.the entries in the accounts of the Trustee creates a debtor/creditor relationship for the amount of the Distributions Sum;
2.consistent with the parties' history of dealings, that credit is a common law debt between the Trustee and KCP;
3.there was no argument nor evidence adduced as to the terms of that loan and, in particular, there is no evidence that the debt is payable on demand; and
4.the Court should not make any finding that the debt is payable on demand in circumstances where that question was not the subject of pleadings and was not ventilated at trial.
[30] APMS's outline of written submissions filed 6 September 2024 [6] - [8].
The Trustee in its written submissions[31] submitted that:
[9]KCP did not lead any evidence about the nature of the debt and did not cross-examine Mr Crockett on the factual matters relevant to determining the terms of the loan. For the Court to enquire further into the terms of the debt, it would be necessary for the parties to re-open their cases. KCP has not sought leave to re-open despite judgment having been delivered. Nor is the basis for leave apparent. The Court would take into account that a more stringent test applies when leave to re-open is sought after reasons are delivered.
[10]The issue between the parties is whether any or all of the amounts that flow from APMS to KCP as a consequence of the [earlier reasons] must be paid over to KCP in cash at KCP's demand at a time when KCP is a Unitholder.[32] (footnotes omitted)
The approach from here
[31] APMS's outline of written submissions filed 6 September 2024 [5] - [10].
[32] APMS's outline of written submissions filed 6 September 2024 [9] - [10].
The parties' positions I have just identified unsurprisingly provide for the repayment of the Payment Sum.
As noted, at and from the oral hearing on 11 July 2024, KCP has contended that the Payment Sum represented a payment to it of distributions owing to it and not a loan repayment. Both sides have been heard on that issue, including by further written submissions, and further discovery going to the issue was ordered on 19 July 2024.
The issue of the characterisation of the Payment Sum is also linked with the characterisation of the Distributions Sum. As to the Distributions Sum, as will be seen the Trustee accepts that it arises from determinations of the Trustee. The Trustee effectively contends, however, that the Court cannot or should not now order its (immediate) payment to KCP.
The characterisation of the Distributions Sum and whether it should be paid by the Trustee now or simply be credited to a beneficiary account of KCP must be determined. As will be seen, I consider the resolution of those issues assists in determining what, if any, further orders should be made as to the Payment Sum.
The Distributions Sum
The parties contend that the Distributions Sum arose as a result of either cl 9.3(a) or cl 9.3(c) of the Trust Deed.
The relevant provisions of cl 9 of the Trust Deed are as follows:
9.INCOME OF THE TRUST FUND
…
9.2The Trustees shall pay out of the gross income of the Trust Fund all costs and disbursements commissions fees taxes (including land tax and income tax) management charges and other proper outgoings in respect of the investments and administration of the Trust Fund.
9.3Subject to clause 3.5, the Trustees may in respect to the net income of the Trust Fund, at any time prior to the end of the Financial Year determine:
(a)to pay, apply or set aside the net income or any part of it for the benefit of the Unitholders in the proportion that the number of Units registered in their names bears to the total number of Units issued at the end of the Financial Year. If any Unit is partly paid, that proportion due to the Unitholder is that proportion of the amount due to a fully paid Unitholder which the amount paid up on the Unit bears to the issue price of the Unit;
(b)subject to the laws in force at the time, to accumulate all or any part of the income generated during such period and such accumulation shall be dealt with as an accretion to the Trust Fund. The Trustees may at any time resort to all such accumulations and pay or apply the whole or any part thereof as if they were income of the Trust Fund;
(c)if the Trustees do not exercise their discretion to either distribute or accumulate the net income of the Trust Fund in any Financial Year, then the net income not distributed or accumulated shall be deemed to be held by the Trustees on trust for the Unitholders so registered on the last day of the Financial Year in the proportion that their Units bear to all other Units issued at that date.
…
9.5A determination to pay apply or set aside any amount for any Unitholder and the implementation of such determination may be made by:
(a)placing such amount to the credit of the Unitholder in the books of the Trust Fund;
(b)by drawing a cheque in respect of such amount made payable to or for the credit or benefit of the Unitholders;
(c)by paying the amount to or for the benefit of the Unitholder in any manner;
(d)by a resolution of the Trustees that an amount of the net income for the Financial Year be paid, applied or set aside to or for the Unitholder or otherwise dealt with for the benefit of the Unitholder. Any resolution of the Trustees made in accordance with this sub-paragraph shall be irrevocable; or
(e)by issuing additional Units to the Unitholder in accordance with the terms of this Deed[.][33] (original emphasis)
[33] Trust Deed - Ex 2 TB 67 ‑ 68.
As noted at [8] above, following oral submissions on 11 July 2024,[34] by Orders made 19 July 2024, the Trustee was to provide KCP with:
1.all documents recording resolutions of the Trustee passed under cl 9.3 or cl 9.5 of the Trust Deed; and
2.all documents relating to loans made by any Unitholder to the Trustee in its capacity as trustee of the Trust.
[34] See [49] above.
None was produced by the Trustee.
It appears to be common ground that the Trust Deed effects distributions of net income in each relevant year so as to, at the least, avoid certain tax consequences if that net income remained in the Trustee's hands.[35]
[35] See APMS's outline of written submissions filed 6 September 2024 [16]; see KCP's outline of written submissions filed 23 August 2024 [9] ‑ [15].
KCP submits that as no resolutions of the Trustee were produced, it may be inferred, in effect, that no resolutions were made and that the net income of the Trust (which formed the basis of the Distributions Sum) was distributed by application of cl 9.3(c) of the Trust Deed.
It appears that submission is made to support KCP's further submission that by operation of cl 9.3(c) there was a 'separate' trust created of the distributions for the Unitholders on the last day of the (respective) financial year.[36]
[36] KCP's outline of written submissions filed 23 August 2024 [8].
The result of that, KCP submits, is that it is presently entitled to be paid the Distributions Sum by the Trustee. That is, rather than the Distributions Sum being credited to it in a beneficiary account, KCP can effectively require payment of the sum now.
The Trustee submitted that it:
1.had made no resolutions to distribute the income of the Trust; but
2.had made determinations to that effect for the purposes of the Trust Deed.[37]
[37] APMS's outline of written submissions filed 6 September 2024 [21] - [22], [24].
The Trustee says that from May 2019 it:
1.made determinations by 'setting aside for the benefit of the Unitholders' (including KCP) the net income in proportion to the number of units registered;[38]
2.put amounts to the credit of the other Unitholders in its accounts (following May 2019) as a result of determinations under the Trust Deed and, in particular, cll 9.3(a) and 9.5;[39] and
3.it ought to have done so, in accordance with the earlier reasons, for KCP.
[38] APMS's outline of written submissions filed 6 September 2024 [13].
[39] APMS's outline of written submissions filed 6 September 2024 [14] - [15], [17].
The Trustee contends that as it made 'determinations' under cl 9.3(a) of the Trust Deed, cl 9.3(c) was not triggered. As cl 9.3(c) was not triggered, no 'separate trust was created'.[40]
[40] APMS's outline of written submissions filed 6 September 2024 [24].
The Trustee advances an alternative argument if no determination was made. It says then that funds were distributed (presumably under cl 9.3(c) of the Trust Deed) to KCP and then simultaneously lent from KCP back to the Trustee.[41] I have considered below whether this argument may also be sustained against KCP's claim to now be paid the Distributions Sum if they’re its determinations under cl 9.3(a).
[41] APMS's outline of written submissions filed 6 September 2024 [29].
I accept the Trustee's submissions that from and including the 2019 financial years, it made determinations under cl 9.3(a) of the Trust Deed.[42]
[42] APMS's outline of written submissions filed 6 September 2024 [22].
I find that the Trustee made determinations under cl 9.3(a) of the Trust Fund in the 2019, 2020 and 2022 financial years in favour of the other Unitholders.
I set out below the treatment in the financial statements of the Trustee of the amounts shown to the benefit of the Unitholders. They support the Trustee's ultimate submission that:
… the Trustee had adopted a practice of distributing all of the net income of the trust to the Unitholders, in their proportionate shares …[43]
[43] APMS's outline of written submissions filed 6 September 2024 [22.6].
As will be seen, while the Trustee's financial statements consistently recorded amounts standing to the credit of the Unitholders as non-current liabilities, some years' statements (prior to the years which concern the Distributions Sum) recorded the amounts as 'Beneficiary loans'.
As it recognised in the relevant financial statements, I conclude that the Trustee had a liability to the other Unitholders of the determined sums. The reasoning for that conclusion is set out below.
I find that if the Trustee had recognised that KCP remained a Unitholder, it would have made determinations in the total amount of the Distributions Sum to KCP in those years.
As noted, the Trustee submitted that the sums shown as standing to the credit of a beneficiary reflected a debtor/creditor relationship, but one which resulted from a loan.[44] The Trustee did not advance another explanation as to what its financial statements reflected.
[44] APMS's outline of written submissions filed 6 September 2024 [31].
As I understood that submission, its effect was that KCP needed to plead and prove that the debt owed by the Trustee via such a loan was payable on demand. It had not done so, and so the immediate repayability of the loan should be determined in separate proceedings and not by final orders in this case.
I do not accept that submission of the Trustee. For the reasons set out below, in my view, in the relevant (to the Distributions Sum) years by a determination under cl 9.3(a) of the Trust Deed, the Trustee allocated the determined sums specifically to the benefit of the particular Unitholder/s such that the Unitholder could require their immediate payment by the Trustee.
Before turning to the question of KCP's present entitlement to the Distributions Sum, it is helpful to set out the relevant entries in APMS's financial statements following the Trustee Redemption Notice.
The Distributions Sum in APMS's financial statements after May 2019
Necessarily, the Distributions Sum is concerned with distributions which KCP should have received as a Unitholder after May 2019.
In reading APMS's financial statements following the Trustee Redemption Notice, it must be remembered that following the Orders made on 19 July 2024 (as cited in [8] above), no documents were produced:
1.recording any resolution of the Trustee under cll 9.3 or 9.5 of the Trust Deed; nor
2.relating to loans made by any Unitholder to the Trustee.
APMS's financial statements for the 2019 financial year showed:
1.a profit before tax or distribution of about $1,035,907;[45]
2.Beneficiaries' Accounts, in the non-current liabilities, in the total of about $8,370,483;[46]
3.the net income for distribution, in the Trust Income Distribution Statement, of about $1,035,907 distributed equally to the Largs Bay Trust, West Pemberton Avocados and Fonty's;[47]
4.a distribution of profits that year of about $345,302 to each of the Largs Bay Trust, West Pemberton Avocados and Fonty's in the Beneficiary Accounts;[48] and
5.an opening balance for the 'Franceschi Trust' at 1 July 2018 as $2,065,990.78.[49]
[45] Ex 236 TB 15.
[46] Ex 236 TB 17.
[47] Ex 236 TB 34; Ex 200 TB 1595.
[48] Ex 236 TB 156.
[49] Ex 236 TB 35.
APMS's financial statements for the 2020 financial year[50] showed:
1.a profit before tax or distribution of about $644,553;[51]
2.Beneficiaries' Accounts, in the non-current liabilities, in the total of about $9,818,890;[52]
3.the net income for distribution, in the Trust Income Distribution Statement, of about $644,553 distributed equally to the Largs Bay Trust, West Pemberton Avocados and Fonty's;[53]
4.a distribution of profits that year of about $214,851 to each of the Largs Bay Trust, West Pemberton Avocados and Fonty's in the Beneficiary Account;[54]
5.a 'Physical Distribution' in the 2019 and 2020 financial years of $2,065,990.78;[55] and
6.the balance for the 'Francheschi Trust' at the end of the 2019 and 2020 financial years of nil.[56]
[50] By consent, certain financial statements of APMS were tendered on 23 August 2024 via a Second Further Supplementary Trial Bundle. (SFSTB). That contained documents numbered 253 - C232. Each of those documents will be an exhibit with its exhibit number being its document number. Consistently with the practice previously adopted, page number references will be to the pages of the SFSTB and not to particular pages within the individual exhibit. The 2020 financial year statements from APMS are exhibit C202.
[51] Ex C202 SFSTB 164.
[52] Ex C202 SFSTB 166.
[53] Ex C202 SFSTB 183.
[54] Ex C202 SFSTB 184.
[55] Ex C205 SFSTB 184.
[56] Ex 236 TB35 and Ex C202 SFSTB183.
Notwithstanding that a physical distribution was shown to KCP in the 2020 financial statements for both of the 2019 and 2020 financial years, I find there was only one payment of $2,065,990.78 to KCP in the 2019 financial year.
In the financial statements for the 2021 financial year, there was a loss before tax or distribution of about $654,309[57] which was shown as being undistributed. No distribution was shown in the Trust Income Distribution Statement[58] and there was no increase or change to the amount standing to the credit of the Beneficiary Accounts for any of the beneficiaries.[59] Beneficiary accounts were shown in the non‑current liabilities in the total of about $10,463,444.[60]
[57] Ex C205 SFSTB 192.
[58] Ex C205 SFSTB 215.
[59] Ex C205 SFSTB 216.
[60] Ex C205 SFSTB 194.
APMS's financial statements for the 2022 financial year showed:
1.a profit before tax or distribution of about $2,643,955;[61]
2.Beneficiaries' Accounts, in the non-current liabilities, in the total of about $9,453,090;[62]
3.the net income for distribution, in the Trust Income Distribution Statement, of about $1,989,646 distributed equally to the Largs Bay Trust, West Pemberton Avocados and Fonty's;[63] and
4.a distribution of profits that year of about $663,215 to each of the Largs Bay Trust, West Pemberton Avocados and Fonty's in the Beneficiaries' Accounts.[64]
[61] Ex C206 SFSTB 224.
[62] Ex C206 SFSTB 226.
[63] Ex C206 SFSTB 244.
[64] Ex C206 SFSTB 245.
In the financial statements for the 2023 financial year (being the last year available in the evidence), there was a loss before tax or distribution of about $439,244 which was shown as being undistributed.[65] There was no increase or change to the amount standing to the credit of the Beneficiaries' Accounts shown in the non‑current liabilities,[66] nor to the Beneficiary Accounts for any of the beneficiaries.[67]
KCP's present entitlement to the Distributions Sum
[65] Ex C232 SFSTB 253; including in the Trust Income Distribution Statement.
[66] Ex C232 SFSTB 255.
[67] Ex C232 SFSTB 274, 275.
In my judgement, this question is resolved by application of the principles identified by the Court of Appeal in Chianti Pty Ltd v Leume Pty Ltd [2007] WASCA 270; (2007) 35 WAR 488 (Chianti), and to a lesser degree by Fischer v Nemeske Pty Ltd [2016] HCA 11; (2016) 257 CLR 615 and Federal Commissioner of Taxation v Carter [2022] HCA 10; (2022) 274 CLR 304. A number of other cases were canvassed in submissions, but, obviously enough, these three cases are binding upon me and, in my view, are sufficient to determine the question.
The relevant trust deed in Chianti[68] (for the SJRF Trust) contained:
1.a clause as to the distribution of income which was materially similar to cl 9.3(a) of the Trust Deed; and
2.a clause which was materially similar to cl 9.5 of the Trust Deed.[69]
[68] [2007] WASCA 250; (2007) 35 WAR 488 [22].
[69] [2007] WASCA 250; (2007) 35 WAR 488 [23].
In Chianti, however, cl 3.5 of the SJRF Trust[70] provided (and there is not a comparable, express term of the Trust Deed):
3.5Any amount set aside for any beneficiary ... shall cease to form part of the Trust Fund and upon the setting aside or becoming subject to the trust shall thenceforth be held by the Trustee as a separate trust fund on trust for that person absolutely with power to the Trustee pending payment over to the person to invest, apply or deal with the whole or any part of the fund or any resulting income from it in the manner provided for in clause 5(e).
[70] Which was set out at [2007] WASCA 250; (2007) 35 WAR 488 [24].
Buss JA (as he then was) for the Court held:
[65]In my opinion, by virtue of cl 3.5, upon the appellant resolving, on each occasion in question, to distribute a specified amount of the SJRF Trust income to the respondent, the appellant held the relevant amount (being part of the income which the appellant had derived) upon trust for the respondent absolutely.[71]
…
[70] In my opinion, cl 3.5 of the SJRF Trust deed, the resolutions, the financial statements of the SJRF Trust and the evidence … which I have mentioned at [24], [27] - [30], [32] and [64] above, establish that as at the critical date, the appellant held the distributed amounts upon trust for the respondent absolutely. The respondent's interest in the distributed amounts was not subject to any contingency or condition which might defeat its entitlement. Rather, the respondent's interest in the distributed amounts was vested in interest and possession. … In my opinion, at the critical date, the appellant was obliged to pay the relevant amounts to the respondent. There remained nothing for the appellant to execute in respect of the trust on which it held the distributed amounts, except payment over of the relevant amounts to the respondent and, in consequence, on the authorities referred to by Gummow J in Roxborough[72] …, the respondent was entitled to recover those amounts from the appellant by an action for money had and received.[73]
[71] Chianti [65].
[72] Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 [67] (Gummow J).
[73] Chianti [70].
The evidence identified by Buss JA in [70] as quoted was:
1.income tax returns and accounts of the trustee of the SJRF Trust;
2.financial statements which evidenced distributions made each year by the SJRF Trust;
3.which financial statements showed that the relevant amounts remained under the control of the trustee of the SJRF Trust;
4.which financial statement showed the funds being accumulated for earlier years in a 'Beneficiary's Loan Account', then a 'Beneficiary's Current Account', and then lastly as an 'Unpaid Beneficiary Entitlement'; and
5.express resolutions made by the trustee to distribute the income of the SJRF Trust for each of the relevant years by crediting amounts to the particular beneficiaries in the books of the SJRF Trust.
Buss JA held:
[76] Numerous authorities have considered, in the context of acknowledgements of debt for the purposes of limitation statutes, whether a corporation's financial statements can constitute an acknowledgment of debt. The authorities establish that financial statements (including the balance sheet and the notes to the accounts) can constitute an acknowledgement of debt …[74] (footnotes omitted)
[77] In the present case, I am of the opinion that the financial statements of the SJRF Trust and the evidence of … which I have mentioned at [27] - [30] and [32] above, when considered in the context of the relevant factual and legal background including cl 3.5 of the SJRF Trust deed and the resolutions, constitute admissions by the appellant that the distributed amounts were owing by the appellant to the respondent, for the purposes of the principle referred to in Gummow J's reasons in Roxborough[67]. The latest financial statements before Judge Eaton, namely, those for the year ended 30 June 2003, described the distributed amounts as an 'Unpaid Beneficiary Entitlement'. When that description is read with cl 3.5, the resolutions and [the] evidence, the proper conclusion is that the appellant's admission was of an obligation to pay on demand.[75]
[74] Chianti [76].
[75] Chianti [77].
Two differences which might be thought to distinguish Chianti from the present case are:
1.there was no affirmative resolution made by the Trustee; and
2.there is no equivalent to cl 3.5 of the SJRF trust deed in the Trust Deed.
I do not consider the first difference to be material here in light of the Trustee's position and admission that it did, indeed, make determinations for the relevant financial years.
I do not consider that the absence of an equivalent clause to cl 3.5 of the SJRF trust deed makes the principles identified by the Court of Appeal inapplicable.
Firstly, as the passages quoted from Buss JA's judgment above show, cl 3.5 of the SJRF Trust was one of the considerations which led to the conclusion; but it was not the only one.
However, and perhaps more fundamentally, it seems to me that even absent an express clause like cl 3.5, the effect of cl 9.3(a) of the Trust Deed was to allocate the determined sum specifically to the benefit of the particular Unitholder, with the consequence being the same as that identified by Buss JA in Chianti[70].
That conclusion is consistent with the agreed position of the parties that it was intended that the Trustee would not accumulate any net income in the Trust fund so as to avoid what would be regarded by both parties as an unfavourable taxation position for the Trustee.
In Fischer v Nemeske,[76] French CJ and Bell J, after referring to Chianti, approved of the 'general proposition' that 'a resolution deliberately arrived at and recorded can of itself be sufficient to effect an immediate vesting of a specific part of the trust income'.[77]
[76] Fischer v Nemeske Pty Ltd [2016] HCA 11; (2016) 257 CLR 615 (Fischer v Nemeske).
[77] Fischer v Nemeske [26].
Here, the Trustee's position is that an effective determination was made in each of the relevant financial years even though there was not a separate 'affirmative' resolution made and documented. In those circumstances, I consider that the 'general proposition' approved of by French CJ and Bell J is applicable.
Gageler J (as he then was) held:
[104]… On and from the making of the resolution, the Trustee continued to hold such trust assets as might from time to time comprise the Trust Funds subject to an immediate unconditional obligation on the part of the Trustee to account to Mr and Mrs Nemes … out of the Trust Funds. That obligation arose not outside the Deed but under the Deed. It was immediately enforceable in equity by Mr and Mrs Nemes against the Trustee in the same way as if an unconditional obligation to account … had been expressed as a term of the Deed.[78]
[78] Fischer v Nemeske [104].
Gageler J stated it was well settled that a trustee, having an unconditional obligation to pay a specified amount of money to a beneficiary, can thereby become liable to an action at law for the recovery of that amount as money had and received, and that would be an overlay of the legal relationship of debtor and creditor over the equitable relationship of trustee and beneficiary.[79]
[79] Fischer v Nemeske [105].
In Federal Commissioner of Taxation v Carter, the relevant trust contained cl 3.1 which was materially similar to cl 9.3(a) of the Trust Fund.[80] The relevant trust in Carter (by cl 3.7) also contained an equivalent provision to cl 9.3(c) of the Trust Deed.[81] It does not appear that the trust in Carter contained an equivalent provision to cl 3.5 of the SJRF Trust which was under consideration in Chianti.
[80] Federal Commissioner of Taxation v Carter [2022] HCA 10; (2022) 274 CLR 304 (Carter) [6].
[81] Carter [7].
Carter concerned s 97(1) of the Income Tax Assessment Act 1936 (Cth);[82] the focus of which in that case was when a beneficiary 'is presently entitled to a share of the income of the trust estate'.
[82] Section 97(1) as it then relevantly provided was set out in Carter [2]; the focus of which in that case was when a beneficiary 'is presently entitled to a share of the income of the trust estate'.
The observations which the plurality (Gageler, Gordon, Steward and Gleeson JJ) made as to when a beneficiary 'is presently entitled' appear at [19] - [22].
In Carter, there had not been a determination to distribute income and the default position under cl 3.7 of the trust deed (the comparable provision to cl 9.3(c) of the Trust Deed) had taken effect. As the plurality recorded:
… the purpose and effect of the default distribution clause was to ensure that in each Accounting Period the whole of the income of the … trust was distributed, if not otherwise dealt with. No income remained with the Trustee.[83]
[83] Carter [8].
The effect was that the beneficiaries had an interest in the income of the trust which was vested both in interest and possession on the default distribution and, so, had a present legal right to demand and receive payment of the income.[84]
[84] Carter [19] (Gageler, Gordon, Steward & Gleeson JJ).
Subject to the submission that there was a supervening loan of the determined sums 'back' from the Unitholder (KCP) to the Trustee, the other Unitholders and KCP (if it had been seen as a Unitholder) would, in my view, be immediately and presently entitled to be paid the determined sums by the Trustee. As noted, the only suggestion made by the Trustee was that the distributions made and credited to the Unitholders were subject to a loan; necessarily ‘back’ to the Trustee.
So, applying those conclusions to the present case, unless there was a supervening loan from KCP to the Trustee of the Distributions Sum, KCP is, in my judgement, entitled to be paid the Distributions Sum now.
The Distributions Sum and the pleadings
I have noted above in [23] - [26] the relevant KCP prayers for relief and the defence put by the Trustee against the Distributions Sum.
In my view, KCP's claim to be presently entitled to the Distributions Sum is within its pleaded case. The defence pleaded by APMS[85] as to what KCP had to do 'to do equity' was determined in the earlier reasons. That is KCP must repay the Redemption Sum, but that equity would not require it to do so before obtaining the orders that it remained a Unitholder.
The Trustee's claim that the Distributions Sum were lent back to it by KCP
[85] Defence [68] and [69].
As noted, it may be that the Trustee is not contending that the Distributions Sum (following cl 9.3(a) determinations) is, or would have been, subject to a supervening loan back to it. However, it is not clear to me that it is not making that contention.
The first difficulty for the Trustee in this submission (if made) is a factual one. That is, from May 2019, outside of this litigation, there has been no relevant conduct between KCP and the Trustee under the Trust Deed or the Unitholders' Agreement, or otherwise.
So, where the Distributions Sum has now been held to be payable to KCP, it is difficult to understand how it can be contended that rather than recognising that entitlement, the Court should find (from no relevant conduct in the period) that there was an intention by the parties for KCP to lend back to the Trustee the Distributions Sum (which it had not received and which has only been recognised by order made earlier this year).
Further, and in any event, in my view if the Trustee wished to assert that any of the Distributions Sum was not payable to KCP because it was subject to a (later, supervening) loan from KCP to the Trustee, then that is something I consider that the Trustee ought to have pleaded (as it did, analogously, with its defence at [68] and [69]).
I do not accept that because it is a matter which might be said to go to the relief claimed by KCP that it (the Trustee) did not need to raise it by its pleadings; or to raise it by an application to amend its pleadings subsequently to the earlier reasons, or subsequently to the submissions first made by KCP in Court on 11 July 2024.
Further, there is nothing to suggest that any of the other Unitholders at any time since May 2019 had lent back to APMS any of the sums standing to their credit in their respective Unitholder account.
It may be noted that in none of the 2019 - 2023 financial years' statements is the language of a Beneficiary's loan account, or equivalent, used.
Rather, the language used is consistent, with respect, with the submissions made by APMS: that is, that it had determined to distribute all and any net profit or income to its Unitholders (as it understood the position) in the financial years 2019, 2020 and 2022.
Section 1305(1) of the Corporations Act 2001 (Cth) provides:
(1)A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.
(2)A document purporting to be a book kept by a body corporate is, unless contrary is proved, taken to be a book kept as mentioned in subsection (1).
It was not in issue in the trial that APMS is and was at all material times a company duly incorporated and registered under the Corporations Act.[86]
[86] SOC [2(b)]; Defence [2]; Ex 207.
'Books' is defined in s 9 of the Corporations Act to include: '(c) financial reports or financial records, however compiled, recorded or stored'.
'Financial records' are defined inclusively in s 9 of the Corporations Act.
'Financial statements' and 'financial reports' are, also, both defined by s 9 of the Corporations Act.
APMS, as a company, had to keep financial records: s 285(1), s 286(1) of the Corporations Act.
By s 286(1) of the Corporations Act, APMS was required to keep:
… written financial records that:
(a) correctly record and explain its transactions and financial position and performance; and
(b) would enable true and fair financial statements to be prepared and audited.
The obligation to keep financial records of transactions extends to transactions undertaken as trustee.
There may be a question as to whether what I have described as the financial statements of APMS were required to be kept by it pursuant to s 292 of the Corporations Act. I have proceeded on the basis that APMS was not required to prepare the financial statements to which I have referred by s 292.
Notwithstanding that, I consider that the financial statements I have referred to were admissible under s 1305(1) of the Corporations Act (noting that there was no objection on either side to their tender). Further, once tendered in evidence the financial statements are prima facie evidence of the matters stated or recorded in those statements and records. In this respect, I adopt the approach taken by Le Miere J in Warwick Entertainment Centre Pty Ltd v Silkchime Pty Ltd [No. 2] [2012] WASC 275 [18] - [22]. That approach is also consistent with that taken by Brereton J (as he then was) in Re Fixed Interest Pty Limited [2017] NSWSC 1872 [22].
In any event, APMS, understandably, did not suggest that any of the financial statements to which I have referred, and which were tendered in evidence, were inaccurate or did not, in any respect, reflect the true position.
In my view, if I am wrong as to the effect of s 1305(1) of the Corporations Act, nonetheless the financial statements of APMS to which I have referred are, at the least, prima facie evidence of their contents 'against' APMS. That, in my view, is consistent with the way the Court of Appeal dealt with the trustee's financial statements in Chianti and also the alternative basis identified by Brereton J in Re Fixed Interest Pty Limited [23].
To be clear, I have considered whether the above financial statements support the Trustee’s suggestion or contention that the distributions were then subject to a loan which was not immediately repayable. Aside from showing from where and how the credit balances of the Unitholders were derived, the only use I have made of the financial statements is to test whether the Trustee’s asserted loans were reflected in its books, or whether the books effectively reflected the distributions made in the relevant years without any supervening loan.
The Payment Sum
The ultimate issue about the Payment Sum, in my assessment, is whether the Court ought to make any order at all at this point concerning it.
The first question is whether the $2,065,990.78 which was paid to the trustee by KCP on 10 May 2019 was the repayment of a 'loan' owed to KCP or whether it had a different character.
It is useful to start with how the Payment Sum was shown in the financial statements of the Trustee before May 2019.
The Payment Sum in the financial statements prior to May 2019
I start with the closest in time to the Trustee Redemption Notice, and then turn to those going back to the 2012 - 2017 financial years' statements.
Again, in reading these financial statements, I repeat what I said at [76] above.
APMS's financial statements for the 2018 financial year[87] (the last full financial year before the Trustee Redemption Notice) showed:
1.a profit before tax or distribution of about $1,403,969;[88]
2.Beneficiaries' Accounts, in the non‑current liabilities, in the total of $6,966,514.46 split across four Unitholders;[89]
3.the net income for distribution, in the Trust Income Distribution statement, to the then four Unitholders each of about $350,992 for total distributions of $1,403,968.89;[90] and
4.balances standing to the credit of the then four Unitholders in the Beneficiary Accounts, including to 'The Franceschi Trust' at the end of the 2018 financial year of $2,065,990.78.[91]
[87] The 2018 financial statements appear in, at least, three places in the documents tendered: namely exhibit 78, exhibit 198. Exhibit 78 was then further reproduced in the Second Further Supplementary Trial Bundle which was tendered by consent on 23 August 2024. I have only referred in these reasons to exhibit 198.
[88] Ex 198 TB 1558.
[89] Ex 198 TB 1561.
[90] Ex 198 TB 1577.
[91] Ex 198 TB 1578.
The amount of $2,065,990.78, shown in the 2018 financial year statements of APMS as the 'Beneficiary Account' of the Franceschi Trust, can be traced back through the previous financial statements of the Trust.
The first set of financial statements which are in evidence are for the 2013 financial year.[92] Those statements also included the prior year's figures, ie for the 2012 financial year.
[92] Ex 253.
The 2012 financial statements (as per the 2013 financial statements)[93] showed:
1.a profit before tax or distribution of about $211,352;[94]
2.'Beneficiary loans', in the current unsecured financial liabilities, to each of the Franceschi Trust, the Largs Bay Trust and West Pemberton Avocados of about $233,567;[95]
3.in the 'Beneficiaries Profit Distribution Summary', profit distributions of about $211,352 to the Franceschi Trust, the Largs Bay Trust and West Pemberton Avocados each in the amount of about $70,450;[96] and
4.under 'Beneficiaries Profit Distribution Summary', a balance in favour of the Franceschi Trust of about $233,567 (which included its share of the profit distribution and less a physical distribution of $300, both for the 2012 financial year).[97]
[93] Ex 253.
[94] Ex 253 SFSTB 6.
[95] Ex 253 SFSTB 9.
[96] Ex 253 SFSTB 14.
[97] Ex 253 SFSTB 15.
The financial statements for the 2013 financial year showed:
1.a net profit before tax or distribution of about $1,292,675;[98]
2.'Beneficiary loans', in the current unsecured financial liabilities, to the Franceschi Trust (of about $664,459); the Largs Bay Trust (of about $407,978) and West Pemberton Avocados (of about $503,922);[99]
3.under 'Beneficiaries Profit Distribution Summary', profit distributions to each of the Franceschi Trust, the Largs Bay Trust and West Pemberton Avocados, each in the amount of about $430,892;[100] and
4.under 'Beneficiaries Profit Distribution Summary', a balance of about $664,459 to the credit of the Franceschi Trust (which included its share of the profit distribution for the 2013 financial year of about $430,892).[101]
[98] Ex 253 SFSTB 6.
[99] Ex 253 SFSTB 9.
[100] Ex 253 SFSTB 14.
[101] Ex 253 SFSTB 15.
The financial statements for the 2014 financial year showed:
1.a net profit before tax or distribution of about $2,381;[102]
2.'Beneficiary loans', in the current unsecured financial liabilities, to each of the Franceschi Trust, the Largs Bay Trust and West Pemberton Avocados of $300,000;[103]
3.under 'Beneficiaries Profit Distribution Summary', profit distributions (totalling about $2,381) going to the Franceschi Trust, the Largs Bay Trust and West Pemberton Avocados each in the amount of about $794;[104]
4.under 'Beneficiaries Profit Distribution Summary', a balance of $300,000 to the credit of the Franceschi Trust (which included the profit distribution of about $794 and less a physical distribution of about $365,253, both for the 2014 financial year);[105] and
5.again under the 'Beneficiaries Profit Distribution Summary' a total of beneficiary loans of $900,000 and a total of beneficiary funds of $900,000 (both for all Unitholders).[106]
[102] Ex 254 SFSTB 21.
[103] Ex 254 SFSTB 24.
[104] Ex 254 SFSTB 30.
[105] Ex 254 SFSTB 31.
[106] Ex 254 SFSTB 31.
The financial statements for the 2015 financial year showed:
1.a net profit before tax or distribution of about $2,450,146;[107]
2.'Beneficiary loans', in the current unsecured financial liabilities, to the Franceschi Trust (totalling about $912,537); the Largs Bay Trust (of about $922,595); West Pemberton Avocados (of about $984,616) and Fonty's (of about $936,919);[108]
3.under 'Beneficiaries Profit Distribution Summary', profit distributions (totalling about $2,450,146), in the amount of about $612,537 to each of the Franceschi Trust, the Largs Bay Trust, West Pemberton Avocados and Fonty's;[109] and
4.under 'Beneficiaries Profit Distribution Summary', a balance in favour of the Franceschi Trust of about $912,537 (which included its share of the profit distribution for the 2015 financial year of about $612,537).[110]
[107] Ex 255 SFSTB 38.
[108] Ex 255 SFSTB 41.
[109] Ex 255 SFSTB 49.
[110] Ex 255 SFSTB 50.
The financial statements for the 2016 financial year showed:[111]
1.a net profit before tax or distribution of about $3,009,712;[112]
2.'Beneficiary loans', in the current unsecured financial liabilities, to the Franceschi Trust (of about $1,664,965); the Largs Bay Trust (of about $1,675,023); West Pemberton Avocados (of about $1,737,044) and Fonty's (of about $1,689,347);[113]
3.under 'Beneficiaries Profit Distribution Summary', profit distribution (totalling about $3,009,712) going to the Franceschi Trust, the Largs Bay Trust, West Pemberton Avocados and Fonty's each in the amount of about $752,428;[114] and
4.under 'Beneficiaries Profit Distribution Summary', a balance to the credit of about $1,664,465 to the Franceschi Trust (which included its share of the profit distribution for the 2016 financial year of about $752,428).[115]
[111] Although Exhibit 256 was, on its face, the financial statements for the 2016 financial year some parts of the exhibit did not appear to be completed and it appears that some parts of the 2016 financial statements were amended in the preparation of the financial statements for the 2017 financial year. Although I am not sure that it is material (in the sense of its order of significance), I have used the 2017 financial statements to draw the information for the 2016 financial year.
[112] Ex 257 SFSTB 82.
[113] Ex 257 SFSTB 85.
[114] Ex 257 SFSTB 100.
[115] Ex 247 SFSTB 101.
For the 2017 financial year, the financial statements showed:
1.a net profit before tax or distribution of about $200,136;[116]
2.'Beneficiary loans', in the current unsecured financial liabilities, to the Franceschi Trust (of about $1,714,999); the Largs Bay Trust (of about $1,725,057); West Pemberton Avocados (of about $1,787,078) and Fonty's (of about $1,739,381);[117]
3.Under 'Beneficiaries Profit Distribution Summary', profit distributions (totalling about $200,136), to each of the Franceschi Trust, the Largs Bay Trust, West Pemberton Avocados and Fonty's of about $50,034;[118] and
4.under 'Beneficiaries Profit Distribution Summary', a balance of about $1,714,999 to the credit of the Franceschi Trust (which included its share of the profit distribution for the 2017 financial year of about $50,034).[119]
[116] Ex 257 SFSTB 82.
[117] Ex 257 SFSTB 85.
[118] Ex 257 SFSTB 100.
[119] Ex 257 SFSTB 101.
I accept, from this review, KCP's submission that the relevant entries in the Trust's financial statements for the financial years 2013 to 2019 showed:
1.that the 2019 'Beneficiary Account' figure for the Franceschi Trust had been built up cumulatively from profit distributions in each year;[120] and
2.the cumulatively increasing amount was shown as a liability (to KCP) in the balance sheet for each year.[121]
[120] Ex 254 SFSTB 31; Ex 255 SFSTB 50; Ex 256 SFSTB 75; Ex 257 SFSTB 101; Ex 78 SFSTB 128 and Ex 236 SFSTB 156.
[121] Ex 253 SFSTB 9; Ex 254 SFSTB 24; Ex 255 SFSTB 41; Ex 257 SFSTB 85; Ex 78 SFSTB 111 and Ex 236 SFSTB 138. This list excludes the 2016 financial statements because of an apparent error in those statements. In Ex 256 SFSTB 60, the Franceschi Trust balance is shown as $1,617,068.06, including a 2016 profit distribution of $704,531.56 (corresponding with Ex 256 SFSTB 75). The accounts of APMS were then amended in 2017, resulting in a 2016 distribution of $752,428.08 being recorded in the 2017 financial statements as the prior year figure: Ex 257 SFSTB 101. The resulting amended balance of the Franceschi Trust as at 30 June 2016 ($1,664,964.59) is shown as the prior year figure in the 2017 balance sheet: Ex 257 SFSTB 85.
As may be seen, for the financial years 2012 to 2017, the relevant line item in the balance sheet was 'Beneficiary loan: The Franceschi Trust'.[122]
[122] Ex 253 SFSTB 9; Ex 254 SFSTB 24; Ex 255 SFSTB 41; Ex 256 SFSTB 60 and Ex 257 SFSTB 85.
On two occasions there was a debit against the amount standing to the credit of the Franceschi Trust. The 2013 financial statements show that there was a 'Physical distribution' of $300 in the prior year, 2012.[123] The 2014 financial statements show a debit that year of $365,252.73, again with the description 'Physical distribution'.[124]
[123] Ex 253 SFSTB 15.
[124] Ex 254 SFSTB 31.
KCP submitted that it must be inferred that:
1.as there is no document recording any decision of, or direction to, the Trustee with respect to the treatment of the 'separate trust' amounts as loans to the Trust; and, consequentially,
2.APMS as Trustee simply appropriated the separate trust amounts and, in its accounts for the years up to 2017, classified them as loans which were then current liabilities of the Trust.[125]
[125] KCP's outline of written submissions filed 23 August 2024 [77].
Again, as may be seen for the 2018 and 2019 financial years (and then from the 2020 financial years onwards) the relevant item appears as a 'non-current liability' and as 'Beneficiaries' Accounts'.[126] No submissions were directed by either party to the Beneficiaries’ Accounts then appearing as non-current liabilities. As I have said in [127] above, I have only used the financial statements for those two purposes to test the submissions made by the parties.
[126] Ex 78 SFSTB 111 and Ex 236 SFSTB 138.
By no later than the 2018 financial year, the amounts standing to the credit of the beneficiaries was not described in the financial statements as loans.
KCP submitted that the change in reporting usage from the 2018 financial statements represents recognition that the accumulated 'separate trust' amounts were not, and never were, Unitholder loans.[127]
[127] KCP's outline of written submissions dated 23 August 2024 [79].
It is relevant to note again here that there are no documents (outside of the particular, earlier financial statements) to establish that there was a loan between KCP (or any other Unitholder) and the Trustee.
I do not think I need to reach a view as to whether KCP is correct as to the significance it seeks to attach to the change in the reporting in the financial statements.
Rather, from the parties’ submissions, the question is whether the financial statements of APMS evidence at the time that the Payment Sum was paid to KCP that there was a loan owing to KCP.
From the evidential presumption contained in s 1305(1) of the Corporations Act, it does not appear that the Trustee considered that it owed KCP monies by way of a loan at 6 or 10 May 2019.
Leaving that presumption aside, that is what the business records of APMS show where there was no dispute as to the accuracy of the financial statements.
And, it appears that there is no documentation showing that the amounts standing to the credit of any of the beneficiaries over the years (being considered) were the subject of a loan back to the Trustee.
Whether there were affirmative resolutions or determinations made by the Trustee, it seems to me as a matter of irresistible inference that the net income of the Trust was distributed either by operation of cl 9.3(a) or cl 9.3(c) of the Trust Deed. If for no other reason than that the tax considerations which the parties agreed upon[128] were equally applicable prior to the Trustee Redemption Notice as they were after.
[128] As identified in [57] above.
By parity of reasoning which led to the conclusion I reached as to the character of the Distributions Sum in [105] above, the amount of $2,065,990.78 in the 2018 financial year statements of APMS should be treated in the same way and as a sum to which KCP was, at 6 or 10 May 2019, presently entitled to be paid.
Evidence at trial of a loan at May 2019
The Minutes of the Trustee's directors' meeting on 6 May 2019 stated, in part:
… KCP has a unitholder's loan account balance to its credit in the sum of $2,065,990.78 which it was resolved to pay to KCP together with payment for the Redeemed Units.[129] (original emphasis)
[129] Ex 175 TB 1479.
At [219(6)] of the earlier reasons I said that it was not in dispute that at that meeting, 'it was resolved the Trustee would pay KCP its Unitholder loan of $2,065,990.78'.
There were other references by the parties, prior to May 2019, to there being a loan owing to KCP by APMS: see for example the letter sent by KCP's then lawyers in May 2018 where, as quoted in the earlier reasons,[130] [15] of that letter stated:
[15]We note that the financial statements for APMS for the financial year ending 30 June 2017 record that that there are beneficiary loans to each of the four unit holders including KCP. As at 30 June 2017 KCP is owed $1,714,998.55 (KCP Entitlement) representing unpaid accrued income distributions from APMS.
…
[17]With respect to the KCP Entitlement, we note that that amount represents a present entitlement and is therefore due and payable forthwith on demand. Obviously given the size of the amount, it may be difficult for APMS to make a payment at short notice. Accordingly, whilst KCP hereby formally demands the payment of the KCP Entitlement, KCP is prepared to permit the payment to be made on or before 5:00 pm Western Standard Time on 30 May 2018.[131] (original emphasis)
[130] Earlier reasons [70].
[131] Earlier reasons [79].
In the earlier reasons at [23.2] I recorded Mrs Franceschi's unchallenged evidence (which I accepted) that:
APMS had trust profits on which Unitholders had to pay tax, but the profits were not distributed but were credited to Unitholder loans; but the amount the Franceschis (or KCP) was earning (outside of such credits) was not enough for them to meet their respective tax liabilities;[132] …
[132] Witness statement of Mrs Franceschi, Ex 240 [17].
In my view, the matters I have set out under this heading immediately above are somewhat equivocal, at their highest, in support of there being a loan owed to KCP as at 6 or 10 May 2019.
In short, I do not consider that individually or together, they displace the effect of the financial statements for the 2018 financial year to the effect that the money was held by the Trustee to the credit of KCP, and, more significantly, the effect of cl 9.3(a) of the Trust Deed.
In all of those circumstances, I do not consider that a different result should be reached as to the immediate payability of the Distributions Sum from the Payment Sum or the Claimed Present Entitlement, if that question had to be resolved now.
As said, however, I do not consider that is the question to be resolved now. I consider the question is whether equity should now make an order concerning the Payment Sum.
Does equity require a court order now as to the Payment Sum
I consider that equity does not require the Court to make any order in relation to the Payment Sum to do equity between the parties in giving KCP its appropriate remedy.
That is, I think it appropriate for the Payment Sum to be left alone in the formulation of the final orders and that they should deal only with the Redemption and Distributions Sums.
As noted, the pleadings and submissions at the commencement of the trial did not raise (by either side) repayment of the Payment Sum. I have also, above, recorded how the issue was introduced into the trial and how it was dealt with during the trial before KCP, effectively, reverted to its initial position that the Payment Sum should be undisturbed.
And, as I have noted already, APMS at no stage pleaded that it should be repaid the Payment Sum as part of KCP doing equity.
In circumstances where a positive order of the Court is, effectively, sought by APMS (in relation to the Payment Sum) but:
1.it has not pleaded, nor sought to plead, that matter;
2.such an order would be contrary to its own relevant financial statements;
3.if those relevant financial statements are accepted as accurate, then there was no loan owing to KCP and by operation of cl 9.3(a) of the Trust Deed, it would have had a present entitlement in May 2019 to be paid the Payment Sum; and
4.the order sought by the Trustee is against the effect of cl 9.3(a) of the Trust Deed;
I do not consider that an order ought be made touching upon the Payment Sum.
Costs
KCP seeks costs orders in the following terms:
1. Save as set out in order 2 below, the defendant is to pay the plaintiff's costs of the action (including any reserved costs) as agreed or, failing agreement, as taxed.
2. On and from 27 May 2021, the defendant pay the plaintiff's costs of the action on an indemnity basis.
3. Special costs orders are made pursuant to section 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA) that:
(a) the plaintiff's costs of the action be taxed without the limits imposed by the maximum allowances for time, number of legal practitioners and total costs or by the classification of the experience of the fee earner under:
(i) items 1(c) and 4 of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (WA); and
(ii) item 19 of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2022 (WA);
(b) the plaintiff be permitted to claim for time reasonably spent by a legal practitioner on work requiring the skill of a legal practitioner, not covered by any other item, under:
(i) item 35(a) of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2020 (WA); and
(ii) item 35(a) of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2022 (WA); and
(c) any taxation be performed on the basis that an allowance be made for the costs of Senior Counsel and Junior Counsel, including for attendances at the listing conference and the trial.[133]
[133] KCP's chamber summons for costs filed 10 June 2024.
APMS contends that the appropriate order is that it pay 70% of KCP's costs of the action, to be taxed if not agreed.
Following short written submissions, the question of costs was argued on 11 July 2024 (with the first round of submissions as to the final orders which should be made).
The issues then between the parties on costs were:
1.should there be a reduction in the costs awarded to the plaintiff;
2.should any award in favour of the plaintiff be on an indemnity basis from 27 May 2021; and
3.should there be any special costs orders as sought by the plaintiff.
Any reduction in KCP's awarded costs
The parties were broadly agreed as to the principles which should be applied to this aspect of costs. Those principles relevantly were:
1.the general rule is that costs follow the event;
2.there has to be a good reason to depart from that general rule;
3.it is incumbent on APMS as the (generally) unsuccessful party to satisfy the Court that the general rule should be departed from;
4.where a successful party has been unsuccessful on discrete issues, the Court may order only partial recovery if those issues added to the costs in a significant and readily discernible way; and
5.the assessment should be made broadly and as a matter of impression and without any attempt at mathematical precision.
Both parties further agreed that the task of quantifying any reduction should not be left to a taxing officer by reference to individual success on any Issue but should be done by me on an impressionistic basis (i.e. by a percentage reduction across the whole of KCP's costs, if that was thought to be appropriate).
By submissions filed 10 June 2024,[134] APMS identified five issues on which it said KCP was unsuccessful, and which had increased the costs of the proceeding in a readily discernible way. Those issues were:
1. the claim that the engagement of BDO did not comply with the Trust Deed: SOC [35AA(a)]; Issue 3.1 in the earlier reasons ([488] - [497]);
2. the claim that BDO's independence was compromised: SOC [35AA(b)]; particular (e) to [35AB]; Issue 3.2 in the earlier reasons ([498] - [561]);
3. the claim that the meeting of Unitholders was not properly convened: SOC [8(g)], [9], [45]; Issue 4 in the earlier reasons ([562] - [598]);
4.the claim that the instruments of proxy were invalid: SOC [45A], Issue 5 in the earlier reasons ([599] - [602]); and
5.the claim for a declaration that would, among other things, prevent APMS from engaging BDO for any future valuation under the Trust Deed: SOC [63F] and [63G]; Issue 6 in the earlier reasons ([603] - [623]).[135]
[134] APMS's submissions in support of application for apportionment of costs filed 10 June 2024 (APMS's apportionment of costs submissions).
[135] APMS's apportionment of costs submissions [9].
APMS, while accepting that it had been unsuccessful in most of its equitable defences, submitted it had been successful (and KCP unsuccessful) on Issue 13 - the need for KCP to do equity.
Of the other five issues identified by the Trustee, three of them related to KCP's claims concerning BDO. I accept that KCP was unsuccessful in relation to those three (as well as the other two identified).
In response, KCP described the trial itself as being the 'tip of the [costs] iceberg',[136] and submitted that there would have been no reduction in the workload if the three BDO issues had not been run. KCP also submitted that Mr Andrawes (of BDO) would still have been called even if those BDO issues had not been run.
[136] ts 562.
My impressionistic assessment is that KCP's pursuit of the BDO issue/s, put broadly, did lengthen the trial and would have increased the costs of its preparation.
However, against APMS's submissions, I am not persuaded that it is obvious that the Trustee would not have called Mr Andrawes, nor that it would have made a significant difference to the scope of the evidence given by Mr Crockett.
Of the other two non-BDO issues, I do not assess that they added anything significant to the course of the trial, nor its preparation.
I also accept that the issue of KCP doing equity - raised as a defence by the Trustee - was important and necessarily raised by the Trustee. It is difficult to say where the success lies on the question. As may be seen by the first part of these reasons, it has become difficult, in part, because of the evolving way in which KCP has put its case. In the final result, I do not think it can be said that, relevantly, KCP has been wholly unsuccessful on this issue.
Conducting then a broad impressionistic evaluation of the above matters, I consider that KCP should be awarded 85% of its costs.
Indemnity costs
KCP's submissions for indemnity costs relied on an affidavit of one of its solicitors filed 10 June 2024 (Croft affidavit).[137]
[137] Affidavit of George Alexander Croft sworn on 7 June 2024 and filed 10 June 2024.
The foundation of KCP's application for indemnity costs was a Calderbank letter sent by its solicitors on 27 May 2021 (JWS letter).[138] Before going to that letter, some matters should be recited to set the scene.
[138] Croft affidavit, Attach 'GAC-3' at PDF page [18].
There was a private mediation conference on 13 April 2021.[139] That was unsuccessful.
[139] Croft affidavit [27].
By the time of the private mediation, the parties had filed the following pleadings (or taken the following steps):
1.a writ (indorsed with a statement of claim) was filed on 4 December 2019;
2.a defence was filed on 4 February 2020;
3.a reply was filed on 20 February 2020;
4.KCP gave discovery on or about 9 April 2020;
5.APMS gave discovery on or about 9 April 2020;
6.an amended defence was filed on 7 December 2020;
7.an amended statement of claim was filed on 15 January 2021 (by the commencement of the trial the plaintiff had pleaded a fourth further amended statement of claim dated 20 October 2023);
8.a further amended defence was filed on 19 February 2021; and
9.an amended reply was filed on 5 March 2021.
A rough and ready comparison between the amended statement of claim filed on 15 January 2021 and the fourth further amended statement of claim dated 20 October 2023 (which KCP went to trial on) shows that KCP's ultimate allegations as to what became Issues 4, 5 and 6 did not materially change.
That is to say that the vast majority of the matters agitated by KCP at the trial were present in its last statement of claim before the mediation and before its solicitor's letter of 27 May 2021.
On 28 April 2021, APMS's solicitors sent a without prejudice save as to costs letter to KCP's solicitors in which an offer to settle the proceedings was made (HWLE letter).[140] The key aspects, for present purposes, of the offer were that:
1.BDO would, at APMS's cost, be re-engaged to re-visit its April 2019 Report;[141]
2.there would be a process by which KCP (and the other Unitholders) may make submissions to BDO;
3.the process would lead to BDO either affirming or amending its April 2019 Report - that outcome being described in the HWLE letter as the 'Final Report'; and
4.if the valuation of KCP's units in the Final Report exceeded $412,500 then APMS would pay the difference to KCP and vice versa.
[140] Croft affidavit, Attach 'GAC-2' at PDF page [14].
[141] Earlier reasons [187].
The HWLE letter then went on to state:
…
4.The process outlined above essentially augments the process that is prescribed by the Trust Deed, by providing, among other things, the right to receive a response to any submissions in the form of the BDO Letter, the right to respond to the BDO Letter, the entitlement of all Interested Parties to be copied to correspondence, and the specification of prescribed time periods for notification and making submissions. That is, our client has appointed the valuer (being BDO), each Unitholder (and your client) receives notice of their appointment, and the Unitholders (and your client) are entitled to make submissions if they want to.
5.The selection of the valuer is a matter for the Trustee's discretion under the trust deed. Our client exercised that discretion in 2019, and its decision to choose BDO has not been questioned in the Proceeding or otherwise.
6.Moreover, it is also the case that BDO is the only appropriate valuer who can provide a genuine assessment of the value of the Units as at 15 February 2019, by virtue of the very nature of a retrospective valuation. No retrospective valuation can be a true substitute for a contemporaneous valuation, because of the valuer's inherent familiarity and understanding of the contemporary state of the relevant market, which will inevitably wane and be affected by the passage of time. While a valuer conducting a retrospective valuation can review contemporary evidence to gain an approximate understanding of the market conditions as at the date of the valuation, that is no substitute for an analysis that is conducted by an expert at the time of the valuation.
7.For that reason, BDO is uniquely placed to have the benefit of having conducted market analysis at the time of the original valuation, without its understanding of market conditions having been infected by hindsight.
8.The appointment of BDO will also be more efficient and cost-effective than appointing a different valuer, as a different valuer will lack BDO's understanding of the business and assets of the APMS Unit Trust and of the industry. Our client has already paid for two valuations of the Trust Fund for the purposes of redeeming your client's Units (the Nexia Valuation and the BDO Valuation}, and it would be wasteful to incur the costs of briefing another valuer to replicate that work a third time.
…
10.This offer constitutes an offer of compromise pursuant to Order 24A of the Rules of the Supreme Court 1971 (WA), and is made on a 'without prejudice save as to costs' basis as identified in Calderbank v Calderbank [1975] 3 All ER 333.
11.If your client does not accept this offer, our client reserves the right to rely on this letter in any application our client may bring to recover its costs of the Proceeding, including on an indemnity basis.[142]
[142] Croft affidavit, Attach 'GAC-2' at PDF pages [16] - [17].
The offer in the HWLE letter was open for acceptance until 26 May 2021.
There appears to have been no formal response to the HWLE letter before its 'expiry' and, as noted, on 27 May 2021 KCP's solicitors wrote to APMS's solicitors.[143]
[143] Croft affidavit, Attach 'GAC-3' at PDF page [18].
The JWS letter stated that KCP would not agree to Mr Andrawes or BDO being reappointed to perform a valuation of KCP's units and gave some reasons as to why that was so.
The JWS letter then put a counter-offer of compromise; the key points for present purposes are:
1.APMS would propose three independent valuers to undertake a new valuation (which would not include Mr Andrawes or anyone else from BDO);
2.KCP would select one of APMS's proposed candidates;
3.the Trustee and all Unitholders would have the opportunity to make submissions to the new valuer, including responsive submissions;
4.the new valuer would be free to determine the weight to be attributed to any submissions received but must read and consider them;
5.there was a similar proposal (as made by the HWLE letter) for payment if the new valuation was higher or lower than $412,500; and
6.a settlement deed was proposed and attached.
Relevantly, the JWS letter stated that:
…
11.Our client considers the above offer to be eminently reasonable, and to represent a substantial and genuine compromise on its behalf. Our client is prepared to forego its entitlement to distributions from the Trust Fund since May 2019, which it says are owed on the basis that it has remained a Unitholder since the purported redemption of its Units. In addition, after much consideration, it is prepared to not seek to recover the significant legal costs it has incurred in the prosecution of this matter to date, provided that a new and independent valuation is undertaken now. Should our client succeed in having the purported redemption declared to be invalid at trial (which it says it will), these are costs that your client will be liable to pay on a party-party basis (including as a result of not accepting the offer in this letter).
…
13.In the event that your client does not agree to our client's proposed offer, and our client is required to continue to prosecute this matter to trial, our client reserves its right to rely on this correspondence on the question of its costs should it succeed in the Proceedings. Accordingly, this offer is made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 33.[144]
[144] Croft affidavit, Attach 'GAC-3' at PDF pages [20] - [21]. It may be noted that both parties cited the 'principles in Calderbank v Calderbank by reference to the citation of [1975] 3 All ER 33 (emphasis added). It may be that the parties had not had the advantage of, or did not bring to mind, the admonitions of Lee J in Murphy v Nationwide News (No. 2) [2021] FCA 432 [9] - [11] (which curiously has not been reported). As might readily be imagined, nothing turns on this for present purposes.
The offer contained in the JWS letter lapsed, by its terms, on 24 June 2021 without APMS making any response.[145]
[145] Croft affidavit [35].
Although KCP seeks indemnity costs from the date of the JWS letter (of 27 May 2021), in my view, if indemnity costs are to be awarded, then it would be appropriate for them to be ordered from, and including, 25 June 2021 which is the day after the KCP offer lapsed.
The law to be applied to KCP's application is as set down by the Court of Appeal in Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 from the judgment of Buss JA, as he then was. That is:
1.a Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable: [16] and [23];
2.all of the relevant facts and circumstances must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable: [17];
3.the mere fact that the recipient of a Calderbank offer is ultimately worse off than if the offer had been accepted, does not mean that its rejection was unreasonable: [18];
4.whether the rejection is unreasonable involves matters of judgement and impression: [19];
5.ordinarily the following should be considered in deciding whether the rejection was unreasonable: [19]; namely:
(a)the stage of the proceeding at which the offer was received;
(b)the time allowed to the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree's prospects of success, assessed as at the date of the offer;
(e)the clarity with which the terms of the offer were expressed; and
(f)whether the offer foreshadowed an application for … indemnity costs in the event of the offeree rejecting it;
6.KCP, here, bears the onus of satisfying the Court that there should be an award of indemnity costs: [21]; and
7.the concept of unreasonableness is not to be qualified by words such as 'manifestly' or 'plainly': [28] and [30].
Turning to consider the particular matters identified specifically at [19] of Lo Presti:
the stage at which the offer was received:
200.1The proceedings were commenced by KCP on 4 December 2019, and by April and May of 2021 there had been, on both sides, at least one set of (significantly) amended pleadings. As noted above, I have also made a rough and ready comparison between KCP's pleading at the time of the JWS letter with the pleading ultimately taken to trial by KCP.
200.2There had also been a mediation, as noted above.
200.3Significantly to my mind, APMS had already sent the HWLE letter as a Calderbank letter. That is, APMS (presumably on advice) and its solicitors considered that the proceedings had reached a stage where it was appropriate for it (APMS) to make a Calderbank offer with the stated threat of an application for an indemnity costs order.
the time allowed for APMS to consider the offer:
200.4As noted, the JWS letter allowed APMS a month to consider KCP's offer.
the extent of the compromise offered:
200.5In assessing the extent of the compromise offered, I have approached it on the basis that for an offer to be relevantly effective, it must contain a real and genuine offer of compromise, assessed cumulatively: see, eg, Value Constructions Pty Ltd v Badra (No 2) [2024] NSWCA 212 [5], [8].
200.6In my view, there were three significant aspects to the compromise offered by KCP.
200.7The first was that KCP would not (if its offer was accepted) seek to undo the redemption of its units that had purportedly occurred in May 2019. That is, it would not seek to claim any distributions for the 2019, 2020 and (by extension) 2021 financial years.
200.8Secondly, and following from the first, the valuation would be conducted as at May 2019.
200.9Thirdly, KCP would pay half of the cost of the new valuation.
APMS's prospects of success, assessed as at the date of the offer:
200.10APMS did not put any evidence before the Court as to any advice it had received as to its prospects of success in April or May of 2021.
200.11It may be possible to infer that, at the least, APMS considered that its success in the proceedings was not guaranteed by virtue of it sending the JWS letter. However, I do not draw any such inference.
200.12Ultimately, at trial, APMS accepted that it had breached the Trust Deed.[146] Making what I consider to be the relevant assessment that is mandated by this item, it seems that KCP's claim in this respect did not change and, significantly, I consider that APMS was in as good a position to assess its prospects on the core issue in May 2021 as it was when it made its concession in the trial in 2024, including as to its equitable defences.
the clarity with which the offer is expressed:
200.13KCP's offer was put with clarity (as was APMS's) and there could be no confusion (and none was asserted) as to the offer or its operation.
whether the offer foreshadowed an application for indemnity costs:
200.14As noted above, both the JWS and the HWLE letters foreshadowed an application for indemnity costs.
[146] Earlier reasons [433], [440].
More broadly, there was, in my view, very little significant difference between the offers as put in the HWLE and JWS letters. That, in my view, is a significant indicator that the rejection of the offer put by the JWS letter was unreasonable.
KCP proposed that APMS would select the new valuer by it (APMS) nominating three valuers, from which KCP would select one. KCP would be selecting only from APMS nominated valuers.
The result of the new valuation would be, effectively, the same as between the APMS and the KCP offers.
The mechanism by which the new valuation would occur on both offers departed somewhat from that set out in the Trust Deed, but to my mind there was little real difference in what the two offers proposed as to submissions et cetera.
APMS submitted that it was significant that KCP insisted on the new valuer not being BDO or Mr Andrawes.
I do not accept, however, that was enough, in and of itself, to say that APMS's rejection of KCP's offer was not unreasonable.
APMS submitted that it was significant in assessing its rejection of the KCP offer that KCP had ultimately been unsuccessful in preventing BDO from conducting any future valuation of KCP's units.
I dealt with this under Issue 6 in the earlier reasons. While I rejected KCP's claims, the effluxion of time from April 2019 until some time after the earlier reasons buttressed (to some degree) my rejection of KCP's claim in this respect.[147] Such considerations would have had, obviously enough, considerably less weight in April or May of 2021 (than they may have had at the time of the earlier reasons).
[147] Earlier reasons [621] - [623].
In my assessment, the only real significant difference between the offers put in the HWLE and JWS letters was the selection of the valuer. Under the offer put by the JWS letter, APMS could not use Mr Andrawes or BDO. However, it still selected the valuers from which the new valuer would be selected.
The primary reason advanced by APMS for that was set out in the HWLE letter, particularly at [5] and [6] as quoted in [191] above. I do not accept that it was the case (nor that it could reasonably have been contended to be so) that BDO was the 'only appropriate valuer' as put by the Trustee (through the HWLE letter).
I consider, in all of the circumstances, the Trustee's insistence on BDO and Mr Andrawes revisiting the earlier valuation to be unreasonable.
I consider that KCP has been considerably more successful in the result than it would have been if the offer in the JWS letter had been accepted.
That is:
1.KCP is to receive distributions on the basis that it remained a Unitholder from May 2019; and
2.if there is to be a further valuation, it will be at the cost of the Trust.
In all of the circumstances, I consider that APMS's rejection of KCP's offer as put in the JWS letter was unreasonable and KCP should be awarded its costs on an indemnity basis from, and including, 25 June 2021.
For the avoidance of doubt if there is to be an assessment of KCP's costs on an indemnity basis (save as unreasonably incurred, in the usual formulation) then KCP should have 85% of those costs.
Special costs orders sought
As was made plain in oral submissions, KCP only seeks the special costs orders for any period of time not covered by any award of costs on an indemnity basis.[148]
[148] ts 561.
KCP's applications for special costs orders are made pursuant to s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA), which relevantly provides that:
(3)… if a court or judicial officer is of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter, the court or officer may do any or all of the following –
…
(c)remove limits on costs fixed in the determination;
…
It was accepted by the Trustee that it was appropriate for there to be the special costs order sought by KCP at [3(c)] quoted in [169] above. I consider that is an appropriate order to make. I would consider that order to be appropriate also if the indemnity costs order was not made. However, that order is only necessary up to 25 June 2021 because of the indemnity costs order I have made above.
The special costs order sought in [3(a)(i)] quoted in [169] above, to uplift the limit on items 1(c) and 4 of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (WA) related to the SOC and reply.[149]
[149] KCP's written submissions for costs orders filed 10 June 2024 [19].
Mr Croft deposed that the limit under the relevant scale for the preparation of the SOC was $4,950, whereas his review of the invoices show that the actual costs incurred by KCP for giving instructions and the SOC to be drawn were 'at least' $32,654.60.[150]
[150] Croft affidavit [49] - [50].
Mr Croft deposed that the limit under the relevant scale for the preparation of a reply was $4,950 whereas the actual costs incurred by the plaintiff to draw the reply totalled 'at least' $8,106.45.[151]
[151] Croft affidavit [51] - [52].
In short, I consider that it would be appropriate to lift the limit on item 1(c) for the SOC, but not for the reply under item 4.
I consider that the relevant scale for the SOC is inadequate because of the complexity of the matter.
I consider that there was a complexity involved with the factual circumstances in which KCP's claim arose and it was more complex than what might be thought to be ordinary. In those circumstances, I do not consider that the scale item of $4,950 is adequate.
I am not persuaded to the same conclusion in relation to the reply and would not uplift item 4 as sought.
The special order sought in [3(a)(ii)] as quoted in [169] above, to uplift the limit on item 19 of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2022 (WA) was sought for preparation of the case to trial.[152]
[152] KCP's written submissions for costs orders filed 10 June 2024 [20] - [22].
Mr Croft deposed that the limit under the relevant scale for preparation of the case for trial was $65,780, whereas the actual costs incurred by KCP (being work not otherwise covered by any other specific pre‑trial items in the relevant scale) totalled approximately $171,100.[153]
[153] Croft affidavit [53] - [54].
I accept that the relevant scale item is inadequate because of the difficulty and/or complexity of the matter.
In the broad, I accept that the matter was unusual by difficulty and/or complexity (caused by both parties to some degree in the way the matter was approached[154]). However, in my view, it could not be said that KCP by itself, had made the matter more difficult or complex than usual.
[154] By parity of reasoning with the Court of Appeal's consideration in Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [No. 2] [2023] WASCA 108 (S) [20], I do not consider that is a disentitling factor to such an uplift.
For the avoidance of doubt, I would have allowed this uplift if I had not awarded indemnity costs in favour of KCP.
The special costs order sought in [3(b)(i) & (ii)], as quoted in [169] above, to uplift items 35(a) of Table B of the 2020 and 2022 Legal Profession (Supreme and District Courts) (Contentious Business) Determination related to amendments to pleadings[155].
[155] KCP's written submissions for costs orders filed 10 June 2024 [23].
The principal point put by APMS against this application for an uplift was that looking through the amendments most of them were not substantive as much as they were refining nuances and matters of expression. That is, as I understood the submission, the need for the amendments was not obviously because of the unusual difficulty or complexity of the matter.
Mr Croft deposed to there being five iterations of the SOC and that the costs incurred to prepare the five iterations of amendments totalled $58,265.35.[156]
[156] Croft affidavit [60].
Mr Croft deposed to the reply having been amended on six separate occasions and that the actual costs incurred to prepare the six iterations of the reply totalled $34,014.20.[157]
[157] Croft affidavit [65].
Mr Croft deposed to there being no specific item for such amendments under the relevant scales and that if KCP is not able to recover the costs of the five and six iterations respectively to its SOC and reply as sought by the special costs order it will not recover the actual combined cost to it of $92,279.55.[158]
[158] Croft affidavit, Attach 'GAC-5' at PDF page 34.
I would accept that there being no separate item for the amendments to the SOC and reply may be regarded as inadequate in this case.
In all of the circumstances, I am not persuaded that in this case, the complexity or difficulty of the matter required that number, or anything approaching it, of separate amendments to the SOC and the reply. It seems to me too difficult, and not in keeping with the way that such a determination should be approached, to go through each iteration and make a separate call in respect of it.
In all of the circumstances, I would not uplift items 35(a) of Table B of the 2020 and 2022 scales as sought by KCP.
In respect of those items in which I have declined to uplift the scale amount, I note that I have considered the asserted importance of the proceedings to KCP for the purposes of s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA).
I accept the subjective importance to KCP (and to the Trustee) of these proceedings. I would not, however, in any event, lift those scales for the reasons I have given, notwithstanding the importance.
Whether, of course, KCP recovers (outside of the indemnity costs period) all of its costs on the items for which I have allowed a special costs order at a taxation is a matter for the taxing officer.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TM
Associate to Justice Howard
16 OCTOBER 2024
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